Presentation delivered by Mr Sandy Johnston, PriceWaterhouseCoopers at the Irish Pharmaceutical Healthcare Association Annual Meeting 2009.

1. Pharma 2020:
Which path will you take?
12th November 2009
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2. Introduction
Sandy Johnston – Partner, PwC Consulting - Pharmaceuticals
+44 20 7213 1952, sandy.johnston@uk.pwc.com
• Sandy has responsibility for the UK pharmaceuticals consulting practice and focuses on
overall business transformation and performance improvement
PricewaterhouseCoopers LLP 2

3. The 2020 thought leadership series outlines challenges
and opportunities for pharmaceuticals
www.pwc.com/pharma
PricewaterhouseCoopers LLP 3

4. The aging population is the biggest cause of
increasing healthcare costs
12
US
Healthcare cost relative to
10 Canada
UK
50 - 64 age group
8 Australia
Japan
An 80 year old in the US costs 4.6
Germany
6 times more than Germany and 3.3
Sweden
Spain
4 times more than Japan
2
0
50-64 65-69 70-74 75-79 80+
Age Group
Sources: Laurence Kotlikoff and Christian Hagist, “Who’s Going Broke?” National Bureau of Economic Research, Working
PricewaterhouseCoopers LLP Paper No. 11833, December 2005, p.25; World Factbook, 2006; OECD Health Data 2006; IMS Sales Data 2005. 4

5. New opportunities are emerging through the E7
economies
Breakdown of global market 2008
RoW
18%
E7 • By 2020 ~20% global sales from
US
12% Global 38% E7** countries
$773bn
• China possibly the biggest
Other G7 market in the world, Turkey and
32%
India possibly in the top ten
Breakdown of global market 2020*
RoW
**E7 nations = Brazil, China, India,
20%
E7 Indonesia, Mexico, Russia and Turkey
US
18% Global 39%
$1.3trn
Other G7
23%
* Assumes G7 grow at mid-single digits,
E7 grow low- to mid-double digits
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6. R&D productivity continues to decline
NME and New
50 60
Biologics Approved
45 by FDA
50
NMEs and Biologics approved
40
PhRMA member
35 R&D spend ($bn)
R&D spend ($bn)
40
30
* PwC estimate
25 30
NME:
20 New Molecular Entity.
20 Excludes vaccines, antigens
15
and combination therapies
10 which do not include at least
10 one new constituents
5
0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*
Over last decade:
• PhRMA member R&D investment almost tripled, reaching an estimated $46bn in
2007
• FDA approved medicines declined by two thirds - 56 in 1996, 19 in 2007
PricewaterhouseCoopers LLP Source: FDA/CDER Data, PhRMA data, PwC analysis 6

7. Resulting in a sales revenue gap in 2020
Value of patent expiries 2001-2015 (constant USD billion)
25
20
Average annual loss
15
US$ 16.4 bn
10
5
0
0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 1 4 1 5
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
$157 billion sales exposed to generic competition by 2015
PricewaterhouseCoopers LLP Source:IMS Health Midas 7

8. Conflicting agendas increase the pressure on
Needs vs. Demands
Pharma
Pharma’s world
Govt / Regulators
Product Safety, Efficacy, Innovation
New Reward Structure, Patent, IP Structures
Payers / Providers
Tomorrow’s Treatment, Risk Management, Sustainability, Value
challenge
is to incentivise
Compliance, Good Formularies, Access to Outcomes Data
prevention and cure Patients
Prevention , Cure, Value for Money
Access to Patients
Investors
Reliable Profits, Increased TSRs
Long Term Model
No Quick Buck
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9. Breaking the downward spiral of poor patient
compliance
Decreased Drug Efficacy
Industry
Patients
WIN
LOSE
Retained patients & sales
Increased Healthcare Expenditures Payors
WIN
Payors
LOSE Decreased Healthcare Expenditures
Lost Patients & sales Patients
WIN
Industry
LOSE Increased Drug Efficacy
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10. But industry’s damaged reputation is limiting its
future potential
A recent PwC Survey
R&D demonstrates public
mistrust in the
industry
Sales &
Marketing
Perceptions are wrong because over 63% US consumers believe 40% to 80%
healthcare costs are prescription medicines
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11. So Pharma needs to move away from the
blockbuster approach
Because
• Serendipitous discovery of “one size fits all”
drugs is increasingly difficult and costly
• Scientific advances in biology, IT, mobile and
networking technologies offer radically new
approaches
• Health technology assessment is now part of
health care decision making
• Patients and patient groups have growing
influence and demand greater access to
treatments
• Industry must deliver higher value medicines
to patients and demonstrate clear benefits
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12. Which will polarise the industry
‘Mass market’
Low cost
Branded generic /OTC
treatment
Management
High volume
Protocol driven
Poly pharmacy & bundles
DTC communications
Speciality / Niche
High cost
Disease modifying
Cure
Price
Physician driven
Risk sharing
Specialist targeted
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13. Pharma 2020: Virtual R&D
Which path will you take?
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14. A seismic shift is required to stimulate
innovation
Within R&D there needs to be greater innovation and
lower costs achieved through:
• A comprehensive understanding of how the
human body works at the molecular level
• A much better grasp of the pathophysiology of
disease (by which we mean the functional changes
associated with, or arising from, disease or injury)
• Greater use of new technologies to “virtualise”
the research process and accelerate clinical
development; and
• Greater collaboration between the industry,
academia, the regulators, governments and
healthcare providers.
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15. Expediting Development- Collaborating to
bring treatments to the market
This Live License will facilitate the seamless exchange of data between providers,
payers, regulators and pharmaceutical companies as experience is gained
with the product
Instant
Research & automated
Early approvals
Development
CIM
Automated
Human
submission/ Clinical Use Development loop for
Studies
approvals extended indications and
regulatory activities
Discussion and
agreed plan CIE
of action with CIS
Regulators &
Limited launch
Payors
with Living License
CIM – Confidence in Mechanism
CIE – Confidence in Efficacy
CIS – Confidence in Safety
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16. Imperatives for change
Pharmaceutical Companies must recognize that these changes will affect their
cost and revenue curves
Predicted changes to R&D cost vs revenue curve in 2020
Traditional
R&D cost
Revenue $
Future R&D
/revenue
cost/revenue
curve
curve- with live
Faster to
licensing
market-
reduced Step wise revenue
spend in increases on
initial R&D automated approvals
0
Cost $
PricewaterhouseCoopers LLP Time 16

17. Pharma 2020: Marketing the Future
Which path will you take?
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18. Pharma 2020: Marketing the Future
Companies will need to…
• Recognise the interdependence of the payer, provider and pharmaceutical
value 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 healthcare
packages
• Develop marketing and sales functions that are fit for the future
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19. And the market is defining the innovation it will
buy
Innovative products are typically defined as those which…
• Cure a disease or condition
• Prevent a disease or condition
‘Innovation’ is the provision of value that
• Reduce mortality or morbidity
generates a premium price
• Reduce the cost of care
• Improve the quality of life
• Are safer or easier to use
• Improve patient compliance and persistence
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20. Which requires the development of a price de-
risking strategy in early development
Preclinical Phase I Phase II Phase III Regulatory Phase IV
25.7 5.8 11.7 25.5 6.9 13.3
Percentage of spending in each phase of R&D. 11.3 % of spending uncategorized
Increased chances of success at
phase III and more informed
investment decisions
Point at which Point at which
pharmaceutical companies pharmaceutical companies
should be thinking about typically start thinking
pricing to de-risk their about pricing
portfolios
• Rigorous assessment of what payers, providers and patients value
is required
• Novartis – consultancy with NICE re Phase III design
• GSK – involving Governments in pipeline decisions
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21. Forces from the market, the regulator and patients will
change the way in which decisions are made
21
Disruptive Healthcare Technology
Proactive Pharmacovigilance
(Sentinel, SAEC, AMGA)
ePrescribing and Interventions
Medvantx Generic Sample Distribution
Automated Prescription Delivery System
Electronic Medical Records (EMR)
Genomics: Diagnostics and Personal
(23&Me, deCodeGenetics)
Health 2.0
(Healia, Patientslikeme, MEDgle)
Outcomes Exchanges & Consortiums
(NCCN Oncology, AMGA)
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22. Medvantx Generic Drugs Sample Distribution
• In over 2000 Offices
• Over 5000 Physicians
• 13 Therapeutic Areas
- Hypertension
- Hyperlipidemia
- Depression
- Pain
- Diabetes
- Dermatitis
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23. Pharma 2020:
Challenging business models
Which path will you take?
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24. The business model of today must change to
one that fully embraces collaboration
PRESENT 2020
• centred on the securing and • patents alone will no longer
protection of IP suffice
• leveraging scale to run widespread • profit alone’ model will have gone
clinical trials and deliver an extensive the same way as the blockbuster
sales and marketing presence. model.
• single companies, deploying a variety • a company’s ability to develop
of contractual relationships, but collaborative business models will
seeking to secure profits on their own dictate success in the 2020 world.
– a ‘profit alone’ model. • ‘Profit alone’ will have been
replaced by ‘profiting together’ by
developing networks of collaboration
“This is a business model where you are guaranteed to lose your entire book of
business every 10 to 12 years.” J.P. Garnier, former chief executive of
GlaxoSmithKline
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25. A collaborative model will address changing
trends and value propositions
Trends
Market trends Health & Healthcare Scientific & Technological
• Better informed patients • The burden of – and bill for- • More virtualised R&D
chronic disease is soaring
• Bigger bill share for patients • The research base is shifting
• Healthcare payers are to Asia
• Increase in more complex
establishing treatment
care and treatment models • Remote monitoring is
protocols
improving rapidly
• Demand for cures vs
• Pay-for-performance on the
treatments
rise
• Increasing importance of the
• Blurring boundaries between
emerging markets
different forms of care
• Increasing financial constraints
on payers
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26. A collaborative model will address changing
trends and value propositions (continues)
Implications
Pharma to go “beyond R&D to go beyond the lab More intertwined Pharma
the medicine” • Pharma to access outcomes and Healthcare value
• Outcomes will pay (vs. of data chains
products) • Pharma to work with IT • Pharma to work closer with
• Outcomes data will drive vendors to virtualise R&D regulators
healthcare policy • Pharma to have a wider, more • Pharma to collaborate with
• Higher profile for prevention multy-disciplinary skills base payers and providers to
perform continuous trials
• Pharma to offer “medicines- • Pharma to extend its presence
plus” packages of care in Asia • Pharma to collaborate with
numerous service providers to
• Pharma to adopt more flexible • Pharma to demonstrate “real” deliver packages of care
pricing strategies value-for-money
Business models based on collaboration
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27. We have identified four business models
Owned
Collaborative
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28. However, there are significant structural and
cultural obstacles to effective collaboration
Intellectual
Change
Property
Organisational
Culture Reputation
Structure
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29. Key questions to ask
• What is our current business model? Does it play to our
strengths? 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, what
type of business model will we need?
• Do we have a plan in place that enables us to move forward
while maximising the opportunities and minimising the risks?
Given the socio-economic imperative for change –
the trigger may come from regulators, investors and
payers
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30. 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).
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information contained in this publication or for any decision based on it.
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