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Life Sciences Industry Overview
Boot Camp
Phyllis Feeney – Bristol-Myers Squibb Company Mike Lombardo / Mike Makovec / Matt Riviello –
Deloitte & Touche LLP
March 2015
Copyright © 2015 Deloitte Development LLC. All rights reserved.
This presentation contains general information only and Deloitte is not, by means
of this presentation, rendering accounting, business, financial, investment, legal,
tax, or other professional advice or services. This presentation is not a substitute
for such professional advice or services, nor should it be used as a basis for any
decision or action that may affect your business. Before making any decision or
taking any action that may affect your business, you should consult a qualified
professional advisor. Deloitte shall not be responsible for any loss sustained by
any person who relies on this presentation.
Disclaimer
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Agenda
Workshop Leaders’ Welcome and Opening Remarks - Matt Riviello
Gross To Net Principles - Mike Makovec
• Estimation Process
• Hot Topics
• Sales Returns and Other Considerations
Break
Government Programs Landscape and Overview – Phyllis Feeney
• Overview of Government Programs
• Discount and Rebate Overview
Basic Revenue Principles – Mike Lombardo
• Product Launch Considerations
• Collaborations / Multi Element Arrangements
• Licensing Arrangements / SEC Comment Letter Trends
Concluding Comments
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Introduction of Speakers
• Matt Riviello – Deloitte & Touche LLP Partner
• Phyllis Feeney – Executive Director, Pricing & Reimbursement (Bristol-Myers Squibb Company)
• Mike Lombardo – Deloitte & Touche LLP Senior Manager
• Mike Makovec – Deloitte & Touche LLP Senior Manager
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Polling Question: Life Sciences Industry Trends
By show of Hands, let’s see what the make-up of our room is today. Please raise
your hand as I call out the type of organization / services firm you may be with?
A – Branded Pharmaceutical Manufacturer
B – Generic Pharmaceutical Manufacturer
C – Biotechnology Entity
D – Medical Device Manufacturer
E – Services Organizations (CROs / CMOs)
F – Professional Services Firm (Auditor, Consultant, etc.)
G - Other
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Life
Sciences
Industry
Description:
Pharmaceutical companies
• develop “small molecule” compounds to treat infections, cardiovascular conditions,
gastrointestinal/metabolism, inflammatory diseases, women’s health care, and other
chronic and acute conditions.
Biotechnology companies • develop “large molecule” compounds derived from living organisms. Focus therapeutic
areas include oncology, autoimmune disorders, and infectious diseases.
Medical Device companies • develop products including diagnostic equipment, cardiovascular stents, orthopedic
products, implantables, and monitoring devices. The five major therapeutic categories
include: cardiology, diagnostic imaging, orthopedics, invitro diagnostics, and vascular
diseases.
Service companies include contract research organizations (CROs), contract
manufacturing organizations (CMOs) and drug wholesale distributors.
– The CRO market is highly fragmented, consisting of more than 1,000 companies with
revenues ranging from $1 million to $1 billion. Large portion of CRO’s revenues is
derived from outsourcing of clinical trials.
– CMO’s offer a range of services including primary production, physical processing,
clinical lots manufacturing, and formulation development.
– The drug wholesale distribution segment is highly consolidated in the U.S. with
three companies contributing 90-95% of the U.S. third-party distribution market.
Life Sciences Industry Snapshot
Sources: OneSource, S&P Industry Reports, Datamonitor Reports Copyright © 2015 Deloitte Development LLC. All rights reserved.
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7
Commercialization
Development
7
Pharmaceutical Product Life Cycle P
re-D
isc
ove
ry:
Ta
rge
t
Ide
nti
fic
ati
on
& V
ali
da
tio
n
Research
Discovery
Find Drug
Candidate
Pre-
Clinical
Animal
Testing
Phase III
Test large
group for
safety
and
efficacy
Phase I
Test
small
group of
healthy
humans
Phase II
Test
small
group
with
disease
FDA
Review
Regulatory
review for
approval
Post-Marketing
Surveillance
Phase IV clinical
trials to monitor
adverse reactions,
drug safety and
clinical testing for
new indications
IND
Su
bm
itte
d
ND
A S
ub
mit
ted
Dru
g L
au
nc
he
d
Pilot-Scale
Manufacturing
Large Scale Clinical
Trial Manufacturing Full-Scale Commercial Manufacturing
The complex drug development process typically spans 10-15 years from research to approval. The
high risk and likelihood of failure during the R&D process drives companies to focus on drugs that
will deliver the greatest return on investment.
For every 5,000-10,000 compounds discovered, 250 enter pre-clinical trials. Of those 250, only
5 move into Phase I, II, and III trials. Of those 5, only1 drug will receive FDA approval. One FDA-Approved
Drug
• On average, it takes 15 years to bring a drug from clinical trials to commercial use.
• The average cost of developing a drug is nearly $900 million.
• Only 3 out of 10 drugs reaching the market generate enough revenue to recover the average development costs.
Copyright © 2015 Deloitte Development LLC. All rights reserved.
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CDC
EPA
The Regulatory Landscape
FDA
SEC
OIG
FTC
CMS
HIPAA GLP
GMP
PDMA
Part 11
Kickbacks False Claims
SOX 404
FCPA
ePedigree
Privacy
GCP Gov Price
Reporting
IT Security
Pharmaceutical
Company Commercial
Operations are subject
to numerous external
regulators and
regulations
DDMAC
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HCR
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Current Life Sciences Trends
Pharmaceutical Biotechnology Medical Device
• Heightened regulatory
scrutiny driven by drug
safety concerns
• Increased threat from
generic manufacturers
and a large number of
patent expirations
• Increased focus on
improving R&D
productivity and
operational efficiency
• Increased scrutiny on
sales and marketing
activities
• Increased mergers and
acquisitions, alliances,
and partnerships driven
by big pharma’s weak
pipelines
• Increasing pricing
pressures due to
competition and
influence of insurers
• Greater emphasis on
safety and a more
stringent FDA
• Amplified regulatory
compliance and product
liability concerns
• Increased scrutiny on
sales and marketing
activities
• Convergence of devices,
drugs, and diagnostics
• Focus on innovation
through R&D
• Increased M&A activity
driven by demand for
new products
• Stringent FDA driven by
safety concerns
• Increased product
liability concerns
• Increased scrutiny on
sales and marketing
activities
Sources: Deloitte Thought Leadership and Eminence reports and
White papers Copyright © 2015 Deloitte Development LLC. All rights reserved.
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Current Life Sciences –Growth Drivers
Pharmaceutical Biotechnology Medical Device
• Aging population
• Increased life
expectancy
• Increasing healthcare
expenditures as a
percentage of GDP in
emerging and developed
markets
• Rising incidence of
chronic and acute
diseases
• Technological innovation
• Product innovation
• International expansion
• Aging population
• Higher incidence of
chronic diseases
• Scientific and
technological advances
• Aging population
• Higher incidence of
chronic diseases
• High level of private
equity funding
Sources: Deloitte Thought Leadership and Eminence reports and
White papers Copyright © 2015 Deloitte Development LLC. All rights reserved.
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Polling Question: Life Sciences Industry Trends
What Keeps Life Sciences Executives Up at Night within your
Organization?
A – Supply Chain challenges
B – Increasing scrutiny by the FDA
C – Expansion of market share and market penetration
D – Capitalizing on emerging markets
E – All of the Above
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What Keeps Life Sciences Executives Up at Night?
Top Drivers Company Challenges
Scientific and Technological Advances
• Advances in health care are driven by
product life cycle maturation, diminishing
research and development (R&D) returns,
cost pressures, changing demographics, a
rise in consumerism, and scientific and
technological advances.
• Improvements in safety effectiveness,
convenience, and value are also key
catalysts for technological advances in the
life sciences area.
Obtaining Expertise Across the Entire Value
Chain
• Addressing strategic risks and uncertainty
related to new markets, technologies, and
corporate partners.
• Navigating new regulatory, reimbursement,
and provider/patient adoption challenges.
• Managing regulatory compliance and product
liability risks.
Increased R&D Cost and Pressures
• Large increases in R&D spending are not
proving effective in the development of
new drugs.
• The blockbuster model is focused on large
patient populations with common
treatments and is no longer viable as
treatments are becoming geared toward
“personalized medicine”.
Improving R&D productivity and Reducing
Costs
• Moving from large patient populations to more
targeted populations with personalized
medicine.
• Diversifying research risks and minimizing
uncertainty of drug recalls and other negative
events.
• Creating a global, more virtual R&D
organization.
Sources: Deloitte Thought Leadership and Eminence reports and
White papers Copyright © 2015 Deloitte Development LLC. All rights reserved.
©2005 Firm Name/Legal Entity
What Keeps Life Sciences Executives Up at Night?
Top Drivers Company Challenges
Increased Competition and Pricing
Pressures
• Rising global competitive forces are
spurring innovation and forcing life science
companies to be able to create successful
strategic collaborations and alliances.
• Benefits of collaboration include increased
access to: 1) marketing and distribution
channels, 2) R&D, 3) manufacturing, 4)
regulatory expertise, and 5) new markets.
Managing Complex Business Functions and
Stakeholders
• Partnering effectively with firms that have
different expectations, operating models, and
cultures.
• Companies need agile research and
development, sales, and marketing
organizations to partner and execute.
Rising Influence of Emerging Markets
• The role of emerging markets as
developers and consumers across the life
science sector is projected to significantly
grow in the next decade.
• Life science companies estimate 25% of
their revenues to come from emerging
markets by 2015.
Selecting the Right Investment Expansion
Strategy
• Critical success capabilities include an
effective regulatory strategy, M&A experience,
alliances, outsourcing, R&D, product
discovery, manufacturing, and sales and
marketing.
Sources: Deloitte Thought Leadership and Eminence reports and
White papers Copyright © 2015 Deloitte Development LLC. All rights reserved.
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – How do the dollars break down
National Health Expenditure Accounts (“NHEA”)
• Official estimates of total health care spending in the United
States
• Provides U.S. expenditures for spending including health
care goods and services, net cost of health insurance,
government administration, etc.
Sources: Centers for Medicare & Medicaid Services
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – How do the dollars break down
• U.S. health care spending growth:
Spending grew 3.6% in 2013
Reaching and estimated $2.9 trillion
Estimated to be approximately $9,255 per person
Health care spending – approximately 17.4% of Gross
Domestic Product
Note – (2013 – latest available statistics from CMS)
Sources: Centers for Medicare & Medicaid Services
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – How do the dollars break down
Sources: Centers for Medicare & Medicaid Services
Break down of Health Insurance spending:
• Private Health Insurance accounted for 33%
• Medicare accounted for 20%
• Medicaid accounted for 15%
• VA, DOD, CHIP for 4%
• Out of Pocket spending for 12%
• Remainder from various programs
Note – the sum of the pieces may not equal 100% due to rounding
Health Insurance
72%
Out of Pocket 12%
Other Third Party Payers /
Programs 8%
Investment 6%
Government Public Health
Activities 3%
Calendar Year 2013
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Polling Question: Life Sciences Industry Trends
Where did the largest amount of health care spending go in
2013?
A – Prescription Drugs
B – Government Administration
C – Physicians and Clinics
D – Hospital Care
E – Investment
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – How do the dollars break down
Hospital Care 32%
Physicians and Clinics
20%
Other 14%
Prescription Drugs 9%
Dental and Other Services
7%
Government Administration
7%
Investment 6%
Nursing Care and CCRAs
5%
Calendar Year 2013
Sources: Centers for Medicare & Medicaid Services
How does Other Spending break down?
• Other Health, Residential, and Personal Care – 5%
• Durables & Other Non-Durables – 3%
• Government Public Health Activities – 3%
• Home Health Care – 3%
Note – the sum of the pieces may not equal 100% due to rounding
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Where is Spending Projected to Go in 2013 and beyond?
• Health care spending – projected to grow at an average
rate of 5.7% from 2013 to 2023
• Faster spending and growth in 2014 driven by:
• Improving economic conditions
• Affordable Care Act coverage expansions
• Aging population
Sources: Centers for Medicare & Medicaid Services
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Other Market Trends
• Focus shifting to biologics and genomics = advances in
treatments that use the body’s own defenses to attack
disease
• Industry and analysts anticipate that Oncology and auto-
immune disorders to have larger potential for growth
• More precise treatment through better diagnostic tools
• Specialty and biologics expected to lead in industry profits
• M&A activity reaching all time highs
Sources: Deloitte Thought Leadership and Eminence reports and
White papers
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Other Market Trends
• M&A Activity in Life Sciences
• Global YTD value of deals was $600 billion for July 2014
compared to $200 billion for July 2013
• One way forward to respond to changing landscape of the
life sciences industry
Sources: Deloitte Thought Leadership and Eminence reports and
White papers
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Other Market Trends
• Driving Factors of M&A Activity in Life Sciences
• Financial Pressures
• Decreased reimbursement
• Expiration of patents
• Diversification of portfolios
• Changing demographic trends – aging population
• Tax considerations due to global environment and looking
for ways to restructure that allow for efficient use of
foreign capital
Sources: Deloitte Thought Leadership and Eminence reports and
White papers
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Other Market Trends
• Types of Transactions expected in the coming years
• Collaboration Agreements
• Licensing Agreements
• Mergers & Acquisitions
• Joint Ventures
Sources: Deloitte Thought Leadership and Eminence reports and
White papers
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Life Sciences Industry – Other Market Trends
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Questions?
In recognition of completing the Industry Boot Camp on March 16, 2015
at the 11th Annual CBI Pharmaceutical/Biotech Accounting
and Reporting Congress
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Matt Riviello: AERS Partner
Office: 215-405-7774
Mike Lombardo: AERS Senior Manager
Office: 973-602-6860
Mike Makovec: AERS Senior Manager
Office: 973-602-5071
Deloitte Presenter Contact Information