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    INTRODUCTIONTen Transormative Trends

    A perect storm is brewing in oncology. Wedo not say this lightly. Big pharmas highly re-dundant oncology pipeline has created intensecompetition. At the very time when oncologydevelopers need most to dierentiate their

    products in the marketplace, traditional com-mercialization tools are being swept away. Bigpharma nds itsel in very dierent waters

    rom those o a decade beore, and many com-panies are ill prepared to weather the comingstorm.

    Oncology is a therapeutic area with cutting-edge science and high per-patient revenue.

    Our clients have increasingly engaged us ononcology licensing and launches, and we sawthe need or an insiders view o commercial

    changes in the industry not generally availablein the primary literature or analyst reports.Hence, we initiated the Oncology NationalCommercial (ONC) study. In ONC, we surveyedindustry experts, physicians, payers, and keyopinion leaders (Box 1).

    Oncology National Commercial StudyTen Transormative Trends

    Campbell Alliance Thought Leadership

    Report prepared by Jeff Stewart and Nader Naeymi-Rad

    1

    Box 1

    Methodology

    Campbell interviewed industry leaders, payers, key opinion leaders, and physicians. We supplemented the results o these interviews with industryinsights and secondary data. Campbell analyzed the oncology pipeline held by midsize and large pharmaceutical companies over the past decade.We selected these companies to analyze because their pipelines are those with the most commercial backing, and changes in these pipelines refectmainstream market expectations. Analyzed companies included Abbott, Alkermes, ALZA, American Home Products, Amgen, Astellas, AstraZeneca,Aventis, Bayer, Bayer Schering, Biogen IDEC, Bristol-Myers, Bristol-Myers Squibb, Celgene , Chugai, Daiichi, Daiichi Sankyo, Dainippon, Eisai, Eli Lilly,Endo, Enzon, Fujisawa, Genentech, GlaxoSmithKline, Ilex Oncology, Johnson & Johnson, Medivation, Merck, Mitsubishi, Myriad, Nektar, Novartis, Pzer,Pharmacia, Roche, Sankyo, sano-aventis, Schering-AG, Schering-Plough, Takeda, Teva, Watson, and Yamanouchi. Note that some o these companiesexisted as independent entities at only one part o the decade.

    Primary Research

    Secondary Research

    Industry Oncology-focused pharma/biotech

    Senior leadership interviewed

    9 top 20 companies

    6 multinational and regional

    Industry Insights Experience from over 300 oncology projects in the last 3 years alone

    Campbell proprietary data

    Our Dealmakers Intentions Survey

    Payers National and regional plans

    Some integrated delivery

    systems

    Key Opinion Leaders 10 highly published, internation-

    ally respected oncologists

    Experienced clinical trial

    investigators

    Pipeline Analysis Large pharma oncology pipeline

    2000 and 2010

    MOA, tumor types, and product composition by phase

    Physicians 20 community hematologists/

    oncologists

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    Box 2

    Ten Transormative Trends

    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    2

    We were not surprised to nd that the oncol-ogy market had changed over the past decade,but the scope o the change did surprise us.When we consolidated the changes reportedto us, an alarming pattern emerged. The oncol-ogy space had transormed in such a way thatnever-beore-seen competition is now built

    into the marketplace, yet ew companies areprepared to operate in the ace o this intensecompetition.

    We conrmed our ndings with additionaldata on big pharmas oncology pipeline andcommercialization eorts. Here, we present

    these ndings so that our clients may preparethemselves to survive in rough seas.

    Our ndings may be summarized as TenTransformative Trends (Box 2).

    1. Large pharma has dramatically

    expanded its oncology pipeline

    2. The oncology pipeline has become

    increasingly targeted

    3. Multiple oncology therapies target the

    same molecular pathways

    4. Multiple agents are now tested against

    even rare tumors

    5. Biomarkers are ragmenting the

    oncology market

    6. Oncology has become a blockbuster

    machine

    7. Oncology is saturated with sales reps

    8. Oncologists are no longer the sole

    decision makers

    9. Payers are beginning to manage

    oncology

    10. Oncology asset valuation may be a

    bursting bubble

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    The rst trend is the growth in the oncologypipeline held by large pharma. Large pharmahas developed and bought its way into oncolo-gy to the point where there were two and a haltimes as many compounds in clinical trials in2010 as in the large pharma pipeline of 2000.

    Furthermore, the pipeline includes many moreearly-stage agents than beore (Figure 1).1

    All the largest pharmaceutical companies thatpublish areas o in-licensing interest activelyrequested additional oncology products ortheir pipelines in 2010 (Figure 2).2 Hence, thetrend toward having more in the oncology pipe-line is likely to continue. The bottom-line eectis that competition is sharply higher based ongross numbers.

    TREND 1Large pharma has dramatically expanded its oncology pipeline

    Figure 1

    Large pharmas oncology pipeline expanded by a actoro 2.5 between 2000 and 2010.

    Figure 2

    In 2010, large companies continued to state an interest in in-licensing oncology assets.

    Evolution o the Large Pharma Oncology Pipeline by Phase, 2000-2010

    140

    120

    100

    80

    60

    40

    20

    0

    Pzer

    Roche

    S-A

    Novartis

    AstraZeneca

    Abbott

    Merck & Co

    BMS

    Eli Lilly

    LargePharmaOncologyTrials

    Angiogenesis

    Apoptosis

    Cytotoxics

    DNArepair

    Growthfactors

    Hematology

    Immunotherapyand

    vaccines

    Kinases

    RNAi

    Signaltransduction

    Solidtumors

    Stemc

    ells

    I II III

    Phase

    32

    4.1x 130

    45

    2.4x 110

    46

    1.5x

    70

    2000 2010

    General interest

    Specic interest

    1Cowen Therapeutic Categories Outlook 2000 and 2010; Company annual reports; National Cancer Institute; clinicaltrials.gov; Campbell Analysis.2Company websites. Accessed January 2010. Note that some large pharma companies (GSK and JNJ, for example) do not publish areas of partnering interest.

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

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    The second trend is the shit away rom thera-peutics such as cytotoxic agents and broadcell-cycle inhibitors that treat cancer with littlespecicity. The agents lling the 2010 pipelineare much more targeted than the agents ll-

    ing the 2000 pipeline (Figure 3).3 The shitis even more dramatic when consideringnovel agents (as opposed to line extensions).Targeted therapeutics have obvious benetsincreased ecacy and potentially lower side

    eects. However, an unintended consequenceo exquisite targeting is exquisite competi-tion. There is now great overlap in particularmechanisms o action and targets among thelarge-pharma oncology pipeline.

    TREND 2The oncology pipeline has become increasingly targeted

    Figure 3

    Oncology therapies are increasingly targeted.

    Cell surace receptor (e.g., ADCC)

    DNA repair

    Growth factor/GFR

    Angiogenesis

    Prolieration (typically kinases)

    Apoptosis

    Other MOA

    Matrix metalloproteinase

    Immune modulator

    Hormone

    Cell cycle (typically cytotoxics)

    4.4%

    3.5%

    9.7%

    5.3%

    5.3%

    2.7%

    9.7%

    1.8%

    7.1%

    10.6%

    39.8%

    7.5%

    3.1%

    17.3%

    18.4%

    20.8%

    4.7%

    2.0%

    5.9%

    4.3%

    16.1%

    1.7X

    0.9X

    1.8X

    3.5X

    2.9X

    1.7X

    0.2X

    0.0X

    0.8X

    0.4X

    0.4X

    LessTargeted

    MoreT

    argeted

    Mechanism o ActionPipeline

    Share, 2000Pipeline

    Share, 2010 Multiple Trend

    3Note: Includes solid tumors and hematologic tumors; excludes supportive care.

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    The third trend is the increasing number ocompounds targeting the same molecularpathways. Multiple companies have, orexample, mTOR inhibitors, PARP inhibitors,and VEGF inhibitors in clinical trials. In 2000,oncology agents in clinical trials arose rom

    shing expedition screening eorts thatyielded a generally diverse set o targets and

    mechanisms o action. Large pharmaceuticalcompanies in 2000 could expect somebutar rom intensedirect competition.

    This situation did not outlast the decade. The2010 large pharma oncology pipeline has been

    driven by new understanding o molecularpathways. Agents are increasingly engineered

    to their targets. The same scientic transparencyhas led to intense competition (Figure 4). I wefocus on the top 10 targets (Figure 5), outsideo the top 5, all o the other targets had only oneor two agents targeted to them in the pipelinein 2000. Contrast this with 2010, where many

    more agents are targeting the same pathways(typically kinases within these pathways).

    TREND 3Multiple oncology therapies target the same molecular pathways

    Figure 4

    Oncology agents increasingly overlap.

    2000Low Target Overlap, Low Competition

    2010High Target Overlap, High Competition

    Relatively few agents

    Diverse (if less effective) target pathwayscompounds found

    through large-scale screening

    Broad effects applicable to many tumors (but with signicant

    side eects)

    Many more agents

    Highly redundant target pathwaysmany agents developed

    specically to target known pathways

    More narrow effects applicable to a few tumors (but with lower

    side eects)

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

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    KOLs in particular noted this trend: I abso-lutely do think the market is pretty ripe withthese agents, and so is the pipeline, and Forexample, in JAK2 inhibitors, there are perhaps10 drugs in development. Sophistication ofdrug development has made it easier to de-

    velop drugs and has made competition muchmore acute (oncology KOL interviews).

    This competition also aects the availabilityo patients in clinical trials. Take, or example,PI3K inhibitors. Every company is looking at

    this, and there are just not enough patients,and Major companies probably have projectsin a hal dozen o these overlapping areas.Intense competition is a good summary statement (oncology KOL interviews).

    Figure 5

    Many more agents are targeting the same pathways.

    Microtubules

    Topoisomerase

    EGFR

    VEGF

    p53

    Endothelin

    MMPI

    Thymidylate Synthetase

    PKC

    HER2

    VEGF

    PI3K/AKT/mTOR

    MAP/Erk

    EGFR

    Microtubules

    c-Met/HGFR

    Topoisomerase

    IGF

    PARP

    Aurora

    Proven target (Avastin) Multiple tumor types

    Multiple tumor types

    Multiple tumor types

    Proven target (Erbitux, Iressa, and Tarceva)

    Multiple tumor types

    Proven target (low risk to develop)

    Multiple tumor types

    Proven target (low risk to develop)

    Overexpressed in wide range of tumors Overexpression associated with progression

    Highly specic target (few side effects) Widely reported efcacy in early trial (olaparib)

    Overexpressed in a variety of cancers New mitosis target

    11

    8

    8

    4

    3

    2

    2

    2

    2

    2

    20

    18

    15

    14

    10

    10

    9

    9

    7

    6

    Target/Pathway Target/Pathway Reason(s) or Interest

    Top 10, 2010Top 10, 2000

    Compoundsin Trials

    Compoundsin Trials

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    In 2000, 63% of new compounds in late-stageclinical trials were tested on one or more o thebig ve solid tumors (breast, colorectal, gas-tric, lung, and prostate). By 2010, this sharehad dropped below 50% (Figure 6). Gleevec isthe prime example showing that you can make

    money o a small market (oncology KOL

    interview). The story is one o market competi-tion and a scattering to supposed sae havenso ever smaller patient populations (Figure 7).We do not dismiss small indications as long asthere is commercial value (industry leader).Unortunately, these sae havens are not as

    sae as hoped because multiple companies

    had the same sae havens in mind. Now evenniche indications are increasingly crowdedand may represent even more competition perpatient than is seen in tumors that aect largepatient populations.

    TREND 4Multiple agents are now tested against even rare tumors

    Share o Novel Compounds Tested on Zero-to-Five o the Big Five in Phase II or Phase III

    Figure 6

    Fewer than hal o new agents are currently being tested in the big fve.

    Fewer agents are being testing in the big ve, with breast and prostate cancers leading the decline(lung and gastric cancers are both slightly up).

    2000

    Number o Big Five Tumors Tested

    2010

    60%

    50%

    40%

    30%

    20%

    10%

    0

    ShareofCompounds

    0 1 2 3 4 5 0 1 2 3 4 5

    36.7%32.2%

    6.7%2.2% 1.1% 0.0%

    51.1%

    27.8%

    8.5%

    1.7% 0.6% 1.7%

    More than 60% o novel compounds indevelopment were tested against one or more

    o the big fve tumor types in 2000.

    By 2010, this number had dropped to 49%,as novel agents are now tested more oten

    in rarer tumors.

    63.3%in the big fve

    2000

    48.9%in the big fve

    2010

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    8

    Figure 7

    The big fves losses have been the gains o niche tumors.

    While the big ve has lost trial share as a group, other tumor types have gained. These includehematologic tumors and rare tumors.

    Change in Tumor Type in Niche Tumors, Novel Agents, Late-Stage Clinical Trials

    40%

    30%

    20%

    10%

    0%

    10%

    5%

    0%

    -5%

    -10%

    -15%

    -20%

    ShareofLate-S

    tageCompounds

    ShareChange

    Rena

    l

    Soft-

    tissu

    esar

    com

    aLu

    ngLiv

    er

    Neur

    oend

    ocrin

    e

    Lym

    phom

    a

    Gastric

    Gliob

    lasto

    ma

    Melan

    oma

    Leuk

    emia

    Cerv

    ical

    Esopho

    geal

    Urina

    ry

    Ovarian

    Pros

    tate

    Panc

    reatic

    Blad

    der

    Endo

    metria

    l

    Kapo

    sis

    Color

    ectal

    HNC

    Brea

    st

    20002010Share change

    5.4% 4.4% 4.4%2.9%

    Increasing Share Decreasing Share

    2.8%0.9% 0.9%

    0.0%-0.8%

    -1.7%

    -4.9%

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    Biomarkers are also ragmenting the marketinto smaller niches where competition thenbecomes ocused (Figure 8).4 Biomarkers,on one hand, allow or increased ecacyand smaller clinical trials. On the other hand,biomarkers necessarily narrow the market and

    unnel compounds with similar MOAs to thesame biomarker-dened patients. Industryleaders expect this trend to continue (Figure9).5 KOLs believed that biomarkers werenecessarily the wave o the uture and wouldurther ragment the market by dening ever

    smaller patient populations but may provideewer payos than expected. We are urthero rom where we hoped to be. The buzz arexceeds the data to acilitate implementation(oncology KOL interview).

    TREND 5Biomarkers are ragmenting the oncology market

    Figure 8

    Biomarkers are playing an increasing role in ragmenting the oncology market.

    CD117 (c-Kit)

    Biomarker

    DPD

    EGFR

    Estrogen receptor

    G6PD

    HER2/neu

    KRAS

    PDGFR

    Philadelphia chromosome

    PML/RAR-alpha

    TPMT

    UGT1A1

    5q deletion

    Gleevec (GIST, ASM)

    Product (Indication)

    Xeloda (BC, CRC)

    Erbitux, Vectibix (CRC)

    Tamoxien (BC)

    Elitek (lymphoma, leukemia, solid tumors)

    Herceptin (BC, gastric), Tykerb (BC)

    Erbitux, Vectibix (CRC)

    Gleevec (MDS)

    Gleevec (CML, ALL, AML), Sprycel (CML, ALL),Tasigna (CML)

    Trisenox

    Purinethol (ALL), Thioguanine (ANL)

    Camptosar (CRC)

    Revlimid

    Must have c-Kit (GIST); must not have D816C c-Kit mutation (ASM)

    Utility

    Dosage tailored in DPD deciency

    Indicated or EGFR expressing CRC

    ER-positive patients more likely to benet

    Contraindicated for G6PD deciency

    Must have HER2 over-expression

    Not recommended for KRAS codon 12 or 13 mutations

    Must be associated with PDGFR gene rearrangements

    Must be Philadelphia chromosome positive

    Must have PML/RAR-alpha expression or t(15:17) translocation

    TPMT deciency requires dose reductions

    Dose reductions in UGT1A1*28 homozygotes

    Indicated or 5q deletion cancers

    Oncology Biomarkers: FDA Label Indications, Warnings, and Contraindications

    4FDA. Table of Pharmacogenomic Biomarkers in Drug Labels. Available at http://www.fda.gov/Dr ugs/ScienceResearch/ResearchAreas/Pharmacogenetics/ucm083378.htm. Accessed 24 January 2011.Supplemented with Revlimid. Abbreviations: ANL=acute non-lymphocytic leukemia, ASM=aggress ive systemic mastocytosis, DPD=dihydropyrimidine dehydrogenase, EGFR=epidermal growth actor receptor,G6PD=glucose-6-phosphate dehydrogenase, GIST=gastrointestinal stromal tumor, HER=human epidermal growth factor receptor, KRAS=Kirsten rat sarcoma, MDS=myelodysplastic syndrome, PDGFR=platelet-derived growth factor receptor, PML/RAR=promyelocytic leukemia/retinoic acid receptor, TMPT=thiopurine methyltransferase, UGT1A1=gene encoding UDP glucuronosyltransferase 1 family, polypeptide A1.

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    Over the past decade, oncology has become ablockbuster machine. Oncology is among theastest-growing therapeutic areas in terms obranded therapeutic revenue. In the US, oncol-ogy revenues have grown 182% over the pastdecade (Figure 10).6 Entering 2010, oncology

    blockbusters had become much more valuablethan they were in 2000. In 2000, only twooncology drugs had more than $1 billion inrevenue. In 2010, all 10 of the top 10 oncologydrugs exceeded $1 billion in sales (Figure 11).7

    This revenue growth has come in the ace odecreasing incidence or most cancers in theUS.8 Instead, revenue growth has come largelythrough the increasing price o new oncologydrugs (Figure 12).9 Another actor leading toincreasing revenue in the oncology space is

    earlier diagnosis that allows or longer durationo therapy.10 A third actor is the now-commonuse o combination therapies in the rst line 11(and each o the constituents o combinationtherapy costs more in 2010 than in 2000).

    While the number o oncologists in the UShas grown (Figure 13)12 3.3% annually overthe 2000s, this growth has not kept up withoncology revenue. Rising oncology revenueshave made each oncologist a valuable minimarketplace. Over the past decade, the annua

    pharmaceutical revenue per oncologist hasrisen rom a base o just under $1 million tonearly $2 million (Figure 14).13

    TREND 6Oncology has become a blockbuster machine

    Growth in US Therapeutic Revenue, 2000-2010

    Figure 10

    Oncology revenues have grown rapidly in the US.

    Percentage Growth

    25

    20

    15

    10

    5

    0

    -5

    DollarGrowth($B)

    -50% 0% 50% 100% 150% 200% 250% 300% 350% 400%

    CNS

    Anti-Inectives

    Oncology/Immunology

    Blood

    Musculoskeletal

    Sensory

    Gastrointestinal Dermatology

    Genito-UrinaryCardiovascular

    Respiratory

    Oncology/immunology therapeutic revenuehas grown to $28B rom a base o $10B.

    This growth is among the highest o anytherapeutic area in terms o dollar value($18B) and percentage (182%).

    6EvaluatePharma. Accessed 31 August 2010. Note that EvaluatePharma estimates sales by summing repor ted products sales (line items) and thus may not include smaller products or al l royalty payments.7MedAdNews. Available at Medadnews.com. Acce ssed 6 September 2010. Note that supportive care agents are not shown here.8SEER. United States Cancer Statistics. Available at seer.cancer.gov. Ac cessed 27 January 2011.9Adapted from Bach PB. Limits on Medicares Ability to Control Rising Spending on Cancer Drugs. New Engl J Med. 2009; 306: 626-633.10SEER. United States Cancer Statistics. Available at seer.cancer.gov. Accessed 27 January 2011.11NCCN Guidelines. Available at www.nccn.org. Accessed 27 January 2011.12Medical Marketing Service. 2010 numbers available at http://www.mmslists.com/ data/countspdf/AMA-SpecialtyByTOPS.pdf. Accessed 29 August 2010. 2000 number courtesy of Medical Marketing Service.13EvaluatePharma. Accessed 31 August 2010. Note that EvaluatePharma estimates sales by summi ng reported products sales (line items) and thus may not include smaller products or a ll royalty payments.

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

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    Figure 11

    Oncology has become a blockbuster machine.

    VEGF

    Target/Path/MOATarget/Path/MOA

    CD20

    HER2

    BCR-ABL

    Microtubules

    GnRH

    Aromatase

    Immune modulation

    Folate antimetabolism

    EGFR

    Microtubules

    Immune modulation

    GnRH

    GnRH

    DNA disruption

    Microtubules

    Estrogen receptor

    Nucleoside analog

    CD20

    Topoisomerase

    Avastin

    BlockbusterBlockbuster

    Rituxan/MabThera

    Herceptin

    Gleevec

    Taxotere

    Lupron/Leuplin

    Arimidex

    Revlimid

    Alimta

    Erbitux

    Taxol

    Intron A, Peg-Intron, Rebetol

    Lupron/Leuplin

    Zoladex

    Paraplatin

    Taxotere

    Nolvadex

    Gemzar

    Rituxan/MabThera

    Camptosar

    5,729

    Revenue ($M)Revenue ($M)

    5,605

    4,849

    3,944

    3,034

    2,147

    1,921

    1,706

    1,706

    1,654

    Total =32,295

    1,592

    1,360

    952

    734

    690

    687

    576

    562

    444

    441

    Total =8,038

    2010 (Top 10 Worldwide)2000 (Top 10 Worldwide)

    Entering 2010, oncology blockbusters had become much more valuable than they were in 2000. In 2000, only two oncologydrugs had more than $1 billion in revenue. In 2010, all 10 of the top 10 exceeded $1 billion each in sales.

    4X

    Launch Prices or Oncology Therapeutics

    Figure 12

    Oncology therapeutic launch prices have risen sharply.

    Launch Year

    25,000

    20,000

    15,000

    10,000

    5,000

    0

    MonthlyPriceofTherapy(

    $)

    1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

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    Figure 13

    The number o oncologists has not kept pace with oncology revenues.

    Figure 14

    The annual prescribing value o each oncologist has doubled.

    The number of US oncologists has grown modestly (3.3% CAGR) over the past decade. This growth has come primarilyin hematologists/oncologists, whose ranks swelled by a factor of 2.5 in this time frame.

    16,000

    14,000

    12,000

    10,000

    8,000

    6,000

    4,000

    2,000

    0

    ShareofRespondents

    2000

    Hem/Onc, 2,428

    Hem/Onc, 6,159

    Oncology, 5,856

    Oncology, 5,131Pediatric Hem/Onc, 1,522

    Pediatric Hem/Onc, 2,216

    Gynecological Onc, 457

    Gynecological Onc, 476

    Surgical Onc, 165

    Surgical Onc, 393

    Orthopedic Musculo Onc, 50

    Orthopedic Musculo Onc, 84

    2010

    2,000,000

    1,800,000

    1,600,000

    1,400,000

    1,200,000

    1,000,000

    800,000

    600,000

    400,000

    200,000

    0

    PharmaceuticalRevenueperOncologist

    2000

    $947,122

    2010e

    $1,931,960

    US Oncologists, 2000 to 2010

    Each Oncologist Is Now Associated With Nearly $2M in Annual Drug Revenue

    CAGR

    3.3

    %

    CAGR

    7.4

    %

    Total, 14,459

    Total, 10,478

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

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    In the past decade, the growth in oncologysales representatives was 6.9%, annually, faroutstripping the 3.3% growth in oncologists(Figure 15).14 This growth has outpaced thegrowth o oncologists in the US to the pointwhere there are 3 reps for every 10 oncolo-

    gists (Figure 16).

    This increase in sales reps per oncologistlimits access by competition. In addition, ourindustry and physician interviews conrmedthat access is increasingly limited directly. Forexample, Hospitals and physician oces areputting guidelines in place to restrict access

    (industry leader), and We dont let reps comein routinely. This is a decision made by the in-

    stitution, because they may result in confictso interest and may not be in the best interesto the patients (physician interview).

    Sales representative access to physicians is al-ready limited such that about hal the time, sales

    reps are unable to see the physician (Figure 17).The limited access currently available to sales

    TREND 7Oncology is saturated with sales reps

    Figure 15

    Sales reps targeting oncology grew 6.9% annually.

    5,000

    4,500

    4,000

    3,500

    3,000

    2,500

    2,000

    1,500

    1,000

    500

    0

    SalesRepresentatives

    Q1

    00

    Q10

    1

    Q10

    2

    Q10

    3

    Q1

    04

    Q10

    5

    Q1

    06

    Q10

    7

    Q1

    08

    Q10

    9

    Q11

    0

    Oncology Sales Representatives, United States, 2000-2010

    CAGR

    6.9

    %

    14SDI. Used with permission.

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    Figure 16

    Oncology is saturated with sales reps.

    Concentration o Oncology Sales Representatives

    2010

    2000

    21 reps per 100 oncologists

    30 reps per 100 oncologists

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    Figure 17

    Access is ever more limited.

    Physician-Repor ted Access Restrictions Oncologist-Repor ted Rep Access Restrictions

    No Restrictions(36%)

    Lunch Only(21%)

    Forbidden(7%)

    Number oReps per Week

    (7%)

    Minor Restrictions(29%)

    Share o time rep ails to access oncologist

    50%

    40%

    30%

    20%

    10%

    0%

    Physicians

    0%-24% 25%-49% 50%-74% 75%-100% Dont know

    representatives would suggest that the industrymay be over-invested in sales reps targeting high-prescribing oncologists. Industry leaders expectthat oncology sales orces will net increase(Figure 18), and this may imply that access willbecome even more competitive.

    In order to earn a share o ever-limited on-cologist access, manuacturers must provideadditional perceived value to oncologists. Othe service provided by oncologist-acingresources, new inormation is perceived tobe the most valuable (Figure 19). However,

    because sales reps cannot provide the ullrange o medical inormation, the MedicalAairs unction is becoming an increasinglyimportant oncologist-acing resource.

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    Perceived Value o Sales Representative Services

    Figure 19

    Inormation is the highest value service provided by sales reps.

    The optimal way to increase access eciency will be to increase the inormation content and expertise provided byoncologist-acing resources.

    5 = Extremely valuable 4 = Valuable 3 = Moderately valuable 2 = Slightly valuable 1 = Not valuable

    100%

    75%

    50%

    25%

    0

    ShareofRespon

    ses

    New Inormation Access /Reimbursement

    Support

    Patient EducationMaterials

    Samples Checking In Inorming o CMEs

    Oncology Sales Force Size: Potential Changes

    Figure 18

    Access is limited and will get more so.

    No change(55%)

    Increase up to 25%(9%)

    Decrease more than 25%(9%)

    Decrease up to 25%(0%)

    Increase more than 25%(27%)

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    18

    Oncologists began the decade making essen-tially all the decisions in oncology patient care.Now a host o stakeholders infuence oncologytherapy choice.

    The ederal government has already begun

    exerting its new infuence over oncologytreatments.15 In June 2010, CMS announcedit planned to review Dendreons Provenge on anational level. State governments are increas-ingly exerting access infuence by mandating

    coverage and mandating IV/oral cost equiva-lence (Figure 20).16 By the end of 2010, theull impact o CMSs review o Provenge hadyet to play out, but the act remains that bothstate and ederal governments increasinglymandate or eectively veto oncology thera-

    peutic utilization.

    As discussed, overall costs are now highenough to motivate payers to manage oncolo-gy therapeutics. Payers are also shiting costs

    to patients, who are increasingly exposed tohigh co-pays or coinsurance. Patients areresponding somewhat to price. For example,when monthly out-o-pocket expenses riseabove $500, more than a quarter of patients donot remain adherent to oral oncology thera-

    peutics (Figure 21).

    17

    Oncology manuacturers responded in somecases by providing patient co-pay assistanceprograms; however, these programs may be

    TREND 8Oncologists are no longer the sole decision makers

    15Bach, PB. Limits on Medicares Ability to Control Rising Spending on Cancer Drugs. N Engl J Med. 2009 Feb 5; 360(6): 626-33.16Note: A number o states include medical necessity as an additional standard or coverage beyond the compendia or medical-literature standards, including AL, AZ, AR, CA, FL, IL, L A, ME, MD, MA, MN, NE, NV, NJ,OH, OK, OR, RI, SD, TN, VT, and VA.

    Figure 20

    State governments are mandating treatment decisions.

    No mandated coverage

    Mandated coverage i in recognized compendia or peer-reviewed medical literature

    Mandated coverage i use is listed in recognized compendia only

    Mandated coverage i use is supported in medical literature only

    Mandated coverage i use is medically necessary (but no other requirements)

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    underutilized as a result o inadequate patienteducation. As a result, some patients areopting or less expensive therapy, delayingtherapy, or skipping doses. There is mount-ing evidence that a airly sizable numbero eligible patients dont take advantage o

    these programs because they dont know othe programs or assume they do not qualiy(industry leader).

    A undamental infuence shit has begun. Asnon-oncologists exert ever-greater infuence

    over oncology therapy choice, successuloncology companies will redeploy customer-acing resources to address the needs o thesenewly important customers.

    Figure 21

    Patients are less adherent when they bear the costs o oral oncology products.

    100%

    90%

    80%

    70%

    60%

    50%

    40%

    30%

    20%

    10%

    0%

    ShareofPatients

    Monthly Out-o-Pocket Cost

    $0-$100 $101-$200 $201-$500 >$500

    91.5%

    8.5%

    86.0%

    14.0%

    83.9%

    16.1%

    71.2%

    28.8%

    Discontinuation Adherence

    17Patient Out-of-Pocket Cost Affects Adherence to Oral Oncology Medications. Am Health Drug Benets. 2010; 3:217.

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    20

    In 2000, oncology remained an area with fewprice controls. Oncology has typically gottena pass, and we have shied away rom askingquestions because it is cancer (oncologypayer interview). The typical fow o injectableoncology drugs was via buy-and-bill, where

    oncologists purchased oncology products romwholesalers and received payment (includ-ing substantial markups) rom health plansand Medicare Administrative Carriers. [T]he

    spread (between the price paid by Medicareand the cost to providers) was hidden. It couldvary rom doctor to doctor in ways that mighthave no relationship to how much it costs toadminister the drug (Mark McClellan, CMSAdministrator 2004-2006).18

    By the mid-2000s, oncology practices wereable to increase margins by using grouppurchasing organizations (GPOs) to negotiate

    more avorable discounts and rebates rommanuacturers. Particularly in the oncologysetting, the private or commercial payers haveto negotiate with the oncology clinics, and alot o oncology clinics have a lot o negotiat-ing power, and thats put a lot o tension in the

    wire (George Morrow, Amgen VP CommercialOperations).19 Oncologists joined GPOs to haveaccess to decreased product acquisition costsand eectively increase prots. The prot

    TREND 9Payers are beginning to manage oncology

    18Medicare Average Sales Price Rule Predicts $800 Mil. in Savings for 2005. The Pink Sheet Daily. 7 July 2004. Number 00319Private Payers Beginning to Adopt ASP-Based Reimbursement, Amgen Says. The Pink Sheet. 17 April 2006; 68;18;1320Scionti S. Medicare reforma major economic impact on private urological practice. Bus Brieng: US Kidney Urological Dis. 2005. 1-321Painter M. Reimbursement issues with hormonal therapies for prostate cancer. Rev Urol. 2005; 7: S44-S47

    Prior Authorization Requirements

    Figure 22

    Payers are beginning to require prior authorization or the most expensive oncology therapeutics.

    Share o Lives Covered

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

    Remicade; 31%

    Rituxan; 31%

    Herceptin; 34%

    Taxotere; 37%

    Chemotherapy; 51%

    Abraxane; 59%

    Eloxatin; 62%

    Avastin; 65%

    Erbitux; 65%

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    rom these drugs also increased the net rev-enue o most urology practices, with estimatessuggesting an average revenue increase oUS$100,000 per urologist in the US.20

    Oncologists prots did not pass unnoticed.By 2010, both Medicare and many traditionalhealthcare plans responded by changingthe reimbursement methodology to averageselling price (ASP), which is net o all rebatesand discounts. ASP has removed much o theprot potential rom buy-and-bill. For example,Urologists are expected to lose a majority othat income, approximately $60,000 for theaverage practitioner.21

    The downstream eects o lower oncolo-gist protability are just beginning to be elt,according to the industry leaders we inter-

    viewed. Oncologists are shiting unprotablepatients to hospitals. Oncologists themselvesare migrating rom independent practices tolarge institutions with nancial incentives lessaligned with high prescribing. Increasingly,hospitals are eligible for discounted 340B pric-ing. Section 340B of the Public Health ServiceAct results in signicant savings estimated tobe 20% to 50% on the cost of pharmaceuticalsor saety-net providers.22 This lower-costcompetition urther erodes the acceptable mar-gin in the market. Eroding prot margins areleading to a decreasing direct nancial interesto oncologists in therapy choice. Therapychoice may be driven more by reimbursementcondence than by access, and decreasingnancial incentives may lead to lower prescrip-tion rates or expensive therapies.

    Management has not stopped at the AWP-to-ASP shit. Payers are also controlling accessto oncology therapeutics explicitly (Figure22). We have reached a point now thateveryone that is looking at it says we cannotpay $50,000 to $100,000 for drugs that dovery little and certainly do not cure the cancer(oncology payer interview). Prior authorizationis required for up to 65% of covered lives forthe most expensive oncology mAbs. Payerstypically seek to maintain control by requiringan FDA indication, prior therapy ailure, appro-priate dosage, appropriate therapy intervals, orcompendia listing.23 Finally, the least political-ly sensitive way or payers to restrict accessto oncology products may be use o clinicalpathways to dene treatment options availablefor the oncologist (Figure 23).

    Figure 23

    Payers believe clinical pathways are among the most important issues in oncology.

    5

    4

    3

    2

    1

    AverageRating

    Increasing prevalence andutilization o clinical pathways

    Increasing use orestrictions

    Changes to physicianreimbursement

    Increasing utilization/importance o SPPs

    4.5

    3.83.5

    3.1

    Commercial Payer Issues Scale1 = Not at all important

    2 = Slightly important

    3 = Moderately important

    4 = Important

    5 = Extremely important

    22Introduction to 340B Drug Pricing Program. Health Resources and Services Administration.23ICORE Healthcare. Medical Injectables and Oncology Trend Report. 2009.

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    22

    Oncology had been a hot area or licensingthrough the 2000 to 2009 period. In-licensedcompounds were evaluated and purchasedbased on historic trends. Unortunately orthose valuing oncology assets, historic trendshave not continued. Many o the key inputs to

    valuation models appear to be eroding sharply.For example, more intense competition thananticipated should lead to lower market sharesthan predicted. Trials are more dicult to re-cruit because o competition or patients, andtrials are longer when overall survival, ratherthan progression-ree survival, is the endpoint.Longer trial times lead to less time on themarket beore loss o exclusivity. Comparatorarms now may include extremely expensive

    biologics. Comparator arms are increasinglyexpensive. When biologics are on the compar-ator arms, per-patient costs may increase to$200,000. A single trial can easily run to $200million (industry leader).

    It does not take much. In a hypothetical ex-ample we changed several o the input actorsfrom 2000-consistent estimates to 2010-con-sistent estimates.24 This hypothetical oncol-ogy asset initially estimated to be worth $93million (risk-adjusted net present value)25would only be worth $36 million under updatedassumptions (Figure 24). This illustrates theease of losing more than 60% of an oncologyassets value when valuation inputs erode.

    This value collapse may already have begun.2010 was the worst year for oncology dealssince 2002 to 2003 (Figure 25).26 This comesat a time when the pharma/biotech public mar-ket indices grew 11% to 13% for the year.

    When we consider the number o phase II andphase III assets in each therapeutic category tothe number o deals made in that category, wemay estimate the inventory o each thera-peutic area. Oncology has more than 20 yearsinventory to work through (Figure 26).27 Whena supply glut is combined with eroding valuationundamentals, a price collapse may be in theworks.

    TREND 10The combination o commercial and clinical actors may lead to a bursting oncology asset bubble

    Figure 24

    Value parameter erosion may lead to oncology asset collapse.

    DCF, Historic Assumptions DCF, Updated Assumptions

    We estimate the risk-adjusted net present value (rNPV) o a hypothetical oncology asset using assumptions reasonable in2000 (left panel) and compare this with assumptions that are more reasonable given the new commercial realities of 2010.

    Net Cash Flow

    NPV

    rNPV

    Year

    4,000

    3,500

    3,000

    2,500

    2,000

    1,500

    1,000

    500

    0

    -500

    ($M)

    1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

    rNPV = $93M Net Cash FlowNPV

    rNPV

    Year

    4,000

    3,500

    3,000

    2,500

    2,000

    1,500

    1,000

    500

    0

    -500

    ($M)

    1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

    rNPV = $36M

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    Figure 25

    2010 was a down year or deal terms in oncology.

    Oncology Deals, Up-Front Payments Oncology Deals, Total Potential Value

    35

    30

    25

    20

    15

    10

    5

    0

    35

    30

    25

    20

    15

    10

    5

    0

    NumberofDea

    ls

    NumberofDea

    ls

    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

    >$50M $25M-$50M $5M-$25M >$200M $100

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    Oncology National Commercial (ONC) Study, 2000-2010 Ten Transormative Trends

    About the Authors

    This document was prepared by Nader Naeymi-Rad,Chie Operating Ocer and Je Stewart, AssociatePractice Executive and Service Line Manager atCampbell Alliance.

    Special Thanks

    Special thanks to Darius Naigamwalla, Michael Turner,Je Liepman, Michael Fleming, Lujing Wang, KeithKelly, George Schmidt, Gary Tyson, Ben Boniant,Craig Dunkley, Lauren Browne, and Christina Verni.

    About Campbell Alliance

    Campbell Alliance is the leading management con-sulting rm specializing in the pharmaceutical andbiotechnology industry. The rms clients includethe worlds top-20 pharmaceutical companies, aswell as numerous emerging and midsize rms.

    Campbell Alliances oncology expertise is based ona foundation of more than 300 oncology projects inthe last ve years alone.

    Campbell Alliance is organized into practice areas,each specializing in a critical industry unction:

    Brand ManagementThe Brand ManagementPractice helps companies plan or and improvethe commercial perormance o their brands

    during all stages o the product lie cycleromprelaunch development through maturity.

    Business DevelopmentThe Business Develop-ment Practice helps companies that need assis-tance creating business development strategies,identiying partners, prioritizing targets, evaluat-ing opportunities, and negotiating deals.

    Clinical DevelopmentThe Clinical DevelopmentPractice helps clients maximize the eciencyand eectiveness o their clinical developmentorganizations.

    Medical AairsThe Medical Aairs Practicehelps clients improve the perormance o theirmedical aairs organizations, while also provid-ing expert support at the product level.

    Pricing and Market AccessThe Pricing and Mar-ket Access Practice helps clients more eectivelymarket and sell their products in an environmentheavily infuenced by payers.

    SalesThe Sales Practice helps companiesoptimize their sales orce through sales strategy,analytics, training, and assessment.

    Trade and DistributionThe Trade and Distribu-tion Practice helps clients improve the distribu-tion o their products and work strategically with

    channel partners.

    Our team o consultants has many years o experi-ence working in the pharmaceutical industry andin providing consulting services to industry clients.This industry ocus and depth o unctional exper-tise allow us to hit the ground running on complexprojects, delivering value that less-specialized rmscannot match.

    From our oces in New York, Raleigh, Parsippany,Philadelphia, Boston, Chicago, Los Angeles, SanFrancisco, and Zug, Switzerland, we serve clientsthroughout North America, Europe, and Japan.

    350

    300

    250

    200

    150

    100

    50

    0

    Projects

    Sponsor Project Geography Product

    Established, 207

    Emerging, 58

    Specialty, 53

    Product Strategy, 161

    Launch, 52

    Clinical, 31

    Franschise, 25

    BD, 23

    Sales, 7 Dx, 9

    Pricing, 19

    US, 183

    WW, 108

    EU, 27

    Tx, 251

    Supportive, 45

    Vaccine, 13

    Campbell has perormed over 300 oncology projects in the last fve years.

    We have described 10 trends that are trans-orming the oncology marketplace. These

    trends begin with structural changes in theoncology pipeline that lead directly to intensecompetition. At the same time, changes in un-derlying oncology economics have promptedan ongoing change in the most eective oncol-ogy commercialization strategies.

    The days o i you build it, they will come areover. Competition is precisely the environment

    where companies need to be able to dierenti-ate. However, at this same moment, custom-ers and their needs are changing. This meansoutdated strategies are not matched to todayscommercial realities.

    We are at an infection point. Going orward,winning oncology companies will recognize

    the new reality and organize their portolios,launch planning, and customer-acing re-sources to meet this new reality head on.

    CONCLUSION


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