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Global Pharmaceutical Industry

Global Pharmaceutical Industry. Robert Agon – Industry Analysis Alex Luk – Bristol-Myers Squibb Jacky Lui – Pfizer Ray Li – Merck. Overall Health Care Industry. Pharmaceutical vs. Biotech. Two Distinctions: 1) Business model Biotech:

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Global Pharmaceutical Industry

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  1. Global Pharmaceutical Industry Robert Agon – Industry Analysis Alex Luk – Bristol-Myers Squibb Jacky Lui – Pfizer Ray Li – Merck

  2. Overall Health Care Industry

  3. Pharmaceutical vs. Biotech • Two Distinctions: 1) Business model • Biotech: • Much smaller and limited resources to market drug • Just a research engine • Pharmaceutical • Larger and market drug themselves 2) Field of Research • Biotech: • Use “genetic engineering” • Pharmaceutical • Use "empirical screening" to develop drugs

  4. Pharmaceutical Industry Background • The U.S. is the leader in market share and has five of the ten largest companies • Global pharmaceutical sales grew 9% in 2003 to $466.3 billion • In 2003, 64 blockbuster drugs had sales over $1 billion • Industry is less sensitive to swings in the business cycle • COGS, R&D and Marketing are the largest expenditures Information from Phrma & Yahoo Finance November 2004

  5. Industry Background (cont.) • Patents are extremely important; they give a company exclusive rights to produce a drug for 20 years • Many pharmaceutical companies attempt to extend their patents by significantly changing the nature of the drug • Future success of a drug company depends heavily on the number and quality of drugs in the pipeline • The industry has traditionally relied on the “blockbuster model”, where a few key drugs make up most of the company’s revenue

  6. Potential New Business Strategies • The Diagnostic-Led Strategy • based on the observation that even when there are established treatments, significant numbers of patients are either not diagnosed in a timely manner or not diagnosed at all • The Single-Pill Strategy • seeks to simplify the lives of those taking multiple medications • The Treatment Platform Strategy • based on the assumption that various medical conditions share common denominators and can be treated using the same therapeutic approach

  7. Key Issues Affecting the Industry • In August 2004, New York officials filed a lawsuit against 44 drug makers, claiming they overcharged Medicaid for prescription drugs • Merck’s Vioxx drug was pulled due to risk of heart attacks and strokes • Possible legal action by various patient groups • May affect sales of Pfizer's CeIebrex & Bextra COX-2 pain reliever • U.S. citizens are increasingly angry over rising drug costs, which is fuelling political debate over Canadian imports • Online sales to the U.S. from Canadian pharmacies are expected to be $1.2 billion US in 2004 • By 2005, over $50 billion of branded pharmaceuticals will have their patents expire

  8. Ethical vs. Proprietary Drugs Ethical:branded and generic drugs sold only through prescription Proprietary:branded or generic drugs sold over the counter • After patent expiration, many of the prescription drugs can apply to the FDA for over-the-counter status. • Lower margins on over-the-counter products • FDA requirements are not as cumbersome for over-the-counter drugs

  9. Product Focus • Most ethical producers focus on 5 main therapeutic areas: • Central nervous system • Cardiovascular • Gastrointestinal / metabolism agents • Anti-infective • Respiratory drugs • More concentrated on chronic rather than acute diseases with large patient populations (cancer, arthritis, CVD) • Ulcer medications, cholesterol treatments, and antidepressants are the top three drug categories • Two of the best-selling drugs are Pfizer's Lipitor and Merck’s Zocor for cholesterol

  10. Breakdown of Sales Figures by Area U.S. Department of Commerce 2002

  11. 2003 Top Selling Blockbuster Drugs Source: IMS World Review 2004 **Figures have been adjusted by IMS to include drug sales from distribution agreements

  12. Market Leaders Leaders by Market Capitalization ($ billion): Retrieved from Yahoo Finance November 22, 2004

  13. 2003 Pharmaceutical Sales by Region Source: IMS World Review 2004

  14. Customers • Individual Patients • Pharmacies • Physicians • Large Scale Purchasers(Hospitals & Managed Care Providers) • Government Agencies (Medicare & Medicaid)

  15. Large Scale Purchasing Companies • Health Maintenance Organizations (HMO) • Offers consumers a comprehensive range of benefits at one annual fee • Patients are assigned to a primary care doctor as a "gatekeeper" who decides what health services are needed and when. • They receive a discount from health care providers based upon their volume of patients • Pharmaceutical Benefits Management Companies (PBMs) • Intermediary distributor between drug companies and large scale purchasers • Process drug claims for managed care companies & large employers • Immense buying power which allows saving to be passed to customers

  16. Medicare & Medicaid Medicare: Government health insurance program designed to subsidize health services for the elderly and disabled Medicaid: Government health insurance program designed to subsidize health services for those living in poverty • These agencies buy in bulk to get a lower price, thus putting margin pressure on pharmaceutical companies • Medicaid programs have preferred drug lists of reimbursable medicines that doctors can prescribe • This decreases patients’ access to much needed medicines • Lowers the overall quality of care

  17. Industry Politics & Government • Pharmaceuticals spend millions of dollars on lobbying and campaign contributions to influence government • Re-election of Bush is good for U.S. pharmaceuticals Note: The AMEX Pharmaceutical Index increased by 2.74% the day after the election • Issue of importing cheaper drugs from Canada • Industry is subject to extensive government regulation (ie. FDA, foreign governments, environmental, & price constraints)

  18. Food and Drug Administration • Imposes requirements on product testing, safety, effectiveness, and marketing of pharmaceutical products • Monitors for proper manufacturing and labeling standards • Also responsible for food, medical devices, and cosmetics products • Only one out of five medicines that enter clinical trials is approved for patient use by the FDA Source: www.fda.com (2004)

  19. Drug Approval Process • Average of 10 - 15 years and $800 million to nurture a drug from initial discovery to market Process: • Academic and Laboratory Research • Testing done on animals • Phase 1: Drug given to a small number of healthy people to test its safety • Phase 2: Drug administered to 100 or more people with the disease that it was intended to treat • Phase 3: Rigorous testing done on larger groups of ill patients • FDA Review – Approval/Disapproval Source: www.fda.com (2004)

  20. Number of Drugs Approved by the FDA Each Year

  21. Industry Trends • Globalization • Aging worldwide population • Longer life expectancy • Increasing demand from developing nations • Outsourcing more activities • Increase in Direct-to-Consumer Advertising

  22. Industry Trends (cont.) • Increasing drug prices • Rising R&D costs • Increase in mergers, acquisitions, and alliances • Increasing size of the generics market • Increased buying power of insurance companies • Increase in licensing agreements with Biotech firms to improve drug pipelines

  23. R&D Spending

  24. Growth in R&D

  25. U.S. Marketing Expenses Source: http//:www.phrma.org (2004)

  26. Generics Market • Generics now account for over 50% of all prescription drugs • Americans spent over $182.7 billion dollars on prescription drugs in 2002 • The average branded prescription cost four times as much as a generic drug • Generics save consumers $8 - 10 billion per year

  27. Industry Financial Ratios Source: Yahoo Finance 2004

  28. Industry Performance (cont.) AMEX pharmaceutical index is a market-capitalization weighted index

  29. Comparison of Pharmaceutical Index and Economy Amex (DRG) S&P 500 (GSPC) Dow Jones Industrial (DJI) Nasdaq (IXIC)

  30. Future Industry Growth • Growth rates for 2005 are estimated by IMS to be: CountryGrowth Rate U.S. 12% United Kingdom 7% Germany 5% France 4% Japan 1.5% IMS and Standard & Poors 2003

  31. History - Squibb • Founded by Dr. Edward Squibb in 1858 • Bought by Mathieson Chemical in 1952 • Bought by Olin Industries in 1953 1858

  32. History – Bristol-Myers • William Bristol and John Myers founded Clinton Pharmaceutical in 1887 • Renamed to Bristol-Myers in 1900 • Went public in 1929 • Bought Squibb in 1989 and formed Bristol-Myers Squibb 1887

  33. Mission To extend and enhance human life by providing the highest-quality pharmaceuticals and health care products.

  34. Company Statistics • Employee: 44,000 in over 100 countries (2003) • Global Sales: $20.9 billion (2003) • Market Capitalization: $46.05 billion (Sep 30, 04) • Stock Price: $23.50 (Nov 19, 2004) • Number of Outstanding Shares: 2,201 million • Annual R&D expense as a percentage of sales: 10% -12% • Largest Market: U.S., Europe, Japan

  35. Company Overview • Bristol-Myers Squibb (BMS) is a diversified worldwide health and personal care company that researches and manufactures medicines and other products. • The Company's products include therapies for various diseases and disorders, consumer medicines, wound management, nutritional supplements, infant formulas, and skin care products.

  36. Management Team • Peter R. Dolan (49) ($5.92 million ex. option) • CEO, Chairman of the Board • Joined in 1988, became Chairman in 2000 and CEO in May 2001 • Andrew R. J. Bonfield (42) ($3.80 million ex. option) • Senior Vice President and Chief Financial Officer • Joined in 2002 • Elliot Sigal, M.D., Ph.D. (52) ($2.59 million ex. option: figures for previous CSO) • Chief Scientific Officer and President of The Pharmaceutical Research Institute • Joined in 1997 • Donald J. Hayden Jr. (48) ($2.66 million ex. option) • Executive Vice President and President, Americas • Joined in 1993 • John L. McGoldrick (63) ($1.92 million ex. option) • Executive Vice President and General Counsel • Joined in 1995

  37. Recent Events • March 2004 - BMS was found liable for damage for “channel stuffing” between 1999 and 2001 – BMS was fined $150 million • May – BMS & Sanofi sued Apotex on patent infringement on Plavix • August – Investors sued BMS for $300 million claiming that BMS lied about its accounting and investment in ImClone

  38. Key Elements of 5yr Strategy • Focus on 10 Disease Areas • Increase Sales and Marketing emphasison specialists and high value Primary Care prescribers • Invest in R&D and R&D growth • Increase A&P spending behind growth drivers • Enter the biologics business • Target all other spending flat or slightlydown over the next several years

  39. Successful Past Partnerships • Sanofi-Synthelabo • Co-developed Avapro and Plavix • Otsuka Pharmaceutical • Co-developed Abilify • ImClone Systems • Co-developed Erbitux

  40. Current Strategic Partnerships • Merck & Co. • co-developing and co-promoting Muraglitazar • Corgentech • co-developing E2F Decoy • Flamel Technologies S.A. • co-developing Basulin • Solvay Pharmaceuticals • co-developing SLV319 • Pierre Fabre Médicament S.A. • co-developing Javlor

  41. Major Acquisition/Divestiture

  42. Patent Expiration

  43. Selected Product Sales

  44. Selected Key Products • Pravachol • Cholesterol lowering • $2,827 million sales in 2003 (13.01% of total company sales) • Licensed patent to Sankyo Company for exclusive distribution in four Asia countries • Patent expires in U.S. in 2006

  45. Selected Key Products • Plavix • Cardiovascular product • $2,467 million sales in 2003 (11.35% of total company sales) • Co-developed with Sanofi • Patent expires in US in 2011

  46. Selected Key Products • Taxol • Anti-cancer agent • $934 million sales in 2003 (4.30% of total company sales) • Co-developed with U.S. Government • Patent expired in U.S. in 1997 – no generic competition until January 2002 • Patent expired in EU and Japan in 2003

  47. Recently Released Drugs • Abilify (schizophrenia) • Erbitux (cancer) • Reyataz (HIV/AIDS)

  48. Compounds in Development

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