Which path will you take? - PwC · 2015. 6. 3. · business strategy, valuations, portfolio...

Pharma 2020:Which path will you take?23rd October 2009

2PricewaterhouseCoopers LLP

Introductions

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

• Jo has overall responsibility for PwC Strategy’s pharmaceuticals teams and focuses onbusiness strategy, valuations, portfolio management and commercial due diligence

Simon Friend – Partner, Global Head of Health Industries, London,+44 20 7213 4875, [email protected]

• Simon has global responsibility for pharmaceuticals, life sciences and healthcare


The 2020 thought leadership series outlines challengesand opportunities for pharmaceuticals

www.pwc.com/pharma


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USCanadaUKAustraliaJapanGermanySwedenSpain

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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.


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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

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Ten FDA Approvals, January – June2008Generic Name Trade Name Manufacturer Therapeutic

ClassificationFDAClassification

Alvimopan Entereg Aldolor / GSK Postoperative ileus 1 - S

Bendamustine HCl Treanda Cephalon Antineoplastic 1 - P, O

Certolizumab pegol Cimzia UCB Crohn’s Disease Sb

Ciclesonide Omnaris Nycomed / Sepracor Allergic rhinitis 1 - S

Desvenlafaxine Pristiq Wyeth Antidepressant 1 - S

Etravirine Intelence Tibotec Antiviral 1 - P

Methylnaltrexone Br Relistor Wyeth Opioid Constipation 1 - S

Nebivolol HCl Bystolic Forest Antihypertensive 1 - S

Rilonacept Arcalyst Regeneron CAPs P, Ob

Sinecatechins Veregan Bradley Genital Warts 1 - S

1 - New Molecular entityO - Orphan DrugP - Priority ReviewS - Standard Reviewb - Biologic

60% of the industry’s R&D output for the first half of 2008 iscomprised of products for runny nose, genital warts,constipation, two orphan drugs and a beta blocker!


Six FDA Approvals, July –December 2008Generic Name Trade Name Manufacturer Therapeutic

ClassificationFDAClassification

C1 Inhibitor Human Cinryze ViroPharma Hereditary Angioedema:10,000 Patients

P,Ob

Clevidipine butyrate Cleviprex The MedicinesCompany

IV Antihypertensive 1 - S

Difluprendnate Durezol Sirion Ophthalmic Corticosteroid:5M Patients / 9th Product

1 - P

Eltrombopag olamine Promacta GSK Immune ThrombocytopenicPurpura: 60,000 Patients

1 - P,O

Romiplostim Nplate Amgen Immune ThrombocytopenicPurpura: 60,000 Patients

P,Ob

Tetrabenazine Xenazine Ovation;Prestwick Chorea in Huntington'sDisease: 30,000 Patients

1 – P,O

1 - New Molecular entityO - Orphan DrugP - Priority ReviewS - Standard Reviewb - Biologic

67% of the industry’s R&D output for the second half of2008 is comprised of specialty products with ‘Orphan Drug’status


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

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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, Value


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


Today we pay to treat, tomorrow we must pay tocurePayers / Providers currently focus on treatment rather than prevention

• OECD Average - 2.9% spent on public health

• Cervical cancer vaccine cost ~1% of ongoing MS treatment cost

By 2020 OECD countries health spend = US$10 trillion

unless the focus shifts

But this is unlikely:

• Chronic disease caused 60% of all deaths in 2005, 80% of deaths in developingcountries, and will increase by 17% over 10yrs

• Plus 80% of heart disease, stroke and type 2 diabetes, and 40% of cancer,could be avoided

WHO estimates


Today we pay to treat, tomorrow we must pay tocurePayers / Providers currently focus on treatment rather than prevention

• OECD Average - 2.9% spent on public health

• Cervical cancer vaccine cost ~1% of ongoing MS treatment cost

By 2020 OECD countries health spend = US$10 trillion

unless the focus shifts

But this is unlikely:

• Chronic disease caused 60% of all deaths in 2005, 80% of deaths in developingcountries, and will increase by 17% over 10yrs

• Plus 80% of heart disease, stroke and type 2 diabetes, and 40% of cancer,could be avoided

WHO estimates

The industry

MUST

play its part

in reducing health care costs


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 stimulate innovation

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.


Getting to know ourselves

A single, validated mathematical/computer model of the molecular and cellularcomponents of the human body to:

• Identify which disease targets are relevant

• Simulate the effects of medicinal molecules on specific disease targets

• Predict ADME, side effects, dose and the optimal balance between efficacyand safety in a virtual environment

PhysiomeProject

Integrativefunction of cells

organs andorganisms

Living HumanProject

In-silico model ofthe human

musculoskeletalsystem

The StepConsortium

The human bodyas a single

complex system

Could the evolution of virtual man be part of the answer?


Expediting Development

• Nanotherapeutics

Delivery of Therapeutic agents or repair to specific cells or organsin the human body

• Regenerative Medicine

Replacement or regeneration of human cells to restore normalfunction and potentially reverse the course of a disease

• Gene Therapy

Introduction of modified DNA into a human cell with the intent toproduce a functional protein and improve the effective treatmentof some diseases and potentially provide cures for others

moving from treatment to prevention and cure of disease


Expediting Development

• Use Pervasive Monitoring - miniature devices and wireless networks -to monitor patients on a real-time basis when they’re at home

- Provides feedback on Adverse Events or delivers medication asrequired

- Improves patient compliance by providing immediate feedback duringclinical trials or post-launch

• Develop biomarkers as reliable surrogates to diagnose and confirmdisease

- Use this information to test new therapies in the right patientpopulations

• Produce diagnostics alongside new treatments

to become an integral part of healthcare delivery.


Expediting Development- Collaborating to bringtreatments 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


Collaborating to bring treatments to the market

FDA

Critical Path Initiative

• Aims to bridge the gap between basic scientific research and the development process

• Includes a number of opportunities to predict the safety and efficacy of candidate moleculesmore accurately

EMEA

Road Map to 2010

• Aims to ensure that EMEA is adequately prepared for future scientific advances

European Commission & Federation of Pharmaceutical Industries

Innovative Medicines Initiative (IMI)

• Aims to create a framework for developing new biomarkers and disease-specific centres forvalidating them

The regulators are already initiating the change to embrace the future and want towork with industry rather than be an impediment


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


Time

QualityInnovation = = Value

X

Cost

Service

X

What does Innovation mean to a payer ?


Preclinical

25.7%

Phase I

5.8%

Phase II

11.7%

Phase III

25.5%

Regulatory

6.9%

Phase IV

13.3%11.1% Uncategorized PhRMA March 2007

A price de-risking strategy is needed

• A price de-risking strategy will lead to product;

- Divestitures

- Terminations

- Accelerations

- Clinical development plans revisions

- Free up resources for investment in other products

- New products priced in balance with the value delivered


29

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)


Proactive Pharmacovigilance(Sentinel, SAEC, AMGA)

2010: 25 Million Patients2012 150 Million Patients


Medvantx Generic Drugs Sample Distribution

• In over 2000 Offices

• Over 5000 Physicians

• 13 Therapeutic Areas

- Hypertension

- Hyperlipidemia

- Depression

- Pain

- Diabetes

- Dermatitis


Automated Prescription Delivery SystemScriptCenter - Asteres

• California Board ofPharmacy Approvedfor use in 2007

• Patients agreeScriptCenter reduceswaiting time to pick uprefills

• 75% of Users willingto enter data

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


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

Collaborate or die


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 to performcontinuous 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


The Fully Diversified Model will only be pursuedby the very largest of organisations

EthicalPharmaceuticals

Mass-Market• Primary-careproducts(Includingpatches, inhalantsand controlled-release implants)

• Poly-pills

Specialised-market

• Biologicals• Orphan Drugs• Vaccines

Diagnostics& Devices

• Molecular testing• ClinicalBiomarkers

• Medical Devices

Generics

• Branded generics• Commoditygenerics

• Super-generics• Follow-on-biologicals

ConsumerHealth

• Over-the-countermedicines

• Consumerdiagnostics

• Nutraceuticals

HealthManagement

• Patient education• Delivery and drugadministrationservices

• Monitoring andcounselling

• Physiotherapy• Nutritional advice• Wellnessmanagement


The Federated Model will lead to sustainablecompetitive advantage if implemented effectively

Incentives

• Fixedbudget/patient

• Improved lifeexpectancy

• Improved QALYS


The Virtual Model is a potential ‘familiar’ startingpoint for more collaborative models


While the Venture Model secures control andautonomy through funding mechanisms

Pharmaceuticalcompany

Investors

Third Party

Service providers(CRO, CDO, CMO

etc.,)

Growth company


However, there are significant structural andcultural obstacles to effective collaboration

IntellectualProperty

Culture ReputationOrganisational

Structure

Change


New skills will come to the fore in this new world

• Winners will be able to

- master the cost/benefit agenda alongsidesafety/efficacy

- recognise where profit flows and why

- run effective alliance models

- invest for the long term

- build and maintain trust

- shape the industry

• New skills may advantage non-pharma players


Some companies are already making a transition

GSK

Fresenius

Roche

Lilly

Pfizer


Some companies are already making a transition

GSK

Fresenius

Roche

Lilly

Pfizer

In addition, a new business model may openthe door to a potential entrant (i.e. GEHealthcare, Google, Virgin, etc)


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 -

Questions?

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.

This presentation 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 thisreport 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 report,and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyoneelse acting, or refraining to act, in reliance on the information contained in this report or for any decision based on it.

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