The document discusses how the current business model for developing antibiotics is broken, as evidenced by the declining antibiotic pipeline. New approaches are needed to incentivize research and development of new antibiotics given the challenges of demand uncertainty, limited patent windows, and low prices which make antibiotics an unattractive investment. Potential solutions proposed include establishing a global governance body to oversee public-private partnerships for anti-infective development and reimbursement. Other ideas involve rewarding generic companies for stewardship and applying risk sharing models and financial instruments to raise funds for antibiotic research and development.

1. Pharma 2020
- the case to improve
innovation
14th April 2015

2. PwC
3 November 2014
Draft
Jo Pisani
Partner
PwC Strategy
Pharmaceuticals & Life
Sciences, London
+44 20 7804 3744,
jo.pisani@uk.pwc.com
Jo lead PwC’s UK pharmaceuticals
and life sciences consulting team
and focuses on business strategy,
valuations, portfolio management
and commercial due diligence.
The business model is broken in AMR • New funding models

3. PwC
14th April 2015
Pharma 2020 Series
http://www.pwc.com/pharma2020
3
Pharma 2020 – From vision to decision •

4. Agenda
1 The market imperative for change
2 New Commercial models in practice – a UK story
3
Generating the commercial incentive for R&D - The broken
business in AMR

5. PwC
3 November 2014
The market imperative for change
1
The business model is broken in AMR • New funding models

6. PwC
3 November 2014
Draft
United
States
$393
Canada
$29
EU-Big 5
$193
Japan
$139
Growth
markets
$489
ROW
$264United
States
$347
Canada
$25
EU-Big 5
$195
Japan
$113
Growth
markets
$232
ROW
$185
The markets - new challenges and opportunities
2013 sales
• Nearly $1.5 trillion sales by 2020
• Global population > than 7.6 billion people
• Historic barriers to free trade removed.
• 2001-2011 total value of export flows (excluding services) soared from $6.2
to $18.2 trillion in current.
2020 projected sales
Global
$1.5tn
26%
13%
9%
2%
18%
32%
17%
21%
32%
10% 18%
2%
Global
$1.1tn
The business model is broken in AMR • New funding modelsSource: Business Monitor International
Notes: (1). All sales are expressed in US dollars at constant exchange rates; (2). The growth markets include, in descending order of size, China, Brazil, Russia, India, Mexico,
Turkey, Poland, Venezuela, Argentina, Indonesia, South Africa, Thailand, Romania, Egypt, Ukraine, Pakistan and Vietnam. (3) EU-5 refers to France, Germany, Italy, Spain and
United Kingdom

7. PwC
14th April 2015
Greece
$7.40
Ireland
$3.00
Italy
$23.40
Portugal
$4.00
Spain
$29.70
Greece
$7.50
Ireland
$2.80
Italy
$27.60
Portugal
$4.60
Spain
$31.80
By 2020, Pharma’s revenues will be lower in four of
the five GIIPS markets
Source: Business Monitor International
Note: All sales are expressed in US dollars at constant exchange rates
2020 projected sales, US$67.4bn2013 sales, US$74.2bn
Total
$74.2bn
Total
$64.4bn
37%
43%
10%
4%
44%
35%
6%
11%
4%
6%
The business model is broken in AMR • New funding models

8. PwC
14th April 2015
Chronic diseases are still exerting extreme pressure
on healthcare expenditure
Older population
• >13% of the population will be 60 or older by 2020 , dementia doubles every five years >
65.
• 100 million Alzheimer sufferers by 2050.
Obesity
• By 2020 >12% of the global population will be overweight or obese. >500m people.
• 44% of the diabetes burden, 23% of the ischaemic heart disease burden and up to 41% of
certain cancer burdens are attributable to overweight and obesity.
Cardiovascular disease (CVD)
• Today 16m people die from CVD every year in developed and developing economies.
• Expect a 200% to 400% rise in developing world by 2030. Death toll could be 25 - 50m in
20 years.
Hypertension
• Globally 25% (>970m) of the population had hypertension in 2000 - 330m in developed
countries; 640m in developing countries, >1.5bn cases of hypertension by 2025
Diabetes
• Age and obesity drive diabetes increase. In the US alone some 11.3% of adults – rising to
26.9% of those aged 65-plus. Another 35% – rising to 50% of those aged 65-plus – have
prediabetes. Slide 8
More people are living longer with
chronic diseases which were
previously fatal
HONDA’s

9. PwC
14th April 2015
What the US Affordable Care Act means for pharma
Slide 9
Loss revenue of $155 billion in US branded
pharmaceuticals over the next decade – Medicare Part
D discounts, Medicaid rebates, industry fees and
biosimilars
Financial impact
Modest increase in sales of $15 billion from expanded
insurance coverageModest sales increase
2.3% medical device tax remains in playMedical device tax
Continue to adjust business model towards outcomes
based contracting. 80% of insurers now require
evidence of cost savings or a clear benefit to include
new products in their formularies
Outcomes based
contracting
PCORI (Patient-Centered Outcomes Research
Institute) sponsored clinical effectiveness research
raises expectations of value for drugs and medical
devices
PCORI

10. PwC
14th April 2015
• 2010 Bundestag passed the AMNOG health billGermany
• UK spending on drugs capped and managed through rebates
• Value based assessments continue rather than value based pricingUnited Kingdom
• The French social health insurance system offers doctors individual guidance on
rational prescribing since 2009France
• Investigating the idea of developing a pan-national body to negotiate drug prices,
• Examining the feasibility of performing real-time evaluations of medicines.Canada
• Imposed a 1.26% cut in prices in April 2012 (using total healthcare expenditure as its
base)
• The Central Social Insurance Medical Council is considering health technology
assessments by 2014-2016.
Japan
Tough talk in the EU, Canada and Japan
Slide 10

11. PwC
14th April 2015
• 2010 Bundestag passed the AMNOG health billGermany
• UK spending on drugs capped and managed through rebates
• Value based assessments continue rather than value based pricingUnited Kingdom
• The French social health insurance system offers doctors individual guidance on
rational prescribing since 2009France
• Investigating the idea of developing a pan-national body to negotiate drug prices,
• Examining the feasibility of performing real-time evaluations of medicines.Canada
• Imposed a 1.26% cut in prices in April 2012 (using total healthcare expenditure as its
base)
• The Central Social Insurance Medical Council is considering health technology
assessments by 2014-2016.
Japan
Tough talk in the EU, Canada and Japan
Generic spending will rise by $35-40
billion over the next five years. 60% of the
increase coming from greater utilisation of
existing generics
Healthcare payers: give us medicines
clinically and economically better than
what’s already available
8
The business model is broken in AMR • New funding models
Section 1 – The business model is broken in AMR

12. PwC
14th April 2015
Mature markets – the challenge
Prove
that
you’re
adding
value!!
• The mature markets have been evolving
economically, demographically and structurally
• Pharma’s approach ‘get more, pay more’ even
though the markets are running out of money
won’t work for long
• Healthcare payers demand more value for the
same money or the same value for less money
• To reach 2020 offer more value without
charging more or remove costs from healthcare
system to justify higher prices
• It takes at least a decade to develop a new drug and
only six months to change a clinical pathway. A lot
of companies may have to prune their
portfolios quickly.
The business model is broken in AMR • New funding models

13. PwC
14th April 2015
China
$86.58
Brazil
$26.40Russia
$24.68
India
$15.43
Fast
followers
$78.41
Rising demand for medicines in the growth markets
China
$187.73
Brazil
$44.22Russia
$42.74
India
$32.66
Fast
followers
$183.98
34%
7%
11%
11%
37% 38%
7%
9% 9%
37%
2020 projected sales, US$491bn2013 sales, US$232bn
Total
$491bn
Total
$232bn
17 markets, >$491 billion a year by 2020 – up from $232 billion in 2013
The business model is broken in AMR • New funding models
Source: Business Monitor International
Notes: (1) All sales are expressed in US dollars at constant exchange rates; (2) The fast followers include Argentina, Egypt, Indonesia, Mexico, Pakistan, Poland, Romania, South Africa, Thailand,
Turkey, Ukraine, Venezuela and Vietnam.

14. PwC
14th April 2015
Patients in the growth markets can’t afford costly
biologics
Private share of
healthcare
expenditure (%)
Per capita health
spending, 2010,
US$
Population with
net assets of
US$10,000 or
less (%)
Brazil 53.0 990 66.6
China 46.4 221 58.4
India 70.8 54 94.4
Mexico 51.0 603 53.5
Russia 37.9 525 93.7
US 46.9 8,362 30.7
EU 5 22.3 3,799 22.0
Australia 31.5 5,187 6.9
Slide 14
Sources: World Bank Indicators and Credit Suisse, ‘Global Wealth Databook’ (October 2013)
EU5= France, Germany, Italy, Spain, United Kingdom
The business model is broken in AMR • New funding models

15. PwC
14th April 2015
Generic medicines will dominate, an estimated
$63.8bn expected from patented products
8.8
30
3.3
3.9
44
-26.2
15.3
60.2
24.2
10.9
42.1
11.9
-40 -20 0 20 40 60 80 100
Brazil
China
India
Russia
USA
EU-Big 5
US$ billions
Additional spending on patented products (2020) Additional spending on generics (2020)
Slide 15
Source: Business Monitor International
Note: All growth is expressed in nominal US dollars (including inflation and projected exchange rate changes).
The business model is broken in AMR • New funding models

16. PwC
3 November 2014
New Commercial models in practice
– a UK story
1
The business model is broken in AMR • New funding models

17. PwC
14th April 2015
Whole system
approach
Regulatory
and Ethics
approval
Speed of
recruitment
& patient
pools
Connected
infrastructure
Develop-
ment
funding
Talent &
scientific
rigour
Innovation
uptake
Whole systems approaches to patient centred care need to be
adopted
New models of
leadership should be:
• focussed on delivery
and outcomes – not
where in the system
the blame will lie if a
hurdle isn’t
overcome
• collaborative and
open
• skilled in science,
policy and health
care
• have a global outlook
and sees partnership
possibilities
The business model is broken in AMR • New funding models

18. PwC
14th April 2015
Pay-per-cure
Outcomes based
payments
Microloan /
patient assistance
schemes
“Contract for
Differences”
insurance
New “pull” mechanisms for innovative medicines are happening
now
Pharma Co rebates or credits payer
where there is lack of efficacy
Governments incentivise R&D by committing to pay an agreed fee for a
drug, regardless of its commercial success - untested
Micro loans in emerging markets – untested for drugs
Free starter packs for low income patients
Pharma Co provide beyond the pill services and are paid if
outcomes are achieved e.g. patient adheres to treatment
Sources: FT.com; Fiercepharma; PR Newswire; PwC analysis
Budget cap
The pharmaceutical company supplies the drug up to a pre-
agreed budget cap, any additional payments are refunded
The business model is broken in AMR • New funding models
Securitisation
Pharma bundles drug royalties together as a security, reducing portfolio
risk
Pharma securitises cash flows in order to offer a mortgage for expensive
drugs to payers – untested in pharma

19. PwC
14th April 2015
25
The business model is broken in AMR • New funding models
Section 4 –
Delinking revenue from volume for certain Tas,
e.g., antibiotics
Funding high cost by clinically effective
treatments e.g., HCV
Funding high risk/high reward science for
large unmet needs, e.g Alzheimers Disease
New funding and commercial models will be key

20. PwC
3 November 2014
Generating the commercial incentive
for R&D - The broken business in
AMR
1
The business model is broken in AMR • New funding models

21. PwC
3 November 2014
Draft
3
The business model is broken in AMR • New funding models
Section 1 – The business model is broken in AMR
European Union
Population 500m
25,000 deaths per year
Thailand
Population 70m
>38,000 deaths per year
United States
Population 300m
>23,000 deaths per year
AMR causes significant societal costs and over
25,000 deaths per year in the EU alone

22. PwC
3 November 2014
Draft
Trends suggest Pharma business models are not ready to address
this unmet need…
4
The business model is broken in AMR • New funding models
Section 1 – The business model is broken in AMR
-
2
4
6
8
10
12
14
16
18
1983-1987 1988-1992 1993-1997 1998-2002 2003-2007 2008-2012
SystemicantibioticNMEs
approvedbyFDA
Time period
Depleting pipeline for infectious diseases

23. PwC
3 November 2014
Draft
If we look more closely we can see the fragility of the pipeline as only two
companies have strong pipelines…
5
The business model is broken in AMR • New funding models
Section 1 – The business model is broken in AMR
-
1
2
3
4
5
6
7
Astellas AZ BMS Cubist GSK J&J Novartis Pfizer
Numberofproducts
AMR Pipelines
Research
Preclinical
Phase I
Phase II
Phase III
Filed

24. PwC
3 November 2014
Draft
8
The business model is broken in AMR • New funding models
Section 1 – The business model is broken in AMR
Leaders have emphasised the need to act now
Who carries the responsibility if no change happens?
“Unless we solve the problem of antimicrobial resistance to drugs, we will
be facing a post-antibiotic era where things as common as a strep throat
infection or a child's scratched knee could once again kill.”
Dr Margaret Chan,
Director General, WHO
“Resistance to antibiotics risks health 'catastrophe' to rank with terrorism
and climate change”
Dame Sally Davies,
Chief Medical Officer (CMO)
“If we fail to act, we are looking at an almost unthinkable scenario where
antibiotics no longer work and we are cast back into the dark ages of
medicine where treatable infections and injuries will kill once again.“
David Cameron,
Prime Minister

25. PwC
3 November 2014
Draft
24
The business model is broken in AMR • New funding models
Section 4 –
Emerging thinking, potential innovative solutions
Demand
uncertainty,
limited patent
window and low
prices can create a
comparatively
unattractive
investment profile
Global
governance
Oversee a PPP similar
to IFFIm. In this model
the global governing
body has responsibility
for managing and
reimbursing the supply
of anti-infectives.
Rewarding
stewardship in
LMICs
Create mechanisms to
reward generic
companies for greater
stewardship
Risk sharing
Apply actuarial techniques
and capital market financial
instruments to raise income
at different stages of R&D
or to link to risk levels and
triggers around specific
demand, similar to
catastrophe bonds.
A “patent
pause”
Enable PharmaCos go to
market at appropriate time,
pausing market exclusivity.
Linked to regulatory
approvals and fast track
designations to align with
patient benefit
Government
underwriting
De-risking R&D through
governments
underwriting the costs of
development in addition
to providing a small
premium to compensate
for costs of capital
Normalize’
PPPs
More collaborative
models that enhance
the public-private
partnerships (PPPs)
approach
Centre of
excellence
Drive innovation and
efficiency effects. Raise
the profile of this
research field and
attract and retain top
talent
Intra-industry
collaborative
models
Stimulate models like
ViiV, which has worked
well for HIV
An AMR Drugs
Fund
Reward high performing
anti-infectives via a
similar approach to the
Cancer Drugs Fund.
This could theoretically
support critical R&D if
necessary
Rare disease
pricing
structures
Targets certain anti-
infectives with
transparent criteria.
Cost reflects societal
value. Potential for
dynamic pricing
Push
mechanism
Pull
mechanism

26. PwC
3 November 2014
In summary
22
The business model is broken in AMR • New funding models
• Pricing, market access and innovative
funding will become increasingly critical
• Solutions require a long term view from
lifesciences, payers and providers
• Access to real world evidence is key for
success
• Innovation in technology, Big Data and
business models will be key

27. Thank you
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