The pharma business and how to cope with uncertainty

Riccardo Lampariello, MSc, MBA Associate Director - Portfolio Management SKEMA Business School- Paris 5 Oct 2010

POKER • 5 cards randomly drawn from a full deck of 32 • What is the probability of three of a kind at the opening?

• 5.3%.

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R Lampariello - MerckSerono - Paris, 5 Oct 2010

Summary
High uncertainty in the pharma business Merck Serono International Evaluation of R&D projects
– NPV – Dynamics of NPV: uses, abuses and misuses

Copying with project uncertainty Copying with portfolio uncertainty Conclusions

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R Lampariello - MerckSerono - Paris, 5 Oct 2010

The pharma business

High uncertain business
Main causes of uncertainty
– Risk nature
• • • • Technical Operational Commercial Market Access

– Long-term results

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R Lampariello - MerckSerono - Paris, 5 Oct 2010

Clinical drug development pipeline

5%
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Technical risks

Source: PhRMA,2008 - Paris, 5 Oct 2010 7 R Lampariello - MerckSerono

Operational risks
R&D expenses vs. NME output(1)

70 60
Global R&D expenditure [Bn EUR] # NME approvals (FDA)

60 50 40 30 20 10 0 2007e 1980 1983 1986 1989 1992 1995 1998 2001 2004

50 40 30 20 10 0

R&D expenditure

NME approvals

(1)
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Parexel Bio/Pharmaceutical R&D Statistical Sourcebook 2006/2007
R Lampariello - MerckSerono - Paris, 5 Oct 2010

Commercial risk: will be a new world order?

(market size: value of sales)

Source: IMS, 2010
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Reimbursement for prescribed medicines?
The global recession is exerting pressure on consumers’ and governments’ spending Gross Domestic Product Indices of Major Market Economies

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R Lampariello - MerckSerono - Paris, 5 Oct 2010

Source: Burrill & Co and IMS Health analysis, 2009

Merck Serono: company profile
“We will create an innovative, successful pharmaceuticals business with