Key M&A Deals 2018 - 2019 Avexis Apr, 2017 Ablynx Jun, 2018 Foundation Medicine Jun, 2018 Flatiron Feb, 2018 Bioverative Jan, 2018 Juno Therapeutics Jan, 2018 Spark Therapeutics Feb, 2019 Celgene Jan, 2019 Loxo Oncology Jan, 2019 Tesaro Dec, 2018 Shire Nov, 2018 $4.8 billion $62 billion $5 billion $8 billion $74 billion $4.8 billion $9 billion $11.6 billion $1.9 billion $8.7 billion $2.4 billion In 2018, rare disease-focused acquisitions represented: To enter into high growth cell therapy Sanofi’s biggest acquisition in seven years, aimed at bolstering its rare disease portfolio To widen its control in personalised medication Part of its foray into gene and cell therapy To boost its R&D in the field of nanobodies and rare blood disorders To strengthen genomic profiling franchise To survive the slowing domestic market To reinvigorate its oncology pipeline, which was otherwise weak To expand its oncology pipeline To become an oncology powerhouse Moved further into gene therapy Notable examples of AI adoption in R&D In October 2018, Gilead was reported to enter into a deal with the NHS, offering undisclosed discounts on its list price 1 of $385,000 (£300,000) on its cell therapy drug Yescarta to gain market access Subsequently, pharmaceutical companies engaging in confidential deals are offering discounts to the NHS for access In May 2018, after a cost appraisal by NICE on MS therapies, Teva, Biogen and Merck Serono agreed to reduce the prices of their products Global pharma sector outlook Exploring 6 key themes impacting the sector this year Theme 1 – Rising pricing pressure Theme 2 – Innovative contracting approaches Theme 3 – Cost containment Theme 4 – Decreasing R&D productivity Theme 5 – Steps to improve R&D outcomes Theme 6 – Continued relevance of M&As US Europe Other innovative tactics Aggressive payer negotiations and discounts, and generic and biosimilar competition, are hindering pharma companies' revenue growth and profitability Continued efforts to reduce costs Rising development costs coupled with low probability of clinical success warrant changes to current R&D strategies Outsourcing and adoption of technology to expedite R&D, improve outcomes and reduce costs Deal making slowed down in 2018, even though the Takeda-Shire deal pushed the transaction value level up. With over $80 billion in deals already announced in 2019, we could see the M&A fever coming back Combined deal value ($ billion) Deal count 2 approaches to improve R&D outcomes Projected returns on R&D investments for top 12 biopharma companies, 2010–2018 (%) Development cost for 1 commercialised asset, top 12 biopharma companies, 2010–2018 Projected peak sales per asset, top 12 biopharma companies, 2010–2018 Pricing pressure, demand for R&D investments and an adverse reimbursement landscape, have restricted pharma companies’ growth and profits, leading them to focus on cost containment to maintain profitability Cost containment measures Outcome-based pricing approaches likely to gain more traction in Europe compared to the US Under pressure from the US government, many players including Pfizer, Novartis, Allergan, AstraZeneca and Amgen froze prices of prescription drugs in 2018 The US government has taken a raft of measures including focusing on generic and biosimilar drug approvals and proposing aggressive negotiations for Medicare purchases According to a Wells Fargo report, the average rebates offered by pharma companies to payers has increased from 28% in 2012 to 41% in 2018, and are expected to go up further in 2019 In 2018, generic drug manufacturers suffered margin pressure due to strong competition driven by the high pace of USFDA’s ANDA approvals and roughly 90% consolidation in drug distribution In 2018, NICE, the UK body responsible for providing guidance on health and social care, aggressively imposed its cost effectiveness norms for innovative drugs 1. All currency conversions are at £1 = $1.28344 as of January 14, 2019 2. All currency conversions are at €1 = $1.71915 as of January 14, 2019 Source: PharmaPhorum, Chain Drug Review, FiercePharma, PMLiVE, Capital.fr, Simon Kucher & Partners, Ouest France, Service-Public.fr, IQVIA, IndiaInfoline, Forbes, FiercePharma - Insurers, BioSpectrum India, Economic Times 1. All currency conversions are at €1 = $1.71915 as of January 14, 2019 2. All currency conversions are at £1 = $1.28344 as of January 14, 2019 3. Estimated cost savings In the US, the public sector payers are unlikely to use outcome-based contracts in the near term, given the government’s focus on generics and biosimilars as price containment tools; therefore, private sector payers are more likely to adopt these pricing models In 2018, Humana had roughly 15 pay- for-performance deals covering 20 prescription drugs Merck has 2 publicly disclosed deals with Cigna for its diabetes drugs Januvia and Janumet, linking rebates to the drugs’ performance Similarly, Eli Lilly has an arrangement with Harvard Pilgrim Healthcare linking price rebates for its drug Trulicity’s performance in diabetes patients Adoption of outcome-based models is expected to increase in Europe given the publicly funded nature of single payer systems prominent in the region In Italy, outcome-based pricing has been frequently used by payers to reduce costs Further, In February 2018, a number of pharma companies entered into a 3-year agreement with non-profit outcomes measurement body ICHOM, to develop a standardised framework for evaluating health outcomes and push for further adoption of the approach In 2018, Gilead and AbbVie partnered with the Government of Louisiana to assess a subscription-based pricing model comprising fixed annual price per patient for unlimited access to their hepatitis C drugs $ Rationalisation of manufacturing footprint Outsourcing of support functions $600 million annual reduction in R&D costs Synergies from Shire merger Reorganisation of business units Rationalisation of manufacturing and R&D operations Offshoring business services Supply chain optimisation Supply chain optimisation Reductions in administrative costs Rumoured to have planned to slash budget by 20% Cancelled 20% of its R&D projects Offshoring business services to low-cost destinations Adoption of new technologies in the supply chain 2016–2018 $1.7 billion 1 2018–2020 3 $1.4 billion 2018–2021 3 2018 $510 million 2 /year Unspecified 2018–2022 3 $600–800 million 1 /year The Wall Street Journal In-Pharma Technologist, Bloomberg Quint, GSK Press Release, Reuters, Proactive Investors-UK, Source: Pharmaphorum, Source:: Centre for Health Solutions; Deloitte; Biostatistics Journal To mitigate rising pricing pressures, pharmaceutical companies are increasingly adopting outcome-based contracting approaches; these include allowing rebates on pricing and partial reimbursements, based on any given drug’s performance in the real-world setting "The commercial market is already reacting to high specialty drug prices by restricting access. Payers want to reduce the total cost of care.” – Amy Hunckler, Managing Director, Healthcare and Life Sciences, KPMG (March 2018) Source: FiercePharma; Forbes; The Government of Louisiana, Pharmaceutical Commerce; EyeforPharma; Politico; ScienceBusiness.net Key measures being adopted $816 million million CAGR 7.8% 2010 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2018 High number of blockbuster assets High number of small value assets 2018 $407 $1.2 $2.2 2010 2018 billion billion Estimate Estimate Estimate Estimate 10.1% 7.6% 7.3% 4.8% 5.5% 4.2% 4.2% 3.7% 1.9% Key takeaway Currently, the large players in the pharmaceutical industry are witnessing diminishing returns on investments in innovative therapies, leading them to adopt new tactics to contain costs and improve R&D output Outsourcing of clinical development activities – including site identification, recruitment, data management, analytical testing and site payments – to clinical research organisations (CROs) is commonly being carried out by big pharma companies, resulting in expedited and cost effective drug development Adoption of technology Outsourcing Licensed drug discovery platform Drug discovery collaboration Drug discovery collaboration Drug discovery collaboration Drug discovery collaboration 2018 2016 2015 2018 2017 + + + + + Source:: Company Websites; Deloitte; Contract Pharma Early benefit assessment of drugs by Germany’s health technology assessment body, coupled with negotiations with pharmaceutical companies, have resulted in price reductions for many drugs Rising biosimilar competition is being seen 2012 28% 41% Pricing freeze Norms Price reduction Negotiations Negotiations Rebates Margins 2018 The French government plans to save more than $1.15 billion 2 (€1 billion) by cutting drug prices and tightening negotiations with pharma companies in 2019 CEPS, the pharma pricing negotiations authority of France, is also aggressively pushing price cuts In 2018, post CEPS negotiations, the prices of Gilead’s hepatitis C treatments saw reductions of 20%; the prices of AbbVie’s Maviret were slashed by 33% Automation of routine tasks such as quality checking of clinical trial data, filing documents and processing adverse event reports Machine Learning to analyse Electronic Health Record (EHR) data (images, scans, etc.) to process and develop real-world evidence Artificial Intelligence (AI) to expedite drug discovery processes as well as analyse the real- time stream of data collected from participants using IoT devices during clinical trials Internet of Things (IoT) devices in clinical trials to improve participant adherence and gather relevant data; Novartis and Pfizer have been actively investing in IoT devices to be used during clinical trials Pharma companies Subscription-based pricing model agreement 3-year + To learn more about how we can support your organisation to understand best practices surrounding drug development, manufacturing and commercialisation; facilitate spend reduction across the business; and get critical industry-related updates customised to your needs, please contact us at [email protected] 16% of the total volume of M&As worth more than $1 billion and nearly half of the value Intelligence. Accelerated thesmartcube.com However, due to the requirement of real- world data and complex models defining value, outcome-based deals are more likely to be used for costly innovative drugs such as Kymriah, a CAR-T therapy from Novartis, priced at $475,000 per treatment in the US US UK Germany France as a key factor in bringing the prices of biologics down. A price moratorium on generic drugs until 2022 will limit growth of generic drug manufacturers Deal history – by volume and value 2009 2010 2012 2011 2013 2014 2015 2016 2017 2018 183 151.5 108.5 57.1 48.3 79.4 219.3 188.9 107.2 79.0 136.5 208 218 206 211 229 290 205 183 173 Key motivations for M&A Recover from genericisation - $251 billion 1 worth of sales are estimated to be under pressure during 2018-2024 Withstand increasing challenges on operating/ regulatory/political fronts Replenish R&D labs Scale up existing capabilities Add high-growth/ innovative/ differentiating capabilities Source:: EvaluatePharma 1. According to EvaluatePharma