Capitalizing on the Opportunities:

Industry

Global Trends in the Biopharmaceutical Industry

Regulators

Suppliers

Agenda

Biopharmaceutical Industry Trends Regulatory Landscape Convergence of Compliance & Technology

Biopharmaceutical Industry Trends

Industry Growth Drivers

Demographic changes
Number of Americans over 65 to double over next 50 years Over 65 health care expenditures 4 times higher than those under 65

Innovative medicines targeting life-style diseases

Cardiovascular agents, CNS products, Alimentary/metabolism products

New Drug Approval Outlook

Approved 25 new biotech and biotech-derived medicines in 2003 (67% increase over 2002), but momentum slowed in 2004 Modest pipelines key concern for Mature Biotechs (17 non-partnered drug launches through 2009)

Rising Biotech Stars gathering momentum

130 projected to reach sustained profitability 2005-2009 9 IPOs in 2003, jumped to 27 in 2004 20 new launches expected for 2005, momentum to carry through 2006+

Emerging Markets seen as growth engine for healthcare demand worldwide (India, China, Brazil) Medicare Drug benefit Plan should boost top line by 2%
Biopharmaceutical Industry Trends

Industry Structural Changes

Increasing role of generic pharmaceuticals
Fueled by patent expirations worth $80 billion through 2010 Increasing globalization

BioGenerics (follow-on proteins) on the horizon

Fueled by biologics patent expirations worth $18 billion through 2011 Manufacturing issues dominate (bio-equiv., cost, expertise, economies of scale) TGA approved first in 2004, Europe to follow, US lagging a couple of years

Getting harder to distinguish Big Pharma from Major Biotech Industry consolidation
45 deals in 2004 with total value in excess of $90b (highest deal rate since 2000) Top 10 companies market share up from 28% in 1990 to 46% in 2002

Structured-finance emerging as alternative for capital-hungry biotechs

Development company funded by private investors Licensor has exclusive buy-back right at pre-determined price

Emphasis on outsourcing in manufacturing and R&D Business development strategies becoming more open
Mergers & Acquisitions, In-licensing/Out-licensing, Co-development, Co-marketing Biopharmaceutical Industry Trends

Market Performance
Worldwide Pharmaceutical Market by Sectors, through 2008 ($ Billions)
AAGR % 2003-2008 9.1 11.6 4.3 9.9 8.7

2000 Ethical Generics OTC Biopharmaceuticals Total World Market

Source: BCC, Inc., IMS Health

2001 363.4 27.0 73.8 26.3 490.5

2002 401.0 30.5 78.5 31.0 541.0

2003 437.6 37.0 82.0 36.5 593.1

2008 677.8 64.0 101.0 58.6 901.4

317.1 24.0 70.5 22.1 433.7

Biopharmaceutical Industry Trends

Pharmaceutical Market Performance

Worldwide Pharmaceutical Market by Sectors, 2000-2003 and 2008 ($ Billions)

Source: BCC, Inc., IMS Health

Biopharmaceutical Industry Trends

Among the Many Challenges

Time & cost to bring new drugs to market
1 out of every 20 drugs entering clinical testing will be approved for marketing It takes 10-12 years (12-15 biopharm) to bring a new drug to market Average cost to bring a new drug to market is $350-850 million A clear view is not necessarily a short distance

Pricing controls / pressures

Competition intensifying (shorter exclusivity periods) Increasing buying power of third-party payers (therapeutic substitution, OTC switches) Increased health awareness by patients

Declining R&D productivity

Will need to triple rate of development of new chemical entities to maintain projected AAGR% Modest pipelines key concern for Mature Biotechs (17 non-partnered drug launches through 2009)

Compliance with Stringent Regulatory Requirements

FDA and foreign equivalents (21 CFR Part 11, HIPAA, others) Sarbanes Oxley General Agreements on Tariffs & Trade (GATT) Trade Related Intellectual Property Rights (TRIPS)

Is biopharmaceuticals manufacturing likely to be capacity constrained??

Global Biotech contract manufacturers operating at or near full capacity to support the 120 current marketed products270 additional compounds are in late stage pivotal trials 1,450,000 tank liters of biotech production capacity scheduled to be online by 2006 550,000 tank liters short of expected demandbut what if approval projections fall short?

Biopharmaceutical Industry Trends

Regulatory Landscape

Others??

FDA Notable Actions & Events

Pharmaceutical cGMPs for the 21st Century Bioterrorism Act
Title III: Protecting Safety & Security of Food & Drug Supply

21 CFR Part 11 Scope and Application Guidance Bar Code Label Requirements for Human Drugs and Blood Strengthened commitment to international harmonization activities
EU Mutual Recognition Agreement effective June 20, 1997, Final Rule (21 CFR Part 26) effective December 7, 1998 Confidentiality Agreement and Implementation Plan to facilitate regulatory cooperation between EU and FDA/DHHS for medicinal products for human use (finalized September 2004) General Principles for EMEA-FDA Parallel Scientific Advice Meetings Pilot Program (September 2004)

FDA final report on Combating Counterfeit Drugs, February 18, 2004 FDA to create independent Drug Safety Oversight Board (DSB) Pharmacogenomic Data Submissions, Final Guidance, March 22, 2005
First laboratory test for genotyping approved by FDA

Regulatory Landscape

Pharmaceutical cGMPs for the 21st Century

Principles
Risk-based orientation Science-based policies and standards (incorporate up-to-date science, and encourage advances in technology) Integrated quality systems orientation International cooperation Strong public health protection

Broad Actions
External review of existing cGMPs, and product review practices Reassess and reevaluate current scientific approach to cGMPs and product review process Emphasize risk-based control point analysis and facilitate latest innovations in pharmaceutical engineering

Regulatory Landscape

Pharmaceutical cGMPs for the 21st Century

Immediate Steps
Encouraging innovation by allowing certain manufacturing process changes without prior FDA review/approval Enhancing expertise in pharmaceutical technologies Exploring better mechanisms for communicating deficiencies to industry 21 CFR Part 11 lead shifted to CDER (Chaired by Joe Famulare) Including product specialists in inspection teams Centers to provide reviews of all Warning Letters Developing a technical dispute resolution process Emphasizing risk-based approach in work planning process FDA is encouraging industries to adopt new technologies such as Process Analytical Technologies (PAT) to improve manufacturing efficiency and overall quality of the drug product

Regulatory Landscape

21 CFR Part 11 Guidance

Scope & Application Guidance
Withdrew preceding draft guidance and Compliance Policy Guide Specific definition of records subject to Part 11 Enforcement Discretion to be exercised for:
Audit Trails E-copies of E-records Record Retention Validation

Effectively grandfathers systems in place prior to August 20, 1997 Emphasis on decision based on documented risk assessment 21 CFR Part 11 and preceding guidance subject to review, Regulations are likely to be revised, but have not changedYET!

Regulatory Landscape

Bar Coding Regulations

Motivation
Medication errors are a huge problem
770,000 patients injured or die annually Cost to treat was $177.4 billion in 2002

Bar coding to unit of use level ensures right patient gets the right drug at the right time FDA estimates rule will prevent 500,000 adverse events and transfusion errors and save $93 billion in healthcare costs over next 20 years

Final Rule
Bar Code Label for Human Drug Products and Blood, 21 CFR Parts 201,606, and 610 Finalized February 25, 2004

Regulatory Landscape

The Convergence of Compliance & Technology

Existing and Emerging Technology

Process Analytical Technologies (PAT)
Systems for analysis and control of manufacturing processes based on timely measurements of critical quality parameters and performance attributes of raw and in-process materials and processes to assure acceptable end product quality at the completion of the process

Electronic Batch Record (EBR) Manufacturing Execution System (MES) Private Trading Exchanges for Manufacturing (PTX-M)
AMR predicted market would reach $35 billion by 2005, but

Taggants & Related Detection Systems Radiofrequency Identification applications (RFID)

Compliance & Technology

Process Analytical Technologies

PAT Drivers
Cycle time reduction (some steps >50% reduction) Close coupling of batch steps to produce semi-continuous operations Improved utilization of production equipment (10x throughput increase) Reduce processing errors Reduce opportunities for product contamination At/on/in-line measurements of performance attributes (variability) Enable real-time control and decisions through control of Process Critical Control Points (PCCP) and setting of Process End Point (PEP) rangeClosed Loop!

PAT Applications
Monitor incoming materials attributes to predict/adjust optimal processing parameters Direct or inferential measurement of quality and performance Sample Pharm/Biopharm Applications
Drug substance particle size monitoring (size, distribution) Tablet analysis to assess blend Uniformity Automated release of PW/WFI water using on-line TOC Analysis Fermentation Process End Point Determination

Compliance & Technology

Electronic Batch Record

Collection of Information required for reporting to
Quality Assurance Contract Customers FDA

Provides for
Complete history of Batch Identification of Material and Quality data of materials Operator interactions Electronic Signatures Systems Data
Laboratory Information Management System Automation Historian QA Reports

Quality due-diligence Information

Source: Rockwell Automation

Compliance & Technology

Manufacturing Execution
Complete Electronic Data Acqisition
MASTER BATCH DOCUMENT
DISPENSE

Weighing protocol
Integrated dispensing system SCADa

Equipment data Equipment

LIMS

EBR
Operators
Historian

Online-documentation and electronic signatures

Alarming lists and sensor curves

Environment (e.g. sterile rooms)

?
Source: Rockwell Automation

BATCH PROTOCOL

Compliance & Technology

Private Trading Exchange for Manufacturing (PTX-M)

An IT platform with business process management capabilities and a portal to make visible inventory, material, schedules, capacity, and orders across sites (AMR MAS Report, February, 2002)
Integrates across business functions Enterprise-level visibility to information, data, transactions across multiple sites with disparate systems and processes Collaborative, manufacturing-oriented exchange Provides a logical point of normalization to synchronize with ERP Provides a foothold for applications, such as MES, PLM, multisite scheduling Allows plant standardization to prioritize data standards at the site level (improved accuracy & visibility), rather than attempting to replace all software with a standard MES package Production sites can implement systems that best suit their needs Compliance & Technology

MES & PTX-M Within the Technology Landscape

Suppliers & Partners Consumers & Customers

Private Trading Exchange (PTX)

Sourcing Procurement Manufacturing Distribution Transportation & Logistics Customer Service & Support

Synchronized Multisite Produce-to-Demand Manufacturing Strategy

Private Trading Exchange for Manufacturing (PTX-M)

Manufacturing Operations Integration, Synchronization, Normalization, Consolidation, Coordination, Collaboration and Optimization
Product Lifecycle Management (PLM) Scheduling

MES
Manufacturing Site U.S Contract Manufacturing Site Canada Manufacturing Site Europe

MES
Contract Manufacturing Site Asia Pacific

Compliance & Technology

Taggants
Microscopic tracers used as unique identifiers for materials, components, finished products, shipping containers, etc. Considered effective anti-counterfeiting method as compliment to other techniques (color shifting inks, holograms, chemical markers, RFID)

Most approaches involve engineered materials not found in nature, but some emerging techniques use DNA and specialized detectors (Integrated Nano-Technologies, Applied DNA Sciences)
Sample Applications
Blended with raw materials (bulk chemicals, excipients, tablet coatings, etc) Manufactured directly into paper or synthetic substrate Added to ink, over varnish, adhesives for labeling and packaging Detection: UV light, magnetic thread reader, DNA detection, black light, color sequencing, others Compliance & Technology

Primary components of RFID

Electronic Product Code (EPC)
Unique serial number to be assigned at the pallet, case, and package level

Pedigree
Combination of EPC, transaction history, and related information

Radiofrequency Identification (RFID) Systems

Silicon tags containing EPC
Passive (passive communication, no on-tag power source) Semi-passive (passive communication, on-tag power source) Active (active communication, on-tag power source)

Tag readers (interrogators) Application systems to allow users to ID and track each drug package and its associated data

Compliance & Technology

Some RFID Challenges

Costs (tags, other hardware, systems integration, compliance Development of standards and business rules Environmental and material effects on performance Addressing database management issues Need to determine effect of RFID on product quality Initial and ongoing cooperation between company, supply chain stakeholders, and government agencies

Thomas Ryan, VP, The Aberdeen Group predicts

3 billion tags and at least 1,000 systems among 300 companies by 2005 to comply with WalMart and Dept. of defense mandates 30 billion tags and 50,000 to 100,000 systems among 20,000 to 30,000 companies by 2006

Compliance & Technology

For More Information

Pharmaceutical cGMPs for the 21st Century: A Risk-Based Approach
http://www.fda.gov/cder/gmp/21stcenturysummary.htm

Process Analytical Technologies (PAT): http://www.fda.gov/cder/OPS/PAT.htm

Bar Coding Regulations: http://www.fda.gov/OHRMS/DOCKETS/98fr/04-4249.htm

RFID: FDA final report on Combating Counterfeit Drugs issued February 18, 2004 21 CFR Part 11
21 CFR Part 11, Electronic Records; Electronic Signatures; Final Rule, FDA, March 1997 Guidance for Industry: Part 11, Electronic Records; Electronic Signatures Scope and Application, CDER, February 2003

Bioterrorism Act: http://www.fda.gov/oc/bioterrorism/bioact.html

Pharmacogenomic Data Submissions

http://www.fda.gov/bbs/topics/news/2005/NEW01167.html

References

Thank You!
Mark Lester Mark@ConsilientCapital.com