1. How are drugs and vaccines discovered and developed? Dr. Jeffrey L. Sturchio President & CEO, Global Health Council Journalist-to-Journalist Program National Press Foundation Cape Town, South Africa July 18, 2009 1

2. 2 Agenda 22 years of innovation in HIV/AIDS treatment Pharmaceutical innovation today –How does modern drug discovery work? –The clinical trials process –Increasing costs and declining productivity of pharmaceutical research? A word on HIV vaccine research Emerging challenges and continuing issues Facts and myths about drug R&D? Some concluding observations Q&A

3. How HIV/AIDS is Treated Kilby J and Eron J. N Engl J Med 2003;348:2228-2238

4. 4 The path from compound to drug Understanding of the biochemical and cellular mechanism Whole animal assays Metabolism & bioavailability Pharmaceutical R&D –stability; formulation strategy; physicochemical properties Preliminary safety data –initial genotoxicity; short term probe safety studies Ancillary pharmacology Chemistry –why this compound & how was it found Process chemistry –scale up feasibility; cost projections Clinical & regulatory plans –biochemical measure of efficacy –dose projection –assure patient safety Patent Marketing opinion Competition

5. 5 Scientific approach Is there a rational scientific approach? –A genetic or biochemical insight –A specific target or pathway –An available “proof of concept” Chemically feasibility –Some targets are difficult to approach with small molecules Long-term perspective –Takes >12 years to discover and develop a drug Competitive environment Level of internal expertise –Externally collaborate

6. 6 Scientific disciplines and development capabilities needed Biochemistry Molecular Biology Cell Biology Physiology In vitro Pharmacology In vivo Pharmacology Structural Biology Computational Chemistry Medicinal Chemistry Genomics Drug Metabolism Process Chemistry Chemical Engineering Pharmaceutical Chemistry Toxicology Clinical Pharmacology Clinical Development Statistics

7. Sources: Drug Discovery and Development: Understanding the R&D Process, www.innovation.org; CBO, Research and Development in the Pharmaceutical Industry, 2006. Drug discovery and development is difficult and requires significant infrastructure and resources Developing a new medicine takes an average of 10–15 years; the Congressional Budget Office reports that “relatively few drugs survive the clinical trial process” INDEFINITE Drug DiscoveryPreclinicalClinical TrialsFDA ReviewScale-Up to Mfg. Post-Marketing Surveillance ONE FDA- APPROVED DRUG 0.5 – 2 YEARS 6 – 7 YEARS3 – 6 YEARS NUMBER OF VOLUNTEERS PHASE 1 PHASE 2 PHASE 3 5250~ 5,000 – 10,000 COMPOUNDS PRE-DISCOVERY 20–100 100–5001,000–5,000 IND SUBMITTED NDA SUBMITTED

8. Definitions: Procedures: include lab & blood work, routine exams, x-rays & imaging, questionnaire & subjective assessments, invasive procedures, heart assessment, etc. Protocol: the clinical-trial design plan Enrollment rate: the percentage of volunteers meeting the increasing number of protocol eligibility criteria (percentage screened who were then enrolled) Retention rates: the percentage of volunteers enrolled who then completed the study; declining retention rates mean that firms must enroll more patients initially and/or recruit more patients during the trial. Increasing Complexity of Clinical Trials During the last decade clinical trial designs and procedures have become much more complex, demanding more staff time and effort, and discouraging patient-enrollment and retention 19992005Percentage change Unique Procedures per Trial Protocol (Median) 243546% Total Procedures per Trial Protocol (Median) 9615865% Clinical-Trial Staff Work Burden (Measured in Work-effort Units) 213567% Length of Clinical Trial (Days) 46078070% Clinical-Trial-Participant Enrollment Rate 75%59%-21% Clinical-Trial-Participant Retention Rate 69%48%-30% Source: Tufts Center for the Study of Drug Development, “Growing Protocol Design Complexity Stresses Investigators, Volunteers,” Impact Report, 2008.

9. 9 Average R&D Investment ($202 MM) Cumulative Returns Cover R&D investment in Year 16 Introduction Source: Grabowski and Vernon. “Effective Patent Life in Pharmaceuticals.” Forthcoming in The Journal of International Technology Assessment, 1999. Costs are recovered over a long period…

10. Note: Drug development costs represent after-tax out-of-pocket costs in 2000 dollars for drugs introduced from 1990–94. The same analysis found that the total cost of developing a new drug was $1.3 billion in 2006. Average R&D Costs include the cost of the approved medicines as well as those that fail to reach approval. Lifetime Sales Compared to Average R&D Costs New Rx Drugs Introduced Between 1990 and 1994, Grouped by Tenths, by Lifetime Sales After-Tax Present Value of Sales (Millions of 2000 Dollars) …and most marketed drugs don’t recover their costs Sources: J. Vernon et al., “Drug Development Costs when Financial Risk is Measured Using the Fama-French Three Factor Model,” Unpublished Working Paper, 2008; J. DiMasi and H. Grabowski, “The Cost of Biopharmaceutical R&D: Is Biotech Different?,” Managerial and Decision Economics, 2007.

11. 11 The pace of discovery is fast ……. Human Genome Project complete Advances in structural biology Rapid generation of monoclonal antibodies RNA profiling Proteomics Pharmacogenomics Engineering sciences, informatics

12. 12 No. of NMEs Approved $ Billions R&D Spend *NME (new molecular entity) total is through August 22, 2001. R&D spend for 2000 and 2001 are estimates. Source: Washington Analysis, LLC and PhRMA …..But as R&D spending increases, NME approvals have not.

13. 13 So why is R&D productivity down? Tackling diseases with complex etiologies? Demands for safety and tolerability are much higher? Proliferation of targets is diluting focus? Genomics has been slow to influence day-to-day drug discovery? Impact of mergers? Big Pharma model no longer valid?

14. 14 Why do drugs fail? Toxicity –Long term safety is still totally unpredictable Bioavailability and half life –Cannot be predicted, only guessed Metabolism –Drug/drug interactions; parent or metabolite Man –Understanding of pathophysiology is faulty Dealing with stochastic failures is one of the primary drivers in escalating costs of R&D to the current estimate of ~ US$1 BB to bring a drug to market

15. Roadmap for Developing an AIDS Vaccine Solving the Neutralizing Antibody Problem Solving the Problem of How to Control HIV Infection

16. Emerging challenges and continuing issues Dealing with chronic therapy –Simplification, convenience and adherence –Tolerability and reducing toxicities –Managing resistance –Combination treatments New targets –HIV entry inhibitors –HIV integrase inhibitors –Maturation inhibitors The quest for a safe and effective HIV vaccine 16

17. Facts & myths about drug R&D? Industry spends more on advertising than on R&D? Industry is more interested in “me-too” drugs than in innovation? Drugs are discovered by academe? Patents are a barrier to access? Industry does not care about diseases of the developing world? 17

18. Trends in resource allocation to SG&A, COGS and R&D in the pharmaceutical industry, 1975-2007

19. Sources: 1 Burrill & Company, analysis for PhRMA, 2005–2009 (Includes PhRMA research associates and nonmembers) in PhRMA, “Profile 2008, Pharmaceutical Industry;” PhRMA, “PhRMA Annual Membership Survey,” 1996-2009; 2 Adapted from E. Zerhouni, Presentation at Transforming Health: Fulfilling the Promise of Research, 2007; 3 NIH Office of the Budget, “FY 2009 President’s Budget Request Tabular Data”, http://officeofbudget.od.nih.gov/ui/2008/tabular%20data.pdf Federal and Industry Roles in Research and Development There is an ecosystem of science and biotechnology. Public organizations, patient organizations, universities, Congress, FDA, all of this is an ecosystem that is envied in the rest of the world. – E. Zerhouni, Director of NIH Private Sector – $65.2B 1 Clinical Research Basic Research Translational Research Clinical Research Basic Research Translational Research NIH 3 – $29.4B total – $20.1B research Government and biopharmaceutical industry research are complementary “ “

20. 20 Speed, focus and collaboration will drive future success Knowledge explosion is still driving demand for new technology investments to support future innovation (genomics, etc.) –Focus must be in making these investments pay Shift from ‘blockbuster’ strategies to therapeutic areas of focus –Pharmas addressing unmet medical needs are most likely to survive Greater pharma reliance on external research and biotech innovation –Vast majority of early research occurs outside of large pharmaceutical companies –Tools of drug discovery have been “democratized”; Biotechs are getting much better at producing “drug-like” molecules –However, development occurs in the major pharma companies – which is where the real costs lie

21. For further information www.innovation.org www.keionline.org www.msfaccess.org www.dndi.org www.phrma.org www.ifpma.org www.clinicaltrials.gov www.who.int/intellectualproperty/en www.who.int/phi/en www.iavi.org 21

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23. Progression of HIV Infection and AIDS AIDSAcute InfectionSymptom-free

24. 24 Drug discovery and development is difficult and requires significant infrastructure and resources 0 15 Introduction Registration Development Basic Research 1 2 2-5 5 5,000 Substances ????? Substances Product Surveillance Clinical Tests (Human) Preclinical Tests (Animal) Synthesis Examination & Screening Phase IV Phase III Phase II Phase I Source: PhRMA Years