Pharma Industry Overview     

Background & big picture trends Key demand drivers Pharma R&D Challenges Ahead Global Innovation trends in Bio-pharma

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Pharma Industry Overview The big picture      

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Pharma profits are generated from broad based list of compounds Major targets include infection, cardiovascular conditions, depression, inflammatory diseases, etc. Pharma sector is more or less immune to the economy Demand for drugs has always been growing Most drug costs are reimbursed by government, managed care or other third parties Major challenges ahead including lack of blockbuster drugs, competition from generics, managing consolidation, and changing dynamics of managed care Collaboration with biotech firms is critical to developing novel new ideas, and improvements in drug discovery methods New waves of the future – genomics, proteomics, bioinformatics, disease management, wellness, EMR, etc Source: IMS Research, 2003

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Pharma Industry Overview Global pharma sales by 1998-2005

Global Sales US$B

1998 1999 2000 2001 2002 2003 2004 2005

Total World Market (current US$)

$298 $331 $356 $390 $427 $497 $559 $602

Growth Over Previous Year (Constant US$)

7%

11%

11%

13%

9%

10%

8%

7%

Source: IMS Health Total Market Estimates and Global Pharma Forecasts (includes IMS Audited and Unaudited Markets) 3 All information current as of February 27, 2006 .

Pharma Industry Overview Global audited pharma sales in 2005 World Audited Market

2005 Sales (US$B)

% Global Sales

% Growth Year-over-Year (Constant $)

North America

$265.7

47.0%

5.2%

Europe

$169.5

30.0%

7.1%

Japan

$60.3

10.7%

6.8%

Asia, Africa and Australia

$46.4

8.2%

11.0%

Latin America

$24.0

4.2%

18.5%

Total IMS Audited

$565.9

100%

6.9%

Why so high?

4 Source: Source: IMS MIDAS®, MAT Dec 2005 All information current as of February 27, 2006. .

Pharma Industry Overview Types of drugs Prescription & Non-prescription

Patented drugs •Physician controlled •65% of US Sales •Pharmacy Pharmacy--dispensed (retail, hospital, mail--order, etc.) mail •Emphasis on proven effectiveness

Generic drugs •Off Off--patent ethicals •18% of US Sales •Some plans mandate generics if available •Priced at 3030-80% discounts to patented •Waxman Waxman--Hatch Act (84) accelerated generics Source: IMS World Review 2003.

OTC drugs •Self Self--medicated by patient •17% of US Sales 2001 •Most OTCs began as prescription drugs •Widely available Will this distribution change over time?

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Pharma Industry Overview Generics are booming GENERIC DRUGS - FACTS  

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Generics account for 42% of all prescriptions (2002 data) For every 1 percent increase in utilization of generic drugs there is a corresponding savings of $1.16 billion dollars for health plans and employer groups The average branded prescription is four times the cost of a generic Generics save consumers $8-10 billion per year Nine out of ten adults are willing to use generic drugs if recommended by their physician Eight out of ten adults, regardless of income, would choose a generic if the savings was $10 or greater Annual savings on chronic medications could be thousands of dollars for patients. By 2010, ~80% of patented drugs will be exposed to generic competition! Source: Medvantx.com 2003

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Pharma Industry Overview Generics are booming…

…but “big pharma” is busy chasing the blockbusters

7 Source: Medvantx.com 2003

Pharma Industry Overview Leading Products in 2002 Product

Category

Company

2002 Sales in Patent $ (Billions) expiry

Lipitor

Cholesterol Reducer

Pfizer

9.0

2010

Zocor

Cholesterol Reducer

Merck

6.0

2005

Prilosec/Losec

Anti-ulcerant

AstraZeneca

5.0

Expired

Zyprexa

Schizophreni a

Lilly

4.0

2011

Novarsc

Hypertension

Pfizer

4.0

2007

Vioxx

Antiinflammatory

Merck

3.0

2013

Celebrex

Antiinflammatory

Pharmacia

3.0

2013

11.0

---

Remaining 3/10

---

TOTAL

45.0 Source: ESP Pharma

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Pharma Industry Overview Top 15 Blockbusters in 2005

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Source: Zydowsky Consultants, LLC, 2006

Pharma Industry Overview Projections  

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The global pharmaceutical market is forecast to grow to US$842 billion in 2010 Strong growth in the 10 European markets that joined the European Union in 2004 will help to boost European sales over the next five years There were a total of 16 new blockbuster drugs in 2005, generating combined sales of US$18.1 billion Total pharmaceutical sales from the top 10 companies accounted for more than 40% of the total market

10 Source: Piribo, Pharmaceutical Market Trends, 20062006-2010, June 2006

Key Drivers

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Pharma Industry Overview Key Drivers 

Industry drivers     

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Demographic trends Management of R&D Consolidation and strategic alliances Direct-to-consumer push Threat from generics to “big pharma”

Firm-level impacts   

Need to continue investments in R&D Need a solid partnering strategy Need to identify and prioritize opportunities and act on them 12

Pharma Industry Trends Key Drivers.. 

Recent Industry Facts  Shift from acute to chronic care products  Pharma companies have strong balance sheets  Period 2000-2004:  Total biotech industry funding of approx. $95 billion  Improved funding in ‘03 & ‘04, VC activity in ’04 comparable to ’00 peak  Dramatic advances in genomics (targets), combinatorial/computational chemistry, HT/UHT* screening, SAR*  Continued pipeline growth at many companies (may still fall short?)  Human Genome Project  Data Glut 13

HT – High throughput

UHT – Ultra Ultra--high throughput

SAR - Structure Structure--Activity Relationship

Pharma Industry Trends Some demographics.. 

Demand Drivers    

Aging baby boomers Lengthening life span Changing criteria for health and wellness Critical need for life-saving drugs in developing countries

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Pharma Industry Trends Key Demographic Facts 

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Over 60s in the US to rise from 606 million in 2000 to 2 billion in 2050 Over 65s in the US expected to expand 53% from 2001 to 2020 vs. overall population growth of 17 % Over 65s account for 16 % of US population, but 33 % of all prescriptions written

15 Source: US Census & PhRMA, 2006

Pharma R&D

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Pharma Industry Trends The Role of R&D 

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What are the chances that a single screened compound will be commercialized into a drug? How much does it cost to launch a new drug? How long does it take to launch a new drug? How many drugs are in Phase III today? How many of these will be “blockbusters”?

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Pharma Industry R&D The Drug Development Funnel Compound Success Rates by Stage 5,000 – 10,000 Screened

Discovery Preclinical Testing

250 enter preclinical testing

Laboratory and animal testing 20-100 healthy volunteers used to determine

Phase I safety and dosage

100-500 patient volunteers used to look for efficacy and side effects

Phase III

Clinical Trials

1K - 5K patient volunteers used to monitor adverse reactions to long-term use

5 enter clinical trials

Phase III Review/ Approval

FDA

1 approved by FDA

Phase IV: Additional Post-Marketing Testing

Years 0

5

10

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KEY QUESTION: How to shorten the new drug development process? 18 Source: PhRMA, 2006

19 Source: PhRMA, 2006

Pharma Industry R&D Major Challenges 

R&D expenditures continue to rise rapidly 

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Cost to develop a new drug = $802M It takes 5,000-10,000 compounds to result in just one approved drug Only 3 of 10 marketed recover R&D costs Time to develop at 15 years 

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US R&D expenditures have doubled since ‘95

almost doubled since the ‘60s

Pressure from Wall Street to meet growth expectations 20 Source: IMS Research, 2003

Pharma Industry R&D Major challenges

21 Source: PhRMA, 2006

Pharma Industry R&D Acceleration of research spending

Source: PhRMA, 2006

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Pharma Industry R&D US leads the late stage pipeline

Source: PhRMA, 2006

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Pharma Industry R&D In development as of 2005

24 Source: PhRMA, 2006

Pharma Industry Trends Top Pharma Players - 2006 Position

Revenues US $bn 9/05

% Market Share

CAGR 2000-04

1) Pfizer (US)

49.1

8.8

11.2

2) GlaxoSmithKline (UK)

34.4

6.1

7.7

3) Sanofi-Aventis (FR)

30.1

5.4

13.1

4) Novartis (CH)

28.0

5.0

13.5

5) J&J (US)

25.5

4.5

16.1

6) AstraZeneca (UK)

23.8

4.2

8.3

7) Merck & Co. (US)

23.2

4.1

10.4

8) Roche (CH)

19.2

3.4

10.3

9) Abbott (US)

15.6

2.8

10.3

10) Bristol-Myers Squibb (US)

15

2.7

2.1

264 561

100 47

10.4 10.1

Top 10 Worldwide

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Pharma Industry Trends Top R&D Projects - 2003 Position

No. of Drugs

No. of R&D Drugs

No. Under License

1) GlaxoSmithKline

178

101

77

2) Pfizer

151

88

63

3) J&J

137

78

59

4) Hoffman-La Roche

131

72

59

5) Aventis

113

64

49

6) Novartis

102

65

37

7) AstraZeneca

97

67

30

8) Abbott

86

43

43

9) Bristol-Myers Squibb

83

53

30

10) Merck

81

52

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Pharma Industry R&D Spending by target area Central nervous system

26%

Neoplasm (cancers), endocrine system, metabolic

21%

Cardiovascular

18%

Infections diseases

15%

Respiratory system

10%

Digestive

4%

Biological (i.e., vaccines)

6%

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FTC CLEARS PFIZER'S ACQUISITION OF PHARMACIA NEW YORK, April 14, 2003 -- Pfizer Inc said today that the Federal Trade Commission (FTC) has accepted a consent decree clearing the way for the company's acquisition of the Pharmacia Corporation. The companies will commence operating on a combined basis later this week.

“The new Pfizer will provide more products to help more patients than any other pharmaceutical company and we will continue to be the world leader in privately funded biomedical research.“ -- Hank McKinnel, Chairman and CEO

Combined 2005 revenues = $49.1 billion!

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Pharma Industry Overview

Challenges Ahead…

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Pharma Industry Challenges 3rd Generation Drug Development

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Source: Zydowsky Consultants, LLC, 2006

Pharma Industry Challenges Riding the S-Curve Pipeline

Zyprexa Prozac

Sales returned on cumulative investment

1996

2002

2003

2005

Dynamics of Drug Development at Eli Lilly

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Pharma Industry Challenges Blockbuster gap 2003 Phase III Development Pipeline Number of Compounds

Currently in Phase III

Expected to Suceed

Expected to be BLOCKBUSTERS

1200

600 (50%)

10 (1%)

“Blockbuster pipeline not nearly enough to fill the void at big pharma” Source: ESP Pharma

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Pharma Industry Challenges Can’t take exclusivity for granted Innovator Drug Year Introduced

Years of exclusivity

Competitor Drug Year Introduced

Inderal - 1965

13

Lopressor - 1978

Tagamet - 1977

6

Zantac - 1983

Prozac - 1988

4

Zoloft - 1992

Diflucan - 1990

2

Sporanox - 1992

Recombinate - 1992

1

Kogenate - 1992

Celebrex - 1999

0.25

Vioxx - 1999

Exclusivity for innovative drugs is shrinking! Source: ESP Pharma

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Pharma Industry Challenges Constant Restructuring Consolidation and Strategic Alliances

Source: Wood & Mackenzie, 2006

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Pharma Industry Challenges Growing through M&A Mergers can be a major way to grow - Pfizer

Source: Ferghana, 2006

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Pharma Industry Challenges Pfizer- The Poly Connection    

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Jasper Kane and John McKeen, both Poly alumni were behind the early success of Pfizer Kane conceived and McKeen implemented the idea of mass producing penicillin to treat wounded soldiers during World War II At that time, Pfizer was not a pharma company, but supplied chemicals and ingredients to the food and drink industry Pfizer bought an ice-making plant in Brooklyn and converted it to a factory producing penicillin in March 1943 – they had produced 45 million units by year-end Kane was also the leader of the research team that discovered Terramycin (1950), recd. BS-Chemistry’1928, PhD (Hon.)’1994 Terramycin is still in use – Kane was the Director of R&D at Pfizer for many years

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Source: Polytechnic University Archives

Jasper Kane 19031903-2004

Pharma Industry Challenges Regulation & Market Structure 

Role of Regulation   

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EU, Asia are highly regulated markets in contrast to US Pharma industry in US largely opposes govt. price controls, arguing it hampers R&D investment Generics gaining a foothold in major Western markets

Managed care gets tough on drug companies    

Political & social pressure on drug costs and access Clinton era (and anticipated) price controls on prescription drugs and federal intervention on healthcare in the US Prescription drug benefits and insurance coverage become debated issues Managed care constitutes 70 percent all retail prescriptions to pharma industry 37

Pharma Industry Overview DTC push 

Direct-to-consumer push  Use of Advertising (FTC relaxed rules in 1997) 

In 2001, Merck spent $176 million promoting Vioxx (More than what Coca-Cola Company spent advertising Coke or what Anheuser-Busch spent advertising Budweiser in that year)

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The drug industry spent $2.76 billion on consumer drug ads in 2001. Reach consumers directly through call-centers (25*) and internet (1*)

*Estimated $/contact 38

Pharma Industry Challenges DTC push 

Direct-to-consumer push  Use of Internet is widespread 

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All pharma co.’s have product information on their website or through partners like WebMD Used to promote pharma to MDs More than 75 % of US doctors report that patients bring Internet printouts to their office visits

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Pharma Industry Challenges Salesforce is key 

But…  Sales force is still important in order to reach physicians   

$12 bn spent on details (visit by drug reps) to physicians in 2002 (200*) Pharmaceutical companies spent $7.2 billion on free samples to physician offices in 1999. Schering-Plough gave out 35.7 million samples of Claritin in 1999 (One-month supply of Claritin costs $68)

*Estimated $/contact Source: Medvantx.com 40

Pharma Industry Overview Not all about drugs: Healthcare industry is much bigger!

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Source: PhRMA, 2006

Pharma Industry Overview

Global Innovation Trends in BioBio-pharmaceuticals

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Pharma Industry Overview Global Innovation Trends 

Clusters to watch  USA/Canada 

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Cambridge MA, Research Triangle Park NC, San Diego and S. California Region, Austin TX, Ontario, Ottawa-CA

Europe 

Lieden, Maastricht, Leuven, Munich, Cologne, Trondheim, Upsalla, Arhus, Cambridge, Oxford, Norwich, Manchester, Glasgow, Edinburgh, York, Dublin, Evry, Vienna, Geneva, Basel, Zurich, Sophia Antipolis 43

Pharma Industry Overview Global Innovation Trends 

Clusters to watch 

India  

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Major push into generics and CROs Early success stories include Dr. Reddy’s Labs, Ranbaxy, Cipla, Matrix Pharma, Glenmark, etc. Some generics plan on going upstream Supplying low-cost anti-HIV drugs to Africa (through Clinton Foundation) Hyderabad, Bangalore, Bombay and New Delhi emerging as important bio-informatics and biotech centers 44

Pharma Industry Overview Global Innovation Trends 

“Bio” Clusters to watch 

Israel  Dynamic pharma and biotech sector  Teva Pharmaceutials – market cap of $23.8 bn in 2006

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Singapore South Africa Brazil

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