A history of pharma v1

A sweeping history of Pharma and an insight into where we are now and possible upcoming developments

1. A History of Pharma Sheila Ash

2. Summary Roots of Pharma Merging Scientific and Industrial Revolutions War drives rise of Pharma Dyes to Pharmaceuticals Politics and Pharma Interwar breakthroughs State & Healthcare – Rise of Social Healthcare systems State & Healthcare – Legislative Changes Post WW2 – The Golden Age The Blockbusters Rise of “me too” 1990s-2000s – Merger Frenzy Megaliths Maintain Market Share Patent Value Patent Cliff – Lilly, Otsuka, Pfizer Late 20 th – early 21 st C – the Storm of the Biologics New Business segment Biologics Patent Cliff State and Biologics – Costs Arrival of Biosimilars Biosimilar Market Therapeutic Area Focus Big Pharma becomes Big Biotech M&A to rationalise markets Cooperation and Divestments Biosimilars Manufacturing Investment 21 St C – Alternative Manufacturing and Distribution Techniques Healthcare in the Community Digitalisation in Healthcare delivery Redefinition of MedTech Mobile Technologies in Healthcare War for the Consumer Increased consumer focus Making the leap - from mobile app to medical device Wellness and Fitness Markets Integration of Supply Chains

3. Roots of the pharmaceutical industry Middle ages Apothecaries, pharmacies, traditional remedies 17th century Scientific revolution, spread ideas of rationalism and experimentation 18th century Industrial revolution transformed the production of goods Late 19th century modern industrial origins, two concepts married to benefit of human health

4. Merging Scientific & Industrial Revolutions – Early Examples Merck Possibly earliest to move in this direction Originating as a pharmacy in Darmstadt in 1668 In 1827 Heinrich Emanuel Merck began the transition towards an industrial and scientific concern, by manufacturing and selling alkaloids GlaxoSmithKline Origins can be traced back to 1715 Mid-19th C - Beecham industrialises production Produced patented medicine from 1842 1859 - first factory for producing only medicines

5. War drives rise of Pharma Pfizer 1849 two German immigrants as Fine Chemicals business Rapid expansion during American civil war due to demand for painkillers and antiseptics Eli Lilly A young cavalry commander Colonel Eli Lilly served in the Union army A trained pharmaceutical chemist An archetype of the dynamic, multi-talented 19th C American industrialist 1876 Set up a pharmaceutical business Pioneer of new methods One of the first to focus on R&D as well as manufacturing BMS Edward Robinson Squibb, a naval doctor during the Mexican-American war (1846–1848) threw drugs overboard due to low quality 1858 He set up a laboratory, laying the basis for BMS

6. Dyes to Pharmaceuticals Dyestuffs have antiseptic and other properties Began to market them as pharmaceuticals Switzerland’s total lack of patent laws led to it being accused of being a “pirate state” in the German Reichstag Sandoz, CIBA-Geigy, Roche and the Basel hub of the pharmaceutical industry rooted in this boom Bayer founded in 1863 was a dye maker in Wuppertal Moved into medicines Commercialising aspirin around the turn of the 20th C

7. Politics and Pharma Unregulated trade in medicines Less strict delineation between “pharmaceutical” and “chemical” industries Sold cod liver oil, toothpaste, citric acid for soft drinks, and hair gel Prescription medicines Other products like heroin on the over-the-counter market The national rivalries and conflicts impacted the developing industry Bayer’s Russian subsidiary seized during the Russian revolution Bayer’s US assets seized during WW1 Compulsory split of German Merck KGaA into Merck & Co (USA) , Merck Sharp & Dohme (elsewhere) Disruption to Germany’s pharmaceutical leadership position in early 20 th C Allowed others, particularly in the US, to take advantage

8. Interwar breakthroughs Insulin 1921 Frederick Banting isolated insulin In collaboration with Eli Lilly it was purified, produced industrially and distributed it as an effective medicine Penicillin 1928 Alexander Fleming discovered penicillium mould’s antibiotic properties Howard Florey & Ernst Chain’s further experimentation Mass production via government supported international collaboration including Merck, Pfizer and Squibb during WW2, saving thousands of lives Immense scale and sophistication of the development effort marked a new era for the way pharma developed drugs 2 breakthroughs heralded the arrival of today’s pharma industry The war encouraged research into everything from new analgesics to drugs against typhus, with collaboration between companies and government

9. State & Healthcare - Social Healthcare Systems 1948 - UK’s National Health Service (NHS) Created a much more structured system for prescription of drugs and for their reimbursement In 1957 a price fixing scheme Allowed reasonable return on investment for drug manufacturers Solidified the incentive to invest in new medicines Universal health care NZ (1939-41), Sweden (1955), Iceland (1956), Norway (1956), Denmark (1961), Finland (1964), Japan (1961), Saskatchewan (1962), rest of Canada (1968-72), Soviet Union (1969)

10. State & Healthcare - Legislative Changes Increased government regulation of medicine production 1961 Thalidomide scandal Increase in regulation and testing of drugs before licensing 1962 Kefauver Harris Amendment to US Food and Drug Administration (FDA) rules on Proof of efficacy Accurate disclosure of side-effects 1964 Declaration of Helsinki Greater ethical strictures on clinical research Cementing the difference between production of scientific prescription medicines and other chemicals 1969 UK legislation all drugs to undergo animal toxicity testing & staged clinical trials Elongated approval times 1978 development time for a drug had increased by 10 years Raised development costs significantly 1960s - $6m 1970s - $40m 1990s - $250m 2000s - $350m $5 billion per new medicine

11. Post WW2 – The Golden Age Systematic identification of drug candidates replaced serendipity More rational methods of mass production (Ford) Increased understanding of biology and chemistry Post-war boom Massive improvements in living standards Technological optimism of the 40s to the early 70s Cold War fueled competition in science Beginnings of the globalisation Import duties incentivised Wyeth, Sandoz, CIBA, Eli Lilly and MSD etc to set up subsidiaries in UK in the post-war years 1951 - Pfizer opened subsidiaries in nine new countries Consolidation in the industry as entry barrier rise 1960 - Contraceptive pill – huge social impact, enabling women to effectively control their fertility and enabling sexual equality 1963 – Roche market Valium (diazepam), then the monoamine oxidase inhibitor (MAOI) class of anti-depressants and antipsychotic haloperidol introduced New era of psychiatric treatment Effective biological treatments to psychiatry 1970s - US government’s “war on cancer” Cancer Report UK showed that survival rates have doubled since the early 70s due in large part to the massive innovation in oncology medicines that has occurred since then 1969 - ibuprofen 1975 - ACE inhibitors - improved cardiac health

12. The Blockbusters Late 70s - shift in pharma industry focus 1977 – Tagamet Ulcer medication First ever “blockbuster” drug Earning >$1 billion a year & Nobel Prize Competition to develop the next big blockbuster 1987 - Eli Lilly - Prozac - first selective serotonin reuptake inhibitor (SSRI) – revolutionized mental health care 1987 - Merck (MSD) – Mevacor - first statin

13. Rise of the “me too” Huge R&D expense and risks “me too” formulations to get market share Rather than innovating novel medications Example 2001 - AstraZeneca – Nexium (esomeprazole) - popular proton pump inhibitor Only a purified single isomeric version of an older drug which was losing patent protection Lack of Patents became a problem for the industry The Hatch-Waxman Act of 1984 regularised generic production in the US Policy decisions in some developing countries to ignore medical patents

14. 1990s/2000s - Merger Frenzy Larger companies buy up patents, technologies, sites and expertise of others Megolithic globally dominant companies Consequential pool of redundant scientific experts Many new companies formed with Venture Capital funding Rise of campus and technology parks Some focused on service elements E.g. Combinatorial Chemistry libraries of millions of compounds all with drug-like profiles (Biofocus, Cambridge Combinatorial)

15. Megaliths Maintain Market Share The industry focused on Marketing to maintain market share Lobbying politicians to protect commercial interests Enforcement of legal claims on intellectual property rights Outsourcing Re-use Buy-up/Buy-in Lower fixed costs Increased use of Contract Research Organisations Especially in India and China 2003+ Growing trend to reduce research capacity in Europe and USA Especially for commodity services - straightforward, well-tested science New formulations focus Old tried and tested drugs New disease areas for old favourites Buying up smaller still innovative companies Buying-in proven technologies and promising drug pipelines To boost large pharma's drug pipeline To stave off the always existent fear of “patent cliff”

16. Patent Value – a Balancing of Risk & Reward Buying-in proven technologies and promising drug pipelines To boost large pharma's drug pipeline To stave off the feared “patent cliff” Example: AZ purchases of small biotech 2005/2007 2005 AZ buys KudOS Pharmaceuticals 2006 AZ acquired Cambridge Antibody Technology 2007 AZ bought Arrow Therapeutics & MedImmune The S-shape curve life cycle of patent value

17. Patent Cliff Costs & Implications Generics firms manufacture virtually identical drugs at steeply discounted prices Branded-version sales can fall off the “cliff” Lost revenue sources Pharmaceutical stocks to historically low valuations 2015 Top 10 patent cliff losses > $32 billion in global sales Lantus Abilify Copaxone Neulasta Tracleer Namenda Avodart/Jalyn Zyvox AndroGel Synagis Industry-wide projected losses > $127 billion in brand spending 2014-2016 A projected view of total consumer spending in developed markets until 2016. Dark blue bars indicate spending on generics for the year, while light blue bars show prescription brand spending. Note that over the upcoming years, prescription medicines are estimated to lose $127 billion in potential revenue to generics. Source: IMS Health

18. Life after Prozac – The Patent Cliff Eli Lilly & Co. (NYSE: LLY ) Became a household name with its antidepressant Prozac in 1987 2001 - lost Prozac patent protection Shares fell ~30% in 12 years 2013 - again facing severe issues patent expiration of its biggest seller - antidepressant Cymbalta sales dropped 73% 2014 - generic versions of its osteoporosis drug Evista hit the market Sales volume dropped 16% Forecasted these two would reduce its 2014 global revenue by 20%, and suspended pay increases for most employees to reduce costs

19. Otsuka’s Patent Cliff Patent Expiry 1989 Filed +5 yr extension until 2015 2015 – US Patent Expiry, Europe patent expired / 2016 - Japan patent expiration Recent Sales increased 2002 - FDA Approval for schizophrenia 2007 - FDA Approval for depression Patent expiry will “materially and adversely” affect Otsuka according to annual report Losses 30 Abilify tablets cost ~$800 40% of Otsuka's annual revenue 2013 - $6.4 billion 2019 - $6.2 billion (generic competition) 2020 - $200 million Otsuka’s America unit co-markets the drug in America with Bristol-Myers

20. Pfizer’s Lipitol 1998 - Released - statin 2011 - Patent expired Propellent for Pfizer’s success in early 2000s $115 billion in revenue 40% total profits for Pfizer in 2005 To minimize inevitable patent cliff profit loss A licensing agreement with Indian pharmaceutical company Ranbaxy Provided 180 days of exclusive production of the generic version Profit losses for Pfizer were still very steep By the end of the first fiscal Qtr after expiration 42% fall in global sales 19% drop in Pfizer’s total profit Unexpected steepness to this decline Huge warning sign for other pharm, shareholders, competitors, payers, and consumers

21. Late 20 th – early 21 st C – The Storm of the Biologics Chemistry overtaken by Biology Bioinformatics, Biomarkers Molecular Targeting, Nanotechnology Mapping the Human Genome Biologics are medicinal products manufactured in or extracted from biological sources e.g. Monoclonal antibodies, Vaccines Gene therapies, Cell therapies First biologics developed by Lilly in 1980s 2012 - 8/20 top sellers were biologics Long Development process - 10–15 years Costly development process - average R&D investment $1.2 billion U.S. pharma = 80% of world R&D in health care biotechnology Rapid emergence of an entirely new business segment

22. 21 st C - New Business Segment 1/3 biopharmaceutical industry R&D pipeline is biologics By 2016, 10 of the global top 20 bestselling drugs will be biologics By 2018, sales from biological medicines will be 49% of top 100 drugs in terms of revenue Long Development process - 10–15 years Costly development process - average R&D investment $1.2 billion http://ip-science.interest.thomsonreuters.com/biosimilars-report-2014

23. Biologics Patent Cliff 2014-2018 - Patents for >10 blockbuster biologics with annual sales of $60 billion expire in Europe and US Top pharma repositioning their strategic agendas from approvals to product launches to gain market capitalization = pipeline "Biosimilars developers have been using emerging markets with less intellectual property protection as their launch pad for established markets" say AMR analysts "With regulatory framework maturing in established markets, it will be easier for biosimilars manufacturers to quickly enter into such markets" analysts added, citing collaboration between Mylan and Biocon to commercialize biosimilar of trastuzumab in India and the approval of first biosimilar version of monoclonal antibody drug by Hospira in Europe Due to lower intellectual property rights protection and higher activity of regional players, the Asia Pacific region has emerged as the leader in biosimilars market

24. State and Biologics - Cost 2012 - 25% biopharma sales. 1/3 of the pipeline 2014 - 150 biologics were being marketed worldwide 2014 - >370 were under development 2014 - UK NICE reused approval for Roche’s Genentech breast cancer drug Kadcyla (Trastuzumab emtansin) £90,831 per patient Next-generation biologic to replace blockbuster breast cancer drug Herceptin (trastuzumab) - patent expiry 2014 EU , 2019 in US Abbivie - Humira - U.S. patent expiry 2016 over 30 times the cost of using the non-biologic treatment Rheumatrex (methotrexate) 2012 US sales - $4.3 billion 2012 – w/w/ sales $9.3 billion ] December 2014 - Cadila Healthcare Ltd., launched Exemptia in India - first biosimilar - $200 a vial Governments and payers looking to biosimilars to revolutionize health care by reducing cost

25. 21 st C - Arrival of Biosimilars 2006 – First Eu Biosimilar approval Omnitrope (somatropin) 2010 EU biosimilars market ~$172 million End 2010 - 14 biosimilar drugs approved in EU 2003 - EU approval procedure Procedure is based on demonstration of "comparability" of "similar" product to existing approved one A biosimilar product is a biological product that is approved based on a showing that it is highly similar to an already-approved biological product , known as a reference product. The biosimilar also must show it has no clinically meaningful differences in terms of safety and effectiveness from the reference product 6 March 2015 – First US FDA approval Zarxio similar to Amgen’s filgrastim, originally licensed in 1991 - to treat neutropenia and in cancer treatments US - Biologics Price Competition and Innovation Act US Patient Protection and Affordable Care Act signed on March 23, 2010 Amendment to Public Health Service Act Abbreviated licensure pathway A biosimilar product can only be approved by the FDA if it has the same mechanism(s) of action, route(s) of administration, dosage form(s) and strength(s) as the reference product, and only for the same indication(s) and condition(s) of use that have been approved for the reference product

26. Biosimilars Market Of the amounts invested in biosimilars “the largest portions going to manufacturing facilities and trials ,” Ronald A Rader, president Biotechnology Information Institute, Maryland, US

27. Big Pharma becomes Big Biotech http://www.alliedmarketresearch.com/biosimilars-market

28. 21st C - M&A to rationalise markets 2014 Trend for Big Pharma M&A deals to reorder and reorganize its businesses Focus on acquiring smaller competitors, proven innovators in a specific field Focus on establishing the very best R&D teams in specific, viable areas of research 4 Trends in Big Pharma’s Pipeline Biologics Anti-Infectives (Hepatitis C, HIV/AIDS) Generics Oncology – Immunotherapies

29. Cooperation & Divestments Disease area focus to Cooperation GSK and Novartis immunohealth area – GlycoVaxyn Feb 2015 - AZ acquire the US and Canadian rights to Actavis' branded respiratory drug business Feb 2015 - AZ partner with Orca Pharmaceuticals autoimmune diseases area March 2015 – AZ co-commericalise Movantik (Naloxegol) deal with Daiichi Sankyo worth $825 million – chronic non-cancer pain – FDA approval 6 March 2015 Business area focus for divestment of divisions Abbot - pharmaceutical business AbbVie (2013) Retains animal health, nutrition and diagnostics products Pfizer sold nutrition business to Nestlé (2012) Pfizer Animal Health - Zoetis (2012) Novartis sold off diagnostics Business to Grifols (2013) Feb 2015 – AZ plan to get out of the early-stage anti-infectives R&D space by spinning out this business as independent biotech Deals suggest continued economies of scale to fight ever rarer and more complex diseases Trend to divestment of tail brands and non-core assets

30. Biosimilars Manufacturing Investments Biologics Large (200–1,000 times bigger) complex structures Complicated manufacturing processes Characteristics altered by slight changes in type of expression system and temperature used during manufacturing Biosimilar manufacturers must prove that their version is clinically comparable to the originator biologic in terms of safety, quality and efficacy Requires preclinical evidence of comparable pharmacodynamics and toxicity, clinical trials Requires manufacturing and post-approval safety monitoring programmes similar to that of the original innovator companies Small-molecule drugs Single identifiable and stable structures Produced by well-controlled chemical reactions involving standard materials Manufacturing a generic containing the exact copy of the active pharmaceutical ingredient tends to be relatively quick, easy and cheap Taking three to five years Costing less than US$5m Resulting generics can be as much as 80–90% cheaper than the brand name drugs

31. 2020? – Alternative manufacturing and distribution techniques Biologics medicines - specialist therapies - need different manufacturing and distribution techniques to small molecules Produced as separate manufacturing lots Biologics are more susceptible to impurities in the production process and damage during shipping Each sample must be individually extracted, propagated, prepared and tested before it can be administered Manufacture finishing at point of care at the pharmacy, point-of-care, patient Novel delivery devices Difficult to produce oral formulations Micro needles, magnetically targeted carriers, nanoparticles, polymer capsules and multilayered medicated patches are likely to predominate Likely to see significant changes here

32. 21 st C - Healthcare in the Community Patients empowerment Rise in self administration of medicines Patients encouraged to take more active role in managing their own care Harness “final mile” distribution networks – like retail Distribute pharma products to many more locations, including patients’ homes To deliver medicines to the door as economically as possible Migrating from a system of health care provision via a relatively small number of hospitals, clinics and surgeries to provision via a diffuse network of nurse practitioners, community carers Increased Home Treatment Most of the OECD countries have been trying to reduce reliance on hospitals and specialists since the 1980s. Clinical advances provide better medicines for acute conditions Many diseases which must at present be treated in hospital will then be treated at home

33. 21 st C – Digitalisation in Healthcare Delivery Vast sets of historical chemical and biological data To guide ability to fail fast and fail early To attempt to reduce costs To become more efficient in getting to patent, to clinic and to patient Information about patients and their medicines E-health records E-prescribing - E-prescriptions = point-of-sale data Build demand-driven supply chains in which healthcare packages for different patients are assembled at ‘super hubs’ before being delivered to their homes Remote monitoring Eg automatic linking daily readings of blood sugars with patient records. Requiring face-2-face monitoring only if levels unstable Consumer industries retail, electronics, telecommunications - already use digital technologies To more closely connect to customers To better understand their needs To be more responsive

34. 21 St C - Redefinition of MedTech “One of the complaints I’ve heard over and over is, ‘Why doesn’t my glucometer look like my smartphone?’ The reason people aren’t checking their blood sugar levels is because they have to carry around an extra thing that only does blood sugars, looks clearly like a medical device, and reminds them that they’re sick.” Andrew Atwell, Samsung Open Innovation Center

35. Mobile Technologies in Healthcare

36. The War for the Consumer Amazon Fire phone includes an array of sensors to enable new digital health applications Samsung software integrates with mobile devices that allows users to track nutrition, exercise, and weight Apple HealthKit and app allows health and fitness apps to share their data Qualcomm Life wireless health technology that aggregates and integrates patient data Google Fit platform to manage the data from health and wellness apps, sensors and wearable devices Intel home health gateway sold by the Intel-GE Care Innovations joint venture Salesforce.com has partnered with Philips to build a connective digital healthcare site in the cloud www.pwc.com/us/en/health-industries/assets/pwc-hri-digital-accelerators-report.pdf

37. Making the leap - from mobile app to medical device Demand for mHealth products Consumers covet convenience Consumers used to using digital device for retail activities Saturated (nearly) free app market FDA poised to review record number of digital health apps this year FDA guidance due as to which products need regulatory approval Need to move to Diagnostic and Treatment capabilities New Zealandbased Nexus6 recently received FDA approval for its SmartTouch inhaler system, which records time of use and transmits that data to the patient’s mobile device, promoting medication adherence GlaxoSmithKline’s Diabetes HealthMate app tracks blood sugar readings and visualizes the relationship between physiological measures and lifestyle factors such as mood, medication intake, activity levels, and diet “By 2020, we will have a healthcare delivery system that is fully digitized. There will be the emergence of real-time analytics. Everybody wins from a patient care perspective with improved information sharing and interoperability.” —Joseph Touey, GlaxoSmithKline

38. Growing Wellness and Fitness Market Less regulated environment Lots of commercially successful gadgets Track fitness training Track personal activity Link to the internet to record progress Link with a fitness community for encouragement and competition Tekes program to support companies seeking to innovate in this area Finland ahead eg MyHealthWay

39. Integration of supply chains

40. Key findings – PwC Report March 2015 New entrants poised to disrupt the $9.59 trillion world healthcare market ($1.49 trillion in US) As the world pivots towards the “virtualisation of care”, new entrants from sectors including telecom, technology and retail will be well positioned to offer amazing breakthroughs Opportunities to fill gaps between consumer expectations and current medical infrastructure http://www.pwc.com/us/en/health-industries/healthcare-new-entrants/assets/pwc-global-new-entrants-chart-pack.pdf (March2015)

41. Emerging technologies Timely access to various emerging technologies will help Pharma manufacture and distribute its products more efficiently Some of these technologies will enable it to build quality into its manufacturing processes Others will enhance its throughput or facilitate collaboration to realise economies of scale