Verispan Year in Review - 2007Prepared for: Association of Medical MediaPresented by: Tara HammDate: June 12, 2008

2

IntroductionKey events in 2007

Drug safety comes to the forefront – product focus (Avandia, Procrit, Aranesp) and product approvals (more FDA scrutiny/caution)Continued debate and action regarding data privacy – physician and consumerGenerics take center stage – growth in penetration, but also focus on generic biologicsRestructuring and refocusing strategic direction – sales force upheavals continue; marketing and managed care strategies evolveWeb-based applications expand and target provider and consumer access (Web 2.0, social networking for docs, YouTube, podcasts)An early start to the presidential election cycle brings healthcare and pharmaceuticals to the forefront, where it stays as a top election topic among the leading candidates

3

Agenda

Leading Industry TrendsImpact of GenericsLeading Managed Care TrendsFuture Look/Emerging TrendsConclusions

Leading Trends

Source: Verispan's Vector One ®: National5

TRx Retail Sales

Retail Prescription and Sales Growth

$0$25$50$75

$100$125$150$175$200$225

($B

il)

2000 2001 2002 2003 2004 2005 2006 2007

+7.1%

Total Prescriptions

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

TRxs

(Bil)

2000 2001 2002 2003 2004 2005 2006 2007

+3.6%

+1.0%+1.5%+2.0%+4.3%+5.3%

+2.5%

+3.8%+5.7%+8.3%+1.5%+14.9%

+16.4%

Both prescription volume and retail sales grew 5% over 2006. Six of the top 10 products in sales grew by double digits in 2007.

+4.5%

+5.3%

Source: Verispan's Vector One ®: National6

The Growth of Generics

43%

57%

46%

54%

49%

51%

53%

47%

57%

43%

61%

39%

0%10%20%30%40%50%60%70%80%90%

100%

% o

f Ind

ustry

TR

xs

2002 2003 2004 2005 2006 2007

Branded Generic

In 2007, the share of generic prescriptions rose to an unprecedented 61% of total activity.

Source: Verispan's Vector One ®: Payer 7

Out-of-Pocket Cost Analysis

16%

20%

37%

16%

5% 6%

0.01-5.00 5.01-15.00 15.01-30.00 30.01-50.00 50.01-75.00 75.01+

More people found themselves paying between $5 and $15 for branded drugs in 2007 than in 2006 (22% vs. 20%). However, the number of patients paying more than $30 for branded prescriptions continued to increase, rising to 28% of the retail population.

14%

22%

36%

16%

5% 7%

2006 2007

Average out-of-pocket cost for branded drugs

Source: Verispan's Vector One ®: National8

Leading Companies in Retail Sales

$0

$5

$10

$15

$20

$25

Ret

ail S

ales

($ B

il)

PfizerGSK AZ

TevaNovartis J&J

MerckLilly

Abbott SAWyeth

MylanBMS

Watson BI

2006 2007

-8%

-5%

+5%+8% +2%

+5% -12%+13% -2% -7% +2% +20% +8% -3% +7%

2 of the top 15 companies had double-digit increases

Company performance was mixed, with Lilly and Mylan demonstrating significant growth, while Merck continued to see declining sales due to Zocor’s patent expiration.

Source: Verispan's Vector One ®: National9

Leading Products in Retail Sales

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

TRx

($B

il)

Lipito

rNex

iumAdv

air D

iskus

Prevac

id

Plavix

Singulai

rSero

quel

Effexo

r XR

Lexa

pro

Actos

Proton

ixVyto

rinTo

pamax

Risperd

alAbil

ify

2006 2007-6%

+7%

+9% +0.3%+38%+16%

+21% +10% +10% +16% +6% +32% +21% +8%

Thirteen of the top 15 products grew above the industry average of 5% in 2007. Sales for Lipitor fell 6%, while Plavix and Vytorin experienced the largest growth at 38% and 32%, respectively.

+26%

2007 Trends in Promotion

Source: Verispan's Sales Force Structures & Strategies11

Industry Rep Counts

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000110,000

# of

Rep

s*

2001 2002 2003 2004 2005 2006 2007

* Includes top 40 corporations based on rep count

-2%+0.1%+8%+1%+6%+6%

For the past 2 years, rep counts have been on the decline, falling below 95,000 by the end of 2007.

-5%

Source: Verispan's Promotion Audits12

Promotional Spending by Corporation

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

Prom

otio

nal S

pend

ing

($ B

il)

PfizerGSK

Merck AZ SANovartis Lilly

Schering J&JBMS

20062007

Five of the top 10 companies decreased promotional expenditures in 2007. AstraZeneca decreased its spending 14%.

Schering-Plough increased its spending 23%, while Lilly expenditures rose 18% over 2006.

Source: Verispan's Promotion Audits13

Promotional Spending Continued Increase

$15.8

$19.0 $19.2 $19.7 $20.4

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

Prom

otio

nal S

pend

ing

($ B

il)

2003 2004 2005 2006 2007

Total industry promotional spending grew 3% over 2006, reaching $20.4 billion in 2007.

Source: Verispan's Promotion Audits, TNS14

Promotional Spending by Type 2000 through 2007

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2000 2001 2002 2003 2004 2005 2006 2007

Prom

otio

n Sp

end

($ B

il)

Office-BasedHospital-BasedNP/PAEventsDTCJournalePromo

In 2007, spending on details to nurse practitioners and physician assistants continued to steadily increase. ePromotion spending rose 20% in 2007, while DTC spending declined 3%.

Source: Verispan's Detailing Audits15

Trends in Detail Activity

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007

Det

ails

(000

)

Office/Hospital NP/PA Total Details

93,180 Details

14%17% 21% 22%

While details to office- and hospital-based physicians declined over the last 3 years, details to NP/PAs continued to grow. Over the last 5 years, details to NP/PAs grew from 14% of total details to 24%.

24%

Source: Verispan's Physician Meeting & Event Audit16

Trends in Event Activity

524536

511 497453

403370

196176165156137120

129

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007

Even

ts (0

00)

In 2007, event activity increased 5% over 2006, reaching 524,000 total events. Rep-led events experienced the greatest growth at 11%. Among the top five companies for meetings and events in 2007, both Merck and Novartis increased their number of events by double digits: 38% and 20%, respectively.

-4.7% +5.3%

+6.8% +11%

Rep-Led Events

Total Events

Source: Verispan's DTCA, TNS17

Trends in DTC Expenditures

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2000 2001 2002 2003 2004 2005 2006 2007

DTC

Spe

ndin

g ($

Mil)

TV Print Internet Radio Outdoor

+33% +9% -2%+22%

+32%+6%

+13%

Note: Internet spending added to Verispan offering in 2004

DTC expenditures experienced the first decline in 5 years, falling 3% from 2006. In 2007, outdoor and radio advertisements saw the largest decreases, 57% and 46%, from the previous year.

-3%

Source: Verispan's DTCA, TNS18

DTC Spending 2007Although it declined, the sleep disorder class remained the most promoted in 2007. Lunesta and Ambien CR were the top two products promoted in the industry.

Pfizer’s Lipitor ads, featuring Dr. Robert Jarvik, had the third-highest DTC spending in 2007. In early 2008, Pfizer pulled this campaign due to a congressional probe.

Source: Verispan's ePromotion Audit19

Trends in ePromotion Activities

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2003 2004 2005 2006 2007

Act

iviti

es (M

il) +7%

+21%+12%

ePromotion activities continued to grow by double digits, topping 3.7 million in 2007.

+15%

Source: Verispan 2007 ePromotion Annual Study20

ePromotion StrategiesIn the past 2 years, virtual details have replaced online events as the most preferred ePromotion format. Similar to physicians reporting a growing preference for virtual details, Verispan’s ePromotion Audit found that the majority of ePromotion activities for 2007 consisted of virtual details (53%).

ideo detail11%

Online event41%

Other1%

None12%

Virtual detail35%

2005 ePromotion Annual Study (n=869)

Video detail15%

Online event28%

Other1%

None12%

Virtual detail44%

2006 ePromotion Annual Study(n=990)

Virtual detail54%

None5%

Other1%

Online event26%

Video detail14%

2007 ePromotion Annual Study (n=1,029)

Source: 2007 ePromotion Annual Study21

ePromotion Strategies

0 50 100 150 200 250 300 350 400

Number of Responses

Sanofi-Aventis

Abbott

Novartis

Eli Lilly

AstraZeneca

Pfizer

GlaxoSmithKline

Merck

In a Verispan study, Merck received the most physician mentions for offering the best ePromotion programs/activities, followed by GSK. Video details accounted for 43% of Merck’s ePromotion activities in 2007. Merck dominated this type of activity, holding 92% of all video details in the industry.

Note: Any corporation with fewer than 60 mentions was excluded.

Best ePromotion activities

Impact of GenericsTrends and Tactics

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Generic Impact - 2007One of the industry’s biggest challenges continues to be the extensive loss of patents for blockbuster drugs. In the first 6 months for 2007, the industry saw generic competition of two major products:

Pfizer’s Norvasc (2006 retail sales, $2.1B)Sanofi-Aventis’ Ambien (2006 retail sales, $1.9B)

Traditional pharmaceutical company strategies such as line extensions, combined therapies and new formulations have not been able to replace the gap left by patent losses.

The result has been dramatic, as the volume and share of generic prescriptions rose significantly in 2006 and continued to hold steady in the first half of 2007.

Verispan’s Vector One®: National24

The Growth of Generics - TRxs

43%

57%

46%

54%

49%

51%

53%

47%

57%

43%

61%

39%

0%10%20%30%40%50%60%70%80%90%

100%

% o

f Ind

ustry

TR

xs

2002 2003 2004 2005 2006 2007

Branded Generic

In 2007, the share of generic prescriptions rose to an unprecedented 61% of total activity. Nearly 14 points of the total came from generics that became

available over the last 4 years.

Source: Verispan Company Image Strategic Study25

Consumer Requests for Generics

0

500

1,000

1,500

2,000

2006 (n=1,999) 2008 (n=2,001)

Yes No

0

100

200

300

400

500

600

700

800

2006 (n=1,475) 2008(n=1,525)

Physician Pharmacist Physician Assistant Nurse Practitioner Other

In 2008, 76% of consumer respondents reported asking that a generic product be used instead of a brand-name product, a 2-point increase from 2006.

When getting a prescription, has anyone in your household asked that a generic drug be used instead of a brand?

Num

ber o

f Res

pond

ents

Whom did you ask?

Consumers most frequently reported asking for a generic from their physician, followed by their pharmacist, in 2008 (51% and 45% of respondents, respectively).

Num

ber o

f Res

pond

ents

74% 76%

26% 24%

Source: Verispan Company Image Strategic Study26

Consumer Switching to Generics

0

500

1,000

1,500

2,000

2008 (n=2,001)

Yes No

0

100

200

300

400

500

600

700

800

2008(n=872)Insurance required Personal choice Physician recommendationPharmacist recommendation Other

In 2008, 44% of consumer respondents reported switching to a generic product from a brand product.

Have you ever switched from a brand drug to a generic drug in the course of treatment for a condition?

Num

ber o

f Res

pond

ents

What prompted the switch to the generic drug?

Consumers most frequently cited insurance requirements as the reason for switching to a generic drug (43%), followed by personal choice (21%) and physician recommendation (19%).

Num

ber o

f Res

pond

ents

56%44%

43%

21% 19% 13% 22%

Source: Verispan’s Vector One®: National, Vector One®: Payer27

Method of Payment- Branded vs. Generic 2003-2007

Third Party

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007

GenericBranded

Cash

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007

Medicaid

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007

Medicare Part D

0%

20%

40%

60%

80%

100%

1Q-07 2Q-07 3Q-07 4Q-07

45% 60%

55% 40%

54%

46% 28%

72%

18-pt. swing

5-pt. swing13-pt. swing

15-pt. swing

46% 59%

54% 41%

62%

38% 33%

67%

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Trends in New Molecular Entities 1993 - 2007

2521

29

53

39

3035

2724

1721

36

20 1816

0

10

20

30

40

50

60

# of

NM

Es

1993 1995 1997 1999 2001 2003 2005 2007*

* 2007 counts are through November 2007 (includes biologics)

232 NMEs in 7 Years…

…179 NMEs in next 7 Years

Managed Care Landscape

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Managed Care News & Nuggets

Growing popularity of “value-based” formularies to increase compliance by decreasing patient co-pays on therapies providing long-term medical cost savings to plans. Cleveland Clinic employee plan of $6 for 90 days of generic statin and $30 for 90 days of a brand in 2007 (Drug Benefit News, 1/4/08) Wal-Mart getting into the PBM business? (Drug Benefit News, 2/1/08)United Healthcare could in-source its remaining business with Medco, which was worth about $9.9 billion in revenue to Medcoin 2007 (Drug Benefit News, 2/1/08)As of Jan. 1, 2008, there are 1.5 million more enrollees in Part D (up 6%), for a total of 25.4 million (CMS Web site, 1/31/08)

31

Managed Care News & NuggetsIn 2008, about 1.2 million Part D low-income subsidy patients were reassigned to different plan sponsors and another 965,000were reassigned to a different plan within the same sponsor (Pink Sheets, 1/14/08). CMS recently proposed a rule to reduce future churning (Drug Benefit News, 1/18/08) CMS pushing for more transparent prior authorization (Pink Sheets, 1/28/08)Kaiser/Georgetown/U. of Chicago study of 2008 plans found that (Pink Sheets, 12/17/07):

Cost sharing for non-preferred brands is expected to increaseValue generic and non-preferred generic tiers were introducedPreferred brand vs. non-preferred brand differentials were $34 in PDPs and $18 in commercial plansSpecialty tier utilization and coinsurance is growing, while at the same time plans are eliminating the $275 deductible period (some think this is unfair)

Source: Verispan's Vector One®: Payer

Generic Filling by Payment ChannelPart D generic filling continues to outpace the industry average, and the gap

between Part D and third party widened from 4Q06 to 4Q07.

54%

56%

58%

60%

62%

64%

66%

68%

1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07

% o

f R

etai

l P

resc

rip

tion

s F

ille

d w

ith

Gen

eric

Pro

du

ct Medicaid Third Party Medicare Part D

6 pts.

2 pts.

Source: Verispan's Vector One®: Payer33

$5

$10

$15

$20

$25

$30

$35

2003 2004 2005 2006 2007

Pat

ient

Avg

. Out

-of-

Poc

ket

Cos

t

Industry Brand Industry GenericPart D Brand Part D Generic

Patient Out-of-Pocket Costs

-4%

+6%

Branded out-of-pocket expenses in Part D are increasing more quickly than the industry average, as is the gap between Part D branded and generic out-of-

pocket expenses (14 percentage points).

2006 to 2007% Change

+11%

-3%

14 points

10 points

A Look AheadEmerging Trends for 2008 and Beyond

35

Emerging Trends in 2008Cost controls continue to be driven by patent expirations, generic impact, anemic pipelines, tough regulatory environment, privacy/data restriction legislationBlurring traditional lines – who does what?? – retail clinics, Wal-Mart: a PBM?, United: in-sourcingGenerics continue to take a big bite of marketplace –impact beyond just the brandAccess issues – expanded, new, retooled approach to accessing health information onlineIt’s an election year. . .

Convenient Care Clinics

37

Convenient Care Clinics AKA – Retail-Based Medical Clinics

According to the Convenient Care Association, the first clinics appeared in Minneapolis-St. Paul in 2000, operated by QuickMedx. These first health clinics initially saw a very limited number of illnesses and accepted only cash for services. Today there are over a dozen companies across the country that have formed to provide healthcare services, to individuals and families, for common illnesses. These clinics have evolved to form contracts with health insurance companies, while also accepting cash payments for a visit.As of January 2008, there are well over 800 CCCs throughout the United States in locations such as drugstores, food stores and other retail settings. The CCA expects to see 1,500 to 2,000 new locations by the end of 2008.

38

Convenient Care Clinics Top 5 Providers by Number of Stores (2008)

0 100 200 300 400 500 600

# of Clinics

500

126

4834

24

Other CC Providers

39

Emerging/Established(?) Internet TrendsHealthcare is a rapidly evolving area on the Internet. Sites such as YouTube, iTunes, Sermo and TV CME are changing the way consumers and practitioners access information on healthcare.

40

ConclusionsPharma companies will continues to evaluate their sales force size and structure with further reductions, reallocation, and even geographic segmentation anticipated throughout 2008. With tighter scrutiny over cost and with physician interest and increased participation, ePromotion will continue to grow and evolve. Generic companies will increase promotional spending, further creating and building field forces. Awareness of the availability of generic drugs is growing among consumers who are both increasing requests for specific generics and, in some markets, their relative compliance rates. Corporations continue to mitigate the effects of generics on their portfolios by striking a balance between both branded and generic offerings.

41

ConclusionsWe have seen signs from multiple analyses that payers are more strictly managing Part D benefits than commercial benefits, This is important for manufacturers, because more of the prescription-taking population nears retirement and the commercial models will evolve toward the Part D model (patient choice off-set by tighter utilization management).

Healthcare will undoubtedly be a key component of each of the 2008 presidential candidates campaign platforms.

The Democrats will look to push some version of mandated coverage through a national plan while the Republicans will advocate the status quo with the possibility of utilizing collective purchasing groups to drive down cost