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Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
Oncology changing market dynamics
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Oncology changing market dynamics

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  • 1. Oncology Changing Market Dynamics February, 2010
  • 2. Oncology – a new market dynamic on the horizon Historically, oncology has been an area of significant sales growth due to favorable factors, such as a cooperative FDA, premium pricing, and prevalent off-label usage However, we see signs of change…  New drugs and indications are crowding the market  Payors are having a greater impact on drug utilization  “Traditional” tools such as tiered co-payments, prior authorization and step-edits are being used more aggressively throughout the industry  The industry is responding as well with price caps and pay for performance arrangements Overall, we believe industry participants need to pay close attention to these signals, and position themselves for a new market dynamic February, 2010 | Copyright © 2010 Grail Research, LLC 2
  • 3. Table of Contents  Historical Market Dynamics  Evidence of Changes  Case Studies  How to Prepare February, 2010 | Copyright © 2010 Grail Research, LLC 3
  • 4. Oncology agents have experienced exceptional market growth Overview Global Pharmaceutical and Oncology Market Trend, 2004–12Ea,b,f,g  Oncology products have grown at more than double the rate of global 125 1,000 2004-08 921 CAGR pharmaceuticals, with a CAGR of 864 8.39% during 2004–’08 807 8.39% 773 750  Reasons for the robust growth of the 100 715 800 18.92% oncology market:c,d,e 648 605 2008-12 • Increased use of targeted 75 560 600 CAGR USD Bn therapeutics, including more patients 65 60 USD Bn accessing modern targeted 52 55 4.5% therapies in emerging markets 48 50 42 400 7.8% • Premium pricing for targeted brands 35 as compared to cytotoxic therapies 29 24 and antihormonal therapies 25 200 • Longer treatment duration for patients due to longer survival and adjuvant treatment 0 0 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E • Earlier detection of disease with the availability of new screening Global Pharmaceutical Market procedures Oncology Market IMS Projections – Oncology Market IMS Projections – Global Pharmaceutical Market Note: Projections are extrapolated based on IMS prediction of 3-6% of CAGR till 2012; we have assumed a CAGR of 4.5% till 2012 Source: a”Global Pharmaceutical Sales, 2001 – 2008”, IMS Health, March 2009; b”Top 15 Global Therapeutic Classes”, IMS Health, March 2009; c"IMS Health forecasts double-digit growth of cancer drugs", IMS Health Website, May 15, 2008; d’Commercial Insight: Top 20 Therapy Cancer Brands’, Datamonitor, Aug 2008; e“Nuovifarmacie vecchitrend diconsumo: unapanoramicaeuropea”, IMS Presentation; f“Booming oncology market redefines relations between manufacturers and healthcare payers, providers”, Pharmaceutical Commerce Magazine, August 2008; g“IMS Health Lowers 2009 Global Pharmaceutical Market Forecast to 2.5 – 3.5 Percent Growth”, IMS Press Release, April 22, 2009 February, 2010 | Copyright © 2010 Grail Research, LLC 4
  • 5. Table of Contents  Historical Market Dynamics  Evidence of Changes  Case Studies  How to Prepare February, 2010 | Copyright © 2010 Grail Research, LLC 5
  • 6. Recent events raise the possibility that this market dynamic is changing 1 2 New drugs and new indications are Payors are more aggressive in crowding the market managing Biologics 3 4 New Pricing Pressures Shift to orals enables traditional utilization controls February, 2010 | Copyright © 2010 Grail Research, LLC 6
  • 7. 1 The pipeline for new targeted therapies is significant Vargatef Neratinib Bosutinib Anyara (Active (Boehringer (Wyeth) (Wyeth) biotech) Ingelheim) Bexxar Torisel (GSK) (Wyeth) Zalutumumab Recentin Rencarex Enzastaurin (Genmab) (Astra-Zeneca) (J & J) (Eli Lilly) Herceptin- Campath Nexavar Zactima DM1 Aflibercept Zybrestat Erbitux Tykerb (AstraZeneca) (Sanofi Aventis) (OXiGENE) (Bayer / (Bayer & (ImmunoGen) (BMS) (GSK) Genzyme) Onyx) Ofatumumab Galiximab Lumiliximab (Genmab & Zarnestra (Biogen Idec) (Biogen Idec) GSK) (J & J) Velcade Revlimid Herceptin Gleevec Tasigna Pazopanib Masatinib (J&J / (Celgene Deforolimus Omnitarg Mesylate (Genentech) (Novartis) (Novartis) (GSK) (Ariad) (Roche) Mellinium) Corp.) (AB Science) 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 LATE STAGE PIPELINE Neuradiab Rituxan Mylotarg Iressa Avastin Sutent Flavopiridol Zibotentan Midostaurin (Bradmer (Sanofi Aventis) (AstraZeneca) (Novartis) (Genentech) (Wyeth) (AstraZeneca) (Genentech) (Pfizer) Pharma) BIBW-2992 Vadimezan AVE 8062 Farletuzumab (Boehringer (Novartis and (Sanofi Aventis) (Baxter) Ingelheim) Antisoma) Tarceva Zevalin Vectibix (OSI / (Spectrum) (Amgen) Telcyta Lestaurtinib Alpharadin Axitinib Genentech) (Telik) (Cephalon) (Algeta) (Pfizer) Genasense Ramucirumab Afutuzumab Motesanib Sprycel (Genta) (Eli Lilly) (Biogen Idec) (Amgen) (BMS) XL-184 Brivanib BSI-201 (BiPar Figitumumab (BMS and Alaninate Sciences) (Pfizer) Exelixis) (BMS) Note: Late Stage Pipeline includes only those drugs which are either in Phase III or pre- registration stage of development Source: Grail Research; PharmaProjects database (accessed in August 2009) February, 2010 | Copyright © 2010 Grail Research, LLC 7
  • 8. 1 Many compounds focus on the same biology Competitive intensity is increasing as companies target similar mechanisms Expected Expected Current Level of Competition Near Term Long Term Competition1 Competition2 EGFR Antagonist 2 8 Epidermal growth factor receptor 2 antagonist VEGFR Antagonist 2 12 Tyrosine Kinase Inhibitors 9 9 Note : The dates mentioned in the chart are approval dates and not the launch dates; 1Represents the number of molecules in phase III / Pre-registration / Registration stage of development for relevant indications; 2Represents the number of molecules in phase I / II of development; Above mentioned data represent the primary pharmacology action for the marketed and pipeline molecules (a molecule can target more than one receptors; however, we have only considered the primary target in this analysis) Sources: FDA website, Company website ; PharmaProjects database; Grail Analysis February, 2010 | Copyright © 2010 Grail Research, LLC 8
  • 9. 1 Adding indications to existing drugs increases competition Expansion of existing agents Gleevec 5 13 18 Avastin 5 10 2 17 Revlimid 1 2 13 16 Erbitux 2 3 10 15 Sutent 2 5 8 15 Tykerb 1 3 7 11 Tarceva 2 3 4 9 Nexavar 2 2 3 7 Vectibix 1 2 3 6 Torisel 1 3 4 Early Stage Pipeline Indications Herceptin 1 1 1 3 Late Stage Pipeline Indications Approved Indications Rituxan 1 1 2 0 2 4 6 8 10 12 14 16 18 Note: Late Stage pipeline include molecules in registration / pre-registration / phase III of development, Early Stage pipeline include molecules in phase I or II of development Source: PharmaProjects; Clinical Trials Website; Company Websites; “Top 20 Cancer Brands”, Datamonitor February, 2010 | Copyright © 2010 Grail Research, LLC 9
  • 10. 1 Many indications will soon have multiple targeted therapies 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 LATE STAGE PIPELINE Lymphoma Rituxan Zevalin Bexxar Velcade Revlimid; Torisel; Campath; Afutuzumab; (CD20 (DNA (DNA (Proteasom antagonist) antagonist) antagonist) e inhibitor) Galiximab; Ofatumumab; Enzastaurin Breast Cancer Herceptin Avastin Sutent; Ramucirumab; BSI-201; Pazopanib; Tykerb (EGFR (TKI) (VRGF Herceptin- DM1; Omnitarg; Neratinib; BIBW- Antagonist) Antagonist) 2992 Leukemia Gleevec (Bcr-Abl Revlimid; Rituxan; Alvocidib; Midostaurin; Mylotarg Sprycel Tasigna inhibitor); (DNA Campath (Bcr-Abl (Bcr-Abl Lestaurtinib; Lumiliximab; Genasense; antagonist) inhibitor) inhibitor) Ofatumumab; Zarnestra; Bosutinib (Lymphocyt e inhibitor) NSCLC Erbitux; Sutent; Nexavar; Aflibercept; Iressa Tarceva Avastin Vadimezan; Telcyta; Figitumumab; Motesanib; (VRGF (TKI) (TKI) Antagonist) Pazopanib; Recentin; BIBW-2992; Enzastaurin; Zactima; Vargatef Colorectal Cancer Avastin (VRGF Antagonist); Vectibix Tarceva; Sutent; Aflibercept; Brivanib Erbitux (EGFR Antagonist) Alaninate; Recentin (EGFR Antagonist) Kidney Cancer Nexavar Torisel Sutent Avastin (B-raf (mTOR (VEGFR (VRGF Axitinib; Pazopanib; Anyara; Rencarex kinase Inhibitor) kinase Antagonist) inhibitor) inhibitor) Note: Late Stage Pipeline includes only those drugs which are either in Phase III or pre-registration stage of development Source: Grail Research; PharmaProjects database (accessed in August 2009) February, 2010 | Copyright © 2010 Grail Research, LLC 10
  • 11. 2 More aggressive use of utilization tools is underway Biologics in Breast Cancer – Usage of utilization tools in 2008 and expected increment in 2011a,2 Commercial health Medicare Managed Medicaid PBMs1 plans advantage plans plans Management Incremental Incremental Incremental Incremental strategy % of plans % of plans % of plans % of plans % of plans % of plans % of plans % of plans using the using the using the using the to use the to use the to use the to use the tool in 2008 tool in 2008 tool in 2008 tool in 2008 tool in 2011 tool in 2011 tool in 2011 tool in 2011 Quantity Limits 36.4% 14.5% 43.5% 17.4% 29.4% 23.5% 36.4% 27.3% Step Therapy 14.5% 23.6% 13.0% 30.4% 17.6% 23.5% 0.0% 36.4% Prior Authorization 56.4% 7.3% 60.9% 13.0% 52.9% 17.6% 36.4% 9.1% by Diagnosis Prior authorization 34.5% 21.8% 21.7% 30.4% 41.2% 11.8% 0.0% 36.4% by test results Coinsurance cost 29.1% 12.7% 56.5% 13.0% NA NA 18.2% 0.0% share Note: 1PBM is Pharmacy benefit management; 2Survey group include Commercial health plans (N=55), Medicare Advantage plans (N=23), Managed Medicaid plans (N=17), PBMs (N=11) Source: aBiotechnology Monitor and Survey, Marketplace Policies, Practices and Perspective: 2009 February, 2010 | Copyright © 2010 Grail Research, LLC 11
  • 12. The cost of cancer therapy is increasing as patients shift to 3 newer, more expensive therapies New drugs cost more and are increasing share Average Monthly Medicare Price of Drugs at the Time of Oncology Drugs Market Share by Launch, 1996–2007a Approval (1994-2008)b 100 8,000 Percent Market Share 7 12 18 8 14 27 21 27 6,465 36 31 35 6,000 37 USD 38 50 100 38 37 4,000 3,610 93 88 82 73 64 57 49 2,000 1,450 41 35 32 0% 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1994-1998 1999-2003 2004-2008 Drugs Launched in 2003-07 Drugs Lanched in 1997 or Before Year of Approval Drugs Launched in 1998-02 Utilization of Newer therapies is increasing New Therapies cost more The Cost of Treating Cancer is Increasingc 100 75 Annual Cost of Treating Cancer 62 (USD Bn) 50 43 30 0 1990 1995 2000 2005 Source: a”The Oncology Pipeline: Maturing, Competitive, and Growing?’, Oncology Business Review, Sep 2008; b“Limits on Medicare's Ability to Control Rising Spending on Cancer Drugs”, NEJM Article, February 5, 2009; cManaged Care Oncology Magazine, Q3 2008 Issue February, 2010 | Copyright © 2010 Grail Research, LLC 12
  • 13. At the same time, drug benefits may seem modest relative 3 to cost Some of the newly-approved brands cost USD 150-500K per life year gained Incremental Cost / Life Year of Incremental Cost of Year Gained Drug Company Indication Approval Benefit Therapy (LYG) (USD) (USD)1 Avastina Roche Breast Cancer 2008 4 months survival 50,000 150,000 0.127 months Tykerbb GSK Breast Cancer 2007 21,484 169,165 survival 1.96 months Ixemprac BMS Breast Cancer 2007 30,900 189,184 survival Non-small Cell 345,757– Avastinb Roche 2006 2.3 months survival 66,270–80,343 Lung Cancer 419,181 OSI Pharmaceuticals / Pancreatic 364,680– Tarcevab 2005 0.4 months survival 12,156–16,613 Roche Cancer 498,390 Colorectal 1.44 months Erbituxb BMS 2004 21,954 182,950 Cancer survival Notes: 1LYG costs have been derived Source: aNew York times; bAmerican Society of Clinical Oncology (ASCO); cJournal of Clinical Oncology February, 2010 | Copyright © 2010 Grail Research, LLC 13
  • 14. This has led to a new and public discussion about the 3 cost/benefit of these new therapies Commentary in the press New York Times, July 2008 - Cost effectiveness of Avastin - “It’s absolutely critical that we start having a public discussion,” said Barbara Brenner, executive director of Breast Cancer Action, an advocacy group. “I think of Avastin as a model that is showing us where the problem is.”a Bloomberg News, June 2009 - “Eli Lilly & Co.’s tumor-fighter Erbitux doesn’t prolong lung cancer patients’ lives enough to justify its $80,000 cost, U.S. scientists said in commentary published today. Erbitux added to other cancer drugs extends survival about 1.2 months more than chemotherapy alone, making the price too high for a ‘marginal benefit,’ commentary in the Journal of the National Cancer Institute said”b Medscape, May 2009 - “Ixabepilone (Ixempra) for metastatic breast cancer is an example of a cancer drug that adds ‘a small benefit at a high cost,’ says an editorial in the May 1 edition of the Journal of Clinical Oncology. The editorial accompanies a new cost-efficacy study in the same issue of the journal that found that the addition of ixabepilone to capecitabine (Xeloda) adds about $31,000 to the overall medical costs of metastatic breast cancer while providing about 1 more month of ‘quality-adjusted’ survival”c The Independent, August 2008 - “The National Institute for Health and Clinical Excellence (NICE) issued draft guidance rejecting the drugs Sutent (sunitinib), Avastin (bevacizumab), Nexavar (sorafenib) and Torisel (temsirolimus)” “The guidance rejects the drugs because they are not cost effective”d The Wall Street Journal, March 2009 - “Expert advisers in the U.K. are sticking with their view that GlaxoSmithKline’s Tykerb is too costly to justify routine use in women with advanced breast cancer. The British government’s National Institute for Health Effectiveness, or NICE, put out a final appraisal that said Tykerb hadn’t ‘demonstrated that it was cost effective’ in comparison with other treatments. It put forth a similar view last summer”e Sources : a“Costly Cancer Drug Offers Hope, but Also a Dilemma”, The New York Times, July 6, 2008; b “Lilly Erbitux Cancer Drug Not Worth Price, U.S. Scientists Say”, Bloomberg News, June 2009; c“Ixabepilone in Metastatic Breast Cancer: Small Benefit at High Cost”, Medscape, May 2009; d“NHS denies 'effective' cancer drugs due to cost”, The Independent, August 2008; e“U.K. Says Tykerb Isn’t Worth Cost, Even With 12 Free Weeks”, The Wall Street Journal, March 2009 February, 2010 | Copyright © 2010 Grail Research, LLC 14
  • 15. 3 Companies are reacting with price caps… Examples of price cap initiatives  If patients spend more than 5%  Genentech capped Avastin at of their annual gross income on USD 55,000/year for patients with In Oct. 2006, In Sept. 2006, copayments, then they become a household income less than Genentech Amgen eligible for free drugs through an $75,000 a yeard announced a instituted a assistance programb price cap on price cap on Avastin based Vectibix at on a patient’s $4,000 per dose incomea (20% lower than BMS’s Erbitux)d Price Caps Employed In May 2006, as a Tool The UK BMS government announced a (NICE) uses  Patients who spend over USD price cap on cost/benefit  A threshold of GBP 30,000 per 10,000/month become eligible Erbitux for analysis in quality-adjusted life year for free or discounted drugs patients that evaluating (QALY) is used in evaluating through a charitable programa reach a drugsc drugs for reimbursementc monthly threshold Sources : a”Contracting, rebating, risk-sharing – IMS Conference hears about more innovative approaches to pricing”, IMS Global Insights; b“Managed Care Best Practices in Oncology Management”, Conference report, November 2006; c“Cost-Effectiveness of Cancer Drugs Is Questioned”, The Wall Street Journal, June 2009 and “Time to Consider Cost in Evaluating Cancer Drugs in United States?”, Medscape Today, July 2009 ; d“Top Of The Cancer Market?”, Forbes, October 2006 February, 2010 | Copyright © 2010 Grail Research, LLC 15
  • 16. 3 … and pay for performance arrangements Drug companies are increasingly offering discounts to insurers based on drug performance rather than quantity of drug utilized1 Pay for Performance Examples  In 2001 Pfizer convinced the State of Florida to put all its drugs on the state's Medicaid formulary. In return Pfizer agreed to rebate a portion of drug costs if its drugs failed to generate long-term cost savings across the healthcare systema • This model worked for Pfizer, enabling the company to avoid up-front discounts and back-end rebates, while saving the State of Florida USD 41.9MM in other healthcare costsa  In 2007, after the NHS in Britain decided not to pay for the cancer drug Velcade, Johnson & Johnson offered a money-back guarantee if Velcade failed to reduce tumors by at least 25%b,c • Through this Pay for Performance strategy, the NHS designated Velcade as cost-effective for up to four cycles of treatmentc  In 2007, United Healthcare entered into a risk sharing agreement with Genomic Health. The company sells Oncotype DX®, a USD 3,460 genetic test that determines whether an early-stage breast cancer patient would benefit from chemotherapyc • United Healthcare agreed to pay for the test for 18 months, on grounds that it would seek a price negotiation if the test failed to have the intended medical impactc  In 2009, in response to a negative UK NICE appraisal, Merck offered to refund the primary care cost of its drug Erbitux, if a patient did not respond within 6 weeksd  In 2009, when Tarceva was declared cost ineffective by NICE, Roche offered a rebate for the cost difference between Tarceva and the incumbent NSCLC treatmentd Note: 1Pay for Performance is more popular in Europe.US, insurers have less leverage with drug makers because of tough state regulations and marketplace pressures Source: ; a“Money-Back Guarantee”, Pharmaceutical Executive, April 2008; b“Drug Deals Tie Prices to How Well Patients Do”, New York times, April 2009; c“Pricing Pills by the Results”, New York times, July 2007;d “More Velcade-Style Risk-Sharing In The UK?”, Europharmatoday.com, January 2009; February, 2010 | Copyright © 2010 Grail Research, LLC 16
  • 17. Companies are also conducting head-to-head trials in order to 3 demonstrate superiority for their agent over alternatives The crowded market is resulting in increased pressure on drug companies to conduct head- to-head trials to prove that their product is better than the competitor’s product Expected Completion Comparison Condition Trial Sponsor Date Results were expected Zactima vs Second line NSCL in September 2009; Astrazeneca Tarcevaa Cancer Regulatory submissions withdrawn Recentin vs First line metastatic Astrazeneca May 2011 Avastina Colorectal Cancer Sutent vs. First line metastatic Pfizer Halted in June 2009 Avastin1,b Breast Cancer Sprycel vs Bristol-Myers First line CML Complete Gleevec2,c Squibb Tykerb vs Adjuvant Breast GlaxoSmithKline May 2013 Herceptina Cancer Note: 1Trial halted in June 2009 as better survival rates could not be established; 2FDA approved Sprycel for treatment of CML since the study established better survival rates in Gleevec- resistant patients. The drug fulfills the need for second line treatment Source: aClinicaltrial.gov, b“Pfizer halts Sutent breast-cancer trial”, fiercepharma.com, June 2009; c“FDA Grants Full Approval For SPRYCEL For The Treatment Of Adults With Chronic Myeloid Leukemia”, MedicalNewsToday, May 2009 February, 2010 | Copyright © 2010 Grail Research, LLC 17
  • 18. 4 Greater use of oral therapeutics is changing oncology Unlike the overall industry, orals are gaining share in Oncology Percentage of Worldwide Rx & OTC Pharmaceutical Sales from Share of Biologics Within Top Biotech vs. Conventional Technologya 100 Products 100 91 91 90 89 88 87 86 84 83 82 81 80 79 78 77 80 2014 50% Technology % of Rx & OTC Sales 60 2008 28% 40 18 19 20 21 22 23 14 16 17 20 9 9 10 11 12 13 2000 11% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 0% 10% 20% 30% 40% 50% 60% Biologics Conventional Oncology Market for Targeted Therapies: Biologics vs. Conventional Technologyb 100 100 74 % of Total Sales 80 69 66 60 31 34 40 26 20 0 0 2000 2006 2010E 2015E Conventional Biologics Source: aWorld Preview 2014, May 2009, Evaluate Pharma report; bMonthly oncology report, October 22, 2007, Rodman and Renshaw equity research February, 2010 | Copyright © 2010 Grail Research, LLC 18
  • 19. 4 Oral oncologics are managed using traditional utilization tools… Traditional tools such as tier status, prior authorization, quantity limits and co-payments are being adopted for oral oncologics Formulary Status of Oral Oncology Brandsa,1 2,000 Number of PDPs covering drugs 1,645 1,648 1,648 1,648 1,648 1,648 34 34 34 34 34 1,500 204 417 417 417 417 417 1,000 882 879 879 873 877 1,444 500 41 207 174 210 274 275 36 2 2 109 2 148 2 108 2 0 Glivec Sutent Tarceva Thalomid Tykerb Tamoxifen Tier 6 Tier 5 Tier 4 Tier 3 Tier 2 Tier 1 % of Plans with Primary Tier % of Plans: % of Plans: Primary Cost- Drug Drug on Formulary Placement Prior Authorization Quantity Limits Sharing Range Gleevec 100% 4 70% 29% 26% - 35% Sutent 100% 4 62% 32% 26% - 35% Tarceva 100% 4 62% 32% 26% - 35% Thalomid 100% 4 68% 25% 26% - 35% Tykerb 100% 4 74% 42% 26% - 35% Tamoxifen 100% 1 0% 2% $ 0 - $10 Note: 1Selected drugs include Glivec, Sutent, Tarceva, Thalomid, Tykerb and Tamoxifen (Data from November 2008 for Medicare Part D plan) Source:a“Cost Sharing for Cancer Patients in Medicare, 2009”, Avalere Health and American Cancer Society Cancer Action Network, December 2008 February, 2010 | Copyright © 2010 Grail Research, LLC 19
  • 20. 4 … and this trend is increasing over time PDP’s are increasing the use of traditional utilization tools such as prior authorization and co-payments PDP’s1 Requiring % Coinsurance Amount, 2006-2009a Prior Authorization, 2006–2009a 80 76 35 33 33 33 33 Enrollment-Weighted Average 71 71 72 30 30 30 30 31 Coinsurance Amount (%) 68 68 67 30 30 64 30 29 29 60 63 62 27 28 27 27 28 28 PDPs requiring Prior 60 57 55 authorization (% ) 53 25 48 46 40 41 42 20 40 15 10 20 5 0 0 Gleevec Sutent Tarceva Thalomid Tykerb2 Gleevec Sutent Tarceva Thalomid Tykerb2 2006 2007 2008 2009 2006 2007 2008 2009  PDPs are increasing the use of prior authorization to  PDPs are shifting the cost burden to the patients by control access to branded cancer drugsa,b gradually increasing co-insurance amounts for • However, the administrative burden of obtaining brand-name oral anticancer drugsa prior authorization is high, and the process is time- consuming for payers and providersb Note: 1PDP’s are Prescription Drug Plans; 22006 data omitted for Tykerb because the Food and Drug Administration (FDA) approved the drug in March 2007 Source: a“Cost Sharing for Cancer Patients in Medicare, 2009”, Avalere Health and American Cancer Society Cancer Action Network, December, 2008; b“Oncology trends report”, NCCN February, 2010 | Copyright © 2010 Grail Research, LLC 20
  • 21. Table of Contents  Historical Market Dynamics  Evidence of Changes  Case Studies  How to Prepare February, 2010 | Copyright © 2010 Grail Research, LLC 21
  • 22. Case Studies: Close But Not Yet  We are clearly seeing different dynamics in the oncology market than we have historically  However, we have not yet seen significant competition driven solely by pricing. This is a scenario which could emerge when there are multiple, largely equivalent agents available in the marketplace  To date, potential competitive situations (Erbitux vs Vectibix, Nexavar vs Sutent and Tykerb vs Herceptin) have resolved quickly with clear winners based on clinical data, labeling, and physician preference (not payor pressure) February, 2010 | Copyright © 2010 Grail Research, LLC 22
  • 23. Case Study 1 – Vectibix position to displace the similar Erbitux was thwarted by clinical data Erbitux vs Vectibix Scenario at Launch What Happened?  Erbitux was launched by BMS/Imclone in 2004 for metastatic  In March 2007, Amgen discontinued a trial of Vectibix due to 231 colorectal cancer patients1 cases of death or disease progression. Vectibix sales in the second  Vectibix was launched in September 2006 by Amgen for metastatic quarter of 2007 fell from USD 51MM to USD 46MMe,f colorectal cancer patients2  Erbitux maintained steady growth even after the launch of Vectibix • Analysts expected that Vectibix would replace Erbitux as a • The total number of patients treated with Erbitux increased in treatment for colon cancera,b October 2007, and market share rose to 14.8% in that month g  Both Vectibix and Erbitux are antibody-based therapies that are • Vectibix did not show any month-to-month market share administered intravenously; however Vectibix had a few potential increase (in October 2007) and was underperforming according advantages to analystsg • More convenient (every other week) administration and lower  In 2009, label changes for both Erbitux and Vectibix were cost (20% discount) compared to Erbituxb implemented; these are expected to narrow the eligible pool of • Lower frequency of infusion reactions (1% compared to 3% for patients for both the drugs by up to 40%h Erbitux) i,j  Sales of Vectibix in 2006 (Oct-Dec) were USD 39MM and the company was upbeat about the futurec  Analysts at Merrill Lynch predicted that Vectibix would eventually take 60% of Erbitux's market. They also lowered their projected sales figures for Erbitux for 2008-2010d Note: 1Approved as a single agent for EGFR-expressing metastatic colorectal cancer after failure of both irinotecan- and oxaliplatin-based regimens or in patients who are intolerant to irinotecan-based regimens OR used in combination with irinotecan, EGFR-expressing metastatic colorectal carcinoma in patients who are refractory to irinotecan-based chemotherapy; 2Approved as a single agent for the treatment of metastatic colorectal carcinoma with disease progression on or following fluoropyrimidine, oxaliplatin, and irinotecan chemotherapy regimens Source: aPress release, September 27, 2006, Amgem company website; b“Vectibix Will be EGFR Antibody of Choice for Colon Cancer Therapy”, October 6, 2006, GLG group website; cAnalyst conference summary of Amgen quarter results, January 27, 2007, Openicon website; d”Amgen wins approval for colorectal cancer drug”, September 28, 2006, Marketwatch website; e”Amgen Discontinues Vectibix(TM) Treatment in PACCE Trial Evaluating Vectibix(TM) as Part of Triple Combination Regimen”, March 23, 2007, Biotechnoloogy-europe website; fPress Release, July 26, 2007, Pfizer company website; g“Monthly oncology regimen report through September 2007”, Rodman & Renshaw, Inc.,October 22, 2007; h“New US labelling for Erbitux and Vectibix recommends against their use for large subset of colorectal cancer patients”, July 20, 2009, Scripnews website; i"Vectibix(R) Now Available For The Treatment Of Advanced Colorectal Cancer In Belgium, October 03, 2008, Medicalnewstoday website; jErbitux website " February, 2010 | Copyright © 2010 Grail Research, LLC 23
  • 24. Case Study 2 – In another potential head-to-head battle, physicians chose Sutent over Nexavar Nexavar vs Sutent Scenario at Launch What Happened?  Nexavar was launched by Bayer/Onyx in December 2005 for  Sutent rapidly captured over 50% market share in renal cell advanced renal cell carcinomaa,2 carcinoma for all lines of therapy (July 2006)d  Sutent was launched by Pfizer in 2006 for the same • Sutent became the standard therapy for first-line indication1 treatment of mRCC after launche;  Direct competition was expected: • Nexavar competed more successfully in second line • Datamonitor forecasted Nexavar revenues would therapy with 35.1% patients receiving Sutent and reach USD 122MM and Sutent would reach USD 32.4% receiving Nexavar (October 2007)d 179MM by 2010b • Although Nexavar had a first-to-market advantage, Renal Cell Carcinoma Market share Sutent was expected to have superior efficacye 100 (All stages/ All lines)d Nexavar 80 Sutent • Nexavar on the other hand, was expected to have better tolerability – side-effects were limited mainly to 54 53 53 53 55 55 56 Market Share % 60 52 51 51 51 51 blistering and rashesc 34 32 32 34 34 32 33 33 34 33 33 33 40 • Cost of treatment was similar for both Sutent and Nexavar at USD 4,600 per treatment/monthd 20 0 06/2006 08/2006 10/2006 12/2006 02/2007 04/2007 06/2007 Note: 1Sutent is a kinase inhibitor indicated for the treatment of: (i)Gastrointestinal stromal tumor after disease progression on or intolerance to imatinib mesylate (ii) Advanced renal cell carcinoma; 2Nexavar is a kinase inhibitor indicated for the treatment of advanced renal cell carcinoma Source: aPress Release, December 20, 2005, Company website; b”Stakeholder Opinions: Renal Cell Carcinoma - Novel Targeted Treatments to Fill the Void”, December 2005, Researchandmarkets report; c”FDA approves Bayer's kidney cancer drug”, December 22, 2005, Pharmafocus Website; d”Torisel: The New Kid on the Block for Advanced Renal Cell Carcinoma”, September 2007, Oncbiz website; e”Nexavar and Sutent, Both Indicated for Metastatic RCC, Look Set to Compete Well to the End of the Decade - Nexavar's 2010 Revenues Are Forecast to Reach $122 Million and Sutent's $179 Million”, February 13, 2006, Business Wire February, 2010 | Copyright © 2010 Grail Research, LLC 24
  • 25. Case Study 3 – Tykerb could not displace Herceptin without more data and a better label Tykerb vs Herceptin Scenario at Launch What Happened?  Herceptin was the first targeted therapy to be launched for the treatment of  Tykerb reported modest global sales of USD 145.3MM in 2008d breast cancer in 1998 • Sales were far behind Herceptin’s, which recorded global sales of USD  Tykerb (oral therapy) was launched in 2007 as combination therapy with 1.82 billion in 2008h capecitabine (Xeloda), for the treatment of patients with advanced or  Factors contributing to Tykerb’s limited revenues were: metastatic breast cancer (mBC) with HER2 over-expression and who • In August 2007, a study conducted by Decision Resources suggested progressed on prior therapy including an anthracycline, a taxane, and that oncologists did not prefer Tykerb as a replacement for Herceptin. Herceptine Instead they were only using it as an alternative for Herceptin-refractory • Tykerb was approved in a second or third line settingk patients in the treatment of advanced breast cancerk • At the time of launch, GSK marketed Tykerb as a more convenient and • 58% of oncologists opined that they would favor IV Herceptin over user-friendly oral therapyg Tykerb because the administration of IV drugs remains an important  Expectations for Tykerb were mixed at the time of launch: source of income for their practicec • Some analysts expected the drug to achieve blockbuster status by  To boost revenues from Tykerb in breast cancer, the company decided to 2010a. Analysts assumed that drug would be effective in difficult to treat expand use of Tykerb in an adjuvant setting: patients and patients with brain metastases, Tykerb was expected to • As of April 2007, GSK was studying Tykerb for its application in adjuvant gain share in first line and adjuvant settings. breast cancer : "We are dedicated to the further study and development • Others predicted Tykerb’s use would be limited until it demonstrated of Tykerb in a variety of settings, including adjuvant breast cancer as significant benefits when added to Herceptin. well as in other solid tumor types“j • Analysts forecasted Tykerb sales to reach USD 104 MM1 in 2008b -Paolo Paoletti, MD, Oncology Medicine Development Center,GSK  At the time of launch, analyst expected the biggest sales opportunity for • GSK launched a head-to-head trial of Tykerb versus Herceptin in Tykerb to be in the adjuvant setting in the breast cancer marketb adjuvant breast cancer in 2008. Results for this trial are expected by May 2013f • In April 2009, GSK submitted an application to expand Tykerb use for first-line treatment of metastatic breast canceri Note: 1Reported as £ 62 million, conversion factor used as on November 16, 2009 Source: a“Analysts raise NPVs of Promacta and Rezonic; Tykerb still star of GSK oncology pipeline”, Goliath Business News, July 2007 ; bBear Stearns report September 21, 2007; cPR News wire August 14, 2007; dGSK Annual Report, 2008; Grail analysis; eDrugs @ FDA; fClinicaltrial.gov; gkomenozark.org; hGenentech Website; iGSK press release; j“Tykerb Approved for Metastatic HER2+ Breast Cancer “, cancernetwork.com, April 2007; k“Glaxo's Tykerb still has some convincing to do”, Evaluate Pharma, March 2008 February, 2010 | Copyright © 2010 Grail Research, LLC 25
  • 26. Table of Contents  Historical Market Dynamics  Evidence of Changes  Case Studies  How to Prepare February, 2010 | Copyright © 2010 Grail Research, LLC 26
  • 27. Preparing for a New Dynamic  While direct, payor-driven competition among oncology agents has not yet arrived, manufacturers need to be prepared for changes in the oncology market  Manufacturers may want to conduct head-to- head trials, or define market subsets where they can demonstrate superiority to potential alternative agents  Manufacturers may also want to consider scenarios where there are multiple agents with similar therapeutic profiles available for a given indication February, 2010 | Copyright © 2010 Grail Research, LLC 27
  • 28. For More Information Contact:  Grail Research (info@grailresearch.com) Copyright © 2010 by Grail Research, LLC No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Grail Research, LLC February, 2010 | Copyright © 2010 Grail Research, LLC 28

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