1. 0 A Pfizer Perspective on the Role of Procurement in Driving Innovation Dr Richard Torbett Director, International Policy Development This presentation is not for distribution or publication without Pfizer’s permission

2. We have a common agenda with Governments 1 Our common agenda is clear … Governments have significant challenges ahead An ageing population; Spiralling public debt Persistent unmet medical need Ever-more demanding ‘consumers’ It is more important than ever that pharmaceutical R&D is carried out in the right areas and that the resulting medicines are affordable. …but procurement must be fit for purpose Important to assess to what extent the lessons from the procurement literature are generalisable to all types of innovation Not all pharmaceutical markets work in the same way as vaccines Some features of a procurement-based approach may undermine aspects of competition and security of supply in some markets We can learn from innovative procurement but it needs to be tailored appropriately It is in everyone’s interest that Government sends the right signals…

3. A risky, complex and lengthy route to producing a medicine 2 2 15 10 5 Idea Medicine years

4. …where attrition and costs are high… 3 3 Net Cost: $0.8-1.3 Billion Invested Over 15 Years Compound Success Rates by Stage 16 14 12 10 8 6 4 2 0 Phase II 100–300 Patient Volunteers Used to Look for Efficacy and Side Effects Phase III 1,000–5,000 Patient Volunteers Used to Monitor Adverse Reactions to Long-Term Use Regulatory Review & Approval Additional Post-Marketing Testing Phase I 20–80 Healthy Volunteers Used to Determine Safety and Dosage Preclinical Testing Laboratory and Animal Testing Discovery (2–10 Years) Years Sources: 1) Increased Length and Complexity of the Research and Development Process. Chapter 1 in: PhRMA Pharmaceutical Industry Profile 2003. 2) DiMasi, JA, Hansen, RW, Grabowski, HG. The Price of Innovation: new estimates of drug development costs. Journal of Health Economics. 2003; 22:151-185. 5,000–10,000 Screened 5 Enter Clinical Testing 250 Enter Preclinical Testing Compound Success Rates by Stage 5,000–10,000 Screened 1 Approved by Regulators 0 2 4 6 8 10 12 14 16

5. 4 4 …and our path to market is complex and global (Part of the original New Drug Application for atorvastatin)

6. There is no, single, ‘procurer’ 5 Safety EfficacyQuality Prescription Value for money Regulatory Approval Process 4 th Hurdle

7. Public procurement as an innovation policy instrument : pros and cons 6 Potential advantages Reduced market uncertainty for investors, increasing net present value of investment Encourage private investment where high fixed costs relative to returns make it otherwise unattractive Address market failure where social benefit of innovations does not accrue to the inventor Potential disadvantages Potential to put a cap on innovation (at the level envisaged by the procurer) Potential to forestall competition Public procurers may not be best equipped to judge future innovation (and will incur significant cost in the attempt) …but for each industry the picture may be different

8. Public procurement in pharmaceuticals Population-based procurement can harm the treatment options available to individual patients and curtails physicians’ prescribing authority. Exclusionary public procurement systems (e.g. winner-take-all tenders) can undermine long-term competition and create supply risks. Inflexible procurement rules or systems may be unable to appropriately reflect the dynamic nature of competitive innovation. 1 2 3 Most pharmaceutical sales in Europe are to public payers However, active public procurement policies may pose particular risks in the innovative pharmaceuticals market: Most pharmaceutical sales in Europe are to public payers However, active public procurement policies may pose particular risks in the innovative pharmaceuticals market:

9. Pharmaceutical innovation is generally delivering in priority diseases 8 In many priority disease areas, pharmaceutical innovation is successfully delivering new treatments and driving competition Highly competitive markets in key therapeutic areas and drug families: as of 2008, 10 statins, 15 NSAIDS, 15 beta blockers… This plurality creates more effective treatment options and helps government through competition New generation of treatments being approved and in pipeline for cancer, dementia etc. Scientific advances in identifying biomarkers promise further progress in patient-specific care. Highly competitive markets in key therapeutic areas and drug families: as of 2008, 10 statins, 15 NSAIDS, 15 beta blockers… This plurality creates more effective treatment options and helps government through competition New generation of treatments being approved and in pipeline for cancer, dementia etc. Scientific advances in identifying biomarkers promise further progress in patient-specific care.

10. Source: CMR Total R&D expenditure by therapeutic area (20 biggest firms) And our R&D pipelines are generally aligned with what Governments tell us they want

11. Contrary to popular belief, the medicines bill is not ‘out of control’ 10 NHS Pharmaceuticals c. 80% of increased spending on medicines due to volume increases, not price £mn Source: PPA, ONS, DH, NAW, ISD, IMS dataview An example from the UK – Total Expenditure on Healthcare versus Pharmaceuticals

12. Dos and Don’ts for procurement in pharmaceutical markets 11    Work with the industry to identify broad disease priorities – and stick to them for the long term  Commit to national plans to improve treatment in priority areas  Commit to support the uptake of innovative medicines  Prejudge scientific progress by ordaining product- specific requirements or narrow therapeutic aims  Limit the treatments available to individual patients through rigid population-based public procurement systems  Limit competition by excluding firms from the market

13. A role for public procurement in pharmaceutical innovation 12 For some disease areas in which social need does not translate To sufficient effective demand, more active public procurement strategies could play a role in creating the necessary conditions for innovation For example: Orphan medicines Anti-microbials Vaccines against pandemic or bioterrorist threats Diseases of the developing world? For example: Orphan medicines Anti-microbials Vaccines against pandemic or bioterrorist threats Diseases of the developing world? As long as the dos and don’ts are adhered to – there could be a role for procurement in some areas

14. …But there are no magic bullets However, in all pharma markets, innovation is dependent on a broad range of regulatory and environmental factors: there is no magic bullet… More streamlined clinical trials More sophisticated regulatory systems recognising the differences between medicines and disease areas Payers willing to reward innovative medicines, including incremental innovation Strong intellectual property protection Competition through all phases of the medicines lifecycle More streamlined clinical trials More sophisticated regulatory systems recognising the differences between medicines and disease areas Payers willing to reward innovative medicines, including incremental innovation Strong intellectual property protection Competition through all phases of the medicines lifecycle