Ersnt & Young Pharma 3.0 Business Model

Pharma 3.0Life Sciences Network Basel, 20 May 2010

Frank Kumli

Agenda

► Ernst & Young – Global Life Sciences Center

► Business model transformation► Pharma 1 0 to 3 0► Pharma 1.0 to 3.0

► Pharma 3.0► non-traditional collaborations► business model innovation► execution► execution

Progressions: Pharma 3.0Page 2

Who we are

Page 3

Ernst & Young’s major lines of business

Performance improvement:► Finance and performance

management► Supply chain► Customer

Risk:

External audit:► Audit of financial

statements, statutory accounts and pension funds

Financial accounting advisory service:► IFRS conversions and support► IPO readiness

► Customer► Change management► IT advisory

► Business process controls auditing► Controls and process remediation► Information systems security,

controls and governance► Real estate asset planning and

optimization► IT Risk

Fraud investigation and dispute services:► Marketing, sales and research compliance

assessments and reviews► Electronic discovery and document retention

funds

Performance improvement Financial

accounting ad isor

External audit

► Accounting support for due diligence services

► Accounting control / process support

Commercial and financial due

► Government investigations► Compliance gap analyses► Internal fraud investigations► Litigation and arbitration support► Brand protection, counterfeiting, diversion and

gray markets

Risk

Advisory Assurance

advisory service

Fraud investigationand dispute

servicesClient

relationships

IT risk

IT risk:► IT risk management► Application controls and security► Information management and analysis

diligence:► Market and industry research► Validation of strategic assessments► Corporate strategy assessment► Assessment of sustainable earnings► Analysis of key revenue and cost

drivers

Business and indirect tax services:► Annuity tax provisioning/ tax accounting

calculations► Business tax advisory► Income tax compliance► Customs and international trade advisory► VAT/sales tax advisory and compliance

Humanit l

Tax Transaction

Businessand indirecttax services

International tax services

Commercial and financialdue diligence

Transactionalintegration

Valuation

Human capital:► Global mobility tax and

administration services► Global equity

compensation planning and compliance

capitalInternational tax services:► Cross boarder corporate tax

advisory► Transfer pricing

documentation and advisory► Supply/distribution chain

advisory

Valuation

Transactional integration:► Synergies analysis and investment

requirements► Assess impact to forecast► Assess integration challenges, risks

and resolution strategies

Valuation:► Business valuation services► Tangible/intangible asset valuation

services

Page 4

► Performance and rewards ► Accretion/dilution analysis

Ernst & Young’s Global Life Sciences sector

The Global Life Sciences sector brings together a worldwide team of professionals with deep industry and technical experience inproviding assurance, tax, transaction and advisory services. Our goal: to position Ernst & Young as the trusted advisor for our life sciences priority accounts and their key executives by our active involvement assisting teams to execute for success in theirtransitions and transformations.

Ernst & Young’s Global Life Sciences area contactsAs an industry sector center we focus resources on the following key priorities:

► Building internal and external networks of key

NordicsDenmark Benny Lynge Sorensen

Sweden - Björn OhlssonNorway - Willy Eidessen

Global Pharmaceutical Sector LeaderCarolyn Buck Luce

Global Biotechnology Sector LeaderGlen Giovannetti

Life Sciences EMEIA Leaderexternal networks of key opinion leaders of the life sciences industry

► Assist our accounts to provide industry trends and identify appropriate

l b ll

CanadaPaul Karamanoukian Ireland

Edwina Fitzmaurice/Nick Redmond*

United KingdomPamela Spence/Chad Whitehead*

BelgiumThomas Sileghem

AustriaIsabella Schwartz-Gallee/

GermanyElia Napolitano/

Siegfried Bialojan*

NetherlandsJules Verhagen

y yFinland - Timo VirkiläPatrick Flochel

KoreaYong Sup Hyun*

CISDmitry Khalilov

resources globally

► Providing industry relevant thought leadership and attending or speaking at industry events

C ti l t

United StatesCarolyn Buck Luce/ Glen Giovannetti*

Nick Redmond

SpainM l Gi lt H

FranceVirginie Lefebvre/ Pascale Augé *

Erich Lehner*

CESSAMagdalena Soucek

MexicoFrederico Aguilar

Southeast EuropeThemis Lianopoulos

SwitzerlandPatrick Flochel/ Jürg Zürcher*

PolandMariusz Witalis

TurkeyErdal Calıkoglu

JapanHironao Yazaki

Hong Kong/ChinaFrancis Lai/

► Creating relevant knowledge and learning programs for Ernst & Young professionals

► Solutions development to meet emerging client needs

BrazilJose Francisco Compagno

ItalyLapo Ercoli

Manuel Giralt Herrero

IndiaHitesh Sharma

IsraelYoram Wilamowski

New ZealandJon Hooper

AustraliaWinna Brown

SingaporeSwee Ho Tan

Cherrie Che*

Page 5

Centers: New Jersey, Boston and Basel * Biotechnology

Thought Leadership - Life Sciences

Annual Reports SurveysProgressions Pharma 3.0► Global pharmaceutical report

Beyond Borders

Pharmaceutical Companies and working capital management► Survey on working capital performance and strategies

Business Risk Report 2009 Life Sciences► Life Sciences focus within the Global Risk SurveyBeyond Borders

► Global biotechnology report

Pulse of the Industry► Global medtech report

2009 global pharma associations sales and marketing code matrix for US and EMEA

► synopsis of selected pharmaceutical industry

guidance

Technical Reports National ReportsTechnical ReportsPrescriptions series► Series of articles on Life Sciences topics

bio*link and medtech*monitor series► Series of articles on biotechnology and medtech topics

National ReportsSwiss Biotech Report 2009

Biotech in Denmark 2008

German Biotech Report 2009medtech topics

The Smoke Detector® report► Series of summarized compilation on

Life Sciences topics

Page 6

Pharma 3.0

Page 7

Progressions: Pharma 3.0Global pharmaceutical report 2010

Bayer Meets Nintendo as Drugmakers Seek New Routes to Customers

Ernst & Young Puts the Spotlight n Pharma 3.0

Medicines not working? There's an app for that

PharmaTimesPharma needs to work with non-traditional partners to survive

Pharmas Must Tie with TechsFebruary 11, 2010

Pharma Turns to Tech for Marketing Aid

t ad t o a pa t e s to su e

Daily FinancePharma 3.0: Drug Companies SlowlyAd t t th N T h W ld

Report: Future Drugmakers Must also Deliver Healthy Outcomes

And the Future for Pharma Looks Like….

Drugmakers look to collaborate with nontraditional partners

Pharma 3.0 - Drug Makers Must Adapt To An Outcomes-Focused World, E&Y Reports

Adapt to the New Tech World

► Based on interviews with 30 executives from thepharma industry and from “non-traditional” players

► Features quotes from numerous executives and over 100 company examples

► Worldwide launch at The Economist Conference,

Key themes

► Changing ecosystems: Pharma 3.0

► Emerging business models


London ► Building the future business via innovative collaborations

Pharma 3.0From drugs to healthy outcomes

Drivers of change

► R&D productivity► Patent cliff► Globalization

► Health care reform► Health IT► Consumerism

► Demographics► Pricing &

reimbursement

► Value mining

Business ModelsValueproposition

Pharma 1.0Blockbuster drugs

Pharma 2.0Diversified drug portfolios

Pharma 3.0Healthy outcomes

Customer

p p g

PhysicianPayor

Patient


Progressions 2008Pharma 1.0 to 2.0

PatentsPricing pressure

Thescience

R&D productivityPersonalized medicine

Compliance commitments Thecustomer

GlobalizationCustomer redefinition

Reduced growthMargins squeezed

TheofferThepa

ct o

fha

nge

Products vs. servicesBuilding brand

Reputation in decline ThepeopleThe

Im ch Talent pipelineCelebrating diversity

Enterprise vs. extraprise

R&D productivityCommercial structure

organizationThevalue created

Alternative business models

Return vs. revenueFinancial strategy


Customer relationships value created gyRisk management

Pharma 2.0Four strategic pillars

Commercial models Emerging markets

P d t i ti P d t di ifi tiProduct innovation Product diversification


Pharma 2.0Emerging markets: growth gap

Mature Pharmerging Tier 2 emerging Rest of world

The growth gapPharmerging and tier-2 emerging markets will contribute three quarters of global growth in 2009

Mature Pharmerging Tier-2 emerging Rest of world

7%

5%

9%

11%

6%

10%

9%

10%

10%

17%

22%

11%100%

90%

80%Rest of

2009 market share, US$

19%

21%

70%

60%

50%

world

12%Tier-2 emergin

g 6%

Pharmerging11%

79%73%

61%52%

51%40%

30%

20%

Mature71%

11%

16%10%

0%2001 2003 2005 2007 2009(f)

Source: IMS Health, Market Prognosis, March 2009


Pharma 2.0Tailoring commercial models to market

Moving towards differentiated „geo-tailored“ commercial models with a tailored value proposition for each market and customerOptimizing resources to address all key stakeholdersI t t d k t d l i t i ti k t t diti l l f i k t

Field force► brand, multibrand

KAM, local manager► multibrand

Integrated key account model in restrictive markets; traditional sales force in open markets

Share of field force Pricing, listing

Physician

Payors

Influencers*Information

Tools

Training

Valueproposition

Pricing• volume• outcome

Geo-tailoredapproach

Payors

ManagedCare

• outcome• value

Risk sharing

E-tools

Pharma

Communication

Retail

Programs

Training

Patient Information

Complianceprograms

*employers, providers, academia, government


Pharma 2.0Innovation

► Targeting new disease areas► Targeting new disease areas► Personalized medicine► Creating more market-driven

pipelinespipelines► Restructuring R&D units to

allow greater autonomy► Splitting-up large, monolithic ► Splitting up large, monolithic

organizations into smaller units

► Virtualization. Incorporating niche players to stimulate innovation, share risks and reduce costs

1 Represents a cAGR2008 2013


1.Represents a cAGR2008-20132.lndicates probability of entry of generics in the segmentSource: Datamonitor, New Approaches to Pharma R&D

Pharma 2.0Diversification

J&J

GSK

Novartis

GSK

Novartis

SanofiPfizerWyethrs

ifica

tion

SanofiPfizer

BMS

Sanofi y

Pfizers lin

e di

ve

RocheAstra

Zeneca

PfizerRoche

AstraZenecaB

usin

ess

BMS

2006 TargetGeographic diversification


gGeographic diversificationSource: Societe Generale: Pharmaceuticals Beyond the crisis


Drivers of change



► Demographics► Pricing &

reimbursement

► Value mining





Customer

p p g

PhysicianPayor

Patient


Pharma 3.0Health outcomes as currency for health care systems

Consumerism► Health literacy► Empowerment► Empowerment

Health IT► Digital data► Social data► Mobile health

Health care reform► Access► Rebates/discounts► Value-based approach

H lth IT

Healthoutcomes

► Mobile health► Health IT

Value mining► Value-based P&R► Comparative

effectiveness► Risk-sharing


gagreements


Drivers of change


D hi


V l i i► Demographics► Pricing &

reimbursement

► Value mining





Customer

portfolios

PhysicianPayor

Patient


Pharma 3.0: non-traditional collaborations

Page 19

Pharma 3.0The healthy outcomes ecosystem

Health

Providers Informationcompanies

Academia

PhysiciansSocialmedia

CROs

IT

records

TelecomBiotech Med

PatientsPharma Medical technology

Governments

InsurersRetailers

Food

Biotech Med device

Consumerelectronicselectronics


Pharma 1.0 (drugs) Pharma 2.0 (diversified drug portfolios) Pharma 3.0 (outcomes)

Pharma 3.0 is happening - eHealth

Mondobiotech – 23 and me Novartis – Proteus Biomedical

B Ni t d UCB i lik

Source: www.23andme.comSource: www.ft.com

Bayer - Nintendo UCB – patientslike me


Source: www.bayerdidget.co.uk/ Source: www.patientslikeme.com

Pharma 3.0Delivering on health outcomes

Expanding products► Pfizer — Aurobindo

Developing technologiesN ti V d f IBM

Building communities► UCB — PatientsLikeMe

Developing technologiesLif (J&J d A l )

Managing patient outcomes Expanding access

► Novartis — Vodafone — IBM

Innovative distribution► Novartis — Indian Post Office

► Lifescan (J&J and Apple)

Measuring outcomes► Fresenius Medical Care

Healthoutcomes

► Driving compliance► Health care delivery► Patient stratification

► Underserved markets ► Emerging markets► Uninsured populations

outcomes

► Complex indications► Underserved medical fields

Meeting unmetmedical needs

Leveraging data► MondoBiotech — 23and Me

Optimizing R&D► GSK — Pfizer

O h d

Public-private partnerships► GSK — Global TB alliance

R&D risk sharing► Eisai — Quintiles

P titi R&D

Partnership with payors► Novartis — NICE

Creative financing► Eli Lilly — TPG-Axon Capital —

Novaquest (a division of Quintiles)


Orphan drugs► Pfizer — Protalix

Pre-competitive R&D► Enlight Biosciences

Pharma 3.0: business model innovation

Page 23

Scenario planningDeal simulations

Deal A Deal B

Partners InfoTechCo PharmaCo InsuranceCo DirectSalesCo PharmaCo FoodCo

Platform Understanding of Drug portfolio Broad productSales forcesPlatform

Personal health records

Resource capabilities

riskPatient

stratification

Drug portfolioEfficacy insights

Broad product portfolio

Nutrition insights

Sales forcesCustomer intimacy

and reach

Drug portfolioEfficacy insights

Value propositions

C tPatientsP

PatientsPayors

Health outcomesEnabling outcomes

Health outcomesEnabling outcomes/

access

Customers PayorsGovernments

“While high-level business models are easily articulated, the discussion around the execution of the deals reveals a high level of complexity. What creates more value? And what provides more value over time? Who owns the intellectual property?”

PayorsGovernments


Source: Ernst & Young 2010

Business model innovationCommercial trials

StickinessCommercial trials

StickinessHigh margins and success of current model make large leaps difficult Pilots

To explore business opportunities

Rapid prototypingCommercial trials will need to be fast and efficient Upside

Unchartered territoryDifficulty and risk of developing new offerings from scratch with unknown partners

efficient

Open innovationUse of external networks

Flexible controlAlliances structures that allow quick

UpsideBusiness model

innovation has the potential for considerable upside (e.g. compliance)

Changing ecosystemCurrent ecosystem is changing rapidly in unprecedented and unpredictable ways

response to new challenges and opportunities

Portfolio managementOptimize network value

“How do you actually go about the building of new business models from the ground up? How do you pick the right strategies and experiments for your company when the very ecosystem in which you operate is changing in


unprecedented, and unpredictable, ways?”

Commercial trialsFrom strategy to commercialization

Drug development

Therapeutic focus Discovery and early Late development Commercializations pt ct

Number of leads

Therapeutic focus y ydevelopment

p

Dis

ease

are

as

Proo

f of c

once

p

ppro

ved

prod

uc

Number of ideas

gmen

ts

once

ptP

ess

mod

elA

p

B i d l d l t

Mar

ket s

eg

Proo

f of c

o

New

bus

ine

Strategic/risk assessment Market assessmentPilots and

partnershipsScale-up and

larger partnerships

I. Strategic focusAreas and business models that are a strategic fit for the

II. Proof of conceptIdeas that work in concept. “Does it work and is it

III. DevelopmentMost promising pilots.

“Is it commercially

IV. CommercializationService or product offerings“Can it be scaled and

Business model development


strategic fit for the organization

Does it work and is it safe?”

Is it commercially feasible?”

Can it be scaled and replicated across markets?”

Pharma 3.0: Execution

Page 27

Pharma 3.0Challenges and readiness for executing nontraditional alliances


Challenges every step of the wayNew ways of partnering

Strategy, structure andgovernance

Due diligence

Valuation and

modeling

Accounting and financial

reporting

Talent and change

management

Risk management

Operations, supply chain management

What creates most value?

Whose d t i it ?Whose data is it anyway?

How is success defined?

WhoWho owns the intellectual property?

IFRS or US GAAP?

What are the tax implications?

What

What are the tax implications?

What should the debt and equity mix consist of??


What are the water, power, waste and cleantech approaches?

Guiding principles for Pharma 3.0

Defineyour Pharma 3.0 Brand

Co-createvalue with partners and patients

Experiment. Think small. Fail fast.

Preparefor success.

Brand and patients.

The ecosystem is becoming more complex

More than ever, firms will need to combine unique

There is no one right answer. Companies will

Our survey and interviews indicate thatcomplex.

Incentives are changing. New, nontraditional players are

combine unique assets and attributes to build relevant offerings for the healthy

Companies will develop solutions by experimenting with large numbers of

indicate that pharma companies aren’t fully prepared for the challengesplayers are

entering.for the healthy outcomes ecosystem.

numbers of “commercial trials” — and culling those that don’t work.

the challenges that these creative new alliances will bring.work. bring.


Contact Details

Dr. Frank Kumli, MBABusiness Analyst - Global Life Sciences Center

Tel +41 58 286 86 37 Mobile +41 58 289 86 37Fax +41 58 286 83 60E il f k k li@ hEmail [email protected]


Ernst & Young

Assurance | Tax | Transactions | Advisory

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