How the major pharmacos have tried to adapt with the new healthcare environment.

1. The Changing Face of the Top 10 Pharmacos
IMS Thought Leadership, March 2013

2. Agenda
• The Evolution of the Current “Top 10”
− The changing face of the Top 10 pharmacos
− Diversification
• What does this mean for innovation?
−
−
−
−
The switch to specialty medicine
Introduction to fastest growing
A different approach to growth
The sub-blockbuster era
• Alternative Business Models
− Low Cost Offerings
− Consumer Health
• Summary
2
1

3. Pharma companies have tried to adapt their business
models to a new healthcare environment
Market
Yesterday
• Prescribers the key
stakeholder
• Distribution channels
simple
• Competition simple:
other branded on patent
agents
Company
• 4-6 major brands
• 1-2 launches/year
• Mature markets focus
• Primary care focus
3
Today
• Payers increasingly
dominant
• Distribution channels
increasingly complex
• Competition against
generics as well as other
brands
•Larger number of smaller
brands, many multiindication
• 4-6 launches/year (new
products and new
indications)
• Focus split between
Pharmerging and Mature
markets
• Specialist care focus

4. Large Pharma has responded to these changes with
consolidation and diversification
A series of mega-mergers
Sanofi
Synthélabo
+
Aventis
Acquisition
Year 2009
•$68bn deal
• Diversification into consumer
health, biologics (Enbrel),
strengthen vaccines and
animal health
Acquisition
Year 2003
•$60bn deal
• Primarily to attain
Celebrex and other
complementary assets
Roche
+
Genentech
Merck & Co
+
ScheringPlough
Novartis
+
Alcon
4
Source: Press Releases *Novartis-Alcon deal made up of several
deals over the year as majority ownership was bought in stages.
Estimated total deal value in the region of ~$40bn
Year 2004
“Acquisition”
Year 2009
“Acquisition”
Year 2009
“Reverse
Merger”
Year 2010
“Acquisition”
•$65.5bn deal
• Increase scale and US
presence
•$47bn deal
• Increase pipeline and
biologic assets
•$41bn deal
• Access to consumer
health and biologics
•~$40bn deal*
• Provides entry to
specialist eye care
market

5. AZ has highest average deal value whilst Roche has
been prolific in low-value deals
Five year mean M&A total deal value excluding the key "mega deals"*
4,500
AstraZeneca
Average Deal Value, US$m
4,000
3,500
3,000
Teva
2,500
2,000
1,500
J&J
Sanofi
Lilly
Abbott*
Novartis
1,000
500
Pfizer
Merck
GSK
Roche
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Number of Deals
Source: IMS PharmaDeals 2012. *Excludes Pfizer-Wyeth, Roche5 Genentech, Merck-Schering Plough * The former Abbott not the new
spin off

6. Despite this the Top 10 have failed to clear the 50%
global market share threshold seen in other industries
Pharmaceutical Market Sales, US$Bn
Revenue of Top 10 firms vs Global Pharma Market*
Top 10 Players
Remaining Market
900
800
715
700
359
600
500
400
300
301
428
184
414
200
100
857
498
244
0
Top 10 Share of Market
2002
2007
2012
43%
42%
42%
Source: IMS Health World Review, IMS Health MIDAS Sept
6 2012. 2002 and 2007 are year end results whereas 2012 is
MAT 09 2012 *Ten companies are different in each cohort

7. And they have failed to increase their share of the
patent protected market
Protected market often seen as stronghold of big pharma
Protected Revenue of Top 10 firms vs Protected Pharma Market*
350
Protected Market Sales, US$Bn
330.5
169.5
172.8
Top 10
Players
156.6
157.7
Remaining
Market
2007
2012
52%
52%
300
250
200
150
100
50
0
Top 10 Share of Market
7
326.1
Source: IMS Health MIDAS Sept 2012, Market Segmentation, Rx
bound. Strips out any products subsequently acquired such as the
Wyeth, Schering-Plough, Alcon, Genzyme acquisitions
*2007 Top 10 includes Lilly; 2012
top 10 sees Lilly replaced by Teva

8. The Top 10 players have remained fairly consistent
since 2002 with only slight fluctuations
Novartis claims the top spot, Lilly falls out and Teva enters
Top 10 Corporations based on Sales at ex-manf levels US$
Top 10 Corps 2002
Top 10 Corps 2007
Top 10 Corps 2012
1
Pfizer
Pfizer
Novartis*
2
GlaxoSmithKline
GlaxoSmithKline
Pfizer*
3
Merck & Co
Novartis
Merck & Co
4
Johnson & Johnson
Sanofi-Aventis
Sanofi
5
AstraZeneca
AstraZeneca
Roche
6
Novartis
Johnson & Johnson
AstraZeneca
7
Aventis
Roche
GlaxoSmithKline
8
Bristol-Myers Squibb
Merck & Co
Johnson & Johnson
9
Roche
Abbott
Abbott
10
Pharmacia
Lilly
Teva
Disappeared through M&A
Entry into Top 10
Source: IMS World Review, IMS Health MIDAS, Sept 2012. 2002 and
2007 are year end results whereas 2012 is MAT 09 2012. Includes
8 IMS audited OTC sales *If strip out audited OTC sales and just look at
ethical market then Pfizer just remains #1 spot by $50m

9. The face of the Top 10 pharmacos has been changed
by the entrance of Teva
First non-Western, non innovative-core pharmaco into Top 10
Teva: Overview*
+7%
24.4
Sales, US$bn, MAT 09
25
20
20.3
24.9
24.7
• Growth has outpaced many Top 10
pharma companies over the last 6
years
• Benefits from strong vertical
integration due to own manufacture
of APIs
21.5
18.0
15
• Becoming a leader in the
biosimilars field with this area
targeted for strong future growth
10
• 40% revenue now from nongeneric business, up from 19% in
2007
5
• >20% company revenue derived
from Copaxone but generic
versions may launch in not-todistant future
0
2007
2008
2009
2010
2011
2012
*IMS data shows greater sales than Teva reports in its financial statements. For year end 2012 Teva reports $20.3bn revenue implying IMS
overestimation of 25%
9
Source: IMS Health MIDAS Sept 2012, Teva Annual Reports, Press
Releases

10. Teva has diversified from its early roots but still has a
strong generics core
Diversified into innovative pharma and consumer health
Generics
Traditionally a generics
firm since founding:
• 60% business is from
generic
pharmaceuticals and
“others” (namely APIs)
• Leading generics
player in US
accounting for >20%
of all US generic
prescriptions
• Acquisition of
Ratiopharm makes
Teva largest generics
player in Europe
Innovative
and Branded
An area of focus since
the launch of Copaxone
in 1997
• 40% business from
innovative and
branded
• Copaxone (MS) and
Azilect (Parkinsons)
main fruit of
innovation
• Also active in
biosimilars, respiratory
and women’s health
• Many acquisitions,
largest recently being
Cephalon for $6.2bn
Source: Teva Annual Reports, Press Releases
10
Consumer
March 2011 announce
alongside Procter and
Gamble that they have
created a consumer
health care joint venture
to be called PGT
Healthcare.
•Will operate in all
markets outside USA to
develop branded OTC
medicines
•Partnership expected to
start with $1.3bn in
annual sales; potential
to grow to $4bn by end
of the decade
•Partnership will exploit
opportunities to develop
Rx-to-OTC switches to
create new brands
...Future
New CEO Jeremy Levin
announces future strategy
December 2012
• "Teva will be a reshaped
company... We have a
completely new
organization, a
completely new
management team. We
are focused on credibility.
We are focused on new
products. We are
changing our pipeline“
• Teva will increasingly
focus on new therapeutic
entities, or NTEs. Those
could be new uses,
formulations, delivery
methods or combinations
of existing products

11. Top 10 now more differentiated: Biologics and
generics key to most
Current areas of play do not always represent future strategy
Company
Pharma
(SM)
Animal
Health
Vaccines
Biologics
BioConsumer
Devices
similars
Health
Diagnosti
Generics Nutrition
cs
IPO Jan
2013
Pfizer
Novartis
Announced
2013
Sanofi
Merck
Alliance
AZ
GSK
Roche
J&J
Abbott
Teva
Sold Jan
2013
= Company active in 2002 and 2012;
= Company entered since 2002;
Source: Annual Reports, IMS Company Profiles, Press Releases
11
= Company exited since 2002;
= No presence

12. Has M&A and a push for diversification actually
helped pharma?
To what extent has deal-making been defensive?
• M&A is a necessary strategic tool for pharma companies seeking to balance the
impact of key growth restrictors on revenues and margins
• Leads to a risk of “me-too” deals when companies think their shareholders are
expecting them to undertake diversifying deals with the cash they have to hand
• Hasn’t increased dominance of Top 10 in the global market
Has consolidation and cost-cutting made pharma slower, more risk
averse and less innovative?
"The wave of consolidation leaves only about a dozen multinational pharma companies
that have global reach... There's an innovation ecosystem, and like any ecosystem, it
can get out of balance"
John Lechleiter, CEO Eli Lilly, Wall Street Journal November 2011
Source: Wall Street Journal November 2011
12

13. Agenda
• The Evolution of the Current “Top 10”
− The changing face of the Top 10 pharmacos
− Diversification
• What does this mean for innovation?
−
−
−
−
The switch to specialty medicine
Introduction to fastest growing
A different approach to growth
The sub-blockbuster era
• Alternative Business Models
− Low Cost Offerings
− Consumer Health
• Summary
13

14. Only four products launched since 2009 have
achieved sales of >$1.0bn globally
Achieving >$1.0bn with a launch in the last 3 years:
Victoza (Novo Nordisk)
($1.51bn, MAT 09 2012)
Prolia (Amgen)
($1.07bn, MAT 09 2012)
14
Gilenya (Novartis)
($1.08bn, MAT 09 2012)
Incivek (Vertex)
($1.54bn, MAT 09 2012)
Source: IMS MIDAS Sept 2012. Annualized sales of >$1bn in
the year September 2011 to September 2012, non-generic
products only
 Only one of these is
the product of a Top
10 pharmaco
(Novartis: Gilenya)
All launched into areas
of high unmet need:
• Diabetes
• Multiple Sclerosis
• Osteoporosis
• Hepatitis C

15. A continuing shift towards specialty medicine is
highlighted by the forecast top TAs in 2016
20
18
Spending CAGR 2007-2011
16
Forecast Leading Therapy Classes in 2016
Global CAGR 20122016: 3-6%
Specialty
Traditional
Autoimmune
MS
14
12
Oncologics
Platelet Aggr Inhib
Contraceptives
Global CAGR 20072011: 6.0%
Narcotic Analgesics
4
Cephalosporins
2
Anti-Epileptics
Lipid Regs
0
-2
Immunostimulants
Asthma/COPD
Antipsychotics
6
Vaccines
Antidiabetics
Angiotensin II
10
8
Immunosuppressants
HIV Antivirals
Antivirals excl HIV
Anti-Ulcerants
-4
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
Spending CAGR 2012-2016
Source: IMS Institute for Healthcare Informatics; April 2012
15

16. New launches will be targeted to smaller patient
populations
Practically defined niche
Sub population in a larger
patient population
(frequently guideline or
payer defined) E.g. new
diabetes agents
Highly defined (narrow
indication) niche
Orphan, biomarker
defined
E.g. Cerezyme,
Pulmozyme, Herceptin
16
• More blockbusters will be
specialist focused, therefore
naturally targeted to smaller
patient populations in
narrow indications
• But even for primary care
and other products with
potentially broad indications,
HTA-lead payer activities will
limit the populations
available for new products,
pushing them to second line
and more difficult patients

17. Where is Innovation still succeeding?
Vertex has shot from nowhere into the pharma Top 50 in the
last year after successful launch of Incivek
2002-2012: Top 10 Fastest Growing Corps by non-generic revenue to become part of Global Top 50*
Fastest Growing 2002-2012
Rank in 2002
Rank in 2012
Jump in Rankings
-
42
N/A
2 Actelion
322
50
272
3 Reckitt Benckiser
156
43
113
4 Celgene
103
31
72
5 Gilead
59
16
43
6 Endo HS
61
37
24
7 Shire
42
24
18
8 Otsuka
31
18
13
9 Allergan
39
32
7
10
4
6
1 Vertex
10 Roche
Source: IMS Health MIDAS MAT, Sept 2012. Market Segmentation,
17 *Rx and Non Generics only. Methodology – Highest movement in
rankings in 10 years to be part of 2012 top 50 companies by revenue

18. Incivek vs Victrelis provides an interesting case
study of niche player vs “Big Pharma”
Background: High Unmet Medical Need
• Approximately 3 million people are infected with HCV in the United States
− ~78% of patients are unaware that they have HCV
• 70% of HCV patients are genotype 1
− Genotype 1 patients are poor responders to standard of care treatment
(pegylated interferon and ribavirin) prior to introduction of protease
inhibitors
Setting: David vs Goliath
• Incivek and Victrelis, who target genotype1 patients, launched
10 days apart by very different companies
− Incivek  Vertex (first launch)
− Victrelis Merck (prior HCV footprint)
Source: IMS Consulting Group
18

19. Outcome: Vertex’ Incivek dominated Merck’s
Victrelis
2.5
1,400
Cumulative Sales
NBRx Volume
1,200
INCIVEK
1,000
800
600
2
400
LCUS$ sales, Billions
200
0
1.5
1
10,000
VICTRELIS
0.5
TRx Volume
8,000
6,000
4,000
2,000
0
0
Incivek TRx
Source: IMS Sales & Prescription Data
19
Victrelis TRx

20. Other top “fastest growing” companies have remained
committed to one specialist-led therapy area
2002-2012: Actelion growth 60% CAGR; Global “other cardiovasculars” market
growth 32% CAGR
•Almost entire company growth is based on one product: Tracleer. This was the
first oral treatment approved for PAH and accounts for 92% company sales
•Although there has not been a portfolio of equally successful products Actelion
appear to have found a successor for Tracleer when it loses patent expiry in 2015
in the guise of Macitentan which has improved safety and efficacy profile
2002-2012: Celgene growth 41% CAGR; Global onco market growth 13%
CAGR
•Significant proportion of company growth is based on one product: Revlimid, which
is indicated for the treatment of multiple myeloma
•Vidaza and Abraxane (also indicated in oncology) have also shown strong growth
•Has remained committed to the field of oncology with no apparent diversification
•Three products account for ~90% company sales
2002-2012: Gilead growth 40% CAGR; Global HIV market growth 12% CAGR
•Revolutionised treatment paradigm for HIV through single once daily pill HAART
treatment
•Increased life expectancy and geographic expansion led to overall market
expansion
•Organic growth in core competent TA while recent diversification has been seen
in to other TAs.
•Three products account for ~90% company sales
Source: IMS Health MIDAS MAT September 2012, growth from
20 LCUSD. Company websites

21. If big pharma want to emulate this success they
need to adapt to the sub-blockbuster era
Fewer blockbusters
and more subblockbusters
Majority specialist
blockbusters
Blockbusters and
sub-blockbusters
focused on specific
patient segments
21
• No company will be able to rely on the “one blockbuster pays
for all” model of clinical development
• All will be forced to dramatically improve their clinical
development efficiency, and launch more, more often
• Some companies will fail to achieve this – and will exit
innovative research and development
• Most blockbusters will be driven by a smaller, specialist doctor
population, reached by fewer, more highly skilled sales reps
• Blockbusters will continue to be driven by mature marketsbecause they will be the type of expensive, sophisticated
therapy that only mature markets can fund
• Innovative company portfolios will have a larger number of
smaller products, focused on highly specific patient
segments, often multi-indicational
• Individual product expectations will be lower, but companies will
be expected to be more consistently successful across a wider
set of products

22. Which means to retain scale big pharma need to
successfully launch multiple products
The relationship between the number of non-generic launches captured in LEIV and the
percentage of launches classified as successful by IMS launch excellence criteria
40
Each dot represents a
major pharma company
30
(2009-2012)
Number of launches included in LE IV study
The more you launch, the less likely you are to be excellent
20
10
0
0
10%
20%
30%
40%
50%
Success rate
The percentage share of all non generic launches that were classified as excellent in at least one of
the IMS excellence criteria (one launch can be launched across multiple countries)
Source: IMS Launch Excellence Study IV 2009-2012 Global Study
22

23. Innovation is still a viable business focus but there
must be a tight focus on unmet need and evidence
Formula for successful innovation
23

24. Agenda
• The Evolution of the Current “Top 10”
− The changing face of the Top 10 pharmacos
− Diversification
• What does this mean for innovation?
−
−
−
−
The switch to specialty medicine
Introduction to fastest growing
A different approach to growth
The sub-blockbuster era
• Alternative Business Models
− Low Cost Offerings
− Consumer Health
• Summary
24

25. Companies focussed on cost-saving offerings have
thrived through the post-LoE generic boom
• Top 10 companies have lost $bns through LoE on key SM
blockbusters such as Lipitor, Diovan, Plavix
• This has created a boom for the generics companies who can
offer substantial savings to payers
• Despite this there are few truly international generics
companies
− Teva, Novartis (Sandoz), Sanofi and Mylan have greatest
international reach
− Emerging markets and Japan still remain the realm of local
players
• With the SM LoE cliff lessening significantly after 2015, these
companies are now looking to specialty medicine to fuel their
pipelines
25

26. Value Exposure at 2012 sales. USD bn
With the SM LoE cliff lessening generics players
need to ensure they have specialty skills to prosper
40
Global Biologic Sales (MAT
09/2012), US$ billion
Global Generic Exposure
(excludes biologics)
8.1
36.2
35
7.3
30
Etanercept (Enbrel)
7.1
27.2
Infliximab (Remicade)
6.2
25
20
Adalimumab (Humira)
Insulin Glargine (Lantus)
5.9
20.4
18.3
Rituximab (Mabthera)
5.3
15
Bevacizumab (Avastin)
5.0
Interferon Beta-1A (Avonex, Rebif)
10
5.0
Trastuzumab (Herceptin)
5
4.9
Insulin Aspart (Novomix, Novorapid
4.3
0
2013
2014
2015
4.3
2016
4.0
Specialist Care ($48.2bn)
Primary Care ($53.8bn)
Total
~ US$ 67
billion
0
Glatiramer Acetate (Copaxone)
Pegfilgrastim (Neulasta)
Ranibizumab (Lucentis)
5
10
Twelve biologic compounds representing US$ 67bn in
sales will lose product patent protection by 2020*
Source: IMS MIDAS Sept 2012. *Enbrel US patent extended to 2028
26

27. Generics significant in both mature and emerging
markets: Essential portfolio element for many Top 10
Top 10 Corps 2012
Novartis
Pfizer
Merck & Co
Sanofi
Roche
Includes Sandoz sales: The number 2 generics player globally,
accounting for 16% of the Novartis group revenue in 2011.
Strong biosimilars play.
Entering biosimilars (development phase) in addition to generics play
Entering biosimilars (development phase)
Includes generics sales: Generics accounted for 5% overall
group sales in 2011. Recently announced plans to develop
biosimilar insulins
AstraZeneca
Generics play will be emerging markets focussed
GlaxoSmithKline
Generics play will be emerging markets focussed
Johnson & Johnson
Abbott
Teva
27
Includes generics sales: “Established Pharmaceuticals” will
account for 25% sales of the “new Abbott”
Still strong focus in generics and biosimilars: The most
international generics player*
Source: IMS MIDAS Sept 2012. *Based on being a Top 5 generics
players in multiple regions globally.

28. Generics companies who aim to compete with the
biggest players will attempt to drive margins higher
High Growth, Low Margin
Generics market growth
is outstripping protected
market but profit margins
are decidedly lower
Fragmented market with
low barriers to entry
Very few generics players
are truly
international, with many
local initiatives
28
• Generics players who have
ambitions to be the biggest and
best will offer a value portfolio –
including “supergenerics”,
biosimilars and other value adds
to protect against the lowest cost
generic competition and to raise
margins
• Larger generic players will be
trying to internationalise the
unprotected business, which
historically has been much more
fragmented than the protected
prescription business and
compete effectively against local
players particularly in emerging
markets

29. OTC benefits from a number of growth drivers while
Pharma faces significant constraints
Top Corps contribution to growth falling
rapidly
Low number and quality output from R&D
Generics dominating large therapy
areas
Demand constrained by
payers
PHARMA
OTC
Emerging markets have the critical mass to
influence growth
Companies seek to exploit switch
opportunities
Key players building strong brand
identities
29
Increasing access through new
channels
Payers keen to promote self
medication

30. But it’s not just about OTC: Even in innovation those
who recognise the patient as the next stakeholder
find ways to engage the patient directly
Patient-centric model
(strong relationship with patient)
Patient
“Pharma”
A B2C style business
which acknowledges the
rise of the consumer
30
Consumer Health and Technology
Based Solutions
• As preventative healthcare plays a larger
role in the life of the consumer
companies who are poised to bring
innovation into the market and
continually expand the market with new
offerings will thrive
• New technologies will also play a large
role in patient education and awareness
• Social Media
• Mobile Apps
• Technology for remote monitoring
and interaction

31. This provides pharma with a great opportunity for
direct patient interaction and relationship building
Adherence to
treatment and
recommended care
“Education”
“Engagement”
• Condition explanation • Diary approaches
• Raise awareness
• Medication “alert”
• Dispel myths
programs
• Interactive tools for
condition
management
• Tailored interactions
for paediatric patients
31
Lifestyle behaviour
“Education”
• Lifestyle education
(e.g. health and
nutrition info)
• Product education
(e.g. OTC product
info and uses)
“Engagement”
Interactive tools for
consumer health, such
as:
• Smoking cessation
interaction
• Weight loss
interaction

32. What can pharma learn from other industries about
being consumer centric?
Source: IMS Consulting Group
32

33. Agenda
• The Evolution of the Current “Top 10”
− The changing face of the Top 10 pharmacos
− Diversification
• What does this mean for innovation?
−
−
−
−
The switch to specialty medicine
Introduction to fastest growing
A different approach to growth
The sub-blockbuster era
• Alternative Business Models
− Low Cost Offerings
− Consumer Health
• Summary
33

34. 4 Summary
Today’s environment gives pharma more
opportunities and options than ever before to
become a Top 10 player
Dominance for the protected product, mature market
dependent pharmaco in the Top 10 is over
Innovation-led companies
will still have a place
Shift in play
• Specialty Driven
• Biologics in Portfolio
• Smaller patient
populations
• Compete on more level
playing field with smallmid size pharma
34
Excellence in
multiple launches
• Absolute size in protected
prescription market will fall
• Companies wishing to
retain size will need to
launch a larger number of
smaller products
But non-innovation led
companies will number
more than Teva
Low cost player
Consumer-led
player
• Teva is the first Top 10
• OTC Consumer
entrant, but may not be
Medicines
the only one in 5-10yrs
• Lifestyle prescription
• Drive internationalisation products
of the unprotected
• Medical Apps
business
• Value add through super
generics and biosimilars

35. Thank you
CGauntlett@uk.imshealth.com
SRickwood@uk.imshealth.com