Pharmaceutical innovation, research and development, and business model

1. How Pharma is transforming
for the Future
Boris Azaïs
Director Public Policy, MSD
Lisbon, January 29, 2014
The viewsof the author are his own and do not necessarily reflect the views of Merck & Co. and its subsidiaries.

2. 2
Introductory remarks

3. TOGETHER
SUPPORT
SCIENCE
POLICY
HEALTHCARE
POLICY
INDUSTRIAL
POLICY
Investments
in
Science
Investments
in
Public Health
Favorable
Business
Environment
We are successful together
New
Drugs
Rapid
Uptake
Sales
Cash
Flow
R&D
⇒ Better Health
⇒ Human capital creation
⇒ Higher productivity
⇒ Economic growth
Outcomes
Pharmaceutical innovation is
the result of a strong
partnership between science,
healthcare and industry.

4. 4
The Situation

5. The life cycle of pharmaceuticals is faced
with various pressure points
The Evolution of the Innovation Life Cycle in Biopharmaceuticals
Number of New Medical Entities per $B R&D spent (inflation adjusted)
Delayed uptake of
new products
Uncertain science
Cost of clinical
development
Earlier and faster
generic entry
Cost-containment measures
Greater in-brand competition
Various sources, including Pammolli et al. 2012,; Grabowski & Kyle, 2007; DiMasi et al. 2003;
Pammolli et al. 2011;

6. R&D productivity is under question
Pharmaceutical innovation is facing a fundamental productivity challenge
 Investment in R&D has outpaced sales growth, but this has not increased output of new
medicines.
Number of New Medical Entities per $B R&D spent (inflation adjusted)

7. The uptake of pharmaceutical innovation in
Europe has declined
Between the time periods 2003/7 and 2008/12, NCE # and uptake decreased for all countries except Norway and Bulgaria.
Movements of the top 5 European markets shown for illustration. Source: IMS Health MIDAS, September 2013
New Chemical Entities launched vs. Market Share achieved

8. “The last five years in
Europe have seen greater
adoption of generics and
more restrictive policies
that have made patients
in almost all European
countries less likely to
gain access to innovative
medicines.”
Additional Graphs
8
Source and ©: Wall Street Journal, January 2014, available at
http://online.wsj.com/news/articles/SB100014240527023042810045792223
62098933226
… and new drug launches are not as
successful as before
Source: "The Global Use of Medicines:
Outlook through 2017", IMS Institute,
November 2013
http://bit.ly/1eWBiaT

9. Additional Graphs
9
International price comparison compounds
the challenges…

10. 10
Source: CRA analysis based on relationships reported in Global Insights. Again, it should be noted
that the impact on profits is proportionately larger as although revenues fall as result of PT, there is
no reduction in costs.
Spillover effect of a 10% price drop in
Greece

11. Between 2012 and 2018, loss of exclusivity will wipe about
$148 billion off the industry’s revenues.
Sources: EvaluatePharma, ‘World Preview 2018’ (June 2012)
11
Numerous products will lose exclusivity
during the current decade
Expected sales losses (US$ billions)

12. Additional Graphs
12
In 10 years, European pharma moved from
double digit growth to decline
Source: IMS Health December 2002 MAT
Growth rate
Source: IMS Health
November 2012 MAT
Growth rate
2002
2012

13. 13
The Impact of Austerity Measures

14. Impact of the financial crisis on health budget
Source and © OECD, 2013; “Recent Health Expenditure Trends”, November 7, 2013
Average OECD health expenditure growth rates
2000 to 2011, public and total
Total Health Expenditure Public health expenditure
14
The sustainability of our health systems
is crucial for pharmaceutical innovation

15. Because austerity measures target
predominantly pharmaceutical costs
Source: OECD Health Data 2012.
According to OECD data, pharmaceutical spending has been overwhelmingly
targeted for cost-containment measures in order to balance health budgets

16. IMF originally didn’t see value of targeting
pharmaceuticals for long-term improvement
16
“Recent cost-containment efforts in Europe have focused on
pharmaceuticals and are unlikely to have a major effect on the
long-term outlook for spending”
“These developments are projected to have positive effects in the
short term, but are unlikely to have a major effect on the growth
of spending over the longer term, especially given the modest
share of pharmaceutical outlays in total public health outlays”
(page 56)
Fiscal Monitor
Fiscal Exit: From Strategy to Implementation
November 2010

17. 17
The Industry Response(s)

18. Multiple approaches to revitalising research and development
Source: : Deloitte: Change and disruption in the pharmaceutical industry (2007).
Level
3
Level
2
Level
1 Increased R&D
Spend
Industry
Consolidation
Biotech In-
licensing
R&D
Reorganisation
Outsourcing
Cooperative Tech
development
Open Source
Timeline
Ease of Implementation
Simplifying R&D
Decoupling R&D
Managing the R&D
interface
Accessing global
knowledge
Virtual R&D
processes
Exploring more open and collaborative
R&D approaches

19. 19
Science drives pharmaceutical innovation
towards new therapeutic horizons
Source: IMS Institute for Healthcare Informatics, September 2013 in “The Global Use of Medicines: Outlook through 2017”.
Report by the IMS Institute for Healthcare Informatics
Disease Area
Rheumatoid Arthritis
Cystic Fibrosis
Melanoma
Breast cancer
Ovarian cancer
Multiple sclerosis
Heart Failure
Hepatitis C
“The majority of the new
launches will address unmet
needs in specialty disease
areas, orphan diseases, and
target smaller patient
populations.”
IMS Institute, Nov. 2013

20. 20
Focus on unmet needs with specialty
products and biologics
Source: IMS Institute for Healthcare Informatics; Therapy Forecaster, May 2011
“There are 641 products
in the late stage pipeline,
a third of which are
biologics and more than
half are specialty drugs.”
Source: "The Global Use of Medicines:
Outlook through 2017", IMS Institute,
November 2013
http://bit.ly/1eWBiaT

21. 21
The future success of our industry will depend on how
successfully we can build alliances and collaborate today.
Kenneth Frazier
MSD’s Chairman, President & CEO
More collaborations across the industry,
but also with regulators and payers
- Number of in-licensing on the increase
- EC/EFPIA Innovative Medicines Initiative
- FDA Consortia
INCREASED
COLLABORATION IN
DRUG R&D
INCREASED
COLLABORATION
WITH REGULATORS
- Early dialog with regulatory authorities
- FDA “Breakthrough designation”
- UK Industry / NICE partnership

22. Coverage with evidence devt
Conditional licensing
No cure no pay
Pricing review
Try before you buy
Population payments
Price-Volume Agreement
Price holding
Dose/Quantity limits
Pricing by diagnosis
Type of risk
Innovationandcomplexity
Outcomes
Financial
Temporary
approval
Exploring new pricing and reimbursement
models through risk sharing
22

23. Source: Ernst & Young ; Chart copied from KMC Life Sciences “Global Pharma Outlook 2013” prepared for Heidrick &
Struggles; May 2013
Exploring new business models focusing
on the patient
23

24. What next?

25. Additional Graphs
25
Source and ©: Science, January 2014, available at
http://news.sciencemag.org/breakthrough-of-the-year-2013
The future of R&D remains promising
thanks to scientific progress

26. The annual number of new medicines
continues to increase
Over several decades, the number of new chemical entities is stable
 Whilethere are dips and peaks during specific time periods, the longer term trend
contradicts the widely held view that pharmaceutical innovation is declining, suggesting
that the annual numbers of newly launched drugs may have increased since the early
1970s
Numberofnewdrugslaunched
Year
New drugs launched in the UK from 1982 to 2011.
Ward DJ, Martino OI, Simpson S, et al. Decline in new drug launches: myth or reality? Retrospective
observational study using 30 years of data from the UK. BMJ Open 2013

27. 27
As the cost of DNA sequencing is going down,
precision medicine will become routine
SOURCE: McKinsey analysis
Cost of genome
sequencing

28. Real-world data and integrated care
will transform healthcare
Illustration of the spectrum of technologies to support healthy ageing
Source: “ICT & Ageing - European Study on Users, Markets and Technologies”, European Commission (2011)
28

29. Source: A.T. Kearney analysis
Health
information
Care
services
Coordination
of care
Drugs
MedTech
Patient & Health
Professionals
Outcome
Value=
Cost
Our health systems are moving toward a
patient-centric model, focused on value
29

30. Source: What Value-Based Health Care Means for Pharma, © BCG (2012)
Companies are moving ‘beyond the pill’ by
increasing their service offering
30

31. 31
MSD’s EVIDENCE into PRACTICE™ in the UK
Partnership with NHS Greenwich
• Pilot sites using EiP services saw a 12% and
8% decrease respectively in the number
of diabetic and CVD outpatients over a
year
• The local PCT estimated that by extending
EiP services to all practises, it could
generate over $1mn in savings p.a.
• It has also been estimated that over a ten
year period, EiP can deliver a 11.9%
increase in life expectancy and a 13.3%
increase in QALY
http://arms.evidence.nhs.uk/resources/qipp/89908
9/attachment
Purpose: Help people with diabetes and those at increased
cardio-metabolic risk to receive optimal care based on national
guidelines.
Status: Around 2.5 million patients are benefiting from this
program.
Published in NHS Evidence

32. 32
Concluding Remarks

33. Need to find common solutions to secure the health
of our citizens and our healthcare systems
Invest in Health
 Prioritize growth and health outcomes rather than short-term cost-containment
measures.
 Better health outcomes cannot be achieved without converging health
spending to OECD average across Europe.
Support the most affected
 Wealthy countries should refrain from referencing prices to bailed out
countries, as it decreases affordability in lower-income countries.
 European authorities should help countries take temporary action against re-
exports.
Promote Stakeholders Dialogue and Health Expertise
 Governments should involve all stakeholders, including patients and industry
when designing austerity and reform programs that may impact access to
healthcare for patients.
33

34. Fique Bem!
34
© 2011: Worth1000.com
Boris Azaïs
Director Public Policy, MSD
boris_azais@merck.com
Active & Healthy Ageing is
within our reach! (*)
(*) Authenticity of the picture not guaranteed!