cowen therapeutic outlook march 2009

Therapeutic Categories Outlook

March 2009

Comprehensive StudyConclusion: The $600B worldwide pharmaceutical industry is positioned to deliver low-single-digit growth supported by promising R&D pipelines. This comprehensive study forecasts trends in the major therapeutic drug categories through 2013. Each category is defined by therapeutic need, market size, growth outlook, major new compounds in development, and an assessment of individual company prospects. The companies predicted to lead in Market Share, Market Share Gain, Market Share Loss, Total Therapeutic Positions, and Leading Therapeutic Positions are detailed below.

Analysts

Cowen Pharmaceutical Research Team (617) 946-3700

Cowen Biotech Research Team (646) 562-1000

Cowen Med Tech Research Team (646) 562-1000

Please see addendum of this report for important disclosures.www.cowen.com

Which Companies Will Lead Industry Through 2013?Market Share Roche GlaxosmithKline Pfizer Sanofi-Aventis Market Share Gain Roche GlaxoSmithKline Amgen Abbott Genentech Market Share Loss Pfizer AstraZeneca Sanofi-Aventis Bristol-Myers Squibb Novartis Total Therapeutic Positions Novartis (12) Pfizer (11) Merck (9) Three companies tied with 8 each Leading Therapeutic Positions Eli Lilly (3) GlaxoSmithKline (3) Pfizer (3) Wyeth (3)

GLOBAL PHARMACEUTICAL INDUSTRY VALUATION PERSPECTIVETicker LARGE CAP - US Abbott Laboratories AstraZeneca Amgen Bristol-Myers Squibb Eli Lilly Genentech GlaxoSmithKline Johnson & Johnson Merck Novartis Pfizer Schering-Plough Wyeth ABT AZN AMGN BMY LLY DNA GSK JNJ MRK NVS PFE SGP WYE 03/09/09 Rating Price close 1 $47 1 $31 1 48 2 20 2 30 1 92 2 28 1 48 2 22 1 35 2 13 2 21 2 42 2009E $3.71 5.15 4.70 1.90 4.15 3.80 3.34 4.83 3.25 3.85 1.90 1.80 3.75 2010E $4.17 5.15 5.10 2.20 4.40 4.35 3.34 5.33 3.30 4.35 2.00 1.70 3.50 P/E Ratios Relative Absolute 2009 2010 2009 2010 12.7 6.1 10.3 10.6 7.2 24.1 8.4 9.9 6.8 9.0 6.9 11.7 11.1 11.3 6.1 9.5 9.2 6.8 21.0 8.4 9.0 6.7 8.0 6.5 12.4 11.9 108% 52% 88% 91% 61% 205% 72% 84% 58% 77% 59% 100% 94% 122% 66% 102% 99% 73% 227% 91% 97% 73% 86% 71% 134% 128% 2008-13 CAGR +11% (1%) +9% (2%) +4% +11% +11% +6% +2% +2% (7%) +6% +6%


Pharmaceutical Sales Could Expand 3% Annually During 2008-13Analysis of over 1,000 products from the product lines and pipelines of over 65 big-and mid-cap companies in the pharmaceutical and biotechnology industries suggests that drug sales from this group totaled $615B in 2008. We project that this universe will generate drug sales of $718B in 2013, implying 3% compound growth. Pfizer, Sanofi-Aventis, AstraZeneca and Roche dominated the worldwide market in 2008; Roche, GlaxoSmithKline, Pfizer and Sanofi-Aventis should be the leaders in 2013. Our analysis of therapeutic categories concludes that oncology/hematology, antibiotics/antivirals and cardiovascular should dominate the worldwide market through 2013.

Pharmaceutical Companies: Drug Sales As A Percentage Of The Total Market2008Other 43.2% ABT 2.7% BMY 2.9% WYE 2.9% LLY 3.1% JNJ 4.0% MRK 4.3% GSK 4.7% RHHBY 4.9% DNA$615B AMGN PFE SGP 2.4% 1.7% 6.8% 2.7% Other 43.8% BMY SGP 2.3% 2.7% AMGN 2.8% WYE 3.0% AZN 5.1% ABT 3.0% LLY 3.2% JNJ 3.7% MRK 4.0% AZN 4.1% PFE 4.9%

DNA 2.0%

2013P $718B

RHHBY 6.4%

SNY 5.6%

GSK 5.3%

SNY 4.8% NVS 4.1%

NVS 4.6%

Therapeutic Categories: Drug Sales As A Percentage Of The Total Market2008Other: 7.6% Osteoporosis 2.1% Dermatology 1.7% Cardiology 19.1% Other: 13.2% Cancer/Onc./Hem. 20.3% GI/Ulcer 2.2% Osteoporosis 2.6% Multiple Sclerosis 3.5% CNS 6.3%

2013P

Multiple Sclerosis 2.4% Epilepsy 3.0% Gastrointestinal/Ulcer 3.4%

Diabetes 5.5%

Arthritis/Inflammation 6.2%

Cancer/Onc./Hem. 17.5%

Antibiotics/Antivirals 16.2%

Respiratory 6.7% Respiratory 6.8%

Diabetes 8.3% CNS 10.3% Antibiotics/Antivirals 14.2% Arthritis/Inflammation 9.0%

Cardiology 11.7%

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Table Of ContentsAlzheimers Disease ............................................................................45 Arthritis/Inflammation .......................................................................91 Bone Diseases ....................................................................................145 Cardiology ..........................................................................................193Central Nervous System ...................................................................349 Dermatology ......................................................................................455 Diabetes..............................................................................................483 Epilepsy ..............................................................................................537 Gastrointestinal/Ulcer ......................................................................553 Infectious Disease .............................................................................591 Multiple Sclerosis ..............................................................................747 Obesity ...............................................................................................781 Oncology/Hematology ......................................................................815 Ophthalmology ..................................................................................965 Orphan Diseases .............................................................................1011 Pain Management ............................................................................1061Respiratory.......................................................................................1117 Sleep Disorders................................................................................1189 Urinary Incontinence .......................................................................1219

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THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Alzheimer's Disease Antibiotics/Antivirals 2008 2013P 2008 2013P $0 $0 $2,491 $2,273 0 0 0 0 0 0 830 0 0 541 0 815 0 10 0 0 0 0 1,959 $4,155 0 200 0 0 600 0 1,260 0 0 559 350 700 0 1,175 0 0 0 1,140 1,475 $7,459 0 2,281 0 3,796 360 0 45 0 10,394 2,109 5,639 2,047 0 3,974 2,756 3,620 3,027 4,506 6,045 $53,090 0 2,900 0 4,910 250 0 150 0 11,878 4,165 8,355 3,755 0 5,335 2,602 4,625 2,290 5,616 11,710 $70,814 Arthritis 2008 2013P $4,522 $8,590 3,598 0 0 441 0 0 0 0 0 3,748 377 837 0 3,096 0 0 2,118 2,606 1,691 $23,034 4,500 200 0 1,600 230 0 0 0 715 4,822 490 960 0 4,825 2,150 0 2,800 4,230 3,267 $39,379 Cardiology 2008 2013P $2,586 $3,685 0 6,963 0 7,633 301 0 249 0 1,882 90 6,930 8,140 0 17,076 271 8,901 2,802 1 7,533 $71,356 0 9,370 0 2,345 1,205 0 426 0 2,108 946 3,498 4,415 0 2,940 217 7,903 3,188 4 8,976 $51,225 CNS 2008 2013P $787 $476 0 5,232 0 2,315 8,227 0 2,342 0 2,803 5,020 793 1,346 0 3,349 0 0 508 4,159 1,778 $38,658 0 2,080 0 1,320 3,765 0 647 0 2,630 4,138 2,400 1,555 0 2,390 0 315 1,505 1,195 3,194 $27,610 Dermatology 2008 2013P $424 $1,472 0 0 43 0 0 0 0 70 0 278 0 152 0 0 0 275 376 1,160 3,668 $6,446 0 0 45 0 0 0 0 50 0 790 0 250 0 0 0 295 352 1,580 4,127 $8,961

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THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Diabetes/Metabolic 2008 2013P $628 $443 0 0 0 99 3,419 0 0 0 1,363 0 1,749 43 5,637 310 0 3,776 0 0 3,497 $20,522 0 0 0 1,220 5,980 0 30 0 1,008 0 4,400 140 9,596 385 1,959 7,001 0 200 3,679 $36,040 Epilepsy 2008 2013P $1,364 $125 0 0 0 0 0 0 0 0 1,323 2,731 0 783 0 3,010 0 414 0 0 1,695 $11,321 0 0 0 0 0 0 0 0 393 466 0 500 0 4,375 0 452 0 0 1,545 $7,856 G.I./Ulcer Multiple Sclerosis 2008 2013P 2008 2013P $56 $0 $0 $0 0 6,344 0 0 10 0 0 0 217 1,158 5 10 0 0 0 0 0 889 4,089 $12,778 0 3,990 0 0 5 0 200 0 71 514 5 10 0 200 0 0 0 305 4,449 $9,750 0 0 2,625 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,156 $8,781 0 0 3,926 0 100 0 0 0 143 0 0 690 0 0 0 63 0 0 10,240 $15,162 Obesity 2008 2013P $193 $85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 424 91 0 0 0 $707 0 0 0 0 0 0 0 0 0 0 0 0 0 200 285 0 0 0 350 $920

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THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Onc./Hematology 2008 2013P $646 $793 11,089 4,994 5 1,819 2,875 0 0 8,160 709 3,426 339 8,211 0 2,551 9,730 4,387 1,369 1,124 4,116 $65,550 14,125 3,900 0 3,610 3,650 0 0 11,175 2,694 3,126 975 9,200 0 4,025 15,593 2,722 1,415 2,565 9,017 $88,584 Orphan Disease Ophthalmology 2008 2013P 2008 2013P $0 $0 $0 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,204 $3,204 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,241 $6,241 0 0 0 0 0 0 0 887 0 0 903 886 0 1,775 0 0 0 0 1,905 $6,356 0 0 0 0 0 0 0 1,290 0 0 570 1,350 0 1,360 0 0 0 0 2,850 $7,420 Osteoporosis Pain Management 2008 2013P 2008 2013P $0 $0 $0 $260 0 0 0 0 1,855 0 0 0 339 0 1,553 254 0 0 1,043 416 0 1,070 1,291 $7,820 1,400 0 0 0 2,700 0 0 0 1,143 0 600 650 0 525 819 412 0 1,865 1,030 $11,144 0 0 0 0 0 1,250 0 0 0 1,128 0 0 0 0 0 0 0 0 3,298 $5,676 0 100 0 0 200 1,685 0 0 0 1,186 0 0 0 400 0 0 0 0 5,255 $9,086 Respiratory 2008 2013P $105 $275 0 4,128 0 0 0 0 19 517 8,313 0 4,337 789 0 1,730 184 1,296 2,937 0 891 $25,247 0 4,940 0 0 200 0 160 775 12,384 0 1,200 1,740 0 2,595 263 796 3,205 200 520 $29,253

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THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Sleep Disorders 2008 2013P $0 $0 0 0 0 0 0 0 0 0 14 0 0 0 0 0 0 1,044 0 0 980 $2,038 0 0 0 0 200 0 0 0 486 0 200 0 0 200 0 806 100 0 1,240 $3,232 Transplant Urinary Incont. 2008 2013P 2008 2013P $0 $0 $0 $0 0 0 0 0 0 0 0 0 0 0 0 956 0 0 1,737 0 0 376 1,553 $4,622 0 0 0 125 0 0 0 0 0 0 0 925 0 0 390 0 0 500 1,220 $3,160 0 0 0 0 25 0 0 0 101 43 0 201 0 1,239 0 0 0 0 713 $2,323 0 0 0 0 50 0 0 0 257 19 0 220 0 1,300 0 0 0 0 1,274 $3,120 Other 2008 2013P 2,907 3,587 0 1,659 1,425 1,581 2,115 0 18 897 1,668 4,396 3,541 2,620 2,061 3,803 14,201 10,493 3,432 1,887 189,112 $247,816 0 1,685 1,659 1,710 3,560 325 137 1,110 2,271 5,850 5,385 2,410 2,798 3,055 22,656 7,879 4,533 2,015 209,075 $281,700 Total Sales 2008 2013P $16,709 $21,894 14,687 31,601 4,098 17,684 19,187 1,250 3,502 10,531 29,128 24,668 26,166 28,090 7,699 41,923 30,346 34,711 16,569 17,778 238,765 $615,090 20,025 29,365 5,630 16,840 22,695 2,010 2,950 14,400 38,195 26,581 28,428 29,470 12,394 34,885 46,363 34,312 19,388 21,415 291,015 $718,253

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Major Trends & Issues In Therapeutic Categories Through 2013Alzheimers Disease

Acetylcholinesterase inhibitors are expected to remain the mainstay treatment option in the AD market for the next few years, despite limited effectiveness. Research in neurotransmitter-mediated treatments for AD, such as acetylcholinesterase inhibition and glutamate receptor blockade (Forests Namenda), is not expected to advance much beyond current knowledge. Next-generation drugs are focused on the underlying disease mechanisms, most notably immunotherapeutic approaches (monoclonal antibodies and vaccines targeted against beta-amyloid), gamma- and beta-secretase inhibition, beta-amyloid aggregation inhibition, tau aggregation inhibition, and microtubule stabilization. Wyeth/Elan, Elan/Transition Therapeutics, Eli Lilly, Pfizer, Prana, Novartis, Merck, Bristol-Myers Squibb, TauRx, and Allon have clinical programs targeting these mechanisms. Research on PPAR gamma agonists (led by studies of GlaxoSmithKlines Avandia) indicates that they may have some utility in AD. The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta-amyloid levels and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2013, Wyeth/Elan should dominate this category, and Alzheimers drug sales will be a very important component of Forests, Wyeth/Elans and Pfizers growth.

Alzheimer's Disease70% FRX % Of Company 2008-13 Sales Growth From Category 60%

50%

40%

30%

WYE/ELN

20%

LLY

PFE/EISAI PFE/MDVN

PFE

10%

AZN JNJ

NVS

0%

-10% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2013 Sales Contributed By Company To Category ($ In B)

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Arthritis/Inflammation

We anticipate steady growth for Amgen/Wyeths Enbrel and Abbotts Humira. These biologics are well entrenched in RA and do not appear to face significant near-term threats from new modalities. Bristol-Myers Squibbs Orencia, Biogen Idec/Genentech/Roches Rituxan, and Roches Actemra target RA patients refractory to anti-TNFs, a modest population estimated to be 10-15% of anti-TNF failures. Several new oral small molecule agents are in development (JAK2, JAK3, MEK, and SYK inhibitors; IL12 inhibitor; amd Adenosine A3 antagonist) and are viewed as interesting but early. The commercial opportunity for the Cox-2 inhibitor class has been substantially reduced post: (1) Mercks APPROVe (Vioxx), Pfizers APC (Celebrex), and pain studies in CABG patients (Bextra) that revealed cardiovascular safety signals, resulting in market removal of Vioxx and Bextra; (2) a black box warning for NSAIDs in the U.S. and Cox-2 selective drugs in the E.U.; and (3) a contraindication against use in high cardiovascular risk patients in the U.S. and EU. Celebrex now holds a monopoly position for Cox-2 selective drugs in the U.S. There are several late-stage agents in development for OA, some of which treat pain with potentially less AEs while others could have a disease modifying effect. In February, Takedas Uloric (febuxostat) was FDA approved for the treatment of hyperuricemia in gout patients. Meanwhile, pivtoal data from Savients pegloticase demonstrated profound efficacy in advanced, refractory gout patients but safety concerns such as infusion reactions, immunogenicity, and APTC and non-APTC cardiovascular events will need to be addressed by the FDA. SVNTs BLA has a PDUFA date of August 1, 2009. There are currently four drugs in Phase III development for SLE (renal or non renal disease). Consultants are not optimistic about Genentech/Biogen Idecs Rituxan or Bristol-Myer Squibbs Orencia in lupus nephritis or Zymogenetics/Merck Seronos atacicept in generalized lupus. GSK/Human Genome Sciences LymphoStat-B has a 50% chance of success based on its novel mechanism of action, composite primary endpoint, and open-label extension data. Our scatter plot shows that, through 2013, Abbott, JNJ, Amgen/Wyeth and Schering-Plough should lead the category.Arthritis/Inflammation80% % Of Company 2008-13 Sales Growth From Category ABT

60% JNJ WYE

40%

NVS 20% RHHBY 0% MRK

SGP AMGN

-20% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contributed By Company To Category ($ In B)

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Bone Diseases

Generic alendronate should continue to dominate the oral bisphosphonate market. Novartiss Reclast received approval in 2007 for the treatment of osteoporosis and is uniquely positioned with onceyearly intravenous dosing and is the only bisphosphonate to demonstrate a benefit on mortality, although this is likely a class effect. The overall market for bisphosphonates peaked at nearly $6B in 2007 but is expected to decline to less than $4B in 2013. SERM sales ($1.2B in 2008) are expected to grow given features differentiated from estrogens and potential in breast cancer prevention. Evista has no data supporting a reduction in non-vertebral fractures but its label for breast cancer prevention provides mild upside. Should Wyeths Viviant or Pfizers Fablyn be approved, the market will become more competitive. GTxs toremifene met its Phase III primary and secondary endpoints for the treatment of osteoporsis and other side effects in men receiving androgen deprivation therapy (ADT) for prostate cancer. However, side effects (e.g. QT prolongation, DVTs) associated with toremifene are likely to cause regulatory and commercial hurdles. Amgens denosumab (RANK ligand antibody) has been shown to be efficacious and safe in numerous Phase III osteoporosis trials including the pivotal FREEDOM study. Most consultants plan on using denosumab as the preferred second-line therapy after generic Fosamax. Mercks cathepsin-k inhibitor, MK-0822, which is in Phase III, should provide a novel mechanism but its impact on BMD is modest and skin toxicity raises concern. Our scatter plot (below) shows that, through 2013, Eli Lilly, Roche and Wyeth should dominate the osteoporosis/HRT segment.

Osteoporosis/HRT90% % Of Company 2008-13 Sales Growth From Category NVS

70%

50%

30% WYE 10% SNY -10% RHHBY LLY

-30% MRK -50% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B)

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CardiologyCholesterolThe cholesterol market could decrease by 3% annually, with patent expirations offsetting boosts by revisions to U.S. guidelines and outcomes trials (IDEAL, TNT, REVERSAL, PROVE-IT, ASCOT-LLC, HPS) supporting aggressive LDL lowering in broader populations. HMG-CoA reductase inhibitors (statins) appear unchallengeable in cholesterol reduction for the foreseeable future. Additional outcomes trials (SEARCH, JUPITER) likely will support more aggressive lipid lowering goals in a broader range of patients. Lipitor should remain the top statin but the availability of generic simvastatin has resulted in increased therapeutic substitution and declining brand share. Merck/Schering-Ploughs Vytorin/Zetia have had sales clipped post the ENHANCE and SEAS data as new prescriptions are reserved for second-line therapy; this dynamic may not change until IMPROVE-IT reports in 2011+. AstraZenecas Crestor has gained momentum. Schering-Plough/Mercks Zetia has settled into a niche, albeit a sizable one. Sanofi-Aventis (AVE 5530) works by a similar mechanism but results have been sub-par. Interest persists in drugs that raise HDL cholesterol or alter the course of atherosclerosis despite the setback of Pfizers CETP inhibitor, torcetrapib. AstraZeneca/Abbotts Crestor/ABT-355 holds promise, but Pfizer recently stopped development of its HDL mimetics. Mercks Cordaptive (extended release niaspan + flushing inhibitor) was given a not approvable letter. Torcetrapib is dead but other CETP inhibitors from Merck, AstraZeneca, and Roche are moving forward slowly. GlaxoSmithKlines darapladibdarapladib (LpPLA2 inhibitor in Phase III) targets a novel marker of inflammation, but data have been mixed. The potential resurgence of the MTP inhibitors (Surface Logix) remains a wild card for triglyceride reduction but liver toxicity is an obstacle.

-

-

-

HypertensionAngiotensin receptor blockers, or ARBs (Abbott, AstraZeneca/Takeda, Boehringer-Ingelheim/Astellas, Bristol-Myers Squibb, Merck, Novartis, Forest/Sankyo, King/Solvay), have become the most prescribed antihypertensive class, although sales will be clipped by Cozaar (MRK) generics in 2010. Novartis Diovan should maintain its leadership until it comes off patent in 2012 together with Avapro and Atacand/HCT. Novartis Exforge, a single-pill valsartan/amlodipine combination, is viewed as a Diovan franchise extension. Forest/Sankyos Benicar likely is the ARB with the most upside potential due, in part, to its low cost. ACE inhibitor sales are declining due to generics and competition from ARBs. Earlier than expected loss of the Altace (King) and Lotrel (benazapril/amlodipine; Novartis) patents has accelerated this decline. Calcium channel blockers (Sanofi-Aventis, Forest, Pfizer), which are also used in angina, will continue to decline due to generics. Medicines Companys intravenous Cleviprex (approved 09/08) will be a minor contributor to the class. Forests Nebivilol, a third-generation beta-blocker, has demonstrated interesting preclinical advantages over earlier-generation beta-blockers. Until these findings can be produced in clinical trials, its uptake will be challenged by generic Coreg and Toprol. Novartis Tekturna, a first-in-class direct renin inhibitor, provides physicians with the next advance in the treatment of hypertension and heart failure, but uptake has been slow as physicians await outcomes data. Merck/Actelion also have renin inhibition programs but Pfizer dropped its effort. Novartis plans a 2010 filing for a Diovan/NEP blocker fixed-dose combination, LCZ696.

-

-

-

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AnginaCV Therapeutics Ranexa, a late sodium channel inhibitor, is the first new treatment approved for angina in over 10 years. However, its chronic refractory angina indication targets a modest market opportunity and the rollout has been lackluster. Despite missing in MERLIN, Ranexa has garnered additional indications, including HbA1c lowering and anti-arrhythmia.

Antiplatelets and AntithromboticsBristol-Myers Squibb/Sanofi-Aventis Plavix U.S. sales will decline beginning in 2011 due to the patent expiration; European non-AB rated generics are rolling out. Eli Lilly/Sankyos Effient (prasugrel) demonstrated a favorable risk-benefit profile in the majority of patients undergoing PCI, but bleeding concerns will limit its uptake outside this indication pending additional data. Reversible ADP inhibitors have theoretical advantages and disadvantages; AstraZeneca AZD6140s could be more potent than Plavix and its Phase III study, PLATO, will report in Q3:09. Thrombin receptor antagonists, including Schering-Ploughs TRA and Eisais E5555, have significant potential, with Scherings two Phase III trials underway. Oral factor Xa inhibitors may have efficacy and safety advantages over AstraZenecas Exanta and convenience advantages over Warfarin. JNJ/Bayers Xarelto (rivaroxaban) has been filed in the U.S., but Bristol/Pfizers apixaban filing is delayed beyond the original 2009 target. Boehringer Ingelheims Pradaxa/Rendix (dabigatran), the most advanced oral direct thrombin inhibitor, is approved in the E.U., and its pivotal 16K patient atrial fibrillation trial should report in 2009, significantly ahead of all competitors across classes. Schering-Plough/Millenniums Integrilin should maintain GPIIb/IIIa market share, bolstered by solid clinical data and a favorable cost profile. Eli Lilly/Johnson & Johnsons ReoPro sales likely will continue to decline. Medicines Companys Angiomax, an injectable direct thrombin inhibitor, failed to get approval for medically managed ACS and now is likely confined to PCI.

-

-

ArrhythmiaSanofi-Aventis Multaq (dronedarone) is effective in reducing atrial fibrillation as well as in reducing mortality, as shown in the ATHENA results. ATHENA is the basis of its NDA filing that will go before an FDA panel in March 2008. Generic amiodarone (Wyeths Cordarone) likely will remain the efficacy gold standard. Selective voltage-dependent channel antagonists from Cardiome/Astellas (RSD1235) and AstraZeneca (AZD7009) could expand the anti-arrhythmic market given strong efficacy in atrial arrhythmia.

-

Congestive Heart Failure (CHF)The CHF market is attractive post favorable studies of ACE inhibitors, beta blockers, and ARBs. However, Pfizers Inspra has been disappointing. GlaxoSmithKline has been unsuccessful in converting the Coreg market to its once-a-day version, Coreg CR. The beta blocker market now is largely generic, with Coreg and Toprol (AstraZeneca) both off patent.

Scatter PlotThrough 2013, AstraZeneca should lead the cardiovascular segment and this category is critical to the growth of AstraZeneca.

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Cardiology200% 150% 100% 50% 0% -50% -100% -150% -200% -250% -300% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contribution By Company To Category ($ In B) PFE SNY NVS JNJ SGP ABT FRX AZN

% Of Company 2008-13 Sales Growth From Category

LLY

GSK

MRK

13


Central Nervous System Selective serotonin reuptake inhibitors (GlaxoSmithKline, Forest Labs, and Pfizer) should continue to be the mainstay treatment for depression and anxiety despite concerns over suicidality, but sales of the class have declined due to generics. Dual-acting agents impacting both serotonin and norepinephrine (Eli Lilly, Wyeth) should continue to grow and gain prescription market share from the SSRIs, driven by Eli Lillys Cymbalta. The recent approval of Cymbalta for the treatment of fibromyalgia syndrome offers additional opportunities for SNRI growth. The introduction of Effexor XR generics in 2010 tempers sales growth. The potential of newer modalities in depression, such as NK antagonists, beta3-adrenoreceptor agonists, and CRF antagonists, remains unclear. Our consultants have become more positive on the outlook for triple reuptake inhibitors (serotonin, norepinephrine, and dopamine). Atypical agents should dominate the antipsychotic market through 2013, given good efficacy, reasonable safety and broad application. Once-daily stimulants should remain the gold standard for ADHD given solid efficacy and manageable side effects. The rollout of Shires Vyvanse (launched in July 2007) has been solid. Eli Lillys Strattera, the first non-scheduled agent for ADHD, gained rapid acceptance, but we project Strattera sales will decline through 2013 due to competition and its own adverse label warnings. The migraine market (Abbott, AstraZeneca, Endo, GlaxoSmithKline, Merck, and Pfizer) is unlikely to grow significantly over the next two years, as newer agents offer little differentiation. GlaxoSmithKline/Pozens Treximet (Imitrex plus naproxen) was approved in April 2008 and launched in May: early uptake has been slow. Mercks MK-0974 (Phase III; 2010 launch projected) looks very promising, offering a novel mechanism and potentially a cleaner safety profile compared to the triptans. New therapeutics to treat addiction and substance abuse are rolling out, led by Pfizers Chantix (smoking cessation) and Cephalon/Alkermes Vivitrol (alcohol dependence). Chantixs prospects have been significantly hampered by recent developments related to side effects of suicidal ideation and depression. Sanofi-Aventis dropped development of Dianicline (Phase III) for smoking cessation, indicating it wasnt adequately differentiated from Chantix, which has been an early success. Our scatter plot shows that JNJ and Eli Lilly will lead the CNS segment in 2013. GSK and Pfizer will continue to hold strong positions in the category. The CNS segment is a key component of growth for Merck. Patent expirations will hurt a number of companies, most notably Lilly and AstraZeneca.

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CNS80% MRK


40% SHPGY 0% PFE -40% NVS GSK

JNJ

-80%

WYE

-120%

BMY AZN

LLY

-160%

-200% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 2013 Sales Contributed By Company To Category ($ In B)

15


Dermatology

The psoriasis market is poised to double from $3B in 2007 to $6B in 2013 as the anti-TNFs gain ground. Enbrel remains the mainstay of therapy but will lose share in a growing market. Abbotts Humira, approved in January 2008 for psoriasis, presents the biggest threat to Enbrel given encouraging data from the REVEAL and CHAMPION studies. JNJs Ustekinumab will be another strong entrant into the psoriasis market in 2009. Taclonex is in the process of displacing Dovonex as the topical of choice. Allergans Tazorac should continue to be a useful niche therapy for plaque psoriasis. Antibiotics such as doxycycline and minocycline remain the mainstay of acne treatment. However, Medicis launch of Solodyn in 2006 showed that improvements to antibiotics could be well received and showed high pricing flexibility in the acne market. Solodyn scrips have flattened after its hectic launch and await a second wind. Additionally, several ANDA filers against Solodyn raise the possibility of a generic. Doryx continues to recover well with increased promotional spending, although it is also under similar pressure from generics. Topical therapies, particularly combination products such as Medicis Ziana, Steifels Duac and Sanofi-Aventis/Dermiks Benzaclin, should see steady growth as they begin to take patients away from retinoids and topical clindamycin. Rosacea, often misdiagnosed as acne vulgaris, is gradually getting visibility with the launch of Galderma/Collagenexs Oracea, a low-dose version of doxycycline. We estimate peak sales for Oracea of $120MM in 2013. Actinic keratosis is a $1B+ market dominated by procedures such as cryosurgery and in-house procedures. Graceways Aldara is the topical of choice when cryosurgery is not used. Long-term scarring and potential for localized irritation and pain during cryosurgery present opportunities for topical therapies. Novartis faces a declining presence in dermatology due to generic competition to Lamisil in onychomycosis (nail fungus) but nevertheless should maintain a presence in dermatology through Elidel, its treatment for atopic dermatitis. Astellas Protopic and Elidel should see limited growth given the black box warning in 2005 for potential cancer risk.Dermatology80%


60%

40%

Galderma JNJ

20% NVS 0% BIIB Dermik

ABT

WYE/AMGN

-20%

-40% $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2013 Sales Contribution By Company To Category ($ In B)

16


Diabetes

Insulin will remain the cornerstone of treatment. Sales growth will be driven by increased penetration of insulin analogs, resulting in compound growth of 10% to $16B+ in 2013. Sanofi-Aventis Lantus appears poised to retain its position as the leading basal insulin. Eli Lillys Humalog and Novos Novalog split the short-acting market; new competitors have had very little impact. Oral DPP-IV inhibitors, which reduce the breakdown of GLP-1, are shaping up to be the next oral diabetes blockbusters. The rollout of Mercks Januvia (sitagliptin) has been strong and may be competitor free in the near term. While Novartis Galvus (vildagliptin) has been approved by the EMEA, it has been held up indefinitely in the U.S. by safety concerns. There are questions on both Takedas alogliptin (PDUFA: 6/26/09) and Bristol-Myers/AstraZenecs Onglyza (PDUFA: 4/30/09) safety profiles. Many other DPP-4 inhibitors are in clinical development. This class is benefiting from heightened safety concerns about glitazones. Eli Lilly/Amylins Byetta sales growth has slowed since the launch of MRKs Januvia and safety concerns surrounding drug-induced pancreatitis (2008 revenues +7% Y/Y). Data from a 300-patient Phase II/III trial of the once-weekly formulation of Byetta (Byetta LAR) were positive, and could support a FDA approval. Byetta LAR is expected to hit the U.S. market in 2010. Other GLP-1 analogs that look promising include Novo Nordisks liraglutide (could be launched in the U.S. in H2:09) and Roche/Ipsens BIM 51077 and Sanofi-Aventiss AVE0010 (both in Phase III development). Use of Avandia (GSK), a thioglitazone, has been significantly impacted by the findings of a potential increase in cardiovascular risk beyond heart failure. Takedas Actos appears to have a safer profile and is the benefactor of the switch away from Avandia. The discontinued commercialization of Pfizer/Nektars Exubera following a disappointing launch calls into question the size of the inhaled insulin market opportunity. Novo Nordisk/Aradigm and Eli Lilly/Alkermes dropped development of their inhaled insulins, but MannKind continues to pursue this opportunity. Our scatter plot shows that, through 2013, Novo Nordisk, Sanofi-Aventis, Eli Lilly, and Merck should dominate the diabetes segment and this category is critical to their growth.

17


Diabetes150% 130% 110% 90% 70% 50% 30% 10% -10% -30% -50% -70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2013 Sales Contribution By Company To Category ($ In B) NVS PFE ABT LLY BMY MRK SNY


NVO

GSK

18


Epilepsy

Newer therapies have increased the effective seizure control rate to between 70 and 80%; 50-60% of adults will be seizure-free after using their first anticonvulsant. Patients with refractory epilepsy (approximately 40% of sufferers) often require treatment with multiple AEDs. Most anti-convulsant compounds are also efficacious for other CNS disorders, which has fueled growth for several products in the category - especially agents such as Pfizers Lyrica (pregabalin; neuropathic pain), and JNJs Topamax (topiramate; migraine, bi-polar disorder, obesity). However, due to numerous patent expirations, we forecast that anticonvulsant sales peaked in 2008. New agents from UCB (Keppra XR; approved in September 2008 and Vimpat; approved in October 2008); Eisai (Banzel; approved in November 2008 for Lennox-Gastaut syndrome) appear set to be niche therapies. GlaxoSmithKline/Valeants Retigabine (Phase III) and J&Js Corfyde (pending at FDA) look promising and are expected to be launched over the next 1-2 years. Generics have been a controversial topic for the epilepsy community, with many physicians believing that the variability of drug in the bloodstream could cause seizures. Therefore, despite being a highly genericized category, there is still opportunity for newer agents to gain ground in this community. Our scatter plot shows that, through 2013, the epilepsy category will be dominated by Pfizer, and will be a drag on growth for all the other major participants.

Epilepsy50%

30% % Of Company 2008-13 Sales Growth From Category PFE 10%

-10% ABT

GSK NVS

-30%

-50%

-70%

-90%

-110% JNJ -130% $0.0 $0.3 $0.6 $0.9 $1.2 $1.5 $1.8 $2.1 $2.4 $2.7 $3.0 $3.3 $3.6 $3.9 $4.2 $4.5 2013 Sales Contributed By Company To Category ($ In B)

19


Gastrointestinal/Ulcer

Worldwide PPI sales should continue to decline in 2009, due to the limited introduction of generics to Protonix in 2008. The PPI market should decline further in 2010 following the introduction of generic Prevacid (November 2009) and Prevacid OTC. A potential at-risk launch of AstraZenecas Nexium in mid-2008 was averted via AstraZenecas settlement with Ranbaxy and should provide some respite to the class. Takedas Kapidex (TAK-390MR) looks like a promising new candidate for the class in 2009. PPI pricing pressure appears to be continuing in 2009 and brand products are losing out to generic omeprazole. Volume gains from Medicare Part D appear to have stabilized. J&Js Remicade should remain the leading treatment for moderate-to-severe Crohns disease but the recent approval of Abbotts injectible anti-TNF, Humira, presents a challenge. UCBs Cimzia, another injectable like Humira, was approved in April 2008 and should provide additional competition. Overall, injectable products are expected to take share away from Remicade and grow the market. Anti-IL-12 antibodies from Abbott and J&J are promising for Crohns. Other autoimmune-related GI disorders, such as ulcerative colitis, offer additional opportunities for growth. Shires Lialda (extended-release mesalamine), with its dosing convenience, presents better convenience over existing therapies and has taken share from P&Gs Asacol in the mild-to-moderate ulcerative colitis category. Generic competition to Salixs Colazal hit the 5-ASA market in 2008, but the category should rebound, largely driven by Lialda. Pentasa appears relatively unaffected by both the Lialda launch and Colazal generics due to its significant use in patients with Crohns Disease. Disorders of motility are becoming more widely recognized and understood. Takeda/Sucampos Amitiza, a novel chloride channel activator, is approved for treatment of chronic idiopathic constipation and IBS-c. Amitiza has benefitted from Novartis pullback of Zelnorm in March 2007. Our scatter plot shows that, through 2013, AstraZeneca will retain the largest sales base. The GI/ulcer category is expected to be a drag on most companies projected sales, but represents an emerging area for Sucampo and Takeda.Gastrointestinal/Ulcer

120% % Of Company 2008-13 Sales Growth From Category

SCMP

70%

20% ABT GSK WYE -30% JNJ

-80% AZN -130% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2013 Sales Contributed By Company To Category ($ In B)

20


Infectious Disease-

Quinolones (Bayer, Johnson & Johnson) and macrolides (Pfizer, Abbott) have been impacted by generics and we forecast a decline during 2009-13 due to patent expirations, side effects, and emerging resistance. A number of new anti-MRSA antibiotics are in late-stage development (Theravance, Pfizer, Targanta, Basilia, JNJ, Arpida, Forest); however, the hightened regulatory risks make it difficult to predict the timing of the drug approvals. Novel antivirals hold varying degrees of promise. HIV, hepatitis, and influenza offer large market opportunities for new drugs. Driven by an increase in new patient diagnoses and healthy price increases, the HIV market is poised to grow by 10-15% annually for the next several years. Mercks Isentress is in the midst of a strong launch, and we project sales will reach $1B in 2012. Protease inhibitors for chronic hepatitis C infection are the most advanced new drugs in development for this disease, led by Vertex/JNJs telaprevir. Pandemic flu is a wild card opportunity. A number of companies have thrown their hats in the ring, including GlaxoSmithKline, Sanofi-Aventis, Novartis, Solvay, Baxter, and AstraZeneca/MedImmune. Sanofi-Aventis leads the U.S. race with the 02:07 FDA approval of its A/Vietnam/1203/2004 flu vaccine and GSK leads the European race with the approval of Prepandrix. Novel vaccines present significant market opportunities. HPV vaccines, including Mercks Gardasil and GlaxoSmithKlines Cervarix, could achieve combined worldwide sales of $3.3B in 2013. Mercks ZostaVax has $1B potential. Mercks staphylococcal vaccine could demonstrate positive trends in its Phase II/III CABG study but, the possibility of success to market is low. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category with its broad antibacterial and antiviral pipeline. The antibiotic/antiviral category is a key contributor to the projected sales growth of many companies.

-

-

-

-

Antibiotics/Antivirals

140% % Of Company 2008-13 Sales Growth From Category BMY 120% NVS JNJ 100% GILD 80% MRK

60%

40% AZN 20% WYE PFE GSK

0%

LLY

RHHBY ABT

-20% $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 2013 Sales Contributed By Company To Category ($ In B)

21


Multiple Sclerosis

Teva/Sanofi-Aventiss Copaxone ($2.3B, +32% Y/Y in 2008) became the #1 MS drug in 2008. Sales are growing rapidly, driven by the drugs tolerability and status as the only non-interferon-based DMARD. Copaxone should continue to gain market share in the wake of data from REGARD and BEYOND, two studies that support efficacy on par with that of beta interferons. In July, Momenta filed an ANDA for Copaxone but legal, manufacturing and regulatory issues should protect Copaxone from generics for the next five years. Biogen Idecs Avonex ($2.2B, +18% Y/Y in 2008) is no longer the best-selling MS drug, but remains the top-selling interferon. Avonex (interferon beta-1a) has performed reasonably well in the face of competition from higher dose interferons. Steady international market share and aggressive U.S. pricing support solid sales growth. Biogen Idec is developing PEG-Avonex (Phase III study to start in 2009) in an effort to reduce the frequency of dosing. Within the beta interferon class, Merck-Seronos Rebif (interferon beta-1a) has been the fastest-growing product on a unit basis. Sales in 2008 were $1.9B worldwide, with growth (+15% Y/Y) impacted by currency. Rebif has benefitted from the EVIDENCE trial which established superiority for high dose Rebif over Avonex through 12 months of therapy. Bayer (Berlex)/Novartiss AGs Betaseron (projected at $1.6B, +11% Y/Y in 2008) faces competition from Rebif, but a strong international sales base and higher U.S. pricing should support 5-10% sales growth. Novartis launched its own version of interferon beta-1b, called Extavia, in 2009. We expect Extavia to have minimal impact on the overall sales of the interferon beta 1b franchsie. Biogen Idec/Elans Tysabri ($814MM, +137% Y/Y in 2008), reintroduced in the U.S. in mid-2006, experienced a solid launch. However, the disclosure of five new cases of PML since mid-2008 has tempered sales growth. While we believe Tysabris benefits far outweigh its risks, the drugs market potential remains closely linked to its rate of association with PML. Merck-Serono/Tevas oral cladribine appears very efficacious based upon top-line data from the Phase III CLARITY trial. Novartiss FTY720 has been shown to be more potent that Avonex, but questions about tolerability persist. Other compounds such as Biogen Idecs BG-12, Genzymes Campath, Tevas laquinimod, Eli Lilly/BioMSs MBP8298, and Genentech/Biogens anti-CD20 antibodies, have demonstrated encouraging efficacy. However, all new drugs will need to establish a favorable long-term safety profile before they are embraced broadly by the MS community. Acordas fampridine may be the first approved adjunctive therapy for treating symptoms of MS. Consultants estimate that 5-20% of MS patients could be suitable for treatment. We model U.S. sales of $250MM in 2013. Our scatter plot shows that Biogen Idec, Teva, Merck-Serono, and Bayer should continue to dominate the MS market in 2013. This category is critical to the outlook for all four companies.

22


Multiple Sclerosis100% 90% BIIB/ELN 80% 70% 60% Merck KGaA 50% 40% 30% 20% BAYER 10% 0% -10% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 2013 Sales Contributed By Company To Category ($ In B) TEVA


23


Obesity

The failure of the central cannabinoid (CB-1) receptor antagonists (Sanofi-Aventiss Rimonabant, Mercks Taranabant, Pfizers CP-945,598) due to CNS side effects was a significant setback to the growth outlook for the obesity therapeutic category and drug class. Arenas 5-HT2c agonist, lorcaserin, has demonstrated promising Phase II data and is in a broad Phase III program. A lack of a cardiac valve safety signal at twelve months in the Phase III BLOOM trial supports a clean valve profile. Vivus Qnexa (topiramate/phentermine) has demonstrated impressive weight loss (average of 25 lbs) in Phase II and is currently in Phase III development. Intellectual property concerns and tolerability questions are likely to remain an investor focus pending further clarity. Orexigens combinations of approved drugs have demonstrated potent weight loss, and are supported by a sound biologic rationale. Contraves Phase III program in mild-moderate obesity is fully enrolled, and Empatic recently entered a Phase IIb trial. A number of candidates exploiting various mechanisms (monoamine transmission, GLP-1 pathway, PTP1B receptor, melanin system, and others) are showing signs of promise in this tough-to-treat indication. Development efforts and strategies should continue to emerge in response to the increasing recognition of obesity as an epidemic. Our scatter plot shows that, through 2013, Roche/GSK will maintain the largest sales base in the category. Obesity represents an emerging therapeutic area for Pfizer, Vivus, and Arena, and is expected to be a drag on projected sales of Abbott.

Obesity430% % Of Company 2008-13 Sales Growth From Category 380% 330% 280% 230% 180% 130% 80% 30% -20% -70% $0.00 $0.20 $0.40 $0.60 $0.80 2013 Sales Contribution By Company To Category ($ In B) ABT PFE ROCHE/GSK Arena

vvus

24


Oncology/Hematology

Targeted therapies are changing the landscape of cancer treatment and likely will be used in most cancer patients in 5-10 years. Monoclonal antibodies and oral tyrosine kinase inhibitors could reach $22B+ in sales in 2013. Rituxan, used widely for NHL and CLL, remains the worlds best selling cancer drug with sales in excess of $6B. Genentech/Roches Avastin (approved for use in colorectal, lung, and breast cancer, filed for kidney and brain cancer) has validated anti-angiogenesis as a therapeutic strategy. Key data on Avastin in adjuvant disease are anticipated in Q2:09. Sales of supportive care drugs for anemia (Amgens Aranesp, JNJs Procrit) have been decimated by safety issues, but the market for white blood cells support (Amgens Neupgen/Neulasta) is approaching $5B. Small molecule tyrosine kinase inhibitors, led by Novartis Gleevec, Genentech/OSIs Tarceva, Onyx/Bayers Nexavar and Pfizers Sutent, are important advances that eventually could be applicable to many cancers. Monoclonal antibodies including Genentech/Roches Avastin, Rituxan, Herceptin, Eli Lilly/Bristols Erbitux, and Amgens Vectibix have become another mainstay of treatment. More than 1,000 oncology/hematology products are in development, placing it among the two highest in terms of development activity of any category. Our scatter plot shows that Amgen, Genentech, Novartis and Roche are expected to dominate this category in 2013. This category is critical to the growth of Amgen, Celgene, Genentech, Novartis and Roche. Numerous companies have rapidly emerging portfolios.

Oncology/Hematology110%


90%

BMY NVS DNA AMGN

70%

50% WYE 30% MRK GSK LLY

CELG RHHBY PFE

10% ABT -10% SGP JNJ

-30% AZN

-50%

-70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2013 Sales Contributed By Company To Category ($ In B)

25


Ophthalmology

Prostaglandins and related analogs (Pfizers Xalatan, Allergans Lumigan and Alcons Travatan) are expected to dominate the glaucoma market through 2011. Pfizers Xalatan/Xalcom franchise is expected to grow steadily through 2010, before being clipped by generics beginning in 2011. Mercks Cosopt/Trusopt franchises will lose share through 2011, due to generic competition beginning in 2008. Increasing sales of Allergans Lumigan could offset anticipated generic competition to the Alphagan/P franchise. Alcons Travatan franchise is expected to continue its steady share gains, bolsetered by the recent launch of Travatan Z. Genentechs Lucentis has rapidly emerged as the treatment of choice for wet AMD. Off-label use of intravitreous Avastin has declined with Lucentis launch and with a generous charitable assistance program to offset co-pays for Lucentis. The NIHs ongoing CATT trial is comparing Avastin and Lucentis head-to-head, and data from this trial (expected in 2010) are likely to dictate future market share of these two agents. Novartis licensed ex-U.S. rights to Lucentis, with European approval secured in Janaury 2007. Allergan/Inspires Restasis is expected to lead the dry-eye market through 2011, driven by good efficacy. The regulatory future of Inspire Pharmaceuticals Prolacria is uncertain. A number of other dry drugs are making their way through clinical development, including Novartis OPC-759 (rebamipide; Phase III) and Alcons 15-HETE (Phase III). Our scatter plot shows that Pfizer, Novartis and Allergan are expected to dominate the ophthalmology category in 2013. Alcon is an emerging participant.

Ophthalmology80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% $0.0 $0.5 MRK $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B) ACL DNA NVS AGN


PFE

26


.

Ophthalmology80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% $0.0 $0.5 MRK $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B) ACL DNA NVS AGN


PFE

27


Orphan Diseases

Enzyme replacement therapies are the cornerstone of treatment of many orphan disorders, particularly the lysosomal storage diseases. We project that enzyme replacement therapies will reach $5.2B in 2013. Small molecules are expected to become a larger participant in the orphan disorder market. BioMarins Kuvan received FDA approval in December 2007, and other small molecules are in development at Genzyme (GENZ- 112638 for Gauchers) and Amicus (Amigal for Fabrys, Plicera for Gauchers, AT2220 for Pompes). Although historically an area of monopolies and little competition, a number of companies are developing second-generation products that could challenge the first entrants. Diseases in which competition could come in the next 5 years include Gaucher, Fabry, and Pompe. Our scatter plot shows that, through 2013, Genzyme should dominate this category. This category is critical to sales growth for Genzyme, BioMarin, Alexion and Shire.

Orphan DiseasesBMRN 100% ALXN


80%

60% SHPGY 40% GENZ

20%

0% ATLN -20% $0.00 $0.40 $0.80 $1.20 $1.60 $2.00 $2.40 $2.80 $3.20 $3.60 $4.00 2013 Sales Contributed By Company To Category ($ In B)

28


Pain Management

The FDA announced in early February 2009 that it plans to implement a Risk Evaluation and Mitigation Strategy (REMS) requirement for all extended opioid analgesics. We believe the REMS plan may drive prescribing of newer tamper-resistant extended release opioids. OxyContin (oxycodone ER) currently holds the leading total prescription share of the U.S. strong opioid market, with an estimated 23% total prescription share. With the re-branding of the oxycodone ER market following the removal of most of the generics in H1:2008, the pricing umbrella for the extended release oral opioid market has been raised. Endo/Penwests Opana ER, King/Ligands Avinza, and Kings Remoxy and Embeda should benefit. Several tamper-resistant formulations of oral opioid analgesics are being developed. The FDAs move to restrict prescribing of extended-release opioid analgesics should benefit tamper-resistant formulations from King, Pain Therapeutics, and Acura Pharmaceuticals. The first topical prescription NSAID patch, King/IBSAs Flector Patch (diclofenac), was launched in January 2008, and Endo/Novartis Voltaren Gel (diclofenac gel) was launched in April 2008. Zars Thermoprofen (Phase III), Nuvo Researchs Pennsaid (diclofenac cream; approvable at FDA), Cerimons topical diclofenac patch (Phase II/III), and King/IDEA AGs Diractin (ketoprofen gel; Phase III) are in latestage development. The transmucosal fentanyl market is becoming increasingly competitive. Cephalons Actiq is being clipped by generics, and Cephalons Fentora. BioDelivery Sciences Onsolis has completed Phase III trials. Schering-Plough/Organons Sugammadex (approved by EMEA, not-approvable at FDA), a novel modified gamma-cyclodextran, selective non-depolarizing neuromuscular blocker reversal agent, is the first novel agent for anesthesia in 20+ years. Pfizers Lyrica and Eli Lillys Cymbalta have found success in neuropathic pain and fibromyalgia syndrome, despite widespread availability of generics of Pfizers Neurontin (gabapentin). Our scatter plot shows that Endo, Purdue, and King will dominate the pain management category in 2013. While we project that pain management will remain a sales growth driver for Endo, Purdue and King, it is expected to be a drag on sales growth for JNJ and Cephalon.

29


Pain Management120%


100%

KG

ENDP PURDUE

80%

60%

40%

CEPH

20%

0%

AZN

JNJ

-20% $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2013 Sales Contribution By Company To Category ($ In B)

30


Respiratory

Steroid/long-acting beta agonist combination inhalers (GlaxoSmithKline and AstraZeneca) should continue to dominate the asthma market, given their ability to control both asthma and COPD. Sales of GlaxoSmithKlines Advair could reach $8B+ in 2013, making it one of the most successful drugs ever. The FDAs label change for long-acting beta agonists (including Advair), emphasizing the increased risk of worsening bronchospasm (wheezing), should present only a modest negative. AstraZenecas Symbicort has gained only modest share thus far, given its undifferentiated profile. ScheringPlough/Novartis expect to file formoterol/mometasone (MMF258), a twice-daily combination, in 2009 but the filing for the once-daily combination, QMF149, is not expected until after 2012. Good effectiveness, ease of administration, and pediatric application should drive average leukotriene antagonist growth through 2011 but Mercks Singulair patent expiration in 2012 will clip growth. Singulair continues to expand its franchise through a label expansion in exercise-induced asthma in April 2007. However, the Claritin/Singulair combination filed in August 2007 received a non-approvable letter a year later. The FDAs response is not too surprising considering the modest efficacy benefit of this combination. Boehringer-Ingelheim/Pfizers Spiriva (once-daily anticholinergic, LAMA) has rapidly gained share for treating the symptoms of COPD, although GlaxoSmithKlines Advair seeks a prominent position here despite the non-approval for the 500/50mcg dose based on the TORCH data. On April 30th 2008, the FDA approved the 250/50mcg dose combination for reduction of exacerbations in patients with COPD and/or with emphysema. Combination use of Spiriva and Advair should allow both products to be successful as newer once-daily LAMAs are several years from market. The outlook for phosphodiesterase type 4 inhibitors is dim post GlaxoSmithKline dropping Ariflo. Non-sedating antihistamines dominate the allergy market in terms of units, but generic Allegra and Zyrtec, and OTC Claritin have clipped sales and pressured pricing. Sanofi/UCBs Xyzal seeks to reverse this trend. Inhaled steroids remain the most effective agents for allergic rhinitis, with Scherings Nasonex leading the market. Veramysts (GlaxoSmithKline) slightly broader label is not viewed as clinically meaningful and its launch has been tepid. New treatment options in pulmonary arterial hypertension, including Gileads Letairis, Actelions Tracleer, Pfizers Revatio, and infusional agents such as United Therapeutics Remodulin and GlaxoSmithKlines Flolan, have led to a clear improvement in survival and quality of life. Awareness of the disease is steadily improving. Letairis, Tracleer and Revatio are the preferred first-line therapies. Thelins (ENCY, acquired by PFE in June 08) future in the U.S. is unclear given three approvable letters, but it was approved in Europe in August 2006 and has been launched in many European countries, including the U.K., Ireland, Germany, Austria, France, Belgium, Holland and Spain. Pfizer plans to conduct a pivotal Phase 3 trial to support a U.S. registration. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category. This category is important to the growth of AstraZeneca and GlaxoSmithKline.

31


Respiratory

100% % Of Company 2008-13 Sales Growth From Category

80% NVS 60% GSK AZN

40%

20% DNA RHHBY PFE -20% FRX SGP

0%

-40%


32


Sleep Disorders

Sanofi-Aventis Ambien franchise remains the U.S. branded market leader, but has been clipped significantly by the launch of generics to Ambien. Sanofi-Aventis continues to aggressively market Ambien CR. Generics of Ambien CR are expected to be launched in April 2009, further pressuring the Ambien franchise. Sepracors Lunesta enjoyed a strong rollout in 2006, but the launch of Ambien CR and Ambien generics has caused Lunestas prescription growth trajectory to plateau. We project a decline in Lunesta prescriptions in 2009-2013, due to Ambien CR generics. Several novel drugs targeting new mechanisms are making their way through clinical trials, including: Sanofi-Aventis Ciltyri (completed Phase III), Somaxons Silenor (NDA), Vandas Tasimelteon (Phase III), and Schering-Plough/Organons Esmirtazapine (Phase III). Our scatter plot shows that Sanofi-Aventis, Sepracor and Takeda should dominate the insomnia market in 2013 and that this is an emerging category for Takeda.

Insomnia170% % Of Company 2008-13 Sales Growth From Category TDCHF

120%

70%

20%

-30% SNY -80%

-130%

-180% $0.0

SEPR $0.4 $0.8 $1.2 $1.6 $2.0

2013 Sales Contributed By Company To Category ($ In B)

33


Urinary Incontinence

The launch of Ditropan XL generics has affected the growth of the market for UI treatments in the U.S. Branded products for urge incontinence and overactive bladder, led by Pfizers Detrol LA, appear comparable in terms of effectiveness and side effects. Despite an improved side-effect profile and twice-weekly patch delivery, adoption of Watsons Oxytrol has been a disappointment due to application-site irritation. Watsons Oxybutynin topical gel could provide a modest boost to the Oxytrol franchise. Astellas/GlaxoSmithKline's Vesicare continues to grow while Novartis Enablex prescription growth has decelerated. Head-to-head comparison studies will be required to claim superiority. Allergans Sanctura may be differentiated based on a lower CNS side-effect profile, but twice-daily dosing and limited marketing support have been hurdles. A once-daily version, Sanctura XR, was launched in the U.S. in January 2008, and has the potential to significantly expand the franchise. Our scatter plot shows that, through 2013, Pfizer should dominate the incontinence market. This category is a key growth driver for Astellas/GlaxoSmithKline.

Urinary Incontinence50%


30%

Astellas/GSK 10% WPI AGN JNJ LLY -10% NVS PFE

-30% $0.0 $0.3 $0.5 $0.8 $1.0 $1.3 $1.5 2013 Sales Contributed By Company To Category ($ In B)

34


Leadership Of Important Categories A Key To SuccessAbbott LaboratoriesArthritis and cardiology are critical to Abbotts sales growth. Antibiotics/antivirals, diabetes, epilepsy, GI/Ulcer and oncology will be a drag on sales growth through 2013.100%

Abbott Sales Analysis

80% % Company Sales Growth From Category

Arthritis

60%

40%

20%

Cardiology Oncology Diabetes Antibiotics/Antivirals

0%

GI/Ulcer-20%

Epilepsy

-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 2013 Sales Company Generates From Category ($ In B)

AmgenAmgen should be a dominant player in the oncology/hematology and arthritis markets through 2013, and these categories account for nearly all of its sales growth.

Amgen Sales Analysis90%

% Of Company Sales Growth From Category

70%

Oncology50%

30%

Arthritis10%

-10%


35


AstraZenecaRespiratory and antibiotics/antivirals are critical to AstraZenecas sales growth. GI/Uulcer and oncology will be drags on sales growth through 2013.AstraZeneca Sales Analysis

90% % Of Company Sales Growth From Category

40%

Antibiotics/Antivirals Alzheimer's-10%

Respiratory

Pain Management

Oncology-60%

-110% $0.0 $1.0 $2.0

GI/Ulcer$3.0 $4.0 $5.0 $6.0 $7.0 $8.0 2013 Sales Company Generates From Category ($ In B)

Bristol-Myers SquibbBristol-Myers Squibb should be a dominant player in the antibiotics/antivirals and oncology markets through 2013. Arthritis and diabetes are emerging growth categories. CNS will be a drag on growth.

Bristol-Myers Squibb Sales Analysis90%

Oncology% Company Sales Growth From Category 70%

Arthritis50%


Diabetes

30%

10%

-10%

CNS-30%

-50% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Company Generates From Category ($ In B)

36


Eli LillyEli Lilly should be a dominant player in the diabetes market through 2013, but the CNS category will be a drag on Lillys growth. Many other categories are modest contributors to modest drags.Eli Lilly Sales AnalysisDiabetes100%

% Company Sales Growth From Category

50%

Urinary Incontinence0%

Osteoporosis/ HRT Oncology

Cardiology Antibiotics/Antivirals

-50%

-100%

-150%

-200% $0.0 $1.0 $2.0

CNS$3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)

Forest LaboratoriesCardiology and Alzheimers Disease are important emerging categories for Forest Laboratories, while respiratory is a drag.Forest Laboratories Sales Analysis200%

150% % Of Company Sales Growth From Category

Cardiology

100%

Alzheimer's Disease50%

0%

Respiratory-50%

-100%

-150%

-200% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)

37


GenentechGenentech should be a dominant player in oncology through 2013. Ophthalmology and respiratory will be modest drags on growth.Genentech Sales Analysis90%


Oncology

50%

30%

10%

Ophthalmology Respiratory

-10%

-30% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 2013 Sales Company Generates From Category ($ In B)

GlaxoSmithKlineGlaxoSmithKline should be a dominant player in the oncology, antibiotics/anrivirals and respiratory markets through 2013, and these categories are critical to its sales growth. Cardiology, CNS, diabetes, epilepsy and GI/ulcer are drags on growth.GlaxoSmithKline Sales Analysis60% 50% % Company Sales Growth From Category

40%

Respiratory

30%

20%

Oncology Antibiotics/Antivirals

10%

0%

Cardiology CNS GI/Ulcer Diabetes Epilepsy

-10%

-20%


38


Johnson & JohnsonJ&J should be a dominant player in the arthritis and antibiotics markets through 2013, and these categories are critical to growth. J&J will remain a leader in oncology and CNS, but these categories will be drags on growth.Johnson & Johnson Sales AnalysisAntibiotics/Antivirals80% % Company Sales Growth From Category

Cardiology30%

Arthritis

Alzheimer's-20%

Oncology GI/Ulcer CNS

-70%

-120% $0.0

Epilepsy$1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)

MerckMerck should be a dominant participant in the antibiotics/antivirals and diabetes markets through 2013. CNS is an emerging category. Cardiology will be a drag on growth.Merck Sales Analysis220%


Respiratory120%

Diabetes CNS Oncology Ophthalmology Arthritis Osteoporosis/HRT


70%

20%

-30%

-80%

-130%

Cardiology-180% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Company Generates From Category ($ In B)

39


NovartisNovartis should be a leader in oncology and antibiotics/antivirals through 2013, and these categories are critical to sales growth. Ten therapeutic categories range from modest contributors to drags on sales growth.Novartis Sales Analysis125% Antibiotics/Antivirals


75%

Respiratory

Oncology

Ophthalmology Osteoporosis/HRT 25% Alzheimer's CNS Diabetes Incontinence -25% Arthritis Transplantation

Epilepsy

-75%

-125% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Company Generates From Category ($ In B)

PfizerAntibiotics is Pfizers largest therapeutic category. Many other categories range from being modest contributors to moderate drags, with cardiology being a substantial drag.Pfizer Sales Analysis

40% Alzheimer's Oncology Epilepsy Antibiotics/Antivirals


Ophthalmology Diabetes -10% Urinary Incont. CNS Respiratory Arthritis

-60%

-110%

-160%

Cardiology -210% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2013 Sales Company Generates From Category ($ In B)

40


RocheRoche likely will dominate the oncology market through 2013, and this category is critical to sales growth. Five other therapeutic categories are modest contributors to modest drags on sales growth.Roche Sales Analysis50%

40% % Of Company Sales Growth From Category Oncology 30%

20% Arthritis 10% Respiratory

0%

Antibiotics/Antivirals Osteoporosis/HR

-10%

Transplatation

-20%


Sanofi-AventisSanofi-Aventis should dominate diabetes and infectious disease through 2013, and these categories are critical to sales growth. Respiratory is an emerging category. Three other categories will be drags on growth.Sanofi-Aventis Sales Analysis240% Antibiotics/Antiviral


140%

Respiratory

Diabetes

40% Osteoporosis/HRT -60% Insomnia

-160%

-260% $0.0 Oncology $2.0 $4.0 $6.0

Cardiology $8.0 $10.0 $12.0

2013 Sales Company Generates From Category ($ In B)

41


Schering-PloughCardiology and arthritis are critical to Schering-Ploughs sales growth through 2013. Respiratory should be a modest contributor while antibiotics/antivirals and oncology likely will be drags on growth.Schering-Plough Sales Analysis50%


30%

Arthritis

20%

Cardiology10%

Respiratory Oncology

0%

-10%

-20%

Antibiotics/Antivirals-30% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)

WyethWyeth should be a major player in the arthritis and antibiotics markets through 2013, but CNS, cardiology, GI/ulcer and transplant will be drags on sales growth. Oncology and osteoporosis/HRT are emerging categories for Wyeth.Wyeth Sales Analysis60%


40%

Oncology

Arthritis Antibiotics/Antivirals

20%

Osteoporosis/HRT Transplant Cardiology GI/Ulcer

0%

-20%

-40%

-60%

-80%

CNS


42


Therapeutic Category Position Comparison

Abbott Laboratories Amgen AstraZeneca Bristol-Myers Squibb Eli Lilly Forest Laboratories Genentech GlaxoSmithKline Johnson & Johnson Merck Novartis Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Total

Total 7 2 6 5 7 3 3 8 8 9 12 11 6 6 5 8 106

Upper Right 2 2 2 2 3 0 1 3 2 2 2 3 1 2 2 3 32

Quadrant Upper Left Lower Right 0 0 0 0 2 0 2 1 0 1 3 4 1 1 1 0 1 17 0 2 0 1 0 0 1 2 1 0 3 1 1 1 0 13

Lower Left 5 0 2 1 3 1 1 4 3 3 6 4 3 2 2 4 44

43


Largest Therapeutic Areas Enjoying Most Development ActivityDrug companies like to shoot at big development targets. Thus, it is not surprising that the largest categories in terms of sales (cardiovascular, infectious disease, central nervous system, oncology/hematology) also are enjoying the most new product development activity. We see little change in the relative rankings through 2013.Pharmaceutical Therapeutic Categories

Number Of Products In Development Vs. 2008 Category Sales300 275 250 225 200 175 150 125 100 75 50 25 0 0

Oncology/Hematology Central Nervous System

# of Products in Development

Diabetes Allergy/Asthma Arthritis/Inflammation Osteoporosis/HRT G.I./Ulcer Urinary Incontinence

Cardiovascular Infectious Disease

10

20

30

40

502008 $ Sales

60

70

80

90

100

Number Of Products In Development Vs. 2013 Category Sales300 Oncology/Hematology 275 250 Central Nervous System 225 200 175 150 Diabetes 125 Cardiovascular Allergy/Asthma Infectious Disease 100 75 Osteoporosis/HRT Arthritis/Inflammation 50 G.I./Ulcer 25 Urinary Incontinence 0 0 10 20 30 40 50 60 70 80 902013 $ Sales

Pharmaceutical Therapeutic Categories

# of Products in Development

100

The most desirable quadrant of the above matrices appears to be the lower right, a segment characterized by huge dollar volume and relatively fewer development-stage products, potentially generating less competition. Only infectious disease resides in this segment. The least desirable quadrant of the above matrices would then be the upper left, where many products chase few dollars. The upper right (lots of dollars and products) and lower left (relatively fewer dollars and products) quadrants fall in between. Obviously, these conclusions represent an oversimplification of the complex drug development and sales dynamics within specific therapeutic categories, as differentiated new products can dominate competitive markets.

44

Alzheimers Disease

Alzheimers DiseaseDEFINITION/ BACKDROP

Two Steps Forward, One Step Back in 2008Alzheimers disease (AD) afflicts approximately 4-5MM people in the U.S. and approximately 15MM people worldwide. It is estimated that 10% of people aged 65 and older, and about 50% of people over 85, suffer from AD. Due to the anticipated rapid 12% 2008-13 CGR growth of the over-65 segment of the U.S. population (currently estimated to exceed 35MM people); the AD patient population is expected to increase rapidly. Direct medical and indirect costs associated with AD are high as families are forced to provide home care and/or pay for assisted living. In the U.S. alone, it is estimated that health care expenses and lost wages attributable to AD patients and caregivers total $80-100B annually. With life expectancy increasing throughout the world, AD is expected to become a global health care resource issue. It is not known what causes AD, but genetics and environmental factors appear to play a role. Researchers continue to work on elucidating the biological mechanisms of AD, paving the way for the development of new, novel therapies. Disease-modifying agents are progressing through later-stage clinical trials and have generated significant enthusiasm, as the commercialization of the first of these agents may only be 2-4 years away. Despite this enthusiasm, development progress with potentially disease-modifying agents has been slower than anticipated, evidenced by disappointing data for Elan/Wyeths bapineuzumab, Myriads Flurizan and simvastatin presented at the 2008 ICAD meeting. But Phase III trials for bapineuzumab, Lillys LY206430 and LY450139 and Pfizer/Medivations Dimebon, among others, will yield results in 2010.Alzheimers Disease Category Market Share By $ Sales2008$4.2BJNJ 13% JNJ 7%

2013POther 7%

$7.4BFRX 18%

PARTICIPANTS

LLY 8% NVS 20% NVS 9% PFE/EISAI 47% FRX 20% PFE/MDVN 9% PFE/EISAI 10% PFE 17%

WYE/ELN 15%

45

Alzheimers Disease

Pfizer/Eisais Aricept dominated the U.S. Alzheimers disease market in 2008 with a 47% sales share, but is expected to be clipped by generics beginning in late 2010. JNJ/Shires Razadyne was clipped by generic competition in H2:2008; 2008 U.S. sales were $134MM (31%). Forest Laboratories may hold the top sales position in 2013, ahead of Namendas exclusivity expiration in April 2015. Wyeth/Elan are expected to move to the third position in 2013, assuming bapineuzumab reaches the market. Pfizer/Medivation are expected to take the fifth position, based on Dimebon. Eli Lilly and Novartis are emerging companies in the Alzheimers category. Acetylcholinesterase inhibitors are expected to remain the mainstay treatment option in the AD market for the next few years, despite limited effectiveness. Research in neurotransmitter-mediated treatments for AD, such as acetylcholinesterase inhibition and glutamate receptor blockade (Forests Namenda), is not expected to advance much beyond current knowledge. Next-generation drugs are focused on the underlying disease mechanisms, most notably immunotherapeutic approaches (monoclonal antibodies and vaccines targeted against beta-amyloid), gamma- and beta-secretase inhibition, beta-amyloid aggregation inhibition, tau aggregation inhibition, and microtubule stabilization. Wyeth/Elan, Elan/Transition Therapeutics, Eli Lilly, Pfizer, Prana, Novartis, Merck, Bristol-Myers Squibb, TauRx, and Allon have clinical programs targeting these mechanisms. Research on PPAR gamma agonists (led by studies of GlaxoSmithKlines Avandia) indicates that they may have some utility in AD. The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta-amyloid levels and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2013, Wyeth/Elan should dominate this category, and Alzheimers drug sales will be a very important component of Forests, Wyeth/Elans and Eli Lillys growth.

Alzheimer's Disease70% FRX % Of Company 2008-13 Sales Growth From Category 60%

50%

40%

30%

WYE/ELN

20%

MAJOR TRENDS &ISSUES

LLY

PFE/EISAI PFE/MDVN

PFE

10%

AZN JNJ

NVS

0%


46

Alzheimers DiseaseALZHEIMER'S DISEASE U.S. MARKET DYNAMICS ($MM) 2007 U.S. Population 65 - 85 yrs old U.S. Population 85+ yrs old U.S. Alzheimer's Sufferers (MM) % Treated Patients Treated (MM) Total Rx's Growth Aricept (PFE/Eisai) Market Share Aricept Total Rx's (MM) Average Daily Cost Sales (MM) Namenda (FRX) Market Share Namenda Total Rx's (MM) Average Daily Cost Sales (MM) Razadyne/ER (JNJ/SHPGY) Market Share Razadyne Total Rx's (MM) Average Daily Cost Sales (MM) Exelon (NVS) Market Share Exelon Total Rx's (MM) Average Daily Cost Sales (MM) Bapineuzumab (WYE/ELN) Market Share Bapineuzumab Total Rx's (MM) Average Dose Cost Average Daily Cost Sales (MM) Dimebon (MDVN/PFE) Market Share Dimebon Total Rx's (MM) Average Daily Cost Sales (MM) LY206430 (LLY) Market Share LY206430 Total Rx's (MM) Average Daily Cost Sales (MM) ELND-005 (ELN/TTHI) Market Share ELND-005 Total Rx's (MM) Average Daily Cost Sales (MM) LY-450139 Total Rx's (MM) Average Daily Cost Sales (MM) Other Market Share Total Rx's (MM) Average Daily Cost Sales (MM) Generics Market Share Total Rx's (MM) Average Daily Cost Sales (MM) Total Market Sales (MM) $2,946 $3,304 +12% $3,410 +3% % Growth +33% Source: Company data; Cowen and Company estimates 9% 2.0 $0.50 $30 $3,435 +1% 50% 11.9 $0.70 $250 $2,195 -36% 37% 6.9 $0.60 $125 $2,385 +9% 32.0 5.3 4.7 29% 1.4 18.6 +6% 2008 32.6 5.5 4.8 31% 1.5 19.9 +7% 2009E 33.3 5.6 4.9 33% 1.6 19.8 -0% 2010E 34.0 5.8 5.0 36% 1.8 21.7 +9% 2011E 34.6 6.0 5.2 39% 2.0 23.9 +10% 9% 2.1 $6.25 $400 2012E 35.0 6.1 5.3 41% 2.2 18.6 -22% 3% 0.5 $6.25 $100 2013E 35.3 6.3 5.4 41% 2.2 21.5 +16% 1% 0.3 $6.25 $50 2014E 35.7 6.5 5.5 41% 2.2 27.1 +26% 0% 0.1 $6.25 $25 2015E 36.0 6.7 5.6 41% 2.3 32.0 +18% 0% 0.1 $6.25 $25 4% 1.4 $4.95 $800 1% 0.2 $6.30 $10 1% 0.3 $6.60 $50 CGR +1% +3% +2% +6% +7% Comments - Estimate 8 - 10% of population is afflicted - Estimate 40 - 50% of population is afflicted - Could be conservative - Penetration increases as newer agents become available; could be conserva - Market growth driven by demographics, improved therapies - Donepazil; acetylcholinesterase inhibitor; Pfizer/Eisai - Co-promoted by Eisai/Pfizer in U.S.; Eisai books 100% of sales - Assume generics in late November 2010

55% 54% 10.0 10.8 $5.58 $5.79 $1,675 $1,959 32% 6.2 $4.63 $865 6% 1.2 $5.39 $194 6% 1.2 $5.85 $212 34% 6.8 $4.54 $932 4% 0.7 $6.30 $134 8% 1.6 $6.00 $279

56% 48% 11.1 10.4 $6.15 $6.25 $2,050 $1,950

-46% -20% -2% -17% -31% -23% -22%

35% 34% 34% 46% 29% 14% 6.9 7.4 8.0 8.5 6.5 3.9 $4.95 $4.95 $4.95 $4.95 $4.95 $4.95 $1,020 $1,100 $1,190 $1,260 $1,320 $1,370 1% 0.2 $6.30 $40 8% 1.6 $6.15 $300 1% 0.2 $6.30 $35 8% 1.7 $6.30 $320 1% 0.1 $6.30 $25 7% 1.7 $6.45 $330 1% 0.1 $6.30 $20 5% 0.9 $6.60 $180 1% 0.2 $6.30 $15 2% 0.5 $6.60 $100 1% 0.2 $6.30 $10 1% 0.3 $6.60 $50

- Memantine; NMDA antagonist; Forest Labs; Q1:2004 launch- Modest efficacy, but mild SE profile has driven combo use - Est. 60%+ of use is in combo with an acetylcholinesterase inhibitor Galantamine; acetylcholinesterase inhibitor; Shire/JNJ Also stimulates nicotinic receptors Efficacy and SE profile similar to Aricept Rapid-dissolve formulation carries franchise

- Rivastigmine; acetylcholinesterase inhibitor; Novartis - GI side effects have clipped use of oral formulation - Transdermal formulation launch in the U.S. and E.U. - Mild/moderate ApoE4(-) pts comprise 42-45% of treated patient pop'n - I.V. delivery - Assume every 3 mos. infusion - Currently in Phase III - Acts as a cholinesterase inhibitor and NMDA antagonist - Potential disease modification effect via MPTP blocker activity - 2010 NDA targeted - Anti-beta-amyloid antibody; mid-domain specific - Currently in Phase III - Assume every 3 mos. dosing - Prevents/reverses beta-amyloid aggregation - H2:2012 launch targeted - Previously known as AZD-103 - Gamma secretase inhibitor - 2013 launch targeted

3% 9% 8% 10% 0.6 1.9 2.3 3.3 $2,600 $2,704 $2,812 $2,925 $28.89 $30.04 $31.24 $32.50 $300 $1,100 $2,120 $3,255 4% 0.7 $6.30 $150 1% 0.3 $30.00 $250 8% 1.7 $6.30 $500 2% 0.5 $30.00 $500 5% 1.1 $9.00 $350 1% 0.4 $9.00 $421 1% 0.1 $25.00 $75 41% 8.8 $0.60 $175 $4,606 +93% 13% 3.5 $6.30 $725 3% 0.8 $30.00 $750 10% 2.8 $9.00 $750 13% 4.2 $6.30 $900 3% 1.1 $30.00 $1,000 12% 3.7 $9.00 $1,000

1% 2% 0.7 1.1 $9.00 $9.00 $882 $1,203 2% 0.5 $25.00 $350 45% 12.8 $0.65 $250 $7,282 +58% 3% 1.0 $25.00 $750 50% 16.7 $0.70 $350 $9,343 +28%

- Other antibodies in development

- Aricept generics in 2010, Exelon generics in 2012 +16% - Near-term growth driven by symptomatic agents; out-year growth driven by disease modifying agents; Aricept generics clip 2011 sale

47

Alzheimers Disease

Opportunities Abound In AD MarketDETAILED DISCUSSION

Exisiting Treatments Have Signficant LimitationsCurrently available AD treatments provide only symptomatic relief, temporarily improving brain function in patients with mild-to-moderate disease. These drugs either improve the communication between neurons or maintain neuronal health. These symptomatic treatments include acetylcholinesterase inhibitors (Pfizer/Eisais Aricept, JNJ/Shires Razadyne ER, and Novartis Exelon) and glutaminergic modulators (Forests Namenda). Neurotransmitters, such as acetylcholine, are produced by neurons, aid in cell-to-cell communication, and stimulate brain activity. Neuronal cell injury and death in patients with AD leads to reduced neurotransmitter concentrations, resulting in a deterioration of brain function and the onset of AD. Acetylcholine is constantly being produced and degraded naturally in the brain. The enzyme responsible for the degradation of acetylcholine is acetylcholinesterase. Acetylcholinesterase inhibitors slow the degradation of acetylcholine thereby increasing effective concentrations of acetylcholine available in patients with AD. Treatment with acetylcholinesterase inhibitors temporarily preserves neuronal communication and function, but does not halt neuronal death. Typically, acetylcholinesterase inhibitors relieve some symptoms of AD and delay cognitive deterioration by only about six to twelve months. Glutamate is another neurotransmitter that plays a role in memory and cognition, signaling through the NMDA receptor. In AD patients, increased glutamate activity leads to sustained, low level activation of the NMDA receptor, which may impair neuronal function. Glutaminergic modulators block this sustained, low-level activation of the NMDA receptor without inhibiting the normal function of the receptor in memory and cognition, providing temporary symptomatic relief for AD patients. Glutaminergic modulators and acetylcholinesterase inhibitors are often used in combination with one another.

SYMPTOMATIC AGENTS FOR THE TREATMENT OF ALZHEIMERS DISEASEProduct Aricept (donepezil) Company Pfizer/Eisai Status Market Comments Acetylcholinesterase inhibitor; FDA approval in November 1996; indicated for mild-tosevere AD; once-a-day dosing, a favorable side-effect profile, and strong marketing make Aricept the acetylcholinesterase inhibitor of choice. Exelon (rivastigmine) Novartis Market Acetylcholinesterase inhibitor; FDA-approval in April 2000; indicated for mild-to-moderate AD; twice-daily dosing and side effects (primarily nausea, vomiting) clip use; transdermal patch (improved GI side effect profile) formulation under review at EMEA, launched in U.S. in Q3:2007. Razadyne ER (galantamine) JNJ/Shire Market Acetylcholinesterase inhibitor, also acts as a nicotinic receptor agonist; indicated for mild-to-moderate AD; IR formulation (2x daily) approved by FDA in February 2001; ER formulation (1x daily) launched May 2005; GI side effects have clipped use. Namenda (memantine) Forest Labs Market NMDA antagonist; launched in January 2004; indicated for moderate-to-severe AD; 1-2x daily dosing; majority (60%+) of use in combination with acetylcholinesterase inhibitors. FDA issued non-approvable letter for use in mild-to-moderate AD indication in July 2005, but used off-label. Cognex (tacrine) Sciele Market Acetylcholinesterase inhibitor; indicated for mild-to-moderate AD; approved by FDA in 1993; liver enzyme monitoring requirement limits use; 1 hr relieved with activity and red, hot, swollen, painful hands/wrists/feet/ankles. Symptoms typically develop slowly over time and if they continue over a period of 6 weeks or more, become typical for RA. While smaller joints are usually involved on presentation, as time progresses, almost any joint can be affected. Rheumatologists diagnose RA by the patients history, physical examination, laboratory testing, and diagnostic imaging and procedures. Patients, especially those with positive autoantibodies (RF and anti-CCP), can have manifestations other than joint inflammation. These include hematologic, cutaneous, pulmonary, cardiac, ocular, vascular, and renal disease. Patients with RA also have a decreased life expectancy from infection, cancer (especially lymphoma), and accelerated vascular disease.

Aggressive Medical Therapy Is The Standard of CareOver the last decade, several new disease modifying antirheumatic drugs (DMARDs) have been approved for the treatment of RA. The main attribute of DMARDs is their ability to slow or stop disease progression and radiographic bony destruction. Rheumatologists aggressively scale up therapy, as most rheumatoid arthritis patients are able to achieve a clinical remission with a combination of two or more DMARDs. Most of the medical literature concludes that the earlier combination therapy is started, including utilizing anti-TNF agents, the quicker patients are able to achieve clinical disease and radiographic remission. Initial therapy includes NSAIDs, methotrexate, and possibly plaquenil, depending on disease severity and number of joints involved. Prednisone is prescribed as an initial therapy for those patients with severe symptoms since it can provide immediate relief (within 24 hrs) vs. methotrexate and Plaquenil, which can take up to 3-6 months to exert a maximum effect. If after 2-3 months disease activity is not quiescent, rheumatologists will often maximize the dose of methotrexate and consider additional therapies such as anti-TNF injectables, Arava (leflunomide; Sanofi-Aventis), Plaquenil (if not already prescribed), and low-dose prednisone.

94

Arthritis

Enbrel (Amgen/Wyeth) and Humira (Abbott) are often the first-line biologic agents after methotrexate. Remicade (JNJ, SGP) represents a third anti-TNF option, especially for Medicare patients. Once started on an anti-TNF agent, most rheumatologists wait 3-6 months to evaluate its efficacy (including the option to dose escalate Humira/Remicade). If after 3-6 months, a patient continues to have break-through disease activity, then specialists will either change to a second antiTNF or switch classes to Orencia (Bristol-Myers) or Rituxan (BIIB/DNA/Roche). Other medications like sulfasalazine, azathioprine, Cytoxan, Kineret, and cyclosporine are rarely used.

Leflunomide Is An Effective Low-Cost Treatment OptionLeflunomide (also known by the brand name Arava) is an oral DMARD similar to methotrexate that is used for the treatment of rheumatoid arthritis. In two placebocontrolled pivotal Phase III clinical trials, leflunomide had ACR 20 response rates of 40-50%. Two-year data from a placebo-controlled trial show that Arava sustains efficacy long term. Leflunomide is administered orally 10mg or 20mg once daily and it takes about 3 months for maximum effectiveness to be realized. Side effects include diarrhea (17%), elevated liver enzymes (5%), reversible alopecia (10%), and rash (10%). Although methotrexate historically is the first DMARD prescribed in RA, leflunomide can be used either as monotherapy or in combination with any DMARD and is an attractive option for those patients that do not want, cannot afford, or otherwise cannot take injectables.

TNF Inhibitors Are Being Used More Often, Earlier OnTumor necrosis factor alpha (TNF ), a cytokine produced by T-lymphocytes and macrophages, is a central player in the inflammatory cascade and a primary mediator of immune reactions. TNF inhibitors (anti-TNFs) bind to circulating TNF and block its ability to attach to cell receptors. The net result is a dramatic decline in inflammation. Anti-TNF agents are highly effective in treating a multitude of inflammatory diseases including: RA, juvenile idiopathic arthritis, ankylosing spondylitis, psoriatic and reactive arthritis, inflammatory bowel and ocular diseases, and psoriasis. Evidence-based clinical trials support the use of anti-TNFs as an early second-line therapy. Anti-TNFs can be used as monotherapy or in combination with traditional DMARDs in treatment nave or treatment failure patients. Issues with anti-TNFs include their high cost, contraindication in patients with CHF or a history of cancer or demyelinating disease, and the need for treating patients with signs of old/latent tuberculosis (by chest X-ray). Although there is an increased risk of skin malignancies in patients receiving anti-TNF therapy, there is no conclusive evidence to date of increased risks for developing solid tumors, lymphoproliferative diseases, or serious infections. Specialists are eager to use anti-TNFs because of clear efficacy in halting or slowing disease progression (clinically and radiographically), increasing amounts of data supporting long-term safety (10 years), and emerging evidence that associated comorbidities (i.e. acute coronary syndrome, stroke) may decline since the underlying inflammatory condition is better controlled. Thus, rheumatologists expect

cowen therapeutic outlook march 2009

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