US PMP Overview 2008

US PMP Overview
October 2008
Accenture Research
Jaydeep Adhikari, Dawn M. Melberg, Mikael Stenstrand
© 2008 Accenture. All rights reserved. 1 Adhikari,Dawn & Melberg - accenture H&LS consultant
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Agenda Agenda
• US Overview
– Summary Conclusions
– Geography & Political Structure
– Key Economic Indicators
– Demographics
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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The US Pharmaceutical and Medical Products industries are facing many

challenges due in part to domestic scrutiny and reforms and global issues
impacting all the major geographic markets US Overview:
Summary Conclusions
Summary
US PMP overview
• US national healthcare spending will increase • The US prescription drug market is currently
by 7.3% in 2008, reaching a total of US $2.1
trillion experiencing a slowdown, in large part due to
• Currently at 16 percent of gross domestic increased utilization of generic drugs and weak
product (GDP), U.S. health spending is double performances from newly launched products
the median of industrialized countries and is • The generics segment is growing rapidly as a
expected to consistently outpace GDP over the
coming decade, accounting for 20 percent of result of the cost-containment measures
GDP by 2015 implemented by health insurers
• The elderly population (65+) is projected to • The market for OTC drugs is showing stronger
exceed 20% of the total US population by growth than in many years, mainly as a result of
2050, placing a tremendous strain on public
services and programs increased Rx-to-OTC switching and the decision
• Public and private healthcare payers have by a number of health insurers to reimburse
begun to implement cost-saving mechanisms – certain OTC products
eg. Increased premiums and co-payments, • In 2005 Medicare represented 2% of the
tiered health plans and generic drug preference
prescription drug market, that share is expected to
• In 2008, the federal health insurance Medicare
expanded its scope to include outpatient care, jump to 28% in 2008
including prescription drug subsidies. This
represents a large shift in the way prescription
drugs are paid for in the United States
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Agenda Agenda
• US Overview
– Demographics
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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US – Geographic Summary US Overview:

Geography & Political Structure
Geography
Capital City: Washington, DC

Main Language (s): English
Continent/Region: North
America
Population: 300 million
Monetary Unit: US Dollar $
Main Export (s): Capital goods
including transistors, aircraft,
motor vehicle parts, computers
and telecommunication devices;
Consumer goods including
automobiles and medicines;
Industrial supplies including
organic chemicals
Source: Lonelyplanet; US Census Bureau; CIA Factbook

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The United States is a constitution-based federal republic consisting

of 50 states with significant legislative authority US Overview:
Geography & Political Structure
The United States
• The United States’ is a federalist system with a

national government and fifty sovereign states.
• Any power not delegated to the federal
government in the U.S. Constitution, nor
prohibited by it to the states, are reserved to the
states
• Both the national government and each state
government are divided into executive,
legislative, and judicial branches
• In the United States, federal and state
government funding of health care needs of its
citizens is limited to Medicare and Medicaid
insurance programs for the eligible senior, very
poor or disabled persons
• Individual states have significant leeway in
regard to healthcare legislation including access
and funding
• State budgets have been heavily impacted by
escalating healthcare costs as federal funding
declines and costs for healthcare services and
medications increase
Source: Plano ISD Instructional Center; CIA Factbook; Legislationline;

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Agenda Agenda
• US Overview
– Demographics
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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The United States is the largest economy in the world

Key facts of the United States economy and consumers
GDP , GDP growth Private consumption, population
6% 5%
Germany 2008est. USA 2008
5%
Private consumption
World average USA
GDP real growth*
GDP* $12.36 bn 3% Population 300m

4%
growth ***
UK GDP real 3.5% Spain Private $16,260
1% France UK
3% USA growth** consumption
Spain France per capita
2%
GDP p.c. $41,800
-1% $0 $5,000 $10,000 $15,000 $20,000
Germany
1% Germany
-3%
Bubble size = GDP
0% per capita
0 5000 10000 15000 Bubble size = 2008 Population
*official exchange rate -5%
GDP ($bn) **2004/2005 Private consumption p.c. (2008)
GDP per capita index (2000=100) Consumer price index (2000=100)

CAGR 120 CAGR
125 Country 2000/08 Country 2000/08
120 Spain 115 Spain
3.2% 3.2%
UK UK
115 2.5% 110 2.3%
France France
110 1.9% 1.9%
Germany 105 Germany
105 1.6% 1.6%
United States United States
100 3.8% 100 2.5%
95 95
2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012
Sources: OECD Factbook, 2006; Pharmaceutical Markets Fact Book 2005, OECD Main Economic Indicators; U.S. Department of Labor, Bureau of Labor
Statistics, World Economic Outlook Database 2006 and The Economist Intelligence Unit Ltd, 2005
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Agenda Agenda
• US Overview
– Demographics
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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The United States has one of the largest birth rates of OECD countries with
the population projected to almost double between 2005 and 2050 Germany Overview:
Demographics
Birth rate*, 2008 Expected US population (million), 2005-2050
United States 2.04
France 1.89 450
Netherlands 1.75 420
United Kingdom 1.71 400 392
Sweden 1.71 364

Belgium 1.61 350 336
Switzerland 1.41 OECD average (1.56)
309
Austria 1.39 296
300
Japan 1.38
Germany 1.34
250
Italy 1.29
Spain 1.29
200
2005 2010 2020 2030 2040 2050
0 1 2 3
Note: Birth rate equivalent to number of children born to women aged 15 to 49 Source: US Census Bureau, 2004
Source: OECD Factbook 2008: Economic, Environmental and Social Statistics
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US citizens have historically lived longer than the OECD average however in
2003 the US life expectancy dipped just below the OECD average. Life
expectancy at birth continues to increase for both men and women Germany Overview:
Demographics
Life expectancy at birth (years) US life expectancy at birth by sex (years)
80 85
77.5 77.8
78 80.1
80 78.8
76 75.4
74.9
74.6 74.8
74 75
72
72
70.8 70
70.3
67
70
65
68
66 60
1970 1990 2010 1970 1990 2010
United States OECD Average Females Males
Source: US CDC, 2008

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The population in the US is ageing, which is illustrated by the fact that people
aged 65 and above are projected to represent 16% of the US population by
2020, compared to 12% in 2000 US Overview:
Demographics
The expected development of the age structure in the US, 2000-2020
Age structure (2000) Age structure (2020)
Population aged 65 and over: 12% Population aged 65 and over: 16%
People ‘000
60,000
People ‘000
60,000
50,000 50,000
40,000 40,000
30,000 30,000
20,000 20,000
10,000 10,000
0
0
0-4 19-May 20-44 45-64 65-84 85+
0-4 19-May 20-44 45-64 65-84 85+
Male Female Male Female
Source: US Census Bureau, Population Projections Source: US Census Bureau, Population Projections
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Agenda Agenda
• US Overview
• US PMP Overview
– PMP Expenditures
– Regulatory System
– Pharmaceuticals Overview
– Medical Products Overview
– Distributor Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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The United States spends more on healthcare than any other OECD country
both in terms of GDP and per capita – the US has not managed to contain
costs US PMP Overview:
PMP Expenditures
Healthcare spend as a % of GDP, 2008 Healthcare spend per capita (USD*)
CAGR 1999-2008 CAGR 1999-2008
3.8% USA 5,711 7.1%

USA 15.2%
2.3% Switzerland 3,776 5.8%

Switzerland 11.5%
1.2% Germany 3,001 4.0%

Germany 11.1%
France 2.1% Netherlands 2,987 8.9%

10.1%
Netherlands 9.8% 3.9% France 2,902 5.9%
Sweden 9.4% 2.9% Belgium 2,828 7.6%
Belgium 9.4% 2.5% Sweden 2,704 6.3%
Italy 8.4% 2.2% Ireland 2,496 11.3%
United Kingdom 8.0% 2.7% United Kingdom 2,389 8.9%
Spain 7.7% 0.7% Austria 2,306 3.0%
Austria 7.5% -0.3% Italy 2,266 5.1%
Ireland 7.3% 4.2% Spain 1,853 6.2%
0.0% 5.0% 10.0% 15.0% 20.0% 0 2,000 4,000 6,000 USD
Note: Healthcare spend per capita expressed at international dollar rate

Source: WHO Statistical Information System (WHOSIS), May 2008
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Pharmaceutical spending in the US is lower than the OECD average

however per capita spending is significantly higher than OECD peers US PMP Overview:
PMP Expenditures
Pharmaceutical spend as a % of total healthcare spend, 2008 Pharmaceuticals expenditure per capita, 2008 (USD)
Italy 22.1% USA 728
Spain 21.8% France 606
France 20.9% Italy 498
Japan 18.4% Germany 436
OECD average (17.5%)

Germany 14.6% Spain 401
USA 12.9% Switzerland 398
Sweden 12.6% Japan 393 OECD average (380)
Netherlands 11.4% Sweden 340
Switzerland 10.5% Netherlands 340
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 0 200 400 600 800
Source: Health at a Glance, OECD 2005

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The US spends less on medical technology as a percent of total healthcare

spend than the OECD, but maintains the highest rate of spend on a per capita
basis US PMP Overview:
PMP Expenditures
Medical Technology spend as a % of Medical Technology expenditure per capita, 2008

total healthcare spend, 2008 (EUR)
Germany 8.6% USA 278
Netherlands 6.5% Germany 230
France 6.5% Switzerland 188
European average (6.4%)

Spain Netherland
6.1% 154
s
Italy 5.8% France 150
USA 5.1% Sweden 120 European average (124)
Sweden 5.1% Italy 107
UK 4.8% UK 97
Switzerland 4.5% Spain 73
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 0 50 100 150 200 250 300
Source: Medical Technology Brief, Eucomed 2008

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Hospital and physician services represent the largest share of total US

healthcare expenditures US PMP Overview:
PMP Expenditures
Distribution of US Healthcare Expenditures, 2008

• National healthcare expenditures are expected
to reach a total of $2.1 trillion in 2008, growing
100%
10% at a much faster rate than the overall economy
Other
90% 22% • While the largest portion of US health
14% Administrative expenditures is paid for by private funds, the US
80%
2%
government is projected to spend approximately
7% Nursing home care
70% $740 billion on healthcare in 2006, representing
7% 14% Pharmaceuticals 34% of total national spending
60% 11% • Hospital care and physician services account for
50% more than 50% of total healthcare expenditures
29% Hospital care • Total hospital spending growth is projected to be
40%
31% 7.9 percent in 2005, more than 1.5 percentage
30% points higher than GDP growth
• Advances in medical technology, growth and
20% Physician/Clinical aging in the population and the propensity of
31%
services baby boomers to frequently use healthcare
10% 22%
services are all factors contributing to the
0% increased use of hospital and physician
Private healthcare spend Total healthcare spend services
Note: Other spend includes dental services, home healthcare, durable medical products, etc.
Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield Association
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Pharmaceutical spend as a percent of total healthcare expenditures

has slowed to single digit growth over the past several years US PMP Overview:
PMP Expenditures
Total Pharmaceutical Spend and % of Total Healthcare*

• Prescription drug expenditures reached $224 billion in
2005, representing 11.5% of total national healthcare
$600 16% expenditures
• Prescription drug spending has slowed over the past
14% few years, growing at a rate of 8.2% in 2005 as
$500
opposed to the double digit growth of the mid nineties
12% through 2003
(in billions)
$400 • Slower growth rates are in part attributed to a

10%
slowdown in drug usage prompted by increased
$300 8% consumer out-of-pocket expenditures and recent
concerns over drug safety
6% • The industry outlook is characterized by conflicting
$200 factors which will both accelerate and slow growth –
4% The former include practice patterns that involve
$100 prescribing existing drugs to a larger segment of the
2% population and high-cost specialty drugs designed to
treat rare conditions; growth constraints include
$0 0% projected growth in the use of generics and increased
cost sharing in the form of rising co-payments and
additional deductibles or both
Note: 2005-2014 projected

Source: 2008 Medical Cost Reference Guide, Blue Cross Blue Shield Association
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Pharmaceuticals are primarily financed by private insurance in the US,

however with the introduction of Medicare Part D legislation in 2006 there is
expected to be a significant increase in federal funding US PMP Overview:
PMP Expenditures
Prescription drug spend, by source, $bn, 2000-2010 • Currently, the private sector represents the largest
share of prescription drug purchasing with a
projected share of over 80% in 2006
400 • A shift is underway in prescription drug funding with
private insurers attempting to reduce drug
350 expenditures through higher co-pays and increased
300 use of generic substitutes
• The federal government’s share of prescription
250
drug spending is expected to increase significantly
200 with the passage of Medicare Part D legislation
150
which provides previously unavailable outpatient
drug coverage to Medicare members
100 • Under Medicare Part D, Medicare beneficiaries will
50 be able to join a private health plan for out-patient
coverage, or sign up to a stand-alone Medicare
0 prescription drug scheme
2000 2005 2006 2008 2009 2010
• The Medicare share of prescription drug spending
is expected to increase from 2% in 2005 to 27% in
Total Out-of-Pocket Total Private
2006
Total Public Medicare Medicaid
Source: US Centers for Medicare and Medicaid Services, 2008

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US managed care companies are increasingly demanding higher co-

payments for prescription drugs US PMP Overview:
PMP Expenditures
Prescription drug co-payments demanded by HMOs (% of all prescriptions covered)
Prescription Co-Payments 2004 2008 2012 [Projected]
Generic
$5 46 24 23
$10 40 52 51
$15 - 6 9
Brand Formulary
$10 28 10 7
$15 30 15 14
$20 26 35 31
$30 - 7 13
Brand Non-Formulary
$10 9 4 2
$25 21 5 6
$30 22 11 10
>$30 24 38 40
Source: Global Insights Report: United States (Healthcare and Pharma). October, 2008.
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In the United States, the manufacturer receives 76.5% of the reimbursed drug
price (excluding taxes), which is among the highest of European peers. In
Germany PMP Overview:
contrast, US pharmacies get a lower margin than their European counterparts PMP Expenditures
Share of final drug price (excluding taxes) in selected countries, per type of player, percentage 2008
Taxes
Sweden 82 2 16 0
United States 76.5 3.4 20.1 0
Norway 75.3 4.9 19.8
Denmark 74.7 20.3 26.6
Switzerland 73.5 0 26.5 2
Portugal 71.6 8.4 20 5.3
France 70.5 3.2 26.3 5.3
Finland 68.6 3.5 27.9 16.3
Netherlands 68.1 10.6 21.3 6.4
Italy 67 6.6 26.4 9.9
Spain 65.6 7.3 27.1 4.2
Ireland 64 11 25 0
Germany 64 4.7 31.4 16.3
Belgium 59.6 9.6 30.9 6.4
UK 87.5 4 8.5 0
0 20 40 60 80 100 120 140
Manufacturers Wholesalers Pharmacies Taxes

Source: Statistics 2008 VFA (The German Association of Research-Based Pharmaceutical Companies)
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Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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The US Food & Drug Administration (FDA) is the primary regulator of the
pharmaceutical and medical products industries in the US US PMP Overview:
Regulatory System
•All drugs must be accepted by the FDA

prior to being marketed and sold in the US
•The FDA requires that pharmaceutical

US FDA manufacturers perform extensive testing to
prove that their products are safe and
effective before it will sanction commercial
sale
Enforces US food •New drugs must pass through a three

& drug laws stage process of Clinical Trials before
receiving final approval from the FDA
•The FDA estimates that, of 20 drugs

Regulates the Introduction
of New Drugs entering clinical trial testing, an average of
Monitors the manufacture,
Transport & storage of
13 to 14 will successfully complete phase I
food, drugs and cosmetics – of those only 9 will finish phase II and
only 1 or 2 will pass phase III
Clinical Trials •Due to recent concerns over drug safety,

The FDA is working on improving ways to
track the safety of drugs already
Phase I Phase II Phase III on the market; Tightening label
requirements and planning to expand the
New Drug Application duties of advisory committees are two
(NDA) measures currently underway to achieve
more effective post-market surveillance
Source: Pharmaceutical Industry Survey. Standard & Poor’s. May 25, 2006.
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Unlike its European counterparts, the US pharmaceutical industry is

characterized by no direct pricing controls US PMP Overview:
Regulatory System
• Currently, US drug pricing is primarily affected by:

• Free market dynamics: Includes the relative efficacy and
safety profile of a drug versus its rivals, the size of its
market, the competition it faces, and its development costs
• Discount and rebate programs resulting from leverage
exacted by large buying groups: Large-scale buyers (such
as hospital chains and other institutional customers) usually
pay well below list price, because their huge volume
purchases enable them to negotiate heavy discounts.
Government organizations, such as the Department of
Defense, the Department of Veterans Affairs, and Medicaid,
for example, typically negotiate some of the steepest
discounts for drugs.
• Patient assistance programs: Programs run by
pharmaceutical companies to provide free medications to
people who cannot afford to buy their medicine
• Generic competition: When some easy-to-manufacture
blockbuster drugs go off-patent, half a dozen or more
generic competitors may enter the market simultaneously at
prices that are 50% to 80% or more below brand
• Because US drug prices tend to be an average of 16-18%

higher than in European countries, there have been an
increasing number of calls for the US to adopt more direct
pricing controls
Source: Pricing & Reimbursement in the US. Datamonitor. June, 2008; Pharmaceutical Industry Survey.
Standard & Poor’s. May 25, 2008.
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Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
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For a long time, the market-based nature of the US Pharmaceuticals market

has enabled it to grow faster than the Pharmaceuticals market in any other
major developed country US PMP Overview:
Pharmaceuticals Overview
Growth of the largest Pharmaceutical markets, 2004-2010

[projected]
• The Pharmaceutical market in the US has been
Index 1998=100 growing faster than in any other major developed
220 country over the last decade
• While tight price controls from central governments
USA has limited growth in many other OECD-countries,
200
the US market is still characterized by free market
pricing and a large number of independent buyers,
180 leading to higher prices in general
Spain
• In addition, the strong development of the US
UK economy, the introduction of new
160 products/treatments and an aging population have
driven growth in volume consumption. For instance,
Italy in 2010 an estimated 51% of the population took
140 France prescription drugs on a daily basis and 27% took
Germany three or more drugs daily
120 Japan
100
2004 2005 2006 2007 2008 2009 2010
Sources: Statistics 2008, VFA (The German Association of Research-Based Pharmaceutical Companies); Health Care Costs Survey, USA Today/Kaiser Family
Foundation/Harvard School of Public Health, 2008
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Over the last few years value growth has stagnated, mainly as a result of
increasing competition from generic drugs, but also due to falling
productivity among manufacturers US PMP Overview:
Prescription Pharmaceutical sales (at wholesale

prices) and annual growth rates, 2005-2008($bn) • Between 2005 and 2008 the US prescription drugs market grew
from $194 bn to $252bn, recording a Compound Annual
Growth Rate (CAGR) of 9.1%
$ bn
300 14.0% • Yet, the annual growth rate fell every year during the same
period to reach a low 5.4% in 2008
13.0%
• This decelerating growth in terms of value is underpinned by
12.0% several factors, of which a few stand out:
11.3%
– Lower number of approvals for New Chemical Entities
10.4% (NCEs)
252 10.0%
250 – Fewer and lower-performing product launches
239
– The increasing use of generic drugs, which in turn is driven
8.0%
mainly by two different facts:
216 • The implementation of greater cost-sharing measures by
6.0% most health insurers
5.4%
• The fact that many major drugs lost their patent
200 194
protection over the last few years
4.0%
– The withdrawal (for safety reasons) of a number of major
products
2.0% – A large number of switches by prescription drugs to OTC
status
150 0.0% • At the same time it should be noted that in terms of volume the
2005 2006 2007 2008 market continues to expand
Size Growth
Sources: IMS Health press release 22 Feb 2008; PharmaHandbook 2008, VOI Consulting 2008, United States Healthcare and Pharma, Global Insight, Oct 2008
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Pharma sales by therapeutic category US PMP Overview:

Pharmaceutical Retail Sales by Therapeutic Category, 2008 (USD m)
Contracting < -ve growth 2005-2008 389 577 25,098

661 522 2% 100%
Underperforming market <6%2003-2008 694 2% 2%
1,102 3% N/A 0.5%
1,321 3% 3% 3%
Out performing Market >6% growth 2003-2008* 4% 2%
1,387 5% -9%
1,858 12%
6% -7%
1,902 7% 8%
8% -3%
1,995
8% 3%
3,836
15% 16%
3,839 -2%
15%
8%
Sales ($m) 5,015
Share of total 20%
Growth (03-04) -9%
Erythropoietins
Bisphosphonates
Antipsychotics, other
Other
Monoclonal
Anti-platelets, Oral
Total
Statins
Seizure Disorders
Calcium Blockers
Ace Inhibitors
SSRI
Proton Pump
Insulin Sensitizer
Angiotensin II
Antibodies
Antagonists
Inhibitors
Source: PharmaHandbook 2008, VOI Consulting * IMS reported 6% growth in retail sales 12m to May-08 $26.8B
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Pfizer’s cholesterol reducer Lipitor is by far the best-selling drug on the US

market. At the same time, a number of biotech products, such as Amgen’s
Aranesp and Enbrel, are rapidly becoming major growth engines US PMP Overview:
Leading prescription drugs, 2008, at wholesaler prices
Company Class Sales (USD bn) Change (2005-2008)
Lipitor Pfizer Statin 8.4 +8%
Zocor Merck & Co Statin 4.4 -5%
Nexium AstraZeneca Proton pump inhibitor 4.4 +15%
Prevacid TAP (Takeda/Abbott) Proton pump inhibitor 3.8 -2%
Advair Diskus GlaxoSmithKline Beta 2 agonist 3.6 +22%
Plavix Bristol-Myers Squibb Platelet ADP antagonist 3.5 +15%
Zoloft Pfizer SSRI 3.1 -2%
Epogen Amgen Erythropoietin 3.0 -1%
Procrit Johnson & Johnson Erythropoietin 3.0 -9%
Aranesp Amgen Erythropoietin 2.8 +46%
Enbrel Amgen TNFa inhibitor 2.7 +36%
Note: Biotech products shaded
Source: IMS National Sales Perspectives, 1/2008 IMS Health
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The US prescription drug market is still dominated by US-headquartered

companies. However, weak performances by companies like Pfizer and Merck
& Co has recently paved the way for some of the larger European companies
US PMP Overview:
to increase their market share Pharmaceuticals Overview
Leading Pharma companies, by US prescription drug sales, 2008

• Pfizer has dominated the US prescription drugs
market for many years and has maintained its
Sales Change Market Ranking market share mainly by acquisitions. Examples
(USD bn) (2004-2008) share in 2000 include the acquisition of Warner-Lambert in
2000 and of Pharmacia in 2003
Pfizer 27.2 -12% 10.8% 1 • In the last few years, however, Pfizer’s market
GlaxoSmithKline 19.9 +6% 7.9% 2 share has dropped, mainly due to falling
productivity, patent expiries and the withdrawal
Johnson & Johnson 16.0 -4% 6.3% 6 of some marketed products, such as the COX-2
inhibitor Bextra in 2005
Merck & Co 15.2 0 6.0% 3
• Two other major US companies, Merck and
AstraZeneca 12.3 +10% 5.1% 5 Bristol-Myers Squibb have also lost market
share recently. In Merck’s case the withdrawal
Novartis 12.3 +11% 4.9% - of one of its best-selling products, the COX-2
inhibitor Vioxx in September 2004 marked the
Amgen 11.9 +23% 4.7% - beginning of a tough time for the company
Sanofi-Aventis 11.0 +9% 4.4% - • This has paved the way both for European
companies like Novartis and Sanofi-Aventis,
Eli Lilly 8.7 +6% 3.4% 8 and for biotech companies like Amgen, who
have all increased their market share over the
Bristol-Myers Squibb 8.4 -10% 3.3% 4 last few years. In the case of Novartis, sales of
generic drugs within its Sandoz division has
contributed to sales growth
Source: IMS National Sales Perspectives, 1/2008, IMS Health; IMS 2000
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The total number of people employed within the pharmaceutical industry in

the US increased rapidly over the last decade. In the last few years, staff
reductions, mainly within sales functions has halted this growth US PMP Overview:
Employees in the US pharmaceutical

industry, in thousands, 1996-2008
• The US drug-producing industry includes some 1,300
companies employing around 290,000 people
300 • During the end of the 1990s, employment in the US
291 292 290 pharmaceutical industry increased rapidly following the
289
290 283 strong growth of the US pharmaceuticals market. In
277 279
280 274 274 fact, between 1996 and 2002 industry employment
270 grew by more than 25%
261
260 • In the last few years, this development has been
247 halted as companies have reduced their staff in some
250
functional areas. This is particularly the case within
240 236 sales departments, where the number of sales
229
230 representatives has been cut in initiatives to enhance
220
sales force efficiency
• At the same time, the number of R&D staff has
210
continued to increase as a larger share of the global
200 R&D activity has moved to the US
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: US Bureau of Labour Statistics; Ethical Pharmaceuticals, Fredonia, 2008
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R&D activity in US research-based pharmaceutical companies has increased

strongly over the last decades. Still, R&D productivity is falling, causing
US PMP Overview:
companies to look for alternative ways of developing drugs Pharmaceuticals Overview
R&D expenditure in the US research-based Pharma

industry, 1980-2008, $ bn, and as a % of total sales • R&D activity in US research-based
pharmaceutical companies has increased
strongly over the last decades, recording a
45.0 20% compound annual growth rate (CAGR) of 12.7%
40.0 17%
39.4 40.0
18% 38.9 18% between 1980 and 2005
16% 17% 17%
35.7
16%
• In addition, R&D as a share of revenue has
35.0 14%
16% increased sharply over the same period,
30.0 13%
14% although decreasing slightly over the last
26.0 12% decade
25.0
• Following this growth, the US has become the
10%
20.0 engine of global pharmaceutical R&D, as
9%
15.2
8% evidenced by its improved position compared to
15.0
6%
European R&D
10.0 8.4 • At the same time, R&D productivity is falling, as
4%
measured by R&D investment divided by the
5.0 4.1
2.0
2% number of new molecules approved
0.0 0% • In order to address this development the major
1980 1985 1990 1995 2000 2005 2006 2007 2008 pharmaceutical companies have increased their
collaboration with the biotech industry in
Total R&D R&D as a % of sales addition to reorganising their own research
departments to increase productivity in-house
Note: Data refer to R&D expenditures by PhRMA-members
Source: Pharmaceutical Industry Profile 2008, PhRMA 2006; PharmaHandbook 2008, VOI Consulting, 2008
Accenture Research
Accenture Research
Marketing of pharmaceuticals in the US differ from the practice in most other

developed countries mainly by the fact that marketing of prescription drugs
directly to the patient is allowed
Pharmaceutical marketing spend by category, 2005-2008, USD m

CAGR • Office promotion (i.e. sales representatives from pharma
USD m Category 2005-2008 companies visiting physicians to promote their products)
15,000 14,491 Total 12.5% still accounts for the largest share of pharma companies’
drug marketing expenditures
12,796 2,408 Samples 15.6% • However, Direct-to-consumer (DTC) advertising is also
an important part of brand-name drug manufacturers'
1,956 544 Journal sales strategies in the US
11,061 advertising 8.6%
917 • Recently, this practice has been criticized by regulators
10,165 480 Hospital
1,786 and the wider public, partly because of a backlash
10,000 849 promotion 9.3%
1,570 against the rising costs of prescription drugs, and also
437 because of drug-safety concerns following the withdrawal
425 873
702
of the heavily-promoted COX-2 inhibitor, Vioxx in 2004
Office
6,602 • Still, it has not just been DTC advertising that has
promotion 11.3%
6,281 recently come in for increasing scrutiny. Other areas
which could potentially attract regulatory attention in the
4,789 5,327
5,000 near future include:
– the ghost-writing of articles
– the sponsorship of medical events
4,019 – trips for doctors and other opinion-leaders
DTC
3,230 – pharma lobbying practices
2,679 2,638 advertising 14.5%
– the behaviour of pharma companies’ drug-detailing
0
forces
2005 2006 2007 2008
Note: Sample value calculated at ex-manufacturer cost
Source: PharmaHandbook 2005, VOI Consulting, 2005; United States Healthcare and Pharma, Global Insight, Oct 2006
Accenture Research
Accenture Research
Marketing investments differ widely between categories, with the SSRI/SNRI

category being the most heavily promoted category in 2004, followed by the
Statins category US PMP Overview:
Marketing spend by category, 2005-2008, USD m

• The SSRI/SNRI (Selective Serotonin Reuptake
Growth Inhibitors/Selective Noradrenalin Reuptake Inhibitors)
2003-2004 drug category is the largest category in terms of
SSRI/SNRI 509 +16%
marketing investment
• In 2004-05, the most heavily promoted drugs (by
Statins 402 +14% marketing investment) within the SSRI/SNRI category
COX-2 Inhibitors 348
were Lexapro (Forest Laboratories) and Zoloft
-10%
(Pfizer). Lexapro was in fact the most heavily
Proton Pump Inhibitors 346 -11% promoted drug on the US market in 2004, with a
Angiotensin II
marketing spend of $168m
302 0%
Antagonists • The second largest category was Statins,
Sexual Function underpinned by marketing investments supporting the
Disorder
239 +76%
launch of Crestor. This drug recorded the third largest
Antipsychotics 237 +5% marketing spend of all drugs in 2004
Quinolones, systemic 207 -9% • The marketing expenditures of COX-2 inhibitors
decreased as a result of the withdrawal of Vioxx in
Steroid, Inhaled nasal 192 -3% September 2004. This drug had been the second
most promoted drug in 2003
Macrolides and related 186 +22%
• Sexual function disorders was the fastest growing
0 200 400 600
segment, as Viagra faced competition. This started in
late 2003 and picked up substantially in 2004
Source: PharmaHandbook 2008, VOI Consulting, 2008
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Over the last decades, the market for generic drugs has experienced strong
growth and generics now account for more than half of all prescriptions
dispensed in the US US PMP Overview:
Generic drugs’ share of total number of prescriptions dispensed in the US, 1984-2005
Source: Generic Pharmaceutical Association, 2006

Accenture Research
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Generic drugs account for around 17% of the total prescription drugs market
in value terms, but hold more than half of the market in terms of volume.
Measures to increase the use of generics are widely used by health insurers US PMP Overview:
Generics’ share of total pharmaceutical sales,

by value and volume, 2008 • The US has one of the most developed market for
generic drugs in the world. In 2008, generics
Branded
accounted for around 17% of the total prescription
Brands Generics drugs market in value terms, but hold more than half of
(82.6%) (9.6%)
Total the market in terms of volume
Generics
(17.4%) • The foundation for the industry was laid by the 1984
Generics Hatch-Waxman act
(7.8%)
– Under this legislation generic manufacturers are
able start developing bioequivalent drugs while the
Value original drug is still under patent
– Also, as an incentive to generic producers, the first
Branded company that successfully files a patent challenge
Generics
Total (10.6%) gets a six-month generic exclusivity period. Once
Brands Generics
(45.8%)
this period expires, any generic company is free to
(54.2%)
Generics sell the product and prices fall rapidly
(43.6%)
Volume
Sources: PharmaHandbook 2008, VOI Consulting, 2008; Global Generics Guide: Part 2, Datamonitor, 2008
Accenture Research
Accenture Research
In 2008, the US generics market was worth around $22bn, equivalent to 9% of

the total prescription market. Between 2005 and 2008 the generics market
US PMP Overview:
recorded a CAGR of 17.5% Pharmaceuticals Overview
Generics market value and growth, 2005 – 2008 ($bn)

• Between 2005 and 2008 the generics market grew from $13.8bn to
$22.3bn, representing a CAGR of 17.5%. During the same period
$ bn the total US prescriptions market recorded a CAGR of 9.1%
25.0 0.25
• Sales growth varies significantly from year to year, depending mainly
22% on the degree of patent expiries of branded drugs, but also on the
22.3 implementation of cost containment policies by health insurers
21%
0.2
• Measures to increase the use of generics vary between the different
private and public health insurers on the market, but include:
20.0
– Generic substitution is encouraged in the majority of the states
18.5 0.15 to a varying degree. In some states pharmacists are required to
dispense generics unless specifically directed otherwise by the
16.8
physician. In other states it is the physician’s responsibility to take
10% 0.1 the initiative
15.0 – Pharmacist incentives are used by many health insurers. Within
13.8 this arrangement, the level of reimbursement received by the
0.05
pharmacist is in many cases higher if generics are dispensed
– Tiered patient co-payments, whereby the amount paid by the
patient is lower for generics than for branded products
– Supply of free generic drugs for a limited period to encourage
10.0 0
patients to switch from branded drugs. For instance, WellPoint, a
2005 2006 2007 2008
leading US health benefits company, now gives members free
Size Growth generic medication for four to six months
Sources: PharmaHandbook 2005, VOI Consulting, 2005; IMS Health press releases 21 Feb 2003, 17 Feb 2008 14 Feb 2005, 22 Feb 2006; Global Generics Guide: Part 2,
Datamonitor, 2008; Accenture Research analysis
Accenture Research
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Both patent-holders and generic manufacturers are leveraging the existing

legislation at a maximum, while lobbying for amendments to this legislation US PMP Overview:
Examples of legislation affecting the US Generics industry

• Ever since the implementation of the Hatch-Waxman act in
1984, generic manufacturers and patent-holders have found
ways to use the existing legislation to their advantage. In
addition both sides have lobbied strongly for amendments to
the act
• For instance, patent-holders have developed a strategy called
authorised generics. Under this strategy, the patent-holder
supplies the product to a generic company for distribution,
allowing the patent-holder to compete during the 180-day
exclusivity period. As the majority of generic company profits
Pro-patent legislation are made during the exclusivity period, the ultimate result is a
• Authorised generics reduction in incentive for challenging patents early.
allowed • Generic manufacturers have complained that by launching
authorized generics patent-holders are using a loop-hole in the
• 30-month patent Pro-generic legislation Hatch-Waxman act, but the FDA ruled against one such
extension retained • The Hatch-Waxman petition in 2004
act • At the same time, the Bush administration has made
• Limitation of patent concessions to the generic drug industry:
extension to one 30- – Firstly, the FDA has received increasing funding for its
month period generic drugs programme over the past several years
– President Bush also issued a regulation change stating that
• Increased FDA funding brand-name manufacturers have the right to just one 30-
for approval of generic month extension to their patent when challenging the
drugs legality of a generic equivalent
Sources: PharmaHandbook 2005, VOI Consulting, 2005; Global Generics Guide: Part 2, Datamonitor, 2006
Accenture Research
Accenture Research
US PMP Overview:
Generics market, cont. Pharmaceuticals Overview
Generics companies, by number of US prescriptions, 2008
Prescriptions Change Market • The market for generic drugs is dominated by a few
(million) (2004-2008) share large companies and is more concentrated than the
market for branded drugs
Teva 213 +6% 13%
• The largest company on the market is the Israeli
Mylan 203 +5% 13% generics group Teva. In 2006, Teva acquired, Ivax,
one of the largest US companies
Watson 148 +5% 9% • One of the other major players, Sandoz, is owned by
Sandoz 133 +3% 8%
the Swiss pharmaceuticals company Novartis. In the
last few years, other major pharmaceutical
Ivax* 84 +21% 5% companies have followed this strategy and
increased their investments in the generics industry:
Mallinckrodt 73 +15% 5% – Example….
Alpharma 69 -3% 4% – XXX…
Qualitest 69 +18% 4%
Par 68 +21% 4%
Barr 56 -1% 4%
Other 497 +16% 31%
Total 1,613 +10% 100%

Note: Ivax was acquired by Teva in 2008
Source: PharmaHandbook 2005, VOI Consulting, 2008
Accenture Research
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The US biotech market is a large and fast-growing industry,

dominated by a small number of very large biotech companies US PMP Overview:
Biotech sales (at wholesale prices) and annual

growth rates, 2005-2008 ($bn)
• The US market for biotechnology products was worth
$32.8 bn in 2008, up from $19.6 bn in 2005. This is
$ bn
35.0 0.25
equivalent to a compound annual growth rate (CAGR)
32.8 of 18.7%
22.0% • The lion’s share of these sales were recorded by
30.0 0.2 products sold by the major biotech companies. Some of
28.0
the main contributors were: Aranesp, Enbrel and
17.0% 17.2% Neulasta from Amgen, and Rituxan from Genentech
25.0 23.9 0.15 • There are a number of driving forces behind the strong
growth recorded by biotech drugs over the last few
19.6
years:
20.0 0.1
– While the large pharma companies struggle with
their productivity, the biotech industry has remained
productive
15.0 0.05
– Biologic products have a large share of high-growth
therapeutic areas focused on elderly people, such as
10.0 0 AIID (Arthritis, Immune and Inflammatory Disorders)
2005 2006 2007 2008 and oncology
Size Growth – The lack of competition from generic drugs
Sources: IMS Health press releases 21 Feb 2008, 17 Feb 2008, 14 Feb 2008, 22 Feb 2008; United States Healthcare and Pharma, Global Insight, Oct 2008;
PharmaHandbook 2008, VOI Consulting 2008; Pricing and Reimbursement in the US, Datamonitor, 2008
Accenture Research
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The US is the engine of the global biotech industry, with the large majority of
biotech R&D being carried out there. The main biotech clusters are located
around strong universities in coastal states US PMP Overview:
Main US Biotech clusters

• The United States is the driving force behind
the global biotechnology industry, with some
63% of biotech R&D being carried out there
Massachusetts • The main clusters of biotech activity are San
Washington Francisco, Maryland, San Diego, Boston,
New York
Seattle and North Carolina, all of which are
Connecticut based around strong research bases such as
Pennsylvania California University and the Massachusetts
Maryland Institute of Technology (MIT)
New
Jersey • Government funding for biotech research is
North Carolina substantial: the National Institutes of Health
(NIH) received $15.6 billion in federal funding
California
in 1999, rising to $27 billion in 2003. The NIH
Georgia consists of 27 institutes, employing 15,000
Texas
people
• In addition, many states offer tax incentives for
Florida biotech R&D. Those states with the most
Size of bubble indicates the number of attractive tax breaks tend to be the ones with
Biotech companies in the state: the largest biotech sectors. California, for
example, has introduced a number of
350-400 250-300 50-100 25-50 incentives such as exemption from a 6% sales
companies companies companies companies tax
Sources: Strength and Stability – The Americas Perspective, Ernst & Young, 2006; United States Healthcare and Pharma, Global Insight, Oct 2006
Accenture Research
Accenture Research
The US market for OTC medicines only accounts for around 6% of the total
US drugs market, but is accelerating growth mainly as a result of cost-
containment measures taken by health insurers US PMP Overview:
Sales of OTC medicines (at retail selling prices)

and annual growth 2004-2008 ($bn) • The US market for Over-the-counter (OTC) medicines was worth
around $19bn at retail selling prices in 2008. This is equivalent to
around 4% of the total US pharmaceuticals market
20 0.05 • At the same time, approximately 60% of all drugs sold in the US are
4.7% non-prescription drugs. A total of 100,000 drugs are marketed OTC
0.045
• For a long time, growth of the OTC market has been essentially in
19 18.8 0.04 line with general inflation. However, in the last few years the annual
3.8%
growth rate has increased for a number of reasons:
0.035
3.3%
18 – As patient co-payments of prescription drugs are increasing
18 0.03 many patients seek cheaper forms of treatment with greater
frequency. Using OTC drugs has the advantage of cutting out
17.3 0.025
physicians’ charges and OTC prices are generally lower
17 2.1% 0.02 – Some of the major health insurers have recently agreed to cover
16.7
16.4
OTC drugs in their plans:
0.015
• In 2004 the pharmacy benefit manager Medco Health
16 0.01 Solutions announced that it would add a number of OTC
drugs to its cost-saving scheme
0.005
• In September 2004, the health maintenance organisation
15 0 Health Alliance Medical Plans agreed to cover Wyeth’s
2004 2005 2006 2007 2008 antihistamine Alavert and OTC Prilosec
– The FDA has announced that it is looking to increase the
Size Growth
number of blockbusters switched to OTC status (through
enforcement) as it has already done with Prilosec and Claritin
Sources: OTC Pharmaceuticals in the United States, Datamonitor, Oct 2005; United States Healthcare and Pharma, Global Insight, Oct 2006
Accenture Research
Accenture Research
The US authorities have begun to relax the rules for Rx-to-OTC switching.
This change is mainly driven by the desire by governments and health
insurers to curb expenditures on medicines US PMP Overview:
Recent Rx-to-OTC switches in the US

• Historically, tough safety and efficacy regulations on Rx-to-OTC
switching have limited the types of new drugs eligible for this often
OTC lucrative lifecycle-extension option.
manufacturer Notes • But times are changing, and authorities are beginning to relax the rules
for a number of reasons:
Claritin Schering- Approved in Nov – Pressure from manufacturers, pushing to squeeze as much return
Plough; Andrx 2002 on investment as possible after patent expiry
Prilosec Procter & Brand owned by – Cost-containment policies on the part of governments and insurers
Gamble AstraZeneca; have long aimed for more responsible self-medication in an effort to
approved in June alleviate costly and unnecessary physician visits and to shift the
2003 burden of drug costs further on to the consumer
– Consumers also gain in this scenario in terms of wider access to
Plan B Barr OTC switch denied medicines, greater price competition, and time savings (and often
Laboratories by FDA in 2004 and cost savings) associated with pharmacist—rather than medical—
again in August 2005 consultations
Allegra Sanofi-Aventis Under consideration • Examples of recent switches include drugs which have set precedents in
for OTC switch by the industry for different reasons:
FDA – The switch of Claritin was special since it was initiated through a
petition to switch non-sedating antihistamines filed by a managed-
Zyrtec UCB Under consideration care group
Pharmaceuticals for OTC switch by – Prilosec was the first proton pump inhibitor to be switched. This was
FDA Safety concerns are high with this type of drug, particularly due to the
risk of misdiagnosis in the case of more serious conditions
Sources: Should I Stay or Should I Go?, Global Insight, 31 Jul 2006; United States Healthcare and Pharma, Global Insight, Oct 2008
Accenture Research
Accenture Research
The OTC market is dominated by the Cough and cold preparations segment.
Growth in this segment is driven mainly by Rx-to-OTX switches of allergy
remedies, such as Schering-Plough’s Claritin in 2001 US PMP Overview:
Segment shares of OTC market, by value, 2008

• Cough and cold preparations is the largest segment of the
Other
US OTC market, representing around 23% of total sales in
Cough and cold
(13.0%) 2004
preparations
(22.9%) • The Cough and old segment includes allergy and hay
Traditional fever remedies, such as Schering-Plough’s Claritin, which
medicines
was switched to OTC in 2002 following a decision by the
(12.8%)
FDA. Currently, the FDA is considering to switch Sanofi-
Aventis’ Allegra and Pfizer’s Zyrtec to OTC status
Analgesics
• Vitamins and Minerals is another major segment,
(12.8%)
accounting for almost 20% of sales. This segment is
gaining from current trends of promoting preventive
medicine. On the other hand, growth is restrained by the
Vitamins and ongoing debate over actual benefits and proper dosage
Medicated skin minerals levels
products (19.6%)
• Indigestion preparations received a boost when
(12.9%) Indigestion AstraZeneca’s blockbuster drug Prilosec was switched to
preparations
(13.2%)
OTC status in 2003
Market value (at Retail Selling Price): $18.8bn
Sources: OTC Pharmaceuticals in the United States, Datamonitor, Oct 2005; United States Healthcare and Pharma, Global Insight, Oct 2006; Over-the-Counter
Pharmaceutical Chemicals, Freedonia, 2006
Accenture Research
Accenture Research
Until recently, parallel importation of pharmaceuticals has been illegal in the

US. Still, some trade has occurred as the authorities have tacitly allowed
importation of drugs for personal use… US PMP Overview:
Parallel imports’ share of total

pharmaceutical sales, 2008
• The practice of re-importing drugs from countries where prices are
lower (parallel imports) is an established way of lowering health
payers’ drug bills in many countries (particularly in Europe) and
UK 17% these products are generally sold in regular pharmacies
• In the US, however, parallel importation of medicines has been
illegal for many years as US authorities have claimed that they
Denmark 15%
cannot guarantee the safety of imported drugs. The decision may
also have been influenced by pharmaceutical companies, who
Netherlands 13%
would see their profits drop if re-importation would be allowed
• Nonetheless, for years Americans living close to the Canadian
border have crossed the border to purchase cheaper Canadian
Sweden 12% drugs. More recently they have also been buying these drugs over
the Internet, mainly from Canada and Australia. A few states have
even encouraged parallel importation and have set up websites
Norway 7% that link patients with pharmacies abroad
• Although technically illegal, US residents have been allowed to
continue with the activity because of the FDA’s discretionary policy
Germany 5% over personal drug imports (due to a lack of resources, the FDA
tolerates a maximum of three months supply for personal use), and
no patient has been prosecuted for personal use
US 1%
• However, commercial parallel importation into the US is not
currently taking place due to its illegality. This is the main factor
0% 5% 10% 15% 20% that is keeping the overall level of parallel importation in the US low
Source: The Pharmacy Industry in Figures – 2008 Edition, European Federation of Pharmaceutical Industries and Associations (EFPIA), June 2006
Accenture Research
Accenture Research
Congress recently passed a bill allowing re-importation of drugs from

Canada for personal use. It remains to be seen what will be the impact of this
US PMP Overview:
new legislation Pharmaceuticals Overview
Types of parallel importation from Canada

allowed in the new US legislation • For a long time, one of the largest and most visible sources of parallel
importation in the US has been from pharmacies in Canada, where
drug prices are considerably lower. Indeed, branded drug prices were
estimated at 81% higher in the US compared to Canada and seven
Canadian online Re-importation by other Western countries in 2003
pharmacies US citizens for • Pharmaceutical companies have been targeting parallel importation
personal use from Canada. Supply management strategies have been the single
Cross-border sales most successful strategy in limiting drug importation in the US so far,
with drug exports from Canadian Internet pharmacies declining as a
in 2008 estimated at (90-day drug supply result
$460m allowed) • Despite opposition from drugs companies, numerous bills proposing
the legalization of parallel importation from Canada have been
introduced into Congress in the last few years
• However, parallel importation has remained illegal as authorities have
cited safety concerns as the main reason to keep the legislation
unchanged. This case was strengthened by the withdrawal of Vioxx in
2004 (although this was not related to drug imports)
• In September 2006, Congress finally passed a bill allowing Americans
visiting Canada to bring back a 90-day supply of prescription drugs for
personal use. In addition, the bill stops customs officials from seizing
packages containing prescription drugs posted from Canadian
pharmacies
• Now, it remains to be seen what impact this will have on drug imports.
Re-importation from Canada had already dropped prior to the decision
for mainly two reasons:
– The introduction of Medicare Part D reduced the demand for
cheap drugs as many people who previously imported drugs back
from Canada now receive subsidised drugs at home
– The Canadian dollar has become stronger compared to the US
dollar, which has made Canadian drugs more expensive
Sources: Pricing and Reimbursement in the US, Datamonitor, 2006; Popping pills, The Economist, 7 Oct 2006
Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
The US market for Medical Products is the largest in the world representing
almost 50% of global sales US PMP Overview:
Medical Products Overview
The global Medical Products market, 2008$ bn
• The global healthcare equipment and supplies

RoW$3.5 bn market grew by 4.7% in 2008 to reach a value of
(1.9%)
$186.4 billion
Japan $33.1 bn
(17.7%)
USA $86.3 bn
• The market is projected to reach $230.5 billion by
(46.3%)
2010, an increase of 23.7% between 2005 and 2010
• Disposable equipment forms the largest segment of

the market, generating 40.5% of global sales
• Global market share is concentrated among four

Europe $63.5 bn major players: Medtronic, Johnson and Johnson,
(34.1%) Baxter and GE Healthcare which together hold more
than 21% of total global revenues
Global market, 2008: $186.4 bn
Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2008.
Accenture Research
Accenture Research
The US Medical Equipment and Supplies market is projected to grow at a

steady rate of 4.1% (CAGR) between 2005 through 2010 US PMP Overview:
US Medical Equipment & Supplies forecast, 2005-2010 $ bn
• The US healthcare supplies and equipment

CAGR 2005-2010: 4.1% industry generated total revenues of $86.3 billion in
120 2005, this represents a compound annual growth
105 rate (CAGR) of 4.6% for the five-year period
101 spanning 2005-2010
100 97
93
90 • Unhealthy lifestyles and an aging demographic are
86
leading to higher incidences of chronic diseases,
80 whose diagnosis and treatment is a key driver of
demand for medical equipment and supplies
60 • Healthcare spending is also increasing, and the
introduction of the Medicare Part D scheme makes
medical treatment accessible to a broader socio-
40 economic spectrum of patients which analysts
believe will boost industry revenues going forward
20 • A switch in consumer spending patterns towards
low-margin, private label over-the-counter (OTC)
products and supplies is anticipated to negatively
0 impact revenue growth in the future
2005 2006 2007 2008 2009 2010
Source: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006.
Accenture Research
Accenture Research
Almost half of US Medical Device sales are concentrated between two

categories: Orthopaedics and Cardiovascular US PMP Overview:
US Medical Products Sales, 2008
• Sales of disposable equipment generate the largest

revenues for the United States health care equipment
Other
Disposable and supplies market, accounting for 40.1% of the
30.6%
equipment market's revenues
40.1% • Industry analysts believe that as US consumers
continue to embrace self-treatment and preventive
medicines, disposable medical supplies will remain a
key driver of growth moving forward
• Spinal care products and intra-cardiac defibrillators
(ICDs) form under-developed sectors of the market -
Technical aids Technological innovation, and new Centers for
7.0% Medicare and Medicaid Services (CMS) regulations,
Opthalmic have allowed for greater penetration of these
equipment 6.7% IV diagnostics products, increasing revenues for manufacturers
11.3% through higher sales volumes
US market, 2008: $86.3 bn
Sources: Healthcare Equipment & Supplies in the United States. Datamonitor. May, 2006.
Accenture Research
Accenture Research
US Medical products market, cont. US PMP Overview:

US Medical Technology Industry Trade Statistics Total US Exports of Medical Device & Diagnostics
2004-2008-Calculate by moving average method Industry 1989 – 2003-calculate by moving average
method
Source: Medical Technology Industry at a Glance. AdvaMed, 2008. Source: Medical Technology Industry at a Glance. AdvaMed, 2004.
Accenture Research
Accenture Research
Almost 38% of Medical Products establishments are concentrated within five
states; California, Texas, Florida, Pennsylvania and New York. Employment in
the US Medical Equipment and Supplies industry experienced a decline
US PMP Overview:
between 2001 – 2004, but is now on the rebound Medical Products Overview
US Medical Equipment & Supplies US Medical Equipment & Supplies

Establishments, 2008 Employment 2000 – 2008, 000’s
Total number of establishments = 12,160 315
310
756
515
305
1,883
300
644
811
295
2003 2004 2005 2006 2007 2008
Sources: US Census Bureau; US Bureau of Labor Statistics

© 2008 Accenture. All rights reserved. 52 Adhikari,Dawn Source:
& Melberg - accenture
EUCOMED H&LS
& member consultant
associations 2004
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Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Pharmacy chain stores is the main distribution channel for prescription

drugs in the US, accounting for 35% of the market in 2008. Clinics and Mail
order (including online sales) are the fastest growing channels US PMP Overview:
Prescription Drug Market Share by Distribution

Channel, 2008(and CAGR 2001-2008)
• Prescription pharmaceuticals in the US are distributed to
end consumers through a number of channels
Other • The largest distribution channel is pharmacy chain stores,
(CAGR: 14%) which accounted for 35% of the market in 2008. Sales
Food stores Pharmacy chain through this channel recorded a compound annual growth
8% stores rate (CAGR) of 10% between 2001 and 2008
(CAGR: 10%)
9% (CAGR: 10%) • Combined retail sales (i.e. chain and independent
pharmacies plus food stores) accounted for nearly 60% of
Clinics 35% the distribution of pharmaceuticals to end consumers
(CAGR: 18%) 10% • One of the fastest growing channels of prescription drug
distribution is the mail service segment, including online
sales. This segment reached $36.9 billion in sales in 2008,
representing a CAGR of 18% between 2001 and 2008
Non-federal 10%
hospitals • Prescription drug sales in clinics also recorded a CAGR of
(CAGR: 11%) 18% between 2001 and 2008. This can be explained by
14% 15% the fact that sales in clinics and other institutions are driven
in large part by professionally administered biologics, sales
Independent Online/Mail order of which have been increasing by 25% per year in recent
pharmacies (CAGR: 18%) years
(CAGR: 6%)
Total value, 2008 (at wholesaler prices): $251.8 bn
Sources: IMS National Sales Perspectives, 1/2006, IMS Health

Accenture Research
Accenture Research
Pharmacies are growing in the US, and may be found in stand-alone

locations as well as supermarkets and general retail stores US PMP Overview:
Number of pharmacies per 100,000 inhabitants, 2004

• There are more than 55,000 pharmacies in the US
which provide employment to more than 130,000
United States 60
pharmacists
France 37 • Most Americans live within five miles of a
Italy 29 community pharmacy
• Even with mail-order sales gaining market share,
Germany 26
analysts expect chain drug stores to continue to
Switzerland 23 capture market share over the next three to five
UK 21 years
• CVS is currently the number one drugstore chain in
Finland 15
the US, by store count and holds over 10% of the
Austria 13 market according to volume of prescriptions sold
Norway 12 • As mail-order sales increase, retail chains are going
online and expanding their in-store outlets to
Netherlands 10 supermarkets and general retail stores
Sweden 10
Denmark 6
0 20 40 60 80
Sources: Global Insights Report: United States (Healthcare and Pharma). October, 2008. CVS Corporation. Deutsche Bank. November, 2008; Drugstore
Chain Market Overview. Knoweledge Source. October, 2008.
Accenture Research
Accenture Research
The US Pharmaceutical Distribution market experienced a prolonged period

of consolidation between 1995 to 2008, resulting in a highly concentrated
competitive landscape US PMP Overview:
The US market for pharmaceutical

wholesales, 2008 • Three major companies account for over 90% of the
national pharmaceutical wholesale marketplace and
approximately 71% of all pharmaceutical market
Other distribution
• Direct manufacturing and regional wholesalers compete
9% McKesson in a highly fragmented market for the remaining market
share
29%
Direct • Operating margins have eroded over the last several
20% years due to intense competition among channel
participants, an addiction to spec buying to drive higher
gross margins which fueled a lack of discipline in pricing
to customers, and consolidation among manufacturers.
• In recent years the industry has migrated to a fee-for-
20% 22% service (FFS) payment model, which according to
industry analysts drives lower margins but increases
AmerisourceBergen Cardinal Health earnings visibility and cash flow
Source: Deutsche Bank, 2008
Accenture Research
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Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
– Key Pharmaceutical Players
– Key Medical Products Players
– Key Distribution Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Major US PMP players US PMP Overview:

Key PMP Players
Top 15 US Pharmaceuticals and Medical Products players, by H&LS sales 2008

Company H&LS sales ($m) EBIT margin No. of employees Market value ($m) Main market segment
(Group)
McKesson 88,050 1.3% 26,400 15,376 Pharma wholeselling
Cardinal Health 81,364 2.3% 55,000 26,635 Pharma wholeselling

AmerisourceBergen 54,577 1.0% 12,300 9,411 Pharma wholeselling
Pfizer 51,298 22.5% 106,000 201,827 Pharmaceuticals
Johnson & Johnson 50,514 26.2% 116,200 200,715 Pharma, Med. Products
Walgreen 47,409 5.7% 179,000 43,929 Retail pharmacies
CVS 37,006 5.5% 148,000 25,209 Retail pharmacies
Abbott Laboratories 22,338 19.5% 59,735 74,526 Pharma, (Med. Prod)
Merck & Co 22,012 25.7% 61,500 99,318 Pharmaceuticals
Bristol-Myers Squibb 19,207 21.8% 43,000 48,161 Pharmaceuticals
Wyeth 18,756 25.9% 49,732 70,634 Pharmaceuticals
Riteaid 17,271 1.9% 38,448 2,320 Retail pharmacies
Eli Lilly 14,645 19.3% 41,600 64,704 Pharmaceuticals

Amgen 12,430 40.0% 16,500 86,564 Pharmaceuticals
Medtronic 11,292 27.2% 35,733 55,674 Medical Products
Note: GE Healthcare with annual sales of $15,153 is headquartered in the UK
Sources: OneSource; Evaluate Pharma
Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Pfizer Pls check the latest BI from Accenture neural network

Key PMP Players:
Key Pharmaceutical Players
Financial highlights 2005 Pharma sales by therapeutic area (actual and expected)
Group sales: $51,298m (-2.3% from 2004) CAGR
2005-
Pharma sales: $46,682m (-3.7% from 2004) Therapeutic area 2005(a) 2010(e) 2010
Estimated US pharma (Rx) sales: $23,443m Cardiovascular 41.2% 36.5% -2.2%

Group EBIT margin: 22.5% 15.2% 15.8% 1.0%
Central Nervous System
Number of employees: 106,000
Systemic Anti-infectives 10.7% 11.1% 1.0%
Market Value: $201,827m (as of 20 Oct 2006)
Genito-Urinary 6.7% 7.1% 1.1%
R&D spend (% of Pharma sales): 14.9%
Musculoskeletal 5.3% 6.7% 4.8%
Best-selling drugs (actual and expected) Oncology & Immunomodulators 4.5% 6.1% 6.6%
Sales Sales Respiratory 4.0% 1.0% -24.1%

2005 2010
Product ($m) Product ($m) Endocrine 3.6% 6.2% 11.5%
Lipitor 12,187 Lipitor 10,673 Sensory Organs 3.3% 4.3% 5.9%
Norvasc 4,706 Lyrica 2,842 Blood 0.9% 0.7% -5.5%
Zoloft 3,256 Lipitor-torcetrapib 2,504 Dermatology 0.5% 0.4% -6.2%
Zithromax 2,025 Celebrex 2,335 Gastro-Intestinal 0.5% 0.5% 1.2%
Celebrex 1,730 Xalatan 1,586 Other 3.6% 3.6% 0%
Sources: Evaluate Pharma, Oct 2006; OneSource Total WW Rx & OTC Sales 100% 100% 0.1%
Accenture Research
Accenture Research
Johnson & Johnson Key PMP Players:

Pls check the latest BI from Accenture neural network Key Pharmaceutical Players
Group sales: $50,514m (+6.7% from 2004) CAGR
2005-
Pharma sales: $24,696m (+0.7% from 2004) Therapeutic area 2005(a) 2010(e) 2010
Estimated US pharma (Rx) sales: $14,478m Central Nervous System 41.6% 36.2% 1.2%
Group EBIT margin: 26.2% 13.8% 11.2% -0.1%
Blood
Musculoskeletal 9.1% 12.5% 10.8%
Gastro-Intestinal 6.5% 6.1% 2.7%
Best-selling drugs (actual and expected) Genito-Urinary 6.2% 5.3% 0.7%
Sales Sales Oncology & Immunomodulators 2.1% 5.9% 27.9%

2005 2010
Product ($m) Product ($m) Dermatology 1.8% 1.3% -2.0%
Risperdal 3,552 Remicade 3,345 Cardiovascular 1.0% 0.3% -19.7%
Procrit/Eprex 3,324 Procrit/Eprex 2,616 Other 9.4% 7.7% 0%
Remicade 2,065 Risperdal 2,434 Total WW Rx & OTC Sales 100% 100% 4.1%
Tylenol 1,727 Paliperidone ER 2,105
Topamax 1,680 Levaquin 1,796
Sources: Evaluate Pharma, Oct 2006; OneSource

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Abbott Laboratories Key PMP Players:

Pls check the latest BI from Accenture neural network
Group sales: $22,338m (+13.4% from 2004) CAGR
2005-
Pharma sales: $15,321m (+12.7% from 2004) Therapeutic area 2005(a) 2010(e) 2010
Estimated US pharma (Rx) sales: $9,768m Systemic Anti-infectives 19.6% 16.9% 0.1%
Group EBIT margin: 19.5% 17.2% 20.5% 6.9%
Musculoskeletal
Central Nervous System 12.9% 11.3% 0.6%
Market Value: $74,526 m (as of 20 Oct 2006)
Cardiovascular 9.9% 13.9% 10.4%
Genito-Urinary 6.6% 0.3% -45.2%
Best-selling drugs (actual and expected) Endocrine 6.3% 6.1% 2.6%
Sales Sales Gastro-Intestinal 3.0% 3.4% 5.7%

2005 2010
Product ($m) Product ($m) Oncology & Immunomodulators 1.7% 9.3% 45.7%
Humira 1,400 Humira 3,681 Respiratory 0.3% 0.1% -11.9%
Mobic 1,232 TriCor 1,605 Blood 0.1% 0% -
Depakote 1,096 Kaletra 1,372 Other 22.5% 18.1% -1.2%
Biaxin/Klacid 1,065 Depakote 1,066 Total WW Rx & OTC Sales 100% 100% 3.2%
Kaletra 1,005 ABT-874 750

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Accenture Research
Merck & Co Key PMP Players:


2005-
Estimated US pharma sales: $12,767m Cardiovascular 36.9% 12.7% -15.9%

Musculoskeletal
Respiratory 13.5% 18.2% 10.5%
Sensory Organs 3.5% 2.0% -7.1%
Best-selling drugs (actual and expected) Genito-Urinary 3.4% 1.4% -12.4%
Sales Sales Central Nervous System 1.6% 3.2% 20.2%

2005 2010
Product ($m) Product ($m) Dermatology 1.3% 1.0% -2.0%
Zocor 4,382 Singulair 4,901 Blood 0.4% 0.3% -3.4%
Fosamax 3,191 Cozaar 2,031 Gastro-Intestinal 0.4% 1.0% 26.3%
Cozaar 3,037 Gardasil 1,408 Endocrine 0% 6.0% NA
Singulair 2,976 Varivax 1,329 Oncology & Immunomodulators 0% 6.0% NA
Proscar 741 Januvia 1,226 Other 8.3% 16.9% 20.0%
Sources: Evaluate Pharma, Oct 2006; OneSource Total WW Rx & OTC Sales 100% 100% 4.1%
Accenture Research
Accenture Research
Bristol-Myers Squibb Key PMP Players:

2005-
Estimated US pharma (Rx) sales: $8,140m Blood 26.7% 30.9% 6.2%

Cardiovascular
Oncology & Immunomodulators 10.2% 23.3% 21.8%
Central Nervous System 2.4% 1.4% -7.0%
Best-selling drugs (actual and expected) Dermatology 0.8% 0% NA
Sales Sales Endocrine 0.7% 2.4% 31.2%

2005 2010
Product ($m) Product ($m) Musculoskeletal 0.5% 0% NA
Plavix 3,823 Plavix 5,255 Other 14.8% 12.0% -1.0%
Pravachol 2,256 Avapro 1,341 Total WW Rx & OTC Sales 100% 100% 3.2%
Avapro 982 Reyataz 1,258
Taxol 747 Orencia 1,017
Reyataz 696 Erbitux 960

Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Johnson & Johnson Key PMP Players

Key Medical Products Players
Group sales: $50,514m (+6.7% from 2004)

Medical Products sales: $19,096m (+13.1% from 2004) Pls check the latest BI from Accenture neural network
US sales: $28,377m (56.2% of total sales)

EBIT margin: 26.2%
R&D spend: 12.5%
Johnson & Johnson is engaged in the manufacture and sale of a range of products in the healthcare field and has more than 230
operating companies.
The Company operates in three segments: Consumer (18% of group sales); Pharmaceutical (44.2%); and Medical Devices and
Diagnostics (37.8%).
In May 2006, Ethicon, a Johnson & Johnson company, acquired Vascular Control Systems, Inc., which is focused on developing
medical devices to treat fibroids and to control bleeding in obstetric and gynaecologic applications.
For the nine months ended 1 October 2006, Johnson & Johnson's revenues rose 5% to $39.64bn. Net income rose 12% to $8.89bn.
Revenues reflect an increase in sales from Consumer segment, higher sales from Pharmaceuticals segment and increased revenue
from Med Devices & Diagnostics segment. Net income also reflects a decrease in in-process research & development expenses and
higher net interest income.
Source:
Accenture Research
Accenture Research
Medtronic Key PMP Players



EBIT margin: 27.2%
R&D spend: 9.9%
Medtronic, Inc. is engaged in medical technology. The Company functions in seven operating segments that manufacture and sell
device-based medical therapies: Cardiac Rhythm Disease Management (46.1% of group sales), Spinal and Navigation (19.9%),
Neurological (9.0%), Vascular (8.3%), Diabetes (6.4%), Cardiac Surgery (5.9%) and Ear, Nose and Throat (4.4%).
For the three months ended 28 July 2006, Medtronic, Inc.'s revenues rose 8% to $2.9B. Net income rose 87% to $599M. Revenues
reflect higher sales from Spinal & Navigation due to the acceptance of INFUSE Bone Graft and increased turnover from Neurological
& Ear due to growth in the Activa Therapy. Net income also reflects the absence of purchased in-process research & development
costs and increased interest income.
Source:
Accenture Research
Accenture Research
Baxter Key PMP Players



EBIT margin: 15.9%
Number of employees:47,000
Market Value: $30.010m (as of 20 Oct 2006)
R&D spend: 5.4%
Baxter International Inc. assists healthcare professionals and their patients with the treatment of complex medical conditions,
including haemophilia, immune disorders, infectious diseases, cancer, kidney disease, trauma and other conditions. Baxter's products
are used by hospitals, clinical and medical research laboratories, blood and plasma collection centres, kidney dialysis centres,
rehabilitation centres, nursing homes, doctors' offices and by patients at home under physician supervision.
Baxter's operations are divided in three business segments: Medication Delivery (40.5% of group sales), BioScience (39.1%), and
Renal (20.4%).
The Company manufactures products in 28 countries and sells them in over 100 countries.
For the nine months ended 30 September 2006, Baxter’s revenues rose 3% to $7.62B. Net income rose 45% to $965M. Revenues
reflect an increase in sales from international market in Bioscience business and favourable impact of foreign exchange on sales. Net
income also reflects decreased cost of goods sold, lower interest payable, the absence of restructuring adjustments and decreased
other expenses.
Source:
Accenture Research
Accenture Research
Tyco Key PMP Players



EBIT margin: 12.3%
R&D spend: Not available
Tyco International Ltd. is a diversified manufacturing and service company. It operates in four business segments: Electronics (30.7%
of group sales}, Fire and Security (29.0%}, Healthcare (24.0%}, and Engineered Products and Services (16.3%}.
The Healthcare division designs, manufactures and distributes medical devices and supplies, imaging agents, pharmaceuticals, and
adult incontinence and infant care products.
During the fiscal year ended September 30, 2005 (fiscal 2005), Tyco divested 18 businesses, including the sale of the Tyco Global
Network. During fiscal 2005, Tyco discontinued its Plastics and Adhesives segment, and acquired Vivant Medical Inc.
For the nine months ended 30 June 2006, Tyco's revenues increased 3% to $30.2bn. Net income from continuing operations before
accounting change increased 27% to $2.79bn. Revenues reflect an increase in sales of electronics due to higher volume growth and
continuing improvement in the Worldwide Fire Services businesses. Net income also reflects an increase in interest income and
decreased interest expenses.
Source:
Accenture Research
Accenture Research
Boston Scientific Key PMP Players



EBIT margin: 15.6%
Number of employees:19,800
R&D spend: 10.8%
Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a range of
interventional medical specialties, including interventional cardiology, vascular surgery, electrophysiology, neurovascular intervention,
oncology, endoscopy, urology, gynaecology and neuromodulation.
The Company's products are principally offered for sale by three business groups:
The Cardiovascular organization offers products and technologies for use in interventional cardiology, peripheral interventions,
vascular surgery, electrophysiology and neurovascular procedures.
The Endosurgery organization offers products and technologies for use in oncology, endoscopy, urology and gynaecology
procedures.
The Neuromodulation organization focuses on the treatment of auditory disorders and chronic pain.
During the year ended December 31, 2005, it acquired Advanced Stent Technologies, Inc., CryoVascular, Inc., Trivascular, Inc. and
Rubicon Medical Corporation.
Source:
Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
McKesson Key PMP Players

Group sales: $88,050 m (+9.9% from 2008)

H&LS sales: Same as group sales Pls check the latest BI from Accenture neural network

EBIT margin: 1.3%
McKesson Corporation provides supply, information and care management products and services.
Through the Pharmaceutical Solutions segment (94.7% of group sales), it is a distributor of drugs, and health and beauty care
products. It also manufactures and sells automated pharmaceutical dispensing systems for retail pharmacies, and provides medical
management, and specialty pharmaceutical solutions.
Its Medical-Surgical Solutions segment (3.5%) distributes medical-surgical supplies, first-aid products and equipment, and provides
logistics and other services.
Its Provider Technologies segment (1.8%) delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and
management software solutions, automated pharmaceutical dispensing systems for hospitals, as well as outsourcing and other
services, to healthcare organizations.
In May 2006, McKesson acquired HealthCom Partners LLC. In June 2006, the Company acquired RelayHealth Corporation.
Source: OneSource
Accenture Research
Accenture Research
Cardinal Health Key PMP Players

Group sales: $81,364m (+9.5% from FY05)

H&LS sales: Same as group sales
EBIT margin: 2.3%
Cardinal Health is a provider of products and services supporting the healthcare industry. As of and for the fiscal year ended June 30,
2008 (fiscal year 2008), the Company's four segments were: Pharmaceutical Distribution and Provider Services (81.5% of group
sales), Medical Products and Services(12.2%), Pharmaceutical Technologies and Services (3.4%), and Clinical Technologies and
Services (3.0%).
The aggregate of the Company's five largest customers accounted for approximately 46% of its revenue for fiscal 2008. During fiscal
2008, Cardinal Health acquired ParMed Pharmaceutical, Inc., a generic telemarketing business, Denver Biomedical, Inc., which
develops and manufactures medical devices for acute care cancer hospitals and oncology offices, and the wholesale pharmaceutical,
health and beauty and related drugstore products distribution business of The F. Dohmen Co. and certain of its subsidiaries.
Source: OneSource
Accenture Research
Accenture Research
AmerisourceBergen Key PMP Players


H&LS sales: Same as group sales
US sales: $54,577m (100% of total sales)
EBIT margin: 1.0%
AmerisourceBergen Corporation is a pharmaceutical services company, providing drug distribution and related services to
pharmaceutical manufacturers and healthcare providers.
It distributes brand name and generic pharmaceuticals, over-the-counter healthcare products, and home healthcare supplies and
equipment to healthcare providers located throughout the United States.
It also provides pharmaceuticals and pharmacy services to long-term care, workers' compensation and specialty drug patients.
In addition, AmerisourceBergen furnishes healthcare providers and pharmaceutical manufacturers with an assortment of related
services, including pharmacy automation, supply management software, pharmaceutical packaging, inventory management,
reimbursement and pharmaceutical consulting services, logistics services and physician education.
It has two segments: Pharmaceutical Distribution (96.9% of group sales) and PharMerica (3.9%).
In October 2005, the Company acquired Trent Drugs (Wholesale) Ltd.
Source: OneSource
Accenture Research
Accenture Research
Walgreen Key PMP Players

Group sales: $47,409m (+12.3% from FY08)

H&LS sales: Same as group sales (although the
company also sells non-H&LS products in its
pharmacies)
US sales: Not available (but close to 100%)
EBIT margin: 5.7%
Walgreen Company is a retail drugstore chain that sells prescription and non-prescription drugs and general merchandise. General
merchandise includes, among other things, cosmetics, toiletries, food, beverages, household items and photofinishing. Customers
can have prescriptions filled at the drugstore counter, as well as through the mail, by telephone and on the Internet.
As of August 31, 2005, the Company operated 4,950 drugstores (including stores closed, as of August 31, 2008, due to Hurricane
Katrina in the United States) located in 45 states and Puerto Rico.
In addition, Walgreen operates three mail service facilities.
In July 2006, the Company merged with Happy Harry's Inc and on August 2007, it acquired Medmark Specialty Pharmacy Solutions.
Source:
Accenture Research
Accenture Research
CVS Key PMP Players


H&LS sales: Same as group sales (although the
company also sells non-H&LS products in its
pharmacies)
US sales: $37,006m (100% of total sales)
EBIT margin: 5.5%
CVS Corporation operates in the retail drugstore industry in the United States with 5,471 retail and specialty pharmacy stores in 37
states and the District of Columbia.
The Company sells prescription drugs and an assortment of general merchandise, including over-the-counter drugs, beauty products
and cosmetics, film and photofinishing services, seasonal merchandise, greeting cards and convenience foods, through its
CVS/pharmacy retail stores and online through CVS.com.
It also provides pharmacy benefit management, mail order services and specialty pharmacy services through PharmaCare
Management Services and PharmaCare Pharmacy stores.
CVS operates in two segments: Retail Pharmacy (92.0% of group sales) and Pharmacy Benefit Management (8.0%).
In June 2006, the Company acquired approximately 700 standalone Sav-On and Osco drugstores, and a distribution center in La
Habra, California from Albertson's, Inc.
In September 2008, the Company acquired the Minneapolis-based MinuteClinic.
Source: OneSource
Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Should the cost of Medicare Part D rise considerably from initial forecasts, the
federal government is likely to introduce a number of policies to curb drug
spending. Key PMP Players
US PMP Outlook
Should the cost of Medicare Part D rise considerably from initial forecasts over the next 10 years, it is
questionable whether federal government will remain committed to carrying this cost beyond the first two years
of the benefit's implementation. This renders some form of price control likely in the medium-to-long term.
Global Insight, a Health & Life Sciences market analysis firm, foresees the following policies in the medium-to-
long term from the federal government:
Further Cost-Containment Measures Probable

Congressional opposition has already been voiced to the projected levels of Medicare spending after the launch
of the drugs benefit in January 2006. Elements in Congress are already calling for the same pricing measures to
be introduced to Medicare as are used by the Department of Veterans Affairs (prices are intended to equal or
better the price manufacturers offer their most-favoured non-federal customers, or they must be 24% less than
the non-federal average manufacturer price).
The decision to introduce price controls to Medicare will be a political one, and will only come at a point when the
cost of the programme is deemed to be politically unacceptable. Global Insight contends that the projected cost
of providing out-patient drug subsidies has been under-estimated; the higher costs rise, the more likely it is that
Congress will crack and legislate for pricing measures.
More Aggressive Discounts

More stringent use of formularies, requiring increasingly generous discounts from manufacturers in return for
inclusion on preferred drug lists (as is the case under most state Medicaid programmes) is highly possible -
particularly if Medicare spending on prescription drugs rises rapidly.
Source: United States Healthcare and Pharma, Global Insight, Oct 2006
Accenture Research
Accenture Research
Policies, cont… Key PMP Players

US PMP Outlook
Introduction of a NICE-Style Advisory Body?

One way of obtaining greater efficiency in the Medicare spend would be to introduce a body akin to the UK's
National Institute for Health and Clinical Evidence (NICE), which provides guidance on the cost-effectiveness of
new and existing clinical interventions. Although Part D requires private health plans set up a Pharmacy and
Therapeutics (P&T) Committee to consider pharmacoeconomic factors in selecting drugs for inclusion on a
reimbursement list, this will be carried out on a plan-by-plan basis. The CMS could eventually move to introduce
a federal agency that rules across Medicare as a whole on the cost-effectiveness of interventions.
Therapy Area Reference Pricing

Future reforms may take the form of therapeutic area or drug class reference pricing, covering both inpatient and
out-patient drugs. There are currently no federal provisions for reference pricing, but it is growing in currency as
a cost-containment measure in the country as a whole (by states and private insurers).
Under such a system, the CMS would choose the lowest-cost drug in a therapeutic class in which drugs are
considered to be equivalents of each other. The patient could choose a more expensive product, but would have
to pay the difference. The CMS is most likely to introduce a system that promotes the use of 'preferred' brands
over 'non-preferred' equivalents, rather than promoting generic use above all else.
The most-targeted drugs will be so-called 'me-too' products, which the CMS has shown a predilection to
reimburse unfavourably in the past (eg Amgen's Aranesp vis-à-vis J&J's Procrit). Manufacturers of highly priced
'me-too‘ drugs will either have to reduce their prices or expect volumes to fall if they fail to argue that their
product provides a clinical advantage over others in its class.
Accenture Research
Accenture Research
Policies, cont… Key PMP Players

US PMP Outlook
Wholesale Margin Targeted Instead of Prescription Drugs?

The wholesale margin is high by the standards of most developed markets. An ideal scenario for drug
manufacturers would be to highlight this trend as a driver of cost growth, leading regulators to seek savings
through attacks on wholesaler margins rather than drug prices. To achieve this, the drug industry needs to
reverse growing public mistrust of its operations, and the only way in which that can be accomplished is for the
industry to argue its case more effectively in public. However, no-one in the industry has thus far shown a
willingness to take this step.
More Tools for States to Modernise Medicaid

The Deficit Reduction Act (DRA) of 2005 was signed into law by President Bush in February 2006. It enables
individual states to implement cost-sharing measures in their Medicaid programmes similar to those used in the
wider healthcare system in the United States. According to Congressional Budget Office (CBO) estimates, the
provisions within the DRA will reduce federal spending on Medicaid by US$11.5 billion over the next five years.
According to CBO estimates, the changes to Medicaid rules for cost sharing of prescription drugs will affect
around 13 million people by 2010. This figure will rise to about 20 million by 2015, and almost half of these will
be individuals below the poverty line. The CBO estimates that around 80% of the savings made will be due to
patients switching to lower cost medicines, while the remainder will come from lower payments to providers.
Accenture Research
Accenture Research
Local vs. foreign sales US PMP Overview:

Domestic and Foreign Pharmaceutical Sales by US

research-based companies, 1998-2008
100%
90%
30% 27%
35% 32% 34%
80% 37%
70%
60%
50%
40%
70% 73%
65% 68% 66%
30% 63%
20%
10%
0%
1998 2000 2002 2004 2006 2008
Domestic sales Sales abroad
Source:
Accenture Research
Accenture Research
Agenda Agenda
• US Overview
• US PMP Overview
• Key PMP Players
• US PMP Outlook
• Appendix
Accenture Research
Accenture Research
Glossary of Terms Appendix:

Glossary of terms
The following presentation uses terminology that is specific to the Pharmaceuticals and Medical Products industry and/or
the US political or healthcare system. In other publications on this subject other terminology may be used to describe the
same concepts. Therefore, we have chosen to describe the most central terminology. For details on the US Healthcare
system, please see the Accenture Research presentation US Healthcare Overview, August 2006.
Generics – Pharmaceuticals for which the active ingredient has lost its patent protection and which are now legally copied
by companies that are not those who patented the product in the first place
RX drugs – Pharmaceuticals that can only be purchased with a prescription from a physician (opposite of OTC)
OTC drugs – Over-The-Counter pharmaceuticals are drugs that can be purchased without a prescription from a physician.
These drugs are usually not reimbursed by the healthcare system
Federal level – National level (all of the US)
State level – Regional level (states, e.g. California)
Accenture Research
Accenture Research
Bibliography Appendix:
Bibliography
Selected helpful sources
Source Data coverage Homepage Access
Datamonitor • PMP market data (market size, www.datamonitor.com • Via OneSource

growth, etc)
PhRMA – The Pharmaceutical • Detailed information on the www.phrma.org • Open Internet

Research and Manufacturers of US pharmaceutical market access
America (from a vendor perspective)
IMS Health • Quantitative data on the www.imshealth.com • Open Internet

US prescription and (to (Data available under access
some extent) OTC markets Media/Top-Line Industry
Data)
GPhA – Generic Pharmaceutical • Information on the US www.gphaonline.org • Open Internet

Association Generics industry and access
market
Accenture Research
Accenture Research
Accenture Research - Contact Details Appendix:

Contacts
Jaydeep Adhikari
(Global H&LS expert)
jaydeep.adhikari@accenture.com
Dawn M. Melberg
dawn.m.melberg@accenture.com
Mikael Stenstrand
mikael.stenstrand@accenture.com

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US PMP Overview

The US Pharmaceutical and Medical Products industries are facing many

US – Geographic Summary US Overview:

Capital City: Washington, DC

Source: Lonelyplanet; US Census Bureau; CIA Factbook

The United States is a constitution-based federal republic consisting

The United States

• The United States’ is a federalist system with a

Source: Plano ISD Instructional Center; CIA Factbook; Legislationline;

The United States is the largest economy in the world

GDP* $12.36 bn 3% Population 300m

GDP per capita index (2000=100) Consumer price index (2000=100)

Birth rate*, 2008 Expected US population (million), 2005-2050

United States 2.04

France 1.89 450

Netherlands 1.75 420

United Kingdom 1.71 400 392

Sweden 1.71 364

Life expectancy at birth (years) US life expectancy at birth by sex (years)

United States OECD Average Females Males

Source: US CDC, 2008

The expected development of the age structure in the US, 2000-2020

Age structure (2000) Age structure (2020)

Male Female Male Female

Healthcare spend as a % of GDP, 2008 Healthcare spend per capita (USD*)

CAGR 1999-2008 CAGR 1999-2008

3.8% USA 5,711 7.1%

2.3% Switzerland 3,776 5.8%

1.2% Germany 3,001 4.0%

France 2.1% Netherlands 2,987 8.9%

Netherlands 9.8% 3.9% France 2,902 5.9%

Sweden 9.4% 2.9% Belgium 2,828 7.6%

Belgium 9.4% 2.5% Sweden 2,704 6.3%

Italy 8.4% 2.2% Ireland 2,496 11.3%

United Kingdom 8.0% 2.7% United Kingdom 2,389 8.9%

Spain 7.7% 0.7% Austria 2,306 3.0%

Austria 7.5% -0.3% Italy 2,266 5.1%

Ireland 7.3% 4.2% Spain 1,853 6.2%

0.0% 5.0% 10.0% 15.0% 20.0% 0 2,000 4,000 6,000 USD

Note: Healthcare spend per capita expressed at international dollar rate

Pharmaceutical spending in the US is lower than the OECD average

Italy 22.1% USA 728

Spain 21.8% France 606

France 20.9% Italy 498

Japan 18.4% Germany 436

OECD average (17.5%)

USA 12.9% Switzerland 398

Sweden 12.6% Japan 393 OECD average (380)

Netherlands 11.4% Sweden 340

Switzerland 10.5% Netherlands 340

Source: Health at a Glance, OECD 2005

The US spends less on medical technology as a percent of total healthcare

Medical Technology spend as a % of Medical Technology expenditure per capita, 2008

Germany 8.6% USA 278

Netherlands 6.5% Germany 230

France 6.5% Switzerland 188

European average (6.4%)

Italy 5.8% France 150

USA 5.1% Sweden 120 European average (124)

Sweden 5.1% Italy 107

Switzerland 4.5% Spain 73

Source: Medical Technology Brief, Eucomed 2008

Hospital and physician services represent the largest share of total US

Distribution of US Healthcare Expenditures, 2008