Oncology Pipelines

8/3/2019 Oncology Pipelines

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www.exanebnpparibas-equities.com

Please refer to important disclosuresat the end of this report.

Bionest Partners Exane BNP ParibasFrdric Desdouits Sbastien Berthon

Stphane Parnis Vincent MeunierAlain Gilbert Valrie Moulle

Claude Allary Franois Schmitt

[email protected] [email protected]

Drug development is increasingly risky

We estimate that the chances of success for cancer products starting clinical trials are 3%, three

times less than in other therapeutic areas (average 10%), and are steadily declining. We calculate

that, statistically, 83 new molecules are due for approval by 2012 whereas only 200 have been

approved to date.

Rising barriers to market access

Oncology is wrongly perceived as a collection of niches accessible to small players; large

companies have a growing advantage. The development of cancer drugs is increasingly complex

and market access ever more difficult. Standards of care are evolving fast and there is a clear first-

mover advantage forcing the development of compounds in several indications at once. This blitz

approach demands ever more expertise, breadth and financing power.

Hope still drives the oncology segment

Due to the high medical need and despite a low success rate and mounting competition, almost

every mid-size or big pharma company has a clinical programme in cancer. Over the last ten years,

the number of molecules tested in cancer has multiplied by 2.4x and 70% of the molecules in phaseII or III are developed by small companies.

Success does not always breed success among European players

Roche will retain its leadership in the next 5-6 years, but challenged by GlaxoSmithKline, the

potential Merck/Schering and, to a lesser extent, Novartis. AstraZeneca and Sanofi-Aventis face a

high generic risk, the latter being in a better situation with a larger and more diverse pipeline.

Newcomers such as Serono, Novo Nordisk, UCB and Merck KGaA stand-alone, will have to gain

critical mass through acquisitions given their limited financing power and the rising cost of

development in oncology.

Oncology Pipelines: Searching is not Finding

Sector review - March 2006

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Contents

Executive summary ______________________________________ 3

Oncology - the gold rush is not over ________________________ 8

Unmet medical need remains high________________________________________ 8

Very active research and development ____________________________________ 9

Knowledge is everywhere: low entry barriers in research _____________________ 12

High prices target unmet medical need _________________________________ 14

Areas left to explore __________________________________________________ 16

Success rates: three times lower than pharma average, and getting worse _______ 19

Developing cancer drugs is all about managing complexity ___ 22

Product positioning with or against competitors ? ___________________________ 22

One bullet for several targets?__________________________________________ 25

Oral drug approaches vs biologicals: who will win? __________________________ 27

Centralised vs decentralised marketing organizations ________________________ 29

No place for slow players ________________________________ 32

A strong first-mover advantage _________________________________________ 32

Price pressure will soon weigh on cancer _________________________________ 39

European oncology players ______________________________ 43

Companies ____________________________________________ 49

Exane BNP Paribas

Sbastien Berthon Valrie Moulle+33 1 44 95 68 61 +33 1 44 95 53 81

[email protected] [email protected]

Vincent Meunier Franois Schmitt

+33 1 42 99 24 42 +33 1 44 95 41 [email protected] [email protected]

Bionest Partners

Frdric Desdouits Claude Allary


Stphane Parnis Alain Gilbert



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3 Pharmaceuticals

Executive summary

Cancer is a growing area of interest in the pharmaceutical industry, in which late-stage

products have doubled in the last ten years. But, according to our calculations, theprobability of success for a phase II product in oncology is close to only 6% and is

declining. Our detailed analysis of more than 800 products currently in pipelines shows

therapeutic areas where innovation will probably rise in the coming years and where

competition will become even stronger. But our understanding is that the barriers to

entry are rising very quickly in favour of large players with strong investment capacities.

At the same time, we find that market conditions are becoming more difficult with a

strong first-mover advantage and mounting price pressure.

Statistics tell us that around 83 products should reach the market by 2012. As there are

around 200 products approved today, either the market will change completely or

success rates will decline sharply.

Looking at European pharmaceutical companies, Roche/Genentech appears to be a

clear future leader. GlaxoSmithKline appears as a potential challenger, together with

Novartis and potentially the merged Merck-Schering group. Sanofi-Aventis and

AstraZeneca are facing generic risks in the foreseeable future, the former having a

broader pipeline to protect its franchise. Newcomers such as Serono, Novo Nordisk, UCB

and Merck KGaA stand-alone, will have to gain critical mass through acquisitions given their

limited financing power and the rising cost of development in oncology.

Cancer: A very active sector in clinical development

Oncology represents about 10% of the current pharmaceutical market but nearly 30%

of the drugs in clinical development and is the primary focus of 20% of the publicly

listed European Biotech companies. The number of drugs in clinical development has

increased 2.4 times in ten years and almost every single mid- to large-sized company

now has an ongoing oncology programme in clinical development.

Several factors have contributed to this onco-boom. On the demand side, although the

average survival after diagnosis has improved dramatically, cancer remains the

second-highest cause of death in developed countries and a strong research effort is

still needed to improve the survival of patients in many cancers. On the feasibility side,

the main factor is certainly the technological advances with the omics revolution and

the understanding of the biology of several cancers, as well as the development of

preclinical models.

The development of the biotechnologies has enabled small companies to identify drug

candidates and develop them up to early clinical stages (phases I/II). We estimate that70% of cancer products tested in humans today are from small Biotech companies.

The reality favours these small companies even more if we include those that have

been acquired by big pharma companies. The numbers are particularly striking for

recombinant proteins (89%) and biological peptides/proteins (84%).

In this report, we review more than 800 molecules in phases II and III and analyse their

characteristics, their expected indications and their owners. We have grouped the

different cancers according to their incidence, the probability of five-year survival and

the intensity of clinical research. As an example, we show the relative number of

products in development in the different pathologies in the following graph.


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Chart 1: Relation between number of drugs in phase II or III, incidence and 5-yearsurvival

Source: Bionest Partners, Exane BNP Paribas

The factors underpinning the above matrix are analysed in detail in this report. For

instance, below, we have used it to represent the number of molecules that could be on

the market by 2012 in each pathology divided by the number of registered drugs in the

same pathology.

This metric gives us a picture of the intensity of the competition coming from the

pipelines to replace existing drugs. Interestingly, two zones are being investigated more

than others: the Improvable niches and the Challenging niches. Those are the areaswhere the medical need is still high or relatively high and where there are few marketed

drugs. Surprisingly, the lung area does not show up as a very intense zone.

Chart 2: Relation between number of projected new drugs and marketed drugs

Breast

Leukemias

Lymphoma and multiple myeloma

Ovarian

Tracheal bronchus lung

Colorectal

Testicular

Prostate

Renal

Pancreas

Bladder

Head & Neck

Corpus uterus

Skin and Melanoma

Liver

Stomach

Cervix uteri

Brain

Oesophagus

0

50

100

1 10 100 1000

Incidence (Log scale)

5ysurviva

l

THE BIG CHALLENGE

BIG AND CROWDED

COVERED NICHE

CHALLENGING NICHE

Satisfying

treatment

High

unmet

need

Low population High population

CROWDED WITH UNMET NEED

IMPROVABLE NICHES

1 new projected drug

for 2 existing drugs


LateStagePipeline

Breast

Leukemias

Ovarian


Testicular

Prostate

Pancreas

Corpus uterus

Skin and Melanoma

Liver

Stomach

Cervix uteri


Colorectal

Brain

Renal

Bladder

Head & Neck

Oesophagus

0

50

100

1 10 100 1000

Incidence (log scale)

5ysurvival

THE BIG CHALLENGE

BIG AND CROWDED

COVERED NICHE

CHALLENGING NICHE

Satisfying

treatment

High

unmet

need



IMPROVABLE NICHES

15 projects


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5 Pharmaceuticals

Success rates: three times lower than pharma average, and getting

worse

We have calculated attrition rates in oncology by following the compounds entering

phase 1, 2 or 3 each year since 1996. As shown below, oncology drug candidates have

much lower average success rates than other therapeutic areas in late stagedevelopment (phases 2 and 3).

A cancer product entering phase II has about a 6% chance of making it to market

(industry average: 16%) and around 3% when it is entering phase I (industry average:

10%).

We have calculated, based on our estimated attrition rate, the number of molecules

that could reach the market by 2012 (molecules that are already in phase II). We

estimate that around 83 new molecules should be launched while there are only

around 200 approved today.

But this calculation might turn out to be overly optimistic as we believe success rates

are declining in oncology. Between 1996 and 2000, the cumulative success rates from

first-in-man to registration decreased by 23%, from 4.1% to 3.2%. This increasing

failure rate is due to a sharp decline in phase II productivity and, to a lesser extent, to

phase III productivity.

Chart 3: Change of success rate in oncology by phase of development between1996 and 2000

45.1%

38.3%41.7%

57.1%

4.1%

52.2%

21.0%

34.8%

83.3%

3.2%

0%

20%

40%

60%

80%

100%

Phase I Phase II Phase III Pre-registration Phase I to launch

Successrate

1996 2000

+46%

+16%

-45% -17%

-23%


Developing cancer drugs is about managing complexity

Oncology is one of the main science-driven specialties in medicine, with highly

technical products and complex patient management. This makes research in this area

particularly complex and unpredictable. To make matters worse, many teams are

competing not only on similar targets but also on different approaches to the same

targets (for instance, chemicals and biologicals on certain membrane receptors) and on

different approaches to the same disease (for instance, there are 92 molecules in

phase II and III in breast cancer).


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To balance the risk of development and because the understanding of the biology has

increased significantly, companies are now trying to test their compounds in several

indications in parallel. But this strategy makes development highly complex as standard

therapies are evolving very quickly and are sometimes becoming fragmented, i.e. there

can be several equivalent treatment options for the same patient. The products are now

often developed with competitors products and can sometimes strengthen competitors

positions.

This makes it difficult to define a marketing strategy as how the clinical trials are

designed includes a portion of the risk in the choice of the reference treatment and

requires a close and sustained presence in hospitals and with key opinion leaders. At

the same time, clinicians profiles are also changing, evolving into a more prominent

role for organ specialists versus traditional oncologists. As a consequence, cancer

marketing and sales forces will have to adapt to physicians with a less academic profile

and deliver a more GP-oriented marketing promotion.

Tougher market conditions

There is clearly a strong first-mover advantage in cancer, as illustrated by the taxane,

aromatase inhibitors and LHRH agonists markets, where the first entrant maintained a

50-70% market share against its competitors. This requires that products be clearly

differentiated within the scope of approved indications, in terms of organs and

therapeutic lines, and also that these indications be obtained as fast as possible.

Given the increasing competition in cancer research, being first to market requires very

fast development. As a result, companies have adapted their approach with what we

call the blitz strategy, which consists of testing new drugs in parallel in a large number

of indications and sometimes in several settings. A good example presented in this

report is Avastins clinical development. The emergence of this strategy contrasts with

the more traditional step-by-step Domino strategy, presented in this report with the

Rituxan example.

The very high unmet medical needs of the cancer market have thus far allowed

companies to obtain high prices for their drugs, but this will not last forever. Two factors

will contribute to the growing pressure on the prices of cancer drugs in particular: 1) the

very fast growth of spending for cancer treatments as part of total healthcare spending

and 2) increased competition amongst a higher number of players. Some price

pressure is already at work through an increasing use of generics, as is the case in

other therapeutic areas.

European cancer players: who will win?

We have analysed how European cancer players (AstraZeneca, GSK, Merck KGaA,

Novartis, Roche, Sanofi-Aventis and Schering AG) are positioning themselves to tackle

the opportunities and challenges of the cancer market over the next five years and howtheir positions will evolve.

We have identified four success factors: in-licensing attractiveness, size of the pipeline

vs size of the current cancer franchise, diversity of therapeutic approaches and

exposure to generic risk.

Table 1: Winners/losers by success factor

Success factor Strong position Weak position

In-licensing attractiveness Roche, Sanofi-Aventis, AstraZeneca, Novartis Serono, Novo Nordisk, UCBPipeline depth vs current franchise Roche, GSK, Merck/Schering AstraZenecaDiversity of therapeutic approaches Roche, GSK, Sanofi-Aventis AstraZeneca, Serono, Novo Nordisk, UCBExposure to generic risk Roche, Merck/Schering, Serono, Novo Nordisk, UCB Sanofi-Aventis, AstraZeneca

Source: Company, Bionest Partners, Exane BNP Paribas


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The superstar is Roche/Genentech, which is in a strong position in all four success

factors. GlaxoSmithKline and Merck/Schering (if the combination is successful) are

the rising stars. Novartis should maintain its recently developed cancer franchise.

AstraZeneca is in the toughest situation, with high generic risk and a concentrated

pipeline. Maintaining its leadership in cancer will require higher-than-average success

rates and possibly acquisitions. Sanofi-Aventis also faces a challenge given its

generic risk exposure, but enjoys a deeper and more diversified pipeline than

AstraZeneca.

For the newcomers, Serono, Novo Nordisk and UCB, it will take time and major

investments to build a cancer franchise. Given their limited financing power and the

rising costs of development, gaining scale through acquisitions will likely be necessary

to be successful in this segment.

Chart 4: Cancer franchise in 2005 vs potential new drug launches by 2011

GSKMRK

NOVN

ROG

SAVE

SCH

AZN

NOVOUCB SEO

MRK-SCH Newco

0

2

4

6

8

10

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Number of projected new drugs

2005cancersales(USDbn)

Rising stars

Declining players

Super star

Emerging players

Established players



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8 Pharmaceuticals

Oncology - the gold rush is not over

Unmet medical need remains high

The oncology market, which accounted for nearly 10% of the global pharmaceutical

market in 2005, is expected to keep on growing faster than the rest of the industry with

average annual turnover growth of around 10% in the coming years. This growth will be

driven by the development of new blood cell factors, targeted therapies and novel

chemotherapeutics. According to the National Cancer Institutes estimates, cancer

treatment cost around USD70bn in the USA in 2004 and has grown 75% over the last ten

years.

Chart 5: Evolution of worldwide market for oncology

0

20

40

60

80

2004 2009e

Oncologydrugsales(USDbn)

CAGR: +10%


Despite the stabilisation of incidence rates and the steady increase of survival rates for

some tumours (i.e. prostate, breast, colorectal), cancer remains one of largest cause of

deaths in industrial nations. Cancer is the second cause of mortality in the USA, with

approximately 570,000 deaths and 1.4m new cases diagnosed in 2005. However, the

survival and incidence rates vary strongly according to the site of the cancer, as shown

in the following chart.

Prostate, breast, lung and colorectal cancers are still the most common forms. In 2005,

they accounted for more than half of all new cancers. It was projected that there would

have been 1,372,910 new cancer cases in 2005, 17% of which would have been

prostate cancer; 15% female breast cancer, 13% lung cancer and 11% cancer of the

colon. Although therapies for prostate and breast cancer have helped increase

five-year survival rates, it is not the case for pulmonary and pancreatic cancers.


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9 Pharmaceuticals

Chart 6: Five-year survival and incidence rates of cancers

Breast

Prostate

Renal

Bladder

Testicular

Lung

Leukaemia

Lymphoma and

multiple myeloma

Pancreas

StomachLiver and biliary

Colorectal

Uterine

Cervical

Ovarian

Head & neck

Brain

Melanoma

Oesophagus

0

10

20

30

40

50

60

70

80

90

100

1 10 100 1,000

Incidence (per 100,000)

5ysurvival

Breast

Prostate

Renal

Bladder

Testicular

Lung

Leukaemia

Lymphoma and

multiple myeloma

Pancreas

StomachLiver and biliary

Colorectal

Uterine

Cervical

Ovarian

Head & neck

Brain

Melanoma

Oesophagus

0

10

20

30

40

50

60

70

80

90

100

1 10 100 1,000

Incidence (per 100,000)

5ysurvival

Source: American Cancer Society, National Cancer Institute

Very active research and development

Between 1995 and 2005, the number of oncology products under development

(corresponding to phase I, II or III clinical trials) increased by 138% from 299 to 713.

This increase was approximately 1.5x higher than the overall pharmaceutical pipeline

growth, which rose by 88% from 1,268 drug candidates to 2,375 during the same

period. The oncology pipeline particularly increased in phase II and phase III.

Chart 7: Oncology and pharmaceutical pipeline growth between 1995 and 2005

Pharmaceutical pipeline* Oncology pipeline

0

200

400

600

800

1,000

Ph I Ph II Ph III

Numberofdrugs

1995 2005

+172%

+247%

+111%

0

100

200

300

400

Ph I Ph II Ph III

Numberofdrugs

1995 2005

+239%

+229%

+160%

* Oncology products are excluded from the pharmaceutical pipeline

Source: Pharmaprojects


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Oncology: roughly a quarter of the scientific interest

Several of the factors that we have analysed highlight the great interest in oncology

and the importance of research in this therapeutic area (scientific publications,

preclinical alliances, intensity of research in biotech companies, etc.).

Firstly, at the research level, oncology is the main focus of interest. Between 2000 and

2005, oncology was the subject of almost 40% of scientific publications and was

awarded almost twice as much print space than cardiovascular disease, the second

most investigated therapeutic area.

Chart 8: Scientific publications by therapeutic area for the 2000-2005 period

Cardiovascular

diseases

23%

Infectious diseases

16%

Neurodegenerative

diseases

14%

Metabolic diseases

8%

Oncology

39%

Publication distribution over the period 2000-2005 was obtained using the Pubmed database and its Meshsearch engine. This system allows a wide research with occurrences based on concepts

Source: Pubmed

Oncology is believed to represent 25%-33% of all the alliances and preclinical

transactions in the sector. Of the 152 firms currently listed EU biotech companies

analysed, 20% have a clear focus on oncology (33 firms) and account for roughly 25%

of the market capitalisation.

Oncology research benefited strongly from omics

In our view, the oncology pipeline boom in the mid-1990s is a direct result of scientific

and technological improvements that occurred in the early-1990s. We have identified

several factors that have driven oncology pipeline growth:

development of "omics" technologies in the 1990s, resulting in the identification of

many novel potential therapeutic targets. Genomic and proteomic development were

made possible by molecular biology improvements and have strongly contributed to the

identification/development of new therapeutic mechanisms (i.e. apoptosis,

anti-angiogenesis, pathway inhibition, etc.);

improvements to chemical synthesis, molecule library and formulation have

motivated high throughput screening of molecules and lead identifications;

advances in preclinical and toxicity studies have enabled more molecules to be

turned into medicines;

progress in the characterisation and production of biological molecules has

accelerated the emergence of very promising molecule types, such as monoclonal

antibodies and recombinant proteins.


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11 Pharmaceuticals

Chart 9: New cancer drug compounds and uses approved per year (1949- 2005)

New cancer drug compounds approved per year New cancer drug uses approved per year

0

2

4

6

8

10

12

14

16

18

20

1949

1957

1965

1973

1981

1989

1997

2005

0

2

4

6

8

10

12

14

16

18

20

1949

1957

1965

1973

1981

1989

1997

2005

Source: FDA, Bionest Partners, Exane BNP Paribas

This wave of innovations led to the late-1990's clinical evaluation of many novel agents

that targeted growth factor receptors and signal transduction pathways: the targeted

therapies. At this time, there was massive therapeutic potential. It was assumed that

these agents would be so specific that their effects would be limited to cancer cells and

spare normal cells. It was also assumed that these drugs would be so effective that

they would largely supplant non-specific cytotoxic agents.

Over a decade later, broad-acting therapies remain. They account for 35% of total drugcandidates under phase II or III whereas targeted therapies represent 39%.

Chart 10: Breakdown of current phase II and phase III drugs by therapeutic class

Phase II products Phase III products

Antimitotic/Cell-

cycle modulator

36

12%

Other anticancer

agent

15

5%

Hormonal

modulator

17

6%

Pathway inhibitor/

Apoptose

activator

42

14%

Antimetabolite

36

12%

Alkylating

7

2%

Angiogenesis

inhibitor

20

7% Therapeutic

vaccine

29

10%

Other cytotoxic

agent

18

6%

Immunomodula-

tor

46

17%

Radio/chemosen-

sitizer

11

4%

Prophylactic

vaccine

1

0%

Radio/chemopro-

tective

14

5%

Antimitotic/Cell-

cycle modulator

8

13%

Other anticancer

agent

3

5%

Hormonal

modulator

4

6%

Pathway

inhibitor/

Apoptose

activator10

15%

Antimetabolite

3

5%

Alkylating

3

5%

Angiogenesis

inhibitor

3

5%

Therapeutic

vaccine

8

12%

Other cytotoxic

agent

7

11%

Immunomo-dulator

4

6%

Radio/chemosen-

sitizer

6

10%

Prophylactic

vaccine

1

2%

Radio/chemopro-

tective

3

5%

Light-grey: broad-acting; dark-grey: targeted therapies


It appears that there is still strong interest in broad-acting therapies as opposed to

targeted ones.


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12 Pharmaceuticals

Knowledge is everywhere: low entry barriers inresearch

Targeted therapies are changing the landscape of cancer treatment and are likely to be

used for the majority of cancer patients within five to ten years, according to the

specialists we interviewed. One direct outcome of the development of targeted

therapies is the paradigm change occurring in oncology: cancer is transforming from a

uniform collection of organ-based diseases into subsets of biologically differentiated

patients. This change is fuelled by the greater understanding of the molecular

mechanisms of cancerogenesis that leads to a development of large variety of

therapeutic approaches.

In this context, many therapeutic strategies are pursued to cure a same cancer type,

spreading knowledge between many players and thereby increasing competition.

The following chart shows that biotechs are fuelling oncology innovation more than

ever. Over 70% of drugs currently under development in phase II or III clinical trials

come directly from biotech labs. In reality even more come from small companies assome of them have been acquired by big players and therefore their research effort is

accounted as if it had been discovered in a big pharma laboratory.

The early development of some molecule types could be tagged "biotech specific". For

example, 89% of recombinant proteins or 84% biological peptides/proteins currently

under phase II/III clinical trials have been discovered by a biotech company,

highlighting the specific positioning of biotech for biological development.

Chart 11: Contribution of biotech companies to innovation in oncology

Originator of current phase II/III drugsBreakdown of phase II/III drugs by molecule type andoriginator

Chemical71%

Synthetic

peptide

5%

Monoclonal

antibody

12%

Gene therapy

1%

Biological

peptide/

protein

1%

Other

2%Recombi-

nant protein

8%

80

6

1

14

9

1

2

159

15

8

36

35

14

9

16

17

0% 20% 40% 60% 80% 100%

Chemical

Synthetic peptide

Biological peptide/protein

Monoclonal antibody

Recombinant protein

Cellular therapy

sIRNA

Gene therapy

Other

Pharma Biotech

Of the 360 drugs under phase II or III development we analysed, 268 (75%) come from biotech labs whereas 88 (


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13 Pharmaceuticals

All major pharma players are betting on oncology

We have analysed the late-stage pipelines (phase II and phase III portfolios) of major

pharmaceutical players. The facts are striking; all major players have drugs under

development for oncology.

The following chart illustrates that chemicals still represent the majority of drug

candidates. However, some companies are absent from the chemical arena: mainly

biotech-like companies such as Biogen Idec, UCB or Novo Nordisk, but surprisingly

one large company is also missing, Merck & Co.

On the other hand, some other companies have a "purely" chemical approach like

AstraZeneca or Wyeth.

Chart 12: Development programmes of the major oncology players by nature of product

0 5 10 15 20 25 30 35 40 45 50

Abbott

AEterna Zentaris

Amgen

AstraZeneca

Baxter International

Bayer

Biogen Idec

Bristol-Myers Squibb

Eli Lilly

Genzyme

GlaxoSmithKline

Johnson & Johnson

MedImmune

Merck & Co

Merck KGaA

Novartis

Novo nordisk

Pfizer

Pierre Fabre

Roche/Genentech

Sanofi-Aventis

Schering AG

Schering-Plough

Serono

UCB

Wyeth

Chemical Peptide/protein Cellular therapy Gene therapy Monoclonal ant ibody Others



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High prices target unmet medical need

We believe that the prices of cancer drugs follow the same overall rules as for other

therapeutic areas. Efficacy and medical need are the two main criteria driving prices.

Based on the assumption that it is mainly drugs targeting unmet medical diseases that

are subject to accelerated approvals, we assessed the links between accelerated

approval gain and the price of the drug. In order to do so, we examined a study

conducted by the NCI and Bethesda NIH demonstrating that the average wholesale

price (AWP) obtained by the 22 cancer drugs approved by the FDA between December

1992 and June 2003 amounted to USD17,488 per cycle of treatment1.

Table 2: Price of 22 oncology products approved by the FDA between 1993 and 2004

Product Molecule Molecule type Therapeutic class Company Date of FDAapproval

Months Acceleratedapproval

AWP / cycle(USD)

Bexxar Tositumomab* Monoclonal antibody Pathway inhibitor /Apoptose activator

GlaxoSmithKline 7 Jun. 03 64 Yes 32,400

Velcade Bortezomib* Chemical Pathway inhibitor /Apoptose activator

Millenium 13 May 03 89 Yes 3,378

Iressa Gefitinib Chemical Pathway inhibitor /Apoptose activator

AstraZeneca 5 May 03 105 Yes 1,747

Eloxatin Oxaliplatin Chemical Alkylating Sanofi Aventis 9 Aug. 02 116 Yes 6,424

Zevalin Ibritumomab Monoclonal antibody Pathway inhibitor /Apoptose activator

Schering AG 19 Feb. 02 46 Yes 30,662

Glivec Imatinib Chemical Pathway inhibitor /Apoptose activator

Novartis 18 Apr. 01 59 Yes 2,290

Campath Alemtuzumab* Monoclonal antibody Pathway inhibitor /Apoptose activator

Genzyme /Schering AG

5 Jul. 01 90 Yes 199,332

Trisenox Arsenic trioxide Chemical Pathway inhibitor /Apoptose activator

Cephalon 25 Sep. 00 13 No 19,743

Mylotarg Gemtuzumab Monoc lonal antibody Pathway inhibitor /

Apoptose activator

Wyeth 17 May 00 160 Yes 15,723

Temodar Temozolomide Chemical Alkylating Schering Plough 11 Aug. 99 105 Yes 11,029

Valstar Valrubicin Biologicalpeptide/protein

Antibiotic Anthra 25 Sep. 98 219 No 13,296

Herceptin Trastuzumab* Monoclonal antibody Antimitotic/Cell-cyclemodulator

Roche/Genentech 25 Sep. 98 28 No 3,672

Xeloda Capecitabine Chemical Antimetabolite Roche/Genentech 30 Apr. 98 113 Yes 1,470

Mabthera /Rituxan

Rituximab* Monoclonal antibody Pathway inhibitor /Apoptose activator

Roche/Genentech 26 Nov. 97 66 No 15,048

Intron A Interferon a2b recombinant protein Immunomodulator Schering Plough 6 Nov. 97 103 No 3,570

Camptosar Irinotecan Chemical Antimitotic/Cell-cyclemodulator

Pfizer 14 Jun. 96 106 Yes 5,100

Hycamtin Topotecan* Chemical Antimitotic/Cell-cyclemodulator

GlaxoSmithKline 28 May 96 90 No 3,000

Gemzar Gemcitabine Chemical Antimetabolite Lilly 15 May 96 107 No 3,591Taxotere Docetaxel* Chemical Antimetabolite Sanofi Aventis 14 May 96 106 Yes 3,580

Vesanoid Tretinoin* Chemical Other anticanceragent

Roche 22 Nov. 95 39 No 6,925

Leustatin Cladribine* Chemical Antimetabolite Johnson &Johnson

26 Feb. 93 71 No 2,268

Taxol Paclitaxel Chemical Antimitotic/Cell-cyclemodulator

BMS 29 Dec. 92 165 No 1,945

* Products with the shortest approvable time; AWP (Average Wholesale Price) per unit and per cycle (man 1.7m tall, weight of 75kg, body surfacearea of 2m) ; Prices taken from the US Red Book, except for Paclitaxel and Cladribine for which reference prices come from the US Blue Book(prices of the generics)

NB. The authors excluded growth factors (pegfilgrastim, darbopoietin) and hormonal modulators (anastrozole) from the scope of their analysis,although they were approved during the period

Source: Journal of Clinical Oncology, December 2005, American Cancer Society, Bionest Partners, Exane BNP Paribas estimates

1Nevertheless, there are significant disparities between products. For example, the price obtained for Xeloda (Roche) was USD1,470 per cycle vs a

massive USD199,332 per cycle for Campath (Schering AG / Genzyme)


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The authors proved a link between the price obtained and the time required by the FDA to

give its green light. Among the approved drugs, the 11 fastest approvals during the period

(59 months on average) obtained an AWP of USD28,975 per cycle, and USD6,791 per

cycle when eliminating the two radio-labelled monoclonal antibodies Bexxar and Zevalin

(for which the very high prices integrate some logistics costs and are therefore hardly

comparable). This level of price was significantly higher than for the 11 slowest drugs

(127 months on average, with an average price of USD6,000 per cycle).

Several observations reinforce this view:

the price is not directly l inked to the incidence of the cancer: a rare cancer does not

automatically deserve a high price. However, the relation between price and incidence

appears clearer for biologics (indicated by a circle in the chart below) than for

chemicals;

product prices are more or less in a defined range for each indication;

there is no clear link between the range, the date of approval, the chemical/biologic

origin or the therapeutic class of the products.

Chart 13: Price and cancer incidence relation for chemicals and biologics

Iressa

Eloxatin

Trisenox

Temodar

Valstar

Camptosar

Hycamtin

Vesanoid

Taxol

Mylotarg

Erbitux

Mabthera/Rituxan

SutentNexavar

Herceptin

Velcade

Glivec

Xeloda

Gemzar

LeustatinAlimta

Tarceva

Avastin

Taxotere

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0 20 40 60 80 100 120 140

Incidence of approved indication

Average

Who

lesa

lePrice

(USD)

Colorectal

Lung cancer

Breast

We compared the prices of 25 cancer drugs approved from 1992 to 2005 vs the incidence of their cancerindication. In addition to the list of drugs used by NCI and NIH researchers, we included six drugs that wereapproved more recently: Erbitux (cetuximab, Merck KGaA), AWP per cycle USD7,800; Alimta (pemetrexed,Lilly), AWP per cycle USD1,912; Avastin (bevacizumab, Roche / Genentech), AWP per cycle USD4,523;Tarceva (erlotinib, Roche / Genentech, AWP per cycle USD1,772; Sutent (sunitinib, Pfizer) , AWP USD4,725 permonth; Nexavar, AWP USD4,333 per month

Source: American Cancer Society, US red book, Bionest Partners, Exane BNP Paribas estimates.

but pricing is under scrutiny

Cancer drugs are expected to be under pressure in the future. This is a general trend

affecting the whole of the pharmaceutical industry, since healthcare cost containment

policies have been conducted in most industrialised countries. Two factors will

contribute to the growing pressure on prices: 1) the very fast growth of cancer

treatment spending as part of the total healthcare spending; and 2) increased

competition amongst a greater number of players.

Price pressure is already at work through an increasing use of generics, like in other

therapeutic areas. On the one hand this would leave room for branded drugs, allowing

expensive biologics and pathway inhibitors to resist. But on the other hand, the

increase in patient access to these new therapies will not permit healthcare systems

public or private to sustain such levels a long time.


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Areas left to explore

We tried to assess the link between the number of products, the frequency of cancer

and the medical need. We therefore compared the number of drugs by therapeutic area

with the incidence and five-year survival rates (see following charts). Our approachconsidered both marketed drugs and molecules in late-stage clinical evaluation (under

phase II or phase III).

We identified six main segments of the cancer market, illustrated on matrix.

1) Big and crowded market segments: breast, prostate

This first market segment is the most important in terms of approved drugs, and offers

high margins pharma companies: incidence and survival rates are sufficiently high to

permit long-term use for an important number of patients.

Breast and prostate cancers have comparable incidence and five-year survival rates,

but there are slightly more drugs available for the former. One reason could be thathormone therapy, surgery (orchiectomy) and cryotherapy provide good stabilisation

prospects for the male patients.

On the pipeline side, the high number of drugs under development for breast cancer

suggests that the prospects for oncology players to develop efficient molecules

showing reduced side-effects are still attractive. The situation is obviously different for

prostate cancer since only one large pharmaceutical player has a molecule for this

indication in phase III (Roche: Avastin).

2) Crowded segment, but with unmet need: leukaemia, lymphoma, ovarian, colorectal

This segment comprises cancers with treatments already available but which still pose

a challenge as five-year survival rates remain low. Leukaemia and lymphoma, with the

highest number of approved drugs, and ovarian cancer belong to this segment. The

latter is the second-most crowded gynaecological cancer, after breast cancer.

Although the incidence rates for colorectal cancer are relatively high, we have included

it in this segment as five-year survival rates are still low. On the pipeline matrix, we can

see that these indications still stimulate players, and could fuel competition on these

markets in coming years.

3) Covered niche market segments: testicular, melanoma

This segment comprises testicular and melanoma cancers associated with high

survival rates and a relatively high number of available drugs. However, some

differences need to be highlighted between these two pathologies.

As testicular cancer patients appear to benefit from efficient therapies, it is not

surprising to see so few products under clinical evaluation.

The situation is different in melanomas. Although excision is the treatment of choice,

about 18% of melanomas are metastatic and remain difficult to cure because of

regional and distant metastases, in which survival rates are 60% and 14% respectively.

The outlook for patients with metastatic melanoma continues to be poor since chemo-

or immune therapies are associated with response rates of 10%-15% and median

survival of about one year.


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4) Improvable niche market segments: five cancer types

In this segment, we can identify a series of cancers with a surprisingly low number of

products, despite incidence / survival profiles comparable to more crowded therapeutic

areas: head & neck, renal, cervix uteri, bladder and corpus uterus. It is interesting to

note that competition in renal cancer has increased since the very recent approval ofPfizers Sutent and Bayer Sorafenib.

This indication is an entry-point in the battle-field before an extension to the "big and

crowded" area where Avastin is currently dominating development (see case study for

more details).

The limited number of drugs for cervix uteri and corpus uterus cancers is partially due

to the large occurrence of surgery procedures in this domain. As such, it is not

surprising to see that very few molecules under development for uterine cancer and

cervix uteri.

As a result we believe that bladder cancer is a sweet spot for newcomers in the cancer

arena as surgery procedures seem to be less frequent than for cancers of the uterus

and cervix. The low number of drugs under development for this indication reinforces

our impression.

5) Challenging niche market segments: five cancer types

This segment groups a series of cancers with relatively low incidence and five-year

survival rates and a limited number of approvals: pancreas, liver, stomach, oesophagus

and, to a lesser extent, brain cancer. We believe this is clearly the consequence of a

choice based on pharmaco-economic considerations. These niche cancers could

theoretically interest newcomers or small players, as the medical need is huge. The

main challenge remains the poor survival rates, making it difficult to prove a therapeutic

efficacy.

However, we believe that pancreas cancer could become a highly competitive segmentin a near future. Many large players have molecules targeting this indication and the

number of products under clinical evaluation is increasing.

6) The big challenge: lung cancer

Tracheal bronchus lung cancer is one of the most frequent indications, with one of the

lowest five-year survival rates, explaining the high number of products approved. It is

worth noting that lung cancer frequency is sharply increasing notably due to smoking

habits and is one of the pathologies with the poorest prognosis. As a result, high

competition and poor improvement from existing drugs make this therapeutic area one

of the most difficult to address, but also one of the most potentially profitable. Because

the disease has usually spread by the time it is discovered, radiation therapy and

chemotherapy are often used, sometimes in combination with surgery.


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Chart 14: Relation between number of drugs approved, incidence and 5-yearsurvival


Chart 15: Relation between number of drugs in phase II or III, incidence and5-year survival


To address the future evolution of the different therapeutic classes, we have assumed

that the attrition rates (see next section) were the same in all of the segments and

calculated the average number of molecules that could reach the market in each

segment. We have then divided this by the number of marketed molecules in each

segment. This metric gives us an indication of the intensity of the competition that the

existing drugs face from the pipelines.

Interestingly, two zones are more investigated than others: the "improvable niches" and

the "challenging niche". Those are the areas where the medical need is still high or

relatively high and where there are little players. Surprisingly, the lung area does not

show up as a very intense zone.

Market Leukemias


Breast

Prostate

Ovarian

Colorectal

Skin and Melanoma

Liver

Corpus uterus

Stomach

Bladder

Pancreas

Cervix uteri

Oesophagus

Testicular

Brain

Renal

Head & Neck

0

50

100

1 10 100 1000


5ysurvival

THE BIG CHALLENGE

BIG AND CROWDED

COVERED NICHE

CHALLENGING NICHE

Satisfying

treatment

High

unmet

need



IMPROVABLE NICHES

1 approval

LateStagePipeline

Breast

Leukemias

Ovarian


Testicular

Prostate

Pancreas

Corpus uterus

Skin and Melanoma

Liver

Stomach

Cervix uteri


Colorectal

Brain

Renal

Bladder

Head & Neck

Oesophagus

0

50

100

1 10 100 1000


5ysurvival

THE BIG CHALLENGE

BIG AND CROWDED

COVERED NICHE

CHALLENGING NICHE

Satisfying

treatment

High

unmet

need



IMPROVABLE NICHES

15 projects


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Chart 16: Relation between number of projected new drugs and marketed drugs

Breast

Leukemias


Ovarian


Colorectal

Testicular

Prostate

Renal

Pancreas

Bladder

Head & Neck

Corpus uterus

Skin and Melanoma

Liver

Stomach

Cervix uteri

Brain

Oesophagus

0

50

100

1 10 100 1000

Incidence (Log scale)

5ysurvival

THE BIG CHALLENGE

BIG AND CROWDED

COVERED NICHE

CHALLENGING NICHE

Satisfying

treatment

High

unmet

need



IMPROVABLE NICHES

1 new projected drug

for 2 existing drugs


Success rates: three times lower than pharma average,and getting worse

Several examples of promising drugs that have encountered regulatory setbacks

indicate the challenges that oncology drug candidates must face. Our analysis shows

that success rates in the development of cancer drugs are three times lower than for

the rest of the industry, and getting worse.

We have calculated attrition rates in oncology. As shown below, the average success

rates of oncology drug candidates are much lower than other therapeutic areas in

late-stage development; phase II and III.

A cancer product entering phase II has about a 6% chance of getting to the market (industry

average: 16%) and around 3% when it is entering phase I (industry average: 10%).

Chart 17: Success rate by phase of development and by therapeutic area

52%

21%

35%

83%

60%

29%

40%

70%

60%

39%

56%

74%

0%

20%

40%

60%

80%

100%

Phase I Phase II Phase III Registration

Successra

te

Oncology (Exane BNPP & Bionest Partners)Oncology (Nature Reviews)Pharma sector (Nature Reviews)

Source: Nature reviews (success rates were determined by the analysis of the success and failure of top ten bigpharma portfolios during 1991-2000), Bionest Partners (based on Pharmaprojects database with productsentered in phase II, II and III in 2000), Exane BNP Paribas


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Several factors may explain the low success rates of oncology drug candidates.

On the research side, there are more and more novel approaches to anti-cancer drug

development. For example, more than 40% of cancer drugs under development are

directed against novel mechanisms, and almost 70% of the drug targets that are being

investigated in discovery are innovative. The price to pay for innovation is the risk

attached to it;

There is also a relative lack of adequate preclinical models and translatable preclinical

biomarkers in oncology, which, in some other therapeutic areas, are relied on for early

target validation. In addition, there is often a lack of robust biomarkers that can be used

to obtain proof of concept and gauge whether meaningful therapeutic targeting is

occurring in early-stage clinical evaluations. This is particularly true for drug candidates

targeting innovative mechanisms;

More broadly, oncology is one of the disease areas where the phase II results are of a

different nature than the one necessary for registration. In phase II, products usually

prove their toxicity toward the tumour and the end point is usually the size of thetumour. The fine-tuning is to find an active toxic dose which not too toxic for the rest of

the body. In phase III, the drug is challenged on its global biological impact and the end

point becomes disease free survival or survival, a much more complex outcome.

An illustration of the higher bar and the increase in the length of clinical trials is in

advanced colecteral cancer, in which improvements coming from new therapies are

making the work harder for new players.

Chart 18: Goals in the treatment of Advanced colorectal cancer

Source: Sanofi-Aventis

Many new molecules are expected to be launched

As we have mentioned, a cancer product entering phase II has about a 6% chance of

getting to the market and around 3% of entering phase I.

We have calculated, based on our estimated attrition rate, the number of molecules

that could reach the market by 2012 (molecules that are already in phase II). We

estimate that around 83 new molecules will be launched while there are "only" around

200 approved today.

But, this makes sense only if the attrition rates measured today remain stable with time.


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Table 3: Estimates of the total number of new molecules reaching the market

Tumour site Number ofphase II

programmes

Number ofphase III

programmes

Total numberof late stageprogrammes

No. of moleculesreaching the market

by 2012

Numberof currently

approved drugs

Breast 79 13 92 8.6 42

Leukaemia 50 9 59 5.6 42Lymphoma and multiple myeloma 57 15 72 7.8 22Ovarian 46 7 53 4.8 12Tracheal bronchus lung 114 15 129 11.3 18Colorectal 62 7 69 5.8 12Testicular 1 0 1 0.1 10Brain 36 4 40 3.3 6Prostate 86 9 95 7.8 12Renal 40 5 45 3.9 6Pancreas 48 9 57 5.5 3Bladder 12 3 15 1.6 3Head & Neck 24 4 28 2.6 3Corpus uterus 5 5 0.3 2Skin and Melanoma 61 8 69 6.0 9Liver 23 5 28 2.8 2Stomach 12 2 14 1.3 3Oesophagus 8 4 8 1.6 1Cervix uteri 13 3 16 1.7 1

Total 777 122 895 83 209

Source: Pharmaprojects, Bionest Partners, Exane BNP Paribas

Success rates are declining in oncology

We have measured success rates in oncology by following each and every new

molecule entering phase I, II or III since 1996. We have analysed the development of

773 drug candidates. On average, compounds spent around three years in phase II

and two in phase III, therefore our analysis stopped with products entered in respective

phases in 2000 (the numbers obtained with the 2001 cohort are similar to 2000).

To illustrate our methodology: the success rate for phase I products in 1996 was

determined by following all of the drugs that entered in phase I in 1996 over a number

of years.

Chart 19: Change of success rate in oncology by phase of development between1996 and 2000

45.1%

38.3%41.7%

57.1%

4.1%

52.2%

21.0%

34.8%

83.3%

3.2%

0%

20%

40%

60%

80%

100%

Phase I Phase II Phase III Pre-registration Phase I to launch

Successrate

1996 2000

+46%

+16%

-45% -17%

-23%


This approach enables us to clearly demonstrate that hurdles have become higher in

oncology development. Between 1996 and 2000, cumulated success rates from

first-in-man to registration have decreased by 23% from 4.1% to 3.2%. This increasing

rate of failure is due to a sharp decline in phase II productivity and to a lesser extent to

phase III productivity.

However, products that are able to reach the registration stage have a better chance of

success.


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Developing cancer drugs is all aboutmanaging complexity

Oncology is one of the main science-driven specialties in medicine, with high technicalproducts and complex patient management. This makes research in this area

particularly complex and unpredictable. To make things worst, many teams are

competing not only on similar approaches but also on different approaches on the

same targets (for instance chemicals and biologicals on certain membrane receptors)

and on different approaches on the same disease.

To balance the development risk and because the understanding of the biology has

strongly progressed, companies are now trying to test their compounds in several

indications in parallel. But this strategy renders the development highly complex as

standard therapies are evolving very fast and are sometimes getting fragmented, i.e.

there can be several equivalent treatment options for the same patient. The products

are now often developed with competitors products and can sometimes reinforce

competitors position.

This makes marketing strategies difficult as the design of clinical trials contains an

element of risk in the choice of reference treatment and necessitates a close and

sustained presence in hospitals and among key opinion leaders. At the same time the

clinician profile is also changing, evolving to a more prominent role of organ specialists

versus traditional oncologists. As a consequence, cancer marketing and sales forces

will have to adapt to a less academical physician profile and deliver a more GP

oriented marketing promotion.

Table 4: Sources of complexity

Research Development

R&D

More competition on similar targets

More approaches to same targets

Clinical trials run in several indications in parallel

Increasing number of backbone therapies

MarketingMore competition on to access to Key Opinion Leaders

Emergence of organ specialists more GP oriented


Product positioning with or against competitors ?

For obvious reasons, treatment guidelines are lagging behind discovery and local

habits die hard. Consequently, there are usually several reference treatments in each

pathology and there is not always a consensus on the backbone of the treatment, i.e.

the set of drugs used as a standard in a particular cancer. When developing a new

drug to treat cancer, companies are essentially left with two options: either to develop

the compound on top of existing standards, the add-on strategy, or to replace one or

several of the components of a treatment, the switch strategy.

In fact, we are currently assisting at an increase in the number of drugs combinations

within an indication, offering practitioners a very high number of possible treatments.

This is mainly the consequence of the add-on strategy, which consists in testing a new

drug in addition to the backbone in an indication. This phenomenon not only

increases complexity for doctors, it also changes the way pharmaceuticals companies

must address the development of new drugs.


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This is because of:

the increase in the number of trials due to the rising number of utilized combinations

of existing drugs;

time constraints, as best practices evolve and companies have to run clinical trials

as fast as possible to reach the market with a setting that is still meaningful topractitioners.

Another approach to product development is to show superiority to existing treatments,

creating a replacement rather than an add-on. This is the switch strategy.

Clearly, the objective is to move the drug rapidly to the backbone and thus into the

guidelines. Then, new compounds will be tested more often on top of the drug rather

than against it.

The switch strategy is the fastest route to becoming a foundation stone

The switch strategy is supposedly used to replace a conventional treatment with a new,

more efficient one. That way, the new drug enters directly in the backbone of thetreatment by replacing a constitutive element of it. For instance, Sanofi-Aventiss

strategy for Eloxatine in colorectal cancer was to go head-to-head against Pfizers

Camptosar, the gold standard at the time. With better clinical outcomes, Eloxatine

succeeded in moving rapidly from second to first line and in taking over a leading share

of the market.

Another example is Glivec, from Novartis, which was approved in chronic myelogenous

leukaemia in 2001. Prior to the arrival of Novartiss tyrosine kinase inhibitor, the main

treatment options for this rare hematological cancer were interferon (mild- to high

efficacy but important side effects), Hydrea (poor efficacy and low side effects), and

medullar graft (capable of definitive cure, but associated with a very high mortality).

With high efficacy and relatively low safety concerns, Glivec succeeded in this nichemarket and is now the gold-standard.

Unfortunately, not all the drugs have the ability to show superiority and, most of the

time, switch strategies are used to replace one of the components of the treatment

setting with a similar product that improve solely safety or convenience.

For instance, three companies are currently playing this strategy to replace a very old

injectable cancer product, 5-FU. The new drugs are more convenient products, oral

versions, and have a better side-effect profile. These drugs are Merck KGaAs UFT,

Taiho S-1 and Roches Xeloda (capecitabine).

Roches reach in the oncology market and rich pipeline has led to the company being

the most aggressive of the three aforementioned companies. Roche includes

systematically in its clinical trials an arm containing Xeloda to replace 5-FU, when this

compound is part of the core-treatment. For example, the rapid development of Avastin

benefits Xeloda as there is often a Xeloda instead of 5-FU arm in the clinical

programmes for Avastin. This is a way of imposing the usage of Xeloda together with

Avastin and replace 5-FU.


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The add-on strategy is more complex and involves numerous backbones

Cancer drugs are mostly prescribed in settings combining several compounds. In the

most frequent situations, the backbone of the treatment is composed of two or three

chemotherapy agents. Historically, these compounds belong to therapeutic classes

such as alkylating agents or antimitotic agents or antimetabolites. On top of thisbackbone, we have observed the progressive appearance of molecules with more

targeted mechanisms of action: a new generation of chemotherapeutic agents

(antimitotic agents such as taxanes or topoisomerases) and more recently the so-called

targeted disease drugs. This last class covers the pathway inhibitors,

immunomodulators and/or monoclonal antibodies.

The chart below illustrates the evolution of backbones over time in colorectal, breast

cancers and non-Hodgkins lymphomas.

Chart 20: Illustration of backbones and add-on cancer therapies (non-exhaustive)

Colorectal cancer

Avastin Erbitux

Add-ons Oxaliplatin Irinotecan Avastin Avastin

Avastin Avastin Erbitux Erbitux Erbitux Erbitux

Irinotecan Oxaliplatin Oxaliplatin Irinotecan Oxaliplatin Irinotecan Oxaliplatin Irinotecan

5FU 5FU 5FU 5FU 5FU 5FU 5FU 5FU 5FU 5FU 5FU

Backbone LV LV LV LV LV LV LV LV LV LV LV LV

1952 1962 1992 1996 2004 2004

5FULV FOLFOX FOLFIRI FUTURE BACKBONES?

LV = Leucovorin, generics

5FU: Fluorouracile = Adrucil, generics

Irinotecan = Campto

Oxaliplatin = Eloxatin

Breast cancer

Add-ons Doxo 5FU Paclitaxel Docetaxel

Paclitaxel Docetaxel

Doxo Doxo Doxo Doxo

Backbone Cyclo Doxo Cyclo Cyclo Doxo Cyclo Doxo Cyclo Cyclo Cyclo

1959 1974 1994 1996 2002

C A AC FAC AP AC AT TAC NEW BACKBONES

Cyclophosphamide = Cytoxan, generics

Doxorubicine = Adriamycin, generics

Paclitaxel = Taxol, generics

Docetaxel = Taxotere

Non Hodgkin Lymphoma

Add-ons

R: Rituximab

P: Prednisone P: Prednisone P: Prednisone

O: Vincristine O: Vincristine O: Vincristine

H: Doxo H: Doxo H: Doxo

Backbone Cyclo C: Cyclo C: Cyclo C: Cyclo

1959 1979* 2002

C CHOP R-CHOP NEWBACKBONE

C: Cyclophosphamide = Cytoxan, generics

H: Doxorubicin/hydroxydoxorubin, Adriamycin, generics

O: Vincristine = Oncovin, generics

P: Prednisone, generics

R: Rituximab = Rituxan/Mabthera

*: Miller TP, Jones SE, Chemotherapy of localised histiocytic lymphoma, Lancet. 1979 Feb 17;1(8112):358-60

R: Rituximab


The consequence of the widespread use of the add-on strategy is the multiplication of

backbones, as illustrated above. New players now have to multiply clinical trials in

order to be associated with the existing backbones. For most companies, the impliedcosts of clinical trials are becoming unsustainable and it is becoming necessary to

make choices.


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For example, Avastin (Roche, Genentech) and Erbitux (Merck KGaA, BMS, Imclone)

are each currently under test in 30 clinical trials (see table below).

Table 5: Clinical trials with Avastin and Erbitux in colorectal cancer

Avastin ErbituxStill recruiting trials 38 29

No more recruiting trials 21 12

Source: Clinicaltrials.gov

The strategic decision of a backbone can be critical for the future of the product.

Avastin and Erbitux in colorectal were first developed with Pfizers irinotecan (in 2000-

2003), which has been swiftly replaced by Sanofi-Aventiss oxaliplatin (after 2003). Had

Erbitux chosen oxaliplatin first, it would probably have had an edge over Avastin.

There are collateral benefits to becoming part of a backbone: not only does the drug

become a standard, its use is also automatically boosted by other drugs in trials

seeking to prove added efficacy. The best illustration is Avastin (see case study) which

is on its way to becoming a backbone drug in several cancers. An increasing number of

trials with other cancer compounds now involve this anti-angiogenesis drug. As

Roches compound is becoming increasingly important, the company could now be in

the situation to get a direct return from competitors by participating in clinical trials: it

would certainly make sense for Sanofi-Aventis to try Taxotere + Avastin in some

settings to secure the use of Taxotere instead of Taxol; the PACCE clinical trial is

another illustration as this phase III trial combines Amgens panitumumab with Avastin

in first line metastatic colorectal cancer.

One bullet for several targets?

Not only is it becoming more complex to access an indication but companies are alsotrying to impose their drugs in several indications in parallel. This is due to the added

complexity of backbones and to the need to be faster to the market in several cancers

(the blitz strategy, see below).

In our universe of pharmaceuticals companies (see graph below), we have noticed that

there is an average of one to five programmes per molecule in phase II or III. Our work

suggests that there is no clear correlation between the average number of indications

tested and the nature of the molecule, the size of the group or the indications sought.

Very few companies develop their molecules in a single indication but there seems to

be a trend among smaller companies to explore a smaller number of indications per

molecule. In our universe, only UCB, Novo Nordisk, Serono, Genzyme and Biogen

Idec, all relatively small companies, remain very focused. While we have not found a

clear correlation, it seems that investment capacity is a limiting step in the current

development strategies. For instance, it is striking to see that with about the same

number of molecules AEterna Zentaris is running half the number of programmes

compared to AstraZeneca or J&J.

Most of the companies are running two or three studies in parallel per molecule.

Although we do not have the corresponding data for ten years ago, based on our

interviews, we strongly believe that the increase in development costs over the last

years has a lot to do with this pan-indication strategy.

The benefits from the strategy are highlighted by the recent failure of Wyeths mTOR

inhibitor, temsirolimus, in phase III for metastatic breast cancer and the parallelannouncement that two other phase III programmes were being maintained, in renal

cancer and certain forms of lymphoma.


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Chart 21: No correlation between the size of the portfolio and the number of programme per molecule

UCBNovo nordisk

Novartis

Merck & Co

Genzyme Biogen Idec

AEterna Zentaris

Average

Wyeth

Serono

Schering-Plough

Schering AG

Sanofi-Aventis

Roche/Genentech

Pierre Fabre

Pfizer

Merck KGaAMedImmune

Johnson & Johnson

GlaxoSmithKline

Eli Lilly

Bristol-Myers SquibbBayer

Baxter

AstraZeneca

Amgen

Abbott

1.0

2.0

3.0

4.0

5.0

6.0

0 2 4 6 8 10 12 14 16 18 20Total number of molecules in phase 2 or 3

Averagenumberofprograms

permoleculeinphase2or3


Among the larger companies, it seems that some prefer to spread the risk over several

indications (AstraZeneca, J&J and BMS) while others focus their resources (Pfizer,

Sanofi-Aventis). The vast majority of companies are running more than two studies per

molecule (the average is 2.8 in this sample and 2.3 in our global database) and the

comments made during the interviews convince us that most of the companies are

willing to spend more money in phase II to get some signal in different indications

rather than betting on a single bullet.

Chart 22: Number of programmes per product in phase II and III

0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6 4.0 4.4 4.8 5.2 5.6

Abbott

AEterna Zentaris

Amgen

AstraZeneca

Baxter

Bayer

Biogen Idec


Eli Lilly

Genzyme

GlaxoSmithKline

Johnson & Johnson

MedImmune

Merck & Co

Merck KGaA

Novartis

Novo nordisk

Pfizer

Pierre Fabre

Roche/Genentech

Sanofi-Aventis

Schering AG

Schering-Plough

Serono

UCB

Wyeth

NB: Black indicates companies with fewer than two studies per molecule on average; white indicates above average.



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Lowering the costs. But at what cost?

To keep the cost of clinical development down, companies are tempted to run trials in

eastern Europe ort Asia. However, this is not always possible or appropriate. First, the

standard of care is usually not the same as in western countries and it is difficult torecruit patient when the clinicians are not familiar with the tested arm and the control

arm. Second, for a study to be accepted it must be supported by globally recognizedkey opinion leaders. With rare exceptions, these live in the largest pharma markets.

Oral drug approaches vs biologicals: who will win?

When a company starts work on a project with a tropism toward oncology, it is

sometimes difficult to identify the right pathology. In the past we have seen that most

companies targeted several indications at once in order to increase their chances of

success and so leapfrog competitors.

In addition to this risk of not finding the right indication, or of not identifying it fast

enough, each programme is in competition with:

similar development approaches at other companies (me-toos);

different approaches on the same biological target (monoclonal antibodies,

chemicals, vaccines, etc.);

different approaches on the same pathology (different biological targets).

A good example is the VEGF approach (vascular epithelial growth factor). Among the

eight products listed in the table below, three are biological and five are chemicals.

However, all eight target the same mechanism: blockage of the VEGF pathway either

by blocking the receptor (Avastin and CDP-791) or its functioning (chemicals) or its

ligand (AVE005). Clinically it seems that these molecules have different features and

are finally ending in different indications. For instance, Avastin has been launched in

colorectal cancer but Nexavar and Sutent in renal cancer. PTK 787 did not show greatresults in colorectal and is not being investigated in renal.

Table 6: VEGF approaches

Laboratory Nature of molecule Most advance stage ofdevelopment

Avastin Genentech/Roche Monoclonal antibody CommercializedNexavar Bayer Chemical CommercializedSutent Pfizer Chemical Commercialized

PTK 787 Schering/Novartis Chemical Phase IIIZactima AstraZeneca Chemical Phase IIIAG-013736 Pfizer Chemical Phase IIAVE005 / VEGF-Trap SAVE/Regeneron Biological inhibitor Phase IICDP-791 UCB/ImClone Antibody fragment Phase II


Pipelines are still very chemical

To illustrate the situation, we have sorted our 465-drug database of products in phase II

or 3 in oncology (based on Pharmaprojects and other sources) by type and therapeutic

class. In our database, products are referred to according to their most advanced

phase, i.e. a product in phase III and in phase II in other indications is referred as in

phase III. As a result, products on the market or in registration but which are also being

developed for other indications are not included in the following analyses.


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Focusing on molecules with phase II or III as most advanced stage, chemicals still

represent the majority of drug candidates in development. With 191 small molecules,

they account for 52% of new phase II/III drugs.

Surprisingly, monoclonal antibodies and recombinant proteins account for only 23% of

new phase II/III therapies under development whereas cellular, gene and SiRNA-based

therapies represent 11%.

Concerning complexity, almost every biological product is challenged by a chemical

approach usually on the same molecular target or on its direct cascade of action. This

means that laboratories developing biologicals have to add to the risk of development

and production, the risk of being leapfrogged by a targeted chemical approach.

Chart 23: New phase II/III drug candidates by molecule type

Phase II products Phase III products

Biological

peptide/protein

7

2%

Chemical

149

51%

Other

19

7%

SiRNA

8

3%

Synthetic peptide

20

7%

Monoclonal

antibody

34

12%

Recombinant

protein

27

9%

Gene therapy

15

5%

Cellular therapy

12

4%

Cellular therapy

2

3%

Gene therapy2

3%

Recombinant

protein

12

17%

Monoclonal

antibody

8

12%

Synthetic peptide

1

1%

Chemical

42

61%

Biological

peptide/protein

2

3%


Interestingly, on average there are more clinical programmes with chemicals (3.3 per

molecule) than biologicals (around 2). This could be due to the mechanism of action of

some biologicals with limited possible indications as they are usually targeting specific

extracellular biomarkers. One spectacular exception though is Avastin (see case study

below).

Most actors have some presence in either or both peptides/proteins or monoclonal

antibodies; the main exceptions are Wyeth and AstraZeneca. Roche/Genentech has

the most balanced portfolio with an impressive proportion of biologicals in its pipeline.

GSK also has a greater presence in this biological field than is perceived by the

market.

Some companies are not present in the chemical arena. These are mainly biotech-like

companies such as Biogen Idec, UCB or Novo Nordisk but the list also surprisingly

counts one large company, Merck & Co.

Some other companies have a purely chemical approach, for example AstraZeneca

or Wyeth. More surprisingly, Medimmune and Genzyme also have only chemicals in

there oncology pipeline.


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Chart 24: Molecules in development by nature of products

0 2 4 6 8 10 12 14 16 18 20

Abbott

AEterna Zentaris

Amgen

AstraZeneca

Baxter International

Bayer

Biogen Idec


Eli Lilly

Genzyme

GlaxoSmithKline

Johnson & Johnson

MedImmune

Merck & Co

Merck KGaA

Novartis

Novo nordisk

Pfizer

Pierre Fabre

Roche/Genentech

Sanofi-Aventis

Schering AG

Schering-Plough

Serono

UCB

Wyeth

Chemical Peptide/protein Cel lular therapy Gene therapy Monoclonal ant ibody Others


Centralised vs decentralised marketing organizations

Even the marketing organization needs to be adjusted to the project. Schematically,

there are two principal types of marketing organization within Pharma companies in

oncology: centralised and decentralised. We have identified a steady shift from the

decentralised (regional) to the centralised pattern. This will continue as:

the number of clinical trials is sharply increasing with a multiplication of indications

(see above);

larger patient samples are required to obtain statistically significant data;

managing clinical trials is becoming more and more complex.

As a result, companies will have to take an increasingly systematic approach, for which

the centralised organization is better suited.

The centralised marketing organization

The centralised marketing organization consists in a top-down decision taking process,

where a corporate-level team defines the rules for all the country subsidiaries. This

approach necessitates a clearly empowered corporate team that drives the relationship

with the KOL and precisely set the framework for clinical trials: clinical trials are

designed at the corporate-level, with few modifications at the local level.


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Bristol-Myers Squibb developed this approach, with a catalogue of clinical trials

communicated by the corporate to the subsidiaries that had to execute. Another

example of this approach was the design of Herceptin phase III clinical trial in breast

cancer: Roche / Genentech designed only one trial applied worldwide with no

possibility for physicians to modify the design. This approach is well adapted to a blitz

strategy (see paragraph below) where products are tested in parallel in a high number

of indications (organs) and lines (first and second lines, adjuvant setting).

The decentralised marketing organization

The decentralised marketing organization consists in a locally-driven decision taking

process. Aventis used this approach for the development of Taxotere. This approach

helped Aventis to compete against BMS Taxol and contribute to differentiate in local

markets the two products.

However, this highly decentralised approach does not always allow good control over

the design of trials. For instance, in the ovary indication, this led to mixed results that

were insufficient to battle against well-established Taxol. In addition, Aventis was late in

designing combination trials with innovative targeted therapies due to a lack of global

vision (e.g. combination with Avastin in breast cancer and colorectal cancer, with

Herceptin in breast cancer or even with Iressa in lung cancer).

Table 7: Centralised vs decentralised organization in oncology

Organization Advantages Inconvenient

Centralised

Homogeneity of trials (limits double counting and gaps)

Fast recruitment with large population size

Better identification of strategic opportunities (e.g.Association with new molecules)

Well adapted to a mosaic strategy

Risk of poor adhesion at the local level if it is only execution

Risk of poor relationship with KOL due to low localinvolvement and poor listening to KOL needs

Decentralised

Adhesion of the local level

Close relationship with investigators and KOL

Identification of local opportunities (e.g. Local partnerships,new regimens)

Heterogeneity of trials

Double counting and gaps

Source: Bionest Partners, Exane BNP Paribas estimates

Prescribers are evolving too

The situation is complicated by the evolution in the profile of prescribers. In Europe, for

some time now, patients are treated by oncologists but also organ specialists. In the

USA, the movement is starting and could change the face or marketing as companies

might have to adopt their marketing strategy per therapeutic segment.

This has been confirmed by interviews with industry managers. These have have

highlighted a difference between the habits of pure oncologists and organ-specialized

physicians. Put simply, in most countries pure oncologists take care of a series of

cancers that are not under the coverage of organ-specialized physicians, for example,

breast cancer, leukaemias and lymphomas, or colorectal cancer. In contrast,

pathologies such as lung, prostate, bladder or renal cancers are more often under the

charge of organ-specialized physicians (pneumologists, urologists).

Things are even more complicated as there are differences in each cancer in each

region. For example, in Germany breast cancer seems to be taken in care by

gynecologists rather than by oncologists; the opposite is true in the USA.


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This difference not only has an impact on the organisation of the marketing and sales

forces, it also has an impact on sales. Whereas pure oncologists are used to

integrating new drugs into their practice rapidly, it seems that penetration is slower

among organ-specialized physicians, which necessitates greater marketing efforts.

Consequently, cancer marketing and sales forces would have to adapt to physicians

with a less academically oriented profile and take a more GP-oriented approach to

marketing.

If we make a parallel with other technical therapeutic areas, such as AIDS and

Immunology, we can attest the adaptation of sales forces to GP practitioners: AIDS tri-

therapy is now prescribed in most countries by GPs even if hospital KOLs continue to

play a major role. To a lesser extent, the arrival of sub-cutaneous formulations of

biologic DMARDs in rheumatoid arthritis, e.g. Abbotts Humira, Schering Ploughs

Enbrel or BMSs Abatacept, has opened the door for ambulatory care. Even if GPs are

still not involved in prescribing these drugs, the hospital-to-ambulatory shift contributes

to the modification of the marketing approach in much the same way.


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No place for slow players

While we observed in the previous chapter that the current trends in the cancer market

imply a higher level of complexity for existing players and newcomers, we highlight inthis chapter the strong acceleration in cancer drugs lifecycle management.

First, there is clearly a strong first-mover advantage, which means that products must

be well differentiated within the scope of approved indications, in terms of organs and

therapeutic lines, and that these indications must be obtained before competitors.

Drugs that have been able to do so have maintained 50-70% market shares years after

competitors entry.

Second, given the increasing competition in cancer research, being first to market

requires very fast development. As a result, companies have adapted their approach

with what we call the blitz strategy, which consists of testing new drugs in parallel in a

large number of indications and sometimes in several settings. The emergence of this

strategy, as opposed to the more traditional step-by-step Domino strategy, stems from

the recent increase in the number of targeted therapies, mainly for two reasons:

targeted therapies often apply to biological mechanisms that are common to different

cancers, offering the possibility of addressing several of them.

targeted therapies often present lower levels of toxicity compared to traditional

chemotherapy allowing testing in numerous diseases.

Third, in the future, cancer drugs are expected to be under stronger price pressure from

the regulatory authorities and insurance companies as well as directly from

competition. The increasing use of generics in all therapeutic areas is already having

an effect and could influence the development of new guidelines. It is worth noting that

generic entries also free up money that can be used to fund new therapies. EGF-R and

anti-VEGF drugs are the two therapeutic classes that are the best positioned to benefit

from this situation.

In conclusion, as product differentiation is critical for cancer drugs, the main criteria are

the breadth of the indications and how fast they can be obtained. We believe that the

blitz strategy with a centralized organization is more suitable than a domino strategy

with a decentralized organization. In addition, the increasing number of trials in nearly

all therapeutic indications demonstrates that even a niche positioning is not a safe

harbour in the face of greater competitive intensity.

A strong first-mover advantage

There is clearly a strong first-mover advantage, which means that products must be

well differentiated within the scope of approved indications, in terms of organs and

therapeutic lines, and that these indications must be obtained before competitors.

Drugs that have been able to do so have maintained 50-70% market shares years after

competitors entry.

We present three case studies to illustrate the first-mover effects, in different

therapeutic classes with two, three or more competitors:

the taxanes market, with the Taxol vs Taxotere duopoly;

the aromatase inhibitors market, with Arimidex, Femara and Aromasin;

the poorly differentiated and crowded LHRH agonists market.


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First-mover case study number 1: Taxol vs Taxotere

This case study illustrates the first-mover advantage in a poorly differentiated duopoly.

BMSs paclitaxel Taxol was approv

Documents

Oncology Pipelines