The Financial Impact of Biomarker-enabled

Companion Diagnostics in the Stratified-Medicine Ecosystem Highlights provided here were presented on Dec. 4, 2012 as an invited talk at the

World Congress of Molecular Medicine

& Diagnostics - Guangzhou, China

For more information, please see www.CDxPrecisionHealth.com

Driven by disruptive advances in -omics, the convergence of molecular testing and targeted treatment holds much potential for addressing significant unmet healthcare needs. Despite 10+ years of promise, biomarker-based CDx-stratified medicine is rapidly approaching an inflection point. Large pharmaceutical companies that have mostly resisted the emergence of personalized medicine are now actively positioning not to be left behind as economic and regulatory pressures that will accelerate stratified therapies are imminent.

Commercialization of Companion Diagnostics (CDx)-Stratified Medicines

Prepared by Alan K. Hauser

I N T R O D U C T I O N

For more information, please see www.CDxPrecisionHealth.com

A Significant Unmet Medical Need

$1 Trillion wasted annually stemming from these critical challenges:1) Lack of therapeutic efficacy - 90% of current drugs only work in 30 to 50% of individuals

2) Adverse toxic reactions from prescribed ethical drugs kill one American every 5 minutes.

23

Need for Personalized Medicine; $1 Trillion Wasted Annually

“If  it  were  not  for  the  great  variability  among  individuals,  medicine  might  well  have  been  a  science  and  not  an  art.”  

Sir William Osler (1949-1919)

Tomorrow, diagnostic testing will be used to tailor therapies & better manage patient’s disease.

(1849 -1919)

Companion Diagnostics (CDx)-Stratified Medicines

• Matching therapies to patient sub-populations

• employing clinically-validated biomarkers:

E4

A Solution:

Page 10

November 6, 2009

Large Revenues Are Possible

(thousands of patients, average yearly price in $thousands)

Migration from blockbuster drugs to higher-value targeted treatments*

Benefits of Companion Diagnostics (CDx)

• “The right drug at the right dose at the right time”

• Potential revival of drugs that failed in earlier clinical trials

• Reduction in cost of healthcare

• Selection of optimal therapy, thereby reducing or eliminating trial-and-error prescribing

• Reduction of adverse drug reactions

• Increase patient compliance with therapy

CDx-stratified medicines can be “niche busters”

Trusheim, et. al Nature Reviews Drug Discovery, April 2007

E5

Stratified Cancer Therapeutics Timeline FDA Approval Patent Expiration

Letrozole, Novartis, aromatase inhib, HR+ breast

Imatinib, Novartis, TK inhib, myelogenous leukemia, GIST

Anastrozole, Novartis, aromatase inib, HR+ breast

Bortezamib, Mlnm, proteasome inhib, myeloma, MC lymphoma

Bevacizumab, Genentech, metastatic colon, NSCL, breast

Trastuzumab, Genentech, Her2/Neu breast cancer

Rituximab, Genentech, B-cell non-hodgkins lymphomas

1995 2000 2005 2010 2015 2020

Rituxan

Herceptin

Femara

Gleevec

Arimidex

Tarceva

Erbitux

Rx-CDx P

roducts

on the M

arket

Rx-CDx Niche busters

43% Genentech43% Novartis

$5 B

$4 B

Copyright © 2013 Alan K. Hauser & CDx Precision Health

Avastin

Velcade

Molecular & Companion Diagnostics Markets

$ in

Bill

ions

0

4

8

12

16

2008 2011 2013 2016 2018

41

Molecular Diagnostics are Changing Medicine

($Billion) 2008 2011 2013 CAGRWW MDx Market1 $3.8 $6.0 $7.5 15%WW CDx Market2 $0.9 $1.6 $2.3 21%

1 Scientia Advisors, 2010.2 West LB Research; Caliper.

Diagnostics are currently involved in over 60% of clinical decision-making but account for only 2% of overall healthcare spend.*

The CDx Market Opportunity

Today stratified healthcare is rapidly growing at double-digit pace, yet is only $20 B (or 3%) of ~$650 B BioPharmaceutical Market.^

Copyright © 2013 Alan K. Hauser & CDx Precision Health - All Rights Reserved.

mDx

CDx

Companion

CDx21% CAGR

Total mDx 15% CAGR

Companion diagnostic testing promises to capture a greater share of the value created by CDx-enabled stratified medicines.

25%

$575

50% Chance

0 $71567%

$875

9%

($124)

25% Chance

0 $44425% 0.0625

($59) ($59)67%

$669

25% Chance

0 $40534%

($119)

TRUE Chance

0 $27623% 0.225

($29) ($29)67%

$1,125

50% Chance

0 $70934%

($116)

53% Chance

0 $32750% 0.2625

($55) ($55)Decision

$276 22.50%22.50% 0($24.0) ($24.0)

FALSE Chance

0

66.5%

$1,199

50.0% Chance

0 $76033.5%

($111.1)

77.5% Chance

0 $355 38.75%50% 0

($50.5) ($50.5)

Design Stratification?

No

Phase 1 fail

Phase 1 pass

Phase 2 fail

Phase 2 pass

Phase 3 pass

Phase 3 fail

Yes

Phase 1 fail

Phase 1 pass w/o Biomarker

Phase 2 fail

Phase 2 pass

Phase 3 pass

Phase 3 fail

Phase 1 pass w/ Valid Biomarker

Phase 2 fail

Stratum pass

Stratum pass

Phase 3 fail

Phase 2 pass

Stratum pass

Phase 3 pass

Phase 3 fail

CDx is modeled as a Real Option yielding $276 M

probability-adjusted eNPV uptake for efficacy stratification* & is

comparable to DCF, discrete & Monte Carlo results in the literature^

Palisade’s PrecisionTree

software^ was used to

generate decision trees*

Empiricalall-comers scenario*

Efficacy stratification scenario*

Decision Tree Analysis of CDx-stratified Oncological Medicine*

Copyright © 2013 Alan K. Hauser - All Rights Reserved.

© 2013 CDx Precision Health

Impact of CDx: Bridge to Targeted Therapeutics

Conclusions

✤ Biomolecular marker-based companion diagnostics-stratified healthcare is scientifically fascinating, clinically life saving and commercially disruptive (Figs. 2 - 7).

✤ Due to existing pharma-CDx co-development partnerships that are fueling the 21% CAGR increase, the total CDx market opportunity is now $1.9 billion (Fig. 6).

✤ The expected Net Present Value of a single biomarker-enabled drug/diagnostic combination can exceed $250 million according to the literature and my calculations employing Real Options and decision-tree analyses (Figure 7).

✤ Despite uncertainties associated with the ethical ramifications of CDx-stratified medicines as well as regulatory and reimbursement issues, this momentum-building CDx-driven targeted-therapeutic growth opportunity will be paradigm changing for pharma because “one drug really does not fit all” (Figs. 2 - 4)

Drawing from this preliminary CDx-stratified medicine study, we surmise the following:

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