Transcript LS 102 SN Final Cut-1 - Healthcare Business Association

LS 102: Trends in Healthcare
February 2nd, 2006
12-1 PM
D310
Overview
• Healthcare in the USA today
– Medicare Reform Act
• Regulatory Framework
– Clinical trial process
• Traditional “Big” Pharma
• Structural trends
– Therapeutic Licensing
– NRDO model
• Medical Devices
Healthcare in the US today
• Healthcare spending growing
– Per capita
– As % of GDP
• Medical inflation has outpaced overall
inflation
• In 2001, $1.2 trillion spent on personal
healthcare services
Medicare Reform Act
• Since Medicare's creation, the role of
prescription drugs significantly increased. As
new and expensive drugs have come into
use, patients, particularly seniors, for whom
Medicare was designed, have found
prescriptions harder to afford.
• The Medicare Prescription Drug,
Improvement, and Modernization Act, is
meant to address this problem.
– Highly complex structure
Medicare Reform Act - Highlights
• Subsidy for large employers to discourage them
from eliminating private prescription coverage to
retired workers (a key AARP goal);
• Prohibits the Federal government from
negotiating discounts with drug companies
(unlike the practice in most other countries);
• Prevents the government from establishing a
formulary (preferred drug list), though does not
prevent private providers such as HMO’s from
doing so.
• Adds pretax Health savings account for working
age people
Medicare Reform Act - Winners
• Winners:
– Drug companies: more public money
available for drugs (>$800 billion over 10
yrs)
– Private managed care providers:
incentives for managed care to provide
competition to the program and possible
part privatization of Medicare
Medicare Reform Act – Potential Losers
• Possible losers:
– Taxpayers/budget deficit
– Effect of medicare’s model formulary? Adherence
is voluntary, but will affect private payor’s policy.
• Payors want less categories with broader scope, e.g.
anti-inflammatory
• Drug co’s want more categories with narrower scope,
e.g. Cox 2 and NSAID
– Less “spread” for doctor administered drugs.
Expect closer scrutiny for prices of drugs for
treatments of cancer, dialysis and pulmonary
conditions
Regulatory Oversight: Major Markets
• United States
– Food and Drug Administration (FDA)
• Several divisions
• European Union
– CE (Conformité Européene) Marking
• Categorized by directives
– European Agency for the Evaluation
of Medicinal Products (EMEA)
• Japan
– Pharmaceutical and Medical Device
Agency (PMDA)
United States - FDA
FDA
Center for
Biologics
Evaluation
and
Research
(CBER)
Center for
Devices
and Radiological
Health
(CDRH)
Center for
Drug
Evaluation
and
Research
(CDER)
Center for
Food Safety
and Applied
Nutrition
(CFSAN)
Center for
Veterinary
Medicine
(CVM)
Office of
Regulatory
Affairs
(ORA)
Commonly Used Terms
•
•
•
•
•
•
Indication: Specific treatment or diagnosis
NDA: New Drug Application
BLA: Biologic Licensing Application
IND: Investigational New Drug
PMA: Pre-market Approval
510(k): Typical device approval route
– AKA Pre-market Notification
• CFR: Code of Federal Regulations
– Title 21 covers Food and Drugs
Research & Development Overview
Clinical Trials: Success Rates
•
Roughly 10% of Phase I drugs
reach the market (small molecules)
– 30% of Phase II
– 50% of Phase III
•
Business Development determines
when/if to license drug candidates
– Weigh risk/reward
Will Big Pharma Business Model Survive?
Source: IBM Life Sciences Solutions
Will Big Pharma Business Model Survive?
Blockbusters Brings
Value to Big Pharma!
Source: McKinsey
Will Big Pharma Business Model Survive?
• But
•Safety related drug withdrawals are on the rise.
•Vioxx aftermath?
Will Big Pharma Business Model Survive?
•
•
Big pharma Pipeline is drying up
•
17 new drugs approved in 2002 vs. 53 in 1996
•
Most were “me too” drugs
Many are looking at in-licensing and M&A as alternative source of growth
# of Pharma-Biotech alliances:
502
425
450
400
411
373
384
350
300
228
250
200
150
100
165
224
229
180
117
69
50
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: BioWorld Financial Watch, American Health Consultants, BioCentury
Will Big Pharma Business Model Survive?
• In 1980-1990’s, big pharma broadened scope, entering
many therapeutic areas, and increasing global presence
• In 1990’s-present, blockbuster and US market drives growth
• In the past 5 yrs, companies are refocusing their business to
just a few “core therapeutic area franchises”
– Example:
• BMS: Oncology
• Lilly: neuroscience; endocrine disorders; cancer;
infectious diseases; cardiovascular diseases
• Amgen: Oncology, Rheumatology and Dermatology
– Reason: Leverage synergies between products in
portfolio.
• Mostly in development, sales and marketing (Sales
force, whom to sell to, etc.)
– Products in the pipeline outside the “core” area likely to
be out-licensed or sold
Will Big Pharma Business Model Survive?
•
Potential outcome: traditional “big pharma
companies” become more focused on launching
and marketing products, while “outsourcing”
R&D, especially discovery, to smaller biotech
–
–
–
–
Shifting the risk of early stage project to smaller
biotech.
More and more companies are setting up VC arms, a
trend started by Lilly
Exploit higher R&D productivity at biotech
Leverage big pharma’s production capacity, marketing
capabilities and global reach
Therapeutic Licensing Overview
• Upfront payment (Cash or equity purchase)
• Milestone Payments
• Initiation of clinical trials (and/or subsequent trials)
• Filing of NDA, Acceptance of NDA, FDA Approval
• Royalties
•
•
•
•
~ < 5% for Preclinical Candidate or Program
~ 5%-10% for a Phase I compound
~ 10%-20% for a Phase II compound
~ 50-50 Partnerships for Phase III compounds
– Shared P&L where each partner receives 50% of Profits
Case Study: Neurocrine (NBIX)
•
Groundbreaking relationship with Pfizer
–
Indiplon program: New Treatment for Insomnia
•
–
Ambien 2004E revenues ~$1.5B (7-10 day Prescription)
2002 (Phase III) strategic alliance
•
•
$100mm upfront payment
$300mm in milestones tied to FDA Approval
•
•
26%-30% royalty on profits
PFE pays for Sales force to co-promote Zoloft (quid)
–
•
•
PFE to handle GP; NBIX to handle Psychiatry
PFE pays for all further development
Upon Approval: PFE grants $175mm short-term credit
facility
–
NDA Filed 4Q05, expected to launch in 2006
The NRDO Business Model
•
Pharmas are primarily focused on $1B Products
– Creates an opportunity for a new business model
•
NRDO = No Research Development Only
– License clinical stage drugs from Pharma/Biotech companies
• Companies shed non-core assets
• Too small an opportunity to pursue for some companies
– No in-house research is performed, so time to market significantly
decreased
– NRDO companies are attracting a growing percentage of venture capital
Company Type
NRDO
Total NRDO rounds
NRDO avg
R&D
Total R&D rounds
R&D avg
2000
$41.1
5
8.3
2001
$208.8
9
23.2
2002
$404.9
18
22.5
2003
$395.5
17
23.3
1Q2004
$517.7
8
64.7
$202.5
20
10.1
$883.6
53
16.7
$10,100.0
74
13.6
$1,053.8
65
16.2
$570.4
25
22.8
NRDO Case Study: Eyetech (EYET)
• Macugen for macular degeneration
– Leading cause of blindness in the US
• Eyetech in-licensed the Phase I Compound from
Gilead (GILD) – 4/00
– $7mm upfront
– $25mm in milestones
– 833k warrants exercisable at $6
• Pfizer licensed from Eyetech during Phase III - 12/02
– $100mm upfront
– $195mm milestones
– Eyetech to co-promote in US
• Eyetech was acquired by OSI in 2005 for $935mm
NRDO Case Study: Jazz Pharmaceuticals
• Jazz founded by the senior management team of Alza
in 2004
• Alza sold to JNJ for $12B in 2000
• March 2004 – raised $250mm in a Series B round
• Led by KKR
• The company in-licensed several former Alza
compounds
• Shelved by JNJ
• In-licensed several other compounds
• Acquired Orphan Medical in 2005 for $123mm
Medical Devices - Overview
• Encompasses a broad range of
products
• Definition: device used to diagnose
or treat a medical condition
– Diagnostic devices
– Therapeutic devices
Class I
Device Classes
• Governed by CFR Title 21
• Class I
– Subject primarily to General
Controls
Class II
• Class II
– Special Controls – labeling,
performance testing, postmarket surveillance
– Generally require 510(k)
• Class III
– Require PMA or 510(k)
Class III
Device approval pathways
• 510(k)
– 90 day approval
cycle
– “substantial
equivalence” to
existing approved
product
– In-vitro testing is
often adequate
• PMA
– Usually about 1 year
– can take much
longer
– Need clinical data;
similar to NDA
Trends in Medical Devices – Convergence
• Convergence with pharmaceutical delivery
– Combination therapy; targeted delivery
– Ex. Guidant Xcience – Drug-eluting stent
• Convergence with information delivery
systems
– Ex. Roche Diagnostic’s diabetes management
solutions
• Convergence with biologics
– Ex. WHO studies ongoing in Mexico/India to
deliver vaccines via aerosol
Summary
• Continued projected growth in healthcare
• Strongly structured regulatory environment
• Restructuring of industry models
– Increasing specialization
• Convergence in therapeutic solutions
– Pharmaceuticals, biologics, devices, information