The challenges facing the pharmaceutical industry through to 2020

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

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The challenges facing the pharmaceutical industry through to 2020

  1. 1. Pharma 2020: Which path will you take? 12th November 2009 
  2. 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. 3. The 2020 thought leadership series outlines challenges and opportunities for pharmaceuticals www.pwc.com/pharma PricewaterhouseCoopers LLP 3
  4. 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. 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% $1.3trn Other G7 23% * Assumes G7 grow at mid-single digits, E7 grow low- to mid-double digits PricewaterhouseCoopers LLP 5
  6. 6. R&D productivity continues to decline NME and New 50 60 Biologics Approved 45 by FDA 50 NMEs and Biologics approved 40 PhRMA member 35 R&D spend ($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 $46bn in 2007 • FDA approved medicines declined by two thirds - 56 in 1996, 19 in 2007 PricewaterhouseCoopers LLP Source: FDA/CDER Data, PhRMA data, PwC analysis 6
  7. 7. Resulting in a sales revenue gap in 2020 Value of patent expiries 2001-2015 (constant USD billion) 25 20 Average annual loss 15 US$ 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. 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 PricewaterhouseCoopers LLP 8
  9. 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 PricewaterhouseCoopers LLP 9
  10. 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 PricewaterhouseCoopers LLP 10
  11. 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 PricewaterhouseCoopers LLP 11
  12. 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 PricewaterhouseCoopers LLP 12
  13. 13. Pharma 2020: Virtual R&D Which path will you take? 
  14. 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. PricewaterhouseCoopers LLP 14
  15. 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 PricewaterhouseCoopers LLP 15
  16. 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. 17. Pharma 2020: Marketing the Future Which path will you take? <footer> PricewaterhouseCoopers LLP 17
  18. 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 PricewaterhouseCoopers LLP 18
  19. 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 PricewaterhouseCoopers LLP 19
  20. 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 PricewaterhouseCoopers LLP 20
  21. 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) PricewaterhouseCoopers LLP 21
  22. 22. Medvantx Generic Drugs Sample Distribution • In over 2000 Offices • Over 5000 Physicians • 13 Therapeutic Areas - Hypertension - Hyperlipidemia - Depression - Pain - Diabetes - Dermatitis PricewaterhouseCoopers LLP 22
  23. 23. Pharma 2020: Challenging business models Which path will you take? 
  24. 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 PricewaterhouseCoopers LLP 24
  25. 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 PricewaterhouseCoopers LLP 25
  26. 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 PricewaterhouseCoopers LLP 26
  27. 27. We have identified four business models Owned Collaborative PricewaterhouseCoopers LLP 27
  28. 28. However, there are significant structural and cultural obstacles to effective collaboration Intellectual Change Property Organisational Culture Reputation Structure PricewaterhouseCoopers LLP 28
  29. 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 PricewaterhouseCoopers LLP 29
  30. 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). PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited. No part of this presentation may be copied, redistributed or placed on any website without permission. This presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this report without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this report, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report or for any decision based on it.
  31. 31. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2008 PricewaterhouseCoopers LLP. All rights reserved. 'PricewaterhouseCoopers' refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. hb02753  PricewaterhouseCoopers LLP 31

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