US Pmp Overview 2008

US PMP OverviewOctober 2008

Accenture Research Jaydeep Adhikari, Dawn M. Melberg, Mikael Stenstran d

1© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant

Accenture ResearchAccenture Research

Agenda

• US Overview

– Summary Conclusions

– Geography & Political Structure

Agenda


– Key Economic Indicators

– Demographics

• US PMP Overview

• Key PMP Players

• US PMP Outlook

• Appendix



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

SummaryUS PMP overview

US Overview:Summary Conclusions

• 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

• 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

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

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



Agenda

• US Overview



Agenda



– Demographics

• US PMP Overview

• Key PMP Players

• US PMP Outlook

• Appendix



Geography

� Capital City: Washington, DC

� Main Language (s): English

� Continent/Region: North America

� Population: 300 million

� Monetary Unit: US Dollar $

US Overview: Geography & Political Structure

US – Geographic Summary

� 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



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

• 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

The United States

US Overview: Geography & Political Structure

• 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; 6© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Agenda

• US Overview



Agenda



– Demographics

• US PMP Overview

• Key PMP Players

• US PMP Outlook

• Appendix



Population

Private consumption per capita

2008USA

300m

$16,260

-1%

1%

3%

5%

$0 $5,000 $10,000 $15,000 $20,000

The United States is the largest economy in the wor ld

Key facts of the United States economy and consumer s

1%

2%

3%

4%

5%

6%

GD

P r

eal g

row

th*

GDP*

GDP real growth**

GDP p.c.

2008est.Germany

$12.36 bn

3.5%

$41,800

Germany

GDP , GDP growth

Spain

UK

France

World average

Private consumption, population

Priv

ate

cons

umpt

ion

grow

th *

**

Spain UKFrance

Germany

USA

USA

-5%

-3%

0%

1%

0 5000 10000 15000

95

100

105

110

115

120

2002 2004 2006 2008 2010 2012

Spain

UK

France

Germany

United States

Germany

Consumer price index (2000=100)

Bubble size = 2008 Population

Country

3.2%

2.3%

1.9%

1.6%

2.5%

CAGR2000/08

95

100

105

110

115

120

125

2002 2004 2006 2008 2010 2012

Spain

UK

France

Germany

United States

3.2%

2.5%

1.9%

1.6%

3.8%

CAGR 2000/08

GDP per capita index (2000=100)

Country

GDP ($bn)

Bubble size = GDP per capita

*official exchange rate **2004/2005

Priv

ate

cons

umpt

ion

Private consumption p.c. (2008)

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

Germany



Agenda

• US Overview



Agenda



– Demographics

• US PMP Overview

• Key PMP Players

• US PMP Outlook

• Appendix



The United States has one of the largest birth rate s of OECD countries with the population projected to almost double between 2 005 and 2050

Birth rate*, 2008

392

420

400

450

Expected US population (million), 2005-2050

1.71

1.71

1.75

1.89

2.04

Sweden

United Kingdom

Netherlands

France

United States

Germany Overview: Demographics

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

296309

336

364

200

250

300

350

2005 2010 2020 2030 2040 2050

Source: US Census Bureau, 2004

1.29

1.29

1.34

1.38

1.39

1.41

1.61

1.71

0 1 2 3

Spain

Italy

Germany

Japan

Austria

Switzerland

Belgium

Sweden

OECD average (1.56)



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

78.880.1

80

85

Life expectancy at birth (years) US life expectancy at birth by sex (years)

75.4

77.5

74.9

77.8

76

78

80

Germany Overview: Demographics

74.6

67

72

74.8

60

65

70

75

1970 1990 2010

Females Males

70.870.3

74.9

66

68

70

72

74

76

1970 1990 2010

United States OECD Average

Source: US CDC, 200811© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


The population in the US is ageing, which is illust rated 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

50,000

60,000

Age structure (2000) Age structure (2020)

The expected development of the age structure in th e US, 2000-2020

US Overview: Demographics

Population aged 65 and over: 12% Population aged 65 and over: 16%

50,000

60,000People ‘000

People ‘000

0

10,000

20,000

30,000

40,000

0-4 19-May 20-44 45-64 65-84 85+

Male Female

Source: US Census Bureau, Population Projections Source: US Census Bureau, Population Projections

0

10,000

20,000

30,000

40,000

0-4 19-May 20-44 45-64 65-84 85+

Male Female



Agenda

• US Overview

• US PMP Overview

– PMP Expenditures

Agenda


– Regulatory System

– Pharmaceuticals Overview

– Medical Products Overview

– Distributor Overview

• Key PMP Players

• US PMP Outlook

• Appendix



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

10.1%

11.1%

11.5%

15.2%

France

Germany

Switzerland

USA

Healthcare spend as a % of GDP, 2008 Healthcare spend per capita (USD*)

2,987

3,001

3,776

5,711

Netherlands

Germany

Switzerland

USA

CAGR 1999-2008

3.8%

2.3%

1.2%

2.1%

CAGR 1999-2008

7.1%

5.8%

4.0%

8.9%

US PMP Overview: PMP Expenditures

7.3%

7.5%

7.7%

8.0%

8.4%

9.4%

9.4%

9.8%

10.1%

0.0% 5.0% 10.0% 15.0% 20.0%

Ireland

Austria

Spain

United Kingdom

Italy

Belgium

Sweden

Netherlands

France

1,853

2,266

2,306

2,389

2,496

2,704

2,828

2,902

0 2,000 4,000 6,000

Spain

Italy

Austria

United Kingdom

Ireland

Sweden

Belgium

France

2.1%

3.9%

2.9%

2.5%

2.2%

2.7%

0.7%

-0.3%

4.2%

5.9%

7.6%

6.3%

11.3%

8.9%

3.0%

5.1%

6.2%

Note: Healthcare spend per capita expressed at international dollar rate

Source: WHO Statistical Information System (WHOSIS), May 2008

USD



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

Pharmaceutical spend as a % of total healthcare spe nd, 2008 Pharmaceuticals expenditure per capita, 2008 (USD)

20.9%

21.8%

22.1%

France

Spain

Italy

498

606

728

Italy

France

USA


10.5%

11.4%

12.6%

12.9%

14.6%

18.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Switzerland

Netherlands

Sweden

USA

Germany

Japan

Source: Health at a Glance, OECD 2005

340

340

393

398

401

436

0 200 400 600 800

Netherlands

Sweden

Japan

Switzerland

Spain

Germany

OECD average (380)

OECD average (17.5%)



The US spends less on medical technology as a perce nt 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

Medical Technology expenditure per capita, 2008 (EUR)

6.5%

6.5%

8.6%

France

Netherlands

Germany

188

230

278

Switzerland

Germany

USA


4.5%

4.8%

5.1%

5.1%

5.8%

6.1%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Switzerland

UK

Sweden

USA

Italy

Spain

Source: Medical Technology Brief, Eucomed 2008

73

97

107

120

150

154

0 50 100 150 200 250 300

Spain

UK

Italy

Sweden

France

Netherlands

European average (124)

European average (6.4%)



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

Distribution of US Healthcare Expenditures, 2008

• 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


14%7%

2%7%

14%

22%

10%

70%

80%

90%

100%

Pharmaceuticals

Nursing home care

Administrative

Other

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

Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield AssociationNote: Other spend includes dental services, home healthcare, durable medical products, etc.

22%31%

31%

29%

11%

14%7%

0%

10%

20%

30%

40%

50%

60%

Private healthcare spend Total healthcare spend

Physician/Clinical services

Hospital care

Pharmaceuticals



Pharmaceutical spend as a percent of total healthca re expenditures has slowed to single digit growth over the past sev eral years

• 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


12%

14%

16%

$400

$500

$600

(in b

illio

ns)

Total Pharmaceutical Spend and % of Total Healthcar e*

• 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 includeprojected growth in the use of generics and increased cost sharing in the form of rising co-payments and additional deductibles or both

0%

2%

4%

6%

8%

10%

$0

$100

$200

$300

$400

(in b

illio

ns)

Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield AssociationNote: 2005-2014 projected



Pharmaceuticals are primarily financed by private i nsurance in the US, however with the introduction of Medicare Part D le gislation in 2006 there is expected to be a significant increase in federal fu nding

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


300

350

400

• 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

Source: US Centers for Medicare and Medicaid Services, 2008

0

50

100

150

200

250

2000 2005 2006 2008 2009 2010

Total Out-of-Pocket Total Private

Total Public Medicare Medicaid

• 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



Prescription drug co-payments demanded by HMOs (% o f all prescriptions covered)

US managed care companies are increasingly demandin g higher co-payments for prescription drugs US PMP Overview:

PMP Expenditures

Prescription Co-Payments 2004 2008 2012 [Projected]

Generic

$5 46 24 23

$10 40 52 51

$15 - 6 9

Brand Formulary

Source: Global Insights Report: United States (Healthcare and Pharma). October, 2008.

Brand Formulary

$10 28 10 7

$15 30 15 14

$20 26 35 31

$30 - 7 13

Brand Non-Formulary

$10 9 4 2

$25 21 5 6

$30 22 11 10

>$30 24 38 40



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

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 the ir European counterparts

71.6

73.5

74.7

75.3

76.5

82

8.4

0

4.9

3.4

2

20

26.5

20.3

19.8

20.1

16

5.3

2

26.6

0

0

Portugal

Switzerland

Denmark

Norway

United States

Sweden

Germany PMP Overview: PMP Expenditures

Taxes

87.5

59.6

64

64

65.6

67

68.1

68.6

70.5

71.6

4

9.6

4.7

11

7.3

6.6

10.6

3.5

3.2

8.4

8.5

30.9

31.4

25

27.1

26.4

21.3

27.9

26.3

20

0

6.4

16.3

0

4.2

9.9

6.4

16.3

5.3

5.3

0 20 40 60 80 100 120 140

UK

Belgium

Germany

Ireland

Spain

Italy

Netherlands

Finland

France

Portugal

Manufacturers Wholesalers Pharmacies Taxes

Source: Statistics 2008 VFA (The German Association of Research-Based Pharmaceutical Companies)



Agenda

• US Overview

• US PMP Overview

Agenda






• Key PMP Players

• US PMP Outlook

• Appendix



The US Food & Drug Administration (FDA) is the prim ary regulator of the pharmaceutical and medical products industries in t he US

Enforces US food & drug laws

US FDA

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 pharmaceuticalmanufacturers perform extensive testing to prove that their products are safe and effective before it will sanction commercial sale

•New drugs must pass through a three stage process of Clinical Trials before

Monitors the manufacture, Transport & storage of

food, drugs and cosmetics

Regulates the Introduction of New Drugs

Clinical Trials

Phase I Phase II Phase III

New Drug Application(NDA)

stage process of Clinical Trials before receiving final approval from the FDA

•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

•Due to recent concerns over drug safety, The FDA is working on improving ways to track the safety of drugs alreadyon 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.



Unlike its European counterparts, the US pharmaceut ical 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 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.



Agenda

• US Overview

• US PMP Overview


Agenda






• Key PMP Players

• US PMP Outlook

• Appendix



Growth of the largest Pharmaceutical markets, 2004- 2010 [projected]

For a long time, the market-based nature of the US Pharmaceuticals market has enabled it to grow faster than the Pharmaceutic als market in any other major developed country

• 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

US PMP Overview: Pharmaceuticals Overview

180

200

220

USA

Spain

Index 1998=100

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

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

100

120

140

160

180

2004 2005 2006 2007 2008 2009 2010

Spain

UK

ItalyFrance

Germany

Japan



Prescription Pharmaceutical sales (at wholesale prices) and annual growth rates, 2005-2008($bn)

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

• 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)


252

13.0%

11.3%

10.4%10.0%

12.0%

14.0%300$ bn

– 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

Sources: IMS Health press release 22 Feb 2008; PharmaHandbook 2008, VOI Consulting 2008, United States Healthcare and Pharma, Global Insight, Oct 2008

194

216

239

252

5.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

150

200

250

2005 2006 2007 2008

Size Growth



Pharma sales by therapeutic category

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

3,83615%

1,9958%16%

1,9028%3%

1,8587%-3%

1,3876%8%

1,3215%-7%

1,1024%12%

6943%-9%

6613%2%

5222%3%

3892%3%

5772%N/A

25,098100%0.5%


Contracting < -ve growth 2005-2008

Underperforming market <6%2003-2008

Out performing Market >6% growth 2003-2008*

Source: PharmaHandbook 2008, VOI Consulting * IMS reported 6% growth in retail sales 12m to May-08 $26.8B

Sta

tins

Pro

ton

Pum

p In

hibi

tors

Ant

ipsy

chot

ics,

oth

er

Ery

thro

poie

tins

Sei

zure

Dis

orde

rs

SS

RI

Ang

iote

nsin

II

Ant

agon

ists

Cal

cium

Blo

cker

s

Insu

lin S

ensi

tizer

Mon

oclo

nal

Ant

ibod

ies

Bis

phos

phon

ates

Ace

Inhi

bito

rs

Ant

i-pla

tele

ts, O

ral

Oth

er

Tota

l

5,01520%-9%

3,83915%8%

15%-2%

16%

Sales ($m)Share of totalGrowth (03-04)



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%

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

Leading prescription drugs, 2008, at wholesaler pri ces


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



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 lar ger European companies to increase their market share

Leading Pharma companies, by US prescription drug s ales, 2008

Sales (USD bn)

Change (2004-2008)

Market share

Ranking in 2000

Pfizer 27.2 -12% 10.8% 1

GlaxoSmithKline 19.9 +6% 7.9% 2

• 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


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

Bristol-Myers Squibb 8.4 -10% 3.3% 4

Source: IMS National Sales Perspectives, 1/2008, IMS Health; IMS 2000

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



The total number of people employed within the phar maceutical industry in the US increased rapidly over the last decade. In t he last few years, staff reductions, mainly within sales functions has halte d this growth

274

283

291 292 290 289

274277 279

270

280

290

300

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


• 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%

229236

247

261

200

210

220

230

240

250

260

270

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: US Bureau of Labour Statistics; Ethical Pharmaceuticals, Fredonia, 2008

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



R&D activity in US research-based pharmaceutical co mpanies has increased strongly over the last decades. Still, R&D producti vity is falling, causing companies to look for alternative ways of developin g drugs

• 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

R&D expenditure in the US research-based Pharma industry, 1980-2008, $ bn, and as a % of total sale s


26.0

39.4 40.038.9

35.7

13%

14%

17%16%

16%

18%

17% 17%

12%

14%

16%

18%

20%

30.0

35.0

40.0

45.0

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

2.04.1

8.4

15.29%

0%

2%

4%

6%

8%

10%

12%

0.0

5.0

10.0

15.0

20.0

25.0

1980 1985 1990 1995 2000 2005 2006 2007 2008

Total R&D R&D as a % of sales



Marketing of pharmaceuticals in the US differ from the practice in most other developed countries mainly by the fact that marketi ng of prescription drugs directly to the patient is allowed

• 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

Pharmaceutical marketing spend by category, 2005-20 08, USD m

849

917480

544

1,786

1,956

2,408

10,000

15,000

10,165

11,061

12,796

14,491USD m Category

Samples 15.6%

Journal advertising 8.6%

Hospital

CAGR 2005-2008

Total 12.5%

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

2,679 2,638 3,2304,019

4,789 5,327

6,281

6,602702

873

849

425437

1,5701,786

0

5,000

10,000

2005 2006 2007 2008

promotion

Office promotion

9.3%

11.3%

DTC advertising 14.5%



Growth 2003-2004

Marketing spend by category, 2005-2008, USD m

Marketing investments differ widely between categor ies, with the SSRI/SNRI category being the most heavily promoted category i n 2004, followed by the Statins category

348

402

509

COX-2 Inhibitors

Statins

SSRI/SNRI +16%

+14%

-10%

• 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


186

192

207

237

239

302

346

0 200 400 600

Macrolides and related

Steroid, Inhaled nasal

Quinolones, systemic

Antipsychotics

Sexual Function Disorder

Angiotensin II Antagonists

Proton Pump Inhibitors -11%

0%

+76%

+5%

-9%

-3%

+22%

(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

Source: PharmaHandbook 2008, VOI Consulting, 200834© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


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

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


Source: Generic Pharmaceutical Association, 200635© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Generic drugs account for around 17% of the total p rescription drugs market in value terms, but hold more than half of the mark et in terms of volume. Measures to increase the use of generics are widely used by health insurers

• 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


Brands (82.6%)

Total Generics (17.4%)

Branded Generics (9.6%)

Generics (7.8%)

Generics’ share of total pharmaceutical sales, by value and volume, 2008

Sources: PharmaHandbook 2008, VOI Consulting, 2008; Global Generics Guide: Part 2, Datamonitor, 2008

– 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

(7.8%)

Value

Brands (45.8%)

Total Generics (54.2%)

Branded Generics (10.6%)

Generics (43.6%)

Volume



In 2008, the US generics market was worth around $2 2bn, equivalent to 9% of the total prescription market. Between 2005 and 200 8 the generics market recorded a CAGR of 17.5%

Generics market value and growth, 2005 – 2008 ($bn)• 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


22.322%

21%0.2

0.25

20.0

25.0$ bn

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

– 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

13.8

16.8

18.5

10%

0

0.05

0.1

0.15

10.0

15.0

20.0

2005 2006 2007 2008

Size Growth



Both patent-holders and generic manufacturers are l everaging the existing legislation at a maximum, while lobbying for amendm ents to this legislation

• 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

Examples of legislation affecting the US Generics industry


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 30-month extension to their patent when challenging the legality of a generic equivalent

Pro-patent legislation

• Authorised generics allowed

• 30-month patent extension retained

Pro-generic legislation

• The Hatch-Waxman act

• Limitation of patent extension to one 30-month period

• Increased FDA funding for approval of generic drugs

Sources: PharmaHandbook 2005, VOI Consulting, 2005; Global Generics Guide: Part 2, Datamonitor, 200638© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Generics market, cont. US PMP Overview: Pharmaceuticals Overview

Generics companies, by number of US prescriptions, 2008

Prescriptions (million)

Change (2004-2008)

Market share

Teva 213 +6% 13%

Mylan 203 +5% 13%

Watson 148 +5% 9%

Sandoz 133 +3% 8%

• 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

Note: Ivax was acquired by Teva in 2008

Source: PharmaHandbook 2005, VOI Consulting, 2008

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%

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…



Biotech sales (at wholesale prices) and annual growth rates, 2005-2008 ($bn)

The US biotech market is a large and fast-growing i ndustry, dominated by a small number of very large biotech c ompanies

• 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


28.0

32.8

22.0%

17.0% 17.2%

0.2

0.25

30.0

35.0$ bn

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

19.6

23.9

17.0% 17.2%

0

0.05

0.1

0.15

10.0

15.0

20.0

25.0

2005 2006 2007 2008

Size Growth



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

Pharmaceuticals Overview

Main US Biotech clusters

• 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)

Massachusetts

Maryland

Pennsylvania

New YorkWashington

Connecticut

Sources: Strength and Stability – The Americas Perspective, Ernst & Young, 2006; United States Healthcare and Pharma, Global Insight, Oct 2006

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

California

North Carolina

Maryland New Jersey

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



Sales of OTC medicines (at retail selling prices) and annual growth 2004-2008 ($bn)

The US market for OTC medicines only accounts for a round 6% of the total US drugs market, but is accelerating growth mainly as a result of cost-containment measures taken by health insurers

• 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


18.8

3.3%

3.8%

4.7%

0.035

0.04

0.045

0.05

19

20

– 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

16.4

16.7

17.3

18

2.1%

3.3%

0

0.005

0.01

0.015

0.02

0.025

0.03

15

16

17

18

2004 2005 2006 2007 2008

Size Growth



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

Recent Rx-to-OTC switches in the US

OTC manufacturer Notes

Claritin Schering-Plough; Andrx

Approved in Nov 2002

Prilosec Procter & Gamble

Brand owned by AstraZeneca;

• 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


Gamble 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 Pharmaceuticals

Under consideration for OTC switch by FDA

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 managed-care 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



Segment shares of OTC market, by value, 2008

The OTC market is dominated by the Cough and cold p reparations segment. Growth in this segment is driven mainly by Rx-to-OT X switches of allergy remedies, such as Schering-Plough’s Claritin in 200 1

• 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 Sanofi-Aventis’ Allegra and Pfizer’s Zyrtec to OTC status


Cough and cold preparations (22.9%)

Traditional medicines (12.8%)

Other (13.0%)

Aventis’ 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

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

Vitamins and minerals (19.6%)

Indigestion preparations (13.2%)

Medicated skin products (12.9%)

Analgesics (12.8%)

Market value (at Retail Selling Price): $18.8bn



Until recently, parallel importation of pharmaceuti cals has been illegal in the US. Still, some trade has occurred as the authoriti es have tacitly allowed importation of drugs for personal use…

15%

17%

Denmark

UK

Parallel imports’ share of total pharmaceutical sales, 2008


• 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

1%

5%

7%

12%

13%

0% 5% 10% 15% 20%

US

Germany

Norway

Sweden

Netherlands

Source: The Pharmacy Industry in Figures – 2008 Edition, European Federation of Pharmaceutical Industries and Associations (EFPIA), June 2006

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



Types of parallel importation from Canada allowed in the new US legislation

Congress recently passed a bill allowing re-importa tion of drugs from Canada for personal use. It remains to be seen what will be the impact of this new legislation

• 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


Canadian online pharmacies

Cross-border sales in 2008 estimated at $460m

Re-importation by US citizens for personal use

(90-day drug supply allowed) • 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

$460m allowed)



Agenda

• US Overview

• US PMP Overview


Agenda






• Key PMP Players

• US PMP Outlook

• Appendix



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

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

• The market is projected to reach $230.5 billion by 2010, an increase of 23.7% between 2005 and 2010

USA $86.3 bn (46.3%)

Japan $33.1 bn (17.7%)

RoW$3.5 bn (1.9%)

The global Medical Products market, 2008$ bn

US PMP Overview: Medical Products Overview

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

Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2008.

Europe $63.5 bn (34.1%)

Global market, 2008: $186.4 bn



The US Medical Equipment and Supplies market is pro jected to grow at a steady rate of 4.1% (CAGR) between 2005 through 201 0

• 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,

US Medical Equipment & Supplies forecast, 2005-201 0 $ bn


CAGR 2005-2010: 4.1%

8690 93

97101

105

80

100

120

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 socio-economic 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

Source: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006.

0

20

40

60

80

2005 2006 2007 2008 2009 2010



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

• 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

US Medical Products Sales, 2008


Disposable equipment

40.1%

Other 30.6%

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

Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006.

IV diagnostics11.3%

Opthalmic equipment 6.7%

Technical aids 7.0%

US market, 2008: $86.3 bn



US Medical products market, cont.

US Medical Technology Industry Trade Statistics

2004-2008-Calculate by moving average method


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

method

Source: Medical Technology Industry at a Glance. AdvaMed, 2008. Source: Medical Technology Industry at a Glance. AdvaMed, 2004.



Almost 38% of Medical Products establishments are c oncentrated within five states; California, Texas, Florida, Pennsylvania an d New York. Employment in the US Medical Equipment and Supplies industry expe rienced a decline between 2001 – 2004, but is now on the rebound US PMP Overview:

Medical Products Overview

US Medical Equipment & Supplies Establishments, 2008

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

310

315Total number of establishments = 12,160

Source: EUCOMED & member associations 2004

Sources: US Census Bureau; US Bureau of Labor Statistics

295

300

305

310

2003 2004 2005 2006 2007 2008

1,883

811

644

515756



Agenda

• US Overview

• US PMP Overview


Agenda






• Key PMP Players

• US PMP Outlook

• Appendix



Pharmacy chain stores is the main distribution chan nel for prescription drugs in the US, accounting for 35% of the market i n 2008. Clinics and Mail order (including online sales) are the fastest grow ing channels

• 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

Prescription Drug Market Share by Distribution Channel, 2008(and CAGR 2001-2008)


9%

8%Pharmacy chain

stores (CAGR: 10%)

Food stores (CAGR: 10%)

Other(CAGR: 14%)

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

Sources: IMS National Sales Perspectives, 1/2006, IMS Health

35%

15%14%

10%

10%

Online/Mail order (CAGR: 18%)

Independent pharmacies (CAGR: 6%)

Non-federal hospitals

(CAGR: 11%)

Clinics (CAGR: 18%)

Total value, 2008 (at wholesaler prices): $251.8 bn



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

• 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

26

29

37

60

Germany

Italy

France

United States

Number of pharmacies per 100,000 inhabitants, 2004


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

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.

6

10

10

12

13

15

21

23

0 20 40 60 80

Denmark

Sweden

Netherlands

Norway

Austria

Finland

UK

Switzerland



The US Pharmaceutical Distribution market experienc ed a prolonged period of consolidation between 1995 to 2008, resulting in a highly concentrated competitive landscape

• 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

The US market for pharmaceutical wholesales, 2008


29%

9% McKesson

Other

• 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-for-service (FFS) payment model, which according to industry analysts drives lower margins but increases earnings visibility and cash flow

Source: Deutsche Bank, 2008

29%

22%20%

20%

Cardinal HealthAmerisourceBergen

Direct



Agenda

• US Overview

• US PMP Overview

• Key PMP Players

Agenda

• Key PMP Players

– Key Pharmaceutical Players

– Key Medical Products Players

– Key Distribution Players

• US PMP Outlook

• Appendix



Company H&LS sales ($m) EBIT margin (Group)

No. of employees Market value ($m) Main market segmen t

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

Major US PMP players

Top 15 US Pharmaceuticals and Medical Products play ers, by H&LS sales 2008

US PMP Overview: Key PMP Players

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 UKSources: OneSource; Evaluate Pharma



Agenda

• US Overview

• US PMP Overview

Agenda

• Key PMP Players




• US PMP Outlook

• Appendix



Pfizer

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

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

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)

Financial highlights 2005 Pharma sales by therapeutic area (actual and expect ed)

Therapeutic area 2005(a) 2010(e)

CAGR 2005-2010

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%

6.7% 7.1% 1.1%

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

Product

Sales2005 ($m) Product

Sales2010 ($m)

Lipitor 12,187 Lipitor 10,673

Norvasc 4,706 Lyrica 2,842

Zoloft 3,256 Lipitor-torcetrapib 2,504

Zithromax 2,025 Celebrex 2,335

Celebrex 1,730 Xalatan 1,586


R&D spend (% of Pharma sales): 14.9%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%

Sensory Organs 3.3% 4.3% 5.9%

Blood 0.9% 0.7% -5.5%

Dermatology 0.5% 0.4% -6.2%

Gastro-Intestinal 0.5% 0.5% 1.2%

Other 3.6% 3.6% 0%

Total WW Rx & OTC Sales 100% 100% 0.1%Sources: Evaluate Pharma, Oct 2006; OneSource

Best-selling drugs (actual and expected)



Johnson & Johnson

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

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





Financial highlights 2005 Pharma sales by therapeutic area (actual and expect ed)


CAGR 2005-2010


Blood 13.8% 11.2% -0.1%


8.5% 13.6% 14.4%

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

Product


Sales2010 ($m)

Risperdal 3,552 Remicade 3,345

Procrit/Eprex 3,324 Procrit/Eprex 2,616

Remicade 2,065 Risperdal 2,434

Tylenol 1,727 Paliperidone ER 2,105

Topamax 1,680 Levaquin 1,796


R&D spend (% of Pharma sales): 17.9%Systemic Anti-infectives 8.5% 13.6% 14.4%


Genito-Urinary 6.2% 5.3% 0.7%




Other 9.4% 7.7% 0%

Total WW Rx & OTC Sales 100% 100% 4.1%

Sources: Evaluate Pharma, Oct 2006; OneSource




Abbott Laboratories


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




Market Value: $74,526 m (as of 20 Oct 2006)

Financial highlights 2005

Key PMP Players: Key Pharmaceutical Players

Pharma sales by therapeutic area (actual and expect ed)


CAGR 2005-2010




9.9% 13.9% 10.4%

Pls check the latest BI from Accenture neural network

Product


Sales2010 ($m)

Humira 1,400 Humira 3,681

Mobic 1,232 TriCor 1,605

Depakote 1,096 Kaletra 1,372

Biaxin/Klacid 1,065 Depakote 1,066

Kaletra 1,005 ABT-874 750

Market Value: $74,526 m (as of 20 Oct 2006)

R&D spend (% of Pharma sales): 7.7%



Cardiovascular 9.9% 13.9% 10.4%

Genito-Urinary 6.6% 0.3% -45.2%

Endocrine 6.3% 6.1% 2.6%



Respiratory 0.3% 0.1% -11.9%

Blood 0.1% 0% -

Other 22.5% 18.1% -1.2%




Merck & Co



Estimated US pharma sales: $12,767m








CAGR 2005-2010


Musculoskeletal 15.7% 2.8% -26.3%


13.5% 18.2% 10.5%


Product


Sales2010 ($m)

Zocor 4,382 Singulair 4,901

Fosamax 3,191 Cozaar 2,031

Cozaar 3,037 Gardasil 1,408

Singulair 2,976 Varivax 1,329

Proscar 741 Januvia 1,226





Respiratory 13.5% 18.2% 10.5%

Sensory Organs 3.5% 2.0% -7.1%

Genito-Urinary 3.4% 1.4% -12.4%



Blood 0.4% 0.3% -3.4%


Endocrine 0% 6.0% NA

Oncology & Immunomodulators 0% 6.0% NA

Other 8.3% 16.9% 20.0%

Total WW Rx & OTC Sales 100% 100% 4.1%63© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Bristol-Myers Squibb











CAGR 2005-2010

Blood 26.7% 30.9% 6.2%



10.2% 23.3% 21.8%


Product


Sales2010 ($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






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%




Agenda

• US Overview

• US PMP Overview

• Key PMP Players

Agenda

• Key PMP Players




• US PMP Outlook

• Appendix



Johnson & Johnson


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

US sales: $28,377m (56.2% of total sales)

EBIT margin: 26.2%



R&D spend: 12.5%

Key PMP PlayersKey Medical Products Players


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 230operating 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:



Medtronic




EBIT margin: 27.2%



R&D spend: 9.9%



R&D spend: 9.9%

Medtronic, Inc. is engaged in medical technology. The Company functions in seven operating segments that manufacture and selldevice-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:



Baxter




EBIT margin: 15.9%

Number of employees:47,000

Market Value: $30.010m (as of 20 Oct 2006)

R&D spend: 5.4%



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:



Tyco




EBIT margin: 12.3%



R&D spend: Not available



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 beforeaccounting change increased 27% to $2.79bn. Revenues reflect an increase in sales of electronics due to higher volume growth andcontinuing improvement in the Worldwide Fire Services businesses. Net income also reflects an increase in interest income anddecreased interest expenses.

Source:



Boston Scientific




EBIT margin: 15.6%

Number of employees:19,800


R&D spend: 10.8%



R&D spend: 10.8%

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a range ofinterventional 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:



Agenda

• US Overview

• US PMP Overview

Agenda

• Key PMP Players




• US PMP Outlook

• Appendix



McKesson

Group sales: $88,050 m (+9.9% from 2008)

H&LS sales: Same as group sales


EBIT margin: 1.3%





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 medicalmanagement, 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



Cardinal Health

Group sales: $81,364m (+9.5% from FY05)



EBIT margin: 2.3%




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



AmerisourceBergen



US sales: $54,577m (100% of total sales)

EBIT margin: 1.0%




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



Walgreen

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%




Walgreen Company is a retail drugstore chain that sells prescription and non-prescription drugs and general merchandise. Generalmerchandise 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:



CVS


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%




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 productsand 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 PharmaCareManagement 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



Agenda

• US Overview

• US PMP Overview

• Key PMP Players

Agenda

• Key PMP Players

• US PMP Outlook

• Appendix



Should the cost of Medicare Part D rise considerabl y 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-to-long 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

Source: United States Healthcare and Pharma, Global Insight, Oct 2006

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.



Policies, cont… Key PMP PlayersUS 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 79© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Policies, cont… Key PMP PlayersUS PMP Outlook

Wholesale Margin Targeted Instead of Prescription D rugs?

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 80© 2008 Accenture. All rights reserved. Adhikari,Dawn & Melberg - accenture H&LS consultant


Local vs. foreign sales

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


37% 35% 30% 27%32% 34%

70%

80%

90%

100%

Source:

63% 65% 70% 73%68% 66%

0%

10%

20%

30%

40%

50%

60%

1998 2000 2002 2004 2006 2008

Domestic sales Sales abroad



Agenda

• US Overview

• US PMP Overview

• Key PMP Players

Agenda

• Key PMP Players

• US PMP Outlook

• 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

Appendix:Glossary of terms

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)



Bibliography

Selected helpful sources

Source Data coverage Access

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

• Via OneSource

Homepage

www.datamonitor.com

PhRMA – The Pharmaceutical Research and Manufacturers of

• Detailed information on the US pharmaceutical market

www.phrma.org • Open Internet access

Appendix:Bibliography

GPhA – Generic Pharmaceutical Association

• Information on the US Generics industry and market

www.gphaonline.org

Research and Manufacturers of America

US pharmaceutical market (from a vendor perspective)

access

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

• Open Internet access

www.imshealth.com

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

• Open Internet access



Accenture Research - Contact Details

�Jaydeep Adhikari (Global H&LS expert)[email protected]

�Dawn M. [email protected]

Appendix:Contacts

�Mikael Stenstrand [email protected]


Health & Medicine

US Pmp Overview 2008