.:Kate Rawson .:Prevision Policy LLC .:January 9, 2012

1. Health Care Reform, Spending Cuts and Drug Approvals: What to Expect From the Obama Administration’s Second Term .:Kate Rawson .:Prevision Policy LLC .:January 9, 2012

2. Credit Where Credit is Due • The Prevision Policy Team • Cole Werble, Founding Member • Michael McCaughan, Founding Member • Ramsey Baghdadi, Founding Member • Kate Rawson, Senior Editor • Laura Helbling, Reporter/Analyst Material from this presentation is derived from interviews with company executives and investors, and from transaction data tracked by Windhover Information Inc., publisher of The RPM Report.

3. Agenda • “Status Quo” Election • Major agency heads expected to remain in office • Congressional changes due to retirements and primary defeats • Affordable Care Act Survives (Barely) • Ruling is generally a positive for biopharma companies • SCOTUS ruling on Medicaid expansion is one downside; IPAB impact is worrisome to industry • FDA Innovation & Safety Act • New incentives for drug development in unmet areas (antibiotics, rare disease, “Breakthrough”) • “Fixes” drug shortage problem • Provisions to increase manufacturing quality of facilities overseas • FDA Drug Approvals: It Was a Very Good Year • “The Program”: focus on novel drugs with more meetings, greater transparency • Review times lengthen for novel drug and biologics • Will it improve first-cycle review percentage? Hard to improve on near-perfection • Congress Avoids the Cliff: What Does That Mean for Rx Risk? • Usual suspects could be on the chopping block • Series of smaller cuts vs. a “Grand Bargain” • Big question is whether pharma can protect Part D rebates for dual-eligibles

4. Life After 2012 The Year of the Patent Cliff • Lipitor, Plavix, Zyprexa, etc. A Wild Year in Washington • PDUFA V/FDASIA • Supreme Court ACA Review • Election Day Caps a Disastrous Decade • Pipeline Drought • Death of the Blockbuster • Corporate Downsizing BUT THERE IS HOPE! 4

5. A “Status Quo” Election…

6. …Means “Status Quo” Agency Leadership

7. Affordable Care Act Survives (Barely) "It is not our job to save the people from the consequences of their electoral choices.”

8. Affordable Care Act Survives (Barely) • Ruling is Positive For Biopharma; Robust Growth Expected… • CMS projects national drug spending be 8.8% in 2014 (versus 2.4% in 2013) • 4.7 percentage points faster than in the absence of health care reform • Medicaid enrollment to increase by up to 19.6 million people in 2014 • Retains IP protections contained in the biosimilars provisions in the ACA • …But There Are Potential Downsides • SCOTUS decision allows states to opt out of Medicaid expansion risk-free • Impact of Independent Payment Advisory Board (IPAB) yet to be seen

9. 2013: A Year of Implementation • Affordable Care Act • Oct. 1 Deadline to Launch Exchanges • Medicaid Expansion Still Fluid • Final Regs Coming Soon: • “Sunshine” Act on Provider/Pharma Payments • Medicaid Rebate Rule • FDA Safety & Innovation Act • Incentives for Antibiotics • Biosimilar Pathway Taking Shape, SLOWLY • Major Resources for Generic Drug Reviews • Supply Chain Impact • Foreign Inspections • Shortage Response • Compounding

10. “Breakthrough Therapies” Hyper-Fast Development for Drugs That Show Extraordinary Clinical Efficacy Vertex has two: ivacaftor and ivacaftor/VX-809 combo for CF “Qualified” Infectious Disease Agents (GAIN Act) Five-Year Added Exclusivity For Anti-Infectives/Anti-Fungals Targeting Priority Infections “Enhanced” Accelerated Approval Codifies AA, Directs FDA to Update Guidance/Regs Does NOT Modify Approval Standard Rare Disease Provisions Pediatric Rare Disease Voucher Pediatric Exclusivity Made Permanent Single-Enantiomer Provision Extended Five Years Innovation In FDASIA

11. Implications of “Breakthrough” Therapies “What I think FDASIA does more than had been done previously is it says to all of FDA, management and staff, ‘Get into this stuff.’… “If there’s a process for identifying things that are so impressive-looking that you’re going to designate them as breakthrough, the involvement should be not just at the division level, but broader than that. You’re going to have Jenkins in the room and maybe Janet. We should all be paying attention to how we do that.” Bob Temple, FDA/CMS Summit December 11

12. GAIN Act: Anti-Infective Incentives “There's no area that we're working on harder than trying to develop pathways that are feasible and scientifically rigorous for developing and approving new antimicrobials. It is a public health crisis. We need new antimicrobials.” -- John Jenkins, FDA/CMS Summit December 10

13. The “Lake Wobegon Effect” There are now at least 16 (!) “Special” designations at FDA • FDA: Where All The Drugs Are Above Average

14. Drug Shortages: Unprecedented Attention FDASIA “Fixes” The Shortage Problem

15. Congress Has Now “Fixed” This Problem… Even If No One Knows How… • What Is In: • More Mandatory Reporting by Pharma • Non-Compliance Publicized, not Punished • “Flexibility” For Recovering Manufacturers • FDA Task Force • Inter-Agency Coordination • Input from Stakeholders, including 3d party Reporting • Limited Hospital Re-Packaging • Intra-System Use Only What Is Not: • Change ASP/AMP Formulas • Incentivize Quality/Reliability of Supply • Medicaid Rebate/340B “Holiday” • All Subject to Further Study • GAO Report Due in 18 Months Ideas “On The Shelf” For Next Time….

16. FDASIA: Supply Chain Elements • “Upstream” Provisions Included • Manufacturing Registration, Foreign Inspection, Import Controls • “Good Import Practices” to Match GMP, GCP Model • “Downstream” Deferred • New Anti-Counterfeiting Provisions Included • Pedigree, Track-and-Trace Are Not Track and Trace Discussions Continue; Draft Legislation Released For Public Comment

17. Compounding The Issue… • Rx Compounding Legislation Likely in 2013 • May Be Vehicle for Additional Measures on Supply Chain

18. PDUFA: Perpetual FDA Reform Routine Maintenance for FDA Congress Hauls in FDA Every 5 Years and Looks Under the Hood

19. FDASIA and PDUFA V: Two Key Texts FDASIA “The Law” PDUFA V The “Goal Letter”

20. Policy Zig-Zag

21. UFA Multiplication PDUFA ADUFA AGDUFA MDUFMA DTC Fees* Tobacco Product Fees Food Safety Fees BsUFA ** GDUFA ** *Enacted, but never collected; **New!

22. Towards 100%? User fees = • 60% of premarket review • 75% of generic drug activities

23. PDUFA V: Getting With “The Program” • Applies to NMEs Only • Two Month LONGER Reviews (12 or 8 months) • First Time in PDUFA Era that Slower is Better • Buys Time for Inspections, REMS Negotiations • Pre-NDA Meeting is Vital • Though Technically Optional • Limited Opportunity to Supplement Filing • Expect RTFs for Incomplete Applications • Greater Emphasis on Planning Review • Multiple Check-Ins With Sponsor • Late-Cycle Meeting is Key Innovation (and Already Controversial) • Sponsors Want “Verbal Complete Response” • FDA Management Emphasizing Process Review • Decision Maker Engaged

24. Getting With “The Program” Source: Office of New Drugs Director John Jenkins, FDA/CMS Summit for Biopharma Execs Dec. 10 http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM331454.pdf

25. Getting With “The Program”: Implications • Better Meetings: • Outside Consultants in the Room • Fewer, Less Exciting Advisory Committees: • Late-Cycle Meeting Eliminates “Surprises” • New Communication Challenge for Sponsors: • What to Say About FDA Updates? • Unlikely to Improve “First-Cycle” Performance: • Tough To Beat Near Perfection

26. Hard To Improve on Recent Record NME Approval Rate is 80%

27. A Clear Success (1): Faster Reviews Source: Office of New Drugs Director John Jenkins, FDA/CMS Summit for Biopharma Execs Dec. 10 http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM331454.pdf

28. A Clear Success (2): No More “Drug Lag” Source: Office of New Drugs Director John Jenkins, FDA/CMS Summit for Biopharma Execs Dec. 10 http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM331454.pdf

29. Less Clear: More New Medicines? 39 approvalsapprovals Source: Office of New Drugs Director John Jenkins, FDA/CMS Summit for Biopharma Execs Dec. 10 http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/UCM331454.pdf

30. The Drug Class of 2012

31. The Year-End Approval Rush • ARIAD’s Inclusig for two rare forms of leukemia • Human Genome Sciences’ raxibacumab for inhalational anthrax • Novartis’ Signifor for Cushings disease • NPS Pharma’s Gattex for short bowel syndrome • Aegerion’s Juxtapid for a rare cholesterol disorder • Bristol-Myers Squibb’s Eliquis anti-clotting drug • Janssen’s Sirturo for pulmonary tuberculosis • Salix’ Fulyzaq first drug approved for HIV-associated diarrhea

32. Dueling Cartoons • December 31Going Over the Cliff • January 1 • We Have a Deal! Sort of….

33. The “Deal” • Done (“Permanent” Changes) • Tax Rates • Alternative Minimum Tax “Patch” • Estate Tax • Dealt With (For One Year) • “Doc Fix” • Tax Extenders (R&D Credit) • Unemployment • Farm Bill • Unresolved • Sequester • Debt Ceiling • Deficit Reduction Let’s Try this Again March 1

34. A Grand Bargain in 2013? Divided Government Can Work Balanced Budget Act of 1997

35. Medicare Cuts and Pharma “Round Up The Usual Suspects” Part D Rebates for Duals Change in Part B Payment (ASP+4%?) Move Part B Drugs To D Generic Incentives Least Costly Alternative End “Pay for Delay” Settlements

36. Key Takeaways • Health Reform Will Proceed • Pharmaalready paid for insurance expansion in form of new fees, rebates and discounts in 2010 • SCOTUS ruling on Medicaid expansion lowers number of newly covered • Administration will continue to push for implementation of the Independent Payment Advisory Board; industry would need to seek separate “repeal” bill • Positive FDA Environment Will Continue • Seamless leadership = uninterrupted FDASIA/PDUFA V implementation • Climate for new drug reviews as good as it gets; “drug lag” no more • User fees increasingly critical for FDA resources • FDA Congressional Oversight “Tinkering,” Not Major Overhaul • Rx compounding legislation likely for 2013 • Fiscal Cliff Deal Provides 85-Day Reprieve From Part D Rebates • Biden-McConnell deal excluded major provisions that would affect industry; sequestration avoided • Key question will be whether Part D rebates for duals can be protected

37. Thank You! • Resources • FDASIA Website • http://www.fda.gov/RegulatoryInformation/Legislation/FederalFoodDrugandCosmeticActFDCAct/SignificantAmendmentstotheFDCAct/FDASIA/ucm20027187.htm • GDUFA Website • http://www.fda.gov/ForIndustry/UserFees/GenericDrugUserFees/default.htm • PDUFA V Website • http://www.fda.gov/ForIndustry/UserFees/PrescriptionDrugUserFee/ucm272170.htm • Presentations • John Jenkins, FDA/CMS Summit for Biopharma Executives Dec. 10 • Gregory Geba, FDA/CMS Summit for Biopharma Executives Dec. 11 • www.TheRPMReport.com • www.PrevisionPolicy.com Kate.Rawson@PrevisionPolicy.com 202-297-6420 Available on request