the challenges facing the pharmaceutical industry through to 2020

Pharma 2020:Which path will you take?12th November 2009

2PricewaterhouseCoopers LLP

Introduction

Sandy Johnston – Partner, PwC Consulting - Pharmaceuticals+44 20 7213 1952, [email protected]

• Sandy has responsibility for the UK pharmaceuticals consulting practice and focuses onoverall business transformation and performance improvement


The 2020 thought leadership series outlines challengesand opportunities for pharmaceuticals

www.pwc.com/pharma


0

2

4

6

8

10

12

50-64 65-69 70-74 75-79 80+

USCanadaUKAustraliaJapanGermanySwedenSpain

Age Group

He

alth

ca

reco

stre

lative

to

50

-6

4a

ge

gro

up

0

2

4

6

8

10

12

50-64 65-69 70-74 75-79 80+

USCanadaUKAustraliaJapanGermanySwedenSpain

Age Group

He

alth

ca

reco

stre

lative

to

50

-6

4a

ge

gro

up

The aging population is the biggest cause ofincreasing healthcare costs

Sources: Laurence Kotlikoff and Christian Hagist, “Who’s Going Broke?” National Bureau of Economic Research, WorkingPaper No. 11833, December 2005, p.25; World Factbook, 2006; OECD Health Data 2006; IMS Sales Data 2005.

An 80 year old in the US costs 4.6

times more than Germany and 3.3

times more than Japan


• By 2020 ~20% global sales fromE7** countries

• China possibly the biggestmarket in the world, Turkey andIndia possibly in the top ten

**E7 nations = Brazil, China, India,Indonesia, Mexico, Russia and Turkey

* Assumes G7 grow at mid-single digits,E7 grow low- to mid-double digits

Breakdown of global market 2008

Other G732%

E712%

RoW

18%

US38%

Breakdown of global market 2020*

Other G723%

E7

18%

RoW20%

US39%Global

$1.3trn

New opportunities are emerging through the E7economies

Global$773bn


Over last decade:

• PhRMA member R&D investment almost tripled, reaching an estimated $46bn in2007

• FDA approved medicines declined by two thirds - 56 in 1996, 19 in 2007

R&D productivity continues to decline

PhRMA memberR&D spend ($bn)

NME and NewBiologics Approvedby FDA

NME:New Molecular Entity.Excludes vaccines, antigensand combination therapieswhich do not include at leastone new constituents

Source: FDA/CDER Data, PhRMA data, PwC analysis

* PwC estimate

0

5

10

15

20

25

30

35

40

45

50

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

R&

Dsp

en

d($

bn

)

0

10

20

30

40

50

60

NM

Es

an

dB

iolo

gic

sap

pro

ved


Resulting in a sales revenue gap in 2020Value of patent expiries 2001-2015 (constant USD billion)

0

5

10

15

20

25

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source:IMS Health Midas

Average annual lossUS$ 16.4 bn

$157 billion sales exposed to generic competition by 2015


Govt / Regulators

Payers / Providers

Investors

Patients

Reliable Profits, Increased TSRs

Long Term ModelNo Quick Buck

Prevention , Cure, Value for Money

New Reward Structure, Patent, IP Structures

Access to Patients

Product Safety, Efficacy, Innovation

Compliance, Good Formularies, Access to Outcomes Data

Pharma’s world

Conflicting agendas increase the pressure onPharma

Needs vs. Demands

Treatment, Risk Management, Sustainability, ValueTomorrow’s challenge

is to incentivise

prevention and cure


Increased Drug Efficacy

Increased Healthcare Expenditures

Lost Patients & sales

Decreased Drug Efficacy

PatientsLOSE

PayorsLOSE

IndustryLOSE

PatientsWIN

Decreased Healthcare Expenditures

PayorsWIN

IndustryWIN

Retained patients & sales

Breaking the downward spiral of poor patientcompliance


But industry’s damaged reputation is limiting itsfuture potential

A recent PwC Surveydemonstrates public

mistrust in theindustry

Perceptions are wrong because over 63% US consumers believe 40% to 80%healthcare costs are prescription medicines

R&D

Sales &Marketing


So Pharma needs to move away from theblockbuster approach

• Serendipitous discovery of “one size fits all”drugs is increasingly difficult and costly

• Scientific advances in biology, IT, mobile andnetworking technologies offer radically newapproaches

• Health technology assessment is now part ofhealth care decision making

• Patients and patient groups have growinginfluence and demand greater access totreatments

• Industry must deliver higher value medicinesto patients and demonstrate clear benefits

Because


‘Mass market’

Low costBranded generic /OTC

treatmentManagementHigh volume

Protocol drivenPoly pharmacy & bundles

DTC communications

Speciality / Niche

High costDisease modifying

CurePrice

Physician drivenRisk sharing

Specialist targeted

Which will polarise the industry

Pharma 2020: Virtual R&DWhich path will you take?


A seismic shift is required to stimulateinnovation

Within R&D there needs to be greater innovation andlower costs achieved through:

• A comprehensive understanding of how thehuman body works at the molecular level

• A much better grasp of the pathophysiology ofdisease (by which we mean the functional changesassociated with, or arising from, disease or injury)

• Greater use of new technologies to “virtualise”the research process and accelerate clinicaldevelopment; and

• Greater collaboration between the industry,academia, the regulators, governments andhealthcare providers.


Expediting Development- Collaborating tobring treatments to the market

Development loop forextended indications and

regulatory activities

CIM

Discussion andagreed plan

of action withRegulators &

PayorsLimited launch

with Living License

Instantautomatedapprovals

Research &Early

Development

HumanStudies

Clinical Use

Automatedsubmission/approvals

CIECIS

CIM – Confidence in MechanismCIE – Confidence in EfficacyCIS – Confidence in Safety

This Live License will facilitate the seamless exchange of data between providers,payers, regulators and pharmaceutical companies as experience is gainedwith the product


Imperatives for change

TraditionalR&D cost/revenuecurve

Reven

ue

$

Faster tomarket-reducedspend ininitial R&D

Step wise revenueincreases onautomated approvals

Future R&Dcost/revenuecurve- with livelicensing

Time

Predicted changes to R&D cost vs revenue curve in 2020

0

Cost

$

Pharmaceutical Companies must recognize that these changes will affect theircost and revenue curves

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Pharma 2020: Marketing the FutureWhich path will you take?


Pharma 2020: Marketing the FutureCompanies will need to…

• Recognise the interdependence of the payer, provider and pharmaceuticalvalue chains

• Invest in developing medicines the market wants to buy

• Adopt a more flexible approach to pricing

• Develop plans for marketing and selling specialist therapies

• Manage multi-country launches and live licensing

• Form a web of alliances to offer supporting services

• Create cultures that are suitable for marketing specialist healthcarepackages

• Develop marketing and sales functions that are fit for the future


And the market is defining the innovation it willbuy

Innovative products are typically defined as those which…

• Cure a disease or condition

• Prevent a disease or condition

• Reduce mortality or morbidity

• Reduce the cost of care

• Improve the quality of life

• Are safer or easier to use

• Improve patient compliance and persistence

‘Innovation’ is the provision of value thatgenerates a premium price


Which requires the development of a price de-risking strategy in early development

• Rigorous assessment of what payers, providers and patients valueis required

• Novartis – consultancy with NICE re Phase III design

• GSK – involving Governments in pipeline decisions

Preclinical

25.7

Phase I

5.8

Phase II

11.7

Phase III

25.5

Regulatory

6.9

Phase IV

13.3

Percentage of spending in each phase of R&D. 11.3% of spending uncategorized

Point at whichpharmaceutical companies

typically start thinkingabout pricing

Point at whichpharmaceutical companiesshould be thinking about

pricing to de-risk theirportfolios

Increased chances of success at

phase III and more informed

investment decisions


21

Forces from the market, the regulator and patients willchange the way in which decisions are made

Disruptive Healthcare Technology

Electronic Medical Records (EMR)

Genomics: Diagnostics and Personal(23&Me, deCodeGenetics)

Health 2.0(Healia, Patientslikeme, MEDgle)

Outcomes Exchanges & Consortiums(NCCN Oncology, AMGA)

Automated Prescription Delivery System

Medvantx Generic Sample Distribution

ePrescribing and Interventions

Proactive Pharmacovigilance(Sentinel, SAEC, AMGA)


Medvantx Generic Drugs Sample Distribution

• In over 2000 Offices

• Over 5000 Physicians

• 13 Therapeutic Areas

- Hypertension

- Hyperlipidemia

- Depression

- Pain

- Diabetes

- Dermatitis

Pharma 2020:Challenging business modelsWhich path will you take?


The business model of today must change toone that fully embraces collaboration

“This is a business model where you are guaranteed to lose your entire book ofbusiness every 10 to 12 years.” J.P. Garnier, former chief executive ofGlaxoSmithKline

PRESENT

•centred on the securing andprotection of IP

•leveraging scale to run widespreadclinical trials and deliver an extensivesales and marketing presence.

•single companies, deploying a varietyof contractual relationships, butseeking to secure profits on their own

– a ‘profit alone’ model.

2020

•patents alone will no longersuffice

•profit alone’ model will have gonethe same way as the blockbustermodel.

•a company’s ability to developcollaborative business models willdictate success in the 2020 world.

•‘Profit alone’ will have beenreplaced by ‘profiting together’ bydeveloping networks of collaboration


A collaborative model will address changingtrends and value propositions

Market trends

• Better informed patients

• Bigger bill share for patients

• Increase in more complexcare and treatment models

• Demand for cures vstreatments

• Increasing importance of theemerging markets

Health & Healthcare

• The burden of – and bill for-chronic disease is soaring

• Healthcare payers areestablishing treatmentprotocols

• Pay-for-performance on therise

• Blurring boundaries betweendifferent forms of care

• Increasing financial constraintson payers

Scientific & Technological

• More virtualised R&D

• The research base is shiftingto Asia

• Remote monitoring isimproving rapidly

Trends


A collaborative model will address changingtrends and value propositions (continues)

Pharma to go “beyondthe medicine”

• Outcomes will pay (vs.products)

• Outcomes data will drivehealthcare policy

• Higher profile for prevention

• Pharma to offer “medicines-plus” packages of care

• Pharma to adopt more flexiblepricing strategies

R&D to go beyond the lab

• Pharma to access outcomesof data

• Pharma to work with ITvendors to virtualise R&D

• Pharma to have a wider, moremulty-disciplinary skills base

• Pharma to extend its presencein Asia

• Pharma to demonstrate “real”value-for-money

More intertwined Pharmaand Healthcare valuechains

• Pharma to work closer withregulators

• Pharma to collaborate withpayers and providers toperform continuous trials

• Pharma to collaborate withnumerous service providers todeliver packages of care

Implications

Business models based on collaboration


We have identified four business models

Owned

Collaborative


However, there are significant structural andcultural obstacles to effective collaboration

IntellectualProperty

Culture ReputationOrganisational

Structure

Change


Key questions to ask

• What is our current business model? Does it play to ourstrengths? Is it communicated and followed?

• What kind of company do we want to be?

• Is our current business model fit for the future? If not, whattype of business model will we need?

• Do we have a plan in place that enables us to move forwardwhile maximising the opportunities and minimising the risks?

Given the socio-economic imperative for change –the trigger may come from regulators, investors and

payers

Thank you

http://www.pwc.com/pharma

© 2009 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a limited liability partnership incorporated in England).PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited. No part of this presentation may be copied, redistributed or placed on any website withoutpermission.

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This publication has been prepared for general guidance on matters of interest only, anddoes not constitute professional advice. You should not act upon the information containedin this publication without obtaining specific professional advice. No representation orwarranty (express or implied) is given as to the accuracy or completeness of the informationcontained in this publication, and, to the extent permitted by law, PricewaterhouseCoopersLLP, its members, employees and agents accept no liability, and disclaim all responsibility,for the consequences of you or anyone else acting, or refraining to act, in reliance on theinformation contained in this publication or for any decision based on it.

© 2008 PricewaterhouseCoopers LLP. All rights reserved. 'PricewaterhouseCoopers' refersto PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, asthe context requires, other member firms of PricewaterhouseCoopers International Limited,each of which is a separate and independent legal entity. hb02753

the challenges facing the pharmaceutical industry through to 2020

Health & Medicine