A session by Susan P. Gibson, President & Founder, Vivolor Therapeutics, Inc. on the topic of 'Is Pharma Drug Pricing Being Disrupted?' at IFAH USA 2019 held at Caesars Palace, 18-20 June, 2019.

1. Is Pharma Drug Pricing
Being Disrupted?
By Susan P. Gibson
President & Founder
Vivolor™ Therapeutics Inc
June 18, 2019
IFAH Conference 2019
Las Vegas

2. Healthcare’s disjointed system impacts
price and accountability
All other purchases
YOU
Use it
Decide
Pay
Healthcar
e
PAYER/EMPLOY
ER
Pays
PHYSICIAN
Decides
PATIENT
Uses it
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3. Why is pharma drug pricing in the news?
• Unusual market dynamics (no supply and demand)
• Increases in total healthcare spend
• Increases in patient portion of spend
• Potential ‘bad actors’
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4. Increase in total US health expenditures
over time drove scrutiny
Source: Kaiser
Family Foundation
analysis of
National Health
Expenditure (NHE)
data
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34 times
increase 1970
to 2015

5. Healthcare spending growth has slowed,
now on pace with economy
Source: Kaiser
Family Foundation
analysis of
National Health
Expenditure (NHE)
data IFAH CONFERENCE
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6. Rx drugs are 10% of US healthcare spend
Source: Kaiser Family
Foundation analysis of
National Health
Expenditure (NHE) data
2017 data
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25-50% of
healthcare
spend is waste!
https://www.nationalreview.com/2017/10/us-health-care-half-our-spending-wasted/
https://www.propublica.org/article/a-prescription-for-reducing-wasted-health-care-

7. Systemic issues with healthcare – don’t pay
for quality outcomes
PHYSICIAN
OFFICE
Pay to be
‘seen’
HOSPITAL
Learn of
charges 3
months later
Rx DRUGS
No price
visibility
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8. Out-of-pocket tiers increase patient portion
of pay for non-preferred/specialty drugs
and over the years
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8
Formulary Tier Description Average Co-pay or Co-insurance
Tier 1 Generics
$11
(19% co-insurance for 21% of members)
Tier 2 or 3 Preferred Brands
$33
(26% co-insurance for 45% of members)
Tier 3 or 4 Non-preferred brands $59
(36% co-insurance for 49% of members)
Tier 4 or 5
Specialty drugs
Lifestyle drugs
Medicare Part D > $660/mo
(some available only through
Specialty Pharmacy)
$105
(31% co-insurance for 59%)
OOP maximum may apply;
fixed $ limit/Rx or /yr
Patients feel Rx
cost rise because
OOP is off list
price (doesn’t
factor in
discounts)

9. Patient out-of-pocket spend has increased
Source: Kaiser
Family Foundation
analysis of
National Health
Expenditure (NHE)
data
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11 times
increase
in OOP
1970 to
2015

10. Healthcare premiums increased significantly
over time
Source: Kaiser
Family Foundation
analysis of
National Health
Expenditure (NHE)
data IFAH CONFERENCE
2019http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-
10
>50%
increase in
last 10 years

11. Quality drives cost up
Cost
Innovation
Treatment options
Bright/talented HCPs
Quality outcomes
How to reduce costs
and not have quality
and outcomes suffer?
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12. Biopharma development costs are staggering and
increasing
• Average cost of developing Rx
drug that gains approval - $2.6B
($1.4B out-of-pocket + $1.2B time
costs) in 2014
• 48 times increase 1979 to 2014
• Additional $312M post-approval
development
• Additional $2.9B lifecycle
management
121. csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study; 2. csdd.tufts.edu/research/research_milestones
Info from 10 pharma companies; 106 drugs 1995 to 2007
3. fdareview.org/approval_process.s 4. medicinenet.com/script/main/art.asp?articlekey=9877
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$54
$231
$802
$1,250
$2,600
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1979 1991 2001 2007 2014
Development costs ($M)

13. Biopharma development is the riskiest
business there is
Time to market – 8-19 years1
6 yrs in 1970s; 13.5 yrs in 2000’s3
Clinical success rates falling
13
1. fdareview.org/approval_process.s 2. medicinenet.com/script/main/art.asp?articlekey=9877 3. ipwatchdog.com/2014/10/19/the-high-
cost-of-making-pharmaceuticals
Make it
to phase
1
Of phase 1
make it to
market
Overall
30% 8% 2%1
5 of
5000
1 0.02%2
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When failed
drugs are taken
into account,
average
development
cost per
molecule is
$4.2B4

14. Pharma development is complex and risky
with a maze of politics
IP risk
Policy risk
State policies
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15. Pharma pricing potential ‘bad actors’
No or Questionable Value Added
• QuestCor Acthar Gel - 2012 price increase $1.65k to $23k (14x) on 60-year-old drug. QuestCor acquired
for $5.6B
• K-V Pharma Makena – Launch price $1,500/dose on prepared formulation of compounded drug
(~$15/dose) to reduce risk of premature birth. After FTC hearings initiated, K-V cut price 60% and sued FDA.
Stock dropped, bankrupted, convicted of felonies, shut down by FDA
• Turing Pharma (Martin Shkreli) Daraprim - Raised price $13.50 to $750/pill (55x) on 62-year-old
acquired anti-parasitic. Martin, former hedge fund manager, raised Thiola price 20x and Chenodal 5x.
Convicted felon (7 yrs prison & $7.4M fines)
• Valeant - Wave of negative publicity over steep price increases for older medicines prompted Federal
investigations
• Isuprel price tripled. Nitropress price 6-fold increase (recently acquired). Average neuro drug price increases 30%/year
• Business model featured price hikes while slashing R&D spend of acquired companies
• Mylan EpiPen - Price increases from $57 in 2007 to $500 in 2016 (10x in 10 years). Paid lower rebate
because classified as generic (epinephrine) in 2017. Company paid $465M fine but estimated cost to US
$1.3B
Value Added
• Gilead Sovaldi - Launched 2014 for Hepatitis C (3.2M Hep C patients in US). 90% cure rate. $84k/treatment
course ($1k/pill) IFAH CONFERENCE
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www.reuters.com/article/2015/10/20/us-valeant-pharms-result-idUSKCN0SD11720151020
www.reuters.com/article/2015/10/15/valeant-pharms-subpoena-idUSL1N12F0LV20151015
www.firstwordpharma.com/node/1324044#axzz3pE64MnmJ
Bloomberg News January 7, 2014; K-V Pharmaceuticals Suit Over Makena Drug Revived by Court
The New York Times April 7, 2014; Mallinckrodt Pharmaceuticals to Buy Questcor for $5.6B

16. Pharma has some really high priced
products
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https://gazettereview.com/2018/07/top-10-expensive-prescription-drugs/
16
Top 10 Most Expensive Rx
Drugs
Price Per Year
1. Gylbera (gene therapy) $1M
2. Ravicti $794k
3. Spinraza $750k
4. Actimmune $628k
5. Lumizyme $626k
6. Carbaglu $585
7. Daraprim $540k
8. Soliris $537k
9. Cinryze $530k
10. Chenodal $511k

17. Possible methods of reducing pharma
prices• Increased competition
• Reduced exclusivity terms for earlier generic entry
• Speed development of new therapies (double edged)
• FDA guidance Oct 2017 to expedite approval of generics
• Reduce expenses
• Reduced regulations which reduces development expense
• Reduced DOJ claims for off-label promotion (GSK $3B, Pfizer $2.3B, J&J $2.2B, Abbott $1.5B,
Lilly $1.4B)
• Government regulations
• Pricing visibility
• Government agency sets price or cap price (no free market)
• One payer system
• Payer management
• Pharmacy management
• Public pressure
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https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical_settlements

18. Loss of share post-exclusivity is dramatic
and approaches 10% by year end across
indications
Source: Wolters Kluwers IFAH CONFERENCE
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M0 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12
COMTAN 100% 67% 31% 28% 26% 23% 22% 18% 16% 15% 13% 12% 10%
ZEMPLAR 100% 60% 35% 32% 29% 25%
MIRAPEX 100% 69% 44% 38% 35% 33% 31% 27% 24% 19% 22% 10% 8%
TEMODAR 100% 86% 49% 39% 35% 26% 11% 10%
Average 100% 70% 40% 34% 31% 27% 21% 18% 20% 17% 18% 11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
%BrandShareofTotalRevenuePost
Generic

19. Complexity of molecule does impact share
loss post-exclusivity even for small
molecules
Source: Wolters Kluwers IFAH CONFERENCE
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T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12
Lg Mol 100% 75% 51% 49% 45% 41% 40% 38% 36% 37% 36% 35% 32%
IV Sm Mol 100% 87% 62% 49% 40% 38% 22% 24% 22% 17% 20% 22% 15%
Oral Sm Mol 100% 86% 45% 35% 31% 26% 22% 17% 16% 15% 14% 11% 10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%

20. Many generics enter when the brand sales
were large
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1.8 1.9
3
2.22.3
3.3
3.6 3.6
4.4
6.8
7.2
7.5
6
8.7
11.3
9.5
0
2
4
6
8
10
12
1995-1998 1999-2003 2004-2008 2009-2011
#ofGenericEntrants
Year of First Generic Entry
Sales <$100MM
$100 ≤ Sales < $200 MM
$250MM ≤ Sales < $1 B
$1B ≤ Sales
Notes: Average number of generic entrants within 1 year of first generic entry: new molecular entities.. IMS
Health data on all new drugs with initial generic entry in the period 1995 through September 2012. Source:

21. Government efforts to curb pharma pricing
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http://www.eiu.com/industry/article/336730817/administrations-drug-price-proposals-are-
underwhelming/2018-05-16
https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2
https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201
Trumps American Patients First (50 proposals May 11,
2019)
Included Not included
Drug ads required to mention price Medicare won’t negotiate directly with
pharma
Pressure other countries to raise their prices to pay
R&D
Doesn’t allow imports from X-US
countries
New negotiating tools for Medicare Pharma still sets launch prices
Medicare pay different amounts for different
indications
Price freezes
Free generics to low income Medicare No total government takeover of
healthcare
Ban pharmacy gag clauses so pharmacist tells best
deal
Required tool Medicare Part D coverage options &
OOP costs
Replace kickback with discounts to patients
Transparency – put patient in control 21

22. Government options for curbing pharma
pricing
Additional options discussed:
• Eliminate generic “pay-for-delay” deals
• Medicare Part B middleman buys and negotiates with pharma. Govt pays based
on average sale price X-US.
• Eliminate “protected classes” in Medicare Part D (HIV and cancer must be
covered by insurance)
• Exclude drugs whose prices increase above the rate of inflation
Note: ICER (Institute for Clinical and Economic Review) reports of clinical benefit
vs pricing as watchdog appear to be beneficial
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http://www.eiu.com/industry/article/336730817/administrations-drug-price-proposals-are-
underwhelming/2018-05-16
https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2
https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201
https://seekingalpha.com/article/3847036-drug-pricing-u-s-pressure-multiple-fronts-time-stay-away-
22

23. HHS wants lower drug list prices
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Alex Azar, HHS Secretary promised to
"call out“
brand-name manufacturers that do not
provide samples to producers of
generics

24. Payor pressures on drug pricing
• Deny coverage. More closed formularies over time
• Contracting for discounts (rarely share the discounts)
• Requiring generics (86% of all Rx’s filled in US are generic).
Extrapolate indications
• Report MD generic use rates and discuss with MDs who are out of range
• Prior authorizations, step therapy and higher co-pays to manage
brand use
• Wait to add newly approved drugs to formulary
• Unofficially “cover only on appeal”
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https://seekingalpha.com/article/3847036-drug-pricing-u-s-pressure-multiple-fronts-time-stay-away-
innovator-pharma
24
Results: Average rebates from pharma are growing
Consolidation of payers increases their negotiating power

25. Pharmacy & PBM management of drug
costs
• Retail pharmacy chains are incented to dispense generics for
larger margins
• Reports compare regional stores on % generics dispensed
• Pharmacies don’t stock many brands. If patient insists, special
order takes 2-3 days and has higher co-pay
• PBMs also push for more generics, but often keep a large cut of
the savings between brand and generic
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PBM = Pharmacy Benefit Manager. Administer Rx

26. Pharma commitment to address drug
pricing
• Abbvie, Allergan, Novo Nordisk and Sanofi have pledged to
limit annual price increases
Value-based deals
• Aetna and Merck value-based deal for Januvia and Janumet for
diabetes – rebate if drug doesn’t achieve goals
• Cigna and Novartis value-based deal for Entresto for heart
failure
• Discussion between Cigna and Amgen, Sanofi, Regeneron for
cholesterol drug
• Spark Therapeutics agreed to charge payers based on
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https://www.ft.com/content/b3cf320e-550d-11e7-80b6-9bfa4c1f83d2
https://www.barrons.com/articles/how-investors-can-play-the-pharma-sector-51549069201 26

27. IFAH
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28. Conclusions
• Pharma pricing is higher visibility
• Pressures continue from government, payers, employers,
pharmacies, patients
• Public outcry is having an effect
• There aren’t many easy answers and time will tell
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