PHARMACEUTICAL VALUE
CREATION
John W. Medcof, PhD
DeGroote School of Business
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PHARMACEUTICAL
VALUE CREATION
1.0 Introduction -ICE
2.0 The Industry
3.0 The Pipeline
4.0 Biotechnology and Outsourcing
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IC♦E
The Technology Commercialization Value Chain
BUSINESS STRATEGY
I C E
INVENT CREATE EXTRACT
Technologies with Commercial Value Commercial Value
Potential In technologies From technologies
Commercial Value
DECISION DECISION
1 2
MANAGEMENT PROCESSES
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2.0 THE INDUSTRY
Global Pharmaceutical Markets
• Canada $US 8.6B 1.9 %
• Europe $US 116 B 27.0 %
• Japan $US 49 B 11.5 %
• Asia/Africa $US 34B 8.0 %
• Latin America $US 16B 3.4 %
• US $US 295 B 48.2 %
• Total $US 432 B 100.0 %
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Top Global Pharmaceuticals
(S&P 2003)
• Company Sales ($US B)
• Pfizer 28.28
• GSK (Glaxo-SmithKline) 28.20
• Merck 21.63
• Astrazeneca 17.84
• Aventis 17.25
• Johnson & Johnson 17.20
• Novartis 15.36
• Bristol-Myers Squib 14.70
• Pharmacia 12.03
• Wyeth 11.70
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Locations of Top 50 Pharma Companies
1
12
20
17
USA Europe Japan Isreal
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Top 20 Companies by Pharma Sales
(2002 in Canada – IMS)
• Pfizer $ 1300 M • Aventis $ 449 M
• GSK $ 1044 M • Wyeth $ 443 M
• Merck Frosst $ 950 M • Lilly $ 408 M
• AstraZeneca $ 891 M • Schering-Plough $ 331 M
• J&J $ 703 M • Roche $ 322 M
• Apotex $ 644 M • Bayer $ 299 M
• Pharmacia $ 542 M • Novopharm $ 255 M
• BMS $ 529 M • Genpharm $ 214 M
• Novartis $ 503 M • Ratiopharm $ 199 M
• Abbott $ 487 M • Pharmascience $ 191 M
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Top 5 Products in Canada by Sales
(2002 - IMS)
• Lipitor (Pfizer) $ 625 M Cholesterol
• Losec (AstraZeneca) $ 424 M GI anti-ulcer
• Zocor (Merck Frosst) $ 291 M Cholesterol
• Norvasc (Pfizer) $ 250 M Cardiovasc.
• Altace (Wyeth) $ 234 M Cardiovasc.
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Big Generics Players in Canada
• Apotex and Novopharm (Teva) are the 2 largest
generic manufacturers in Canada
– Account for for more than half of generic market
• Apotex (Canadian owned) is also the top spender of
R&D in the pharmaceutical industry in Canada
– In front of Pfizer, GSK and Mercka
• Both companies also have many international ties
that allow for significant economies of scale
a - “Canada’s Top 100 Corporate R&D Spenders, 2003”
http://www.researchinfosource.com/top100.shtml
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What is a a generic drug?
• Low cost version of a brand name drug
• Must be approved by Health Canada
• There is no difference in quality, purity,
effectiveness and safety
• Said to be bioequivalent
• Fillers may be different
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Costs for Canadians
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http://imshealthcanada.com/htmen/3_2_19.htm
Aggregate Sales Growth
Rx&D vs. Generics (1988-2000)
$1.4 billion
600% Rx&D
544%
Generics
500%
400%
300%
187%
200%
$295 million
100%
0%
87
88
89
90
91
92
93
94
95
96
97
98
99
00
19
19
19
19
19
19
19
19
19
19
19
19
19
20
(C-22) (C-91)
Source: IMS Canada
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3.0 THE PIPELINE
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New Drug Development Process
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The Pipeline Phases
• Basic R&D and Discovery
• Pre-Clinical Phase
• Clinical Trials
• Regulatory Approval
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Basic R&D and Discovery
• Library
• Screening
• Tweaking (Lead Compound)
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Pre-Clinical Phase
Pre-Clinical Trials (Lead Compound Evaluation)
Toxicity
Bioavailability
Pharmacokinetics
Efficacy
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Clinical Trials
• Phase 1: Safety
• Phase 2: Efficacy and safety in patients
(small numbers)
• Phase 3: Efficacy and safety in patients
(large numbers)
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Regulatory Approval
• New Drug Submission (NDS) application
• Notice of Compliance (NOC)
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Important Regulatory Bodies in
Canada
TPD - Therapeutic Products Directorate
BGTD - Biologics and Genetics Therapeutic
Directorate
CDR - Common Drug Review
PMPRB - Patented Medicines Pricing and
Review Board
Formularies
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The Formularies
The formularies are lists created by the
provinces and territories which indicate
which medications they will pay for and
how much. They may include other rules
about priorities and special
circumstances.
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Pipeline Dynamics
• Time
• Money
• Hit Rate: 1:10,000
• The full pipeline
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TIME
New Drug Development Process
Preclinical Development Clinical Development
Regulatory Approval Effective Patent Term
Patent 20
3-4 8 10*
Year 0
* Average year for market entry, individual products can vary.
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lect07 pharma 2008 02 01
Rx&D Companies’ New Drug Submissions
(Average Time to Approval)
1400
1163 1142
1200 1097 1089 1044
1024 1045
1000 940
800 682 743 717
615 549
570 591
600
400
200
0
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
19
19
19
19
19
19
19
19
19
19
19
19
19
20
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Source: Rx&D Notice of Compliance Survey (2001) - compiled by KPMG.
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Effective Patent Life of an
Innovative Pharmaceutical Product
Canada
Brazil
Mexico
United States of America
Japan
Europe*
0 5 10 15 20
* Includes all member States of the European Union + Finland, Sweden, Switzerland, and Norway.
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MONEY: Estimated Cost of
Bringing a New Drug to
Market
$900 $802
$800
$700
$US Millions
$600 $500
$500
$400
$231
$300
$125
$200 $54
$100
$0
1976 1986 1987 1995 2001
Source: University of Rochester, Texas A&M University, Tufts University, Tufts Center for
the Study of Drug Development 2001, US Congress Office of Technology Assessment .
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Ratio of Canadian Prices to
Median International Prices
(1987-2001)
1.4 1.23
1.17 1.13 1.14 1.11
1.2 1.08 1.08
0.99
0.93 0.9 0.92 0.95
1 0.89 0.88 0.89
0.8
Ratio
0.6
0.4
0.2
0
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90
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92
93
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95
96
97
98
99
00
01
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
Source: PMPRB Annual Report, 2001. Beginning in 1999, the
ratio includes prices of patented drugs for human use only.
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HIT RATE: Probability of
NCE Success at Each Stage
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The Full Pipeline
Products in Pipeline – Globally
• Pre-clinical: 3249
• Phase 1: 648
• Phase 2: 864
• Phase 3: 258
• Pre-reg/Reg: 102
• Total: 5121
Biotech Products represent 24 % of Pipeline
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Pre- and Post-Pipeline Issues
• Pre-Pipeline Issues
• Post-Pipeline Issues
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4.0 Biotechnology & Outsourcing
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Biotech Industry Role in New Drug
Discovery
• New Drug Development process is hugely
expensive
• Biotech firms have radically impacted this
process
• Biotech firms typically remain small and
non-vertically integrated operations
• How have they been successful?
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Two Keys to Success
• Technology innovation in drug discovery
– Molecular modeling & rational drug design
• Hub in a network of Strategic Alliances to
efficiently bring a compound to market
– University Labs/Research Centres
– Big Pharma Partnerships
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Biotech & Big Pharma Alliance
Pharma Environment Biotech Environment
• Bureaucratic • Entrepreneurial, Faster, Flexible
• Price pressure in Canada • Access to university resources
& federal funding
• Intolerance for branded “me too”
• Specialists in a therapeutic
products class
• Generic pressure • Need capital to move from
• Increasing cost of innovation discovery to development
methods • Need resources (sales,
• Money & muscle in regulatory, marketing, distribution)
distribution, sales & marketing
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Biotech & Pharma in NDD
• Biotech key competency in Discovery
• Development requires huge resources
– Regulatory
– Clinical Trial
• Biotech can either go public or form partnerships
to commercialize compound
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The Move to External Sourcing
• Big Pharma is vertically integrated firms
• Biotechs lead the way
• New technologies / new niches
– Combinatorial Chemistry
– Software “individuals”
• The Rise of External Sourcing and CRO’s
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