This document discusses the PTRS (Probability of Technical and Regulatory Success) risk assessment process used to evaluate projects in a pharmaceutical portfolio. It provides examples of how risk is assessed at different phases of development and how that informs the likelihood of success and expected value. Key aspects of the process include identifying development risks, mitigation strategies, determining the probability of progressing through each phase given risks, and the probability of regulatory approval. Qualitative and quantitative factors are considered. The goal is not to derive an exact probability but have discussions to understand risks and make informed decisions.

1. PTRS Risk Assessment Process
in Action
Michelle D. Goldberg, Associate Director
Strategy & Portfolio Analysis Group
1

2. A portfolio is a collection of projects,
each of which has its own story
Portfolio
PTRS 20% PTRS 11% PTRS 71% PTRS 54%
NPV $1.2B PTRS 22%
NPV $500MM NPV $500MM NPV $300MM NPV $1.0B
Early Development Full Development Regulatory Filing Medical Affairs Studies
(Pre-clin through POC)

3. Diversification is key to a balanced
portfolio, but it’s only one part of the story
Low Risk, High Value
In what phase is each project?
• Projects in earlier phases
have greater risk.
When will each project launch?
• Projects that launch years
later may have lower NPVs.
High Risk, Low Value High Risk, High Value

4. Qualitative Considerations in
Portfolio Analysis
• Strategic Fit
– Does this project fulfill an important Strategic Goal?
• Pre-requisite for Success
– Is this indication needed for future Line Extensions?
– Does this project get us into a new disease area
where we want to be?
• Significant Unmet Need
– Does this project meet significant patient needs

5. Total Launches by Year
Signals gaps in years with few launches

6. Risk-Adjusted Launches by Year
Signals gaps in years with few launches

7. Risk-Adjusting Revenue

8. What is a PTRS Risk Assessment?
• Identification of development risks
– Location, severity, impact, etc.
• Identification of mitigation strategies
• Quantification of the Probability of
Technical and Regulatory Success (PTRS)
• The discussions and action plans are
more important than any number you
derive from the process.
8

9. Key Questions We Ask
– What is the Target Product Profile (TPP) associated
with the compound’s value proposition?
– What is the Clinical Development Plan (CDP) to
achieve the TPP?
– What are the technical risks associated with the CDP
for each phase, and how can they be mitigated?
– What is the likelihood of progressing to each phase,
given the risks and plans to mitigate those risks?
– What is the likelihood of regulatory approval, given
successful clinical outcomes?
9

10. Who participates in Risk Assessments?
Commercial Lead
Ensures CDP is aligned with the TPP
Clinical/Scientific Lead
• Confirms CDP to achieve approval of TPP
Regulatory
Aligns team on requirements for HA approval
Finance
Gathers information from CDP to build costs
Forecasting
Gathers information for possible outcomes to
forecast
• Decision Analysis
10

11. How are PTRS risk assessments done?
Before Proof of Concept:
Start with industry and company benchmarks
 Proof of Concept and Beyond:
Ensure clinical development plan and commercial
TPP are aligned
Discuss technical risks of each project and how they
can be mitigated
Determine the POS for each phase of development
plan
Given results of clinical trials, determine probability
of achieving regulatory approval
Calculate PTRS
11

12. Some things to think about when
assessing Development Risk
Pre-Clinical/Phase 1 Phase 2/3 Regulatory
Validated Patient-
Clarity and reported outcomes
Toxicity,
Measurement Aggressive
PK/PD,
of endpoints, endpoints,
Biomarkers,
sample size, Carcinogenicity,
Potency,
Formulation, Risk Mgt Plan
Drug-Drug
Predictability
interactions,
of animal
Safety, Compound Novelty,
models
Tolerability Regional approvals,
Established guidelines,
Regulatory precedent,
Class experience

14. Beware of over-analysis….
…It can be quite a Killer!

15. Qualitative Assessment of Risks by Category
Category Project Specific Risk Mitigation Strategy
 Refer to the TPP  Can we do anything about our
 What criteria do we need to meet to concerns?
show that the drug is efficacious?
Efficacy
 What must we see to know we should
continue?
 What are our concerns?
 Refer to the TPP  Can we do anything about our
 What criteria do we need to meet to concerns?
Safety show that the drug is safe?
 What must we not see?
 What are our concerns?
 Are there areas where we may not  Can we do anything about these
Alignment
meet the TPP? If so, what would be areas or their impact?
with TPP
their impact?
 Can we make the drug in the form  Can we use another form of the
Pharm Dev
needed? drug? What would be the impact?
 Are there concerns around a  Can we do anything about those
Regulatory
successful filing? concerns?

16. Everything Begins with the TPP
TPP is the guide for product development.
All major project studies & decisions are linked to this document.
Targeted Patient Population: Adult patients with severe erosive and
inflammatory Osteoarthritis.
Differentiation Statement: First disease modifying agent for erosive and
inflammatory Osteoarthritis
Efficacy Safety / Tolerability Payer Value
Efficacy Claims: Safety Claims: Economic Claims:
 Disease Modification – reduction of  No MOA based serious AEs  Reduced health care utilization
inflammation and slowing of associated with lack of efficacy
cartiledge degerneration.  No serious drug-drug interactions and/or opioid-related AEs (i.e.
office visits, calls to doctor)
 Superior efficacy vs. Standard of Care
in sustained pain relief Tolerability Claims:  Reduced use of rescue or
concomitant analgesia
 Similar to placebo for all treatment medications
emergent AEs (GI eg.- nausea, vomiting,
constipation; CNS eg.- somnolence,  Reduced use of concomitant
dizziness) medications for AEs
 Significantly fewer discontinuations vs.  Improved absenteeism/

17. How Do We Measure Risk?
Quantitative Assessment of Risks by Phase
Probability of Success (POS) By Phase
POS for Phase
Phase GO/NO GO Criteria Rationale & Assumptions Bench
Plan
mark
• Significant
reduction in Complex or novel endpoints
inflammation and Deltas must be significant
cartilage degeneration
Pretty confident on Pain relief (90%)
3 • Significant Disease Modifying will be very difficult 45% 65%
improvement in pain (50%)
sustained pain relief
(after 3 and 6 months)
Approval of 1st Novel agents have higher regulatory
disease modifying hurdles
agent. New indication with unprecedented
Reg 70% 80%
pathways
Unmet need and differentiation may
mitigate lack of regulatory experience.
PTRS 32% 52%

18. Simple decision trees can lead to
misrepresentation of expected value
Risk-
Adjusted
Phase 3 Regulatory PTRS NPV NPV
Succeeds 70% 32% $ 1,000 $ 320
Succeeds 45%
Fails 30% 13% $ (200) $ (26)
Fails 55% 55% $ (180) $ (99)
eNPV = $ 195
Check: 100%
18

19. “Success” must be well-defined in order to
appropriately assess expected value
When does “Failure” not mean “Lose everything?”
Phase III Regulatory POS Outcome NPV RA NPV
Regulatory Approval 70% 32% Disease Modification $1,000 $320
Disease
Modification 50%
No Regulatory
Pain Relief Approval 30% 13% ($200) ($26)
Significant 90%
Regulatory Approval 85% 38% Pain Relief only $600 $228
No Disease
Modification 50%
No Regulatory
Approval 15% 7% ($200) ($140)
Pain relief non significant 20% 10% ($180) ($18)
eNPV $ 364
19

20. What’s a little error among
friends?
• Analysis of Commercial Risk shows a range of
possible values (NPV)
• Mean NPV is a single number in a sea of
possibilities. A rough estimate, rather than an
exact number.
• How accurate can you be when you marry an
exact number with a rough estimate?

21. “It is better to be roughly right
than precisely wrong”
- John Maynard Keynes