feeding the pipeline iii: re-defining opportunity value in...

Feeding the Pipeline III:Re-Defining Opportunity Value in Late Stage Licensing

Ed Saltzman Ed Saltzman President President Defined HealthDefined HealthSeptember 23, 2002September 23, 2002

LES 2002 Annual MeetingLES 2002 Annual Meeting

ChicagoChicago

DefinedHealthUnconventional insight© Defined Health, 2002


Feeding the Pipeline III

• Prerequisite– Feeding the Pipeline I– Feeding the Pipeline II

• Required Reading


Late Stage Licensing

Once upon a timeAn Industry in needRanged over productsIn a frenzied stampede

Finders and SeekersClogged Pharma hallsChasing down productsLarge, medium and small


‘ Our company’s unique’They all like to claim‘Our revenue bar’s different’But the need is the same:

No matter the salesThe product must beAccretive to earningsAnd ‘Please, in Year Three!’


A year 2000 gathering of pharma industry licensing executives looking for late stage compounds with sales potential >$500 million


A year 2001 gathering of pharma industry licensing executives looking for late stage compounds with sales potential > $1 billion


A year 2002 gathering of Big Pharma, Big Biotech, Specialty Pharma and everyone else looking for any late stage product opportunity.


OUTLINE

• Looking Beneath the Stampede for Late Stage Products– Cracks in the Foundation: The Limitations of

Business Models

• The Simple Solution• Not So Fast!

– The Unfortunately Simple Math For Big Pharma– The Unfortunately Simpler Math For All Other Late

Stage Product Seekers

• Strategic Implications From A Dry Well


Looking Beneath the Stampede for Late Stage Products:

Cracks in the Foundation


Looking Beneath the Stampede:The Limitations of Business Models

Big Pharma

Big Biotech

Drug Delivery


Platform/Genomics Companies

Specialty Pharma

Little Biotech



• Big Pharma’s Blockbuster Addiction and Licensing Dependency Problem

• Specialty Pharma’s Serial Product Acquisition Problem

• Big Biotech’s Uneasy Adolescence

• Little Biotech’s “One Trick Pony” Problem

• Platform/Genomics Commoditization Problem

• CROs/CSOs Consolidation Problem



• Big Pharma’s Blockbuster Addiction and Licensing Dependency Problem



Big Pharma: The Blockbuster Addiction and Licensing Dependency Problem



The Prophet Drews Brings an Unwelcome Warning


“Continued 10 – 15% annual growth requires 1 – 2 blockbuster introductions each year…”

- Jurgen Drews, 1996

(P.S. It Won’t Happen!)


Pharma Industry Growth Cycles

0%

3%

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18%

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01E '02E’75-’85

’86-’91

Top-Line Sales Growth versus EPS: Pharmaceutical Industry (1975-2002)

= % EPS Growth= % Sales Growth

Evaluate Pharma


Up, Up and Away!

100%81%

176%

0%

50%

100%

150%

200%

S&P 500 Dow Jones RxWall Street Journal, December 1995 & December 1998

% Change of Stock Indexes in Three Year Period: 12/31/95 - 12/31/98


Those Were The Days

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1995 1996 1997 1998 1999 2000 20010%

5%

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$ bln

PhRMA

Rx Sales of Research Based Companies 1995 - 1999


The Modern Blockbuster Era

1016 16 17

2632

40

49

05

101520253035404550

1987-1990

1995 1996 1997 1998 1999 2000 2001

IMS Health

Total Number of $1 billion+ Drugs: 1995 - 2001


The Blockbuster Boom Restructures Industry Fundamentals

22106Top 20 Product Sales Growth ($bln)

2001199819951992

48%21%16%Top 20 Blockbusters’ Contribution to Total Sales Growth

464740Top 20 Pharmaco Total Rx Sales Growth ($bln)

61392923Top 20 Product Sales ($bln)

22618013393Top 20 Pharmaco Total Rx Sales ($bln)

Evaluate Pharma, Defined Health


Sales of Top Selling Products

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1992 1995 1998 2001

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Top 20 Pharma Company Total Rxs Sales ($B)

Top 20 Product Sales ($B)

% of Top 20 Product Sales in Top 20 Companies Rxs Sales

Top Selling Products as a % of the Total Rx Sales of the Top 20 Pharmaceutical Companies

Evaluate Pharma


Blockbusters: Has the Bubble Burst?

010000200003000040000500006000070000

1992 1995 1998 2001

E stim

ted

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s ($

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0%5%10%15%20%25%30%35%40%45%

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f Tot

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ales

New Top 20 Selling ProductsRepeated Top 20 Selling Products% of New Top 20 Product Sales in Total Top 20 Selling Product Sales

Evaluate Pharma


Sales of Top 20 Drugs1 Zantac 3190 Zantac 3558 Losec 3978 Zocor 66702 Vasotec 1985 Vasotec 2395 Zocor 3945 Lipitor 64493 Mevacor 1285 Losec 2144 Prozac 2812 Losec 56844 Voltaren 1168 Prozac 2066 Norvasc 2575 Norvasc 35825 Tagamet 1084 Zocor 1955 Vasotec 2400 Procrit 34306 Prozac 1070 Zovirax 1351 Lipitor 2185 Celebrex 31147 Procardia 1062 Augmentin 1318 Zoloft 1836 Zyprexa 30878 Cardizem 1053 Voltaren 1303 Paxil 1733 Prevacid 29519 Augmentin 1040 Norvasc 1265 Premarin 1647 Paxil 2687

10 Adalat 1034 Mevacor 1260 Pravachol 1643 Vioxx 255511 Ciprobay 1034 Adalat 1216 Claritin 1611 Zoloft 236612 Naprosyn 986 Ciprobay 1203 Augmentin 1582 Claritin 228513 Zovirax 980 Mevolotin 1176 Procrit 1478 Pravachol 217314 Tenormin 943 Procardia 1133 Ciprobay 1459 Epogen 210915 Ceclor 925 Rocephin 1084 Zyprexa 1443 Premarin 207416 Seldane 878 Zoloft 1037 Epogen 1382 Augmentin 205617 Rocephin 845 Neupogen 936 Prevacid 1305 Glucophage 204918 Sandimmune 824 Biaxin 935 Neoral 1277 Prozac 199019 Ventolin 793 Pepcid 920 Claforan 1259 Cozaar 190520 Losec 750 Premarin 911 Zantac 1252 Risperdal 1845

Total 22929 29166 38802 61061

2001Rank 1992 1995 1998

Evaluate Pharma


Blockbuster Boom is Clearly Over…At Least for Now

“There hasn’t been a true blockbusterintroduced since 1999, when Merck’sarthritis drug Vioxx was unveiled. It was the last in a string of successesduring that decade, including Lipitorfor high cholesterol, Celebrex forarthritis, and Viagra for erectile dysfunction.” Associated Press 4/7/02



• Specialty Pharma’s Serial Product Acquisition Problem



Specialty Pharma Business Model:The Serial Product Acquisition Problem



The Serial Product Acquisition Problem

7/29/02 Press Release

“King Pharmaceuticals Reports Solid Revenue Growth for Second Quarter 2002 of 37 Percent to $282.5 Million and Net Earnings Growth of 36 Percent to $77.1 Million, Excluding Special Charges.”


King’s Phase III+ Pipeline/New Products

• Estrogen – Estrasorb w/Novavex (WHI + FDA problems)– Ortho Prefest - from OMP 04/02– Theelin - injectable estrone, discontinued development– Delestrogen - from BMS 8/01

• Levothyroxine– New formulation from Jones

• Corzide, Corgard, Florinef– From BMS, 8/01

• Tigan (PONV) reformulation 2/02



• Big Biotech’s Uneasy Adolescence



The Big Biotech Business Model: An Uneasy Adolescence



STREET WISEBy Amy Tsao

The Kinks In Genentech's Pipeline The biotech giant has shrugged off breast-cancer drug Avastin's

disappointing clinical trials. Can investors afford to be as sanguine? It hasn't been the best of years for Genentech. Pipeline problems were already

hurting its stock price when, on Sept. 9, the biotech giant announced that Avastin, its much-hyped cancer drug, hadn't produced the desired results in tests on breast-cancer patients...Shares have fallen 43%, to around $31, year-to-date.

The stock is hanging tough largely because of Genentech's golden reputation and solid growth attributable to strong-selling cancer drugs such as Rituxan and Herceptin. But Wall Street is now asking for proof that the company can deliver the 25% average annual earnings it has led investors to expect through 2005. "We're hitting a critical stage," says Kris Jenner, health-care analyst at T. Rowe Price. "There's plenty of reason to be optimistic, but the investment community is looking for positive news from [Genentech's product] pipeline." http://www.businessweek.com/bwdaily/dnflash/sep2002/nf20020919_6013.htm

9/19/02


Press Release Genzyme General (GENZ) Revises Financial Guidance

For Third Quarter And Full Year; Hurt By Kidney Drug Sales

CAMBRIDGE, Mass., Sept. 16 /PRNewswire-FirstCall/ -- Genzyme General...today lowered its financial guidance for the third quarter of 2002 and for the full year based on reduced revenue expectations for Renagel(R) (sevelamer hydrochloride). The revised expectations for the product reflect slower-than-expected end-user growth and the continuation of Genzyme's program to reduce wholesaler inventories.

"While the underlying demand for Renagel has been growing at a rate of approximately seven percent per quarter this year, the next acceleration of the product's adoption rate has not yet occurred," said Henri A. Termeer, chairman and chief executive officer of Genzyme Corp.


Looking Beneath the Stampede: The Limitations of Business Models

• Little Biotech’s “One Trick Pony” Problem



The Little Biotech Business Model: One Trick Pony Problem


Aviron Immunex


Looking Beneath the Stampede: The Limitations of Business Models

• Platform/Genomics Companies’ Commoditization Problem



Platform/Genomics Companies’ Commoditization Problem



The Prophet Stelios

According to Stelios Papadopoulos, managing director of investment banking at SG Cowen Securities Corp., companies built on technology platforms are "not viable as businesses" over the long term. The value base just can't be sustained.

"They can be acquired by a bigger enterprise or they can lose favor with investors and become inconsequential." And, Papadopoulos added, "All these scenarios might happen.“ -Signals Magazine 8/14/01


The Commoditization of Genomics Cos.

AFFX CRA

INCY LEON


The Commoditization of Genomics Cos.

0123456789

10

2000 2002

ABGXAFFXCRAINCY

Market Caps - 2000 vs. 2002Abgenix, Affymetrix, Celera Genomics, Incyte

BioWorld; MSN


Looking Behind the Stampede: The Limitations of Business Models

• CRO’s/CSO’s Consolidation Problem



The CRO’s/CSO’s Consolidation Problem



Press Release Feb 2, 2001

PDI Announces Termination of GlaxoSmithKline Fee for Service Contract Sales Program

…The decision to end our fee for service contract with PDI is not a function of any performance related issue” stated Jim Daly, Vice President and General Manager, Respiratory and Anti-Infectives…If termination occurs as contemplated, PDI's projected 2001 consolidated revenue would be reduced by approximately $45 million. Projected 2001 earnings per share would be reduced by approximately $0.35 to $.40. The contract cessation will have a minimal effect on PDI's results for the first quarter of 2001. Charles T. Saldarini, Vice Chairman and Chief Executive Officer stated, "We are disappointed by GlaxoSmithKline's decision to exercise its right to terminate our contract without cause. We have a longstanding relationship with them, but clearly changes within the merged companies have triggered a reduction in the use of traditional contract sales services. We will continue to concentrate on maximizing our relationship with GlaxoSmithKline through the innovative types of commercial partnering we executed through our LifeCycle Ventures unit and look forward to exploring future business opportunities with GlaxoSmithKline." Commenting further on the development, Saldarini added, "This decision underscores the importance of the direction we are taking towards full scale commercial partnering. Our decision to invest in the LifeCycle Ventures unit and our early success in offering both extension services and launch services positions us well for continued growth and long term shareholder value."


The Simple Solution


Big Pharma Solution

Go get us another one, a Really, Really,Really big one!

CEO


Specialty Pharma Company Solution

CEO

“Let’s acquire another one of those under-promoted, non-strategic 90% gross margin products rotting in the basement of one of those big pharma companies.”


“Let’s in-license a late stage biotech

blockbuster! Failing that, let’s buy one of

those ‘one trick pony’ biotech companies!”

Big Biotech SolutionBig Biotech Solution

CEO


Little Biotech Solution

CEO

“Let’s get a quid from pharma -- you know, one of those currently marketed <$100 million drugs that fits in with our strategic focus. They have tons of them to give up.”


Platform/Genomics Company Solution

CEO

“Let’s be a drug discovery company! Oh, but in the meantime, let’s go acquire one of those currently marketed <$50 million drugs that will help us find our strategic focus!”


CSO’s Solution

CEO

“Let’s do another gain share deal on one of those under-promoted, non-strategic 90% gross margin products rotting in the basement of one of those big pharma companies!”


Not so Fast!The Unfortunately Simple Math for Big Pharma


The Simple Math for Big Pharma

“Go Get Us Something Really, Really, Really Big!”“Go Get Us Something Really, Really, Really Big!”

Defined Health Analysis:• Phase III and Above Compounds

• 7 Top Therapeutic Classes

• Potentially Interesting to Big Pharma=>$500mm


The Late Stage Product InventoryPhase III +

(WW)

Phase III US Data

( - 378)

- Top 15 Pharmacos

( - 663)

1211

548

170

• 7 Top Therapeutic Areas Accounting for 80% of Total Industry Sales

• Phase III or higher compounds –US, Europe, Japan

• Assumes top 15 Pharmacos will hold on to their products

• With Phase III US data• With US rights shown as available

138

US Rights Available

( - 32)

Adis R&D Insight, Company websites, Defined Health estimates


Big Pharma’s Simple Math

2

58

21

40

359

0

10

20

30

40

50

60

138 “Available” Phase III Compounds by Tx Area7 top therapeutic areas

CV RespiratoryGI Metabolics CNS Anti-Infectives

OncologyAdis R&D Insight, Company websites, Defined Health estimates


Big Pharma’s Simple Math

20

58

0

17

4

38

2215

0

9

00

10

20

30

40

50

60

CV GI Metab CNS Inf Dis Onc Resp

Estimated Peak US Sales <> $500 Million

< $500 Million

> $500 Million



Not so Fast!The Unfortunately Simpler Math for all Those Seekers of Non-Strategic Products


The Unfortunately Simpler Math

• So, we already know there are not very many blockbusters out there. Our business plan calls for acquiring those reams of “non-strategic” products hiding in the basements of big pharmacos.

• There are thousands of them, right?


Ovation Pharmaceuticals

“…This funding will enable Ovation to acquire under-promoted branded pharmaceutical products that can benefit from increased sales and marketing efforts and creative life cycle management. Opportunities to acquire these products have been created by consolidation in the pharmaceutical industry, since many products of merged and acquired companies no longer meet the sales volume or strategic objectives of the newer and larger firms…”4/24/2002 www.gtcr.com


Company Overview• Large pharmaceutical company product rationalization will provide a

steady flow of established and development-stage products. • Pharmaceutical merger activity will provide post-merger product

opportunities • Abundance of opportunities for new product flow from extensive

investments in research and development • Fragmented therapeutic markets not on the radar screen of large

companies • Marketing infrastructure developed by the specialty companies will be

a major strategic asset which can be leveraged to acquire products and co-promote

• Abundance of capacity for outsourced operations such as manufacturing, development, supporting operations

• High profitability of pharmaceuticals will allow specialty companies to generate cash flow quickly for further acquisitions and development

www.eximiaspharm.com


TEAMM Pharmaceuticals

“…But TEAMM does have several other strengths -- including a growing revenue stream, an experienced team of managers, and a business plan tightly focused on leveraging drugs that they believe have been under-promoted by other companies. TEAMM gains the rights to license or co-promote drugs (as it has to three so far) from other companies then uses its own aggressive sales organization to promote those sales to primary care practitioners…”

www.cednc.org LocalTech Wire

http://www.cednc.org/

http://www.cednc.org/


Company Profile

About ESP Pharma, Inc. ESP (Excellence in Specialty Pharmaceuticals) Pharma is dedicated to helping physicians improve patient outcomes in the acute care setting through the acquisition, development and marketing of specialty pharmaceuticals. Launched by experienced pharmaceutical industry executives, ESP Pharma focuses on acquiring and enhancing the marketing of approved specialty therapeutics and acquiring late-stage development drugs to advance through clinical studies into the market.www.apax.com


The Simpler MathThe Non-Strategic Marketed Product InventoryDefined Health Analysis:• Top 15 Pharmacos • Products with sales < $100 Million• Approved for sale in the US• Patent life for 3+ years• Launch date prior to 1997 (to omit newly launched

growth products)• X’d obvious franchise components, Vaccines,

compounds licensed in or already licensed out

• Any guesses?


Simpler Math


Strategic Implications from a Dry Well


Strategic Implications for Big Pharma

• Late stage licensing, as spectacularly successful as it has been in many Big Pharma companies, cannot continue to shore up a collapsing blockbuster business model. Too many big pharmas have become over-dependent on licensing, especially late stage licensing.

Re-Defining Opportunity Value in Late Stage Licensing:


* Get it From Anywhere!Evaluate Pharma, Adis R&D Insight, Defined Health estimates

WyethNovartisGSKMerckAZAventisPfizerPharmaciaJ&JBMS

Company

2916%6718%

6925%2722%

5727%4732%31143%7858%

# of In-Licensed Products

Phase IIIPatented Marketed Products

% of 2001 Rx Revenue from In-

Licensed Products

2814%

1321%

Did NIH Become GFA*?Did NIH Become GFA*?Top 10 Late Stage InTop 10 Late Stage In--Licensing Companies (2001)Licensing Companies (2001)



• Late stage licensing, as spectacularly successful as it has been in many Big Pharma companies, cannot continue to shore up a collapsing blockbuster business model. Too many big pharmas have become over-dependent on licensing, especially late stage licensing.

• Clearly, most, if not all, pharma will find it necessary to more aggressively pursue earlier stage opportunities.

Re-Defining Opportunity Value in Late Stage Licensing:



Licensing Earlier – Much Earlier! “But you’re right in the sense that there are

fewer opportunities in the late stage. There’s more Big Pharmas out there trying to get them; and there are fewer Big Pharmas willing to license to us...I think we’ll do a lot more early stage licensing—as early as first-in-human.”

Peter Corr Head R&D, Pfizer

In-Vivo, September 2002, Pfizer R&D: The Biggest Pharmaceutical Experiment



• When seeking to win a beauty contest, it pays to look your best


Look, Up in the SkyIt’s a Bird, It’s a Plane No It’s...

Vardenafil !!


Bayer Presents: Who Wants to Marry a Multi-Billionaire?

BMS Lilly Wyeth

Novartis

Pharmacia

GSK RocheAbbott

J&J


Press Release

GlaxoSmithKline and Bayer announce world-wide co-promotion agreement for vardenafil to treat erectile dysfunction

Dr. David R. Ebsworth, General Manager of Bayer's global Pharmaceuticals Business Group explained, "vardenafil will allowus to establish ourselves in a market with dynamic growth - the market for the therapy of erectile dysfunction. There is no doubt that this is a highly competitive market. But equally, I have nodoubt that we will be able to offer an excellent product for mensuffering from impaired erectile function and that together with our co-promotion partner, we will ensure the market presence necessary for success with vardenafil."

November 15, 2001


GSK Licensing Executives receive news that they have been awarded the vardenafil co-promotion from Bayer.


Strategic Implications from a Dry WellBest Partner Rewards


• The crucial competitive advantage of the Preferred Partner– The Primary Care Specialist


Press Release Boehringer Ingelheim, Pfizer to Jointly Market Once-A-

Day Spiriva® for Chronic Obstructive Pulmonary Disease INGELHEIM, GERMANY, AND NEW YORK, April 11, 2001 -

Boehringer Ingelheim and Pfizer Inc announced today that they have entered into a long-term worldwide agreement to jointly market Spiriva® (tiotropium), a novel once-a-day inhaled treatment for Chronic Obstructive Pulmonary Disease (COPD), which includes chronic bronchitis and emphysema. "We're very pleased to be working with Pfizer in co-promoting

Spiriva®," said Prof. Rolf Krebs, Chairman of the Board of Managing Directors at Boehringer Ingelheim. "Through this agreement, we gain a strong and experienced partner who will help increase awareness of the disease and of the significant patient benefits that this novel compound delivers."


Press Release ALTANA and Pharmacia to collaborate in Development and

Commercialisation of Respiratory Disease Product Candidate “We are enthusiastic with this landmark agreement between ALTANA Pharma and

Pharmacia concerning development and commercialization of Roflumilast”, said Dr. Hans-Joachim Lohrisch, Member of ALTANA’s Management Board and CEO and President of ALTANA Pharma. “Our companies have complementary strengths including strong clinical development capabilities and a track record of successful sales and marketing partnerships. In addition the strong presence of Pharmacia in the primary care settings in the United States make this partnership the right one for us to support our US business strategy.”

“We are very pleased to have been selected by ALTANA Pharma to collaborate in the development of this exciting product candidate for asthma and COPD”, said Göran Ando, M.D. Executive Vice President and President Research & Development, Pharmacia Corporation. “Roflumilast enhances our near-term product flow and provides us an opportunity to leverage our sales and marketing strength in particular with our primary care customers.”

April 22, 2002




• The crucial competitive advantage of the Preferred Partner– The Primary Care Specialist– The Dominant Therapeutic Franchise Player


Eli Lilly Press ReleaseLilly and Amylin to Collaborate on Potential Breakthrough Diabetes Treatment (Friday, September 20, 2002)If Approved, Phase III Compound, AC2993, Would Represent the First of the Next-Generation Therapies for People With Type 2 Diabetes

Eli Lilly and Company (NYSE: LLY) and Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), announced today that they have signed a global agreement to collaborate on the development and commercialization of Amylin's compound AC2993 (synthetic exendin-4), a potential new treatment for type 2 diabetes that, if approved, could represent the first of a new class of compounds which have similar actions to GLP-1 (glucagon-like peptide-1). AC2993 is currently in Phase III clinical trials with a submission to the U.S. Food and Drug Administration anticipated as early as 2004.

Amylin is committed to discovering, developing and commercializing innovative new medicines to improve the lives of people with diabetes. This collaboration with Lilly is a significant step for Amylin and should accelerate our ability to achieve this goal," said Joseph C. Cook, Jr., chairman and chief executive officer for Amylin. "Lilly's leadership in the development and commercialization of innovative diabetes therapies makes them an ideal partner to maximize the global potential of AC2993."


Press Release

Genta and Aventis Enter Worldwide Partnership to Develop and Commercialize GenasenseTM

Berkeley Heights and Frankfurt, Germany April 29, 2002 – Genta Incorporated (NASDAQ: GNTA) and Aventis (NYSE: AVE) announced today that they have entered into an agreement to jointly develop and commercialize GenasenseTM (G3139), Genta’s lead antisense compound. Genasense is currently in multiple Phase 3 clinical trials that test its ability to enhance the effectiveness of chemotherapy in patients with both hematologic cancers and solid tumors.

“This collaboration brings together world-class leadership in oncology product development,” stated Raymond P. Warrell, Jr., M.D., Chairman and CEO of Genta. “Having followed the terrific work that Aventis has conducted with its leading oncology drug (Taxotere®), we believe this new partnership is perfectly poised to maximize the blockbuster potential of Genasense on a worldwide basis. Genta’s expertise in hematologic oncology, both in development and marketing, will be a key factor in the ultimate success of the product.”




• The crucial competitive advantage of the Preferred Partner– The Primary Care Specialist– The Dominant Therapeutic Franchise Player

• Few companies will be able to be both



Many of Today’s Big Pharmas Face a Primary Care-Less Future (as Preferred Partners)

• Primary Care will be viewed as a distinct franchise and three distinct competitive tiers will emerge.



• 1st tier Primary Care players will acquire and develop unique franchise strengths as many Primary Care drugs evolve into consumer products.

• Unique franchise strength of 1st tier players will make it difficult for 2nd tier players to compete, and impossible for 3rd tier players.


PCP vs. Specialty Blockbusters

PCP 84%

Specialty 16%

2001 WW Sales > $1bln2001 WW Sales > $1bln

Evaluate Pharma, IMS Health, Defined Health


PCP vs. Specialty Blockbusters2001 WW Sales

0

5

10

15

20

25

30

35

40

Specialty PCP$0

$10

$20

$30

$40

$50

$60

$70

$80

# of ProductsSales

$ bln

MedAd News


Primary Care Market Share by Leading CompaniesThere is less consolidation within the Primary Care market

than within major disease classes, although this will change over the next several years

Evaluate Pharma/Defined Health estimates

Total Estimated 2001 Primary Care Market:

$190 billion

Pfizer 8%

GSK 7% Merck

7% AZ 5% BMS

4%Novartis

4%


% of Total Rx Sales From Primary Care Market (2001)

Evaluate Pharma, Defined Health estimates

64%56%

67%59%

18%

52% 53%41% 45%

21%

0%

20%

40%

60%

80%

100%

PfizerGSK

MerckAZ J&J

BMSNovartisAventisPharmaciaLilly



Preferred Primary Care Partner?

Clearly, YES Used to be, and still trying

Now or Never! Consider the strategic value: Should you overpay to stay in the game?“Once-upon-a-time”

Preferred Partners need revalidation –will they get the opportunity?

Avoiding the “Catch 22”


Strategic Implications from a Dry Well• With regard to Primary Care opportunities, does it

even matter?

• Available Phase III opportunities disproportionately sourced from Biotech and Small, Mid-Cap Pharma

• 90% of available Phase III compounds (in top 7 categories) > $500mm target specialist dominated indications.



• Biotech inventory is dominated by specialty products– 50% of total pipeline in Oncology

• Recent History: Specialty products dominate late stage deal activity, strong franchise players win!


Largest Late Stage Deals 2001-02(for which data are available)

4OncologyII187Genentech/OSI

64

224

4261

2001

Industry Ranking of Therapeutic Area of

Company

47

134

1146

2005

RespiratoryRespiratory

MusculoskeletalGI

Diabetes

Auto-Immune Transplantation

DiabetesCancerCancer

Disease Area

Pfizer/BIAventis/Viropharma

Pharmacia/CelltechGSK/AdolorGSK/Nobex

Roche/IsotechnikaLilly/AmylinAventis/GentaBMS/Imclone

Company

IIIn/aIII45

II283III270

II215III445ll/ll476.9ll/lll1,908

PhaseDeal Size ($M)

II280




• Becoming the Preferred Partner for Specialty Products– How strong are your therapeutic franchises?

• The Evolution of Preferred Partnering– Therapeutic franchise strength is already a

competitive advantage in securing opportunities, over the longer term it will be impossible to compete for opportunities without it

– Avoiding the “double whammy”• A non-preferred partner in Primary Care + a

non-preferred Specialty Franchises partner


Strategic Implications for Specialty Pharma

• Please, no more development-challenged specialty pharmaceutical companies!

• As more big pharmas and big biotechs move towards developing strong specialist therapeutic franchises, today’s “specialty pharmaceutical “ companies will be forced to broaden their business model– Becoming true specialist franchise players to compete with

larger pharmacos for development of stage licensing opportunities from biotechs and ex-US small and mid-sized pharmas

– Accepting development risk as well as commercial risk– Bring greater value to licensor than a field force


Strategic Implications for Biotech

• There are already too many “one trick ponies” in little biotech– Approximately 10 more to come (assuming a 25% approval

rate in the “Phase III Club”)

– 40 Oncology companies is not a sustainable scenario

• Development of a more far-reaching commercial vision than mere product approval needs to begin early!

Feeding the Pipeline III:Re-Defining Opportunity Value in Late Stage Licensing

Ed Saltzman Ed Saltzman President President Defined HealthDefined Health

LES 2002 Annual MeetingLES 2002 Annual Meeting

ChicagoChicago


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