Us Pmp Overview 2008

US PMP Overview October 2008 Accenture Research Jaydeep Adhikari, Dawn M. Melberg, Mikael Stenstrand © 2008 Accenture. All rights reserved.

1

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview – Summary Conclusions – Geography & Political Structure – Key Economic Indicators – Demographics • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

2

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US Pharmaceutical and Medical Products industries are facing many challenges due in part to domestic scrutiny and reforms and global issues impacting all the major geographic markets

US Overview: Summary Conclusions

Summary US PMP overview

• US national healthcare spending will increase by 7.3% in 2008, reaching a total of US $2.1 trillion • Currently at 16 percent of gross domestic product (GDP), U.S. health spending is double the median of industrialized countries and is expected to consistently outpace GDP over the coming decade, accounting for 20 percent of GDP by 2015 • The elderly population (65+) is projected to exceed 20% of the total US population by 2050, placing a tremendous strain on public services and programs • Public and private healthcare payers have begun to implement cost-saving mechanisms – eg. Increased premiums and co-payments, tiered health plans and generic drug preference • In 2008, the federal health insurance Medicare expanded its scope to include outpatient care, including prescription drug subsidies. This represents a large shift in the way prescription drugs are paid for in the United States

© 2008 Accenture. All rights reserved.

• The US prescription drug market is currently experiencing a slowdown, in large part due to increased utilization of generic drugs and weak performances from newly launched products • The generics segment is growing rapidly as a result of the cost-containment measures implemented by health insurers • The market for OTC drugs is showing stronger growth than in many years, mainly as a result of increased Rx-to-OTC switching and the decision by a number of health insurers to reimburse certain OTC products • In 2005 Medicare represented 2% of the prescription drug market, that share is expected to jump to 28% in 2008

3

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview – Summary Conclusions – Geography & Political Structure – Key Economic Indicators – Demographics • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

4

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

US – Geographic Summary

US Overview: Geography & Political Structure

Geography




Capital City: Washington, DC




Main Language (s): English




Continent/Region: North America




Population: 300 million




Monetary Unit: US Dollar $




Main Export (s): Capital goods including transistors, aircraft, motor vehicle parts, computers and telecommunication devices; Consumer goods including automobiles and medicines; Industrial supplies including organic chemicals

Source: Lonelyplanet; US Census Bureau; CIA Factbook © 2008 Accenture. All rights reserved.

5

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The United States is a constitution-based federal republic consisting of 50 states with significant legislative authority

US Overview: Geography & Political Structure

The United States

• The United States’ is a federalist system with a national government and fifty sovereign states. • Any power not delegated to the federal government in the U.S. Constitution, nor prohibited by it to the states, are reserved to the states • Both the national government and each state government are divided into executive, legislative, and judicial branches • In the United States, federal and state government funding of health care needs of its citizens is limited to Medicare and Medicaid insurance programs for the eligible senior, very poor or disabled persons • Individual states have significant leeway in regard to healthcare legislation including access and funding • State budgets have been heavily impacted by escalating healthcare costs as federal funding declines and costs for healthcare services and medications increase

Source: Plano ISD Instructional Center; CIA Factbook; Legislationline; © 2008 Accenture. All rights reserved.

6

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview – Summary Conclusions – Geography & Political Structure – Key Economic Indicators – Demographics • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

7

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The United States is the largest economy in the world Key facts of the United States economy and consumers GDP , GDP growth

Private consumption, population Germany

5%

World average

GDP*

4%

UK 3%

Spain

USA

France

2%

5%

2008est. Private consumption growth ***

GDP real growth*

6%

$12.36 bn

GDP real growth**

3.5%

GDP p.c.

$41,800

Germany

1%

0

5000

10000

15000

1%

Spain

-1% $0

Country Spain

120

UK

115

France

110

Germany

105

United States

100

Private consumption per capita

France UK $5,000

300m $16,260

$10,000 $15,000 $20,000

Germany

Bubble size = 2008 Population

Private consumption p.c. (2008)

Consumer price index (2000=100)

GDP per capita index (2000=100) 125

Population

-5%

*official exchange rate **2004/2005

GDP ($bn)

USA

3%

2008

-3%

Bubble size = GDP per capita

0%

USA

CAGR 2000/08

120

Country

115

3.2% 2.5% 1.9% 1.6% 3.8%

Spain UK

110

France

95

105

Germany

100

United States

CAGR 2000/08 3.2% 2.3% 1.9% 1.6% 2.5%

95 2002 2004 2006 2008 2010 2012

2002

2004

2006

2008

2010

2012

Sources: OECD Factbook, 2006; Pharmaceutical Markets Fact Book 2005, OECD Main Economic Indicators; U.S. Department of Labor, Bureau of Labor Statistics, World Economic Outlook Database 2006 and The Economist Intelligence Unit Ltd, 2005

© 2008 Accenture. All rights reserved.

8

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview – Summary Conclusions – Geography & Political Structure – Key Economic Indicators – Demographics • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

9

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The United States has one of the largest birth rates of OECD countries with the population projected to almost double between 2005 and 2050 Birth rate*, 2008

Germany Overview: Demographics

Expected US population (million), 2005-2050

United States

2.04

France

450

1.89

Netherlands

420

1.75

United Kingdom

1.71

Sweden

1.71

Belgium

364

1.61

Switzerland

392

400

350

336

OECD average (1.56)

1.41

309 Austria

1.39

Japan

1.38

Germany

300

1.34

Italy

1.29

Spain

1.29

0

1

250

200

2

2005

3

Note: Birth rate equivalent to number of children born to women aged 15 to 49 Source: OECD Factbook 2008: Economic, Environmental and Social Statistics © 2008 Accenture. All rights reserved.

296

2010

2020

2030

2040

2050

Source: US Census Bureau, 2004 10

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

US citizens have historically lived longer than the OECD average however in 2003 the US life expectancy dipped just below the OECD average. Life expectancy at birth continues to increase for both men and women

Life expectancy at birth (years)

Germany Overview: Demographics

US life expectancy at birth by sex (years)

80

85 77.5

78

77.8 80.1 78.8

80 75.4

76

74.9 75

74

74.8

74.6 72

72

70.8

70

70.3

67

70 65 68 60

66 1970

1990 United States

Source: US CDC, 2008 © 2008 Accenture. All rights reserved.

1970

2010

1990 Females

OECD Average

11

2010 Males

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The population in the US is ageing, which is illustrated by the fact that people aged 65 and above are projected to represent 16% of the US population by 2020, compared to 12% in 2000

US Overview: Demographics

The expected development of the age structure in the US, 2000-2020 Age structure (2000)

Age structure (2020)

Population aged 65 and over: 12%

Population aged 65 and over: 16%

People ‘000 60,000

People ‘000 60,000

50,000

50,000

40,000

40,000

30,000

30,000

20,000

20,000

10,000

10,000

0

0 0-4

19-May

20-44

45-64

Male

Female

65-84

Source: US Census Bureau, Population Projections © 2008 Accenture. All rights reserved.

0-4

85+

19-May

20-44 Male

45-64

65-84

85+

Female

Source: US Census Bureau, Population Projections 12

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview – PMP Expenditures – Regulatory System – Pharmaceuticals Overview – Medical Products Overview – Distributor Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

13

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The United States spends more on healthcare than any other OECD country both in terms of GDP and per capita – the US has not managed to contain costs

Healthcare spend as a % of GDP, 2008

Healthcare spend per capita (USD*) CAGR 1999-2008

CAGR 1999-2008 3.8%

USA

2.3%

Switzerland

1.2%

Germany

3,001

4.0%

10.1%

2.1%

Netherlands

2,987

8.9%

9.8%

3.9%

France

2,902

5.9%

2,828

7.6%

USA

15.2%

Switzerland

11.5%

Germany

11.1%

France Netherlands Sweden

9.4%

2.9%

Belgium

Belgium

9.4%

2.5%

Sweden

2.2%

Ireland

Italy

US PMP Overview: PMP Expenditures

8.4%

5,711 3,776

7.1% 5.8%

2,704

6.3%

2,496

11.3%

United Kingdom

8.0%

2.7%

United Kingdom

2,389

8.9%

Spain

7.7%

0.7%

Austria

2,306

3.0%

Austria

7.5%

-0.3%

Italy

2,266

5.1%

Ireland

7.3%

4.2%

Spain

0.0%

5.0%

10.0%

15.0%

0

20.0%

6.2%

1,853 2,000

4,000

6,000 USD

Note: Healthcare spend per capita expressed at international dollar rate Source: WHO Statistical Information System (WHOSIS), May 2008 © 2008 Accenture. All rights reserved.

14

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharmaceutical spending in the US is lower than the OECD average however per capita spending is significantly higher than OECD peers

Pharmaceuticals expenditure per capita, 2008 (USD)

Pharmaceutical spend as a % of total healthcare spend, 2008

Italy

22.1%

USA

Spain

21.8%

France

France

20.9%

Japan

728 606

Italy

18.4%

498

Germany

436

OECD average (17.5%)

Germany

14.6%

USA

12.9%

Sweden

12.6%

Netherlands

11.4%

Switzerland 0.0%

US PMP Overview: PMP Expenditures

10.5% 5.0%

10.0%

15.0%

20.0%

25.0%

Spain

401

Switzerland

398

Japan

393

Sweden

340

Netherlands

340 0

200

400

OECD average (380)

600

800

Source: Health at a Glance, OECD 2005 © 2008 Accenture. All rights reserved.

15

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US spends less on medical technology as a percent of total healthcare spend than the OECD, but maintains the highest rate of spend on a per capita basis

Medical Technology spend as a % of total healthcare spend, 2008

Germany

Medical Technology expenditure per capita, 2008 (EUR)

8.6%

USA

Netherlands

6.5%

Germany

France

6.5%

Switzerland

European average (6.4%)

Spain

5.8% 5.1%

Sweden

Sweden

5.1%

Italy

4.8%

Switzerland 0.0%

4.0%

6.0%

188 154 150

107 97

Spain

8.0%

10.0%

European average (124)

120

UK

4.5% 2.0%

230

France

USA

UK

278

Netherland s

6.1%

Italy

US PMP Overview: PMP Expenditures

73 0

50

100

150

200

250

300

Source: Medical Technology Brief, Eucomed 2008 © 2008 Accenture. All rights reserved.

16

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Hospital and physician services represent the largest share of total US healthcare expenditures

US PMP Overview: PMP Expenditures

Distribution of US Healthcare Expenditures, 2008

100% 90%

10%

Other

14%

Administrative

7%

2%

Nursing home care

7%

14%

Pharmaceuticals

29%

Hospital care

31%

Physician/Clinical services

22%

80% 70% 60%

11%

50% 40%

31%

30% 20% 10%

22%

0% Private healthcare spend

Total healthcare spend

Note: Other spend includes dental services, home healthcare, durable medical products, etc. Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield Association 17 © 2008 Accenture. All rights reserved.

• National healthcare expenditures are expected to reach a total of $2.1 trillion in 2008, growing at a much faster rate than the overall economy • While the largest portion of US health expenditures is paid for by private funds, the US government is projected to spend approximately $740 billion on healthcare in 2006, representing 34% of total national spending • Hospital care and physician services account for more than 50% of total healthcare expenditures • Total hospital spending growth is projected to be 7.9 percent in 2005, more than 1.5 percentage points higher than GDP growth • Advances in medical technology, growth and aging in the population and the propensity of baby boomers to frequently use healthcare services are all factors contributing to the increased use of hospital and physician services

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharmaceutical spend as a percent of total healthcare expenditures has slowed to single digit growth over the past several years

US PMP Overview: PMP Expenditures

Total Pharmaceutical Spend and % of Total Healthcare* • $600

16%

• 14%

(in billions)

$500 12% $400

$300

$200

10% 8% 6% 4%

$100

$0

•

2% 0%

Note: 2005-2014 projected Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield Association © 2008 Accenture. All rights reserved.

18

•

Prescription drug expenditures reached $224 billion in 2005, representing 11.5% of total national healthcare expenditures Prescription drug spending has slowed over the past few years, growing at a rate of 8.2% in 2005 as opposed to the double digit growth of the mid nineties through 2003 Slower growth rates are in part attributed to a slowdown in drug usage prompted by increased consumer out-of-pocket expenditures and recent concerns over drug safety The industry outlook is characterized by conflicting factors which will both accelerate and slow growth – The former include practice patterns that involve prescribing existing drugs to a larger segment of the population and high-cost specialty drugs designed to treat rare conditions; growth constraints include projected growth in the use of generics and increased cost sharing in the form of rising co-payments and additional deductibles or both

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharmaceuticals are primarily financed by private insurance in the US, however with the introduction of Medicare Part D legislation in 2006 there is expected to be a significant increase in federal funding

Prescription drug spend, by source, $bn, 2000-2010

• Currently, the private sector represents the largest share of prescription drug purchasing with a projected share of over 80% in 2006 • A shift is underway in prescription drug funding with private insurers attempting to reduce drug expenditures through higher co-pays and increased use of generic substitutes • The federal government’s share of prescription drug spending is expected to increase significantly with the passage of Medicare Part D legislation which provides previously unavailable outpatient drug coverage to Medicare members • Under Medicare Part D, Medicare beneficiaries will be able to join a private health plan for out-patient coverage, or sign up to a stand-alone Medicare prescription drug scheme • The Medicare share of prescription drug spending is expected to increase from 2% in 2005 to 27% in 2006

400 350 300 250 200 150 100 50 0 2000

2005

2006

2008

2009

Total

Out-of-Pocket

Total Private

Total Public

Medicare

Medicaid

Source: US Centers for Medicare and Medicaid Services, 2008 © 2008 Accenture. All rights reserved.

US PMP Overview: PMP Expenditures

2010

19

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

US managed care companies are increasingly demanding higher copayments for prescription drugs

US PMP Overview: PMP Expenditures

Prescription drug co-payments demanded by HMOs (% of all prescriptions covered) Prescription Co-Payments

2004

2008

2012 [Projected]

$5

46

24

23

$10

40

52

51

$15

-

6

9

$10

28

10

7

$15

30

15

14

$20

26

35

31

$30

-

7

13

$10

9

4

2

$25

21

5

6

$30

22

11

10

>$30

24

38

40

Generic

Brand Formulary

Brand Non-Formulary

Source: Global Insights Report: United States (Healthcare and Pharma). October, 2008. 20 © 2008 Accenture. All rights reserved.

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

In the United States, the manufacturer receives 76.5% of the reimbursed drug price (excluding taxes), which is among the highest of European peers. In contrast, US pharmacies get a lower margin than their European counterparts

Germany PMP Overview: PMP Expenditures

Share of final drug price (excluding taxes) in selected countries, per type of player, percentage 2008 Taxes

Sweden

82

2

16

United States

76.5

3.4

20.1

Norway

75.3

4.9

19.8

Denmark

74.7

Switzerland

73.5

Portugal

71.6

France

70.5

Finland

68.6

Netherlands

68.1

0

26.5

8.4 3.2

10.6

21.3

7.3

27.1

Ireland

64

11

25

Germany

64

6.6

0 16.3 6.4

4

Wholesalers

4.2

30.9

87.5

Manufacturers

9.9

31.4

9.6

60

6.4

26.4

4.7

40

5.3 16.3

65.6

20

5.3

27.9

Spain

0

2

26.3

3.5

59.6

26.6

20

67

UK

0

20.3

Italy

Belgium

0

8.5 0

80

100

Pharmacies

Taxes

Source: Statistics 2008 VFA (The German Association of Research-Based Pharmaceutical Companies) 21 © 2008 Accenture. All rights reserved.

120

140

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview – PMP Expenditures – Regulatory System – Pharmaceuticals Overview – Medical Products Overview – Distributor Overview • Key PMP Players • US PMP Outlook • Appendix © 2008 Accenture. All rights reserved.

22

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US Food & Drug Administration (FDA) is the primary regulator of the pharmaceutical and medical products industries in the US

US PMP Overview: Regulatory System

•All drugs must be accepted by the FDA prior to being marketed and sold in the US •The FDA requires that pharmaceutical manufacturers perform extensive testing to prove that their products are safe and effective before it will sanction commercial sale

US FDA

•New drugs must pass through a three stage process of Clinical Trials before receiving final approval from the FDA

Enforces US food & drug laws

•The FDA estimates that, of 20 drugs entering clinical trial testing, an average of 13 to 14 will successfully complete phase I – of those only 9 will finish phase II and only 1 or 2 will pass phase III

Regulates the Introduction of New Drugs

Monitors the manufacture, Transport & storage of food, drugs and cosmetics

Clinical Trials

Phase I

Phase II

Phase III

New Drug Application (NDA)

•Due to recent concerns over drug safety, The FDA is working on improving ways to track the safety of drugs already on the market; Tightening label requirements and planning to expand the duties of advisory committees are two measures currently underway to achieve more effective post-market surveillance

Source: Pharmaceutical Industry Survey. Standard & Poor’s. May 25, 2006.

© 2008 Accenture. All rights reserved.

23

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Unlike its European counterparts, the US pharmaceutical industry is characterized by no direct pricing controls

US PMP Overview: Regulatory System

•

Currently, US drug pricing is primarily affected by: • Free market dynamics: Includes the relative efficacy and safety profile of a drug versus its rivals, the size of its market, the competition it faces, and its development costs • Discount and rebate programs resulting from leverage exacted by large buying groups: Large-scale buyers (such as hospital chains and other institutional customers) usually pay well below list price, because their huge volume purchases enable them to negotiate heavy discounts. Government organizations, such as the Department of Defense, the Department of Veterans Affairs, and Medicaid, for example, typically negotiate some of the steepest discounts for drugs. • Patient assistance programs: Programs run by pharmaceutical companies to provide free medications to people who cannot afford to buy their medicine • Generic competition: When some easy-to-manufacture blockbuster drugs go off-patent, half a dozen or more generic competitors may enter the market simultaneously at prices that are 50% to 80% or more below brand

•

Because US drug prices tend to be an average of 16-18% higher than in European countries, there have been an increasing number of calls for the US to adopt more direct pricing controls

Source: Pricing & Reimbursement in the US. Datamonitor. June, 2008; Pharmaceutical Industry Survey. Standard & Poor’s. May 25, 2008.

© 2008 Accenture. All rights reserved.

24

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview – PMP Expenditures – Regulatory System – Pharmaceuticals Overview – Medical Products Overview – Distributor Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

25

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

For a long time, the market-based nature of the US Pharmaceuticals market has enabled it to grow faster than the Pharmaceuticals market in any other major developed country Growth of the largest Pharmaceutical markets, 2004-2010 [projected] Index 1998=100 220 USA

200

180

Spain UK

160

Italy France

140

Germany

• The Pharmaceutical market in the US has been growing faster than in any other major developed country over the last decade • While tight price controls from central governments has limited growth in many other OECD-countries, the US market is still characterized by free market pricing and a large number of independent buyers, leading to higher prices in general • In addition, the strong development of the US economy, the introduction of new products/treatments and an aging population have driven growth in volume consumption. For instance, in 2010 an estimated 51% of the population took prescription drugs on a daily basis and 27% took three or more drugs daily

Japan

120

100 2004

US PMP Overview: Pharmaceuticals Overview

2005

2006

2007

2008

2009

2010

Sources: Statistics 2008, VFA (The German Association of Research-Based Pharmaceutical Companies); Health Care Costs Survey, USA Today/Kaiser Family Foundation/Harvard School of Public Health, 2008 26 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Over the last few years value growth has stagnated, mainly as a result of increasing competition from generic drugs, but also due to falling productivity among manufacturers Prescription Pharmaceutical sales (at wholesale prices) and annual growth rates, 2005-2008($bn)

•

$ bn 300

•

14.0% 13.0%

• 12.0% 11.3% 10.4%

250

252

10.0%

239 8.0% 216 6.0% 5.4%

200

194 4.0%

2.0%

150

•

0.0% 2005

2006 Size

2007

2008

US PMP Overview: Pharmaceuticals Overview

Between 2005 and 2008 the US prescription drugs market grew from $194 bn to $252bn, recording a Compound Annual Growth Rate (CAGR) of 9.1% Yet, the annual growth rate fell every year during the same period to reach a low 5.4% in 2008 This decelerating growth in terms of value is underpinned by several factors, of which a few stand out: – Lower number of approvals for New Chemical Entities (NCEs) – Fewer and lower-performing product launches – The increasing use of generic drugs, which in turn is driven mainly by two different facts: • The implementation of greater cost-sharing measures by most health insurers • The fact that many major drugs lost their patent protection over the last few years – The withdrawal (for safety reasons) of a number of major products – A large number of switches by prescription drugs to OTC status At the same time it should be noted that in terms of volume the market continues to expand

Growth

Sources: IMS Health press release 22 Feb 2008; PharmaHandbook 2008, VOI Consulting 2008, United States Healthcare and Pharma, Global Insight, Oct 2008 © 2008 Accenture. All rights reserved.

27

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharma sales by therapeutic category

US PMP Overview: Pharmaceuticals Overview

522 2% 3%

389 2% 3%

577 2% N/A

Source: PharmaHandbook 2008, VOI Consulting © 2008 Accenture. All rights reserved.

Ace Inhibitors

Anti-platelets, Oral

Other

1,387 6% 8%

Calcium Blockers

SSRI

Seizure Disorders

1,995 8% 16%

Erythropoietins

Antipsychotics, other

Proton Pump Inhibitors

5,015 20% -9%

Statins

Sales ($m) Share of total Growth (03-04)

3,839 15% 8%

3,836 15% -2%

1,902 8% 3%

1,858 7% -3%

Angiotensin II Antagonists

Out performing Market >6% growth 2003-2008*

1,321 5% -7%

1,102 4% 12%

694 3% -9%

Monoclonal Antibodies

Underperforming market <6%2003-2008

Insulin Sensitizer

Contracting < -ve growth 2005-2008

25,098 100% 0.5%

Total

661 3% 2%

Bisphosphonates

Pharmaceutical Retail Sales by Therapeutic Category, 2008 (USD m)

* IMS reported 6% growth in retail sales 12m to May-08 $26.8B 28 Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pfizer’s cholesterol reducer Lipitor is by far the best-selling drug on the US market. At the same time, a number of biotech products, such as Amgen’s Aranesp and Enbrel, are rapidly becoming major growth engines

US PMP Overview: Pharmaceuticals Overview

Leading prescription drugs, 2008, at wholesaler prices Company

Class

Sales (USD bn) Change (2005-2008)

Lipitor

Pfizer

Statin

8.4

+8%

Zocor

Merck & Co

Statin

4.4

-5%

Nexium

AstraZeneca

Proton pump inhibitor

4.4

+15%

Prevacid

TAP (Takeda/Abbott)

Proton pump inhibitor

3.8

-2%

Advair Diskus

GlaxoSmithKline

Beta 2 agonist

3.6

+22%

Plavix

Bristol-Myers Squibb

Platelet ADP antagonist

3.5

+15%

Zoloft

Pfizer

SSRI

3.1

-2%

Epogen

Amgen

Erythropoietin

3.0

-1%

Procrit

Johnson & Johnson

Erythropoietin

3.0

-9%

Aranesp

Amgen

Erythropoietin

2.8

+46%

Enbrel

Amgen

TNFa inhibitor

2.7

+36%

Note: Biotech products shaded Source: IMS National Sales Perspectives, 1/2008 IMS Health © 2008 Accenture. All rights reserved.

29

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US prescription drug market is still dominated by US-headquartered companies. However, weak performances by companies like Pfizer and Merck & Co has recently paved the way for some of the larger European companies to increase their market share Leading Pharma companies, by US prescription drug sales, 2008 Sales Change Market Ranking (USD bn) (2004-2008) share in 2000 Pfizer

27.2

-12%

10.8%

1

GlaxoSmithKline

19.9

+6%

7.9%

2

Johnson & Johnson

16.0

-4%

6.3%

6

Merck & Co

15.2

0

6.0%

3

AstraZeneca

12.3

+10%

5.1%

5

Novartis

12.3

+11%

4.9%

-

Amgen

11.9

+23%

4.7%

-

Sanofi-Aventis

11.0

+9%

4.4%

-

Eli Lilly

8.7

+6%

3.4%

8

-10%

3.3%

4

Bristol-Myers Squibb 8.4

US PMP Overview: Pharmaceuticals Overview

• Pfizer has dominated the US prescription drugs market for many years and has maintained its market share mainly by acquisitions. Examples include the acquisition of Warner-Lambert in 2000 and of Pharmacia in 2003 • In the last few years, however, Pfizer’s market share has dropped, mainly due to falling productivity, patent expiries and the withdrawal of some marketed products, such as the COX-2 inhibitor Bextra in 2005 • Two other major US companies, Merck and Bristol-Myers Squibb have also lost market share recently. In Merck’s case the withdrawal of one of its best-selling products, the COX-2 inhibitor Vioxx in September 2004 marked the beginning of a tough time for the company • This has paved the way both for European companies like Novartis and Sanofi-Aventis, and for biotech companies like Amgen, who have all increased their market share over the last few years. In the case of Novartis, sales of generic drugs within its Sandoz division has contributed to sales growth

Source: IMS National Sales Perspectives, 1/2008, IMS Health; IMS 2000 © 2008 Accenture. All rights reserved.

30

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The total number of people employed within the pharmaceutical industry in the US increased rapidly over the last decade. In the last few years, staff reductions, mainly within sales functions has halted this growth

Employees in the US pharmaceutical industry, in thousands, 1996-2008

300

• The US drug-producing industry includes some 1,300 companies employing around 290,000 people • During the end of the 1990s, employment in the US pharmaceutical industry increased rapidly following the strong growth of the US pharmaceuticals market. In fact, between 1996 and 2002 industry employment grew by more than 25% • In the last few years, this development has been halted as companies have reduced their staff in some functional areas. This is particularly the case within sales departments, where the number of sales representatives has been cut in initiatives to enhance sales force efficiency • At the same time, the number of R&D staff has continued to increase as a larger share of the global R&D activity has moved to the US

291 292 290 289

290

283

280

274

270

274

277 279

261

260 247

250 236

240 230

229

220 210 2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

200 1996

US PMP Overview: Pharmaceuticals Overview

Source: US Bureau of Labour Statistics; Ethical Pharmaceuticals, Fredonia, 2008 © 2008 Accenture. All rights reserved.

31

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

R&D activity in US research-based pharmaceutical companies has increased strongly over the last decades. Still, R&D productivity is falling, causing companies to look for alternative ways of developing drugs R&D expenditure in the US research-based Pharma industry, 1980-2008, $ bn, and as a % of total sales

45.0

20% 39.4

17%

40.0

40.0

18% 38.9

16%

35.0

14%

18% 17%

35.7

17%

14%

13%

30.0

16%

16%

26.0

12%

25.0 10% 20.0 9%

8%

15.2 15.0

6% 8.4

10.0 5.0

4%

4.1

2%

2.0

0.0

0% 1980

1985

1990

Total R&D

1995

2000

2005

2006

R&D as a % of sales

2007

2008

US PMP Overview: Pharmaceuticals Overview

• R&D activity in US research-based pharmaceutical companies has increased strongly over the last decades, recording a compound annual growth rate (CAGR) of 12.7% between 1980 and 2005 • In addition, R&D as a share of revenue has increased sharply over the same period, although decreasing slightly over the last decade • Following this growth, the US has become the engine of global pharmaceutical R&D, as evidenced by its improved position compared to European R&D • At the same time, R&D productivity is falling, as measured by R&D investment divided by the number of new molecules approved • In order to address this development the major pharmaceutical companies have increased their collaboration with the biotech industry in addition to reorganising their own research departments to increase productivity in-house

Note: Data refer to R&D expenditures by PhRMA-members Source: Pharmaceutical Industry Profile 2008, PhRMA 2006; PharmaHandbook 2008, VOI Consulting, 2008 32 © 2008 Accenture. All rights reserved.

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Marketing of pharmaceuticals in the US differ from the practice in most other developed countries mainly by the fact that marketing of prescription drugs directly to the patient is allowed Pharmaceutical marketing spend by category, 2005-2008, USD m CAGR Category 2005-2008

USD m 15,000

14,491

11,061 10,165 10,000

1,570 425 702

1,786

Total

12.5%

Samples

15.6%

Journal advertising

8.6%

Hospital promotion

9.3%

6,602

Office promotion

11.3%

4,019

DTC advertising

14.5%

12,796

2,408

1,956

544 917

480 849

•

•

437 873

6,281 5,000

•

4,789

5,327

2,679

2,638

2005

2006

3,230

0 2007

2008

•

Office promotion (i.e. sales representatives from pharma companies visiting physicians to promote their products) still accounts for the largest share of pharma companies’ drug marketing expenditures However, Direct-to-consumer (DTC) advertising is also an important part of brand-name drug manufacturers' sales strategies in the US Recently, this practice has been criticized by regulators and the wider public, partly because of a backlash against the rising costs of prescription drugs, and also because of drug-safety concerns following the withdrawal of the heavily-promoted COX-2 inhibitor, Vioxx in 2004 Still, it has not just been DTC advertising that has recently come in for increasing scrutiny. Other areas which could potentially attract regulatory attention in the near future include: – the ghost-writing of articles – the sponsorship of medical events – trips for doctors and other opinion-leaders – pharma lobbying practices – the behaviour of pharma companies’ drug-detailing forces

Note: Sample value calculated at ex-manufacturer cost Source: PharmaHandbook 2005, VOI Consulting, 2005; United States Healthcare and Pharma, Global Insight, Oct 2006 33 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Marketing investments differ widely between categories, with the SSRI/SNRI category being the most heavily promoted category in 2004, followed by the Statins category

US PMP Overview: Pharmaceuticals Overview

Marketing spend by category, 2005-2008, USD m

• The SSRI/SNRI (Selective Serotonin Reuptake Inhibitors/Selective Noradrenalin Reuptake Inhibitors) drug category is the largest category in terms of marketing investment • In 2004-05, the most heavily promoted drugs (by marketing investment) within the SSRI/SNRI category were Lexapro (Forest Laboratories) and Zoloft (Pfizer). Lexapro was in fact the most heavily promoted drug on the US market in 2004, with a marketing spend of $168m • The second largest category was Statins, underpinned by marketing investments supporting the launch of Crestor. This drug recorded the third largest marketing spend of all drugs in 2004 • The marketing expenditures of COX-2 inhibitors decreased as a result of the withdrawal of Vioxx in September 2004. This drug had been the second most promoted drug in 2003 • Sexual function disorders was the fastest growing segment, as Viagra faced competition. This started in late 2003 and picked up substantially in 2004

Growth 2003-2004 SSRI/SNRI

509

Statins

402

+16% +14%

COX-2 Inhibitors

348

-10%

Proton Pump Inhibitors

346

-11%

Angiotensin II Antagonists

302

0%

Sexual Function Disorder

239

+76%

Antipsychotics

237

+5%

Quinolones, systemic

-9%

207

Steroid, Inhaled nasal

192

-3%

Macrolides and related

186

+22%

0

200

400

600

Source: PharmaHandbook 2008, VOI Consulting, 2008 © 2008 Accenture. All rights reserved.

34

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Over the last decades, the market for generic drugs has experienced strong growth and generics now account for more than half of all prescriptions dispensed in the US

US PMP Overview: Pharmaceuticals Overview

Generic drugs’ share of total number of prescriptions dispensed in the US, 1984-2005

Source: Generic Pharmaceutical Association, 2006 © 2008 Accenture. All rights reserved.

35

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Generic drugs account for around 17% of the total prescription drugs market in value terms, but hold more than half of the market in terms of volume. Measures to increase the use of generics are widely used by health insurers Generics’ share of total pharmaceutical sales, by value and volume, 2008

Brands (82.6%)

Total Generics (17.4%)

Branded Generics (9.6%)

Generics (7.8%)

Value

Total Generics (54.2%)

Brands (45.8%)

Branded Generics (10.6%) Generics (43.6%)

US PMP Overview: Pharmaceuticals Overview

• The US has one of the most developed market for generic drugs in the world. In 2008, generics accounted for around 17% of the total prescription drugs market in value terms, but hold more than half of the market in terms of volume • The foundation for the industry was laid by the 1984 Hatch-Waxman act – Under this legislation generic manufacturers are able start developing bioequivalent drugs while the original drug is still under patent – Also, as an incentive to generic producers, the first company that successfully files a patent challenge gets a six-month generic exclusivity period. Once this period expires, any generic company is free to sell the product and prices fall rapidly

Volume Sources: PharmaHandbook 2008, VOI Consulting, 2008; Global Generics Guide: Part 2, Datamonitor, 2008 36 © 2008 Accenture. All rights reserved.

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

In 2008, the US generics market was worth around $22bn, equivalent to 9% of the total prescription market. Between 2005 and 2008 the generics market recorded a CAGR of 17.5% Generics market value and growth, 2005 – 2008 ($bn)

•

$ bn 25.0

0.25 22%

22.3 21%

0.2

20.0 18.5

0.15

16.8 0.1

10% 15.0 13.8

0.05

10.0

0 2005

2006 Size

2007 Growth

2008

•

•

US PMP Overview: Pharmaceuticals Overview

Between 2005 and 2008 the generics market grew from $13.8bn to $22.3bn, representing a CAGR of 17.5%. During the same period the total US prescriptions market recorded a CAGR of 9.1% Sales growth varies significantly from year to year, depending mainly on the degree of patent expiries of branded drugs, but also on the implementation of cost containment policies by health insurers Measures to increase the use of generics vary between the different private and public health insurers on the market, but include: – Generic substitution is encouraged in the majority of the states to a varying degree. In some states pharmacists are required to dispense generics unless specifically directed otherwise by the physician. In other states it is the physician’s responsibility to take the initiative – Pharmacist incentives are used by many health insurers. Within this arrangement, the level of reimbursement received by the pharmacist is in many cases higher if generics are dispensed – Tiered patient co-payments, whereby the amount paid by the patient is lower for generics than for branded products – Supply of free generic drugs for a limited period to encourage patients to switch from branded drugs. For instance, WellPoint, a leading US health benefits company, now gives members free generic medication for four to six months

Sources: PharmaHandbook 2005, VOI Consulting, 2005; IMS Health press releases 21 Feb 2003, 17 Feb 2008 14 Feb 2005, 22 Feb 2006; Global Generics Guide: Part 2, Datamonitor, 2008; Accenture Research analysis 37 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Both patent-holders and generic manufacturers are leveraging the existing legislation at a maximum, while lobbying for amendments to this legislation

Examples of legislation affecting the US Generics industry

•

•

Pro-patent legislation • Authorised generics allowed • 30-month patent extension retained

• Pro-generic legislation • The Hatch-Waxman act • Limitation of patent extension to one 30month period • Increased FDA funding for approval of generic drugs

•

US PMP Overview: Pharmaceuticals Overview

Ever since the implementation of the Hatch-Waxman act in 1984, generic manufacturers and patent-holders have found ways to use the existing legislation to their advantage. In addition both sides have lobbied strongly for amendments to the act For instance, patent-holders have developed a strategy called authorised generics. Under this strategy, the patent-holder supplies the product to a generic company for distribution, allowing the patent-holder to compete during the 180-day exclusivity period. As the majority of generic company profits are made during the exclusivity period, the ultimate result is a reduction in incentive for challenging patents early. Generic manufacturers have complained that by launching authorized generics patent-holders are using a loop-hole in the Hatch-Waxman act, but the FDA ruled against one such petition in 2004 At the same time, the Bush administration has made concessions to the generic drug industry: – Firstly, the FDA has received increasing funding for its generic drugs programme over the past several years – President Bush also issued a regulation change stating that brand-name manufacturers have the right to just one 30month extension to their patent when challenging the legality of a generic equivalent

Sources: PharmaHandbook 2005, VOI Consulting, 2005; Global Generics Guide: Part 2, Datamonitor, 2006 38 © 2008 Accenture. All rights reserved.

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

US PMP Overview: Pharmaceuticals Overview

Generics market, cont. Generics companies, by number of US prescriptions, 2008

• The market for generic drugs is dominated by a few large companies and is more concentrated than the market for branded drugs • The largest company on the market is the Israeli generics group Teva. In 2006, Teva acquired, Ivax, one of the largest US companies • One of the other major players, Sandoz, is owned by the Swiss pharmaceuticals company Novartis. In the last few years, other major pharmaceutical companies have followed this strategy and increased their investments in the generics industry: – Example…. – XXX…

Prescriptions Change Market (million) (2004-2008) share Teva

213

+6%

13%

Mylan

203

+5%

13%

Watson

148

+5%

9%

Sandoz

133

+3%

8%

Ivax*

84

+21%

5%

Mallinckrodt

73

+15%

5%

Alpharma

69

-3%

4%

Qualitest

69

+18%

4%

Par

68

+21%

4%

Barr

56

-1%

4%

Other

497

+16%

31%

Total

1,613

+10%

100%

Note: Ivax was acquired by Teva in 2008 Source: PharmaHandbook 2005, VOI Consulting, 2008 © 2008 Accenture. All rights reserved.

39

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US biotech market is a large and fast-growing industry, dominated by a small number of very large biotech companies Biotech sales (at wholesale prices) and annual growth rates, 2005-2008 ($bn) $ bn 35.0

0.25 32.8 22.0%

30.0

0.2 28.0 17.0%

25.0

20.0

17.2% 0.15

23.9

19.6

0.1

15.0

0.05

10.0

0 2005

2006 Size

2007 Growth

2008

US PMP Overview: Pharmaceuticals Overview

• The US market for biotechnology products was worth $32.8 bn in 2008, up from $19.6 bn in 2005. This is equivalent to a compound annual growth rate (CAGR) of 18.7% • The lion’s share of these sales were recorded by products sold by the major biotech companies. Some of the main contributors were: Aranesp, Enbrel and Neulasta from Amgen, and Rituxan from Genentech • There are a number of driving forces behind the strong growth recorded by biotech drugs over the last few years: – While the large pharma companies struggle with their productivity, the biotech industry has remained productive – Biologic products have a large share of high-growth therapeutic areas focused on elderly people, such as AIID (Arthritis, Immune and Inflammatory Disorders) and oncology – The lack of competition from generic drugs

Sources: IMS Health press releases 21 Feb 2008, 17 Feb 2008, 14 Feb 2008, 22 Feb 2008; United States Healthcare and Pharma, Global Insight, Oct 2008; PharmaHandbook 2008, VOI Consulting 2008; Pricing and Reimbursement in the US, Datamonitor, 2008 40 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US is the engine of the global biotech industry, with the large majority of biotech R&D being carried out there. The main biotech clusters are located around strong universities in coastal states

US PMP Overview: Pharmaceuticals Overview

Main US Biotech clusters

Massachusetts Washington

New York Connecticut Pennsylvania Maryland

New Jersey

North Carolina California Georgia Texas Florida Size of bubble indicates the number of Biotech companies in the state: 350-400 companies

250-300 companies

50-100 companies

25-50 companies

• The United States is the driving force behind the global biotechnology industry, with some 63% of biotech R&D being carried out there • The main clusters of biotech activity are San Francisco, Maryland, San Diego, Boston, Seattle and North Carolina, all of which are based around strong research bases such as California University and the Massachusetts Institute of Technology (MIT) • Government funding for biotech research is substantial: the National Institutes of Health (NIH) received $15.6 billion in federal funding in 1999, rising to $27 billion in 2003. The NIH consists of 27 institutes, employing 15,000 people • In addition, many states offer tax incentives for biotech R&D. Those states with the most attractive tax breaks tend to be the ones with the largest biotech sectors. California, for example, has introduced a number of incentives such as exemption from a 6% sales tax

Sources: Strength and Stability – The Americas Perspective, Ernst & Young, 2006; United States Healthcare and Pharma, Global Insight, Oct 2006 41 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US market for OTC medicines only accounts for around 6% of the total US drugs market, but is accelerating growth mainly as a result of costcontainment measures taken by health insurers Sales of OTC medicines (at retail selling prices) and annual growth 2004-2008 ($bn)

20

•

0.05

•

4.7% 0.045

• 18.8

19

0.04

3.8% 0.035 3.3%

18

18

0.03 17.3

0.025

2.1% 16.7

17

0.02

16.4

0.015

16

0.01 0.005

15

0 2004

2005

2006 Size

2007

2008

Growth

US PMP Overview: Pharmaceuticals Overview

The US market for Over-the-counter (OTC) medicines was worth around $19bn at retail selling prices in 2008. This is equivalent to around 4% of the total US pharmaceuticals market At the same time, approximately 60% of all drugs sold in the US are non-prescription drugs. A total of 100,000 drugs are marketed OTC For a long time, growth of the OTC market has been essentially in line with general inflation. However, in the last few years the annual growth rate has increased for a number of reasons: – As patient co-payments of prescription drugs are increasing many patients seek cheaper forms of treatment with greater frequency. Using OTC drugs has the advantage of cutting out physicians’ charges and OTC prices are generally lower – Some of the major health insurers have recently agreed to cover OTC drugs in their plans: • In 2004 the pharmacy benefit manager Medco Health Solutions announced that it would add a number of OTC drugs to its cost-saving scheme • In September 2004, the health maintenance organisation Health Alliance Medical Plans agreed to cover Wyeth’s antihistamine Alavert and OTC Prilosec – The FDA has announced that it is looking to increase the number of blockbusters switched to OTC status (through enforcement) as it has already done with Prilosec and Claritin

Sources: OTC Pharmaceuticals in the United States, Datamonitor, Oct 2005; United States Healthcare and Pharma, Global Insight, Oct 2006 © 2008 Accenture. All rights reserved.

42

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US authorities have begun to relax the rules for Rx-to-OTC switching. This change is mainly driven by the desire by governments and health insurers to curb expenditures on medicines

Recent Rx-to-OTC switches in the US

Claritin

OTC manufacturer

Notes

ScheringPlough; Andrx

Approved in Nov 2002

Prilosec Procter & Gamble

Brand owned by AstraZeneca; approved in June 2003

Plan B

Barr Laboratories

OTC switch denied by FDA in 2004 and again in August 2005

Allegra

Sanofi-Aventis

Under consideration for OTC switch by FDA

Zyrtec

UCB Under consideration Pharmaceuticals for OTC switch by FDA

•

•

•

US PMP Overview: Pharmaceuticals Overview

Historically, tough safety and efficacy regulations on Rx-to-OTC switching have limited the types of new drugs eligible for this often lucrative lifecycle-extension option. But times are changing, and authorities are beginning to relax the rules for a number of reasons: – Pressure from manufacturers, pushing to squeeze as much return on investment as possible after patent expiry – Cost-containment policies on the part of governments and insurers have long aimed for more responsible self-medication in an effort to alleviate costly and unnecessary physician visits and to shift the burden of drug costs further on to the consumer – Consumers also gain in this scenario in terms of wider access to medicines, greater price competition, and time savings (and often cost savings) associated with pharmacist—rather than medical— consultations Examples of recent switches include drugs which have set precedents in the industry for different reasons: – The switch of Claritin was special since it was initiated through a petition to switch non-sedating antihistamines filed by a managedcare group – Prilosec was the first proton pump inhibitor to be switched. This was Safety concerns are high with this type of drug, particularly due to the risk of misdiagnosis in the case of more serious conditions

Sources: Should I Stay or Should I Go?, Global Insight, 31 Jul 2006; United States Healthcare and Pharma, Global Insight, Oct 2008 © 2008 Accenture. All rights reserved.

43

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The OTC market is dominated by the Cough and cold preparations segment. Growth in this segment is driven mainly by Rx-to-OTX switches of allergy remedies, such as Schering-Plough’s Claritin in 2001

US PMP Overview: Pharmaceuticals Overview

Segment shares of OTC market, by value, 2008

Other (13.0%)

Cough and cold preparations (22.9%)

Traditional medicines (12.8%) Analgesics (12.8%)

Medicated skin products (12.9%)

Vitamins and minerals (19.6%) Indigestion preparations (13.2%)

• Cough and cold preparations is the largest segment of the US OTC market, representing around 23% of total sales in 2004 • The Cough and old segment includes allergy and hay fever remedies, such as Schering-Plough’s Claritin, which was switched to OTC in 2002 following a decision by the FDA. Currently, the FDA is considering to switch SanofiAventis’ Allegra and Pfizer’s Zyrtec to OTC status • Vitamins and Minerals is another major segment, accounting for almost 20% of sales. This segment is gaining from current trends of promoting preventive medicine. On the other hand, growth is restrained by the ongoing debate over actual benefits and proper dosage levels • Indigestion preparations received a boost when AstraZeneca’s blockbuster drug Prilosec was switched to OTC status in 2003

Market value (at Retail Selling Price): $18.8bn Sources: OTC Pharmaceuticals in the United States, Datamonitor, Oct 2005; United States Healthcare and Pharma, Global Insight, Oct 2006; Over-the-Counter Pharmaceutical Chemicals, Freedonia, 2006 44 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Until recently, parallel importation of pharmaceuticals has been illegal in the US. Still, some trade has occurred as the authorities have tacitly allowed importation of drugs for personal use… Parallel imports’ share of total pharmaceutical sales, 2008

•

UK

17%

• Denmark

15%

Netherlands

13%

• Sweden

12%

Norway

7%

• Germany

5%

US

1%

0%

• 5%

10%

15%

20%

US PMP Overview: Pharmaceuticals Overview

The practice of re-importing drugs from countries where prices are lower (parallel imports) is an established way of lowering health payers’ drug bills in many countries (particularly in Europe) and these products are generally sold in regular pharmacies In the US, however, parallel importation of medicines has been illegal for many years as US authorities have claimed that they cannot guarantee the safety of imported drugs. The decision may also have been influenced by pharmaceutical companies, who would see their profits drop if re-importation would be allowed Nonetheless, for years Americans living close to the Canadian border have crossed the border to purchase cheaper Canadian drugs. More recently they have also been buying these drugs over the Internet, mainly from Canada and Australia. A few states have even encouraged parallel importation and have set up websites that link patients with pharmacies abroad Although technically illegal, US residents have been allowed to continue with the activity because of the FDA’s discretionary policy over personal drug imports (due to a lack of resources, the FDA tolerates a maximum of three months supply for personal use), and no patient has been prosecuted for personal use However, commercial parallel importation into the US is not currently taking place due to its illegality. This is the main factor that is keeping the overall level of parallel importation in the US low

Source: The Pharmacy Industry in Figures – 2008 Edition, European Federation of Pharmaceutical Industries and Associations (EFPIA), June 2006 45 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Congress recently passed a bill allowing re-importation of drugs from Canada for personal use. It remains to be seen what will be the impact of this new legislation Types of parallel importation from Canada allowed in the new US legislation

Canadian online pharmacies Cross-border sales in 2008 estimated at $460m

Re-importation by US citizens for personal use (90-day drug supply allowed)

•

•

• •

•

•

US PMP Overview: Pharmaceuticals Overview

For a long time, one of the largest and most visible sources of parallel importation in the US has been from pharmacies in Canada, where drug prices are considerably lower. Indeed, branded drug prices were estimated at 81% higher in the US compared to Canada and seven other Western countries in 2003 Pharmaceutical companies have been targeting parallel importation from Canada. Supply management strategies have been the single most successful strategy in limiting drug importation in the US so far, with drug exports from Canadian Internet pharmacies declining as a result Despite opposition from drugs companies, numerous bills proposing the legalization of parallel importation from Canada have been introduced into Congress in the last few years However, parallel importation has remained illegal as authorities have cited safety concerns as the main reason to keep the legislation unchanged. This case was strengthened by the withdrawal of Vioxx in 2004 (although this was not related to drug imports) In September 2006, Congress finally passed a bill allowing Americans visiting Canada to bring back a 90-day supply of prescription drugs for personal use. In addition, the bill stops customs officials from seizing packages containing prescription drugs posted from Canadian pharmacies Now, it remains to be seen what impact this will have on drug imports. Re-importation from Canada had already dropped prior to the decision for mainly two reasons: – The introduction of Medicare Part D reduced the demand for cheap drugs as many people who previously imported drugs back from Canada now receive subsidised drugs at home – The Canadian dollar has become stronger compared to the US dollar, which has made Canadian drugs more expensive

Sources: Pricing and Reimbursement in the US, Datamonitor, 2006; Popping pills, The Economist, 7 Oct 2006 46 © 2008 Accenture. All rights reserved.

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview – PMP Expenditures – Regulatory System – Pharmaceuticals Overview – Medical Products Overview – Distributor Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

47

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US market for Medical Products is the largest in the world representing almost 50% of global sales

US PMP Overview: Medical Products Overview

The global Medical Products market, 2008$ bn

• The global healthcare equipment and supplies market grew by 4.7% in 2008 to reach a value of $186.4 billion

RoW$3.5 bn (1.9%) Japan $33.1 bn (17.7%)

USA $86.3 bn (46.3%)

• The market is projected to reach $230.5 billion by 2010, an increase of 23.7% between 2005 and 2010 • Disposable equipment forms the largest segment of the market, generating 40.5% of global sales • Global market share is concentrated among four major players: Medtronic, Johnson and Johnson, Baxter and GE Healthcare which together hold more than 21% of total global revenues

Europe $63.5 bn (34.1%)

Global market, 2008: $186.4 bn Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2008. © 2008 Accenture. All rights reserved.

48

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US Medical Equipment and Supplies market is projected to grow at a steady rate of 4.1% (CAGR) between 2005 through 2010

US PMP Overview: Medical Products Overview

US Medical Equipment & Supplies forecast, 2005-2010 $ bn

• The US healthcare supplies and equipment industry generated total revenues of $86.3 billion in 2005, this represents a compound annual growth rate (CAGR) of 4.6% for the five-year period spanning 2005-2010 • Unhealthy lifestyles and an aging demographic are leading to higher incidences of chronic diseases, whose diagnosis and treatment is a key driver of demand for medical equipment and supplies • Healthcare spending is also increasing, and the introduction of the Medicare Part D scheme makes medical treatment accessible to a broader socioeconomic spectrum of patients which analysts believe will boost industry revenues going forward • A switch in consumer spending patterns towards low-margin, private label over-the-counter (OTC) products and supplies is anticipated to negatively impact revenue growth in the future

CAGR 2005-2010: 4.1%

120

100 86

90

93

97

101

105

80

60

40

20

0 2005

2006

2007

2008

2009

2010

Source: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006. © 2008 Accenture. All rights reserved.

49

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Almost half of US Medical Device sales are concentrated between two categories: Orthopaedics and Cardiovascular

US PMP Overview: Medical Products Overview

US Medical Products Sales, 2008

Other 30.6%

• Sales of disposable equipment generate the largest revenues for the United States health care equipment and supplies market, accounting for 40.1% of the market's revenues • Industry analysts believe that as US consumers continue to embrace self-treatment and preventive medicines, disposable medical supplies will remain a key driver of growth moving forward • Spinal care products and intra-cardiac defibrillators (ICDs) form under-developed sectors of the market Technological innovation, and new Centers for Medicare and Medicaid Services (CMS) regulations, have allowed for greater penetration of these products, increasing revenues for manufacturers through higher sales volumes

Disposable equipment 40.1%

Technical aids 7.0% Opthalmic equipment 6.7%

IV diagnostics 11.3%

US market, 2008: $86.3 bn Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006. © 2008 Accenture. All rights reserved.

50

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

US Medical products market, cont.

US PMP Overview: Medical Products Overview

US Medical Technology Industry Trade Statistics

Total US Exports of Medical Device & Diagnostics Industry 1989 – 2003-calculate by moving average method

2004-2008-Calculate by moving average method

Source: Medical Technology Industry at a Glance. AdvaMed, 2008. © 2008 Accenture. All rights reserved.

Source: Medical Technology Industry at a Glance. AdvaMed, 2004. 51

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Almost 38% of Medical Products establishments are concentrated within five states; California, Texas, Florida, Pennsylvania and New York. Employment in the US Medical Equipment and Supplies industry experienced a decline between 2001 – 2004, but is now on the rebound

US Medical Equipment & Supplies Establishments, 2008

US PMP Overview: Medical Products Overview

US Medical Equipment & Supplies Employment 2000 – 2008, 000’s

Total number of establishments = 12,160

315

310

756 515 305

1,883

300

644 811 295 2003

2004

2005

2006

2007

2008

Sources: US Census Bureau; US Bureau of Labor Statistics © 2008 Accenture. All rights reserved.

52

Adhikari,Dawn Source: & Melberg - accenture H&LS consultant EUCOMED & member associations 2004

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview – PMP Expenditures – Regulatory System – Pharmaceuticals Overview – Medical Products Overview – Distributor Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

53

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharmacy chain stores is the main distribution channel for prescription drugs in the US, accounting for 35% of the market in 2008. Clinics and Mail order (including online sales) are the fastest growing channels Prescription Drug Market Share by Distribution Channel, 2008(and CAGR 2001-2008)

•

Other (CAGR: 14%) Food stores (CAGR: 10%)

• Pharmacy chain stores (CAGR: 10%)

8% 9%

Clinics (CAGR: 18%)

•

35% 10%

•

Non-federal 10% hospitals (CAGR: 11%)

•

14% Independent pharmacies (CAGR: 6%)

15% Online/Mail order (CAGR: 18%)

US PMP Overview: Pharmaceuticals Overview

Prescription pharmaceuticals in the US are distributed to end consumers through a number of channels The largest distribution channel is pharmacy chain stores, which accounted for 35% of the market in 2008. Sales through this channel recorded a compound annual growth rate (CAGR) of 10% between 2001 and 2008 Combined retail sales (i.e. chain and independent pharmacies plus food stores) accounted for nearly 60% of the distribution of pharmaceuticals to end consumers One of the fastest growing channels of prescription drug distribution is the mail service segment, including online sales. This segment reached $36.9 billion in sales in 2008, representing a CAGR of 18% between 2001 and 2008 Prescription drug sales in clinics also recorded a CAGR of 18% between 2001 and 2008. This can be explained by the fact that sales in clinics and other institutions are driven in large part by professionally administered biologics, sales of which have been increasing by 25% per year in recent years

Total value, 2008 (at wholesaler prices): $251.8 bn Sources: IMS National Sales Perspectives, 1/2006, IMS Health © 2008 Accenture. All rights reserved.

54

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pharmacies are growing in the US, and may be found in stand-alone locations as well as supermarkets and general retail stores

US PMP Overview: Pharmaceuticals Overview

Number of pharmacies per 100,000 inhabitants, 2004

United States

• There are more than 55,000 pharmacies in the US which provide employment to more than 130,000 pharmacists • Most Americans live within five miles of a community pharmacy • Even with mail-order sales gaining market share, analysts expect chain drug stores to continue to capture market share over the next three to five years • CVS is currently the number one drugstore chain in the US, by store count and holds over 10% of the market according to volume of prescriptions sold • As mail-order sales increase, retail chains are going online and expanding their in-store outlets to supermarkets and general retail stores

60

France

37

Italy

29

Germany

26

Switzerland

23

UK

21

Finland

15

Austria

13

Norway

12

Netherlands

10

Sweden

10

Denmark

6 0

20

40

60

80

Sources: Global Insights Report: United States (Healthcare and Pharma). October, 2008. CVS Corporation. Deutsche Bank. November, 2008; Drugstore Chain Market Overview. Knoweledge Source. October, 2008. 55 © 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

The US Pharmaceutical Distribution market experienced a prolonged period of consolidation between 1995 to 2008, resulting in a highly concentrated competitive landscape The US market for pharmaceutical wholesales, 2008

Other

9%

McKesson

29% Direct

20%

20% AmerisourceBergen

22% Cardinal Health

US PMP Overview: Pharmaceuticals Overview

• Three major companies account for over 90% of the national pharmaceutical wholesale marketplace and approximately 71% of all pharmaceutical market distribution • Direct manufacturing and regional wholesalers compete in a highly fragmented market for the remaining market share • Operating margins have eroded over the last several years due to intense competition among channel participants, an addiction to spec buying to drive higher gross margins which fueled a lack of discipline in pricing to customers, and consolidation among manufacturers. • In recent years the industry has migrated to a fee-forservice (FFS) payment model, which according to industry analysts drives lower margins but increases earnings visibility and cash flow

Source: Deutsche Bank, 2008

© 2008 Accenture. All rights reserved.

56

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players – Key Pharmaceutical Players – Key Medical Products Players – Key Distribution Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

57

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Major US PMP players

US PMP Overview: Key PMP Players

Top 15 US Pharmaceuticals and Medical Products players, by H&LS sales 2008 Company

H&LS sales ($m)

EBIT margin (Group)

No. of employees

Market value ($m)

Main market segment

McKesson

88,050

1.3%

26,400

15,376

Pharma wholeselling

Cardinal Health

81,364

2.3%

55,000

26,635

Pharma wholeselling

AmerisourceBergen

54,577

1.0%

12,300

9,411

Pharma wholeselling

Pfizer

51,298

22.5%

106,000

201,827

Pharmaceuticals

Johnson & Johnson

50,514

26.2%

116,200

200,715

Pharma, Med. Products

Walgreen

47,409

5.7%

179,000

43,929

Retail pharmacies

CVS

37,006

5.5%

148,000

25,209

Retail pharmacies

Abbott Laboratories

22,338

19.5%

59,735

74,526

Pharma, (Med. Prod)

Merck & Co

22,012

25.7%

61,500

99,318

Pharmaceuticals

Bristol-Myers Squibb

19,207

21.8%

43,000

48,161

Pharmaceuticals

Wyeth

18,756

25.9%

49,732

70,634

Pharmaceuticals

Riteaid

17,271

1.9%

38,448

2,320

Retail pharmacies

Eli Lilly

14,645

19.3%

41,600

64,704

Pharmaceuticals

Amgen

12,430

40.0%

16,500

86,564

Pharmaceuticals

Medtronic

11,292

27.2%

35,733

55,674

Medical Products

Note: GE Healthcare with annual sales of $15,153 is headquartered in the UK Sources: OneSource; Evaluate Pharma © 2008 Accenture. All rights reserved.

58

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players – Key Pharmaceutical Players – Key Medical Products Players – Key Distribution Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

59

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Pfizer

Key PMP Players: Key Pharmaceutical Players

Pls check the latest BI from Accenture neural network

Financial highlights 2005

Pharma sales by therapeutic area (actual and expected)

Group sales: $51,298m (-2.3% from 2004) 2005(a)

2010(e)

Cardiovascular

41.2%

36.5%

-2.2%

Central Nervous System

15.2%

15.8%

1.0%

Systemic Anti-infectives

10.7%

11.1%

1.0%

Genito-Urinary

6.7%

7.1%

1.1%

Musculoskeletal

5.3%

6.7%

4.8%

Oncology & Immunomodulators

4.5%

6.1%

6.6%

Respiratory

4.0%

1.0%

-24.1%

Endocrine

3.6%

6.2%

11.5%

Pharma sales: $46,682m (-3.7% from 2004)

Therapeutic area

Estimated US pharma (Rx) sales: $23,443m Group EBIT margin: 22.5% Number of employees: 106,000 Market Value: $201,827m (as of 20 Oct 2006) R&D spend (% of Pharma sales): 14.9% Best-selling drugs (actual and expected)

CAGR 20052010

Product

Sales 2005 ($m)

Product

Sales 2010 ($m)

Lipitor

12,187

Lipitor

10,673

Sensory Organs

3.3%

4.3%

5.9%

Norvasc

4,706

Lyrica

2,842

Blood

0.9%

0.7%

-5.5%

Zoloft

3,256

Lipitor-torcetrapib

2,504

Dermatology

0.5%

0.4%

-6.2%

Zithromax

2,025

Celebrex

2,335

Gastro-Intestinal

0.5%

0.5%

1.2%

Celebrex

1,730

Xalatan

1,586

Other

3.6%

3.6%

0%

100%

100%

0.1%

Total WW Rx & OTC Sales

Sources: Evaluate Pharma, Oct 2006; OneSource © 2008 Accenture. All rights reserved.

60

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Johnson & Johnson

Key PMP Players: Key Pharmaceutical Players

Pls check the latest BI from Accenture neural network

Financial highlights 2005

Pharma sales by therapeutic area (actual and expected)

Group sales: $50,514m (+6.7% from 2004) 2005(a)

2010(e)

Central Nervous System

41.6%

36.2%

1.2%

Blood

13.8%

11.2%

-0.1%

Musculoskeletal

9.1%

12.5%

10.8%

Systemic Anti-infectives

8.5%

13.6%

14.4%

Gastro-Intestinal

6.5%

6.1%

2.7%

Genito-Urinary

6.2%

5.3%

0.7%

Oncology & Immunomodulators

2.1%

5.9%

27.9%

Dermatology

1.8%

1.3%

-2.0%

Pharma sales: $24,696m (+0.7% from 2004)

Therapeutic area

Estimated US pharma (Rx) sales: $14,478m Group EBIT margin: 26.2% Number of employees: 116,200 Market Value: $200,715m (as of 20 Oct 2006) R&D spend (% of Pharma sales): 17.9% Best-selling drugs (actual and expected)

CAGR 20052010

Product

Sales 2005 ($m)

Product

Sales 2010 ($m)

Risperdal

3,552

Remicade

3,345

Cardiovascular

1.0%

0.3%

-19.7%

Procrit/Eprex

3,324

Procrit/Eprex

2,616

Other

9.4%

7.7%

0%

Remicade

2,065

Risperdal

2,434

100%

100%

4.1%

Tylenol

1,727

Paliperidone ER

2,105

Topamax

1,680

Levaquin

1,796

Total WW Rx & OTC Sales

Sources: Evaluate Pharma, Oct 2006; OneSource © 2008 Accenture. All rights reserved.

61

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Abbott Laboratories

Key PMP Players: Key Pharmaceutical Players Pls check the latest BI from Accenture neural network

Financial highlights 2005

Pharma sales by therapeutic area (actual and expected)

Group sales: $22,338m (+13.4% from 2004) 2005(a)

2010(e)

Systemic Anti-infectives

19.6%

16.9%

0.1%

Musculoskeletal

17.2%

20.5%

6.9%

Central Nervous System

12.9%

11.3%

0.6%

Cardiovascular

9.9%

13.9%

10.4%

Genito-Urinary

6.6%

0.3%

-45.2%

Endocrine

6.3%

6.1%

2.6%

Gastro-Intestinal

3.0%

3.4%

5.7%

Oncology & Immunomodulators

1.7%

9.3%

45.7%

Pharma sales: $15,321m (+12.7% from 2004)

Therapeutic area

Estimated US pharma (Rx) sales: $9,768m Group EBIT margin: 19.5% Number of employees: 59,735 Market Value: $74,526 m (as of 20 Oct 2006) R&D spend (% of Pharma sales): 7.7% Best-selling drugs (actual and expected)

CAGR 20052010

Product

Sales 2005 ($m)

Product

Sales 2010 ($m)

Humira

1,400

Humira

3,681

Respiratory

0.3%

0.1%

-11.9%

Mobic

1,232

TriCor

1,605

Blood

0.1%

0%

-

Depakote

1,096

Kaletra

1,372

Other

22.5%

18.1%

-1.2%

Biaxin/Klacid

1,065

Depakote

1,066

100%

100%

3.2%

Kaletra

1,005

ABT-874

750

Total WW Rx & OTC Sales

Sources: Evaluate Pharma, Oct 2006; OneSource © 2008 Accenture. All rights reserved.

62

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Merck & Co

Key PMP Players: Key Pharmaceutical Players

Financial highlights 2005

Pharma sales by therapeutic area (actual and expected)

Pls check the latest BI from Accenture neural network

Group sales: $22,012m (-4.1% from 2004) 2005(a)

2010(e)

Cardiovascular

36.9%

12.7%

-15.9%

Musculoskeletal

15.7%

2.8%

-26.3%

Systemic Anti-infectives

15.2%

28.5%

18.1%

Respiratory

13.5%

18.2%

10.5%

Sensory Organs

3.5%

2.0%

-7.1%

Genito-Urinary

3.4%

1.4%

-12.4%

Central Nervous System

1.6%

3.2%

20.2%

Dermatology

1.3%

1.0%

-2.0%

Pharma sales: $22,012m (-4.1% from 2004)

Therapeutic area

Estimated US pharma sales: $12,767m Group EBIT margin: 25.7% Number of employees: 61,500 Market Value: $99,318m (as of 20 Oct 2006) R&D spend (% of Pharma sales): 16.8% Best-selling drugs (actual and expected)

CAGR 20052010

Product

Sales 2005 ($m)

Product

Sales 2010 ($m)

Zocor

4,382

Singulair

4,901

Blood

0.4%

0.3%

-3.4%

Fosamax

3,191

Cozaar

2,031

Gastro-Intestinal

0.4%

1.0%

26.3%

Cozaar

3,037

Gardasil

1,408

Endocrine

0%

6.0%

NA

Singulair

2,976

Varivax

1,329

Oncology & Immunomodulators

0%

6.0%

NA

Proscar

741

Januvia

1,226

Other

8.3%

16.9%

20.0%

100%

100%

4.1%

Total WW Rx & OTC Sales

Sources: Evaluate Pharma, Oct 2006; OneSource © 2008 Accenture. All rights reserved.

63

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Bristol-Myers Squibb

Key PMP Players: Key Pharmaceutical Players Pls check the latest BI from Accenture neural network

Financial highlights 2005

Pharma sales by therapeutic area (actual and expected)

Group sales: $19,207m (-1.0% from 2004) 2005(a)

2010(e)

Blood

26.7%

30.9%

6.2%

Cardiovascular

24.7%

11.1%

-12.1%

Systemic Anti-infectives

19.2%

18.9%

2.8%

Oncology & Immunomodulators

10.2%

23.3%

21.8%

Central Nervous System

2.4%

1.4%

-7.0%

Dermatology

0.8%

0%

NA

Endocrine

0.7%

2.4%

31.2%

Musculoskeletal

0.5%

0%

NA

Other

14.8%

12.0%

-1.0%

100%

100%

3.2%

Pharma sales: $16,010m (-2.5% from 2004)

Therapeutic area

Estimated US pharma (Rx) sales: $8,140m Group EBIT margin: 21.8% Number of employees: 43,000 Market Value: $48,161m (as of 20 Oct 2006) R&D spend (% of Pharma sales): 16.7% Best-selling drugs (actual and expected)

Product

Sales 2005 ($m)

Product

Sales 2010 ($m)

Plavix

3,823

Plavix

5,255

Pravachol

2,256

Avapro

1,341

Avapro

982

Reyataz

1,258

Taxol

747

Orencia

1,017

Reyataz

696

Erbitux

960

CAGR 20052010

Total WW Rx & OTC Sales

Sources: Evaluate Pharma, Oct 2006; OneSource © 2008 Accenture. All rights reserved.

64

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players – Key Pharmaceutical Players – Key Medical Products Players – Key Distribution Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

65

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Johnson & Johnson

Key PMP Players Key Medical Products Players

Group sales: $50,514m (+6.7% from 2004) Medical Products sales: $19,096m (+13.1% from 2004)

Pls check the latest BI from Accenture neural network

US sales: $28,377m (56.2% of total sales) EBIT margin: 26.2% Number of employees: 116,200 Market Value: $201,827m (as of 20 Oct 2006) R&D spend: 12.5%

Johnson & Johnson is engaged in the manufacture and sale of a range of products in the healthcare field and has more than 230 operating companies. The Company operates in three segments: Consumer (18% of group sales); Pharmaceutical (44.2%); and Medical Devices and Diagnostics (37.8%). In May 2006, Ethicon, a Johnson & Johnson company, acquired Vascular Control Systems, Inc., which is focused on developing medical devices to treat fibroids and to control bleeding in obstetric and gynaecologic applications.

For the nine months ended 1 October 2006, Johnson & Johnson's revenues rose 5% to $39.64bn. Net income rose 12% to $8.89bn. Revenues reflect an increase in sales from Consumer segment, higher sales from Pharmaceuticals segment and increased revenue from Med Devices & Diagnostics segment. Net income also reflects a decrease in in-process research & development expenses and higher net interest income. Source: © 2008 Accenture. All rights reserved.

66

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Medtronic

Key PMP Players Key Medical Products Players

Group sales: $11,292m (+17.3% from 2004) Medical Products sales: $11,292m (+17.3% from 2004)

Pls check the latest BI from Accenture neural network

US sales: $7,626m (67.5% of total sales) EBIT margin: 27.2% Number of employees: 35,733 Market Value: $55,674m (as of 20 Oct 2006) R&D spend: 9.9%

Medtronic, Inc. is engaged in medical technology. The Company functions in seven operating segments that manufacture and sell device-based medical therapies: Cardiac Rhythm Disease Management (46.1% of group sales), Spinal and Navigation (19.9%), Neurological (9.0%), Vascular (8.3%), Diabetes (6.4%), Cardiac Surgery (5.9%) and Ear, Nose and Throat (4.4%). For the three months ended 28 July 2006, Medtronic, Inc.'s revenues rose 8% to $2.9B. Net income rose 87% to $599M. Revenues reflect higher sales from Spinal & Navigation due to the acceptance of INFUSE Bone Graft and increased turnover from Neurological & Ear due to growth in the Activa Therapy. Net income also reflects the absence of purchased in-process research & development costs and increased interest income.

Source: © 2008 Accenture. All rights reserved.

67

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Baxter

Key PMP Players Key Medical Products Players

Group sales: $9,849m (+3.6% from 2004) Medical Products sales: $9,849m (+3.6% from 2004)

Pls check the latest BI from Accenture neural network

US sales: $4,383m (44.5% of total sales) EBIT margin: 15.9% Number of employees:47,000 Market Value: $30.010m (as of 20 Oct 2006) R&D spend: 5.4%

Baxter International Inc. assists healthcare professionals and their patients with the treatment of complex medical conditions, including haemophilia, immune disorders, infectious diseases, cancer, kidney disease, trauma and other conditions. Baxter's products are used by hospitals, clinical and medical research laboratories, blood and plasma collection centres, kidney dialysis centres, rehabilitation centres, nursing homes, doctors' offices and by patients at home under physician supervision. Baxter's operations are divided in three business segments: Medication Delivery (40.5% of group sales), BioScience (39.1%), and Renal (20.4%). The Company manufactures products in 28 countries and sells them in over 100 countries. For the nine months ended 30 September 2006, Baxter’s revenues rose 3% to $7.62B. Net income rose 45% to $965M. Revenues reflect an increase in sales from international market in Bioscience business and favourable impact of foreign exchange on sales. Net income also reflects decreased cost of goods sold, lower interest payable, the absence of restructuring adjustments and decreased other expenses. Source: © 2008 Accenture. All rights reserved.

68

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Tyco

Key PMP Players Key Medical Products Players

Group sales: $39,727m (+3.4% from 2004) Medical Products sales: $9,543m (+4.8% from 2004)

Pls check the latest BI from Accenture neural network

US sales: $19,635m (49.4% of total sales) EBIT margin: 12.3% Number of employees: 247,900 Market Value: $59,152m (as of 20 Oct 2006) R&D spend: Not available

Tyco International Ltd. is a diversified manufacturing and service company. It operates in four business segments: Electronics (30.7% of group sales}, Fire and Security (29.0%}, Healthcare (24.0%}, and Engineered Products and Services (16.3%}. The Healthcare division designs, manufactures and distributes medical devices and supplies, imaging agents, pharmaceuticals, and adult incontinence and infant care products. During the fiscal year ended September 30, 2005 (fiscal 2005), Tyco divested 18 businesses, including the sale of the Tyco Global Network. During fiscal 2005, Tyco discontinued its Plastics and Adhesives segment, and acquired Vivant Medical Inc. For the nine months ended 30 June 2006, Tyco's revenues increased 3% to $30.2bn. Net income from continuing operations before accounting change increased 27% to $2.79bn. Revenues reflect an increase in sales of electronics due to higher volume growth and continuing improvement in the Worldwide Fire Services businesses. Net income also reflects an increase in interest income and decreased interest expenses.

Source: © 2008 Accenture. All rights reserved.

69

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Boston Scientific

Key PMP Players Key Medical Products Players

Group sales: $6,283m (+11.7% from 2004) Medical Products sales: $6,283m (+11.7% from 2004)

Pls check the latest BI from Accenture neural network

US sales: $3,852m (61.9% of total sales) EBIT margin: 15.6% Number of employees:19,800 Market Value: $23,912m (as of 20 Oct 2006) R&D spend: 10.8% Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a range of interventional medical specialties, including interventional cardiology, vascular surgery, electrophysiology, neurovascular intervention, oncology, endoscopy, urology, gynaecology and neuromodulation. The Company's products are principally offered for sale by three business groups: The Cardiovascular organization offers products and technologies for use in interventional cardiology, peripheral interventions, vascular surgery, electrophysiology and neurovascular procedures. The Endosurgery organization offers products and technologies for use in oncology, endoscopy, urology and gynaecology procedures. The Neuromodulation organization focuses on the treatment of auditory disorders and chronic pain. During the year ended December 31, 2005, it acquired Advanced Stent Technologies, Inc., CryoVascular, Inc., Trivascular, Inc. and Rubicon Medical Corporation. Source: © 2008 Accenture. All rights reserved.

70

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players – Key Pharmaceutical Players – Key Medical Products Players – Key Distribution Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

71

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

McKesson

Key PMP Players Key Medical Products Players

Group sales: $88,050 m (+9.9% from 2008) H&LS sales: Same as group sales

Pls check the latest BI from Accenture neural network

US sales: $81,935m (93.1% of total sales) EBIT margin: 1.3% Number of employees: 26,400 Market Value: $15,376m (as of 20 Oct 2008)

McKesson Corporation provides supply, information and care management products and services. Through the Pharmaceutical Solutions segment (94.7% of group sales), it is a distributor of drugs, and health and beauty care products. It also manufactures and sells automated pharmaceutical dispensing systems for retail pharmacies, and provides medical management, and specialty pharmaceutical solutions. Its Medical-Surgical Solutions segment (3.5%) distributes medical-surgical supplies, first-aid products and equipment, and provides logistics and other services. Its Provider Technologies segment (1.8%) delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and management software solutions, automated pharmaceutical dispensing systems for hospitals, as well as outsourcing and other services, to healthcare organizations. In May 2006, McKesson acquired HealthCom Partners LLC. In June 2006, the Company acquired RelayHealth Corporation.

Source: OneSource © 2008 Accenture. All rights reserved.

72

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Cardinal Health

Key PMP Players Key Medical Products Players

Group sales: $81,364m (+9.5% from FY05) H&LS sales: Same as group sales US sales: $80,100m (98.4% of total sales) EBIT margin: 2.3% Number of employees: 55,000 Market Value: $26,635m (as of 20 Oct 2008)

Cardinal Health is a provider of products and services supporting the healthcare industry. As of and for the fiscal year ended June 30, 2008 (fiscal year 2008), the Company's four segments were: Pharmaceutical Distribution and Provider Services (81.5% of group sales), Medical Products and Services(12.2%), Pharmaceutical Technologies and Services (3.4%), and Clinical Technologies and Services (3.0%). The aggregate of the Company's five largest customers accounted for approximately 46% of its revenue for fiscal 2008. During fiscal 2008, Cardinal Health acquired ParMed Pharmaceutical, Inc., a generic telemarketing business, Denver Biomedical, Inc., which develops and manufactures medical devices for acute care cancer hospitals and oncology offices, and the wholesale pharmaceutical, health and beauty and related drugstore products distribution business of The F. Dohmen Co. and certain of its subsidiaries.

Source: OneSource © 2008 Accenture. All rights reserved.

73

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

AmerisourceBergen

Key PMP Players Key Medical Products Players

Group sales: $54,577m (+2.7% from 2008) H&LS sales: Same as group sales US sales: $54,577m (100% of total sales) EBIT margin: 1.0% Number of employees: 12,300 Market Value: $9,411m (as of 20 Oct 2008)

AmerisourceBergen Corporation is a pharmaceutical services company, providing drug distribution and related services to pharmaceutical manufacturers and healthcare providers. It distributes brand name and generic pharmaceuticals, over-the-counter healthcare products, and home healthcare supplies and equipment to healthcare providers located throughout the United States. It also provides pharmaceuticals and pharmacy services to long-term care, workers' compensation and specialty drug patients. In addition, AmerisourceBergen furnishes healthcare providers and pharmaceutical manufacturers with an assortment of related services, including pharmacy automation, supply management software, pharmaceutical packaging, inventory management, reimbursement and pharmaceutical consulting services, logistics services and physician education. It has two segments: Pharmaceutical Distribution (96.9% of group sales) and PharMerica (3.9%). In October 2005, the Company acquired Trent Drugs (Wholesale) Ltd.

Source: OneSource © 2008 Accenture. All rights reserved.

74

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Walgreen

Key PMP Players Key Medical Products Players

Group sales: $47,409m (+12.3% from FY08) H&LS sales: Same as group sales (although the company also sells non-H&LS products in its pharmacies) US sales: Not available (but close to 100%) EBIT margin: 5.7% Number of employees: 179,000 Market Value: $43,929m (as of 20 Oct 2006)

Walgreen Company is a retail drugstore chain that sells prescription and non-prescription drugs and general merchandise. General merchandise includes, among other things, cosmetics, toiletries, food, beverages, household items and photofinishing. Customers can have prescriptions filled at the drugstore counter, as well as through the mail, by telephone and on the Internet. As of August 31, 2005, the Company operated 4,950 drugstores (including stores closed, as of August 31, 2008, due to Hurricane Katrina in the United States) located in 45 states and Puerto Rico. In addition, Walgreen operates three mail service facilities. In July 2006, the Company merged with Happy Harry's Inc and on August 2007, it acquired Medmark Specialty Pharmacy Solutions.

Source: © 2008 Accenture. All rights reserved.

75

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

CVS

Key PMP Players Key Medical Products Players

Group sales: $37,006m (+21.0% from 2008) H&LS sales: Same as group sales (although the company also sells non-H&LS products in its pharmacies) US sales: $37,006m (100% of total sales) EBIT margin: 5.5% Number of employees: 148,000 Market Value: $25,209m (as of 20 Oct 2006) CVS Corporation operates in the retail drugstore industry in the United States with 5,471 retail and specialty pharmacy stores in 37 states and the District of Columbia. The Company sells prescription drugs and an assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, film and photofinishing services, seasonal merchandise, greeting cards and convenience foods, through its CVS/pharmacy retail stores and online through CVS.com. It also provides pharmacy benefit management, mail order services and specialty pharmacy services through PharmaCare Management Services and PharmaCare Pharmacy stores. CVS operates in two segments: Retail Pharmacy (92.0% of group sales) and Pharmacy Benefit Management (8.0%). In June 2006, the Company acquired approximately 700 standalone Sav-On and Osco drugstores, and a distribution center in La Habra, California from Albertson's, Inc. In September 2008, the Company acquired the Minneapolis-based MinuteClinic. Source: OneSource © 2008 Accenture. All rights reserved.

76

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

77

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Should the cost of Medicare Part D rise considerably from initial forecasts, the federal government is likely to introduce a number of policies to curb drug spending.

Key PMP Players US PMP Outlook

Should the cost of Medicare Part D rise considerably from initial forecasts over the next 10 years, it is questionable whether federal government will remain committed to carrying this cost beyond the first two years of the benefit's implementation. This renders some form of price control likely in the medium-to-long term. Global Insight, a Health & Life Sciences market analysis firm, foresees the following policies in the medium-tolong term from the federal government: Further Cost-Containment Measures Probable Congressional opposition has already been voiced to the projected levels of Medicare spending after the launch of the drugs benefit in January 2006. Elements in Congress are already calling for the same pricing measures to be introduced to Medicare as are used by the Department of Veterans Affairs (prices are intended to equal or better the price manufacturers offer their most-favoured non-federal customers, or they must be 24% less than the non-federal average manufacturer price). The decision to introduce price controls to Medicare will be a political one, and will only come at a point when the cost of the programme is deemed to be politically unacceptable. Global Insight contends that the projected cost of providing out-patient drug subsidies has been under-estimated; the higher costs rise, the more likely it is that Congress will crack and legislate for pricing measures. More Aggressive Discounts More stringent use of formularies, requiring increasingly generous discounts from manufacturers in return for inclusion on preferred drug lists (as is the case under most state Medicaid programmes) is highly possible particularly if Medicare spending on prescription drugs rises rapidly. Source: United States Healthcare and Pharma, Global Insight, Oct 2006 © 2008 Accenture. All rights reserved.

78

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Policies, cont…

Key PMP Players US PMP Outlook

Introduction of a NICE-Style Advisory Body? One way of obtaining greater efficiency in the Medicare spend would be to introduce a body akin to the UK's National Institute for Health and Clinical Evidence (NICE), which provides guidance on the cost-effectiveness of new and existing clinical interventions. Although Part D requires private health plans set up a Pharmacy and Therapeutics (P&T) Committee to consider pharmacoeconomic factors in selecting drugs for inclusion on a reimbursement list, this will be carried out on a plan-by-plan basis. The CMS could eventually move to introduce a federal agency that rules across Medicare as a whole on the cost-effectiveness of interventions. Therapy Area Reference Pricing Future reforms may take the form of therapeutic area or drug class reference pricing, covering both inpatient and out-patient drugs. There are currently no federal provisions for reference pricing, but it is growing in currency as a cost-containment measure in the country as a whole (by states and private insurers). Under such a system, the CMS would choose the lowest-cost drug in a therapeutic class in which drugs are considered to be equivalents of each other. The patient could choose a more expensive product, but would have to pay the difference. The CMS is most likely to introduce a system that promotes the use of 'preferred' brands over 'non-preferred' equivalents, rather than promoting generic use above all else. The most-targeted drugs will be so-called 'me-too' products, which the CMS has shown a predilection to reimburse unfavourably in the past (eg Amgen's Aranesp vis-à-vis J&J's Procrit). Manufacturers of highly priced 'me-too‘ drugs will either have to reduce their prices or expect volumes to fall if they fail to argue that their product provides a clinical advantage over others in its class. Source: United States Healthcare and Pharma, Global Insight, Oct 2006 © 2008 Accenture. All rights reserved.

79

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Policies, cont…

Key PMP Players US PMP Outlook

Wholesale Margin Targeted Instead of Prescription Drugs? The wholesale margin is high by the standards of most developed markets. An ideal scenario for drug manufacturers would be to highlight this trend as a driver of cost growth, leading regulators to seek savings through attacks on wholesaler margins rather than drug prices. To achieve this, the drug industry needs to reverse growing public mistrust of its operations, and the only way in which that can be accomplished is for the industry to argue its case more effectively in public. However, no-one in the industry has thus far shown a willingness to take this step.

More Tools for States to Modernise Medicaid The Deficit Reduction Act (DRA) of 2005 was signed into law by President Bush in February 2006. It enables individual states to implement cost-sharing measures in their Medicaid programmes similar to those used in the wider healthcare system in the United States. According to Congressional Budget Office (CBO) estimates, the provisions within the DRA will reduce federal spending on Medicaid by US$11.5 billion over the next five years. According to CBO estimates, the changes to Medicaid rules for cost sharing of prescription drugs will affect around 13 million people by 2010. This figure will rise to about 20 million by 2015, and almost half of these will be individuals below the poverty line. The CBO estimates that around 80% of the savings made will be due to patients switching to lower cost medicines, while the remainder will come from lower payments to providers.

Source: United States Healthcare and Pharma, Global Insight, Oct 2006 © 2008 Accenture. All rights reserved.

80

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Local vs. foreign sales

US PMP Overview: Pharmaceuticals Overview

Domestic and Foreign Pharmaceutical Sales by US research-based companies, 1998-2008

100% 90% 80%

37%

35%

63%

65%

1998

2000

30%

27%

70%

73%

2002

2004

32%

34%

68%

66%

2006

2008

70% 60% 50% 40% 30% 20% 10% 0%

Domestic sales

Source: © 2008 Accenture. All rights reserved.

Sales abroad

81

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Agenda

Agenda

• US Overview • US PMP Overview • Key PMP Players • US PMP Outlook • Appendix

© 2008 Accenture. All rights reserved.

82

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Glossary of Terms

Appendix: Glossary of terms

The following presentation uses terminology that is specific to the Pharmaceuticals and Medical Products industry and/or the US political or healthcare system. In other publications on this subject other terminology may be used to describe the same concepts. Therefore, we have chosen to describe the most central terminology. For details on the US Healthcare system, please see the Accenture Research presentation US Healthcare Overview, August 2006. Generics – Pharmaceuticals for which the active ingredient has lost its patent protection and which are now legally copied by companies that are not those who patented the product in the first place RX drugs – Pharmaceuticals that can only be purchased with a prescription from a physician (opposite of OTC) OTC drugs – Over-The-Counter pharmaceuticals are drugs that can be purchased without a prescription from a physician. These drugs are usually not reimbursed by the healthcare system Federal level – National level (all of the US) State level – Regional level (states, e.g. California)

© 2008 Accenture. All rights reserved.

83

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Bibliography

Appendix: Bibliography

Selected helpful sources Source

Data coverage

Homepage

Datamonitor

• PMP market data (market size, growth, etc)

www.datamonitor.com

• Via OneSource

PhRMA – The Pharmaceutical Research and Manufacturers of America

• Detailed information on the US pharmaceutical market (from a vendor perspective)

www.phrma.org

• Open Internet access

IMS Health

• Quantitative data on the US prescription and (to some extent) OTC markets

www.imshealth.com

• Open Internet access

• Information on the US Generics industry and market

www.gphaonline.org

GPhA – Generic Pharmaceutical Association

© 2008 Accenture. All rights reserved.

84

(Data available under Media/Top-Line Industry Data)

Access

• Open Internet access

Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture Research Accenture Research

Accenture Research - Contact Details

Appendix: Contacts

 Jaydeep Adhikari (Global H&LS expert) [email protected]  Dawn M. Melberg [email protected]  Mikael Stenstrand [email protected]

© 2008 Accenture. All rights reserved.

85

Adhikari,Dawn & Melberg - accenture H&LS consultant