Oncology

Changing Market Dynamics

February, 2010
 Oncology – a new market dynamic on the horizon

Historically, oncology has been an area of significant sales

growth due to favorable factors, such as a cooperative FDA,
premium pricing, and prevalent off-label usage

However, we see signs of change…

 New drugs and indications are crowding the market
 Payors are having a greater impact on drug utilization
 “Traditional” tools such as tiered co-payments, prior
authorization and step-edits are being used more
aggressively throughout the industry
 The industry is responding as well with price caps and
pay for performance arrangements

Overall, we believe industry participants need to pay close

attention to these signals, and position themselves for a new
market dynamic

February, 2010 | Copyright © 2010 Grail Research, LLC 2

 Table of Contents
 Historical Market Dynamics
 Evidence of Changes
 Case Studies
 How to Prepare

February, 2010 | Copyright © 2010 Grail Research, LLC 3

 Oncology agents have experienced exceptional market growth

Overview Global Pharmaceutical and Oncology Market Trend,

2004–12Ea,b,f,g
 Oncology products have grown at more
than double the rate of global 125 1,000 2004-08
921 CAGR
pharmaceuticals, with a CAGR of 864
8.39% during 2004–’08 807 8.39%
773 750
 Reasons for the robust growth of the 100
715
800 18.92%
oncology market:c,d,e 648
605 2008-12
• Increased use of targeted 75 560 600 CAGR

USD Bn
therapeutics, including more patients 65
60

USD Bn
accessing modern targeted 52 55 4.5%
therapies in emerging markets 48
50 42 400 7.8%
• Premium pricing for targeted brands 35
as compared to cytotoxic therapies 29
24
and antihormonal therapies 25 200
• Longer treatment duration for
patients due to longer survival and
adjuvant treatment 0 0
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E
• Earlier detection of disease with the
availability of new screening Global Pharmaceutical Market
procedures Oncology Market
IMS Projections – Oncology Market
IMS Projections – Global Pharmaceutical Market

Note: Projections are extrapolated based on IMS prediction of 3-6% of CAGR till 2012; we have assumed a CAGR of 4.5% till 2012
Source: a”Global Pharmaceutical Sales, 2001 – 2008”, IMS Health, March 2009; b”Top 15 Global Therapeutic Classes”, IMS Health, March 2009; c"IMS Health forecasts double-digit growth of
cancer drugs", IMS Health Website, May 15, 2008; d’Commercial Insight: Top 20 Therapy Cancer Brands’, Datamonitor, Aug 2008; e“Nuovifarmacie vecchitrend diconsumo:
unapanoramicaeuropea”, IMS Presentation; f“Booming oncology market redefines relations between manufacturers and healthcare payers, providers”, Pharmaceutical Commerce Magazine,
August 2008; g“IMS Health Lowers 2009 Global Pharmaceutical Market Forecast to 2.5 – 3.5 Percent Growth”, IMS Press Release, April 22, 2009
February, 2010 | Copyright © 2010 Grail Research, LLC 4
 Table of Contents
 Historical Market Dynamics
 Evidence of Changes
 Case Studies
 How to Prepare

February, 2010 | Copyright © 2010 Grail Research, LLC 5

 Recent events raise the possibility that this market
dynamic is changing
1 2

New drugs and new indications are Payors are more aggressive in
crowding the market managing Biologics

3 4

New Pricing Pressures Shift to orals enables traditional

utilization controls
February, 2010 | Copyright © 2010 Grail Research, LLC 6
1 The pipeline for new targeted therapies is significant
Vargatef
Neratinib Bosutinib Anyara (Active
(Boehringer
(Wyeth) (Wyeth) biotech)
Ingelheim)
Bexxar
Torisel
(GSK)
(Wyeth) Zalutumumab Recentin Rencarex Enzastaurin
(Genmab) (Astra-Zeneca) (J & J) (Eli Lilly)

Herceptin-
Campath Nexavar Zactima
DM1
Aflibercept Zybrestat
Erbitux Tykerb (AstraZeneca) (Sanofi Aventis) (OXiGENE)
(Bayer / (Bayer & (ImmunoGen)
(BMS) (GSK)
Genzyme) Onyx)
Ofatumumab
Galiximab Lumiliximab (Genmab & Zarnestra
(Biogen Idec) (Biogen Idec) GSK) (J & J)

Velcade Revlimid
Herceptin Gleevec Tasigna Pazopanib
Masatinib
(J&J / (Celgene Deforolimus Omnitarg
Mesylate
(Genentech) (Novartis) (Novartis) (GSK) (Ariad) (Roche)
Mellinium) Corp.) (AB Science)

1997 1998 2000 2001 2002 2003 2004 2005 2006 2007
LATE STAGE PIPELINE

Neuradiab
Rituxan Mylotarg Iressa Avastin Sutent Flavopiridol Zibotentan Midostaurin
(Bradmer
(Sanofi Aventis) (AstraZeneca) (Novartis)
(Genentech) (Wyeth) (AstraZeneca) (Genentech) (Pfizer) Pharma)

BIBW-2992 Vadimezan
AVE 8062 Farletuzumab
(Boehringer (Novartis and
(Sanofi Aventis) (Baxter)
Ingelheim) Antisoma)
Tarceva
Zevalin Vectibix
(OSI /
(Spectrum) (Amgen) Telcyta Lestaurtinib Alpharadin Axitinib
Genentech)
(Telik) (Cephalon) (Algeta) (Pfizer)

Genasense Ramucirumab Afutuzumab Motesanib

Sprycel (Genta) (Eli Lilly) (Biogen Idec) (Amgen)
(BMS)
XL-184 Brivanib
BSI-201 (BiPar Figitumumab
(BMS and Alaninate
Sciences) (Pfizer)
Exelixis) (BMS)
Note: Late Stage Pipeline includes only those drugs which are either in Phase III or pre-
registration stage of development
Source: Grail Research; PharmaProjects database (accessed in August 2009)
February, 2010 | Copyright © 2010 Grail Research, LLC 7
1 Many compounds focus on the same biology
Competitive intensity is increasing as companies target similar mechanisms

Expected Expected
Current Level of Competition Near Term Long Term
Competition1 Competition2

EGFR
Antagonist 2 8
Epidermal growth factor
receptor 2 antagonist

VEGFR
Antagonist 2 12

Tyrosine Kinase
Inhibitors 9 9

Note : The dates mentioned in the chart are approval dates and not the launch dates; 1Represents the number of molecules in phase III / Pre-registration / Registration stage of
development for relevant indications; 2Represents the number of molecules in phase I / II of development; Above mentioned data represent the primary pharmacology action
for the marketed and pipeline molecules (a molecule can target more than one receptors; however, we have only considered the primary target in this analysis)
Sources: FDA website, Company website ; PharmaProjects database; Grail Analysis
February, 2010 | Copyright © 2010 Grail Research, LLC 8
1 Adding indications to existing drugs increases competition
Expansion of existing agents

Gleevec 5 13 18

Avastin 5 10 2 17

Revlimid 1 2 13 16

Erbitux 2 3 10 15

Sutent 2 5 8 15

Tykerb 1 3 7 11

Tarceva 2 3 4 9

Nexavar 2 2 3 7

Vectibix 1 2 3 6

Torisel 1 3 4
Early Stage Pipeline Indications
Herceptin 1 1 1 3 Late Stage Pipeline Indications
Approved Indications
Rituxan 1 1 2

0 2 4 6 8 10 12 14 16 18

Note: Late Stage pipeline include molecules in registration / pre-registration / phase III of development, Early Stage pipeline include molecules in phase I or II of development
Source: PharmaProjects; Clinical Trials Website; Company Websites; “Top 20 Cancer Brands”, Datamonitor
February, 2010 | Copyright © 2010 Grail Research, LLC 9
1 Many indications will soon have multiple targeted therapies
1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 LATE STAGE PIPELINE

Lymphoma

Rituxan Zevalin Bexxar Velcade

Revlimid; Torisel; Campath; Afutuzumab;
(CD20 (DNA (DNA (Proteasom
antagonist) antagonist) antagonist) e inhibitor) Galiximab; Ofatumumab; Enzastaurin

Breast Cancer

Herceptin Avastin Sutent; Ramucirumab; BSI-201; Pazopanib;

Tykerb
(EGFR
(TKI)
(VRGF Herceptin- DM1; Omnitarg; Neratinib; BIBW-
Antagonist) Antagonist) 2992

Leukemia
Gleevec
(Bcr-Abl Revlimid; Rituxan; Alvocidib; Midostaurin;
Mylotarg Sprycel Tasigna
inhibitor);
(DNA
Campath
(Bcr-Abl (Bcr-Abl Lestaurtinib; Lumiliximab; Genasense;
antagonist) inhibitor) inhibitor) Ofatumumab; Zarnestra; Bosutinib
(Lymphocyt
e inhibitor)
NSCLC

Erbitux; Sutent; Nexavar; Aflibercept;

Iressa Tarceva Avastin
Vadimezan; Telcyta; Figitumumab; Motesanib;
(VRGF
(TKI) (TKI) Antagonist) Pazopanib; Recentin; BIBW-2992;
Enzastaurin; Zactima; Vargatef

Colorectal Cancer
Avastin
(VRGF
Antagonist); Vectibix
Tarceva; Sutent; Aflibercept; Brivanib
Erbitux (EGFR
Antagonist) Alaninate; Recentin
(EGFR
Antagonist)
Kidney Cancer

Nexavar Torisel
Sutent Avastin
(B-raf (mTOR
(VEGFR (VRGF Axitinib; Pazopanib; Anyara; Rencarex
kinase Inhibitor) kinase Antagonist)
inhibitor) inhibitor)

Note: Late Stage Pipeline includes only those drugs which are either in Phase III or pre-registration stage of development
Source: Grail Research; PharmaProjects database (accessed in August 2009)
February, 2010 | Copyright © 2010 Grail Research, LLC 10
2 More aggressive use of utilization tools is underway
Biologics in Breast Cancer – Usage of utilization tools in 2008 and expected increment in 2011a,2

Commercial health Medicare Managed Medicaid

PBMs1
plans advantage plans plans
Management
Incremental Incremental Incremental Incremental
strategy % of plans
% of plans
% of plans
% of plans
% of plans
% of plans
% of plans
% of plans
using the using the using the using the
to use the to use the to use the to use the
tool in 2008 tool in 2008 tool in 2008 tool in 2008
tool in 2011 tool in 2011 tool in 2011 tool in 2011

Quantity Limits 36.4% 14.5% 43.5% 17.4% 29.4% 23.5% 36.4% 27.3%

Step Therapy 14.5% 23.6% 13.0% 30.4% 17.6% 23.5% 0.0% 36.4%

Prior Authorization
56.4% 7.3% 60.9% 13.0% 52.9% 17.6% 36.4% 9.1%
by Diagnosis

Prior authorization
34.5% 21.8% 21.7% 30.4% 41.2% 11.8% 0.0% 36.4%
by test results

Coinsurance cost
29.1% 12.7% 56.5% 13.0% NA NA 18.2% 0.0%
share

Note: 1PBM is Pharmacy benefit management; 2Survey group include Commercial health plans (N=55), Medicare Advantage plans (N=23), Managed Medicaid
plans (N=17), PBMs (N=11)
Source: aBiotechnology Monitor and Survey, Marketplace Policies, Practices and Perspective: 2009
February, 2010 | Copyright © 2010 Grail Research, LLC 11
 The cost of cancer therapy is increasing as patients shift to
3 newer, more expensive therapies

New drugs cost more and are increasing share

Average Monthly Medicare Price of Drugs at the Time of

Oncology Drugs Market Share by Launch, 1996–2007a
Approval (1994-2008)b

100 8,000
Percent Market Share

7 12 18 8 14
27 21 27 6,465
36 31
35 6,000
37

USD
38
50 100 38 37 4,000 3,610
93 88 82 73
64 57 49 2,000 1,450
41 35 32
0% 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1994-1998 1999-2003 2004-2008
Drugs Launched in 2003-07 Drugs Lanched in 1997 or Before Year of Approval
Drugs Launched in 1998-02

Utilization of Newer therapies is increasing New Therapies cost more

The Cost of Treating Cancer is Increasingc

100
75
Annual Cost of Treating Cancer 62
(USD Bn) 50 43
30

0
1990 1995 2000 2005

Source: a”The Oncology Pipeline: Maturing, Competitive, and Growing?’, Oncology Business Review, Sep 2008; b“Limits on Medicare's Ability to Control
Rising Spending on Cancer Drugs”, NEJM Article, February 5, 2009; cManaged Care Oncology Magazine, Q3 2008 Issue
February, 2010 | Copyright © 2010 Grail Research, LLC 12
 At the same time, drug benefits may seem modest relative
3 to cost

Some of the newly-approved brands cost USD 150-500K per life year gained

Incremental Cost / Life

Year of Incremental Cost of Year Gained
Drug Company Indication
Approval Benefit Therapy (LYG)
(USD) (USD)1

Avastina Roche Breast Cancer 2008 4 months survival 50,000 150,000

0.127 months
Tykerbb GSK Breast Cancer 2007 21,484 169,165
survival

1.96 months
Ixemprac BMS Breast Cancer 2007 30,900 189,184
survival

Non-small Cell 345,757–

Avastinb Roche 2006 2.3 months survival 66,270–80,343
Lung Cancer 419,181

OSI Pharmaceuticals / Pancreatic 364,680–

Tarcevab 2005 0.4 months survival 12,156–16,613
Roche Cancer 498,390

Colorectal 1.44 months

Erbituxb BMS 2004 21,954 182,950
Cancer survival

Notes: 1LYG costs have been derived

Source: aNew York times; bAmerican Society of Clinical Oncology (ASCO); cJournal of Clinical Oncology
February, 2010 | Copyright © 2010 Grail Research, LLC 13
 This has led to a new and public discussion about the
3 cost/benefit of these new therapies

Commentary in the press

New York Times, July 2008 - Cost effectiveness of Avastin - “It’s absolutely critical that we start having a public
discussion,” said Barbara Brenner, executive director of Breast Cancer Action, an advocacy group. “I think of Avastin
as a model that is showing us where the problem is.”a

Bloomberg News, June 2009 - “Eli Lilly & Co.’s tumor-fighter Erbitux doesn’t prolong lung cancer patients’ lives
enough to justify its $80,000 cost, U.S. scientists said in commentary published today. Erbitux added to other cancer
drugs extends survival about 1.2 months more than chemotherapy alone, making the price too high for a ‘marginal
benefit,’ commentary in the Journal of the National Cancer Institute said”b

Medscape, May 2009 - “Ixabepilone (Ixempra) for metastatic breast cancer is an example of a cancer drug that adds
‘a small benefit at a high cost,’ says an editorial in the May 1 edition of the Journal of Clinical Oncology. The editorial
accompanies a new cost-efficacy study in the same issue of the journal that found that the addition of ixabepilone to
capecitabine (Xeloda) adds about $31,000 to the overall medical costs of metastatic breast cancer while providing
about 1 more month of ‘quality-adjusted’ survival”c

The Independent, August 2008 - “The National Institute for Health and Clinical Excellence (NICE) issued draft
guidance rejecting the drugs Sutent (sunitinib), Avastin (bevacizumab), Nexavar (sorafenib) and Torisel
(temsirolimus)”
“The guidance rejects the drugs because they are not cost effective”d

The Wall Street Journal, March 2009 - “Expert advisers in the U.K. are sticking with their view that
GlaxoSmithKline’s Tykerb is too costly to justify routine use in women with advanced breast cancer. The British
government’s National Institute for Health Effectiveness, or NICE, put out a final appraisal that said Tykerb hadn’t
‘demonstrated that it was cost effective’ in comparison with other treatments. It put forth a similar view last summer”e

Sources : a“Costly Cancer Drug Offers Hope, but Also a Dilemma”, The New York Times, July 6, 2008; b “Lilly Erbitux Cancer Drug Not Worth Price, U.S.
Scientists Say”, Bloomberg News, June 2009; c“Ixabepilone in Metastatic Breast Cancer: Small Benefit at High Cost”, Medscape, May 2009; d“NHS denies
'effective' cancer drugs due to cost”, The Independent, August 2008; e“U.K. Says Tykerb Isn’t Worth Cost, Even With 12 Free Weeks”, The Wall Street Journal,
March 2009
February, 2010 | Copyright © 2010 Grail Research, LLC 14
3 Companies are reacting with price caps…
Examples of price cap initiatives

 If patients spend more than 5%

 Genentech capped Avastin at of their annual gross income on
USD 55,000/year for patients with In Oct. 2006, In Sept. 2006, copayments, then they become
a household income less than Genentech Amgen eligible for free drugs through an
$75,000 a yeard announced a instituted a assistance programb
price cap on price cap on
Avastin based Vectibix at
on a patient’s $4,000 per dose
incomea (20% lower than
BMS’s Erbitux)d
Price
Caps
Employed
In May 2006, as a Tool The UK
BMS government
announced a (NICE) uses
 Patients who spend over USD price cap on cost/benefit  A threshold of GBP 30,000 per
10,000/month become eligible Erbitux for analysis in quality-adjusted life year
for free or discounted drugs patients that evaluating (QALY) is used in evaluating
through a charitable programa reach a drugsc drugs for reimbursementc
monthly
threshold

Sources : a”Contracting, rebating, risk-sharing – IMS Conference hears about more innovative approaches to pricing”, IMS Global Insights; b“Managed Care
Best Practices in Oncology Management”, Conference report, November 2006; c“Cost-Effectiveness of Cancer Drugs Is Questioned”, The Wall Street Journal, June 2009 and
“Time to Consider Cost in Evaluating Cancer Drugs in United States?”, Medscape Today, July 2009 ; d“Top Of The Cancer Market?”, Forbes, October 2006
February, 2010 | Copyright © 2010 Grail Research, LLC 15
3 … and pay for performance arrangements
Drug companies are increasingly offering discounts to insurers based on drug performance
rather than quantity of drug utilized1

Pay for Performance Examples

 In 2001 Pfizer convinced the State of Florida to put all its drugs on the state's Medicaid formulary.
In return Pfizer agreed to rebate a portion of drug costs if its drugs failed to generate long-term cost
savings across the healthcare systema
• This model worked for Pfizer, enabling the company to avoid up-front discounts and back-end
rebates, while saving the State of Florida USD 41.9MM in other healthcare costsa

 In 2007, after the NHS in Britain decided not to pay for the cancer drug Velcade, Johnson &
Johnson offered a money-back guarantee if Velcade failed to reduce tumors by at least 25%b,c
• Through this Pay for Performance strategy, the NHS designated Velcade as cost-effective for
up to four cycles of treatmentc

 In 2007, United Healthcare entered into a risk sharing agreement with Genomic Health. The
company sells Oncotype DX®, a USD 3,460 genetic test that determines whether an early-stage
breast cancer patient would benefit from chemotherapyc
• United Healthcare agreed to pay for the test for 18 months, on grounds that it would seek a
price negotiation if the test failed to have the intended medical impactc

 In 2009, in response to a negative UK NICE appraisal, Merck offered to refund the primary care
cost of its drug Erbitux, if a patient did not respond within 6 weeksd

 In 2009, when Tarceva was declared cost ineffective by NICE, Roche offered a rebate for the cost
difference between Tarceva and the incumbent NSCLC treatmentd

Note: 1Pay for Performance is more popular in Europe.US, insurers have less leverage with drug makers because of tough state regulations and marketplace pressures
Source: ; a“Money-Back Guarantee”, Pharmaceutical Executive, April 2008; b“Drug Deals Tie Prices to How Well Patients Do”, New York times, April 2009; c“Pricing Pills by the Results”, New York
times, July 2007;d “More Velcade-Style Risk-Sharing In The UK?”, Europharmatoday.com, January 2009;

February, 2010 | Copyright © 2010 Grail Research, LLC 16

 Companies are also conducting head-to-head trials in order to
3 demonstrate superiority for their agent over alternatives
The crowded market is resulting in increased pressure on drug companies to conduct head-
to-head trials to prove that their product is better than the competitor’s product

Expected Completion
Comparison Condition Trial Sponsor
Date

Results were expected

Zactima vs Second line NSCL in September 2009;
Astrazeneca
Tarcevaa Cancer Regulatory
submissions withdrawn

Recentin vs First line metastatic

Astrazeneca May 2011
Avastina Colorectal Cancer

Sutent vs. First line metastatic

Pfizer Halted in June 2009
Avastin1,b Breast Cancer

Sprycel vs Bristol-Myers
First line CML Complete
Gleevec2,c Squibb

Tykerb vs Adjuvant Breast

GlaxoSmithKline May 2013
Herceptina Cancer

Note: 1Trial halted in June 2009 as better survival rates could not be established; 2FDA approved Sprycel for treatment of CML since the study established better survival rates in Gleevec-
resistant patients. The drug fulfills the need for second line treatment
Source: aClinicaltrial.gov, b“Pfizer halts Sutent breast-cancer trial”, fiercepharma.com, June 2009; c“FDA Grants Full Approval For SPRYCEL For The Treatment Of Adults With Chronic Myeloid
Leukemia”, MedicalNewsToday, May 2009
February, 2010 | Copyright © 2010 Grail Research, LLC 17
4 Greater use of oral therapeutics is changing oncology
Unlike the overall industry, orals are gaining share in Oncology

Percentage of Worldwide Rx & OTC Pharmaceutical Sales from Share of Biologics Within Top
Biotech vs. Conventional Technologya 100 Products

100 91 91 90 89 88 87 86 84 83 82 81 80 79 78 77
80 2014 50%
Technology % of
Rx & OTC Sales

60
2008 28%
40
18 19 20 21 22 23
14 16 17
20 9 9 10 11 12 13
2000 11%

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 0% 10% 20% 30% 40% 50% 60%
Biologics Conventional

Oncology Market for Targeted Therapies: Biologics vs. Conventional Technologyb

100
100 74
% of Total Sales

80 69 66
60
31 34
40 26
20
0
0
2000 2006 2010E 2015E
Conventional Biologics

Source: aWorld Preview 2014, May 2009, Evaluate Pharma report; bMonthly oncology report, October 22, 2007, Rodman and Renshaw equity research

February, 2010 | Copyright © 2010 Grail Research, LLC 18

4 Oral oncologics are managed using traditional utilization tools…
Traditional tools such as tier status, prior authorization, quantity limits and co-payments are
being adopted for oral oncologics
Formulary Status of Oral Oncology Brandsa,1
2,000
Number of PDPs covering drugs

1,645 1,648 1,648 1,648 1,648 1,648

34 34 34 34 34
1,500 204
417 417 417 417 417

1,000

882 879 879 873 877 1,444

500

41 207 174 210

274 275
36 2 2 109 2 148 2 108 2
0
Glivec Sutent Tarceva Thalomid Tykerb Tamoxifen

Tier 6 Tier 5 Tier 4 Tier 3 Tier 2 Tier 1

% of Plans with Primary Tier % of Plans: % of Plans: Primary Cost-

Drug
Drug on Formulary Placement Prior Authorization Quantity Limits Sharing Range
Gleevec 100% 4 70% 29% 26% - 35%

Sutent 100% 4 62% 32% 26% - 35%

Tarceva 100% 4 62% 32% 26% - 35%

Thalomid 100% 4 68% 25% 26% - 35%

Tykerb 100% 4 74% 42% 26% - 35%

Tamoxifen 100% 1 0% 2% $ 0 - $10

Note: 1Selected drugs include Glivec, Sutent, Tarceva, Thalomid, Tykerb and Tamoxifen (Data from November 2008 for Medicare Part D plan)
Source:a“Cost Sharing for Cancer Patients in Medicare, 2009”, Avalere Health and American Cancer Society Cancer Action Network, December 2008

February, 2010 | Copyright © 2010 Grail Research, LLC 19

4 … and this trend is increasing over time
PDP’s are increasing the use of traditional utilization tools such as prior authorization
and co-payments
PDP’s1 Requiring
% Coinsurance Amount, 2006-2009a
Prior Authorization, 2006–2009a
80 76 35 33 33 33 33

Enrollment-Weighted Average
71 71 72 30 30 30 30 31

Coinsurance Amount (%)

68 68 67 30 30
64 30 29 29
60
63 62 27 28 27 27 28 28
PDPs requiring Prior

60 57 55
authorization (% )

53 25
48 46
40 41 42 20
40
15

10
20
5

0 0
Gleevec Sutent Tarceva Thalomid Tykerb2 Gleevec Sutent Tarceva Thalomid Tykerb2

2006 2007 2008 2009 2006 2007 2008 2009

 PDPs are increasing the use of prior authorization to
control access to branded cancer
• However, the administrative burden of obtaining
prior authorization is high, and the process is time-
consuming for payers and providersb
 PDPs are shifting the cost burden to the patients by
drugsa,b gradually increasing co-insurance amounts for
brand-name oral anticancer drugsa

Note: 1PDP’s are Prescription Drug Plans; 22006 data omitted for Tykerb because the Food and Drug Administration (FDA) approved the drug in March 2007
Source: a“Cost Sharing for Cancer Patients in Medicare, 2009”, Avalere Health and American Cancer Society Cancer Action Network, December, 2008; b“Oncology trends report”, NCCN
February, 2010 | Copyright © 2010 Grail Research, LLC 20
 Table of Contents
 Historical Market Dynamics
 Evidence of Changes
 Case Studies
 How to Prepare

February, 2010 | Copyright © 2010 Grail Research, LLC 21

 Case Studies: Close But Not Yet

 We are clearly seeing different dynamics in the

oncology market than we have historically

 However, we have not yet seen significant

competition driven solely by pricing. This is a
scenario which could emerge when there are
multiple, largely equivalent agents available in
the marketplace

 To date, potential competitive situations

(Erbitux vs Vectibix, Nexavar vs Sutent and
Tykerb vs Herceptin) have resolved quickly
with clear winners based on clinical data,
labeling, and physician preference (not payor
pressure)

February, 2010 | Copyright © 2010 Grail Research, LLC 22

 Case Study 1 – Vectibix position to displace the similar Erbitux
was thwarted by clinical data

Erbitux vs Vectibix

Scenario at Launch What Happened?

 Erbitux was launched by BMS/Imclone in 2004 for metastatic
colorectal cancer patients1
 Vectibix was launched in September 2006 by Amgen for metastatic
colorectal cancer patients2
• Analysts expected that Vectibix would replace Erbitux as a
treatment for colon cancera,b
 Both Vectibix and Erbitux are antibody-based therapies that are
administered intravenously; however Vectibix had a few potential
advantages
• More convenient (every other week) administration and lower
cost (20% discount) compared to Erbituxb
• Lower frequency of infusion reactions (1% compared to 3% for
Erbitux) i,j
 Sales of Vectibix in 2006 (Oct-Dec) were USD 39MM and the
company was upbeat about the futurec
 Analysts at Merrill Lynch predicted that Vectibix would eventually
take 60% of Erbitux's market. They also lowered their projected
sales figures for Erbitux for 2008-2010d
 In March 2007, Amgen discontinued a trial of Vectibix due to 231
cases of death or disease progression. Vectibix sales in the second
quarter of 2007 fell from USD 51MM to USD 46MMe,f
 Erbitux maintained steady growth even after the launch of Vectibix
• The total number of patients treated with Erbitux increased in
October 2007, and market share rose to 14.8% in that month g
• Vectibix did not show any month-to-month market share
increase (in October 2007) and was underperforming according
to analystsg
 In 2009, label changes for both Erbitux and Vectibix were
implemented; these are expected to narrow the eligible pool of
patients for both the drugs by up to 40%h

Note: 1Approved as a single agent for EGFR-expressing metastatic colorectal cancer after failure of both irinotecan- and oxaliplatin-based regimens or in patients who are intolerant to irinotecan-based regimens OR used in
combination with irinotecan, EGFR-expressing metastatic colorectal carcinoma in patients who are refractory to irinotecan-based chemotherapy; 2Approved as a single agent for the treatment of metastatic colorectal carcinoma with
disease progression on or following fluoropyrimidine, oxaliplatin, and irinotecan chemotherapy regimens
Source: aPress release, September 27, 2006, Amgem company website; b“Vectibix Will be EGFR Antibody of Choice for Colon Cancer Therapy”, October 6, 2006, GLG group website; cAnalyst conference summary of Amgen
quarter results, January 27, 2007, Openicon website; d”Amgen wins approval for colorectal cancer drug”, September 28, 2006, Marketwatch website; e”Amgen Discontinues Vectibix(TM) Treatment in PACCE Trial Evaluating
Vectibix(TM) as Part of Triple Combination Regimen”, March 23, 2007, Biotechnoloogy-europe website; fPress Release, July 26, 2007, Pfizer company website; g“Monthly oncology regimen report through September 2007”,
Rodman & Renshaw, Inc.,October 22, 2007; h“New US labelling for Erbitux and Vectibix recommends against their use for large subset of colorectal cancer patients”, July 20, 2009, Scripnews website; i"Vectibix(R) Now Available
For The Treatment Of Advanced Colorectal Cancer In Belgium, October 03, 2008, Medicalnewstoday website; jErbitux website
"
February, 2010 | Copyright © 2010 Grail Research, LLC 23
 Case Study 2 – In another potential head-to-head battle,
physicians chose Sutent over Nexavar

Nexavar vs Sutent

Scenario at Launch What Happened?

 Nexavar was launched by Bayer/Onyx in December 2005 for  Sutent rapidly captured over 50% market share in renal cell
advanced renal cell carcinomaa,2 carcinoma for all lines of therapy (July 2006)d
 Sutent was launched by Pfizer in 2006 for the same • Sutent became the standard therapy for first-line
indication1 treatment of mRCC after launche;
 Direct competition was expected: • Nexavar competed more successfully in second line
• Datamonitor forecasted Nexavar revenues would therapy with 35.1% patients receiving Sutent and
reach USD 122MM and Sutent would reach USD 32.4% receiving Nexavar (October 2007)d
179MM by 2010b
• Although Nexavar had a first-to-market advantage, Renal Cell Carcinoma Market share
Sutent was expected to have superior efficacye
100 (All stages/ All lines)d Nexavar

80 Sutent
• Nexavar on the other hand, was expected to have
better tolerability – side-effects were limited mainly to 54 53 53 53 55 55 56

Market Share %
60 52 51 51 51 51
blistering and rashesc
34 32 32 34 34 32 33 33 34 33 33 33
40
• Cost of treatment was similar for both Sutent and Nexavar at
USD 4,600 per treatment/monthd 20

0
06/2006 08/2006 10/2006 12/2006 02/2007 04/2007 06/2007
Note: 1Sutent is a kinase inhibitor indicated for the treatment of: (i)Gastrointestinal stromal tumor after disease progression on or intolerance to imatinib mesylate (ii) Advanced renal cell carcinoma;
2Nexavar is a kinase inhibitor indicated for the treatment of advanced renal cell carcinoma

Source: aPress Release, December 20, 2005, Company website; b”Stakeholder Opinions: Renal Cell Carcinoma - Novel Targeted Treatments to Fill the Void”, December 2005,
Researchandmarkets report; c”FDA approves Bayer's kidney cancer drug”, December 22, 2005, Pharmafocus Website; d”Torisel: The New Kid on the Block for Advanced Renal Cell Carcinoma”,
September 2007, Oncbiz website; e”Nexavar and Sutent, Both Indicated for Metastatic RCC, Look Set to Compete Well to the End of the Decade - Nexavar's 2010 Revenues Are Forecast to
Reach $122 Million and Sutent's $179 Million”, February 13, 2006, Business Wire
February, 2010 | Copyright © 2010 Grail Research, LLC 24
 Case Study 3 – Tykerb could not displace Herceptin without
more data and a better label

Tykerb vs Herceptin

Scenario at Launch What Happened?

 Herceptin was the first targeted therapy to be launched for the treatment of  Tykerb reported modest global sales of USD 145.3MM in 2008d
breast cancer in 1998
 Tykerb (oral therapy) was launched in 2007 as combination therapy with
capecitabine (Xeloda), for the treatment of patients with advanced or
metastatic breast cancer (mBC) with HER2 over-expression and who
progressed on prior therapy including an anthracycline, a taxane, and
Herceptine
• Tykerb was approved in a second or third line settingk
• At the time of launch, GSK marketed Tykerb as a more convenient and
user-friendly oral therapyg
 Expectations for Tykerb were mixed at the time of launch:
• Some analysts expected the drug to achieve blockbuster status by
2010a. Analysts assumed that drug would be effective in difficult to treat
patients and patients with brain metastases, Tykerb was expected to
gain share in first line and adjuvant settings.
• Others predicted Tykerb’s use would be limited until it demonstrated
significant benefits when added to Herceptin.
• Analysts forecasted Tykerb sales to reach USD 104 MM1 in 2008b
 At the time of launch, analyst expected the biggest sales opportunity for
Tykerb to be in the adjuvant setting in the breast cancer marketb
• Sales were far behind Herceptin’s, which recorded global sales of USD
1.82 billion in 2008h
 Factors contributing to Tykerb’s limited revenues were:
• In August 2007, a study conducted by Decision Resources suggested
that oncologists did not prefer Tykerb as a replacement for Herceptin.
Instead they were only using it as an alternative for Herceptin-refractory
patients in the treatment of advanced breast cancerk
• 58% of oncologists opined that they would favor IV Herceptin over
Tykerb because the administration of IV drugs remains an important
source of income for their practicec
 To boost revenues from Tykerb in breast cancer, the company decided to
expand use of Tykerb in an adjuvant setting:
• As of April 2007, GSK was studying Tykerb for its application in adjuvant
breast cancer : "We are dedicated to the further study and development
of Tykerb in a variety of settings, including adjuvant breast cancer as
well as in other solid tumor types“j
-Paolo Paoletti, MD, Oncology Medicine Development Center,GSK
• GSK launched a head-to-head trial of Tykerb versus Herceptin in
adjuvant breast cancer in 2008. Results for this trial are expected by May
2013f
• In April 2009, GSK submitted an application to expand Tykerb use for
first-line treatment of metastatic breast canceri

Note: 1Reported as £ 62 million, conversion factor used as on November 16, 2009

Source: a“Analysts raise NPVs of Promacta and Rezonic; Tykerb still star of GSK oncology pipeline”, Goliath Business News, July 2007 ; bBear Stearns report September 21, 2007; cPR News wire August 14,
2007; dGSK Annual Report, 2008; Grail analysis; eDrugs @ FDA; fClinicaltrial.gov; gkomenozark.org; hGenentech Website; iGSK press release; j“Tykerb Approved for Metastatic HER2+ Breast Cancer “,
cancernetwork.com, April 2007; k“Glaxo's Tykerb still has some convincing to do”, Evaluate Pharma, March 2008

February, 2010 | Copyright © 2010 Grail Research, LLC 25

 Table of Contents
 Historical Market Dynamics
 Evidence of Changes
 Case Studies
 How to Prepare

February, 2010 | Copyright © 2010 Grail Research, LLC 26

 Preparing for a New Dynamic

 While direct, payor-driven competition among

oncology agents has not yet arrived,
manufacturers need to be prepared for
changes in the oncology market

 Manufacturers may want to conduct head-to-

head trials, or define market subsets where
they can demonstrate superiority to potential
alternative agents

 Manufacturers may also want to consider

scenarios where there are multiple agents with
similar therapeutic profiles available for a
given indication

February, 2010 | Copyright © 2010 Grail Research, LLC 27

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