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Innovation in Highly Regulated, Science-Driven Markets What Biopharma Can Learn From the Chubby Geek at the Olive Garden Will Suvari Managing Principal Innovation and Healthcare

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Overview The industry does face external pressures, but they’re not the real problem. The market is not the problem Getting the hard work of innovation done inside your organization Innovation as a core competency in biopharma The important lessons for growth are apparent in solutions from outside the sector How to maintain momentum What to do on Monday morning Looking outside for solutions 2

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Could it really just be as simple as “the party’s over”? “The pharmaceutical industry continues to witness major challenges like sluggish prescription trends, EU pricing pressure, intensifying generic competition, pipeline failures and limited late-stage catalysts. With revenue growth stalling or slowing down, companies have been resorting to cost-cutting and share buybacks to drive bottom-line growth.” –Zack’s Investment Outlook March 2011 SOURCE: Jock Macneish, © Thinking Pharma 3

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Or, is it a matter of perspective? What do you see here? a) An extremely big problem b) An extremely big opportunity 4

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The Market is Not The Problem Market Conditions The Problem 5

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The Market Landscape is Shifting Most market indicators point to a significantly more challenging future. SOURCE: IMS Institute for Healthcare Informatics, 2011 Net Branded Product Volume Growth Generic Efficiency (Available generic market*penetration) 7.9% 3.8% 0.2% -1.4% -8.3% 90% 91% 92% 92% 93% 6

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But, Your Customers Don’t Feel Your Pain Your challenges simply don’t register with most consumers 74% Percentage of consumers who feel that pharmaceutical companies make too much profit. 70% Percentage of consumers who agree that “drug companies are too concerned about profits and not concerned enough about helping people.” SOURCE: Harvard School of Public Health & KFF 7

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Right or Wrong, Price is YOUR Problem Consumers do not perceive development expense as a justification of price Unreasonable 79% What if you heard that limiting the prices of prescription drugs might lead to LESS research and development of new drugs since drug companies would be making smaller profits. Would you still think there should be more regulation of the prices charged for prescription drugs? Reasonable 18% Don’t know, 3% In general, do you think the cost of prescription drugs is reasonable or unreasonable? SOURCE: Kaiser Family Foundation Yes, 75% No, 25% 8

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Only YOU Think There is Too Much Oversight Increased regulatory oversight accurately reflects consumer sentiment Do you think the FDA should have authority to approve or deny drug license applications based on it’s potential economic or clinical value? Biopharma Executives No, 86% Yes, 14% There is not enough government involvement in limiting the prices of prescription drugs . . . The FDA should only approve drugs that are proven more effective than existing treatments . . . Agree, 64% Agree, 44% Consumers SOURCE: PWC & KFF 9

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Rep Access Issues AREN’T a Design Problem The industry’s focus on “building a better” rep misses the point. SOURCES: Sermo, “What Physicians Want” Hotspot Survey & Ann Intern Med. 2007;147:693-698. Want more use of clinical studies Want “Higher Quality” representatives Want more “customer service” reps Want reps with more education, training & experience 87% 85% 77% 51% “If I could just figure out the right kind of rep with the right sales tools . . .” Biopharma Marketers Physicians Proportion of physician time spent on prescriptions, refills, and pharmacy ordering: 12% “I don’t have have time for this.” 10

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The Secret Recipe Transformative innovation is about more than just creative ideas. Insight What is the real underlying customer need ? Communication Idea How can I fix that problem or fulfill that need? How can I emotionally and rationally connect my customers with my ideas? 12

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Customer problem statements will fuel meaningful innovation. Insight: Finding The Big “Buts” in Life Sciences “I see my rep and sign for samples because my patients need free product, BUT I wish there was an easier way to get it.” “I’ll let the rep do a lunch-and-learn for my staff because I don’t have time to do it myself, BUT I worry about what they’re saying.” “I’ll listen to a rep who has a new paper or whatever because sometimes I get something worthwhile, BUT most of the time I just discuss new drugs with my peers.” “I think it’s good that patients can find stuff online because it’s important to have them engaged, BUT lot’s of the time what they find is just garbage.” 13

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Effective conception is a matter of making connections Ideas: 1 + 1 = 4 + = + = + = 14

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Communication platforms and are evolving faster than ever. Communication: How, Not What 81% 28% 15

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How Could That Work in Biopharma? 16

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What’s the INSIGHT that underlies the behavior of generic substitution? Example 1: Generic Share Erosion PHYSICIANS: “I would prescribe more brand name drugs because my patients come in and ask for them, BUT it’s just not worth the hassle.” PATIENTS: “I’d rather get the drug I asked for, BUT my doctor said it’s the same as the generic.” PAYERS: “Everybody thinks we prefer generics because of profit margin BUT the reality is that very few drug companies can prove that their branded options are any more valuable clinically.” “hassle” “my doctor said” “more valuable” 17

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Who else has prevented generic intrusion by adding product value? Example 1: Generic Share Erosion (cont’d) Consumers’ Problem: “My computer is down an I don’t know what to do.” Solution: 12,000 Geeks 1,000+ stores 16 central repair hubs 97/100 customer satisfaction rating $1B in sales, $280M in profit Best Buy Problem: “Dell and Walmart are built to beat me on price.” 18

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What INSIGHT can we glean from reactions to drug prices? Example 2: Communicating Value Instead of Price PHYSICIANS: “I don’t know how much most of the drugs I write cost BUT I do know what the insurance companies want me to do.” PAYERS: “I’ll put branded pharmaceuticals on formulary BUT I’m not going to pay a premium versus Medicare or a generic.” “what [they] want” PATIENTS: “I would just get what my doctor told me to BUT it cost so much more compared to what the pharmacist recommended.” “compared to” “versus” 19

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Aren’t there lessons to be learned from alternate pricing strategies? Example 2: Value Instead of Price (cont’d) Consumers’ Problem: “Ten freaking dollars for spaghetti with meat sauce and you don’t even get meatball number one!” Solution: Seasonal roll-out Premium pricing Maintains brand awareness Olive Garden wine sales: #1 in US, > 500,000 cases / yr Industry Challenge: Labor, not food costs, drives price Our Never Ending Pasta Bowl offers endless pasta and sauce combinations, but this offer is only available for a limited time. Make Olive Garden your family restaurant and discover why Italian food is known to bring families and friends together. 20

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What customer INSIGHTS inform access issues for reps? Example 3: Building Durable Sales Relationships PHYSICIANS: “I’ll let reps do lunches for my staff because they know to take it with a grain of salt, BUT I’d never let them interact with my patients.” PAYERS: “I understand that you have to promote your products BUT drug companies spend too much on sales & marketing.” “never let them” PATIENTS: “I would love to take more control of my treatment, BUT my doctor doesn’t seem to have the time to help me.” “time to help [me]” “spend too much” 21

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“Always be closing” only works in the movies Example 3: Durable Sales Relationships (cont’d) Industry Challenge: Clinical consensus is that diet and exercise, combined with support, is the most effective way of achieving durable results Solution: Locally, weekly meetings Varying grades of service Multi-point customer access Consumer Challenge: There is no effective pill for weight management >1 M paid web subscriptions 51 million meeting attendees 140M paid wks / yr $1.4B in revenue 22

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Innovation as a Core Competency in Biopharma 23

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How Do I Make it Happen in My Organization ? Understand what you’re trying to create. What do these guys have in common? 24

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Plan to Fail Are you a home run hitter or a strike-out king? Which is better? 60 home runs in 1923 season Unbroken record for 34 years Single season home run record 714 lifetime home runs Unbroken record until 1974 Lifetime home run record 1,330 career strike-outs Unmatched for 29 years Lifetime strike-out record 25

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Learn to Pivot Listen closely and change course early and often. Users: 135m accounts Market Cap: $4.4b First product: Wireless transfer of funds between Palm Pilot users Users: 490m / month Market Cap: $4.9b (est.) First product: Video dating service Users: 70m+ Market Cap: $15b (est.) First product: Collective political action support tool 26

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Balance Y our Innovation Portfolio Winning at innovation is a numbers game. 27

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What to do Monday Morning 28

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Innovation in Highly Regulated, Science-Driven Markets What Biopharma Can Learn From the Chubby Geek at the Olive Garden Will Suvari will.s@maddockdouglas.com 29

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