Oncology National Commercial Study

Ten Transformative Trends

Campbell Alliance Thought Leadership Report prepared by Jeff Stewart and Nader Naeymi-Rad

INTRODUCTION
Ten Transformative Trends
A perfect storm is brewing in oncology. We do not say this lightly. Big pharmas highly redundant oncology pipeline has created intense competition. At the very time when oncology developers need most to differentiate their

products in the marketplace, traditional commercialization tools are being swept away. Big pharma finds itself in very different waters from those of a decade before, and many companies are ill prepared to weather the coming storm. Oncology is a therapeutic area with cuttingedge science and high per-patient revenue.

Our clients have increasingly engaged us on oncology licensing and launches, and we saw the need for an insiders view of commercial changes in the industry not generally available in the primary literature or analyst reports. Hence, we initiated the Oncology National Commercial (ONC) study. In ONC, we surveyed industry experts, physicians, payers, and key opinion leaders (Box 1).

Box 1

Methodology
Primary Research
Industry
Oncology-focused pharma/biotech Senior leadership interviewed 9 top 20 companies 6 multinational and regional

Payers
National and regional plans Some integrated delivery systems

Key Opinion Leaders

10 highly published, internationally respected oncologists Experienced clinical trial investigators

Physicians
20 community hematologists/ oncologists

Secondary Research
Industry Insights
Experience from over 300 oncology projects in the last 3 years alone Campbell proprietary data Our Dealmakers Intentions Survey

Pipeline Analysis
Large pharma oncology pipeline 2000 and 2010 MOA, tumor types, and product composition by phase

Campbell interviewed industry leaders, payers, key opinion leaders, and physicians. We supplemented the results of these interviews with industry insights and secondary data. Campbell analyzed the oncology pipeline held by midsize and large pharmaceutical companies over the past decade. We selected these companies to analyze because their pipelines are those with the most commercial backing, and changes in these pipelines reflect mainstream market expectations. Analyzed companies included Abbott, Alkermes, ALZA, American Home Products, Amgen, Astellas, AstraZeneca, Aventis, Bayer, Bayer Schering, Biogen IDEC, Bristol-Myers, Bristol-Myers Squibb, Celgene , Chugai, Daiichi, Daiichi Sankyo, Dainippon, Eisai, Eli Lilly, Endo, Enzon, Fujisawa, Genentech, GlaxoSmithKline, Ilex Oncology, Johnson & Johnson, Medivation, Merck, Mitsubishi, Myriad, Nektar, Novartis, Pfizer, Pharmacia, Roche, Sankyo, sanofi-aventis, Schering-AG, Schering-Plough, Takeda, Teva, Watson, and Yamanouchi. Note that some of these companies existed as independent entities at only one part of the decade.

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

We were not surprised to find that the oncology market had changed over the past decade, but the scope of the change did surprise us. When we consolidated the changes reported to us, an alarming pattern emerged. The oncology space had transformed in such a way that never-before-seen competition is now built

into the marketplace, yet few companies are prepared to operate in the face of this intense competition. We confirmed our findings with additional data on big pharmas oncology pipeline and commercialization efforts. Here, we present

these findings so that our clients may prepare themselves to survive in rough seas. Our findings may be summarized as Ten Transformative Trends (Box 2).

Box 2

Ten Transformative Trends

1. Large pharma has dramatically expanded its oncology pipeline 2. The oncology pipeline has become increasingly targeted 3. Multiple oncology therapies target the same molecular pathways 4. Multiple agents are now tested against even rare tumors 5. Biomarkers are fragmenting the oncology market 6. Oncology has become a blockbuster machine 7. Oncology is saturated with sales reps

8. Oncologists are no longer the sole decision makers 9. Payers are beginning to manage oncology 10. Oncology asset valuation may be a bursting bubble

TREND 1
Large pharma has dramatically expanded its oncology pipeline
The first trend is the growth in the oncology pipeline held by large pharma. Large pharma has developed and bought its way into oncology to the point where there were two and a half times as many compounds in clinical trials in 2010 as in the large pharma pipeline of 2000. Furthermore, the pipeline includes many more early-stage agents than before (Figure 1).1 All the largest pharmaceutical companies that publish areas of in-licensing interest actively requested additional oncology products for their pipelines in 2010 (Figure 2).2 Hence, the trend toward having more in the oncology pipeline is likely to continue. The bottom-line effect is that competition is sharply higher based on gross numbers.
Large Pharma Oncology Trials

Figure 1

Large pharmas oncology pipeline expanded by a factor of 2.5 between 2000 and 2010.
Evolution of the Large Pharma Oncology Pipeline by Phase, 2000-2010
140 120 100 80 60 40 20 0
I II Phase III 32 45 4.1x 130 2.4x 110 1.5x 70 46 2000 2010

Figure 2

In 2010, large companies continued to state an interest in in-licensing oncology assets.

Immunotherapyand vaccines Signal transduction Growth factors Angiogenesis Solid tumors Hematology DNA repair Cytotoxics Stem cells Apoptosis Kinases

General interest Specific interest

Pfizer Roche S-A Novartis AstraZeneca Abbott Merck & Co BMS Eli Lilly

1 2

Cowen Therapeutic Categories Outlook 2000 and 2010; Company annual reports; National Cancer Institute; clinicaltrials.gov; Campbell Analysis. Company websites. Accessed January 2010. Note that some large pharma companies (GSK and JNJ, for example) do not publish areas of partnering interest.

RNAi

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

TREND 2
The oncology pipeline has become increasingly targeted
The second trend is the shift away from therapeutics such as cytotoxic agents and broad cell-cycle inhibitors that treat cancer with little specificity. The agents filling the 2010 pipeline are much more targeted than the agents filling the 2000 pipeline (Figure 3).3 The shift is even more dramatic when considering novel agents (as opposed to line extensions). Targeted therapeutics have obvious benefits increased efficacy and potentially lower side effects. However, an unintended consequence of exquisite targeting is exquisite competition. There is now great overlap in particular mechanisms of action and targets among the large-pharma oncology pipeline.

Figure 3

Oncology therapies are increasingly targeted.

Mechanism of Action Cell surface receptor (e.g., ADCC) DNA repair More Targeted Growth factor/GFR Angiogenesis Proliferation (typically kinases) Apoptosis Less Targeted Other MOA Matrix metalloproteinase Immune modulator Hormone Cell cycle (typically cytotoxics) Pipeline Share, 2000 4.4% 3.5% 9.7% 5.3% 5.3% 2.7% 9.7% 1.8% 7.1% 10.6% 39.8% Pipeline Share, 2010 7.5% 3.1% 17.3% 18.4% 20.8% 4.7% 2.0% 5.9% 4.3% 16.1% Multiple 1.7X 0.9X 1.8X 3.5X 2.9X 1.7X 0.2X 0.0X 0.8X 0.4X 0.4X Trend

Note: Includes solid tumors and hematologic tumors; excludes supportive care.

TREND 3
Multiple oncology therapies target the same molecular pathways
The third trend is the increasing number of compounds targeting the same molecular pathways. Multiple companies have, for example, mTOR inhibitors, PARP inhibitors, and VEGF inhibitors in clinical trials. In 2000, oncology agents in clinical trials arose from fishing expedition screening efforts that yielded a generally diverse set of targets and mechanisms of action. Large pharmaceutical companies in 2000 could expect somebut far from intensedirect competition. This situation did not outlast the decade. The 2010 large pharma oncology pipeline has been driven by new understanding of molecular pathways. Agents are increasingly engineered to their targets. The same scientific transparency has led to intense competition (Figure 4). If we focus on the top 10 targets (Figure 5), outside of the top 5, all of the other targets had only one or two agents targeted to them in the pipeline in 2000. Contrast this with 2010, where many more agents are targeting the same pathways (typically kinases within these pathways).

Figure 4

Oncology agents increasingly overlap.

2000 Low Target Overlap, Low Competition 2010 High Target Overlap, High Competition

Relatively few agents Diverse (if less effective) target pathwayscompounds found through large-scale screening Broad effects applicable to many tumors (but with significant side effects)

Many more agents Highly redundant target pathwaysmany agents developed specifically to target known pathways More narrow effects applicable to a few tumors (but with lower side effects)

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

KOLs in particular noted this trend: I absolutely do think the market is pretty ripe with these agents, and so is the pipeline, and For example, in JAK2 inhibitors, there are perhaps 10 drugs in development. Sophistication of drug development has made it easier to de-

velop drugs and has made competition much more acute (oncology KOL interviews). This competition also affects the availability of patients in clinical trials. Take, for example, PI3K inhibitors. Every company is looking at

this, and there are just not enough patients, and Major companies probably have projects in a half dozen of these overlapping areas. Intense competition is a good summary statement (oncology KOL interviews).

Figure 5

Many more agents are targeting the same pathways.

Top 10, 2000 Target/Pathway Microtubules Topoisomerase EGFR VEGF p53 Endothelin MMPI Thymidylate Synthetase PKC HER2 Compounds in Trials 11 8 8 4 3 2 2 2 2 2 Compounds in Trials 20 18 15 14 10 10 9 9 7 6 Target/Pathway VEGF PI3K/AKT/mTOR MAP/Erk EGFR Microtubules c-Met/HGFR Topoisomerase IGF PARP Aurora Top 10, 2010 Reason(s) for Interest Proven target (Avastin) Multiple tumor types Multiple tumor types Multiple tumor types Proven target (Erbitux, Iressa, and Tarceva) Multiple tumor types Proven target (low risk to develop) Multiple tumor types Proven target (low risk to develop) Overexpressed in wide range of tumors Overexpression associated with progression Highly specific target (few side effects) Widely reported efficacy in early trial (olaparib) Overexpressed in a variety of cancers New mitosis target

TREND 4
Multiple agents are now tested against even rare tumors
In 2000, 63% of new compounds in late-stage clinical trials were tested on one or more of the big five solid tumors (breast, colorectal, gastric, lung, and prostate). By 2010, this share had dropped below 50% (Figure 6). Gleevec is the prime example showing that you can make money off a small market (oncology KOL interview). The story is one of market competition and a scattering to supposed safe havens of ever smaller patient populations (Figure 7). We do not dismiss small indications as long as there is commercial value (industry leader). Unfortunately, these safe havens are not as safe as hoped because multiple companies had the same safe havens in mind. Now even niche indications are increasingly crowded and may represent even more competition per patient than is seen in tumors that affect larger patient populations.

Figure 6

Fewer than half of new agents are currently being tested in the big five.
Fewer agents are being testing in the big five, with breast and prostate cancers leading the decline (lung and gastric cancers are both slightly up).

Share of Novel Compounds Tested on Zero-to-Five of the Big Five in Phase II or Phase III
60% 50% Share of Compounds 40% 30% 20% 10% 0 0 1 2 2000 Number of Big Five Tumors Tested 3 6.7% 36.7% More than 60% of novel compounds in development were tested against one or more of the big five tumor types in 2000. 32.2% By 2010, this number had dropped to 49%, as novel agents are now tested more often in rarer tumors.

51.1%

in the big five 2000

2.2% 1.1% 4

63.3%

27.8%

in the big five 2010

8.5% 1.7% 0.6% 4 1.7% 5

48.9%

0.0% 5 0 1 2 2010

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

Figure 7

The big fives losses have been the gains of niche tumors.
While the big five has lost trial share as a group, other tumor types have gained. These include hematologic tumors and rare tumors.
Change in Tumor Type in Niche Tumors, Novel Agents, Late-Stage Clinical Trials
Increasing Share Decreasing Share

40%
5.4%

10%
4.4% 4.4% 2.9% 2.8% 0.9% 0.9% 0.0%

Share of Late-Stage Compounds

5%
-0.8% -1.7% -4.9%

30%

20%

-5% -10%

10% -15% 0%
Ne Li ur oe ver nd oc r Ly ine m ph om a Ga st Gli ob ric las to m a Me lan om a Le uk em ia Ce rv Es ical op ho ge al Ur ina ry Ov ar ian Pr os tat e Pa nc re at ic Bl ad de En r do m et ria Ka l po s Co is lor ec ta l Lu ng tis Re su n e s al ar co m a Br ea st HN C

-20%

2000 2010 Share change

So ft-

Share Change

0%

TREND 5
Biomarkers are fragmenting the oncology market
Biomarkers are also fragmenting the market into smaller niches where competition then becomes focused (Figure 8).4 Biomarkers, on one hand, allow for increased efficacy and smaller clinical trials. On the other hand, biomarkers necessarily narrow the market and funnel compounds with similar MOAs to the same biomarker-defined patients. Industry leaders expect this trend to continue (Figure 9).5 KOLs believed that biomarkers were necessarily the wave of the future and would further fragment the market by defining ever smaller patient populations but may provide fewer payoffs than expected. We are further off from where we hoped to be. The buzz far exceeds the data to facilitate implementation (oncology KOL interview).

Figure 8

Biomarkers are playing an increasing role in fragmenting the oncology market.

Oncology Biomarkers: FDA Label Indications, Warnings, and Contraindications Biomarker CD117 (c-Kit) DPD EGFR Estrogen receptor G6PD HER2/neu KRAS PDGFR Philadelphia chromosome PML/RAR-alpha TPMT UGT1A1 5q deletion Product (Indication) Gleevec (GIST, ASM) Xeloda (BC, CRC) Erbitux, Vectibix (CRC) Tamoxifen (BC) Elitek (lymphoma, leukemia, solid tumors) Herceptin (BC, gastric), Tykerb (BC) Erbitux, Vectibix (CRC) Gleevec (MDS) Gleevec (CML, ALL, AML), Sprycel (CML, ALL), Tasigna (CML) Trisenox Purinethol (ALL), Thioguanine (ANL) Camptosar (CRC) Revlimid Utility Must have c-Kit (GIST); must not have D816C c-Kit mutation (ASM) Dosage tailored in DPD deficiency Indicated for EGFR expressing CRC ER-positive patients more likely to benefit Contraindicated for G6PD deficiency Must have HER2 over-expression Not recommended for KRAS codon 12 or 13 mutations Must be associated with PDGFR gene rearrangements Must be Philadelphia chromosome positive Must have PML/RAR-alpha expression or t(15:17) translocation TPMT deficiency requires dose reductions Dose reductions in UGT1A1*28 homozygotes Indicated for 5q deletion cancers

FDA. Table of Pharmacogenomic Biomarkers in Drug Labels. Available at http://www.fda.gov/Drugs/ScienceResearch/ResearchAreas/Pharmacogenetics/ucm083378.htm. Accessed 24 January 2011. Supplemented with Revlimid. Abbreviations: ANL=acute non-lymphocytic leukemia, ASM=aggressive systemic mastocytosis, DPD=dihydropyrimidine dehydrogenase, EGFR=epidermal growth factor receptor, G6PD=glucose-6-phosphate dehydrogenase, GIST=gastrointestinal stromal tumor, HER=human epidermal growth factor receptor, KRAS=Kirsten rat sarcoma, MDS=myelodysplastic syndrome, PDGFR=plateletderived growth factor receptor, PML/RAR=promyelocytic leukemia/retinoic acid receptor, TMPT=thiopurine methyltransferase, UGT1A1=gene encoding UDP glucuronosyltransferase 1 family, polypeptide A1.
4

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

Over the past decade, large pharmas oncology pipeline has changed such that intense competition is inevitable. Clinical trials will become increasingly difficult to complete because of competition for patients, investigators, and sites. Regulatory approval will likely become more difficult as the standard of care fills

with me-too oncology products. The oncology market has matured, and new oncology products will be launched in the face of direct competition from similar products. Commercialization efforts will become increasingly important as companies struggle to differentiate themselves in the marketplace.

In summary, oncology development is becoming a victim of its own success. Large pharma now has an increasingly detailed molecular map of oncology. The problem is, when everyone reads the same map, they dig in the same spots and fight over the same buried treasure.

Figure 9

Industry leaders believe biomarkers will become increasingly important in oncology.

Industry Biomarker Plans in Oncology Does your company have a biomarker strategy?
Yes 90% No 10%

Integration Into Development Degree of Financial Investment Likely to Make

Low 20% Medium 30% High 50%

Importance to Future Oncology Business

Low 15% Medium 31% High 54%

Reactive 14%

Proactive 57%

Retrospective 29%

How Different From Today

Same 25% Decrease 0% Increase 75%

Everything will be retrospective ... [but regulatory authorities] value prospective over retrospective.

So far it has been reactive, but this will change now that the company is in-licensing more.

Industry interviews. Note that interview subjects who did not answer were not considered in this analysis.

10

TREND 6
Oncology has become a blockbuster machine
Over the past decade, oncology has become a blockbuster machine. Oncology is among the fastest-growing therapeutic areas in terms of branded therapeutic revenue. In the US, oncology revenues have grown 182% over the past decade (Figure 10).6 Entering 2010, oncology blockbusters had become much more valuable than they were in 2000. In 2000, only two oncology drugs had more than $1 billion in revenue. In 2010, all 10 of the top 10 oncology drugs exceeded $1 billion in sales (Figure 11).7 This revenue growth has come in the face of decreasing incidence for most cancers in the US.8 Instead, revenue growth has come largely through the increasing price of new oncology drugs (Figure 12).9 Another factor leading to increasing revenue in the oncology space is earlier diagnosis that allows for longer duration of therapy.10 A third factor is the now-common use of combination therapies in the first line11 (and each of the constituents of combination therapy costs more in 2010 than in 2000). While the number of oncologists in the US has grown (Figure 13)12 3.3% annually over the 2000s, this growth has not kept up with oncology revenue. Rising oncology revenues have made each oncologist a valuable mini marketplace. Over the past decade, the annual pharmaceutical revenue per oncologist has risen from a base of just under $1 million to nearly $2 million (Figure 14).13

Figure 10

Oncology revenues have grown rapidly in the US.

Growth in US Therapeutic Revenue, 2000-2010
25 20
Dollar Growth ($B)

CNS
Oncology/immunology therapeutic revenue has grown to $28B from a base of $10B.

Oncology/Immunology Anti-Infectives Blood

15 10 5 0 Musculoskeletal Respiratory Cardiovascular Genito-Urinary Gastrointestinal 0% -5 50% Dermatology 100% 150% 200%

This growth is among the highest of any therapeutic area in terms of dollar value ($18B) and percentage (182%).

Sensory

-50%

250%

300%

350%

400%

Percentage Growth

EvaluatePharma. Accessed 31 August 2010. Note that EvaluatePharma estimates sales by summing reported products sales (line items) and thus may not include smaller products or all royalty payments. MedAdNews. Available at Medadnews.com. Accessed 6 September 2010. Note that supportive care agents are not shown here. SEER. United States Cancer Statistics. Available at seer.cancer.gov. Accessed 27 January 2011. 9 Adapted from Bach PB. Limits on Medicares Ability to Control Rising Spending on Cancer Drugs. New Engl J Med. 2009; 306: 626-633. 10 SEER. United States Cancer Statistics. Available at seer.cancer.gov. Accessed 27 January 2011. 11 NCCN Guidelines. Available at www.nccn.org. Accessed 27 January 2011. 12 Medical Marketing Service. 2010 numbers available at http://www.mmslists.com/data/countspdf/AMA-SpecialtyByTOPS.pdf. Accessed 29 August 2010. 2000 number courtesy of Medical Marketing Service. 13 EvaluatePharma. Accessed 31 August 2010. Note that EvaluatePharma estimates sales by summing reported products sales (line items) and thus may not include smaller products or all royalty payments.
6 7 8

11

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

Figure 11

Oncology has become a blockbuster machine.

Entering 2010, oncology blockbusters had become much more valuable than they were in 2000. In 2000, only two oncology drugs had more than $1 billion in revenue. In 2010, all 10 of the top 10 exceeded $1 billion each in sales.
2000 (Top 10 Worldwide)
Blockbuster Target/Path/MOA Revenue ($M) Revenue ($M)

2010 (Top 10 Worldwide)

Target/Path/MOA Blockbuster

Taxol Intron A, Peg-Intron, Rebetol Lupron/Leuplin Zoladex Paraplatin Taxotere Nolvadex Gemzar Rituxan/MabThera Camptosar

Microtubules Immune modulation GnRH GnRH DNA disruption Microtubules Estrogen receptor Nucleoside analog CD20 Topoisomerase

1,592 1,360 952 734 690 687 576 562 444 441 Total = 8,038 4X

5,729 5,605 4,849 3,944 3,034 2,147 1,921 1,706 1,706 1,654 Total = 32,295

VEGF CD20 HER2 BCR-ABL Microtubules GnRH Aromatase Immune modulation Folate antimetabolism EGFR

Avastin Rituxan/MabThera Herceptin Gleevec Taxotere Lupron/Leuplin Arimidex Revlimid Alimta Erbitux

Figure 12

Oncology therapeutic launch prices have risen sharply.

25,000
Monthly Price of Therapy ($)

Launch Prices for Oncology Therapeutics

20,000 15,000 10,000 5,000 0 1960 1965 1970 1975 1980 1985
Launch Year

1990

1995

2000

2005

2010

12

Figure 13

The number of oncologists has not kept pace with oncology revenues.
The number of US oncologists has grown modestly (3.3% CAGR) over the past decade. This growth has come primarily in hematologists/oncologists, whose ranks swelled by a factor of 2.5 in this time frame. US Oncologists, 2000 to 2010
16,000 14,000 Share of Respondents 12,000 10,000 8,000 6,000 4,000
Hem/Onc, 6,159 Oncology, 5,856

Total, 14,459
Orthopedic Musculo Onc, 84 Surgical Onc, 393 Gynecological Onc, 476 Pediatric Hem/Onc, 2,216

Total, 10,478
Orthopedic Musculo Onc, 50 Surgical Onc, 165 Gynecological Onc, 457 Pediatric Hem/Onc, 1,522

CAGR 3.3%

Oncology, 5,131

2,000 0

Hem/Onc, 2,428

2000

2010

Figure 14

The annual prescribing value of each oncologist has doubled.

Each Oncologist Is Now Associated With Nearly $2M in Annual Drug Revenue
2,000,000 Pharmaceutical Revenue per Oncologist 1,800,000 1,600,000 1,400,000 1,200,000 800,000 600,000 400,000 200,000 0 2000 2010e 1,000,000 $947,122 $1,931,960

13

CAGR 7.4%

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

TREND 7
Oncology is saturated with sales reps
In the past decade, the growth in oncology sales representatives was 6.9%, annually, far outstripping the 3.3% growth in oncologists (Figure 15).14 This growth has outpaced the growth of oncologists in the US to the point where there are 3 reps for every 10 oncologists (Figure 16). This increase in sales reps per oncologist limits access by competition. In addition, our industry and physician interviews confirmed that access is increasingly limited directly. For example, Hospitals and physician offices are putting guidelines in place to restrict access (industry leader), and We dont let reps come in routinely. This is a decision made by the institution, because they may result in conflicts of interest and may not be in the best interest of the patients (physician interview). Sales representative access to physicians is already limited such that about half the time, sales reps are unable to see the physician (Figure 17). The limited access currently available to sales

Figure 15

Sales reps targeting oncology grew 6.9% annually.

Oncology Sales Representatives, United States, 2000-2010
5,000 4,500 Sales Representatives 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Q1 04 Q1 00 Q1 06 Q1 08 Q1 05 Q1 09 Q1 03 Q1 02 Q1 07 Q1 10 Q1 01

14

SDI. Used with permission.

CAGR 6.9%

14

Figure 16

Oncology is saturated with sales reps.

Concentration of Oncology Sales Representatives
2000

21 reps per 100 oncologists

2010

30 reps per 100 oncologists

15

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

representatives would suggest that the industry may be over-invested in sales reps targeting highprescribing oncologists. Industry leaders expect that oncology sales forces will net increase (Figure 18), and this may imply that access will become even more competitive.

In order to earn a share of ever-limited oncologist access, manufacturers must provide additional perceived value to oncologists. Of the service provided by oncologist-facing resources, new information is perceived to be the most valuable (Figure 19). However,

because sales reps cannot provide the full range of medical information, the Medical Affairs function is becoming an increasingly important oncologist-facing resource.

Figure 17

Access is ever more limited.

Physician-Reported Access Restrictions
Number of Reps per Week (7%) Forbidden (7%) Minor Restrictions (29%) No Restrictions (36%) 50% Lunch Only (21%) Physicians 40% 30% 20% 10% 0%
0%-24% 25%-49% 50%-74% 75%-100% Dont know

Oncologist-Reported Rep Access Restrictions

Share of time rep fails to access oncologist

16

Figure 18

Access is limited and will get more so.

Oncology Sales Force Size: Potential Changes

Increase up to 25% (9%)

Increase more than 25% (27%)

Decrease more than 25% (9%) Decrease up to 25% (0%)

No change (55%)

Figure 19

Information is the highest value service provided by sales reps.

The optimal way to increase access efficiency will be to increase the information content and expertise provided by oncologist-facing resources.
Perceived Value of Sales Representative Services
100% Share of Responses 75% 50% 25% 0

New Information

Access / Reimbursement Support 4 = Valuable

Patient Education Materials

Samples

Checking In

Informing of CMEs

5 = Extremely valuable

3 = Moderately valuable

2 = Slightly valuable

1 = Not valuable

17

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

TREND 8
Oncologists are no longer the sole decision makers
Oncologists began the decade making essentially all the decisions in oncology patient care. Now a host of stakeholders influence oncology therapy choice. The federal government has already begun exerting its new influence over oncology treatments.15 In June 2010, CMS announced it planned to review Dendreons Provenge on a national level. State governments are increasingly exerting access influence by mandating coverage and mandating IV/oral cost equivalence (Figure 20).16 By the end of 2010, the full impact of CMSs review of Provenge had yet to play out, but the fact remains that both state and federal governments increasingly mandate or effectively veto oncology therapeutic utilization. As discussed, overall costs are now high enough to motivate payers to manage oncology therapeutics. Payers are also shifting costs to patients, who are increasingly exposed to high co-pays or coinsurance. Patients are responding somewhat to price. For example, when monthly out-of-pocket expenses rise above $500, more than a quarter of patients do not remain adherent to oral oncology therapeutics (Figure 21).17 Oncology manufacturers responded in some cases by providing patient co-pay assistance programs; however, these programs may be

Figure 20

State governments are mandating treatment decisions.

No mandated coverage Mandated coverage if in recognized compendia or peer-reviewed medical literature Mandated coverage if use is listed in recognized compendia only Mandated coverage if use is supported in medical literature only Mandated coverage if use is medically necessary (but no other requirements)

Bach, PB. Limits on Medicares Ability to Control Rising Spending on Cancer Drugs. N Engl J Med. 2009 Feb 5; 360(6): 626-33. Note: A number of states include medical necessity as an additional standard for coverage beyond the compendia or medical-literature standards, including AL, AZ, AR, CA, FL, IL, LA, ME, MD, MA, MN, NE, NV, NJ, OH, OK, OR, RI, SD, TN, VT, and VA.
15 16

18

underutilized as a result of inadequate patient education. As a result, some patients are opting for less expensive therapy, delaying therapy, or skipping doses. There is mounting evidence that a fairly sizable number of eligible patients dont take advantage of

these programs because they dont know of the programs or assume they do not qualify (industry leader). A fundamental influence shift has begun. As non-oncologists exert ever-greater influence

over oncology therapy choice, successful oncology companies will redeploy customerfacing resources to address the needs of these newly important customers.

Figure 21

Patients are less adherent when they bear the costs of oral oncology products.
100% 90% 80% Share of Patients 70% 60% 50% 40% 30% 20% 10% 0% $0-$100 Discontinuation Adherence $101-$200 Monthly Out-of-Pocket Cost $201-$500 >$500
91.5% 86.0% 83.9% 71.2% 8.5% 14.0% 16.1% 28.8%

17

Patient Out-of-Pocket Cost Affects Adherence to Oral Oncology Medications. Am Health Drug Benefits. 2010; 3:217.

19

Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

TREND 9
Payers are beginning to manage oncology
In 2000, oncology remained an area with few price controls. Oncology has typically gotten a pass, and we have shied away from asking questions because it is cancer (oncology payer interview). The typical flow of injectable oncology drugs was via buy-and-bill, where oncologists purchased oncology products from wholesalers and received payment (including substantial markups) from health plans and Medicare Administrative Carriers. [T]he spread (between the price paid by Medicare and the cost to providers) was hidden. It could vary from doctor to doctor in ways that might have no relationship to how much it costs to administer the drug (Mark McClellan, CMS Administrator 2004-2006).18 By the mid-2000s, oncology practices were able to increase margins by using group purchasing organizations (GPOs) to negotiate more favorable discounts and rebates from manufacturers. Particularly in the oncology setting, the private or commercial payers have to negotiate with the oncology clinics, and a lot of oncology clinics have a lot of negotiating power, and thats put a lot of tension in the wire (George Morrow, Amgen VP Commercial Operations).19 Oncologists joined GPOs to have access to decreased product acquisition costs and effectively increase profits. The profit

Figure 22

Payers are beginning to require prior authorization for the most expensive oncology therapeutics.
Prior Authorization Requirements
Erbitux; 65% Avastin; 65% Eloxatin; 62% Abraxane; 59% Chemotherapy; 51% Taxotere; 37% Herceptin; 34% Rituxan; 31% Remicade; 31%

0%

10%

20%

30%

40%
Share of Lives Covered

50%

60%

70%

Medicare Average Sales Price Rule Predicts $800 Mil. in Savings for 2005. The Pink Sheet Daily. 7 July 2004. Number 003 Private Payers Beginning to Adopt ASP-Based Reimbursement, Amgen Says. The Pink Sheet. 17 April 2006; 68;18;13 Scionti S. Medicare reforma major economic impact on private urological practice. Bus Briefing: US Kidney Urological Dis. 2005. 1-3 21 Painter M. Reimbursement issues with hormonal therapies for prostate cancer. Rev Urol. 2005; 7: S44-S47
18 19 20

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from these drugs also increased the net revenue of most urology practices, with estimates suggesting an average revenue increase of US$100,000 per urologist in the US.20 Oncologists profits did not pass unnoticed. By 2010, both Medicare and many traditional healthcare plans responded by changing the reimbursement methodology to average selling price (ASP), which is net of all rebates and discounts. ASP has removed much of the profit potential from buy-and-bill. For example, Urologists are expected to lose a majority of that income, approximately $60,000 for the average practitioner.21 The downstream effects of lower oncologist profitability are just beginning to be felt, according to the industry leaders we inter-

viewed. Oncologists are shifting unprofitable patients to hospitals. Oncologists themselves are migrating from independent practices to large institutions with financial incentives less aligned with high prescribing. Increasingly, hospitals are eligible for discounted 340B pricing. Section 340B of the Public Health Service Act results in significant savings estimated to be 20% to 50% on the cost of pharmaceuticals for safety-net providers.22 This lower-cost competition further erodes the acceptable margin in the market. Eroding profit margins are leading to a decreasing direct financial interest of oncologists in therapy choice. Therapy choice may be driven more by reimbursement confidence than by access, and decreasing financial incentives may lead to lower prescription rates for expensive therapies.

Management has not stopped at the AWP-toASP shift. Payers are also controlling access to oncology therapeutics explicitly (Figure 22). We have reached a point now that everyone that is looking at it says we cannot pay $50,000 to $100,000 for drugs that do very little and certainly do not cure the cancer (oncology payer interview). Prior authorization is required for up to 65% of covered lives for the most expensive oncology mAbs. Payers typically seek to maintain control by requiring an FDA indication, prior therapy failure, appropriate dosage, appropriate therapy intervals, or compendia listing.23 Finally, the least politically sensitive way for payers to restrict access to oncology products may be use of clinical pathways to define treatment options available for the oncologist (Figure 23).

Figure 23

Payers believe clinical pathways are among the most important issues in oncology.
Commercial Payer Issues
5 4 3 2 1 Increasing prevalence and utilization of clinical pathways Increasing use of restrictions Changes to physician reimbursement Increasing utilization/ importance of SPPs
Scale 1 = Not at all important 2 = Slightly important 3 = Moderately important 4 = Important 5 = Extremely important

Average Rating

4.5 3.8 3.5 3.1

22 23

Introduction to 340B Drug Pricing Program. Health Resources and Services Administration. ICORE Healthcare. Medical Injectables and Oncology Trend Report. 2009.

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Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

TREND 10
The combination of commercial and clinical factors may lead to a bursting oncology asset bubble
Oncology had been a hot area for licensing through the 2000 to 2009 period. In-licensed compounds were evaluated and purchased based on historic trends. Unfortunately for those valuing oncology assets, historic trends have not continued. Many of the key inputs to valuation models appear to be eroding sharply. For example, more intense competition than anticipated should lead to lower market shares than predicted. Trials are more difficult to recruit because of competition for patients, and trials are longer when overall survival, rather than progression-free survival, is the endpoint. Longer trial times lead to less time on the market before loss of exclusivity. Comparator arms now may include extremely expensive biologics. Comparator arms are increasingly expensive. When biologics are on the comparator arms, per-patient costs may increase to $200,000. A single trial can easily run to $200 million (industry leader). It does not take much. In a hypothetical example we changed several of the input factors from 2000-consistent estimates to 2010-consistent estimates.24 This hypothetical oncology asset initially estimated to be worth $93 million (risk-adjusted net present value)25 would only be worth $36 million under updated assumptions (Figure 24). This illustrates the ease of losing more than 60% of an oncology assets value when valuation inputs erode. This value collapse may already have begun. 2010 was the worst year for oncology deals since 2002 to 2003 (Figure 25).26 This comes at a time when the pharma/biotech public market indices grew 11% to 13% for the year. When we consider the number of phase II and phase III assets in each therapeutic category to the number of deals made in that category, we may estimate the inventory of each therapeutic area. Oncology has more than 20 years inventory to work through (Figure 26).27 When a supply glut is combined with eroding valuation fundamentals, a price collapse may be in the works.

Figure 24

Value parameter erosion may lead to oncology asset collapse.

We estimate the risk-adjusted net present value (rNPV) of a hypothetical oncology asset using assumptions reasonable in 2000 (left panel) and compare this with assumptions that are more reasonable given the new commercial realities of 2010. DCF, Historic Assumptions
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Net Cash Flow NPV rNPV

DCF, Updated Assumptions

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Net Cash Flow NPV rNPV

rNPV = $93M

rNPV = $36M

($M)

-500

($M) Year

-500

Year

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Figure 25

2010 was a down year for deal terms in oncology.

Oncology Deals, Up-Front Payments
35 30
Number of Deals
7 8 10 5 8 13 6 16 14 12 14 7 14 10 4 6

Oncology Deals, Total Potential Value

35 30

Number of Deals

25 20 15 10 5 0
13 13 1 3 5 3 4 5 2 3 4

9 5 7 4

25 20 15 10 5 0
13 14 8 2 3 4 6 5 6 13 6 6

3 5 3 5

4 5

5 5

7 20

4 7 1 19 4

19

16

14

12

13

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 >$50M $25M-$50M $5M-$25M

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 >$200M $100<-$200M $25M-$100M

Figure 26

Oncology may have too many assets chasing too little development capital.
25 20 Years of inventory 15 10 5 0
3.4 Metabolics 4.7 CV 6.0 7.3 11.1 11.3 11.6 21.4

Inventory of Late-Stage Oncology Assets

9.7

Dermatology

Infectious disease

Respiratory

Pain

GI

CNS (excl. pain)

Oncology

Values used in the hypothetical example: Discount rate (14% 11%), peak revenue ($1.5B $1B), phase II length (2 years 3 years), phase III length (3 years 4 years), LOE (13 years post-approval 11 years post-approval), trial costs ($100M $150M), other factors unchanged (3 year ramp to peak, 30% odds of passing phase II, 40% phase II, 70% filing, marketing and manufacturing 40% of revenue, NDA costs $2.5M, tax rate 38%). 25 20. Stewart J et al. Putting a Price on Biotechnology. Nat Biotechnol. 2001, 19(9):813-7; Stewart JJ. Biotechnology Valuations for the 21st Century. Milken Instit Policy Briefs. 2002, 27:1-12 26 Windhover Strategic Transactions Database. Available at www.windhover.com. Accessed 26 January 2011. 27 Bonifant and Fendelman. Targeted Optimism: Campbell Alliances 2010 Dealmakers Intentions Survey. Available at www.campbellalliance.com.
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Oncology National Commercial (ONC) Study, 2000-2010 Ten Transformative Trends

CONCLUSION
We have described 10 trends that are transforming the oncology marketplace. These trends begin with structural changes in the oncology pipeline that lead directly to intense competition. At the same time, changes in underlying oncology economics have prompted an ongoing change in the most effective oncology commercialization strategies. The days of if you build it, they will come are over. Competition is precisely the environment where companies need to be able to differentiate. However, at this same moment, customers and their needs are changing. This means outdated strategies are not matched to todays commercial realities. We are at an inflection point. Going forward, winning oncology companies will recognize the new reality and organize their portfolios, launch planning, and customer-facing resources to meet this new reality head on.

About the Authors

This document was prepared by Nader Naeymi-Rad, Chief Operating Officer and Jeff Stewart, Associate Practice Executive and Service Line Manager at Campbell Alliance.

Campbell Alliance is organized into practice areas, each specializing in a critical industry function: Brand ManagementThe Brand Management Practice helps companies plan for and improve the commercial performance of their brands during all stages of the product life cyclefrom prelaunch development through maturity. Business DevelopmentThe Business Development Practice helps companies that need assistance creating business development strategies, identifying partners, prioritizing targets, evaluating opportunities, and negotiating deals. Clinical DevelopmentThe Clinical Development Practice helps clients maximize the efficiency and effectiveness of their clinical development organizations. Medical AffairsThe Medical Affairs Practice helps clients improve the performance of their medical affairs organizations, while also providing expert support at the product level. Pricing and Market AccessThe Pricing and Market Access Practice helps clients more effectively market and sell their products in an environment heavily influenced by payers.

SalesThe Sales Practice helps companies optimize their sales force through sales strategy, analytics, training, and assessment. Trade and DistributionThe Trade and Distribution Practice helps clients improve the distribution of their products and work strategically with channel partners. Our team of consultants has many years of experience working in the pharmaceutical industry and in providing consulting services to industry clients. This industry focus and depth of functional expertise allow us to hit the ground running on complex projects, delivering value that less-specialized firms cannot match. From our offices in New York, Raleigh, Parsippany, Philadelphia, Boston, Chicago, Los Angeles, San Francisco, and Zug, Switzerland, we serve clients throughout North America, Europe, and Japan.

Special Thanks
Special thanks to Darius Naigamwalla, Michael Turner, Jeff Liepman, Michael Fleming, Lujing Wang, Keith Kelly, George Schmidt, Gary Tyson, Ben Bonifant, Craig Dunkley, Lauren Browne, and Christina Verni.

About Campbell Alliance

Campbell Alliance is the leading management consulting firm specializing in the pharmaceutical and biotechnology industry. The firms clients include the worlds top-20 pharmaceutical companies, as well as numerous emerging and midsize firms. Campbell Alliances oncology expertise is based on a foundation of more than 300 oncology projects in the last five years alone.

Campbell has performed over 300 oncology projects in the last five years.
350 300 250 Projects 200 150 100 50 0 Sponsor Project Geography Product
Established, 207 Product Strategy, 161 US, 183 Tx, 251 Specialty, 53 Emerging, 58 Sales, 7 Pricing, 19 BD, 23 Franschise, 25 Clinical, 31 Launch, 52 EU, 27 Dx, 9 Vaccine, 13 Supportive, 45 WW, 108

www.campbellalliance.com (888) 297-2001

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