01. Pharma Foundations

1. Research & Development (avg 2.6 billion per compound, 7% to the market)

   6 - 10 years

   Preclinical ~3yrs:

   research part, find the compound, animal testing

   can apply for patent, which last for 15 years, 7+ years during clinical trails, so fewer than 10 years patent-protected, after that 90% decline in revenue (patent cliff)

   Clinical:

   most costly phase, 70% of the total R&D costs

   attrition rate is high (only 12% of all drugs make it through)

   Phase I ~1.75yrs: focus entirely on human safety

   Phase II ~3yrs: proof that the drug does what it is supposed to do

   Phase III ~2.75yrs: extension of Phase II, larger patient pool, testing different does and dosing regimens, find how it should be prescribed and used with patients

   Filling and Registration ~1yr

   Phase IV:

   focus on expanding the drug's use

   Life-cycle management (LCM) strategies → maximize the benefits of their products

   Identify new endpoints to increase eligible patient poplulation

   Develop new formulation and routes of administration, to market a new product with an extended patent protection

   Switch from a prescription product to OTC, to increase patient access

   Real world evidence (RWE): all the evidence generated for a drug after the close of clinical trails

02. Pharma Value Chain

1. Commercial Function

   Market Access

   Market access clearance (fourth hurdle), must be gained before the drug gets approval from payers so that providers can prescribe its use

   Payers

   decide whether they will reimburse payment for the drug at what price and under what conditions

   Negotiations with the payers → different access levels:

   Tier 1, all patients will have access with low co-pay

   Tier 3, patient would likely need to try other options first before they have access to the drug unless they want to pay out of pocket

   Formulary:

   a list of prescription drugs that are covered for reimbursement

   combination of efficacy and cost saving

   Providers

   provider formularies and payer formularies are separate, need to be on both

2. From Production to Patient

   Manufacturing

   Pharma companies often own much of their supply chain, but they don't typically create the chemical components or active pharmaceutical ingredients (APIs)

   Distribution

   Pharma company → wholesaler → retail channel (pharmacy/hospital) → patients

   Drug categories: OTC, primary care drugs, specialty(secondary) drugs

3. Making Market Connections

   Commercialization

   Pharma companies invest in medical and disease education, build brand awareness with provider and patients

   Different channels:

   Pharma sales representatives: talk with physicians to build brand awareness and deliver scientific data.

   Medical science liaisons (MSLs): impart scientific information to the physician/provider community, never promote a drug, not compensated in any way relative to sales

   Samples of the new drug: build firsthand awareness and use

   Media channels: allow for widespread communication to patients, illegal in Europe to advertise directly to patients

03. Pharma Competitors

1. The Competitive Landscape

   pharma companies are anything but one dimensional. Just two of the top 10 companies in the industry are purely pharma players; the other eight, in addition to having pharma as their major division, have a stake in an adjacent industry, such as medical technology or consumer healthcare.

2. Mergers & Acquisitions

   Drivers of M&A:

   R&D: fill portfolio gap and renew pipeline, commercial

   Med Tech:

   Other: partnership between Google and Novartis

3. Carve-Outs and Swaps

   Examples:

   • GlaxoSmithKline (GSK) and Novartis: In 2014, these two big pharma players announced a series of deals, with Novartis selling the majority of its vaccines division to GSK, GSK selling the majority of its oncology portfolio to Novartis, and both pooling their consumer health businesses in a joint venture. Novartis also sold its animal health division to Lilly-Elanco. These moves helped both companies focus on their core business and become more competitive.
   • Sanofi and Boehringer Ingelheim (BI): Sanofi and BI agreed in 2016 to swap their animal and consumer health business units. This means BI got the animal health section, and Sanofi got the consumer health businesses.
4. Business Models

   Innovators:

   spend heavily on R&D, or buy innovation from outside the company, excel in the commercialization of novel, patent-protected molecules

   example: Gilead

   Generics:

   commercialize existing products, using manufacturing excellence and a lean cost structure to take over the majority of a market from innovators after a drug's patent has expired

   example: Sun Pharma, Teva

   Mixed Model:

   have a diverse portfolio and cannot be clearly defined as innovative or generic

   example: Pfizer, GSK

5. Innovations and Margins

   more highly focused → higher EBIT margins + more risky than larger mixed model operators