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Pharma Industry Overview
Background & big picture trends
Key demand drivers
Pharma R&D
Challenges Ahead
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Challenges Ahead
Global Innovation trends in Bio-pharma
Pharma Industry OverviewThe big picture
Pharma profits are generated from broad based list ofcompounds
Major targets include infection, cardiovascular conditions,depression, inflammatory diseases, etc.
Pharma sector is more or less immune to the economy Demand for drugs has always been growing
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Demand for drugs has always been growing Most drug costs are reimbursed by government, managed
care or other third parties Major challenges ahead including lack of blockbuster drugs,
competition from generics, managing consolidation, andchanging dynamics of managed care
Collaboration with biotech firms is critical to developingnovel new ideas, and improvements in drug discoverymethods
New waves of the future – genomics, proteomics, bio-informatics, disease management, wellness, EMR, etc
Source: IMS Research, 2003Source: IMS Research, 2003
Pharma Industry OverviewGlobal pharma sales by 1998-2005
Global Sales US$B1998 1999 2000 2001 2002 2003 2004 2005
3Source: IMS Health Total Market Estimates and Global Pharma Forecasts (includes IMS Audited and Unaudited Markets)All information current as of February 27, 2006.
Total World Market (current US$) $298 $331 $356 $390 $427 $497 $559 $602
Growth Over Previous Year(Constant US$)
7% 11% 11% 13% 9% 10% 8% 7%
Pharma Industry OverviewGlobal audited pharma sales in 2005
World AuditedMarket
2005 Sales(US$B)
% GlobalSales
% GrowthYear-over-Year (Constant $)
North America $265.7 47.0% 5.2%
Europe $169.5 30.0% 7.1%
4Source: Source: IMS MIDAS®, MAT Dec 2005All information current as of February 27, 2006..
Europe $169.5 30.0% 7.1%
Japan $60.3 10.7% 6.8%
Asia, Africa andAustralia
$46.4 8.2% 11.0%
Latin America $24.0 4.2% 18.5%
Total IMSAudited
$565.9 100% 6.9%
Why so high?Why so high?
Pharma Industry OverviewTypes of drugs
Prescription & Non-prescription
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Patented drugs Generic drugs OTC drugs
Source: IMS World Review 2003.
••OffOff--patent ethicalspatent ethicals••18% of US Sales18% of US Sales••Some plans mandateSome plans mandate
generics if availablegenerics if available••Priced at 30Priced at 30--80%80%
discounts to patenteddiscounts to patented••WaxmanWaxman--Hatch Act (84)Hatch Act (84)
accelerated genericsaccelerated generics
••Physician controlledPhysician controlled••65% of US Sales65% of US Sales••PharmacyPharmacy--dispenseddispensed(retail, hospital,(retail, hospital,mailmail--order, etc.)order, etc.)
••Emphasis on provenEmphasis on proveneffectivenesseffectiveness
••SelfSelf--medicated by patientmedicated by patient••17% of US Sales17% of US Sales••Most OTCs began asMost OTCs began as
prescription drugsprescription drugs••Widely availableWidely available
20012001
Will this distributionWill this distributionchange over time?change over time?
Pharma Industry OverviewGenerics are booming
GENERIC DRUGS - FACTS
Generics account for 42% of all prescriptions (2002 data) For every 1 percent increase in utilization of generic drugs there is a
corresponding savings of $1.16 billion dollars for health plans andemployer groups
The average branded prescription is four times the cost of a generic
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The average branded prescription is four times the cost of a generic Generics save consumers $8-10 billion per year Nine out of ten adults are willing to use generic drugs if recommended
by their physician Eight out of ten adults, regardless of income, would choose a generic
if the savings was $10 or greater Annual savings on chronic medications could be thousands of dollars
for patients.
Source: Medvantx.com 2003
By 2010, ~80% of patentedBy 2010, ~80% of patenteddrugs will be exposeddrugs will be exposedto generic competition!to generic competition!
Pharma Industry OverviewGenerics are booming…
…but “big pharma” is busy chasing
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Source: Medvantx.com 2003
…but “big pharma” is busy chasingthe blockbusters
Pharma Industry OverviewLeading Products in 2002Product Category Company 2002 Sales in
$ (Billions)Patentexpiry
Lipitor CholesterolReducer
Pfizer 9.0 2010
Zocor CholesterolReducer
Merck 6.0 2005
Prilosec/Losec Anti-ulcerant AstraZeneca 5.0 Expired
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Prilosec/Losec Anti-ulcerant AstraZeneca 5.0 Expired
Zyprexa Schizophrenia
Lilly 4.0 2011
Novarsc Hypertension Pfizer 4.0 2007
Vioxx Anti-inflammatory
Merck 3.0 2013
Celebrex Anti-inflammatory
Pharmacia 3.0 2013
Remaining 3/10 --- 11.0 ---
TOTAL 45.0
Source: ESP PharmaSource: ESP Pharma
Pharma Industry OverviewTop 15 Blockbusters in 2005
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Source: Zydowsky Consultants, LLC, 2006Source: Zydowsky Consultants, LLC, 2006
Pharma Industry OverviewProjections
The global pharmaceutical market is forecast to grow toUS$842 billion in 2010
Strong growth in the 10 European markets that joined theEuropean Union in 2004 will help to boost European salesover the next five years
There were a total of 16 new blockbuster drugs in 2005,
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There were a total of 16 new blockbuster drugs in 2005,generating combined sales of US$18.1 billion
Total pharmaceutical sales from the top 10 companiesaccounted for more than 40% of the total market
Source: Piribo, Pharmaceutical Market Trends, 2006Source: Piribo, Pharmaceutical Market Trends, 2006--2010, June 20062010, June 2006
Key Drivers
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Key Drivers
Pharma Industry OverviewKey Drivers
Industry drivers Demographic trends
Management of R&D
Consolidation and strategic alliances
Direct-to-consumer push
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Direct-to-consumer push
Threat from generics to “big pharma”
Firm-level impacts Need to continue investments in R&D
Need a solid partnering strategy
Need to identify and prioritize opportunities and act onthem
Pharma Industry TrendsKey Drivers..
Recent Industry Facts Shift from acute to chronic care products Pharma companies have strong balance sheets Period 2000-2004: Total biotech industry funding of approx. $95 billion
Improved funding in ‘03 & ‘04, VC activity in ’04
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Improved funding in ‘03 & ‘04, VC activity in ’04comparable to ’00 peak
Dramatic advances in genomics (targets),combinatorial/computational chemistry, HT/UHT*screening, SAR*
Continued pipeline growth at many companies (may stillfall short?)
Human Genome Project Data Glut
HTHT –– High throughput UHTHigh throughput UHT –– UltraUltra--high throughput SARhigh throughput SAR -- StructureStructure--Activity RelationshipActivity Relationship
Pharma Industry TrendsSome demographics..
Demand Drivers Aging baby boomers
Lengthening life span
Changing criteria for health and wellness
Critical need for life-saving drugs in developing countries
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Critical need for life-saving drugs in developing countries
Pharma Industry Trends
Key Demographic Facts Over 60s in the US to
rise from 606 millionin 2000 to 2 billion in2050
Over 65s in the USexpected to expand53% from 2001 to
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53% from 2001 to2020 vs. overallpopulation growth of17 %
Over 65s account for16 % of USpopulation, but 33 %of all prescriptionswritten
Source: US Census & PhRMA, 2006
Pharma R&D
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Pharma R&D
Pharma Industry TrendsThe Role of R&D
What are the chances that a single screenedcompound will be commercialized into a drug?
How much does it cost to launch a new drug?
How long does it take to launch a new drug?
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How long does it take to launch a new drug?
How many drugs are in Phase III today? Howmany of these will be “blockbusters”?
Pharma Industry R&DThe Drug Development Funnel
Discovery
Preclinical Testing
Phase I20-100 healthy volunteers used to determinesafety and dosage
100-500 patient volunteers used to look
Laboratory and animal testing
5,000 – 10,000 Screened
5 enter clinical trials
Compound SuccessRates by Stage
250 enter preclinical testing
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ClinicalTrials
Phase III
Phase IV: Additional
Post-Marketing Testing
FDA
Phase III
Review/Approval
1K - 5K patient volunteers used to monitoradverse reactions to long-term use
100-500 patient volunteers used to lookfor efficacy and side effects
1 approved by
FDA
5 enter clinical trials
KEY QUESTION: How to shorten the new drug development process?
0 5 10 15
Years
Source: PhRMA, 2006
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Source: PhRMA, 2006Source: PhRMA, 2006
Pharma Industry R&DMajor Challenges
R&D expenditures continue to rise rapidly US R&D expenditures have doubled since ‘95
Cost to develop a new drug = $802M
It takes 5,000-10,000 compounds to result injust one approved drug
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just one approved drug
Only 3 of 10 marketed recover R&D costs
Time to develop at 15 years almost doubled since the ‘60s
Pressure from Wall Street to meet growthexpectations
Source: IMS Research, 2003
Pharma Industry R&DMajor challenges
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Source: PhRMA, 2006
Pharma Industry R&DAcceleration of research spending
22Source: PhRMA, 2006
Pharma Industry R&DUS leads the late stage pipeline
23Source: PhRMA, 2006
Pharma Industry R&DIn development as of 2005
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Source: PhRMA, 2006
Pharma Industry TrendsTop Pharma Players - 2006
Position RevenuesUS $bn9/05
% Market
Share
CAGR
2000-04
1) Pfizer (US) 49.1 8.8 11.2
2) GlaxoSmithKline (UK) 34.4 6.1 7.7
3) Sanofi-Aventis (FR) 30.1 5.4 13.1
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3) Sanofi-Aventis (FR) 30.1 5.4 13.1
4) Novartis (CH) 28.0 5.0 13.5
5) J&J (US) 25.5 4.5 16.1
6) AstraZeneca (UK) 23.8 4.2 8.3
7) Merck & Co. (US) 23.2 4.1 10.4
8) Roche (CH) 19.2 3.4 10.3
9) Abbott (US) 15.6 2.8 10.3
10) Bristol-Myers Squibb(US)
15 2.7 2.1
Top 10Top 10 264264 100 10.4100 10.4WorldwideWorldwide 561 47 10.1561 47 10.1
Pharma Industry TrendsTop R&D Projects - 2003
Position No. ofDrugs
No. of R&DDrugs
No. UnderLicense
1) GlaxoSmithKline 178 101 77
2) Pfizer 151 88 63
3) J&J 137 78 59
4) Hoffman-La Roche 131 72 59
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4) Hoffman-La Roche 131 72 59
5) Aventis 113 64 49
6) Novartis 102 65 37
7) AstraZeneca 97 67 30
8) Abbott 86 43 43
9) Bristol-MyersSquibb
83 53 30
10) Merck 81 52 29
Pharma Industry R&DSpending by target area
Central nervous system 26%
Neoplasm (cancers), endocrine system, metabolic 21%
Cardiovascular 18%
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Infections diseases 15%
Respiratory system 10%
Digestive 4%
Biological (i.e., vaccines) 6%
FTC CLEARS PFIZER'S ACQUISITION OF PHARMACIAFTC CLEARS PFIZER'S ACQUISITION OF PHARMACIA
NEW YORK, April 14, 2003NEW YORK, April 14, 2003 ---- Pfizer Inc said today that thePfizer Inc said today that theFederal Trade Commission (FTC) has accepted a consentFederal Trade Commission (FTC) has accepted a consentdecree clearing the way for the company's acquisition of thedecree clearing the way for the company's acquisition of thePharmacia Corporation. The companies will commencePharmacia Corporation. The companies will commenceoperating on a combined basis later this week.operating on a combined basis later this week.
++
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operating on a combined basis later this week.operating on a combined basis later this week.
“The new Pfizer will provide more products to help more“The new Pfizer will provide more products to help morepatients than any other pharmaceutical company and we willpatients than any other pharmaceutical company and we willcontinue to be the world leader in privately funded biomedicalcontinue to be the world leader in privately funded biomedicalresearch.“research.“---- Hank McKinnel, Chairman and CEOHank McKinnel, Chairman and CEO
Combined 2005 revenues = $49.1 billion!Combined 2005 revenues = $49.1 billion!
Challenges Ahead…Challenges Ahead…
Pharma Industry Overview
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Challenges Ahead…Challenges Ahead…
Pharma Industry Challenges3rd Generation Drug Development
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Source: Zydowsky Consultants, LLC, 2006Source: Zydowsky Consultants, LLC, 2006
Pharma Industry ChallengesRiding the S-Curve
Prozac
ZyprexaPipeline
Salesreturned
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1996 2002 2003 2005
returnedon
cumulativeinvestment
Dynamics of Drug Development at Eli LillyDynamics of Drug Development at Eli Lilly
Pharma Industry ChallengesBlockbuster gap
2003 Phase III Development Pipeline2003 Phase III Development PipelineNumber of CompoundsNumber of Compounds
Currently inCurrently inPhase IIIPhase III
Expected toExpected toSuceedSuceed
Expected to beExpected to beBLOCKBUSTERSBLOCKBUSTERS
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“Blockbuster pipeline not nearly enough to fill the“Blockbuster pipeline not nearly enough to fill thevoid at big pharma”void at big pharma”
12001200 600600(50%)(50%)
1010(1%)(1%)
Source: ESP PharmaSource: ESP Pharma
Pharma Industry ChallengesCan’t take exclusivity for granted
Innovator Drug -
Year Introduced
Years ofexclusivity
Competitor Drug -
Year Introduced
Inderal - 1965 13 Lopressor - 1978
Tagamet - 1977 6 Zantac - 1983
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Exclusivity for innovative drugs is shrinking!Exclusivity for innovative drugs is shrinking!
Prozac - 1988 4 Zoloft - 1992
Diflucan - 1990 2 Sporanox - 1992
Recombinate - 1992 1 Kogenate - 1992
Celebrex - 1999 0.25 Vioxx - 1999
Source: ESP PharmaSource: ESP Pharma
Pharma Industry ChallengesConstant Restructuring
Consolidation and Strategic Alliances
34Source: Wood & Mackenzie, 2006Source: Wood & Mackenzie, 2006
Pharma Industry ChallengesGrowing through M&A
Mergers can be a major way to grow - Pfizer
35Source: Ferghana, 2006Source: Ferghana, 2006
Pharma Industry ChallengesPfizer- The Poly Connection
Jasper Kane and John McKeen, both Poly alumni were behind theearly success of Pfizer
Kane conceived and McKeen implemented the idea of massproducing penicillin to treat wounded soldiers during World War II
At that time, Pfizer was not a pharma company, but suppliedchemicals and ingredients to the food and drink industry
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Source: Polytechnic University ArchivesSource: Polytechnic University Archives
chemicals and ingredients to the food and drink industry
Pfizer bought an ice-making plant in Brooklyn and converted it to afactory producing penicillin in March 1943 – they had produced 45million units by year-end
Kane was also the leader of the research team that discoveredTerramycin (1950), recd. BS-Chemistry’1928, PhD (Hon.)’1994
Terramycin is still in use – Kane was the Director of R&D at Pfizerfor many years
Jasper Kane 1903Jasper Kane 1903--20042004
Pharma Industry ChallengesRegulation & Market Structure
Role of Regulation EU, Asia are highly regulated markets in contrast to US Pharma industry in US largely opposes govt. price controls,
arguing it hampers R&D investment Generics gaining a foothold in major Western markets
Managed care gets tough on drug companies
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Managed care gets tough on drug companies Political & social pressure on drug costs and access Clinton era (and anticipated) price controls on prescription
drugs and federal intervention on healthcare in the US Prescription drug benefits and insurance coverage become
debated issues Managed care constitutes 70 percent all retail prescriptions
to pharma industry
Pharma Industry OverviewDTC push
Direct-to-consumer push
Use of Advertising (FTC relaxed rules in 1997) In 2001, Merck spent $176 million promoting
Vioxx (More than what Coca-Cola Company spent advertisingCoke or what Anheuser-Busch spent advertising Budweiser in that
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Coke or what Anheuser-Busch spent advertising Budweiser in thatyear)
The drug industry spent $2.76 billion onconsumer drug ads in 2001.
Reach consumers directly through call-centers (25*)and internet (1*)
*Estimated $/contact
Pharma Industry ChallengesDTC push
Direct-to-consumer push
Use of Internet is widespread All pharma co.’s have product information on their
website or through partners like WebMD
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Used to promote pharma to MDs
More than 75 % of US doctors report that patientsbring Internet printouts to their office visits
Pharma Industry ChallengesSalesforce is key
But… Sales force is still important in order to reach
physicians $12 bn spent on details (visit by drug reps) to
physicians in 2002 (200*)
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physicians in 2002 (200*) Pharmaceutical companies spent $7.2 billion on
free samples to physician offices in 1999. Schering-Plough gave out 35.7 million samples of
Claritin in 1999 (One-month supply of Claritincosts $68)
*Estimated $/contact
Source: Medvantx.com
Pharma Industry OverviewNot all about drugs: Healthcare industry is much bigger!
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Source: PhRMA, 2006Source: PhRMA, 2006
Global Innovation TrendsGlobal Innovation Trends
Pharma Industry Overview
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Global Innovation TrendsGlobal Innovation Trendsin Bioin Bio--pharmaceuticalspharmaceuticals
Pharma Industry OverviewGlobal Innovation Trends
Clusters to watch
USA/Canada
Cambridge MA, Research Triangle Park NC, SanDiego and S. California Region, Austin TX, Ontario,
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Ottawa-CA
Europe
Lieden, Maastricht, Leuven, Munich, Cologne,Trondheim, Upsalla, Arhus, Cambridge, Oxford,Norwich, Manchester, Glasgow, Edinburgh, York,Dublin, Evry, Vienna, Geneva, Basel, Zurich,Sophia Antipolis
Pharma Industry OverviewGlobal Innovation Trends
Clusters to watch
India
Major push into generics and CROs
Early success stories include Dr. Reddy’s Labs,
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Early success stories include Dr. Reddy’s Labs,Ranbaxy, Cipla, Matrix Pharma, Glenmark, etc.
Some generics plan on going upstream
Supplying low-cost anti-HIV drugs to Africa (throughClinton Foundation)
Hyderabad, Bangalore, Bombay and New Delhiemerging as important bio-informatics and biotechcenters
Pharma Industry OverviewGlobal Innovation Trends
“Bio” Clusters to watch
Israel
Dynamic pharma and biotech sector
Teva Pharmaceutials – market cap of $23.8 bn in
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Teva Pharmaceutials – market cap of $23.8 bn in2006
Singapore
South Africa
Brazil
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