VALUE-BASED HEALTHCARE A MANUFACTURER S PERSPECTIVE PETER JUHN, MD, MPH VICE PRESIDENT AND GLOBAL HEAD, VALUE-BASED PARTNERSHIPS

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1 VALUE-BASED HEALTHCARE A MANUFACTURER S PERSPECTIVE PETER JUHN, MD, MPH VICE PRESIDENT AND GLOBAL HEAD, VALUE-BASED PARTNERSHIPS NATIONAL CONFERENCE OF STATE LEGISLATURES SAN DIEGO, CA DECEMBER 10, 2017

TODAY, THERE IS A SIGNIFICANT FOCUS ON DRUG PRICING May 29, 2017 Drug Lobbyists Battle Cry Over Prices: Blame the Others 1 May 31, 2017 As Drug Prices Soar, Value-Based Pay Hits Pharmaceutical

Prices Under Fire, in the States 5 U.S. prescription drug spending as high as $610 billion by 2021 6 May 3, 2017 Sources: 1. Lipton E, et al. Drug Lobbyists Battle Cry Over Prices: Blame the Others.

As Drug Prices Soar, Value-Based Pay Hits Pharmaceutical Industry. Forbes. 2017. www.forbes.

Express Scripts and some drug makers say they can work together to lower costs. Stat Plus. 2017. www.statnews.com/pharmalot/2017/05/08/express-scripts-drug-costs/. Accessed 7/26/2017. 4. Turner GM.

2 TODAY, THERE IS A SIGNIFICANT FOCUS ON DRUG PRICING May 29, 2017 Drug Lobbyists Battle Cry Over Prices: Blame the Others 1 May 31, 2017 As Drug Prices Soar, Value-Based Pay Hits Pharmaceutical Industry 2 May 8, 2017 Express Scripts and some drug makers say they can work together to lower costs 3 Price Transparency Is Critical to Drug Pricing Solutions 4 July 11, 2017 July 12, 2017 Drug Prices Under Fire, in the States 5 U.S. prescription drug spending as high as $610 billion by May 3, 2017 Sources: 1. Lipton E, et al. Drug Lobbyists Battle Cry Over Prices: Blame the Others. The New York Times Accessed 7/26/ Japsen B. As Drug Prices Soar, Value-Based Pay Hits Pharmaceutical Industry. Forbes Accessed 7/26/ Silverman E. Express Scripts and some drug makers say they can work together to lower costs. Stat Plus Accessed 7/26/ Turner GM. Price Transparency Is Critical to Drug Pricing Solutions. Forbes drug-pricing-solutions/#748829bf204a. Accessed 7/26/ Grant C. Drug Prices Under Fire, in the States. Wall Street Journal Accessed 7/26/2017. Amgen 6. Berkrot Proprietary For B. U.S. prescription Discussion drug spending Purposes as Only high as $610 billion by 2021: report. Reuters Accessed 7/26/2017.

3 DRUG SPENDING IN PERSPECTIVE Need Focus on Rising Healthcare Costs Demographic Shifts Rising Burden of Disease 1 Rising patient cost-sharing 2 $972 billion spent on hospital care in $765B annual healthcare waste in $428B in pharmacy-related waste in $471B in Insurance Administrative Costs 6 $340B in low-value care 7 Recent Focus on Drug Spending Looking at increasing trend without examining benefits delivered Evaluating prices in absence of value delivered and negotiated prices Focus on 4% of healthcare spending on highcost biologics 8 Short-term budget pressures impacting longterm investments in health Issues with the Supply Chain Sources: 1. Bodenheimer T, et al. Health Affairs. 2009;28(1): American College of Physicians Addressing the Increasing Burden of Health Insurance Cost Sharing. American College of Physicians Position Paper. 3. Centers for Medicare and Medicaid Services. National health expenditure 2014 highlights Smith M, et al. Institute of Medicine of the National Academies Express Scripts. Drug Trend Report Jiwani A, et al. BMC Health Services Research. 3 Amgen Proprietary For Discussion Purposes Only 2014;14: Fendrick M. The Cost of Low-Value Care. Am J Manag Care IMS Institute for Healthcare Informatics. Medicines Use and Spending in the U.S.: A Review of 2015 and Outlook to morningconsult.com/wp-content/uploads/2016/04/ims-institute-us-drug-spending-2015.pdf. Accessed July 27, 2017.

4 PRESCRIPTION DRUG SPENDING ACCOUNTS FOR ~14% OF TOTAL HEALTHCARE SPENDING IN THE U.S. Physician & Clinical Services 20% Dental 4% Govt & Private Health Insurance Admin 8% Spending on prescription medicines is A SMALL SHARE OF TOTAL U.S. HEALTHCARE SPENDING PRESCRIPTION DRUGS 2 Brand Manufacturers 7% Generic Manufacturers 3% Supply Chain Entities** 4% TOTAL 14% U.S. Healthcare Spending Other * 13% Nursing Home, Home Health 8% *Supply chain entities include wholesalers, pharmacies, pharmacy benefit managers, and health care provider locations. Hospital Care 32% *Other includes expenditures for Other Professional Services, Nondurable Medical Products, Durable Medical Equipment, Govt Public Health Activity, Research, Structures, and Equipment. Sources: 1. CMS. National Health Expenditures 2015 Highlights Reports/NationalHealthExpendData/downloads/highlights.pdf. Accessed 7/20/ Vandervelde A, Blalock E; Berkeley Research Group. The pharmaceutical supply chain: gross drug expenditures realized by stakeholders. 4 Amgen Proprietary For Discussion Purposes Only FINAL.pdf. Published Accessed May 2017.

5 US SYSTEM REDUCES PRICE TRANSPARENCY AND PROVIDES DIFFERING INCENTIVES Who Pays for Care? Government (CMS/States/ DoD/VA) Employers Patients Commercial Health Plans Who Are the Intermediaries? Wholesalers Pharmacy Benefit Managers (PBMs) Specialty Pharmacy Group Purchasing Organizations Who Delivers Care? Hospitals Physicians Integrated Delivery Networks (IDNs) Managed Care Organizations Retail Pharmacies Home Health Nursing Homes CMS = Centers for Medicare & Medicaid Services; DoD = US Department of Defense ; VA = US Department of Veterans Affairs Source: Data on file, Amgen; [VBP Presentation; March 2017]. 5 Amgen Proprietary For Discussion Purposes Only

SHARE OF 2015 DRUG EXPENDITURES REALIZED BY MANUFACTURER AND NON-MANUFACTURER

Non-Manufacturers Generic 23% Non- Manufacturers 31% Retrospective Rebates &

Insurers** $41B *2015 estimate **Inclusive of statutory rebates and fees

FSS discounts ***Inclusive of negotiated health plan and Pharmacy Benefit

& Group Purchasing Organization $3B Source: The Berkeley Research Group.

Stakeholders. January 2017. https://www.thinkbrg.

6 SHARE OF 2015 DRUG EXPENDITURES REALIZED BY MANUFACTURER AND NON-MANUFACTURER STAKEHOLDERS ~$470B Total Drug Expenditure* ~$148B Realized by Non-Manufacturers Generic 23% Non- Manufacturers 31% Retrospective Rebates & Fees $17B Pharmacy $20B Innovator 46% Health Plans & PBMs*** $64B Gov t Insurers** $41B *2015 estimate **Inclusive of statutory rebates and fees including ACA Excise fees, Medicaid rebates, Part D Coverage Gap, TRICARE & FSS discounts ***Inclusive of negotiated health plan and Pharmacy Benefit Manager (PBM) rebates and fees and patient cost sharing assistance Wholesaler & Group Purchasing Organization $3B Source: The Berkeley Research Group. The Pharmaceutical Supply Chain: Gross Drug Expenditures Realized by Stakeholders. January Accessed October 19, Amgen Proprietary For Discussion Purposes Only

7 THE COST OF INNOVATION 12 years at ~$2.6B ~90% of clinical trials fail It takes an average of 12 years 1 at an investment of almost $2.6 billion 2 to advance one potential new medicine from research concept to an FDA-approved treatment. As of 2015, one in every 10 drugs that enter clinical trials successfully make it to market, 3 leaving many multi-million investments on the drawing board. ~58% of Ph III drugs are submitted for approval This low success rate is concerning because 35% of all R&D spending is for Ph III development which account for 60% of all clinical trial costs 3 Sources: 1. Van Norman, G. Drugs, Devices, and the FDA: Part 1. JACC: Basic to Translational Science. 2016;1(3): DiMasi J, Gradowski H, Hansen R. Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics. 2016;47: BIO. Clinical Development Success Rates Amgen Proprietary For Discussion Purposes Only %20BIO,%20Biomedtracker,%20Amplion% pdf. Accessed 10/3/17.

8 WHAT IS THE REAL COST DEBATE? Is the cure worth the cost? But What is the cost of not improving treatments? 8 Amgen Proprietary For Discussion Purposes Only

9 WE NEED TO ADDRESS THE RISING COST OF THE MOST SERIOUS DISEASES CARDIOVASCULAR DISEASE #1 KILLER in the U.S. with 1 DEATH EVERY 40 SECONDS 1 Estimated to cost the U.S. more than $900B by CANCER 2 nd LEADING CAUSE OF DEATH in the U.S. 2 Every 1% reduction in the long-term cancer-related death rate yields $500B for society 3 ALZHEIMER S DISEASE 5.5 MILLION AMERICANS IMPACTED 4 Projected to cost more than $1.1T by Sources: 1. Benjamin E, et al. Circulation. 2017;135:e1-e Centers for Disease Control and Prevention. Accessed July 17, Murphy KM, et al. J Political Econ. 2006;114(5): Alzheimer s Association Alzheimer s Disease Fact and Figures. Available at: Accessed July 28, Alzheimer's Association. Changing the Trajectory of Alzheimer's Disease: How a Treatment by 2025 Saves Lives and Dollars Amgen Proprietary For Discussion Purposes Only

10 MEDICINES ARE PART OF THE SOLUTION TO ADDRESS INCREASING HEALTHCARE SPENDING For every additional dollar spent on medicines for patients with congestive heart failure, high blood pressure, diabetes and high cholesterol $3-$10 ADHERENCE TO VASCULAR MEDICINES HEALTHCARE SPENDING Savings generated on ER visits and inpatient hospitalizations 1 ~$10 per hypertension patient ~$8 per congestive heart failure patient ~$7 per diabetes patient ~$3 per dyslipidemia patient Congressional Budget Office Includes Medical Cost Offsets Due to Prescription Drugs in Medicare 2 Sources: 1. Roebuck C, et al. Medication Adherence Leads to Lower Health Care Use And Costs Despite Increased Drug Spending. Health Affairs. 2011;30(1): Congressional Budget Office. Offsetting Effects of Prescription Drug Use on Medicare s Spending for Medical Services. Report, November 29, Accessed 7/17/ Amgen Proprietary For Discussion Purposes Only

11 PAYERS AND BIOPHARMA SHARE MUTUAL GOALS Improve the population health of our patients, focusing on those at highest risk Reward interventions that make a real difference, and stop paying for those that don t Reward interventions commensurate with their value Innovative biopharmaceuticals and devices are a part of the solution, but we struggle to understand their value 11 Amgen Proprietary For Discussion Purposes Only

12 AMGEN S VALUE-BASED PROGRAMS AND PARTNERSHIPS TRANSACTIONAL SUPPLIER OF MEDICINES COLLABORATIVE PARTNER WITHIN THE HEALTHCARE SYSTEM Amgen Examples Disease Management Patient Identification Pay for Performance Cost Cap Guarantee Strategic Multi-Disease 12 Amgen Proprietary For Discussion Purposes Only

AMGEN AND HARVARD PILGRIM AGREE TO FIRST CARDIOVASCULAR OUTCOMES-BASED REFUND CONTRACT Harvard Pilgrim Refines the Utilization Management Criteria to Help High-Risk Cardiovascular Patients Access

shown to have a significant outcome on reducing cardiovascular morbidity for high risk individuals with elevated LDL cholesterol We hope to negotiate more contracts of this type, in which a

13 AMGEN AND HARVARD PILGRIM AGREE TO FIRST CARDIOVASCULAR OUTCOMES-BASED REFUND CONTRACT Harvard Pilgrim Refines the Utilization Management Criteria to Help High-Risk Cardiovascular Patients Access Repatha; First-of-its-Kind Contract Will Demonstrate Value to Harvard Pilgrim Plans for Cardiovascular Patients Michael Sherman, Chief Medical Officer, Harvard Pilgrim Health Care Repatha has been shown to have a significant outcome on reducing cardiovascular morbidity for high risk individuals with elevated LDL cholesterol We hope to negotiate more contracts of this type, in which a pharmaceutical company truly has skin in the game going forward. This agreement is the first we have signed in which there is a full refund of all costs related to the medication if the patient experiences a heart attack or stroke while taking it. 1 Joshua Ofman, SVP, Global Value, Access & Pricing, Amgen Given the urgency to reduce LDL cholesterol in patients at high risk of cardiovascular events, we value our relationship with leading health plans like Harvard Pilgrim who have worked with us to refine their utilization management criteria to accelerate access for their high-risk patients. We look forward to partnering with other payers to create similar outcomes-based contracts for Repatha. 2 Sources: 1. Harvard Pilgrim Health Care. (2017). Harvard Pilgrim signs second groundbreaking contract with Amgen for Repatha [Press release]. Retrieved from 2. Amgen. (2017). Amgen and Harvard Pilgrim agree to first cardiovascular outcomes-based refund contract for Repatha (Evolocumab) [Press release]. Retrieved from 13 Amgen Proprietary For Discussion Purposes Only

14 REPATHA OUTCOMES-BASED REBATE (OBR) CONTRACT PLATFORM Patient-focused risk-based contracts Contract requires both medical and pharmacy inputs: Time on therapy Event for the patient Simple value proposition for the plan Offers employer groups and downstream plans access to innovative medicines and potentially manage costs 14 Amgen Proprietary For Discussion Purposes Only

ANCHORING ON VALUE PROVIDES A PATH FORWARD Free Pricing What

Value-Based Pricing Prices anchored to measurement of value

anchored to some measure of short-term affordability

15 ANCHORING ON VALUE PROVIDES A PATH FORWARD Free Pricing What the market will bear based on marketplace and business dynamics Value-Based Pricing Prices anchored to measurement of value (defined broadly) or outcomes Budget-Based Pricing Prices anchored to some measure of short-term affordability Market-based Solutions are Required 15 Amgen Proprietary For Discussion Purposes Only

Prescription Medicines: Costs in Context

Prescription Medicines: Costs in Context 2018 We are in a new era of medicine where breakthrough science is transforming care with innovative treatment approaches... Then Now Medicines made of chemical