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LS 102: Trends in Healthcare February 2 nd, 2006 12-1 PM D310.

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Presentation on theme: "LS 102: Trends in Healthcare February 2 nd, 2006 12-1 PM D310."— Presentation transcript:

1 LS 102: Trends in Healthcare February 2 nd, 2006 12-1 PM D310

2 Overview Healthcare in the USA today –Medicare Reform Act Regulatory Framework –Clinical trial process Traditional “Big” Pharma Structural trends –Therapeutic Licensing –NRDO model Medical Devices

3 Healthcare in the US today Healthcare spending growing –Per capita –As % of GDP Medical inflation has outpaced overall inflation In 2001, $1.2 trillion spent on personal healthcare services

4 Since Medicare's creation, the role of prescription drugs significantly increased. As new and expensive drugs have come into use, patients, particularly seniors, for whom Medicare was designed, have found prescriptions harder to afford. The Medicare Prescription Drug, Improvement, and Modernization Act, is meant to address this problem. –Highly complex structure Medicare Reform Act

5 Medicare Reform Act - Highlights Subsidy for large employers to discourage them from eliminating private prescription coverage to retired workers (a key AARP goal); Prohibits the Federal government from negotiating discounts with drug companies (unlike the practice in most other countries); Prevents the government from establishing a formulary (preferred drug list), though does not prevent private providers such as HMO’s from doing so. Adds pretax Health savings account for working age people

6 Winners: –Drug companies: more public money available for drugs (>$800 billion over 10 yrs) –Private managed care providers: incentives for managed care to provide competition to the program and possible part privatization of Medicare Medicare Reform Act - Winners

7 Medicare Reform Act – Potential Losers Possible losers: –Taxpayers/budget deficit –Effect of medicare’s model formulary? Adherence is voluntary, but will affect private payor’s policy. Payors want less categories with broader scope, e.g. anti-inflammatory Drug co’s want more categories with narrower scope, e.g. Cox 2 and NSAID –Less “spread” for doctor administered drugs. Expect closer scrutiny for prices of drugs for treatments of cancer, dialysis and pulmonary conditions

8 Regulatory Oversight: Major Markets United States –Food and Drug Administration (FDA) Several divisions European Union –CE (Conformité Européene) Marking Categorized by directives –European Agency for the Evaluation of Medicinal Products (EMEA) Japan –Pharmaceutical and Medical Device Agency (PMDA)

9 United States - FDA FDA Center for Biologics Evaluation and Research (CBER) Center for Devices and Radio-logical Health (CDRH) Center for Drug Evaluation and Research (CDER) Center for Food Safety and Applied Nutrition (CFSAN) Center for Veterinary Medicine (CVM) Office of Regulatory Affairs (ORA)

10 Commonly Used Terms Indication: Specific treatment or diagnosis NDA: New Drug Application BLA: Biologic Licensing Application IND: Investigational New Drug PMA: Pre-market Approval 510(k): Typical device approval route –AKA Pre-market Notification CFR: Code of Federal Regulations –Title 21 covers Food and Drugs

11 Research & Development Overview

12 Clinical Trials: Success Rates Roughly 10% of Phase I drugs reach the market (small molecules) –30% of Phase II –50% of Phase III Business Development determines when/if to license drug candidates –Weigh risk/reward

13 Will Big Pharma Business Model Survive? Source: IBM Life Sciences Solutions

14 Will Big Pharma Business Model Survive? Source: McKinsey Blockbusters Brings Value to Big Pharma!

15 But Will Big Pharma Business Model Survive? Safety related drug withdrawals are on the rise. Vioxx aftermath?

16 Will Big Pharma Business Model Survive? Big pharma Pipeline is drying up 17 new drugs approved in 2002 vs. 53 in 1996 Most were “me too” drugs Many are looking at in-licensing and M&A as alternative source of growth # of Pharma-Biotech alliances: Source: BioWorld Financial Watch, American Health Consultants, BioCentury 69 165 180 228 224 229 373 425 411 384 117 0 50 100 150 200 250 300 350 400 450 19931994199519961997199819992000200120022003 2004 502

17 In 1980-1990’s, big pharma broadened scope, entering many therapeutic areas, and increasing global presence In 1990’s-present, blockbuster and US market drives growth In the past 5 yrs, companies are refocusing their business to just a few “core therapeutic area franchises” –Example: BMS: Oncology Lilly: neuroscience; endocrine disorders; cancer; infectious diseases; cardiovascular diseases Amgen: Oncology, Rheumatology and Dermatology –Reason: Leverage synergies between products in portfolio. Mostly in development, sales and marketing (Sales force, whom to sell to, etc.) –Products in the pipeline outside the “core” area likely to be out-licensed or sold Will Big Pharma Business Model Survive?

18 Potential outcome: traditional “big pharma companies” become more focused on launching and marketing products, while “outsourcing” R&D, especially discovery, to smaller biotech –Shifting the risk of early stage project to smaller biotech. –More and more companies are setting up VC arms, a trend started by Lilly –Exploit higher R&D productivity at biotech –Leverage big pharma’s production capacity, marketing capabilities and global reach

19 Upfront payment (Cash or equity purchase) Milestone Payments Initiation of clinical trials (and/or subsequent trials) Filing of NDA, Acceptance of NDA, FDA Approval Royalties ~ < 5% for Preclinical Candidate or Program ~ 5%-10% for a Phase I compound ~ 10%-20% for a Phase II compound ~ 50-50 Partnerships for Phase III compounds –Shared P&L where each partner receives 50% of Profits Therapeutic Licensing Overview

20 Case Study: Neurocrine (NBIX) Groundbreaking relationship with Pfizer –Indiplon program: New Treatment for Insomnia Ambien 2004E revenues ~$1.5B (7-10 day Prescription) –2002 (Phase III) strategic alliance $100mm upfront payment $300mm in milestones tied to FDA Approval 26%-30% royalty on profits PFE pays for Sales force to co-promote Zoloft (quid) –PFE to handle GP; NBIX to handle Psychiatry PFE pays for all further development Upon Approval: PFE grants $175mm short-term credit facility –NDA Filed 4Q05, expected to launch in 2006

21 The NRDO Business Model Pharmas are primarily focused on $1B Products –Creates an opportunity for a new business model NRDO = No Research Development Only –License clinical stage drugs from Pharma/Biotech companies Companies shed non-core assets Too small an opportunity to pursue for some companies –No in-house research is performed, so time to market significantly decreased –NRDO companies are attracting a growing percentage of venture capital

22 Macugen for macular degeneration –Leading cause of blindness in the US Eyetech in-licensed the Phase I Compound from Gilead (GILD) – 4/00 –$7mm upfront –$25mm in milestones –833k warrants exercisable at $6 Pfizer licensed from Eyetech during Phase III - 12/02 –$100mm upfront –$195mm milestones –Eyetech to co-promote in US Eyetech was acquired by OSI in 2005 for $935mm NRDO Case Study: Eyetech (EYET)

23 Jazz founded by the senior management team of Alza in 2004 Alza sold to JNJ for $12B in 2000 March 2004 – raised $250mm in a Series B round Led by KKR The company in-licensed several former Alza compounds Shelved by JNJ In-licensed several other compounds Acquired Orphan Medical in 2005 for $123mm NRDO Case Study: Jazz Pharmaceuticals

24 Medical Devices - Overview Encompasses a broad range of products Definition: device used to diagnose or treat a medical condition –Diagnostic devices –Therapeutic devices

25 Device Classes Governed by CFR Title 21 Class I –Subject primarily to General Controls Class II –Special Controls – labeling, performance testing, post- market surveillance –Generally require 510(k) Class III –Require PMA or 510(k) Class I Class II Class III

26 Device approval pathways 510(k) –90 day approval cycle –“substantial equivalence” to existing approved product –In-vitro testing is often adequate PMA –Usually about 1 year – can take much longer –Need clinical data; similar to NDA

27 Trends in Medical Devices – Convergence Convergence with pharmaceutical delivery –Combination therapy; targeted delivery –Ex. Guidant Xcience – Drug-eluting stent Convergence with information delivery systems –Ex. Roche Diagnostic’s diabetes management solutions Convergence with biologics –Ex. WHO studies ongoing in Mexico/India to deliver vaccines via aerosol

28 Summary Continued projected growth in healthcare Strongly structured regulatory environment Restructuring of industry models –Increasing specialization Convergence in therapeutic solutions –Pharmaceuticals, biologics, devices, information

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