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Challenges facing Major Pharma industries

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0%

5%

10%

15%

20%

25%

30%

R&Das%o

fsales

RISING COST OF R&D

Source: Company data, Goldman Sachs Research estimates

Over $280 billion spent on R&D over last decade

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DIMINISHING NEW PRODUCT OUTPUT

Source: FactSet

New product launches have been disappointing

VytorinJanuvia

Zyprexa

Cymbalta

Humira

Simponi

OnglyzaEffient

MultaqSavella

Bystolic

-

50

100

150

200

250

300

350

400

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

Sales

($'000)

Quarterly sales post launch

Vytorin Januvia Zyprexa Cymbalta Humira Simponi

Onglyza Effient Multaq Savella BystolicSource: Company data

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0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* 2005* 2006* 2007* 2008* 2009*

REGULATORY HURDLES GETTING HIGHER

Source: FDA * *Beginning in 2004, these figures include new BLAs for therapeutic biologic products transferred f rom CBER to CDER

FDA NME approvals

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DAUNTING PATENT CLIFF

2010-2014: $92 billion in sales coming off patent (1/3 of total)

Source: IMS Health

19

12

2726

8

19

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014

%o

fprioryear'ssales

Sales($billion)

2010 Ari cept, Flomax, Taxotere

2011

Lipitor, Avair Diskus,

Plavix, Zyprexa, Levaquin

2012

Seroquel, Singulair, Actos,

Lexapro, Diovan, Geodon

2013 Oxycontin, Aciphex

2014

Nexium, Cymbalta,

Celebrex, Copaxone

Key products in expiry years

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HEALTHCARE REFORM INCREASED GOVERNMENT INTERVENTION

US government now pays for 50% of the $2.5trillion in national health spending

Government share of national health spending (NHE)Total versus pharmaceutical spending, 1965-2019E

0%

10%

20%

30%

40%

50%

60%

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

Total spending Pharma spending

Source: CMS National Health Expenditure (NHE), historical and projected.

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HEALTHCARE REFORM INCREASED GOVERNMENT INTERVENTION

Worsening state of the European economies brings incremental pricingpressure

Remains a very fluid situation that is difficult to assess but represents a realheadwind

Cited by several management teams during 2Q earnings calls, at least in 2010 and

2011.Reimbursement cuts could be magnified by reference pricing,parallelimportation and increased generic market share

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Healthcarespendinggrowth

Primarydeficit

Primary deficit Healthcare spending growth

GermanUnification

Germany as an example of how government deficits lead to decline in healthcare spendinggrowth

Source: Datastream, Goldman Sachs Research estimates.