State of the Industry Report, presented by R.T. (Terry) Hisey

Beyond the Hype of Health Reform:
Health Science Transformation Trends & Impacts
A Life Sciences Industry Update

R. T. (Terry) Hisey
Vice Chairman and U.S. Life Sciences Leader
Deloitte Consulting LLP

February 2012

Copyright © 2012 Deloitte Development LLC. All rights reserved.

Today’s comments will touch on…

• Health Care Reform and the mega trends in a system in change

• How people are recognizing the changing ecosystem and maturing
use of facts and analysis to move beyond “how we’ve always done
it” from a market coverage standpoint

• A framework to think about products, portfolio and the forces
affecting adoption

We’ll look at these as factors, trends and some real world
approaches people are pursuing today


Health reform in the form of legislation is a catalyst not the
forcing function of a broader industry transformation

Health Care & New Clinical
Health Information and Education Coding
Clinical Technology Reconciliation Standards
Advancements Act of 2010 (ICD-10)

Patient Protection
&
Consumerism Affordable Care Demographic Changes
Act

Children’s Health
Insurance American Recovery
Private Employer
Program and Reinvestment Act
Initiatives
Reauthorization (ARRA) & HITECH Act
Act

Acts or General
Regulations Trends
3

As the industry matures it is also undergoing major
transformation – how will your business be positioned for
competitive growth?
Industry Transformation

• Business model evolution
− Products ►services ► outcomes
• R&D focus evolution
− Products ►treatment protocols

Today?
Industry Maturation

• Consolidation
• Diversification
− Portfolio (e.g. device, generics)
− Geographic
• Efficiency
− Commercial transformation
− Off-shoring of R&D
• Dividend payout?


Formulary pressures experienced through mechanisms such
as bundled payments and comparative effectiveness scrutiny
necessitate a rethink of the product portfolio
Risk of therapeutic
• Botox • Lucentis • Peg-Intron substitution, but there
Office
Administered is upside opportunity to
(Injectables) develop wrap around
services
• Vfend • Tamiflu • Cipro • Exjade
Care Delivery

Retail - Acute

• Nuvaring • Nexium • Zyprexa • Lipitor • Tracleer
Retail - Chronic Absolute price
pressure

• Aranesp • Eloxatin
Clinic – Hospital ~70% of total 2010 branded revenue falls
Outpatient within the high impact portfolio areas
(Infusion)

• Lovenox • Xigris • Activase
Hospital Inpatient

Lifestyle Morbid Morbid Life Threatening Extremely
Degree of Formulary Pressure (e.g., wrinkles) Non-Disruptive Disruptive (e.g., Morbid / Fatal
(e.g., heartburn) (e.g., migraines, hypertension, (e.g., heart attack,
High Med Low / None chronic pain) asthma) stroke)

Disease Severity
Analysis indicates Reform is anticipated to have 12-14% negative impact on U.S. Pharma revenues, with
formulary pressures driving the majority of the impact, predominantly on portfolios serving morbid and life
threatening disease areas
Note: Deloitte analysis was performed on top 300 revenue generating drugs in 2010. Formulary pressures were modeled by considering restrictions in Kaiser, UK and
Germany; patent expirations; market share in the US; and projected manufacturer revenue growth Copyright © 2012 Deloitte Development LLC. All rights reserved.

A range of possible implications of Comparative Effectiveness
in action
An analysis of three cost sensitive systems (Kaiser, NICE and Germany) highlights strong
formulary pressures, where select mega blockbuster, GP drugs totaling $18.9B are restricted
across these three systems

2010 Analogue Formulary Rejections Mega Blockbuster – GP
Midsized – GP
• Asthma & COPD
• Anti-Migraine Therapies
• Anticonvulsants
• Antidepressants
Blockbusters – GP Germany Kaiser1
• Benign prostatic • Herpes Antivirals
hyperplasia 1 drug 26 drugs 96 Drugs • Neuropathic Pain
• Quinolones, antibiotic $0.2B $11.9 $60B • Female Contraceptives
• Hypertension – • Oral Antidiabetic
Angiotensin II 8 drugs • Triglyceride Treatments
antagonists $18.9B • + 37 More
• Hypertension – 1 drug 7 drugs
Angiotensin II Combos $6.9M Midsized – GP
$3.8B
• Osteoporosis • Immunosuppressants
• Anti-migraine Therapies 21 drugs
• Insomnia
• Hypertension - Ace Inhib $20.3B
• Osteoporosis
• Hypertension – Beta United • ADHD
Blockers
Kingdom • Hypercalcemia
• Proton Pump Inhibitors
Mega Blockbuster –
Mega Blockbusters – GP Specialty/GP
• Cholesterol Treatments • Oncology - Monoclonal
• Proton Pump Inhibitors Antib
Total US branded market = $267.6B revenue • Antipsychotics
Midsized – GP Total US retail market = $194B revenue • Alzheimers Disease
• Proton Pump Inhibitors • Multiple Sclerosis
• Macular Degeneration
Deloitte analysis: 1 Kaiser analysis conducted only on products sold through the retail pharmacy channel (excludes • + 8 More
6 hospital, clinic and office administered products)

The medical devices industry will likely be impacted by
emerging stakeholders and decision making paths that reduce
physician choice
In the post-reform environment, physicians are anticipated to lose purchase decision making
power to hospitals and to patients

Highly Diversified
(Low Substitutability)
Maturity

Maturing
(Moderate
Substitutability)

Commoditized
(High Substitutability)

Degree of Future Spend
Reduction Focus

High Medium Low
$1 B in US Revenue 2009
Purchase Decision Maker
Note: Bare metal stents have already undergone significant spend reduction

Change is occurring across stakeholders, creating the
emergence of cross sector mega trends
From Defined
Employers Drop Employers Stoke
Benefits to Defined
Coverage Consumerism
Contributions

Employer Trends
Providers Engage in Implementing
Radical Cost Cutting HIE and HIT State Healthcare
Emergence of the Systems and
Healthcare Budgets Under New
Consumer Emergence of Strain
New Roles in
Providers “Get Measurement Healthcare

Government Trends
Organized” & Analytics Administration
Demonstrate
Provider Trends

Implementing
Varying Degrees HIE and HIT
Shifting of Involvement
Expanded Scope of Payment in Defining
Models Regionalization Healthcare
Reform
Care Delivery
Models Marketplace
Alignment Transparency Increased Federal
of Incentives Cost Taxes, Fees &
Providers Take Management Oversight
Shifting Health Plan
Ownership of Plans Collaborate Care
Risk Marketplace
Medical Cost on CE Coordination
Churn
Management Increasing Demonstrate
Focus on Regulation and
Meeting Performance Varying Degrees of
Oversight
the Demand & Outcomes Involvement in
Physician Shift from
Defining Reform
Entrepreneurs to
Employees
Health Plan Trends
Migration Toward a Expansion in Basis Plans Collaborate Health Plan
Regulated Utility of Plan Competition on CE Marketplace Churn


Four major trends are evidenced through real world data

Regionalization: Distinct and growing
Employer Trends differences in the way health care is
procured and delivered across the U.S.
Implementing
HIE and HIT
Emergence of the
Care Coordination: Increased
Healthcare importance placed on coordinated care
Consumer Emergence of throughout a patient’s lifetime and
New Roles in
Measurement
Healthcare journey through health care systems.

Government Trends
& Analytics
Administration
Demonstrate For example innovation around patient-
Provider Trends

Varying Degrees centered medical home.
Shifting of Involvement
Payment in Defining
Models Regionalization Healthcare
Reform Focus on Performance and
Marketplace Outcomes: The shift from disease
Alignment Transparency
of Incentives Cost oriented outcomes to patient oriented
Shifting
Management
Health Plan
outcomes, including performance
Plans Collaborate Care
Risk Coordination Marketplace measures that will lead to payment
on CE
Churn
Increasing reform.
Focus on Regulation and
Meeting Performance Oversight
the Demand & Outcomes Emergence of the Health Care
Consumer: Expanded influence of the
patient in treatment decisions often
Health Plan Trends driven by increased access to online
and socially generated health care data.


Regionalization as seen today in the use of real world data
Segmentation analytics applied to a range of health care system data shows distinct market
archetypes that challenge the way we manage our business

Self-Organizing Maps Hint at 4 Clusters of MSAs With Different Risk and Opportunity
Scree plot Innovation Index Cost Index
ee.risk

1.5
3.0
PC
patient.risk
FA

0.5
0.5
2.5
ponents
payer.consol

-0.5
-0.5
clinical.consol

Eigen values of factors and com

2.0

-1.5

-1.5
cost.control

1.5
1 2 3 4 1 2 3 4
oa.activity
Quality Index Consolidation Index
quality.init

1.0

0.0 0.5 1.0
1.0
innovation

0.5

0.0
community.activity

standardization

0.0

-1.0

-1.0
innovation
patient.risk
ee.risk

oa.activity

community.activity

standardization
quality.init
payer.consol

clinical.consol

cost.control

2 4 6 8 10
1 2 3 4 1 2 3 4
factor or component number

Geographic Market Assessment Findings
Increasing Cost and Quality Focus Shifting Risk
toward Providers

Conventional Outcomes Driven Leading PA: Four
Increasing Cost and
Quality Focus

Dallas Distinct Archetypes
Scranton
1 Houston

San Antonio
Increasing Quality Focus Pittsburgh

Philadelphia

Cost Driven
Cost Focus

2
Harrisburg

Evolution of Care Delivery Copyright © 2012 Deloitte Development LLC. All rights reserved.

Care Coordination as seen today in the use of real world data
Structurally different treatment patterns in the treatment of Diabetes

Chicago network San Antonio
with at least 2 shared patients with at least 2 shared patients

% Physicians
Shared Patients % All Market % Insulin Market
(Base=Chicago)
At least 2 patients in insulin market: CHICAGO 5% 62% 66%

At least 2 patients in insulin market 3% 53% 57%
11 Source: Deloitte 2011 analysis of De-identified Patient Data

Focus on performance and outcomes as seen today in the use
of real world data
Gene sequencing algorithm applied to patient longitudinal data reveals treatment patterns that
are studies against patient outcomes

The expectation is that insulin usage by patients in period
1 would be the same as period 2

1
2
3 Patients who drop
Clustering
rows (patients) and 4 Drug D Patients who
columns (drugs) reveal pick up Drug
5 P in 2nd
usage patterns
period
6
7
8

9
Patients who drop 10
11
Drugs B &C
12
LA UL 1
LA U 2
NO NT S 1
NO VO S 2

M L IN 1
M OG 2

VO R A 1
2
AP L O 1
ID G 2

NT O 1
NT S 2
AP U S 1
R 2
1
LE EM S 2
HU EM 1
HU U 2
M IN
NT IN

VO OG

LA U G
NO PID A
HU VO IN

ID S S
S
V IR
M IR

U

A R
L

A
LE R A

L

L

NO L
LA L
HU A
A
ID
V
AP

12
Source: Deloitte 2011 analysis of De-identified Patient Data

Emergence of health care consumer as seen today in the use
of real world data
Patients are online, looking for answers and connecting with other “patients like me.” Their
sentiment is analyzed and tracked, begging new questions about engagement.

Social Analytics Elements
Factors driving engagement in self-ID women in PA
Average Factors
Scan Collect Validate & Analyze & Predict Respond Engagement Females PA
Age
& mine cleanse categorize
Sentiment Measures

Source Gender Verbatim Score
A - social M I was scared to death when I was 9.5
networking diagnosed with t2, but I joined a support
service & group and leaned that it’s not a death
website sentence you CAN manage it and live
with it so don’t get discouraged!
B - blog- F I'm still experiencing high bg's on the I:C 12.1
publishing ratio way of taking insulin. I've been
service pretty diligent with looking up how many
carbs are in the meal I am about to eat,
and also correction dose for what my
bg's are at other times.
A - social M I forget to test sometimes. Especially 4.5
networking when I'm at work and very busy. Doesn't
service & it just stink to be human! LOL
website
C - online F I hate needles! Sticking myself scares 2.0
social me. I'm not sure I can do this!
networking
service & M I'm exercising more and monitoring 13.7
microblogging regularly because my wife makes sure
service that I do.

0
0 14.5
14.5
Low Engagement High Engagement Source: Copyright 2012, PredictivEdge Technologies LLC.
13 Copyright © 2012 Deloitte Development LLC. All rights reserved.

In this era of health science industry transformation, you need
to question yourself to enable long-term competitive
effectiveness. The types of questions to ask include…
1. How does your company identify innovators, leaders and influencers to apply to
its marketing strategies?
2. Are social media and other professional networks and memberships used to
assess drug adoption rates and utilization strategies?
3. Does your company estimate the timing, sequencing, and delivery of messages
to the right innovators, leaders, and influencers; and if so, how accurately?
4. How does your organization promote drugs to physicians and leverage spend
in selecting a marketing strategy?
5. Have you considered both the direct and indirect impacts when assessing how
health reform will affect your organization?
6. Are you proactively building informatics capabilities and leveraging data to
develop effective product value propositions to compete in the post reform
environment?
7. Have you thought through what the revenue impact health reform will have on
your current portfolio mix and pipeline? How does reform impact your product
development strategy?

14

Thank you for your time

Comments, questions, etc…

For more information, please contact:

R. T. (Terry) Hisey
Vice Chairman and U.S. Life Sciences Leader
Deloitte Consulting LLP
rhisey@deloitte.com
215-246-2332


Disclaimer:
This publication contains general information only and is based on the experiences and research of
Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial,
investment, or other professional advice or services. This publication is not a substitute for such
professional advice or services, nor should it be used as a basis for any decision or action that may
affect your business. Before making any decision or taking any action that may affect your business,
you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall
not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP.
Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte
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