Global Pharmaceuticals Survey Series (Part I): Rheumatoid Arthritis

Transcription

1 Global Pharmaceuticals Survey Series (Part I): Rheumatoid Arthritis October 23, 2013 RESEARCH TEAM Vamil Divan, MD (212) European Pharma Team (44) Ravi Mehrotra, PhD (212) Bruce Nudell, PhD (212) Ari Jahja (212) Ronak H. Shah, Pharm.D., CFA (212) Jeremy Joseph (212) Koon Ching, PhD (212) Matthew Keeler (212) We kick off the first edition of the Credit Suisse Global Pharmaceuticals Survey Series with insights on the rheumatoid arthritis (RA) market. Key takeaways from our survey of 30+ high prescribing rheumatologists include: (1) ABBV s Humira and AMGN/PFE s Enbrel are poised to maintain market leadership with only modest market share loss to competitors/newer entrants over time; (2) BMY s Orencia could continue to see modest share gains in post-tnf settings, particularly with greater use of its subcutaneous formulation; (3) PFE s Xeljanz long-term opportunity is meaningful, but could take time to build given current use in later lines of therapy; and (4) biosimilars pose a risk, but US impact likely limited to longer-term horizon with notable clinical/regulatory evolution still pending. Conclusions from survey results for key players are the following: ABBV: Our constructive view on Humira remains intact, as prescribing patterns will likely remain sticky, while it will take time for more recent competitors to establish themselves. Real world implications of modest share loss are likely to be more muted given pricing and promotion efforts. BMY: We continue to see Orencia posting stable growth over the long term, driven by robust uptake of the subcutaneous formulation. This could lead to potential upside surprise relative to current CS/Consensus forecasts (~12% revenue CAGR). PFE: There is room for Xeljanz to grow modestly over time, driven by additional data and improved access and experience. However, we remain less optimistic than consensus on ex US prospects. AMGN: Results reaffirm our view on Enbrel s ability to maintain share in the medium term, but product potentially faces modest decline longer term on injectable and oral competitors. JNJ: Brand stickiness for anti-tnfs and specifically incumbent products, help explain durability of JNJ s Remicade. Meanwhile, Stelara & Simponi continue to drive overall franchise growth. ROG: While Actemra is considered as the next best option in terms of efficacy after anti-tnfs, the product slips to middle of the pack on overall profile metric assessed by respondents. UCB: Survey suggests limited increase in Cimzia use in 2 nd line setting (from 4.8% patient share to 5.4% in the medium term), leaving expansion to broader indications as key to growth. UCB is one of the most geared EU companies to this category, with >30% of group value from Cimzia. DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit or call +1 (877) US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights and Access

2 Portfolio Manager s Summary The rheumatoid arthritis (RA) market is one of the largest and most profitable pharmaceutical markets in the world Global rheumatology market estimated at ~$20 billion, with US sales around $10-11 billion (2012) ABBV, JNJ and UCB most levered to this market, per Credit Suisse PharmaValues database Credit Suisse proprietary survey conducted to assess RA market dynamics in the US 32 US-based high prescribing rheumatologists (see an average of 125 patients with RA in a typical month) Vast majority in private practice and care predominantly for patients with moderate or severe RA Key conclusions from our survey include: Recent entry of several competitors (including first oral agent, PFE s Xeljanz) has had little impact on the treatment paradigm that heavily favor anti-tnf agents in the early lines of therapy ABBV s Humira and AMGN/PFE s Enbrel are poised to maintain market leadership with low to modest share loss expected BMY s Orencia poised for continued growth as leading non anti-tnf therapy, supported by favorable attribute ratings (i.e., efficacy, safety, etc.) and uptake of subcutaneous formulation Long-term opportunity for PFE s Xeljanz still likely to be meaningful. However, medium-term use will be limited to later lines of therapy Additional claims on its label (e.g., slowing structural progression of the disease) could help improve its efficacy ratings, which currently are below anti-tnfs Improvement in perceptions on access and further real-world experience likely also to help support long-term opportunity Biosimilars pose a longer-term risk to branded biologic agents in the US; however, caveats include assumption of comparable clinical profiles and appropriate price discounts 2

3 Physicians' View and CS View on Key of Topics of Interest Topic Rheumatologist View CS View Leading Injectable Anti- TNFs (Humira, Enbrel) Orencia Uptake Xeljanz Uptake Biosimilars Pipeline ABBV s Humira and AMGN/PFE s Enbrel are poised to maintain market leadership in rheumatoid arthritis with low share loss expected in the medium term. BMY s Orencia is well established as leading non anti-tnf agent and is likely to gain incremental share in the medium term, particularly in patients who have failed anti-tnf agents. PFE s Xeljanz use is poised to increase modestly across all settings, but most notably in post anti-tnf settings. Biosimilars continue to pose a long-term risk to branded biologic agents, assuming comparable clinical profiles and appropriate price discounts. There is enthusiasm on longer-term use of novel once-daily oral options. We have a modest positive view on Humira and Enbrel. The survey supports our view that prescribing pattern in autoimmune tends to be sticky, and it could be a while until oral competitors establish themselves. Growth in other autoimmune indications will be key driver for Humira volume growth in the medium term. We continue to see Orencia posting stable growth over the long term, driven by modest share gains in post-tnf settings, particularly with greater use of its subcutaneous formulation. We believe there is room for Xeljanz to grow modestly over time, driven by additional data, more experience and improved access. However, we are less optimistic than consensus on ex US revenues (on regulatory setback in Europe). Given that the most advanced biosimilars for subcutaneous biologics are still in early development, we anticipate that even with accommodative FDA guidelines, it will not be until 2017/18 that one could enter the US market. Moreover, the impact will likely be modest based on expected promotion model for biosimilars. We view meaningful long-term opportunity for oral agents longer term, but anticipate that this will take time to build. Launch of once-daily agents could provide an important inflection point for overall oral category growth. 3

4 Survey Suggests that Rheumatoid Arthritis Treatment Paradigm Will See Only Subtle Changes in the Medium Term Despite launch of oral RA agent, rheumatologist feedback suggests anti-tnf still the go-to class in the lucrative 2 nd and 3 rd lines of therapy This bodes well for anti-tnf therapies entrenched in 2 nd and 3 rd line of care, such as ABBV s Humira and AMGN/PFE s Enbrel BMY s Orencia is the top non anti-tnf agent across all lines of care, and its share is expected to modestly increase, potentially driven by the introduction of its more user-friendly subcutaneous formulation PFE s Xeljanz opportunity will likely take time to build; physicians see its use mostly in 3 rd and 4 th line setting at present Line of Care 4 th Line 3 rd Line 2 nd Line CURRENT Treatment Paradigm in Moderate to Severe Rheumatoid Arthritis >75% Share for Non Anti-TNF agents Physicians Stay in Anti-TNF class Despite Sub-Optimal Response to First Anti-TNF share in 3 rd line setting at 60%+ Anti-TNF class still preferred post MTX 80% of patients get anti-tnf therapy post-mtx trial 85%+ of Xeljanz (PFE) use expected in 3 rd or 4 th line; BMY s Orencia top non-anti- TNF therapy Our survey suggests little-to-modest impact on anti-tnfs position in treatment algorithm from competition, in the medium term LESS ATTRACTIVE COMMERCIALLY 1 st Line Methotrexate (MTX) is the 1 st line of care MORE ATTRACTIVE COMMERCIALLY 4

5 Share of Company NPV Accounted for by Category ABBV and JNJ Most Leveraged to Global Autoimmune Biologics Market 100 Share of World Category Ethical Drug NPV Bubble Size Refers to NPV for the Category AbbVie Inc UCB 30 Johnson & Johnson 20 Chugai Amgen Bristol Myers 10 Pfizer Roche Eli Lilly Merck AbbVie Inc. Johnson & Johnson Pfizer Amgen Roche Bristol Myers UCB Merck Chugai Eli Lilly Source: Credit Suisse PharmaValues Database 5

6 Valuation Sensitivity towards Autoimmune Drugs per Credit Suisse PharmaValues Novartis Merck % drug value from mktd drugs % from pipeline % uplift from pipeline moving to 100% prob Roche Pfizer Bristol Myers Amgen Johnson & Johnson UCB AbbVie Inc % of Drug NPV from category Source: Credit Suisse PharmaValues Database 6

7 Rheumatologist Prescribing Biggest Contributor in Autoimmune Market; However, Growth Outlook Has Moderated Rheumatologist Prescribing Largest Piece of Autoimmune Market However, Rheumatology TRx Market Growth Has Been Moderating Rheumatology Prescribing as % of Autoimmune Category* Rheumatology Contribution to Brand Sales* 64% YOY Growth 40% 35% 30% 25% Cimzia (UCB) 50% Humira (ABBV) 55% Enbrel (AMGN/PFE) 82% Orencia (BMY) 100% Xeljanz (PFE) 100% 20% 15% 10% 5% 0% -5% Rheumatology Dermatology Gastroenterology *Per 2013 YTD IMS TRx information, and looking at rheumatologist, dermatologist and gastroenterologist prescribing in the category 7

8 Sales in $ Million $ Billion $ Billion $ Billion CS Estimates Generally In line with Consensus on Humira, Orencia, Cimzia; Lower on Xeljanz Driven by Caution on Ex US Prospects ABBV s Humira (Sales in $ Billion) BMY s Orencia (Sales in $ Billion) Humira Sales Orencia $16 $14 $12 $11.7 $11.7 $12.7 $12.9 $13.8 $13.3 $14.2 $13.7 $2.5 $2.0 $1.7 $1.7 $1.9 $1.9 $2.1 $2.1 $2.0 $2.2 $10 $1.5 $8 $6 $1.0 $4 $2 $0 2014E 2015E 2016E 2017E $0.5 $ CS Estimates Consensus CS Estimate Consensus PFE s Xeljanz (Sales in $ Million) UCB s Cimzia (Sales in $ Billion) $2,000 $1,500 $1,000 $500 $428 $351 $749 $539 Xeljanz Sales $1,235 $973 $1,021 $746 $1,559 $1,268 $1,885 $1,472 $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $1.1 $1.0 Cimzia $1.2 $1.2 $1.3 $1.4 $1.5 $1.5 $0.2 $0 2014E 2015E 2016E 2017E 2018E 2019E $ CS Estimates Consensus CS Estimate Consensus Source for Consensus Data: Bloomberg, Evaluate Pharma 8

9 Respondents Provide Representative Sample of Specialists Caring for Patients with Relatively Aggressive Disease Survey respondents (n=32) see an average of 125 patients with RA in an average month 31 (97%) have an infusion center at their facility 27 (84%) are in private practice 23 (72%) have experience prescribing Xeljanz 19 (59%) expect the number of patients with RA at their practice will increase over the next three years 13 (41%) participate in clinical trials Majority of the patients seen by survey physicians have moderate or severe RA 48% of patients seen have moderate disease; 28% severe disease; 24% mild disease 55% of patients are already on biologic therapy Additional 13% are candidates for a biologic therapy but currently not receiving one 9

10 Views on Key Marketed Products Enbrel and Humira are Poised to Maintain Market Leadership; Orencia and Xeljanz Likely to Gain Incremental Share 10

11 Injectable Anti-TNFs Still Perceived to have Best Overall Profile Q: Please rate the following drugs based on overall profile (1 = excellent, 5 = poor). Orencia (2.3) Rituxan (3.1) Excellent Neutral Poor Injectable Anti- TNFs (Humira, Enbrel, Cimzia, Simponi) (2.0) Remicade (2.3) Actemra, Xeljanz (2.8) 11

12 Rheumatologists Expect Modest Share Loss for Leading Anti-TNFs However, real world implications likely to be more muted given promotion efforts and share of voice 40% 35% 36% Q: Of your current patients who have not responded to or do not tolerate methotrexate, what % of them are on/do you expect to place on the following drugs as second line agents? 32% Preferred First Second Line Treatment Agents Post Share Trends Methotrexate 30% 25% 28% 26% 20% 15% 10% 5% 16% 13% 7% 9% 2% 5% 11% 15% 0% Enbrel Humira Remicade Orencia Xeljanz Other Current Average Patient Share Months from Now 12

13 Share Decline for Leading Anti-TNFs Also Likely to be Manageable Based on Expected Use in 3 rd Line Setting 30% 25% 20% 25% 23% Q: Of your current patients who have not responded to or do not tolerate methotrexate, what % of them are on/do you expect to place on the following drugs as third line agents? Preferred Second Line Agents Post Methotrexate Third Line Treatment Share Trends 20% 17% 18% 17% 20% 25% 15% 10% 5% 12% 10% 5% 8% 0% Humira Enbrel Orencia Remicade Xeljanz Other Current Average Patient Share Months from Now 13

14 Stable Market Share Expected for Orencia as Leading Agent in 4 th Line Setting; with Potential Growth Seen in this Area for Xeljanz 35% 30% 25% 32% 31% Preferred Third Line Agents Post Methotrexate Q: Of your current patients who have not responded to or do not tolerate methotrexate, what % of them are on/do you expect to place on the following drugs as fourth line agents? Preferred Fourth Line Agents 22% 20% 15% 16% 18% 15% 14% 13% 17% 10% 5% 8% 8% 6% 0% Orencia Actemra Rituxan Xeljanz Remicade Other Current Average Patient Share Months from Now 14

15 Rheumatologists Expect to Continue Modestly Boosting Xeljanz Usage Across All Settings, Particularly in Later Stage Use Q: Of your current patients who have not responded to or do not tolerate methotrexate, what % of them are on/do you expect to place on Xeljanz in 2 nd line; 3 rd line; and 4 th line settings? 14% 12% Xeljanz Usage Xeljanz Usage 13% 10% 8% 8% 8% 6% 5% 5% 4% 2% 0% 2% 2nd Line Setting 3rd Line Setting 4th Line Setting Current Average Patient Share Months from Now 15

16 Stable Share Trends Expected for Orencia, which is Predominantly Used in Later Lines of Therapy Q: Of your current patients who have not responded to or do not tolerate methotrexate, what % of them are on/do you expect to place on Orencia in 2 nd line; 3 rd line; and 4 th line settings? Orencia Usage 35% Orencia Usage 31% 32% 30% 25% 20% 15% 18% 17% 10% 5% 7% 9% 0% 2nd Line Setting 3rd Line Setting 4th Line Setting Current Average Patient Share Months from Now 16

17 Resistance to Injections One of Main Obstacles for Biologic-Eligible Patients Not Being on a Biologic Physicians surveyed believe 13% of their patients with RA are candidates for biologic therapy but are not on a biologic drug for one of the following reasons Resistance to injectible medications one of the main factors and could provide opportunity for novel oral agents Q: Please break down the reason why your patients who are candidates for biologic therapy are NOT taking a biologic currently. Patients do not want to use an injectible 18% Other 11% Cost of therapy 25% Concerns about safety of biologics 46% 17

18 Stricter Formulary Management Highlights Increasing Pressure Branded Drugs will be Under, Including Xeljanz ~31% of respondents still view payor access to be poor since Xeljanz s launch Xeljanz was also excluded from recently announced Express Scripts 2014 Formulary Respondents Perception on Payor Access/Patients' Reimbursement Coverage for Xeljanz Q: How do you view payor access/patients reimbursement coverage for Xeljanz since launch? Excellent/Very Favorable Access =5 3% 4 16% 3 50% Very Poor/Unfavorable Access =1 2 9% 22% Cumulative 31% of respondents 0% 10% 20% 30% 40% 50% 60% 18

19 Vast Majority of Xeljanz Use Reserved for 3 rd Line And 4 th Line Settings, Post Methotrexate and Biologic Failures Q: In what setting do you/will you typically prescribe Xeljanz? 1st Line Setting, 2% 2nd Line Setting, 11% 4th Line Setting, 47% 85%+ physicians see Xeljanz being used in a 3 rd or 4 th line setting 3rd Line Setting, 40% 19

20 Lack of Claim on Slowing Progression of Structural Damage Has Likely Adversely Impacted Perception of Xeljanz s Efficacy Q: Please rate the following drugs on efficacy (1 = excellent, 5 = poor). Remicade (1.5) Orencia (2.3) Rituxan (2.5) Excellent Neutral Poor Injectable Anti- TNFs (Humira, Enbrel, Cimzia, Simponi) (1.7) Actemra (1.9) Xeljanz (2.5) 20

21 and Has Impacted Xeljanz Adoption by Physicians Potential addition of structural data to the Xeljanz label in February 2014 could have material impact on Xeljanz prescribing Q: How much does the lack of data on progression of structural damage in the Xeljanz prescribing information impact your prescribing of Xeljanz? Impact of Lack of Data on Progression of Structural Damage on Prescribing of Xeljanz Significant Impact = % 25% 31% 75% of respondents suggest at least moderate impact on their Xeljanz prescribing due to lack of structural damage claim 2 16% No Impact = 1 9% 0% 5% 10% 15% 20% 25% 30% 35% 21

22 Nonetheless, Rheumatologists Comments Suggest Additional Claims, More Experience and Improved Access Could All Boost Uptake Impact of prescribing patterns after potential Xeljanz prescribing information expansion to include data on the drug s ability to inhibit progression of structural damage (PDUFA date in February 2014): Personal experience will be the biggest factor It s always helpful to demonstrate less joint damage I assume that efficacy in signs and symptoms will correlate with structural damage I am comfortable to wait on structural data Prevention of structural damage is very important More data to fight insurance denials and more options for patients Importance of various factors (long-term data, improved access, personal experience) on impacting the likelihood of prescribing Xeljanz: The longer Xeljanz is on the market with more efficacy and safety data, the more comfortable I will feel using it Presently I use it primarily in biologic non-responders, usually 3rd line It is still very expensive for a pill The need for more safety and efficacy data is clearly the issue now. I m sure my experience with biologics will permit use once there is better clinical data Cost always a concern; am comfortable prescribing based on data Need long-term data and personal experience 22

23 Almost Half Said Direct-To-Consumer Ads Had Triggered Patients Interest, but Not Necessarily Impacting Prescribing Patterns Q: The Xeljanz direct-to-consumer advertising campaign started in June Have any of your patients proactively requested the drug by name? Q: To what extent has this impacted your prescribing of Xeljanz? Impact of DTC Promotion on Patients' Awareness Impact of Patients Requesting Xeljanz on Likelihood of Respondents Prescribing The Same Significantly Increase 0% No patients requested drug by name, 53% Some patients requested drug by name, 47% Somewhat Increase No Impact Somewhat Decrease 0% 33% 67% Significantly Decrease 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 23

24 Views on Future Competitive Landscape Biosimilars Expected to Pose Long-Term Risk to Branded Biologic Agents, While Enthusiasm Remains Robust for Once-Daily Oral Agents 24

25 Biosimilars Could Pose Longer-Term Risk to Branded Agents, Assuming Comparable Profile and Reasonable Pricing Discount Q: Biosimilar versions of autoimmune drugs could come to the US market in the next several years. Assuming these drugs have comparable efficacy/safety profiles to the Level branded of Biosimilar's drugs, Pricing how (vs much Brand) for cheaper The Respondents would to the Prescribe The Same biosimilar drug need to be in order for you to start prescribing it to your patients with rheumatoid arthritis? More than 50% Cheaper 9% 88% of respondents think biosimilars would need to be priced 20-50% cheaper than branded drugs in order for them to start prescribing biosimilar drugs to their patients with rheumatoid arthritis 35-50% Cheaper 20-35% Cheaper 20% Cheaper 0% 25% 63% At Par 3% 0% 10% 20% 30% 40% 50% 60% 70% Q: Assuming biosimilar drugs have comparable efficacy/safety profiles to the branded drugs and cost ~33% less than branded drugs, how do you believe this would impact your prescribing of the branded drugs? Impact of Comparable Safety/Efficacy Profiles & ~33% Less Cost of Biosimilars on Respondents' Prescribing of Brands Assuming biosimilar drugs have comparable efficacy/safety profiles to the branded drugs and cost ~33% less, 88% of respondents believe that they will reduce how much they will prescribe the branded drugs Significantly Reduce = % 31% 34% 2 9% No Impact =1 3% 0% 5% 10% 15% 20% 25% 30% 35% 40% 25

26 While Oral RA Agents Could Take Time to Build, Longer-Term Potential is Still Meaningful 85% of Rheumatologists see Notable Impact on Prescribing from Once Daily Oral Agents in 5 Years Q: To what extent do you believe the availability of once daily oral disease-modifying drugs will impact your prescribing 5 years from now? Credit Suisse Estimates Build for Meaningful Long- Term Opportunity for Oral RA Agents 85% Oral Agents Share in RA Xeljanz (PFE) Share of Oral Agents 45% 40% 14% 12% 11% 13% 100% 35% 10% 9% 80% 30% 8% 8% 60% 25% 20% 15% 41% 28% 6% 4% 2% 2% 3% 4% 6% 40% 20% 10% 5% 0% 16% 9% 3% No Impact Significant Impact 0% 0% 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Oral RA Agents Share Xeljanz as Proportion of Oral Market 0% 26

27 Strong Commercial Emphasis Will be Required on Pipeline Products Entering the Market Due to Low Physician Awareness Currently Rheumatologists awareness of pipeline programs is low (e.g., LLY/INCY s Baricitinib, NVS Secukinumab), likely pointing to need of strong commercial investment to take share in a crowded category Q: Have you heard about late-stage pipeline drug baricitinib? LLY/INCY s baricitinib Q: Have you heard about late-stage pipeline drug secukinumab? NVS secukinumab Heard about it, 28% Heard about it, 45% Haven't heard about it, 55% Haven't heard about it, 72% 27

28 Autoimmune Market Overview 28

29 Autoimmune Market Poised for Continued Growth; Total Global Potential Could be ~$45+ Billion by 2020 We estimate US autoimmune market at ~$15 billion in 2012, growing at 7% yoy to ~$25 billion by 2020 Rheumatology represented ~$10-11 billion of this market in 2012 and expected to be ~$16-17 billion by 2020 Estimating ex-us opportunity as 80-90% of the US market, we see total autoimmune market opportunity being over $45 billion in 2020 (Sales in $ Billion) $30 Autoimmune Market Sales (US) CAGR: 7% $25 $21 $22 $23 $24 $25 $20 $16 $18 $19 $15 $11 $12 $15 $10 $5 $

30 Autoimmune Category Important to US Pharma; Sales Contribution to Double Through 2020 (Sales in $ Billion) $30 US Pharma Autoimmune Sales and % of Total Sales % of Total Sales 16% $25 13% 13% 14% 14% 14% 14% 14% 14% 11% 12% $20 10% 10% 8% $15 7% 8% $10 $5 $13 $15 $17 $19 $20 $22 $23 $24 $25 $25 $25 6% 4% 2% $0 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 0% Autoimmune Sales ($, M) Autoimmune as % of Total Sales 30

31 High Biologic Focus Builds Long-Term Opportunity with Low Generic Risk, with Specialty Focus Implying More Efficient Commercial Footprint US Pharma Autoimmune Sales: Biologic vs. Small Molecules (Sales in $ Billion) $30.0 % of Autoimmune Sales 100% 100% 100% 100% 99% $25.0 $20.0 $15.0 $0.0 $0.0 $0.0 $0.2 98% $0.4 98% $0.5 $0.9 96% $1.4 94% $1.8 $2.1 $2.3 93% 98% 96% 94% 92% $ % 91% 90% $5.0 88% $0.0 $13.3 $15.4 $16.6 $18.4 $19.9 $21.1 $22.1 $22.6 $23.1 $23.1 $ A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Autoimmune Sales - Biologics ($, M) Autoimmune Sales - Small Molecules ($, M) Biologics as % of Total Autoimmune Sales 86% 31

32 Autoimmune Contribution Increases Across All Major US Pharma Companies Through 2020, Particularly ABBV and LLY Autoimmune Contribution to Sales (% of Sales) 70% 60% 50% 40% 42% 59% 30% 20% 10% 0% 9% 4% 0% 9% 6% 6% 7% 5% ABBV BMY LLY MRK PFE 2010A 2020E 32

33 Balance of Headwinds and Tailwinds Support Robust Category Growth Tailwinds Headwinds Biologic penetration still has noteworthy room to grow, especially ex-us We expect ex-us pricing to be a notable headwind Multiple new products slated to enter the market could help support/boost growth Opportunities for modest US price increases continue to exist in the near term As credible late-stage biosimilars (particularly for Humira and Enbrel) make it to market, it would certainly pressure the target agent and the category 33

34 Looking Across Indication/Prescriber Types Suggest Noteworthy Room for further Penetration Rheumatology: Discussions with companies suggest the penetration in the RA segment is possibly still only in the 30% range Tailwind While not in the same range as company estimates, our proprietary channel checks also suggest that there is still meaningful patient population (15-25%) of moderate to severe rheumatoid arthritis patients who are eligible for biologics but still not receiving them Dermatology: Checks with multiple companies suggest that utilization of biologics among dermatologists to treat moderate to severe plaque psoriasis is still in the early innings Estimated that only less than 10% of eligible patients receiving biologics at this point Gastroenterology: Company comments suggest that biologic penetration in this segment is still in the 25-30% range. Credit Suisse estimates suggest the market growth likely to be in the 4% ( ) CAGR range US Prescriptions (TRx) CAGR Rheumatology 3,346,063 4,308,971 3% Dermatology 835,651 1,087,621 3% Gastroenterology 637,986 1,059,297 7% Other 1,461,030 1,941,314 4% Overall 6,280,730 8,397,204 4% Note: Other likely refers to follow on prescriptions written by physician assistant s and nurse practitioners that don t get logged by primary specialty 34

35 Tailwind New Entrants Should Help Support Market Growth Rheumatoid Arthritis Phase Xeljanz (PFE) Approved Baricitinib (LLY/INCY) Phase 3 Sarilumab (REGN) Phase 3 Secukinumab (NVS) Phase 3 Sirukumab (JNJ) Phase 3 Psoriasis Phase Xeljanz (PFE) Phase 3 Apremilast (CELG) Phase 3 Brodalumab (AMGN) Phase 3 Ixekizumab (LLY) Phase 3 MK-3222 (MRK) Phase 3 Secukinumab (NVS) Phase 3 Crohn s Disease Phase Etrolizumab (ROG) Phase 3 Stelara (JNJ) Phase 3 Ulcerative Colitis Phase Xeljanz (PFE) Phase 3 35

36 Tailwind US Pricing Environment is Still Conducive to Supporting Growth, but We Expect Moderation on this Front While historical price increases suggest 7-11% range, Credit Suisse projects price increases in the more conservative 2-3% range 2010A 2011A 2012A 2013E Average Humira TRx Growth (US) 7% 10% 12% 10% Humira Sales Growth (US) 14% 19% 28% 15% Humira Price Increases (US) 7% 9% 16% 5% 9% 2010A 2011A 2012A 2013E Enbrel TRx Growth (US) -4% -1% 2% 1% Enbrel Sales Growth (US) 1% 5% 15% 6% Enbrel Price Increases (US) 4% 6% 13% 5% 7% 2010A 2011A 2012A 2013E Stelara TRx Growth (US) 65% 31% 16% Stelara Sales Growth (US) 85% 42% 20% Stelara Price Increases (US) 21% 10% 3% 11% 36

37 Headwind Ex-U.S. Pricing Environment is Expected to Get Tougher, Particularly with a Biosimilar Version of Remicade Approved Given macroeconomic issues and recent history, we expect ex-us pricing environment to be a particularly notable headwind for category growth moving forward; as difficult as it has been recently, it could potentially worsen over time This is likely to be accentuated given launch of biosimilar Remicade (Celltrion s Remsima) Slated for launch in the EU in 2015 and could potentially enter the U.S. in 2018 It is anticipated that the Remsima could enter the (EU) market at a modest discount to branded Remicade (JNJ/MRK), potentially forcing other branded competitors to compromise/compete on price to a certain extent We believe Humira (and other agents that are administered through subcutaneous injection) are less likely to be affected than Remicade (since Remicade is given as an intravenous infusion), but may still see some impact 37

38 Headwind Emergence of Credible Late Stage Biosimilars Could Pressure Growth Prospects of the Category Despite technical difficulty, several companies have ambitions of developing biosimilar capability Prominent companies include Pfizer, Novartis, Boehringer Ingelheim, Mylan, Hospira and Baxter Humira and Enbrel in line of vision of most companies with biosimilar prospects, but no visible late stage prospects yet Humira loses its exclusivity in the US in 2016, and in the EU in 2018 Enbrel loses its exclusivity in key ex-us markets in 2015 but not in the US until 2028 Regulatory uncertainty in the US benefits branded manufacturers, but may not last Getting clarity on the biosimilar approval pathway is an ongoing (high) priority for the FDA Timing is unclear but emergence of an easier than expected pathway could hurt long-term growth prospects of branded manufacturers Source: Genzyme Complexity of creating biosimilars (separate from regulatory pathway) more middle of the spectrum, but still viewed to be a difficult benchmark 38

39 ABBV Humira Most Important Driver of ABBV Sales and EPS Growth (Sales in $ Billion) $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 42% $4.0 $6.5 $2.0 Humira Sales and % of Total ABBV Sales CAGR: 5% % of Total ABBV Sales 65% 61% 62% 61% 61% 61% 59% 59% 60% 57% 55% 50% 50% 45% $13.3 $13.7 $14.0 $13.9 $ % $12.7 $11.7 $10.6 $9.3 40% $7.9 35% Tailwinds to Estimates Broadest label in the category Strong growth from GI/emerging indications Little impact from emerging competition; anti- TNFs continue to be physician go-to agents and at the front of the treatment paradigm Anticipate continued modest U.S. price increases Headwinds to Estimates Further slow down in rheumatology and dermatology $ A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 30% Greater impact from new entrants Humira Sales Autoimmune as % of ABBV Sales Through 2020, Humira to contribute at least 90% of ABBV s EPS Ex-US pricing environment Easier than expected pathway for biosimilars (Dec 2016, US LOE) Humira: Anti-TNF agent Approved indications: Rheumatoid arthritis (RA), Juvenile RA, Psoriatic Arthritis, Ankylosing Spondylitis, Crohn s Disease, Ulcerative Colitis, Plaque Psoriasis Potential Future indications: Hidradenitis suppurativa, Uveitis, pediatric Crohn s disease and psoriasis 39

40 ABBV Humira Is the Engine that Drives ABBV Humira s contribution to ABBV sales peaks at ~63% in 2016 Balance of headwinds and tailwinds suggests Humira growth is likely to remain robust but then moderate over time Tailwinds Humira has broadest label in the space, with less competition in areas outside of rheumatology and dermatology Non-rheumatology/dermatology prescribing expected to be meaningful drivers of growth Emerging competition still not finding a footing in autoimmune market, and certainly having very little impact on Humira While U.S. pricing environment is getting tougher, we believe it will generally support modest price increases Headwinds Rheumatologist and dermatologist prescribing accounts for big portion of Humira prescriptions and are slowing Across several key indications, Humira is likely to face increasing competition from potential new entrants Ex-U.S. pricing environment anticipated to get tougher, particularly with biosimilar version of Remicade arriving ABBV earnings heavily leveraged to Humira, but ABBV does have an emerging autoimmune portfolio Upside/downside risks to our Humira numbers are tied to competitive uptake, pricing pressure, and biosimilar threat 40

41 ABBV Humira Contributed ~50% to ABBV Sales in 2012; Expected to Increase to 60%+ by 2014 Biologic, subcutaneous injectable therapy that has been in the market since 2002 Currently indicated for: Rheumatoid arthritis, juvenile rheumatoid arthritis, Crohn s disease, psoriatic arthritis, psoriasis, ankylosing spondylitis, ulcerative colitis Indications being explored: uveitis, hidradenitis suppurativa Financial Full year 2012 sales of $9.3 billion (16.8% growth yoy) Accounted for ~50% of ABBV sales in 2012 Approximately 47% of sales are from the U.S. Biologic therapy helps mitigate typical generic erosion risk (losing exclusivity in the U.S. in Dec 2016) while specialty platform enables efficient commercialization Humira & ABBV Sales ($ Bn); Humira as % of ABBV Sales $25,000 $20,000 $15,000 $10,000 $5,000 $0 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Humira Rest of ABBV Humira as % of Total ABBV Sales 70% 60% 50% 40% 30% 20% 10% 0% 41

42 Market TRx Volume Humira Share ABBV Despite Several New Entrants, Humira Share Has Continued to Grow in the Last 4+ Years Across rheumatology, dermatology and gastroenterology, Humira has the broadest label in the autoimmune space Total Humira TRx and Share 4,500, Xeljanz (PFE) 45% Our channel checks suggest that prescribing of these agents (particularly within rheumatology) tends to be sticky, and transitioning to new agents take time Despite 4 new agents launching since 2008 (subcutaneous or oral), Humira share of total autoimmune market is now ~44% (from 38% in 2008) 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, Simponi (JNJ,MRK) 2008 Stelara (JNJ) Cimzia (UCB) 44% 43% 42% 41% 40% 39% 38% 37% 500,000 36% % Autoimmune Market (SC & Oral Meds) Humira Share Note: For the purposes of this analysis, we only include products with subcutaneous or oral formulation that are tracked well by IMS. Most prominent intravenous product excluded is JNJ/MRK s Remicade 42

43 ABBV We Expect Humira Sales Growth to Continue to be Robust, Representing 7%+ CAGR Through 2018 Humira expected to grow 7% CAGR ( ) There is still noteworthy room for significant market growth Multiple company viewpoints suggest that the residual opportunity continues to be robust as biologic market penetration still low Biologic penetration estimated to be ~25-30% in rheumatology and gastroenterology prescriber bases, and less than 10% among dermatologists Global Humira Sales and Growth ($ Billion) Humira is seeking approval in additional therapeutic areas (e.g., ophthalmology) that are expected to also be modest contributors of growth 43

44 ABBV Does Have an Emerging Auto-Immune Program to Build Off of Humira s Legacy; Very Low Expectations Tied to these Assets ABBV Agent Target Biologic/Small Molecule Phase GLPG0634 JAK Small molecule 2 Tregalizumab CD4 Biologic 2 ALX-0061 IL-6R Biologic 1/2 ABT-122 IL-17 Biologic 1 ABT-413 S1P-R Not specified 1 ABT-494 Not specified Small molecule sales of <$100M in our ABBV models at present allocated to these assets 44

45 Sales ($ Millions) % of AMGN Operating Profits AMGN Enbrel Continues to be a Significant Contributor to AMGN s Operating Profits through 2020 Enbrel is expected to continue growing slightly from $4.5 billion (2013) to $4.8 billion (2016), before steadily declining to $4.1 billion in ,000 20,000 35% 30% Enbrel is projected to account for ~25% of total revenues and ~21% of operating profits in ,000 25% 20% This contribution to AMGN s operating profits will increase substantially when the PFE collaboration moves from a co-promotion to a royalty (declining percentage 12% to 10% for 3 years) at the end of October ,000 15% 10% Enbrel s contribution to operating profits is expected to jump to 29% in 2014 and peak at 31% in ,000 5% Overall, the survey results support our view on Enbrel s sales trajectory for the rest of the decade E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Enbrel Rest of AMGN 0% Enbrel 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Sales $4.53B $4.66B $4.75B $4.79B $4.78B $4.55B $4.3B $4.09B Operating Margins 32% 52% 53% 53% 62% 61% 60% 60% % of AMGN Sales 25% 24% 23% 23% 24% 23% 23% 22% % of AMGN Operating Profits 21% 29% 29% 29% 31% 31% 30% 29% 45

46 BMY Orencia Contribution to BMY to Continue to Grow in Importance Orencia Sales and % of Total BMY Sales Tailwinds to Estimates (Sales in $ Billion) CAGR: 7% % of Total BMY Sales Most preferred biologic post TNF $3.0 10% 11% 10% 10% 12% Migration to sub-cutaneous formulation $2.5 9% 10% 9% 9% 10% Significant room for continued Ex-US growth could be $2.0 7% 8% $1.5 6% Headwinds to Estimates $1.0 $0.5 $0.0 4% 4% $2.0 $2.1 $2.1 $2.1 $1.8 $1.7 $2.1 $1.5 $1.2 $0.7 $ A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 4% 2% 0% Emergence of biosimilar in EU (2017 LOE) and US (2019 LOE) Greater impact from new entrants Ex-US pricing environment Orencia Sales Orencia as % of Total BMY Sales Conservatively, Orencia contribution through 2018 at least 17%+; one of the few important core franchises where BMY owns sole economics Orencia: Anti CD80 agent Approved indications: Rheumatoid arthritis (RA), Juvenile RA Potential Future indications: Psoriatic Arthritis 46

47 LLY s Autoimmune Franchise to Contribute ~6% of 2020 Sales, Further Upside Possible Upon Phase 3 Release and Execution LLY LLY Autoimmune Sales and % of Total LLY Sales (Sales in $ Billion) CAGR: 54% % of Total LLY Sales $1.6 7% 6% $1.4 6% 6% $1.2 4% 5% $0.7 $1.0 $0.6 4% $0.8 3% $0.5 3% $0.6 $0.4 1% $0.3 2% $0.7 $0.6 $0.2 $0.1 $0.5 $0.3 1% $0.0 $0.1 0% 2016E 2017E 2018E 2019E 2020E baricitinib ixekizumab baricitinib+ixekizumab as % of Total LLY Sales Tailwinds to Estimates Baricitinib: Continued expansion of oral agents with improved sentiment around Xeljanz (PFE) Baricitinib: Emergence of strong phase 3 profile, particularly on structural progression and safety Ixekizumab: Emergence of competitive phase 3 profile, particularly vs. Enbrel Ixekizumab & baricitinib: Strong execution postlaunch Headwinds to Estimates Major issue for both agents is increased competitiveness in both respective categories, and continued poor uptake of Xeljanz (PFE) particularly for baricitinib LLY owns sole economics on ixekizumab, and pays a significant royalty (20%+) on baricitinib sales to INCY Baricitinib: JAK inhibitor (phase 3: rheumatoid arthritis; phase 2: psoriasis) Ixekizumab: Anti IL-17 agent (phase 3: psoriasis) 47

48 MRK s Autoimmune Franchise Slowest Growing in US Pharma Due to (Likely) Declining Ex-US Remicade Sales MRK MRK Autoimmune Sales and % of Total MRK Sales Tailwinds to Estimates (Sales in $ Billion) $ CAGR: 3% % of Total MRK Sales 7.5% Remicade: Lower uptake of Remsima (biosimilar) in EU than currently expected, along with higher entry price point for biosimilar $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $ % 6.9% 6.8% 6.6% 7.0% 6.5% 6.5% 6.5% 6.5% 6.0% 6.1% 6.0% 6.0% $0.3 $0.1 $0.3 $0.4 $0.6 $0.1 $0.7 $0.7 $0.5 $ % $1.0 $0.3 $1.0 $1.1 $ % $ % $2.6 $2.7 $2.1 $2.2 $2.2 $2.0 $ % $1.7 $1.5 $1.4 $ % 3.0% 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Remicade Simponi MK-3222 Total Autoimmune Sales as % of MRK Sales Simponi: Continued migration to and utilization of subcutaneous formulation is key; GI indication another source of growth MK-3222: Near term phase 2 efficacy data could lift estimates if comparable (or even directionally better) than JNJ s Stelara Headwinds to Estimates Remicade a key point of risk; Street at present expecting modest erosion post launch of EU biosimilar; however, could be potentially worse MRK owns marketing rights to Remicade and Simponi in EU, Russia and Turkey, and shares profits from sales generated in those territories with JNJ Simponi: Growth expectations are notable (17% CAGR ) - slowdown on competitive or execution issues could hurt estimates Remicade: Anti-TNF (major indications include Crohn s disease, ulcerative colitis, RA, psoriasis) Simponi: Anti TNF (major indications include ulcerative colitis and RA) MK-3222: Anti IL-23 (phase 3 program focused on psoriasis) MK-3222: Significant competition expected in psoriasis; MK-3222 profile could have difficulty differentiating itself 48

49 Ex-US Enbrel Opportunity to Continue to Be the Cornerstone of PFE Autoimmune Portfolio PFE (Sales in $ Billion) $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 PFE Autoimmune Sales and % of Total PFE Sales 5% $3.3 5% 7% 7% $0.0 $ CAGR: 4% 8% $0.4 9% 9% 9% 9% % of Total PFE Sales 9% 9% 10% $0.5 $0.7 $1.0 $1.3 $1.5 $1.6 $3.7 $3.7 $3.7 $3.7 $3.7 $3.7 $3.6 $3.5 $3.5 $ A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Enbrel Xeljanz baricitinib+ixekizumab as % of Total PFE Sales PFE owns exclusive rights to Enbrel outside of the US and Canada, and owns worldwide rights to Xeljanz sales (except in Japan where it shares economics with Takeda) 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Tailwinds to Estimates Enbrel: We project flat to declining sales (ex-us) on new agent entry and potential biosimilar risk - however, lower competitive intensity or delay in biosimilar development could improve estimates Xeljanz: Long-term estimates could climb with additional of structural progression claim to the label, increased physician experience and strong profile from P3 studies in psoriasis Headwinds to Estimates Enbrel: Major risk continues to be potential entry of a biosimilar while there are no credible late stage prospects at present, this is certainly an area of keen interest (2015 LOE, EU and Japan) Xeljanz: Uneven physician experience combined with delay in getting additional key claims added to the label could hurt physician trial of the drug, and ultimately its long-term prospects Enbrel: Anti-TNF (major indications include RA and plaque psoriasis) Xeljanz: JAK inhibitor (major approved indications include RA, with future indications potentially being plaque psoriasis and ulcerative colitis) 49

50 Companies Mentioned (Price as of 22-Oct-2013) AbbVie Inc. (ABBV.N, $49.0, OUTPERFORM[V], TP $54.0) Amgen Inc. (AMGN.OQ, $116.2) Astellas Pharma (4503.T, 5,180) Bristol Myers Squibb Co. (BMY.N, $49.73, OUTPERFORM, TP $55.0) Celgene Corp. (CELG.OQ, $160.92) Chugai Pharmaceutical (4519.T, 2,188) Eli Lilly & Co. (LLY.N, $50.15, NEUTRAL, TP $52.0) Galapagos (GLPG.BR, 15.17) Incyte (INCY.OQ, $38.51) Johnson & Johnson (JNJ.N, $92.36) Merck & Co., Inc. (MRK.N, $46.47, NEUTRAL, TP $49.0) Novartis (NVS.N, $77.76) Pfizer (PFE.N, $30.68, OUTPERFORM, TP $34.0) Regeneron Pharmaceutical (REGN.OQ, $304.49) Roche (ROG.VX, SFr246.3) UCB (UCB.BR, 46.81) Vertex Pharmaceuticals Inc. (VRTX.OQ, $77.62) Important Global Disclosures Disclosure Appendix I, Vamil Divan, MD, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for AbbVie Inc. (ABBV.N) ABBV.N Closing Price Target Price Date (US$) (US$) Rating 07-Feb N * 22-May NR 08-Oct O * * Asterisk signifies initiation or assumption of coverage. 3-Year Price and Rating History for Eli Lilly & Co. (LLY.N) LLY.N Closing Price Target Price Date (US$) (US$) Rating 29-Nov N 31-Jan Sep Nov Jul Aug O 30-Sep Oct Nov Nov Jan Feb Feb Oct N * * Asterisk signifies initiation or assumption of coverage. N EU T RA L O U T PERFO RM 3-Year Price and Rating History for Merck & Co., Inc. (MRK.N) MRK.N Closing Price Target Price Date (US$) (US$) Rating 29-Nov O 13-Jan Jun Jul Aug Sep Nov Dec Feb Oct N * * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM N EU T RA L 3-Year Price and Rating History for Pfizer (PFE.N) N EU T RA L N O T RA T ED O U T PERFO RM 3-Year Price and Rating History for Bristol Myers Squibb Co. (BMY.N) BMY.N Closing Price Target Price Date (US$) (US$) Rating 31-Jan N 28-Mar Jun Aug Sep May Jun Jul R 10-Aug N 11-Sep Jan May NR 08-Oct O * * Asterisk signifies initiation or assumption of coverage. N EU T RA L REST RI C T ED N O T RA T ED O U T PERFO RM PFE.N Closing Price Target Price Date (US$) (US$) Rating 07-Feb O 08-Apr Jan Jun R 07-Feb N 22-May NR 08-Oct O * * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM REST RI C T ED N EU T RA L N O T RA T ED The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms re presenting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms repr esenting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For La tin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a st ock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the % and % levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock s total return relative to the average total return of the relevant country or regional benchmark. 50

51 Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 42% (55% banking clients) Neutral/Hold* 40% (49% banking clients) Underperform/Sell* 15% (39% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors. Credit Suisse s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for AbbVie Inc. (ABBV.N) Method: Our TP of $54 for ABBV (implies 16.9 times our 2014 EPS estimate) is based on 75/25 blend of DCF value ($54) and forward P/E ($52). We apply 7.5% WACC and perpetuity growth forecast of -1% for DCF valuation and 16.5 times 2014 EPS of $3.18 for P/E valuation. Risk: Unexpected sales slowdown for Humira; unexpected issues with Phase 2/3 pipeline studies, particularly in HCV; increasing threat of biosimilar competition to Humira. Our TP is $54. Price Target: (12 months) for Bristol Myers Squibb Co. (BMY.N) Method: Our TP of $55 for BMY (implies 27.0 times our 2014 EPS estimate) is based on 75/25 blend of DCF value ($56) and forward P/E ($55). We apply 7.5% WACC and perpetuity growth forecast of 1% for DCF valuation and 27.0 times 2014 EPS of $2.02 for P/E valuation. Risk: Central to our call is positive evolution of immuno-oncology portfolio any disruption there or greater than expected competitive threat (e.g., MRK, ROG) could dampen our BMY estimates. Our TP is $55. Price Target: (12 months) for Eli Lilly & Co. (LLY.N) Method: Our TP of $52 for LLY (implies 19.3 times our 2014 EPS estimate) is based on 75/25 blend of DCF value ($54) and forward P/E ($46). We apply 8.0% WACC and perpetuity growth forecast of -1% for DCF valuation and 17.0 times 2014 EPS of $2.71 for P/E valuation. Risk: Greater than expected failures from the pipeline is most notable risk; near-term, management commentary on 2014 guidance could introduce modest short-term weakness. Our TP is $52. Price Target: (12 months) for Pfizer (PFE.N) Method: Our TP of $34 for PFE (implies 14.4 times our 2014 EPS estimate) is based on 75/25 blend of DCF value ($35) and forward P/E ($31). We apply 7.5% WACC and perpetuity growth forecast of -1% for DCF valuation and 13.0 times 2014 EPS of $2.35 for P/E valuation. Risk: Key risks to our target price include lower-than-expected revenues; unanticipated pipeline setbacks; worse-than-expected operating margin. Our TP is $34. Price Target: (12 months) for Merck & Co., Inc. (MRK.N) Method: Our TP of $49 for MRK (implies 13.7 times our 2014 EPS estimate) is based on 75/25 blend of DCF value ($49) and forward P/E ($48). We apply 7.5% WACC and perpetuity growth forecast of -1% for DCF valuation and 13.5 times 2014 EPS of $3.56 for P/E valuation. Risk: Acceleration of growth from DPP-4 franchise, strong pipeline data from lambrolizumab and/or more aggressive stance on expense reduction/restructuring are primary risks to our $49 target price for MRK. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (BMY.N, LLY.N, PFE.N, MRK.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (BMY.N, LLY.N, PFE.N, MRK.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (BMY.N, LLY.N, PFE.N, MRK.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (PFE.N, MRK.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (BMY.N, LLY.N, PFE.N, MRK.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ABBV.N, BMY.N, LLY.N, PFE.N, MRK.N) within the next 3 months. 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