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A Pfizer Perspective on the Role of Procurement in Driving InnovationDr Richard Torbett

Director, International Policy Development

This presentation is not for distribution or publication without Pfizer’s permission

We have a common agenda with Governments

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Our common agenda is clear …

•Governments have significant challenges ahead

• An ageing population;

•Spiralling public debt

•Persistent unmet medical need

•Ever-more demanding ‘consumers’

•It is more important than ever that pharmaceutical R&D is carried out in the right areas and that the resulting medicines are affordable.

…but procurement must be fit for purpose

•Important to assess to what extent the lessons from the procurement literature are generalisable to all types of innovation

•Not all pharmaceutical markets work in the same way as vaccines

•Some features of a procurement-based approach may undermine aspects of competition and security of supply in some markets

•We can learn from innovative procurement but it needs to be tailored appropriately

It is in everyone’s interest that Government sends the right signals…

A risky, complex and lengthy route to producing a medicine

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15

10

5

Idea

Medicine

years

…where attrition and costs are high…

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Net Cost: $0.8-1.3 Billion Invested Over 15 Years

Compound Success Rates by Stage

16

14

12

10

8

6

4

2

0

Phase II100–300 Patient Volunteers Used to Look for Efficacy and Side EffectsPhase III

1,000–5,000 Patient VolunteersUsed to Monitor Adverse

Reactions to Long-Term Use Regulatory Review & Approval

Additional Post-Marketing Testing

Phase I 20–80 Healthy Volunteers Used to

Determine Safety and Dosage

Preclinical TestingLaboratory and Animal Testing

Discovery(2–10 Years)

Years

Sources: 1) Increased Length and Complexity of the Research and Development Process. Chapter 1 in: PhRMA Pharmaceutical Industry Profile 2003. 2) DiMasi, JA, Hansen, RW, Grabowski, HG. The Price of Innovation: new estimates of drug development costs. Journal of Health Economics. 2003; 22:151-185.

5,000–10,000Screened

5Enter

Clinical Testing

250Enter

Preclinical Testing

Compound Success Rates by Stage

5,000–10,000Screened

11Approved by RegulatorsApproved by Regulators

00

22

44

66

88

1010

1212

1414

1616

5 5

…and our path to market is complex and global

(Part of the original New Drug Application for atorvastatin)

There is no, single, ‘procurer’

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Safety Efficacy Quality

Prescription

Value for money

Regulatory Approval Process 4th Hurdle

Public procurement as an innovation policy instrument : pros and cons

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Potential advantages

•Reduced market uncertainty for investors, increasing net present value of investment

•Encourage private investment where high fixed costs relative to returns make it otherwise unattractive

•Address market failure where social benefit of innovations does not accrue to the inventor

Potential disadvantages

•Potential to put a cap on innovation (at the level envisaged by the procurer)

•Potential to forestall competition

•Public procurers may not be best equipped to judge future innovation (and will incur significant cost in the attempt)

…but for each industry the picture may be different

Public procurement in pharmaceuticals

Population-based procurement can harm the treatment options available to individual patients and curtails physicians’ prescribing authority.

Exclusionary public procurement systems (e.g. winner-take-all tenders) can undermine long-term competition and create supply risks.

Inflexible procurement rules or systems may be unable to appropriately reflect the dynamic nature of competitive innovation.

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2

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Most pharmaceutical sales in Europe are to public payers

However, active public procurement policies may pose particularrisks in the innovative pharmaceuticals market:

Pharmaceutical innovation is generally delivering in priority

diseases

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In many priority disease areas, pharmaceutical innovation is successfully delivering new treatments and driving competition

•Highly competitive markets in key therapeutic areas and drug families: as of 2008, 10 statins, 15 NSAIDS, 15 beta blockers…•This plurality creates more effective treatment options and helps government through competition•New generation of treatments being approved and in pipeline for cancer, dementia etc.•Scientific advances in identifying biomarkers promise further progress in patient-specific care.

Source: CMR

Total R&D expenditure by therapeutic area (20 biggest firms)

And our R&D pipelines are generally aligned with what Governments tell

us they want

Contrary to popular belief, the medicines bill is not ‘out of control’

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0

20,000

40,000

60,000

80,000

100,000

120,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006p 2007p

NHS

Pharmaceuticals

c. 80% of increased spending on medicines due to volume increases, not price

£mn

Source: PPA, ONS, DH, NAW, ISD, IMS dataview

An example from the UK – Total Expenditure on Healthcare versus Pharmaceuticals

Dos and Don’ts for procurement in pharmaceutical markets

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Work with the industry to identify broad disease priorities – and stick to them for the long termCommit to national plans to improve treatment in priority areasCommit to support the uptake of innovative medicines

Prejudge scientific progress by ordaining product-specific requirements or narrow therapeutic aimsLimit the treatments available to individual patients through rigid population-based public procurement systemsLimit competition by excluding firms from the market

A role for public procurement in pharmaceutical innovation

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For some disease areas in which social need does not translateTo sufficient effective demand, more active public procurement strategiescould play a role in creating the necessary conditions forinnovation

For example:•Orphan medicines•Anti-microbials•Vaccines against pandemic or bioterrorist threats•Diseases of the developing world?

As long as the dos and don’ts are adhered to – there could be a role for procurement in some areas

…But there are no magic bullets

However, in all pharma markets, innovation is dependent on a broad range of regulatory and environmental factors: there is no magic bullet…

•More streamlined clinical trials•More sophisticated regulatory systems recognising the differences between medicines and disease areas•Payers willing to reward innovative medicines, including incremental innovation•Strong intellectual property protection•Competition through all phases of the medicines lifecycle