RiskAssessmentCBIFalcon25June2012

Risk Assessment and Management for New Product Planning

Robert J. Falcon

Endo Pharmaceuticals

Planning is Critical for Success

“How you run the race - your planning, preparation, practice, and

performance - counts for everything. Winning or losing is a by-product, an aftereffect, of that

effort.”

John Wooden

©2012 Endo Pharmaceuticals, Inc. All rights reserved. 2

Overview

Why Managing New Product Risk is Important What problems are we having and why?

Forecasts and the scientific method Importance of the Target Product Profile (TPP)

Sample TPP & PPOs – Kestrel Pharmaceuticals Use Decision Analysis to capture & quantify

development options Keep it simple – Manage forecast complexity


Concern Over Early Stage New Product Development

– Commercial potential [value] is being assessed at the beginning of every development program1

– “Sales estimates” identified as the parameter management most wishes to be more reliable in biotech valuations2

– 80% of products launched in past decade did not live up to expectations3

– # of FDA drugs approved per each $1B of R&D spend halved every 9 years since 1950 4

– $4B-$12B = average R&D spend for every drug approved (1997 – 2011)5


1- John LaMattina, former Pfizer VP R&D, LifescienceLeader.com, Dec 20112 – Dec 2011 Linked in Survey by Avance (www.avance.ch)3 – Campbell Alliance, PA Bio, March 29, 2012 “What Decisions Impact Value the Most”4 – Nature Reviews, Drug Discovery, March 2012 p. 1915 – Forbes, March 12, 2012 p. 38

http://www.avance.ch/

Average Spend per New Drug Approved is Soaring

Research Spending Per New Drug

Company Ticker

Number of drugs approved

R&D Spending Per Drug ($Mil)

Total R&D Spending 1997-2011 ($Mil)

AstraZeneca

AZN 5 11,790.93 58,955

GlaxoSmithKline

GSK 10 8,170.81 81,708

Sanofi SNY 8 7,909.26 63,274

Roche Holding AG

RHHBY 11 7,803.77 85,841

Pfizer Inc. PFE 14 7,727.03 108,178

Johnson & Johnson

JNJ 15 5,885.65 88,285

Eli Lilly & Co. LLY 11 4,577.04 50,347

Abbott Laboratories ABT 8 4,496.21 35,970

Merck & Co Inc MRK 16 4,209.99 67,360

Bristol-Myers Squibb Co. BMY 11 4,152.26 45,675

Novartis AG NVS 21 3,983.13 83,646

Amgen Inc. AMGN 9 3,692.14 33,229

Sources: InnoThink Center For Research In Biomedical Innovation; Thomson Reuters Fundamentals via FactSet Research Systems

©2012 Endo Pharmaceuticals, Inc. All rights reserved. 5Source: http://www.forbes.com/sites/matthewherper/2012/02/10/the-truly-staggering-cost-of-inventing-new-drugs/

http://www.forbes.com/companies/astrazeneca/


http://www.forbes.com/companies/glaxosmithkline/


http://www.forbes.com/companies/roche-holding/


http://www.forbes.com/companies/pfizer/

http://www.forbes.com/companies/johnson-johnson/




Company Ticker




AstraZeneca

AZN 5 11,790.93 58,955

GlaxoSmithKline

GSK 10 8,170.81 81,708

Sanofi SNY 8 7,909.26 63,274

Roche Holding AG

RHHBY 11 7,803.77 85,841

Pfizer Inc. PFE 14 7,727.03 108,178

Johnson & Johnson

JNJ 15 5,885.65 88,285

Eli Lilly & Co. LLY 11 4,577.04 50,347


Merck & Co Inc MRK 16 4,209.99 67,360


Novartis AG NVS 21 3,983.13 83,646

Amgen Inc. AMGN 9 3,692.14 33,229


©2012 Endo Pharmaceuticals, Inc. All rights reserved. 6Source: http://www.forbes.com/sites/matthewherper/2012/02/10/the-truly-staggering-cost-of-inventing-new-drugs/












Company Ticker




AstraZeneca

AZN 5 11,790.93 58,955

GlaxoSmithKline

GSK 10 8,170.81 81,708

Sanofi SNY 8 7,909.26 63,274

Roche Holding AG

RHHBY 11 7,803.77 85,841

Pfizer Inc. PFE 14 7,727.03 108,178

Johnson & Johnson

JNJ 15 5,885.65 88,285

Eli Lilly & Co. LLY 11 4,577.04 50,347


Merck & Co Inc MRK 16 4,209.99 67,360


Novartis AG NVS 21 3,983.13 83,646

Amgen Inc. AMGN 9 3,692.14 33,229



Pharma Only

Source: http://www.forbes.com/sites/matthewherper/2012/02/10/the-truly-staggering-cost-of-inventing-new-drugs/










Benchmarking Opportunity


What are Lilly, BMS, Merck, and Novartis doing differently than the others?

Higher Cost per Approval Driven By Failures


Source: NATURE REV. DRUG DISC. Sept 29 2011 p. 527

But why are Phase II failures not increasing at Phase I & III rate?

Are Phase II Trial Hurdles set too low?

– Approved drugs enrolled median 171 people in each Ph II, while drugs failing Ph. III or later enrolled median 69 people (01/00-3/11). 1

– Failures in Ph III due to inadequately defined endpoints & no efficacy 2

– New mechanisms of action have higher failure rates, but were not tested thoroughly enough in Ph II

– Ph II endpoints were not objective or were patient reported – Why? Wishful thinking by project teams and incentives tied to targets

– Lilly vs Pfizer POS in their Phase III Alzheimer trials

©2012 Endo Pharmaceuticals, Inc. All rights reserved. 101- Nature Medicine, Vol 18 No 4, April 2012 (http://lesusacanada.org/docs/presentations/deloitterecap-lhp_les-nj_mar-22_2012.pdf?sfvrsn=2) 2 – “Why Products Fail in Ph III”, In Vivo, April 2006 (Trials from 1990-2002)

Source: NATURE REV. DRUG DISC. Sept 29 2011 p. 527

http://lesusacanada.org/docs/presentations/deloitterecap-lhp_les-nj_mar-22_2012.pdf?sfvrsn=2

Why Should Forecasting be Concerned??

Success or failure of compound affects your job Sharing your concerns in an appropriate manner

may open some eyes History may not repeat itself, but the patterns

(such as weak Ph II trials) speak for themselves


Early vs Late Stage New Product Development


Source: "A More Rational Approach to New-Product Development." Harvard Business Review, March 2008, p. 99

Challenge

Build business case like you are going to trial Science/Evidence Based approach – Document!

Provide “realistic” forecasts and valuations Base Case = 50% Case

“Gretzky” vision Model the market of tomorrow, not today Multiple market scenarios likely needed

Resist “Irrational Exuberance” Risk associated with inflated forecasts

Consider all “options,” but let the data lead!


Forecasts and the Scientific Method

“Scientific method refers to a body of techniques for…acquiring new knowledge, or correcting and integrating

previous knowledge” 1

“[A] basic expectation is to document, archive and share all data and methodology so they are available for careful

scrutiny by other scientists, giving them the opportunity to verify results by attempting to reproduce them.” 2

“The goal of a scientific inquiry is to obtain knowledge in the form of testable explanations that can predict the results of

future experiments.” 3

©2012 Endo Pharmaceuticals, Inc. All rights reserved. 141 – Wikipedia http://en.wikipedia.org/wiki/Scientific_method2 - Ibid3 - Ibid

http://en.wikipedia.org/wiki/Scientific_method

“Take Issue with the Assumptions!!!”

Sales forecast is never wrong, but…. Did you forecast the appropriate future market? Is the target indication appropriate? Is your assumption source(s) valid? Should you use an Incidence, prevalence, or

patient flow model for your chronic therapy? Oncology – Start with deaths for met drug?

Will the diagnostic be ready? How will BD activities affect pipeline forecast?

Must measure incremental value!


Forecast is Dependent Upon Assumptions of Other Groups

Pricing &ReimbHealthOutcomesMarketing

Medical

Clinical

MarketResearchRegulatory

R&D

Forecasting

Need to get all contributors on the same page

Forecaster must communicate early the impact of decisions made by each contributor.

e.g., Clinical Dev Options

The vehicle through which all components/inputs of the forecast first put side by side is the Target Product Profile (TPP)


Target Product Profile

Forecast with no TPP? You’re making “stuff” up!! Forecaster must add his/her input to TPP TPP must reflect future world(s), not today Step out of your comfort zone, and push others do

the same How does each TPP contributor impact your

forecast? Challenge teammates tactfully Facilitate the discussion to assure everybody is on

same page Start with the end in mind – TPP paints the picture


Example – Regulatory vs Reimbursement

“Growing tension” between data requirements Regulatory – Absolute efficacy data Reimbursement (Payers) – Effectiveness data

What is the economic value of this drug?? Comparative effectiveness (US) Value-based pricing (EU)

Indirect comparison or Head-to-Head required? Does comparator differ by market?

Preliminary P & R strategy S/B in place by Phase II (ideally) or entering Phase III (required)

Forecaster needs to be matchmaker!

©2012 Endo Pharmaceuticals, Inc. All rights reserved. 18Source: “Addressing Reimbursement during Development,”PharmaVoice, May 2012, P 20-22

TPP Input - Be Like Columbo (Peter Falk)

– Disheveled and disarming Lt. Columbo

– Consistently underestimated by his suspects

– Formidable eye for detail and meticulously dedicated approach

– Ask a lot of unassuming open-ended questions

– Restrain any personal opinions– Let the evidence lead

analysis


Sample TPP – 1 of 3


Kestrel Pharmaceuticals - KP101 Target Product Profile (Note: Company name and “Talon Inhibitor” are fictitious and for presentation only)

Base PPO High PPO Low PPO

Indication(s) and Usage

NSCLC: KP101, used in combination with carboplatin, is indicated for 1st Line treatment of patients overexpressing Talon.

NSCLC: KP101, used alone (monotherapy), is indicated for 1st Line treatment of patients overexpressing Talon.

NSCLC: KP101, used in combination with carboplatin, is indicated for 1st Line treatment of patients regardless of Talon status.

Route of Administration

KP101 is an oral tab KP101 is an oral tab KP101 is an oral tab

Dosage Form(s) 2.5 mg tab 4.0 mg tab 2.5 mg tab

Dosage Regimen One 2.5mg tab QD. Patients continue to receive KP101 until unacceptable toxicity or disease progression.

One 4.0mg tab QD. Patients continue to receive KP101 until unacceptable toxicity or disease progression.

One 2.5mg tab QD. Patients continue to receive KP101 until unacceptable toxicity or disease progression.

Efficacy vs. Competition

KP101 in combination with carboplatin demonstrates 50% improvement in Talon+ patients over Combo X, the current Standard of Care. ORR= 30% TPP= 9.0mos OS= 22mos

KP101, used alone, demonstrates 100% improvement in Talon+ patients over Combo x, the current Standard of Care. ORR= 40% TPP= 12.0mos OS= 30 mos

KP101/Carbo combination in all patients (regardless of Talon status) demonstrates 20% improvement in OS, but equal ORR and TTP compared to Combo X, the Current Standard of Care. ORR= 20% TPP= 6.0mo OS= 18 mos





Side Effects vs. Competition

10% increase in gr 3 and 4 neutropenia, similar leucopenia, mucositis, and peripheral neuropathy compared Combo X

20% increase in gr 3 and 4 neutropenia, similar leucopenia, but a 50% reduction in mucositis and peripheral neuropathy compared to Combo x

10% increase in gr 3 and 4 neutropenia, similar leucopenia, mucositis, and peripheral neuropathy compared Combo X

Pharmacoeconomics KP101 must show significant improvement in survival over standard of care to justify cost of therapy and increase in AE profile. The Talon Screen will identify patients most likely to respond. Price of TALON screen must be cost effective to justify use vs the cost of empirically treating all patients.

KP101 must show significant improvement in survival over standard of care to justify cost of therapy and increase in AE profile. The Talon Screen will identify patients most likely to respond. Price of TALON screen must be cost effective to justify use vs the cost of empirically treating all patients.

KP101 must show significant improvement in survival over standard of care to justify cost of therapy and increase in AE profile. Although patients will not incur cost of the Talon Screen, efficacy will be hampered relative patients who targeted through use of the TALON screen.

Positioning Thesis KP101 in combination with Carboplatin will be the SOC 1st Line therapy for all TALON+ patients with metastatic NSCLC.

KP101, used alone, offers superior efficacy and eliminates platinum-related side effects and will be the SOC 1st Line therapy for all TALON+ patients with metastatic NSCLC.

KP101 in combination with Carboplatin offers superior OS relative to current Standard of Care for 1st Line patients with metastatic NSCLC.





Competitive Assessment

Taxane-Platinum doublets are currently used for 1st Line NSCLC patients. The competitive pipeline is full of agents that are selective for a particular molecular target, but none are selective for Talon. Consideration should be given to combining KP101 with other agents broadly used in NSCLC

Taxane-Platinum doublets are currently used for 1st Line NSCLC patients. The competitive pipeline is full of agents that are selective for a particular molecular target, but none are selective for Talon.

Taxane-Platinum doublets are currently used for 1st Line NSCLC patients. The competitive pipeline is full of agents that are selective for a particular molecular target, but none are selective for Talon. Consideration should be given to combining KP101 with other agents broadly used in NSCLC

Pricing and Market Access

Strategy

Preliminary pricing research indicates potential for premium-pricing to SOC and parity pricing to other recently launched selective therapies. Assumes proper clinical trial health outcomes support the TPP

Preliminary pricing research strongly supports potential for premium-pricing to SOC and parity pricing to other recently launched selective therapies. Assumes proper clinical trial health outcomes support the TPP

Preliminary pricing research indicates likelihood of parity or slight premium pricing to SOC but less pricing of other recently launched selective therapies. Assumes proper clinical trial health outcomes support the TPP

PPO Probability 60% 25% 15%

TPP Drives Decision Analysis

Decision Analysis provides a means for dialog between the forecaster and project team

This dialog enables uncertainties, concerns, expectations, and assumptions to be clarified

Forecaster must quantify many qualitative product characteristics to impact the forecast Better side effect profile Oral introduced into an IV dominated market ER tab launched into an IR market Will our product’s characteristic differentiation

generate any traction in the market?


What is Decision Analysis?

Iterative process Involves uncovering specific key factors that affect the

forecast and their magnitude Allows you to concentrate on what is important Uses subjective probability assessments from subject

matter experts to obtain the likelihood of future events Provides the means to make an informed rather than

purely intuitive or “gut” decision


Source: Skinner, Intro to Decision Analysis, 2nd ed

Apply Decision Analysis to Target Profile Prepare forecast model for each of the Target

Product Profiles (or PPOs) Early stage = high level Medical/Clinical need to estimate probabilities

Utilize ranges to estimate typical uncertainties such as share, price, for each scenario Appropriate colleagues need to contribute

Utilize monte-carlo simulation* Correlate variables where appropriate

Sensitivity Analysis (tornado) will expose areas to target market research


* Make sure senior management is on board

Share Decision Tree Hypothetical Example


Start Monotherapy or Combo?

Improvement in Efficacy over SOC?

Monotherapy

Combo Therapy

Side Effects Same, Better,

Worse


Worse67% - 100%

33% - 67%


Worse

10% - 33%

Improvement in Efficacy over SOC?


Worse

33% - 67% Side Effects Same, Better,

Worse

10% - 33%Side Effects,

Same, Better, Worse

67% - 100%

Other Factors that will determine share:

1. What other new Products will launch? How do they compare?2. What currently marketed products will go generic?3. What new or emerging alternative therapies might make this flowchart obsolete?

Decision Tree will have dozens of branches. Pick the most likely (50% case), and at least one upside and downside.

What will the impact of your chosen efficacy, side effect, & competitive set have on share? Price? Treatment Rate?

Decision Trees Can help to quantify a range of assumptions

E.g., Share based on product attributes, competitive product launches, launch of disruptive therapies, etc

Utilize primary market research to quantify impact Can be used to quantify sales, NPV, RANPV, etc

Once all assumptions have been mapped Practical use

Decision Trees must be kept to a high level Leverage monte-carlo simulation to cover the ranges within

each variable


Tornado Analysis

– Shows sensitivity of forecast model to changes in variables.– Holds all but one variable

constant, then measures impact of remaining variable.

– Shows where the big uncertainties are in the forecast

– Helps to target those assumptions where reduction of uncertainty can “tighten-up” the forecast.


Forecast Complexity – Double Edged Sword

Forecast complexity is not an issue to forecaster Complexity may confuse your audience

Forecaster use of any modeling technique that management is not open to may be a CLM

Tornado Analysis is normally fine Explaining Monte-carlo simulation to a VP unfamiliar or

uncomfortable with the term may be counterproductive Keep it as simple as you can, add the complexity if

you must!!


Takeaways

Forecasting must actively drive the New Product Planning process (especially the TPP)

Step (and think) out of your comfort zone, and encourage your colleagues to do the same

Make sure the dialog with SMEs happens, but challenge teammates tactfully (Columbo)

Keep the early analysis to a high level – make the experts on your team assign probabilities to various unknowns

If you just take assumptions that are given you and drop them in forecast, you are expendable!!


Questions??


Documents

RiskAssessmentCBIFalcon25June2012