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The Specialty and Hospital environment

Sarah Rickwood VP European Thought Leadership

December 2015

1

• Key Global trends – Continued rise of biologic and specialty medicines

– The impact of the pipeline

– Budgetary challenge and budgetary headroom

• The European Specialty and hospital environment

– Key segments: Biologics, Oncology

• European specialty and hospital futures

– Cell and gene therapy

• Conclusions

IMS Health Confidential

Agenda

The prescription medicine world is an increasingly specialty focused environment

2

Source: IMS Market Prognosis and LifeCycle, Oct 2014, at ex-manufacturer price levels, not including rebates and discounts. Contains Audited+Unaudited data. Contribution to growth based on LCUS$. Note: developed includes North America, Europe and Japan

42% of the late stage pipeline of the top 20 companies focuses on

specialty products

About 60% growth in developed* markets

will be lead by specialty areas

• Concentration of competition o Majority specialty o Focus on developed markets

• All competing for the same budget o Hospitals / Specialists o Budgets unlikely to grow in Europe

• Intense focus on the same specialists o Oncology o Specialty pool and their time does not

grow

• Limited pool of patients o Determined by biomarkers o Orphan drugs

3

Specialty and biologics drive global growth in Rx value

Source: IMS Health, MIDAS, MAT Q2 2015; (*) IMS definition: Specialty products defined as medicines that treat specific, complex chronic diseases with four or more of the following attributes: Initiated only by a specialist, require special handling and administration; unique distribution; High cost; warrants intensive patient care; might require reimbursement assistance

1,000

900

800

700

600

500

400

300

200

100

0

Sal

es, U

S $

bn

2015

944

78%

22%

2005

545

86%

14%

1,000

900

800

700

600

500

400

300

200

100

0 2015

944

73%

27%

2005

545

84%

16%

Global: specialty (*) sales (billion US$), list price, excludes rebates and discounts

Global: Biologic sales (billion US$), list price, excludes rebates and discounts

Specialty Traditional Non-Biologic

Biologic

4

And European Rx value growth is particularly driven by specialty medicines

Source: IMS Market Prognosis, Oct 2014, at ex-manufacturer price levels, not including rebates and discounts. Contains Audited+Unaudited data. Contribution to growth based on LCUS$. $US used for Argentina and Venezuela due to hyperinflation

Share of absolute growth 2013-2018 by region, specialty and traditional

Adaption from global use of medicine, 2018

44% 56%

Japan $11-14Bn growth

Traditional Specialty

Key Takeaway: While all developed markets will be driven by majority specialist growth, Europe is an extreme outlier in percentage terms because austerity forces payers to reserve funds for specialty NCEs (US still leads in absolute terms

5

4% 7%

4% 3%

1% 2%

1% 7%

-2% 1%

-1% 8%

2% 9%

12% 7%

12% 15%

9% 4%

10% 24%

1% 3%

There is a long term shift to hospital in many markets

Source: IMS Health market prognosis Sept 2015; Audited segments only, Italy DPC excluded; Russia DLO excluded; Brazil & Mexico hospital = non-retail; US retail includes drug and food store only; US hospital includes hospital and clinic sectors only

63%

61%

88%

51%

65%

44%

48%

79%

89%

80%

83%

56%

34%

38%

42%

32%

45%

44%

17%

16%

10%

41%

7%

8%

10%

7%

Turkey

Russia - 4%

India 1% 10%

Brazil - 4%

UK

Netherlands

Italy

France 3%

Spain

Germany - 0% 12%

Japan 1%

US 3%

4%

Retail share Hospital share change by 2019 Hospital share 2014

Retail Hospital

5 year CAGR (2015-19) 2014 to 2019 value share of retail vs. hospital (Total pharma markets)

+4% hospital over retail

-4% hospital under retail

6

12 16 6 7

13 7 10 14 12 11

5 9

8 5 4

8 8

7 16 14

17 9

15 13

17 9

12 11

12 21

New mechanism Orphan Existing mechanism

New molecular entities launched globally 2005-2014

6.7 7.2 5.6 6.3 8.8

1.1 2.2 2.6 2.8

3.1 0.3

0.2 0.5 1.1 1.4

1.0 1.3

13.4

1.7 1.9 2.0 2.0

2.0

2010 2011 2012 2013 2014

Traditional Oncology HIV Viral Hepatitis Other Specialty Medicines

Global new brand spending growth US$Bn

Source: IMS Institute for Healthcare Informatics, The Role of Generic Medicines in Sustaining Healthcare Systems: A European Perspective, June 2015.

Significant advances in therapy can have profound effect

The surge in recent innovation is drawing heavily on healthcare budgets

7

Specialty launch numbers rise, as does specialty share, except Italy/Spain

Source: IMS Health, MIDAS, Year 2014, Rx only. IMS analysis

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

10 15 20 25 30 35 40 45 50 55

NC

Es

Mar

ket S

hare

of S

peci

alty

Rx

Mar

ket

Number of NCEs launched in the two time periods

NETHERLANDS

UK

SPAIN

ITALY

GERMANY

FRANCE

UK

SPAIN

ITALY

GERMANY

FRANCE

NETHERLANDS

Country Innovation profile – Specialty (generally hospital, often biologic/injectable, serious diseases, eg autoimmune, cancer) (NCEs launched vs. Market Share achieved)

The specialty market of NCE across the EU5 is evolving • The number of NCE launches between

2005-2009 versus 2010-2014 has increased in every country (average of NCE launches has passed from 33 to 43)

• NCE launches increased significantly in France, Germany and UK.

• NCE launches take also increased over time in the EU5 with the exception of Italy and Spain, which also suffer from share per NCE deterioration

• Germany is the leading country for specialty NCE launches whereas France leads the market in take with 18.3%. France also leads in terms of share per NCE

NCEs 2005-2009 period NCEs 2010-2014 period

8

Specialty generics will be a larger part of future small molecule cost saving opportunities The opportunities for new primary care generics remain, but new specialty small molecule generics will become an increasingly large share of opportunity.

Source: IMS MIDAS MAT Q4 2014; Market seg countries only; small molecules only; LoE exposure given as previous year sales in US$, for 2015-2020, 2014 sales have been used

LoE

exp

osur

e (U

S$

bn)

2017 2016 2014 2013 2015 2018 2020 2019 2012 2011

4.7 4.3 9.4 5.0 6.6

2.0 4.7 4.6

2.6 2.5

9.2 12.9 21.6 16.3

21.8 23.1 24.3

18.5 50.5 37.0

Specialist Traditional

Exposure based on 2014 sales: Due to higher specialty drug growth, future specialty share of exposure may be more dramatic than depicted

Small molecule LoE exposure 2011-2020

35%

9

Orphan drug (OD) approvals surge in Europe, making ~1/3 of all NCE’s launched in 2014

Source: European Medicines Agency July 2015

3 2

2

1

3

3

5

1

0

2

4

6

8

10

12

14

H1 2015

4

2014

14

2013

7

2012

9

2011

5

2010

3

2009

6

2008

6

All ODs Oncologic ODs

Number of ODs in Europe with European market authorization (MA) and orphan designation

Vigorous patient advocacy, medical breakthroughs, legislative incentives, venture capital investment and industry collaboration, are dramatically changing the landscape of rare disease research

• Oncology represents the largest category of products, including blockbusters such as Revlimid and many other high earning products such as Tasigna, Sprycel and Nexavar

• ~15% are Alimentary Tract and Metabolism products, which include many of the most expensive ODs such as the enzyme replacement therapies

• Cystic Fibrosis treatments account for 6% of all approved ODs (Cayston, TOBI Podhaler, Bronchitol, Kalydeco)

10

• Key Global trends – Continued rise of biologic and specialty medicines

– The impact of the pipeline

– Budgetary challenge and budgetary headroom

• The European Specialty and hospital environment

– Key segments: Biologics, Oncology

• European specialty and hospital futures

– Cell and gene therapy

• Conclusions

IMS Health Confidential

Agenda

11

A growing share of biologics in development will be in areas largely new to biologics

Indications in development* (Traditional vs. non traditional biologic area)

Top Indications in non traditional biologic areas

25 20 15 10 5 0 195

Heart Failure

Kidney Disease Parkinson

All others

Dermatitis Peripheral Vasc.Dis.

Ebola

COPD HCL

Osteoarthritis

MD Resp. Syncytial V.

Tuberculosis Osteoporosis

Malaria

Allergy Eye Disease

Alzheimer Asthma

HIV

HCL: Hypercholesterolemia MD: Muscular Dystrophy

Total ~ 22-26% biologic pipeline

Source: IMS Health R&D cycle Jan 2015. The number of indications in the Pipeline is defined as the number of compounds currently at a life cycle stage between Clinical and Registration. Indications based on highest phase for associated molecule.

(Indications with 3 or less compounds in development, non cancer)

22%

29%

35%

14%

Non Traditional Traditional Traditional (cancer) All others

12

Biosimilars continue to make steady progress...

Source: Secondary research. List not exhaustive. (*) at ex-manufacturer price levels, not including rebates and discounts.

ROW

Europe

2015 Jan Mar Jun

Market trends

Regulatory

FDA approves first biosimilar

Zarxio

Samsung submits Enbrel Biosimilar

application to EMA

Jul

Market trends

Regulatory

Samsung submits infliximab

biosimilar to EMA (March)

Omnitrope sole subsidised

somatropin from Jan 2015 in NZ

Granix close to 20%

penetration USA

Aug

Finland stands behind

interchangeability of biosimilars

Sep

Enbrel BS approval south

Korea

Novartis launches Zarxio in US at

15-percent discount to Neupogen

Hospira launches first BS mAbs

Inflectra in major European markets

Biosimilar 15% share of Spanish infliximab market

(June only)

Lilly/BI launch Lantus BS in UK (15% list price

discount)

Australia to recommend pharmacy-

level substitution of biosimilars

2015

Celltrion files rituximab with

EMA

Dec

Biosimilar 90% share of Danish

infliximab market (July only)

13 Source: IMS MIDAS monthly Sep 2015. Denmark data from MIDAS Monthly Restricted database. Penetration calculated in treatment days (TD); *Bulgaria, Latvia excluded because only biosimilar manufacturers present in market; **FirstWord physician poll, June 2015

Infliximab biosimilar has shown strong uptake in tender markets, more moderate in others

Infliximab Monthly uptake - European markets

Infliximab September uptake*

Nordic countries top for uptake (and published discounts), EU5 slow growth

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Up

take

, TD

France Germany Spain UK Italy Belgium Sweden Norway Finland Czech Republic Ireland Austria Romania Poland Slovakia Slovenia Croatia Portugal Denmark

Positive initial data from Nor-switch study for biosimilar infliximab announced at 2015 EULAR. Physicians expect these types of studies to encourage real-world switching, with nearly a third of rheumatologists expecting switch data to drive

'significant' usage of biosimilars in existing TNF-inhibitor patients**

Country September volume penetration of biosimilar

Denmark 96% Poland 87% Norway 80% Finland 39% Croatia 31% Hungary 21% Czech R. 19% Portugal 18% Italy 16% Spain 15% UK 14% Germany 13% Romania 11% Sweden 9% Slovakia 7% France 7% Ireland 4%

14 14

In terms of innovation oncology continues to dominate the late stage pipeline

29

0

50

100

150

# A

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e P

rogr

ams

indi

catin

g th

erap

y cl

ass*

Res

pira

tory

18

Bloo

d co

agul

atio

n

18

GI P

rodu

cts

19

Dia

bete

s

19

Oph

thal

mol

ogy

19

Antib

acte

rials

22 D

erm

atol

ogic

s 23

Vacc

ines

Oth

er C

NS

30

Pain

40

Onc

olog

ics

137

Small molecules Biologics

Most Active Therapy Areas in the Pipeline (Phase III to Registered)

* Some programs in pipeline are multi-indicational and are assigned to multiple ATC classes. Source: IMS R&D Focus, Nov 2014

15 IMS Health Confidential

Immuno oncology will disrupt budget management

• Emergence of PD-1s and PD-L1s

• Durable treatment responses

• Personalized medicine and genomics

• Defining treatments based on mutations / pathways over tumor types

Immunotherapy/ Targeted Agents

• Synergistic effects of combining targeted therapies and/or chemotherapies

• Exploration of previously thought “failed” or “mediocre” agents

• Blocking and / or stimulating multiple pathways

• Maximum value for $/spent

• Limited access to high cost novel interventions in oncology

• Regional availability

• Delisting of onco drugs from reimbursement list

• Payment by Use allows multiple (net) price points to be set for one product

• Identification of use that is not consistent with the population

• Opens the door to a variety of innovative schemes

• What constitutes good “value” in oncology

• Adapting physician behaviors

• Innovative payment models

• Individual vs. Societal value

• Cost-benefit analyses and drug scorecards

Combination Regimens Rationing Value in

Cancer Care Payment by

Use

Innovation Sustainable access and value

16

• Key Global trends – Continued rise of biologic and specialty medicines

– The impact of the pipeline

– Budgetary challenge and budgetary headroom

• The European Specialty and hospital environment

– Key segments: Biologics, Oncology

• European specialty and hospital futures

– Cell and gene therapy

• Conclusions

IMS Health Confidential

Agenda

17

Cell and gene therapy have the potential to revolutionise hospital treatments and outcomes

Cell therapies

Treatments in which intact, living human cells are injected in to a patient with the intention of therapeutic benefit

Gene therapies

Treatments which introduce functional genes in to cells in place of missing or defective ones in order to correct genetic disorders. The most common way this is done by utilising a viral vector

Unique qualities

• Highly specific • Personalised • Potentially curative • Scientifically designed

• Complex • Novel – untested • Immunogenic • Oncogenic

18

Major companies are now actively engaged

Source: IMS Health Thought Leadership analysis March 2015; IMS Health Pharma Deals; deal values given are including milestones; * Novartis has opt-in rights for GSK’s current and future oncology R&D pipeline;

Autologous CAR T-cells

$1.1 Bn

2012 2013 2014 2015

Autologous CAR T-cells

Allogeneic CAR T-cells

$265 Mn Autologous

Dendritic cells $495 Mn

Parkinson’s gene therapy

$845 Mn

Autologous TCR therapy

$350 Mn

License for Glybera &

adenovirus vector pipeline

$40 Mn

Ocular gene therapy

2011 2010

Autologous T-cells for

MS $225 Mn

Autologous CAR T-cells

$941 Mn

Hemophilia gene therapy

$280 Mn

Cardiovascular gene therapy $2.3 Bn

Autologous CAR T-cells

$250 Mn

*

Cel

l the

rapy

G

ene

ther

apy

Hearing loss gene therapy

$216 Mn

Allogeneic CAR T-cells

$850 Mn

\

Haemophilia gene

therapy $252 Mn

ADA-SCID gene therapy

Oncolytic virus $1 Bn

Ophthalmology gene therapy

$1.2 Bn

Autologous CAR T-cells

$1.1 Bn

Stem cells, Blood

diseases $600 Mn

Haemophilia gene therapy

$321 Mn

Transition to specialty will see a paradigm shift in companies’ commercial models

19

Past Paradigm Future Paradigm

Promotional Precision, broad bandwidth

Geographic Reach Geographic Focus – Selective approach

Promotional Scale, bandwidth

Effective prescriber segmentation – targeting of

prescribers

Competitive advantage driven by

Competitive advantage driven by

That, plus effective patient segmentation – supporting

healthcare systems in identification of patients

We see a transition from scale, reach and prescriber focus, to precision, selective geographies and patient-centricity joining prescriber segmentation

20

• Key Global trends – Continued rise of biologic and specialty medicines

– The impact of the pipeline

– Budgetary challenge and budgetary headroom

• The European Specialty and hospital environment

– Key segments: Biologics, Oncology

• European specialty and hospital futures

– Cell and gene therapy

• Conclusions

IMS Health Confidential

Agenda

Six key challenges for the next five years •Specialty products drive developed market growth, but not pharmerging- specialty competition geographic ally concentrated

•Growth gap between pharmerging and developed narrower now than in a decade

Geography

•Specialty is driving protected value growth and global top 20 are key drivers •Global top 20 will be overwhelmingly specialist focused by 2020 •Biologic products enter traditionally non biologic therapy areas

Portfolio

•European payer environment hardening even more because overall budgets are flat but increasing demands on specialist/hospital budget

•Choices will be made between drugs and increasingly between therapy areas Payer

•Majority of IP now originated from sub-top 20 companies, even if they don’t commercialise

•As new launches become ever more specialist, smaller companies can increasingly launch their own products

Partnership

•After almost a decade of biosimilar experience, penetration in Europe remains highly diverse

•First mAb biosimilar is now rolling out across major Europe; potential to squeeze original biologics in autoimmune

Biosimilars

•Gilead, Actavis, Biogen, Celgene, Shire all companies that are or could be top 20 with a non traditional approach to pharma

•What can be learned from their generally lean structures and rapid decision-making?

New competitors

21