Consolidation in the Pharmaceutical Industry Charles Baum, MD, MS, FACG Vice President and Head US Medical Affairs Takeda Pharmaceuticals USA

Bio-Pharma M&A History 30 y consolidation: ~110 companies >>> 30 Early – national consolidation (e.g., Glaxo, Welcome and Smith/Kline) Later – US market serves as nidus for small overseas companies – Multinational consolidation Largest companies command no more than 10% of market share David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

The History of Bio-Pharma M&A's: Pfizer 10 companies >>>>> 1 David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

The History of Bio-Pharma M&A's: Sanofi 18 companies >>>>> 1 David Davidovic, http://www.pm360online.com/the-history-of-bio-pharma-industry-mas-lessons-learned-and-trends-to-watch/

Historical Drivers of M&A 1980's (profit pressure) Rising R+D costs Passage of Waxman Hatch Act Price competition from generics 1990's (declining profits) LOE and end of blockbuster era Rise of buyer-side market power (MCOs/PBMs) 2000's (single digit growth) Shrinking Pipelines and Emergence of bio-techs Overcapacity drives branded pharma M&A Eliminating competition drives generics manufacturers M&A

Trend in 2015 is continuing with $221 billion worth of deals in first half of year Pfizer has lead the way with >$219 B spent since 1994 and more possibly on the way with puchase of allergan, split https://www.levinassociates.com/dealsearch

Overcapacity Drives M&As M&As result in cost savings of 30-40% appeasing investors Restructuring of Development and Commercial functions Strategic shift from "me too" to novel specialty and orphan indications New commercial models that leverage lower cost multi-channel/digital marketing A shift from salesforce to value-based contracts with payers and health systems (IDNs) Reduce research investment in favor of biotech partnerships and acquisitions. Outsourcing William Pursche: The McKinsey Quarterly, 1996

M&As Drive Global Footprint: Example -Takeda and Nycomed Merger Low Interest Rates Favorable Exchange Rates

Medicaid Spending and Prescriptions for Albendazole (Amedra Pharma) and Mebendazole (Terminated by Teva) High Cost Generic Drugs – Implications for patients and policymakers. Alpern et al., NEJM 371;20:1859-1862 In October 2010, GlaxoSmithKline sold U.S. marketing rights for albendazole to Amedra Pharmaceuticals. In October 2011, Teva Pharmaceuticals ceased to manufacture mebendazole. Data are from the Centers for Medicare and Medicaid Services.

Generics Manufacturers and Pricing Turing Pharmaceuticals - Martin Shkreli raises price of generic Daraprim (pyramethamine) from $13.50 to $750 per tab – used to treat life threatening toxoplasmosis infections in HIV and cancer patients Valeant has acquired 100 drugs and increased price of 56 drugs by average of 66% The case of Isuprel and Nitropress (525% and 212% increases) Ascension health has calculated cost impact for its system of ~$8 M. PhRMA speaks out

Despite Several Bad Actors Generic Drug Prices Continue to Fall http://www.aarp.org/content/dam/aarp/ppi/2015/trends-in-retail-prices-of-generic-prescription-drugs.pdf

Impact of Consolidation for Innovators Financial Reduction in competition drives bargaining power with payers Tax implications Efficiency Greater expertise, deal making agility, regulatory success Innovation Focused pipelines – specialty pharma, oncology and orphan indications Emphasis on Inorganic Growth Increase in venture capital and fostering of biotech Academic partnerships

FDA Approvals Indicate M&As Have Positive Effect on Pharmaceutical Innovation http://www.fda.gov/drugs/developmentapprovalprocess/druginnovation/ucm20025676.htm

Number of US Biotech Companies is Growing 27% Increase since 2012 Public Co. Private Co. Total http://www.statista.com/statistics/197930/number-of-united-states-biotech-companies-by-type/

Looking Beyond M&A Partnerships (basic and foundational research, co-promotion and co- development/commercialization arrangements) Spinoffs and divestitures Asset swap deals ACA is helping drive alignment between payers, healthcare and pharmaceutical manufacturers Moving "beyond the pill" is driving non-traditional business development