Click to edit Master title style Helen Stevenson President & CEO, Reformulary Group

Click to edit Master title style 2 © Reformulary Group, 2012STRICTLY CONFIDENTIAL January 2002: “A nation’s costly addiction” A nation’s costly addiction, January 19, 2002, The Ottawa Citizen – “Canada’s soaring prescription costs are forcing a clash between an aging population’s insatiable demand for new and better drugs, and society’s ability to pay…that double- digit growth is, in part, a function of Canada’s stunning drug addiction.” – “Reports commissioned by Canada’s health ministers have discovered that only a small fraction (between 1 to 5%) of provincial drug budgets are spent on honest-to-goodness breakthrough drugs…me-too drugs have overwhelmed provincial drug budgets by sheer volume…” – “With so much money already going into health care, Canada does not have the economic might to swallow continual double-digit increases in its drug bill.” Per capita spending: $360 in IMS Health, as quoted in The Ottawa Citizen, January 19, 2002

Click to edit Master title style 3 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Private sector spending on prescription drugs keeps increasing: $15.1 billion in 2011, or 6.8% growth over 2010 – Claims that drug spending has slowed only true for public sector plans (government funded plans), which grew at 2.2% in 2011 to $12.1 billion. Notably, a 1% increase = $120 million – Private sector spend in 2010: $14.2 billion; 6.6% growth rate – Private sector spend in 2011: $15.1 billion; 6.8% growth rate* A decade later: 2012 * Drug Expenditure in Canada, Canadian Institute for Health Information, 2011 The fact is that employers that sponsor group benefit plans face the same crushing cost pressures as have public plans, but have lagged behind the public sector in taking action

Click to edit Master title style 4 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Yet we continue to spend more Canadians are among the most enthusiastic consumers of prescription drugs in the world – Per capita spending: $929 in 2011* (Canada has 2 nd highest level of total drug expenditure per capita in the world) Employer-sponsored plans spend $41 million per day, or $288 million per week, or $15.1 billion per year Growth is coming from increasing use of “biologic” medicines that cost – on average – 22 times more than ordinary drugs

Click to edit Master title style 5 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Some of the leading products ($) in Canada Source: IMS Health. Leading products by drugstore & hospital sales, 12 months ending September 2011 ChemicalProduct Brand Launch Date CorporationSales $(000's)Growth Share of Corp.'s Revenue rosuvastatinCRESTORFeb-03AstraZeneca720, infliximabREMICADEMay-92J & J498, clopidogrel bisulfatePLAVIXOct-98Bristol Myers Squibb305, etanerceptENBRELMar-01Amgen287, adalimumabHUMIRASept-04Abbott287, esomeprazoleNEXIUMAug-01AstraZeneca283, oxycodone hydrochlorideOXYCONTINAug-96Purdue Pharma234, ranibizumabLUCENTISAug-07Novartis228, fluticasone/salmeterolADVAIR DISKUSOct-99Glaxo SmithKline201, pregabalinLYRICAJun-05Pfizer199, rituximabRITUXANApr-00Roche185, titropium bromideSPIRIVAJan-03Boehringer176, ezetimibeEZETROLJune-03Merck Canada157, escitalopramCIPRALEXMar-97Lundbeck155, celecoxibCELEBREXApr-99Pfizer153, Top 15 products represent 19% of total (dollar) market

Click to edit Master title style 6 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Enter the biologics… Differences between small molecule drugs (aspirin) and biologics are driven by complexity. Consider a scooter vs. jet Cost of biologics often exceeds $25,000 per patient per year and can reach $1 million per patient per year – Biologics such as EPREX, NEUPOGEN, NEULASTA, RITUXAN, AVASTIN, HERCEPTIN, ENBREL, REMICADE, HUMIRA…and ELAPRASE No exact generic equivalent ++ “The battle to bottle up drug costs”, The Globe and Mail, August 11, 2012 “…new specialty drugs can set back a company’s plan by tens of thousands of dollars or more annually for an individual’s single prescription …While less than 1 per cent of private benefit plan members use these expensive new drugs, spending on them makes up 17 per cent of drug plan expenditures …and it will reach 26 per cent within three years” ++

Click to edit Master title style 7 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Soaring growth of biologics in employer plans Source: Presentation by Barb Martinez, Mercer, Pharma Pricing, Reimbursement, and Market Access Conference – Private Drug Plans, May 1, Mercer client examples Real employer examples

Click to edit Master title style 8 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Future growth forecast of biologic drugs (US data) If you believe industry consultants (such as EvaluatePharma), then half of all drugs will be biologics, and biologics are up to 20 times more expensive than traditional drugs

Click to edit Master title style 9 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Expect the SEBs… SEBs, or Subsequent Entry Biologics, are biologic products that are similar to and enter the market subsequent to an approved innovator biologic At least 3 SEBs available in Europe; US market evolving Omnitrope is 1 st SEB in Canada, launched on April 20, 2009 – 1 st version of a previously approved biologic Since SEBs are not “interchangeable”, plans cannot mandate substitution via generic substitution design; better to start new patients on SEBs While pricing anticipated to be in range of 70% of price of “brand” biologic, products are not interchangeable therefore generic pricing rules do not apply SEBs are a good thing, but private plans need to be prepared and develop a pricing strategy ahead of their entry into marketplace

Click to edit Master title style 10 © Reformulary Group, 2012STRICTLY CONFIDENTIAL What is an evidence-based formulary? 11 The case for smarter drug plans 5 10 © Reformulary Group, 2012STRICTLY CONFIDENTIAL A formulary that considers clinical and cost evidence for each drug, and, based on the evidence, recommends the drug as “preferred” or “non-preferred” – Clinical effectiveness: how effective the drug is – Cost-effectiveness: the cost of the drug compared to similarly effective drugs Preferred drugs are reimbursed at a higher level, meaning that employees pay less because the drugs are both clinically and cost-effective Non-preferred drugs are reimbursed at a lower level, meaning that employees pay more for these drugs because they are either: – Similarly effective but more expensive – Less effective and the same price Strategies such as step therapy, special authorization, quantity limits are all embedded within the evidence-based formulary

Click to edit Master title style 11 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Why is an evidence-based formulary a smarter drug plan? 11 The case for smarter drug plans 5 11 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Because plans are paying for value – Employees are encouraged to move to drugs that are effective and cost-effective – Employers may be confident that they are providing value in their employee health plan – Employers may also benefit from negotiated discounts on some products All publicly funded plans in Canada follow an evidence-based formulary Virtually 100% of all plans in the U.S. follow an evidence-based formulary

Click to edit Master title style 12 © Reformulary Group, 2012STRICTLY CONFIDENTIAL The Reformulary is an evidence-based formulary made up of about 8,000 drugs used to treat numerous health conditions (like high blood pressure, or diabetes, pain)  Has 3 tiers: Preferred, middle, and non-preferred drugs  Tiers are reimbursed at different co-pay levels (for example, 90%-60%-30% or 80%- 50%-20%)  Includes brand and generic drugs on all tiers, where appropriate  Features step therapy, special authorization and quantity limits Reformulary 11 What is the Reformulary? 5 12 © Reformulary Group, 2012STRICTLY CONFIDENTIAL

Click to edit Master title style 13 © Reformulary Group, 2012STRICTLY CONFIDENTIAL How do we handle biologics?

Click to edit Master title style 14 © Reformulary Group, 2012STRICTLY CONFIDENTIAL How do we handle biologics?

Click to edit Master title style 15 © Reformulary Group, 2012STRICTLY CONFIDENTIAL Communicate, communicate more, communicate again