The PharmaceuticalSector

DECEMBER 2004

Pharma

A LONG-TERM VALUE OUTLOOK

Futures

Disclaimer

As a multi-stakeholder and collaborative project, the findings, interpretations, and conclusionsexpressed herein may not necessarily reflect the views of all members of the Working Group who tookpart in this project in their personal capacity. The report is intended to be for information purposes onlyand it is not intended as a promotional material in any respect. The material is not intended as an offeror solicitation for the purchase or sale of any financial instrument. The report is not intended to provide,and should not be relied on, for accounting legal or tax advice or investment recommendations. Whilstbased on information believed to be reliable, no guarantee can be given that it is accurate or complete.

Acknowledgements

This report attempts to capture a rich and complex discussion about the evolution of the pharmaceuticalindustry over the next ten years, which took place within the Pharma Futures project. As author of thereport, I take full responsibility for it, including any mistakes. However, neither the report, nor the projectas a whole would have been possible to do without the active engagement and support of many individ-uals.

The report derives from a scenario planning exercise which was undertaken with great skill by SteveWeber, Erik Smith, Andrew Blau and Lynn Carruthers of Global Business Network.

I would like to thank all members of the Working Group and all external experts for their active participa-tion in the project. In many ways, these people are the project. I would also like to thank Cassie Higgsfor logistical and research support throughout the project, Helen Wildsmith for her insight and facilitationof the project, Stewart Adkins for his contributions to the report, Helena Vines-Fiestas for her early sup-port and Lawrence Wilkinson and Jonathan Sallett for their participation and contributions to the secondworkshop. Finally, I would like to thank the funders without whom this project would not have happenedand in particular, the Sponsors, who in seeking answers to the question "what does it mean to be anactive and responsible owner of a whole sector", have given birth to a project and on-going process forwhich there are few precedents.

Sophia TickellDirectorPharma FuturesOxford (UK), 2004

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ContentsAcronyms.........................................................................................................................2

Introduction ....................................................................................................................3

Executive Summary .....................................................................................................4

Scenarios.........................................................................................................................5

Rationale for the Project ...........................................................................................6

Background on Scenarios..........................................................................................9

Introduction to the Project Findings....................................................................10

The Scenarios

Scenario One - The Producers Scenario .......................................................12

Scenario Two - The Patients Scenario...........................................................18

Scenario Three - The Politics & Public Health Scenario.........................24

Afterword by the Sponsors .....................................................................................30

Supporting References .............................................................................................31

Appendix 1 ....................................................................................................................32

Appendix 2 ....................................................................................................................34

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ARV Antiretrovirals

PPAR Agonists Peroxisome Proliferator-Activated Receptors Agonists

BLA Biologics License Application

BRIC Brazil, Russia, India and China

CEO Chief Executive Officer

CVD Cardiovascular Disease

EPS Earnings Per Share

FDA Food and Drug Administration (US)

GDP Gross Domestic Product

HMO Health Management Organisation

IPO Initial Public Offering

IPR Intellectual Property Rights

NCDs Non-communicable Diseases

NCE New Chemical Entity

NGOs Non-Government Organisations

OECD Organisation for Economic Cooperation and Development

R&D Research and Development

TRIPS Trade-Related Aspects of Intellectual Property Rights

WHO World Health Organisation

Acronyms

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This report presents the findings of thePharma Futures scenario planning project.Pharma Futures was convened in early2004 by three pension funds; AlgemeenBurgerlijk Pensioenfonds (ABPNetherlands), the Ohio Public EmployeesRetirement System (OPERS, US) and theUniversities Superannuation Scheme(USS, UK). As long-term owners of phar-maceutical companies, these and otherpension funds have a substantial interestin the continued profitability of a sector thatcreated considerable shareholder value inthe 80s and 90s. At the same time theyrecognise that the industry faces very seri-ous challenges to its business model, notleast growing demands for more innovativemedicines and for more medicines to bemore widely available to people of limitedfinancial means in all markets.

The Sponsors were aware of the limitedutility of the traditional tools available tomanage risk - namely bottom-up stock-picking or underweighting the sector -especially when they took a portfolio wideand absolute risks/returns perspective.Hence they sponsored this project to facili-tate a considered, informed discussionbetween the industry and its owners aboutthe future of a sector that has such a vitalrole to play in the development and manu-facture of innovative therapies, improvingpublic well-being and so contributing toeconomic growth.

At the heart of the project is a desire tobetter align the goals of profitability withsociety's need for improved access toaffordable healthcare, including innovativeand life-enhancing prescription drugs. Anassumption underpinning this project isthat such an alignment is at the heart ofany durable business model for the sector.

Pharma Futures brought together fifteeninformed private sector stakeholders (pen-sion funds, sell and buy-side analysts,pharmaceutical executives fromethical/branded and generic firms) toreview how the sector might develop over

the next ten to fifteen years. Their delibera-tions over a twelve month period wereenriched by interviews with thirty externalexperts and a website discussion forum.The group discussed a range of issues rele-vant to a successful, long-term pharmaceu-tical industry including - innovation, adap-tive leadership, the emerging markets,access to medicines in developing coun-tries, intellectual property protection, mar-keting, information and advertising, pricing,societal expectations, government healthprovision and demographic changes.

The project created an opportunity for par-ticipants to do some long-term thinkingabout the future in a way that is not easy todo in the context of each of their "day jobs".It also allowed them to interact in a collabo-rative and creative way with people whohad very different sorts of expertise aboutthe sector. All participants accepted theproject's starting premise: namely that forindustry and its investors to act successfullyon the challenges facing the sector, someadaptation of the sector's business modelwill be needed.

This report aims to make a constructivecontribution to discussions about the role ofthis vital industry. The Sponsors hope thatin the next phase of the project, this reportwill be used as a working document for con-tinued discussion amongst the many stake-holders of the industry including: pharma-ceutical executives and their consultants,institutional investors, financial analysts,government regulators, purchasers, patientsgroups, doctors, pharmacists, insurancefirms, media and other commentators.

Introduction

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Pharma Futures was set up in response tothe serious challenges facing the pharma-ceutical industry including a wave of patentexpiries; demographic changes; pressuresto reduce health expenditure; corporatepressure to reduce health insurance; callsfor price reductions; challenges to intellec-tual property rights; unmet health needs indeveloping countries; and media and soci-etal anger at corporate priorities andbehaviour. The project addressed thedilemma of how to convince investors ofon-going profitability whilst simultaneouslymeeting growing societal expectations.

Pharma Futures identified a growing imbal-ance between the short-term benefit thatindustry provides to shareholders, and theproductive research that these sharehold-ers and other stakeholders want from theindustry in the long-term. While societalexpectations may be changing, institutionalinvestors and other industry commentatorscontinue to have high expectations ofpharmaceutical profitability that translateinto powerful incentives to the sector tocontinue with its current business model.

Pharma Futures brought together fifteeninformed private sector stakeholders toreview the evolution of the sector over thenext decade. Their deliberations over atwelve month period were enriched byinterviews with thirty external experts and awebsite discussion forum. The project wasable to facilitate creative and problem-solv-ing dialogue between industry practition-ers, long-term investors and their analysts,and those who reflect the views of govern-ment and societal players.

The Group developed three plausible sce-narios about the future of the industry andreviewed the implications of each one forinstitutional investors, pharmaceuticalexecutives and governments. In addition,the Group identified seven key findingsfacing the industry and its investors, find-ings which have relevance across all thescenarios. These are headlined below andfully detailed in the text of this report:

Overall Findings

1. The impacts of emerging markets on theglobal pharmaceutical industry appear tobe significantly underestimated at thepresent time.

2. If new science does not bring innovativetherapies to market quickly the risk ofdownward valuation of the industry andsocietal pressure for change are likely tocontinue.

3. The industry faces a period of transitionthat requires a step change to moreadaptive, flexible and open-minded lead-ership. This leadership needs to signalto investors the need for change.

4. Any major change to the business modelwill require a company to embrace therisks and benefits of being the firstmover. Investors need to create market-based incentives to reward first-moverbehaviour, including reshaping remuner-ation packages to reward desired behav-iour [or] activity.

5. Trust is a key issue for this highly regu-lated sector and is under serious threat.In addition there is an erosion of investorconfidence in the sector's ability to deliv-er durable shareholder value. All stake-holders need to work to re-establish anequilibrium that acknowledges mutualinter-dependence.

6. Market-based solutions are unlikely tosystematically meet the access needs ofpeople in the least developed countriesdue to extremely low per capita healthexpenditure. Overseas aid is likely toremain insufficient to meet the need andpressure for access to affordable medi-cines can be expected to persist. It willbe important that relationships with keysstakeholders are well managed.

7. The growth of the patient-consumerlobby is a growing trend that offers long-term benefits in terms of patient empow-erment and marketing advantages onone hand, and awareness of therapeuticrisks and benefits and calls for increasedtransparency on the other.

Executive Summary

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ScenariosScenario One: The ProducersScenario

The absence of new drugs continues tocause mounting cost pressures.Efficiencies are sought in marketing, man-ufacturing and research. Former employ-ees return to the emerging markets ofIndia and China which see a growing con-centration of manufacturing and marketingexpertise, increased patient demand andgovernment support for research initia-tives. Investors see the potential for mak-ing money on volume. Western pharma-ceutical companies are challenged todeepen existing relationships with emerg-ing country firms. Southern governmentsbecome more powerful and successfullyinsist on technology transfer arrangementsand favourable interpretation of IPR agree-ments. All these changes result in morecompetition and increased accountability inthe global pharmaceuticals market.

Scenario Two: The PatientsScenario

The genotyping of disease propensityadvances, but there are no commensuratedrug breakthroughs. Individuals assumegreater responsibility for their health.Health spending shifts away from drugsand towards diagnosis/prognosis and earlytreatment intervention. Pharmaceuticalcompanies seek non-conventional sourcesof medicine, opportunities in emergingmarkets, herbals, and revisit the existinglibrary for novel indications. Investors sig-nal a willingness to accept greater risks inexchange for potential rewards. Patientgroups form an effective, educated lobbywith greater awareness of the risks andbenefits of therapies and successfully callfor increased transparency in clinical trialsand post marketing surveillance

Scenario Three: The Politics &Public Health Scenario

A global flu outbreak causes public outrageabout the lack of investment into new antibi-otics and vaccines. Governments assume amore active role in directing R&D prioritiesfirst for acute and then for chronic diseases.Over time elements of a Social BusinessCompact become clear, including govern-ment commitment to expand access;sophisticated purchasers who negotiateprice on value-for-money calculations; high-er rewards for innovation in exchange formore secure IPR agreements; patientagreement to a healthy living package aspart of insurance and pension plans; phar-maceutical company agreement to lessaggressive pricing in exchange for volumesand reward for true innovation.

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Rationale for the ProjectPharma Futures was set up in response tothe serious challenges facing the pharma-ceutical industry and, in particular, thedilemma of needing to convince investorsof on-going profitability whilst simultane-ously meeting growing societal expecta-tions that at least some medicines shouldbe widely available to people on limitedincomes in all markets. These challengesinclude a wave of patent expiries withoutcommensurate compensating new drugapprovals (See charts 1 and 2);

The project is based on an understandingthat existing market structures do not cur-rently provide the right incentives and disin-centives for pharmaceutical companies toplace adequate priority on meeting a widerange of societal expectations (includingresponsible marketing, affordable pricing,ethical scientific practices, etc). At the sametime institutional investors and perhapsmore importantly, sell-side analysts, contin-ue to have high expectations of pharmaceu-tical profitability. These expectations trans-late into powerful mechanisms to reward orpenalise management and thus help to pro-vide incentives to the sector to continuewith its current business model.

There is therefore a growing imbalancebetween the short-term benefit that industry

demographic changes (see chart 3); pres-sure on government to reduce healthexpenditure; corporate pressure to reducehealth insurance costs; calls for pricereductions, challenges to intellectual prop-erty rights; unmet health needs in emerging

BLA = Biologics License ApplicationNCE = New Chemical Entity

Source: FDA

Chart 3: Age-Dependency Ratios forSelected Countries 2000-2050

Source: United Nations, Population Division, World PopulationProspects (The 2000 Revision).

Note: China's pattern is unusual because of the country's birthpolicy. The other four countries represent in broad terms thepatterns evolving in the other countries of the world. Pakistanrepresents the least developed countries. Mexico represents aset of countries in middle stages of development where fertilityrates have dropped significantly over the past couple ofdecades. The United States represents a set of developedcountries where fertility rates have not totally caved and wherethere is some immigration--e.g., Australia, Canada, the UnitedKingdom and France to lesser degrees. Italy represents a setof developed countries where there is not much immigrationand where fertility rates are around or below 1.35.

Chart 2: FDA New Drug Approvals

Chart 1: Annual Sales of US BrandsFacing Potential Generic Competition

Source: US Orange Book; Lehman Brothers estimates

markets and poor countries; and media andsocietal anger at corporate priorities andbehaviour.

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provides to shareholders, and the produc-tive research that these shareholders andother stakeholders want from the industryin the long-term. The result is serious ten-sion for the industry in mature markets.This is exemplified by a range of public ini-tiatives. The Maine Rx legislation in the USmandates the same price discount to unin-sured individuals as the largest State pur-chaser of medicines is able to obtain. Inparallel, a growing number of states arepermitting re-importation of less expensivedrugs from Canada despite the fact thatthis practice is presently against federallaw. Price or reimbursement controls con-tinue to operate in Europe and Japan whilesimilar cost control disciplines are creepinginto many US states. Also in the US, pri-vate responses are increasingly visible andinclude concerted effort by large employersand consortia of such organisations (e.g.Business for Affordable Medicines) to capmedicine prices. The recently approved USMedicare drug bill is unlikely to solve thepricing problem. Indeed, some argue itmay even make the situation worse, as itoffers limited drug coverage, and makes itprobable that employers who currently payfor retiree drug coverage will cease to doso. Furthermore, it transfers a growing pro-portion of the US drugs bill to the govern-ment, making price regulation much morelikely.

The industry faces internal pressures aswell. Innovation faces high failure rates,there is a decreasing scope for obtaininghigh prices for "me-too" drugs in the faceof wider choice from a rapidly growing listof generic alternatives and there are morepressures from regulators leading to moretrials and larger patient groups for those tri-als.

Marketing is under scrutiny for reasonsranging from ethics, legality, reputation anddiminishing returns from the traditional"share of voice" marketing strategies. Inmanufacturing, regulatory requirements areproving difficult to keep up with and com-panies are being challenged on efficiency

In emerging or developing country markets,there has been a high-profile debate aboutaccess to ARV treatment for HIV/AIDS. Thisdebate can only intensify as the macro-eco-nomic effects of this illness are betterunderstood. And as the incidence of othercommunicable and non-communicable dis-eases increases, the debate will involvemore companies and become more com-plex. The situation is likely to be exacerbat-ed by the increase in chronic diseases suchas diabetes, cardiovascular disease andhypertension, though the emotiveness ofthe AIDS debate may be absent. Manyrecent therapies for the treatment of thesediseases are still under patent and in leastdeveloped countries and emerging marketsare therefore likely to be unaffordable forthe majority of the population. Unlike manyof those with HIV/AIDS, some of the new"health poor" - particularly those sufferingfrom chronic diseases - will be articulateand empowered middle classes in countrieswith growing political influence, e.g. Brazil,Russia, India and China (BRICs). Poorinfrastructure and lack of delivery mecha-nisms in poor countries will continue to be aserious problem.

Chart 4: Relative R&D v. MarketingExpenditure

Source: ABN:AMRO

n.b. A proportion of R&D expenditure (possibly between 5-10%) could be phase IV studies which could be classified asSales and Marketing

grounds. There is also growing concernabout the sector's political (and thereforeregulatory) influence as a result of its sub-stantial and partisan approach to politicaldonations.

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Pharmaceutical companies cannot andshould not be expected to provide thesolution to chronic under-investment inhealthcare resulting from poverty or gov-ernmental neglect. Yet, due to popular con-cern about globalisation, the nature ofglobal communications and high levels ofprofitability, the sector will inevitably bedrawn into the firing line with other stake-holders as the market's failure to meetexpressed health needs in poor countriesbecomes apparent. The sector's involve-ment, directly or via trade representativesof sympathetic governments, in the debateabout generics and patents further exacer-bates these risks since it tends to positionthe sector with some audiences as neitherinterested in solving the problem or instepping aside and letting public policymakers and others get on with the chal-lenge. The outcome of these pressures islikely to place unsustainable pressure onan industry that created considerableshareholder value for investors in the 80sand 90s.

The sector has responded assertively tothese challenges in the expectation thatinnovation will be delivered and that thiswill remove the threats. This holding strat-egy has worked more or less but it isunclear how long it will continue to do soand what the long-term cost in terms ofreputation and ability to adapt will be.

Pharma Futures was created to facilitate anew kind of dialogue where the emphasisis on creative and problem-solving engage-ment by industry practitioners, long-terminvestors and their analysts, and thosewho reflect the views of government andsocietal players. A solution which excludesany one of these groups is unlikely to leadto a satisfactory resolution to the majorproblems facing the industry.

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Pharma Futures chose to use scenarios asthe tool to identify existing trends which,moving on their current course or departingsignificantly from them, will change theshape of the global pharmaceutical indus-try between now and 2015.

In recent years strategic planning hasundergone a shift from the use of single-point forecasts toward the use of alterna-tive scenarios. In the decade after WorldWar II the global economy grew in a fairlyorderly and reliable way. Plans could bemade using extrapolations from the pastand present. Since the 1960s, however,the global environment has been more tur-bulent. From the oil shocks of the '70s,through the demise of communism in the'80s, to the deregulation and privatizationof many industries in the '90s, to the rise ofglobal terrorism at the turn of the millenni-um, the future has become progressivelyless predictable. The methodology knownas scenario planning grew in response tothese circumstances, and continues togrow in use. Alternative scenarios providea way of focusing on the future withoutlocking in on any one forecast or"assumed official future" - both of whichare likely to be wrong.

Scenarios are alternative environments inwhich today's decisions may be playedout. They are not predictions; nor are theystrategies. Instead they are descriptions ofdifferent possible futures designed to high-light the risks and opportunities inherent ineach one.

To be an effective planning tool, scenariosshould be written in the form of absorbing,convincing stories that describe a broadrange of alternative futures relevant to anorganisation's or industry's success.Thoughtfully constructed, believable plotshelp decision-makers to become engagedin the scenarios. Through the implicationsof each unfolding story, stakeholders deep-en and cast in new light their understand-ing of the system under analysis, and thuswhat they and their organisation need to

do in order to manage change.

Scenarios do not claim to be predictions. Asa result, they can help overcome anxietyabout the lack of hard data regarding thefuture. The point is not to gather evidencefor some induction about a most probablefuture. The point is rather to explore andunderstand more deeply a number of differ-ent possibilities in order to make better rea-soned choices among them.

Background on Scenarios

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The following scenarios tell three plausiblestories about how the pharmaceuticalindustry might evolve over the next tenyears. The stories are not intended to pre-dict the future. Rather they are designed topermit the person telling the story and anysubsequent reader, to consider a numberof different possibilities in order to makereasoned and informed choices aboutfuture actions.

The stories are, nevertheless, built onexisting trends, which will be responsible -at least in part - for changes to the globalpharmaceutical industry between now and2015. For this reason, Pharma Futures hasoutlined possible implications of each sce-nario for three key stakeholders in theindustry: institutional investors, pharma-ceutical executives and governments.Through engagement with the set of futurestories, the Pharma Futures WorkingGroup also identified implications that arerobust across all three scenarios.

The Pharma Futures process began with aclose examination of a status quo sort offuture, one in which the industry managesto "muddle through" tomorrow much as ithas today and yesterday. It looked at arange of things that would have to happen,simultaneously, to permit the current busi-ness model to continue to operate as itcurrently does. If looked at individually, it iseasy enough to see these trends continu-ing into the future. However, if consideredas a group - along with the assumptionsunderlying each one - this "muddlingthrough" future collapsed under its ownimplausibility.

First there would need to be more consoli-dation to deal with issues of pipeline pro-ductivity and revenue pressures. Second,and in spite of accelerating healthcarecosts and downward pressure on theirbudgets, governments would have to beprepared to accept increases in the costsof prescription drugs. Third, more effectivemarketing would have to provide a coun-terweight to pricing pressures. Fourth,

there would need to be a growth in theavailability of and demand for new therapiesfor chronic and degenerative diseases.Fifth, the introduction of pharmacoge-nomics, and more highly personalised treat-ments would need to open up additionaldisease states to more efficacious (butexpensive) treatment. Sixth, developingcountry demand for access would need tobe managed with just enough incrementalconcessions to keep at bay reference pric-ing pressures, IP challenges, and othermajor disruptions to current business prac-tices. And finally, seventh, the expansion ofbiotechnology resulting in new hybrid prod-ucts and companies, would need to expandthe market overall. While some mix of theseeventualities are highly likely, the WorkingGroup did not find it plausible that theywould all happen simultaneously, nor eventhat all would happen.

In addition to the scenarios and a discus-sion of their implications, the WorkingGroup identified the following cross-cuttingthemes and trends relevant to all the sce-narios and indeed, any likely future:

1. The impacts of emerging markets on theglobal pharmaceutical industry appear tobe significantly underestimated at thepresent time. These impacts may takemany forms. They may offer larger mar-kets than is assumed to be the case;they may generate unexpected modelsof innovation which could be turnedeither into an advantage or disadvantagefor traditional pharmaceutical compa-nies; and they have the potential to dis-rupt current trade agreements (see 6below).

2. The speed and scope of new science inbringing innovative therapies to marketwill be critical in determining the fortunesof the industry. In the absence of newdrugs, the risk of downward valuation ofindustry is likely to continue and societalpressure for change likely to increase.

Introduction to the Project Findings

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3. The industry faces a period of transitionthat requires a step change to moreadaptive, flexible and open-mindedleadership. This leadership needs tosignal to investors the need for change.Some of the industry winners of thenext decade may not yet be on theradar screen and investors need to findnew ways to identify these new win-ners.

4. Any major change to the businessmodel will require a company toembrace the risks and benefits of beingthe first mover. At present, financialmarkets are more likely to punish ratherthan reward adaptive first mover behav-iour. Informed by thought-leaders fromwithin the sector, investors need todevelop their own understanding ofwhat constitutes adaptive leadershipand create market-based incentivesthat reward this behaviour.

5. Trust is a key issue for this highly regu-lated sector and is under serious threat.The lack of trust between many of thestakeholder groups and the industrycould lead to balance of power shifts,including in the US from producer togovernment, impacting industry marginsand returns. In addition there is an ero-sion of investor confidence in the sec-tor's ability to deliver durable sharehold-er value. As society needs a thrivingpharmaceutical industry, all stakehold-ers need to work to re-establish anequilibrium that acknowledges theirinter-dependence.

6. Market-based solutions are unlikely tosystematically meet the access needsof people in the least developed coun-tries due to extremely low per capitahealth expenditure. Continued commit-ment to overseas development aid istherefore likely to be necessary. Since itseems plausible that aid fromOrganisation of Economic Cooperationand Development (OECD) countries willremain insufficient to meet the need,

increasing pressure for access to afford-able medicines can be expected to per-sist and will inevitably impact on the sec-tor and its shareholders. It will be impor-tant that relationships with key stake-holders are well managed.

7. The growth of the patient-consumerlobby is a discernible trend that is likelyto become more pronounced. The likelyincrease in patient co-pays in all mar-kets, combined with more patient infor-mation will further contribute to thetransformation of patients into more criti-cal consumers. While this offers long-term benefits in terms of patient empow-erment and marketing advantages, it isalso likely to lead to greater awarenessof the risks and benefits of therapies,including an increased understanding ofpossible harmful side-effects, a greaterdemand for value for money, and callsfor increased transparency on clinical tri-als and post marketing surveillance.

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Offices of Global Pharma in Cairo, Egypt,2015

Dr Evi Redie leans back and rubs hiseyes, heavy with exhaustion. The reportis finished. He still finds his colleagues'ignorance about his country difficult attimes, but now at least - and at last -something is being done about it. Tenyears ago concerns about access andpricing in countries like Egypt were stilla marginal issue. Now they are fullyintegrated into the core business. Itwasn't altruism that had brought aboutthe change, so much as the agility andaggressive tactics of businesses fromacross the developing world. He could-n't help feeling the tinge of pride at howthe speed of change had left even peo-ple in his beloved pharma employer at aloss …

The Early Years: 2004-2007

The troubles of the pharmaceutical majorscontinued for the better part of the 2000s.Scientific advances stubbornly failed todeliver beyond phase III trials and accusa-tions of price gouging continued. Corporateprofits and stock valuations were volatile,but the overall trend was down. The first ofthe much anticipated wave of patentexpiries on the successful breakthroughsof the late 1980s and early 1990s led toprice hikes on the remaining patenteddrugs. And in turn, this only served toincrease public condemnation of the indus-try. In the absence of new drugs, costpressures mounted, proving to be toogreat for some of the medium-sized firms.Employees were laid-off everywhere andsome companies went to the auction block.Industry consolidation continued, diminish-ing the number of pharmaceutical giants.

These events had an interesting impact onmarketing. Companies continued to fight toobtain premium prices on patented block-busters, but the reduced number of thesein the portfolio did have the effect of decel-

erating the marketing arms race that hadbeen building for years. The returns oninvestment that had been justifiable on abroad portfolio began to look irresponsiblewhen the ratio of sales and marketing toresearch rose to 3:1. The point of diminish-ing returns had long since been passed andearnings could only be maintained by cut-ting marketing costs. Because they were allin the same position, when one firm movedothers were obliged to follow. Efficiencieswere sought everywhere, in marketing,manufacturing and even amongst scientificstaff.

The most significant cost cutting exercisewas the shift to more manufacturing indeveloping countries with established phar-maceutical expertise - in particular Indiaand Singapore. For long-term investmentslike pharmaceuticals, fixed assets weremuch cheaper - even considering sunkcosts. Savings were made on materials andlabour - for both scientific and unskilledstaff. Development costs, including clinicaltrials were also lower, in turn leading tolower regulatory costs - a fact that was tohave significant implications later. One com-pany, suddenly waking up to the growth inthe number of Hispanic people in the UnitedStates, began undertaking extensive (andmuch cheaper) clinical trials in Mexico.

The other direct impact of cost cutting in theUS and Europe, was to encourage a signifi-cant number of well trained scientists toreturn home. Many had come for educationin the developed world, and stayed on towork. As companies laid them off the pull ofreal opportunities in their home countriesproved irresistible. America's ever-tightervisa restrictions under its war on terrormade the US a much less attractive placeanyway and there was little prospect ofreversal as the Department of HomelandSecurity had concluded that no new majorattacks meant the strategy was working.Those returning to China most found it easi-est to get jobs. In the highly competitivepharmaceuticals market, their experience inOECD countries was viewed as a distinct

"PRODUCERS" Scenario

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advantage. Others went into teaching. Afew began to create their own companies,spurred by knowledge that their govern-ments would provide strong support fornew initiatives.

By 2007 the debate over stem cellresearch in America ended - and the scien-tists lost. Although this was just one impor-tant research direction among many theUS government's dogged stance againststem-cell research drove much scientificR&D out of the country. The scientistswanted it, the bio-pharma companiesneeded it, and other parts of the world hadno problem using human embryo materialto push towards the next big health break-throughs.

Meanwhile, all over the developed worldthe cost of healthcare - current andimpending-spiralled and added to theincentives to cut costs. In Europe thedebates focused on public health systemsand the aging of the population, where thedependency ratio of retirees to workersgrew ever-more alarming. In the US thepolitical fight was about the ballooning gov-ernment deficit and prescription drug cov-erage. Analysts in both places pointed tothe costs associated with clinical trials andproduction and monitoring of use as anoose around the industry's neck. The situ-ation was exacerbated by Europe's deci-sion to impose new regulations on Cox-2inhibitors and continued pressure for long-term studies on all chronic use drugs andmuch greater use of trials against bestavailable current medication. Even thoughvarious government spokespeople talkedabout the importance of retaining R&Dcapacity within existing national borders-typically for reasons of security-the eco-nomic realities spoke louder.

The Middle Years: 2007-2011

The wave of patent expiries peaked.Coupled with successful cost reductions,the increase in generic competition brought

some relief to the pharmaceutical sector, atleast in terms of public perception. Earningscontinued to be under pressure but tougherquestions about new products and deeperconcerns about the R&D pipeline remained.

The success of the Beijing SummerOlympics highlighted the arrival of China asa mass market, and it became clear that thecountry would be a major magnet forgrowth, particularly in healthcare. Hugenumbers of construction workers hadpoured into Beijing to build the vast stadi-ums for the Games. The large numbers ofmigrant labourers on the move woke theChinese government to the increasing rateof HIV infection among the urban popula-tion. In a politically influential move, theChinese follow-on to the Commission onMacro-Economics and Health was a reporton the impact of diabetes and HIV/AIDS onChina's economic productivity. Estimates ofthe previous market valuation of the coun-try's economy at US$2-3 trillion by 2014were significantly reduced. Until the reportwas launched the Chinese government hadassumed that the country's demographics -an urban population comprised of relativelywealthy and relatively young people - justi-fied the policy of limited State healthcareprovision. Once the report was launchedand at a time of mass redundancy of Stateemployees with no access to private healthinsurance, it decided to focus more stronglyon drug access.

Prospects for business looked promising.China's spectacular entry into the globaleconomy had been accompanied byincreased expectations of healthcareaccess, particularly among the country'sgrowing urban population that had nowreached 450m people. The scientists, doc-tors and workers who had returned fromabroad increased these demands. And theywere uniquely placed to understand thedomestic market, which was largely con-centrated in China's hospitals. Hospitaladministrators, the main purchasers ofmedicines, kept their organisations solventby charging a 50% margin on the drugs

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they prescribed. Those scientists andsalespeople who had got jobs in bothwestern pharmaceuticals and genericsfirms were well placed to support theexpansion of the money-making premiumgenerics market.

In fact, the Chinese market was just themost powerful example of the extraordi-nary growth in demand for drugs in middleincome developing countries. The largeWestern pharmaceutical companies didunderstand the opportunities here. Buttheir hesitancy in developing the mostappropriate drugs and pricing models forthese settings left most of them on theback foot. Meanwhile, emerging marketpharmaceutical production and manufac-turing capacity had grown. And not just fordomestic production. A production agree-ment on anti-retrovirals between Brazil,China, India, South Africa and Nigeria, fol-lowing the Bangkok AIDS meeting in 2004was extended to other therapies for otherdiseases.

Developing country governments actedaggressively to promote these develop-ments. Some opened tax-free pharmaceu-tical production zones, in which taxes werereplaced by payment-in-kind of medicinesproduced there. Others opened tax-freeclinical trial zones. China not only enforcedthe technology transfer provision in theTrade-Related Aspects of IntellectualProperty (TRIPS) agreement, but alsoschooled others on how to do the same.When a Brazilian-Indian consortiumapplied for a US patent in 2011 on a newanti-retroviral compound, observers startedusing the phrase "innovative clusters" todescribe what was happening outside ofWestern pharmaceutical companies. Thepromise of fundamental breakthrough sci-ence remained mostly in the West, but italso remained mostly a promise at thatpoint.

The term "innovation" gradually changed.Over time it came to be talked about assomething much more incremental,

focused on the distinct needs of particularuser populations and markets. For example,an Indian company was recognized as theworld class leader in the integration of com-binations of generic drugs with device-based delivery and monitoring systems,while a Chinese company led the way in"appropriate technology"-based patientcompliance systems. Although they differedin terms of funding structure, governmentrole, IPR arrangements, and regional geo-graphic focus, they all shared one thing.They were starting to make real money atwhat used to be called "the bottom of thepyramid" - or at least part of the way down.

Important philanthropic initiatives continuedto meet the needs of some of the world'spoorest people. Foundation funding sup-ported a network of Brazilian entrepreneurs,Chinese biochemists and Indian manufac-turers focusing on HIV/AIDS drugs. Workon malaria vaccines continued on the backof a guaranteed purchasing agreement of aconsortium of developing country govern-ments. The Indian Prime Minister launchedan effort in 2010 that brought together west-ern pharmaceutical companies, Indiangenerics firms and the fast-moving con-sumer goods industry in a public-privatemanufacturing and distribution agreement.Despite these efforts, there were large num-bers of people, particularly in Sub-SaharanAfrica, who still did not present sufficientopportunity for the commercial sector to findattractive and whose needs remained large-ly unmet.

The End Years: 2011-2015

It was clear by 2014 that what had startedas a cost-saving arrangement, led and con-trolled by leading pharmaceutical compa-nies in the developed world, had radicallychanged the industry. Local talent, innova-tive financing and a deep understanding ofdeveloping country markets had created anew business model that was both powerfuland profitable. It worked well for the emer-gent firms in developing countries and

15

those developed country pharmaceuticalmajors who had the foresight and willing-ness to partner successfully with the newconsortia.

But for these majors it was a hard balanceto maintain. The scientific breakthroughsthey needed to fast-forward into the nextphase of global market leadership keptreceding into the future. And in theirabsence, each year, the negotiated dealsbecame just a little bit more favourable tothe erst-while junior partners. By 2015 thebalance of power in some of these rela-tionships was really tilting toward the newdeveloping country consortia, and industryobservers in the West were telling caution-ary tales about what had happened to con-sumer electronics in the 1980s.

The big difference between consumer elec-tronics and pharmaceuticals was ofcourse, the high degree of governmentintervention in the pharmaceutical market,governed by strong regulation and now bystringent international trade agreements.The growing market power of these suc-cessful consortia and the demand from theexpanding developing country middleclasses for high-end treatments, led almostinevitably to a revisiting of the TRIPSagreement. The IT industry, faced withproblems of its own, no longer felt that thiswas the best means of defending itselffrom global piracy and was concentratingits efforts on costly litigation and adaptivemeans of offering services. Western phar-maceutical firms found themselves increas-ingly as the sole defender of TRIPS in aWorld Trade Organisation, which itself hadmade huge adjustments since the earlydays when it had disproportionately reflect-ed the interests of wealthy countries. Afterdeveloping country governments formed anew "G-77" style group to lead a majorpushback at the WTO, the second DohaDeclaration was born. Facilitated by somehigh-level regulatory harmonization, DohaII was not an out and out re-writing of theagreement. However, and largely inresponse to China's stated desire to con-

solidate its own pharmaceutical industry, thenew flexibilities amounted to the samething. The declaration permitted enoughflexibility to continue the wave of innovationalready under way and confirmed new tech-nology transfer requirements. It did, howev-er, retain protection for Western pharma-ceutical companies past investments-andsuccesses.

All of this set the stage for a much moretruly globalised pharmaceutical industry,able to meet the needs of patients in manymore markets. As such it began to emergeas the harbinger of the next phase of glob-alization, effectively replacing IT in that role.People were now excited about the poten-tial for new and more widely distributedR&D centres, and financial analysts won-dered which industry would reap theseinnovation rewards next. The best andbrightest of the next generation, particularlyin the BRIC countries, aimed to go into bio-chemistry and pharmacogenomics. Healthis ultimately more important and valuedthan information technology ever was, andalso more personal.

This also improved the global public view ofwhat globalization is about. Fifteen yearsearlier, Thomas Friedman's book, TheLexus and the Olive Tree had focused onthe benefits of globalisation for the distribu-tion of goods and services. This next phaseof globalization became about the health ofyour parents. Of course none of this wouldtotally remove the public's suspicion of theglobal pharmaceutical industry or the reali-sation that there were certain people andcountries whose needs were still not met.The regulatory and public policy environ-ment would continue to be tense, requiringcompanies to demonstrate efficiency, valuefor money and honesty. What had becomeclear, though, was that more players inmore markets, meeting the needs of morepatients was creating healthy competition.And as such, it brought with it checks andbalances that increased accountability in amanner that the majority of key stakehold-ers were satisfied with.

16

Dr. Evi Redie shuts down the computer.The long hours were still a sign of hispersonal commitment to his work, butwho would have thought that success-fully brokering the relationshipsbetween pharma companies fromacross the world would elevate him toVice-President? Still, there was plentymore work to do tomorrow, and plentymore for days to come.

Implications of ScenarioOne: The ProducersScenario

Possible Implications forInstitutional Investors

1. Investors accept that the traditionalpharmaceutical industry will continue tounder-perform as investments duringthe transition phase but also increasetheir efforts to identify new opportunitiesand products. Non-traditional sourcesof innovation become a new target forinvestment.

2. All links in the investment chain(trustees, asset allocation advisers,fund managers and sell side analysts)place progressively greater emphasison understanding the economics andlogistics of commodity generic marketsacross different geographies and theability of the pharmaceutical majors topartner effectively with emerging marketproducers.

3. Investors actively provide incentives topharmaceutical executives to make asmooth transition by re-structuringremuneration packages to focus less onmaintaining EPS growth per se butrather on R& D productivity and appro-priate partnerships. Investors alsoengage proactively with compan boardson CEO succession planning to ensuresenior management is "fit for purpose"given this new environment.

4. Given that the Pharmaceutical Industryis reflective of wider economic anddemographic changes, there is a changein the pattern of graduate hiring, withinvestors looking for graduates and for-mer corporate managers with Chineseand Indian ethnic roots and linguisticskills.

Possible Implications forPharmaceutical Companies

1. Pharmaceutical executives activelyencourage a change in investor percep-tions about which markets are importantas they begin to see greater patientaccess to affordable medicines as amarket opportunity, rather than a threat.They then progressively adapt businessmodels to realise this opportunity.

2. A new attitude to the trade-off betweenproduct volume and access means thattrust in industry is re-established andinnovative new drugs are able to com-mand high prices commensurate withinvestment.

3. There is a significant expansion of corecompetences for top managementincluding: l The ability to partner with range of

companies and governments to man-age expansion into emerging markets,e.g. China. A major determinant ofdesired joint-venture partners is mar-keting expertise relevant to local situa-tions.

l The ability to successfully stratifyemerging markets by purchasingpower.

l Aggressive cost-management withregard to marketing.

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Possible Implications forGovernments

1. There is a progressive widening of reg-ulatory influence from the Food andDrug Administration (FDA) to a tightlylinked network of authorities.

2. OECD Governments consciously framethe public debate as a dynamic tensionbetween the need for cheaper health-care and the economic benefits derivedfrom a strong domestic pharmaceuticalindustry.

3. Governments effectively re-negotiateglobal IPR agreements as a result ofpressure from China and other genericproducer/consumer nations.

4. Availability of cheaper generic therapiescreates headroom for spending toreward innovation and value-added,and on expensive therapies. This putspressure on all Governments to deliveron health, rather than reinvest the sav-ings elsewhere. This has implicationsfor health expenditure in overall budg-ets.

5. Emerging market Governments,encouraged by the early successes ofthese sectors, increase their support forthe pharmaceutical sector in producermarkets.

6. OECD Governments come under pres-sure from pharmaceutical companiesand non-governmental organisations(NGOs) to increase overseas aid budg-ets as the potential for access increas-es. Companies argue for some tying ofaid to the products of those firms domi-ciled in donor countries.

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Madison, Wisconsin, USA, 2015

Felicity is interrupted by the arrival ofan email. Glancing up she sees it's fromMalini. It must be late in Delhi, shemuses. The note is full of news aboutthe Indian Diabetics Group that is prov-ing so successful. Malini is proving aninspirational leader, spurred to the workby the death of her mother from dia-betes-related cardiovascular problems.The group has recently had a majorsuccess in making new insulin deviceswidely affordable. Felicity thinks backover the ten years since her own dia-betes was diagnosed. At that time shehad been obese and mildly depressed.So much had changed since then…

The Early Years: 2004-2007

In 2005 in the world of medicine a glimmerof light shone at the end of the tunnel.After an annus horribilis in 2004, whichsaw several high profile product failuresincluding the loss of confidence in the Cox-2 inhibitors, the sector began to showsigns of life. The pharmaceutical majors, atlast, saw a year of tremendous advancesin new knowledge of human pathophysiol-ogy. The first few pieces of the human dis-ease puzzle seemed to click into place anda trickle grew into a veritable explosion ofnew information and understanding of peo-ple's morbidity and mortality. The mediaran constant stories about new break-throughs in cell biology. For wealthy baby-boomers, watching with anticipation andexcitement, dinner party talk moved fromstock prices and house prices to the immi-nence of "personalized medicine" and indi-vidual disease propensities.

This increase in personal health knowl-edge was reinforced by radical healthcarereform. Health costs rose, while budgetsremained frozen at best, leading govern-ments everywhere to reform collectivehealthcare arrangements. In Europe indi-

vidual patients were faced with increasedco-pays. Though the EC continued to resistdirect-to-consumer advertising, in mostMember States the number of drugsapproved for over the counter sales roseconsiderably. A new awareness about thecost of medicines at the point of sale taughtpatients much about healthcare and medi-cines. Eager to reinforce the assumption ofgreater personal responsibility for health,European Governments moved quickly torevise health budget priorities towards moreearly interventions: earlier diagnosis, activemonitoring and screening of patients. In theUS the Government decided to make allpatients' medical information and recordselectronic and transferable by 2014 thusreinforcing people's personalised knowl-edge.

All this turned out to be good news forthose pharmaceutical companies that hadspecialised in diagnostics - and particularlythose which had been able to establish cre-ative partnerships with producers ofdevices. Together these firms developedand marketed more sophisticated and accu-rate diagnostics, which of course becameincreasingly expensive. Though only thewealthy could afford the tests, other peoplesoon began to demand them. And successin diagnostics created other expectations.Everyone expected more - and bigger -therapeutic breakthroughs any time now.

These changes posed big challenges to theinsurance industry, particularly in the US. Asrisks became more precisely known, theeconomics - and more profoundly - themindset behind insurance risk pools cameunder severe challenge. The transfer of riskfrom pools to individual patients led to agreater intolerance amongst those whoknew they were not at risk of particular dis-eases. Wealthy individuals demanded totake on and manage more of their own per-sonal risk, leaving others to cope as bestthey could. But these individuals remainedin a minority. The insurance industryresponded with highly effective advertisingcampaigns promoting their products

"PATIENTS" Scenario

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amongst a population newly awakened tohealth risks, their own liabilities, but still inthe main unclear about precisely what risksthey ran. US insurance firms expandedinto Europe where they were publiclyattacked for being unwilling to cover indi-viduals whose genetic tests provedunfavourable. Some insurance firms werebought by mutual funds which began tooffer "personal health derivatives". Othersre-jigged their financial product to offercustomers access to asset pools to pay forunpredictable and catastrophic healthcarecosts for illnesses such as cancer.

The Middle Years: 2007-2011

Meanwhile, the scientific knowledge-basecontinued to grow. Alongside the continuedhype around genomics and proteomics theunderstanding about individual diseasepropensities was becoming more sophisti-cated. The first people to use - or ratherdemand - the innovations that did comethrough were wealthy US citizens. Havingtracked the evolution of these scientific dis-coveries they wanted them translated intonew, effective treatments.

But despite the early promise with a fewmolecules, the wave never crested and theexpected breakthrough products did notmaterialize. Research scientists in compa-nies large and small were crestfallen. Aseach layer of the genomic onion waspeeled, the only thing it revealed wasgreater complexity. Despite a few signifi-cant advances, most disease pathwaysproved intractable. Each promising leadled only to another, seemingly endless,labyrinthine and vain pathway. The whis-perers in R&D hallways, who for years hadquestioned whether all the low-hangingfruit had already been picked, began toask if the high-hanging variety actuallyexisted. A 2007 headline in a scientificjournal captured the mood all too well:Depression Gene Discovered, NoTreatment in Sight…How Depressing!

Diagnostics, however, was another storyand the impressive developments in thisfield continued. Individualised knowledgebecame much more widespread as theimpacts of government spending on earlyinterventions were felt by the population atlarge. The absence of new treatmentscaused people to focus on the availabilityand accessibility of existing treatments.Patients with similar disease profiles met upin person and on-line. The discussion andsupport groups that had existed for yearsgained in strength and numbers andexpanded to cover most major disease cat-egories. The difference was that now peo-ple knew whether they belonged to thegroup before the first symptoms developed.These smart medical mobs created clearinghouses, to share the latest on scientificknowledge and emergent diagnostics.

In the process the population consolidateda more sophisticated understanding ofhealthcare economics and the role of thepharmaceutical industry. Doctors began tonotice that their patients were raising edu-cated concerns about possible side-effectsassociated with the treatments they pre-scribed. Not only this, but as patientsbecame responsible for an ever higher pro-portion of medicine costs, they began to askdoctors how to assess whether the drugwould work for them prior to purchase. Themedia was quick to reflect the new zeitgeistwith its focus on health and in the UK amajor prime time television series aboutdrug efficacy claimed that the ten mostcommonly prescribed treatments wereeffective for only fifty per cent of patients.

The public also became much more awareof the workings of clinical trials and theresult was a clamour for increased trans-parency about how such trials were con-ducted and the incentives structures sur-rounding them. The strengthening affinitygroups meant that companies were in amuch better position to recruit the "right"patients in a way that diminished both leadtimes and costs. As a result, failure rates inPhase III were significantly reduced. But the

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patient groups were not passive in theirexchanges with companies. They wantedsomething in return and pushed back hardto obtain better studies of side effects,longer term trials, more post-marketingsurveillance and public access to informa-tion about its findings. The industry provedunable to resist this trend towards moretransparency though it did attempt to con-trol it. Some companies had made theirclinical trial data available over the internetas early as 2004. However, it wasn't until2009 that pressure from patient groupspushed the US Government to combineclinical trail data in a national registry, andto impose compatible reporting standardsso data could be shared seamlessly acrossand between organizations.

This decision by the US Governmentreflected a change in its positioningtowards the industry. The healthcaredebate had been growing in importance foryears and by now took centre stage in thepolitical arena. The long-term cost implica-tions for the Government of the 2004Medicare reforms were becoming increas-ingly apparent and alarming. In Europe toodespite extensive healthcare reforms drugcosts were still spiralling out of control.Governments began to see the potentialbargaining power of a coalition betweenthemselves and the patient groups. But tomake the most of the alliance, they toohad to make concessions to the newlyempowered patient groups and be ready tomeet demands for changes in the regulato-ry environment. The three players, govern-ments, companies and patient groupsentered into fierce negotiations aboutwhere budgets should be focused. Thoughthe affinity groups were locked in intensecompetition for scarce governmentresearch dollars they did manage toensure that company savings from moreefficient clinical trials were ploughed backinto their particular disease.

These patient groups were not only suc-cessful at negotiating greater transparency.At the margins, small pockets of people

began to address the lack of R&D produc-tivity into their diseases. These impatientpatients - and particularly those diagnosedas susceptible to terminal disease decidedthat if drug companies couldn't translate allthis knowledge into treatment, then they'dfind some way to do it themselves. Peopleon low incomes in the groups were paid bytheir peers to be the human guinea pigs foruntested and unproven treatments. Thesetrials mimicked what had become known asthe "Castro Culture" a similar grouping ofpatients prepared to test treatments forHIV/AIDS in the early years of the AIDS epi-demic.

The impact of the emergence of patients ascritical consumers had a profound impacton the industry. The lack of new product,combined with a wave of patent expirieshad already led to fierce demands to cutcosts. The marketing model now also cameunder pressure as firms fought for diminish-ing segments of what had been "block-buster" markets. Greater patient knowledgeand much more focused clinical trials meantthat blockbuster advertising for share ofvoice was an increasingly inefficient way tomarket drugs. It also meant they had tocontend with massive rise in competitionfrom increasingly regulated alternative ther-apy providers. Outraged patient groupspointedly asked big pharma companies,"Why spend all this money on advertisingand marketing when you have so little onoffer? And what you do have on offer is tooexpensive for almost everyone? Why don'tyou put that money into R&D?" Industryobservers rang the death knell of the one-size-fits all approach.

The problem was that the markets were toosmall to support the fixed costs. Everyoneaspired to better health, but the reality wasan increasing divergence in quality of care,with the well getting weller and sick gettingsicker.

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The End Years: 2011-2015

The Western world's pension system crisis,acute in Japan, severe in Europe, andlooming in the U.S, put patient power cen-tre stage. With the average OECD percent-age of retirees rising to over 50% of theeconomically active population, there wereperilously few workers to support risingnumbers of retirees. Many big firms wereunable to cope. The closure of occupation-al pension funds to new employees in themid-2000s was nothing to the mass defaultof multinational companies' pension fundsin the 2010s. Though some of the moreinnovative pension funds extended theirclient base to take on workers in thegrowth economies of China and India,most did not. More and more retirees inthe US were pushed into public sectorpension and health insurance plans. InEurope, there was a massive backlashagainst personal pension provision whichwas proving almost as limited as that pro-vided by the State. The obvious "bad"news for workers was the compulsion toassume costs themselves. Few believed inthe not-so-obvious "good" news that theynow had greater personal control. It feltmore like a transfer of risk from the Stateto the individual.

As the patient affinity groups gained steam,governments took a backseat, set someparameters for this new patient power, andleft the process of market re-organizationto take shape. Patient groups began to flextheir political muscle in new ways andbecame innovative about risk. Some raisedmoney and became de facto venture capi-talists spurring specific R&D for their dis-ease. Other groups pre-paid for moleculesat early stages of development, effectivelyfront-loading a company's profits to keepthat "airplane flying". Still others bought upniche molecules and purchased patentsdirectly. Many financed medical studentsand PhD researchers through their trainingin exchange for an agreement to work on aspecific disease.

To increase their numbers and their marketpower, the patient affinity groups reachedout internationally. These connections, boththrough people and broadband, brought amore even distribution of the existing thera-peutic regimes and systems, at least for thegrowing middle classes in developing coun-tries. The baseline state of health for manyof these populations improved while thewealthy around the world replaced healthas a means of avoiding pain and death witha quality of life ethos. What had been called"lifestyle drugs" in the mid-2000s becameknown as "quality of life medicines" in the2010s.

Providing for the wealthy, however, was notsufficient. The growing numbers of unin-sured and underinsured brought their ownpressures as the market became increasingtiered in both rich and poor countries.Individualised medicine was not working forpeople on low incomes. They lacked educa-tion, access to technology, and the confi-dence to make it work. In addition, newdiagnostics and therapies were unafford-able. While healthy, wealthy patients wereable to take advantage of tax free savingsfor health and pensions, a large proportionof the population with more modest meansfaced ill health and impoverished retirementprospects. Health therefore remained at thecentre of the political stage causing govern-ments to be a less reliable ally for theindustry than in the past. Payers across theglobe sought out commoditised generics,but this was insufficient to meet everyone'sneeds. Nevertheless, the more alertinvestors noticed how two Indian genericsfirms had managed to yield constant 6-7%returns in the past five years, and began toplace their money there.

The challenges to the industry and to gov-ernment posed by these changes werehuge. On the research side, companiessought non-conventional sources of medi-cine, opportunities in emerging markets,herbals, and revisited the existing library fornovel indications. Investors gave out signalsthat they were prepared to accept greater

22

risks in exchange for potential rewards,causing a renaissance in the IPO marketand in biotech and academic medicines.However, the bigger challenge, arguably,was how to deal with a more organisedand articulate consumer lobby arguing thatdrugs are not all they were cracked up tobe, that they are sometimes harmful, andsometimes very harmful. The industry andgovernments found themselves at a cross-roads. Some found the loss of control intol-erable. Others saw the exciting potential toestablish creative partnerships with patientorganisations. They saw advantages tofostering better expectations amongst aneducated public making informed choices.But both companies and governmentswould have to accept these positiveadvances were likely to take place in thecontext of support for more rationing, morescrutiny and much greater accountability tothe public.

Felicity shakes her head to snap herselfout of the mental replay of the pastdecade. She must reply to Malini, finishher accounts and outline a new briefingpaper called Getting the Balance Right,on lifestyle, prevention and treatmentfor the forthcoming Congressionalhearing. And all this must be donebefore going to the gym.

Implications of ScenarioTwo: The Patients Scenario

Possible Implications forInstitutional Investors

1. Investors accept that the traditionalindustry will continue to under-performas investments, but the increase inoverall healthcare expenditure providesinvestors with new opportunities, e.g.diagnostics, bio-markers and newhealth promotion ventures.

2. Fund managers seek alternative invest-ments such as emerging market

pharmaceuticals and higher risk newproduct ideas from academia/biotech.

3. Fund managers develop new financialsaving products that allow customersaccess to a pension/life assurance pot topay for catastrophic healthcare.

4. Investors actively provide incentives topharmaceutical executives to make asmooth transition by re-structuring remu-neration packages to focus less onmaintaining EPS growth per se butrather on R&D productivity and appropri-ate partnerships. Investors also engageproactively with company boards onCEO succession planning to ensure sen-ior management is "fit for purpose" giventhis new environment.

5. Investors become increasingly alert topolitical risk associated with growingsocietal tensions about inequality ofaccess and price this risk into their valu-ations.

Possible Implications forPharmaceutical companies

1. Size becomes less important than thefirm's negotiation capabilities and abilityto target niche markets.

2. As patients become more sophisticatedabout the economics of pharmaceuticalsand become more demanding of valuefor money, companies shift marketingpractice away from 'share of voice'strategies to a focus on better contactwith patients.

3. Executives explore business in relatedhealthcare areas, including diagnostics,telemedicine, disease management, sur-rogate bio markers and devices.

4. A greater proportion of research moneyis directed into academia with oppor-tunistic ideas and exploration of tradi-tional medicines.

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5. Successful Pharmaceutical companiesgo out of their way to show they are notexacerbating inequality of accessissues and seek to divert public disquieton to governments.

Possible Implications forGovernments

1. Governments struggle to manage thesocietal impact of new knowledge aboutdisease propensity whilst treatmentsmay not be available or affordable.

2. Healthcare comes to dominate thedomestic political agenda, exacerbatedby the growing inequality of access tonew treatments. In particular, theunequal distribution of personalisedmedicines across economic andracial/ethnic groups in the US and otherheavily privatised markets is a source ofgrowing tension.

3. Governments shift resources to diag-nostics and prognostic monitoring ofdisease, through diagnostic imagingand screening.

4. Governments change their focus tomuch earlier interventions in diseasemanagement, with surgery, irradiationand device use.

5. Governments deliver sustainablesources of low-cost supply. This mayhave implications for trade negotiationsand current IPR agreements, but equal-ly could depend upon low-cost domesticsuppliers.

6. Governments undertake campaigns topromote healthy life style changes.

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Ministry of Health, Stockholm Sweden,2015

Hella Cristianssen looks out onto thesnowy roofs of Stockholm thinking ofher son, Ingmar. How difficult it is topersuade him away from the computerand out into the snow. She worriesabout his visible weight gain, especiallygiven the family history of heart dis-ease. How ironic that she is so good atdesigning successful policies for oth-ers, yet finds it so hard to apply them athome. It was surely her days as ahands-on pharmacist that helped herthink through how these healthproviders might play a key role in thenew health environment. The changehad been incredible, and all in ten shortyears …

The Early Years: 2004-2007

Every year public health authorities foughtto try and avoid it. In the harsh winter of2006 they failed and the virulent flu pan-demic took hold quickly. No-one was surewhere it started, but that ceased to matteras the infection spread rapidly, filling hospi-tals in London, Mexico City, Washington,Moscow and Delhi. Unlike SARS, anddespite the attempts of the authorities,quarantine proved impossible to enforce.Hospital admissions far exceeded capacityto cope as first elderly people and children,and then the population in general, soughttreatment for acute respiratory problems.

Then, to the horror of the authorities, itbecame clear that their worst nightmarewas unfolding. Patients already weakenedby the flu virus were catching a secondarybacterial infection in the hospital. At first itwas only a few cases, but it soon becameapparent that resistance to antibiotic treat-ment for that infection was spreading. Inmany major cities the death toll rose to thehundreds causing growing panic in thepopulation. Office workers, until then pre-pared to work in face masks, refused to

use public transport or work in an officeenvironment, leading to mass absenteeismand widespread economic disruption. InRussia, the combination of a ferociouslyharsh winter and collapsing health systemled to violent protests outside the Kremlin.Nor were the costs only domestic.International trade was severely disruptedwith container ships docked for weeks.Government once again had to massivelyincrease airline subsidies due to loss ofbusiness, and major airlines not only wentbankrupt again - one finally went out ofbusiness. Amid the screaming headlines,the IMF issued a statement predicting thatthe pandemic would knock 0.5% offAmerican GDP and roughly 0.3% off theglobal total and expressed concern aboutstructural long-term implications.

The blame game began. Opponents of pri-vatisation in Europe and long-term critics ofthe pharmaceutical industry, started to vig-orously and publicly blame the government."Why Did You Let It Happen?" by an anony-mous whistleblower, said to be a seniorindustry figure, topped the best seller list forthe tenth week in succession. In the face ofthis intense criticism, governments turnedon the drug companies, publicly askingwhere were the new antibiotics capable oftaking on the challenge. A fabled US publicaffairs programme ran an hour-long specialnews feature, which revealed how and whyone of America's leading pharmaceuticalcompanies had shut down its vaccine sub-sidiary and scaled back its antibioticresearch function. The disgruntled ex-CEO,furious at lengthy public vilification, dis-played the analyst report that had effective-ly closed the company. In it, sell-side ana-lysts strongly criticised the company forcontinuing to focus on the low margin vac-cine and antibiotic side of the business andrecommended institutional investors breakup the company and so increase the shareprice. As a result of new corporate gover-nance transparency laws, it was easy forthousands of sick and angry US patients tosee which of their State funds had voted forthis break-up. A public exposé of why the

"POLITICS & PUBLIC HEALTH" Scenario

25

system failed by a financial pundit "It's thebarrel, not the rotten apple" was followedby widespread debate about systemicproblems with the industry's incentivestructure and how to encourage innovationand responsible ownership.

The US Government responded by settingup two Congressional inquiries which inturn led to the Congressional appointmentof the Disease Prevention Commission,modelled around the 9/11 Commission. InEurope a team of ex-Health Ministers wasappointed to an EU Prevention andTreatment Commission. Pan-Asia discus-sions were kicked off by an unprecedentedcooperation between China and Japan.

Across the world, these governmentappointees called emergency meetingswith the pharmaceutical industry aboutfuture prevention and cure. Emboldenedby the shift in public mood resulting fromthe shock of the flu epidemic and subse-quent bacterial infections, governmentsbegan to take a more active role in deter-mining R&D priorities in the anti-infectivesmarket. The EU and US jointly negotiatedadditional IPR protections that, togetherwith moral suasion, incentivised early pro-duction of a new vaccine and antibody.The new antibiotic was brought onto themarket with much publicity about theimportance of careful use of antibiotics toavoid the development of further resist-ance. Hospital and community surveillanceprogrammes and new rules on infectioncontrol were introduced. Public educationcampaigns about microbials and the dan-ger of misuse were everywhere. The intro-duction of a new effective product, along-side these intense campaigns led to anincreased public recognition of the benefitsof pharmaceutical innovation and a gradualre-establishment of some trust. This washelped in no small part by a spectacular, ifshort-lived, medical aid programme direct-ed at poorer countries. Then Spring arrivedin the northern hemisphere and the pan-demic passed its peak. The initiative wasconveniently passed to the World Health

Organisation which produced a well-researched series on incentives for R&Dinto new antibiotics.

Middle Years 2007-2011

Concerns about acute health problemsgradually gave way to a new focus onmetabolic diseases which continued to risesteadily across the globe. A prominent med-ical journal dedicated a whole edition to therise of metabolic disease and what to doabout it.

The rumbling debate about whether publichealth needs could be met by the industryin its current form was replaced by bannerheadlines in May 2008, following a highprofile article tracking child deaths fromobesity-related type-II diabetes and calcu-lating the costs on economic productivity ofmetabolic disease. Many were surprised atthe article's focus on the rise of SyndromeX (insulin resistance syndrome) in childrennot only in the US, Japan and Europe, butalso in Egypt, India, Mexico, Australia,Argentina and South Korea.

The Health Commissioners in the US andEurope were hastily reconvened. Thesegovernments had by this time decided thatlittle would be achieved by further vilificationof this strategic industry. Moreover, theywere mindful that their earlier successfulnegotiations were achieved when similarpublic concerns were at their height. Thedifference between then and now was thatpreviously the problem had been with theproduction of antibacterial drugs for acutediseases - which posed particular marketingchallenges to companies seeking the nextblockbuster. The problems they now facedwere those of chronic illness.

The WHO Framework Agreement was res-urrected but this time by a newly formedGlobal Super-Commission. Within sixmonths it unveiled two pilot Research andDevelopment co-operation deals betweenindustry and government to generate new

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therapies. Drawing upon lessons fromOrphan Drug arrangements and what hadproved a successful R&D formula by aninternational health foundation, the pilotsprovided strong incentives for innovation,including fast track clinical trial arrange-ments, data sharing collaboration, expand-ed end markets. In return, governmentsobtained agreements on expanded accessand pricing. The deals also included a newand experimental securitised debt vehicle,designed by the World Bank, which guar-anteed that the benefits would be extend-ed to emerging markets, and at highly con-cessionary rates to the poorest countries.This second round of negotiated R&Dagreements was interesting in that it suc-cessfully established incentives for bothlow-margin antibiotics and potentially highmargin treatments for metabolic disease.

Once again, the EU used the agreement tokick-start a public health education cam-paign called Strategic Investments forStrategic Returns. It highlighted how theEU would support the development of newtherapies for cardio-vascular disease andpaediatric type II diabetes in exchange formore responsible behaviour amongpatients. A number of health insurancecompanies in the US linked their productofferings to agreements by their clients tocomply with similar lifestyle arrangements.

The financial markets were initially unsurehow to respond. The share price of the twoleading companies in the agreement fell inthe face of critical analyst commentary,despite the efforts of their CEOs to talk upthe positive trade-offs in the deal. Likewise,the positive potential of the agreementswere imperceptible to the majority ofpatients and consumers. The vilification ofthe industry in the US had reached newheights as prices of innovative medicinessoared to offset price erosion on "me too"drugs and the number of people with drugcoverage plummeted. More than half of theDOW 30 no longer offered retiree drugcoverage. There were protests and classactions lawsuits filed, but company man-

agers knew that these people would soonbe picked up by the Medicare benefit plan.The number of Americans without healthinsurance reached 33% of the population inthe first half of 2008.

So when, after just five years, theAgreements were successful in bringing twonew drugs to market, interest was intense.The markets bucked and share pricessoared. One drug, an antibiotic for acuterespiratory infection, resistant to the usualproducts, went into fast track clinical trials,not only in OECD markets, but also in arange of emerging markets and developingcountries whose governments had agreedto dedicate a minimum of 4% of GDP tohealth. The other, a paediatric oral hypogly-caemic agent which used a novel mecha-nism to promote glucose metabolism, washailed as a breakthrough for diabetics.

End Years 2011-2014

These advances, though successful, werepremised on a degree of global cooperationthat proved impossible to sustain.Nevertheless, what the Commission haddone was provide a model for the redefini-tion of the relationship between governmentauthorities and companies. The terms ofthis new relationship combined greaterreward for innovation, improved access andless aggressive pricing agreements. Thefirms involved in the original deal and there-fore with a successful track record undertheir belt, began to publicly talk about win-win trade-offs and astonishingly moneymarkets remained calm.

The impetus to scale up and to make suchnegotiations more widespread was mostacute in Europe, where the baby-boomergeneration was placing unprecedenteddemands on pension and health systemsthat did not have the resources to cope.Faced with aging populations and a dearthof young workers, the newly reinvigoratedEuropean Commission launched a Europe-wide, referendum on "More Immigration or

27

Longer Work". All Member States cameback in favour of extending the workinglife. The EC, newly bullish following its suc-cessful negotiations on health with thepharmaceutical industry, began to exercisemore assertive leadership about what theirpopulations were required to do on healthand retirement care. The retirement agewas increased to 72 and the EU, taking alead from Japan, passed legislation to per-mit privatised retirement schemes to obligeclients to commit to individual pro-healthbehaviour including smoking cessation andbody mass index control. And they appliedthis assertiveness to the continued rela-tionship with the pharmaceutical industry,creating the European Institute for ClinicalExcellence to establish clear and transpar-ent guidelines by which Member Stateswould monitor value for money and thera-peutic outcomes.

Europe may have been first, but it was notalone. Pricing pressure in the US had ledto the consolidation of The Business andState Health Coalition to tackle the chal-lenge of providing adequate health coverto employees and retirees. Its purchasingmodel was an adaptation of successfulexperiments in the State of Wisconsin.Each payer set up its own expert pharm-acy and therapeutics committee chargedwith identifying the drugs they required forthe population they covered. Then theydeveloped a formulary of what would beoffered on the basis of what they couldafford, and negotiated price and volumewith the drugs firms. To their surprise,HMOs flocked to them for advice aboutsuccessful negotiation techniques.

The Health Coalition offered price-negotiat-ing seminars that were attended by peopleresponsible for health benefits from arange of industries, HMOs, and increasing-ly by staff of the US Government'sMedicare programme, burdened by thehuge numbers of people covered as aresult of the Bush Government's healthreforms of 2004. Though they attendedanonymously, they were recognised and

exposed by a wry diary entry in a New Yorkdaily paper. Initially, the WHO paid fordeveloping country participants to travel tothe US, but soon an in-country outreachprogramme of training in price negotiationskills and health prevention strategies wasset up by the World Bank.

In the face of increasingly sophisticatedpayers and patients, and a focus on preven-tion as well as cure, the pharmaceuticalindustry was encouraged to revise its defini-tion of successful negotiating skills and tocompete to offer interesting deals to theircustomers. Many began to focus newresearch on the diseases of the elderly, asa concomitant to keep people in work. Onefirm secured a 20% pricing premium fordelivering therapeutic improvement againstexisting branded therapies for Alzheimer'sand osteoarthritis, contingent on the drugsbeing successfully brought to market andwidely accessible. EU Member States inturn agreed to remove the stricturedemanding that the price point is fixed atlaunch, allowing prices to rise post-launchon the basis of new data. The company inresponse agreed to lower starting prices inexchange for higher sales volume andimmediate access.

However, these developments were not allhappening in the developed world. Bothcommercially and politically importantchanges were taking place elsewhere. In2015 an unusual mixed delegation ofChinese, Brazilian and Indian Trade andHealth Ministers undertook a world tour. Asusual, they visited government departmentsin capitals across the developed world, butthis time, they spent more time in corporateheadquarters than with their governmentcounterparts. The debate about the efficacyof PPAR agonists had not passed their mid-dle class constituents by. These politicallyinfluential people wanted access to the newtreatments and they wanted them now.Spurred into action by their desire for politi-cal survival and bolstered by earlier suc-cesses at the World Trade Organisation, thedelegation members offered massive mar-

28

kets to companies. They promised to domore to support distribution and expandedaccess. But, they reasoned the diseases ofmodernity had been acquired before thewealth of modernity, and successfully con-cluded that something would have to giveon prices.

Thus across the globe, elements of SocialBusiness Compact, visible for some timenow, became clearly articulated by govern-ment leaders who publicly championed asituation in which everyone is better offwithout anyone being hurt. And it wasaccepted by business leaders who under-stood the need for a stable platform onwhich innovation could flourish.Government began by expanding accessin the knowledge that the market placeoffered the mechanism via whichincreased volume was delivered. Key tothat market mechanism was the existenceof much more sophisticated purchaserswho negotiated price on the basis of effic-acy and a value-for-money calculation thatafforded greater premiums to higher inno-vation and the need for society to maintainvigorous R&D activities. Governmentsawarded firmer patents in the form oflonger period of marketing exclusivity ortransferable IPR rights for under-researched diseases with greater securityaround property rights, and made crediblecommitment not to impose reference pric-ing on access in emerging therapeuticmarkets. Developed nations also investedlarger sums in basic scientific researchthat could fuel bigger breakthroughs andthe creation of more personalised medi-cines, while experimenting with the bestmeans by which that research could bebrought to market. Investors had availablea new set of investment vehicles for plac-ing long-term bets for long-term returns onlong-term problems. Patients agreed ahealthy living package as part of insuranceand pension plans. Pharmacists began toplay a "learned intermediary role" in whichall dispensed medicines were accompa-nied by education and information con-cerning disease management. And finally

and critically, companies agreed to lessaggressive pricing in exchange for greatervolumes and a tangible reward for trueinnovation.

Hella stands and stretches. If there wasone thing she had learnt it was that les-sons are best set by good example. Shepicks up the phone and calls Ingmar.When he hears of the impending skiingtrip the boy shrieks with delight.

Implications of ScenarioThree: The Politics andPublic Health Scenario

Possible Implications forInstitutional Investors

1. Investors accept that the traditionalindustry will continue to under-perform,but build up weighting again asprospects for R&D agreements betweenindustry and government become appar-ent.

2. Investors place greater emphasis ongeneric firms with FDA approved qualitystandards and necessary standing inlucrative OECD countries, and on thosecompanies successfully playing the vol-ume-price trade off.

3. Investors actively provide incentives topharmaceutical executives to make asmooth transition by re-structuring remu-neration packages to focus less onmaintaining EPS growth per se butrather on R&D productivity and appropri-ate partnerships. Investors also engageproactively with company boards onCEO succession planning to ensure sen-ior management is "fit for purpose" giventhis new environment.

4. Innovative financing mechanisms fornew drug discovery offer new investmentopportunities to first-movers.

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5. Institutional investors encourage adrug-development friendly regulatoryenvironment.

Possible Implications forPharmaceutical Companies

1. Firms focus on fewer programmes andfewer products.

2. More consolidation, at first, to ensurepipeline competence in priority dis-eases. However, market symbiosis alsoenables smaller companies to have anedge.

3. Pharmaceutical companies enter intoagreements with governments to struc-ture appropriate incentives and transac-tions in response to health emergenciesand potential health emergencies.

4. Leadership ability to manage complexmulti-stakeholder relationships anddevelop and defend new stances onprice and marketing on the basis ofpharma-economics becomes increas-ingly critical for corporate success.

Possible Implications forGovernments

1. The balance of power between govern-ment and pharmaceutical industry shiftsto government in order to meet publichealth needs but with this comesgreater pressure on governments todemonstrate that they are able to cre-ate market incentives to align industrywith government priorities. Thisincludes: l Governments become more compe-

tent in evaluating a drug on the basisof whether it lowers overall healthspend and whether it maintains orimproves overall health.

l In return for high volume sales, gov-ernment negotiation of industry com-

mitment to affordable pricing,increased and faster availability ofcost-effective medicines and greaterinvestment in real innovation.

l Streamlining regulatory processes tobring new products to market in safeand appropriate way.

2. Governments learn to manage the impli-cations of the cost burden being shiftedto consumers. Part of the solution isgreater public investment in health pre-vention, disease management, basic sci-ence and stronger incentives for R&D tomeet health goals.

30

No company will feel safe departing from sector norms without the support of its keyinvestors. Individual companies will be able to take a more proactive role if that is the normfor the sector. And the sector as a whole will be best able to respond if a broad group ofinstitutional investors make clear that they understand the challenges and likely ways for-ward. In turn, these investors cannot act without knowing what key stakeholders - govern-ment regulators, purchasers, patients groups, doctors, pharmacists and insurance firms -are willing to accept. The interactions between these groups are also significant. As theSponsoring pension funds of the Pharma Futures project, we hope that this report there-fore contributes to the urgent need for continued and coordinated dialogue. The pharma-ceutical sector is too important for investors and stakeholders to do anything else.

Afterword by the Sponsors

31

General

l A Letter to the Chief Executive, Joseph Fuller, Harvard Business Review, 2002l Remuneration: Where we've been, how we got here, what are the problems and how

to fix them Finance Working Paper No. 44/2004 Michael C Jensen and Kevin J.Murphy, ECGI

Scenario One: Producers

l Singapore's massive biotech parkhttp://www.biopolis.com.sg

l China's health care: Where are the patients? The Economist, August 19, 2004.l The Effect of Changing Intellectual Property on Pharmaceutical Industry Prospects in

India and China, Cherie Grace for the Department for International Development,June 2004http://www.dfidhealthrc.org/Shared/publications/Issues_papers/ATM/Grace2.pdf

l Towards a WHO long-term strategy for prevention and control of leading chronic dis-eases, Derek Yach & Corinna Hawkes, WHO 2004

Scenario Two: Patients

l Decade of Health Information Technologyhttp://www.hhs.gov/onchit/framework/hitframework.pdf

l Occupational Pensions: Losing altitude, The Economist, July 31, 2004l Will Healthcare Costs Erode Retirement Security, Richard Johnson and Rudolph

Penner, Centre for Retirement Research, Boston College, October 2004l Enabling Good Health for All: A reflection process for a new EU Health Strategy,

David Byrne, European Commissioner for Health and Consumer Protection, July 2004

Scenario Three: Politics & Public Health

l Spending on healthcare in developed nations, OECD Health Data 2004l Press release on G-8 Action Plan for Health

http://www.accessmed-msf.org/prod/publications.aspl Innovation and Stagnation: Challenges and Opportunities on the Critical Path to New

Medical Products, US Department of Health and Human Services, FDAl Priority Medicines for Europe and The World, Richard Laing & Warren Kaplan,

Essential Drugs and Medicine Policy, World Health Organisation

Supporting References

32

The Pharma Futures Working Groupincludes:

1. Stewart Adkins, Senior Analyst,Pharmaceuticals, Lehman Brothers,UK;

2. Caroline Dorsa, Vice President andTreasurer, Merck & Co. Inc., USA;

3. Martin Eijgenhuijsen, Senior PortfolioManager, ABP Investments, TheNetherlands;

4. Shereen El Feki, HealthcareCorrespondent, The Economist, UK;

5. Lise Kingo, Executive Vice President,Stakeholder Relations Novo Nordisk,Denmark;

6. Sarb Klair, Head of Global Health CareEquity, Citigroup, UK;

7. Viren Mehta, Principal, Mehta Partners,USA;

8. Pankaj Patel, Chairman, ManagingDirector & Chief Executive, ZydusCadila, India;

9. Cynthia Richson, CorporateGovernance Officer, Ohio PublicEmployees Retirement System(OPERS), USA;

10.John Schaetzl, Vice President, EquityAnalyst on Research Coverage ofHealthcare, GE Asset Management,USA;

11.Eloan dos Santos Pinheiros, SeniorAdviser at the Oswaldo CruzFoundation & ex- DirectorFarmaguinos, Brazil;

12.Takashi Shoda, President andRepresentative Director, Sankyo Co.Ltd, Japan;

13.Raj Thamotheram, Senior Advisor,Universities Superannuation Scheme(USS), UK;

14.Eric O. Stanchfield, Secretary,Wisconsin Department of EmployeeTrust Funds, USA;

15.Andrew Witty, PresidentPharmaceuticals Europe, GSK, UK.

These individuals took part in this project intheir personal capacity and organisationalaffiliations are shown for identification pur-poses only.

Pharma Futures was directed by SophiaTickell, with research and logistical supportfrom Cassie Higgs.

Pharma Futures contracted GlobalBusiness Network (GBN) to run the sce-nario planning process: Steve Weber, ErikSmith, Andrew Blau, and Lynn Carruthers.GBN, a member of the Monitor Group, is aglobal leader in world-class scenario plan-ning and the development of "long view"strategy. www.gbn.com

External experts interviewed inthe course of the project

Pharma Futures would like to thank the fol-lowing specialists who provided detailedinput at various stages in the project:

Dr Goran Ando, CEO, Celltech; EmmaBack, Access to Medicines Team, DfID;Richard Bumgarner, IndependentConsultant; Professor Angela Coulter,Chief Executive, Picker Institute, Europe,Charles Gardner, Associate Director forHealth Equity, Rockefeller Foundation;Martha Gyansa Ludderodt, ProgramManager, Ghana National Drugs Program;Dr William Haddad, Chairman and CEO,Biogenerics Inc; Peter Heller, DeputyDirector of the Fiscal Affairs Department,IMF; Matt James, Senior Vice-President,Kaiser Family Foundation; Dr Mohga

Appendix One - Project Participants

33

Kamal Smith, Health Policy Adviser,Oxfam; Dr Richard Laing, Essential DrugsProject, WHO; Dr Joel Lexchin,Department of Family and CommunityMedicine, University of Toronto; LanceLindblom, Director, Nathan CummingsFoundation; James Love, Director ,Consumer Project on Technology; Dr MaryMoran, LSE; Jonathan Quick, Presidentand CEO, Management Sciences forHealth; Professor Alan Sager, DirectorSchool of Public Health, Boston University;Jonathan Sallett, Independent Consultantand Visiting Scholar at Berkeley's Institutefor International Studies; PhilippaSaunders, Essential Drugs Project; RutaiShao, Department of Chronic Diseasesand Health Promotion, WHO; Dr AnthonySo, Director, Program on Global Healthand Technology Access, Duke University;Mr Larry Stambaugh, Chair and CEOMaxim Pharmaceuticals; Dr PaoloTeixeira, Head of HIV/AIDS Department,WHO; Lawrence Wilkinson, Chairman ofHeminge & Condell (H&C); John Wong,Senior Vice President Boston ConsultingGroup, Hong Kong Office; Roy Widdus,Director, Initiative for Public-PrivatePartnerships on Health; and Ben Yeoh,Pharmaceuticals Analyst, ABN AMRO.

Pharma Futures would also like to thankthose individuals who took part in the web-site discussion forum (seehttp://www.pharmafutures.org/forum).

Pharma Futures was convened by pension funds; Algemeen Burgerlijk Pensioenfonds(ABP Netherlands), the Ohio Public Employees Retirement System (OPERS, US) and theUniversities Superannuation Scheme (USS, UK). These Sponsors were responsible foroverall governance of the project.

Pharma Futures was run on a not-for-profit basis and is funded by ABP, Ohio PublicEmployees Retirement System and USS, the UK Government Department for InternationalDevelopment, The Rockefeller Foundation and the Nathan Cummings Foundation, GSKand Novo Nordisk. Pharma Futures was initiated with seed funding in 2003 from JustPensions. Non pension fund funders did not have a governance or policy making role inthe project.

A number of other participants in the project made a range of in-kind contributions towardsits successful completion.

Appendix Two - Funding and Governance

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Pharma FuturesPharma Futures is a scenario planning project on thefuture of the global pharmaceutical industry.

Website: www.pharmafutures.orgE-mail: info@pharmafutures.org