1. Pharma 3.0
Life Sciences Network Basel, 20 May 2010
Frank Kumli

2. Agenda
► Ernst & Young – Global Life Sciences Center
► Business model transformation
► Pharma 1 0 to 3.0
1.0 3 0
► Pharma 3.0
► non-traditional collaborations
► business model innovation
► execution
Page 2 Progressions: Pharma 3.0

3. Who we are
Page 3

4. Ernst & Young’s major lines of business
Performance improvement:
External audit:
► Finance and performance Financial accounting advisory service:
management ► Audit of financial
statements, statutory ► IFRS conversions and support
► Supply chain accounts and pension
Risk: ► IPO readiness
► Customer funds
► Business process controls auditing ► Accounting support for due diligence
► Controls and process remediation
► Change management services
► Information systems security, ► IT advisory ► Accounting control / process support
controls and governance
► Real estate asset planning and External Fraud investigation and dispute services:
optimization audit ► Marketing, sales and research compliance
Performance
► IT Risk improvement assessments and reviews
Financial
accounting ► Electronic discovery and document retention
advisory
ad isor ► Government investigations
service
IT risk: Risk ► Compliance gap analyses
► IT risk management ► Internal fraud investigations
► Application controls and security
Advisory Assurance Fraud
investigation ► Litigation and arbitration support
IT risk
► Information management and analysis and dispute ► Brand protection, counterfeiting, diversion and
services
gray markets
Client
relationships
Commercial and financial due
Business and indirect tax services: Commercial diligence:
Business and financial
► Annuity tax provisioning/ tax accounting and indirect due diligence ► Market and industry research
calculations tax services
Tax Transaction ► Validation of strategic assessments
► Business tax advisory
► Corporate strategy assessment
► Income tax compliance Transactional
International integration ► Assessment of sustainable earnings
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► Analysis of key revenue and cost
► VAT/sales tax advisory and compliance drivers
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capital
it l
International tax services:
Transactional integration:
► Cross boarder corporate tax
advisory Human capital: ► Synergies analysis and investment
requirements
► Transfer pricing ► Global mobility tax and Valuation:
documentation and advisory administration services ► Assess impact to forecast
► Business valuation services ► Assess integration challenges, risks
► Supply/distribution chain ► Global equity
advisory compensation planning ► Tangible/intangible asset valuation and resolution strategies
and compliance services
► Performance and rewards ► Accretion/dilution analysis
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5. Ernst & Young’s Global Life Sciences sector
The Global Life Sciences sector brings together a worldwide team of professionals with deep industry and technical experience in
providing assurance, tax, transaction and advisory services. Our goal: to position Ernst & Young as the trusted advisor for our life
sciences priority accounts and their key executives by our active involvement assisting teams to execute for success in their
transitions and transformations.
Ernst & Young’s Global Life Sciences area contacts
As an industry sector center we
focus resources on the following Global Pharmaceutical Sector Leader
Carolyn Buck Luce
key priorities:
Global Biotechnology Sector Leader
Nordics
Glen Giovannetti Denmark Benny Lynge Sorensen
► Building internal and Sweden - Björn Ohlsson
Life Sciences EMEIA Leader
external networks of key Patrick Flochel
Norway - Willy Eidessen
y y
Finland - Timo Virkilä
opinion leaders of the life
sciences industry
Netherlands
Belgium Jules Verhagen
Thomas Sileghem CIS
Dmitry Khalilov
United Kingdom
► Assist our accounts to Pamela Spence/
Germany
Elia Napolitano/
Chad Whitehead*
provide industry trends and Canada
Ireland
Siegfried Bialojan*
identify appropriate Paul Karamanoukian
Edwina Fitzmaurice/
Nick Redmond
Redmond*
Austria
Isabella Schwartz-Gallee/
Korea
Yong Sup Hyun*
resources globally
l b ll Switzerland
Erich Lehner*
Japan
Patrick Flochel/ Poland Hironao Yazaki
Mariusz Witalis
► Providing industry relevant United States
Carolyn Buck Luce/
Jürg Zürcher*
thought leadership and Glen Giovannetti* France
Virginie Lefebvre/
CESSA
Magdalena Soucek
attending or speaking at Mexico Pascale Augé * Turkey
Erdal Calıkoglu
Frederico Aguilar
industry events
Southeast Europe Hong Kong/China
Spain Themis Lianopoulos Francis Lai/
► Creating l
C ti relevant t Manuel Gi lt H
M l Giralt Herrero Cherrie Che*
Israel
knowledge and learning Italy Yoram Wilamowski
Lapo Ercoli
programs for Ernst & Young
Brazil Singapore
Jose Francisco Compagno Swee Ho Tan
India
professionals Hitesh Sharma
Australia
► Solutions development to New Zealand Winna Brown
Jon Hooper
meet emerging client needs
Centers: New Jersey, Boston and Basel * Biotechnology
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6. Thought Leadership - Life Sciences
Annual Reports Surveys
Progressions Pharma 3.0 Pharmaceutical Companies and working capital management
► Global pharmaceutical report ► Survey on working capital performance and strategies
Business Risk Report 2009 Life Sciences
► Life Sciences focus within the Global Risk Survey
Beyond Borders
► Global biotechnology report
2009 global pharma associations sales and
marketing code matrix for US and EMEA
Pulse of the Industry ► synopsis of selected pharmaceutical
► Global medtech report industry
guidance
Technical Reports National Reports
Prescriptions series Swiss Biotech Report 2009
► Series of articles on Life Sciences
topics Biotech in Denmark 2008
bio*link and medtech*monitor series
► Series of articles on biotechnology and German Biotech Report 2009
medtech topics
The Smoke Detector® report
► Series of summarized compilation on
Life Sciences topics
Page 6

7. Pharma 3.0
Page 7

8. Progressions: Pharma 3.0
Global pharmaceutical report 2010
Bayer Meets Nintendo as Drugmakers Seek New
Routes to Customers
Pharmas Must Tie with Techs
February 11, 2010
Medicines not working? There's an
app for that
PharmaTimes Ernst & Young Puts the Spotlight
n Pharma 3.0
Pharma needs to work with non-
t ad t o a partners
traditional pa t e s to su
survive
e
Pharma Turns to Tech for Marketing Aid
Report: Future Drugmakers Must also Deliver
Healthy Outcomes
Daily Finance
Pharma 3.0: Drug Companies Slowly
Adapt t the N
Ad t to th New T h World
Tech W ld
Drugmakers look to collaborate with
nontraditional partners
Pharma 3.0 - Drug Makers Must Adapt To An
Outcomes-Focused World, E&Y Reports
And the Future for Pharma Looks Like….
► Based on interviews with 30 executives from the Key themes
pharma industry and from “non-traditional” players
► Features quotes from numerous executives and ► Changing ecosystems: Pharma 3.0
over 100 company examples
► Worldwide launch at The Economist Conference,
► Emerging business models
London ► Building the future business via innovative collaborations
Page 8 Progressions: Pharma 3.0

9. Pharma 3.0
From drugs to healthy outcomes
Drivers of ► R&D productivity ► Health care reform
change ►
►
Patent cliff
Globalization
►
►
Health IT
Consumerism
► Demographics ► Value mining
► Pricing &
reimbursement
Business
Models
Value Pharma 1.0 Pharma 2.0 Pharma 3.0
p p
proposition Blockbuster drugs
g Diversified drug portfolios Healthy outcomes
Customer
Payor
Physician
Patient
Page 9 Progressions: Pharma 3.0

10. Progressions 2008
Pharma 1.0 to 2.0
Patents The R&D productivity
Pricing pressure science Personalized medicine
Compliance commitments The Globalization
customer Customer redefinition
The Products vs. services
Reduced growth
Impact of
offer Building brand
hange
Margins squeezed
The
ch
Reputation in decline Talent pipeline
people Celebrating diversity
The Enterprise vs. extraprise
R&D productivity organization Alternative business
models
Commercial structure The Return vs. revenue
Customer relationships value created Financial strategy
Risk management
gy
Page 10 Progressions: Pharma 3.0

11. Pharma 2.0
Four strategic pillars
Emerging markets Commercial models
Product i
P d t innovation
ti Product di
P d t diversification
ifi ti
Page 11 Progressions: Pharma 3.0

12. Pharma 2.0
Emerging markets: growth gap
The growth gap
Pharmerging and tier-2 emerging markets will contribute three quarters of global growth in 2009
Mature Pharmerging Tier-2
Tier 2 emerging Rest of world
100%
9% 10% 10% 11%
90% 17% 2009 market share, US$
5% 6%
9%
7%
80%
11% 10% 22% Rest of
world
70% 19%
Tier-2 12%
21% emergin
60%
g 6%
50% Pharmerging
11%
51% Mature
40% 79%
73% 71%
30% 61%
52%
20%
10%
16%
0%
2001 2003 2005 2007 2009(f)
Source: IMS Health, Market Prognosis, March 2009
Page 12 Progressions: Pharma 3.0

13. Pharma 2.0
Tailoring commercial models to market
Moving towards differentiated „geo-tailored“ commercial models with a tailored value
proposition for each market and customer
Optimizing resources to address all key stakeholders
Integrated key account model in restrictive markets; traditional sales force in open markets
I t t dk t d li t i ti k t t diti l l f i k t
Share of field force KAM, local manager Pricing, listing
Field force
► multibrand
► brand, multibrand
Information Value Influencers*
Geo-tailored
Physician Tools approach proposition
Training Pricing
• volume
• outcome Payors
• value
Pharma
Risk sharing Managed
Care
Communication E-tools
Patient Information
Programs
Compliance
programs Training Retail
*employers, providers, academia, government
Page 13 Progressions: Pharma 3.0

14. Pharma 2.0
Innovation
► Targeting new disease areas
► Personalized medicine
► Creating more market-driven
pipelines
► Restructuring R&D units to
allow greater autonomy
► Splitting up
Splitting-up large, monolithic
organizations into smaller
units
► Virtualization. Incorporating
niche players to stimulate
innovation, share risks and
reduce costs
1.Represents cAGR2008 2013
1 Represents a cAGR2008-2013
2.lndicates probability of entry of generics in the segment
Source: Datamonitor, New Approaches to Pharma R&D
Page 14 Progressions: Pharma 3.0

15. Pharma 2.0
Diversification
J&J
Business line diversification
GSK GSK
Novartis
Pfizer
Novartis
Sanofi Wyeth
y
Sanofi
Pfizer
BMS
s
Pfizer
Roche
Astra Astra
Roche Zeneca Zeneca
BMS
Geographic diversification 2006 Target
g
Source: Societe Generale: Pharmaceuticals Beyond the crisis
Page 15 Progressions: Pharma 3.0

16. Pharma 3.0
From drugs to healthy outcomes
Drivers of ► R&D productivity ► Health care reform
change ►
►
Patent cliff
Globalization
►
►
Health IT
Consumerism
► Demographics ► Value mining
► Pricing &
reimbursement
Business
Models
Value Pharma 1.0 Pharma 2.0 Pharma 3.0
p p
proposition Blockbuster drugs
g Diversified drug portfolios Healthy outcomes
Customer
Payor
Physician
Patient
Page 16 Progressions: Pharma 3.0

17. Pharma 3.0
Health outcomes as currency for health care systems
Consumerism
► Health literacy
► Empowerment
Health care reform
► Access Health Health IT
► Rebates/discounts ► Digital data
► Value-based approach outcomes ► Social data
► Health
H lth IT ► Mobile health
Value mining
► Value-based P&R
► Comparative
effectiveness
► Risk-sharing
g
agreements
Page 17 Progressions: Pharma 3.0

18. Pharma 3.0
From drugs to healthy outcomes
Drivers of ► R&D productivity ► Health care reform
change ► Patent cliff ► Health IT
► Globalization ► Consumerism
► Demographics
D hi ► Value i i
V l mining
► Pricing &
reimbursement
Business
Models
Value Pharma 1.0 Pharma 2.0 Pharma 3.0
proposition Blockbuster drugs Diversified drug Healthy outcomes
portfolios
Customer
Payor
Physician
Patient
Page 18 Progressions: Pharma 3.0

19. Pharma 3.0: non-traditional collaborations
Page 19

20. Pharma 3.0
The healthy outcomes ecosystem
Providers IT
Information
Physicians companies
Social
media
CROs
Academia Health
records
Medical
Pharma Patients
technology
Telecom
Biotech Med
device
Governments
Food
Insurers
Retailers Consumer
electronics
Pharma 1.0 (drugs) Pharma 2.0 (diversified drug portfolios) Pharma 3.0 (outcomes)
Page 20 Progressions: Pharma 3.0

21. Pharma 3.0 is happening - eHealth
Mondobiotech – 23 and me Novartis – Proteus Biomedical
Source: www.ft.com
Source: www.23andme.com
Bayer - Ni t d
B Nintendo UCB – patientslike me
i lik
Source: www.bayerdidget.co.uk/ Source: www.patientslikeme.com
Page 21 Progressions: Pharma 3.0

22. Pharma 3.0
Delivering on health outcomes
Building communities Expanding products
► UCB — PatientsLikeMe ► Pfizer — Aurobindo
Developing technologies Developing technologies
► Lifescan (J&J and A l )
Lif d Apple) ► Novartis — V d f
N ti Vodafone — IBM
Measuring outcomes Innovative distribution
► Fresenius Medical Care ► Novartis — Indian Post Office
Managing patient outcomes Expanding access
► Driving compliance ► Underserved markets
► Health care delivery ► Emerging markets
► Patient stratification ► Uninsured populations
Health
outcomes
Meeting unmet
medical needs
► Complex indications
► Underserved medical fields
Leveraging data Public-private partnerships Partnership with payors
► MondoBiotech — 23and Me ► GSK — Global TB alliance ► Novartis — NICE
Optimizing R&D R&D risk sharing Creative financing
► GSK — Pfizer ► Eisai — Quintiles ► Eli Lilly — TPG-Axon Capital —
Novaquest (a division of Quintiles)
Orphan d
O h drugs Pre-competitive R&D
P titi
► Pfizer — Protalix ► Enlight Biosciences
Page 22 Progressions: Pharma 3.0

23. Pharma 3.0: business model innovation
Page 23

24. Scenario planning
Deal simulations
Deal A Deal B
Partners InfoTechCo PharmaCo InsuranceCo DirectSalesCo PharmaCo FoodCo
Understanding of
Platform Sales forces Drug portfolio Broad product
Resource Drug portfolio risk
Personal health Customer intimacy Efficacy insights portfolio
capabilities Efficacy insights Patient
records and reach Nutrition insights
stratification
Health outcomes Health outcomes
Value Enabling Enabling outcomes/
propositions outcomes access
Patients Patients
Customers
C t Payors Payors
P
Governments Governments
“While high-level business models are easily articulated, the discussion around the execution of the deals reveals a high
level of complexity. What creates more value? And what provides more value over time? Who owns the intellectual property?”
Source: Ernst & Young 2010
Page 24 Progressions: Pharma 3.0

25. Business model innovation
Commercial trials
Commercial trials
Stickiness
High margins and success of current
model make large leaps difficult Pilots Rapid
To explore business prototyping
opportunities Commercial trials will
need to be fast and
efficient Upside
Unchartered territory Business model
Difficulty and risk of developing new offerings innovation has the
from scratch with unknown partners Open innovation Flexible control potential for considerable
Use of external Alliances structures upside (e.g. compliance)
networks that allow quick
response to new
challenges and
opportunities
Changing ecosystem
Current ecosystem is changing rapidly in Portfolio management
unprecedented and unpredictable ways Optimize network value
“How do you actually go about the building of new business models from the ground up? How do you pick the right
strategies and experiments for your company when the very ecosystem in which you operate is changing in
unprecedented, and unpredictable, ways?”
Page 25 Progressions: Pharma 3.0

26. Commercial trials
From strategy to commercialization
Drug development
pt
Therapeutic focus Discovery and early
y y Late development
p Commercialization
ct
Proof of concep
Disease areas
s
pproved produc
development
Number of leads
P
Ap
New busine model
gments
oncept
Number of ideas
ess
Proof of co
Market seg
Pilots and Scale-up and
Strategic/risk assessment Market assessment partnerships larger
partnerships
Business model development
B i d ld l t
I. Strategic focus II. Proof of concept III. Development IV. Commercialization
Areas and business Ideas that work in Most promising pilots. Service or product
models that are a concept. offerings
strategic fit for the “Does it work and is it
Does “Is it commercially
Is “Can it be scaled and
Can
organization safe?” feasible?” replicated across
markets?”
Page 26 Progressions: Pharma 3.0

27. Pharma 3.0: Execution
Page 27

28. Pharma 3.0
Challenges and readiness for executing nontraditional alliances
Page 28 Progressions: Pharma 3.0

29. Challenges every step of the way
New ways of partnering
Strategy, Accounting Talent and Operations,
structure and Due Valuation and financial change Risk supply chain
governance diligence and reporting management management management
modeling
What creates most value?
Whose d t is it anyway?
data i ?
How is success defined?
Who owns the intellectual property?
IFRS or US GAAP?
What are the tax implications?
What should the debt and equity mix consist of??
What are the water, power, waste and cleantech approaches?
Page 29 Progressions: Pharma 3.0

30. Guiding principles for Pharma 3.0
Define Co-create Experiment. Prepare
your Pharma 3.0 value with partners Think small. Fail fast. for success.
Brand and patients
patients.
The ecosystem is More than ever, There is no one Our survey and
becoming more firms will need to right answer. interviews
complex.
complex combine unique Companies will indicate that
Incentives are assets and develop solutions pharma
changing. New, attributes to build by experimenting companies aren’t
nontraditional relevant offerings with large fully prepared for
players are for the healthy numbers of the challenges
entering. outcomes “commercial trials” that these
ecosystem. — and culling creative new
those that don’t alliances will
work. bring.
Page 30 Progressions: Pharma 3.0

31. Contact Details
Dr. Frank Kumli, MBA
Business Analyst - Global Life Sciences Center
Tel +41 58 286 86 37
Mobile +41 58 289 86 37
Fax +41 58 286 83 60
Email frank.kumli@ch.ey.com
E il f k k li@ h
Page 31 Progressions: Pharma 3.0

32. Ernst & Young
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