Global Generic Trends and More. For IGPA 11/20/14 By Doug Long VP Industry Relations IMS Health

Transcription

1 Global Generic Trends and More For IGPA 11/20/14 By Doug Long VP Industry Relations IMS Health

2 Agenda Major trends and Global Medicines Spend Specialty medicines Generic medicines and purchasing alliances Conclusions

3 Global spending growth will peak in 2014 at 7%, 4-7% CAGR through 2018 SPENDING US$BN GROWTH CONST US$% Global spending and growth, CAGR, 4-7% 1,400 14% 1,200 12% 1,000 10% 800 8% 600 6% 400 4% 200 2% Forecast 0% Sales Growth Source: IMS Health Market Prognosis, September 2014 The Global Use of Medicines: Outlook through Report by the IMS Institute for Healthcare Informatics

4 The global pharmaceutical market is expected to grow to nearly $1.3 trillion by 2018 Global spending and growth, $ Bn $194Bn $989Bn $1,280-1,310 Bn $795Bn Source: IMS Health Market Prognosis, September 2014 The Global Use of Medicines: Outlook through Report by the IMS Institute for Healthcare Informatics

5 SALES US$BN Developed markets recovery (pre rebates/discounts) lead by US, UK and Canada in the next five years Pharmerging sees deceleration across all major countries except Turkey 1,400 14% Developed Markets CAGR Pharmerging Markets CAGR ,200 1, % 10% 8% 6% 4% 2% % GROWTH (CONST US$) US 5-8% Japan 1-4% Germany 2-5% France (-2)-1% Italy 2-5% Canada 3-6% Spain (-1) 2% UK* 4-7% Tier 1 (China) 9-12% Tier % Brazil 9-12% Russia 7-10% India 9-12% Tier 3 6-9% Pharmerging 8-11% (f) 2015 (f) 2016 (f) 2017 (f) 2018 (f) 0% Developed 3-6% At par with region CAGR Pharmerging US EU5 Global growth Lower than region CAGR Source: IMS Health Market Prognosis, Sep 2014, at ex-manufacturer price levels, not including rebates and discounts. *UK growth is pre-pprs Higher than region CAGR Contains Audited + Unaudited data. All CAGR calculations are 5 years

6 Forecasted Growth, CAGR ( ) China remains the largest and fastest growing pharmerging market, at list price Major deceleration across almost all pharmerging; only Thailand and Turkey will see real improved growth* : Pharmerging Markets Growth Dynamics 20 Newly defined ph countries Tier 3 Countries 15 Venezuela Saudi Arabia Algeria Egypt Pakistan Tier 1&2 Countries Yr CAGR % Turkey Thailand Mexico Poland Indonesia Russian Federation Ukraine Colombia South Africa Romania Nigeria Yr CAGR 13.5% India Brazil Argentina China Vietnam Venezuela and Argentina adapted for their hyperinflation and currency devaluations Historic Growth ( ) Source: IMS Health Market Prognosis, Sep 2014, at ex-manufacturer price levels, not including rebates and discounts. Contains Audited + Unaudited data. Bubble Size indicates 2013 LC$ Sales. All CAGR calculations are 5 years, *Venezuela excluded from perspective due to volatility

7 Pharmerging will account for 55% of all the pharmaceutical market s value growth to 2018 Share of Regional Contribution to Growth (%) And the US still account for a quarter of growth Region Contribution to Global Growth % 7% 12% 12% 14% 16% 25% 27% 1% 1% 6% 0% 2% 5% 8% 6% 1% 2% 24% 24% 55% of all value growth 31% of all value United States Canada EU5 Rest of Europe* Japan S. Korea Pharmerging Tier 1 (China) Pharmerging Tier 2 Pharmerging Tier 3 Rest of World Pharmerging Tier 2 8% Pharmerging Tier 1 (China) 14% 2018 Region Market Share Pharmerging Tier 3 9% S. Korea 1% Japan 8% Rest of World 6% Rest of Europe* 5% EU5 14% United States 32% Canada 2% *Rest of Europe excludes Russia, Turkey, Poland, Romania, Ukraine, which are included in Pharmerging Source: IMS Market Prognosis, March 2014, at ex-manufacturer price levels, not including rebates and discounts. Contains Audited+Unaudited data. Growth and 2018 Market share based on LCUS$

8 Growth is a mix of volume and pack price growth Elements of Market Growth Total, Rx Pharmaceutical Market (MAT MAT ) Priced at ex-mnf level before rebates and discounts US DE ES FR IT UK JP KR BR MX CN Value (lc$) Unit/Pack Avg. pack price Positive Growth No growth Negative Growth SOURCE: IMS HEALTH MIDAS YEAR MAT

9 Pharmaceutical market trending remains relatively unchanged 1 Mature markets show low growth, continuing cost containment 2 Europe still under pressure with hospital debt and further austerity measures 3 Pharmerging markets exhibiting higher growth but with key market variations due to GDP growth challenges 4 Consolidation within the industry continues but strategy and acquisition candidate profiles changing 5 Still an increasingly generic world 6 Biologics growth continues apace with payers embracing biosimilars ideology

10 Impact of the crisis: in half OECD-European countries, health spending was lower in 2012 than in 2009 Change in real total Health spending between 2009 and 2012(%) 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% -30.0% Note: (1) current spending; (2) change between 2009 and 2011 Source: OECD Health data 2014

11 Increased health spending will be a major pressure on public budgets across all OECD countries % GDP 12% Average public spending Increase of public spending Increase of public spending % 8% 6% 4% 2% 0% Source: OECD Economic Policy Paper n 06, 2013

12 Several drivers & constraints are forcing markets to re-examine current HC policies, leading to reforms Key factors shaping healthcare and payer reforms Demographic/ Epidemiological Population Life-expectancy Funding Economic environment leading to financial constraints Disease burden Reforms Socio-economic Literacy and awareness Affordability and willingness to pay Uncertain picture Infrastructure Shortage of healthcare professionals Sub-optimal healthcare infrastructure

13 Ageing is associated with increasing health costs Demographic Development * System Impact: Severity, length and increased incidence % mn 17% 65+ Years +75 % 152mn 20% 24% 27% 29% 30% 67% 64% 62% 59% 57% 56% 16% 16% 15% 14% 14% 14% Years Years Years 2060 Increase in severity of Degenerative Diseases Extended impact of Chronic Diseases Increased incidence of Cancer mn people +136% years mn cases % +16% Late-stage Alzheimer s Disease Life expectancy after T2 diabetes diagnosis New Cancer Incidences Source: * European Commission (2012); Hopkins University (2007); UK Dept. of Health (2010), European Commission; WHO (2013)

14 But ageing is not the key driver of health spending growth Drivers of healthcare expenditure growth between 1995 and 2009 in OECD countries Healthcare expenditure growth (100%) Demography (12%) Income (42%) Residual (46%) Age structure Relative prices Health by age Technology Institutions and policies Source: OECD Economic Policy Paper n 06, 2013

15 The target areas for expenditure control are well known among Finance Ministries Self-reported priorities for expenditure control, 22 OECD countries Hospital expenditure Pharmaceutical costs Long term care spending Spending on prevention programs Primary health care services Outpatient care spending Number of countries Source: OECD Survey on Budget Practices and Procedures, 2013

16 The crisis has been used to slow growth in desirable areas, but has fallen short on prevention Average annual growth rates of spending for selected functions, OECD average, in real terms 8% 2007/ / / /11 7% 6% 5% 4.8% 4.8% 4.6% 6.2% 5.9% 5.3% 6.9% 6.4% 4% 3% 3.2% 2.9% 2.8% 2.5% 3.5% 2% 1% 1.0% 0.7% 0.9% 1.7% 1.6% 0.2% 1.7% 0% -1% -2% -1.5% -1.7% -1.7% -0.9% -3% Inpatient care Outpatient care Long-term care Pharmaceuticals Prevention Administration Source: OECD Health Statistics 2013

17 Generics are a Solution! Generics saved the US $239 billion in % increase over 2012 $1.5 Trillion in savings from

18 IMS Harbingers of Change in Healthcare Consumer Technology Companies are rushing to healthcare to transform patient engagement Governments are Unshackling Data to aid research and spark medical innovation US Clinicians are being encouraged to consider costs in clinical treatment decisions China has loosened the price caps of 530 low cost essential drugs Medicine spending growth is returning to developed countries Trans-Atlantic supply chain A wave of innovation in Hepatitis C drug development New breakthrough vaccines foreshadows a new era of improved public health The growing use of biologics is bringing new treatment options US Payment and delivery system changes are shifting the focus to outcomes and performance

19 Agenda Major trends and Global Medicines Spend Specialty medicines Generic medicines and purchasing alliances Conclusions

20 Sales, US$ billions Growth, LCUS$ Growth of Specialty outpaces the total market 250 Global market trends Sales and Growth 12% Specialty Share of sales 9.5% 41.1% % 18.8% 150 8% 6% 17.5% 13.0% 100 4% Japan Pharmerging ROW EU5 US 50 2% Specialty Share of growth 2.3% % 60.3% 24.4% Specialty sales Total Pharma growth SOURCE: IMS HEALTH MIDAS MAT Specialty Growth 4.2% 8.8%

21 Value market share Specialty products are outperforming traditional ones Specialty versus traditional medicine market value dynamics (2013 value market share vs. 10 year value growth (2005- MAT ) 10 yr value CAGR % Traditional Specialty 100% 0% 10% 4% 13% 1% 8% -1% 6% 2% 9% 1% 14% 2% 6% 7% 13% 14% 15% 3% 7% 21% 21% 80% 60% 40% 20% 0% US GER SPA FRA ITA UK JP KR BR (R) MX (R) CN Traditional Specialty Retail Hospital Retail Hospital SOURCE: IMS HEALTH MIDAS YEAR 2013, Only retail data is available for NL, NL Growth rate = CAGR MAT , PT growth rate = CAGR MAT

22 Value market share There is longer term shift to hospital Evolution of hospital share of Rx Pharmaceutical Value Sales (2014 value market share vs. 10 year value growth ( ) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 5% 5% 9% 4% 11% 11% 2% 9% 36% 12% 21% 5% 5% 2% 2% -1% 0% 4% 9% 14% 4% N/A US GER SPA FRA ITA UK JP KR BR MX CN Hospital Retail % represents 10 year growth rate ( ) Many European countries distribute products through the hospital channel due to: Medical need, controlling prescribing, avoiding wholesaler & pharmacy margins and the ability to negotiate discounts Source: IMS Health, at ex-manufacturer price levels, not including discounts and rebates, MAT June 2014

23 IMS Health definition of Specialty Products Medicines that treat specific, complex chronic diseases with the min 4 of the 7 following attributes: Initiated only by a specialist High expense Requires reimbursement assistance Generally not oral Warrants intensive patient counseling Require special handling Unique distribution Few prescribers/ centers Low inventory important Processing of pre-approval essential and competitive skill Requires patient training to administer Support to achieve adherence needed Cold chain when needed No need for supplying all pharmacies through all warehouses

24 Top 10 Specialty Therapeutic Areas globally Top specialty TAs by value MAT CAGR ONCOLOGICS AUTOIMMUNE DISEASES HIV ANTIVIRALS MULTIPLE SCLEROSIS VIRAL HEPATITIS GROWTH FACTORS ERYTHROPOIETINS IMMUNOSUPPRENETS BLOOD COAGULATION OCULAR ANTINEOVASCULARISATION 11% 16% 11% 14% 15% 6% -4% 6% 8% 29% US$ Billions

25 Oncology is largest area of spend by 2014 in developed markets and of growing importance in Pharmerging Spending by Therapy area, 2014 Developed Markets Oncologics Antibacterials Pain Mental Health Respiratory Agents Autoimmune Disease Antihypertensives, Plain and Combo Lipid Regulators HIV Antivirals Anticoagulants Antibacterials Anti-Ulcerants Pharmerging Markets Antibacterials Kampo + Chinese Antyhypertensives, Plain and Combo Pain Antidiabetics Oncologics Other Cardiovascular Hospital Solutions Anti-Ulcerants Other CNS GI Products Mental Health US$ Billions Source: IMS Health Thought Leadership, MAT Traditional Specialty US$ Billions

26 2020 for oncology forecast is $120 billion 50% in USA and Japan Oncology Global Split 2003: $20bn 2013: $69bn 2020: $ bn 14% 11% 15% 3% 10% 44% 39% 10% 16% 34% 14% 28% 25% 12% 23% US EU5 ROW Pharmerging Japan Source: IMS Health, MIDAS, MAT Dec Oncology (L1&L2&V3C&Revlimid&Xgeva&Proleukin&Pomalyst),Rx bound

27 Europe and US illustrate growing importance of specialty therapies For generics, LoEs have shifted the focus from small molecules to biologics Europe Top 10 products * 1 LIPITOR HUMIRA HUMIRA HUMIRA HUMIRA 2 SERETIDE SERETIDE SERETIDE ENBREL MABTHERA 3 HUMIRA LIPITOR ENBREL SERETIDE ENBREL 4 ENBREL ENBREL HERCEPTIN HERCEPTIN HERCEPTIN 5 HERCEPTIN HERCEPTIN LOVENOX REMICADE SERETIDE 6 AVASTIN LOVENOX MABTHERA AVASTIN REMICADE 7 LOVENOX REMICADE REMICADE MABTHERA AVASTIN 8 ZYPREXA MABTHERA AVASTIN LOVENOX LOVENOX 9 MABTHERA AVASTIN SPIRIVA LUCENTIS LYRICA 10 REMICADE SPIRIVA LYRICA LYRICA LUCENTIS US Top 10 products * 1 LIPITOR LIPITOR NEXIUM ABILIFY SOVALDI 2 NEXIUM PLAVIX ABILIFY NEXIUM ABILIFY 3 PLAVIX NEXIUM SERETIDE LANTUS LANTUS 4 SEROQUEL SEROQUEL CRESTOR SERETIDE HUMIRA 5 SERETIDE ABILIFY CYMBALTA HUMIRA NEXIUM 6 ABILIFY SERETIDE HUMIRA CRESTOR CRESTOR 7 SINGULAIR SINGULAIR LANTUS CYMBALTA SERETIDE 8 CRESTOR CRESTOR ENBREL ENBREL ENBREL 9 ACTOS CYMBALTA REMICADE REMICADE REMICADE 10 ENBREL ENBREL COPAXONE COPAXONE NEULASTA Small molecule Specialty Source: IMS Health, MIDAS, MAT Jun Europe doesn t include Turkey and Russia; 2014= Q1 and Q2 2014

28 Top products vary in Developed and Pharmerging markets Top products 2014 KR JP BR MX CN 1 BARACLUDE PLAVIX HERCEPTIN HERCEPTIN XUE SHUAN TONG 2 LIPITOR BLOPRESS HUMIRA CELEBREX SHEN JIE 3 HERCEPTIN CRESTOR SILDENAFILA HUMIRA SODIUM CHLORIDE 4 CRESTOR AVASTIN TORSILAX CIALIS ADEGOLD 5 PREVNAR BENICAR LOVENOX AVASTIN PLAVIX 6 TWYNSTA REMICADE 7 EXFORGE SECTOR 8 PROGRAF JANUVIA POLIO VACINE PNEUMOC VACINE LOSARTAN HYPM LYRICA DOLO NEUROBION NEXIUM BEI TONG SOD CHLORIDE KELU SHU XUE NING 9 GLIVEC DIOVAN CIALIS SERETIDE LIPITOR 10 CELEBREX ARICEPT LANTUS LANTUS DANSHEN DUOFENSUA N Small molecule Specialty Source: IMS Health, MIDAS, MAT Jun 2014

29 New Hepatitis C treatments breaking the bank Sovaldi now the #1 drug in US Sovaldi from Gilead Cures 90% of the patients Launched in November in US for $84,000/ full cycle Price justified versus life time cost for treatment If full used, it would have significant impact on drug spend The US congress held a hearing and condemned the pricing

30 The number of new molecular entities launched in 2013 is the highest in the last 10 years New molecular entities launched in the U.S New mechanism Orphan Existing mechanism Source: IMS Institute for Healthcare Informatics, Feb 2014

31 In a specialist world, more innovation is from smaller corporations Big pharma continues to take the lead on commercialisation FDA new drugs approval: development focus by origin of patent 100% 90% 80% 70% 29% 30% 100% 90% 80% 70% Source of innovation by corporation type (patent originator) 11% 14% 10% 3% 60% 50% 60% 50% 39% 57% 40% 30% 20% 71% 70% 40% 30% 20% 14% 17% 10% 0% 2003 Fully developed in house 2013 Acquired Source: FDA Website. IMS Analysis based on best possible disclosed information. Large pharma defined as Top11-25 corps with revenues >$5bn; Medium corps $500mn+; Small corps less than $500mn; Others include university, hospitals and other companies. 10% 0% 21% 2003 Large pharma Top 10 13% 2013 Small corps Medium corps Others

32 A number of big value biologics are set to lose patent protection in the next few years All these products will lose patent protection by 2020, except Enbrel (US patent extended until 2028) Global Sales (MAT 06/2014), US$ billion EU expiry date US expiry date ADALIMUMAB (Humira) INSULIN GLARGINE (Lantus) ETANERCEPT (Enbrel) INFLIXIMAB (Remicade) RITUXIMAB (Mabthera) BEVACIZUMAB (Avastin) INTERFERON BETA-1A (Avonex, Rebif) TRASTUZUMAB (Herceptin) GLATIRAMER ACETATE (Copaxone) PEGFILGRASTIM (Neulasta) RANIBIZUMAB (Lucentis) INSULIN ASPART (Novomix, Novorapid) Total ~ US$ 78 billion - 5,000 10,000 Japan Pharmerging ROW Top 5 Europe US US$ Millions (extended) 2013/ Expired Expired Expired Not considered existing biosimilars such as Epoetin Alfa expired in EU, but still patent protected in the US Source: IMS MIDAS, 06/2014, IMS Patent focus

33 Despite biosimilars gradually emerging ROW Market trends Remsima (Infliximab Biosimilar) launched in Korea Teva announce launch of GRANIX in USA Sandoz Omnitrope to be sole subsidised somatropin from Jan 2015 in NZ Regulatory FDA approved Tbo-filgrastim but filed in the U.S. as BLA 2 nd GSF approved in Japan Herzuma (Trastuzumab bs) approved in Korea Mar Jun Jul Nov 2014 Europe Market trends Italy, largest Biosimilars market in EU* Biosimilar G-CSF (Zarzio) prescribed more than originator Regulatory N of Biosimilar applications (EMA) all-time high (8) Inflectra# (Infliximab Biosimilar) approved EU Lilly & BI submission for insulin glargine biosimilar Follitropin alfa biosimilar approved Source: Secondary research. List not exhaustive. (*) at ex-manufacturer price levels, not including rebates and discounts. (#) Recommended for RA (Rheumatoid arthritis), CD (Crohn s disease), UC (Ulcerative colitis), AS (Ankylosing spondylitis), PA (Psoriasis), PsA (Psoriatic arthritis)

34 % Uptake, SU In Europe, biosimilar uptake exhibits different paces A few countries have reached or approached the maturity stage 80% 70% 60% 50% 40% 30% 20% 10% Biosimilar uptake across Europe MAT 03/ /2013 (Volumes, SU) Fast uptake at launch, now mature Consistent uptake Slow uptake, cultural resistance Fast growing due to faster growing market trend Payers incentivized Biosimilars Total 10 countries 425M MAT 12/2013 0% -10% Mar-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Source: IMS MIDAS, MAT Sep 2013 AUSTRIA BELGIUM FRANCE GERMANY HUNGARY ITALY ROMANIA SPAIN SWEDEN UK

35 The global playing field continues to expand with players finding niches Players differ not only in geographical spread but also a wider biologic portfolio International Reach # Pharmerging markets only Emerging markets players Serving 2+ countries Government backed players Domestic players Serving domestic market only* Source: IMS Health, MIDAS, MAT Dec (*) restricted to MIDAS sales data and recombinant and synthesised prods only. 2013, IMS HEALTH

36 Fastest growing corporations are focused on specialty Top Globally Top Specialty Top Generics Rank Corp US$bn 2014 CAGR Rank Corp US$bn 2014 CAGR Rank Corp US$bn 2014 CAGR NOVARTIS % 1 ROCHE % 1 TEVA % 2 PFIZER % 3 SANOFI % 4 MERCK & CO % 5 ROCHE % 6 ASTRAZENECA 31,4 3% 7 GSK % 2 AMGEN % 3 NOVARTIS % 4 5 JOHNSON & JOHNSON GILEAD SCIENCES % % 6 ABBVIE % 7 PFIZER 8.4 6% 2 NOVARTIS % 3 MYLAN 9.9 1% 4 ACTAVIS 8.2 1% 5 SANOFI 5.0 7% 6 PFIZER 3.3-1% 7 APOTEX 2.5 3% 8 JOHNSON & JOHNSON % 8 BRISTOL- MYERS SQB % 8 PAR PHARM 2.2 7% 9 TEVA % 9 TEVA % 9 EMS 2.1 5% 10 LILLY % 10 MERCK & CO 6.5 8% 10 STADA 2.1 8%

37 Recent large M&A activity is high though even by historic levels Buyer Target Announced Close Type Value Stated Intent Rejected Apr 14 - Takeover $116B Oncology pipeline, UK move could taxes Apr 14 - Takeover $49B Become top 5 pharma by 2016 Feb 14 Mid 2014 Acquisition $25B Become fastest growing specialty pharma company Apr 14 H Swap $14.5B Apr 14 H Swap $7.1B Novartis establish global Oncology leadership position GSK Increase scale and quality in Flu Vaccines Apr 14 H JV $10.0B Add scale, reduce costs Apr 14 Q Swap $5.4B Lilly consolidating in Animal Health Apr 14 - Acquisition $4.0B Complimentary platform in growth markets Apr 14 - Divestiture $7.0B Looking to sell mature drugs portfolio May 14 H Acquisition $14.2B Consolidate Global Leadership in OTC

38 Agenda Major trends and Global Medicines Spend Specialty medicines Generic medicines and purchasing alliances Conclusions

39 The US and Pharmerging markets generate most of generic value sales; volume growth is declining US$ Billions SU Billions Global Generic Rx market, Value, US$ at ex-mnf price before rebates and discounts Global Generic Rx market, Volume, SU % 1,000 20% % % % % % % % % % % 80 8% 400 8% 60 6% 300 6% 40 4% 200 4% 20 2% 100 2% - 0% - 0% Japan ROW US Generics Growth Pharmerging Top 5 Europe Pharma Growth Japan ROW US Generics Growth Pharmerging Top 5 Europe Pharma Growth SOURCE: IMS HEALTH MIDAS Q2 2014

40 Generics are taking an increased share in all markets REGIONAL GENERIC VOLUME MARKET SHARE (SU) 2004 VS. 2013, RX. RETAIL MARKET Canada: 56% 61% Europe : 41% 56% USA: 52% 78% Asia/Australasia : 34% 45% Africa/Middle East: 46% 58% LATAM : 46% 58%

41 Value Sales, LC$bn Protected sales will decline in the Mature Eight to 2016 Mature Eight Value Sales of Protected Brands, Mature eight Protected brands CAGR 0.6% Protected brands CAGR (-2)-1% Forecasted numbers Source: IMS Health Market Prognosis, March 2014, Audited data only

42 Based on constant dollar forecasts, protected brands growth will slow and share decline Top 8 Mature Generics to dominate growth 2009: 539 Bn 2013: 588 Bn 2018: Bn 12% 12% 12% 17% 12% 24% 15% 16% 18% 60% 55% 46% Generics Protected (Non-generic) Unprotected (Non-generic) Other 5 Yr CAGR Region Top 8 Mature 3% 2-5% Protected (Non-Generic) 1% (-2) 1% Generics 11% 9 12% Unprotected (Non-Generic) 5% 4 7% Source: IMS Health Market Prognosis, March 2014 (*) at ex-manufacturer price levels, not including rebates and discounts. Audited data only. Market size represented in constant US$. All CAGR calculations are 5 years

43 Generics will represent a larger share of the market in volume and value terms Global spending, 2012 and Developed 72% 16% 12% $622Bn 67% 21% 12% $ Bn Pharmerging 31% 58% 11% $224Bn 26% 63% 11% $ Bn Rest of the world 57% 27% 16% $120Bn 52% 31% 17% $ Bn World 61% 27% 12% $965Bn 52% 36% 12% $1,170-1,200Bn Brand Generic Other Source: IMS Health Thought Leadership, September 2013

44 Generics will represent 20% of spending in most developed markets, volume shares considerably higher Source: IMS Market Prognosis, Sep 2013 Developed Markets Generic Share Canada France 24.1% 17.9% 23-25% 24-26% 2012 Generic Share 2017 Share Increase 2017 Generic Share Germany 16.9% 18-20% Italy 13.3% 5.9% 7-9% 16-18% Japan 30.6% 30-32% S Korea 15.4% 19-21% Spain 24.6% 26-28% UK 17.1% 22-24% US

45 INDEX Price decreases in traditional areas are off-set by volume increases Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Evolution of therapy volume, price of treatment and overall treatment cost in 7 therapy areas, Rx retail market from Q Q4 2013, Normalized to population growth VOLUME WEIGHTED PRICE/TD NUMBER OF TREATMENT DAYS/CAPITA COST OF TREATMENT INDEX SOURCE: IMS HEALTH MIDAS YEAR MAT SELECTED THERAPY AREAS ANGIOTENSIN II ANTAGNOISTS, ANTI-EPILEPTICS, ANTI- PSYCHOTICS, ANTI-ULCERANTS, CHOLESTEROL REGULATORS AND ORAL ANTI-DIABETICS. POPULATION STATISTICS: OECD

46 Low income countries seeing large increases in access to medicine Impact of generic entry on price, volume and total treatment cost in 7 therapy areas, Rx retail market from Q Q Country Price ( /TD) Volume (TD/cap) Treatment cost Denmark -75% 117% -47% UK -67% 122% -27% France -45% 33% -26% US -39% 35% -17% Italy -59% 105% -15% Spain -48% 95% 1% Ireland -48% 107% 7% Greece -30% 57% 10% Germany -57% 158% 11% Austria -43% 102% 15% Mexico -6% 84% 73% Brazil -3% 485% 467% Impact of price decline > volume increase Decline in overall treatment cost Impact of price decline equivalent to volume increase Stabilisation of overall treatment cost Increased access in underserved markets SOURCE: IMS HEALTH MIDAS YEAR MAT SELECTED THERAPY AREAS ANGIOTENSIN II ANTAGNOISTS, ANTI-EPILEPTICS, ANTI- PSYCHOTICS, ANTI-ULCERANTS, CHOLESTEROL REGULATORS AND ORAL ANTI-DIABETICS. POPULATION STATISTICS: OECD

47 Price/TD, Price per treatment day is highly variable Price per treatment day, based on DDD, Q4 13, European weighted SOURCE: IMS HEALTH MIDAS YEAR MAT SELECTED THERAPY AREAS ANGIOTENSIN II ANTAGNOISTS, ANTI-EPILEPTICS, ANTI- PSYCHOTICS, ANTI-ULCERANTS, CHOLESTEROL REGULATORS AND ORAL ANTI-DIABETICS. POPULATION STATISTICS: OECD

48 The level of generic penetration does not indicate that a market is generating cost savings 2013 OFF-PATENT EFFICIENCY FOR SMALL MOLECULE UNDER-GOING LOE BETWEEN GENERIC PENETRATION IN THE UN-PROTECTED RX RETAIL MARKET (2013) -30% 30% 40% 50% 60% 70% 80% 90% -40% -50% -60% -70% -80% GREECE FRANCE AUSTRIA ITALY SWITZERLAND BELGIUM NORWAY IRELAND FINLAND SPAIN PORTUGAL SWEDEN CANADA UK USA GERMANY UK and Canada have about the same generic penetration but UK saves ~30% more Finland and UK save about the same but Finland has 20% lower generic penetration -90% Major markets moving but remaining inefficiencies provide opportunities! SOURCE: IMS HEALTH MIDAS YEAR 2013

49 Product mix is a result of payer actions and manufacturer responses in a given market Volume market share Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Volume market share Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Volume dynamics (SU) of products in the Statin market 100% LIPOBAY (cerviastatin) 90% 80% 70% 60% 50% LESCOL (fluvastatin) Volume dynamics of products in the UK C10A1 market LIPITOR INTRODUCTION (atorvastatin) OF CATEGORY M PRAVACHOL (pravastatin) GENERIC PRAVASTATIN CRESTOR GENERIC ATORVASTATIN 100% 90% 80% 70% 60% 50% LIPOBAY (cerviastatin) LESCOL (fluvastatin) Volume dynamics of products in the Irish C10A1 market LIPITOR (atorvastatin) CRESTOR (rosuvastatin) GENERIC ROSUVASTATIN GENERIC ATORVASTATIN 40% 30% GENERIC SIMVASTATIN 40% 30% PRAVACHOL (pravastatin) 20% ZOCOR (simvastatin) 20% GENERIC PRAVASTATIN 10% 0% 10% 0% ZOCOR (simvastatin) GENERIC SIMVASTATIN SOURCE: IMS HEALTH MIDAS YEAR 2013

50 Who selects the manufacturer? All markets are potentially addressable the issue is business model and profitability Patient Prescriber Pharmacy /WHS Payer 1. Tender markets 1 2. Regulated price & dispensing choice 3. Market driven pricing & dispensing choice Regulated price & prescribing choice 5. Out of Pocket markets What is current addressable market? What changes are required to expand the addressable market? Who retains the margin wholesaler or pharmacy? What will happen with generic prices and industry over time? Tender Regulated Free pricing How are prices set? How will generic manufacturers play with a consolidating supply chain?

51 Price levels are linked to the generic model but with significant variations and agendas Generic Price index 40 molecules Dec % 200% Tender Market driven pricing & dispensing choice Regulated price & prescribing choice Regulated price & dispensing choice Out Of Pocket 150% 100% 50% 0%

52 Buyers are for the first time exercising leverage on the Global market RATIONALE FOR COMPANY MERGERS/CONSOLIDATION Walgreen s Alliance Boots - AmerisourceBergen...streamline the distribution of pharmaceuticals to Walgreens stores and leverage global supply chain efficiencies while improving patient access to affordable pharmaceuticals to increase the efficiency of the healthcare system. Source: AmerisourceBergen Press Release March 2013 McKesson Celesio RITE AID A Celesio acquisition will allow McKesson to buy as much as $10 billion a year in generic drugs for distribution, compared with $6 billion to $7 billion on its own Source: January 2014 CVS Cardinal Health This partnership will enable us to maintain our leadership role in navigating the dynamic U.S. generics market. With its combined volume and capabilities, the joint venture will develop innovative purchasing strategies with generic manufacturers and enhance supply chain efficiencies. Source: Cardinal health press release 1 84% of the US generic market consolidated to 4 buying consortia 15% of Europe added to the US consortia SOURCE: 1

53 What drives the ability to negotiate prices? In addition to the relative size of the buyer, there is a series of factors that determine the ability to negotiate down price Type of formulation Complexity Oral solids the easiest Injectables & inhalers the most difficult Time as generic Initial period hardest 2 10 years period highest opportunity >10 years more unpredictable Number of viable suppliers A high number (4+) essential for low prices

54 Price differences give different potential RELATIVE GENERIC PRICES AT EX-MNF PRICE BEFORE REBATES (100% = USA) Buyers from other markets may leverage price from the US markets 253%- ARGENTINA 234%- SWITZERLAND 202%-IRELAND 149%-FRANCE BRAZIL - 261% VENEZUELA - 242% MEXICO - 218% GREECE- 194% CANADA- 152% BELGIUM-142% AUSTRIA-126% 122% - ITALY GERMANY & SPAIN109% 95% - POLAND 89% - CZECH 70%-UK 56%-TURKEY 44%-NETHERLANDS USA-100% PORTUGAL-91% NORWAY-80% HUNGARY-65% SWEDEN-49% DENMARK-27% Buyers in US may leverage price from these markets SOURCE: IMS HEALTH MIDAS YEAR 2013

55 Target segment for international negotiations The top 200 U.S./European generic molecules accounting for 88% of total value U.S. only Both Europe only Pre % 14% 9% 7% 9% 4% 22% target market for negotiations (56%) Highest Potential 4% Highest Potential 1% 7% 1% % of sales for each category split by those products only present in the US, only present in Europe, present in both % of sales for age band of products versus 1 st US generics Source: IMS MIDAS 2013

56 Oral solid regular release products will be the easiest Regular release TABLETS target market (60%) US only Both Europe only Company value market share of the oral solid regular release target market Pre % 3% 2% 31% 29% 12% 7% 5% 1% 1% TEVA ACTAVIS MYLAN NOVARTIS STADA SANOFI SERVIER ENDO INTERNATIONAL LUPIN LABORATORIES DR REDDYS LAB OTHER -10% 10% 30% 50% Regular release tablets is ~ 61% (value) of the top 200 7% molecules The competion is fairly broad leading to strong buyer negotiation position Leading manufacturers have both a US and European presence Source: IMS MIDAS 2013

57 Injectables will be much more challenging Pre US only INJECTABLES Target market (21%) 6% 51% Both 14% 7% Europe only 18% 2% 1% 1% SANOFI ACTAVIS NOVARTIS MEDAC PFIZER SUN PHARMA DR REDDYS LAB Company value market share of the injectables target market APOTEX BAYER TEVA OTHER -10% 10% 30% 50% Injectables is ~ 4% (value) of the top 200 molecules 7% The difference in consumption profile is very significant The competion profile leads to weaker buyer negotiation position Leading manufacturers has both a US and European presence Source: IMS MIDAS 2013

58 Europe offers a set of access issues when it comes to securing generic volume TENDER MARKETS Tendering means that a supplier (for that payer group) is either in or out. This makes planning hard. Tender markets can have products with low competion. Tender market almost always also have non-tendered generic segments BRANDED GENERICS MARKET International contracts have limited impact in European branded generic models WHOLESALER REACH European wholesalers all have limitations of overall country reach. COMPETITION In most European markets, pharmacists are very open to entertain offers from short liners or direct from manufacturers

59 Tender markets have high price pressure and low volume stability PRICE EVOLUTION VOLUME PREDICTABILITY GENERIC SIMVASTATIN (leading form-strength) Volume Predictability Q MANUFACTURER WHOLESALER PHARMACY DE DK NL SE SOURCE: IMS HEALTH MIDAS YEAR Q (-) Market exit as prices become unsustainable (-) Without fixed fees for service loss of money (-) Inability to predict volumes (-)Increased handling & logistics costs (-) Time for explaining product switches to patients (-)Decrease remuneration if no fixed fee in place PHYSICIAN PATIENT PAYER 2 weeks IMPACT ON STAKEHOLDERS 1 monthh years Length of contract 2 years (-) Compliance problems (-) Time for explaining changes of products to patients (-) Patients who reject substitution must pay for alternatives (-) Patient uncertainty/compliant (+) Reduce/stabilise premiums (+) Cost savings

60 Avr Patient co-pay/cu Avr Patient co-pay/cu US FR NL UK BE DE ES PT SE AU CH NO IT FI IE HU CZ SK PL GR % uptake Branded Gx markets: dominance of local players, high levels of promotion for all mnf s and strong brand loyalty BRANDED GENERICS AS % OF GENERICS 100% 80% 60% 40% 20% 0% MANUFACTURER DYNAMICS (POLAND) Top 50 companies Segment Retail m/s Promotion* Originators 49.6% 33.8% Local generics 17.0% 18.2% Int. generics 24.0% 33.1% Other 3.9% 3.6% * Promotion to doctors and retail pharmacists SOURCE: IMS HEALTH MIDAS YEAR PATIENT BRAND LOYALTY (POLAND) 2.0 GENERIC ATORVASTATIN (leading form-strength) 2.0 GENERIC PANTOPRAZOLE (leading form-strength) % 5% 10% 15% 20% Volume market share % 0.0 0% 5% 10% 15% 20% Volume market share%

61 Growth from leading manufacturers is from acquisitions Size is increasing through acquisitions / strategic alliances Rank Generics sales 2013 (SU) MS 2008 MS 2013 MS change 2013/ TEVA 59.3bn 8% 6% -2 2 NOVARTIS 47.5bn 6% 5% -1 3 MYLAN 32.1bn 4% 3% -1 4 SANOFI 24.5bn 2% 2% 0 5 ACTAVIS 23.7bn 3% 2% -1 6 SUN / RNBX 19.6bn 2% 2% 0 7 LUPIN 12.8bn 1% 1% 0 8 DR REDDY S 9.1bn 1% 1% 0

62 Share Volume Sales (SU) Top Global and Indian generic corporations are heavily dependent on the US market Sanofi is an exception with strong presence in EMs gained through acquisitions Selected top Gx companies Volume sales breakdown 2013 Top 5 India 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TEVA NOVARTIS MYLAN ACTAVIS SANOFI DRL LUPIN SUN / RNBX US Canada Top 5 Europe ROW Pharmerging Japan Source: IMS Health, MIDAS, MAT Dec Market Segmentation + LIC countries. (market seg. not coded and protection not covered excluded)

63 Global generic market is more fragmented Top 5 molecules 2008 Sales Split, 81 bn SU Top 5 molecules 2013 Sales Split, 110 bn SU 13% TEVA 8% GSK TEVA 11% GSK 9% MERCK KGAA others 48% 6% BAYER others 6% MERCK KGAA 4% 2% 4% 3% MYLAN 3% CIPLA 2% MENARINI AMPHASTAR SANOFI NOVARTIS 53% 7% 6% MYLAN 2% 3% 4% NOVARTIS 2% 3% CIPLA 1% SANOFI MENARINI ABBOTT APOTEX Top molecules 2008: OMEPRAZOLE SIMVASTATIN FENTANYL AMOXICILLIN#CLAVULANIC ACID PANTOPRAZOLE Top molecules 2013: AMOXICILLIN#CLAVULANIC ACID, METHYLPHENIDATE, PANTOPRAZOLE, ATORVASTATIN, OMEPRAZOLE

64 The top 5 manufacturers 1. Heavily dependent on the US market 2. Represent < than 35% MS of Top 5 molecules by value sales, facing strong competition from a large number of smaller players 3. Several MNFs (Sanofi, Teva, Novartis) are increasingly focus on specialty 4. Top Global and Indian MNF s are often the first to market in the US (e.g. Lipitor/RNBX, Losartan/Teva) 5. Portfolio varies with each of them focusing on different molecules 6. Are losing MS to smaller players. Growth is generated through acquisitions /strategic alliances

65 Reasons for Generic Price Inflation Regulatory/Quality with the increased scrutiny from the FDA, manufacturers need to invest more into their quality systems and when a quality / supply issue arises due to 483s, it creates the opportunity to increase prices to recoup part of their investment Customer consolidation with the increased purchasing power of the customers, manufacturers need to make up value on products where they can Fewer new product launches generic manufacturers make money by launching new products, reducing CGS, M&A activity and raising prices; with fewer launches, it puts more pressure on the in-line product portfolio which again is a driver to increase prices Walgreens 67 November 18, 2014

66 Rewarding Innovation Society benefit Therapy lifecycle model over time Generics dominate in most areas of high volume chronic use Gene Therapy Stem Cells Direct Thrombin Inhibitors Autoimmune Diabetes Hormonal Contraception Pain Nervous Antifungals System Respiratory Hypertension Lipid Regulators Bacterials Oncology Delivering Innovation Note: Size of bubbles = 2012 European Medicines spend Addressing Unmet Needs Generic medicines dominate Time Source: A.T.Kearney analysis, IMS ATC analysis (2013)

67 Heparins Lipid Reg Nnervous System Dis Anti-ulcerants Mental Health Oncologics Respiratory Antibacterials Pain Antihypertensives Value $US (thousands Millions) Antihypertensives and pain therapies are the largest value GX therapy areas while antibacterials and lipid regulators the most penetrated 10,000 EU- Generic penetration rate by therapy area (overall leading 10 Therapy Area) Unprotected MK value segmentation 9,558 9,000 8,000 7,955 7,000 48% 6,000 5,000 4,898 5,014 5,445 20% 5,848 57% 4,000 3,000 2,000 1, ,761 4% 96% 3,058 63% 37% 3,215 37% 63% 3,890 61% 39% 50% 50% 51% 49% 80% 63% 37% 43% 52% Generics Non Generics Source: IMS Health, MIDAS, Market Segmentation, MAT Jun 2013, Rx only. It doesn t include Denmark

68 Thyroid Preps Nervous System Dis. Lipid Reg Mental Health Antidiabetics Anti-ulcerants Other CNS Respiratory Pain Antihypertensives Volume Standard Units (SU) Billions Antihypertensives is the largest volume GX therapy area while antidiabetics, anti-ulcerants and lipid regulators the most penetrated EU- Generic penetration rate by therapy area (overall leading 10 Therapy Area) Unprotected MK volume segmentation 60, ,1 81% 19% 9,7 45% 55% 13,7 82% 18% 14,9 70% 30% 15,3 81% 19% 15,5 80% 20% 16,8 55% 45% 31,5 36% 64% 34,8 70% 30% 71% 29% Generics Non Generics Source: IMS Health, MIDAS, Market Segmentation, MAT Jun 2013, Rx only. It doesn t include Denmark

69 US$ Bn Revenues facing LoE The future generic potential rests across several therapeutic areas Top 10 Therapeutic groups facing LoE Source: IMS MIDAS Q Based on ethical market. Revenues based on MAT 9/2012. * Immunostim ag ex Intfron left out (it would be the 8th largest TA, with LoE in 2012 and 2014 for a total of US $4,3 Bn) 71

70 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q INDEX Generics outlook Evolution of therapy volume, price of treatment and overall treatment cost in 7 therapy areas, Rx retail market from Q Q4 2013, Normalized to population growth Volume Growth will outpace market Increasing number of patients Catch-up in many European markets More limited LOE impact Impact of policy shift VOLUME WEIGHTED PRICE/TD NUMBER OF TREATMENT DAYS/CAPITA COST OF TREATMENT INDEX Prices Regulated prices will go down in most markets Tendering will increase but only to a limited extent Tender prices bottoming out and tend to slightly increase after a period market prices best available price might have bottomed out for large molecules. Tail still to fall

71 Agenda Major trends and Global Medicines Spend Specialty medicines Generic medicines and purchasing alliances Conclusions

72 Conclusions Dollar growth is improving in the developed markets and softening a bit in Pharmerging markets As the small molecule opportunity drought hits and the specialty drug wave accelerates, payers will be desperate to get cost savings somewhere Generics Biosimilars Generic share will continue to grow but there will be more regulatory oversight Generics are a solution

73 IMS Health Thank You!