pistoia alliance european conference 2015 - jo pisani / pwc

Pharma 2020 - the case to improve innovation

14th April 2015

PwC

3 November 2014

Draft

Jo Pisani Partner

PwC Strategy Pharmaceuticals & Life Sciences, London +44 20 7804 3744, [email protected]

Jo lead PwC’s UK pharmaceuticals and life sciences consulting team and focuses on business strategy, valuations, portfolio management and commercial due diligence.

The business model is broken in AMR • New funding models

PwC

14th April 2015

Pharma 2020 Series

http://www.pwc.com/pharma2020

3

Pharma 2020 – From vision to decision •

http://www.pwc.com/pharma2020

Agenda

1 The market imperative for change

2 New Commercial models in practice – a UK story

3 Generating the commercial incentive for R&D - The broken business in AMR

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3 November 2014

The market imperative for change

1


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3 November 2014

Draft

United States $393

Canada $29

EU-Big 5 $193

Japan $139

Growth markets

$489

ROW $264 United

States $347

Canada $25

EU-Big 5 $195

Japan $113

Growth markets

$232

ROW $185

The markets - new challenges and opportunities

2013 sales

• Nearly $1.5 trillion sales by 2020 • Global population > than 7.6 billion people • Historic barriers to free trade removed.

• 2001-2011 total value of export flows (excluding services) soared from $6.2 to $18.2 trillion in current.

2020 projected sales

Global $1.5tn

26%

13%

9%

2%

18%

32%

17%

21%

32%

10% 18%

2%

Global $1.1tn

The business model is broken in AMR • New funding models Source: Business Monitor International Notes: (1). All sales are expressed in US dollars at constant exchange rates; (2). The growth markets include, in descending order of size, China, Brazil, Russia, India, Mexico, Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. (3) EU-5 refers to France, Germany, Italy, Spain and United Kingdom

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14th April 2015

Greece $7.40

Ireland $3.00

Italy $23.40

Portugal $4.00

Spain $29.70

Greece $7.50

Ireland $2.80

Italy $27.60

Portugal $4.60

Spain $31.80

By 2020, Pharma’s revenues will be lower in four of the five GIIPS markets

Source: Business Monitor International Note: All sales are expressed in US dollars at constant exchange rates

2020 projected sales, US$67.4bn 2013 sales, US$74.2bn

Total $74.2bn

Total $64.4bn

37%

43%

10% 4%

44%

35%

6%

11%

4%

6%


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14th April 2015

Chronic diseases are still exerting extreme pressure on healthcare expenditure Older population

• >13% of the population will be 60 or older by 2020 , dementia doubles every five years > 65.

• 100 million Alzheimer sufferers by 2050.

Obesity

• By 2020 >12% of the global population will be overweight or obese. >500m people.

• 44% of the diabetes burden, 23% of the ischaemic heart disease burden and up to 41% of certain cancer burdens are attributable to overweight and obesity.

Cardiovascular disease (CVD)

• Today 16m people die from CVD every year in developed and developing economies.

• Expect a 200% to 400% rise in developing world by 2030. Death toll could be 25 - 50m in 20 years.

Hypertension

• Globally 25% (>970m) of the population had hypertension in 2000 - 330m in developed countries; 640m in developing countries, >1.5bn cases of hypertension by 2025

Diabetes

• Age and obesity drive diabetes increase. In the US alone some 11.3% of adults – rising to 26.9% of those aged 65-plus. Another 35% – rising to 50% of those aged 65-plus – have prediabetes. Slide 8

More people are living longer with chronic diseases which were previously fatal HONDA’s

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14th April 2015

What the US Affordable Care Act means for pharma

Slide 9

Loss revenue of $155 billion in US branded pharmaceuticals over the next decade – Medicare Part D discounts, Medicaid rebates, industry fees and biosimilars

Financial impact

Modest increase in sales of $15 billion from expanded insurance coverage Modest sales increase

2.3% medical device tax remains in play Medical device tax

Continue to adjust business model towards outcomes based contracting. 80% of insurers now require evidence of cost savings or a clear benefit to include new products in their formularies

Outcomes based contracting

PCORI (Patient-Centered Outcomes Research Institute) sponsored clinical effectiveness research raises expectations of value for drugs and medical devices

PCORI

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14th April 2015

• 2010 Bundestag passed the AMNOG health bill Germany

• UK spending on drugs capped and managed through rebates • Value based assessments continue rather than value based pricing United Kingdom

• The French social health insurance system offers doctors individual guidance on rational prescribing since 2009 France

• Investigating the idea of developing a pan-national body to negotiate drug prices, • Examining the feasibility of performing real-time evaluations of medicines. Canada

• Imposed a 1.26% cut in prices in April 2012 (using total healthcare expenditure as its base)

• The Central Social Insurance Medical Council is considering health technology assessments by 2014-2016.

Japan

Tough talk in the EU, Canada and Japan

Slide 10

PwC

14th April 2015

• 2010 Bundestag passed the AMNOG health bill Germany

• UK spending on drugs capped and managed through rebates • Value based assessments continue rather than value based pricing United Kingdom

• The French social health insurance system offers doctors individual guidance on rational prescribing since 2009 France

• Investigating the idea of developing a pan-national body to negotiate drug prices, • Examining the feasibility of performing real-time evaluations of medicines. Canada

• Imposed a 1.26% cut in prices in April 2012 (using total healthcare expenditure as its base)

• The Central Social Insurance Medical Council is considering health technology assessments by 2014-2016.

Japan

Tough talk in the EU, Canada and Japan

Generic spending will rise by $35-40 billion over the next five years. 60% of the increase coming from greater utilisation of existing generics

Healthcare payers: give us medicines clinically and economically better than what’s already available

8


Section 1 – The business model is broken in AMR

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Mature markets – the challenge

Prove that you’re adding value!!

• The mature markets have been evolving economically, demographically and structurally

• Pharma’s approach ‘get more, pay more’ even though the markets are running out of money won’t work for long

• Healthcare payers demand more value for the same money or the same value for less money

• To reach 2020 offer more value without charging more or remove costs from healthcare system to justify higher prices

• It takes at least a decade to develop a new drug and only six months to change a clinical pathway. A lot of companies may have to prune their portfolios quickly.


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14th April 2015

China $86.58

Brazil $26.40 Russia

$24.68

India $15.43

Fast followers $78.41

Rising demand for medicines in the growth markets

China $187.73

Brazil $44.22 Russia

$42.74

India $32.66

Fast followers $183.98

34%

7%

11% 11%

37% 38%

7% 9% 9%

37%

2020 projected sales, US$491bn

2013 sales, US$232bn

Total $491bn

Total $232bn

17 markets, >$491 billion a year by 2020 – up from $232 billion in 2013


Source: Business Monitor International Notes: (1) All sales are expressed in US dollars at constant exchange rates; (2) The fast followers include Argentina, Egypt, Indonesia, Mexico, Pakistan, Poland, Romania, South Africa, Thailand, Turkey, Ukraine, Venezuela and Vietnam.

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14th April 2015

Patients in the growth markets can’t afford costly biologics

Private share of healthcare

expenditure (%)

Per capita health spending, 2010,

US$

Population with net assets of

US$10,000 or less (%)

Brazil 53.0 990 66.6

China 46.4 221 58.4

India 70.8 54 94.4

Mexico 51.0 603 53.5

Russia 37.9 525 93.7

US 46.9 8,362 30.7

EU 5 22.3 3,799 22.0

Australia 31.5 5,187 6.9

Slide 14

Sources: World Bank Indicators and Credit Suisse, ‘Global Wealth Databook’ (October 2013) EU5= France, Germany, Italy, Spain, United Kingdom


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14th April 2015

Generic medicines will dominate, an estimated $63.8bn expected from patented products

8.8

30

3.3

3.9

44

-26.2

15.3

60.2

24.2

10.9

42.1

11.9

-40 -20 0 20 40 60 80 100

Brazil

China

India

Russia

USA

EU-Big 5US$ billions

Additional spending on patented products (2020) Additional spending on generics (2020)

Slide 15

Source: Business Monitor International Note: All growth is expressed in nominal US dollars (including inflation and projected exchange rate changes).


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3 November 2014

New Commercial models in practice – a UK story

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14th April 2015

Whole system approach

Regulatory and Ethics approval

Speed of recruitment

& patient pools

Connected infrastructure

Develop-ment

funding

Talent & scientific

rigour

Innovation uptake

Whole systems approaches to patient centred care need to be adopted

New models of leadership should be:

• focussed on delivery and outcomes – not where in the system the blame will lie if a hurdle isn’t overcome

• collaborative and open

• skilled in science, policy and health care

• have a global outlook and sees partnership possibilities


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14th April 2015

Pay-per-cure

Outcomes based payments

Microloan / patient assistance

schemes

“Contract for Differences”

insurance

New “pull” mechanisms for innovative medicines are happening now

Pharma Co rebates or credits payer where there is lack of efficacy

Governments incentivise R&D by committing to pay an agreed fee for a drug, regardless of its commercial success - untested

Micro loans in emerging markets – untested for drugs Free starter packs for low income patients

Pharma Co provide beyond the pill services and are paid if outcomes are achieved e.g. patient adheres to treatment

Sources: FT.com; Fiercepharma; PR Newswire; PwC analysis

Budget cap The pharmaceutical company supplies the drug up to a pre-agreed budget cap, any additional payments are refunded


Securitisation

Pharma bundles drug royalties together as a security, reducing portfolio risk Pharma securitises cash flows in order to offer a mortgage for expensive drugs to payers – untested in pharma

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Section 4 –

Delinking revenue from volume for certain Tas, e.g., antibiotics

Funding high cost by clinically effective treatments e.g., HCV

Funding high risk/high reward science for large unmet needs, e.g Alzheimers Disease

New funding and commercial models will be key

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3 November 2014

Generating the commercial incentive for R&D - The broken business in AMR

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European Union

Population 500m

25,000 deaths per year

Thailand

Population 70m

>38,000 deaths per year

United States

Population 300m

>23,000 deaths per year

AMR causes significant societal costs and over 25,000 deaths per year in the EU alone

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Trends suggest Pharma business models are not ready to address this unmet need…

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Time period

Depleting pipeline for infectious diseases

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3 November 2014

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If we look more closely we can see the fragility of the pipeline as only two companies have strong pipelines…

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3

4

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Astellas AZ BMS Cubist GSK J&J Novartis Pfizer

Nu

mb

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uc

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AMR Pipelines

Research

Preclinical

Phase I

Phase II

Phase III

Filed

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Leaders have emphasised the need to act now

Who carries the responsibility if no change happens?

“Unless we solve the problem of antimicrobial resistance to drugs, we will be facing a post-antibiotic era where things as common as a strep throat infection or a child's scratched knee could once again kill.”

Dr Margaret Chan, Director General, WHO

“Resistance to antibiotics risks health 'catastrophe' to rank with terrorism and climate change”

Dame Sally Davies, Chief Medical Officer (CMO)

“If we fail to act, we are looking at an almost unthinkable scenario where antibiotics no longer work and we are cast back into the dark ages of medicine where treatable infections and injuries will kill once again.“

David Cameron, Prime Minister

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Section 4 – Emerging thinking, potential innovative solutions

Demand uncertainty, limited patent window and low prices can create a comparatively unattractive investment profile

Global governance Oversee a PPP similar to IFFIm. In this model the global governing body has responsibility for managing and reimbursing the supply of anti-infectives.

Rewarding

stewardship in

LMICs Create mechanisms to

reward generic

companies for greater

stewardship

Risk sharing Apply actuarial techniques

and capital market financial

instruments to raise income

at different stages of R&D

or to link to risk levels and

triggers around specific

demand, similar to

catastrophe bonds.

A “patent

pause” Enable PharmaCos go to

market at appropriate time,

pausing market exclusivity.

Linked to regulatory

approvals and fast track

designations to align with

patient benefit

Government underwriting De-risking R&D through governments underwriting the costs of development in addition to providing a small premium to compensate for costs of capital

Normalize’

PPPs More collaborative

models that enhance

the public-private

partnerships (PPPs)

approach

Centre of

excellence Drive innovation and

efficiency effects. Raise

the profile of this

research field and

attract and retain top

talent

Intra-industry

collaborative

models Stimulate models like

ViiV, which has worked

well for HIV

An AMR Drugs Fund Reward high performing anti-infectives via a similar approach to the Cancer Drugs Fund. This could theoretically support critical R&D if necessary

Rare disease pricing structures Targets certain anti-infectives with transparent criteria. Cost reflects societal value. Potential for dynamic pricing

Push mechanism

Pull mechanism

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3 November 2014

In summary

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• Pricing, market access and innovative funding will become increasingly critical

• Solutions require a long term view from lifesciences, payers and providers

• Access to real world evidence is key for success

• Innovation in technology, Big Data and business models will be key

Thank you

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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