Global pharmaceutical industry report - EY

1 Global pharmaceutical industry report 2010. Progressions pharma Welcome To our clients and friends: Given the extraordinary challenges facing pharmaceutical companies, it is not surprising that recent issues of Progressions, our annual report on the pharmaceutical industry , have focused on the seismic changes taking place in the industry and the strategic decisions being made by executive leadership teams. To that end, our last two issues have put a spotlight on how companies are shifting from organizing for top-line growth to managing innovation for bottom-line returns.

2 Our report this year moves beyond a focus on how companies are changing internally and broadens the aperture to see how the entire industry is morphing into a new ecosystem, with new players, one that we have named pharma The shifts discussed in this year's report promise to dwarf anything the industry has seen so far. The convergence of new trends such as health care reform, changingdemographics, personalized medicine, health information technology and the rise of the superconsumer will radically change the playing field as the value proposition moves from developing drugs to delivering healthy outcomes.

3 In this new world of pharma , we will see many nontraditional players. The core competency of business development will expand into business model development. Commercial model development will become a critical counterpart to drug development. Open innovation will be expanded on both ends of the value chain. Managing the extraprise and optimizing networks will be critical skills of leaders. Co-creating value for patients, payors and partners will be key capabilities. Learning how to combine your unique assets and attributes into someone else's business model will be the re-engineering goal of disruptive commercial innovations.

4 One common thread through all of this is innovation. While this has always been an innovation-driven industry , the winners in pharma will approach innovation in new ways. Innovation is no longer just about the product it now encompasses how you do business, whom you do business with and how you mobilize your resources to contribute to healthy outcomes for patients. It is our experience that the benefit of scenario planning is not to predict the future, but rather to better understand what one needs to do today to ready oneself for an uncertain future.

5 In this report , we explore the world of pharma and, through interviews and surveys, executive roundtables, lessons from other industries and perspectives from Ernst & Young partners, suggest actions that you can take now to prepare for the exciting world of tomorrow. Ernst & Young's worldwide organization stands ready to help you as you navigate your way forward. Carolyn Buck Luce Glen T. Giovannetti Global pharmaceutical Sector Leader Global Biotechnology Sector Leader Contents ii Introduction: seeking healthy outcomes 1 Chapter 1: pharma 5 A closer look: 20/20?

6 China's vision for health care reform 10 A closer look: Mobilizing a health care revolution, by Lynn O'Connor Vos 13 A closer look: Tweet nothings, by Ken Burbary 20 Embracing the new reality: roundtable on the changing ecosystem Dave DeMarco, , Ernst & Young Esther Dyson, EDventure Holdings Inc. Wendy Everett, , New England Healthcare Institute David Norton, Johnson & Johnson, Inc. Kristin Peck, Pfizer Inc. 25 Chapter 2: Other people's capital 40 The most innovative survive: an interview with Emanuele Gatti, , Fresenius Medical Care 41 The world is our laboratory: an interview with Paul Stoffels, , Johnson & Johnson 42 Shaping healthy collaborations: roundtable on deals Patrick Flochel, Ernst & Young Ltd.

7 Markus Christen, , Novartis pharma AG. Rene Hansen, UCB. Beverley Jordan, AstraZeneca UK Ltd. Michael Schwartz, Bayer Healthcare LLC. 49 Chapter 3: Challenges every step of the way 50 A closer look: The rise of structured M&A, by Jeffrey Greene 56 A closer look: Tax considerations in joint ventures, by Bruce Bouchard 59 A closer look: Navigating the changing compliance landscape, by Ted Acosta 67 A closer look: Managing supply chains, by Mark Hassenplug 69 A closer look: Whose data is it anyway? Privacy and security in the era of pharma , by Michael Dalla Torre 72 Exhibit index 73 Global life sciences contacts i Seeking healthy outcomes Introduction pharma : the healthy outcomes While these have been sweeping model and transforms the patients ecosystem changes, the industry is now on the of today into the data-empowered cusp of its biggest transformation superconsumers of tomorrow.

8 pharmaceutical companies have been yet to pharma , the healthy If history is any guide, change may come moving to reinvent their business outcomes ecosystem spurred by much faster than most people expect. models in recent years, driven by trends the convergence of new trends such Many of the trends propelling pharma such as the patent cliff, decreasing as health care reform, demographics, are IT-related, and change occurs much R&D productivity, pricing pressures, health information technology (IT) and more quickly in the Moore's Law-driven globalization and demographics.

9 These consumerism. These transformative world of tech. And consumers who soon trends have transformed the industry 's trends are driving the entry of large overcame online privacy and security long-standing vertically integrated numbers of nontraditional companies concerns regarding critical and intimate blockbuster model ( pharma ) into such as electronic/mobile health financial information may just as quickly today's pharma business model. firms, large retailers, financial services adopt new health technologies as they companies and IT firms that have The transition to pharma has become available.

10 To remain relevant in historically not been in the health care been characterized by several shifts. the new ecosystem, pharma companies business. At a more basic level, they Companies have been moving from will need to move quickly to redesign their promise to transform the very business blockbusters to diversified portfolios business models, understand how they fit of pharma itself, from developing drugs of drugs, over-the-counter (OTC) into others' business models and partner to the delivery of healthy outcomes.