“Despite its outward strength, the [pharma]industry is ailing. The ‘pipelines’ of forthcomingdrugs on which its future health depends havebeen drying up for some time.”

The drug pipeline is drying up

Source: The Economist, March 13, 2004.

The R&D process:

long, complex, and costly

Source: Pharmaceutical Research and Manufacturers of America, Drug Discovery and Development Brochure, 2007.

070297928782777267

50

40

30

20

10

0

50

40

30

20

10

0

US$ billions Number

Rising R&D spending andnew drug approvals 1963-2007

Source: Tufts CSDD Approved NCE Database, PhRMA, 2008.

New drug approvals (R)

R&D spending (L)

Top five U.S. pharma vs. biotechmarket cap 2000-2007

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007

To

tal M

ark

et

Cap

($ b

illio

n)

Top Five US Pharma*

Total Biotech

* Pfizer, Merck, Lilly, Wyeth and Schering Plough.Source: Bloomberg.

Time to develop a drug 1991-2007

Source: Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey, 2007.

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1991

35

30

25

20

15

10

Months

Transition probabilities By clinical phases

Source: DiMasi and Grabowski, Managerial and Dec Econ 2007, in press.

Phase I-ApprovalPhase III-Approval

Phase II-IIIPhase I-II

90

80

70

60

50

40

30

20

10

Percent

Biotech Pharma

NeuropharmacologicAntineoplastic Analgesic

AntiinfectivesEndocrine

AIDS AntiviralsGastrointestinal

Anesthetic/AnalgesicCardiovascular

14

12

10

8

6

4

2

0

Years

Clinical and approval times varyacross therapeutic classes 2002-2004

Source: Tufts CSDD, 2006.

Clinical phaseApproval phase

Number of biotech-big pharmacollaborations 1993-2005

Source: Hu, et al. The Innovation Gap in Pharmaceutical Drug Discovery & New Models for R&D Success, 2007.

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

600

500

400

300

200

100

0

Number

20062004200220001998199619941992199019801970

60

50

40

30

20

10

0

20

15

10

5

0

US$ billions Percent

R&D expenditures and R&D asa percentage of sales 1970-2007

Source: Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey, 2007.

R&D as a percentage

of sales (R)

R&D expenditures (L)

Approval success ratesfor new chemical entities (NCE) By therapeutic class

Source: Tufts CSDD Impact Report, 8(3): May/June 2006.

AntiinfectiveOncology/Immunology

RespiratoryCardiovascular

CNSGI/Metabolism

45

40

35

30

25

20

15

10

5

Percent

Cost to develop a drug 1975-2006

Source: Pharmaceutical Research and Manufacturers of America, PhRMA Annual Membership Survey, 2007.

2006200119871975

1400

1200

1000

800

600

400

200

0

US$ millions

Change in mix of studycomplexity U.S., 2000 and 2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2005

High

Medium

Low

Source: Fast track systems, Inc. – TrialSpace Grant Manager (PICAS Database) 2006.

Clinical Trial Complexity Index(Phases I-III) 1991-2000

90

100

110

120

130

140

150

1992 1993 1994 1995 1996 1997 1998 1999 2000

Source: DataEdge, 2002.

Occurrence of the most expensiveunique procedures (Phases II and III) 2000-2005

2005

2004

2003

2002

2001

2000

100

80

60

40

20

0

Percent

Source: Fast track systems, Inc. – TrialSpace Grant Manager (PICAS Database) 2006.

1-4 procedures5 or more

procedures

Number of new drug approvals 1980-2007

Source: Tufts CSDD Database.

07

06

05

04

03

02

01

00

99

98

97

96

95

94

93

92

91

90

89

88

87

86

85

84

83

82

81

80

50

40

30

20

10

0

Small Molecule Drug (SMDs)

Recombinant protein (rDNA)/

Monoclonal Antibody (mAbs)

Number

Ultimately approved drugs for sale

Source: Regulatory Trends Affecting Product Approvals and Reimbursement of Drugs and Biologics, Morgan Lewis 2007.

Is the Pharmaceutical PipelineDrying Out?

FDA Perspective

Milken Institute Conference

April 28, 2008

Declines in NME submissions result in asubsequent decline in NME approvals

CDER New Molecular Filings and Approvals (1996 - 2006)

0

10

20

30

40

50

60

1996 1997 1998 1999 2000 2001 2002 2003 2004* 2005* 2006*

Calendar Year

New Molecular Entity Approvals New Molecular Entity Filings

*beginning in 2004 these f igures include BLAs for therapuetic biologics

Source: CDER Facts and Figures, August 8, 2007 http://www.fda.gov/cder/reports/CDERDataBriefing1996-2006.pdf

“Next in Class” account for much of the decline:“First in Class” (Ca,Neuro) are increasing

NME Approvals in 5-Year Intervals by "Innovation Category"

0

20

40

60

80

100

Approval Years

# N

ME

s A

ppro

ved

First in class - Priority Review First in class - Standard Review

Therapeutic Advance in class Next in class

1988 - 1992 1993 - 1997 1998 - 2002 2003 - 2007

Investigational New Drugs (INDs)Under Active Development

Commercial INDs with Activity*

38824090

4227 41644321

45324732

4836

5123 52095380

5598

5963

6369 6426

0

1000

2000

3000

4000

5000

6000

7000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

Nu

mb

er

*CDER and CBER INDs

Pipeline Is Not EmptyEnd-of-Phase 2 / Pre-Phase 3 Meetings by CDER Review Division

NME & New BLA products with meetings Scheduled 2003 – 2007

7Special Pathogens and Transplant

12Pulmonary and Allergy

14Psychiatry

14Dermatology and Dental

20Reproductive and Urologic

20Gastroenterology

20Antiviral

23Anti-Infective and Ophthalmology

28Medical Imaging and Hematology

29Anesthesia, Analgesia, and Rheumatology

34Cardiovascular and Renal

40Neurology

48Metabolism and Endocrinology

90Oncology (drugs and biologics)

Total Meetings

ScheduledCDER Division

• Application quality is critical to shorter approval times

• Early consultation / End-of-Phase 2 Meetings with FDAimproves quality

– 2006 Booz Allen Hamilton study of delays in approval / multipleFDA review cycles--Retrospective analysis of 77 NDAs/BLAs forNMEs submitted FY2002 - FY2004

• End-of-Phase 2 Meetings

– 52% of products with EOP2 meetings received first-cycleapproval vs. 29% of products without EOP2 meeting [approval

rate 80% higher]

• Poor quality is costly– On average, each additional review cycle delays approval by 11

months (Based on drug development costs by DiMasi et al., that delaytranslates to about $30M in capitalized R&D costs)

Impacting on FDA approval timeline

How to Improve Quality and Productivity of DrugDevelopment? Rethinking the Business

• Earlier consultation:

– End-of-Phase 2A meetings

• Biomarker Qualification

– Pharmacogenomic markers

– Advanced imaging

• Modernize Clinical trials

– E-clinical trials (CDISC)

– New guidance on Innovative trialdesigns (Adaptive, Non-inferiority,Multiple endpoints, Enriched trialdesigns, Imaging standards asendpoint in clinical trials, etc.)

• Bioinformatics

– Quantitative disease models

– Clinical trial simulation

– In-silico device models

– Biomarker databases

• Implement Good Review

Management Principles

• Phase 4 Studies

• Postmarket Active Surveillance

– Safety Pattern recognition

• Forensic genomics

Preclinical

NDAfiling/

FDAreview

Phase 4 Studies

SafetySurveillance

Discovery Phase 1

(safety)

Phase 2

(efficacy)

Phase 3

(side effects)

Clinical Development

Drug Development: Rethinking the Business

We won’t get there by

simply tuning up the

old and familiar

approaches…

…We need to move on to

new science, new

technologies, new pathways

and partnerships

FDA is designing the

racetrack: