Confidential1

Patent Filing Strategies for Pharmaceutical Products

Robert Silverman Concert Pharmaceuticals

NJIPLADecember 2008

*Redacted for public/non-client distribution*Redacted for public/non-client distribution

2Confidential

Reality of the Future: Success in the Biopharmaceutical Industry

300 – 400Public

4,000 – 5,000New Biotech

20 – 30Product

10 – 20Profitable

4 – 6Growth

Leading Biopharmaceutical

Companies3-4

3Confidential

Global Filing Strategy – Considerations

• Need to protect a broad geographic market• 2007 worldwide sales about $675 billion

• Most companies file in 50-70 countries for promising drug candidate

• Long development time before commercialization• Discovery to market = 12-15 years

• Uncertainty in getting to market• 1 in 5 compounds in Phase I obtain FDA approval

• Lengthy patent applications can be over 100 pages

4Confidential

Patent Timelines

Years 0 1 2.5 6 21

File US Provisional Application

File PCT Application

PCT National Stage - $$$

Patent Expiration

Patent Grant

EP Validation Phase - $$$

5Confidential

Patent and Drug Development Timelines

Years 0 1 2.5 6 11 21

PCT National Stage - $$$

FDA Approval

Patent Expiration

EP Validation Phase - $$$

Phase

Preclinical 2 3 FDA Review1

6Confidential

Global Filing Strategy – Basic Approaches

• Follow conventional wisdom (?)

• Largest markets approach • Disregard cost of filing

• Relative Cost-Benefit approach• Cover the most market per filing dollar

• Valuation approach

7Confidential

Top Ten Pharmaceutical Markets

+ IMS Health Services

* Based on a 100 page application with 25 claims

2005 Rank 2002 Rank Country%World Market

(2005)+

PCT National Stage Costs (US Dollars)*

1 1 U.S.A. 44.40% 3,323

2 2 EPO 29.13% 9,857

3 3 Japan 10.61% 15,605

4 4 Canada 2.38% 2,353

5 6 China 1.64% 8,700

6 5 Mexico 1.32% 8,406

7 8 South Korea 1.30% 10,762

8 7 Brazil 1.23% 6,985

9 10 Australia 1.12% 3,398

10 9 India 0.88% 2,640

8Confidential

Second Ten Pharmaceutical Markets

+ IMS Health Services

* Based on a 100 page application with 25 claims

2005 Rank 2002 Rank Country %World Market (2005)PCT National Stage

Costs (US Dollars)*

11 14 Russia 0.66% 7,413

12 11 Taiwan (non-PCT) 0.53% 6,725

13 16 Argentina (non-PCT) 0.36% 3,834

14 15 Indonesia 0.35% 5,628

15 13 Venezuela (non-PCT) 0.33% 3,905

16 23 South Africa 0.33% 2,180

17 19 Norway 0.28% 15,691

18 18 Philippines 0.26% 2,220

19 21 Thailand (non-PCT) 0.24% 7,142

20 17 Colombia 0.22% 3,023

9Confidential

Small Pharmaceutical Markets: 21st and Beyond

2005 Rank 2002 Rank Country %World Market (2005)+

PCT National Stage Costs (US Dollars)*

21 12 Saudi Arabia (non-PCT) 0.20% 7,468

22 20 Pakistan (non-PCT) 0.20% 2,334

23 NA Algeria 0.18% 8,970

24 22 Egypt 0.15% 4,799

25 25 Chile (non-PCT) 0.15% 2,985

26 29 New Zealand 0.13% 1,894

27 NA Ukraine 0.11% 9,077

28 27 Morocco 0.10% 10,052

29 30 Hong Kong 0.08% 1,755

30 26 Ecuador 0.08% 2,313

31 31 Bangladesh (non-PCT) 0.07% 1,607

32 33 Malaysia (non-PCT) 0.06% 1,854

33 32 Peru (non-PCT) 0.06% 4,696

34 24 Israel 0.06% 1,930

35 NA Lebanon (non-PCT) 0.06% 7,450

36 36 Singapore 0.05% 1,693

+ IMS Health Services

* Based on a 100 page application with 25 claims

10Confidential

Relative Cost – Benefit Analysis: Methodology

• Calculate Return Value Score for each country at PCT national

stage and for non-PCT countries

• RVS = (Pharma Sales in Country) (Patent costs)

• Normalize scores based on Japan = 100

• Use RVS to select groups of countries

11Confidential

Cost – Benefit Analysis: Information Resources

• World Pharmaceutical Market ($ Sales) • IMS Health Services

• www.imshealth.com

• Patent Costs• IP Global Estimator

• www.globalip.com

• 100 page patent application, 25 claims

12Confidential

Relative Cost Benefit Ranking Based on RVS

2005Rank Country

Return Value Score

(normalized)

1 U.S.A. 1964.8

2 EPO 434.5

3 Canada 148.7

4 Japan 100.0

5 India 48.8

6 Australia 48.7

7 China 27.7

8 Brazil 25.9

9 Mexico 23.0

10 South Africa 22.4

11 South Korea 17.8

12 Philippines 16.9

13 Argentina (non-PCT) 13.8

14 Russia 13.1

15 Venezuela (non-PCT) 12.6

2005 Rank Country

Return Value Score

(normalized)

16 Pakistan (non-PCT) 12.4

17 Taiwan (non-PCT) 11.7

18 Colombia 10.7

19 New Zealand 10.1

20 Indonesia 9.3

21 Chile (non-PCT) 7.2

22 Hong Kong (non-PCT) 6.9

23 Bangladesh (non-PCT) 6.5

24 Ecuador (non-PCT) 5.1

25 Malaysia (non-PCT) 4.9

26 Thailand (non-PCT) 4.9

27 Egypt 4.7

28 Israel 4.5

29 Singapore 4.3

30 Saudi Arabia (non-PCT) 4.0

13Confidential

40%

50%

60%

70%

80%

90%

100%

0 50,000 100,000 150,000 200,000 250,000

Cost (US Dollars)

US, Europe, Canada and Japan

Plus India, Australia, Brazil, Mexico and China

Cost vs Market Coverage for Non-PCT National Stage

14Confidential

Impact of Translation Costs

• Translations account for 46-72% of filing costs for 100 page patent application

• Translation savings do not greatly improve low RVS scores

• Thailand RVS = 4.9

• Thailand RVS (with 50% lower translation costs) = 7.7

• Norway RVS = 2.6

• Norway RVS (with 50% lower translation costs) = 4.1

15Confidential

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

D C B A

Country Groups

% M

ark

et

Co

vera

ge

$0

$50

$100

$150

$200

$250

$300

(th

ou

sa

nd

s)

% Market Coverage

PCT National Stage Cost

PCT Filing Costs vs Market Coverage

16Confidential

Millennium’s “A” List in 2005

• US, Europe, Japan, Canada, China, Brazil, Mexico, South Korea, India, Australia, Russia, the Philippines, South Africa, Israel, Norway, Taiwan and Argentina

• “A” List represented 94.5% of 2002 world pharma market

• Country list is flexible

17Confidential

0

10

20

30

40

50

60

70

80

90

100

Benchmark MarketCoverage

Millennium MarketCoverage

Millennium Costs as % ofIndustry Costs

2003 MPI Study. For important A patent applications, the benchmark group filed in countries representing 97.2% of the world pharma market, while Millennium filed in 94.5% of the world market. At the PCT national phase, MPI’s costs were 60% of the benchmark group costs, which was about $83,000 less per application.

% Millennium Market Coverage and Costs vs Industry Average

18Confidential

Where should we protect in Europe?

• European Union expansion from 15 to 25 countries (May 2004)

• Central and Eastern European Countries: Poland, Hungary, Czech Republic, Slovakia, Slovenia, Bulgaria, Ukraine, Lithuania, Belarus, Latvia and Estonia

• Combined market of 11 CEE countries < Spain

• Parallel imports and interdependence of markets

• 10 years marketing exclusivity in EU

19Confidential

Country 2005 Rank % World MarketEP Validation

Cost

Return Value Score

(normalized)

France 3 5.76% 9,238 92

Germany 4 5.50% 9,969 81

Italy 5 3.45% 9,506 53

United Kingdom 6 3.42% 1,122 449

Spain 7 2.64% 10,380 37

Turkey 13 1.22% 8,416 21

Belgium 16 0.80% 1,309 90

Poland 17 0.78% 8,594 13

Netherlands 19 0.65% 13,289 7

Greece 20 0.62% 8,222 11

Switzerland 21 0.59% 1,365 64

Sweden 22 0.57% 17,314 5

Austria 24 0.53% 3,237 24

Portugal 25 0.51% 10,329 7

Hungary 26 0.40% 11,758 5

EP Countries with Largest Market Size

20Confidential

Country 2005 Rank% World

MarketEP Validation

Cost

Return Value Score

(normalized)

Finland 27 0.37% 15,036 4

Denmark 32 0.31% 14,602 3

Czech Republic 33 0.29% 7,280 6

Ireland 38 0.23% 1,454 24

Slovak Republic 47 0.12% 6,987 3

Bulgaria 49 0.10% 1,653 9

Slovenia 51 0.09% 1,508 9

Lithuania 55 0.07% 1,880 6

Latvia 65 0.03% 1,253 4

Luxembourg 66 0.03% 986 5

Estonia 68 0.03% 8,353 <1

No market data for Cyprus, Iceland, Liechtenstein, Monaco and Romania

No market data for Albania, Bosnia and Herzegovina, Croatia, Serbia and Montenegro

Small Market EP Countries

21Confidential

Small Market Countries in the EU:Does Membership in the EU Matter?

• Parallel Trade within the EU• No evidence that patent protection affects parallel trade

• Economic Growth

• Patent protection may be required to protect a growing market

• EU Pharma Legislation

• Less need for patent protection because EU pharma law requires 10 years of market exclusivity

22Confidential

Using Net Present Value (NPV)

PV = Ct

(1 + rt)t

PV is present value

Ct is the cash flow in year t

rt is the discount rate for year t

NPV = PV – Patent Cost

23Confidential

NPV Inputs

• Drug sales during window of patent-only exclusivity• Window begins after regulatory exclusivity

• Country sales estimated from projected worldwide sales

• % Royalty (or margin) on sales

• Probability of success

• % Loss in sales due to generic competition

• Cost at EP Validation Phase

24Confidential

Window of Patent-Only Exclusivity in the EU

Patent Expiration and End of Marketing Exclusivity are independent events, but roughly coincide

Years 0 6 11 21

European Marketing Authorization

Patent ExpirationEP Validation Phase - $$$

26

End of Marketing Exclusivity

Supplementary Protection

25Confidential

Conservative Assumptions for NPV Analysis

• 5-Year window of patent-only exclusivity starting at year 15 after EP validation phase

• Annual worldwide sales = $1 billion

• 3% Probability of success (POS)

• 20% Royalty on Sales

• 80% Loss of sales due to generic competition

• Discount rate = 12%

26Confidential

-10

-5

0

5

10

15

20

Poland

Hunga

ry

Finlan

d

Czech

Rep

.

Denm

ark

Slovak

ia

Sloven

ia

Bulgar

ia

Lithu

ania

Latvi

a

Estonia

NPV (in $ thousands) of patent investment at the EP validation phase for a worldwide billion dollar drug

NPV for Small European Markets

27Confidential

-4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000

Base case

2% POS

4% POS

10% POS

10% royalty

30% royalty

3-year period

6-year period

7-year period

Net Present Value (Dollars)

Sensitivity Analysis for NPV of EP Patent in Slovakia

28Confidential

Other Considerations

• Projecting Future Sales• New drug will not reach market for many years

• Specific Disease Indications• Market size varies depending on disease

• Obesity market not the same as HIV market

• Enforceability• Difficult to factor

• Other Patents Covering the Product

• Interdependence of Some Markets• Free trade may effect value of patent in some EU countries

29Confidential

Robert Silverman

Concert Pharmaceuticals

99 Hayden Ave, Suite 500

Lexington, MA 02421

RSilverman@concertpharma.com

Thanks!

Certain information has been redacted from this presentation to make it suitable for distribution to the public.

Clients may obtain an unredacted copy on request.