Transcript Cardinal Health

Generic Pharmaceuticals
Developing a Crystal Ball to Craft Product Portfolio
Special Librarians Association Annual Meeting
Toronto, ON
June 7, 2005
1
US Generic Pharmaceutical Sector – Agenda
Trends & Analysis
• A 50,000 ft. view of the generic market
• Basic template for examining a generics portfolio
 Typical information sources
 Atypical information sources
 Timing
 Information into analysis
• Salient industry trends
• Discussion
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US & EU Generic Sector
100%
Significant and Growing Percentage of
Prescription Drug Volume
80%
2004 Total Market Revenues
2004 Unit Market Share
60%
2004 Rx Drug Units1 (%)
Rx Drug 2004 Revenues ($B)
Branded
100%
$250
Generics
~$230B
40%
80%
$200
20%
60%
$150
~$120B
0%
$100
~$17B
USA
UK
France Germany Italy
Spain
UK
40%
Spain
Italy
$50
Germany
20%
~$7B
~$3B
France
$0
~$1B
<$1B
~$1B
0%
USA
Western Europe
USA
France
Germany
Italy
Spain
UK
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Sources: IMS Health; Marakon Associates -- Excludes some branded generics units
Being First is Everything !
Significant and Growing Percentage of Prescription Drug Volume
Current Market Trends
• Fast & severe generic penetration
• API sourcing strength
 Generic penetration >50% in first 30 days
• Uncanny predictive capabilities
 Managed care driving hard
• Speed to develop
• Price erosion a function of the number
of competitors
• Appetite for risk
 2nd wave entrants have a non-linear
impact
• Speed to market
 Generic price at < 50% in the 1st 6 months
• Ultra low cost
• Still a significant upside for generics
It’s Better to be First than
it is to be Better
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A Typical Generic Development Cycle
Non-Litigation SODF Example
• API suppliers wield significant power…Early
File
Patent
Cert
 Access to difficult to develop API
 Access to potential Paragraph IV opportunity
 Access to sufficient quantities for development
Brand
Produc
t
Portfolio
Review
9 mo.
Pate
nt
Revi
ew
2 mo.
Sou
rcing
PreForm
6-12 mo.
For
m&
Pilo
t Bio
12 mo.
File DMF
File
ANDA
Stab
ility
PK
Study
5 mo.
Outside Counsel
CRO
Key
API Suppliers
API Suppliers
Influences
Business Dev
ANDA
Approval
Valida
tion &
Appro
val
Prep
12-18 mo.
API Suppliers
Supply Chain
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Just Because You CAN File…
Don’t Believe Everything You Read
JP Morgan – Generic Industry Update, July-2004
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Source: JP Morgan – Generic Process; USFDA Orange Book (on-line)
Four Types of ANDA Filings
Non-Litigation SODF Example
•Lower Risk
•Low to medium return
•High risk
•Significant cost
•Potentially massive
return
180-days generic market
exclusivity
 1st mover typically retains
share past 180 days
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Source: JP Morgan – Generic Process
A Litigation Generic Development Cycle
Paragraph IV SODF Example
FDA Starts
30-month
Stay of Approval
Timeline is 66
to 72 months
File
Patent
Cert
File
ANDA
Appellate
Court
Decision
File DMF
Brand
Files
Infringement
Suit
Lower
Court
Decision
ANDA
Approval
Launch
Generic
Development
Program
34 - 40 mo.
3 mo.
30 mo.
6-12 mo.
If successful, 1st generic is granted 180 days of generic
market exclusivity
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Paragraph IV Cases are Messy & Expensive
It NEVER Goes Smoothly
• Brand is not required to sue
 30-month stay starts when suit is filed
 Generic can request declaratory judgment
• Exclusivity only granted for the 1st to
file Paragraph IV
 Exclusivity can be split
• Typically an appeal
 Lately a trend to launch “at risk”
• NOT a “1 size fits all” strategy
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Source: Adapted from Bear Stearns Bottle Report, Aug 31, 2004
High Level Portfolio Decision Inputs
The Magic Triangle
• What do you really want?
 Accuracy
Good
Quality
 Flexibility
 Speed
 Process or 1-off
• What do you have to work with?
 Basic product information
 Innovator organization information
 Therapeutic information
 Market data
 IP Assessments
Fast
Speed
Cheap
Cost
 API Intelligence
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Mid-Level Portfolio Decision Inputs
API Sourcing is Key
Basic Information
Molecule
PDR
Public Reports
News/Press
Dose form
Brand product
Innovator Organization
Brand intro date
Brand developer
Strengths
Manufacturer
Packaging
Marketer
Indication
Co-Pro ?
Other dose forms
LCM behavior
Organizational
expertise
SEC (Edgar)
Website
Intelligence
Therapeutic Classification
PDR
Facts & Comparisons
Therapeutic class
Drug class
Market Information
Franchise ?
Key brand
competitors
Unit volumes
Parent-child
Concomitant meds?
Other countries
Dosing regimen
In-house Generic
Relevant
strategies
Chronic or acute
Sales volumes
IMS, NDC, et al
First Data Bank
IP Assessment
FDA Orange Book
IP Counsel
Pricing
Channel %
Primary channel
OB patents
Exclusivities
API Intelligence
Dates
# of sources
Patent types
Consistency
Abstracts
Cost
Newport
OPD Buyers Guide
FDA
INTERACTION
Expertise
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Expense
11
Stepwise Screens Enable a Flexible Portfolio
Consistent Review
Pharmaceutical
Universe
•
•
•
•
•
Pre-Screening
Hopper
Lead / opportunity ID
Requests within Org
News / market intel
API opportunities
Partner opportunities
•
•
•
•
•
•
High Level
Screen
Dose form
Brand sales
Brand unit volume
Expected erosion model
Company advantage
Strategic fit
Base Portfolio
• Database screening
criteria
• Financial models
• Company advantage
Balanced Portfolio
• Periodic review
• Review prior to
significant expenditures
• Review per significant
changes/events in
market
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A Typical Generic Development Cycle
Non-Litigation SODF Example
• API suppliers wield significant power…Early
File
Patent
Cert
 Access to difficult to develop API
 Access to potential Paragraph IV opportunity
 Access to sufficient quantities for development
Brand
Produc
t
Portfolio
Review
9 mo.
Pate
nt
Revi
ew
2 mo.
Sou
rcing
PreForm
6-12 mo.
For
m&
Pilo
t Bio
12 mo.
File DMF
File
ANDA
Stab
ility
PK
Study
5 mo.
Outside Counsel
CRO
Key
API Suppliers
API Suppliers
Influences
Business Dev
ANDA
Approval
Valida
tion &
Appro
val
Prep
12-18 mo.
API Suppliers
Supply Chain
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Basic Inputs for a Predictive Generic Model
Beware the Point of Diminishing Returns
•To qualify the opportunity (build the model) we need:
Market data (Dollars & Units)
Understanding of the IP situation
Perspective on API availability
Market trends & expected competition
Therapeutic class trends
Pharmacokinetic & pharmacology information
Regulatory requirements
Perspective on resident capabilities
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Portfolio Example
Portfolio Intelligence Example
Prospectively Qualifying an Opportunity
I.
The size of the Advair®
market is staggering
II.
Follow on COPD pipe-lines
are mostly early stage
III. Generics have had some
limited success in challenging
UK patents
III. US patents have not yet been
challenged
Hypothesis
Generic version of Advair for US
Market could be lucrative
Build a forecast model
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Sources: Factiva, Pharma Marketletter, M2 Presswire, Bull Int. Inform Droit et Pharmacie, Bernstein Research Call, FDA
Portfolio Example
Portfolio Intelligence Example, cont.
Prospectively Qualifying an Opportunity
I.
If IMS (et al) data is unavailable,
other references can be used
II.
For IP
I.
FDA Orange Book
II. US PTO
III. FDA Paragraph IV site
III. DPI Dose Forms can be
expected to remain
prevalent
Interim Conclusion
Advair forecast supports
assumption of large market
P-IV filing is uncertain
Dose form will have legs
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Sources: Lehman Brothers, USFDA Orange Book, USPTO, Express Scripts
Portfolio Example
Portfolio Intelligence Example, cont.
Prospectively Qualifying an Opportunity
I. API is available but limited
I. It will be expensive
OR
II. It will be unobtainable
II.
Generic market trends favor
technology challenges, etc.
III. Generics have wide
adoption for pulmonary
indications
IV. Advair is priced lower than
the sum of its “parts”
Interim Conclusion
Cost prohibitive
GSK will vigorously protect
Smaller numbers of generics
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Sources: USFDA, Thomson Newport Strategies, Lehman Brothers, Express Scripts
Portfolio Example
Portfolio Intelligence Example, cont.
Prospectively Qualifying an Opportunity
I. Product doses b.i.d. and has
asthma & COPD indications
II. GSK has a pediatric extension
for Advair
III. FDA has codified the
regulatory pathway
IV. DPI technology is becoming
more scarce
Interim Conclusion
Longer market life
Market entry will be later
Non-standard regulatory path
Highly differentiated technology
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Sources: Thomson Micromedix PDR, Adis R&D Insight, USFDA, Pfizer Website
Portfolio Example
Advair® Enjoys Significant US Market Growth
Fluticasone/Salmeterol DPI Forecast Through 2013
• Enormous market potential at 2009 peak
• GSK transitioning volume from Flovent®
• Forecast the brand
 Linear regression vs. others
• Technical challenges limit generic
competition

Usually a WAG

Depends on quantity of historical info
• Thin innovative pipeline for asthma &
COPD
 Stick with units
• UK patent resolution alludes to at least 3
generics in US market at patent expiry
 Gut test

Dollars useless after generic launch
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Portfolio Example
Portfolio Intelligence Example, cont.
Prospectively Qualifying an Opportunity
Price Erosion
• Number of generic entrants
2nd+
Wave
• Which entry wave
• Who are the generics (and from where)
• Dose form (channel)
1st Wave
# of Generic Competitors
Generic Penetration
• Managed care diving much of this
• CMS vs. 3PP
•Who is the brand
• Indication
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Portfolio Example
Generics Face Significant Hurdles
Can it be Done ?
Limited API – DMF Talley
Key Technical Challenges
Fluticasone
• API source
• DPI device access
• Legal resources & wherewithal
• Manufacturing capabilities
Abbott
Chemagis
Cipla
Hovione
Sicor
Sterling (It)
Salmeterol
Cipla
6
1
• Most US generic manufacturers are configured for solid orals
 Ivax, Cipla most capable for pulmonary delivery
• Limited sources of Salmeterol = limited # of generics
• Limited generic organizations with sufficient resources
• Access to a DPI device and manufacturing know-how will be scarce
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Monte Carlo Simulations
Employing a Quantitative Measure of Risk
Average
Low
•
Electricity
$50 $52
•
Food
$150
$290 $300
•
Entertainment
$150
$400
•
Rent
$1,200
Monthly Total
High
$400
$100
$75
$1,200
$1,550
$1,200
$400
$500
$700$902 $1000
$1,200
$2,000
$1,770
$2,375
$1,200
$3,100
$2,900
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Portfolio Example
Quantifying Risk
Probability for Year 3 EBIT
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Portfolio Example
Quantifying Risk
Variable Sensitivity
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Generic Portfolio Modeling Pitfalls
Perfectionists Need Not Apply…
Assumption
Variability
Perceived
Risk
Authorized Generics
IMS Data
Life Cycle Management
Actual
Risk
Access to API
Shifting Reimbursement
Landscape
Off-Shore
Competition
Market Share
Assumptions
Price Erosion Assumptions
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Portfolio Intelligence
An Easy Way and a Hard Way
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Source: Thomson Newport Strategies
Key Generic Sector Trends
Boom Times
• Significant industry consolidation
 Pricing stability
• Brand protection strategies continue to evolve
• New entrants from low-cost geographies
 Pricing IN-stability
• API strategic sourcing
• Follow-on Proteins
• Authorized generics
 Very
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Key Current Generic Sector Trends
Continued Consolidation Will Create a Caste System
• Significant industry
consolidation
Stratification into very large
and very small organizations
Many of the mid-tier are
API mfgs who have crossed
over to make dose
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Source: ABN-AMRO Healthcare Banking – The Changing Competitive Landscape – IRR Generics Summit – Sep-2004
Key Current Generic Sector Trends
Brand Protection is Constantly Evolving
• Brand protection evolves
 Authorized generics
 Generic subsidiaries
 Reformulations
Dose form
Innovator
Merck
Schering
Pfizer
Novartis
J&J
Sanofi-Aventis
Generic Subsidiary
WestPoint Pharma
Warrick
Greenstone
Sandoz
Patriot
?????
Isomers
Strengths
 Patents
Metabolite
Polymorph
Late-listings
FDA mechanisms
Citizens petition
Label changes
Legislation
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Source: Bear Stearns Bottle Report, Aug 31, 2004
Low Cost Countries Penetrating US Market
The Profile of Indian API Has Risen Sharply in the Past 5 Years
• Lax IP protection created API development haven
 WTO patent adherence kicked in Jan-2005
• Most API firms now make finished dose
 Cipla, Reddy Cheminor, Ranbaxy & Wockhardt are the largest
• India now has the greatest number of FDA approved
manufacturing sites outside of the U.S.
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Source: Arthur D. Little Benelux
Generics & API are Inexorably Linked
As Consolidation Diminishes Sourcing Options, Relationships Prevail
• Backward integration into API
production
 Ivax – Chemsource; Sandoz – Lek;
Actavis – Fako
•Fewer independent, high caliber
API mfgs. are available today
 Strategic relationships
• Forward integration
Organic pursuit of finished dose
 Ranbaxy, Reddy Cheminor, Glenmark
•Increasing use of licensing &
alliances vs. simple purchasing
• Bus Dev alliances with
API/dose companies
 Success attracts partners
 Cipla – Watson; Cipla – Ivax
• SPCs (EU) limit competition
 Alliances are struck much earlier
 No Bolar provision
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Sources: Q Street Advisors
Generic Biologics
Now a Question of WHEN (and HOW)
•Biopharmaceuticals growing at 2x the
rate of total pharmaceuticals
•Marketed (US) biologics are approx.
$30 billion
 12% of total pharmaceuticals
U.S. Biotech Revenues
35
30
25
20
15
10
 Growing 20% annually
5
0
 By 2010, will reach $60 billion (US)
1992
• Over 850 biotech products & vaccines
currently in clinical trials
1996
1998
2000
2002
New Biotech Drug and Vaccine
Approvals/New Indication Approvals by Year
 250 Products: Phase III
35
 600 Products: Phase I & II
25
30
20
15
10
2002
2000
2001
1999
1997
1998
1996
1995
1993
1994
1992
1990
1991
1989
1987
1988
1986
1985
0
1983
1984
5
1982
•The average 1-Day Cost (2003) for
Biotech is $45
 All other drugs = $1.66
1994
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Source: Ernst & Young; http://www.bio.org/er/approveddrugs.asp
Authorized Generics
Strange Bedfellows
• An NDA brand product which is re-labeled and marketed under the
generic drug name
 Can license to another company or self market through subsidiary
• PhRMA companies are motivated to launch an AG to :
 Settle patent litigation
 Maximize profit at or after generic competition hits their brand
 Address manufacturing capacity issues
• Generic companies are motivated to accept an AG to :
 Settle litigation
 Enter an otherwise prohibitive market / sector
 Drive incremental revenue
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Key Take Aways
Trends
Require
• The Generic sector will continue
to grow…
 …more fiercely competitive !
• API sourcing strength
 Early awareness
 Strong relationships
• Consolidation will continue
• Accurate predictive capabilities
 Key differentiation will be speed, flexibility
• Sector will polarize into an Oligopoly
 Morphing into Specialty organizations &
• Generic Biologicals will happen
 Cost pressures will force the issue
• Sector situational awareness
 Regulatory & legislative
 M&A
• Speed to develop / to market
• Understanding your appetite
for risk
• Ultra-efficient
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Thank You
Michael Kopp
Cardinal Health
678.947.2939 (dir)
[email protected]
35