This document discusses strategies to address declining productivity in pharmaceutical research and development (R&D). It begins with an overview of issues facing the industry such as falling drug approvals and increasing R&D costs. It then examines different R&D models and ways to manage risk. Some strategies to potentially reduce drug attrition and improve portfolios are presented. The document also notes changes in operating models across the pharmaceutical industry and importance of portfolio management and optimization. Overall, the document analyzes challenges in pharmaceutical R&D and proposes approaches to enhance productivity.

1. Myth or Fact:
How do We Address the
Productivity Challenge in Pharma R & D ?
Dr Harsukh Parmar
Executive Director, Global Discovery Medicine,
Respiratory & Inflammation Therapeutic Area
harsukh.parmar@astrazeneca.com
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

2. Contents
1. Issues Facing the Industry
2. Different Models for Pharma R & D Portfolio
3. Risk Management, Risk-Benefit & Cost-Effectiveness
4. Some Clues to Reduce Attrition. Improve Portfolios.
5. Changes in Pharma Operating Models
6. Portfolio Management & Optimisation
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

3. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

4. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

5. Falling R&D productivity: NDAs and NMEs
approved by the FDA (1996 – 2003)
140
45% decline in number of NDAs approved
120
100
FDA approvals
80
60
60% decline number of NMEs approved
40
20
0
1996 1997 1998 1999 2000 2001 2002 2003
NDAs approved NMEs approved
Source: Datamonitor, FDA
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

6. It is not all Bad News. Biologics/Vaccines are Succeeding !
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

7. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

8. Time lag between introduction of the pioneer
product and its first competitor
1965 - 1999 (UK)
80
• 74
60
• 52 • 54
40
• 31
• 25
20
Months • 3
1965- 1970- 1975- 1980- 1985- 1990- 1995-
1969 1974 1979 1984 1989 1994 1999
Source: Pharma Strategy Consulting AG
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

9. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

10. U.S. Drug Industry R&D Expenditures and
Drug Approvals, 1963-2000
60 27
R&D Expenditures
R&D Expenditures
(Billions of 2000$)
NCE Approvals
40 18
20 NCE Approvals 9
0 0
63
65
67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
R&D expenditures adjusted for inflation
Source: Tufts CSDD Approved NCE Database, PhRMA
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

11. Global pharmaceutical R&D
expenditure (1993 – 2007p)
70
60
Global R&D Expenditure (US$ bn)
50
40
30
20
10
0
1993 1995 1997 1999 2001 2003 2005p 2007p
Year
P - Projected figures have been calculated based on an average annual growth in R&D expenditure between 1997 and 2002.
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

12. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

13. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

14. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

15. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

16. Low levels of innovation: NIHCM analysis 2002
IMDs (old active
Priority (provide clinical
ingredients identical to
improvement over currently
products available on the
NMEs marketed products)
US market)
New active
24%
ingredients
35%
76%
54%
11%
Standard (no significant clinical
improvement over currently marketed
products)
Old active ingredients (differ in dosage form,
route of administration, combined with other
active ingredient)
Source: FDA 2001, NIHCM report “Changing Patterns of Pharmaceutical Innovation” 2002
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

17. Pharma history characterized by consolidation
T a b le 1 : M a jo r in d u s t r y c o n s o lid a t io n e v e n t s 1 9 8 9 – 2 0 0 3
C om pany A C om pan y B Year
B io g e n - I D E C B io g e n ID E C 2003
P f iz e r P f iz e r P h a rm a c ia 2002
B r is t o l- M y e r s S q u ib b B r is t o l- M y e r s S q u ib b D u -P o n t 2001
P f iz e r P f iz e r W a rn e r L a m b e r t 2000
G la x o S m it h K lin e G la x o W e llc o m e S m it h K lin e 2000
P h a rm a c ia P h a rm a c ia & U p J o h n M o n s a n to 2000
A s t ra Z e n e c a A s tra A B Zeneca 1999
S a n o f i-S y n t h é la b o S a n o fi W in t h ro p S y n t h é la b o 1999
A v e n t is H o e c h s t M a r io n R o u s e ll R h ô n e - P o u le n c 1999
W y e th W y e t h L a b o r a t o r ie s A y e r s t L a b o r a t o rie s 1997
N o v a r tis C ib a -G e ig y Sandoz 1996
H o e c h s t M a r r io n H oechst M a r io n M e rr e ll D o w 1995
G la x o W e llc o m e G la x o W e llc o m e 1995
P h a rm a c ia P h a rm a c ia U pJohn 1995
S m it h K lin e B e e c h a m B e e c h a m G ro u p S m it h K lin e B e c k m a n 1989
B r is t o l- M y e r s S q u ib b B r is t o l- M y e r s S q u ib b 1989
S o u r c e : D a ta m o n it o r D A T A M O N I T O R
Other Recent Mergers/Acquisitions
•Sanofi & Aventis
•Roche majority purchase of Chugai
•Merck AG offer for Schering
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

18. REGIONAL PLAYER CONSOLIDATION
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

19. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

20. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

21. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

22. Market value shift to new models
Market value CAGR (1992-02)
30%
30%
27%
25
21% 21%
20
15
12%
10
5
0
Top 20 Primary Care Specialty Biotechnology Generics
Pharma focused players (e.g. Novo (e.g. Amgen, (e.g. Teva, Eon)
(e.g. King, Nordisk, Genentech)
Forest) Schering AG)
22
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

23. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

24. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

25. Main Reasons for Termination of Development
for “Opportunity Cost” is LACK OF EFFICACY!
ONE SIZE DOES NOT FIT ALL !
Clinical Safety Toxicology
20.2% 19.4% Clinical
Pharmacokinetics/
Bioavailability
3.1%
Other
6.2% Preclinical efficacy
3.1%
Preclinical
Pharmacokinetcs/
Various Bioavailability
10% 1.6%
Formulation
Portfolio 0.8%
Considerations Patent or Commercial
21.7% Clinical Efficacy Legal
0.8%
22.5%
Regulatory
0.8%
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

26. RISK AVERSION VERSUS RISK MANAGEMENT
RISK AVERSION / AVOIDANCE RISK MANAGEMENT
•Little risk tolerance •Create transparency in risk
•Closed mindset •Open mindset
•Potential lost opportunities •Create new opportunities
•Negative attitudes •Make informed choices
•“Glass is always half empty” •Positive attitude
•Never fail attitude •Allow to fail on risk tolerance
•Learning is limited •Learning is enhanced
•Innovation is limited •Innovation is enhanced
•Personal Growth is limited •Personal Growth is enhanced
OUTCOME OUTCOME
•Become a generics company •Establish a successful pharma
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

27. What is a Pharma R & D Portfolio ?
1) A collection of products that have reached the Market
2) A collection of investigational compounds in Development
3) A collection of projects in Discovery
4) A collection of Disease Area Investments to yield Future Projects
5) A collection of assets in the form of Patents, IP, Copyright etc
6) A collection of People with Ideas for Future Projects and Products
7) A collection of Tools & Technologies to Leverage the Ideas
THE SEVEN PILLARS OF SUCCESS OR FAILURE
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

28. How do you optimise a Pharma R & D Portfolio ?
!GET ANY PART OF THESE ASPECTS WRONG AND FUTURE
SUCCESS IS COMPRIMISED
!GET ALL SEVEN PARTS OF THESE ASPECTS RIGHT AND
YOU WILL GUARNTEE SUCCESS and also
!YOU WILL HAVE DISCOVERED NIRVANA !!
“THE 7 PILLARS OF WISDOM IN PHARMA R & D”
!GET SOME PARTS OF THESE RIGHT AND THERE WILL BE
SUCCESS OR FAILURE TO A GREATER OR LESSER EXTENT
!IT IS A TRUISM TO SAY NO COMPANY HAS GOT ALL 7
ASPECTS FULLY OPTIMAL but there are some clear signals,
clues about how some of these aspects can be optimised
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

29. What are the Risks in Pharma R & D ?
These can be divided into a number of categories
•Risks associated with Target Validation
!What level of validation is sufficient at each milestone?
•Risks associated with Discovery & Attrition
!How do you identify effective, safe compounds (CD) ?
•Risks associated with Development & Attrition
!How do you prove clinical effectiveness and safety?
•Risks associated with Manufacturing (GMP)
!How do you prove that Cost of Goods is manageable ?
•Risks associated with the Market Acceptance (cost-effectiveness)
!How do you prove your drugs are commercially attractive?
!Are they fully differentiated from currently available drugs
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

30. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

31. The comparison between Targets in the years 2001 and 2005.
Shows the influence of Genomics on drug discovery.
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

32. Drug Targets in the Genome
Assumption: wider phenotypic screening will identify
a greater number of therapeutically-relevant genes?
Therapeutically
Predicted + Human genome relevant genes
assumed
~30,000 ~6000 + 20%
druggable
overlap
targets
~3000
+~3000
= ~6000
Small Mol 6000 Targets for
Drug targets Large Molecule
Therapeutics
~1200
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

33. Optimise Target Validation/PoP/PoC
Correct Choice of Target
It would not be possible to overstate the value of in-vivo
human validation. Most of what passes for target validation
today is largely conjectural in relation to the disease in
question.
Diabetes Professor & Researcher
Harvard Medical School
A Revolution in R & D-The Impact of Genetics
The Boston Consulting Group
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

34. Human TV
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

35. Serendipity is still important in R & D
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

36. But serendipity………….
…is chance driven
....is not a planning tool
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

37. More Predictable Drug Discovery
Kinase
Proportion of drug discovery effort
Difficult < 25%
(Protein - protein)
(Protein - protein)
Drugable > 75%
(GPCR, kinases
Undesirable proteases, Nuclear R)
< 5%
GPCR
(Cytokine R,
(Cytokine R,
GF-R)
GF-R)
Do-ability of Target Classes
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

38. No Targets Attrition rate (%):
100
initiated •chemical
•biological
annually •selection of target
•efficacy
Target •safety & interactions
•failure to meet target profile
Hit
Antibody
40 (2-3 years)
Target &
concept LC Small molecule
validation (6-8 years)
20
Lead preCD
CD IND
discovery Lead
10 optimization
50% 50% 40% 15% 20%
1 2 Year 4 4.5 5.5
CD prenomination
No
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

39. Probability of Success to Market by Therapeutic Area –
Industry Success Rates by TA
Progression-Decision Methodology
120%
100%
100%
94% 93%
90%
83%
80%
80% 77%
74%
Anti-infective
68% 69%
Musculoskeletal
Alimentary and Metabolism
60% Cardiovascular
52% 51%52% Anticancer
Nervous System
Respiratory
39%
41%
40% 36%
29%
26%
24%
20%
16% 19%
20%
13% 16%
12%12% 12%
8%
0%
First human dose to market First patient dose to market First pivotal dose to Market Submission to Market
From Industry Success Rates 2004, CMR International, May 2004:
Using the “Decision-Progression” methodology to calculate probabilities of success to market demonstrates a similar profile by therapy area as that produced using the “CMR Success Rates”
methodology, with Anticancer NASs demonstrating the lowest probabilities of success from all Phases to market, and Alimentary & Metabolism and Musculoskeletal NASs demonstrating the
highest probabilities of success to market from Phase III and from Submission
Methodology – CMR Success Rates Method
Probabilities of Success were calculated using the proportion of decisions resulting in progression for each phase, based on NASs where a decision was taken either to progress or terminate
the NAS between 1994-2003 within 34 companies (see Appendix 2 for full methodology).
148 Cardiovascular, 151 Anticancer, 275 Nervous System and 124 Anti-Infective NASs are represented in this analysis. Please note that some NASs reached a decision point in more than
one phase of development during the time period considered.
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

40. Composite median cycle times for new development projects
(2001-2003) by therapeutic area
First toxicity Dose to First Human dose First Human dose to First Patient dose
First Patient dose to first Pivotal dose First Pivotal dose to first submission
1.0 1.7 2.8 2.5
Anti-Cancer (38) (29) (12) (5) 8.0
0.9 1.5 2.2 2.3
Musculoskeletal (27) (12) (3) (7) 7.9
0.8 1.8 3.9 2.1
Nervous System (75) (40) (12) (6) 8.6
1.0 1.4 2.8 2.2
Cardiovascular (26) (19) (2) (5) 7.4
Anti-Infectives
0.6 1.0 3.0 1.7 6.3
(32) (12) (6) (3)
0.9 1.5 4.2 3.7 10.3
Respiratory (24) (18) (1) (3)
1.0 1.2 2.3 1.9 6.4
Alimentary & Metabolism (47) (25) (6) (3)
Total
0 2 4 6 8 10 12
Duration in years
Composite profiles are created by combining values for each interval completed by new development projects during 2001-2003. n = interval duration in
years, (n) = number of projects that completed each interval. Data are shown for new development projects where the start and end milestone dates for
the interval are available. Each interval represents a different cohort of projects. For explanation of the composite profile refer to methodology figure 0.2.
Dr H Parmar
From CMR 2004 Global R&D Programme Executive Director, Global Discovery Medicine, Astrazeneca

41. Probability of Success to Market by Mode of Action
CMR Success Rates Methodology Perspective"Insight"Opinion
100%
100% Novel mode of action
Established mode of action
90% 86%
80%
Probability of Success
70% 68%
60% 56%
50%
40%
33%
30%
23%
20% 15%
9%
10%
0%
First human dose to market First patient dose to market First pivotal dose to market Submission to market
Source: CMR International Audited data Confidential
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

42. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

43. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

44. Proactive portfolio/ franchise
building is critical to growth
Pharmaceutical Industry - Illustrative Growth by
Strategic Activity
700
600
500 Discovery
Deals
$bn
400 M&A
300 Licensing
200 In-house
100
0
1980 1990 2000 2010
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

45. Virtual pharma offers a
strategic alternative
“These (companies) might look nothing like the pharma giants of
old, the huge, vertically integrated centenarians that historically
had done everything from basic research through development,
manufacturing, marketing, and distribution.”
Source: Fagan & Hayes
• Cost savings achieved through: Virtual
– Minimisation of bureaucracy Pharma
– Higher utilisation of fixed
resources
– Acquisition of resources only
when needed
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

46. Partnerships/Licensing – Major Pharma as system integrators
in product blockbuster production-A model for future pharma?
Initial Now
Monopolistic studios Free-market talent integrators
Development/ Development/
Production Promotion Distribution Production Promotion Distribution
Financing Financing
Central Finance, Admin, Manufacturing
• All functions performed by six • Major studios play role of “systems
major US studio houses integrators” to deliver box-office hits
Sourced i15 mini-major studios
i “Free agent” actor market Contracted
global i50-80 major independents
global talent
i Single movie and movie series content
contracts i1,200+ minor independents
Contracted Licensed
Blockbuster
“star” independent
Production
actors studios
i Big screen and broadcast i Screen writing - 1/3 studios,
talent base draw Sourced 2/3 independents
Contracted independent
“emerging” script
actors writers
46
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

47. Risk Management Framework
Risk
Language
Understand Identify
• Context
!Map Context
• Opportunities
!Engage Stakeholders
• Boundaries • Threats
!Agree Scope
& Objectives
Review
Outcomes/
Learning
Manage Assess
• Plan
!Risk Management Plans
• Consequences
!Benefits
!Enabling Resources
!Impacts
!Monitoring & Reporting
• Review& Learning • Likelihood
!Review overall outcomes
!Learning Review
!Sharing Learning Culture and
Values
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

48. Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

49. People & Culture
How to Succeed in the Brave New World
• “But putting the right electronic links in place is only half the
battle; the other is creating the right human links.”
Pharma 2005: An Industrial Revolution in R&D, (1998)
PricewaterhouseCoopers
• Get the right people
» Technical or domain skills & knowledge are crucial
» Behavioral competencies-collaboration across-many
functions. Disappearance of silos, reporting lines
» Where possible, build your organization around the
strengths of your people
• Create a corporate learning culture that values clear,
transparent two-way communication across R & D
Discovery Development
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

50. Risk-
Getting Risk-Management right in a portfolio is
critical to driving top performing sales growth.
Move top projects to the next level
Portfolio Optimisation
$ Sales
Move the majority of projects
closer to the level of top
performing projects
$ Potential
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca

51. The Drive to Improve R&D
Effectiveness -- Industry Goals
• Increase products in the pipeline
• Cut research and development times
• Reduce late stage failures (Particularly Phase III)
• Improve “quality” decision making at each
milestone
• Contain R&D costs - Increase the cost-effectiveness
• Increase the sales and return on investment
• Decrease Opportunity Costs & Marketing Costs
• Market Niche or Mass Market Products with
Appropriate Sales/Costs Ratios
Dr H Parmar
Executive Director, Global Discovery Medicine, Astrazeneca