Risk Management in the Pharmaceutical Industry

Dr John Bennett JABPharma Consulting

Overview

Pharmaceutical Industry Background

Drug Research and Development Processes Industry Challenges and trends

Risk Management Maturity

Risk Decisions, 2010

Environment

Internal

Continued high failure rate / attrition No Research organisation can sustain company needs Increasing development costs Single programmes are costing $7-800m in OOP$ Decreasing productivity Fierce competition Patent expirations & generic competition Increasing pressures to reduce healthcare spend. Litigation Emerging markets offer huge opportunities

External

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Risk Decisions, 2010

Distribution of UK850 R&D expenditure 2007

4

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Risk Decisions, 2010

Distribution of G1400 expenditure 2007

5

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Risk Decisions, 2010

Growth in R&D expenditure by sector across UK850 (2003-07, m)

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Risk Decisions, 2010

Growth in R&D expenditure by sector across G1400 (2003-07, m)

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Risk Decisions, 2010

UK850 Pharmaceutical sector

8

R&Dspend (m2007) GlaxoSmithKline AstraZeneca Shire Pfizer Roche Totaltop5 Total sector 3246 2533 261 258 163 6461 7913

R&Das%ofsales %Growth (%2007) from2006 14.3 17.1 21.3 19.9 34.8 16.0 15.3 6 30 72 30 15

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G1400 Pharmaceutical companies

9

Pfizer Johnson&Johnson Roche SanofiAventis GlaxoSmithKline Novartis AstraZeneca Merck

R&D (m2007) 4063.6 3858.1 3679.9 3351.5 3246 3222 2533 2453

%Growthfrom 2006 6.4 7.8 25.9 3.6 6.1 21.1 29.8 2.1

Country USA USA Switzerland France UK Switzerland UK USA

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Risk Decisions, 2010

Key parameters relative to 1996

10

CMR

1996 spend 50% higher than 1991 1996 output 70% of 1991 value

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The drug discovery and development process

Research Development Registration

0
Paten t Filed

5
First administer ed to Humans

10

15

Patent life 20 years

Risk Decisions, 2010

Drug Development Phases

Phase II Phase
10s 10s Healthy Healthy volunteer volunteer s s Pre- clinical Pre- clinical Evaluation Evaluation

Phase II Phase II
100s 100s Patients Patients

Phase III Phase III

1000s 1000s Patients Patients

Clinical Evaluation Clinical Evaluation

Safety, ADME

Preliminary Efficacy & Safety Dosing Regimen

Long Term Efficacy & Safety Global Comparative Studies Health Economics

1-2 years

1-4 years

2-5 years

Risk Decisions, 2010

Survival of candidates and cost of development

20 18 16 14 1000 900 800 700

($m)

Survival

10 8 6 4 2 0

500 400 300 200 100 0

10 11 12

Yearsafternomination
Pre-clinical Phase I Phase II Phase III Approval / Launch

Risk Decisions, 2010

Cost

12

600

Portfolio / project cost model

14
$200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 PreClin P I P IIa P IIb P III REG Candidate Portfolio

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Risk Management

Macro Sharing risk at project / programme / corporate level Operational / technical Time Cost Quality Value Product Safety Protecting patients, avoiding harm

Risk Decisions, 2010

Macro Risk Management

Marketing agreements have been in place for years Geographical reach

Field force size

Historically relatively few R&D agreements Usually single products between small pharma / biotech and large pharma.

Driven by capability & capacity

Risk Decisions, 2010

Macro Emergence of risk sharing

17

Now - Huge increase in partnerships / networks

AZ working with 1000 companies Individual project alliances Pfizer / BMS - Apixaban Therapeutic alliances Pfizer - GSK therapeutic alliance on HIV Emergence of other investors / paradigms End of fee for service relationship with contract organisations? Lily / Covance AZ / Quintiles Lily looking to find additional funding rather than partner

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Pfizer partnerships
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Inspra Camptosar Lipito r Celebrex Sutent Macugen Rebif Spiriva Eraxis Fesoterodine

Launched / Approved

Aricept

Zithromax Genotropin

1985 2005

1990 2006
Bend

1995 2007
Gene Logic Celldex

2000 2008
Meridica

2001
BMS
Apixaban

2002

2003
Transtech Quark Adolor Icage n

2004
Cytos Scil Five Prime Medivation

WuXi

Rige l Incyte Vicuro n

Taisho

Pipeline / technology

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Risk Decisions, 2010

Macro Continued rise in outsourcing

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Large Pharma companies no longer full thickness R&D organisations Reduced fixed cost Increased flexibility to manage swings in demand Increased capability in CRO world

Companies that can do / manage everything More clinical trials in emerging markets Moving away from established countries

Go east

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Risk Decisions, 2010

Balance of in house and outsourced spend ($bn)

20
Clinical Development spend

Outsource percent

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Risk Decisions, 2010

Operational Risk Management

Risk Management practices still basic.

Many companies have PRAM like processes But not convinced that they are consistently and effectively applied

Quantitative approaches (e.g. Monte Carlo) rare

Not believed or trusted

Use of State of the Art tools very rare (if at all) Majority (over 90%) of clinical trials do not meet their timeline targets

Unrealistic Planning? Impact of uncertainties and risks Unable to take advantage of opportunities.

Risk Decisions, 2010

Operational Risk Management

Sharing of project or risk management plans with outsource partners is rare.

Not very open discussions Risk is a bad thing cant admit that we dont know what were doing Up to the contractor to sort out

Need for integrated planning and project management that involves all partners

Risk Decisions, 2010

Summary

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Pharmaceutical R&D is very risky

High project attrition, very costly, uncertain commercial value. Most projects do not meet their operational targets But Product Risk is very thorough. Patient benefit Commercial value

High Rewards for success

Room for improvement needed in managing risk

JABPharma Consulting
Risk Decisions, 2010