June 16, 2020

SMI Spring Virtual ForumSUPPLY CHAIN POLICY IN A COVID-19 WORLD

©2020 LEAVITT PARTNERS 2

Full bios can be found in the appendix section on slides 12 and 13.

PresentersVince VentimigliaVince Ventimiglia is the President of Leavitt Partners Collaborative Advocates and leads the Leavitt Partners D.C. office, including the firm’s alliances and federal advocacy work. With over three decades of congressional and health policy experience, Vince plays an integral role in facilitating relationships with congressional and executive branch offices and providing in-depth analysis of federal government action. He also leads complex, multi-disciplinary collaborations among multi-sector health care organizations seeking to implement significant health care policy initiatives.

Eric MarshallEric Marshall is a Principal based in Washington, D.C. Eric advises complex health care coalitions on health policy and provides consulting services to drug and device companies. Eric is an industry specialist in the areas of domestic and international supply chain security; drug, device, and diagnostics regulation; and health care compliance.

Elizabeth WroeElizabeth Wroe is a Principal based in Washington, D.C. Liz develops and manages complex, multi-sector alliances, and advises and informs clients on the impact of federal and state health care issues and how to effectively engage with policymakers. She provides strategic counsel to emerging business, investment, and technology players in the health care sector committed to empowering consumers with new tools to improve health outcomes and reduce costs.

Agenda

1. Current Environment • Pandemic • Recession • Election

2. Policy Environment Summer/Fall (2020)

3. Policy Environment (2021 and beyond)

Current Environment

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Current Environment and Future ConsiderationsThere are three macro dynamics that are critically important and yet completely unclear at this juncture: the trajectory of the science to fight COVID, the timing of the economic recovery, and the 2020 election that will happen amidst the crisis. We explore different scenarios for these dynamics, and the interplay among them.

COVID-19 Science Trajectory

One and Done2020 was a bad year, but science works so vaccine found and ready by early

2021

Two Too ManyScience slowly gets us there,

extends well into 2021 before treatment & vaccines ready

Three but Not OutVirus wins – mutations complicate vaccines,

treatments ineffective

Economic Recovery Trajectory

Big Bounce BackGDP bad Q2/Q3 but Q4 upSharp, rapid V recoveryLarge but short unemployment$3T deficit/debt

The New NormalGDP back but weak, beatenSlower V recoveryLarge unemployment, many linger$3.5T deficit/debt

Social InsecurityRecession lasts through 2021Long U recoveryUnemployment huge and lingering$4T deficit/debt

Fiscal FailureMassive deficits Long L recoveryUnemployment permanent for many$5T+ deficit/debt

Political & Policy Leadership

Status QuoTrump re-elected

Senate stays RHouse stays D

Split GovernmentBiden electedSenate stays RHouse stays D

Dem DominanceBiden electedSenate flips DHouse stays D

Policy Environment Summer/Fall (2020)

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COVID-19 Response - Congress

• H.R. 6074 Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020

• H.R. 6201 Families First Coronavirus Response Act

• H.R. 748 Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

• H.R. 266 Paycheck Protection Program and Health Care Enhancement Act

• House approves HEROES Act (208-199)

• McConnell has made it clear Senate will not support most of it

• But he is open to a 4th package

• $8.3 billion in emergency funding for federal agencies’ response

• Cost: est. CBO Score $192B

• Reimbursement for testing, countermeasures

• Paid leave, UI• Medicaid FMAP increase• Expands telehealth

• >$2 trillion in economic relief

• Direct cash payments• Small business loans• Health industry assistance• Includes health extenders

• $484 billion• $310 for PPP• Other economic assistance• Hospitals, CHCs• Diagnostic tests• HHS Strategic Testing Plan

• $3 trillion• State and local government

funding• Payments to individuals• Hazard pay for essential

workers• Coronavirus testing and

contact tracing

• STATUS: Signed March 6 • STATUS: Signed March 18, CBO score 4/2

• STATUS: Signed March 27 • STATUS: Signed April 24 • STATUS: HEROES DOA but Phase 4 still likely

Phase 1 Phase 2 Phase 3 Phase 3.5 Phase 4?

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Potential Congressional Action – Summer/Fall 2020

• Liability Protections

• Economic Recovery

• COVID Testing and Contact Tracing

• Health Providers $$$

• Supply Chain: Medical Product Shortages “Buy America”

©2020 LEAVITT PARTNERS 9

Supply Chain Spotlight: “Buy America”The COVID-19 public health emergency has highlighted certain vulnerabilities of the United States’ global pharmaceutical supply chain.

Since February, Congress has introduced 15 bills aimed at addressing America’s dependence on pharmaceuticals produced overseas.

Approaches:• Several proposals focus on studying America’s dependence on Chinese manufacturing of

pharmaceutical products, as well as increased manufacturer reporting of manufacturing capacity.• Others look to incentivize the domestic manufacturing of pharmaceutical through tax credits.• Proposals often characterized as “buy America” would require government payers to phase out

reimbursement for drugs made or sourced in China and prohibit pharmaceutical purchases from China or products with active pharmaceutical ingredients created in China.

©2020 LEAVITT PARTNERS 10

Potential Regulatory Action – Summer/Fall 2020

• Flexibility and waivers (e.g., extended expiration dates, drug traceability)• EUAs and enhanced use of novel drug development tools (e.g., RWE, flexible

trial design)• Expanded access to telehealth services• PREP Act application to products in shortage due to COVID-19• Domestic and international inspections paused • Staffing adjustments continue

Policy Environment (2021 and beyond)

©2020 LEAVITT PARTNERS 12

Current Environment and Future ConsiderationsThere are three macro dynamics that are critically important and yet completely unclear at this juncture: the trajectory of the science to fight COVID, the timing of the economic recovery, and the 2020 election that will happen amidst the crisis. We explore different scenarios for these dynamics, and the interplay among them.

COVID-19 Science Trajectory

One and Done2020 was a bad year, but science works so vaccine found and ready by early

2021

Two Too ManyScience slowly gets us there,

extends well into 2021 before treatment & vaccines ready

Three but Not OutVirus wins – mutations complicate vaccines,

treatments ineffective

Economic Recovery Trajectory

Big Bounce BackGDP bad Q2/Q3 but Q4 upSharp, rapid V recoveryLarge but short unemployment$3T deficit/debt

The New NormalGDP back but weak, beatenSlower V recoveryLarge unemployment, many linger$3.5T deficit/debt

Social InsecurityRecession lasts through 2021Long U recoveryUnemployment huge and lingering$4T deficit/debt

Fiscal FailureMassive deficits Long L recoveryUnemployment permanent for many$5T+ deficit/debt

Political & Policy Leadership

Status QuoTrump re-elected

Senate stays RHouse stays D

Split GovernmentBiden electedSenate stays RHouse stays D

Dem DominanceBiden electedSenate flips DHouse stays D

©2020 LEAVITT PARTNERS 13

Race to a Vaccine?

Operation Warp Speed (OWS) announced its most promising vaccine candidates:• Moderna• Oxford University and AstraZeneca• Johnson & Johnson• Merck• Pfizer

"Warm Base“ • HHS announced a $628 million contract with Emergent BioSolutions to increase

contract development and manufacturing organization (CDMO) capacity for COVID-19 therapeutics and vaccines.

Fill and Finish needs being evaluated

Nationwide vaccine deployment and administration campaign

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218 = majority

181

182

21

19

17

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22

12

12

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162

164

January2020

April 2020

2020 House Races, As Predicted by Cook Report

Safe D Likely D Lean D Toss Up Lean R Likely R Safe R

Retirements/Running for another office:

28 Republicans10 Democrats

*LP prediction based on analysis using information as of June 16, 2020 from www.cookpolitical.com and https://pressgallery.house.gov/member-data/casualty-list

Election 2020: House of Representatives

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MA

RI

CTNJ

DE

A

C

AL

OR

WA

ID

MT ND

SDWY

MNWI

MI

IA NE

CO UT

NV

CA

AZ NM

TX

OK

MO

IL

AK

HI

AR

FL

GA

LA

MS

SC

NC

NY

PA

TN

KY

INOH

WVVA

MENHVT

MD

KS

*Special Elections:

Arizona and Georgia

Peters (D-MI)Smith (D-MN)OPEN (D-NM)

McSally (R-AZ)*Gardner (R-CO)Collins (R-ME)Tillis (R-NC)

Current Seats:53 GOP 45 Dems2 Independents

Solid Democrat(8)

Leaning Democrat(3)

Toss Up(4)

Leaning Republican(4)

Solid Republican(16)

Coons (D-DE)Durbin (D-IL)Markey (D-MA)Shaheen (D-NH)Booker (D-NJ)Merkley (D-OR)Reed (D-RI)Warner (D-VA)

Jones (D-AL)Loeffler (R-GA)*OPEN (R-KS)Daines (R-MT)

Reminder: only a third of Senate seats are up for election

Sullivan (R-AK)Cotton (R-AR)Perdue (R-GA)Ernst (R-IA)Risch (R-ID)Cassidy (R-LA)McConnell (R-KY)

Hyde-Smith (R-MS)Sasse (R-NE)Inhofe (R-OK)Graham (R-SC)Rounds (R-SD)OPEN (R-TN)

Cornyn (R-TX)Moore Capito (R-WV)OPEN (R-WY)

Democrats must gain 3 or 4 seats to take control

(depending on WH outcome)

The Senate Races 2020

©2020 LEAVITT PARTNERS 16

Status Quo

Dem WH-Split Congress

Dem Dominance

R

R

D

D

R

D

D

D

D

Senate

House

White House

16

2020 Election: Likely Presidential Outcomes

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Some major reforms are passed early in a president’s term based on election mandate, timing…

-4

-2

0

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

% GDP Annual Growth during Democrat President

% GDP Annual Growth during Republican President

% G

DP A

nnua

l Gro

wth

Tax Equity and Fiscal Responsibility Act

Balanced Budget Actof 1997 Affordable Care Act

MMA

©2020 LEAVITT PARTNERS 18

MMA

Tax Equity and Fiscal Responsibility Act

Balanced Budget Actof 1997 Affordable Care Act

2020 (projected)

-4

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0

2

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

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Past GDP growth: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=US; 2020 forecasts from U.S. Bank, retrieved from https://www.reuters.com/article/us-healthcare-coronavirus-goldman/goldman-downgrades-u-s-growth-forecast-for-first-quarter-second-quarter-due-to-coronavirus-idUSKBN21217L

…other reforms have occurred when the Medicare Trust Fund was 2-3 years from expiration.

30

25

20

15

10

5

0

Years

Medicare Trust Fund Projected Years to Exhaustion % GDP Annual Growth during Democrat President

% GDP Annual Growth during Republican President

% G

DP A

nnua

l Gro

wth

Social Security Amendments (DRGs) Budget Control Act

MACRA

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

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Past GDP growth: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=US; 2020 forecasts from U.S. Bank, retrieved from https://www.reuters.com/article/us-healthcare-coronavirus-goldman/goldman-downgrades-u-s-growth-forecast-for-first-quarter-second-quarter-due-to-coronavirus-idUSKBN21217L

What reforms might we see at the start of a newterm, during a recession, nearing the Trust Fund expiration? 30

25

20

15

10

5

0

Years

Medicare Trust Fund Projected Years to Exhaustion % GDP Annual Growth during Democrat President

% GDP Annual Growth during Republican President

% G

DP A

nnua

l Gro

wth

2020 (projected)

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© Leavitt Partners 2020

JAN FEB MAR APR MAY JUN JUL – AUG SEP OCT NOV DEC JAN FEB MAR APR

President’s Budget(Feb)

SOTU(Feb 4/TBD)

General Election(Nov 3)

FY20 CR Expires(Sep 30)

Transition Between Final Rules (CRA exempt) and Riskier EOs

Inauguration(Jan 19)

New HHS Secretary At the Helm

Congressional Negotiations – Extenders, Appropriations, Big “Deals”

President’s Budget

SOTU

Democratic Convention

(July 13th–16th)Republican Convention

(August 24th–27th)

Extenders Expire(Nov 9)

2021 Policy Process – New Congress, New President?

©2020 LEAVITT PARTNERS 21

Status QuoDem

Dominance

R

R

D

1. COVID-19

1. Infrastructure2. Tax Cuts

D

D

D

1. COVID-192. Coverage expansion

1. Climate change2. Gun control

Senate

House

White House

Major Health Policy

Priorities

Competing Priorities

Dem WH-Split Congress

D

R

D

1. COVID-192. Coverage expansion

1. Infrastructure2. Climate change

I m m i g r a t i o n , N o m i n a t i o n s , E c o n o m y, T r a d e P o l i c y21© Leavitt Partners 2019

D r u g P r i c i n g ( a p p r o a c h e s d i f f e r )

2021 Likely Policy Agenda

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Supply Chain Spotlight: After the Dust Settles The COVID-19 public health emergency has highlighted certain vulnerabilities of the United States’ global pharmaceutical supply chain. Longer-term policy considerations:

• FDA’s inspection of foreign medical supply manufacturing facilities. Prior Notice Staffing Changes in risk profile?

• United States’ reliance on foreign manufacturing for medical supplies. Carrot or stick? Price considerations

• Medical supply shortages resulting from and related to COVID-19. How long will U.S. supply chain be impacted by global outbreaks of COVID-19?

©2020 LEAVITT PARTNERS 23

FDA Issues Action Likely Potential Action Action Less Likely Action Unlikely

Status Quo

Dem WH-Congress Split

Dem Dominance

HHS/FDA implement an importation pilot FDA will explore innovative new premarket pathways FDA advances Real-World Evidence & Real-World Data Congress enacts diagnostics reform Work on User Fee Agreements begins Reevaluate and reduce orphan drug incentives

©2020 LEAVITT PARTNERS 24

FDA RationaleThe full impact of COVID-19 on FDA is only just now being understood. Unwinding Emergency Use Authorizations, oversight hearings and other activities will take at least the next 12 months.

Will Congress enact an importation policy: Due to the lack of support from FDA and many other health policy drivers we think this is unlikely. The policy debate is national, but the legislative activity is local. Additionally, HHS and FDA already have some ability to do this through a pilot. Since Congress is unlikely to act, the agencies are more likely to create a pilot program. Vermont, Colorado, Utah and Florida are notable mentions for their state activities involving both parties. FDA non-political appointees oppose reimportation but many in the administration and Congress support.

FDA will explore innovative new premarket pathways: New challenges and innovations bring statistical modeling for drugs, OTC monograph reform, precertification and other activities. These pathways will also increase post marketing obligations.

Real-World Evidence and Real-World Data: FDA will expend substantial time and resources to expand the use of RWE and RWD in both pre-market and post-market space especially post-COVID-19.Congress enacts diagnostic reform: Discussions increased in 2019 and early 2020. Legislation was introduced and industry hopes to have resolution by the end of 2020, especially in the current environment.Work begins on User Fee Agreements: User Fee Agreements will need to be renewed in the coming years and industry and FDA will begin negotiations over the next several years. While some aspects of negotiations are being delayed somewhat others are proceeding virtually following a desire by both FDA and industry to start the often-lengthy process.Reevaluate and reduce orphan drug incentives: Many policy makers see flaws in the overabundance of orphan drug products, leaving some chance for reforming incentives or the broader pathway. Activity in this area most likely in a Democrat dominated Congress and White House.

• COVID-19 has reshuffled the health policy agenda for 2020 and beyond.

• Key Variables: Elections, Vaccines, Economic Recovery.

• Continued focus on supply chain capacity, security, and sources.

Key Takeaways

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Q&A

Current Environment

©2020 LEAVITT PARTNERS 28

Source: Numbers retrieved from https://coronavirus.jhu.edu/map.html and https://www.washingtonpost.com/business/2020/05/21/unemployment-claims-coronavirus/; map retrieved from https://www.nytimes.com/interactive/2020/world/coronavirus-maps.html: Update May 28, 2020

COVID-19: By the Numbers

Worldwide cases 5,717,575+

Countries impacted188

U.S. cases 1,699,933+

Worldwide fatalities

U.S. fatalities 100,000+

40M+ Unemployment filings

-12% to -38% (Q2) GDP drop

“Everything we do before a pandemic will seem alarmist. Everything we do after a pandemic will seem inadequate.”

- Governor Mike Leavitt

Federal spending $2.6T+ + Federal Reserve+ More to come

356,213+

©2020 LEAVITT PARTNERS 29

COVID-19: The Economic FalloutU.S. Unemployment Rate (1948-2020)

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•Political• Perception of COVID-19 Response• Impeachment - Cloud• Democratic Primaries – What happens down-ticket?• Pelosi – Balancing Moderates and Progressives

•Macro• COVID-19—Perception of response, Turnout• The Economy – Recession and the Response• The Budget – CR or Shutdown

•Policy• COVID-19 phases – How many will there be?• Trump Action - Executive Orders and Rules • Texas v. US – Oral Argument Timing and Impact• Congressional Gridlock – Exclusive focus on COVID issues

© Leavitt Partners 2019

2020 Electoral Uncertainties