Pharma Industry Overview - New York University …faculty.poly.edu/~brao/mg795fall07class5.pdfPharma Industry Overview Types of drugs Prescription & Non-prescription 5 Patented drugs

Pharma Industry Overview

Background & big picture trends

Key demand drivers

Pharma R&D

Challenges Ahead

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Challenges Ahead

Global Innovation trends in Bio-pharma

Pharma Industry OverviewThe big picture

Pharma profits are generated from broad based list ofcompounds

Major targets include infection, cardiovascular conditions,depression, inflammatory diseases, etc.

Pharma sector is more or less immune to the economy Demand for drugs has always been growing

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Demand for drugs has always been growing Most drug costs are reimbursed by government, managed

care or other third parties Major challenges ahead including lack of blockbuster drugs,

competition from generics, managing consolidation, andchanging dynamics of managed care

Collaboration with biotech firms is critical to developingnovel new ideas, and improvements in drug discoverymethods

New waves of the future – genomics, proteomics, bio-informatics, disease management, wellness, EMR, etc

Source: IMS Research, 2003Source: IMS Research, 2003

Pharma Industry OverviewGlobal pharma sales by 1998-2005

Global Sales US$B1998 1999 2000 2001 2002 2003 2004 2005

3Source: IMS Health Total Market Estimates and Global Pharma Forecasts (includes IMS Audited and Unaudited Markets)All information current as of February 27, 2006.

Total World Market (current US$) $298 $331 $356 $390 $427 $497 $559 $602

Growth Over Previous Year(Constant US$)

7% 11% 11% 13% 9% 10% 8% 7%

Pharma Industry OverviewGlobal audited pharma sales in 2005

World AuditedMarket

2005 Sales(US$B)

% GlobalSales

% GrowthYear-over-Year (Constant $)

North America $265.7 47.0% 5.2%

Europe $169.5 30.0% 7.1%

4Source: Source: IMS MIDAS®, MAT Dec 2005All information current as of February 27, 2006..

Europe $169.5 30.0% 7.1%

Japan $60.3 10.7% 6.8%

Asia, Africa andAustralia

$46.4 8.2% 11.0%

Latin America $24.0 4.2% 18.5%

Total IMSAudited

$565.9 100% 6.9%

Why so high?Why so high?

Pharma Industry OverviewTypes of drugs

Prescription & Non-prescription

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Patented drugs Generic drugs OTC drugs

Source: IMS World Review 2003.

••OffOff--patent ethicalspatent ethicals••18% of US Sales18% of US Sales••Some plans mandateSome plans mandate

generics if availablegenerics if available••Priced at 30Priced at 30--80%80%

discounts to patenteddiscounts to patented••WaxmanWaxman--Hatch Act (84)Hatch Act (84)

accelerated genericsaccelerated generics

••Physician controlledPhysician controlled••65% of US Sales65% of US Sales••PharmacyPharmacy--dispenseddispensed(retail, hospital,(retail, hospital,mailmail--order, etc.)order, etc.)

••Emphasis on provenEmphasis on proveneffectivenesseffectiveness

••SelfSelf--medicated by patientmedicated by patient••17% of US Sales17% of US Sales••Most OTCs began asMost OTCs began as

prescription drugsprescription drugs••Widely availableWidely available

20012001

Will this distributionWill this distributionchange over time?change over time?

Pharma Industry OverviewGenerics are booming

GENERIC DRUGS - FACTS

Generics account for 42% of all prescriptions (2002 data) For every 1 percent increase in utilization of generic drugs there is a

corresponding savings of $1.16 billion dollars for health plans andemployer groups

The average branded prescription is four times the cost of a generic

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The average branded prescription is four times the cost of a generic Generics save consumers $8-10 billion per year Nine out of ten adults are willing to use generic drugs if recommended

by their physician Eight out of ten adults, regardless of income, would choose a generic

if the savings was $10 or greater Annual savings on chronic medications could be thousands of dollars

for patients.

Source: Medvantx.com 2003

By 2010, ~80% of patentedBy 2010, ~80% of patenteddrugs will be exposeddrugs will be exposedto generic competition!to generic competition!

Pharma Industry OverviewGenerics are booming…

…but “big pharma” is busy chasing

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Source: Medvantx.com 2003

…but “big pharma” is busy chasingthe blockbusters

Pharma Industry OverviewLeading Products in 2002Product Category Company 2002 Sales in

$ (Billions)Patentexpiry

Lipitor CholesterolReducer

Pfizer 9.0 2010

Zocor CholesterolReducer

Merck 6.0 2005

Prilosec/Losec Anti-ulcerant AstraZeneca 5.0 Expired

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Prilosec/Losec Anti-ulcerant AstraZeneca 5.0 Expired

Zyprexa Schizophrenia

Lilly 4.0 2011

Novarsc Hypertension Pfizer 4.0 2007

Vioxx Anti-inflammatory

Merck 3.0 2013

Celebrex Anti-inflammatory

Pharmacia 3.0 2013

Remaining 3/10 --- 11.0 ---

TOTAL 45.0

Source: ESP PharmaSource: ESP Pharma

Pharma Industry OverviewTop 15 Blockbusters in 2005

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Source: Zydowsky Consultants, LLC, 2006Source: Zydowsky Consultants, LLC, 2006

Pharma Industry OverviewProjections

The global pharmaceutical market is forecast to grow toUS$842 billion in 2010

Strong growth in the 10 European markets that joined theEuropean Union in 2004 will help to boost European salesover the next five years

There were a total of 16 new blockbuster drugs in 2005,

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There were a total of 16 new blockbuster drugs in 2005,generating combined sales of US$18.1 billion

Total pharmaceutical sales from the top 10 companiesaccounted for more than 40% of the total market

Source: Piribo, Pharmaceutical Market Trends, 2006Source: Piribo, Pharmaceutical Market Trends, 2006--2010, June 20062010, June 2006

Key Drivers

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Key Drivers

Pharma Industry OverviewKey Drivers

Industry drivers Demographic trends

Management of R&D

Consolidation and strategic alliances

Direct-to-consumer push

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Direct-to-consumer push

Threat from generics to “big pharma”

Firm-level impacts Need to continue investments in R&D

Need a solid partnering strategy

Need to identify and prioritize opportunities and act onthem

Pharma Industry TrendsKey Drivers..

Recent Industry Facts Shift from acute to chronic care products Pharma companies have strong balance sheets Period 2000-2004: Total biotech industry funding of approx. $95 billion

Improved funding in ‘03 & ‘04, VC activity in ’04

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Improved funding in ‘03 & ‘04, VC activity in ’04comparable to ’00 peak

Dramatic advances in genomics (targets),combinatorial/computational chemistry, HT/UHT*screening, SAR*

Continued pipeline growth at many companies (may stillfall short?)

Human Genome Project Data Glut

HTHT –– High throughput UHTHigh throughput UHT –– UltraUltra--high throughput SARhigh throughput SAR -- StructureStructure--Activity RelationshipActivity Relationship

Pharma Industry TrendsSome demographics..

Demand Drivers Aging baby boomers

Lengthening life span

Changing criteria for health and wellness

Critical need for life-saving drugs in developing countries

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Critical need for life-saving drugs in developing countries

Pharma Industry Trends

Key Demographic Facts Over 60s in the US to

rise from 606 millionin 2000 to 2 billion in2050

Over 65s in the USexpected to expand53% from 2001 to

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53% from 2001 to2020 vs. overallpopulation growth of17 %

Over 65s account for16 % of USpopulation, but 33 %of all prescriptionswritten

Source: US Census & PhRMA, 2006

Pharma R&D

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Pharma R&D

Pharma Industry TrendsThe Role of R&D

What are the chances that a single screenedcompound will be commercialized into a drug?

How much does it cost to launch a new drug?

How long does it take to launch a new drug?

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How long does it take to launch a new drug?

How many drugs are in Phase III today? Howmany of these will be “blockbusters”?

Pharma Industry R&DThe Drug Development Funnel

Discovery

Preclinical Testing

Phase I20-100 healthy volunteers used to determinesafety and dosage

100-500 patient volunteers used to look

Laboratory and animal testing

5,000 – 10,000 Screened

5 enter clinical trials

Compound SuccessRates by Stage

250 enter preclinical testing

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ClinicalTrials

Phase III

Phase IV: Additional

Post-Marketing Testing

FDA

Phase III

Review/Approval

1K - 5K patient volunteers used to monitoradverse reactions to long-term use

100-500 patient volunteers used to lookfor efficacy and side effects

1 approved by

FDA

5 enter clinical trials

KEY QUESTION: How to shorten the new drug development process?

0 5 10 15

Years

Source: PhRMA, 2006

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Source: PhRMA, 2006Source: PhRMA, 2006

Pharma Industry R&DMajor Challenges

R&D expenditures continue to rise rapidly US R&D expenditures have doubled since ‘95

Cost to develop a new drug = $802M

It takes 5,000-10,000 compounds to result injust one approved drug

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just one approved drug

Only 3 of 10 marketed recover R&D costs

Time to develop at 15 years almost doubled since the ‘60s

Pressure from Wall Street to meet growthexpectations

Source: IMS Research, 2003

Pharma Industry R&DMajor challenges

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Source: PhRMA, 2006

Pharma Industry R&DAcceleration of research spending

22Source: PhRMA, 2006

Pharma Industry R&DUS leads the late stage pipeline

23Source: PhRMA, 2006

Pharma Industry R&DIn development as of 2005

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Source: PhRMA, 2006

Pharma Industry TrendsTop Pharma Players - 2006

Position RevenuesUS $bn9/05

% Market

Share

CAGR

2000-04

1) Pfizer (US) 49.1 8.8 11.2

2) GlaxoSmithKline (UK) 34.4 6.1 7.7

3) Sanofi-Aventis (FR) 30.1 5.4 13.1

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3) Sanofi-Aventis (FR) 30.1 5.4 13.1

4) Novartis (CH) 28.0 5.0 13.5

5) J&J (US) 25.5 4.5 16.1

6) AstraZeneca (UK) 23.8 4.2 8.3

7) Merck & Co. (US) 23.2 4.1 10.4

8) Roche (CH) 19.2 3.4 10.3

9) Abbott (US) 15.6 2.8 10.3

10) Bristol-Myers Squibb(US)

15 2.7 2.1

Top 10Top 10 264264 100 10.4100 10.4WorldwideWorldwide 561 47 10.1561 47 10.1

Pharma Industry TrendsTop R&D Projects - 2003

Position No. ofDrugs

No. of R&DDrugs

No. UnderLicense

1) GlaxoSmithKline 178 101 77

2) Pfizer 151 88 63

3) J&J 137 78 59

4) Hoffman-La Roche 131 72 59

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4) Hoffman-La Roche 131 72 59

5) Aventis 113 64 49

6) Novartis 102 65 37

7) AstraZeneca 97 67 30

8) Abbott 86 43 43

9) Bristol-MyersSquibb

83 53 30

10) Merck 81 52 29

Pharma Industry R&DSpending by target area

Central nervous system 26%

Neoplasm (cancers), endocrine system, metabolic 21%

Cardiovascular 18%

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Infections diseases 15%

Respiratory system 10%

Digestive 4%

Biological (i.e., vaccines) 6%

FTC CLEARS PFIZER'S ACQUISITION OF PHARMACIAFTC CLEARS PFIZER'S ACQUISITION OF PHARMACIA

NEW YORK, April 14, 2003NEW YORK, April 14, 2003 ---- Pfizer Inc said today that thePfizer Inc said today that theFederal Trade Commission (FTC) has accepted a consentFederal Trade Commission (FTC) has accepted a consentdecree clearing the way for the company's acquisition of thedecree clearing the way for the company's acquisition of thePharmacia Corporation. The companies will commencePharmacia Corporation. The companies will commenceoperating on a combined basis later this week.operating on a combined basis later this week.

++

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operating on a combined basis later this week.operating on a combined basis later this week.

“The new Pfizer will provide more products to help more“The new Pfizer will provide more products to help morepatients than any other pharmaceutical company and we willpatients than any other pharmaceutical company and we willcontinue to be the world leader in privately funded biomedicalcontinue to be the world leader in privately funded biomedicalresearch.“research.“---- Hank McKinnel, Chairman and CEOHank McKinnel, Chairman and CEO

Combined 2005 revenues = $49.1 billion!Combined 2005 revenues = $49.1 billion!

Challenges Ahead…Challenges Ahead…

Pharma Industry Overview

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Challenges Ahead…Challenges Ahead…

Pharma Industry Challenges3rd Generation Drug Development

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Source: Zydowsky Consultants, LLC, 2006Source: Zydowsky Consultants, LLC, 2006

Pharma Industry ChallengesRiding the S-Curve

Prozac

ZyprexaPipeline

Salesreturned

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1996 2002 2003 2005

returnedon

cumulativeinvestment

Dynamics of Drug Development at Eli LillyDynamics of Drug Development at Eli Lilly

Pharma Industry ChallengesBlockbuster gap

2003 Phase III Development Pipeline2003 Phase III Development PipelineNumber of CompoundsNumber of Compounds

Currently inCurrently inPhase IIIPhase III

Expected toExpected toSuceedSuceed

Expected to beExpected to beBLOCKBUSTERSBLOCKBUSTERS

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“Blockbuster pipeline not nearly enough to fill the“Blockbuster pipeline not nearly enough to fill thevoid at big pharma”void at big pharma”

12001200 600600(50%)(50%)

1010(1%)(1%)

Source: ESP PharmaSource: ESP Pharma

Pharma Industry ChallengesCan’t take exclusivity for granted

Innovator Drug -

Year Introduced

Years ofexclusivity

Competitor Drug -

Year Introduced

Inderal - 1965 13 Lopressor - 1978

Tagamet - 1977 6 Zantac - 1983

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Exclusivity for innovative drugs is shrinking!Exclusivity for innovative drugs is shrinking!

Prozac - 1988 4 Zoloft - 1992

Diflucan - 1990 2 Sporanox - 1992

Recombinate - 1992 1 Kogenate - 1992

Celebrex - 1999 0.25 Vioxx - 1999

Source: ESP PharmaSource: ESP Pharma

Pharma Industry ChallengesConstant Restructuring

Consolidation and Strategic Alliances

34Source: Wood & Mackenzie, 2006Source: Wood & Mackenzie, 2006

Pharma Industry ChallengesGrowing through M&A

Mergers can be a major way to grow - Pfizer

35Source: Ferghana, 2006Source: Ferghana, 2006

Pharma Industry ChallengesPfizer- The Poly Connection

Jasper Kane and John McKeen, both Poly alumni were behind theearly success of Pfizer

Kane conceived and McKeen implemented the idea of massproducing penicillin to treat wounded soldiers during World War II

At that time, Pfizer was not a pharma company, but suppliedchemicals and ingredients to the food and drink industry

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Source: Polytechnic University ArchivesSource: Polytechnic University Archives

chemicals and ingredients to the food and drink industry

Pfizer bought an ice-making plant in Brooklyn and converted it to afactory producing penicillin in March 1943 – they had produced 45million units by year-end

Kane was also the leader of the research team that discoveredTerramycin (1950), recd. BS-Chemistry’1928, PhD (Hon.)’1994

Terramycin is still in use – Kane was the Director of R&D at Pfizerfor many years

Jasper Kane 1903Jasper Kane 1903--20042004

Pharma Industry ChallengesRegulation & Market Structure

Role of Regulation EU, Asia are highly regulated markets in contrast to US Pharma industry in US largely opposes govt. price controls,

arguing it hampers R&D investment Generics gaining a foothold in major Western markets

Managed care gets tough on drug companies

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Managed care gets tough on drug companies Political & social pressure on drug costs and access Clinton era (and anticipated) price controls on prescription

drugs and federal intervention on healthcare in the US Prescription drug benefits and insurance coverage become

debated issues Managed care constitutes 70 percent all retail prescriptions

to pharma industry

Pharma Industry OverviewDTC push

Direct-to-consumer push

Use of Advertising (FTC relaxed rules in 1997) In 2001, Merck spent $176 million promoting

Vioxx (More than what Coca-Cola Company spent advertisingCoke or what Anheuser-Busch spent advertising Budweiser in that

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Coke or what Anheuser-Busch spent advertising Budweiser in thatyear)

The drug industry spent $2.76 billion onconsumer drug ads in 2001.

Reach consumers directly through call-centers (25*)and internet (1*)

*Estimated $/contact

Pharma Industry ChallengesDTC push

Direct-to-consumer push

Use of Internet is widespread All pharma co.’s have product information on their

website or through partners like WebMD

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Used to promote pharma to MDs

More than 75 % of US doctors report that patientsbring Internet printouts to their office visits

Pharma Industry ChallengesSalesforce is key

But… Sales force is still important in order to reach

physicians $12 bn spent on details (visit by drug reps) to

physicians in 2002 (200*)

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physicians in 2002 (200*) Pharmaceutical companies spent $7.2 billion on

free samples to physician offices in 1999. Schering-Plough gave out 35.7 million samples of

Claritin in 1999 (One-month supply of Claritincosts $68)

*Estimated $/contact

Source: Medvantx.com

Pharma Industry OverviewNot all about drugs: Healthcare industry is much bigger!

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Source: PhRMA, 2006Source: PhRMA, 2006

Global Innovation TrendsGlobal Innovation Trends

Pharma Industry Overview

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Global Innovation TrendsGlobal Innovation Trendsin Bioin Bio--pharmaceuticalspharmaceuticals

Pharma Industry OverviewGlobal Innovation Trends

Clusters to watch

USA/Canada

Cambridge MA, Research Triangle Park NC, SanDiego and S. California Region, Austin TX, Ontario,

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Ottawa-CA

Europe

Lieden, Maastricht, Leuven, Munich, Cologne,Trondheim, Upsalla, Arhus, Cambridge, Oxford,Norwich, Manchester, Glasgow, Edinburgh, York,Dublin, Evry, Vienna, Geneva, Basel, Zurich,Sophia Antipolis

Pharma Industry OverviewGlobal Innovation Trends

Clusters to watch

India

Major push into generics and CROs

Early success stories include Dr. Reddy’s Labs,

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Early success stories include Dr. Reddy’s Labs,Ranbaxy, Cipla, Matrix Pharma, Glenmark, etc.

Some generics plan on going upstream

Supplying low-cost anti-HIV drugs to Africa (throughClinton Foundation)

Hyderabad, Bangalore, Bombay and New Delhiemerging as important bio-informatics and biotechcenters

Pharma Industry OverviewGlobal Innovation Trends

“Bio” Clusters to watch

Israel

Dynamic pharma and biotech sector

Teva Pharmaceutials – market cap of $23.8 bn in

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Teva Pharmaceutials – market cap of $23.8 bn in2006

Singapore

South Africa

Brazil

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