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1 Special Librarians Association Annual Meeting Toronto, ON June 7, 2005 Generic Pharmaceuticals Developing a Crystal Ball to Craft Product Portfolio.

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Presentation on theme: "1 Special Librarians Association Annual Meeting Toronto, ON June 7, 2005 Generic Pharmaceuticals Developing a Crystal Ball to Craft Product Portfolio."— Presentation transcript:

1 1 Special Librarians Association Annual Meeting Toronto, ON June 7, 2005 Generic Pharmaceuticals Developing a Crystal Ball to Craft Product Portfolio

2 2 US Generic Pharmaceutical Sector – Agenda Trends & Analysis A 50,000 ft. view of the generic market Basic template for examining a generics portfolio Typical information sources Atypical information sources Timing Information into analysis Salient industry trends Discussion Copyright 2005 Cardinal Health All Rights Reserved

3 3 2004 Total Market Revenues2004 Unit Market Share 2004 Rx Drug Units 1 (%) Rx Drug 2004 Revenues ($B) ~$230B ~$120B ~$17B ~$1B ~$7B <$1B ~$1B ~$3B France Germany Italy Spain UK Sources: IMS Health; Marakon Associates -- Excludes some branded generics units US & EU Generic Sector Significant and Growing Percentage of Prescription Drug Volume Copyright 2005 Cardinal Health All Rights Reserved

4 4 API sourcing strength Uncanny predictive capabilities Speed to develop Appetite for risk Speed to market Ultra low cost Its Better to be First than it is to be Better Being First is Everything ! Significant and Growing Percentage of Prescription Drug Volume Fast & severe generic penetration Generic penetration >50% in first 30 days Managed care driving hard Price erosion a function of the number of competitors 2 nd wave entrants have a non-linear impact Generic price at < 50% in the 1 st 6 months Still a significant upside for generics Current Market Trends Copyright 2005 Cardinal Health All Rights Reserved

5 5 A Typical Generic Development Cycle Non-Litigation SODF Example Brand Produc t File DMF FileANDA FilePatentCert Valida tion & Appro val Prep ANDAApproval Pate nt Revi ew Sou rcing Pre- Form For m & Pilo t Bio Stab ility PK Study PortfolioReview 9 mo. 2 mo. 6-12 mo. 12 mo. 5 mo. 12-18 mo. Outside Counsel API Suppliers Business Dev KeyInfluences API suppliers wield significant power…Early Access to difficult to develop API Access to potential Paragraph IV opportunity Access to sufficient quantities for development API Suppliers CRO Supply Chain Supply Chain Copyright 2005 Cardinal Health All Rights Reserved

6 6 Just Because You CAN File… Dont Believe Everything You Read JP Morgan – Generic Industry Update, July-2004 Source: JP Morgan – Generic Process; USFDA Orange Book (on-line) Copyright 2005 Cardinal Health All Rights Reserved

7 7 Four Types of ANDA Filings Non-Litigation SODF Example Source: JP Morgan – Generic Process Lower Risk Low to medium return High risk Significant cost Potentially massive return 180-days generic market exclusivity 1 st mover typically retains share past 180 days Copyright 2005 Cardinal Health All Rights Reserved

8 8 A Litigation Generic Development Cycle Paragraph IV SODF Example Timeline is 66 to 72 months If successful, 1 st generic is granted 180 days of generic market exclusivity FDA Starts 30-month Stay of Approval File DMF File ANDA File Patent Cert Generic Development Program Brand Files Infringement Suit Lower Court Decision Appellate Court Decision ANDA Approval 34 - 40 mo.3 mo. 30 mo.6-12 mo. Launch Copyright 2005 Cardinal Health All Rights Reserved

9 9 Paragraph IV Cases are Messy & Expensive It NEVER Goes Smoothly Brand is not required to sue 30-month stay starts when suit is filed Generic can request declaratory judgment Exclusivity only granted for the 1st to file Paragraph IV Exclusivity can be split T ypically an appeal Lately a trend to launch at risk NOT a 1 size fits all strategy Source: Adapted from Bear Stearns Bottle Report, Aug 31, 2004 Copyright 2005 Cardinal Health All Rights Reserved

10 10 High Level Portfolio Decision Inputs The Magic Triangle What do you really want? Accuracy Flexibility Speed Process or 1-off What do you have to work with? Basic product information Innovator organization information Therapeutic information Market data IP Assessments API Intelligence Good Cheap Fast Quality Cost Speed Copyright 2005 Cardinal Health All Rights Reserved

11 11 Basic Information Innovator Organization Therapeutic Classification Market Information Molecule Dose form Brand product Brand intro date Strengths Packaging Indication Other dose forms Organizational expertise IP Assessment API Intelligence Brand developer Manufacturer Marketer Co-Pro ? LCM behavior In-house Generic Franchise ? Parent-child Other countries Relevant strategies Therapeutic class Drug class Key brand competitors Concomitant meds? Dosing regimen Chronic or acute Unit volumes Sales volumes Pricing Channel % Primary channel OB patents Exclusivities Dates Patent types Abstracts # of sources Consistency Cost PDR Public Reports News/Press SEC (Edgar) Website Intelligence PDR Facts & Comparisons IMS, NDC, et al First Data Bank FDA Orange Book IP Counsel Newport OPD Buyers Guide FDA INTERACTION Mid-Level Portfolio Decision Inputs API Sourcing is Key Expertise Expense Copyright 2005 Cardinal Health All Rights Reserved

12 12 Dose form Brand sales Brand unit volume Expected erosion model Company advantage Strategic fit Dose form Brand sales Brand unit volume Expected erosion model Company advantage Strategic fit Lead / opportunity ID Requests within Org News / market intel API opportunities Partner opportunities Lead / opportunity ID Requests within Org News / market intel API opportunities Partner opportunities Database screening criteria Financial models Company advantage Database screening criteria Financial models Company advantage Base Portfolio Pre-Screening Hopper High Level Screen Pharmaceutical Universe Consistent Review Balanced Portfolio Stepwise Screens Enable a Flexible Portfolio Periodic review Review prior to significant expenditures Review per significant changes/events in market Periodic review Review prior to significant expenditures Review per significant changes/events in market Copyright 2005 Cardinal Health All Rights Reserved

13 13 A Typical Generic Development Cycle Non-Litigation SODF Example Brand Produc t File DMF FileANDA FilePatentCert Valida tion & Appro val Prep ANDAApproval Pate nt Revi ew Sou rcing Pre- Form For m & Pilo t Bio Stab ility PK Study PortfolioReview 9 mo. 2 mo. 6-12 mo. 12 mo. 5 mo. 12-18 mo. Outside Counsel API Suppliers Business Dev KeyInfluences API suppliers wield significant power…Early Access to difficult to develop API Access to potential Paragraph IV opportunity Access to sufficient quantities for development API Suppliers CRO Supply Chain Supply Chain Copyright 2005 Cardinal Health All Rights Reserved

14 14 To qualify the opportunity (build the model) we need: Market data (Dollars & Units) Market data (Dollars & Units) Understanding of the IP situation Understanding of the IP situation Perspective on API availability Perspective on API availability Market trends & expected competition Market trends & expected competition Therapeutic class trends Therapeutic class trends Pharmacokinetic & pharmacology information Pharmacokinetic & pharmacology information Regulatory requirements Regulatory requirements Perspective on resident capabilities Perspective on resident capabilities Basic Inputs for a Predictive Generic Model Beware the Point of Diminishing Returns Copyright 2005 Cardinal Health All Rights Reserved

15 15 I.The size of the Advair ® market is staggering II.Follow on COPD pipe-lines are mostly early stage III.Generics have had some limited success in challenging UK patents III.US patents have not yet been challenged Generic version of Advair for US Market could be lucrative Build a forecast model Hypothesis Portfolio Intelligence Example Prospectively Qualifying an Opportunity Portfolio Example Sources: Factiva, Pharma Marketletter, M2 Presswire, Bull Int. Inform Droit et Pharmacie, Bernstein Research Call, FDA Copyright 2005 Cardinal Health All Rights Reserved

16 16 I.If IMS (et al) data is unavailable, other references can be used II.For IP I.FDA Orange Book II.US PTO III.FDA Paragraph IV site Advair forecast supports assumption of large market P-IV filing is uncertain Dose form will have legs Interim Conclusion III.DPI Dose Forms can be expected to remain prevalent Portfolio Intelligence Example, cont. Prospectively Qualifying an Opportunity Portfolio Example Sources: Lehman Brothers, USFDA Orange Book, USPTO, Express Scripts Copyright 2005 Cardinal Health All Rights Reserved

17 17 I.API is available but limited I.It will be expensive OR II.It will be unobtainable II.Generic market trends favor technology challenges, etc. Cost prohibitive GSK will vigorously protect Smaller numbers of generics Interim Conclusion III.Generics have wide adoption for pulmonary indications IV.Advair is priced lower than the sum of its parts Portfolio Intelligence Example, cont. Prospectively Qualifying an Opportunity Portfolio Example Sources: USFDA, Thomson Newport Strategies, Lehman Brothers, Express Scripts Copyright 2005 Cardinal Health All Rights Reserved

18 18 I.Product doses b.i.d. and has asthma & COPD indications II.GSK has a pediatric extension for Advair Longer market life Market entry will be later Non-standard regulatory path Highly differentiated technology Interim Conclusion III.FDA has codified the regulatory pathway Portfolio Intelligence Example, cont. Prospectively Qualifying an Opportunity IV.DPI technology is becoming more scarce Portfolio Example Sources: Thomson Micromedix PDR, Adis R&D Insight, USFDA, Pfizer Website Copyright 2005 Cardinal Health All Rights Reserved

19 19 Advair ® Enjoys Significant US Market Growth Fluticasone/Salmeterol DPI Forecast Through 2013 Portfolio Example Forecast the brand Linear regression vs. others Linear regression vs. others Usually a WAG Depends on quantity of historical info Stick with units Stick with units Dollars useless after generic launch Gut test Gut test Enormous market potential at 2009 peak GSK transitioning volume from Flovent ® Technical challenges limit generic competition Thin innovative pipeline for asthma & COPD UK patent resolution alludes to at least 3 generics in US market at patent expiry Copyright 2005 Cardinal Health All Rights Reserved

20 20 # of Generic Competitors 2 nd + Wave 1 st Wave Portfolio Intelligence Example, cont. Prospectively Qualifying an Opportunity Number of generic entrants Which entry wave Who are the generics (and from where) Dose form (channel) Price Erosion Portfolio Example Managed care diving much of this CMS vs. 3PP Who is the brand Indication Generic Penetration Copyright 2005 Cardinal Health All Rights Reserved

21 21 Limited API – DMF Talley Abbott Chemagis Cipla Hovione Sicor Sterling (It) FluticasoneFluticasone Salmeterol Salmeterol 6 Cipla 1 Key Technical Challenges API source DPI device access Legal resources & wherewithal Manufacturing capabilities Generics Face Significant Hurdles Can it be Done ? Most US generic manufacturers are configured for solid orals Ivax, Cipla most capable for pulmonary delivery Ivax, Cipla most capable for pulmonary delivery Limited sources of Salmeterol = limited # of generics Limited generic organizations with sufficient resources Access to a DPI device and manufacturing know-how will be scarce Portfolio Example Copyright 2005 Cardinal Health All Rights Reserved

22 22 Electricity Food Entertainment Rent $100 $300 $400 $1,200 Average $50 $150 $1,200 $400 $500 $1000 $1,200 HighLow $1,550Monthly Total$2,000$3,100$400 $700 $1,200 $75 $2,375$1,770$2,900 $290 $902 $1,200 $52 Monte Carlo Simulations Employing a Quantitative Measure of Risk Copyright 2005 Cardinal Health All Rights Reserved

23 23 Probability for Year 3 EBIT Quantifying Risk Probability for Year 3 EBIT Portfolio Example Copyright 2005 Cardinal Health All Rights Reserved

24 24 Variable Sensitivity Quantifying Risk Variable Sensitivity Portfolio Example Copyright 2005 Cardinal Health All Rights Reserved

25 PerceivedRisk Actual Risk Generic Portfolio Modeling Pitfalls Perfectionists Need Not Apply… Assumption Variability Access to API Authorized Generics Price Erosion Assumptions Life Cycle Management IMS Data Shifting Reimbursement Landscape Off-Shore Competition Market Share Assumptions Copyright 2005 Cardinal Health All Rights Reserved

26 26 Portfolio Intelligence An Easy Way and a Hard Way Source: Thomson Newport Strategies Copyright 2005 Cardinal Health All Rights Reserved

27 27 Key Generic Sector Trends Boom Times Significant industry consolidation Pricing stability Brand protection strategies continue to evolve New entrants from low-cost geographies Pricing IN-stability API strategic sourcing Follow-on Proteins Authorized generics Very Copyright 2005 Cardinal Health All Rights Reserved

28 28 Significant industry consolidation Stratification into very large and very small organizations Many of the mid-tier are API mfgs who have crossed over to make dose Key Current Generic Sector Trends Continued Consolidation Will Create a Caste System Source: ABN-AMRO Healthcare Banking – The Changing Competitive Landscape – IRR Generics Summit – Sep-2004 Copyright 2005 Cardinal Health All Rights Reserved

29 29 Brand protection evolves Authorized generics Generic subsidiaries Reformulations Dose form Isomers Strengths Patents Metabolite Polymorph Late-listings FDA mechanisms Citizens petition Label changes Legislation Key Current Generic Sector Trends Brand Protection is Constantly Evolving Source: Bear Stearns Bottle Report, Aug 31, 2004 Innovator Generic Subsidiary Merck WestPoint Pharma Schering Warrick Pfizer Greenstone Novartis Sandoz J&J Patriot Sanofi-Aventis ????? Copyright 2005 Cardinal Health All Rights Reserved

30 30 Low Cost Countries Penetrating US Market The Profile of Indian API Has Risen Sharply in the Past 5 Years Source: Arthur D. Little Benelux Lax IP protection created API development haven WTO patent adherence kicked in Jan-2005 Most API firms now make finished dose Cipla, Reddy Cheminor, Ranbaxy & Wockhardt are the largest India now has the greatest number of FDA approved manufacturing sites outside of the U.S. Copyright 2005 Cardinal Health All Rights Reserved

31 31 Backward integration into API production Ivax – Chemsource; Sandoz – Lek; Actavis – Fako Forward integration Ranbaxy, Reddy Cheminor, Glenmark Bus Dev alliances with API/dose companies Cipla – Watson; Cipla – Ivax SPCs (EU) limit competition No Bolar provision Fewer independent, high caliber API mfgs. are available today Strategic relationships Organic pursuit of finished dose Increasing use of licensing & alliances vs. simple purchasing Success attracts partners Alliances are struck much earlier Generics & API are Inexorably Linked As Consolidation Diminishes Sourcing Options, Relationships Prevail Sources: Q Street Advisors Copyright 2005 Cardinal Health All Rights Reserved

32 32 Generic Biologics Now a Question of WHEN (and HOW) Biopharmaceuticals growing at 2x the rate of total pharmaceuticals Marketed (US) biologics are approx. $30 billion 12% of total pharmaceuticals Growing 20% annually By 2010, will reach $60 billion (US) Over 850 biotech products & vaccines currently in clinical trials 250 Products: Phase III 600 Products: Phase I & II The average 1-Day Cost (2003) for Biotech is $45 All other drugs = $1.66 Source: Ernst & Young; http://www.bio.org/er/approveddrugs.asp Copyright 2005 Cardinal Health All Rights Reserved

33 33 Authorized Generics Strange Bedfellows An NDA brand product which is re-labeled and marketed under the generic drug name Can license to another company or self market through subsidiary PhRMA companies are motivated to launch an AG to : Settle patent litigation Maximize profit at or after generic competition hits their brand Address manufacturing capacity issues Generic companies are motivated to accept an AG to : Settle litigation Enter an otherwise prohibitive market / sector Drive incremental revenue Copyright 2005 Cardinal Health All Rights Reserved

34 34 Key Take Aways The Generic sector will continue to grow… …more fiercely competitive ! Consolidation will continue Key differentiation will be speed, flexibility Sector will polarize into an Oligopoly Morphing into Specialty organizations & Generic Biologicals will happen Cost pressures will force the issue Trends API sourcing strength Early awareness Strong relationships Accurate predictive capabilities Sector situational awareness Regulatory & legislative M&A Speed to develop / to market Understanding your appetite for risk Ultra-efficient Require Copyright 2005 Cardinal Health All Rights Reserved

35 35 Thank You Michael Kopp Cardinal Health 678.947.2939 (dir) michael.kopp@cardinal.com


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