Pharmaceutical Therapeutic Categories Outlook: March 2002

March 2002
Pharmaceutical Therapeutic Categories Outlook
Stephen M. Scala, CFA Ian C. Sanderson Jonathan R. Moran, CFA (617) 946-3923 (617) 946-3922 (617) 946-3755 scalas@sgcowen.com sandersi@sgcowen.com moranj@sgcowen.com
Kenneth C. Cacciatore (617) 946-3968 cacciatk@sgcowen.com
Jean B. Perreault (617) 946-3967 perreauj@sgcowen.com
Pharmaceutical Therapeutic Categories Outlook

The $372B worldwide pharmaceutical industry has terrific secular growth prospects, driven mostly by new products derived from rich R&D pipelines. New research tools for finding promising targets and strategies for reducing development time bolster the long-term outlook. These factors more than offset near-term uncertainties in the regulatory review process and debate on the need for prescription drug benefits. This comprehensive study forecasts trends in the major therapeutic drug categories through 2005. Each category is defined by therapeutic need, market size, growth outlook, major new compounds in development, and an assessment of individual company prospects. As shown below, the companies predicted to lead in Market Share, Market Share Gain, Total Therapeutic Positions, and Leading Therapeutic Positions are similar to those in our analysis completed last fall. This analysis reaffirms our top picks in the group: Bristol-Myers Squibb, Eli Lilly, Pfizer and Wyeth. We also like Forest Labs and King Pharmaceuticals in the mid-cap Rx segment.
WHICH COMPANIES WILL LEAD INDUSTRY THROUGH 2005?
Market Share Pfizer GlaxoSmithKline Merck Johnson & Johnson Bristol-Myers Squibb Market Share Gain Amgen Wyeth Johnson & Johnson Novartis Roche Total Therapeutic Positions Pfizer (10) Pharmacia (10) GlaxoSmithKline (9) Johnson & Johnson (9) Merck (9) Leading Therapeutic Positions Merck (4) GlaxoSmithKline (3) Wyeth (3) 3 Tied With Two Each
SG COWEN PHARMACEUTICAL UNIVERSE

Company Abbott Laboratories Amgen Bristol-Myers Squibb Elan Eli Lilly Forest Labs Genentech GlaxoSmithKline Johnson & Johnson King Pharmaceuticals Merck Pfizer Pharmacia Schering-Plough Wyeth Symbol ABT AMGN BMY ELN LLY FRX DNA GSK JNJ KG MRK PFE PHA SGP WYE Stock Rating 1 2 1 3 1 1 2 2 1 1 3 1 2 3 1 3/4/02 Price $57 59 47 14 77 79 48 49 63 30 63 42 42 35 65 EPS 2002E $2.22 1.27 2.30 0.95 2.75 2.04 0.95 2.40 2.20 1.35 2.70 1.60 1.52 1.75 2.60 2003E $2.48 1.60 2.65 1.75 3.25 2.26 1.10 2.72 2.40 1.55 2.95 1.85 1.75 1.80 2.95 P/E 2002 2003 26X 23X 46 37 20 18 15 8 28 24 39 35 51 44 20 18 29 26 22 19 23 21 26 23 28 24 20 19 25 22
Pharmaceutical Sales Could Expand 8% Annually During 2001-05

Analysis of the nearly 760 products from the product lines and pipelines of 32 big- and mid-cap pharmaceutical companies in the SG Cowen coverage universe suggests that drug sales from this group totaled $372B in 2001. We project that this universe will generate drug sales of $500B+ in 2005, 8% compound growth. Pfizer, GlaxoSmithKline, and Merck dominated the worldwide market in 2001; they should remain the leaders in 2005. Pharmaceutical Companies: Drug Sales As A Percentage Of The Total Market
2001
$372B PFE
6.7% GSK 6.7% MRK 6.6% AZN 4.4% BMY 4.2% JNJ 4.0% AVE 3.7% PHA 3.2% Other 58.7%
2005P
$509B
PFE 6.6% GSK 6.2% MRK 5.5% JNJ 4.3% BMY 3.9% AVE 3.8% AZN 3.7% WYE NVS 3.6% 3.5%
Other 56.9%
NVS 3.2%
Our analysis of therapeutic categories concludes that cardiovascular, antibiotics/antivirals, oncology/hematology, and central nervous system should dominate the worldwide market through 2005. Therapeutic Categories: Drug Sales As A Percentage Of The Total Market
Head Trauma/SCI 0.0% Transplant 0.9% Alzheimer's 0.6% Sexual Dysfunction 0.8% Diabetes 7%
2001
Epilepsy Osteoporosis 2% 3% Arthritis/ Inflammation 6% Glaucoma 1% Cardiology 21%
Head Trauma/SCI 0.2% Transplant 0.8% Glaucoma 1.1% Incontinence 1.1%
2005P
Epilepsy 2% Osteoporosis 4% GI/Ulcer 5% Sexual Dysfunction 2% Cardiology 21%
Arthritis 7%
Gastrointestinal/Ulcer 7%
Antibiotics/Antivirals 15%
Diabetes 7%
Antibiotics/Antivirals 14%
Respiratory 8%
Respiratory 7% Cancer 13%
Cancer 13%
CNS 13%
CNS 13%
Therapeutic Categories Outlook 3/2002
Table of Contents
Alzheimers Disease........................................................................... 31
Arthritis............................................................................................. 49
Cardiology......................................................................................... 65
Central Nervous System................................................................... 101 Diabetes .......................................................................................... 137
Epilepsy ........................................................................................... 161
Gastrointestinal/Ulcer ..................................................................... 169
Glaucoma ................................................................................................ 179
Head Trauma/Spinal Cord Injury .................................................... 193
Infectious Disease............................................................................ 209
Oncology/Hematology.................................................................... 241 Osteoporosis/Hormone Replacement................................................ 271
Respiratory ...................................................................................... 285
Sexual Dysfunction.......................................................................... 307
Urinary Incontinence ....................................................................... 319

3 Therapeutic Categories Outlook 3/2002
THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Abbott Amgen AstraZeneca Aventis Bayer Biogen Bristol-Myers Squibb Eisai Elan Eli Lilly Forest Labs Genentech GlaxoSmithKline J&J King Pharmaceuticals Kos Pharmaceuticals Merck Novartis Novo Nordisk Pfizer Pharmacia Roche Schering-Plough Takeda Wyeth Other Total Alzheimer's Disease Antibiotics/Antivirals 2001 2005P 2001 2005P $0 $0 $1,675 $2,515 0 0 0 0 0 0 750 0 0 0 0 0 75 0 0 0 242 0 157 0 0 0 0 0 0 $1,224 0 0 0 0 0 0 950 0 0 210 0 0 235 0 0 0 515 0 290 0 0 0 0 0 0 $2,200 0 170 847 1,816 0 3,089 33 0 671 14 0 8,105 1,655 64 0 2,142 1,053 0 3,574 550 1,783 1,312 312 1,739 181 $30,786 0 275 1,419 2,485 0 4,680 29 0 1,412 14 0 11,190 1,991 80 0 1,915 1,561 0 3,760 770 1,564 3,270 265 3,045 0 $42,239 Arthritis 2001 2005P $162 $1,011 774 0 510 0 0 217 97 118 86 0 0 375 1,215 0 0 2,620 709 0 255 3,460 323 166 162 736 40 $12,025 3,550 0 662 0 0 175 157 15 50 0 0 185 1,500 0 0 4,125 467 0 120 4,580 492 830 139 1,375 649 $20,082 Cardiology 2001 2005P $892 $1,279 0 3,389 2,265 680 0 5,184 169 0 535 178 0 795 297 297 84 11,599 2,928 0 11,589 659 148 622 649 410 12 $43,382 0 7,085 3,549 410 0 8,935 168 0 605 255 0 1,255 417 766 330 13,597 4,853 0 15,035 1,280 104 535 761 247 19 $61,485 CNS 2001 $582 0 1,442 0 0 972 862 0 178 5,044 1,075 0 4,955 2,486 0 0 390 823 0 2,593 1,762 832 0 0 1,775 1,317 $27,088 2005P $762 0 2,130 0 0 1,330 1,440 0 540 6,625 1,750 0 7,090 3,432 0 0 940 996 0 4,275 945 669 0 0 2,980 3,650 $39,555 Diabetes/Metabolic 2001 2005P $457 $452 0 0 932 370 0 2,682 241 0 1,745 0 0 1,020 70 160 0 0 53 1,854 288 35 0 0 1,758 0 2,033 $13,698 0 0 1,677 475 0 125 212 0 3,500 0 0 2,590 45 295 0 0 355 3,300 1,010 55 0 0 3,485 0 3,215 $20,792

Abbott Amgen AstraZeneca Aventis Bayer Biogen Bristol-Myers Squibb Eisai Elan Eli Lilly Forest Labs Genentech GlaxoSmithKline J&J King Pharmaceuticals Kos Pharmaceuticals Merck Novartis Novo Nordisk Pfizer Pharmacia Roche Schering-Plough Takeda Wyeth Other Total Epilepsy 2001 2005P $964 $1,415 0 0 0 0 0 0 0 43 0 0 0 510 477 0 0 0 609 0 1,991 0 113 0 0 0 0 $4,707 0 0 0 0 0 0 0 115 0 0 0 805 1,212 0 0 0 998 0 1,760 0 98 0 0 0 0 G.I./Ulcer 2001 2005P $1,476 $1,306 0 6,308 0 0 0 0 444 0 285 0 0 837 1,177 0 0 1,645 0 0 0 0 0 0 1,619 845 0 0 3,890 0 0 0 0 474 0 100 115 0 454 2,698 0 0 789 296 0 0 0 0 0 1,432 1,870 70 Glaucoma 2001 2005P $0 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 635 0 0 0 818 0 0 0 0 755 $2,208 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 615 0 0 0 1,200 0 0 0 0 1,350 $3,165 Head Trauma/SCI Onc./Hematology 2001 2005P 2001 2005P $0 $0 $676 $860 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 90 0 0 0 0 0 $90 0 0 0 190 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 95 0 0 0 0 400 3,497 2,146 1,188 955 0 2,280 0 0 723 0 1,166 1,210 4,304 0 0 575 2,016 0 0 979 1,848 795 811 419 175 6,450 3,440 2,461 1,015 0 1,565 0 0 1,405 0 2,160 2,050 5,175 0 0 675 2,479 0 0 1,510 4,028 1,480 739 1,980 40 Osteoporosis 2001 2005P $0 $0 0 0 45 0 0 0 108 0 665 0 0 0 90 0 0 1,760 749 0 20 0 30 0 71 2,262 147 0 0 100 0 0 0 83 0 1,270 0 0 0 200 0 0 3,400 1,711 0 40 0 385 0 187 3,275 1,400
$6,403 $14,635 $13,494
$685 $25,762 $39,513
$5,947 $12,051

Abbott Amgen AstraZeneca Aventis Bayer Biogen Bristol-Myers Squibb Eisai Elan Eli Lilly Forest Labs Genentech GlaxoSmithKline J&J King Pharmaceuticals Kos Pharmaceuticals Merck Novartis Novo Nordisk Pfizer Pharmacia Roche Schering-Plough Takeda Wyeth Other Total Respiratory 2001 2005P $3 $3 0 1,424 2,228 0 0 0 58 0 0 0 0 4,994 0 0 0 1,375 388 0 990 0 0 4,043 22 0 665 0 1,450 3,096 100 0 0 48 0 0 55 200 6,209 0 0 0 2,600 636 0 2,050 0 0 3,590 19 0 1,215 Sexual Dysf. 2001 2005P $0 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,518 35 0 0 10 0 72 0 0 0 500 0 0 0 0 1,400 0 0 0 0 0 0 0 0 0 2,300 5 0 0 60 0 480 Transplant Urinary Incont. 2001 2005P 2001 2005P $23 $24 $5 $4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,084 0 0 0 598 0 0 70 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 995 0 0 0 859 0 0 600 0 0 0 0 0 0 0 0 0 0 0 0 0 230 0 0 0 0 0 0 617 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 470 0 0 0 0 0 600 1,250 0 0 0 0 800 Other 2001 2005P $1,752 $2,084 20 1,304 5,735 1,745 71 1,240 246 951 1,092 273 577 1,974 2,775 319 7 2,461 1,302 411 2,952 3,873 4,532 1,431 586 2,685 132,383 183 1,200 6,802 975 560 3,335 1,079 1,670 233 321 1,285 2,192 4,955 563 15 866 2,472 723 3,485 3,860 7,675 1,360 113 3,383 168,462 Total Sales 2001 2005P $8,666 $11,714 4,291 16,183 13,750 5,566 1,043 15,554 2,146 1,290 10,846 1,540 1,743 24,775 14,851 840 92 24,567 11,956 2,265 25,927 11,970 10,207 8,369 6,000 10,941 137,025 10,183 19,470 19,765 5,960 1,890 20,255 3,202 2,340 16,600 2,720 3,645 34,020 22,330 1,704 345 28,907 18,336 4,023 34,725 14,255 15,874 11,065 7,200 18,755 180,000
$16,190 $21,271 $1,635 $4,745 $1,775 $2,478
$852 $3,124 $172,697 $219,852 $372,402 $509,284
Major Trends & Issues In Therapeutic Categories Through 2005

G Alzheimers Disease
Acetylcholinesterase inhibitors are expected to dominate the AD market for the next few years, despite limited effectiveness. However, research in neurotransmitter-mediated treatments of AD, such as acetylcholinesterase inhibition, is not expected to advance much beyond current knowledge. Next-generation drugs likely will focus on underlying disease mechanisms, most notably beta and gamma amyloid plaque inhibition and genetics: Eli Lilly, Bristol-Myers Squibb, Elan/Wyeth, Elan/Pharmacia and GlaxoSmithKline all have clinical programs in these areas. The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta amyloid and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2005, Esiai/Pfizer should dominate this category, and JNJ and Forest Labs will be emerging competitors.
Alzheimer's Disease
35%
% Of Company 2001-05 Sales Growth From Category
25%
ESALY FRX
15%
5%
JNJ PFE
-5%
NVS
-15%
-25% $0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
2005 Sales Contributed By Company To Category ($ In B)
G Arthritis/Inflammation
Coxibs, including Pharmacias Celebrex (copromoted by Pfizer) and Mercks Vioxx, will dominate the osteoarthritis market through 2005, achieving sales of $9B+. Second generation coxibs offer little, if any, clinical benefit over first generation products. New rheumatoid arthritis therapies have big potential given compelling efficacy and safety profiles, and could achieve sales of $6B+ in 2005. Wyeth/Immunexs Enbrel, Aventis Arava, Schering-Plough/JNJs Remicade, and Abbott/Cambridge Antibody Technologys D2E7 lead here. Our scatter plot shows that through 2005, Pharmacia, Merck, and Amgen, dominate this category, and this category is important to their growth.
should
Arthritis/Inflammation
60%
50%
AMGN
40%
PHA
30%
MRK
20%
ABT
10%
SGP WYE JNJ
PFE
0%
ROHHY BMY GSK AVE TDCHF NVS ESALY
ELN
-10%
-20%
-30% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
G Cardiology
Angina And Hypertension Growth of angiotensin receptor blockers or ARBs (Abbott, AstraZeneca/Takeda, Boehringer-Ingelheim, Bristol-Myers Squibb, Merck, Novartis, Forest/Sankyo, Solvay) should be boosted by recent, favorable studies. The ARB class could double by 2005. ACE inhibitor (Bristol-Myers Squibb, King, Merck, Pfizer, among others) sales will decline due to generics, but certain branded products could still grow. Declines in market share will be experienced by calcium channel blockers (Aventis, Forest, Pfizer); sales in the category could grow modestly through 2005. The evolving more is better philosophy of blood pressure reduction will drive the adoption of new agents and treatment of new patients. Bristol-Myers Squibbs Vanlev should benefit from this trend.
Cholesterol The cholesterol markets growth could be 50% higher than that of the overall cardiovascular market, boosted in part by revisions to national guidelines. Excellent safety and efficacy, and long-term benefit studies should allow HMG-CoA reductase inhibitors (statins) to maintain their leadership position in the cholesterol market. Pfizers Lipitor should remain the dominant statin because the more is better philosophy with respect to LDL reduction is firmly entrenched. AstraZenecas superstatin Crestor could be a tough competitor for Lipitor. Contribution of newer modalities, such as ACAT inhibitors, appears limited over the next five years.
Platelet Aggregation Inhibitors Schering-Plough/Corrs Integrilin should continue to gain market share, driven by solid clinical data and favorable cost profile. Eli Lilly/Johnson & Johnsons ReoPro likely will grow no more than modestly unless future studies show a benefit over Integrilin. Oral IIb/IIIa inhibitors have delivered mixed results to date. If ultimately successful, they could be used as post-myocardial infarction treatments where aspirin or Bristol-Myers Squibbs Plavix are used today.
Arrhythmia The anti-arrhythmic market likely will remain a relatively small opportunity, as drug therapy has substantial limitations.
Congestive Heart Failure (CHF) The CHF market is increasingly attractive, post recent favorable studies of ACE inhibitors, beta blockers, and angiotensin receptor blockers. Vasopeptidase inhibitors also could show benefit.
Scatter Plot Through 2005, Bristol-Myers Squibb, Merck, and Pfizer should dominate the cardiovascular segment, and this category is critical to their growth.
Cardiology
80%
70%
BMY
60%
KG
50%
40%
MRK
PFE
30%
PHA
20%
NVS AVE
10%
TDCHF AZN
ROHHY ABT FRX LLY GSK 0% JNJ SGP ESALY WYE BAY
-10% $0.0 $2.0 $4.0 $6.0
$8.0
$10.0
$12.0
$14.0
$16.0
2005 Sales Contribution By Company To Category ($ In B)
G Central Nervous System

Selective serotonin reuptake inhibitors (Eli Lilly, Forest Labs, Pfizer, and GlaxoSmithKline) should continue to dominate therapy for depression, but sales of the class may grow only modestly due to the entry of generics. Dual acting agents (Lilly, Wyeth), impacting both serotonin and norepinephrine, should continue to grow rapidly but not challenge the SSRIs. Antipsychotic sales could surpass that of SSRIs by 2005, given the significantly higher cost of therapy. Bristol-Myers Squibb, Eli Lilly, J&J and Pfizer are situated to benefit. The migraine (Abbott, AstraZeneca, Elan, GlaxoSmithKline, Merck, Pfizer, and Pharmacia) markets current modest growth should accelerate. Competition will remain tough because newer agents are very similar. Potential for newer modalities, such as substance P inhibitors, CRF receptor antagonists, and GABA receptor modulators, remains unclear. Our scatter plot shows that CNS is a key component of growth for numerous companies. Eli Lilly, GlaxoSmithKline and Pfizer should retain dominant positions in the CNS segment through 2005.
CNS
80%
60%
FRX
40%
20%
ELN MRK AVE ROHHY ABT NVS BMY
WYE JNJ AZN
PFE LLY
GSK
0%
-20%
PHA
-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0
10
G Diabetes
Insulin will remain a mainstay therapy, and increase by 80%+ through 2005. Eli Lilly, Novo Nordisk, and Aventis will benefit. Oral agents, particularly the glitazones, have big potential, and could delay or avoid the need for insulin therapy. Sales of glitazones could more than double by 2005; GlaxoSmithKline/Bristol-Myers Squibbs Avandia and Takeda/Eli Lillys Actos will benefit. All formulations of Bristol-Myers Squibbs Glucophage will be clipped by generics. Novel insulin delivery methods, particularly inhaled formulations, will encourage use of insulin and increase the amount of insulin sold, assuming safety holds up. Inhale Therapeutic Systems/Pfizer/Aventis, Aradigm/Novo Nordisk, and Alkermes/AIR/Eli Lilly are positioning to benefit. Diabetes complication products have very large potential, assuming ongoing clinical work shows them to be effective and safe. Eli Lilly has a sizable lead with its PKC inhibitor. Our scatter plot shows that through 2005, Eli Lilly, Novo Nordisk, and Takeda should dominate the diabetes segment, and this category is critical to their growth.
Diabetes
160%
140%
120%
TDCHF
100%
80%
NVO
60%
40%
LLY AVE PFE GSK
20%
ABT JNJ BAY 0% NVS PHA ESALY

-20% $0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
BMY
11
G Epilepsy
Anti-epilepsy drug utilization is particularly low in developing nations, where most epilepsy patients reside. In these countries, the cost of treatment can be prohibitive. New therapies introduced in 2001-05 could increase the effective seizure control rate to 8090% from 70%+ currently. Patients with refractory epilepsy (approximately 30% of sufferers) often require treatment with multiple AEDs. Several novel anti-epilepsy drugs currently are in development, which are expected to accelerate market growth. Most anti-convulsant compounds used for epilepsy seizure control are also efficacious for other CNS disorders, especially newer agents such as Pfizers Neurontin and Pregabalin. Expanded use outside of the epilepsy indication is helping to drive market growth. Our scatter plot shows that through 2005, many companies (Pfizer, Abbott, J&J, Novartis, and GlaxoSmithKline) should dominate the epilepsy category, but this category is not a significant source of growth for any company.
Epilepsy
20%
15%
10%
JNJ NVS
5%
ABT
ELN GSK
0%
ROHHY PFE
-5% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 $2.0
2005 Sales Contributed By Company To Category (S In B)
12
G Gastrointestinal/Ulcer
Proton pump inhibitors should modestly underperform the G.I./ulcer market. H2 blockers will suffer significant declines in dollar value, due to generics. Penetration of triple therapy, which cures peptic ulcers and prevents relapse in 85-90% of patients, should continue to increase. Disorders of motility are becoming more widely recognized and understood, perhaps tripling their market potential. Crohns disease and ulcerative colitis are emerging market opportunities. Our scatter plot shows that through 2005, AstraZeneca will retain the largest sales base, but Wyeth and J&J will edge out AstraZeneca as drivers of category growth, and this category is important to their growth.
Gastrointestinal/Ulcer
125%
75%
25%
WYE NVS LLY ESALY GSK MRK ABT TDCHF
JNJ AZN
-25%
-75% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5
G Glaucoma
Prostaglandins and related analogs are expected to dominate the glaucoma market for the next several years. Next-generation products are focused on combinations of currently available therapies to improve convenience and compliance. Ocular neuroprotective therapies are in early stages of development. Our scatter plot shows that, through 2005, Pharmacia and Allergan should lead this category, while Merck will be an important player.
13
Glaucoma
20%
AGN
PHA
15%
10%
5%
0%
MRK
-5% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2005 Sales Contributed By Company To Category ($ In B)
G Head Trauma/Spinal Cord Injury

Several compounds hold promise for traumatic brain injury, including Pharmos Dexanabinol and Bayers Repinotan. Pfizer discontinued CP101-606 post disappointing Phase II results. Steroids are expected to dominate the spinal cord injury market. Our scatter plot shows that Pharmos and Bayer should be leaders in the head trauma/spinal cord injury market in 2005.
Head Trauma/Spinal Cord Injury
120%
100% % Of Company 2001-05 Sales Growth From Category
PARS
80%
60%
40%
20%
0%
PHA
BAY
-20%
-40% -$0.1
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.8
14
G Infectious Disease
Older penicillins and cephalosporins should remain frequently prescribed antibiotics through 2005, but their dollar value will decline due to generic competition. Bristol-Myers Squibb, Eli Lilly, Pfizer, GlaxoSmithKline, and generics dominate this segment. Newer quinolones (Bayer, Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson) are expected to gain share at the expense of older antibiotics, and grow at double the rate of the overall market. Macrolides may suffer from emerging resistance, and grow more slowly than the overall market. Newer categories of antibiotics and antivirals hold varying degrees of promise. hepatitis, and influenza offer large market opportunities for new drugs. HIV,
Our scatter plot shows that through 2005, GlaxoSmithKline should dominate this category, and this category is critical to its growth. We view six other companies as emerging participants in this category.
Antibiotics/Antivirals
70%
SGP
50%
30%
BMY GSK
WYE ABT LLY PHA 10% AZN NVS BAY PFE AVE JNJ TDCHF ROHHY MRK -10%
-30% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0
G Oncology/Hematology
Chemotherapy is expected to remain a mainstay in the treatment of malignancies. New strategies and agents are emerging to prevent, control and cure cancer. Disease management approaches similar to treatment of hypertension and vaccination are emerging, stemming from development of less-toxic oral therapies. More than 170 oncology/hematology products are in development, representing more development activity than any other category. FDA approvals have been rapid given acceptance of new clinical trial endpoints (i.e., response rates/clinical benefit versus solely survival rates) and the fast-track program, allowing certain therapies to garner accelerated marketing approval based on Phase II data. The FDA recently has been requiring survival benefit studies and data prior to full marketing approval, which allows for complete labeling and promotion. Lung and colorectal cancer incidence is expected to rise, while the incidence of stomach and liver cancers should decline.
Our scatter plot shows that through 2005, Amgen and Roche should dominate this category. This category is critical to their growth. Genentech and five other companies have rapidly emerging portfolios.
Oncology/Hematology
90%
70%
50%
DNA AMGN ROHHY
30%
PHA SGP LLY

10%
AVE AHP GSK NVS AZN JNJ
ABT MRK
-10%
BAY BMY
TDCHF
-30% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0
G Osteoporosis/Hormone Replacement Therapy

The ERT market could increase by 40% by 2005, led by Wyeths Premarin franchise. However, growth of SERMs could be 50% higher than that of ERT, with Lilly best positioned to benefit. Biphosphonate sales should more than double by 2005, led by drugs from Merck and Aventis. Once-weekly formulations will dominate usage. Our scatter plot shows that through 2005, Wyeth, Eli Lilly, Merck, and Novartis should dominate the osteoporosis/HRT segment, and this category is important to the growth of Merck and Wyeth.
Osteoporosis/HRT
35%
30%
MRK
25%
20%
15%
NVS LLY
WYE
10%
TDCHF
5%
ROHHY PFE JNJ PHA
AVE
0%
-5%
ESALY
-10%
-15% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0
16
G Respiratory
Short-acting beta agonist inhalers should remain a dominant therapeutic modality, given the need for acute exacerbation relief. However, sales could be nearly cut in half since generics dominate this segment. Long-acting beta agonist inhalers from AstraZeneca, GlaxoSmithKline and Novartis are forecast to maintain only modest market share, due to limited relative utility; sales are expected to grow modestly. Steroid inhalers (AstraZeneca, Aventis, Forest Labs, GlaxoSmithKline, and ScheringPlough) should enjoy good growth, given their ability to control disease. The ACRN longterm study may more precisely define the role of steroids. Good effectiveness, anti-inflammatory action, ease of administration and pediatric application should allow leukotriene antagonist growth to outpace that of steroids through 2005. Merck and AstraZeneca are poised to benefit. However, leukotriene antagonists have not made significant inroads into the steroid market. Phosphodiesterase type 4 inhibitors (GlaxoSmithKline, Schering-Plough) and anticholinergic agents (Boehringer-Ingelheim/Pfizer) are poised to enjoy great success in treating chronic obstructive pulmonary disease. Oral, non- or low-sedating antihistamines should continue to dominate the allergy market. Schering-Plough, Aventis, and Pfizer will benefit. We expect generics to Claritin in 2003, tempering sales growth of this class. Nasal steroid sales growth likely will be modest. Our scatter plot shows that through 2005, Aventis, GlaxoSmithKline, and Merck should dominate this category, and this category is important to their growth.
Respiratory
25%
MRK
20%
15%
AVE
10%
PFE
5%
GSK
FRX NVS
0%
BAY
AZN
-5%
SGP
-10% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0
17
G Sexual Dysfunction
Oral 5-phosphodiesterase inhibitors should remain the mainstay of therapy for MED. Competition is intensifying and we expect a fierce marketing battle between Pfizers Viagra, ICOS/Lillys Cialis, and Bayer/GlaxoSmithKlines Vardenafil. Assuming efficacy and safety profiles hold up, topical products (MacroChem, NexMed) eventually could rival oral therapies in terms of share. However, MacroChem has suffered development setbacks. The implants/surgery market likely will not change appreciably given that these options are reserved for patients with no alternatives. The female sexual dysfunction (FSD) market has big potential, but is very early in development. Clinical studies in women are ongoing. Our scatter plot shows that, through 2005, Pfizer and Lilly will dominate the sexual dysfunction market. Sexual dysfunction is important to sales growth for both companies.
Sexual Dysfunction
90%
70%
50%
30%
LLY
10%
BAY
PFE
-10%
-30% $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
18
G Urinary Incontinence
The UI and overactive bladder patient populations are large, but difficult to penetrate given lack of effective therapies and embarrassment over the consequences of the ailments. A large number of patients have entered the treatment stream over the past three years, due to the new drug therapies, which have an improved side-effect profile over older treatments. New oral agents for urge incontinence and overactive bladder, led by Pharmacias Detrol LA and JNJs Ditropan XL, appear comparable in terms of effectiveness and side effects. Pfizers Darifenacin has a novel mechanism and is generating excitement. Our scatter plot shows that through 2005, Pharmacia should dominate the incontinence market. Urinary incontinence is critical to the sales growth of Pharmacia.
Urinary Incontinence
30%
PHA
25%
20%
15%
10%
5%
PFE JNJ
0%
-5%
-10% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40
19
Leadership Of Important Categories A Key To Success

G Abbott Laboratories (Rated 1 Strong Buy)
Antibiotics/Antivirals and arthritis are critical to Abbotts sales growth. Abbott participates in five other therapeutic categories that each account for less than 10% of growth.
Abbott Product Sales Analysis
20%
15% % Company Sales Growth From Category
Arthritis
Antibiotics/ Antivirals
10%
Epilepsy
5%
Cardiology CNS Oncology
0%
G.I./Ulcer
-5% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
2005 Sales Company Generates From Category ($ In B)
G Amgen (Rated 2 buy)

Amgen should be a dominant player in the oncology/hematology market through 2005, and this category is critical to its sales growth.
Amgen Sales Analysis

50%
Oncology
40% % Of Company Sales Growth From Category
30%
20%
10%
0%
-10%
-20%
-30%
-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0
20
G Bristol-Myers Squibb (Rated 1 Strong Buy)

Bristol-Myers should be a dominant player in the cardiology and antibiotics/antivirals markets through 2005, and these categories are critical to its sales growth. CNS is an emerging category for Bristol. Three other categories (arthritis, diabetes, oncology) are smaller and are drags on growth.
Bristol-Myers Squibb Sales Analysis

70%
Cardiology
% Company Sales Growth From Category
50%
30%
Antibiotics/Antivirals CNS
10%
Arthritis
-10%
Oncology
-30%
-50% $0.0
Diabetes
$1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0
G Elan (Rated 3 - Neutral)

Central nervous system is an emerging category for Elan via the Athena/Elan Pharmaceuticals effort. Epilepsy and arthritis are lesser drivers of growth.
Elan Sales Analysis
45%
% Of Company Sales Growth From Category
35%
CNS
25%
15%
Epilepsy
5%
-5%
Arthritis
-15% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
21
G Eli Lilly (Rated 1 Strong Buy)

Eli Lilly should be a dominant player in the CNS and diabetes markets through 2005. Diabetes and CNS are critical to its sales growth while cardiology and G.I./ulcer are drags. Antibiotics/antivirals, oncology, osteoporosis/HRT and sexual dysfunction are emerging categories to Eli Lilly, providing 10%+ of the companys sales growth each.
Eli Lilly Sales Analysis
35%
Diabetes
30%
CNS
% Company Sales Growth From Category 25%
Sexual Dysfunction
20%
15%
Antibiotics/Antivirals Osteoporosis/HRT Oncology
10%
5%
0%
Cardiology
-5%
G.I./Ulcer
-10% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0
G Forest Laboratories (Rated 1 - Strong Buy)

Forest is emerging as an important player in the CNS and Alzheimers disease markets, and the companys sales growth is largely contributed by these categories through 2005. Respiratory and cardiology are forecast to hinder Forests growth.
Forest Laboratories Sales Analysis
80%
CNS
40%
Alzheimer's Disease
20%
0%
Cardiology
Respiratory
-20%
-40%
-60%
-80% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
22
G Genentech (Rated 2 - Buy)

Oncology is the most important category to Genentechs sales growth through 2005. Herceptin and Rituxin are driving this trend.
Genentech Sales Analysis
50%
Oncology
30%
20%
10%
0%
-10%
-20% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2005 Sales Company Generates From Category ($ In B)
G GlaxoSmithKline (Rated 2 - Buy)

GlaxoSmithKline should be a dominant player in the antibiotics/antivirals, respiratory, CNS, and diabetes markets through 2005, and these categories are critical to its sales growth. Five other therapeutic categories are either modest contributors or detractors from sales growth.
GlaxoSmithKline Sales Analysis

40%
35%
25%
20%
Antibiotics/Antivirals CNS Diabetes
15%
10%
Respiratory
5%
Epilepsy
Oncology Cardiology
0%
G.I./Ulcer Arthritis
-5%
-10% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0
23
G Johnson & Johnson (Rated 1 - Strong Buy)

J&J should be a dominant player in the oncology, CNS, and G.I./ulcer markets through 2005, with G.I./ulcer critical to growth, and CNS and oncology maturing categories. Six other categories are smaller and/or less important to growth.
Johnson & Johnson Sales Analysis
30%
25%
20%
15%
G.I./Ulcer
10%
Epilepsy
5%
CNS
Oncology
Osteoporosis/ HRT Alzheimer's
Arthritis Cardiology Antibiotics/ Antivirals
0%
-5%
-10% -$0.5 $0.5 $1.5 $2.5 $3.5 $4.5 $5.5
G King Pharmaceuticals (Rated 1 Strong Buy)

Cardiology is the most important category to Kings sales growth through 2005. Altace is driving this trend.
King Pharmaceuticals Sales Analysis
55%
Cardiovascular
35%
25%
15%
5%
-5%
-15%
-25% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2005 Sales Company Generates From Category ($ In B)
24
G Merck (Rated 3 - Neutral)

Merck should dominate cardiovascular, arthritis, oncology, and respiratory markets through 2005, and these categories are critical to growth. Five other categories are less meaningful or even drags on growth.
Merck Sales Analysis
40%
Cardiology Oncology
30%
Arthritis
20%
Respiratory
G.I./Ulcer
10%
Glaucoma
0%
CNS Antibiotics/ Antivirals Osteoporosis/ HRT
-10%
-20% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0
G Pfizer (Rated 1 - Strong Buy)

Relative to sales growth, cardiology is Pfizers most important therapeutic category, with the central nervous system market also an important contributor to growth. Antibiotics/antivirals is a big but maturing category. Seven other categories are smaller and less meaningful to growth.
Pfizer Sales Analysis

50%
Cardiology
30%
20%
CNS
10%
Diabetes Sexual Dysfunction Respiratory Antibiotics/ Alzheimer's Antivirals U. I. Arthritis Epilepsy
0%
-10%
-20% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0
25
G Pharmacia (Rated 2 Buy)

Pharmacias most important therapeutic category relative to size and growth is arthritis. Urinary incontinence, cardiovascular, oncology, glaucoma, and sexual dysfunction are emerging categories. Three others categories are smaller and less important or drags on growth.
Pharmacia Sales Analysis
50%
Arthritis
40%
30%
20%
Urinary Incontinence Cardiology Oncology Glaucoma Sexual Dysfunction Antibiotics/ Diabetes Antivirals Head Trauma
10%
0%
-10%
-20%
-30%
CNS
-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0
G Schering-Plough (Rated 3 - Neutral)

Schering-Plough should remain dominant in the antibiotics/antivirals and respiratory markets through 2005, and this categories is critical to its sales growth. Oncology and arthritis are emerging sources of growth, and cardiology is smaller and much less important to growth.
Schering-Plough Sales Analysis
70%
60%
50%
40%
30%
Oncology Arthritis
20%
10%
0%
Cardiology Respiratory
-10%
-20% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0
26
G Wyeth (Rated 1 Strong Buy)

Wyeth should be a dominant player in the osteoporosis/HRT, CNS, and antibiotics/antivirals markets through 2005, and these categories are critical to its sales growth. Oncology and G.I./ulcer are emerging categories for Wyeth. Arthritis is smaller and less important to Wyeths growth.
Wyeth Sales Analysis

50%
30%
20%
Oncology CNS G.I./Ulcer Antibiotics/Antivirals Osteoporosis/HRT
10%
Arthritis
0%
-10% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
27
THERAPEUTIC CATEGORY POSITION COMPARISON

Total 7 1 6 3 8 4 1 9 9 1 9 10 10 5 6 89 4 2 1 1 3 21 5 2 2 21 5 1 3 1 1 1 1 4 7 4 1 1 42 2 Upper Right 1 1 2 1 1 4 2 1 1 2 5 6 3 2 2 2 Upper Left 1 Quadrant Lower Right Lower Left 5
Abbott Laboratories Amgen Bristol-Myers Squibb Elan Eli Lilly Forest Laboratories Genentech GlaxoSmithKline Johnson & Johnson King Pharmaceuticals Merck Pfizer Pharmacia Schering-Plough Wyeth Total
Largest Therapeutic Areas Enjoying Most Development Activity

Drug companies like to shoot at big development targets. Thus, it is not surprising that the largest categories in terms of sales (cardiovascular, antibiotics/antivirals, central nervous system, oncology/hematology) also are enjoying the most new product development activity. We see little change in the relative rankings through 2005.
28
Pharmaceutical Therapeutic Categories

Number Of Products In Development Vs. 2001 Category Sales
200
# of Products in Development
Central Nervous System Oncology/Hematology Cardiovascular Osteoporosis/HRT
175 150 125 100

Allergy/Asthma Infectious Disease
75
Sexual Dysfunction
50 25
Diabetes G.I./Ulcer
0 0 10 20 30
2001 $ Sales
40
50
Pharmaceutical Therapeutic Categories

Number Of Products In Development Vs. 2005 Category Sales
200
# of Products in Development
Central Nervous System Oncology/Hematology Cardiovascular Osteoporosis/HRT
175 150 125 100 75 50 25 0 0 10 20 30 40

2005 $ Sales
Sexual Dysfunction Allergy/Asthma Diabetes Arthritis/Inflammation G.I./Ulcer Infectious Disease
50
60
70
The most desirable quadrant of the above matrices appears to be the lower right, a segment characterized by huge dollar volume and relatively fewer developmentstage products, potentially generating less competition. Only infectious disease resides in this segment. The least desirable quadrant of the above matrices would then be the upper left, where many products chase few dollars. The upper right (lots of dollars and products) and lower left (relative fewer dollars and products) quadrants fall in between. Obviously, these conclusions represent an oversimplification of the complex drug development and sales dynamics within specific therapeutic categories, as differentiated new products can dominate competitive markets.
Notes
30
Alzheimers Disease
G AD Victims And Financial Burden Increasing Significantly
Alzheimers Disease (AD) afflicts approximately 4MM people in the U.S. and 15MM people WW. It is estimated that 10% of people age 65 and older, and about 50% of people over 85, suffer from AD. Due to the anticipated rapid growth of the over-65 segment of the U.S. population (currently exceeding 34MM people), the AD patient population is 11% 2001-05 CGR expected to increase rapidly. Direct medical and indirect costs associated with the disease are high as families are forced to provide home care and/or pay for assisted living. In the U.S. alone, it is estimated that health care expenses and lost wages for AD patients and caregivers total $80-100B annually. With life expectancy increasing throughout the world, AD is expected to become a global health care resources and financial problem. AD can be diagnosed pathologically, via the detection in the brain of plaques (reside between cells) and/or tangles (exist within cells). However, the existence of plaques and/or tangles is not confirmatory of AD. Plaques are seen in normal aging as well as in AD, and tangles occur in several rare diseases other than AD. The FDA still views changes in plaque level or formation as inconclusive surrogate markers, so approval of new drugs is keyed to demonstrated improvement in cognitive behavior and global function.
DEFINITION/ BACKDROP
Alzheimers Disease Drug Sales As A Percentage Of The Category

2001
$1.2B
2005P
JNJ 11% FRX 10%
$2.2B
PARTICIPANTS
NVS 21%
PFE 13%
ESALY 43%
PFE 13%
ESALY 65%
NVS 23%
Eisai/Pfizers Aricept dominated the Alzheimers disease market in 2001, and this dominance is expected to continue through 2005. Novartis, JNJ/Shire, and Forest Labs are expected to become important market participants by 2005.
MAJOR TRENDS & ISSUES
Acetylcholinesterase inhibitors are expected to dominate the AD market for the next few years, despite limited effectiveness. However, research in neurotransmitter-mediated treatments of AD, such as acetylcholinesterase inhibition, is not expected to advance much beyond current knowledge. Next-generation drugs likely will focus on underlying disease mechanisms, most notably beta and gamma amyloid plaque inhibition and genetics: Eli Lilly, Bristol-Myers Squibb, Elan/Wyeth, Elan/Pharmacia and GlaxoSmithKline all have clinical programs in these areas.
31
The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta amyloid and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2005, Esiai/Pfizer should dominate this category, and JNJ and Forest Labs will be emerging competitors.
Alzheimer's Disease
35%
25%
ESALY FRX
15%
5%
JNJ PFE
-5%
NVS
-15%
-25% $0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
32
Alzheimer's Disease Market Dynamics ($MM)

2000 30.5 4.3 4.1 15.2 4% 0.6 +12% - Acetylcholinesterase inhibitor; Pfizer/Eisai; ongoing clinical studies in conjunction with Vitamin E, with estrogen, and in mild cognitive impairment. +6% - Includes sales to Eisai and direct sales to Pfizer. - Acetylcholinesterase inhibitor; Novartis; transdermal system in Phase II to address half-life issues. +12% - Acetylcholinesterase inhibitor; JNJ; launched May 2001; also stimulates the nicotinic receptors to release more acetylcholine. +12% - NMDA antagonist; FRX; assumes H2:2003 approval and launch; novel action means likely to be used in combination with acetylcholinesterase inhibitors nm 87% 0.51 $4.40 $819 13% 0.08 $4.20 $118 6% 0.05 $4.30 $75 2% 0.02 $3.50 $25 7% 0.09 $3.50 $120 11% 0.16 $3.50 $210 10% 0.10 $4.30 $150 12% 0.12 $4.30 $195 11% 0.14 $4.30 $215 10% 0.15 $4.30 $235 20% 0.16 $4.20 $242 23% 0.22 $4.20 $330 24% 0.25 $4.20 $390 23% 0.29 $4.20 $450 23% 0.34 $4.20 $515 73% 0.56 $4.40 $907 67% 0.62 $4.40 $995 63% 0.67 $4.40 $1,080 57% 0.73 $4.40 $1,165 53% 0.77 $4.40 $1,240 30.5 4.4 4.2 15.4 5% 0.8 30.6 4.5 4.3 15.7 6% 0.9 30.8 4.6 4.3 15.9 7% 1.1 31.0 4.7 4.4 16.0 8% 1.3 31.2 4.8 4.4 16.3 9% 1.4 2001 2002P 2003P 2004P 2005P CGR Comments +0% - Estimate 8 - 10% of population is afflicted. +2% - Estimate 40 - 50% of population is afflicted. +1% - Could be conservative due to lack of accurate diagnostics. +1%
U.S. Population 65 - 85 yrs old U.S. Population 85+ yrs old U.S. Alzheimer Sufferers (MM) WW Alzheimer Sufferers (MM) % Treated Patients Treated (MM)
Aricept Market Share Number of Patients (MM) Average Daily Cost Sales (MM)
Exelon Market Share Number of Patients (MM) Average Daily Cost Sales (MM)
33
$937 $1,224 $1,475 $1,690 $1,950 $2,200
Reminyl Market Share Number of Patients (MM) Average Daily Cost Sales (MM)
Memantine Market Share Number of Patients (MM) Average Daily Cost Sales (MM)
Total Market Sales (MM)
+11% - Near-term growth driven by acetylcholinesterase inhibitors
Source: Company data; SG Cowen estimates
G Large Market Opportunity To Delay Onset And Improve Brain Function

DETAILED DISCUSSION
Current AD treatments provide only symptomatic relief, temporarily improving brain function in mild or moderate disease. These drugs either improve the communication between neurons or maintain neuronal health. Neurotransmitter enhancers, led by acetylcholinesterase inhibitors; metabolic enhancers such as anti-oxidants and estrogen; and anti-inflammatories may help preserve or strengthen neurons, but the duration of this preservation or strengthening is not known. Eventually the disease progresses, more neurons are injured or die, and brain function is severely impaired. Although current treatments are not cures, any slowing of the disease progression, even by as little as six months, helps delay expenses associated with home care and assisted living.
G AD Therapy Paradigm Could Develop Similarly To Cardiovascular Market

We believe the AD treatment market will develop similarly to the cardiovascular disease market over the next decade. Disease prevention likely will encompass diagnostic monitoring of beta amyloid levels in blood, similar to cholesterol testing. Patients at high risk could be subject to monitoring of beta amyloid levels in spinal fluid. Once a patients beta amyloid level is known, a risk/benefit assessment could determine which drug therapy, if any, should be initiated. For preventive therapy, a gamma or beta secretase inhibitor could be selected from among a handful that are likely to be available. For treatment of active disease, a combination of several agents may be used. These might include a gamma or beta secretase inhibitor, an antiinflammatory agent, an anti-oxidant, and in females, estrogen.
AD THERAPY PARADIGM
Prevention 1. Screening for beta amyloid in blood or spinal fluid 2. Risk assessment 3. Prophylaxis with a gamma or beta secretase inhibitor for high-risk patients Treatment A Cocktail Consisting Of: 1. Gamma or beta secretase inhibitor 2. Anti-inflammatory 3. Anti-oxidant 4. Estrogen (in females)
G Acetylcholinesterase Inhibitors Widely Used Despite Limitations

Neurotransmitters, such as acetylcholine, aid in the communication between cells. As neurons are injured and/or die, neurotransmitter concentrations and the receptors for those neurotransmitters are diminished. Acetylcholinesterase inhibitors slow the breakdown of the neurotransmitter acetylcholine by inhibiting the enzyme acetylcholinesterase. By raising the concentration of acetylcholine in the brain, neuronal communication and function are temporarily preserved. However, acetylcholinesterase inhibitors relieve only some symptoms of AD, do not affect the underlying course of the disease, and only delay inevitable deterioration by about six to twelve months. Our physician consultants believe that research in neurotransmitter-mediated treatments of AD will not advance much beyond current knowledge. Nonetheless, given the lack of alternatives, acetylcholinesterase inhibitors (i.e., Pfizer/Eisais Aricept, Novartis Exelon and JNJ/Shires Reminyl) are used widely today and are expected to dominate the AD drug market for the next several years. Forest Labs Memantine, currently in Phase III testing in the U.S., is an uncompetitive N-methyl-D-aspartate (NMDA) agonist, which blocks glutamate from binding to the NMDA receptors. Studies have shown that excessive glutamate accumulation can injure and kill neurons. Memantine preserves neuronal function by reducing this accumulation. Pre-clinical studies also suggest that Memantine may have neuroprotective benefits in addition to its symptomatic benefits. Given
its differentiated mechanism of action, Memantine may also gain use in combination with acetylcholinesterase inhibitors.
ACETYLCHOLINESTERASE INHIBITORS FOR TREATMENT OF AD
Product Aricept Company Pfizer/Eisai Status Marketed Comments Modestly improves cognitive abilities, delays onset of symptoms. Once-a-day dosing and favorable side-effect profile makes it a potential $1.0B product by 2002. Exelon Novartis Marketed Twice-daily dosing and side-effects (primarily nausea) temper commercial potential, but has gained 20-25% market share. Reminyl JNJ/Shire Marketed Impacts both acetylcholine and nicotinic receptors. Dual acitivity may result in superior efficacy.
ALZHEIMER'S TREATMENT MARKET

120.0%
100.0%
80.0% % Market Share
Aricept 60.0% Exelon Reminyl 40.0%
20.0%
0.0% Oct-00 May-00 May-01 Nov-00 Oct-01 Apr-00 Apr-01 Nov-01 Jun-00 Jul-00 Aug-00 Sep-00 Dec-00 Jun-01 Jul-01 Aug-01 Sep-01 Dec-01 Mar-00 Mar-01 Jan-00 Jan-01 Feb-00 Feb-01 Jan-02
Source: IMS
G The Amyloid Theory Has Been Accepted Widely

Prominent researchers believe that the build-up of amyloid plaque in the brain, caused by the accumulation of the protein fragment beta-amyloid, may cause AD. Beta-amyloid is cleaved from a larger protein called amyloid precursor protein (APP) which is a critical component of all cell membranes and is believed to play a role in synapse formation and cell-to-cell adhesion. Beta amyloid is constantly being produced and cleared from the brain; the plaques form when the rate of production exceeds the rate of clearance. Two protease enzymes, beta and gamma secretase, naturally cleave APP and produce beta-amyloid in lengths of either 40 or 42 amino acids. The beta-amyloid peptide of 40 amino acids is believed to be relatively less toxic because it is more soluble and aggregates slowly. However, the beta-amyloid peptide of 42 amino acids
quickly forms insoluble aggregates, and beta-amyloid-40 can form aggregates with betaamyloid-42. These insoluble aggregates, over time, create long beta-amyloid filaments that build up as insoluble plaques. These insoluble plaques form in many parts of the brain, but most importantly, in the hippocampus, amygdala and cerebral cortex (areas in the brain attributed to memory, emotions and cognitive thinking, respectively). These plaques may trigger an inflammatory response leading to neuron injury and death. While it is not yet known whether plaque buildup causes AD or is an early byproduct of AD, the Amyloid Theory has been accepted widely.
G Amyloid Plaques Are Primary Therapeutic Target; BMY, LLY And ELN Lead
There is ongoing debate as to whether beta amyloid initially is accumulated intracellularly (directly in the neuron) or extracellularly (plaque accumulation). It has been argued that intracellular beta amyloid could cause direct neuronal damage and neuron death. If this is indeed the case, it would weaken greatly the widely accepted theory that extracellular betaamyloid plaque accumulation, and subsequent plaque-associated events such as inflammation and oxidation, are the primary causes of neuron cell injury and death. Gamma and beta secretase inhibitors, which are in development at Bristol-Myers Squibb, Eli Lilly, Elan (proprietary gamma secretase inhibitor program and with Pharmacia for a beta secretase inhibitor), Novartis, Roche and Pfizer, all work intracellularly, but also would be useful in cases of extracellular beta amyloid accumulation. Bristol-Myers and Lilly are conducting Phase I studies of orally-available gamma secretase inhibitors that cross the blood brain barrier. Trials likely will target mild patients and drug activity will be measured using typical mental cognition scales. It is believed that a plaque-burden reduction of 30-50% will be sufficient for a clinical response. Indeed, greater reductions could elicit side effects, especially with gamma secretase inhibitors. Elan and Wyeth recently terminated its vaccine, AN-1792, post reported cases of CNS inflammation. The companies plan on filing an IND for new a conjugate adjuvant and monoclonal antibody by year end. These vaccines produce an antibody-based immune response, which may assist in reducing and possibly reversing plaque formation. Elan and Pharmacia also are collaborating to develop a beta-secretase inhibitor, for which an IND could be filed later this year.
G COX-2 Inhibitors May Target Inflammatory Response To Plaques

The slow accumulation of beta-amyloid plaque may trigger neuronal and glial cell alterations in the hippocampus and cortex of the brain. Glial cells are non-neuronal brain cells that support neuronal function and health. Glial cell activation triggers excessive production of cytokines, including interleukin-1, interleukin-6, and TNF alpha, as well as oxidative stress, setting off a host of negative reactions that eventually lead to neuron damage and death. It is believed that overexpression of nueronal enzyme cyclo-oxygenase-2 (COX-2) may activate glial cell inflammation. Arthritic patients taking NSAIDs demonstrate a lower incidence of AD and/or experience delayed onset. Combination therapy of NSAIDs or coxibs with acetylcholinesterase inhibitors likely will be used more frequently as long as drug interactions and side effects are tolerable.
G Multiple Agents Target Oxidative Stress Reaction To Inflammation

Oxidative stress in AD is caused by an increase in the metabolism of oxygen, and contributes to neuronal cell dysfunction and death. Metabolism of oxygen creates free radicals that can ultimately cause severe damage to cells. Oxidative stress is believed to be a downstream reaction to the inflammation caused by plaque accumulation, as well as a natural part of the
aging process. One explanation for oxidative stress is the marked increase in activated glial cells. Glial cells contain monamine oxidase type-B (MAO-B), an enzyme that degrades dopamine, an important neurotransmitter along with acetylcholine. Degradation of dopamine results in the formation of free radicals leading to neuronal cell damage. There are many additional sources of free radicals in AD, possibly including beta amyloid, the combination of beta amyloid and metal ions, and activated glial cells which are capable of oxidative burst. By inhibiting the expression of the MAO-B enzyme by glial cells, researchers believe that much of the oxidative damage could be eliminated. The experience with Selegeline (Eldepryl), a MAO-B inhibitor which offered marginal improvement in AD, tempers enthusiasm for this thesis and for the MAO-B class. Vitamin E also is a very good anti-oxidant and often recommended by physicians for AD patients. Pfizer currently is conducting Phase IV studies of Aricept in combination with Vitamin E.
G Neurofibrillary Tangles Part Of The AD Mystery

Neurofibrillary tangles accumulate within many nerve cells of AD patients. The role of neurofibrillary tangles is not well understood; however, they are believed to occur in the later stages of AD and may contribute to nerve cell death. The principal component of the neurofibrillary tangle is the tau protein which, under normal conditions, contributes to stabilizing the structural support system or skeleton of the cell. In AD, tau undergoes hyperphosphorylation which reduces its ability to bind and stabilize the cytoskeleton. Consequently, the unbound tau is then free to self-assemble into neurofibrillary tangles and cell death ultimately results. Although it has not been confirmed, excessive amyloid accumulation may trigger the events that lead to tau phosphorylation and neurofibrillary tangle formation. Unfortunately, the various enzymes involved in tau phosphorylation have proven to be extremely difficult to modify. It recently has been discovered that Pin1, a prolyl isomerase, can restore taus binding ability. This discovery may lead to a viable therapeutic target. Nevertheless, pharmacologic intervention in this key area remains challenging.
G Genetics Likely Play A Role In AD; GSK Focused On APOE

There is mounting evidence that certain genetic profiles lead to greater likelihood of developing AD. For example, a rare genetic mutation leads to a form of AD for which the offspring of an affected parent has a 50% likelihood of developing the disease. In this familial AD, which represents only about 1% of all AD cases, mutations have been found in a gene called presenilin 1 on chromosome 14 (the most common site of mutations in familial AD), and in two other genes, presenilin 2 located on chromosome 1 and in the amyloid precursor gene (APP) on chromosome 21. These defective genes are believed to accelerate the processing of APP into beta amyloid 42. Despite the rarity of these familial forms of AD, the discovery of these mutations, and their connection to APP metabolism, has been invaluable in defining targets relevant to all cases of AD. Alternatively, other genetic profiles do not invariably cause AD, but increase the risk of getting the disease. The apolipoprotein E (APOE) epsilon 4 gene on chromosome 19 is the most wellaccepted of these risk factor genes. The APOE protein sits on the surface of the cholesterol molecule and helps carry cholesterol to cells. Epsilon 4 may alter APP processing and contribute to beta amyloid buildup. Among older individuals with AD, APOE is overrepresented, indicating a possible causal effect. Other genetic risk factors have also been identified, but only the effect of APOE4 in AD is widely accepted. However, the use of APOE gene screening is controversial, as the actual degree of risk conferred by the gene is uncertain. A four-to ten-fold increase in risk is often quoted. Currently, GlaxoSmithKline is developing
small molecules that could make high-risk APOE4 behave like low-risk APOE2. These compounds could postpone the onset of AD. Additionally, Roche has an agreement with Decode Genetics of Iceland to explore the genetic basis of Alzheimers. Roche also has formed an agreement with Morphosys of Germany to search for antibodies to those genetic targets.
THERAPEUTIC TARGETS FOR AD

Mechanism Comments
Amyloid Precursor Protein Process / Beta-Amyloid Protease Inhibitors Inhibition of gamma and beta secretase, key enzymes in the production of betaamyloid 42. Vaccine Bind to beta-amyloid and aid in its clearance via an antibody-based immune response. Inflammation / Glial Cell Activation Glial Cell Modulators Coxib Oxidative Stress MAO-B Inhibitors Inhibit glial cell enzyme MAO-B that degrades dopamine and emits free radicals. Vitamin E Neuronal Injury Nerve Growth Factor / Enhancers Estrogen Repair and restore injured neurons. May help in strengthening and repairing neurons. May also slow production of beta amyloid. NMDA Antagonists Blocks glutamate receptor, thus limiting excessive glutamate accumulation and its neurotoxic effects. Anti-oxidant that can aid in the clearance of free radicals. Modulate the activation of glial cells, resulting from plaque accumulation. Inhibit COX-2 enzyme, which is implicated in the activation of glial cells.
Others Neurotransmitter Depletion Acetylcholinesterase Inhibitors
Prevent nerve cell death despite underlying pathogenesis.
Inhibit acetylcholinesterase enzyme that breaks down neurotransmitter acetylcholine.
38
HYPOTHETICAL AD MECHANISM / POTENTIAL TREATMENT TARGETS

Genetic Form "Familial" -- Missense Mutations In APP, PSI & PS2
Unkown "Sporadic" Disease Failure To Clear AB42
Altered Proteolysis of APP Potential Treatments Increased Production of AB42 Gamma Secretase Inhibitors Anti-Beta Amyloid Vaccine
Progressive Accumulation And Aggregration Of AB42 In Brain Interstitial Fluid
Deposition of Aggregrated AB42 As Diffuse Plaques
Aggregration of AB40 Onto Diffuse AB42 Plaques Accrual of Certain Plaque-Associated Proteins
Inflammatory Response: -- Microglial activation and cytokine release -- Astrocytosis and acute-phase protein release
NSAIDs, COX-2 Inhibitors, Glial Cell Modulators
Progressive neuritic injury within amyloid plaques and elswhere in the neuropil
NGF, Estrogen
Disruption of Neuronal Metabolic And Ionic Homeostasis; Oxidative Injury
MAO-B Inhibitors, Vitamin E
Altered Kinase/ Phosphatase Activities ---> Hyperphoshorylated Tau ---> PHF Formation
Widespread Neuronal/Neuritic Dysfunction and Death In Hippocampus and Cerebral Cortex Progressive Neurotransmitter Deficits Acetylcholinesterase Inhibitors
Dementia
Source For Disease Mechanism: Dr. Dennis J. Selkoe, Nature, Translating cell biology into therapeutic advances in Alzheimers, June 24, 1999 Source For Potential Treatment Targets: SG Cowen
G Estrogen Replacement Therapy Has Benefits; WYE And LLY Target

Estrogen replacement therapy may be beneficial in reducing the incidence of AD. In a Columbia University study, women who took estrogen for longer than one year after menopause showed an 80% reduction in risk of AD. In a similar Johns Hopkins University study, women who took estrogen had a 50% reduction in AD risk. Although medical opinions differ, estrogen is believed to protect and restore neural synapses, decrease the production of beta-amyloid and/or act as an anti-oxidant. In addition, estrogen is believed to increase a brainderived neurotrophic factor, which increases the number of connections between nerve cells. However, estrogens precise mechanism in AD is not known. Premarin (Wyeth Pharmaceuticals) is in Phase III clinicals seeking an AD indication. Lilly is conducting a trial of its second-generation SERM (selective estrogen receptor modulator) in the treatment of AD. Estrogen, similar to NSAIDs, likely would be used as adjunctive therapy along with disease modifying agents.
Existing Or Near-Term Products Offer Modest Benefits

Acetylcholinesterase inhibitors only relieve some symptoms of AD, do not affect the underlying disease, and only delay inevitable deterioration by about six to twelve months. However, the emotional and financial burdens of AD are so severe that any brain function improvement or delay in deterioration is important. Thus, despite their modest therapeutic benefit, acetylcholinesterase inhibitor sales should continue to grow substantially. G Pfizers Aricept Leads The Category Pfizer/Eisai launched Aricept (donapezil) in the U.S. in 1997. Aricept is dosed once-daily and has a good side-effect profile, but only modest effectiveness. In a 30-week study, 473 patients received either Aricept 5 mg, 10 mg or placebo daily. After 24 weeks, the Alzheimers Disease Assessment Scale, Cognitive Subsection (ADAS-cog) change scores for Aricept 5 mg and 10 mg versus placebo were 2.8 and 3.1 units, which were statistically significant differences. In a 15week study, patients received either Aricept 5 mg or 10 mg. After 12 weeks, ADAS cog change scores for Aricept 5 mg and 10 mg versus placebo were 2.7 and 3.0 units, which also were statistically significant. Aricept enjoys broad marketing, with Eisai targeting neurologists and Pfizer focusing on general practitioners. As of January 2002, Aricept had captured a 64.9% U.S. new prescription share and 70.8% U.S. total prescription share of the acetylcholinesterase category. We believe that Aricept will continue to be the acetylcholinesterase inhibitor of choice to treat AD, although its modest effectiveness is prompting clinicians to switch patients to competitive acetylcholinesterase inhibitors, Novartis Exelon and JNJs Reminyl. An oral liquid formulation of Aricept is in Phase III studies. We forecast Aricept sales of $995MM (+10%) in 2002 and $1,240MM in 2005, which includes sales to the joint venture with Eisai and direct sales to Pfizer.
G Novartis Exelon Offers Few Advantages

Novartis has marketed Exelon in Europe since Q4:98 and in the U.S. since mid-2000. As of January 2002, Exelon had captured 22.9% of U.S. new prescription share and 19.9% of U.S. total prescription share of the acetylcholinesterase inhibitor category. Exelons challenges include twice-daily dosing and nausea, although the latter is less problematic with careful titration. Exelon blocks 62% of acetylcholinesterase in the CNS at a dose of 6 mg twice daily. It is 35% bioavailable, and generates peak activity at 6 hours and a duration of 12 hours. Among patients completing a double-blind, placebo-controlled study that enrolled 725 patients, 55% in a high-dose group showed improvement from baseline, compared with 45% of placebotreated patients. In a double-blind, placebo-controlled study in 402 patients, moderate-tomarked improvement occurred in 43% of patients in the high-dose group, 31.5% in the lowdose group, and 30% on placebo. Side effects include nausea, vomiting, diarrhea, anorexia, abdominal pain, weight loss, headache, dizziness, fatigue and malaise. We peg Exelon sales at $330MM (+36%) in 2002 and $515MM in 2005.
G JNJ/Shires Reminyl: Dual Mechanism Offers Unclear Benefit

Johnson & Johnson launched Reminyl in the U.S. in May 2001 and in various individual European countries in mid-2001. As of January 2002, Reminyl had captured a 12.1% U.S. new prescription share and 9.2% U.S. total prescription share of the acetylcholinesterase inhibitor category. Reminyls dual action of acetylcholinesterase inhibition and nicotinic receptor stimulation may enhance the drugs effectiveness. While, our physician consultants are skeptical about the clinical benefit of this dual mechanism, they note that Reminyl has shown superior efficacy to other acetylcholinesterase inhibitors. Reminyl has a substantially shorter half-life than Aricept, and thus may not affect sleep patterns to a similar extent. We estimate Reminyl sales of $150MM (+100%) in 2002 and $235MM in 2005, which may prove conservative.
G Forests Memantine Targets Several CNS Indications

Memantine is an N-methyl-D-aspartate (NMDA) antagonist, which Forest Labs is developing for the treatment of Alzheimers disease. Memantine was licensed by Forest from Merz, a private German pharmaceutical company. Merz has marketed Memantine in Germany for Parkinsons disease for nearly a decade. While other NMDA antagonists have been associated with hallucinations at higher doses, this side effect has not been observed with Memantine. Memantine binds with lower affinity to the NMDA receptors in the brain, enabling safe levels of glutamate to reach the receptors while preventing excessive glutamate accumulation Forest has completed one U.S. and one European Phase III study in moderately severe to severe Alzheimers patients. Forest will file the two completed Phase III studies with the FDA in H1:2002. The FDA has indicated that an advisory committee will review the European study, which did not use the standard cognitive function measurement, the ADAS-cog scale. Forest currently is conducting two additional Phase III studies in the U.S.; one in moderately severeto-severe Alzheimers disease patients and one in mild-to-moderate patients. Assuming the FDA determines that the additional studies are necessary for final approval, we project a late2002 final filing for Memantine, and an H2:03 approval and launch. The current acetylcholinesterase inhibitors are indicated for use in mild to moderate A.D. patients, so Memantine may be useful both as follow-on therapy and in combination with acetylcholinesterase inhibitors, given its novel mechanism. Forest currently is conducting an Aricept/Memantine combination trial. We estimate Memantine sales at $40MM in F2004, $150MM in F2005 and $250MM in F2006. A strong clinical profile could lead to significant upside to our F2005-06 estimates.
G Other Agents Target Auxillary Symptoms

AD can cause many behavioral changes and problems including anxiety, agitation, aggression, depression, insomnia and wandering. These behavioral problems may occur sporadically and with varying degrees of severity. Antipsychotics, including Haldol (JNJ), Risperdal (JNJ), Zyprexa (Lilly), Seroquel (AZN), and Geodon (PFE) and antidepressants, such as Prozac (Lilly), Zoloft (Pfizer), Paxil (GlaxoSmithKline) and Celexa (Forest), are used in the treatment of many of the behavioral disorders. However, Lilly recently pulled its NDA for Zyprexa in the treatment of AD-related psychoses, apparently due to FDAs inability to fully evaluate the data at this time, given a lack of guidelines on which to assess effectiveness.
Next-Generation Agents Should Deliver Greater Benefits

G Beta Amyloid Inhibitors Show The Most Promise
Since plaque accumulation is believed to play an early and significant role in AD, treatments that inhibit plaque buildup or aid in plaque clearance have generated excitement. By partially inhibiting gamma secretase, one of the two main enzymes in the APP/beta-amyloid 42 process, the production and accumulation of plaques may be mitigated. It is believed that a plaqueburden reduction of 30-50% would be sufficient for a clinical response. Inhibition of beta secretase also may be useful in controlling beta amyloid production. Indeed, beta secretase inhibition may be more desirable clinically than gamma secretase inhibition, due perhaps to fewer side effects. Gamma secretase inhibition may result in cleavage of Notch protein, critical in development of blood cells and bone marrow. Eli Lilly and Bristol-Myers Squibb lead in development of gamma secretase inhibitors. Elan and Pharmacia are collaborating on the development of a beta secretase inhibitor. Elan/Wyeths vaccine program is based on synthetic forms of the beta amyloid 42 peptide, designed to slow or reverse beta amyloid accumulation
via an antibody-based immune response. Elan and Wyeth also are developing a monoclonal antibodies to more directly generate the immune response.
Bristol-Myers Squibb - Bristol also has an effort in gamma secretase inhibition and our
physician consultants view the company as a leader in this area. Bristol is currently in Phase I trials with a gamma secretase inhibitor. A 3-center, 80-patient, 28-day trial in patients with mild to moderate disease is underway, seeking to see a reduction in a-beta. News from this trial should be forthcoming in 2002. The product apparently features a 16x greater ability to lower a-beta by 30-40% versus the toxic dose. Importantly, there have been no observed negative side effects associated with the inhibitor to date. Notch protein inhibition has not been an issue.
Eli Lilly - Lilly has an internal program focusing on AD. Lilly and Elan concluded a 10year AD R&D collaboration in 2000, but clinical candidates from that work are moving forward at both companies. Lilly has an existing collaboration with Scios focusing on APP metabolism and beta-amyloid inhibition. Lilly apparently is attempting to find a gamma secretase inhibitor with the appropriate therapeutic index.
Elan - AN-1792, a synthetic form of the beta amyloid 42 peptide, was designed to prevent
or reverse the buildup of amyloid plaques. In April 2000, Elan formed a 50/50 development and commercialization partnership with Wyeth covering AN-1792 and other potential therapeutic vaccines. In Q2:2001, Elan and Wyeth completed an initial 100patient Phase I AN-1792 safety program in the U.S. and Europe. The safety data indicated that AN-1792 was well-tolerated, with injection site pain being the only side-effect of note. In August 2001, Elan and Wyeth began enrollment of a 375-patient, two-year Phase IIa clinical program for AN-1792 in the U.S. and Europe. In February 2002, Elan and Wyeth terminated the Phase IIa program due to 11 reported cases (out of 360 patients dosed) of CNS inflammation. Wyeth has disclosed that a conjugate protein/peptide adjuvant formulation of AN-1792 has shown a tenfold increase in immune response over the base formulation in animal studies. Other potential candidates are also in development. Elan and Wyeth expect to move the next conjugate candidate into human studies in late-2002. Elan and Wyeth also have a monoclonal antibody in development to generate the betaamyloid immune response; this formulation could enter clinical development in early 2003. In addition, Elan and development partner Pharmacia plan to file an IND in 2002 for their lead beta secretase inhibitor, an oral agent which inhibits the buildup of amyloid plaques in the brain. In theory, this compound could leap frog the gamma secretase inhibitors being developed by Bristol-Myers Squibb and Eli Lilly, given its higher selectivity. We have no revenues estimated in our models for either the AN-1792 or Beta Secretase inhibitor programs, due to their early stages of development.
Merck - Merck, via its acquisition of Sibia Neurosciences, is developing compounds that
would inhibit beta amyloid while maintaining or enhancing alpha secretase. Alpha secretase cleaves APP in the middle of the beta amyloid peptide and therefore precludes the formation of the toxic version of the peptide. To assist in development of these compounds, Sibia, as well as other companies, have created neuronal-type cell lines for screening compounds for activity on the various pathways of APP metabolism. Merck/Sibias compounds are in preclinical development.
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Novartis - Novartis is in preclinical development with compounds targeting gamma secretase inhibition. Pfizer - While still early, Pfizer apparently is making a push into gamma secretase
inhibition.
Wyeth In addition to its vaccine development collaboration with Elan, Wyeth is

developing other beta-amyloid inhibitors.
Aventis - Aventis is believed to be in preclinical testing of multiple compounds focusing

on gamma secretase inhibition.
Lundbeck / Neurochem - Lundbeck and Neurochem are in pre-clinical development for

NC-531, which reduces beta-amyloid plaque accumulation. Lundbeck is also developing Memantine for Alzheimers Disease in Europe.
Scios - Scios is conducting preclinical APP metabolism and beta amyloid inhibitor studies. Scios also is colloborating with Lilly in Alzheimers Disease drug development.
G Nerve Growth Factors And Other Neurotrophic Enhancers Also A Target

Nerve growth factors are peptides that regulate nerve cell growth and survival. Research has suggested that nerve growth factors delivered to the central nervous system can prevent neuron death and restore some function. However, delivery has been a limiting factor since nerve growth factors cannot cross the blood-brain barrier. Therefore, nerve growth factors must be delivered directly into the brain, although small molecule mimetics are being pursued by some companies. Assuming delivery challenges can be circumvented, nerve growth factors could be important additions to the treatment arsenal for AD. In addition, other neurotrophic enhancers may be valuable in treating AD.
NeoTherapeutics - NeoTherapeutics has developed a novel small molecule, called

Neotrofin (AIT-082), that crosses the blood-brain barrier. It may enhance nerve function by increasing levels of neurotrophic growth factors and encouraging nerve generation in the brain. It may work by activating multiple genes that produce NGF, NT-3 and bFGF in areas associated with memory loss, but other mechanisms are possible. A pivotal, doubleblind U.S. trial has completed enrollment of 521 patients; all patients are expected to have completed primary analysis by year-end and results should be available in H1:2002. Patients received either Neotrofin 1000mg twice a day or placebo twice a day for 12 weeks, with a 12-week double blind, placebo group cross-over extension. Endpoints included ADAS-Cog and ADCSCGIC. A second, 500-patient Phase III trial is expected to begin in Q2:2002. Patients will receive either Neotrofin 1000mg twice a day or placebo twice a day for 12 months, with the initial 12 weeks of the trial designed to demonstrate stabilization in ADAS-Cog and ADCSCGIC scores and the remaining 40 weeks designed to show potential disease modification via an improvement in ADAS-Cog and ADCSCGIC scores.
Vertex Pharmaceuticals - Vertex is focused on the therapeutic benefits of neurophilin

ligands. Neurophilins are small molecules that have the potential to promote neuron growth and accelerate recovery following nerve injury. Preclinical studies of VX-853 (Timcodar) have shown improved nerve function and neural protection in animal models of diabetic neuropathy, toxin-induced neuropathy and Parkinson's disease. VX-853 is orally bioavailable. It has completed Phase II clinical trials in patients with diabetic
43
neuropathy. Additional proof of concept studies are under evaluation in neurological diseases. Schering AG is collaborating with Vertex on neurophilins.
Sanofi-Synthelabo - Sanofis Xaliprodene, an antineurodegeneration agent, is currently in

Phase IIb trials for AD. It was filed in Europe in June 2001 for Lou Gehrigs disease (ALS), and should be filed in the U.S. in 2002.
Wyeth - Premarin, Wyeths estrogen replacement therapy, is in Phase III clinical studies
for AD. Estrogen may protect and restore neural synapses, decrease the production of betaamyloid and/or act as an anti-oxidant. In addition, estrogen increases a brain-derived neurotrophic factor, which increases the number of connections between nerve cells. Wyeth also is working with Elan on additional AD vaccine formulations.
Lilly - SERM-3, Lillys second-generation estrogen analogue, is in Phase II clinical trials for
AD. The mechanism of action is similar to that of estrogen.
NeuroSearch - NeuroSearch, based in Denmark, is developing small compounds that promote neuroprotection. Curis - CURIS is working with a recombinant form of osteogenic-protein 1 (OP-1) to
promote the growth of dendrites and repair neurons.
G Anti-Inflammatories May Be Useful Adjunctive Therapies

Inflammation may cause neuronal cell injury and death in AD. Glial cell activation and the toxic events that follow cause inflammation. Therefore, inhibiting or moderating glial cell activation could moderate AD. NSAIDs and coxibs control inflammation; however, the link between the COX-2 enzyme and glial cell activation has not been definitively established.
Gliatech / JNJ - Gliatech is collaborating with JNJ on compounds to minimize glial cell
response in AD, by blocking glial cell activation. The companies also are identifying compounds that block complement proteins that are activated by beta amyloid.
Elan Elan also is developing compounds that reduce inflammation in AD by blocking

glial cell activation.
G Anti-Oxidant Utility More Theoretical

Oxidative stress is caused by an increase in the metabolism of oxygen. Metabolism of oxygen may create free radicals that cause severe damage to cells. Oxidative stress in AD is believed to result from inflammation and is also part of the natural aging process.
Centaur / AstraZeneca - Centaur and AstraZeneca have a proprietary library of small organic compounds based on their Nitrone Related Therapeutic technology. These compounds may have several mechanisms of action, including neutralizing oxidative stress, preventing oxidative stress from inducing genes to produce toxins, and slowing the release of cytokines that cause inflammation. These compounds are in phase II clinical development.
44
G Many Other Agents Target Multiple Mechanisms
GlaxoSmithKline - GlaxoSmithKline is focused on the role of APOE4 in AD. Glaxo

believes that APOE4 plays a prominent part in AD, in contrast to the Amyloid Cascade theory. GlaxoSmithKline is developing small molecules that could make high-risk APOE4 behave like low-risk APOE2. Although not a cure, these compounds could postpone the onset of AD.
Merck - Merck/Sibia is developing SIB-1553A, which acts by stimulating acetylcholine

release and theoretically improving short and long-term memory. Merck and Sibia also are targeting calcium ions, which facilitate the communication between neurons. Calcium ions regulate many essential functions in neurons, such as the release of neurotransmitters, electrical activity, activation of enzymes and transcription of genes. The entry of calcium ions into cells is primarily regulated through three receptors that function as ligand-gated ion channels: nicotinic acetylcholine receptors (nAChRs), excitatory amino acid receptors (EAARs) and voltage-gated calcium channels (VGCCs). These three classes are the major receptor/ion channels involved in regulating neuronal calcium. Sibia has developed an extensive library of more than 63 complete genes cloned from human brain tissue that code for multiple, distinct subtypes of nAChRs, EAARs and VGCCs. This work is in preclinical development.
Schering-Plough Schering-Plough is collaborating with the University of Toronto on

research of presenilin genes. The collaboration seeks to determine the function of presenilin genes, their role in AD, and develop potential therapeutic targets. This program is in preclinical development.
Cortex - Cortex is targeting the AMPA receptor, one of the major receptors in the brain
that recognizes the neurotransmitter glutamate. Cortex is developing compounds that bind to the AMPA receptor and thereby enhance the effect of glutamate on the AMPA receptor. Increased AMPA receptor activity appears to enhance memory and may be neuroprotective. Cortexs lead compound, CX516, is in Phase II clinical trials.
NeuroSearch - NeuroSearchs NS2330 increases the activity of acetylcholine, dopamine

and norepinephrine in the brain. NeuroSearch has initiated Phase II trials for NS2330 in patients with Parkinsons and Alzheimers disease. The company is in negotiations with pharmaceutical companies for co-development of NS2330 and Brafensine, another Parkinson's disease agent.
Cephalon - Cephalon has identified a class of small molecule inhibitors of programmed nerve cell death (apoptosis). One of these molecules, CEP-1347, is a selective SAP kinase pathway inhibitor shown to promote neuronal survival in a number of animal models. CEP-1347 is in Phase II clinical trials for neurodegenerative disorders such as AD and Parkinsons disease and is being developed with partner Lundbeck A/S. Prana Biotechnology - Prana Biotechnology, a private company, is currently in Phase II
development for PBT-1, which is believed to be effective in dissolving beta-amyloid plaques. A Phase II trial conducted in Melbourne, Australia, has completed; the full analysis of the 36 patient trial is expected in April.
45
SUMMARY OF NEXT-GENERATION TREATMENTS FOR AD

Product Beta-Amyloid Inhibitors Company Comments
Eli Lilly Bristol-Myers Squibb Vaccine Elan
Gamma secretase inhibitor; preclinical I Gamma secretase inhibitor; currently in Phase I Clinical trials for AN-1792 have been terminated due to CNS inflammation; IND for new conjugate adjuvant expected in 2002; also targeting gamma and beta secretase inhibitors
Merck/Sibia
Nerve Growth Factor Enhancers
Combination gamma secretase inhibitor, alpha secretase enhancer
AIT-082 NIL-A VX-853 CEP-3625

Estrogen Replacement
NeoTherapeutics Amgen / Guilford Vertex Cephalon
Phase IIb in AD; most advanced NGF clinical program in AD Phase I for Parkinsons disease initiated in August 2000 Neurophilin ligand; currently in Phase II for neural dysfunction in diabetic neuropathy CEP 3265 gene transcription regulator to enhance NGF
Premarin SERM-3
Wyeth Eli Lilly
Neuron restoration and repair; Phase III in AD Neuron restoration and repair; Phase II in AD
46
DRUGS IN DEVELOPMENT FOR THE TREATMENT OF ALZHEIMER'S DISEASE

Method of Action Combination acetylcholinesterase inhibitor & anti-oxidant Phase III Estrogen replacement Boosts neurotransmitters Phase II Acetylcholinesterase inhibitor Antineurodegeneration Aids in production of neurotrophins Neurotransmitter enhancer Nerve growth and repair Neurotransmitter receptor activation Prevents cell death Nerve growth and repair Beta amyloid inhibitor (gamma secretase) Beta amyloid inhibitor (gamma secretase) Beta amyloid inhibitor (gamma & beta secretase) M2 muscarinic receptor antagonist Beta amyloid inhibitors (various sites) Beta amyloid inhibitor (gamma secretase) Beta amyloid inhibitor Beta amyloid inhibitor Beta amyloid inhibitor Beta amyloid inhibitor GABA receptor inverse agonist APOE Glial cell moderator Nicotinic acetylcholine receptor Plaque inhibitor Anti-oxidative properties Beta amyloid inhibitor Gene Therapy Prevents programmed nerve cell death Nerve growth and repair Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Preclinical Changes high-risk APOE to low-risk APOE. Lead compound expected in Q3:99. May enhance neuronal communication, but utility of dual mechanism unclear. Pre-clinical animal models have shown a decrease in plaque accumulation. Neutralize oxidative stress agents. APP metabolism and amyloid inhibitor compounds. Collaboration with the University of Toronto targeting presenilin genes. Small compounds that prevent nerve cell death. Recombinant form of osteogenic protein 1. Preclinical Preclinical Preclinical Preclinical Phase I Preclinical Phase I Protease inhibitors. Early Phase studies underway. Protease inhibitor. Protease inhibitor. Protease inhibitor. Protease inhibitor. Protease inhibitor. Protease inhibitor. Phase I Phase I Phase II Phase II Phase II Phase II Phase IIb/III Phase IIb Antineurodegenerative agent; filed for ALS Phase IIa showed efficacy, but limited trial in both size and length. Increases the activity of acetylcholine, dopamine and norepinephrine. Neurophilins; in collaboration with Schering AG; Phase II in diabetic neuropathy. Increases glutamate and may be neuroprotective. Orally active SAP kinase pathway inhibitor; currently in Phase II for Parkinson's disease. Oral; able to cross blood-brain barrier; Phase I for Parkinson's disease. Protease inhibitor; Phase I commenced in Q1:00. Protease inhibitor; entering the clinic in 2000. Phase II Disease modifying agent. Phase III Phase III Involved in Women's Health Initiative. Status Comments Combination of acetylcholinesterase inhibitor and vitamin supplementation as antioxidant.
Product
Company
Aricept / Vitamin E
Pfizer
Premarin
Wyeth
Linoperdine
Merck
NDD 094
Novartis
TAK 147
Takeda
Xaliprodene
Sanofi
AIT-082
NeoTherapeutics
NS2330
NeuroSearch
Timcodar (VX-853)
Vertex
CX516
Cortex
CEP-1347
Cephalon
NIL-A
Amgen/Guilford
Bristol-Myers Squibb
Lilly
Elan
M2 Antagonist
Schering-Plough
Merck/Sibia
Cephalon
47
Wyeth
Aventis
Novartis
Pfizer
Schering AG
GlaxoSmithKline
Gliatech
SIB-3182
Merck/Sibia
NC-531
Neurochem/Lundbeck
NRT
Centaur/Astra Zeneca
Scios/Lilly
Schering-Plough
NeuroSearch
OP-1
Creative Biomolecules
Notes
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Arthritis
G New Drugs Promise Greater Control Of Widespread Disease
DEFINITION/ BACKDROP Arthritis encompasses numerous diseases that cause joint pain and inflammation, thus limiting movement of the joint and connective tissue. Arthritis is one of the most widespread chronic health problems: 18MM+ Americans suffer from arthritis and related diseases, and there are an estimated 35-50MM arthritis sufferers worldwide. Nearly two-thirds of the arthritis patient population is women. There are two prevalent forms of arthritis: osteoarthritis (OA) and rheumatoid arthritis (RA). OA is a degenerative joint disease characterized 14% 2001-05 CGR by erosion of cartilage around bone joints; it primarily affects weightbearing joints, such as the hip and knee. Nearly 16MM commonly older Americans and probably another 16-25MM people outside the U.S. have OA. RA is a more serious and disabling autoimmune disease in which connective tissue becomes inflamed. An estimated 2MM+ Americans, and perhaps 4-6MM people worldwide, have RA. RA is especially prevalent in younger women.
Arthritis Category Market Share By $ Sales

2001
$12B
2005P
$20B
PHA 23%
PARTICIPANTS
Other 27%
PHA 29% Other 39%
MRK 21% NVS 6% WYE 7% JNJ 10%
MRK 22%
AVE 3%
JNJ 7%
WYE 7%
Pharmacia/Pfizer and Merck dominated the arthritis/inflammation category in 2001, with market shares of 29% and 22%, respectively. In 2005, Pharmacia/Pfizer and Merck should continue to lead with 23% and 21% shares, respectively. Newer rheumatoid arthritis drugs hold great potential, but may achieve lower sales at peak versus agents for osteoarthritis due to the smaller number of sufferers. MAJOR TRENDS & ISSUES Coxibs, including Pharmacias Celebrex (copromoted by Pfizer) and Mercks Vioxx, will dominate the osteoarthritis market through 2005, achieving sales of $9B+. Second generation coxibs offer little, if any, clinical benefit over first generation products.
49
New rheumatoid arthritis therapies have big potential given compelling efficacy and safety profiles, and could achieve sales of $6B+ in 2005. Wyeth/Amgens Enbrel, Aventis Arava, Schering-Plough/JNJs Remicade, and Abbott/Cambridge Antibody Technologys D2E7 lead here. Our scatter plot shows that through 2005, Pharmacia, Merck, and Amgen, dominate this category, and this category is important to their growth. should
60%
50%
AMGN
40%
PHA
30%
MRK
20%
ABT
10%
SGP WYE JNJ
PFE
0%
ROHHY BMY GSK AVE TDCHF NVS ESALY
ELN
-10%
-20%
-30% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0
ESTIMATED WORLDWIDE MARKET FOR ARTHRITIS DRUGS BY CLASS ($MM)

$ NRx 2001 2005P 01-05 87-01 CGR Comments Market % Total Market % Total CGR
$5,709 1,250 47% 10% $9,124 6,398 45% 32% 12% 50% NM - MRKs Vioxx/Etoricoxib, PHA/PFE's Celebrex/Valdecoxib, PHA's Parecoxib NM - IMNX/WYE's Enbrel, JNJ's Remicade, CAT/ABT's D2E7 3% - NVSs Voltaren, WYE's Advil line dominate 25% - AVE's Arava, WYE's methotrexate 7% - TDCHF's Seltouch NA - Includes various anti-inflammatory products
Drug Class
Coxibs TNF Inhibitors
NSAIDs DMARDs Muscle Relaxants Other Therapies
4,149 249 284 383
35% 2% 2% 3%
3,488 610 166 296
17% 3% 1% 1%
-4% 25% -13% -6%
Total Market Source: SG Cowen
$12,025
100% $20,082
100%
14%
7% - Driven by new Coxibs, DMARDs, and biologicals
50
G Selectivity Key For New Osteoarthritis Agents

DETAILED DISCUSSION Pharmacia/Pfizers Celebrex and Mercks Vioxx, and their follow-on agents, will be the only selective coxibs marketed during the next couple of years. Novartis, with COX-189, should be the third company to market post its Q4:02 NDA filing. COX-2 is found in low amounts in most healthy tissues except the brain and kidney, but is expressed only when tissues are inflamed. COX-1 is widely expressed throughout the body, and it mediates production of prostaglandins that are essential in the gastrointestinal tract, kidney and platelets. Inhibition of COX-2 is believed to prompt anti-inflammatory, analgesic, and antipyretic effects, while inhibition of COX1 can lead to stomach ulcerations and other prostaglandin-based side effects. Celebrex and Vioxx inhibit COX-2 with 100X+ greater in vitro potency than COX-1.
G Pharmacia/Pfizer Coxib Franchise Poised For Big Expansion Long Term

Pharmacia/Pfizer believe that their market-leading coxib Celebrex, and the second generation product, Bextra, will add market share points on a global basis without cannibalizing Celebrex as Bextra rolls out. We assume that Pharmacia splits the market with Merck through 2005, and that Celebrex is flat-to-down while Bextra grows to $1B+ during this time. Bextra features powerful efficacy and good safety. Pharmacia also notes its quick onset (30 minutes), reported to be twice as quick as Vioxx, although this is not in Bextras label. Supporting the franchise long term are new dosage forms and new indications, particularly in acute pain and cancer treatment and prevention. Pharmacia/Pfizer place significance on the fact that FDA granted the acute pain claim without changing the labels safety language, although we are less certain of the importance of this development. Celebrexs 12 month CLASS data is scheduled to be published soon; the 6 month data already has been published but generated controversy as to why 12 month data was not submitted instead. The Pharmacia coxib franchise will be further supported by Dynastat (Parecoxib), which will be rolled out in Europe in the spring, although it has been delayed in the U.S. pending additional studies. All told, Pharmacia believes its coxib franchise has $5-6B sales potential. We peg Pharmacias coxib sales at $4.43B in 2005.
G But Outlook For The Coxib Market In 2002 Downbeat

Pharmacia forecasts only single-digit sales growth for the coxib market in 2002. Assuming coxib prices are raised 2-3%, this implies low single-digit unit growth globally at best. And units in Europe are growing more rapidly than in the U.S. Thus, if Pharmacias guidance becomes fact, U.S. units could be flat-to-down in 2002. Factors supporting this tempered view include the fact that the NSAID GI warnings are unlikely to be removed and Vioxxs association with cardiovascular events (which our physician experts believe are not real) represents a lingering uncertainty. There remains substantial coxib market expansion potential given that only 22% of potential patient days of therapy are employing coxibs currently.
G And Bextras Acute Pain Claim Does Not Appear A Near-Term Event
Pharmacia notes the challenges of gaining an acute pain claim, which include study-design and patient selection issues. In the realm of study design, the FDA requires that statistical significance be achieved at one hour and that efficacy is maintained over multiple days of therapy. 70% of patients on Bextra apparently had sufficient pain relief that they did not require continued treatment. Additionally, FDA requires patients with a primary diagnosis of pain to be selected for these trials, whereas Pharmacia may have selected OA patients in need of acute pain relief. These points are significant given that Bextras planned market positioning appears to have been centered on rapid and potent pain relief capability. Thus, the lack of an acute pain
51
claim forced Pharmacia and Pfizer to gut this planned positioning. The challenge now is to differentiate Celebrex and Bextra in the market when, in fact, the labels are similar.
COMPARISON OF THE COXIBS
Status/Indications Celebrex Marketed for OA, RA, FAP, and acute pain 200mg once daily (OA); 200mg twice daily (RA); 400mg BID (FAP) Similar to NSAIDs Bextra Approved for OA, RA, and dysmenorrhea pain; more data needed for acute pain 10mg once daily (OA and RA); 20mg once daily for dysmenorrhea pain Similar to naproxen Vioxx Marketed for OA and acute pain; RA filed in 4/01 12.5-25mg once daily (OA) 50mg once daily x 5 days (acute pain) Similar to ibuprofen in OA and naproxen in acute pain Arcoxia NDA 10/01; target indications OA, RA, and acute pain 60mg (OA) and 90-120mg (RA) once daily Similar to NSAIDs; one RA study showed superiority to Naproxen, but likely is not duplicatable
Daily Dosage
Effectiveness
Half-Life Safety Profile: Gastrointestinal
11 hours CLASS: missed primary (complications) endpoint; statistically significant for secondary (complications/symptomatic ulcers) endpoint 2.1% incidence of edema observed in clinical studies Hepatic; cytochrome P450 2C9
8 hours Endoscopy studies suggest lower incidence of gastroduodenal ulcers in patients treated with Bextra compared to those treated with Ibuprofen or Diclofenac Peripheral edema observed; 2.4% at 10mg and 3.0% at 20mg Hepatic; cytochrome P450 (3A4 and 2C9) Dextromethorphan; lithium; warfarin; may reduce effectiveness of ACE inhibitors
17 hours VIGOR: statistically significant for primary (clinical UGI) and secondary (complicated UGI) endpoints Endoscopy data suggest lower incidence of gastrointestinal bleeding in patients treated with Arcoxia compared to those treated with Ibuprofen Our physician consultants expect a rate of edema similar to Vioxx Hepatic; mostly CYP3A and to a lesser extent CYP2C19, CYP2D6, and CYP1A2
Edema
Dose-dependent edema observed; 2.7% at 25mg and 5.2% at 50mg Hepatic; cytosolic reduction (nonP450) Methotrexate at 75mg (higher than 50mg RA dose); does not interact with drugs metabolized by cytrochrome P450 3A4 (numerous drugs) 12mg and 25mg qD: $2.75 per tablet
Metabolism
Other drugs metabolized by cytochrome P450 2C9; fluconazole, lithium, furosemide, and ACE inhibitors; sulfa drug allergy Price 100mg BID: $1.64 per capsule 200mg qD or BID: $2.75 per capsule Sources: Company data, package inserts
Drug Interaction
10mg and 20mg qD: $2.91 per tablet
N/A
G Vioxx/Arcoxia: Should Maintain Roughly 50% Market Share

Vioxx (ostoarthritis, and pain) currently holds 49.1% share in the Coxib market, and this share appears sustainable. Vioxxs success appears attributable to its label advantages (once-daily dosing, pain claim) and Mercks widely respected marketing effort. Merck continues to stress that Vioxx is associated with no unique cardiovascular risk. This is completely in sync with the view expressed by our physician consultants, and when the VIGOR data is integrated into Vioxxs label, we anticipate that FDA will have adopted this view as well. Vioxxs label in Europe states that Vioxx is not cardioprotective, but does not suggest any Vioxx-induced cardiovascular risk. Merck will undertake cardiovascular outcomes studies of both Vioxx and Arcoxia. Merck is confident that the drugs will remain safe. If Merck is correct in its assessment, definitive cardiovascular data would be a positive differentiating feature, assuming of course that the data is favorable. Pharmacia and Pfizer are not contemplating similar studies.
G Arcoxia Could Support The Franchise Further

Arcoxia targets indications in osteoarthritis, rheumatoid arthritis, acute pain, chronic pain and dysmenorrhea. Merck is confident that all indications will be approved. It has a different chemical structure and route of metabolism than Vioxx, and also is dosed once-daily. Arcoxia is 106-fold more selective for COX-2 than COX-1, and indeed is the most selective coxib in development. However, the importance of this selectivity is unknown. Similar to Vioxx, Arcoxia is not a sulfonamide (Celebrex is a sulfonamide), and hence imparts no allergic reaction in sulfa-sensitive patients. Arcoxia should not be associated with greater fluid retention than Vioxx, although this is not problematic for Vioxx at doses used clinically. An NDA was filed in October, 2001.
COXIB MARKET NEW PRESCRIPTION COMPARISON

4500 4000 3500 3000 2500 2000 1500 1000 500 0 Jul-99 Nov-99 Jul-00 Nov-00 Jul-01 Sep-99 Sep-00 Sep-01 Nov-01 Jan-99 Jan-00 Jan-01 Mar-99 Mar-00 May-99 May-00 Mar-01 May-01 Jan-02
Celebrex
Vioxx
Total Coxib Market
Total NSAID Market
Source: IMS America
G Outcome Studies For Coxibs Unlikely To Change Prescribing Habits

Celebrexs CLASS Study: Superior Safety To NSAIDs The CLASS study was a 6-12 month, double-blind study of 8,000 osteoarthritis and rheumatoid arthritis patients comparing Celebrex with older NSAIDs ibuprofen and diclofenac. In the study, Celebrex was dosed at 400mg twice daily (four times the normal osteoarthritis dose), while diclofenac was dosed at 75mg twice daily and ibuprofen was dosed at 800mg three times daily (standard doses). Patients on Celebrex experienced a lower incidence of ulcer, ulcer with complications, gastrointestinal blood loss, gastrointestinal symptoms, and renal and hepatic toxicities than patients on the older NSAIDs. There also was no significant increase in the incidence of myocardial infarction or cardiovascular disease in the Celebrex group. However, for the primary endpoint of upper gastrointestinal complications in all patients, the reduced rate of complications in the Celebrex arm had a p-value of 0.09, too high for statistical significance but a miss caused by only two complications. For the sub-segment of non-aspirin users, the lower rate of complications (0.4% versus 1.4% in the NSAIDs arm; p=0.04) is statistically significant. CLASS also achieved significance on the secondary endpoint of complications and symptomatic ulcers (p=0.03). Vioxxs VIGOR Achieved Statistical Significance For Primary Endpoint VIGOR achieved statistical significance for the primary endpoint (clinical upper G.I. events perforations, obstructions, bleeds, symptomatic ulcers; p=0.001) and secondary endpoint (complicated upper G.I. events perforations, obstructions, major bleeds; p=0.005). These results were more powerful than those achieved by Pharmacia/Pfizers Celebrex in the CLASS trial, which missed the primary endpoint (complications; p=0.09) but achieved the secondary endpoint (complications/symptomatic ulcers; p=0.03). The studies are difficult to compare due to dosing and endpoint differences; in addition, patients in CLASS were able to use aspirin (which inself may cause G.I. events) while those in VIGOR were not able to use aspirin. In the VIGOR trial, which included 8076 patients, there were 190 upper G.I. events, 177 of which were confirmed, with 13 not confirmed. Of the 177 confirmed events, 53 were confirmed and complicated events. The event rate curves between the Vioxx and Naproxen groups began to separate at three weeks for both the primary and secondary
endpoints. In the VIGOR trial, both Vioxx 50mg once-daily and naproxen 500mg twicedaily were equally effective in the treatment of rheumatoid arthritis. The Vioxx and naproxen groups achieved equivalent safety as measured by all deaths, cardiovascular deaths, and cerebrovascular accidents. The rate of myocardial infarction, while low in absolute terms, was higher in the Vioxx group (0.4%) versus the naproxen group (0.1%), although this difference may be attributable to the premise that naproxen has a greater antiplatelet effect than that of other NSAIDs. Furthermore, in the VIGOR trial, 4% of patients experienced 47% of the M.I.s. Critically, there was no association between myocardial infarction and hypertension, dispelling any thought that a theoretical capability of Vioxx to raise blood pressure may have led to the M.I.s. Differences In Cardiovascular Safety Profiles Possibly Due To Study Design While it is not possible to drawn definitive conclusions from the available data, differences in study design of VIGOR and CLASS could account for the varying results regarding cardiovascular safety. Patients in VIGOR did not receive low-dose aspirin, while 22% of patients received low-dose aspirin in CLASS. Also, the NSAID comparison in VIGOR was Naproxen, which Merck states is cardioprotective. The NSAID comparisons in CLASS were Ibuprofen and Diclofenac, which may be less cardioprotective. Given the negative publicity, we believe this issue is a near-term negative for the coxib class, but longer term, it appears manageable, given that the benefits of these drugs likely outweigh the very small risk.
Cardiovascular Safety Profile Of Vioxx From VIGOR Study Vioxx
All deaths Cardiovascular deaths Myocardial infarctions Cerebrovascular accidents
* Statistically significant
Naproxen
0.4% 0.2% 0.1% 0.2%
0.5% 0.2% 0.5%* 0.2%
Cardiovascular Events From CLASS Study* All Patients

Celebrex Ibuprofen Diclofenac 0.5% 0.5% 0.3%
Non-Aspirin Users
0.2% 0.1% 0.1%
*Celebrex was not statistically different from either NSAID comparator for the composite endpoint of cardiovascular events
Issues Discussed During FDA Advisory Committees In February, 2001 In February 2001, the FDA Arthritis Advisory Committee discussed the approvability of the VIGOR and CLASS data for integration in the Vioxx and Celebrex labels. The panelists recommended approval of VIGOR and CLASS data, but issues surrounding cardiovascular safety of the coxibs were raised. The panelists questioned whether there was a low rate of cardiovascular events in the Naproxen group or high rate in the Vioxx group. The lower rate of cardiovascular events could have been due to Naproxens cardioprotective effect, lack of cardioprotective effect from Vioxx, or both. Other questions the committee raised include: (1) does Vioxx increase cardiovascular events versus placebo, (2) can we neutralize negative cardiovascular effect by giving low-dose aspirin, without offsetting the GI safety benefit, and (3) what level of cardioprotection can be achieved by NSAIDS? The panelists noted that Celebrex is not a substitute for aspirin, possibly suggesting that class labeling could occur for the coxibs. The cardiovascular findings warrant
consumer/provider awareness, and the panelists suggested that patients at high risk for a cardiac event should be given low-dose aspirin concomitantly with a coxib. The panelists believed that the overall safety of Vioxx was superior to Naproxen. The Committee believed that further studies were necessary to definitely prove whether Vioxx, Celebrex or the coxib class in general are associated with a higher risk of cardiovascular events. JAMA Article Linked Cardiovascular Side Effects With Coxibs In August, an article in the Journal of the American Medical Association (JAMA) illustrated the possible link between the coxibs and an abnormally high rate of cardiovascular adverse events. NSAIDs inhibit both prostacylin (associated with platelet inhibition) and thromboxane (associated with platelet aggregation). The authors suggest that because the coxibs decrease prostacyclin, without impacting thromboxane, Celebrex and Vioxx may lead to increased thrombotic events. The article cited data from VIGOR, CLASS, and other studies in a meta analysis. No new data were discussed. The authors also state that the myocardial infaction rates for both Celebrex and Vioxx were significantly higher than placebo in a meta-analysis of patients in primary prevention trials. The authors conclude that the available data raise a cautionary flag about the risk of cardiovascular events with coxibs. Further prospective trail evaluation may characterize and determine the magnitude of the risk.
G Q4:02 NDA Planned For Novartis COX189

Novartis is developing COX189 for the treatment of OA, RA, and acute and dysmenorrhea pain. More than 13,000 patients have been or will be enrolled in COX189 clinical trials. Early data show low incidence of gastroduodenal ulcers with COX189 compared to Naproxen and placebo. The TARGET (Therapeutic COX189 Arthritis Research & GI Event Trial) study commenced in December 2001. This study randomized 18,000 patients to COX189 400mg once daily, Ibuprofen 800mg three times per day, or Naproxen 500mg twice daily. Low-dose aspirin was allowed in TARGET. The primary endpoint is perforations, obstructions, and bleeds. Secondary endpoints include cardiovascular events, combined cardiovascular and GI events, and safety. Interim results of TARGET are anticipated in H2:03. Novartis also is conducting head-to-head trials versus Vioxx and Celebrex. In sum, forty-one clinical and pharmacology studies will be included in the NDA for COX189, which is planned in Q4:02. We forecast sales of COX189 at $120MM in 2003 and $475MM in 2005.
G Disappointing Results For Forests ML3000 Cloud Outlook

Forest licensed ML3000 from Merckle, a private German pharmaceutical company. Forest is co-developing and will market ML3000 in the U.S. for the treatment of osteoarthritis. In January, Forest revealed that two European Phase III studies for ML3000 failed to show efficacy that was superior to placebo. Poor study design and too low of an ML3000 dose may have prompted a high placebo rate in the trials. In the U.S., Phase III trials with ML3000 are expected to conclude in H2:02. ML3000 is administered twice daily and has multiple mechanisms of action, inhibiting COX-1 and COX-2, and 5-lipoxygenase (5-LO) enzymes. 5-lipoxygenase inhibition may protect the stomach from side effects associated with COX-1 inhibition. Our physician consultants have noted that 5-lipoxygenase inhibition also may have anti-inflammatory effects in the joint, by blocking the conversion of arachadonic acid into leukotrienes. We have removed ML3000 from our models (prior estimates were $20MM in F2004 and $85MM in F2006).
G Rheumatoid Arthritis Population Approaches One Percent Of Americans

Rheumatoid arthritis affects about 0.9% of the population, and 10% of these patients enter remission without treatment. Of the remaining 90%, one-third has mild disease, one-third has moderate disease but has some response to methotrexate, and one-third has significant disease and has failed methotrexate. It is estimated that 100,000-500,000 Americans are in need of add-on rheumatoid arthritis treatment.
G Disease Modifiers Are Useful Early In Rheumatoid Disease Treatment

Rheumatologists agree that patients should be started on a DMARD (disease-modifying agent) in the early stages of rheumatoid arthritis. While it remains unclear whether this would avoid bone deterioration, once deterioration has occurred, the damage cannot be reversed. Internists probably are less likely to use DMARDs early in the disease, due to difficult dosing and toxicitities of traditional DMARDs. The leading disease modifying agent is methotrexate, an antifolate originally developed for chemotherapy. Methotrexate is generically available from only a few manufacturers, reflecting a difficult manufacturing process. Mylan, Barr Laboratories, and Wyeth are the leaders in this $175MM market. We look for good growth for DMARDs, sparked by the introduction of several new drugs to the class, and believe that they could capture 15% unit share in 2005 vs. 2% share in 2000. One half of all DMARDs currently are generics (i.e., methotrexate and hydroxychloroquine sulfate). Aventis Arava Measurably Improves Patient Physical Function - Arava is indicated for the treatment of rheumatoid arthritis in all stages, given its ability to slow damage to joints and relieve pain. In pivotal studies, Arava was found to have similar efficacy and diseasemodifying capability to methotrexate and sulfasalazine, but with a slightly better side effect/quality of life profile and faster onset of action. In three pivotal Phase III clinical trials, Arava showed ACR response rates of 40-50% vs. 35% for methotrexate and 44% for sulfasalazine. Data at two years show that Arava sustains efficacy long term, with significantly greater ACR response rates and improvement in physical function compared to methotrexate and sulfasalazine in placebo controlled trials. Arava is administered orally once daily via a loading dose of 100mg for three days, followed by a daily dose of 10-20mg. Arava has a long half-life of 16.2 11 days. Side effects include gastrointestinal events such as diarrhea, abdominal pain, and nausea/vomiting (experienced by 17-27% of patients), allergic reactions (22%), reversible alopecia (9-16%), and elevation in liver enzymes (ALT monitoring is required). Our physician consultants do not believe that the supporting data are rigorous, lowering the hurdle for competitors to get similar labeling. We forecast Arava sales at $280MM (+20%) in 2002, rising to $420MM in 2005.
56
MONTHLY NEW PRESCRIPTIONS POST LAUNCH

22 20 18 Rxs Dispensed ('000s) 16 14 12 10 8 6 4 2 0 Apr-99 Apr-00 Aug-99 Aug-00 Apr-01 Feb-99 Feb-00 Feb-01 Aug-01 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Oct-98 Oct-99 Oct-00 Oct-01
Source: IMS Americas
Arava
Enbrel
G TNF Blockers: Major Breakthroughs For Rheumatoid Arthritis Treatment

We estimate that 35-45% of the 2MM+ Americans with rheumatoid arthritis could be candidates for tumor necrosis factor (TNF) blockers, including about 20% of patients who have failed all therapies and about 15-25% of patients who experience diminishing benefits from advanced therapies such as methotrexate. TNF, a cytokine produced by T-cells and macrophages, is a key molecule in the inflammatory cascade and mediator of immune reactions. These agents bind to circulating TNF and block its ability to attach to cell receptors. By modulating TNF response, Wyeth/Immunexs Enbrel disrupts the inflammatory cascade that leads to inflammation. There is tremendous excitement in the rheumatology community for these drugs. In general, our physician consultants believe that there is room for several TNF inhibitors on the market. Overall issues with TNF inhibitors include reimbursement, administration, and toxicity. While little long-term data exist for TNF inhibitors, physicians are eager to use these drugs because of the clear benefits they offer. A pyramid strategy has evolved over several decades regarding RA treatment. Under this dynamic approach, ever-stronger drugs are used as the benefits of first-line therapies wear off or as toxicity becomes intolerable. At the base of the pyramid is rest and exercise, aimed at easing symptoms and preserving vitality and range of movement. Pharmaceutical treatment typically commences with analgesics and NSAIDS to relieve pain. DMARDs, such as methotrexate, are used next in an attempt to stall disease progression. Patients unresponsive to NSAIDS or DMARDS may also receive low-dose steroids, such as prednisone, in combination with methotrexate. For the 20% of patients failing all therapies, including immunosuppressives like cyclosporine, reconstructive joint surgery is the last resort.
57
RA TREATMENT PYRAMID
Surgery Cyclosporine Glucocorticoids Biologics (Enbrel, Remicade) Mild Disease: Initiate DMARDs Aggressive: Alter DMARDs, add Arava Aggressive Disease: Initiate DMARDs Early Analgesics, NSAIDS andCox-2 Inhibitors Rest for Symptoms and Exercise for Strength Source: Adapted from the Arthritis Society and Arthritis Foundation
Prescribing NSAIDs before DMARDs was once thought to be in a patients best interest because of safety concerns. However, it is now widely established that this employs DMARDs too late, given that it ignores the progressive joint space narrowing and destruction that is the root of pain. Research has shown that the aggressive early use of DMARDs can limit disability and improve outcomes. Medical intervention today is guided by the belief that the most effective drugs should be prescribed early to stall further deterioration. Methotrexate has emerged as the cornerstone of RA medical management due to its ability to stall the progression of the disease in many patients. It has become the standard by which new therapies are measured. Additionally, methotrexate is relatively inexpensive, and thus has gained favor in early use and maintenance therapy in combination with new, more expensive therapies like Enbrel. Much of Enbrels market opportunity is as a safe and effective alternative to methotrexate. Though methotrexate is the entrenched standard RA therapy, it has side effects (e.g., hepatotoxicity, nausea). Immunex claims that, as a result of toxicity, 45% of rheumatologists and 80% of patients believe reducing or discontinuing methotrexate usage is important. Roughly 20% of patients need to discontinue DMARDs due to liver and bone marrow toxicity. Additionally, methotrexate is known to cause birth defects, which is significant given RAs disproportionately high prevalence among females of childbearing age. The fact that DMARDs (such as methotrexate) have a high degree of refractory patients further lends value to Enbrel use. Although DMARDs are able to induce improvement in roughly 66% of patients, response rates vary widely and patients who respond well often see improvement plateau after about 6 months of therapy. These refractory patients then become candidates for Enbrel. Enbrel Sales Could Increase Four-Fold Based on New Indications And Relief Of Supply Constraints Enbrel is indicated for the treatment of rheumatoid arthritis, juvenile RA, and early RA. The FDA approved Enbrel for psoriatic arthritis in January. Psoriatic arthritis is characterized by joint inflammation similar to RA and skin inflammation similar to psoriasis. Roughly 250,000 people per year suffer from psoriatic arthritis. Enbrel showed positive results on skin and joint endpoints in psoriatic arthritis
pivotal studies; additional data on joint erosion are pending. Enbrel is in Phase II for the treatment of psoriasis. We forecast Enbrel U.S. and Canadian sales at $750MM (+15%) in 2001, $1.1B (+47%) in 2002, and $3.3B in 2005, with foreign markets contributing $90MM, $200MM and $700MM respectively, limited by supply constraints at manufacturing facilities. Enbrel currently is supplied by BI Pharma, which could support Enbrel sales of up to $800MM annually (at current Enbrel prices). Immunex is working with American Home to expand the production capacity for Enbrel by retrofitting the Rhode Island plant to potentially double its current manufacturing capacity. Wyeth/Immunex filed for FDA approval of the Rhode Island plant in Q4:01, and expect the plant to be approved in H2:02. Longer term, Wyeth is building a new manufacturing facility in Ireland, which would help support the U.S. supply of Enbrel. The Enbrel agreement structure will not change post completion of the announced merger between Immunex and Amgen.
PSORIATIC ARTHRITIS MARKET BUILD-UP ($MM) 2001A 2002E 2003E Total U.S. psoriasis patients
% moderate-to-severe psoriasis patients
2004E 4,422,696
25%
2005E 4,480,191
25%
4,254,600
25%
4,309,910
25%
4,365,939
25%
Moderate-to-severe psoriasis patients

% psoriatic arthritis (PsA) patients
1,063,650
30%
1,077,477
30%
1,091,485
30%
1,105,674
30%
1,120,048
30%
Psoriatic arthritis Patients

% patients needing add-on therapy
319,095
30%
323,243
30%
327,445
30%
331,702
30%
336,014
30%
Patients needing add-on therapy Market penetration Avg # pts per year Penetration of pts needing add-on therapy (%) Penetration of total PsA market (%)
Growth (Y/Y) %
95,729
96,973
98,234
99,511
100,804
5,313 5.6% 1.7%

-
14,061 14.5% 4.4%

165%
21,857 22.3% 6.7%

55%
34,530 34.7% 10.4%

58%
44,959 44.6% 13.4%

30%
Market Share Breakout By Treatment Enbrel avg # pts per year Penetration of pts needing add-on therapy (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Avg. Annual Cost of Enbrel Estimated Enbrel Sales ($MM)
Growth (Y/Y) %
5,313 5.6% 1.7% 100% $10,920 $58.0

-
14,061 14.5% 4.4% 100% $11,466 $161.2

177.9%
21,857 22.3% 6.7% 100% $12,039 $263.1

63.2%
31,077 31.2% 9.4% 90% $12,641 $392.9

49.3%
38,215 37.9% 11.4% 85% $13,273 $507.2

29.1%
Remicade avg # pts per year Penetration of pts needing add-on therapy market (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Avg. Annual Cost of Remicade Estimated Remicade Sales
Growth (Y/Y) %
3,453 3.5% 1.0% 10% $14,000 $48.3

-
6,744 6.7% 2.0% 15% $14,700 $99.1

105.1%
Total market sales ($MM)

Growth (Y/Y) %
Source: SG Cowen; company data
$58.0
$161.2
177.9%
$263.1
63.2%
$441.2
67.7%
$606.4
37.4%
59
ADULT RHEUMATOID ARTHRITIS MARKET BUILDUP ($MM) 2000A 2001A 2002E Total Adult RA patients
% pts not entering remission
2003E 2,182,969
85%
2004E 2,211,348
85%
2005E 2,240,095
85%
2,100,000
85%
2,127,300
85%
2,154,955
85%
Addressable patient pool

% pts needing add-on therapy
1,785,000
40%
1,808,205
40%
1,831,712
40%
1,855,524
40%
1,879,646
40%
1,904,081
40%
Patients needing add-on therapy Market penetration Avg # patients per year Penetration of pts needing add-on therapy (%) Penetration of total RA market (%)
Growth (Y/Y) %
714,000
723,282
732,685
742,210
751,858
761,632
75,145 10.5% 3.6%

-
104,720 14.5% 4.9%

39%
131,982 18.0% 6.1%

26%
191,815 25.8% 8.8%

45%
243,866 32.4% 11.0%

27%
291,316 38.2% 13.0%

19%
Market Share Breakout By Treatment Avg # Pts per year Penetration of pts needing add-on therapy (%) Penetration of total RA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated Enbrel sales ($MM)
Growth (Y/Y) %
60,190
8.4% 2.9% 80.1%
64,444
8.9% 3.0% 61.5%
78,690
10.7% 3.7% 59.6%
117,121
15.8% 5.4% 61.1%
141,124
18.8% 6.4% 57.9%
158,648
20.8% 7.1% 54.5%
$10,400 $626.0
$10,920 $703.7
12%
$11,466 $902.3
28%
$12,039 $1,410.1
56%
$12,641 $1,784.0
27%
$13,273 $2,105.8
18%
Avg # Pts per year Penetration of pts needing add-on therapy (%) Penetration of total RA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated Remicade sales ($MM)
Growth (Y/Y) %
14,955
2.1% 0.7% 19.9%
40,276
5.6% 1.9% 38.5%
53,291
7.3% 2.5% 40.4%
62,236
8.4% 2.9% 32.4%
67,145
8.9% 3.0% 27.5%
72,397
9.5% 3.2% 24.9%
$13,775 $206.0
$14,500 $584.0
183%
$15,225 $811.4
39%
$15,986 $994.9
23%
$16,786 $1,127.1
13%
$17,625 $1,276.0
13%
Avg # Pts per year Penetration of pts needing add-on therapy (%) Penetration of total RA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated D2E7 sales ($MM)
Growth (Y/Y) %
12,459
1.7% 0.6% 6.5%
35,598
4.7% 1.6% 14.6%
60,271
7.9% 2.7% 20.7%
$12,039 $150.0
$12,641 $450.0
200%
$13,273 $800.0
78%
Total market sales ($MM)

Growth (Y/Y) %
$832.0
$1,287.7
55%
$1,713.6
33%
$2,555.0
49%
$3,361.0
32%
$4,181.8
24%
Avg # Pts per year Penetration of pts needing add-on therapy (%) Penetration of total RA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated Kineret sales ($MM)
Growth (Y/Y) %
1,145
0.2% 0.1% 1.1%
8,721
1.2% 0.4% 6.6%
12,459
1.7% 0.6% 6.5%
17,799
2.4% 0.8% 7.3%
22,131
2.9% 1.0% 7.6%
$8,736 $10.0
$9,173 $80.0
700%
$9,631 $120.0
50%
$10,113 $180.0
50%
$10,619 $235.0
31%
Johnson & Johnsons Remicade Is A Solid Competitor - J&Js Remicade (infliximab) is a chimeric monoclonal antibody first indicated as anti-TNF therapy in Crohns disease patients. Remicade remains Enbrels chief competitor today, although the two drugs have become successful within the RA market. Our physician consultants are intrigued by Remicade, given that it offers yet another alternative in the treatment of severe rheumatoid arthritis. However, Remicade followed Enbrel and Arava to the market, must be given by infusion (albeit just six times per year), and is dosed in combination with methotrexate. Remicade has benefited from Enbrels capacity constraint and it has a reimbursement
advantage, given that Medicare does not cover Enbrels self-injections, but covers Remicade IV. Other competitive factors, however, work in Enbrels favor. Remicades chief disadvantages are that it must be infused in a doctors office with methotrexate and that human anti-chimeric antibodies (HACA) against the mouse component of the antibody must be controlled. Since Enbrel is fully-human, HACA antibodies are not produced. The clinical consequence of such antibodies, if any, remains uncertain. Also, the cost of the doctors office visit and methotrexate injection may offset any Remicade price advantage. Enbrel has demonstrated superior response data in clinical trials compared to Remicade. Despite these limitations, there are roughly 65,000 patients on Remicade currently for either rheumatoid arthritis or Crohns disease. The 428-patient Phase III ATTRACT trial showed Remicade to be roughly equivalent to Enbrel in terms of efficacy (ACR-20, ACR-50, and ACR-70 response). The ATTRACT trial also established that Remicade is not associated with an increased incidence of lymphoma or serious infection. Side effects include injection reactions in 5% of patients. Remicade at 3mg/kg and 10mg/kg showed similar results, and 4-week dosing was as effective as 8-week dosing, offering important pricing and convenience advantages to patients. We estimate Remicade sales, which include indications for rheumatoid arthritis and Crohns disease, at $960MM (+33%) in 2002 and $1,890MM in 2005. Abbott/CATs D2E7: Early Data Promising - Of the earlier-stage RA drugs in development, D2E7 could have the greatest potential. Developed by Cambridge Antibody Technology and BASF/Knoll, which was acquired by Abbott in 2001, this fully human antiTNF antibody is in Phase III trials. D2E7 is being developed for both subcutaneous injection (once every two weeks) and infusion (3-5 minute I.V. push). Although unlikely to be more potent than either Enbrel or Remicade, D2E7 could gain market share by virtue of a more convenient dosing regimen and good safety profile. No antibody response has been seen to date. A 66-patient trial suggests it halts radiographic progression of RA. We peg sales of D2E7 at $150MM in 2003 and $800MM in 2005. Amgens Kineret Could Benefit From Immunex Acquisition The FDA approved Amgen Kineret (IL-1RA-interleukin-1 receptor antagonist) for the treatment of moderate-to-severe RA in November. Kineret likely will be a relatively small product for Amgen, given that our physician consultants expect it to be reserved for second-line therapy behind Enbrel and Remicade. Kineret induced 42% ACR-20 response rates in advanced RA patients. This response is roughly in line with first-line DMARDs like hydroxychloroquine, but it is significantly lower than the 60-70% ACR-20 response rates seen with both Enbrel and Remicade. While daily subcutaneous dosing is a drawback, Kinerets different mechanism positions it in patients failing to respond to TNF-inhibitors, which could be up to 30% of patients. Amgen is conducting a Phase I trial of a Kineret/TNF alpha combination. The TNF alpha product, which is referred to as sTNFR1, was developed by Amgen. We peg Kineret sales at $80MM in 2002 and $250MM in 2005.
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U.S. ARTHRITIS MARKET

Total Prescriptions (000's) 2001 2002E 2005P 1987* Coxibs 67,807 81,249 127,500 NSAIDS 78,816 116,051 136,338 114,750 79% Muscle Relaxants 21,015 56,187 65,151 85,000 21% Biologicals 790 1,034 68,000 DMARDS 213 4,870 5,502 21,250 8,100 8,500 Other Therapies 8,000 Total 100,044 253,704 297,374 425,000 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; SG Cowen estimates 1987* % Market Share 2001 2002E 27% 27% 46% 46% 22% 22% 2% 3% 100% 2% 3% 100% CGR 2005P '87-01 '01-05 30% NM +17% 27% +3% -0% 20% +7% +11% 16% NM +205% 5% +25% +45% 2% NM +2% 100% +7% +14%
KEY PATENT EXPIRATIONS

Drug Arava CellCept ML3000 Vioxx Arcoxia Bextra Celebrex Enbrel Remicade NA = not available Manufacturer Aventis Roche Forest Labs Merck Merck Pharmacia/Pfizer Pharmacia/Pfizer American Home/Immunex JNJ/Schering-Plough Patent Expiration 2006 2009 11/10 2010+ 2010+ 2010+ 11/13 2014 NA U.S. Sales in Year Patent Expires ($MM) -------------------
Source: IMS Americas; SG Cowen Estimates
62
ARTHRITIS/INFLAMMATION R&D PIPELINE

Company Merck Pfizer, Inc. Pharmacia Corp. Pharmacia Corp. Merck Product Vioxx Celebrex Bextra Celebrex Arcoxia P-C I II III NDA Apr-01 Jun-00 Feb-01 Jun-00 Oct-01 MKT Comments Rheumatoid arthritis at 25mg dosage Data from CLASS Trial; sNDA filing for improved safety profile Acute pain; refile in 2003 2002 CLASS study sNDA for improved safety profile Etoricoxib; more selective for COX-2 enzyme than Vioxx; a different chemical structure and metabolic route; qD dosing; osteoarthritis; rheumatoid arthritis, pain (acute and chronic) Second-generation coxib; acute pain Filed for rheumatoid arthritis; PIII for Crohns disease maintenance;PII for Behcet's disease; licensed from Centocor Colonic polyps, colorectal cancer recurrence, familial adenomatous polyposis; Gastrointestinal Outcomes Study (VIGOR) in label; chronic pain Q4:02 2003 Next generation Coxib; new chemical class; OA, RA, acute pain/dysmenorrhea; TARGET safety study (18,000+ patients with OA) started 12/2001 Sporadic adenomatous polyposis; bladder cancer; pain; 400mg capsule Japan 2002 Antiinflammatory and analgesic patch; jointly developed with Lead Chemical Coxib; rheumatoid, osteoarthritis, from Pharmacia Early rheumatoid arthritis (PIII), ankylosing spondylitis (PII); monoclonal antibody; injectable; foreign rights only; with Centocor/JNJ Q2:02 Rheumatoid arthritis; PII for Crohn's TNF alpha inhibitor; recommended for prevention of joint damage in rheumatoid arthritis; PI for ulcerative colitis; PII for asthma and CHF; PIII for psoriasis; marketed for Crohn's disease and rheumatoid arthritis Anti-IL-12 mAb; rheumatoid arthritis; other immune diseases; from Knoll Immuno modulator; rheumatoid arthritis Treatment of rheumatoid arthritis PII in UK; injection (Anti IL-6 receptor Mab) Pegylated humanized antibody fragment for rheumatoid arthritis; with Pharmacia Osteoarthritis; inhibition of MMP production; with Kuroha Chemical Industries 2004 CCR3 (Eotaxin) Antagonist
Pfizer, Inc. Tanabe
Bextra TA-650
Feb-01 Jun-01
Merck
Vioxx
Novartis
COX 189
Pfizer, Inc. Pharmacia Corp. Sankyo Yamanouchi Schering-Plough
Celebrex Celebrex LX-A Celecoxib (YM-177) Remicade
Abbott Laboratories Johnson & Johnson
LU 200134 (D2E7) Remicade
Abbott Laboratories AstraZeneca Chugai Inhale Therapeutic Sankyo Bristol-Myers Squibb
J-695 ZD 2315 MRA CDP870 CPA-825 DPC 168
63
ARTHRITIS/INFLAMMATION R&D PIPELINE

Company Bristol-Myers Squibb Product DPC 333 P-C I II III NDA 2004 MKT Comments TNFa Converting Enzyme (TACE) Inhibitor; adult and juvenile rheumatoid arthritis (DMARD); psoriasis/psoriatic arthritis; other inflammatory arthritis Coxib; PI Japan, PII Europe COX-2 Inhibitor Rheumatoid arthritis (methotrexate derivative) Second generation COX-2 inhibitor; pain including inflammatory pain Dual alpha4 integrin antagonist (VLA4) for treatment of arthritis, multiple sclerosis, IBD, asthma; licensed to GlaxoSmithKline CCR3 (Eotaxin) With ImmuLogic, prevention-treatment Osteoarthritis Rheumatoid arthritis Rheumatoid arthritis; anti-fas monoclonal antibody RA, OA; p38 MAP Kinase inhibitor TNF alpha and MCP1 inhibitor 5 8 9 7 35
Sankyo Abbott Laboratories Chugai GlaxoSmithKline Tanabe
CS-502 ABT-963 MX-68 GW406381 TR-14035
Bristol-Myers Squibb Merck Pharmacia Corp. Roche Sankyo Sankyo Sanofi-Synthelabo
DPC A37818 Arthritis vaccine iNOS inhibitor R1487 R-125224 R-132811 SSR 150106 Total Drugs In Development
64
Cardiology
G Cardiovascular Drugs Are A $40-45B WW Market
DEFINITION/ BACKDROP Cardiovascular disease (CVD) is the most prevalent of all diseases: an estimated 58MM+ Americans and 100MM+ people worldwide suffer from one or more forms of CVD. This results in 14MM+ deaths worldwide each year, or about 20% of all deaths. The cardiovascular drug market is the largest therapeutic category in terms of prescriptions and sales dollars.
9% 2001-05 CGR
The cardiovascular drug market may be subdivided into five therapeutic categories: angina, arrhythmia, cholesterol, congestive heart failure, and hypertension. The angina, cholesterol and arrhythmia markets each may be further segmented into several distinct clinical manifestations, some of which may require different drug therapy.
Cardiovascular Category Market Share By $ Sales

PARTICIPANTS
Other 19%
2001
$43B
Other 18%
2005P
$61B
PFE 24%
MRK 27%
NVS 7%
NVS 8%
AZN 8%
AZN 12% PFE 27% MRK 23% BMY 15%
BMY 12%
Merck dominated the cardiovascular category in 2001, but is expected to fall to second place by 2005. Pfizer should be the leading cardiovascular company in 2005, with 24% share. BristolMyers Squibb should gain three percentage points of share, to 15% in 2005, and retain third position, assuming big success for Plavix and Vanlev.
Angina And Hypertension Growth of angiotensin receptor blockers or ARBs (Abbott, AstraZeneca/Takeda, Boehringer-Ingelheim, Bristol-Myers Squibb, Merck, Novartis, Forest/Sankyo, Solvay) should be boosted by recent, favorable studies. The ARB class could double by 2005. ACE inhibitor (Bristol-Myers Squibb, King, Merck, Pfizer, among others) sales will decline due to generics, but certain branded products could still grow. Declines in market share will be experienced by calcium channel blockers (Aventis, Forest, Pfizer); sales in the category could grow modestly through 2005.
65
The evolving more is better philosophy of blood pressure reduction will drive the adoption of new agents and treatment of new patients. Bristol-Myers Squibbs Vanlev should benefit from this trend.
Cholesterol The cholesterol markets growth could be 50% higher than that of the overall cardiovascular market, boosted in part by revisions to national guidelines. Excellent safety and efficacy, and long-term benefit studies should allow HMG-CoA reductase inhibitors (statins) to maintain their leadership position in the cholesterol market. Pfizers Lipitor should remain the dominant statin because the more is better philosophy with respect to LDL reduction is firmly entrenched. AstraZenecas superstatin Crestor could be a tough competitor for Lipitor. Contribution of newer modalities, such as ACAT inhibitors, appears limited over the next five years.
Platelet Aggregation Inhibitors Schering-Plough/Corrs Integrilin should continue to gain market share, driven by solid clinical data and favorable cost profile. Eli Lilly/Johnson & Johnsons ReoPro likely will grow no more than modestly unless future studies show a benefit over Integrilin. Oral IIb/IIIa inhibitors have delivered mixed results to date. If ultimately successful, they could be used as post-myocardial infarction treatments where aspirin or Bristol-Myers Squibbs Plavix are used today.
Arrhythmia The anti-arrhythmic market likely will remain a relatively small opportunity, as drug therapy has substantial limitations.
Congestive Heart Failure (CHF) The CHF market is increasingly attractive, post recent favorable studies of ACE inhibitors, beta blockers, and angiotensin receptor blockers. Vasopeptidase inhibitors also could show benefit.
Scatter Plot Through 2005, Bristol-Myers Squibb, Merck, and Pfizer should dominate the cardiovascular segment, and this category is critical to their growth.
66
Cardiology
80%
70%
BMY
60%
KG
50%
40%
MRK
PFE
30%
PHA
20%
NVS AVE
10%
TDCHF AZN
ROHHY ABT FRX LLY GSK 0% JNJ SGP ESALY WYE BAY
-10% $0.0 $2.0 $4.0 $6.0
$8.0
$10.0
$12.0
$14.0
$16.0
G Several Drug Classes Treat Cardiovascular Diseases Many Forms

Cardiovascular disease (CVD) encompasses many different diseases, and patients often suffer from more than one cardiovascular illness. The most prevalent type is hypertension, or high blood pressure, which affects an estimated 85% of Americans with CVD. Over 50% of Americans with CVD has elevated blood cholesterol levels (200 mg/dL+), and 20% has levels of 240 mg/dL or higher. 10-15% of people in the U.S. with CVD suffer from angina, chest pain resulting from decreased blood flow to the heart, particularly during times of physical exercise, strong emotions, or extreme temperatures. The U.S. prevalence of congestive heart failure (CHF ) in patients with CVD is estimated at 8% (4.9MM Americans), while approximately 7% of CVD patients suffers from abnormal heart rhythms, or arrhythmia (4.3MM Americans). More than 13 classes of drugs treat the different types of CVD. Only 27% Of Hypertension Patients Gets To Blood Pressure Control Opinion leaders believe that we accept far too much hypertension, and that new blood pressure targets and strategies to get to these targets are critical for the public health. Only 27% of hypertensive patients is in control, now defined as 140/90, and only 5% of patients is at the more optimal 130/85 level. In addition, awareness of systolic blood pressure, and the dangers of it being elevated, also needs to be enhanced. All told, 1.0-1.5B people worldwide are in need of blood pressure reduction therapy. The Joint National Commission likely will revise its blood pressure reduction therapy guidelines to reflect the need for greater focus on systolic blood pressure.
DETAILED DISCUSSION
G Newer Drugs Preferred Over Older Less Expensive Therapies

Growth in the cardiology market should remain solid, driven by demographics, increased focus on cardiac death prevention, and continued adoption of newer, more expensive therapies. For example, the Joint National Committees (JNC) statement on cardiology emphasizes the usage of diuretics and beta blockers-older, less expensive therapiesfor the treatment of hypertension. However, physicians have driven adoption of newer agents. Physicians believe that each patient needs to be treated individually, and newer therapies are preferred in many cases. While newer therapies, most notably ARBs, accounted for only 7.2% of the cardiology market (by total prescriptions) in 2001, we estimate that ARBs and vasopeptidase inhibitors combined could capture 15% of the market in 2005. We believe that prescriptions for diuretics and beta blockers will be down only slightly in terms of share of cardiology prescriptions through 2005.
COMPONENTS OF THE CARDIOVASCULAR MARKET
Therapeutic Target Hypertension, CHF Hypertension CHF Hypertension Arrhythmia Hypertension Angina High Cholesterol Hypertension Thrombosis Arrhythmia Hypertension Hypertension Various CVDs Sales ($MM) 2001 2005P $6,655 $3,543 776 65 4,170 502 1,732 5,417 17,212 447 965 184 518 0 4,739 $43,382 772 55 8,023 519 2,185 5,961 28,507 218 1,329 110 257 1,681 8,324 $61,485 $ 01-05 CGR -15% 0% -4% 18% 1% 6% 2% 13% -16% 8% -12% -16% NM 15% 9% NRx 87-01 CGR 14% 8% NA NM -2% 4% 9% 24% 2% NM 0% -4% NM 9% 6%
Drug Class ACE Inhibitors Alpha Blockers Alpha/Beta Blockers Angiotensin Receptor Anti-Arrhythmics Beta Blockers Calcium Channel Blockers HMG CoA Reductase Diuretics GP IIb/IIIa Inhibitors Inotropic Agents Vasodilators Vasopeptidase Inhibitors Other CVD Agents
TOTAL NA= Not available NM = Not meaningful Source: Company data; SG Cowen estimates; IMS
G Therapeutics For Hypertension/Congestive Heart Failure

Growth in the hypertension and CHF markets should remain solid, driven by demographics, increased focus on cardiac death prevention, and continued adoption of newer, more expensive therapies. Hypertension sufferers have abnormally high pressure in their arteries, leading to increased risk of stroke, myocardial infarction, and kidney damage. Numerous drugs are prescribed for hypertension, including ACE inhibitors (e.g., Bristols Capoten and Monopril, Kings Altace, Mercks Vasotec and Prinivil, and Pfizers Accupril), calcium channel blockers (e.g., Forests Tiazac and Pfizers Norvasc), angiotensin receptor antagonists (e.g., Bristols Avapro, Mercks Cozaar and Novartis Diovan), and beta blockers (e.g., AstraZenecas Tenormin, Novartis Lopressin, and generics). Generics to Vasotec and Capoten have gained share of new prescriptions in the ACE inhibitor market largely at the expense of their branded equivalent. Congestive heart failure (CHF) often is a manifestation of end-stage cardiac disease,
making it a very difficult condition to treat given limited options. Cardiologists use ACE inhibitors, alpha/beta blockers, diuretics, inotropic agents, and vasodilators to treat CHF during early stages of the disease. Such therapies are only palliative; with the exception of ACE inhibitors, they do not inhibit disease progression. ACE inhibitors, diuretics and inotropic agents are used widely in this patient population. Heart transplants currently are the only cure for late-stage disease. GlaxoSmithKlines Coreg, for mild to moderate CHF, continues to demonstrate compelling data, and several other drugs are being studied, including BristolMyers Squibbs Vanlev and Pharmacias Eplerenone.
TOTAL PRESCRIPTION MARKET SHARE IN 2001 Market Share Therapies 28.9% BMY's Monopril, KG's Altace, MRK's Prinivil, PFE's Accupril 28.1% Generics dominate 26.9% PFE's Norvasc, FRX's Tiazac, generics 7.2% AZN's Atacand, BMY's Avapro, MRK's Cozaar/Hyzaar 4.0% AZN's Zestoretic, BMY's Monopril HCT, MRK's Prinizide 3.2% WYE's Ziac, generics 1.6% GSK's Coreg 0.1% Generics dominate
ACE Inhibitors Beta Blockers Calcium Channel Blockers ARBs ACE Inhibitors with Diuretics Beta Blockers with Diuretics Alpha-Beta Blockers Vasodilators
Source: IMS
ACE Inhibitors Likely To Remain Agents Of First Choice Our physician consultants believe that ACE inhibitors will remain the standard of care for treating hypertension because they are viewed as very effective, although side effects are an issue. ACE inhibitor side effects include headache, dizziness, cough, fatigue, and angioedema. Angiotensin receptor blockers have good efficacy and side-effect profiles. We anticipate that share of calcium channel blockers, such as Pfizers Norvasc, will decline due to less than optimal side effect profiles and competition from ACE inhibitors and ARBs. Vasopeptidase inhibitors, such as Bristol-Myers Squibbs Vanlev, likely will make inroads into the cardiovascular market post launch.
New Prescription Share Of U.S. ACE Inhibitor Market
35% Zestril (AZN) Vasotec (MRK) Prinivil (MRK) 30% Accupril (PFE) Lotensin (NVS) Altace (KG) 25%
20%
15%
10%
5%
0% Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01
Source: IMS
69
Reduced Branded Competition Provides Big Opportunity For Altace In 2002 Altace (Ramipril) is a once-daily ACE inhibitor indicated for the reduction of risk of myocardial infarction (MI), stroke, and death from cardiovascular causes in appropriate patients, and the treatment of hypertension and congestive heart failure (CHF) post MI. King is promoting Altace with 575 salespeople, and Wyeth is contributing at least 1,000 reps, as specified by the co-promtion agreement. A direct-to-consumer advertising campaign is expected to kick off in Q1:02, with Jack Nicklaus, the professional golfer, as the Altaces spokesperson. The outlook for Altace is boosted by the fact that several branded competitors in the ACE inhibitor market will lose exclusivity during 2002-03. In June 2002, the pediatric exclusivity for Mercks Prinivil and AstraZenecas Zestril, which comprise about 40% of the U.S. market, will expire. Merck and AstraZeneca likely will cease promotional spending for these products once the exclusivity period lapses, allowing King to have a greater share of voice. This represents an excellent opportunity for King given that about $1.8B in sales will be up for grabs beginning in June. Based on IMS prescription trends, we estimate that Altace garnered roughly 10% of Vasotec prescriptions six months post loss of its exclusivity in August 2000. Our current Altace sales estimate of $460MM in 2002 assumes that Altace penetrates 5% of the Prinivil/Zestril market, contributing about $100MM to sales. A matrix of possible Altace sales estimates, based on 10-20% share of Prinivil and Zestril prescriptions, is below. We forecast Altace sales at $460MM in 2002 and $750MM in 2005.
RANGE OF POSSIBLE ALTACE SALES OUTCOMES 2001 2002E 2003E 2004P $285 $460 $550 $650 $555 655 750 $645 745 840 $745 845 940 2005P $750 $845 945 1,040
Current Estimate Altace Sales @: 10% Share 15% Share 20% Share
HOPE Data Provide Altace With Unique Indication In Label

The Heart Outcomes Prevention Evaluation (HOPE) study was a landmark trial evaluating 9,297 patients at 267 centers in 19 countries. Patients enrolled in HOPE: (1) were at least 55 years old; (2) had evidence of vascular disease or diabetes; (3) had at least one other cardiovascular risk factor; and (4) had low ejection fraction or heart failure. Subjects received Altace 10mg once daily or placebo for 4.5 years. The primary endpoint was a composite of myocardial infarction (MI), death from a cardiovascular adverse event, or stroke. The data show that Altace lowered the rate of the primary endpoint by 22% (p<0.001), death from cardiovascular causes by 26% (6.1% versus 8.1%; p<0.001), MI by 20% (9.9% versus 12.3%; p<0.001), stroke by 32% (3.4% versus 4.9%; p<0.001), and allcause mortality by 16% (10.4% versus 12.2%; p=0.005) compared with placebo. Patients discontinued Altace to a greater extent than placebo due to angioedema (0.3% versus 0.1%) and cough (7% versus 2%), which is consistent with other ACE inhibitors. In October 2000, based on the HOPE data, King received approval of Altace for the reduction of stroke, MI, and death from cardiovascular causes in patients at risk for such events. In January 2001, the American Heart Association issued new guidelines recommending that diabetics receive Altace to reduce the incidence of stroke, based on the results from HOPE. Altace is the only ACE inhibitor indicated for the prevention of stroke. We expect Altace to continue to gain share given that King/Wyeths sales force is detailing to physicians Altaces indications and the HOPE results, while their competitors cannot detail similar claims.
EFFICACY RESULTS FROM THE HOPE STUDY Endpoint MI, CV Death, or Stroke All-Cause Mortality Death From CV Causes Myocardial Infarction Stroke Revascularization Procedures Heart Failure Altace 10mg 14.0% 10.4% 6.1% 9.9% 3.4% 16.0% 9.0% Placebo 17.8% 12.2% 8.1% 12.3% 4.9% 18.3% 11.5% Relative Risk Reduction 22% 16% 26% 20% 32% 37% 23% P-Value <0.001 0.005 <0.001 <0.001 0.005 0.03 0.03
Source: New England Journal of Medicine; January 20, 2000
Generics To Pfizers Accupril Expected In April 2003 Pfizers Accupril (hypertension and CHF) had 14.2% share of the ACE market in January. Accuretic, a combination of Accupril and hydrochlorothiazide (diuretic), is lending some support to the franchise. Accupril faces a substance patent expiration in October 2003 (including pediatric extension), although a CHF patent expiring in 2004 and a formulation patent expiring in 2007 may protect the franchise. We estimate Accupril sales of $630MM (+4%) in 2002 and $200MM in 2005, assuming it suffers generic competition in 10/02.
U.S. ACE INHIBITOR MARKET BUILDUP ($MM) 2001 ACE Inhibitor Buildup Total ACE Inhibitor Rxs Accupril Market Share Accupril Sales (PFE) Altace Market Share Altace Sales (KG) Capoten Market Share Capoten Sales (BMY) Lotensin Market Share Lotensin Sales (NVS) Monopril Market Share Monopril Sales (BMY) Prinivil Market Share Prinivil Sales (MRK) Vasotec Market Share Vasotec Sales (MRK) Zestril Market Share Zestril Sales (AZN) Generics Market Share Other Sales 86,554 12% $375 8% $285 0% $10 11% $300 7% $237 19% $1,165 2% $130 19% $642 22% $381 2002E 90,881 14% $455 13% $460 0% $5 11% $325 8% $265 14% $800 2% $175 14% $470 24% $325 2003E 94,517 16% $560 14% $550 0% $0 12% $350 4% $135 11% $650 1% $100 6% $200 36% $340 2004P 98,297 7% $250 16% $650 0% $0 12% $375 2% $80 9% $550 0% $20 4% $140 50% $345 $2,410 2005P 102,229 1% $50 18% $750 0% $0 12% $390 1% $40 7% $450 0% $10 2% $75 58% $415 $2,180 '01-05 CAGR +4% -39% +27% NM +7% -36% -21% -48% -42% +2% -11%
Total ACE Inhibitor Market $3,526 $3,280 $2,885 *Generics to Prinivil and Zestril (6/02); Accupril (4/03) and Monopril (6/03) Sources: IMS; SG Cowen
PEACE Trial Could Boost Prescription Trends For Abbotts Mavik And Tarka Mavik (trandolapril) and Tarka (trandolapril/extended-release verapamil) is promoted solely by Abbott/Knoll Pharmaceuticals post termination of a copromotion agreement with Kos Pharmaceuticals in 2001. Mavik is an ACE inhibitor, and Tarka is a combination ACE inhibitor and calcium channel blocker. The PEACE (Prevention of Events with
Angiotensin Converting Enzyme Inhibition) trial examines whether adding Mavik to standard therapy reduces the risk of non-fatal acute myocardial infarction, cardiovascular death, and coronary revascularization in patients with coronary artery disease and normal left ventricular function. PEACE, which is sponsored by the National Heart, Lung and Blood Institute, has enrolled 8,100 patients who are randomized to Mavik 2-4mg once daily or placebo and will be observed for 5-7 years. If positive, data from PEACE should accelerate prescriptions for Mavik/Tarka substantially. We peg Mavik/Tarka sales at $83MM (+20%) in 2002 and $120MM in 2005.
G Usage Of ARBs Could Grow Based On Benign Side-Effect Profile

Angiontensin II receptor blockers (ARBs) have efficacy that is comparable to competitive agents, with a more benign side-effect profile. Angiotensin-2 is a very powerful blood vessel constrictor, and can cause vasoconstriction throughout the body. In general, angiotensin-2 receptor antagonists have very good efficacy and side-effect profiles. Indeed, a desirable sideeffect profile is their major advantage, with the absence of cough most notable. About 10% of patients cannot tolerate ACE inhibitors because of cough. Several important CHF studies have yielded mixed results with ARBs. ELITE II showed that Mercks Cozaar was not superior to Captopril in lowering risk of death. On the other hand, VAL-HeFT revealed that Novartis Diovan was superior to conventional therapy for the treatment of CHF. Our physician consultants are more optimistic regarding the outlook for the ARB class post the VAL-HeFT results. About 20-25% of ARB usage currently is for heart failure with the remainder targeting hypertension. Aggressive marketing of ARBs further strengthens the outlook for the class.
ARB COMPETITIVE LANDSCAPE
Product Cozaar Diovan Atacand Avapro Benicar Teveten Micardis DA-727 Company Merck Novartis AstraZeneca/Takeda Bristol-Myers Squibb Sankyo/Forest Labs Solvay Abbott/BI Daiichi U.S. Status Marketed Marketed Marketed Marketed Filed Marketed Marketed Phase II NRx Share Jan. 2002 26.6% 45.5% 9.1% 14.7% N/A <3.0% 3.6% N/A Sales ($MM) 2002 2005 $2,350 $3,250 1,480 2,550 565 950 630 930 N/A 550 100 200 100 200 N/A 50
ELITE II showed that Mercks Cozaar was not superior to captopril in lowering the risk of death in patients with CHF. In fact, while not statistically significant, captopril delivered a 12% lower risk of death, and if data were adjusted for the higher drop-out rate in the captopril arm, the gap would have been larger. Captopril is not the most potent ACE inhibitor, and if a more powerful ACE inhibitor were used, the gap may have been even larger. There is unlikely to be significant differences between the ARBs; however, they could work synergistically with ACE inhibitors. RENAAL (Reduction of Endpoints in Non-Insulin Dependent Diabetes Mellitus) was a 1,513 patient study of type II diabetics that assessed Cozaars impact on renal insufficiency and diabetic nephropathy. Patients received Cozaar 50, 100mg or placebo once daily, and were studied for 3.4 years. Cozaar reduced the primary endpoint of either a doubling of serum creatinine, kidney failure or death by 16% compared with placebo (p=0.024). Cozaar also reduced the risk of progression to end-stage renal disease requiring dialysis or kidney transplantation by 28% compared with placebo (p=0.002). Cozaar/Hyzaar sales are pegged at $2,350MM (+23%) in 2002 and $3,250MM in 2005.
VAL-HeFT assessed the efficacy and safety of Novartis Diovan in patients with heart failure when combined with ACE inhibitors and other conventional therapies. The double-blind, parallel-group trial randomized 5,005 multinational patients suffering from mild to moderate congestive heart failure (CHF) into two groups: Diovan 40mg twice daily (patients were titrated to 160mg twice daily), and placebo. All patients received conventional background therapy (93% of patients received an ACE inhibitor and 35% received beta blockers). The primary endpoints were (1) a reduction in all-cause mortality and (2) a reduction in all-cause mortality and morbidity. Val-HeFT, which began in 1997, was powered to show a 20% reduction in mortality (until 906 deaths occurred). There was no difference in the reduction of total mortality, the first primary endpoint, between Diovan added to conventional therapy and conventional therapy alone; the reduction was -19% for both treatments. However, Diovan plus conventional therapy did show a statistically significantly greater reduction than conventional therapy alone in the combined endpoint of mortality and morbidity (-13.3% greater reduction in patients who received Diovan). The Val-HeFT results position Diovan to be the first ARB with a CHF claim, a distinct advantage. Novartis filed an sNDA for VAL-HeFT in Q4:01. We estimate sales of Diovan at $1,480MM (+33%) in 2002 and $2,550MM in 2005. Data From Other Large Clinical Studies Could Boost Interest In ARBs Further Merck is conducting two large clinical studies of Cozaar, OPTIMAAL (analysis of Cozaar in post M.I. patients with an endpoint of mortality; data in 2002) and LIFE (analysis of Cozaar in reduction of morbidity/mortality in patients with hypertension and LVH; data in 2002). Several other studies are ongoing looking at the combination of an ARB and ACE inhibitor in the treatment of heart failure.
KEY ONGOING ARB CLINICAL TRIALS
Population All CHF patients Study Drug AZNs Atacand Comments Assesses Atacand versus placebo in reducing mortality and morbidity; 7,600 patients enrolled; expected to conclude 2003 Diovan versus Captopril and Diovan plus Captopril; all cause mortality is the primary endpoint; 14,500 patients enrolled at 950 sites worldwide; results expected in 2004 Primary endpoint is a reduction in cardiac mortality; 15,000 patients; results expected in 2004 Avapro versus Norvasc and placebo; endpoints are time to doubling of serum creatinine, ESRD or death Endpoints are time to doubling of serum creatinine, GFR, and urinary albumin excretion; 800 patients; results expected in 2005 Starlix versus Starlix plus Diovan; two endpoints include: (1) delay of progression of diabetes in patients with IGT for more than 3 years; and (2) total morbidity/mortality over 5-7 years; expected to conclude in 2006 with follow up period thereafter
Trial CHARM
VALIANT
Post MI patients with heart failure
NVS Diovan
VALUE IDNT ABCD-2V
NAVIGATOR
High risk patients with hypertension Diabetics with nephropathy Type II diabetics with or without hypertension 7,500 patients with Impaired glucose tolerance
NVS Diovan, PFEs Norvasc BMYs Avapro, PFEs Norvasc NVS Diovan
NVS Diovan and Starlix
Source: Post Graduate Medicine April 2001; company data
Mercks Cozaar/Hyzaar Outlook Strong Despite New Competition Cozaar/Hyzaar has retained its leading position in major world markets within ARBs. While growth has slowed given the challenging competitive environment, Mercks new marketing
campaign appears to have reaccelerated growth. Cozaar could get a boost in 2002 post approval of the RENAAL study (sNDA filed 11/01; reduction in end stage renal disease in diabetic patients) and results of two major studies: OPTIMAAL (post M.I.) and LIFE (compares Cozaar to Atenolol in patients with hypertension and left ventricular hypertrophy). LIFE will be revealed at the ACC meeting in March, 2002. Data in isolated systolic hypertension also are being developed. Cozaar lacks a first-line congestive heart failure (CHF) claim worldwide, leaving an opportunity for competitors, such as Novartis (Diovan) and AstraZeneca (Atacand), to garner this claim. Furthermore, Atacand could garner a superiority claim to Cozaar given that AstraZenecas second head-to-head trial confirmed the advantage seen in the first trial. This trial already is used in AstraZenecas marketing efforts. Additionally, Bristol-Myers Squibbs Vanlev is expected to be a powerful competitor post its approval and launch, which could occur in 2002. Despite the competitive landscape, Merck has shown a powerful ability to grow the Cozaar/Hyzaar franchise. We peg sales at $2B (+17%) in 2001, $2.35B (+18%) in 2002, and $3.25B in 2005. New Indications Driving Trends For Novartis Diovan The angiotensin II antagonist Diovan (valsartan) has now captured 45.5% new prescription share of the ARB market in the U.S. Novartiss ongoing, clinical programs (Val-HeFT, VALIANT, VALUE studies among others) which encompass more than 35,000 patients, could expand Diovans label. Based on the results of the Val-HeFT (Valsartan Heart Failure Trial) trial, Diovan was granted an approvable letter for the treatment of heart failure. In addition to Val-HeFT, Novartis has three ongoing clinical trials investigating the use of Diovan in various cardiovascular states. VALIANT (VALsartan In Acute Myocardial Infarction Trial) will compare the effect of valsartan alone and in combination with captopril in 14,500 post-myocardial patients; results are expected in 2004. The primary endpoint is all-cause mortality (time to death). VALUE (Valsartan Antihypertensive Longterm Use Evaluation) will compare valsartan to amlodipine (a calcium channel blocker) in 15,000 high-risk patients with hypertension (defined by several risk factors, including age 50 or older, cigarette smoking, high cholesterol levels, and diabetes mellitus); results are also expected in 2004. Finally ABCD-2V (Appropriate Blood pressure Control in Diabetes Part II with Valsartan) is an 800-patient trial comparing the effects of moderate versus intensive blood pressure control on the prevention and progression of diabetes complications in both normotensive and hypertensive type II diabetes patients; results are expected in 2005. Avapro A Solid Competitor In ARB Market Avapro had 14.7% new prescription share of the ARB market as of January. In January, Avapro for congestive heart failure was not recommended for approval by the FDAs Cardiovascular and Renal Drugs Advisory Committee (6-5 vote). Our physician consultants believe that Avapro has greater effectiveness than Cozaar given its higher lipophilicity, allowing more active drug to get to the site of action, although this possible advantage has not been reflected in Avapros market share trends to date. Avapro sales are forecast at $630MM (+24%) in 2002 and $930MM in 2005.
G Benicar Gives Forest A Leading Hypertension Portfolio

In mid-December, Forest and Sankyo announced a U.S. co-promotion agreement for Benicar (olmesartan), an ARB discovered and developed by Sankyo for the treatment of hypertension. A Sankyo-sponsored study showed Benicar to be statistically significantly superior to each of the leading ARB anti-hypertensives, including Cozaar, Diovan, and Avapro, in reduction of diastolic blood pressure and time to onset; numerically superior in reduction of systolic blood
pressure; and similar in tolerability. Sankyo filed an NDA for Benicar in July 2000, and additional data were requested by the FDA in July 2001. Forest management now anticipates final FDA approval in March or April 2002, and launch in the June quarter (Q1:F03). We estimate Benicar sales of $125MM in F2003, rising to $250MM in F2004 and $550MM in F2006, which assumes 15% share of the U.S. ARB market in F2006. Sankyo has a diuretic combination version of Benicar in development, which is included in our F2006 estimates. While the terms of the Sankyo agreement have not been disclosed, Forest paid Sankyo an upfront co-promotion rights fee, and we estimate that Forest will book 40-45% of the net profits from the Benicar U.S. co-promotion as alliance revenue. Forest will not incur any additional launch or promotional costs beyond its previously announced sales force hires. Forest will recognize income from the co-promotion only when Benicar is profitable, likely 1518 months after launch.
G Beta Blockers Dominated By Generics

Beta blockers, which slow the heart rate and reduce cardiac output, are prescribed for a variety of indications including hypertension, CHF, angina, and arrhythmias. The U.S. beta blocker market totaled $2.1B (+9%) in 2001, and is dominated by generics including Atenolol, Metoprolol, Nadolol, Pindolol, and Propranolol. COPERNICUS Trial Could Support Outlook For GlaxoSmithKlines Coreg GlaxoSmithKlines Coreg (Carvedilol) is the only approved drug for the treatment of mild to moderate CHF, demonstrating compelling data in clinical studies. COPERNICUS, a study of Coreg that involved 1,500 patients with severe CHF, was stopped early due to a strong mortality benefit. In COPERNICUS (CardevilOl ProspEctive RaNdomIzed Cumulative Survival), Coreg reduced total mortality in patients with severe heart failure by 35% compared with placebo (p=0.00013). Glaxo received approval in November of Coreg for the treatment of severe CHF and a mortality benefit for mild, moderate, and severe heart failure based on the compelling COPERNICUS data. In another trial, CAPRICORN, Coreg reduced the risk of a second MI by 41%. CAPRICORN will be filed with the FDA in 2002. We estimate sales of Coreg at $540MM (+50%) in 2002, rising to $895MM in 2005. Kings Corzide Growing Robustly Corzide is a combination of Corgard (Nadolol), a beta blocker, and Naturetin (Bendroflumethiazide), a thiazide diuretic, for the treatment of hypertension. Corzide is marketed as monotherapy and as an add-on therapy to Altace, and is the only promoted beta blocker/diuretic combination. Prescriptions for Corzide grew by 35% in December. King hired 45 of the 50-person contract sales organization, Essentia Pharmaceuticals, that previously was detailing Corzide. We estimate Corzide sales to King at $25MM in 2002 and $55MM in 2005. Corgard is in decline due to generics.
G Vanlev Offers Unique Characteristics

Bristol-Myers Squibbs Vanlev (Omapatrilat) is a novel and powerful antihypertensive in the vasopeptidase inhibitor class. In clinical studies, Vanlev got 80-85% of stage-1 hypertensive patients and more than 70% of stage 2 hypertensive patients to goal. This is greater blood pressure reduction than that achievable with other single-agent therapies, especially as it relates to systolic blood pressure. Vanlevs emergence is well timed given that national blood pressure targets continue to decline. Vanlev inhibits both neutral endopeptidase (NEP) and angiotensisconverting enzyme (ACE). Its ability to inhibit ACE is on par with pure ACE inhibitors,
although its blood pressure reduction capability is greater than that of an ACE inhibitor plus a NEP inhibitor administered individually. Vanlev also has favorable effects on cardiac output, left ventricular end diastolic and peak systolic pressures, and peripheral vascular resistance in patients with heart failure. Vanlev has an oral bioavailability of about 30%, with a protein binding of 80%. It may be given with or without food, and it has a very large volume of distribution (1800L), suggesting tissue penetration. Maximum concentration of an oral dose is achieved in about 2 hours, and the half-life is 14 to 19 hours. It is metabolized in the liver via amid hydrolysis, glucuronidation, S-oxidation, and S-methylation. There are no active metabolities found in plasma. 64% of an oral dose is recovered in urine, with < 1% excreted as unchanged drug. Renal function does not appear to influence excretion. Cytochrome P450 is not involved in metabolism. There are no known interactions with other medications. OCTAVE Designed To Address Angioedema Incidence And Severity Questions In data submitted for Vanlevs initial NDA, 44 instances of angioedema occurred among > 6000 patients and 4 cases were severe enough to require intubation. Angioedema is an allergic skin disease characterized by patches of swelling of the skin, mucous membranes, and sometimes internal organs. Angioedema may be classified in four groups based on level of severity: 1) that producing mild tingling, such as of the lips, 2) that requiring an antihistamine, 3) that requiring hospitalization and intubation, and 4) that resulting in death. The definition of angioedema employed in the OCTAVE trial is not clear, but will dictate the incidence seen in the trial. For instance, if OCTAVE defined angioedema as encompassing all levels of severity, than the total number of cases could be 230-250 in a trial enrolling 23,000-25,000 patients. If OCTAVE defines angioedema as levels 2-4, then the total number of cases could be 50-100. Relative Incidence Of Angioedema Key The OCTAVE trial compared Vanlev with enalapril and enrolled 23,00025,000 patients. OCTAVE was not an outcomes trial, but instead its purpose was to measure the comparative level of angioedema between the two groups. OCTAVE was 95% powered to show that the underlying rate of angioedema in patients on Vanlev is not more than 2x greater than that seen with ACE inhibitors. Thus, if the incidence of angioedema between Vanlev and enalapril is, for instance, 1.9:1, then the difference will not be statistically significant. If the incidence is, for instance, 2.1:1, then the difference will be statistically significant, with 95% confidence. OCTAVE remained blinded until the last patient completed the 24-week trial in July. The fact that an interim review was not taken rules out the worst-case scenario: the Data and Safety Monitoring Board (DSMB) would have stopped the study at 8 weeks if Vanlevs risk was substantially higher than that with enalapril. On the other hand, OCTAVEs continuation suggests that there were cases of angioedema; if Vanlev produced no angioedema, implying an excellent safety profile, the study also may have been stopped. The key element now is the relative incidence of the cases of angioedema in the Vanlev and enalapril arms, and the severity of the individual cases. We portray the spectrum of possible angiodema outcomes from OCTAVE in the matrix below.
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Enalapril Cases Associated With Greater Severity
A
( Probability: 50%)
B
(Probability: 0%)
Distribution of Severity
Even
Best Guess On Outcome
C
(Probability: 20%)
D
(Probability: 30%)
Vanlev Cases Associated With Greater Severity
100/0 0.4%/0%
75/25 0.3%/0.1%
50/50 0.2%/0.2%
25/75 0.1%/0.3%
Incidence of Angioedema (Vanlev/Enalapril)
0/100 0%/0.4%
* Assumes 23,000 patients enrolled in OCTAVE

A (Probability 50%) B (Probability 0%) C (Probability 20%) D (Probability 30%) Vanlev is associated with more cases of angioedema but enalapril is associated with a disproportionate number of severe cases. Enalapril is associated with more cases of angioedema and a disproportionate number of severe cases. Vanlev is associated with more cases of angioedema and a disproportionate number of severe cases. Enalapril is associated with more cases of angioedema but Vanlev is associated with a disproportionate number of severe cases.
Our analysis suggests that there is a 70% probability that Vanlev is associated with a greater incidence of angioedema, but a 50% probability that it is associated with a disproportionate number of severe cases. We believe the distribution of severe cases of angioedema in the trial will be comparable in the two arms for two reasons. First, we believe the number of severe cases is quite small. Second, OCTAVE involved careful dose titration of Vanlev, which may decrease the potential for severe angioedema. In initial trials, severe angioedema was seen in patients starting therapy at high doses. On the other hand, we anticipate that Vanlev will be associated with a slightly greater incidence of angioedema, although this may not reach statistical significance. This is based on Vanlevs inhibition of NEP. Admittedly, the inhibition of NEPs impact on angioedema frequency and severity is not clear. NEPs inhibition could boost angioedema frequency and severity because it decreases metabolism of bradykinin, a potent vasodilator that increases capillary permeability and produces edema. However, bradykinins link to angioedema is theoretical and not proven. Leaning conservatively, it seems reasonable to conjecture that bradykinin is linked to angioedema, inhibiting bradykinins degradation boosts its concentration and thus the potential to prompt angioedema, and thus Vanlevs inhibition of NEP could fuel this cascade. But given the series of theoretical but unproven links in this cascade, we conclude that any increase in angioedema associated with Vanlev will be modest. All told,
we believe that OCTAVE will support the view that Vanlev has an acceptable side effect profile. Vanlevs Potential Could Total $2B In 2005 Bristol re-filed Vanlev for the treatment of hypertension based on the OCTAVE data in December. Vanlev will receive a standard review by the FDA, and hence we anticipate a 2003 rollout. We forecast Vanlev sales at $500MM in 2003, rising to $1.5B in 2005.
VANLEV WORLDWIDE SALES BUILDUP 2001 Hypertension/CHF TRx's (MM) U.S. International Total Prescriptions % Change Vanlev TRx Share Rx's (MM)* Average Daily Cost WW Sales ($MM)
* Assumes length of each prescription is 30 days
2002E 314 627 941 4%
2003P 326 652 979 4% 0.7% 7 $2.50 $500
2004P 336 672 1,008 3% 1.3% 13 $2.50 $1,000
2005P 346 692 1,038 3% 1.9% 20 $2.50 $1,500
2001-05 CGR 3% 4%
302 603 905 5%
OVERTURE Could Create A Mandate For Wide Vanlev Use In CHF The OVERTURE study, comparing Vanlev with enalapril in 4400 CHF patients, is well underway. OVERTURE recruitment should conclude in Q1:02, and top-line results will be presented at the ACC later this month. OVERTURE is an event-driven trial with end points of death and hospitalization for heart failure. The study is highly empowered; indeed, it has 90% power to measure mortality alone. There are only three possible outcomes from OVERTURE: 1) no difference between Vanlev and enalapril; 2) a statistically significant but not compelling difference between Vanlev and enalapril; and 3) a statistically significant and compelling difference between Vanlev and enalapril. If the outcome is both statistically significant and compelling, our physician experts believe it would create a mandate to switch CHF patients from ACE inhibitors to Vanlev. There are about 5MM CHF patients in the U.S., and nearly all are on ACE inhibitors. It is estimated that 80% of these patients could be switched from ACE inhibitors to Vanlev. Angioedema should be less of an issue in OVERTURE given that CHF patients are less susceptible. Indeed, the incidence of angioedema is 5-10x lower in CHF than hypertension trials.
G Several Follow-On Vasopeptidase Inhibitors In Development

In addition to Bristol-Myers Squibb, numerous other companies are working in the vasopeptidase area, including Aventis, Eli Lilly, GlaxoSmithKline/Zambon, Servier, Shire and Yamanouchi. Bristols Gemopatrilat appears to have a compelling profile, including greater NEP inhibition, with current efforts focused on a slow-release formulation. Gemopatrilat is in Phase II with an NDA filing targeted for 2004. Our physician consultants believed that Gemopatrilat will be terminated if OCTAVE is negative for Vanlev, given that the agents are structurally similar.
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Aventis M100240 is undergoing a 1000-patient Phase IIb clinical trial. Aventis states that M100240 is an order of magnitude more potent than Vanlev, on the basis of invitro potency metrics. M100240 is an extremely high priority for Aventis. A filing could occur in 2004 with launch in 2005 for hypertension, and CHF could follow soon thereafter. Eli Lillys Fasidotril is in Phase II for the treatment of hypertension and CHF. Compared with Vanlev, Fasidotril has a different relative impact on inhibiting ACE and NEP, potentially leading to less angioedema. Fasidotril is capable of reducing diastolic and systolic blood pressure. Lilly licensed Fasidotril from BioProjet. Lilly targets an NDA for hypertension in 2005/06 and CHF a year or two later. GlaxoSmithKlines Z13752a/GW660511X, an ACE/NEP inhibitor for the treatment of hypertension, was licensed from Zambon early in 2001. It could enter Phase II proof-ofconcept testing in H1:02. GlaxoSmithKline has worldwide rights to the product, and Zambon has co-marketing rights in eight European countries. The companies also will collaborate on future ACE/NEP compounds. Shires Sampatrilat originally was licensed by Roberts Pharmaceutical from Pfizer in 1997 after it had completed Phase II trials in hypertension and CHF. The product had an oral bioavailability of only 5%, but post a Shire reformulation, bioavailability was boosted to 20%. Shire is in discussions with other companies for licensure of Sampatrilat.
G Pharmacias Eplerenone Poised For Q1:03 Launch

In February, the FDA accepted the NDA for Eplerenone, Pharmacias second-generation aldosterone antagonist, for the treatment of hypertension. Our physician consultants are enthusiastic about the prospects for Eplerenone. For hypertension, Eplerenone may find utility as a single agent or in combination regimens, particularly in certain hard-to-treat patients. For CHF, a long-term outcomes trial is underway to define its role. Eplerenone is in Phase III studies for CHF, and we anticipate an NDA filing for this indication in H1:03. We estimate Eplerenone sales at $150MM in 2003 and $450MM in 2005. EPHESUS Trial Pharmacia is conducting the Eplerenone Post-AMI Heart failure Efficacy and SUrvival Study (EPHESUS) trial as part of its an ongoing Phase III program. EPHESUS has enrolled more than 6,600 patients at 650 centers in 37 countries. The trial will examine whether Eplerenone has a beneficial effect on mortality and morbidity in patients who have suffered a heart attack and also have early complications of heart failure as identified by left ventricular dysfunction. Patients are being randomized to receive Eplerenone 25 mg once daily or placebo. Patients can be titrated up to 50mg depending on serum potassium levels. The primary endpoint is all-cause mortality. EPHESUS is powered to detect an 18.5% reduction in all cause mortality, and requires 1,012 deaths before terminating the study (which could take 3 years). Secondary endpoints are numerous and include: cardiovascular mortality, sudden cardiac death, death due to progressive HF, allcause and cardiovascular hospitalizations, incidence of newly-diagnosed atrial fibrillation, and quality of life. If positive, EPHESUS could greatly expand Eplerenones usage.
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G Calcium Channel Blocker Sales Could Grow Modestly Through 2005

We forecast growth of the calcium channel blocker market at 2% during 2001-05, with sales totaling $5.8B in 2005.
CALCIUM CHANNEL MARKET BUILDUP Drug Norvasc Plendil Nimotop Covera-HS Lacidipine Lomir/Dynacirc Tiazac Procardia XL Other Total Company Pfizer AstraZeneca Bayer Pharmacia GlaxoSmithKline Novartis Forest Labs Pfizer Various Sales ($MM) 2001 2005P $3,582 $4,100 471 550 215 260 110 130 145 85 65 40 178 15 218 5 $386 $675 $5,370 $5,860
G Pfizers Norvasc The Current Market Leader

Norvasc is the leading calcium channel blocker for the treatment of hypertension, bolstered by its ability to reduce systolic hypertension (which Pfizer emphasizes is achieved gradually) and its safety profile. The medical community continues to emphasize the need to achieve systolic blood pressure goals to reduce cardiovascular risk. In November, Novasc received a 6-month extension of its exclusivity for conducting the necessary studies in the pediatric population. Several ongoing studies could support Norvasc, including ALLHAT, CAMELOT/NORMALISE, and ASCOT. ALLHAT is examining Norvascs effect on reducing cardiovascular events. Results for ALLHAT are expected to be available in 2002. CAMELOT/NORMALISE has enrolled 2,000 patients examining Norvascs ability to reduce coronary plaques. ASCOT is another large outcome study of 19,000 people in the U.K. and Scandinavia that assesses Norvascs role in reducing cardiovascular events. We forecast Norvasc sales of $3,775MM (+5%) in 2002 and $4,100MM in 2005. Two patents cover Norvasc: a composition of matter patent which expires in July, 2006, and a besylate salt patent which expires in March, 2007. ALLHAT Results To Be Revealed In 2002 ALLHAT (Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial) is examining the effects of various drugs on reducing cardiovascular events in 42,500 patients. Patients were enrolled from 1994-1998, and will be followed through March 2002. The study has two components: (1) an antihypertensive segment to assess whether Calcium Channel Blockers and ACE inhibitors reduce the incidence of coronary heart disease in high-risk patients compared with diuretics; and (2) a lipid component that will determine whether Bristols Pravachol reduces total mortality in patients with moderately high cholesterol levels. Patients in ALLHAT were randomized to Norvasc, Lisinopril, or Chlorthalidone, with Pravachol added to any patient with cholesterol of 120189ml/dl. About one quarter of patients are receiving Pravachol. Results for ALLHAT are expected to be presented in 2002.
G Lercanidipine Has Big Potential In CCB Market

Last October, Forest filed an NDA for Lercanidipine, a dihydropyridine calcium channel blocker for the treatment of hypertension. Forest licensed the U.S. marketing rights to Lercanidipine from Recordati in late 2000. Recordati (Italy) and its marketing partners sell
Lercanidipine in a total of 28 countries around the world. The U.S. NDA submission is supported by four European studies and one U.S. study. Comparison trials against Norvasc (amlodipine) and Procardia XL (nifedipine) both dihydropyridine calcium channel blockers have shown comparable blood pressure reduction, but with a lower rate of peripheral edema (swelling of the ankles, feet and/or legs). Recordati currently is completing a head-to-head trial of Lercanidipine versus Norvasc (the COHORT trial) with the primary endpoint being overall tolerability. The trial has enrolled 815 patients in Europe; preliminary data indicates that Lercanidipine has a superior side effect profile on all outcome measures, although the results have not been formally published. Early data indicates that Lercanidipine at the 5mg and 10mg doses has a discontinuation rate roughly 50% lower than that of the comparable Norvasc doses (5mg and 12mg). Data comparing Lercanidipine with Procardia XL were presented last summer in Europe, and showed similar results: comparable efficacy with a more benign side effect profile. We estimate Lercanidipine sales at $45MM in F2003 and $225MM in F2006.
G Outlook For Cholesterol Market Supported By New NIH Guidelines

Despite the tremendous expansion seen thus far in the cholesterol market, strong growth should continue because many patients still have cholesterol levels above national guidelines, and many hypercholesterolemic Americans are not currently treated. Indeed, even in heavy treatment regions such as Boston, perhaps only 50% of patients who should be treated is on therapy. The WW market today is in the $17B vicinity; this could exceed $28B in 2005. However, there are many competitive efforts underway in the cholesterol market currently, making a forecast of winners and losers difficult at this juncture. Post Baycols withdrawal in 2001, the prescribing community has placed greater emphasis on safety. New NIH Guidelines Triple Number Of Americans That Should Receive Treatment The National Institutes of Health revealed new guidelines for the treatment of patients with elevated cholesterol levels. This was the third report of the National Cholesterol Education Programs (NCEP) Adult Treatment Panel (ATP III). ATP I created a framework for treating high cholesterol for the primary prevention of heart disease. ATP I noted that patients have high LDL levels at less than 160 mg/dL or borderline levels at 130-159 mg/dL. ATP II reinforced ATP I. ATP III targets total cholesterol of 200 mg/dL or less (no change from ATP II), HDL of 40 mg/dL (versus 35 mg/dL previously) and identified additional risk groups. Under the new guidelines, the number of U.S. patients who are candidates for therapy would triple from 13MM to 36MM people. Despite this bullish outlook, some physicians with whom we have spoken had hoped for even more aggressive targets.
ATP III CLASSIFICATION OF LDL, TOTAL AND HDL CHOLESTEROL (mg/dL) LDL Cholesterol <100 100-129 130-159 160-189 >/= 190 Total Cholesterol <200 200-239 >/= 240 HDL Cholesterol <40 >/= 60 Optimal Near Optimal/Above Optimal Borderline High High Very High Desirable Borderline High High Low High Therapeutic Categories Outlook 3/2002
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Lipitor: Numerous Studies Seek To Bolster Franchise Further Lipitor currently is the most effective statin, reducing LDL cholesterol by 41-61% and it occupies a leadership position worldwide. More than 15MM people have been treated with Lipitor, producing a large safety database. Ongoing trials with Lipitor are detailed below. New areas in early discovery for Lipitor are Alzheimers disease and metabolic syndrome, as well as combinations with Norvasc, Avasimibe, and CP-529,414. We forecast Lipitor sales of $7.65B (+19%) in 2002 and $10B in 2005.
ONGOING TRIALS SHOULD SUPPORT LIPITOR'S LONG-TERM OUTLOOK
Expected Year Of Completion 2002-2005 2003-2005
Study PVD ALLIANCE
Full Name Peripheral Vascular Disease Aggressive Lipid Lowering Initiation Abates New Cardiac Events Beyond Endorsed Evaluation Study Lipid Levels
Focus Study to determine effects of atorvastatin on peripheral vascular disease. Study to compare the effects of aggressive lipid lowering regimen with atorvastatin vs. conventional care in patients after myocardial infarction. Study to assess whether aggressive lipid lowering with atorvastatin produces regression of coronary atherosclerosis beyond that shown with conventional lipid lowering strategy in postmenopausal women. Trial in post menopausal women studying effects of atorvastatin compared to placebo on bone mineral density as a surrogate marker. If positive, it may lead to start of study looking at effect of atorvastatin in reducing bone fractures. of Atherosclerosis with Study to evaluate whether aggressive lipid lowering with atorvastatin will result in regression of coronary artery disease. Study in elderly looking at effect of atorvastatin on ischemia as measured by 48-hour Holter monitoring. A one-year treatment study looking at aggressive lipid lowering effects of 80mg atorvastatin vs. moderate lipid lowering with 40mg pravastatin. Study to compare the effects of atenolol based with amlodipine based therapy in hypertensive patients on the prevention of coronary heart disease and vascular events. To compare the effects of atorvastatin vs. placebo in patients with a total cholesterol of <6.6mmol/L on coronary and vascular events. Study to assess whether aggressive lipid lowering strategy with atorvastatin will reduce ischemic events in patients with type 2 diabetes mellitus.
BELLES
2003-2005
BONES
BONES
2003-2005
REVERSAL
REVERSAL Lipitor
2003-2005
SAGE
Study Assessing Goals in the Elderly
2003-2005
ASCOT
Anglo-Scandinavian Cardiac Outcomes Trial
2004-2005
ASPEN/CARDS Atorvastatin Study for the Prevention of coronary heart disease Endpoint in Noninsulin dependent diabetes mellitus patients/Collaborative Atorvastatin Diabetes Study TNT Treating to New Targets
2004-2005
Study to assess whether aggressive lowering of LDL cholesterol levels to 75mg/dL with atorvastatin 80mg/dL is associated with additional benefit over the currently recommended level of 100mg/dL. Study to evaluate the effects on coronary heart disease mortality and morbidity of aggressive lipid lowering regimen with atorvastatin vs. a conventional lipid lowering regimen with simvastatin. Study to assess whether aggressive lipid lowering strategy with atorvastatin will reduce the incidence of stroke in patients without coronary heart disease.
2004-2005
IDEAL
Incremental Decrease in End points through Aggressive Lipid lowering
2005
SPARCL
Stroke Prevention by Aggressive Reduction in Cholesterol Levels
2005
Source: Pfizer, Cardiovascular Trials Review 2000 Millenium Edition , Le Jacq Communications, 2000
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STATIN NEW PRESCRIPTION MARKET SHARE COMPARISON
60% New Prescription Market Share 50% 40% 30% 20% 10% 0% Jun-96 Sep-96 Jun-97 Sep-97 Jun-98 Sep-98 Jun-99 Sep-99 Jun-00 Sep-00 Jun-01 Sep-01 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01
Baycol
Lescol
Lipitor
Mevacor
Pravachol
Zocor
AstraZenecas Crestor Threat Diminished Crestor offers somewhat superior LDL reduction compared with Lipitor 80mg (65% vs. 60% reduction in LDL cholesterol), and a benign side-effect profile. While these advantages are potential threats to Lipitor, they are insufficient to prompt a switch from Lipitor to Crestor in our opinion. Crestor is more potent than competing statins, which could raise questions in the wake of Baycols (Bayer/GlaxoSmithKline) withdrawal. Crestors ultimate success likely will be determined by AstraZenecas marketing clout, which is solid but undifferentiated, and price, although we do not believe that Crestor will be priced at a discount. Offsetting these factors is the fact that Pfizer is in the process of raising Lipitors starting dose and getting the full range of doses everywhere in the world. Crestors NDA was filed in June, 2001.
LIPID-LOWERING PROPERTIES OF HMG-COA REDUCTASE INHIBITORS (MEAN PERCENTAGE CHANGE FROM BASELINE %)
Drug Lipitor 10-80 mg (PFE) CETP Inhibitor (PFE) Crestor 1-80 mg (AZN) Lescol 10-80 mg (NVS) Mevacor 10-80 mg (MRK) Niaspan 2000 mg (KOSP) Nicostatin 2000/40 mg (KOSP) Pravachol 10-40 mg (BMY) Zocor 10-80 mg (MRK)
Tot. Chol. -28-45 NA NA -15-20 -16-25 -12 NA -16-25 -23-36
LDL-C -27-60 NA -37-65 -19-35 -22-34 -17 -45 -22-34 -14-47
Apo-B -32-50 NA NA NA NA NA NA NA NA NA
Triglycerides -19-52 NA NA -3-11 -11-24 -35 -42 -11-24 -10-36 NA
HDL-C +5-14 +70 +10-12 +3-8 +7-12 +26 +41 +7-12 +8-12 NA
Zocor 10-80 mg/Ezetimibe 10 mg NA -47-65 (MRK) Source: Company data; Facts and Comparisons; SG Cowen
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Mercks Zocor Continues To Grow Within Highly Competitive Market Zocor appears poised for continued strong growth, driven by an expanded patient population and new indications. The new NCEP guidelines suggest that there are 24MM patients in need of prescription therapy in the U.S. alone, supporting a continued strong growth outlook for the cholesterol market. Based on the recently-revealed Heart Protection Study (HPS), Merck will file for new indications in 2002. These risk factors include past history of heart attack or CHD, diabetes mellitus, or peripheral or cerebral vascular disease. Our physician consultants previously expressed the view that the HPS study was important for marketing purposes only. The Baycol experience may make physicians cautious about prescribing highly potent statins where side effects could be prompted. AstraZenecas Crestor now may be scrutinized by regulators more extensively. This should benefit existing statins, including Zocor. Nonetheless, given the competitive landscape, we depict slowing growth in the Zocor franchise, and peg sales at $7.5B (+12%) in 2002, $8.25B (+10%) in 2003, and $9.5B in 2005.
Bristol-Myers Squibbs Pravachol Supported By Safety And New 80mg Dose Pravachols low double-digit growth is below that of the market, thus we look for Pravachol to continue to lose share. Pravachols difficulties began in 1998 when the FDA required Bristol to pull its powerful advertising message regarding primary prevention and event reduction. This action was required despite the fact that Bristol had compelling clinical data supporting the claim. However, the claim goes against conventional wisdom regarding cholesterol reduction. Bristol refocused the Pravachol message on safety, and benefitted substantially from Baycols withdrawal for safety issues. Nonetheless, Pravachol competes head-to-head against Lipitor, Zocor, and prospectively, Crestor, resulting in the expectation of further market share erosion. In January, Pravachol 80mg was approved, providing patients not adequately controlled on lower doses (10, 20, and 40mg) with a stronger option. An FDA Advisory Committee did not recommend for approval a combination package of Pravachol and aspirin, based on retrospective data, in January. We peg Pravachol sales at $2.5B (+15%) in 2002 and $3.275B in 2005.
SUMMARY OF PRAVACHOL STUDIES
Study PLAC I and PLAC II KAPS REGRESS West of Scotland CARE LIPID
Location U.S. Finland Holland Scotland U.S. Austral/Asia
Population Characteristics Established coronary heart disease and moderately elevated cholesterol levels Elevated cholesterol without advanced coronary artery disease Elevated cholesterol with a history of coronary artery disease Moderate levels of cholesterol with no history of heart disease Post myocardial infarction men and women with normal cholesterol levels History of coronary disease with elevated cholesterol levels
Claims Generated Claim for 67% reduction in heart attacks in Pravachol patients vs. placebo patients Regression claims
Primary prevention claim (before any heart attack) Secondary prevention claim Secondary prevention claim
Source: Company data
Baycol Withdrawal Created Opportunity For Competitive Statins In August 2001, Bayer withdrew Baycol from all world markets due to a greater incidence, albeit rare (roughly 1 in 750,000), of rhabdomyolysis, a serious illness characterized by muscle weakness. Competitive statins are associated with a much lower incidence of
rhabdomyolysis. Baycols withdrawal created an opportunity for competitive statins to gain share. Merck/Schering-Plough Zocor/Zetia A Very Useful Add-On Therapy Our physician consultants are excited about prospects for Zocor/Zetia. The combination works via two distinct mechanisms: Zocor inhibits cholesterol synthesis and Zetia inhibits cholesterol absorption. Zocor 80mg in combination with Zetia 10mg appears to be slightly more effective in reducing LDL, and raising HDL compared with Lipitor 80mg. Our physician consultants believe that Zocor/Zetia can be differentiated via Zocors greater ability to raise HDL cholesterol levels, and lesser toxicity. Lipitor has a more modest impact on HDL, and is associated with manageable toxicities at higher doses (e.g., sleep disorders and myalgia). A key point that remains to be answered is whether Zetia stabilizes plaque, a benefit associated with statins. Mercks marketing capabilities also bolster Zocor/Zetias outlook, although the combinations pricing is critical to its acceptance. Our physician consultants believe that a 10-20% pricing premium for Zocor/Zetia would be reasonable, given its benefits. A fixed-dose combination of Zocor/Zetia may be viewed as less desirable than using the two drugs separately given reduced dosing flexibility. However, a fixed-dose combination likely would be more attractive to primary care physicians. In December, Schering/Merck filed an NDA for Zetia as monotherapy and in combination with statins. Advicor Sales Estimates Achievable Based On Moderate Market Share The American Heart Association (AHA) estimates that roughly 4MM patients with coronary heart disease have low HDL cholesterol as their primary lipid abnormality. Based only on this market segment and assuming Advicor captures moderate market share (1-7% during 2002-05), our Advicor sales estimates of $15MM in 2002 and $165MM in 2005 look achievable. Data from the ADVOCATE (Advicor Versus Other Cholesterol-Modifying Agents Trial Evaluation) study will be presented in a scientific session at the American College of Cardiology (ACC) on Monday, March 18th. In addition to this session, KOSP will host a company-sponsored symposium. In ADVOCATE, 316 patients with abnormal cholesterol levels were randomized to Advicor 500/20-2000/40mg once daily, Mercks Zocor 10-40mg once daily, or Pfizers Lipitor 10-40mg once daily. In November, Kos held a company-sponsored symposium at the AHA meeting during which interim results of ADVOCATE were presented. The results show that, at starting doses, Advicor reduced LDL on par with Lipitor and Zocor, but had a more favorable impact on other lipid parameters. We expect the ADVOCATE data presented at ACC to be consistent with these positive interim findings. Kos plans to conduct four other Phase IV trials.
PERCENTAGE CHANGE FROM BASELINE AT STARTING DOSES Advicor 1000/40mg LDL Cholesterol HDL Cholesterol Triglycerides LP(a)
Source: company data
Lipitor 10mg -38% +3% -15% +5%
Zocor 20mg -35% +8% -6% -1%
-39% +20%* -30%* -16%*
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Other Newer Agents Hold Promise, But Role Appears Limited ACAT inhibitors, under development at Pfizer, Lilly and other companies, have a resin-like effect, reducing the absorption of cholesterol, and will be useful in combination with HMGCoA reductase inhibitors. These agents also inhibit cholesterols integration into the vessel wall, which ultimately could reduce the formation of atherosclerotic plaque. Pfizers Avasimibe is an ACAT inhibitor for inhibiting the progression, and perhaps inducing regression, of atherosclerotic plaque. It has been tested in 1300 patients for one year, and was well tolerated. Early analysis suggests that it could be combined with Lipitor, and that the profile of the combination could be better than either product alone. Lilly is developing Eflucimibe, to inhibit progression and/or induce regression of atherosclerotic plaques. Numerous ACAT inhibitors failed in the clinic due to adrenal toxicity and/or low oral biovailability. No adrenal toxicity has been observed with Eflucimibe thus far. Additionally, Eflucimibe reduces LDL cholesterol. FDA likely will seek evidence of plaque reduction, probably measured by ultrasound. Eflucimibe will enter Phase II studies in 2002. We have no sales contribution for this product in our models. Lilly licensed Eflucimibe from bioMerieux-Pierre Fabre in May. Pfizers CP-529,414 is a cholesteryl ester transfer protein (CETP) inhibitor for lipid abnormalities. Early data show that CP-529,414 120mg raised HDL by 55% and reduced LDL by 20% in patients previously treated with statins. In Phase II studies with Lipitor, CP-529,414 reduced LDL by 70-80%. These early data are encouraging, but our physician consultants are concerned with side effects, given the mechanism. In fact, patients with congenital deficiencies of CETP have a high rate of cataracts and kidney cholesterol accumulation.
G Arrhythmias
Arrhythmias are disorders of heart contractility. Ventricular arrhythmias are the most serious and can result in sudden death in the case of ventricular fibrillation. Atrial arrhythmias usually are more chronic and benign, but are a leading cause of stroke. Atrial fibrillation is associated with light-headedness, fatigue, palpitations, shortness of breath, and increased risk of another stroke. Atrial fibrillation is the #1 risk factor in patients who have had a stroke. Wyeths Cordarone Supported By IV Formulation, But Generics Clip Cordarone, indicated for the treatment of recurrent ventricular fibrillation and unstable ventricular tachycardia, probably is associated with the lowest incidence of pro-arrhythmic effects among commonly used anti-arrhythmics. The intravenous formulation of Cordarone, used primarily to prevent and treat ventricular fibrillation, is supporting the franchise. The ARREST (Amiodarone in out-of-hospital Resuscitation of Refractory Sustained ventricular Tachyarrhythmias) trial showed that Cordarone IV improved patients out-of-hospital survival rates by 26%. Nonetheless, Cordarone sales are forecast to decline because of generic competition, from $360MM in 2002 to $225MM in 2005. Pfizers Tikosyn Rollout Tepid Thus Far Tikosyn is a very selective potassium channel blocker offering delayed recovery in cardiac excitability. This sets the drug apart from competitive products that may broadly block potassium channels, and/or calcium and sodium channels. Tikosyn seeks to reduce hospitalization costs and enhance quality of life. Eventually, it may be proven that Tikosyn decreases the risk of another stroke. Pfizer believes that patients experiencing atrial fibrillation should be hospitalized and placed on Tikosyn. 30% of these patients should convert to normal rhythm on drug therapy; if patients do not convert, they should be
administered electro cardioversion therapy. Once converted, patients could be discharged from the hospital on Tikosyn. Our physician consultants believe that Tikosyn has effectiveness on par with Cordarone but may have a better side-effect profile, although Tikosyn is associated with a higher incidence of pro-arrhythmic affects (0.8%). Given complex initiation procedures, which require hospitalization for the first few days, we anticipate a gradual uptake for Tikosyn and relatively modest sales at peak. Tikosyn sales are pegged at $20MM in 2002 and $50MM in 2005. Outlook Of P&Gs Stedicor Unclear Post Disappointing Results P&Gs Stedicor is another Class III anti-arrhythmic (azimilide) for the treatment of post infarct and in the treatment of atrial arrhythmias. Stedicors outlook is unclear post disappointing results from the 6,000-patient ALIVE (Azimilide Post-Infarct Survival Evaluation) trial, in which Stedicor showed no mortality benefit over placebo. Stedicor is a muscle relaxant derived from an older P&G drug, Dantrim for seizure disorders. Sanofi-Synthelabos Dronedarone Treats Cardiac Arrhythmia Dronedarone, a follow-on to Cordarone, seeks an initial indication in the treatment of atrial fibrillation. Cordarone was the only anti-arrhythmia drug that demonstrated a lower cardiac mortality rate than placebo. Dronedarone may offer the same efficacy as Cordarone, while improving tolerance (skin, thyroid, ophthalmic effects). Dronedarone demonstrated in Phase IIb trials prevention of the recurrence of atrial fibrillation, with an excellent tolerance profile. The main findings of the IIb trials were: 1) more effective than placebo in the prevention of the recurrence of atrial fibrillation (the main evaluation criterion); 2) no dose-effect relationship in the prevention of the recurrence of atrial fibrillation, but excellent efficacy at the lowest dose tested (400mg twice daily); 3) a doseeffect relationship for the secondary evaluation criteria (spontaneous cardioversion and ventricular rhythm in the event of the recurrence of atrial fibrillation); and 4) excellent tolerance at the lowest dose and minor G.I. disturbance problems at the highest dose. No thyroid or pulmonary effects were seen at any dose. Three Phase III trials started in Q4:01: 1) two studies evaluating the period until the first recurrence of atrial fibrillation in patients with a sinus rhythm at randomization (400mg twice daily vs. placebo); and 2) a morbidity and mortality study in high-risk patients (heart failure) to evaluate the risk/benefit profile for this population (400mg twice daily vs. placebo). Submissions for Dronedarone are likely to be filed in 2004.
G Antiplatelet Agents
Several types of antiplatelet agents are prescribed widely. Aspirin, which inhibits thromboxane, is the gold standard for the primary prevention market, given its effectiveness and low cost. GP IIb/IIIa inhibitors (J&J/Lillys Reopro, Mercks Aggrastat, and Corr/Schering-Ploughs Integrilin) block platelet receptors, limiting aggregation. Bristol-Myers Squibb/Sanofis Plavix and Roches Ticlid inhibit adenosine diphosphate (ADP), a substance associated with platelet aggregation. Aventis Lovenox (Enoxaparin), a low molecular weight heparin, is used post surgery for the prevention of deep vein thrombosis. Other therapies include heparin (indirect thrombin inhibitor) and Coumadin (Warfarin), which are under pressure from generics. AstraZeneca is developing oral and injectable direct thrombin inhibitors, which hold promise given their novel mechanism.
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JNJ/Lillys ReoPro Benefiting From The 6-Month ADMIRAL Study Results The ADMIRAL trial assessed ReoPros long-term benefit in patients who suffered an acute myocardial infarction undergoing primary stenting. 300 patients were randomized to ReoPro plus stent (n=150) or placebo plus stent (n=150). All patients received a standard regimen of heparin, aspirin, and ticlodipine. The study was conducted at 28 centers in France, and the primary endpoint was a composite of death, MI, urgent target revascularization at 6 months or GP IIb/IIIa bailout within the first 30 days. At 6 months, ReoPro-treated patients showed improved left ventricular function and had a 50% reduction in the primary endpoint compared to placebo, consistent with the 30-day data. There was no increase in major bleeding events in the ReoPro group. We peg sales of ReoPro at $450MM in 2002 and $500MM in 2005. Compelling One-Year Data Driving Usage For Schering-Plough/Corrs Integrilin The ESPRIT (Enhanced Suppression of Platelet Receptor GP IIb/IIIa using Integrilin Therapy) trial changed the dynamics of the GPIIb/IIIa market. ESPRIT compared Integrilin plus stent with placebo plus stent. The FDA approved the 48-hour and 30-day ESPRIT results and dosing regimen for inclusion in Integrilins label. At 30 days, the absolute rate of death, myocardial infarction, and urgent revascularization was 10.5% for placebo plus stent and 6.8% for Integrilin plus stent. The absolute difference between Integrilin plus stent and placebo plus stent was 3.6 percentage points at 30 days. At one year, the absolute rate of death, myocardial infarction, and urgent revascularization was 12.4% for placebo plus stent and 8.0% for Integrilin plus stent (p=0.001). The combined endpoint of death or heart attack was 22.1% for placebo and 17.5% for Integrilin (p=0.0068). Our physician consultants view Integri1ins one-year data as robust. In February 2001, the one-year results of ESPRIT were published in the Journal of American Medical Association. Integrilin sales are forecast at $300MM (+30%) in 2002 and $500MM in 2005.
DEATH, MI, URGENT REVASCULARIZATION
ESPRIT (Integrilin)* 12.4% 8.0% Difference Between Integrilin And Placebo 4.4 percentage points Difference Between Integrilin And Placebo 4.1 percentage points
Stent + Placebo Stent + Integrilin *At One Year Stent + Placebo Stent + Integrilin **At 6 months Stent + Placebo Stent + ReoPro PTCA + ReoPro ***At 30 days
ESPRIT (Integrilin)** 18.3% 14.2%
Difference Between EPISTENT (ReoPro)*** ReoPro And Placebo 10.8% 5.3% 5.5 percentage points 6.9%
Results Of TARGET Trial Show Reopro Superior To Aggrastat TARGET compared the efficacy of treatment between Aggrastat and ReoPro in patients undergoing percutaneous revascularization with stent placement. This study was a double-blind, double-dummy trial which randomized 4,800 patients to ReoPro or Aggrastat. The primary endpoint was a composite of 30-day death, myocardial infarction, and urgent target revasculariztion. Despite the fact that TARGET was designed as a non-inferiority trial (a lower hurdle than
an equivalence trial), Reopro delivered superior efficacy compared to Aggrastat. The findings showed that patients treated with Reopro had a lower incidence of the primary endpoint than those on Aggrastat (6.01% vs. 7.55%); this 26% reduction in the primary endpoint was statistically significant. Reopro was more effective than Aggrastat on death (0.4% vs. 0.5%), myocardial infarction (5.4% vs. 6.9%), and urgent target revascularization (0.7% vs. 0.8%). TARGET faced two challenges, which may have hindered Aggrastats efficacy. First, the event rate may have been lower than anticipated, making it tougher to show non-inferiority. Second, the dose of Aggrastat used may have been insufficient for platelet inhibition. The conclusion of the study is that Reopro is the preferred agent over Aggrastat for patients undergoing percutaneous revascularization with stent placement. We estimate sales of Aggrastat at $120MM in 2001, and declining to $105MM in 2005.
Efficacy Results From TARGET (% Of Patients) Aggrastat Primary Endpoint 7.55 Death 0.5 MI 6.9 Urgent target revascularization 0.8
ReoPro 6.01 0.4 5.4 0.7
Aventis Lovenox Benefiting From Lack Of Monitoring And Longer Half-Life Aventis markets Lovenox (Enoxaparin), a low molecular weight heparin, for the treatment of deep vein thrombosis after hip or knee replacement or abdominal surgery. In the U.S., it is also approved for the prevention of ischemic complications of unstable angina and non-Q-wave myocardial infarction with aspirin. Lovenox usually does not require daily monitoring of coagulation times and has a longer half-life compared with Heparin. We estimate Lovenox sales at $1,450MM (+14%) in 2002 and $1,340MM in 2005. Genentechs TNKase And Activase A Good Fit For Schering-Plough Schering and Genentech co-promote Integrilin, TNKase, and Activase. TNKase is a third-generation fibrinolytic agent that offers the convenience of a single-bolus administration with efficacy equivalent to that of Activase. TNKase was approved and launched in June 2000, and Genentech priced the drug at $2,200 per dose, consistent with that of Activase. The addition of Genetechs sales force will help expand Integrilins presence in community hospitals, and bolster its recent share gains. Also, TNKase and Activase are good fits for Schering due to marketing synergies that will be derived from the collaboration. Genentech currently details TNKase and Activase to roughly 5,000 hospitals in the U.S., and it will detail Integrilin to those institutions. Schering/Corr will detail TNKase and Activase to about 2,000 U.S. hospitals. Schering will continue to book sales of Integrilin and pay a royalty to DNA that will be booked in cost of goods sold. Schering will receive a royalty on TNKase and Activase sales. The agreement with Genentech also includes a clinical collaboration for any future large-scale clinical trials that may be conducted.
G Bristol-Myers Squibbs Plavix A Leading Oral Antithrombolytic Agent

Bristol in-licensed Plavix from Sanofi-Synthelabo, and launched the drug in the U.S. in 1998. Plavix, an antithrombolytic, has been a big success for Bristol. Indeed, we forecast sales of $1.8B (+33%) in 2002 and $3B in 2005. Plavix rapidly overtook the Ticlid (Roche) market because of its superior safety, and is expanding the market into new populations, including stroke, peripheral vascular disease, unstable angina, aspirin intolerance, and in combination with stents. Plavix also is benefiting from new studies, most notably the CURE trial.
CURE Compared Plavix To Placebo In Patients On Aspirin CURE (Clopidogrel in Unstable Angina to prevent Recurrent ischemic Events) was a randomized, double-blind parallel group trial comparing Plavix to placebo in patients with unstable angina. Almost all patients (96-99%) were on aspirin 75-325mg. The study was conducted in 28 countries and 482 hospitals, and enrolled 12,562 patients. Patients were treated for 3-12 months. The primary endpoint was cardiovascular death, myocardial infarction, and stroke. A secondary endpoint included refractory ischemia, along with cardiovascular death, myocardial infarction, and stroke.
CURE Study Composition Placebo 61.7% 38.3 74.9 25.1 93.9 25.2 46.9 56.0 78.4 36.0 49.9 Plavix 61.3% 38.7 74.9 25.1 93.7 25.3 46.0 56.1 78.7 36.0 50.9
Male Female Unstable angina MI without ST elevation Abnormal EKG Elevated Enzymes Received IV heparin Received LMW heparin Received beta blocker Received calcium channel blocker Received ACE inhibitor
CURE Achieved Primary Endpoint With Robust Statistical Significance In CURE, Plavix reduced the primary endpoint of cardiovascular death, myocardial infarction and stroke by 20%, with strong statistical significance (p=0.00005). The risk of each of these components also was reduced, with myocardial infarction reduced 23%, stroke reduced 15%, and cardiovascular death reduced 8%. For every 1000 patients treated with Plavix versus placebo for nine months, there would be 28 fewer events but 3 more bleeds, a very compelling reward/risk ratio.
CURE STUDY RESULTS Primary Endpoint Placebo Plavix 6303 6259 11.47% 9.28% 5.49 5.06 6.68 5.19 1.4 1.2 Relative Risk Reduction 20% p=0.00005 8 23 15
Number of patients Primary endpoint Cardiovascular death Myocardial Infarction Stroke
CURE Also Achieved Secondary Endpoint With Robust Statistical Significance In CURE, Plavix reduced the secondary endpoint of cardiovascular death, myocardial infarction, stroke and refractory ischemia by 14%, with strong statistical significance (p=0.0004).
CURE STUDY RESULTS Secondary Endpoint Placebo Plavix 19.02% 16.68% 9.4 8.8 2.06 1.42 7.66 7.67 5.03 3.83 Relative Risk Reduction 14% p=0.0004 7 31 0 24 p=0.001
Secondary Endpoint Refractory Ischemia Refractory Isch. in hosp. Refractory Isch. post d/c Severe Ischemia
Major Bleeds Increased, But They Were Not Life Threatening In CURE, patients on Plavix experienced an increased incidence of major bleeds, and this increase was statistically significant (p=0.003). However, life threatening bleeds did not increase to a statistically significant extent (p=0.27).
Major Bleed Life Threatening Bleed Other Major Bleed Fatal Bleed Hemoglobin loss of 5g/l Need Blood Transfusion Hypotension
CURE STUDY RESULTS Side Effects Placebo Plavix 2.7% 3.6% 1.8 2.1 1.0 1.6 0.2 0.1 0.9 0.9 1.0 1.2 0.5 0.5
Relative Risk Increase 34% p=0.003 15 p=0.27 61
Plavix And Placebo Curves Separated Early And Remained Separated Throughout Study The event curves between the Plavix and placebo groups diverged early, and remained separated throughout the study. Indeed as summarized below, Plavix showed strong results at time periods of less than and greater than 30 days.
CURE STUDY RESULTS Relative Risk 30 Days Or Less 21 17 26 23 30 Days Or Greater 19 11 46 5
Primary Endpoint Secondary Endpoint Major Bleeds Life Threatening Bleeds
Three Major Patents And Exclusivity Protect Plavix A longer-term risk to the Plavix franchise is the challenge of its patent estate. Three major patents cover Plavix (#4,529,596, 4,847,265 and 5,576,328). Plavixs patent estate allegedly is being challenged by a generic manufacturer post an ANDA filing. Bristol/Sanofi now have 45 days to file a patent infringement lawsuit against the manufacturer, triggering a 30-month stay of generic approvals. The companies also have exclusivity protecting Plavix through November 2002.
P ATEN T AN D EX CLU SIV ITY ES TATE
G ene ric N am e C lopidogrel
A pplication Nu m ber Exclusivity 0208 39
P ate nt N um be r or Exclusivity S tatu s 452 9596 484 7265 557 6328
D ate of E xpiratio n 1 1/17 /02 0 7/05 /03 1 1/17 /11 0 1/31 /14
D escriptio n Thieno pyridines and their therapeutic use Activity of m olecules w ith platelet-aggregation inhibiting qualities M ethod for the 2nd prevention of ischem ic events
Source: FDAs Approved Drug Products with Therapeutic Equivalence Evaluations
Patent 596: Compounds, Their Salts And Enantiomers Have Antiplatelet Activity Patent #4,529,596 (596) was issued to Sanofi on August 4, 1981, and will expire on July 5, 2003. This patent describes new thieno [3,2-c] pyridine derivatives, and their salts and two enantiomers. Twelve claims are listed in patent 596, with seven describing the structure of compounds and their derivatives, and one claim protecting a therapeutic composition having blood-platelet aggregation inhibiting activities and anti-thrombotic activities. Claims nine and ten refer to unit dosage forms. Claim 2 could be key: it covers methylalpha-(4, 5, 6, 7-tetrahydro-thieno (3, 2-c)-5-pyridyl)-o.chlorophenyl-acetate. Patent 265: Describes Structure, And Process For Manufacturing, Specific Entaniomer Patent #4,847,265 (265) was issued to Sanofi on July 11, 1989, and will expire in 2011. This patent relates to the dextro-rotatory enantiomer of methyl alpha-5 (4, 5, 6, 7tetrahydro (3, 2-c) thieno pyridyl) (2-cholorophenyl)-acetate. Patent 265 also describes the process for preparing this compound starting from the racemic mixture. There are seven claims listed in this patent. Bristol believes patent 265 is enforceable and hence does not expect generic competition to occur until its expiration.
Patent 328: Method For The Secondary Prevention Of Ischemic Events Patent #5,576,328 (328) was issued to Sanofi on November 19, 1996. This patent describes the method for the secondary prevention of ischemic events by administering Plavix (Clopidogrel) and its salts. There are twenty claims listed in patent 328. Most of these claims describe the types of cardiovascular events (e.g., myocardial infarction, unstable angina, restenosis, etc.) that Plavix prevents, and the dosage strengths (25-600mg once daily) needed to prevent such events. One claim describes Plavix usage in combination with a thrombolytic agent. Patent 328 will expire in 2014. Plavix Scenario Analysis Illustrates Risk To BMY Our current Plavix sales estimates do not assume generic competition through 2005. If generics were launched in 2004, there is significant downside to our Plavix sales and BMY EPS estimates. A table depicting BMY EPS estimates under various scenarios is below.
BMY EPS ESTIMATES UNDER VARIOUS SCENARIOS FOR PLAVIX ($MM) Current Plavix Est. Plavix est. with generic competition Difference Assumed Net Margin Net Income Current BMY EPS estimates BMY EPS estimates with Plavix generics Difference 2001 $1,350 1,350 $0 2002E $1,800 1,800 $0 2003E $2,200 2004P $2,600 2005P $3,000 CGR 22%
2,200 1,500 100 $0 ($1,100) ($2,900) 25.0% ($275) 25.0% ($725)
$2.36 2.36
$2.30 2.30
$2.65 2.65
$3.05 2.90 ($0.15)
$3.55 3.20 ($0.35)
11% 8%
Eli Lillys CS-747 May Have Advantages Compared To Plavix CS-747 is an ADP receptor blocker similar to Plavix. CS-747 is in Phase I clinical trials. It may have a faster onset and less drug interactions compared to Plavix. Lilly and development partner Sankyo target an NDA filing for CS-747 in 2006. We have no sales contribution for this product in our models. AstraZenecas Exanta And Melagatrin Look Promising Our physician consultants are excited about the potential of direct thrombin inhibitors, Exantra (formerly H376/95) and Melegatrin, even though previous direct thrombin inhibitors showed lackluster clinical trail results. Oral direct thrombin inhibitors might be useful in patients post heart valve surgery or with atrial fibrillation, and could replace DuPonts Coumadin, which requires monitoring. AstraZeneca indicates that its oral direct thrombin inhibitor, Exanta, has efficacy at least on par with Coumadin. Exanta is in Phase III for deep vein thrombosis post orthopedic surgery and the prevention of stroke in atrial fibrilation; AstraZeneca is also pursuing a post MI indication, which is in Phase II. Phase II data in patients post orthopedic surgery showed that Exanta reduced deep vein thrombosis significantly more than Dalteparin. More than 5000 patients have been treated with Exanta and it can be administered up to 60mg twice daily without a high incidence of bleeding. AstraZeneca targets an NDA filing for Exanta in 2002. Melagatrin, an injectable direct thrombin inhibitor, is in Phase III and AstraZeneca is targeting an NDA filing in Q2:03.
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PROFILE OF EXANTA COMPARED WITH WARAFARIN Warfarin Effective anticoagulant Yes Direct and reversible mechanism No Rapid onset No Wide safety and efficacy margin No Food interactions Yes Dose titration Yes Monitoring Yes Good safety profile (bleeding) No Convenience No
Source: AstraZeneca
Exanta Yes Yes Yes Yes No No No Yes Yes
Daiichis DX-9065a Leads An Exciting New Area Daiichi is developing DX-9065a, a factor Xa inhibitor. Factor Xa inhibition blocks thrombin, but at a location further upstream in the coagulation cascade than that targeted by current thrombin inhibitors. Our physician consultants believe that factor Xa inhibitors are an interesting class of agents. DX-9065a will be the first factor Xa inhibitor to enter human clinical trials. Aventis and Pfizer also are developing factor Xa inhibitors. Development Of Bristol/DuPonts Roxifiban And CORs Cromafiban Unclear Our physician consultants note that Bristol/DuPonts roxifiban and CORs cromafiban have different pharmacokinetics than other oral fibans, and thus may show benefit where others have failed. However, given the unfavorable results seen in prior oral fiban studies, it is unclear if Bristol/DuPont and COR will forge ahead with large-scale studies. In fact, CORs program that was in Phase IIb is now on hold pending the results of ongoing studies with competitive products. Bristol/DuPonts efforts may be going ahead in Phase III in peripheral vascular disease, with endpoints of death, M.I., stroke, and rehospitalization.
U.S. CARDIOLOGY MARKET
Total Prescriptions (000's) 1987* 2001 159,884 159,200 120,401 125,894 50,254 114,502 8,062 59,960 28,944 12,684 1,277 365,572 150,804 22,800 34,281 29,393 9,475 4,400 866,785 2002E 207,249 201,785 147,268 159,526 68,160 156,849 26,622 43,551 37,957 12,517 5,538 1,067,022 2005P 269,500 220,500 171,500 122,500 122,500 110,250 98,000 36,750 24,500 24,500 12,250 12,250 1,225,000 2% 16% 8% 3% 0% 100% 3% 4% 3% 1% 1% 100% 2% 4% 4% 1% 1% 100% 31% 1987* 2% 7% 10% 19% % Market Share 2001 2002E 18% 18% 14% 15% 6% 17% 19% 19% 14% 15% 6% 15% CGR 2005P '87-01 '01-05 22% 18% 14% 10% 10% 9% 8% 3% 2% 2% 1% 1% 100% +24% +14% +9% +4% NM +2% NA +8% -4% +0% -2% +9% +6% +14% +8% +9% -1% +25% -8% NA +13% -8% -4% +7% +29% +9%
Cholesterol ACE Inhibitors Calcium Blockers Beta Blockers ARB's Diuretics Vasopeptidase Inhibitors Alpha Blockers Vasodilators Digitalis Anti-Arrhythmics Other Total
7,650 26,056 35,319 71,118
* 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; SG Cowen estimates
93

Drug Prinivil/-zide Zestril Accupril Monopril Fragmin Pravachol Zocor Coreg Cozaar/Hyzaar Lipitor Aggrastat Manufacturer Merck AstraZeneca Pfizer Bristol-Myers Squibb Pharmacia Bristol-Myers Squibb Merck GlaxoSmithKline Merck Pfizer Merck Patent Expiration 6/02 6/02 10/02 12/02 12/04 10/05 12/05 3/07 8/09 2010 3/12 U.S. Sales in Year Patent Expires ($MM) $880 470 250 260 20 2,050 6,080 ---------
CARDIOVASCULAR R&D PIPELINE

Company AstraZeneca Product Crestor P-C I II III NDA Jun-01 MKT Comments HMG-CoA reductase inhibitor; licensed from Shionogi; as or more effective than PFE's Lipitor; ZD4522 Treatment of disorders caused by subarachnoid hemorrhage; injection Chronic heart failure; long-acting beta blocker; licensed from Boehringer Mannheim H1:02 Angiotensin II receptor blocker (ARB) for hypertension; developed by andto be copromoted with Sankyo; diuretic combination in development Q4:02 Dihydropiridine calcium channel blocker for hypertension; may have superior side effect profile; from Recordati Heart Protection Study indications; SEARCH Study; 4-year, 12,000 patient post-M.I. started mid-1998 Congestive heart failure; positive data from completed Val-HeFT study; approvable letter from FDA in Oct-01; Q1:02 approval expected Hypertension and BPH; U.S. * Phase IV studies: BELLES (women, 2003); SAGE (elderly, 2003); SPARCL (stroke, 2005); ASPEN/CARDS (diabetes, 2004); BONES (osteoporosis) Pediatric, ALLHAT (fatal CHD, 2002); CAMELOT/NORMALISE (M/M in confirmed CHD, 2003); ASCOT (fatal CHD, non-fatal MI, 2004) Hypertension; calcium antagonist; long-acting; few side effects Antihyperlipemic; fibrate; co-developed with Pfizer; filed 12/98 for Japanese market Multiporous gelatine for arterio-embolization particles; Japan Clot dissolution; ischemic stroke Therapeutic Categories Outlook 3/2002
Chugai Daiichi Forest Laboratories
AVS (nicaraven) Artist (carvedilol) Benicar (Olmesartan)
Apr-95 Apr-01 Jul-00
Forest Laboratories
Lercanidipine
Sep-01
Merck
Zocor
2002
Novartis
Diovan
Apr-01
Pfizer, Inc. Pfizer, Inc.
Cardura XL Lipitor
Apr-01
Pfizer, Inc.
Norvasc
Sankyo Sankyo Yamanouchi Abbott Laboratories
Calblock (CS-905) Lopid (CI-719) YM-670 Abbotkinase (urokinase)
Jul-97 Dec-98 Dec-01 94

Company Aventis Product Lovenox P-C I II III NDA MKT Comments Prevention of ischemic complications of STelevated acute MI (NDA/MAA filing Q3:03); prophylaxis of deep vein thrombosis (NDA Q3:02) Prevention of deep vein thrombosis after hip surgery (U.S.) PRIME study in Type II diabetic kidney disease in hypertensive patients; primary endpoint: renal failure; 20% risk reduction versus placebo; 23% risk reduction versus Norvasc; expedited review; via Sanofi OCTAVE safety data ; OVERTURE CHF study 2004 Anti-oxidant; licensed from Aventis 2002 Neurotransmission enhancer; oral H1:02 Antihypertensive; ARB; filed 7/2000 U.S. & Europe; 2001 Japan Diabetic nephropathy (PRIME);filed in EU & U.S. in August 2001; to be refiled in U.S. in 2002 Acute coronoarysyndrome (CURE), priorty review granted by FDA, filed in EU in November 2001 Anti-hyperlipidemia; HMG-CoA reductase inhibitor; filed Japan; PI USA; NK-104 Thromboembolism; from Knoll; approved in Europe Arrhythmias; suspended release formula; from Knoll 20022004 CHF; CHARM study, filing Q2:03; hypertension, SCOPE study ongoing, line extension, filing Q3:02; prevention of diabetic neuropathy, filing after 2004 2004 Coronary artery bypass graftr; NHE inhibitor (NaH ion exchange inhibitor) Impaired glucose tolerance Trials in use with stents; unstable angina 2005 Platelet anti-aggregant; licensed from Sanofi 2003 Prevention of recurrent stroke; long-acting ACE inhibitor; licensed from Servier Q4:01 Angiotensin II antagonist; hypertension, in combination with hydrochlorothiazide Angiotensin receptor blocker; RENAAL (filed); LIFE, mortality in hypertension; OPTIMAAL, in post MI; isolated systolic hypertension Ezetimibe; inhibits absorption of dietary cholesterol; in combination with HMG-CoA reductase inhibitor (filed); monotherapy (filed); fixed dose combination with Zocor (Phase III);oral; well tolerated; with Schering-Plough F05 Selective beta blocker for hypertension; inlicensed 5/01 from Janssen; marketed by various companies in Europe
Aventis Bristol-Myers Squibb
Revasc Avapro
Aug-01
Bristol-Myers Squibb Daiichi Daiichi Sankyo Sanofi-Synthelabo Sanofi-Synthelabo Sankyo Abbott Laboratories Abbott Laboratories AstraZeneca
Vanlev Harmokisane (Ebselen) TRANSLON (nefiracetam) CS-866 Avapro Plavix Itabastatin Clivarine Rhythmol SR Atacand
Dec-01 Jul-00 Aug-01 Aug-01
Aventis Bayer Bristol-Myers Squibb Daiichi Daiichi GlaxoSmithKline Merck
Cariporide Acarbose IGT Plavix Clopidogrel (DV-7314) Coversyl (perindopril) Telmisartan Cozaar
H2:03
Merck
Zetia
Dec-01 - Late '03
Mylan Laboratories
Nebivolol
H2:F04
95

Company Novartis Product Diovan P-C I II III NDA 2004 MKT Comments Morbidity/mortality vs. Norvasc; VALUE study completes in 2003; post and pre-myocardial infarction Pediatric H1:03 ACAT inhibitor; prevents accumulation of cholesterol esters, may inhibit progression or decrease regression of arterial lesions; CI-1011 Combination; elevated cholesterol and hypertension 2003 Hypertension (filed); heart failure (Phase III); RALES study of Aldactone boosts prospects; EPHESUS study to provide further support Sepsis; Phase III unfavorable; additional analysis underway Azlinide; class III antiarrhythmic; treatment of supraventricular arrhythmias (3 studies initiating); post-MI; (ALIVE trial: data to be revealed at AHA); implantable cardiac device (preponation phase; low level of proarrhythmic effects, no titration, no hospitalization required at initiation Anti-hyperlipidemia (new formulation and additional dosage regimen); filed Europe; PIII Japan and USA Antiarrhythmic; successor of Cordarone Q4:01/ Late 03 Ezetimibe; inhibits absorption of dietary cholesterol; in combo with HMG-CoA reductase inhibitor (filedI); mono therapy (filed); oral; in collaboration with MRK for fixed dose combination with Zocor (filing late 2003) Congestive heart failure; Europe, Japan, U.S. Cather occlusion; NDA filing 2002; PII studies for peripherial arterial occlusion 20022004 Melagatran; thrombin inhibitor; i.v., SQ, oral; broad therapeutic window; no blood monitoring required; venous thrombosis prevention and treatment prevention of stroke in atrial fibrillation; PII post MI Tissue plasminogen activator; PII for treatment of cerebral embolism; PIII for treatment of pulmonary embolism Stroke (PII) 2002 PII for peripheral disease; PII/III for acute MI; PIII for stroke 2002 Synthetic anti-Xa pentasaccharide; approvable in US for prevention of thromboembolic events after orthopedic surgery; PII in DVT; PIIb in coronary disease; with Organon Vasopressin antagonist; PIII for hyponatremia in Europe and U.S., PII Japan; PII for heart failure Chronic stable angina; PAOD 96 Therapeutic Categories Outlook 3/2002
Accupril Avasimibe
Pfizer, Inc. Pharmacia Corp.
Lipitor plus Norvasc Eplerenone
2003 Q1:02/ 2003
Pharmacia Corp. Procter & Gamble
Tifacogin (TFPI) Stedicor
Sankyo
CS-514E
Sanofi-Synthelabo Schering-Plough
Dronedarone Zetia
Takeda Abbott Laboratories AstraZeneca
TCV-116 (candesartan cilexetil) rUK (recombinant urokinase) Exanta
Eisai
Monteplase (E6010)
Eli Lilly Johnson & Johnson Sanofi-Synthelabo
ReoPro ReoPro Arixtra
Yamanouchi Schering-AG
YM-087 Ad-5-FGF-4

Company Abbott Laboratories Abbott Laboratories AstraZeneca AstraZeneca Aventis Product Darusentan NO 1886 AZ 242 (AR-HO39242) AZD 6140 ACE/NEP inhibitor 100240 Guanylate cyclase activator -1766 K-ATP blocker 1098 P-C I II 2003 III NDA MKT Comments Endothelin antagonist; CHF, HTN Lipid modifier; JV with Otsuka PPAR agonist; insulin resistance P2T antagonist; oral; arterial thrombosis 2005 Hypertension and congestive heart failure; dual inhibition of ACE/NEP; potential monotherapy, PIIb started; U.S./EU expected launch in 2005 Chronic angina; first-in-class coronary vasodilator Anti-arrhythmic, cardio-selective blocking of ATP-dependent potassium channels that activate only in ischemia Therapeutic angiogenesis; plasmid-based gene therapy; PI completed in 50 patients; moving into Phase IIa 2005 Mixed hyperlipidemia; APO-B secretion inhibitor Congestive heart failure; development on hold 200405 Oral Factor Xa inhibitor; prevention and treatment of venous and arterial thrombosis; prevention of stroke in patients with atrial fibrillation Vasopeptidase inhibitor; follow-on to Vanlev; development outlook linked to Vanlev Dyslipidemia; highly potent, once-daily; good tissue selectivity; few drug interactions Restenosis in post-PTCA; Coronary heart disease (antioxidant) in USA Additional indication for acute cardiac insufficiency Specific factor Xa inhibitor; anticoagulant 2005 Hypertension (NDA 2005) and CHF (NDA 2007); vasopeptidase inhibitor; licensed from Bioprojet Chronic inflammation; oral; rheumatoid arthritis Acute lung injury; acute respiratory distress syndrome; licensed from Ono Monoclonal antibody to GP IIb/IIIa receptor; licensed from Centocor Endothelin-A-receptor antagonist; hemorrhagic and ischemic stroke; Japan; joint venture with Shionogi 5HT4 receptor antagonist; atrial fibrillation Anti-arrhythmic; potassium-calcium channel blocker Indirect thrombin inhibitor for prevention of stroke; GAG enhancer Binodisine; myocardial pharmacological stressor; Phase III trials expected to commence in H2:02
Aventis Aventis
Aventis
NV1FGF
Bayer Bristol-Myers Squibb Bristol-Myers Squibb
BAY 13-9952 (implitapide) Avapro DPC 906
Bristol-Myers Squibb Bristol-Myers Squibb Chugai Chugai Daiichi Eli Lilly Eli Lilly Eli Lilly Fujisawa GlaxoSmithKline
Gemopatrilat Superstatin BO-653 SG-75 (nicorandil) DX-9065a Fasidotril LY333013 Silvelestat ReoPro (Abciximab) S-0139
2004
GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline
SB 207266 SB 237376 SB 424323
King Pharmaceuticals MRE0470
97

Company Novartis Product NK-104 P-C I II III NDA MKT Comments HMG-CoA reductase inhibitor for the regulation of abnormal cholesterol levels in the blood (dyslipidemia) 2004 Inhibitor of renin angiotensin II; hypertension; oral; once-daily; PIII planned for H2:02; outlicensed to Speedel (NVS holds call option) Vascular endothelial growth factor/adenovirus CETP inhibitor; raises HDL HDL elevator/LDL lowerer Na/H exchange inhibitor 5G1.1-SC; pre-CABG to prevent complement activation; post MI patients undergoing reperfusion; with Alexeon; expedited review granted Antihypertensive Long-acting pentasaccharide; treatment and secondary prevention of thromboembolic events; with Organon V2 vasopressin antagonist; SIADH/CHF Unstable angina; IV Acute myocardial infarction Heart failure; acute myocardial infarction Acute phase of cerebral infarction, licensed from Sigma Tau 2005 Thrombosis and inflammation; thrombin inhibitor GPIIb/IIIa antagonist; with Merck KGaA U.S & Europe, high-risk PTCA and acute ischemic stroke; GPIIb/IIIa antagonist Acute ischemic stroke; AMPA antagonist; Phase II in Europe and U.S. h5G1.1-SC; recombinant humanized antibody fragment C5 complement inhibitor; PII for MI patients underoing emergency throbolysis; PC to reduce degree of MI due to prolonged ischemia Endothelin antagonists; CHF, HTN Hemodialysis; from Knoll; plan to outlicense PDK inhibitor; oral anti-diabetic Atrial Repolarization Delaying Agent (ARDA) atrial fibrillation Acute (IV) and chronic (oral) coronary syndromes; arterial and venous thrombosis A1 adenosine agonist; hypertriglyceridemia 2006 Angina and CHF; cGMP enhancer 2007 FIV gene therapy 200405 Endothelin antagonist; oral for heart failure
Novartis
SPP-100
Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Procter & Gamble
CI-1023 CP-529, 414 CP-529, 414/Lipitor CP-597, 396 Pexelizumab
Sankyo Sanofi-Synthelabo
CS-866CMB Idraparinux (SR-34006)
Sanofi-Synthelabo Schering-AG Schering-Plough Takeda Tanabe Tanabe Wyeth Yamanouchi Yamanouchi Yamanouchi Procter & Gamble
SR-121463 Factor Xa inhibitor Integrilin MCC-135 Acetyl-L-carnitine (TA803) TA-993 rPSGL-lg YM-028 YM-337 YM-872 Pexelizumab, shortacting
Abbott Laboratories Abbott Laboratories AstraZeneca AstraZeneca Aventis Aventis Bayer Bayer Bristol-Myers Squibb
BSF 208075/302146 PEG-Hirudin (BSF 87981) AZ 7545 AZD 7009 Factor Xa inhibitor HMR2906 TGL749 BAY 58-2677 Coagulin B BMS 207940
98

Company Bristol-Myers Squibb Product Lumaxis P-C I II III NDA 200506 MKT Comments Fibrinogen receptor antagonist for prevention of thrombotic events in patients with atherosclerosis; peripheral arterial disease; transient cerebral ischemia; stroke; PIII trials of once-daily suspended; twice daily in PI Neuroprotective agent; Europe; injection 2006 2007 ADP receptor blocker ACAT inhibitor; will enter Phase II in 2002; licensed form bioMerieux - Pierre Fabre PPAr agonist; dyslipidemia PPAR alpha/gamma dual agonist; dyslipidemia Thrombin inhibitor; atrial fibrillation & venous thrombosis PPAR agonist; dyslipidemia ACE/NEP inhibitor; from Zanbon; hypertension Anti-Factor IX monoclonal antibody; stroke LpPLA2 inhibitor; atherosclerosis Cardiac sparing lipid lowering thyromimetic; dyslipidemia Oral thrombin inhibitor; licensed from LG Chem Endothelin-1A antagonist; for pulmonary hypertension; COPD ACAT inhibitor; anti-hyperlipidemia and antiarteriosclerosis; oral Antiplatelet agent; ADP receptor antagonist; jointly developed with UBE Industries and Eli Lilly Angina; nitrate; oral 5H1A/5HT2A antagonist; prevention of cardiovascular events Calcic and sodic channel inhibitor; cerebral vascular accidents (stroke) Single-isomer metabolite form of Norvasc; hypertension 2004 Angina and hypertension; guanylate cyclase stimulator Angina; CHF, thrombosis; restenosis; dyslipidemia Oral Factor Xa inhibitor Venous thrombosis Vascular regeneration therapy by HGF-DNA; with Medgene Bioscience Elastase inhibitor Interferes with squalene synthesis Treatment of kidney disorders Pegylated prostacyclin; pulmonary hypertension; United Therapeutics; PEG supply, manufacturing and royalty agreement
Daiichi Eli Lilly Eli Lilly GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Novartis Pfizer, Inc. Pfizer, Inc. Sankyo Sankyo
DY-9760e CS-747 Eflucimibe GW-590735 GW409544 GW473178 GW501516 GW660511 SB 249417 SB-480848 LAG078 CI-1028 CI-1034 CS-505 CS-747
Sankyo Sanofi-Synthelabo Sanofi-Synthelabo Sepracor Bayer Bayer Bristol-Myers Squibb Bristol-Myers Squibb Daiichi Dainippon Eisai Eisai Inhale Therapeutic
CS-780 SL-65.0472 SL-65.1708 (S)-amlodipine BAY 59-3394 Undisclosed preclinical projects DPC A52350 Thrombin inhibitor HGF DNA plasmid AE-3763 Cholesterol-lowering agent Retinoid inducer PEG-Prostacyclin 8
99

Company Inhale Therapeutic Product PEG-Thrombopoietin P-C I II III NDA MKT Comments Pegylated synthetic thrombopoietin peptide for thrombocytopenia; with 3-D Pharmaceuticals Various indications, including coronary artery disease diagnosis, wound healing, prevention of restenosis, and CHF 2005 New undisclosed formulations/combinations Lipid altering; combination therapy Hypertension; alternative formulation of branded product Insulin secretagogue in combination with antihypertensive for prevention of type 2 diabetes; 7,500 patients to be recruited for NAVIGATOR trial Hypertension/CHF; no lead compound yet Deep vein thrombosis Synthetic hexadecasaccharide Pentasaccharide long acting back up Anti-arrhythmic agent Thrombin inhibitor (oral) Atrial fibrillation; filing in 2008; with Mitsui Pharmaceuticals 29 45 31 22 158
King Pharmaceuticals Adenosine Analogs
King Pharmaceuticals Altace Kos Pharmaceuticals Kos Pharmaceuticals Novartis Undisclosed Undisclosed Diovan/Starlix
Pfizer, Inc. Roche Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Schering-AG
Renin inhibitors R1435 (Genentech) SR-123781 SSR 126517 SSR-149744 SSR-182289 MS-654 Total Drugs In Development
29
100
Central Nervous System

G Numerous Diseases Comprise The CNS Category
The central nervous system market may be segmented into numerous subcategories, including depression, schizophrenia, anxiety, sleep disturbances, bipolar disorder, attention deficit disorder, migraine, and Parkinsons disease. An estimated 20% of Americans suffers from a mood disorder at some point in their lives. 10% 2001-05 CGR
Central Nervous System Category Market Share By $ Sales

2001
$27B
2005P
$39B
LLY 19% GSK 19%
PARTICIPANTS
Other 35%
Other 36%
GSK 19%
LLY 16%
WYE 7% JNJ 10%
PFE 10%
WYE 8%
JNJ 9%
PFE 11%
In 2001, Eli Lilly and GlaxoSmithKline led the CNS category with 19% dollar share each. We expect GlaxoSmithKline to displace Lilly as market leader during the next five years, retaining 19% share. Lilly is forecast to lose 3 percentage points of share to 16%. Pfizer, JNJ, and Wyeth also should maintain strong positions in the CNS category. MAJOR TRENDS & ISSUES Selective serotonin reuptake inhibitors (Eli Lilly, Forest Labs, Pfizer, and GlaxoSmithKline) should continue to dominate therapy for depression, but sales of the class may grow only modestly due to the entry of generics. Dual acting agents (Lilly, Wyeth), impacting both serotonin and norepinephrine, should continue to grow rapidly but not challenge the SSRIs. Antipsychotic sales could surpass that of SSRIs by 2005, given the significantly higher cost of therapy. Bristol-Myers Squibb, Eli Lilly, J&J and Pfizer are situated to benefit. The migraine (Abbott, AstraZeneca, Elan, GlaxoSmithKline, Merck, Pfizer, and Pharmacia) markets current modest growth should accelerate. Competition will remain tough because newer agents are very similar. Potential for newer modalities, such as substance P inhibitors, CRF receptor antagonists, and GABA receptor modulators, remains unclear. Our scatter plot shows that CNS is a key component of growth for numerous companies. Eli Lilly, GlaxoSmithKline and Pfizer should retain dominant positions in the CNS segment through 2005.
101
CNS
80%
60%
FRX
40%
20%
ELN MRK AVE ROHHY ABT NVS BMY
WYE JNJ AZN
PFE LLY
GSK
0%
-20%
PHA
-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0
DETAILED DISCUSSION
G Depression Market Remains Attractive

Units in the depression market should continue to grow at a low double-digit pace, although sales of SSRIs may grow only at a low single-digit pace given entry of generics to Lillys Prozac. Sales of newer antidepressants, including Forests Celexa and Lexapro, and various non-SSRI agents, should continue to grow strongly. Efforts are under way to increase the awareness of depression and train primary care physicians on newer treatments. Offsetting these efforts are cost-containment pressures exerted by large managed care organizations, which may view depression as a lifestyle disease and not one that needs aggressive treatment, and the fact that accessible patients already are being treated. Some managed care organizations encourage the use of older, cheaper agents. However, studies demonstrate that usage of newer agents lowers the total cost of care.
COMPARISON OF ANTIDEPRESSANT INDICATIONS Depression Yes Yes Yes Yes Yes OCD Yes Yes Yes No No GAD No Yes No No Yes Panic Yes Yes No No No SAD No Yes No No No PMDD No No Yes No No PTSD Yes Yes No No No Bulemia No No Yes No No
Drug Zoloft (PFE) Paxil (GSK) Prozac (LLY) Celexa (FRX) Effexor (WYE)
Source: Drug Facts and Comparisons 2001
102
ESTIMATED WORLDWIDE MARKET FOR CNS DRUGS BY CLASS ($MM)

2001 Market % Total $6,141 23% 8,073 30% $ NRx 2005P 01-05 87-01 Market % Total CGR CGR Comments $11,656 29% 17% 13% - LLY's Zyprexa, JNJ's Risperdal, AZN's Seroquel, BMY's Abilitat 8,695 22% 2% NM - LLY's Prozac and fluoxetine generics, PFE's Zoloft, GSK's Paxil, FRX's Celexa and Lexapro NM - WYE's Effexor, LLY's Duloxetine NA - BGEN's Avonex, TEVA's Copaxone, ELN's Antegren NM - GSK's Imitrex, AZN's Zomig, MRK's Maxalt, PFE's Relpax NM 2% - Generics dominate
Drug Class Antipsychotics SSRI's
Newer Antidepressants Multiple Sclerosis Anti-Migraine Anti-Obesity Tranquilizers Pain Management Older Antidepressants Other CNS Total Market
2,781 2,473 1,966 822 1,058 233 798 2,744 $27,088
10% 9% 7% 3% 4% 1% 3% 10% 100%
5,050 4,270 3,482 836 620 275 393 4,277 $39,555
13% 11% 9% 2% 2% 1% 1% 11% 100%
16% 15% 15% 0% -12% 4% -16% 12% 10%
6% - Generics dominate NA 7% - Driven by newer antipsychotics
Numerous Products Target Treatment Of Depression - Despite the emergence of numerous non-SSRI agents, our physician consultants believe that SSRIs will remain the drugs of first choice. Clinicians view the four serotonin reuptake inhibitors (Eli Lillys Prozac and fluoxetine generics, Forest Labss Celexa, Pfizers Zoloft, and GlaxoSmithKlines Paxil) as similar, and there is no SSRI of first choice, although there may be minor differences in tolerability. Prozac is in decline from generics that were launched in August. Forest Labs, which is marketing Celexa with a slightly differentiated label, should continue to gain share of the U.S. antidepressant market. Zolofts trends have waxed and waned as Pfizer has increased and decreased marketing support of this product. GlaxoSmithKlines Paxil is the least activating SSRI, leading to rapid adoption in patients that are both depressed and anxious. Wyeths Effexor has not challenged the SSRIs, given the medical communitys comfort with the latter products effectiveness and safety, although dual acting agents have clear benefit in resistant patients. Eli Lillys Duloxetine should fortify this perception post its 2003 rollout. Akzo Nobels Remeron may have effectiveness in patients that fail other therapies, although the drug is limited by its side-effect profile. Prozac sales are pegged at $460MM in 2002, declining to $75MM in 2005 reflecting generic pressure; the Celexa franchise (including Lexapro) sales are estimated at $1,075MM in F2002 and $1.75B in F2006; Zoloft sales are estimated at $2.525B (+7%) in 2002, rising to $3B in 2005; and Paxil sales are forecast at $2.95B in 2002 and $3.7B in 2005. Prozacs Rapid Erosion Post Generic Rollouts Prompted Minimal Collatoral Damage Prozacs erosion post the rollout of generics occurred at an unprecedented rate, declining 33% in the first week and 40% in the second. This decline occurred despite the fact that, while three generic companies have launched, only Barr Labs markets the 20mg capsule, by far the most frequently-prescribed dosage, initially. Managed care organizations and large pharmacy chains perpetuated the erosion via unique incentives and other initiatives to encourage generic substitution. Lilly seeks to salvage the Prozac franchise with a variety of
new indications and formulations. Sales of Sarafem (fluoxetine for the treatment of premenstrual dysphoric disorder) are estimated at $120MM (+43%) in 2002 and $240MM in 2005. Prozac Once Weekly is useful for the maintenance of depression. Lilly has a study underway examining the efficacy of Prozac Once Weekly in patients switched from other SSRIs. Prozac Once Weekly sales are forecast at $75MM in 2002 and $150MM in 2005. Our physician consultants tell us that patients like the ease of once-weekly dosing and the fact that a once-weekly dose is a much less frequent reminder of their need to be treated for depression. However, the real world effectiveness of Prozac Once Weekly appears to be below Prozac 20mg once daily. Thus Prozac Once Weekly likely will remain only a niche opportunity.
SSRI NEW PRESCRIPTION MARKET SHARE

20% 18% 16% 14% 12% Prozac (LLY) 10% 8% 6% 4% 2% 0% 1/98 3/98 5/98 7/98 9/98 1/99 3/99 5/99 7/99 9/99 1/00 3/00 5/00 7/00 9/00 1/01 3/01 5/01 7/01 9/01 11/98 11/99 11/00 11/01 1/02 Zoloft (PFE) Paxil (SBH) Celexa (FRX) Effexor/Effexor XR (WYE)
Source: IMS America
Generic Prozac Not Depressing Other Branded Antidepressants Other branded antidepressants have not been impacted by the availability of generic fluoxetine thus far. The reasons: (1) Eli Lillys reduced promotional support for Prozac, allowing companies with competing branded products to have a greater share of voice; (2) While managed care accounts for approximately one-third of SSRI sales, perhaps 50% of managed care sales are in formularies where branded products are positioned as second tier (an on-formulary brand); and (3) Outside of the managed care formulary market, branded products appear on very solid footing due to aggressive pricing tactics. Additionally, there is historical precedent in other therapeutic categories where a leading brand was hit hard by generic competition, but other brands continued to grow (NSAIDs, H2 antagonists, ACE Inhibitors). Initially, Barr priced its generic Prozac at a 25-28% discount to brand Prozac, but numerous companies have launched generics post the end of Barrs exclusivity. Pricing for generic Prozac now is reported to be at a 90% discount to branded Prozac.
GlaxoSmithKlines Paxil Has Broadest Range Of Indications GlaxoSmithKlines pursuit of new indications for Paxil has allowed the product to gain market share, despite competition. The social phobia, general anxiety disorder, and post traumatic stress disorder claims are boosting Paxils competitive position. After losing new prescription market share to Zoloft in August, Paxil is now recovering with a 1% share gain in the three weeks since the DTC advertising began, which supports the new indication for generalized anxiety disorder (GAD). The patent estate for Paxil does not include a substance patent (expired 2000); but there are numerous other patents, including those covering polymorphic forms of the drug. These are expected to provide protection through 2006. Recently, Endo Pharmaceuticals filed an ANDA for paroxetine 40mg. Andrx and others have already filed for various strengths of paroxetine generic. A 30-month stay of generic approvals commenced in December. GlaxoSmithKline has already successfully defended a challenge to the patent on the hemihydrate form of paroxetine. Apotex filed an ANDA for the anhydrous from of paroxetine, but GlaxoSmithKline showed that it could only manufacture the anhydrous form by first producing the patented hemihydrate. Our view remains that Paxil will have exclusivity until the anhydous patent expires in 2006. The Japanese launch has been a huge success. Paxil CR has been approved for depression and panic in the U.S. but not yet launched. This formulation will be used for the premenstrual dysphoric disorder claim, which will be filed in 2002. Sales of the Paxil franchise are estimated at $2,950MM (+10%) in 2002 and $3,720MM in 2005.
Pfizers Zoloft Supported By New Indications And Pfizers Marketing Clout Zoloft is the leading SSRI for the treatment of depression in the U.S. and 8 other countries. Numerous indications support Zoloft, including post traumatic stress disorder, obsessive compulsive disorder, and panic. Zoloft is the only SSRI with a post traumatic stress disorder indication, and given a lifetime prevalence of 8%, 50% comorbidity with depression and Zolofts lead over competitive SSRIs, it represents an important indication. Pfizer also expects to file for additional indications (premenstrual dysphoric disorder, social phobia, dysthemia, and pediatric depression). Social phobia is the next indication Pfizer is pursuing, a market of about 10MM sufferers. The SADHART trial assesses Zolofts ability to improve outcomes in patients after a heart attack. Clinical studies for a premenstrual dysphoric disorder (PMDD) claim have been completed, and are being undertaken for pediatric use and treatment of social phobia. We peg Zoloft sales at $2,525MM (+7%) in 2002 and $3,000MM in 2005. Wyeths Effexor XR Positioned As First-Line Therapy For Depression Wyeth is aggressively promoting Effexor XR, a dual inhibitor of serotonin and norepinephrine reuptake, for the treatment of depression and generalized anxiety disorder. Data from a meta analysis of eight clinical studies revealed that Effexor XR is more effective than SSRIs, a significant advantage since our physician consultants believe that the depression market seeks products with greater efficacy. However, Effexor is associated with more side effects than SSRIs. Eli Lillys Duloxetine, which was filed in late 2001, represents a risk to Effexor given that Duloxetine is a mixed product at its lowest dose whereas Effexor is a pure SSRI at its lowest dose. Generics to Lillys Prozac, which have largely overtaken the fluoxetine market, have not hindered Effexors growth. Effexor XR is in development for the treatment of social anxiety disorder (NDA filing 9/2001) and panic (NDA 2002). We
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estimate Effexor sales at $1.85B (+20%) in 2002 and $2.85B in 2005. However, Wyeth believes that Effexor could reach $3B in 2004 (versus our $2.5B estimate). Forests Celexa Supported By Differentiated Label And Focused Marketing Celexas label is differentiated from the other SSRI antidepressants primarily on drug interactions and side effects. Celexa is associated with fewer drug interactions than other SSRIs, providing a safety advantage in the elderly patient population. 20-21% of Celexa prescriptions have been written for patients 60 years of age and older, versus 19-20% for the SSRI market overall. Celexa also is less activating than Prozac, although perhaps more activating than Paxil. Celexa causes anxiety at a rate of 4% (versus 3% for placebo) compared with 9% in Prozac-treated patients (versus 6% for placebo). A lower absolute rate of sexual dysfunction appears in Celexas label, although in clinical practice, Celexa has not shown a lower incidence. The degree of sexual dysfunction observed with Celexa appears to be on par with that of Zoloft, but perhaps less than that of Paxil. Lexapro Waiting In Wings, Ready For A Mid-2002 Launch -- Lexapro is the active enantiomer of Celexa, which was developed by Lundbeck. Forest has the exclusive U.S. marketing rights to Lexapro; Lundbeck will market Lexapro as Cipralex in Europe. Forest filed an NDA for Lexapro for the treatment of depression in late-March 2001. In support of the filing, eight Phase III trials involving 2,350 patients (975 of whom were on Lexapro) were conducted in the U.S., Europe and Canada. Forest could receive an Approvable letter for Lexapro from the FDA this month (at the ten-month PDUFA deadline), but we project a June 2002 market launch, following new data presentations at the American Psychiatric Association (APA) meetings in May. Forest may have as long as thirty months to convert the Celexa franchise over to Lexapro before generics of Celexa hit the market. Based on current regulations, generic competitors cannot file ANDAs until Celexas exclusivity lapses in January 2004 (Q4:F04), including an assumed pediatric extension. Thus, generics may not emerge until early 2005 (Q4:F05). Lexapro is protected by a substance patent through 2009 and other patents through 2011. We estimate sales of Lexapro at $455MM in F2003, $1.0B in F2004, and $1.5B in F2006.
Lexapro Has Several Differentiating Features

Lexapro Phase III data were presented at the May 2001 APA meetings, including a Lexapro versus Celexa comparison study. Lexapro 10mg and 20mg doses showed statistically significant improvement in efficacy versus placebo on all depression score endpoints. Importantly, Lexapro showed rapid onset of action, demonstrating statistically significant improvement in efficacy scores relative to placebo at week two in the depression studies. Most SSRI antidepressants (including Celexa) begin to show statistically significant differentiation from placebo at weeks 4-8. Lexapro was well tolerated, showing no statistical difference from placebo in discontinuation rates due to adverse events. Pooled analysis of the Phase III studies showed that Lexapro 10mg and 20mg produced larger improvement versus placebo on various efficacy endpoints than did Celexa 20mg and 40mg, and the Lexapro arms demonstrated faster onset of antidepressant activity than did Celexa (onset at week two versus week six for Celexa). Lexapro 10mg also appeared to be better tolerated than Celexa 20mg.
Strong Comparative Data, Broader Label, Expanded Sales Force Are Pluses
Our physician consultants believe that the Phase III comparison study results are robust enough for Forest to successfully differentiate Lexapro from Celexa, and allow Forest to convert most of the Celexa franchise to Lexapro prior to generic competition for Celexa.
Based on the Phase III data, our physician contacts view Lexapro as superior to Celexa in terms of dosing (the 10mg Lexapro dose is effective in most patients), tolerability, and drug interaction profile. Given the positive reception, we believe that Lexapro could expand the overall market share of the franchise by a 1-3 percentage points. We believe that Forest management plans to position Lexapro as an advanced treatment for depression, not just as a line extension to Celexa. Comparison studies of Lexapro versus other SSRI antidepressants are ongoing and are expected to be presented at the May 2002 APA meetings, just ahead of the Lexapro launch. Forest is expanding its sales force from 1,500 reps to more than 2,000 reps over the next several months; more than 1,500 of these reps will be supporting the Lexapro rollout. Forest also is pursuing additional indications for Lexapro, the first of which may be in anxiety-related depression and panic disorder.
ESTIMATED U.S. SSRI MARKET DYNAMICS
2000 2001 2002E 2003E 2004E 2005E CGR Comments
Total Rx's (MM) Rx Growth Rate Celexa Rx Share Celexa Rx's (MM) Average Daily Cost Celexa Sales ($MM) Lexapro Rx Share Rx's (MM) Average Daily Cost Escitalopram Sales ($MM) Combined Franchise Rx Share Rx's (MM) Average Daily Cost Combined Franchise Sales ($MM) % Growth Prozac Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Zoloft Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Paxil Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Effexor Franchise Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Prozac Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Sarafem Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth
85.9 +14% 12% 9.88 $2.20 $714
101.0 +18% 15% 14.86 $2.20 $981
111.1 +10% 14% 15.83 $2.20 $1,045 3% 3.48 $2.20 $230
121.1 +9% 6% 7.58 $2.20 $500 13% 15.91 $2.20 $1,050 19% 23.48 $2.20 $1,550 +22% 1% 1.21 $2.75 $100 23% 27.36 $2.65 $2,175 23% 27.92 $2.65 $2,220 13% 16.15 $3.20 $1,550 17% 20.00 $0.30 $180 2% 1.87 $2.85 $160 3% 3.13 $2.50 $230 $8,165 +11%
128.4 +6% 4% 5.30 $2.20 $350 16% 20.45 $2.20 $1,350 20% 25.76 $2.20 $1,700 +10% 0% 0.61 $2.75 $50 22% 28.62 $2.65 $2,275 23% 29.43 $2.65 $2,340 14% 18.54 $3.20 $1,780 13% 16.67 $0.30 $150 2% 2.34 $2.85 $200 5% 6.44 $2.50 $480 $8,975 +10%
135.5 +6% 2% 2.27 $2.20 $150 18% 24.24 $2.20 $1,600 20% 26.52 $2.20 $1,750 +3% 0% 0.30 $2.75 $25 22% 29.87 $2.65 $2,375 23% 30.82 $2.65 $2,450 16% 21.15 $3.20 $2,030 10% 13.33 $0.30 $120 2% 2.81 $2.85 $240 8% 10.66 $2.50 $800 $9,790 +9%
+10% - Consistent market growth, moderating in 2003 - NRx share at 16.5% as of 11/2001 -25% - Celexa exclusivity runs through 1/2004, when ANDAs filed - Celexa priced at 25% discount to Prozac -27% - Franchise conversion to Lexapro (escitalopram) Slightly lower market share build to Celexa launch Lexapro launch expected in mid-2002 Lexapro assumed to be priced equal to Celexa Improved Lexapro efficacy and profile could add upside
12% 9.88 $2.20 $714 +67% 25% 21.72 $2.75 $2,218 26% 21.93 $2.65 $1,746 25% 21.40 $2.63 $1,690 9% 7.89 $3.20 $832
15% 14.86 $2.20 $981 +37% 18% 18.47 $2.75 $1,524 24% 24.26 $2.65 $1,929 24% 23.99 $2.65 $1,907 11% 11.44 $3.20 $1,098 6% 5.83 $2.00 $350
17% 19.32 $2.20 $1,275 +30% 2% 1.94 $2.75 $160 23% 25.79 $2.65 $2,050 24% 26.16 $2.65 $2,080 12% 13.70 $3.20 $1,315 19% 20.95 $0.35 $220 1% 1.40 $2.85 $120 2% 1.87 $2.50 $140 $7,360 -8%
- Still below Paxil and Zoloft; new indications add upside +22% - 2002 is important franchise transition year - Constant pricing assumed +20%
- Generics clip beginning 8/3/2001 -57% -59% - Marketing investment reduced in Q1:01 - Competitive market dynamics clips +6% - Increased concentration on Geodon may hurt +6% - Additional indications may add upside +8% +8% - Steady penetration assumed +22% +20% - Barr Labs 6 month exclusivity in 2001; launched 8/3/2001 - Multiple generic manufacturers assumed starting 2/2002
0% 0.18 $2.85 $15 3% 2.87 $2.50 $215 $7,430 +17%
1% 0.98 $2.85 $84 1% 1.19 $2.50 $90 $7,963 +7%
- Premenstrual dysphoric disorder +74% +74% - Steady share gains - BMY's Serzone, Novartis/Pharmacia's Luvox, generics +30% - LLY's Duloxetine in H2:2002/H1:2003 +30% +6% - Growth slowdown in 2001-2002, due to generic Prozac - Market re-accelerates via Escitalopram launch
Source: Company reports, IMS America, SG Cowen estimates
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Akzo Nobels Remeron Opportunity Clipped By Safety Profile Akzo Nobels Remeron is a noradrenergic and serotonergic antidepressant with a novel mechanism of action (negative feedback inhibition). Remeron blocks both alpha-2 and 5HT 2 and 3 receptors and may have effectiveness in patients refractory to other therapies. In one study, patients taking Remeron 15mg or 30mg daily showed a reduced dropout rate versus SSRIs (6.5% versus 11-15%). The drug has been a modest market performer for a couple of reasons. First, clinicians are not using high enough doses, and efficacy is not apparent at lower doses. Second, side-effects are an issue, including weight gain and sedation, especially at lower doses. Bristol-Myers Squibbs Serzone Destined To Remain A Second-Line Agent - Serzone will remain a second-line agent to the SSRIs for the treatment of depression. Its efficacy is on par with that of the SSRIs, it does not interfere with sleep and prompts less sexual dysfunction. However, it must be dosed twice daily, and it requires titration (SSRIs frequently are used once daily and do not require titration). Given these obstacles, BristolMyers marketing efforts have not been successful. Serzone sales are estimated at $370MM (+10%) in 2002 and $100MM in 2005, the decline prompted by the 3/03 patent expiration. Eli Lillys Duloxetine On Track For Q1:03 Rollout For Depression - Lilly is developing Duloxetine, a dual reuptake inhibitor of serotonin and norepinephrine, for the treatment of depression and stress urinary incontinence. For depression, Duloxetine may improve upon shortcomings of existing medications including low response rates, side effects, slow onset of action, and high relapse rates. Duloxetine may have application for the treatment of chronic pain, given evidence of effectiveness. Pain is common in patients who are depressed. Phase III studies of Duloxetine once daily showed superior efficacy to placebo after two weeks and this was maintained through week nine. Duloxetine is a true SSRI/SNRI at low doses and is not associated with hypertension, two potential advantages over Effexor. Lilly filed an NDA for depression in December 2001. We estimate Duloxetine sales for depression at $200MM in 2003 and $800MM in 2005. Pfizer/Interneurons Pagoclone Effective For Anxiety Pagoclone is a GABAa antagonist for the treatment of anxiety and panic. Three clinical studies have been completed, and two are ongoing to define Pagoclones time to onset. Pagoclone 0.3-1.2mg twice daily is effective with no withdrawal symptoms, a potential advantage versus benzodiazepines. We have no sales contribution for Pagoclone in our models. Mercks GABA-A alpha 2/alpha 3 Agonist Merck is developing a GABA-A alpha 2/alpha 3 agonist for the treatment of anxiety. Currently, it is in Phase II. It features a low incidence of daytime somnolence and no habituation. St. Johns Wort Not A Near-Term Threat - St. Johns Wort is a natural product found to have antidepressant properties. It is sold in health food stores as an herbal remedy and not marketed as an antidepressant. Small European studies have shown promising effectiveness. The natural product is a combination of at least five compounds, and the mechanism of action is unknown. Quality control is an issue, given that plant yields vary. We do not view St. Johns wart as a threat to the major antidepressant franchises. Mercks Substance P Antagonist In Phase III For Emesis And Depression Substance P is prevalent in the central nervous system of mammals, and may represent a new mechanism for treating depression. Merck is developing MK-869, a substance P antagonist, for the treatment of emesis and depression. The Phase IIa substance P antagonist
depression program confirmed proof of principle, and it moved to Phase III clinical trials in Q3:2001. We estimate MK-869 sales at $50MM in 2003 and $200MM in 2005. Phase II data from a randomized, placebo-controlled trial conducted at four sites revealed that MK869 was efficacious and well tolerated. In this study, patients with major depressive disorder were randomized to MK-869 300mg, Paxil 20mg, or placebo once daily. The primary endpoint was the 21-item Hamilton (HAM-D21) scale measured at weeks 1, 2, 4, and 6, or on termination. Secondary endpoints included the Hamilton anxiety (HAM-A) total score and the Clinical Global Impressions severity scale (CGS-I). The results show a 4.3 point difference in HAM-D21 score between MK-869 and placebo at six weeks (p=0.003). MK-869s efficacy was similar to Paxil, which showed a reduction in HAM-D21 of 3.6 points compared with placebo. While the antidepressant effect of MK-869 was robust overall, data from one center boosted MK-869s efficacy results. Indeed, differences from baseline to week 6 in the HAM-D21 of MK-869 at the four sites were -4.1, -6.6, -3.3, and -3.2 points. MK-869 was superior to Paxil in reducing insomnia and anxiety. These findings provide evidence that substance P antagonism is associated with antidepressant activity. The Phase II efficacy results are depicted below.
MEAN CHANGE FROM BASELINE TO WEEK 6 IN HAM-D21 TOTAL SCORES Investigator A B C D MK-869 Patients Mean Chg. 16 -19.94 14 -14.00 23 -10.35 14 -11.07 Paxil Patients 17 14 26 13 Mean Chg. -16.12 -12.57 -7.77 -19.00 Placebo Patients Mean Chg. 16 -15.81 14 -7.36 26 -7.04 13 -7.85
MEAN CHANGE IN HAMILTON DEPRESSION SCALE FACTORS Factors F1: Anxiety/Somatic F2: Cognitive Disturbance F3: Retardation F4: Sleep Disturbance Mean Changes From Baseline MK-869 Paxil Placebo -3.51 -3.73 -2.74 -2.63 -2.77 -1.84 -2.68 -4.40 -3.70 -2.42 -2.04 -1.58 P-Values MK-869 Vs. Placebo Paxil 0.124 0.044 0.001 0.012 Vs. Placebo 0.038 0.013 0.038 0.162
CHANGES FROM BASELINE IN HAM-D21 DATA (AS OBSERVED APPROACH) Week 1 Treatment MK-869 Paxil Placebo MK-869 Paxil Placebo MK-869 Paxil Placebo MK-869 Paxil Placebo Patients 66 68 64 63 58 63 60 49 60 55 47 55 Baseline 28.02 27.00 27.27 27.92 27.33 27.38 27.75 27.35 27.28 27.56 27.06 27.31 Mean Treatment 22.21 21.53 23.58 18.52 16.81 21.54 14.47 13.29 18.25 12.24 11.72 16.96 Difference -5.80 -5.47 -3.69 -9.40 -10.52 -5.84 -13.28 -14.06 -9.03 -15.33 -15.34 -10.35 P-Value 0.051 0.079 0.002 <0.001 0.001 <0.001 <0.001 0.001
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MK-869 was generally safe and well tolerated. Headache (32%), somnolence (20%), nausea (18%), and asthenia/fatigue (14%) were the most common side-effects observed. Sexual dysfunction occurred more frequently with Paxil than MK-869 (23% versus 3%, respectively).
INCIDENCE OF ADVERSE EVENTS GREATER THAN 5% Adverse Event Nervous System and Psychiatric Headache Somnolence Insomnia Irritability Nervousness Digestive Nausea Diarrhea Dry Mouth Flatulence Dizziness Anorexia Respiratory Upper Respiratory Infection Skin and Appendages Sweating Urogenital Total Sexual Dysfunction Decreased Libido General Sexual Dysfunction Ejaculation Disorder Impotence General Asthenia/Fatigue Abdominal Pain
Source: Science, September 1998
MK-869 32 20 11 7 1 18 11 9 7 7 4 6 3 3** 0 0** 3** 3 14 9
Percentage Of Patients Paxil 28 19 14 1 6 29* 15 8 3 8 11 8 11 26* 6 8* 20 10 19* 6
Placebo 24 9 9 0 4 10 9 7 4 6 3 3 3 4 0 0 7 4 4 3
*Paxil greater than placebo, P</=0.05. **MK-869 less than Paxil, P</=0.05.
G New Antipsychotics Blockbuster Potential Unfolding

Newer antipsychotic agents, such as Lillys Zyprexa, Pfizers Geodon and J&Js Risperdal, have been adopted rapidly, given that they offer comparable effectiveness to haloperidol, but cause less tardive dyskinesia. Our physician consultants expect substantial market expansion into diseases other than schizophrenia (bipolar disease, Alzheimers and Parkinsons disease-related psychoses), given this favorable side-effect profile, as well as the fact that newer atypical agents are now considered first-line agents in consensus guidelines. Schizophrenia represents 50% of the antipsychotic market, while bipolar disorder (30% dollar share), depression (10% dollar share), and dementia (8% dollar share) also represent large opportunities. Furthermore, many small studies have shown that the atypical agents can decrease length of hospital stay, increase compliance, and improve quality of life, compared with older typical agents. The conversion from typical to atypical agents occurred rapidly in the U.S. (80% atypical market share currently), with global markets lagging (about 30% atypical market share). Our physician consultants view the efficacy of the atypical agents as similar, despite conflicting results from various company-sponsored clinical studies.
U.S. ATYPICAL ANTIPSYCHOTIC MARKET DYNAMICS

2000 2001 2002E 2003P 2004P 2005P CGR Comments
Total Rx's (MM) Rx Growth Rate Medisorb Risperdal Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Zyprexa Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Risperdal Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Seroquel Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Geodon Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Abilitat Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Clozaril Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Clozapine Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Haloperidol Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth Rx Share
17.1 +16%
20.9 +22%
24.5 +17%
29.5 +19%
33.7 +15%
38.5 +17% - Newer treatments accelerate market growth +15% - Improved profile of new products increases penetration - Improved compliance could accelerate growth - Use in bipolar and other disorders could increase growth - Likely priced at a moderate discount to standard Risperdal - Estimates could be conservative due to enhanced dosing
1% 4% 4% 5% 0.17 1.10 1.50 1.83 $300.00 $300.00 $300.00 $300.00 $50 $330 $450 $550 30% 5.10 $9.00 $1,690 35% 5.97 $8.50 $1,084 11% 1.91 $5.00 $292 39% 8.06 $9.00 $2,176 23% 4.86 $8.50 $1,240 16% 3.34 $5.00 $501 3% 0.65 $7.50 $146 39% 9.54 $9.00 $2,575 21% 5.25 $8.50 $1,340 18% 4.33 $5.00 $650 5% 1.33 $7.50 $300 0% 0.09 $9.00 $25 5% 0.90 $3.00 $122 5% 0.82 $1.80 $44 10% 1.73 $1.00 $44 14% 2.36 $1.00 $40 $3,316 +32% 100% 6% 1.24 $3.00 $112 8% 1.62 $1.30 $63 10% 2.11 $0.80 $51 6% 1.17 $1.00 $35 $4,323 +30% 100% 4% 1.06 $3.00 $95 6% 1.53 $1.20 $55 9% 2.14 $0.70 $45 5% 1.17 $1.00 $35 $5,170 +20% 100% 37% 10.96 $9.00 $2,960 18% 5.29 $8.50 $1,350 18% 5.33 $5.00 $800 8% 2.22 $7.50 $500 5% 1.48 $9.00 $400 3% 0.94 $3.00 $85 4% 1.17 $1.00 $35 5% 1.39 $0.60 $25 4% 1.17 $1.00 $35 $6,520 +26% 100% 36% 12.02 $9.00 $3,245 16% 5.29 $8.50 $1,350 18% 6.00 $5.00 $900 9% 3.11 $7.50 $700 9% 2.96 $9.00 $800 2% 0.78 $3.00 $70 3% 0.95 $0.70 $20 4% 1.25 $0.40 $15 3% 1.17 $1.00 $35 $7,585 +16% 100%
34% - Competition could clip, but should remain market leader 13.06 +13% - Additional indications (bipolar depression and maintenance) $9.00 likely in 2003 $3,525 +13% - Weight gain issues remain, but solid efficacy fuels growth 14% 5.29 $8.50 $1,350 - Steady franchise growth assumed with Medisorb Risperdal +2% - Potential OROS once-daily formulation could add upside +2% - Franchise expanding
19% 7.33 +22% $5.00 $1,100 +22% 10% - Better label than expected; no black box warning 4.00 +58% - Indicated for first and second line usage $7.50 - Priced at a discount to Zyprexa $900 +58% - No associated weight gain and no EKG monitoring required 12% 4.44 $9.00 $1,200 2% 0.61 $3.00 $55 2% 0.95 $0.70 $20 3% 1.25 $0.40 $15 3% 1.17 $1.00 $35 -16% -16% -12% -25% -12% -26%
+0%
$8,750 +19% - Newer treatments accelerate market growth +15% - Improved profile of new products increases penetration 100%
Lillys Zyprexa Bolstered By New Indications; Launch In Japan - Lilly has continued to grow Zyprexa (schizophrenia, bipolar disorder, dementia), based on new indications and formulations and foreign rollouts. Zyprexas advantages include solid efficacy in positive and negative symptoms; no tardive dyskinesia, cardiovascular toxicities or prolactin elevation; and a low incidence of extrapyramidal symptoms. In June, Lilly launched Zyprexa in Japan and it has captured 21% dollar share of the market. Future growth opportunities for Zyprexa include indications for bipolar depression (NDA 2002) and maintenance (NDA 2003), launch of the rapid-acting intramuscular and long-acting depot formulations, and re-launch of Zyprexa Zydis in 2002. Lilly is preparing for the Q4:02 launch of Bristol-Myers Squibbs Abilitat by focusing on Zyprexas efficacy. We estimate sales of Zyprexa at $3,650MM (+18%) in 2002 and $5,000MM in 2005.
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ANTIPSYCHOTIC MARKET
40.0% 35.0% MARKET SHARE 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% May-01 Dec-00 Apr-01 Jul-01 Aug-01 Sep-01 Nov-01 Jan-01 Mar-01 Jun-01 Dec-01 Feb-01 Oct-01 Jan-02
Geodon
Risperdal
Seroquel
Zyprexa
Source: IMS America
OFC Faces Many Marketing Challenges - Clinical development of the Zyprexa/Prozac combination (OFC) for treatment-resistant depression is progressing, with an NDA filing targeted for 2002-03. The combination may have an enhanced impact on levels of serotonin, dopamine, and norepinephrine, which may lead to a higher level of effectiveness. In small trials of patients with treatment-resistant depression, OFC showed effectiveness. However, data presented at APA revealed no statistically significant difference between OFC and placebo for the primary endpoint. Our physician consultants note that less resistant patients may have been present in these studies, and less resistant patients are more likely to respond to the single agents to which OFC was compared in these studies. OFC did improve MADRS, a secondary endpoint, compared with Prozac (p<0.05) and Zyprexa (p<0.05) in the larger study. Data for OFC in the treatment of psychotic depression (PD) also were presented at APA, and showed that OFC had superior efficacy versus placebo, but was not statistically different from Zyprexa, although it was not powered to show this difference. Treatmentresistant depression is a larger market than psychotic depression keyed to how treatmentresistant depression is defined. A lingering concern with OFC is the durability of the response: patients get well but do not appear to stay well. Lilly has presented no long-term data on OFC. Additionally, a lack of dosing flexibility, and the availability of generic fluoxetine, add to OFCs marketing challenges. But Side-Effect Issues Linger Lilly believes that the weight gain linked to Zyprexa is manageable, citing that (1) all atypical agents are associated with weight gain; (2) there is no dose relationship between weight gain and Zyprexa; and (3) weight gain is more prominent in patients with a low initial body mass index. We believe impact on glucose metabolism, and development of diabetes and diabetic ketoacidosis in the absence of weight gain, could prove troubling and this concern may be gaining momentum. Lilly has random blood sugar data in 5,000 patients showing no statistical difference in treatment-emergent hyperglycemia or diabetes, and views a Massachusetts General Hospital study which showed adverse blood sugar level changes as suffering from a small sample size.
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Johnson & Johnsons Risperdal Used Widely - Given its solid effectiveness and broad label, Risperdal is first-line therapy in some patients, and second line when cost is an issue. In August, JNJ filed an NDA on a depot form of Risperdal that is administered every other week. This depot delivery formulation uses Alkermess Medisorb delivery system. Depot forms have substantial compliance benefits, and Risperdal would be the first atypical to have this formulation. Despite concern among physicians, Risperdals propensity to raise prolactin does not appear to be an important issue in the majority of patients. Risperdal sales are forecast at $2,055MM (+11%) in 2002 and $2,665MM in 2005. AstraZenecas Seroquel Gaining Momentum - Seroquel has been moderately successful (about 18% new Rx market share in the U.S.), given reasonable effectiveness and good tolerability. Seroquel has not been marketed aggressively and requires patients to have baseline eye exams, which are repeated periodically thereafter. These exams are needed because of cataract formation in dogs, although cataracts apparently have not been seen in humans. In addition, Seroquel must be titrated. We project Seroquel sales at $950MM (+36%) in 2002 and $1,500MM in 2005. Pfizers Geodon Rollout Below Expectations - Geodon claims 3.2% NRx share of the schizophrenia market. This share appears modest in absolute terms, and is up only modestly since mid-2001. It now appears virtually certain that Geodon will undergo a long, slow rollout. This is despite the fact that Geodon offers a good label, with no black box warning, no EKG monitoring, and first- or second-line usage. There have been no cases of confirmed Toursade De Pointes (a life-threatening arrhythmia), no signal of cardiovascular risk, and no increase in overall mortality rates for patients treated with Geodon. However, there is extensive discussion of QTc wave prolongation in the warnings section of Geodons label. This labeling triggers cautionary flags in pharmacists drug interaction software, which provides an impediment to its prescribing. Pfizer seeks label revisions so these cautionary flags are not triggered. Lilly and JNJ have focused on Geodons QTc wave prolongation warnings, although Pfizer counters with charges of excess weight gain and glucose metabolism disturbances in patients on Zyprexa and prolactin elevation in patients on Risperdal. Lilly states that it is aware of a case report of significant Q-T wave prolongation in a patient on Geodon, and this case report has been submitted to a major medical journal. A Lilly-conducted Zyprexa versus Geodon comparative trial is due in mid-2002. Data from a Pfizer-conducted head-to-head trial comparing Geodon with Zyprexa were presented at the American Psychiatric Association in May, and showed comparable efficacy with less weight gain, lipid elevations, and glucose changes. In this study, Geodon was dosed at 130mg and Zyprexa at 11mg daily. Our physician consultants note that the average dose of Zyprexa in clinical practice is 15mg. The low dose of Zyprexa used in this study was an easier comparison for Geodons efficacy, but the higher dose for Geodon prompted extrapyramidal symptoms (EPS). The EPS seen in this study also may stem from other drugs these patients were taking at the time. Thus, this study was not a representative comparison of either drug, although this is not unusual in company-sponsored studies. Large outcome studies are ongoing to fully assess Geodons cardiovascular safety profile. In the U.S., Geodon was launched at a price discount to Zyprexa. Geodon has been launched in Sweden, although other European approvals were delayed pending the addition of new data to the application. Regulatory approval in Europe now is expected by 2002. Geodon sales are forecast at $300MM (+100%) in 2002 and $900MM in 2005, modest reductions from our last-published forecasts. Geodon has been added to all state Medicaid formularies and is used in more than 1,200 hospitals/clinics. The FDA Psychopharmacological Drugs Advisory Committee
recommended approval of the intramuscular form of Geodon in February, although more safety data was filed and the application resubmitted in 12/01. Novartis Zomaril Offers Balanced Profile - Zomaril is in Phase III targeting indications of schizophrenia/psychosis, improvement in positive and negative symptoms, and improvement in associated cognitive dysfunction. It offers a balanced receptor profile, blocking dopamine, noradrenaline and serotonin receptors. A global Phase III program is underway in 3,300 patients in 26 countries, encompassing three pivotal studies, three long-term studies, and studies of psychotic symptoms in dementia. However, a third Phase III trial is necessary since the second pivotal was not statistically significant. The new trial will utilize a higher dose administered once daily. Previous trials have shown that Zomaril is as effective as Haldol at doses of 4, 8 and 12mg, as measured by PANSS total scores, and that it offers a superior sideeffect profile. A depot clinical development effort is in the works. We estimate Zomaril sales at $60MM in 2004 and $180MM in 2005. Bristol-Myers Squibbs Abilitat Holds Promise In Schizophrenia Abilitat is an oral, once-daily D3 agonist, D2 antagonist that acts as a presynaptic autoreceptor agonist. Its presynaptic blockade of D3 receptors disengages the feedback loop which is activated by D2 antagonism. Bristol and Otsuka are co-developing the compound in the U.S. and Europe, and Bristol has exclusive rights in other international markets (ex Europe and Japan). Bristol will pursue Abilitat for schizophrenia initially, and additional indications are planned. Bristol also is developing an intramuscular formulation. Head-to-head data was presented on Abilitat versus Risperdal for the treatment of schizophrenia at the American Psychiatric Association meeting in May. Abilitats effectiveness was superior to placebo and comparable with Risperdal. Our physician consultants had hoped Abilitat would show greater effectiveness than existing atypicals due to its novel mechanism. The Risperdal 6mg used in the study is above the most commonly prescribed dose of 5mg. Risperdal 6mg is associated with more side effects without additional efficacy. Thus, the study may not have been a fair comparison. Abilitats side effects continue to look benign. Indeed, it has little impact on prolactin, EKG, EPS, or weight gain. In short-term studies, Abilitat generated appreciably less weight gain than atypicals. The fact that Abilitat 20mg and 30mg delivered similar efficacy suggests that the dose-response curve may have been missed. Our physician consultants believe it is too early to determine whether dosing is problematic. Additional trials should clarify this issue. Abilitats NDA was filed in October. We understand that Bristol waived its rights to an expedited review given that it would have required positioning Abilitat within a new class. Leaning conservatively, Bristol apparently preferred being the sixth agent within an established, rapidly-growing class. 3800 patients have been treated with Abilitat in clinical trials, 1200 of whom for more than six months and 800 for more than one year. Abilitat is dosed once daily and requires no dose titration. Given Abilitats very clean safety profile, our physician experts believe it only needs to be no worse than competitive agents on effectiveness to be successful. Novartis Clozaril Is Used Widely, But Side Effects Limit Usage - Clozaril is used widely, given high efficacy in the treatment of psychosis, including treatment-resistant cases. It does not cause a serious side-effect, tardive dyskinesia. However, it causes a life-threatening sideeffect, agranulocytosis (depression of white blood cells), in 1% of patients taking the drug, so blood monitoring is required. This substantially limits its utility, given the difficulty in closely monitoring patients with schizophrenia. Generics of Clozaril are available from Zenith and Mylan, and they claim about 45% of the Clozapine market. While the discount from the brand price is only on the order of 10% or so for the Zenith product, Zenith has instituted a very good patient monitoring program. Mylan has developed an in-house
monitoring program that similarly should gain good acceptance over time. Pharmacokinetic data on generic clozapine shows that the bioavailability of generic clozapine may differ from Clozaril. However, the data suggest that generic clozapine may have lower peaks than Clozaril, leading to fewer side-effects versus the brand. For these reasons, as well as the fact that Clozapine is a very useful drug that is probably underutilized, our consultants look for good growth in generic Clozapine. We estimate sales of Clozaril at $265MM (-17%) in 2002, declining to $190MM in 2005 due to generic competition.
KEY PATENT EXPIRATIONS IN ANTIDEPRESSANT/ANTIPSYCHOTIC CATEGORIES
Drug Serzone Celexa Zoloft Paxil Effexor Risperdal Escitalopram Zyprexa * Includes pediatric extension Manufacturer Bristol-Myers Squibb Forest Laboratories Pfizer GlaxoSmithKline Wyeth Johnson & Johnson Forest Laboratories Eli Lilly Patent Expiration 3/03 1/04* 12/05 2006 8/07 12/07 2009 4/11 Sales in Year Patent Expires ($MM) $270 500 2,375 -----------
G Growth In Migraine Market Re-Accelerating

The migraine market should continue to grow, given the vast untreated population of patients and multitude of emerging treatment and preventive agents that are highly effective and safe. Unfortunately, newer agents have been launched with messages highlighting weaknesses in competitive products, rather than with messages targeting market expansion. Nonetheless, we believe that the market will grow over time, as the prevalence of migraine is reported to be 10%+ in the general population, and one half of these patients may need treatment. We believe that the migraine market, which was in the vicinity of $2B in 2001, could total $3.5B in 2005, as patients seek help spurred by the pharmaceutical industrys powerful marketing and awareness programs. Conversion of patients from older therapies to newer therapies is the most likely source of growth because these patients were severe enough to seek treatment initially. Treatment of nave patients is less likely because these patients tend to be milder. More than one-half of patients now on therapy are taking older drugs. Indeed, 3MM patients in the U.S. are treated with a triptan per year, while 5MM people receive prescription medications other than triptans for the treatment of migraine. Lost worker productivity provides an economic justification for increased penetration of this underserved market. GlaxoSmithKlines Imitrex has benefited from these market dynamics, although competitive triptan agents are very similar. The companies best situated to enjoy a resumption of growth are AstraZeneca, GlaxoSmithKline, Merck, and Pfizer in migraine treatment and Abbott Laboratories in migraine prevention.
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MIGRAINE MARKET
1999-January 2002 MARKET SHARE
60.0%
50.0%
40.0% % of Market
30.0%
20.0%
10.0%
0.0% Oct-99 Oct-00 Oct-01 Apr-99 Apr-00 Apr-01 Aug-99 Aug-00 Aug-01 Dec-00 Dec-99 Dec-98 Dec-01 Jun-99 Jun-00 Feb-99 Feb-00 Feb-01 Jun-01
Amerge
Duradrin
Imitrex Line
Maxalt
Zomig
Source: IMS
GlaxoSmithKlines Imitrex 100mg Supporting Franchise Imitrex (sumatriptan, marketed as Imigran outside the U.S.) for migraine has good effectiveness and the broadest range of dosage forms available. Competing products from AstraZeneca (Zomig), Merck (Maxalt), and Pfizer (Relpax) offer no significant advantages, although competition from these products and minimal market growth have affected Imitrex sales. Three million patients in the U.S. are treated with a triptan per year, while 5MM people receive prescription migraine medications other than triptans. GlaxoSmithKline is focusing on garnering a share of patients who are being treated with other therapies (i.e., with NSAIDs or Coxibs) as they are not being treated appropriately. Imitrex 100mg was launched in October and has superior efficacy compared with Imitrex 50mg. There is no increase in cardiovascular side effects with Imitrex 100mg compared with Imitrex 5 mg. GlaxoSmithKline is marketing Imitrex injection for the treatment of patients suffering from early morning migraines based on its relatively short onset (5-10 minutes). We forecast Imitrex sales at $1,190MM (+9%) in 2002 and $1,400MM in 2005. AstraZenecas Zomig Differentiated By CIMAs DuraSolv Formulation - Zomig (zolmitriptan) is very similar to Maxalt and Imitrex. However, it differs from Imitrex in that it penetrates the central nervous system (CNS) receptors, in addition to peripheral receptors; hence, it may work earlier in the migraines course, such as during an aura. This theory is based on limited data and remains unproven; indeed, GlaxoSmithKline claims that Imitrex is useful during an aura. Zomig is available in all major European markets. Cardiovascular class warnings, similar to that for Imitrex, are in Zomigs label. AstraZeneca also markets a fastdissolve Zomig-ZMT tablet (zolmitriptan for migraine). As of January 2002, Zomig-ZMT new prescriptions had reached 9.8% of total Zomig franchise new prescription share in the U.S. Zomig is marketed worldwide by AstraZeneca, and we estimate worldwide sales of $330MM (+19%) in 2002, rising to $405MM in 2005. The DuraSolv formulation of Zomig has been marketed in Europe since September 1999. In September 2001, AstraZeneca received FDA
approval for the 5.0mg dosage form of Zomig-ZMT (estimated at roughly 50% of Zomigs U.S. franchise); AstraZeneca launched this new dose in Q4:2001. AstraZeneca also is developing an intranasal form, which is in Phase III, and is expected in the U.S. in Q1:02. Zomig is in Phase II in Japan. Mercks Maxalt Market Share Increasing Steadily - Maxalt (rizatriptan) now has a 13.0% share of the market (versus 11.8% in January 2001). Maxalt reduces blood vessel swelling, blocks the normal inflammatory response to swelling, and interrupts the pain signal to the brain (Maxalt crosses the blood brain barrier, similar to Zomig, although the importance of this is debatable). Maxalts efficacy appears on par with competitive triptans. Merck has data showing Maxalts superiority to Imitrex in terms of relief: 31% more patients experienced pain relief at one hour; 23% more patients were free of pain at two hours; 28% more patients were functioning normally at two hours; and 21% fewer patients had adverse drug-related events. However, competitors also have compiled similar data showing their products to be superior. Merck does not look for the migraine market to pick up steam, but looks for Maxalt to gain share within the market. We peg sales of Maxalt at $365MM (+35%) in 2002 and $700MM in 2005. Detailed below are data for Maxalt 5mg and 10mg vs. Imitrex 100mg.
MAXALT: EFFICACY AND SIDE-EFFECTS AT TWO DIFFERENT DOSES (% OF PATIENTS)
Headache relief at 2 hours Dizziness Somnolence (drowsiness) Maxalt 5mg 62% 5.5 7.3 Maxalt 10mg 71% 7.8 8.5 Imitrex 100mg 61% 9.0 7.2
Maxalt MLT Quick-Dissolve Formulation Offers Greater Convenience - Maxalt MLT is an oral rapidly dissolving tablet that utilizes R.P. Scherers Zydis technology. The product offers greater convenience in tandem with an equivalent therapeutic profile to the Maxalt oral tablet formulation. The drug is useful for patients who do not want to swallow a tablet because of nausea caused by a migraine attack. Maxalt MLTs efficacy and side-effect profiles are not differentiated from Maxalts regular formulation. Pfizers Relpax Cardiovascular Study May Allow For Higher Doses Relpax received a second approvable letter that required conducting a short-term cardiovascular study, which will be filed with FDA in Q1:02. This study apparently is necessary given Pfizers pursuit of the 80mg dose of Relpax in an effort to achieve superior effectiveness versus competitive products. The 80mg dose is key to success, although two 40mg tablets may be required to achieve the dose. The FDA may not approve an 80mg tablet due to fears that patients may inadvertently ingest two 80mg tablets, which could lead to complications. Pfizer has two studies at 80mg and one study at 40mg, each showing superiority to GlaxoSmithKlines Imitrex. Another study at 40mg is underway. Pfizer will launch Relpax with a large sales force, tempering any questions about its commitment to this market, but the sales force might not be as large as that marketing Geodon. Relpax is approved in its full dosage range in about two dozen countries, and a number of additional rollouts are on tap. Relpax also has been filed in Japan, and post approval, will be the first triptan on the Japanese market. Relpax sales are forecast at $100MM in 2003 and $300MM in 2005. GlaxoSmithKlines Amerge Occupies Migraine Niche - Amerge (naratriptan) has a higher oral bioavailability, longer half-life (6 hours vs. 2.5 hours for Imitrex) and increased lipophilicity compared with Imitrex. Given this kinetic profile, Glaxo conducted Amerge studies looking at peak headache relief at 4 hours, rather than the standard 2 hours. Advantages of this agent are that it is gentler and is associated with fewer adverse reactions. However, it takes longer to work (onset of relief at 60 minutes vs. 30 minutes for Imitrex
tablets). Amerge ultimately might be useful in patients with migraines that build over several hours. Amerges label includes cardiovascular class warnings and additional contraindications in severe renal or hepatic impairment not in Imitrexs label. Amerge sales are estimated at $235MM (+62%) in 2002 and $330MM in 2005. Novartis D.H.E. 45 And Migranal Effective Second-Line Therapies - Novartis D.H.E. 45 is an injectable, and Migranal is a nasal spray formulation of dihydroergotamine (D.H.E.). It has been available since 1945 as an injectable. In head-to-head trials, it has been shown as effective as injectable Imitrex, and it is sometimes tolerated by patients who cannot tolerate Imitrex. Data suggest that Imitrex has a 40% migraine recurrence rate while D.H.E. has an 18% recurrence rate. Small Portion Of Abbotts Depakote Sales Derived From Migraine Market - Depakote (divalproex) sales are driven by an expanded dedicated sales force and new indications, such as bipolar disorder and, to a lesser extent, migraine prophylaxis and complex partial seizures. Depakote migraine sales are estimated at $100MM in 2002, rising to $130MM in 2005, roughly 10% of total Depakote sales. Depakotes patent expires in 2008. Bristol-Myers Stadol NS Is Mainly A Rescue Medication - Stadol NS (butorphanol) is a nasal spray formulation of butorphanol (mixed agonist/antagonist narcotic) for the treatment of migraine and other pain. It is used as a rescue medication, especially in patients who only have occasional migraines. Our physician consultants have found that patients either tolerate the drug well or not at all. They anticipate that, as patient education improves, Stadol usage may be clipped because of the risk of addiction. Indeed, Stadol NS is listed as a Class IV controlled substance, given concerns about abuse potential. Stadol NS sales are estimated at $50MM in 2002 and $20MM in 2005. Frova Potential Depends On Elans Ability To Differentiate The Profile Frova (frovatriptan) was approved in the U.S. in November 2001; we look for a Q1:02 market launch. The Frova NDA was filed by developer Vernalis, plc in February 1999, but approval was delayed by an October 1999 FDA request for additional animal carcinogenicity data. Frova is indicated for the acute treatment of migraine attacks in adults. While the triptan class of antimigraine agents is a crowded field, with six triptans currently marketed, Frova may be differentiated by a longer half-life than the competitive agents (23 hours, 3-4 times that of other triptans), which results in longer duration of action and a lower migraine recurrence rate. In 1,600 patients studied, the reported migraine recurrence rate for Frova has been in the 9-14% range, versus 17-40% for other triptans. This low recurrence rate could carve a niche for Frova as an earlier-use agent, as migraine prophylaxis for patients subject to migraine aura prior to onset of the headache. However, the approved Frova label language does not differentiate Frova from other triptans on any feature other than half-life, which will create a marketing challenge. Elan is conducting several Phase IV studies to support the Frova launch; studies in early onset migraine and pre-menstrual migraine could be completed this year. We estimate Frova sales at $40MM in 2002, rising to $70MM in 2003 and $100-120MM in 2005, based on a 4% prescription share of the triptan market in 2005. Frovas ultimate sales potential is heavily dependent on Elans ability to differentiate the drugs profile via additional clinical data. Purdue Pharmas Ganaxolone May Prove Effective With A Lower Incidence Of Side-effects - Ganaxolone, a synthetic analog of naturally occurring neuroactive steroids, acts through the GABAA receptor complex. The precise mechanism of action is not known. In a Phase II, double-blind, placebo-controlled study in 252 premenopausal women ages 18 to 55 with moderate-to-severe migraine, a dose-response relationship was seen between Ganaxolone and
pain relief. In patients with drug levels between 40-80ng/ml, 50% had pain relief at two hours, and 62% at four hours. At plasma levels above 80ng/ml, 61% had pain relief at two hours and 87% at four hours. No serious adverse events were seen. Based on clinical safety information and the different pharmacology of ganaxolone, the compound may not have the coronary risks reported with the triptans. Forests ALX-0646 In Early Clinical Development For The Treatment Of Migraine - Forest licensed the worldwide marketing rights to ALX-0646 from NPS Allelix. Forest paid an upfront, undisclosed amount to NPS Allelix. ALX-0646 is a triptan that may avoid the cardiovascular side-effects associated with other triptans; however, there is no data yet to support this claim. An international Phase I trial has been completed with ALX-0646, but it is in preclinical development in the U.S. Forest plans to initiate Phase II trials in late-2002. We have no sales contribution for ALX-0646 in our models. Neurokinin-1 Antagonists Are Too Early To Call - Eli Lilly, GlaxoSmithKline, and Aventis each are developing Neurokinin-1 antagonists. These agents block chemical mediators found in synapses that mediate neurogenic inflammation. However, the role of inflammation in migraine, and resulting fluid leakage around cerebral vessels, is controversial. The approach apparently has not worked in acute migraine treatment, but other pain models are being explored. We have no sales expectations for these products in our models.
KEY PATENT EXPIRATIONS IN MIGRAINE CATEGORY
Drug Migranal Imitrex Depakote Maxalt Zomig Amerge Relpax Manufacturer Novartis GlaxoSmithKline Abbott Merck AstraZeneca GlaxoSmithKline Pfizer Patent Expiration 2003 12/06 2008 1/12 2012 8/12 8/13 Sales in Year Patent Expires ($MM) $60 -------------
G Multiple Sclerosis Is An Incurable And Often Debilitating Disease Multiple sclerosis (MS) is the most common cause of non-traumatic disability in young adults (median age of peak onset ~24), affecting an estimated 350-500,000 patients in the U.S. and over 1MM people worldwide. A chronic inflammatory disease of the central nervous system (CNS), MS results from the degeneration of the myelin sheath that surrounds neuronal axons. This sheath provides a form of insulation necessary for efficient and rapid conduction of electrical impulses along the axons. When it is damaged, neuronal signaling is hindered and disturbances in motor and sensory function result. The disease tends to progress over time; patients typically have periods of good health (remissions) interspersed with periods of debilitating disease flare (exacerbations). The four disease categories of MS include the following: Relapsing-remitting (RRMS): Recurring attacks, neurological dysfunction, periods of recovery and stability between episodes. Roughly 80% of MS patients begin with relapsing-remitting disease.
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Secondary progressive (SPMS): Slow neurological deterioration, typically with acute relapses in a patient who previously had relapsing-remitting disease (more than 50% progress to this stage). A major goal of therapy is to prevent or delay progression to secondary progressive disease. Primary progressive (PPMS): Gradual and nearly constant neurological degeneration from the onset of symptoms affecting approximately 10-15% of patients. Progressive relapsing (PRMS): Slow neurological deterioration from onset but with subsequent superimposed relapses. This is the least frequent type of MS disease progression affecting less than 5% of patients.
G New Drugs Are Changing The Treatment Landscape

Chirons Betaseron was the first drug approved for treatment for MS. However, newer drugs such as Biogens Avonex and Teva Pharmaceuticals Copaxone have become the drugs of choice because of their improved side-effect profile. These drugs are approved for use in patients with relapsingremitting disease of mild to moderate severity, but are regarded as efficacious in treating all forms of disease. Elan/Biogens Antegren holds promise as a combination agent with Avonex.
G Worldwide Multiple Sclerosis Market Grew At A Robust 27% In 2001

Worldwide sales of the disease modifying multiple sclerosis products including Avonex, Betaseron, Copaxone, and Rebif grew to $2.3B (+27%) in 2001. Sales in the U.S. market were up 27% to $1.25B driven by sales of Avonex (+28%) and Copaxone (+44%). The ex-U.S market grew to just over $1.0B, matching the 27% growth seen in the U.S, driven by growth of Rebif (+44%) and Avonex (+24%). We expect 2001-2005 worldwide market growth to moderate to the mid-teens, with the overall market approaching $4B in total sales by 2005-2006. Continued penetration of the worldwide MS market should be aided by earlier treatment and the introduction of novel treatments such as Elan/Biogens Antegren.
G Biogens Avonex Remains Most Widely Prescribed MS Treatment

Beta-interferons (including Biogens Avonex, Chiron/Schering AGs Betaseron, and Seronos Rebif) are recognized widely as the standard of care in MS. Research suggests that beta-interferons have multiple mechanisms of activity in MS. The primary mechanism of action is believed to be regulation of T-cell function and modulation of cytokine release (IL-2, gamma-interferon, and TNF). Although not a cure for MS, these drugs act to control relapses and may be effective in slowing the progression of some forms of the disease. Currently, Biogens Avonex is the top multiple sclerosis drug in the U.S. and as of January 2002, Biogen claims Avonex was the market share leader in Western Europe (in terms of patients). Among the beta-interferons, Avonex has the most convenient dosing (once-weekly intramuscular injection) and lowest side-effect profile. Although the product is maturing, there are several factors that should lead to continued, moderate sales growth: 1) physicians have indicated that they are likely to prescribe MS drugs to a growing percentage of patients, less than half of the 1MM multiple sclerosis patients WW are currently on therapy; 2) there is a trend toward earlier diagnosis and treatment for MS patients, which is supported by the results of several recent studies; and 3) we expect Avonex to expand its sales in relatively new and untapped patient markets, including monosymptomatic MS and secondary progressive MS. CHAMPS Data In Monosymptomatic MS Enhances Market Opportunity In September 2000, the NEJM published the results of the CHAMPS study (Controlled High-Risk Subjects Avonex Multiple Sclerosis Prevention Study). This was a study of monosymptomatic MS
patients (patients who experienced a single MS flare or disease exacerbation) using Avonex vs. placebo. At three years of follow-up, results showed that the probability of developing clinically definite MS was 44% lower for patients treated with Avonex vs. placebo (a second flare occurred in 35% of Avonex patients vs. 50% of placebo patients). Avonex patients had a statistically significant reduction in the volume of brain lesions as measured by MRI, as well as a significant reduction in gadolinium-enhancing lesions at 18-months. It is estimated that between 10-15% of patients have monosymptomatic MS. Biogen filed a supplemental biologics application (sBLA) for the inclusion of the CHAMPS study in Avonexs product label in late 2000 early 2001 and the company expects approval in the first quarter of 2002. IMPACT Data In SPMS Positive, But FDA Remains A Challenge The IMPACT trial treated 436 SPMS patients with either a placebo or high-dose Avonex (60mcg IM once per week) for 24 months. The primary endpoint of the study was slowing of neurologic disability progression as measured by the MS Functional Composite (MSFC) at month 24. Secondary endpoints included disability progression as measured by the EDSS, T2-lesion accrual and gadolinium enhanced lesions (baseline, 12-months, 24-months). Patients on Avonex demonstrated a 26.9% decrease in mean MSFC score change, and a 40.4% decrease in median MSFC score change vs. placebo. Results were statistically significant and indicated that Avonex slowed disease progression. The MSFC score is an average of three MS disability measures, a measure of mobility (time to 25 foot walk), upper-limb coordination (9 hole peg test), and cognitive function. The overall improvement in MSFC of patients on Avonex was driven solely by the 9-hole peg test (9-hole peg test, p=0.024; 25 foot walk, p=0.38; cognitive measures, p=0.061). There was also no difference between treatment and control in the EDSS measures, which like the 25-foot walk are based largely on assessments of mobility. Avonex significantly decreased the mean annual relapse rate, and increased proportion of relapse-free patients. Avonex also significantly decreased T2- lesion accrual and appearance of gadolinium-enhanced lesions. We believe these trial results demonstrate that Avonex is active in SPMS. However, the fact that EDSS score (the FDAs gold standard) was not positively impacted throws some uncertainty into the label expansion process. Thus, the burden lies with Biogen to convince the FDA that the MSFC scale, a relatively new scale used to assess MS disease progression, is a valid measure of progression in these patients. Avonex Unlikely To Give Up Leadership Position In The MS Market Any Time Soon - As one might expect, most investors are interested in the fundamentals of Biogens Avonex franchise and managements strategy for fending off eventual competition from Seronos Rebif. Contrary to conventional opinion on Wall Street, management believes that Avonex still faces a significant growth opportunity in the U.S. and Europe and that the company will be successful in adding 15,000+ new patients onto Avonex therapy in both 2002 and 2003 (translating into sales growth of $150MM+/year). In 2001, 20,000+ patients were added to Avonex therapy with between 10-11,000 patients added to Avonex therapy in the U.S. Biogen continues to forecast that the U.S. MS market is just 40% penetrated with 20,000 patients starting MS therapy annually. Biogen has not seen a slowdown in the number of new patients starting drug therapy and does not expect such a slowdown to occur before at least 2004. Assuming Avonex continues to attract a 60% share of new patients, Biogen should be able to grow its U.S. market by 12,000 persons annually. Seronos Rebif is pending FDA approval and will reach the U.S. market by May 17, 2003 at the latest. Biogen management noted that Rebifs availability is unlikely to entice patients on Avonex to switch therapies as dissatisfied customers rarely chose an alternative formulation of beta interferon (but rather switch to Copaxone). Biogen has succeeded in lowering the discontinuation rate of Avonex therapy from 2% per month to less than 1% per month, implying that the opportunity to switch patients from Avonex to Rebif will be modest.
Regarding new patients, Biogen expects that with Rebif on the market, Avonexs share of new prescriptions will be somewhere in the low 40s (Avonexs share of new scrips in European where it competes head-to-head versus Rebif) to 60% range (Avonexs current U.S. share). In Europe Avonex appears to have rebounded despite the increasingly competitive environment. The market share loss Avonex experienced in Europe in 2000 appears to have subsided as Biogen indicated that Avonexs European market share was stable throughout 2001. In fact, Avonex is now the market share leader in Western Europe, suggesting that the 6-month results of the EVIDENCE trial comparing Rebif to Avonex have not dramatically changed the dynamics of the European markets. We forecast 2002 worldwide sales of Avonex of $1,090MM and 2005 sales of $1,330MM.
G Benign Side-effect Profile Supports TEVAs Copaxone

While Copaxone offers no greater efficacy and requires daily subcutaneous injections vs. weekly intramuscular injections for Avonex, 2001 sales grew by 44% to $363MM, with approximately 80% of sales derived from the U.S. market. Copaxone appears to be gaining share in the U.S. at Betaserons expense, driven by use in a subset of early-stage patients who wish to avoid interferon-like side-effects. In August 2001, Copaxone received full approval throughout Europe via EU mutual recognition, and Copaxone is now approved in 39 countries worldwide including all major European markets. We expect ex-U.S. sales of Copaxone will be a major growth driver in 2002-2005 as it will be the only available disease-modifying MS agent that is not an interferon. This should provide a period of rapid early growth as the product rolls out in Europe and patients intolerant of the beta-interferons seek treatment. We forecast 2005-2006 sales of Copaxone $650-700MM.
G Seronos Rebif Looms On The Horizon

Seronos Rebif, like Avonex, is interferon beta-1a for the treatment of relapsing-remitting MS. On a molecular level Avonex and Rebif are virtually identical; the main difference is the dose and route of administration. Rebif is administered three times per week subcutaneously at one of two doses, 44mcg (high-dose) or 22mcg, while Avonex is administered as a weekly 30mcg intramuscular injection. Rebif is currently available in 67 countries, including most of Europe, but is excluded from the market in the United States by Avonexs orphan drug status (expires May 2003). Currently, Rebif is a strong competitor to Avonex in Europe due to aggressive marketing of the PRISMS data and a recent label expansion for the treatment of patients with early SPMS based upon the companys SPECTRIMS data. PRISMS was Rebifs pivotal Phase III study (Canada & Europe) in 560 mild-moderate RRMS patients receiving Rebif 44mcg, 22mcg, or placebo thrice weekly via subcutaneous injection. These data showed that overall, Rebif patients had a 32% reduction in relapse rate overall (similar to Avonex). At this years American Academy of Neurology (AAN), Serono presented 2-year open label extension data showing highdose Rebif (44mcg 3x/wk) was superior to the lower dose Rebif. Serono claims that Rebifs higher, more frequent doses are more effective treatments in MS than Avonexs lower, less frequent doses. Sales of Rebif appear to have benefited from this argument as the company claims greater than 50% of all new prescriptions written are for the more expensive, high-dose Rebif. Sales of Rebif in 2001 grew by 49% to $380MM. According to FDA guidelines, Rebif would be able to enter the U.S. market early if it demonstrated superior efficacy, superior safety, or if it in some way made a significant contribution to patient care. The EVIDENCE (EVidence for Interferon Dose-effect: EuropeanNorth American Comparative Efficacy Study) trial was designed by Serono as a head-to-head
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study to compare the safety and efficacy of Rebif and Avonex, in the hope that its results would allow Rebif to break Avonexs orphan drug status.
G Rebif Bests Avonex At Six Months In Head-To-Head Trial

The EVIDENCE trial is a 48-week trial of 677 patients enrolled at 56 centers in North America and Europe. Patients were randomized to high-dose Rebif (44mcg 3x/wk) or a standard-dose Avonex arm (30mcg IM once per week). Because of the different administration schedules, the study was not blinded to the patients, although the neurologists and radiologists assessing the primary and secondary endpoints were blinded. Results of the trial at 24 weeks were released at the World Congress of Neurology (WCN) in London on June 22. Rebif was statistically significantly better than Avonex for all primary and secondary endpoints studied, although Avonex did appear to be better tolerated. The primary endpoint was a comparison of the proportion of relapse-free patients after 24 weeks. 25.1% of patients treated with Rebif experienced a relapse during six months, compared with 36.7% of Avonex patients, a relative difference of 32%. These data resulted in an adjusted odds ratio to remain relapse-free of 1.9 (Rebif relative to Avonex), which was highly statistically significant (p=0.0005). The main secondary endpoint was the combined unique lesion count as measured by MRI over 24 weeks. Patients were scanned by MRI every month for six months to determine how many new T1 and T2 lesions appeared. Avonex patients had 50% more new lesions than did Rebif patients (p<0.0001). Other measures, including the average number of relapses in six months, relative risk of experiencing a relapse, and the need for steroids, also favored Rebif. However, Avonex did appear to be better tolerated in the study. Use of Rebif was associated with more injection site inflammation (43 of 339 patients on Rebif vs. 5 of 338 patients on Avonex), injection site reactions (33 patients on Rebif vs. 9 on Avonex), and elevated liver enzymes (14 patients on Rebif vs. 7 on Avonex).
G March Investigators Meeting Will Reveal 12-Month EVIDENCE Data

The 12-month EVIDENCE results will be presented formally on Friday, March 15th, in a special Investigators Meeting in Miami, followed by full presentation of the data on April 16th at the American Academy of Neurology meeting in Denver. While the aggregate data are not yet available, our consultants believe the 12-month data will probably continue to show some benefit in favor of high-dose Rebif as compared with Avonex. Nonetheless, as the six-month Kaplan-Meier curves for the two therapies did not diverge too widely and separation in other trials has declined over time, it is likely that Rebif's benefit at twelve months may be less robust than that seen six months. Key in our consultants opinions to driving any significant shift in current prescribing patterns will be the quality and separation of the 12-month efficacy data given the decades-long clinical course of MS.
G Rebif Could Break Orphan Drug Status, But History Suggests Otherwise
Serono filed the 6-month EVIDENCE data with the FDA in September of 2001 in an attempt to break Avonexs orphan drug exclusivity. The data was filed as an amendment to Seronos original BLA for which they received a complete response and under current PDUFA guidelines, this would represent a Class 2 resubmission, suggesting a 6-month review. Serono has announced they expect a decision from the Orphan Drug group at the FDA regarding Rebifs approval status. While we believe the 6-month EVIDENCE trial results suggest Rebif has a clinical benefit over Avonex, the probability that Rebif will break Avonexs orphan drug exclusivity seems somewhat remote when taking history into account. Under the Orphan Drug Act, a second product can break orphan drug exclusivity if: A) superior efficacy that is clinically
meaningful is demonstrated in a head-to-head trial, B) the product has a superior safety profile, C) the product is a major contributor to patient care. Serono is attempting to break Avonexs orphan drug exclusivity based upon superior efficacy. History suggests Rebif has a tough road ahead. In 19 years, no product has broken orphan exclusivity due to superior efficacy. We believe Seronos greatest challenge will be to prove clinically meaningful superiority given the long course of the disease and a 2-year standard time endpoint for currently approved MS products. Serono may also be hampered by the absence of EDSS data, which is the most widely accepted clinical endpoint in the U.S. Furthermore, given the fact that Rebif has a higher incidence of injection site reactions with a higher incidence of side effects, and more frequent injections, it does not demonstrate superior safety or represent a major contributor to patient care. Although we believe Rebif is unlikely to break Avonexs Orphan Drug exclusivity, we do believe Rebif will be a meaningful competitor in the U.S. after May 2003, and Rebif should continue to experience ex-U.S. growth in the mid-high teens through 2005. Rebifs 2005 sales should approach $1-1.2B.
G Elan/Biogens Antegren Appears To Have Remarkable Efficacy In MS

Antegren is a humanized monoclonal antibody designed to inhibit an adhesion molecule known as alpha-4 integrin, ultimately blocking white blood cell migration and the inflammatory effects of that migration. Originally developed by Athena Neurosciences in the early 1990s, Antegren completed Phase IIb studies for chronic multiple sclerosis and Crohns disease in 2001. Elan and Biogen have been collaborating on the development of Antegren via a 50/50 revenue- and expense-sharing partnership since August 2000. Elan and Biogen initiated Phase III studies for both the chronic multiple sclerosis and Crohns disease indications in Q4 of this year, and look to file a BLA for Crohns disease in H1:2003, followed by an MS filing in 2004. We peg
Antegrens sales potential in multiple sclerosis at $350-500MM, assuming 10-13% share of a $4B+ multiple sclerosis market in 2006-2007. Sales potential in the Crohns disease
indication is estimated at $100-150MM. Antegren Phase IIb Results Look Compelling Phase IIb multiple sclerosis data for Elan and Biogens Antegren (natalizumab; humanized monoclonal antibody to alpha-4 integrin) will be presented for the first time at the European Committee for Treatment & Research in Multiple Sclerosis meetings (ECTRIMS) in Dublin in September. Because the trial was completed last May, the results have been circulating in the clinical community, and we have been able to gain perspectives from several neurologists. Neurologists have expressed enthusiasm about the potential use of Antegren in multiple sclerosis patients either partially- or non-responsive to beta interferon therapy, which includes more than 50% of all multiple sclerosis patients an estimated $2B+ target market. And because Antegren acts by a different mechanism than beta interferon, neurologists believe the drug could be synergistic with beta interferons; that hypothesis will be tested in Phase III trials which include an Antegren/Avonex combination therapy arm. Antegren is a humanized monoclonal antibody designed to inhibit an adhesion molecule known as alpha-4 integrin, ultimately blocking white blood cell migration and the inflammatory effects of that migration. Elan and Biogen initiated Phase III studies for the multiple sclerosis and Crohns Disease indications in Q4, and look to file a BLA for Crohns Disease in H1:2003, followed by MS filings in combination therapy and monotherapy in late 2003-early 2004. In the Phase IIb monotherapy studies, efficacy was equivalent in the low dose (3mg/kg) to the high dose (6mg/kg); Elan and Biogen initiated Phase III with an average of the low and high
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dose. We estimate a 2004 launch of Antegren for Crohns Disease and a 2005 launch for multiple sclerosis. Antegren Showed Strong Efficacy On New Lesion Reduction And Exacerbation Reduction Measure In the Phase IIb multiple sclerosis study, 213 multiple sclerosis patients (2/3 of the patients had relapse-remitting M.S., 1/3 of the patients had secondary progressive M.S.) received monthly intravenous infusions of one of two doses of Antegren (3mg/kg or 6mg/kg) or placebo over a six month treatment period, for a total of six doses. The primary endpoint of the study was reduction in new gadolinium enhancing lesion formation; the secondary endpoints were reduction in exacerbations observed over the six months (primarily in the relapse-remitting patients), and reduction in disability progression, as measured by EDSS scores. 90%+ Reduction In GAD-Enhancing Lesions Achieved Antegren-treated patients showed a greater than 90% reduction in the formation of new gadolinium-enhancing lesions compared with placebo (as measured by monthly MRI scans) following six months of treatment, and reductions were evident as early as month one. These reductions were statistically significant. This response rate was similar in patients with relapse-remitting and secondary progressive forms of multiple sclerosis. Although data should not be directly compared across clinical studies due to differences in disease severity and treatment regimen, the Antegren results are superior to the package insert data for Avonex and Betaseron; Avonex shows a reduction in new GAD-enhancing lesion formation of 75%, while Betaseron shows a 79% reduction, both at two years. While the relationship between lesion formation and multiple sclerosis disease progression has not been clinically proven, these data imply a high disease activity level for Antegren. 50%+ Reduction In Exacerbations Also Superior To Beta Interferons The new data to be presented at the ECTRIMS meeting will be the exacerbation reduction data and disease progression score data, the secondary endpoints of the Phase IIb study. Our checks indicate that the Antegren-treated patients in the study showed a greater than 50% reduction in exacerbations over the six month treatment period. The package insert data for Avonex shows a 33% reduction in the annual disease exacerbation rate over two years of therapy, while the Betaseron insert shows a 31% reduction in exacerbations, also at two years of treatment. Disability Progression Scores Did Not Change Significantly Over Six Months Because the Phase IIb study was relatively short at six months, our clinical consultants indicate that there were only minor, non-statistically significant changes in the disease progression scores in the Antegren-treated arm relative to the placebo arm. Disease progression was measured by changes in the Kurtzke Expanded Disability Status Scale (EDSS scores). Neurologists have indicated that at least a year of treatment is likely to be required to see EDSS score changes in most multiple sclerosis patients. The Avonex label shows a 37% reduction in the rate of disability progression at two years. Antegren Looks To Be Well Tolerated Importantly, no immune response reactions were seen at six months, evidence that Antegren is well tolerated as a humanized monoclonal antibody. In the Crohns Disease studies (which used the same 3mg/kg and 6mg/kg oncemonthly infusion dosing), no infections were reported and the antibody response rate was only 8% at 36 weeks. Longer-term studies are important to determine long-term
tolerability, but as a humanized antibody, we expect Antegren to be well tolerated. The package inserts for Avonex and Betaseron indicate antibody response rates of 24% and 45%, respectively, at two years of treatment. Elan And Biogen Are Co-Developing Antegren Antegren originally was developed by Athena Neurosciences in the early 1990s. In August 2000, Elan and Biogen announced a 50/50 revenue and expense-sharing collaboration to develop, manufacture and commercialize Antegren. Biogen believes that Antegren could be a strong complement to its Avonex (interferon beta) franchise in multiple sclerosis, and a safe and effective treatment for Crohns Disease. We peg Antegrens sales potential in multiple sclerosis at $350500MM, assuming 10-13% share of a $4B target multiple sclerosis market in 2005-2006. However, proven efficacy in the 50%+ of multiple sclerosis patients that are non-responsive or only partially responsive to beta interferon therapy (a $2B+ treatment market) could add considerable upside to this estimate. Antegren PHASE III Studies For Multiple Sclerosis Started In November Elan and Biogen initiated three Phase III studies in November, two in MS and one in Crohns. In MS, Biogen and Elan are conducting a two-year placebo-controlled monotherapy study examining endpoints such as disability, exacerbation rates, and MRI scores. This study will be conducted mostly in Eastern European centers where beta interferons are not yet available. A second two-year study is enrolling patients on Avonex with disease activity despite background interferon therapy. This two-year trial will include a one-year interim look at MRI lesions and exacerbation rates that could support a registration filing if the data are as convincing as those from the Phase II trial. The combo therapy trial is expected to accrue patients in about six months, while it will take the monotherapy trial a bit longer (912 months) to accrue. Interim data from the combination therapy trial are expected in about 16 months. We project a BLA filing in H2:03 and a market launch by late 2004 or 2005.
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MULTIPLE SCLEROSIS DRUGS APPROVED AND IN DEVELOPMENT

Drug Avonex Company Biogen Indication Approved for treatment of relapsing forms of MS to slow the accumulation of physical disability and decrease the frequency of clinical exacerbations Administration 30 mcg injected once per week Sales In 2005 ($MM) $1,330
intramuscularly
Rebif
Ares-Serono Approved for reduction of exacerbations and disease progression in relapsing-remitting patients; in Europe only Chiron Approved for use in ambulatory patients with relapsing-remitting MS to reduce the frequency of clinical exacerbations Approved for the reduction of the frequency of relapses in patients with relapsing-remitting MS Phase III trials for MS commenced in November; could be synergistic with interferons
22-44 mcg injected sub-Q 3x/week
1,170
Betaseron
0.25 mg injected subcutaneously ever other day
815
Copaxone
Teva & Aventis
20 mg injected subcutaneously once per day
670
Antegren
Elan
3-6 mg/kg IV infusion once every 3-4 weeks
150
Source: Physicians' Desk Reference 1999 Edition; SG Cowen estimates
U.S. CENTRAL NERVOUS SYSTEM MARKET

Total Prescriptions (000's) % Market Share 1987* SSRI's Tranquilizers Antipsychotics Older Antidepressants Sedatives Anti-Convulsants Migraine Alzheimer's Total 112,211 6,215 40,194 34,033 11,132 543 204,327 2001 144,843 144,563 33,954 88,315 44,833 39,891 18,261 5,818 520,478 2002E 163,292 175,791 56,086 93,138 55,237 48,462 20,455 11,151 623,612 2005P 263,500 155,000 116,250 69,750 69,750 62,000 23,250 15,500 775,000 100% 1987* 55% 3% 20% 17% 5% 2001 28% 28% 7% 17% 9% 8% 4% 1% 100% 2002E 26% 28% 9% 15% 9% 8% 3% 2% 100% CGR 2005P '87-01 '01-05 34% 20% 15% 9% 9% 8% 3% 2% 100% NM +2% +13% +6% +2% +10% NM NM +7% +16% +2% +36% -6% +12% +12% +6% +28% +10%
127
CENTRAL NERVOUS SYSTEM R&D PIPELINE

Company Alkermes Elan Product Medisorb Risperdone Risperdal "Consta" Frova (Frovatriptan) P-C I II III NDA Sep-01 Feb-99 MKT Comments H2:02 Schizophrenia; with JNJ; 2 week depot injection formulation of JNJ's Risperdal; IM injection Q2:02 5HT agonist for migraine; long half-life,low recurrence rate; via Vernallis, plc; approved November 2001; follow-on studies ongoing to differentiate label H1:02 Quick-dissolve formulation for adjunctive treatment of Parkinsons Disease; from Cardinal/R.P. Scherer; to be marketed by Amarin Plc Jun-05 Attention deficit hyperactivity disorder; adults and children Osteoarthritis; approved for moderate to severe pain
Elan
Zelapar (selegeline Zydis)
H2:00
Eli Lilly Johnson & Johnson Mylan Laboratories Novartis Pfizer, Inc.
Atomoxetine Ultram/acetaminophen Emsam (Selegeline patch) Ritalin LA Geodon
Oct-01 Sep-99
May-02 H1:F03 Atypical depression; transdermal formulation; via Somerset Nov-00 Jun-05 ADHD; licensed from Celgene; chirally pure version of Ritalin Q1:02 Intramuscular formulation for acute psychoses; 5-10mg 3-4x per day; recommended for approval; additional safety data to be submitted Premenstrual dysphoric disorder
Pfizer, Inc. Watson Pharmaceuticals Wyeth Bristol-Myers Squibb Elan
Zoloft Emsam (Selegeline Patch) Effexor XR Aripiprazole Prialt (ziconotide)
Q1:01
May-01 24-Jun Atypical depression; transdermal reformulation; via Somerset Sep-01 Oct-01 Social anxiety disorder; panic (NDA 2002) Schizophrenia; D3 agonist, D2 antagonist, presynaptic autoreceptor agonist; with Otsuke
Dec-99 Jun-05 Non-opiate, neuronal CCB; intrathecal formulation for chronic neuropathic and malignant pain; approvable letter received 6/2000; FDA requested additional 18-month Phase III safety study 2/2002; via Neurex Nov-01 Dec-01 Jun-00 Mar-01 H2:02 ADHD; pulsitile release pattern; with Novartis and Cellgene 2002- Depression; inhibits serotonin and 03 norepinephrine; good efficacy and safety profiles Short-acting intramuscular; recommended for approval H1:02 Active enantiomer of Celexa; head-to-head comparison studies ongoing; dosing advantages versus Celexa; approvable 1/2002 Neuropathic pain; other pain conditions GABA analogue; neuropathic pain, add-on epilepsy, GAD in 2002; social anxiety, panic in 2004; fibromyalgia in 2005, monotherapy in epilepsy in 2006 Q1:02 Eletriptan; migraine; similar to competitive triptans; intranasal under review; 6-8 hour halflife; approvable; additional cardiovascular study underway Therapeutic Categories Outlook 3/2002
Elan Eli Lilly Eli Lilly Forest Laboratories
Ritalin QD Duloxetine Zyprexa Lexapro (Escitalopram)
Neurontin Pregabalin
Aug-01
Pfizer, Inc.
Relpax
128

Company Pharmacia Corp. Product Vestra/Reboxetine/Edron ax Aricept (Donepezil) P-C I II III NDA Apr-98 MKT Comments Selective noradrenaline reuptake inhibitor; for depression; launched in Europe Q3:97; not approvable in U.S.; outlook uncertain Alzheimers (acetylcholinesterase inhibitor); filed in Japan; PIII U.S. for dementia with cerebral vascular disease; PII U.S. for ADHD 2002 Depot formulation (with Alkermes) filed; bipolar, intramuscular injection PIII, mental retardation, elderly dementia PII/PIII 5HT1 agonist; nasal formulation filed for adolescent migraine; PII for needle-free injection formulation Neurotrophic neuroprotective agent; Alzheimer's (PIIb); amyotrophic lateral sclerosis (filed in EU) Additional indications, including Alzheimer's and Parkinson's disease related psychoses, mania (2003); formulations, including sustained release (2002) Anti-migraine second generation 5HT2D agonist; PIII adolescents, aura, cluster headaches; PII Japan; intranasal 2004 Parkinson's disease; marketed for ALS; expected launch in U.S./EU in 2004 2004 Stroke; traumatic brain injury; 5-HT1A-agonist 2004 ITB (intrathecal baclofen) therapy; orphan drug; with Medtronic Antipsychotic; D2/5HT2 antagonist 2003 2004 Monoclonal antibody; with Biogen; Phase IIb studies for chronic multiple sclerosis and Crohn's disease complete; pivotal Phase III studies started in Q4:01 H1:03 Nanoparticle formulation of Substance P antagonist for emesis, with Merck; part of multiproduct collaboration Spasticity, pain; improved formulation; Phase III development commencing New chemical entity for epilepsy; in-licensed from Dainippon; launched 4/2000 for refractory epilepsy indication; additional indications in development 2003 H1:02 Japan 2003 Glutamate mediator for treatment of withdrawal symptoms assciated with alcohol dependency; from Merck KgaA Sodium channel blocker; bipolar disorder acute and prophylaxis treatment SSRI; premenstrual dysphoric disorder controlled release formulation SSRI; depression - dispersible tablets
Eisai
Johnson & Johnson
Risperdal "Risperdal Consta" Imigran/Imitrex
Sep-01
GlaxoSmithKline
Dec-99
Sanofi-Synthelabo AstraZeneca
Xaliproden Seroquel
20022003
AstraZeneca
Zomig
20022003
Aventis Bayer Daiichi Dainippon Elan
Rilutek Repinotane (BAY x 3702 .30 i.v.) DL-404 AD-5423 Antegren
Elan
MK-869
H1:02
Elan Elan
Zanaflex MR (tizanidine HCI) Zonegran
Eli Lilly Forest Laboratories
Prozac Campral (acamprosate)
GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline
Lacmital Paxil CR/Seroxat Paxil/Seroxat
2002 2002 2002
129

Company Johnson & Johnson Product Reminyl P-C I II III NDA MKT Comments Cholinesterase inhibitor; approved for Alzheimer's; PIII for dementia and mild cognitive impairment Substance P antagonist; oral, qD; depression Substance P antagonist; oral, qD; treatment of chemotherapy-induced emesis Q1:F03 H1:F04 Parkinson's On/Off Syndrome; Phase III completed; open label safety studies ongoing; in-licensed from Britannia Pharmaceuticals; marketed in U.K. New indications (PIV); transdermal (PII) Vascular dementia Mania; oral suspension Pediatric depression, social phobia 2003 Parkinsons Disease; restless leg syndrome; PNU 95666; Dopamine D2 agonist Anti-anxiety; single-isomer form of Imovane; available in approximately 80 countries; not marketed in U.S. H2:02 2002 2002 H1:02 H2:03 H2:03 Sustained release morphine injection for pain management; 48-hour dosing 2003 Parkinson's Disease; once-daily reformulation; with GlaxoSmithKline Dementia of Alzheimer's type; acetylcholinesterase inhibitor; Japan 2003 Biopterin deficiency 2003 NMDA antagonist; from Merz; Alzheimer's, neuropathic pain Schizophrenia; S2/D2 antagonist; treats positive and negative symptoms; filing delayed until H2:03 to further study higher dose; postiive reuslts from study 3004 but missed primary endpoint; PII depot formulation; Iloperidone Anxiety (PII); panic (PIII); GABAa receptor modulator 2002 2002 DA, NE, 5HT reuptake inhibitor; Parkinson's, depression Alcohol and drug dependency; 4 week depot injection formulation; internal pipeline; Phase I complete; pivotal studies in 2002 K+ channel opener; overactive bladder 2003 Depression/anxiety Stroke; 72 hours infusion; with Santo Pharm.; free radical trapping agent Relapsing remitting multiple sclerosis; Phase IIa ongoing 130 Therapeutic Categories Outlook 3/2002 Epilepsy monotherapy; PI/II for obesity and migraine; PIII for bi-polar and neuropathic pain
Merck Merck Mylan Laboratories
MK-869 MK-869 Apormorphine
2002
Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pharmacia Corp. Sepracor
Exelon Aricept Geodon Zoloft Sumanirole Escopiclone (Estorra)
SkyePharma SkyePharma Takeda Watson Pharmaceuticals Forest Laboratories Novartis
DepoMorphine Requip CR TAK-147 L5HTP Biopterin Memantine Zomaril
Pfizer, Inc. Johnson & Johnson Abbott Laboratories Abbott Laboratories Alkermes
Pagoclone Topamax (topiramate) Prolyse (r-Pro-urokinase) BTS 74398 Medisorb Naltrexone
AstraZeneca AstraZeneca AstraZeneca Aventis
AZD 0947 NAD-299 (5-HT1Aantagonist) NXY-059 Teriflunomide (HMR 1726)

Company Daiichi Dainippon Dainippon Elan Product TRK-820 AD-810 (Excegran) Aurorix (RO-11) Beta amyloid vaccine program P-C I II III NDA MKT Comments Zonisamide; Parkinson's disease Moclobemide; antidepressant; licensed from Roche Alzheimer's disease vaccine; European and U.S. Phase IIA studies started H2:2001; studies halted 2/02 due to CNS inflammation; not expected to continue with the formulation; 1-2 follow-on formulations could enter clinic in late 2002; 50/50 partnership with WYE 2006 H2:02 2002 2004 Anxiety; glutamate receptor agonist Refractory and psychotic depression; Prozac/Zyprexa combination Bipolar depression (2002) and maintenance (2002) Long-acting depot; delivery over four weeks NMDA antagonist; from Merz; various CNS indications LU28-179; novel anxiolytic; may avoid abuse potential Antidementia CCK-B receptor antagonist; anxiety disorders 2004 Noradrenaline re-uptake inhibitor; ADHD; obesity Mixed monoamine re-uptake inhibitor; depression 2003 2003 5HT1 agonist; migraine; needle-free injection formulation Non-ergot dopamine agonist; Parkinson's disease - controlled release formulation AMPA receptor antagonist; stroke and head injury; joint venture with Shionogi Benzodiazepine partial inverse agonist; Alzheimer's disease and vascular dementia; Japan; joint venture with Shionogi Anticonvulsant; epilepsy 2004 SSRI + 5HT1A receptor partial agonist; depression Anxiety; low incidence of daytime somnolence and no habituation Alzheimer's disease Parkinson's disease Cocaine addiction; with NIDA Depression; with GlaxoSmithKline Anxiety; with Grippo Ferrer AMPA antagonist for epilepsy Marketed for epilepsy; pivotal trials in neuropathic pain in diabetic neuropathy and radiculopathy (phase II currently) to start soon Kappa agonist Substance P inhibitor; depression 131 Therapeutic Categories Outlook 3/2002 2005 Anti-pruritic agent; licensed from Toray; oral
Eli Lilly Eli Lilly Eli Lilly Eli Lilly Forest Laboratories Forest Laboratories Fujisawa GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline
MGluR2 OFC Zyprexa Zyprexa Neramexane Siramesine FK960 GW150013 GW320659 (1555U88) GW650250 Imigram/Imitrex ReQuip S-1746 S-8510
GlaxoSmithKline GlaxoSmithKline Merck NeuroSearch NeuroSearch NeuroSearch NeuroSearch NeuroSearch Novartis Novartis
SB 204269 SB 659746A (EMD68843) GABA-A a2/a3 agonist NS2330 NS2330 NS2359 NS2389 NS2710 AMP-397 Trileptal (oxcarbazepine)
CJ-15, 161 CP-122, 721

Company Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Product CP-448, 187 CP-526, 555 CP-607,366 CP-615, 003 Neurontin UK-279, 276 P-C I II 2002 III NDA MKT Comments 5-HT1d antagonist; depression Partial nicotine antagonist; smoking cessation Second generation SRI; depression GABA modulator; anxiety Dental pain, OA flare Stroke; can be given 4-6 hours post stroke; neutrophil inhibitory factor; recombinant hookworm protein 2004 2005 5HT 2A and 2C antagonist; antianxiety; no abuse potential; with Orion and Egis; Phase III to start 2002 Once-daily dosage form; for depression; outlook uncertain Migraine 5HT2 antagonist; schizophrenia NK3 receptor antagonist; schizophrenia; depression GABAa agonist; anxiety, myorelaxation NK2 antagonist; depressive disorders Beta-3 agonist; depression Dex-methylsobutramine; single-isomer metabolite form of Knoll's Meridia; DMS is a potent serotonin, norepinephrine and dopamine reuptake inhibitor which may offer improvement in the treatment of depression and ADHA 2003 2003 2004 Sustained release bupivocaine injection, for pain 2004 Pain management; transmucosal wafer for rapid onset Smoking cessation; transmucosal lozenge for rapid onset Antipsychotic Thrombolysis in cerebral embolism; acute ischemic stroke; Japan Antidementia, selective muscarine agonist; PI/II analgesia; PII Alzheimer's Insomnia; PI Japan; PII US and Europe D3 antagonist; schizophrenia; from Knoll 5HT1B antagonist; anxiety, depression NK2 antagonist; overactive bladder Dopamine D3 antagonist for schizophrenia 2006 Canabinoid receptor agonist; traumatic brain injury, neuroprotection 2007 Ischemic stroke and traumatic brain injury (i.v.); adenosine re-uptake inhibitor 2006 Gamma secretase inhibitor; Alzheimers disease; oral; crosses blood-brain barrier; wide therapeutic window Corticotropin Releasing Factor Receptor Subtype 1 (CRF R1) Antagonist; depression, anxiety, addiction/withdrawal, IBS Therapeutic Categories Outlook 3/2002
Pharmacia Corp.
Deramciclane
Pharmacia Corp. Procter & Gamble Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sepracor
Vestra/Reboxetine/Edron ax Alpha agonist Eplivanserine Osanetant SL-65.1498 SR-48968 SR-58611 R-Sibutramine metabolite
SkyePharma Watson Pharmaceuticals Watson Pharmaceuticals Wyeth Yamanouchi Pfizer, Inc. Takeda Abbott Laboratories AstraZeneca AstraZeneca Aventis Bayer Bayer Bristol-Myers Squibb
DepoBupivocaine Fentanyl Lozenge Nicotine Lozenge DAB-452 YM-866 (pamiteplase) CI-1017 TAK-375 BSF 201640 AR-A2 AZD 5106 AVE-5997 BAY 38-7271 BAY 44-2041 BMS 299897
DPC 368
2005
132

Company Bristol-Myers Squibb Dainippon Eli Lilly GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Inhale Therapeutic NeuroSearch Novartis Novartis Pfizer, Inc. Pfizer, Inc. Roche Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Schering-AG Schering-AG Schering-AG Schering-Plough Sepracor Abbott Laboratories Alkermes Product Maxi-Post AC-3933 Gamma secretase inhibitor GW-493838 GW468816 GW597599 SB271046 PEG-Rebig NS1209 (SPD502) SRA997 TKA731 CI-1021 NGD-91-2 R673 (NK1) SL-25.1131 SL-25.1188 SR 147778 SR-144190 SR-57667 CCR-1 Mesopram NS-7 M2 antagonist SEP-174559 ABS-103 Undisclosed Small Molecules (Multiple compounds) Undisclosed Small Molecules (Multiple compounds) AR-15896AR P-C I 2005 2006 II III NDA MKT Comments Maxi-K channel opener; neuroprotection; potassium channel opener GABA (A) BZ inverse agonist; dementia Alzheimer's disease Adenosine (A1) antagonist; neuropathic pain Glycine receptor antagonist; migraine prophylaxis; smoking cessation NK1 receptor antagonist; depression Cognitive impairment; 5HT6 receptor antagonist Pegylated interferon beta for multiple sclerosis; with Serono Acute neurodegeneration; with Shire Pharmaceutical Somatostatin receptor antagonist; cognitive disorders NK1 receptor T antagonist;chronic pain Tachykinin NK-1 receptor antagonist; chemotherapy-induced emesis; neuropathic pain Neurogen collaboration; anxiety Anxiety, depression MAO A+B inhibitor MAO B inhibitor, Alzheimer's CB1antagonist; Alxheimer's; schizophrenia; smoking cessation NK2 antagonist Neurotrophic & neuroprotector agent; Alzheimer's; Parkinson's Immune modulator; multiple sclerosis PDE-IV inhibitor; multiple sclerosis Na/Ca channel blocker; stroke Alzheimer's disease; M2 muscarinic receptor antagonist; oral Acute and chronic anxiety Single isomer of valproate; with American Biogenetic Sciences Pulmonary delivery; proprietary programs; Phase I trials planned in early 2002 Pulmonary delivery; proprietary programs; Phase I trials planned in early 2002 NMDA-receptor antagonist; discontinued for stroke; preclinical for various other CNS disorders Chronic pain; Alzheimer's disease; Parkinson's disease Chronic pain; Alzheimer's disease; Parkinson's disease
Alkermes
AstraZeneca
Bayer Bayer
Undisclosed preclinical projects Undisclosed preclinical projects
133

Company Bayer Bristol-Myers Squibb Product Undisclosed preclinical projects DPC A37215 P-C 200506 I II III NDA MKT Comments Chronic pain; Alzheimer's disease; Parkinson's disease Serotonin (5-HT) Receptor Subtype 2C Partial Agonist; appetite suppression for treatment of obesity CRF R1 Antagonist CRF R1 Antagonist CRF R1 Antagonist GABA (A) BZ inveser agonist; anxiety & depression; licensed out to Novartis Treatment of stroke Alzheimers's disease; 50/50 partnership with Pharmacia; IND filing in 2002 Triptan; for migraine; more selective for 1D receptor From Sibia; protease inhibitor (gamma secretase) for plaque formation prevention in Alzheimer's From Sibia; pain; excitatory amino acid receptor ligands From Sibia; epilepsy; excitatory amino acid receptor ligands Discovery research, several compounds but no lead candidate From Sibia; Alzheimer's Disease; nicotinic acetylcholine receptor agonists From Sibia; pain, stroke, migraine, bipolar disorder; voltage-gated calcium channel antagonists F05 F06 Sleep disorders; generic of PFE's Sinequan Nerve growth factors; with NsGene and Biogen With Organon Ion channel modulators, with Pharmacia and Poseidon Ion channel modulator; with Pfizer/Sophion Chloride channel blocker Nerve growth factors With Abbott Laboratories Migraine, similar to competitive triptans Stroke, injury; AMPA antagonist; with NeuroSearch Anti-psychotic Potent AMPA antagonist for stroke/injury Analgesic, anxiety, psychosis, asthma Alzheimer's; beta amyloid blocker Depression Emesis 134 Therapeutic Categories Outlook 3/2002
Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Dainippon Eisai Elan Forest Laboratories Merck
DPC A53607 DPC A69448 DPC A69841 AC-5216 Selective calcium antagonist Beta Secretase Inhibitor ALX-0646 Beta amyloid inhibitor
Merck Merck Merck Merck Merck
CGP 79397 CGP 80887 Neurokinin-2 receptor antagonist SIB 3182 VGCC antagonists
Mylan Laboratories NeuroSearch NeuroSearch NeuroSearch NeuroSearch NeuroSearch NeuroSearch NeuroSearch Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pharmacia Corp. Roche Roche
Doxepin Cell and Gene Therapy GABA modulators Na, K, Ca, Cl, KCNQ Channels NeuroPatch Sickle Cell Anemia Small molecules Undisclosed ion channel family 5HT Agonists/Antagonists CI-1022 D4 antagonist PNQX Substance P Antagonist BACE R1067 R1124

Company Roche Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Schering-AG Product R1204 SL-65.0155 SSR 240612 SSR-125047 SSR-125329 SSR-125543 SSR-146977 SSR-149415 SSR-180575 SSR-181507 SSR-240600 SSR-591813 MS 377 Total Drugs In Development P-C I II III NDA MKT Comments Anxiety, depression 5HT4 antagonist Bradykinin B1 receptor antagonist Ligand sigma central Sigma receptor ligand CRF1 antagonist; anxiety; depression NK3 antagonist V1B agonist; depression; anxiety PBR (benzodiazepine peripheral rceptor) ligand D2 antagonist/5HT1A agonist NK1 antagonist Nicotinic receptors partial agonist Schizophrenia; filing in 2008; with Mitsui Pharmaceuticals 31 58 35 25 199
50
135
Notes
136
Diabetes
G Diabetes: An Under-Treated And Widespread Disease
DEFINITION/ BACKDROP Diabetes mellitus is characterized by abnormalities of glucose production and utilization, which, in turn, are caused by abnormalities of pancreatic insulin release. If left unregulated, abnormally high glucose levels over time result in organ damage involving the nervous system, kidneys, eyes, and circulatory system. 11% CGR 2001-05 An estimated 5-6% of the U.S. population, or roughly 16MM people, suffer from diabetes, with approximately 8MM undiagnosed. About 90% of patients with diabetes have the adult onset type, known as Type 2 (non-insulin dependent). In Type 2 diabetes, often both the secretion of insulin from the pancreas and the action of insulin on tissues such as fat and muscle are abnormal. Patients continue to produce insulin, sometimes in excessive amounts, but the ability to use the insulin and the amount secreted deteriorates over time. Many patients with Type 2 diabetes are obese and this adversely affects insulins ability to work. Ten percent of diabetics have Type 1 diabetes, which is a state of absolute insulin deficiency stemming from autoimmune destruction of the insulinproducing cells in the pancreas. Patients with Type 1 diabetes produce little or no insulin and are dependent on daily insulin injections for survival. A small percentage of diabetics who appear to have Type 2 diabetes actually have a slowly progressing form of Type 1 and require insulin therapy. Many patients with Type 2 diabetes also require insulin treatment later in the course of their disease. Long-term complications caused by diabetes include decreased vision/blindness (diabetic retinopathy), reduced kidney function/failure (diabetic nephropathy), nerve damage (diabetic neuropathy) and circulatory disorders.
PARTICIPANTS
2001
$14B
BMY 18%
Diabetes Category Market Share By $ Sales

2005P
$21B
LLY 17% Other 29%
Other 38% NVO 13%
TDCHF 17%
AVE 8% TDCHF 12% LLY 12% GSK 13%
GSK 7%
NVO 16%
In 2001, Bristol-Myers Squibb dominated the diabetes category with 18% dollar share, via its Glucophage franchise. Bristols dollar share within diabetes will fall to only 1% in 2005, due to generic competition to Glucophage. We forecast that Eli Lilly and Takeda, which currently are behind Bristol and Novo, will become the market leaders in 2005 due to the success of Actos, with their dollar shares growing to 17% in 2005 from 12% in 2001. Novos share should increase to 16%. GlaxoSmithKlines position should be enhanced, with share expected to increase by 6 percentage points to 13% in 2005.
Insulin will remain a mainstay therapy, and increase by 80%+ through 2005. Eli Lilly, Novo Nordisk, and Aventis will benefit. Oral agents, particularly the glitazones, have big potential, and could delay or avoid the need for insulin therapy. Sales of glitazones could more than double by 2005; GlaxoSmithKline/Bristol-Myers Squibbs Avandia and Takeda/Eli Lillys Actos will benefit. All formulations of Bristol-Myers Squibbs Glucophage will be clipped by generics. Novel insulin delivery methods, particularly inhaled formulations, will encourage use of insulin and increase the amount of insulin sold, assuming safety holds up. Inhale Therapeutic Systems/Pfizer/Aventis, Aradigm/Novo Nordisk, and Alkermes/AIR/Eli Lilly are positioning to benefit. Diabetes complication products have very large potential, assuming ongoing clinical work shows them to be effective and safe. Eli Lilly has a sizable lead with its PKC inhibitor. Our scatter plot shows that through 2005, Eli Lilly, Novo Nordisk, and Takeda should dominate the diabetes segment, and this category is critical to their growth.
Diabetes
160%
140%
120%
TDCHF
100%
80%
NVO
60%
40%
LLY AVE JNJ ABT BAY NVS ESALY PFE GSK
20%
0%
PHA
-20% $0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
BMY
138
ESTIMATED WORLDWIDE MARKET FOR DIABETES/METABOLIC DRUGS BY CLASS ($MM)

2001 Market % Total $3,844 28% 3,788 844 617 4,605 $13,698 28% 6% 5% 34% $ NRx 2005P 01-05 87-01 Market % Total CGR CGR Comments $9,070 44% 24% NM - BMY/GSK's Avandia, LLY/Takeda's Actos 6,935 1,070 747 2,970 33% 5% 4% 14% 100% 16% 6% 5% -10% 11% 6% - LLY and NVO dominate; includes inhaled insulin NA - Various therapies 25% - ABT's Synthroid, KG's Levoxyl 7% - Glucophage/metformin; other 10% - Driven by the glitazones
Drug Class Glitazones Insulins Sulfonylureas Thyroid Drugs Other Oral Agents Total Market
100% $20,792
DETAILED DISCUSSION
G Insulin To Remain A Mainstay Therapy

There are an estimated 11-12MM Type 1 diabetics in the world, and many are on regular insulin therapy. In addition, approximately 40-50% of patients with Type 2 diabetes in the U.S. require insulin at some point. When they do, they require higher doses of insulin than patients with Type 1 diabetes because of their resistance to its action. Given the enormous population of Type 2 diabetics worldwide (90MM+), the market for insulin is large and should continue to grow, even with the availability of new oral agents that may delay the need for or amount of insulin required. All told, the insulin market totaled $3.8B in 2001 and is dominated by Eli Lilly and Novo Nordisk. We anticipate increased use of insulin in combination regimens and in inhaled formulations. Thus, we still forecast 16% sales growth in the insulin market over 2001-05, driven by continued patient growth, the emergence of newer premium-priced formulations, and increased units as lower-bioavailability, inhaled formulations grow. Short-Acting Insulin Analogues Offer Important Benefits Short-acting insulin analogues are very important and useful because, when used properly, they produce less hypoglycemia during the nighttime hours, can be used conveniently immediately before meals, assist treatment of children, and offer substantial quality of life enhancement. Eli Lillys Humalog is the market-leading short-acting insulin in the U.S. Humalog sales are estimated at $950MM (+51%) in 2002 and $1,700MM in 2005. Novo Nordisks rapidlyacting insulin, Novolog, was launched in December 2001. Our physician consultants note that in some pump patients, Humalog may precipitate in the catheter, possibly leading to clogging issues. This does not appear to be an issue with Novolog. Aventis is believed to have a short-acting insulin in Phase II. Premixed insulins are viewed cautiously by doctors because they eliminate flexibility and are easy to prescribe inappropriately. Despite this concern, Eli Lillys premixed insulin, which utilizes Humalog, has enjoyed a spectacular launch. Premixed insulins are more likely to be used in Type 2 than in Type 1 diabetes. Aventis Lantus Widely Accepted In The U.S. And Europe - Our physician consultants have enthusiastically embraced Aventis Lantus (insulin glargine), a new long-acting insulin differentiated by its steady 24-hour pharmacokinetic profile. Indeed, our consultants indicate that they are switching their Type I patients who are not well controlled on NPH to Lantus. The fact that Lantus cannot be mixed with short-acting insulins has been only a minor issue thus far. The efficacy benefits provided by Lantus (dosed via a once-daily subcutaneous injection) in combination with mealtime fast-acting insulin injections have raised the benchmark for glucose control in Type 1 diabetics. Our consultants believe that,
139
as Lantus use expands, more patients will achieve HbA1C targets of 7.0% or less. We peg Lantus sales at $365MM (+61%) in 2002 and $635MM in 2005.
US INSULIN MARKET
60.0%
50.0%
40.0% Market Share
30.0%
20.0%
10.0%
0.0% Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Humalog Group Apr-01 Jun-01 Aug-01 Lantus Oct-01 Novolog Dec-01
Humulin Group
Novolin Group
G Oral Drugs Are Changing Landscape Of Diabetes

Oral agents have enhanced the ability to control the symptoms of diabetes and to improve patients quality of life. Bristol-Myers Squibbs Glucophage, which is in decline due to generic competition, works by reducing the amount of glucose the liver excretes. Glucophage sales are estimated at $315MM (-85%) in 2002 and $25MM in 2005, due to generics that were launched in January. New formulations of Glucophage (e.g., Glucovance and Glucophage XR) should provide near-term support for the franchise; switching from Glucophage to the new formulations has gone reasonably well. In January, Glucovance and Glucophage XR had 7.2% and 9.1% share of new prescriptions, respectively. These new formulations are protected only by three-year exclusivity. Hence, we project Glucovance sales at $460M (+39%) in 2002 and $50MM in 2005, and Glucophage XR sales at $460MM (+52%) in 2002 and $50MM in 2005, due to generic competition that we expect in 2004. All told, Glucophage franchise sales are pegged at $1,235MM (-54%) in 2002 and $125MM in 2005. GlaxoSmithKlines Avandia is highly potent, and produces substantial reductions in fasting blood glucose at lower doses. Avandia is co-promoted by Bristol. Avandias sales are estimated at $1,300MM (+27%) in 2002, rising to $2,590MM in 2005. Eli Lillys Actos, licensed from Takeda for the U.S. and certain other world markets, is similar to Avandia in terms of effectiveness in lowering HbA1c. We peg worldwide sales of Actos at $2B (+43%) in 2002 and $3,115MM in 2005. Novo co-markets Actos in Japan, and Takeda will market Actos alone in major European markets. Avandia And Actos Leave Room For Improvement Our physician consultants note that Actos and Avandia have not met initial expectations, possibly due to less robust efficacy compared with Rezulin and side effects, most notably edema and LDL cholesterol elevations. In January, Actos and Avandia had 8.8% and 9.1% new prescription share of the
Source: IMS America
oral diabetes category, respectively. Avandia and Actos thus far have avoided significant hepatic side effects and require less frequent liver enzyme monitoring. Effectiveness Of Avandia And Actos Likely More Similar Than Different Despite the differing efficacy results from numerous clinical studies with the glitazones, our physician consultants believe that the efficacy of Avandia and Actos is remarkably similar. The differences in the data are due to variations in study design and patient characteristics. Avandia is convincingly more effective administered twice-daily versus once-daily, although the most commonly-used dose is 4mg once-daily. While a once-daily version of a drug is preferable, compliance studies suggest that there is little difference in patient compliance when a drug is administered once versus twice per day.
HBA1C REDUCTIONS OF THIAZOLIDINEDIONES*
Monotherapy 0.9 1.2 1.5 1.2 -1.9 Sulfonylurea 0.6 1.0 -0.9 1.3 -Combination With Insulin Metformin --0.6 1.0 1.1 1.2 0.7 1.0 --0.8 --
Avandia 2mg Avandia 4mg Avandia 8mg Actos 15mg Actos 30mg Actos 45mg
*HbA1c levels at baseline lower in Avandia than Actos clinical trials.
RELATIVE SAFETY OF THIAZOLIDINEDIONES IN CLINICAL STUDIES

Weight Gain Edema Anemia Adverse Impact On Lipids Cardiovascular Events Hepatotoxicity Avandia ++ + ++ +/? No No? Actos ++ ++ + No No No?
Lipid Profile And Metabolism Pathways Have Not Differentiated Thus Far Long-term trials indicate that Actos reduces triglycerides, while Avandia has no impact. Lilly markets this differentiating feature to general practitioners, and will do head-to-head studies of Actos versus Avandia to further illustrate this point. Some physicians might be hesitant to prescribe Avandia in patients with high cholesterol. GlaxoSmithKline states that Avandia reduces triglyceride levels in patients with high triglycerides, and overall, is lipids-neutral. However, our physician consultants believe that there is no significant difference in the lipid profiles of Avandia and Actos and that head-to-head studies comparing the two drugs likely would uncover no differences in the lipid profiles. They believe that label distinctions have been driven by different study designs and patient populations in the Avandia and Actos clinical trials. On the other hand, Actos is partially metabolized through the P450 3A4 pathway, possibly resulting in interactions with other drugs that utilize this pathway. Avandia is not metabolized via P450 3A4, which may allow it to offer a better drug interaction profile. Once again, our physician consultants view this distinction as unimportant. Other side effects, such as edema and weight gain, do not appear to be major points of differentiation for the glitazones.
MONTHLY NEW PRESCRIPTION MARKET SHARE FOR DIABETES DRUGS

40.0%
35.0%
30.0%
25.0% Glucophage (BMY) 20.0% Glucophage XR (BMY) Glucovance (BMY) 15.0% Actos (LLY) Avandia (GSK) 10.0%
5.0%
0.0%
Source: IMS America
Mercks KRP-297 Gaining Visibility KRP-297, a PPAR agonist for type-2 diabetes licensed from Kyorin, will enter Phase III in 2002. Points of differentiation for KRP-297 include its lipid regulation capability (increases HDL, decreases LDL and triglycerides), which may surpass that of other glitazones given KRP-297s balanced action at alpha and gamma receptors, and once-daily dosing. We have no contribution for KRP-297 in our models. Pfizers CI-1037: A Second-Generation Glitazone In Human Clinical Trials - Pfizer has worldwide rights ex Japan from Sankyo to CI-1037, a second-generation glitazone. It is in Phase I development. The compound activates the PPAR-gamma receptor at a rate 10x that of Avandia, and is 100x more potent in animal models. It exhibits lipid lowering activity in all animal models. Wyeths PTP-112, A New Treatment For Type II Diabetes Wyeth is developing PTP112, an oral phosphotyrosine phosphatase 1B inhibitor, for the treatment of Type II diabetes. PTP-112 promotes and prolongs a diabetics response to insulin by blocking the insulin receptor. Animal studies have shown that PTP-112 reduces plasma glucose, weight and lipids, and normalizes insulin sensitivity. PTP-112 is in Phase II. PTP-112 was well tolerated in Phase I, with no evidence of liver enzyme elevations or edema. Wyeth is targeting an NDA filing in 2005. Numerous Other Drugs Have Utility In The Control Of Diabetes - Other oral diabetes agents such as sulfonylureas, which lower blood sugar levels by stimulating the pancreas to produce insulin, have been used widely in Type 2 diabetes. Newer compounds appear to effect a similar change in glycosylated hemoglobin (a measurement of long-term glucose control) while avoiding troubling side effects; some of these agents prompt favorable lipid profiles. This is critical in these patients given susceptibility to cardiovascular disease. Novo Nordisks Prandin is viewed as a sulfonylurea by physicians, although Prandin is chemically different from the class. Prandins differentiating feature is that it is rapid
acting, allowing for usage just before mealtime. This administration format is easy for diabetes patients, who are prone to skipping meals or missing doses. In addition, Prandin is excreted through the bile rather than the kidney, an advantage to diabetics with kidney problems. Prandin was initially thought to prompt weight gain, which also occurs in patients on sulfonylureas, but recent research suggests that weight can be managed or even reduced. Prandin/Novonorm sales are estimated at $210MM (+25%) in 2002 and $340MM in 2005. Novartis Starlix, an amino acid-based insulin secretagogue, claimed 1.2% of the diabetes market in January. The fact that Starlix is not related to sulfonylureas is a plus, but physicians view it as similar to Prandin, which had a lackluster rollout, in part due to inadequate marketing. Novartis argues that post prandial glucose spikes are an important manifestation requiring control, and that Starlix controls these spikes via its three-times-aday dosing after meals. Our physician consultants tell us that control of glucose spikes is gaining credit in the diabetes community. We estimate Starlix sales at $60MM in 2001 and $300MM in 2005. Bayers Precose, which works to delay the absorption of glucose from the intestine, has utility in a subset of patients, particularly in combination therapy, although gastrointestinal side effects are troubling. GlaxoSmithKlines G1262570 Discontinued Due To Side Effects G1262570, a PPAR gamma recepter agonist, was discontinued due to concerns surround the potential for hepatoxicity. G1262570 was effective in clinical studies. Indeed, at 2.5mg, HbA1c declined 1.2%, triglycerides declined 28%, HDL increased 20% and LDL was not affected. Dose-related edema was seen at higher doses.
G Considerable Excitement Surrounds New GLP-1 Analogs

There is considerable excitement surrounding the new Glucagon-Like Peptide (GLP-1) analogs from Eli Lilly, Novo Nordisk/Scios, and Amylin Pharmaceuticals. GLP-1 is a hormone produced in the GI tract that stimulates the pancreas to produce insulin only when there is a high level of glucose in the blood. The drawback of GLP-1 is its short half life, but Lilly has developed an analog that is dosed once daily. Competing agents from Amylin and Novo are dosed multiple times per day. GLP-1 analogs provide a smoother, more physiological control of blood glucose levels than insulin injections, and look to be useful in controlling postprandial glucose excursions that are common with fast acting insulins. Our consultants believe that the three leading candidates are all competitive (Amylins Exendin-4, Novo Nordisk/Scios NN-2211, and Lillys GLP-1). Phase I data for Lillys GLP-1 analog were encouraging, showing that it normalized blood glucose levels in diabetics with no side effects. Lillys GLP-1 analog is now in Phase II clinical studies. Lilly will make a development decision for GLP-1 analog in 2002. Novo and Amylins GLP-1 analogs also are in Phase II development, but Exendin-4 may be slightly ahead. Our consultants were impressed by the incremental HbA1C reductions (approximately 1%) shown in a relatively short (28-day) Phase II study of Exendin plus oral hypoglycemic agents in poorly controlled Type 2 diabetes patients. A relatively high rate of hypoglycemia (15% of patients) was not overly concerning, as our consultants believe it could be managed via reducing the dose of the oral hypoglycemics. The high rate of nausea (28%) is more concerning, but may be improved via a depot injection system in Phase II development with Alkermes.
G Other Injectable Anti-Diabetes Drugs Show Promise

Our physician consultants had initial enthusiasm for the efficacy of Genentechs IGF-1 insulinlike growth factor I. However, side effects, including the appearance of optic nerve swelling and/or retinopathy, the need to improve the delivery of the drug, and the projected length of
development to address concerns over toxicity resulted in a decision to halt development. Insmeds SomatoKine (IGF-I/IGFBP-3) insulin-like growth factor I increases insulin sensitivity, reduces exogenous insulin requirements, and improves glycemic control; ultimately, it may reduce diabetic complications. Additional benefits include a reduction in cholesterol and triglyceride levels, promotion of weight loss, and amelioration of diabetic neuropathy. SomatoKine is the recombinant equivalent of the natural complex formed by the insulin-like growth factor-I (IGF-I) and its major regulatory binding protein (BP3). Due to the regulatory action of the binding protein on IGF-1, the side-effect profile of SomatoKine appears to be more acceptable than that of IGF-1 alone. In January 2002, InsMed revealed positive results from one of its Phase II studies. This placebo controlled, double-blind study assessed SomatoKines efficacy, safety and pharmacokinetics in patients with type 2 diabetes. Thirty-seven subjects were randomized to receive either placebo or SomatoKine at dose levels between 0.125-2mg/kg once daily in the evening for eight days. All subjects were on insulin therapy prior to enrollment and continued to receive insulin doses during the study. The primary endpoint was the change in average daily insulin requirement (an indirect measurement of insulin sensitivity). SomatoKine improved sensitivity to insulin and fasting blood glucose, with 2mg/kg the most effective dose. SomatoKine 2mg/kg decreased average daily insulin requirements from 70.8 to 56.5 units (-20.2%). The insulin dosage change in the placebo group (n=4) was from 89 to 87.3 units (-1.9%) at the end of the treatment period. Secondary endpoints included the change in fasting blood glucose, which decreased from 171.5 to 102.2mg/dl (-40.4%) in patients who received SomatoKine 2mg/kg versus a decrease from 151.5 to 134.8mg/dl (-11%) for the placebo group. Dose-dependent, but mild, hypoglycemia was observed, possibly suggesting that patients on SomatoKine therapy could have further lowered their daily insulin dose to achieve a desirable fasting blood glucose concentration.
G Exubera: Good Clinical Data Keep Coming, But Safety Issues Arise
Exubera (inhaled insulin) Phase III studies presented at the June 2001 American Diabetes Association meetings showed good efficacy and patient satisfaction results. A 299-patient, sixmonth study compared an insulin treatment regimen of Exubera plus once-daily subcutaneous injection of long-acting insulin to a standard insulin regimen in Type II diabetics of two daily subcutaneous injections of mixed insulins. Patients in the Exubera plus long-acting insulin arm achieved a 0.7% reduction in average HbA1C, while the patients receiving twice-daily subcutaneous insulin injections achieved a 0.6% reduction. This difference was not statistically significant. 76.2% of the Exubera patients achieved the target HbA1C level of less than 8.0%, while 69.0% of the subcutaneous insulin patients achieved that goal; the difference was not statistically significant. 46.9% of the Exubera patients achieved the target HbA1C level of less than 7.0%, while 31.7% of the subcutaneous insulin patients achieved that goal; this difference was statistically significant. A surprising finding was that the Exubera patients experienced much less weight gain over the course of the study (0.1kg) than did the subcutaneous insulin injection patients (1.5kg). Multiple Safety Questions Cloud Filing Timing Pfizer notes that 14 Phase II/III Exubera clinical studies have been completed and there have been no statistically significant differences in pulmonary function (utilizing FEV1) from baseline to completion in Exubera dosed patients in any of the individual studies. However, when aggregating the trials, there was a 30cc or 1% decrease in FEV1 in patients taking Exubera. Our clinical checks indicate that a 1% decrease in FEV1 is neither clinically nor statistically meaningful, given the variability in FEV measurements. Thus far there
have been two reported cases of pulmonary fibrosis, four reported cases of pleural effusion, and elevated antibody response to inhaled insulin. Our physician consultants believe that the safety profile of Exubera is quite clean, indicating that the cases of pulmonary fibrosis have been dismissed as not drug related, three of the pleural effusion cases have been explained by co-morbid conditions, and the increased insulin antibody formation to Exubera appears to have no clinical implications. Pfizer and Aventis are conducting additional studies to determine whether the pulmonary function changes and the antibody formation issues could signal longer-term side effects.
EXUBERA JUNE 2001 ADA PHASE III STUDY RESULTS EXUBERA (mealtime) plus Long-Acting Insulin Injection Number of Patients Efficacy Measures: Average HbA1c Levels (from baseline) Target HbA1c < 8.0% Target HbA1c < 7.0% Fasting plasma glucose -- from baseline Post-prandial plasma glucose from baseline Adverse Events: Hypoglycemic events (per subject-month) Serious Events Discontinuation Cough Weight Gain (mean adjusted from baseline) Insulin antibodies (serum binding > 20%) 149 -0.7% 76.2% of patients 46.9% -20 mg/dL -11.9 mg/dL 1.4 0.5 (n=4) 1.4% (n=2) 21% 0.1kg 20.4% Subcutaneous Insulin Injections (2 per day) 150 -0.6% 69.0% of patients 31.7% -9 mg/dL -8.4 mg/dL 1.6 0.1 (n=1) 1.4% (n=2) 3% 1.5kg 5.1% No No Yes Yes No Yes No No Yes Yes Yes Statistically Significant?
Additional Testing Should Clarify Safety Profile Pfizer and Aventis have initiated additional Exubera safety studies to generate controlled data for longer-term (9-12 months), chronic use of Exubera. The most advanced of these studies has been ongoing since last August. All of the Phase III studies were six-month controlled studies, after which the patients in the control arms were allowed to cross over to inhaled insulin treatment. Therefore, while Pfizer/Aventis have Exubera exposure data for up to four years of total exposure, none of these data have a control comparison (either oral anti-diabetes agents or injected insulin) beyond six months. The new studies will carry the control arm to 912 months, tracking antibody formation, pulmonary function, and blood glucose levels in the two arms. The first of these safety studies is expected to be completed in April 2002. Pfizer will review the adverse event data from this and the other studies throughout 2002, and make a determination whether to file the Exubera NDA based on the data in hand or to extend the studies further.
Inhaled Insulin Commercial Opportunity Remains Large Our physician consultants indicate that, assuming a clean safety profile, a non-invasive insulin delivery system would be well received by both physicians and patients for its compliance and convenience benefits. Approximately 50% of Type 2 diabetics are not adequately controlled (HbA1C) on oral agents alone, but generally resist taking insulin injections and/or are noncompliant with an insulin regimen. More than 70% of Type 2 diabetes patients are treated by general practitioners; these physicians and their patients are reluctant to initiate insulin use due to the lifestyle changes required, despite the obvious therapeutic benefits. Type 1 patients are
145
expected to use inhaled insulin in lieu of daily injections (combined with Aventis Lantus at bedtime), and Type 2 patients may use inhaled insulin with oral agents or as monotherapy. Pulmonary Insulin Could Have $2B Sales Potential We now assume Exubera approval and launch in mid-2004, allowing for at least a 12month review post filing. We assume Exubera sales of $150MM in 2004, rising to $700MM in 2005; Inhale garners approximately 15% in royalty and manufacturing fees. We estimate the ultimate sales potential of Exubera at $2.0B+, based on an assumed price of $4-5 per day and a 12-14% share of the Type 2 diabetes patient population in the U.S. There could be upside to our longer-term estimates based on European market penetration and higher penetration of both the Type 1 and Type 2 diabetes patient populations in the U.S.
G Pulmonary Insulin Program A Great Validation Of Aradigms AERx System

Since June 1998, Aradigm has been collaborating with Novo Nordisk, the worlds largest producer and seller of insulin, to develop an AERx pulmonary delivery version of insulin. While dominant in European insulin sales, Novo is targeting improved share in the U.S. market via newer insulin products, including short-acting insulins, oral Type II agents, and inhaled insulin. Novo funds all of the clinical development costs of the AERx insulin drug formulations and splits AERx insulin device development costs 50/50. Novo recently has reiterated its commitment to the AERx insulin program, providing an additional $45MM in equity and commitments to Aradigm. And Novo agreed in October to provide manufacturing capacity for any insulin packaging requirements that cannot be met by Aradigm (Aradigms capacity is 750MM doses annually). With Novo agreeing to cover the additional manufacturing capacity build (likely costing between $100MM and $200MM), Aradigm now has nearly completed the AERx insulin manufacturing investment. We estimate Novo Nordisks total commitment to AERx insulin to date at $100MM+, with another $150-200MM expected to be invested over the next 3-4 years. Phase II Clinical Development Is Complete; Initial Results Bolster Our Confidence Aradigm and Novo have completed Phase IIb clinical development of AERx insulin. The Phase IIb study was a 100-patient, 12-week trial comparing mealtime use of AERx insulin plus a once-daily long-acting insulin injection to three mealtime insulin injections plus a once-daily long-acting insulin injection, in Type II diabetes patients. The trial was initiated in March 2001. While efficacy and safety data were not released, Novo and Aradigm reported that AERx insulin was shown to be at least as effective as subcutaneous insulin injections. Importantly, no adverse events were observed, although the limited trial size and length preclude meaningful safety analysis. The complete results of the Phase IIb study are expected to be presented at the American Diabetes Association meetings in June 2002. Earlier published Phase IIa AERx insulin studies have demonstrated 13-16% inhaled insulin bioavailability and low intra-patient dosing variability (13.5-16.5% compared to 15-25% for subcutaneous injections). The low dosing variability could be an important feature when the FDA begins reviewing dosing reproducibility data for the various inhaled insulin filings over the next few years. Initiation Of Pivotal Phase III Studies Expected In H1:2002 Novo and Aradigm plan to meet with the FDA in Q1 to finalize plans for the long-term safety and efficacy component of the Phase III program and look to begin enrollment of the Phase III program in H1:2002. The long-term safety and efficacy component targets
enrollment of at least 200 patients. These patients are expected to transition to larger-scale Phase III studies, targeting more than 1,000 patients, in early H2:2002. The FDAs patient exposure guidelines for inhaled insulin require 1,200 patients on the AERx insulin system for at least six months, 500 patients for at least 12 months and 100 patients for at least 24 months, at the time of FDA approval. We project a two-year Phase III development program, leading to an NDA or BLA filing in mid-2004. We estimate a 2005 market launch of AERx insulin; 2005 sales to Novo Nordisk are estimated at $300MM, of which Aradigm yields an estimated 15% in manufacturing fees and royalties. We project ultimate AERx insulin sales potential at $800MM+, assuming good safety and 10% unit penetration of the projected insulin market. Breath Control And Dosing Flexibility Could Be Advantages To AERx Insulin Via a flow-rate sensitive drug release mechanism, the AERx inhaler provides control over particle velocity, which some studies have shown to be important to dosing reproducibility and to the therapeutic effect of insulin. Pharmacokinetic data presented at the June 2001 ADA meetings showed intra-patient dosing variability (measured by the coefficient of variation of the AUCs) of below 17%, a compelling result when compared to the intrasubject dosing variability of subcutaneous insulin injections of 15-25%. With tighter dosing control, patients can avoid hypoglycemic episodes and post-prandial glucose excursions that result from inappropriate insulin dosing. The AERx delivery system also allows for adjustment of insulin dosing in single international unit increments, providing easier patient titration and dose adjustment. These dosing control features may improve the efficiency, predictability, and dosing reproducibility of the AERx insulin system relative to dry-powder aerosol-based systems.
G Early Data For AeroGens AeroDose Insulin Look Competitive

AeroGen is developing an inhaled version of short-acting insulin utilizing the AeroDose system. Phase IIa studies of AeroDose insulin were initiated in December 2000; AeroGen is independently funding clinical development through Phase II. A 15-patient Phase IIa study presented at the September 2001 European Association for the Study of Diabetes (EASD) meetings demonstrated consistent intra-patient dose reproducibility, equal to that of subcutaneous insulin. The Phase IIa data also showed AeroDose insulin bioavailability of 16%, in line with the 10-18% bioavailability results achieved by Inhale and Aradigm in their Phase II programs. AeroGen also presented results at EASD from an earlier Phase I AeroDose insulin trial which was designed to show the effects of different aerosol particle sizes and aerosolization times on bioavailibility of AeroDose insulin. The study revealed that the highest level of bioavailability was achieved utilizing the smaller of the two particle sizes studied and four seconds of aerosolization time (versus two seconds). Recently, AeroGen presented additional interim data from another Phase IIa AeroDose insulin study, which demonstrated 20% bioavailability of AeroDose insulin; we anticipate further details on this study at the June 2002 ADA meetings. These studies provide AeroGen with the appropriate dosage form and aerosolization timing to move into broader Phase IIb studies; we anticipate initiation of Phase IIb trials in H2:2002. Multi-Dose Capability A Plus For AeroDose Insulin; Could See A Partner Soon AeroGen uses a liquid aerosol formulation of insulin (similar to Aradigm). The AeroDose systems advantages are its small size, its multiple dose features, and its potential patientadjustable dosing. Although AeroGens multi-dose reservoir could be a cost and
convenience advantage, it may create dosing reproducibility issues. We believe that AeroDose insulin likely will target the niche market of more serious diabetics seeking highvolume dosing and a high level of dosing flexibility. In August 2001, AeroGen announced that it had entered into a bulk insulin supply agreement with Diosynth, B.V., a business unit of Akzo Nobel. This agreement is critical for later-stage clinical development and ultimate commercialization. An AeroDose insulin development/marketing partner could be signed in H1:2002. G Eli Lilly/Alkermes AIR Insulin Collaboration A Major Development Since April 2001, Alkermes and Eli Lilly have been working together on AIR pulmonary insulin. The agreement covers AIR dry powder aerosol insulin formulations for both shortacting, mealtime applications and 12-hour, long-acting applications. This agreement also covers AIR dry powder aerosol formulations of other potential products for the treatment of diabetes. Alkermes previously had performed feasibility studies with GLP-1 in a dry powder aerosol formulation, so that may be a potential future target for the collaboration. Under the development agreement, Alkermes will receive funding for AIR insulin development and manufacturing process activities, milestone payments, and an estimated 8% net royalty on product sales. We speculate that the total value of the development funding and milestone payments could exceed $150MM to Alkermes. Eli Lilly gains worldwide marketing rights to both AIR insulin formulations (as well as the other potential diabetes product or products), and will be responsible for clinical and regulatory development and commercial-scale manufacturing. AIR Insulin Phase I Data Shows Rapid Onset, Good Dosing Consistency A Phase I trial of Eli Lilly/Alkermes AIR inhaled insulin was presented at the June 2001 American Diabetes Association meeting, comparing the pharmacokinetics of AIR insulin to subcutaneous injections of insulin Humalog and standard insulin. This 12-subject trial compared the blood glucose response of 15 international units (IU) of Humalog injected subcutaneously, 15 IU of regular insulin injected subcutaneously, and 84, 168 and 294 IU of fast acting AIR insulin over 12 hours, using a rigorous glucose clamp methodology. The results showed that total biopotency of 84 IU AIR insulin was 16% compared with regular insulin and 18% compared to Humalog. (Biopotency is a rougher measure than bioavailability.) AIR inhaled insulin demonstrated a rapid onset of action, even more rapid than injected Humalog (29-35 minutes versus 41 minutes); statistical significance was reached on the comparison versus standard insulin. The results also showed inter-subject dosing variation comparable to subcutaneous insulin injections, and a linear dose response. Because no force is required to create the aerosol, the AIR insulin device is relatively simple and inexpensive, which could provide a commercial advantage. Lilly and Alkermes have initiated additional Phase I studies to expand the dosing range prior to initiating Phase II studies, likely in H2:2002.
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WHO'S WHO IN INHALED INSULIN Compounds In Development Insulin Development Partner AeroGen Development Phase Phase IIa Estimated Market Launch/ 2005E Sales 2006/$50MME '06
Company AEROGEN
Formulation Technology Liquid aerosol formulations Dry powder re-constitution capabilities in DCC systems
Delivery Device AeroNeb, AeroDose Hand-held electronic aerosol generator Unit and multi-dose
ALKERMES
Porous dry powder aerosol formulations 10-30 micron diameter particles Sustained-release capabilities
AIR Device Breath-controlled Unit dose
Insulin
Eli Lilly
Phase I
F2005/ $150MME F06
ARADIGM
Liquid aerosol formulations
AERx System Breath-actuated, flow-rate and volume controlled by device Unit dose
Insulin
Novo Nordisk
Phase III
2005/$300MME '05
INHALE
Passive "standing cloud" dry powder fomulations
Innova Device, Solo Insulin Breath-controlled, aerosol chamber devices Unit dose
Pfizer, Aventis
Phase III
2004/$700MME '05
Source: Company reports and SG Cowen estimates
Oral Insulin Delivery Systems Gaining Attention Our physician consultants indicated that oral insulin delivery technologies are interesting, but still early in development. Phase I data have been presented for Nobexs and Emispheres oral insulin products. Both showed better-than-expected pharmacokinetic profiles, due to their direct action in the liver. However, concerns over the bioavailability of these systems (pilot studies for both systems indicate 1-8% bioavailability), and dosing reproducibility remain development hurdles. Additionally, each system alters the chemical structure of insulin, adding either a polymer attachment (Nobex) or a carrier system (Emisphere); both formulations need to be tested in longer-term studies and with a broader population to determine their safety. Our consultants were less impressed with Eli Lilly/Generexs Oralin (buccal insulin spray), indicating that there was little disclosed data to support the early claims, and that the use of permeation enhancers raises longer-term safety questions. Transdermal insulin delivery does not look promising at this point.
G Numerous Complications Stem From Diabetes

Lilly estimates that costs from diabetes total roughly $100B in the U.S., with the majority spent on treating the complications of diabetes. If left unregulated over a long period, abnormally high glucose levels result in microvascular and macrovascular complications. Microvascular complications include those involving the nervous system (neuropathy), kidneys (nephropathy), and eyes (macular edema and proliferative retinopathy), and macrovascular complications involve the vascular system (heart disease).
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TYPES OF DIABETIC COMPLICATIONS AND STATUS OF LY333531 Indication Proliferative Retinopathy Definition Status of LY333531 Growth of new blood vessels on the Phase II, 300-400 patient study with funduscope* retina and visual acuity endpoints Leakage of blood or fluid into the macular (center of the retina) Peripheral nerve damage Kidney capillary damage Phase II, 650 patient study with funduscope and visual acuity endpoints Small studies underway; Phase II data at ADA No studies underway although preclinical data strongest for this indication
Macular Edema
Neuropathy Nephropathy
Source: American Diabetes Association; SG Cowen * Funduscope or ophthalmoscope - an instrument for examining the interior of the eye
Proliferative retinopathy is growth of new blood vessels on the retina. These new vessels are weak and prone to leakage. According to the ADA, patients with diabetes are up to twenty times more likely to become blind than healthy people. The latter stages are not unique to diabetes, but are consistent with hypoxia. Nonetheless, proliferative retinopathy occurs in roughly half of all diabetics, but the incidence is slightly lower in Type 1 (40-50% in these patients). Severe proliferative retinopathy is treated with laser photocoagulation (use of laser to destroy unwanted blood vessels), which prevents blindness in about 95% of patients. Drawbacks of photocoagulation include blurred vision, unequal pupil size post surgery, loss of peripheral and night vision, and cost. LY333531 is in Phase II for the treatment of proliferative retinopathy. Macular edema is leakage of blood or fluid into the macula (center of the retina) of the eye. The macula allows for detailed vision (i.e., reading, driving, facial recognition). The majority of patients with uncontrolled diabetes develop macular edema. LY333531 is in Phase II for the treatment of macular edema. Neuropathy is nerve damage, characterized by diminished sensation. Many different types of neuropathy exist and diagnosis can be difficult, making study design challenging. Diabetes usually impacts the peripheral nervous system, rather than central nervous system. Neuropathy can prompt pain/tingling, foot ulcers, muscle weakness, and sexual dysfunction. Foot ulcers may lead to amputation to prevent the spread of life-threatening infection. The ADA estimates that neuropathy occurs in up to 60-70% of diabetics. Lilly will present data of LY333531 in a 100-patient, one-year neuropathy trial at the ADA in June. We believe that the data will be favorable. Nephropathy occurs when capillaries in the kidney are damaged by uncontrolled glucose levels, and are unable to filter toxins from the blood. Over time, this leads to renal insufficiency and ultimately end-stage renal disease (ESRD) or kidney failure. The ADA estimates that diabetics are 20 times more likely to develop ESRD. About one-third of Type 1 and 10-20% of Type 2 diabetics develop nephropathy after about fifteen years. Lilly currently is not developing LY333531 for nephropathy, although the preclinical data are strongest for this indication. Such a trial would have to be done in combination with an ACE inhibitor.
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G LY333531 Sales Could Total $800MM In 2005 On Minimal Penetration

Assuming that the efficacy and safety of LY333531 continue to hold up for macular edema and proliferative retinopathy, we expect the drug to complete Phase II clinicals in 2002, Phase III studies to commence, and LY333531 to be filed in Europe in 2003 and the U.S. in 2004. Based on only single-digit market penetration and a daily cost of $2.50, we estimate sales of LY333531 at $400MM in 2004, $800MM in 2005, and $2B in 2007. In clinical practice, LY333531 could be useful in overall management of diabetes. For instance, if an HbA1c of 8% is lowered to 6%, the potential for diabetic complications would decrease substantially. However, this twopercentage-point reduction requires intensive management of diabetes and is difficult to achieve in many patients. Alternatively, with the availability of LY333531, it might be possible to achieve a lower risk of complications at a relatively higher HbA1c level. For example, an HbA1c of 8% could be maintained, and together with LY333531, an incidence of complications similar to that occurring with an HbA1c of 6% could be achieved.
WORLDWIDE DIABETES COMPLICATION MARKET DYNAMICS ($MM)
2000 2001E 2002E 2003P 2004P 2005P 2006P 2007P Comments
Patients With Diabetes (MM) % Change Percentage Diagnosed Total Target Population (MM) Growth Rate LY333531 Percentage Treated Total Patients Treated Average Daily Cost Sales ($MM)
48.0 8% 66% 31.4 9%
51.8 8% 66% 34.2 9%
55.4 7% 67% 36.8 8%
59.3 7% 67% 39.7 8%
62.8 6% 68% 42.4 7% 1% 0.4 $2.50 $400
66.6 6% 68% 45.3 7% 2% 0.9 $2.50 $800
70.0 5% 69% 47.9 6% 3% 1.6 $2.50 $1,500
73.4 - 16MM in U.S.; aging population boosts; 90% Type II 5% 69% - Increased awareness 50.7 - All diabetics at risk for developing complications 6% - LLY's Protein Kinase C Beta Inhibitor 4% 2.2 $2.50 $2,000
Source: American Diabetes Association, SG Cowen estimates
Protein Kinase C Is A Vital Enzyme PKC is an enzyme vital to life in all mammals, given that it is involved in 10% of all life processes, and is associated with the growth of new blood vessels. At least twelve isoforms of PKC exist and it is expressed widely throughout the body. The beta and delta isoforms are found in higher concentrations in diabetics. PKC is activated in patients that have impaired glucose tolerance, which is a precursor to diabetes. Lilly is believed to have more than 15 patents covering PKC inhibitors, including a use patent covering all vascular diseases given the antiangiogenic activity of these compounds. LY333531s Pharmacokinetic Profile Is Compelling LY3335331 is in clinical studies at doses of 16mg twice daily and 32mg once daily. It crosses the blood-brain barrier, although this has produced no problems in animals. Its half-life is 12 hours. LY333531 is a dimethylamine (nitrogen with two methyl (CH3) groups) analogue that is 76 and 61-fold selective for inhibition of PKC beta 1 and 2, respectively. The molecular structures of LY333531 (#1) and seven other derivatives that Lilly apparently synthesized are depicted below.
151
Source: Journal of Medicinal Chemistry; 1996, Vol. 39, No. 14
A table depicting the selectivity of LY333531 and the other derivatives for different PKC isozymes is below. Of the eight compounds analyzed, LY333531 was the most selective for PKC beta, with an IC50 value for inhibition of PKC beta I and II of 0.0047M and 0.0059M, respectively. IC50 is the concentration of drug required for 50% inhibition of an enzyme and a common measurement of a drugs selectivity for an enzyme.
PKC INHIBITOR IC50 VALUES Compound 1 (LY333531) 2 3 4 5 6 7 8 9 (alcohol) Alpha 0.4 0.2 1.1 3.5 6.3 >5.0 3.5 1.8 0.7 Beta I 0.0047 0.005 0.048 0.12 0.33 0.17 0.05 0.03 0.07 PKC Isozyme IC50 (M) Beta II Gamma Delta 0.0059 0.3 0.25 0.005 0.27 0.17 0.033 2.1 2.6 0.044 2.2 3.3 0.31 6.5 7.8 0.04 >5.0 0.88 0.04 2.5 2.0 0.02 3.2 2.8 0.02 2.0 0.69 Epsilon 0.6 1.1 >5.0 3.8 57.0 >5.0 >5.0 >5.0 79.0 Zeta >100 22.0 44.0 55.0 54.0 >5.0 >5.0 >5.0 8.7 Nu 0.052 0.031 0.24 2.5 1.9 1.7 2.0 0.3 0.005
Source: Journal of Medicinal Chemistry; 1996, Vol. 39, No. 14
PKC Enzyme Linked To Vascular Complications Vascular endothelial growth factor (VEGF) is involved in the development of macular edema and proliferative retinopathy. PKC mediates the phosphorylation and subsequent activation of the VEGF receptor. PKC inhibitors, such as LY333531, inhibit the growth of new blood vessels in the eye by disrupting VEGF activation. This action is depicted on the following page.
152
Bruchs Membrane OK
VEGF Receptor Inactive

Tyr ATP
PKC Inhibitor
VEGF
Protein kinase C
Retinal Pigment Epithelium
Tyr~P
ADP
Bruchs Membrane Damaged
VEGF Receptor Active
Neovascularization
Capillary in Choroid
Bruchs Membrane Undamaged Damaged Capillary in Choroid
Source: New England Journal of Medicine
Source: Macular Degeneration Foundation
Enthusiasm Building For Treatment Of Macular Edema And Retinopathy Two large placebo-controlled Phase II trials are underway at 70 centers, examining LY333531 for the treatment of proliferative retinopathy and macular edema. A third trial may be underway, but the indication is not clear. The proliferative retinopathy trial has enrolled 300400 patients and the macular edema study enrolled about 650 diabetics. All told, more than 1,000 patients have been safely exposed to LY333531, with some patients treated for greater than one year. The primary endpoints of these trials are visual acuity and funduscope. All patients in the trial have some evidence of disease. No safety issues have been observed with LY333531 thus far. Data from these trials should be available in 2002. We Expect LY333531 To Show Robust Efficacy Our physician consultants are enthusiastic regarding the prospects for LY333531 in treating macular edema, proliferative retinopathy and neuropathy. Macular edema spontaneously resolves at a rate of about one patient per clinic per decade. However, there have been many reports of resolution in patients with macular edema enrolled in the LY333531 trials. In proliferative retinopathy patients, LY333531 could be as effective as laser photocoagulation, with fewer complications, although the ability to get an early read is difficult given that the pathology is not unique to diabetes. Endpoints for both indications are clear and target roughly 20% superiority over control. The chance that either study will stop early is extremely low given that LY333531 would have to be appreciably (2X) superior to control in this equivalency trial. A 100-patient, one-year trial of LY333531 will be presented at the ADA. Primary endpoints include assessment on a 20-point symptom scale and physical exam. We believe that the data will be favorable. A potential risk is whether patients derive decreasing benefit from LY333531 over time, given that many isoforms of PKC exist and the body could develop multiple systems to compensate for the inhibition of PKC beta.
153
G Novartis PKC412 Also In Development For Macular Edema

Novartis is developing a PKC beta inhibitor, PKC412, for the treatment of diabetic macular edema. PKC412 also may have anti-VEGF (vascular endothelial growth factor) and anti-PDGF (platelet derived growth factor) activity. Enrollment for the Phase II studies has been completed. Patients have been randomized to three doses of PKC412 or placebo. The trials duration is three months with a twelve-month follow-up. Given its relatively early stage of development, we have no sales contribution in our Novartis model for PKC412.
G Aldose Reductase Inhibitors All But Dead

Many companies, including Wyeth, Dainippon, Fujisawa, Pfizer, Sanwa Chemical and WarnerLambert, were developing oral aldose reductase inhibitors for the prophylaxis and treatment of diabetes complications, but only Dainippon (AS3201), Fujisawa (Zenarestat) and Sanwa Chemical (Fidarestat) still are active in the area. Indeed, Zenarestat could be filed in Q2:02 in Japan, while AS3201 and Fidarestat are in Phase II. Dainippon and Sanwa Chemical are looking for co-development partners. However, most aldose reductase inhibitor efforts failed in clinical studies due to safety and/or efficacy issues. Pfizers Alond increased nerve conduction velocity by 1MM/second versus placebo, an important capability given that neuronal damage increases as nerve conduction velocity decreases. However, the FDA did not view this as a robust enough surrogate. Trials in diabetic neuropathy were halted due to a lack of statistical difference between the Alond and placebo groups relative to efficacy.
G Accuracy The Key To New Glucose Monitoring Technologies

With regard to diabetes test technology, accuracy of blood glucose measurements is of paramount importance to our consultants for both conventional meter and strip technology and new minimally invasive technologies. In discussing preference for conventional products, sample size/ability to test off finger was also identified as an important feature. Speed of test measurement was not considered as important. Commercial minimally invasive technologies, such as Cygnus' Glucowatch and Medtronic/MiniMed's CGMS, have come a long way, but still have negatives, including the requirement (potential requirement in Medtronic/MiniMed's case) to use fingersticks to confirm results and cost. However, the accuracy and robustness of the minimally invasive technology will continue to improve over the next several years, bringing it to a broader market. Continuous monitoring should be a key technology in the future, particularly in Type I patients where it will be applied both as a stand-alone technology and incorporated as part of an artificial pancreas. Development efforts at Medtronic/MiniMed and Therasense are promising. Technologies that use NIR or ultrasound to non-invasively measure blood glucose also have made progress, but are further out.
G Insulin Pump Use Will Continue To Expand Rapidly

Our consultants are bullish on the use of insulin pumps from a clinical and lifestyle perspective and believe use of the technology will continue to grow even with alternative insulin delivery systems (i.e., inhaled insulin) hitting the market. Reimbursement and training requirements continue to be challenges when initiating new patients on pump therapy. It could take 3-6 months for a patient to be comfortable using a pump, and within that period, numerous additional office visits and phone calls between patient and clinician are required. Despite these hurdles, our consultants are enthusiastic about pumps for intensively managed patients, and excited by the prospect of an artificial pancreas, which utilizes insulin pump technology.
154
G Lilly Leading Pen Uptake In The U.S.

In Europe, 70-80% of insulin administered is given by pen, and in Japan, 70% is administered via pen. In the U.S., where two types of insulins commonly are mixed, pens are less accepted since two injections would be required, although combination products are marketed and in development. Pens currently claim 11-12% of the U.S. market. Eli Lilly, Novo Nordisk, and Becton Dickinson market pen-like devices for insulin injection worldwide. Novo is collaborating with JNJ to offer a combination pen/blood glucose meter, the InDuo. Although the current product is not integrated, a future generation is expected to be fully integrated, which would represent a significant product opportunity. Furthermore, a tripling of the salesforce (from 200 to 600) could accelerate acceptance through an enhanced marketing effort. Becton Dickinson supplies the needles for Lillys pen.
G Obesity Products Useful In Overall Management Of Diabetics

There is a cultural shift in the perception of obesity such that it is viewed as necessitating pharmacologic intervention. BASFs Meridia and Roches Xenical dominate the obesity market. Meridia and Xenical have been moderately successful, as depicted below.
MERIDIA AND XENICAL TRENDS POST LAUNCH
150
Rxs Dispensed ('000s)
100
50
0 1 2 3 4 5 6 7 8 9 10 11 12
Months of Launch
Meridia
Xenical
Source: IMS America
Xenical works by inhibiting intestinal lipase activity, producing a decrease in fat absorption. Because it does not act centrally on the brain and is not absorbed into the circulation, it may have some theoretical advantages over current drugs that reduce appetite by acting in the brain, and Xenical also may be safer for longer-term usage. Xenical is not without side effects, with gastrointestinal distress being the most common. In clinical studies, Xenical achieved a 10% reduction in weight, which was maintained for two years. Early work on beta-3 agonists for obesity is interesting, but selectivity has been an issue. Bristol-Myers Squibb and Eli Lilly have a beta-3 agonists in development. Sanofi-Synthelabos Rimonabant is a non-peptide antagonist of CB1 central cannabinoid receptors, which reduces consumption of sugar and fats without modifying protein intake. Consumption of marijuana stimulates the appetite. Rimonabant acts in the opposite way to marijuana on the central cannabinoid receptors, thereby reducing consumption of fats and sugar. Results in Phase IIa on a very small number of patients (20) demonstrated an average weight loss of 720g after one week of treatment. Phase IIb trials (with 170 patients) confirmed weight loss among obese patients (around 100kg) who were not on a severe diet. Rimonabant was well tolerated. The main conclusions of this Phase IIb study were 1) weight loss of around
3.5-4.5kg following 16 weeks of treatment, depending on the dosage; 2) a dose response relationship; 3) the absence of a plateau effect (the patient continues to lose weight beyond 16 weeks); and 4) some minor gastrointestinal disturbances were observed but these ceased with the end of treatment. Phase IIb results will have to be confirmed by two large-scale Phase III studies in Europe (1500 patients) and the U.S. (2,500 to 3,000 patients) which started in August 2001. The U.S. study will last two years and is evaluating weight loss and the prevention of subsequent weight gain, whereas the European study will be confined to 1 year and will only assess weight loss. The two studies will test 5mg and 20mg dosages. An additional study of specific co-morbidity factors will be conducted in parallel. It is expected that Rimonabant will be filed in 2005.
U.S. DIABETES MARKET

Total Prescriptions (000's) % Market Share 1987* Insulin (conventional) Analogues/New Formulations Total Insulin Glucophage/metformin Total Glitazones Other Oral Antidiabetics Total Oral Antidiabetics 22,684 22,684 15,920 15,920 2001 29,981 4,388 34,369 39,634 15,952 62,887 119,752 2002E 48,072 4,925 52,997 47,481 25,863 72,412 145,755 2005P 42,300 35,250 77,550 70,500 37,600 49,350 157,450 59% 59% 41% 1987* 41% 2001 19% 3% 22% 26% 10% 41% 78% 100% 2002E 24% 2% 27% 24% 13% 36% 73% 100% CGR 2005P '87-01 '01-05 18% 15% 33% 30% 16% 21% 67% 100% +5% NA +6% NM NM +8% +13% +10% +9% +68% +23% +15% +24% -6% +7% +11%
Total Diabetes 38,604 154,122 198,752 235,000 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; SG Cowen estimates

Drug Glucophage XR Glucovance Glucotrol XL Humalog Avandia Actos NA=Not available Manufacturer Bristol-Myers Squibb Bristol-Myers Squibb Pfizer Eli Lilly GlaxoSmithKline Eli Lilly Patent Expiration 2004 2004 9/09 5/13 NA NA U.S. Sales in Year Patent Expires ($MM) $150 150 ---------
156
DIABETES R&D PIPELINE

Company Aventis Novo Nordisk Product Lantus NovoRapid/Novologue PC I II III NDA MKT Comment 2003 Japan launch Rapid acting insulin analogue; insulin aspart (rDNA origin) marketed in Europe; approved in the U.S.; filed in Japan Combination with insulin (filed); combination with metformin (undisclosed partner), PIII; prevention of diabetic organ damage Type I and Type II diabetes; rapid acting, long acting insulin mixture; approved in Europe; filed U.S.; PIII in Japan ACE inhibitor; insulin-dependent diabetic nephropathy Dry power insulin for inhalation; with Pfizer for Type I and Type II diabetes; from Inhale Therapeutics Fast acting insulin analog for the treatment of hypoglycemia in Type 1 and 2 diabetes; NDA/MAA submission planned for mid-2003; in development in Japan Recombinant human insulin; Types I and II diabetes; marketed in Europe; not yet in U.S. Fixed-dose combination H1:03 H2:04 Type I and Type II diabetes; with partners PFE and Aventis; Phase III completed in H1:2001; extension studies ongoing; filing delayed for additional patient exposure data; now expected in H1:03 DREAM study; Altace and/or GSK's Avandia for the prevention of Type 2 diabetes; 5-year postmarketing study Diabetic neuropathy and other indications; intramuscular; growth hormone & IGF-1 inhibitor Type I and Type II diabetes; smoother profile, less risk of nighttime hypoglycemia Insulin sensitizer licensed from Dr. Reddy's Research Lab; in evaluation given better lipid profile; US marketing agreement with Novartis terminated Nov-01 Repaglinide; PIII in Japan; marketed in U.S. and Europe Inhaled insulin 2004 2005 Type I and Type II diabetes; with Novo Nordisk; Phase IIa studies completed; Phase III clinicals in H1:2002; broader Phase III studies in H2:2002 2005 Oral anti-hyperglycemic agent that improves peripheral glucose uptake and utilization, Type 2 diabetes; early PII; NDA submission planned for 2004; with Asta Medica Adrenaline beta 3 derivative; with Takeda 157 Therapeutic Categories Outlook 3/2002
GlaxoSmithKline
Avandia
Novo Nordisk
NovoMix 30 (biphasic insulin aspart 30) Tanatril Exubera
Tanabe Aventis
Dec-00 H1:03
Aventis
HMR 1964
Mid-03
Aventis Bristol-Myers Squibb Inhale Therapeutic
Insuman (HR 1799) Glucophage/Glipizide Exubera (inhaled insulin)
King Pharmaceuticals Altace
Novartis Novo Nordisk Novo Nordisk
Sandostatin LAR Depot NN 304 (long acting Insulin analogue) NN-622
2002
Novo Nordisk Pfizer, Inc. Aradigm
NovoNorm Prandin Exubera Insulin
Aventis
Dexplipotam
2004
Dainippon
AJ-9677

Company Eli Lilly Eli Lilly Product GLP-1 LY333531 PC I II III NDA 2006 200304 MKT Comment Glucagon-like peptide; Type II diabetes Inhibits activation of protein kinase C beta in hyperglycemic patients; macular edema (fully enrolled 2/00), diabetic retinopathy (fully enrolled) and other diabetic complications; once daily; data in neuropathy at ADA Insulin sensitizer; Type 2 diabetes; Phase II in Japan, USA PPAR agonist for diabetes; licensed from Kyorin; balanced activity on alpha and gamma receptors; improved glucose control, increased HDL, decreased LDL and triglycerides qD; Phase III to commence in 2002 2004 Type 2 diabetes; inhibitor of dipeptidyl peptidase-IV which increases GLP-1; oral; Phase III early in 2003 With Aradigm; PIII enrollment H1:02 Type II diabetes; injectable peptide; glucagonlike; patents licensed from Scios; injectable Insulin sensitizer licensed from Dr. Reddys Research Lab; 100x as potent as Rezulin; high priority; oral Diabetes, obesity U.S.; 2005 Type II diabetes treatment; exclusive WW license from OSI Pharmaceuticals; phosphoenol pyruvate carboxy kinase; oral Type II diabetes; Medisorb formulation for sustained-release; with Amylin Pharmaceuticals Type I and Type II diabetes; with LLY; short- and long-acting aerosol formulations for pulmonary delivery Type II diabetes/obesity; transdermal Diabetes/dyslipidemia Beta 3 adrenergic receptor agonist; type 2 diabetes & obesity Beta-3 receptor agonist; from Asahi Chemical; Type 2 diabetes and obesity Long-acting insulin analogue; once-dialy injection; Types 1 and 2 diabertes Insulin secretion (beta cell rest) Second-generation glitazone; more potent than Rezulin; clinicals initiated in Q3:99; WW rights ex Japan Type II diabetes; insulin sensitizer Type II diabetes Insulin sensitizer; co-developed with Pfizer Diabetes; with Karo Bio Diabetes Insuli sensitizer; diabetes; acquired rights from Dr. Reddy's Lab. Type II diabetes 158 Therapeutic Categories Outlook 3/2002
Fujisawa Merck
FK-614 KRP-297
Novartis
DPP728/LAF237
Novo Nordisk Novo Nordisk Novo Nordisk
NN-1998 (inhaled insulin) NN-2211 (GLP-1) NN-2344
Takeda Wyeth
TAK-677 PTP-112
Alkermes Alkermes
Medisorb Exendin-4 Pulmonary Insulin
Bristol-Myers Squibb Bristol-Myers Squibb GlaxoSmithKline GlaxoSmithKline Novo Nordisk Novo Nordisk Pfizer, Inc.
Beta-3 agonist PPAR Dual Agonist GW 427353 SB418790 NN-344 NN-414 CI-1037
Roche Roche Sankyo Abbott Laboratories Bristol-Myers Squibb Novartis Roche
R483 R765 CS-011 Diabetes compound DPP4 Inhibitor DRF-4158 R1458

Company Sankyo Tanabe Product CS-917 T-1095 Total Drugs In Development PC I II III NDA MKT Comment Glucose-producing inhibitor Sodium-glucose cotransporters (SGLT inhibitor); licensed to JNJ 12 13 11 5 47
159
Notes
160
Epilepsy
G New Therapies And Increased Diagnosis Drive Market
Epilepsy is a disorder of the brain characterized by sudden, recurrent seizures. Seizures occur when the normal electrical activity of the brain is disturbed by an excessive discharge of neurons, which can affect a persons consciousness, muscle movements, or sensations. An epileptic attack can happen spontaneously or be triggered by various stimuli, from repetitive sounds and flashing lights to low levels of oxygen or sugar in the blood. 8% CGR 2001-05 In approximately 70% of cases, the cause of epilepsy is not known. Where the cause is known, maternal injury, trauma, tumors, infection, or poisoning are the most frequently cited catalysts. An estimated 40MM+ individuals worldwide suffer from epilepsy; more than 2.5MM Americans are affected. Most are young (20% of cases present before the age of 5, 50% before age 25), although epilepsy can strike at any age. The anti-epilepsy drug (AED) market is small relative to other chronic treatment therapeutic categories, comprising less than 2% of the worldwide pharmaceutical market.
Epilepsy Category Market Share By $ Sales

2001
$5B
2005P
$6B
Other 4% GSK 16% PFE 27%
PARTICIPANTS
GSK 11%
JNJ 10%
Other 3%
PFE 43% NVS 16%
NVS 13%
ABT 22% ABT 20% JNJ 19%
Four major pharmaceutical companies dominate the $5B anti-epilepsy drug (AED) therapy market: Pfizer, Abbott, Novartis, and GlaxoSmithKline. Pfizer and Abbott will retain leading positions through 2005, although each may lose share. J&J should gain nine percentage points share to 19%. Among the smaller pharmaceutical companies, Elan is building a presence. MAJOR TRENDS & ISSUES Anti-epilepsy drug utilization is particularly low in developing nations, where most epilepsy patients reside. In these countries, the cost of treatment can be prohibitive. New therapies introduced in 2001-05 could increase the effective seizure control rate to 8090% from 70%+ currently. Patients with refractory epilepsy (approximately 30% of sufferers) often require treatment with multiple AEDs.
161
Several novel anti-epilepsy drugs currently are in development, and are expected to accelerate market growth. Most anti-convulsant compounds used for epilepsy seizure control are also efficacious for other CNS disorders, especially newer agents such as Pfizers Neurontin and Pregabalin. Expanded use outside of the epilepsy indication is helping to drive market growth. Our scatter plot shows that through 2005, many companies (Pfizer, Abbott, J&J, Novartis, and GlaxoSmithKline) should dominate the epilepsy category, but this category is not a significant source of growth for any company.
Epilepsy
20%
15%
10%
JNJ NVS
5%
ABT
ELN GSK
0%
ROHHY PFE
-5% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 $2.0
2005 Sales Contributed By Company To Category (S In B)
ESTIMATED WORLDWIDE MARKET FOR EPILEPSY DRUGS BY CLASS ($MM)

$ NRx 2001 2005P 01-05 87-01 Market % Total Market % Total CGR CGR Comments $4,707 100% $6,403 100% 8% 12% - ABT's Depakote, PFE's Neurontin/Pregabalin $4,707 100% $6,403 100% 8% 12% - Driven by newer AEDs
Drug Class Anticonvulsant Agents Total Market
162
DETAILED DISCUSSION
G Worldwide Market Driven By U.S.; Foreign Markets Lag

Current AED market growth is fueled by new, more expensive therapies that have improved spectrums of action or treat refractory patients, and increased diagnosis and AED use. In the U.S., approximately 2MM people with epilepsy benefit from AEDs. Most epilepsy patients are on chronic drug therapy, at least for 1-2 years and sometimes for life. The rate of epilepsy treatment declines significantly outside of the U.S. About three-quarters of the worldwide epilepsy population (30MM individuals) is untreated. The vast majority of epilepsy sufferers reside outside the U.S. (approximately 36-37MM individuals). High cost and poor access to AEDs are challenges to foreign market penetration. A small number of patients undergo surgery to treat epilepsy. Worldwide sales of AEDs were approximately $5B in 2001 and are projected to rise to $6B in 2005 (+8% CGR).
G Seizure Types Define Treatment Regimen

Electroencephalogram (EEG) results, family history, neurologic findings, and the type of seizure (classified as partial or generalized) are important determinants of relapse risk and the decision to commence drug therapy. Seizure type also plays a role in determining the type of AED prescribed, because a drug effective in treating one type of seizure may have no effect, or even exacerbate, another seizure type. Once two seizures have occurred, a patient generally is placed on a single AED (monotherapy is preferable). A few different drugs may be tried, given that patients react and respond differently to different AEDs. The VA Epilepsy Cooperative found that 60% of patients respond to a single AED. However, up to 40% of patients develop refractory epilepsy, requiring treatment with multiple AEDs. Ultimately, drug therapy is ineffective for seizure control in 20-30% of patients with epilepsy.
NUMEROUS TYPES OF SEIZURES EXIST
Seizure Type Partial Explanation Patients with partial (or focal) seizures are about twice as likely to have a recurrence than patients with generalized seizures. Partial seizures originate in one hemisphere of the brain and often are preceded by an aura. Generalized seizures simultaneously involve both hemispheres of the brain. Patients lose consciousness. There are several types of generalized seizures, including absence and tonic-clonic seizures. Explanation of Subtypes Patients with simple partial seizures experience abnormal movements, sensations, or psychic aberrations without the loss of consciousness. Patients who have complex partial seizures generally lose consciousness. Absence seizures, also called stop and stare or petit mal seizures, are not dramatic; although attacks may occur repeatedly, recovery is prompt. Absence seizures most often present during childhood (around the age of 5-10). Tonic-clonic seizures, formerly known as grand mal attacks, are dramatic: during the tonic phase, limbs become rigid and stiff, breathing stops; the clonic phase follows, when the body is shaken by violent, rhythmic muscle contractions. Other generalized seizure types include myoclonic seizures, atonic seizures, and infantile spasms.
Generalized
Source: Merck Manual, U.S. Pharmacist
G Most Patients Well Controlled By Drug Therapy

Many patients continue to experience seizures while on drug therapy. 25-50% of patients experience a 50%+ reduction in the frequency of seizures, and many patients experience a reduction in seizure severity. About 70-80% of patients are well controlled by drug therapy. Once seizures are controlled, drug therapy continues chronically for at least one seizure-free year. Physicians may prescribe AED therapy for a longer period. Moreover, once a patient is
controlled under a particular regimen, the physician may not be inclined to switch that patient to a new therapy or regimen. There are different medical opinions as to when AED therapy should be discontinued: the range is one to five years. Studies suggest that more than half of patients who were well controlled on AEDs remained seizure-free after termination of AED therapy.
AED THERAPY VARIES IN ITS EFFECTIVENESS DEPENDING ON SEIZURE TYPE
Seizure Type Partial Subtype Simple Partial Complex Partial Generalized Absence Tonic-Clonic Mixed Refractory Total 20% 25% 60-90% 30%+ 30% 100%* 70-80% 40-75% 50-85% % Total Epilepsy Patient Population % Controlled on AED Therapy
* Numbers do not sum to 100% because many sufferers have more than one seizure type. Source: BMJ, Merck Manual, Postgraduate Medicines Seizure Management Symposium, U.S. Pharmacist.
G Pfizers Neurontin Prescribed In Many Disease States

Neurontin is indicated for adjunctive therapy in the treatment of partial seizures, and is prescribed for neuropathic pain in many foreign markets and off-label in the U.S. Pfizer filed for a neuropathic pain claim in the U.S. in August. Neurontin received an additional 30 months of exclusivity based on its new lactam-free patent, and the exclusivity life is believed to have commenced in May 2000. An additional 17 years of patent life also is possible, and Pfizer appears increasingly confident in this outcome. The methods described in the patent allow Pfizer to manufacture Neurontin with lactam levels of 0.01-0.02%, apparently a bit of a technological feat. The FDA apparently becomes concerned when lactam levels are 0.05% or higher, perhaps a stumbling block for generics. Neurontin sales are forecast at $2.1B (+20%) in 2002, $2.5B (+19%) in 2003, but then declining to $1B in 2005 as generics possibly emerge.
G Broad Indications Will Support Pfizers Pregabalin

Pregabalin seeks indications for the treatment of epilepsy, neuropathic pain, and anxiety. Pfizer has positive neuropathic pain data in patients with diabetic neuropathy and post-herpetic pain. However, in B6 mouse carcinogenicity studies, hemangiosarcomas were observed at two years with high doses of Pregabalin. Hemangiosarcomas have not been observed in rats or monkeys. Pfizer initiated additional 2-year carcinogenicity studies in CD1 mice that should be completed in April 2002. Six positive pivotal trials (3 each in patients with post-herpetic neuralgia and diabetic neuropathy) have been completed with Pregabalin. Pregabalin 300-600mg decreased pain and improved the quality of sleep in these studies. There are no known drug interactions with Pregabalin. Additional trials for the treatment of anxiety will conclude at the end of 2002. Pfizer will submit data for three indications (neuropathic pain, GAD, add-on epilepsy) with Pregabalins initial NDA filing, leading to a 2002 submission. Our Pregabalin sales forecasts are $25MM in 2003, $300MM in 2004 and $600MM in 2005.
164
G Solid Effectiveness And Lack Of Weight Gain Support J&Js Topamax

Topamax was approved in 1996 for the treatment of generalized seizures, but is gaining significant off-label use in four indications in which the company is conducting pivotal studies, including bi-polar disorder, migraine prophylaxis, and obesity. In February, J&J revised the clinical development program for Topamax in obesity. J&J discontinued its Phase II/III clinical program in favor of pursuing the indication with a reformulation of the Topamax, utilizing technology from ALZA. The company decided to pursue an alternate formulation to mitigate issues with tolerability, including cognitive side effects and to improve administration. Cognitive side effects such as confusion, verbal difficulty, and lack of concentration have been associated with the drug in clinical trials and practice. While our consultants have described these side effects as undesirable, they also noted that these issues are manageable for most patients. We believe J&Js decision to go with a reformulation was based on the notion that the threshold of tolerability for patients using Topamax is lower in obesity than in bipolar mania and epilepsy. We now anticipate a 2004-05 approval for obesity. We expect Topamax to be used as a substitute for Depakote and Zyprexa for patients with weight issues, given that these agents cause weight gain. Topamax also is being investigated in essential tremor, ALS, bulimia/binge eating, PTSD, and substance abuse. In 2002, we expect off-label usage to continue, driven by ongoing trial work. New prescription growth for Topamax remains in excess of 75% Y/Y. We project Topamax sales at $670MM (+40%) in 2002 and $1,210MM in 2005.
G Abbotts Depakote Driven By Bi-Polar Mania Indication

Valproic acid/sodium (Depakene, Depakote, and Depacon) was launched originally for the treatment of epilepsy, although non-epilepsy indications, such as the manic phase of bi-polar disorder and the prevention of migraines, are driving growth. Recent prescription data has put underlying run rates of the drug in the mid-single digits and we assume a modest Y/Y price increase. New prescriptions for Depakote ER (migraine) continue to rise steadily, and the company intends to pursue follow-on indications for this formulation including adult epilepsy. We estimate Depakote sales at $985MM (+8%) in 2002 and $1,310MM in 2005.
G Elans Zonegran Reserved For Refractory Partial Seizures

Zonegran (zonisamide; adjunctive treatment of epilepsy) is chemically distinct from the leading epilepsy drugs. Zonegran has shown good efficacy in refractory patients and may gain share over time via combination usage. Zonegran was launched in April 2000 with no black box warning label, but was underpromoted in a crowded field of refractory epilepsy drugs. However, new prescriptions rose at a 50% Q/Q clip through H2:01 and could accelerate via the launch of two smaller dosage strengths (25mg and 30mg) in H1:02. We estimate Zonegran sales at $50MM (+32%) in 2002 and $110MM in 2005.
G Older AEDs Still Prescribed Widely

Abbotts Gabitril (tiagabine) targets treatment of partial and tonic-clonic seizures. Generics and newer medications have clipped sales of Pfizers Dilantin (phenytoin), but Dilantin was a $180MM franchise in 2001. GlaxoSmithKlines Lamictal (lamotrigine) is used as monotherapy and in the pediatric population. Novartis franchise consists of Tegretol/Tegretol-XR (carbamazepine) and Trileptal (oxcarbazepine); two additional compounds are in late-stage development. Tegretol is prescribed widely for the treatment of partial siezures. In Q2:01, Elan divested Diastat (diazepam) and Mysoline to Xcel.
165
SELECT AEDs APPROVED OR IN LATE STAGE DEVELOPMENT

Brand (Generic) Depakote Topamax Neurontin Manufacturer Abbott Johnson & Johnson Pfizer 2005E Sales $1,310MM 1,210 1,000 Comments Valproic Acid; drug of first choice for generalized and most primarily generalized seizures Topiramate; adjunctive, second-line therapy; monotherapy filed Gabapentin; partial seizures; most effective as an add-on medicine; well tolerated; monotherapy filed 9/96; Phase III pediatric studies ongoing Lamotrigine; broad spectrum; monotherapy Similar to Neurontin; 26 studies under way; NDA Q4:02 Monotherapy and adjunctive therapy Carbamazepine; with phenytoin, drug of first choice for partial seizures Simple and complex seizures; for use as a monotherapy and an adjunctive therapy; improved spectrum of action Zonisimide; adjunctive therapy; clean safety label Partial or secondarily generalized seizures Adjuvant therapy; refractory disease; well tolerated; NDA filed Vigabatrin; adjunctive therapy; approved in Europe; NDA pending in U.S.; seeking pediatric indication; Novartis to copromote With carbamazepine, drug of first choice for partial seizures; effective in some generalized seizures; side effect profile, formulation limits use Diazepam; clustered/prolonged seizures; use in refractory disease Tiagabine; Phase III ongoing for monotherapy, pediatric indications Trileptal intravenous formulation NMDA receptor antagonist; mono and adjunctive therapy (available for outlicensing) Partial seizures Therapeutic benefit slightly superior to phenobarbital Ethosiximide; drug of first choice for pure absence seizures Fosphenytoin; acute partial/generalized tonic-clonic seizures; well tolerated
Lamictal Pregabalin Trileptal Tegretol Rufinamide Zonegran Clonazepam Clobazam Sabril Phenytoin
GlaxoSmithKline Pfizer Novartis Novartis Novartis Elan Roche, generics Dainippon Aventis Pfizer, Mylan
805 600 475 295 165 110 100 100 100 50
Diastat Gabitril TRI477 Remacemide Phenobarbital Primidone Zarontin Cerebyx
Xcel Abbott/Sanofi Novartis AstraZeneca Various Elan, generics Pfizer Pfizer
50 30 25 25 25 20 20 10
Source: company data; SG Cowen
U.S. EPILEPSY MARKET

Total Prescriptions (000's) % Market Share 1987* Neurontin, Dilantin, Depakote Other seizure drugs Total 11,652 4,832 16,484 2001 39,891 41,227 81,118 2002E 48,462 61,311 109,772 2005P 47,300 62,700 110,000 1987* 71% 29% 100% 2001 51% 49% 100% 2002E 49% 51% 100% CGR 2005P '87-01 '01-05 43% 57% 100% +9% +17% +12% +4% +11% +8%

Drug Neurontin Depakene/Depakote/Depacon Gabitril Lamictal Tegretol/Tegretol-XR Pregabalin Manufacturer Pfizer Abbott Abbott GlaxoSmithKline Novartis Pfizer 166 Patent Expiration 2002 2008 4/08 7/08 2010 3/18 U.S. Sales in Year Patent Expires $1,005MM -----------
EPILEPSY R & D PIPELINE

Company Pfizer, Inc. Product Pregabalin P-C I II III NDA MKT Comments GABA analogue; neuropathic pain, add-on epilepsy, GAD in 2002; social anxiety, panic in 2004; fibromyalgia in 2005, monotherapy in epilepsy in 2006 New chemical entity for epilepsy; in-licensed from Dainippon; launched 4/2000 for refractory epilepsy indication; additional indications in development 2002 Epilepsy monotherapy; PI/II for obesity and migraine; PIII for bi-polar and neuropathic pain Anticonvulsant; epilepsy AMPA antagonist for epilepsy Marketed for epilepsy; pivotal trials in neuropathic pain in diabetic neuropathy and radiculopathy (phase II currently) to start soon From Sibia; epilepsy; excitatory amino acid receptor ligands 0 3 3 0 7
Elan
Zonegran
Johnson & Johnson GlaxoSmithKline Novartis Novartis
Topamax (topiramate) SB 204269 AMP-397 Trileptal (oxcarbazepine)
Merck
CGP 80887 Total Drugs In Development
167
Notes
168
G Market Contraction On Tap
DEFINITION/ BACKDROP Peptic ulcer disease is a chronic but curable condition of the stomach (gastric ulcer) or duodenum (duodenal ulcer) in which the mucosal tissue is eroded and inflamed from exposure to gastric acids. In most -2% 2001-05 CGR cases, the culprit is the bacteria Helicobacter pylori, although long-term use of nonsteroidal anti-inflammatory drugs (NSAIDs) and, very infrequently, cancerous tumors of the stomach/pancreas can cause a peptic ulcer. H. pylori accounts for 80% of gastric and 90%+ of duodenal ulcers. Symptoms may present only 50% of the time, but can include intermittent pain, nausea/vomiting, appetite/weight loss, and bloody stools. Approximately 1 in 10 Americans suffer from a peptic ulcer at some point, and a slightly higher ratio could be applied to the population worldwide. An estimated 44%, or 61MM, of adults in the U.S. suffer at least once a month from gastroesophageal reflux disease (GERD), the regurgitation of contents from the stomach into the esophagus that causes heartburn. Irritable bowel syndrome (IBS) is a common condition, affecting 15-20% of the adult population, but with few effective, available therapies. Of all patients, about one-third each have constipation-dominant, diarrheadominant and mixed IBS. However, new therapies have encountered setbacks.
Gastrointestinal/Ulcer Drug Sales As A percentage Of The Category

PARTICIPANTS
Other 23%
2001
$15B
Other 17%
2005P
$13B
AZN 28% AZN 41%
ABT 10%
JNJ 7% TDCHF 11% ABT 10% TDCHF 10% JNJ 20%
MRK 10%
WYE 14%
AstraZeneca dominates the ulcer market with its proton pump inhibitors Prilosec/Losec (omeprazole) and Nexium (perprazole), but its market share is projected to decline by 13 percentage points to 28% in 2005. Johnson & Johnsons share could increase from 7% to 20%, keyed to the rollout of Aciphex and Remicade. Wyeth is forecast to gain 8 percentage points of market share to 14% by 2005, powered nearly entirely by Protonix (pantoprazole). Abbotts share is expected to remain at 10% during 2001-2005, supported by Prevacid (lansoprazole), which it co-markets with Takeda. Takedas share is forecast to increase modestly to 11% through 2005. MAJOR TRENDS & ISSUES Proton pump inhibitors should modestly underperform the G.I./ulcer market. H2 blockers will suffer significant declines in dollar value, due to generics. Penetration of triple therapy, which cures peptic ulcers and prevents relapse in 85-90% of patients, should continue to increase.
169
Disorders of motility are becoming more widely recognized and understood, perhaps tripling their market potential. Crohns disease and ulcerative colitis are emerging market opportunities. Our scatter plot shows that through 2005, AstraZeneca will retain the largest sales base, but Wyeth and J&J will edge out AstraZeneca as drivers of category growth, and this category is important to their growth.
125%
75%
25%
WYE NVS LLY ESALY GSK MRK ABT TDCHF
JNJ AZN
-25%
-75% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5
ESTIMATED WORLDWIDE MARKET FOR GASTROINTESTINAL DRUGS BY CLASS ($MM)

2001 Market % Total $12,160 83% 1,810 665 $14,635 12% 5% 100% $ 2005P 01-05 Market % Total CGR $10,107 75% -5% 904 2,483 $13,494 7% 18% 100% -16% 39% -2% NRx '87-01 CGR Comments NM - AZN's Prilosec/Nexium, TAP's Prevacid, JNJ's Aciphex, WYE's Protonix 0% - MRK's Pepcid, GSK's Tagamet and Zantac, LLY's Axid; impacted by generics 1% - NVS' Zelnorm, FRX's Dexloxiglumide 6%
Drug Class Proton Pump Inhibitors H2 Blockers Other GI/Ulcer Drugs Total Market
170
DETAILED DISCUSSION
G Proton Pump Inhibitors Displaced H2 Blockers As Market Leaders

An ulcer is a sore that forms on the lining of the stomach or duodenem. According to the National Digestive Diseases Information Clearinghouse, about 4MM people in the U.S. will develop an ulcer during each year, causing roughly 6,000 deaths. Ulcers are caused by infection (H.pylori) and stomach acid, and are treated with H2 antagonists and proton pump inhibitors. H2 antagonists block the histamine receptor reducing the production of acid in the stomach. Proton pump inhibitors act within the cell to suppress acid. Proton pump inhibitors are effective in treating gastric and duodenal ulcers, and GERD, and displaced H2 antagonists as the standard of care for treating gastrointestinal disorders. Gastroesophageal reflux disorder (GERD) is characterized by recurrent heartburn, and esophageal damage occurs in about 2% of Americans. The incidence of GERD increases significantly over the age of 40. The presence of stomach acid in the esophagus prompts GERD.
G Proton Pump Inhibitors Should Maintain Leadership

Proton pump inhibitors are expected to decline by 5% annually during the next five years due to the impact of generics on Prilosec in the U.S. Indeed, we expect growth of competitive PPIs to be clipped when Prilosec loses patent exclusivity, given that healing rates do not differ significantly between agents, although AstraZeneca has held off off generics beyond its exclusivity expiration which occurred in October 2001. AstraZeneca launched its follow-on proton pump inhibitor, Nexium, in April 2001, and it already has garnered 11.0% new prescription market share as of January 2002. About 70% of proton pump inhibitor usage is for GERD and 30% for peptic ulcer and symptomatic abdominal discomfort. Strong efficacy data exists for proton pump inhibitors in the eradication of H. pylori, and Abbott has an advantage here, given Biaxins (clarithromycin) ability to complement either Prilosec or Prevacid. However, Biaxin-resistant H. pylori is now seen in about 15-20% of cases. The H. pylori eradication market has turned out to be relatively small, given: (1) eradication does not result in chronic treatment; (2) diseases in which H. pylori is causative are still not uniformly appreciated; and (3) habits associated with chronic, palliative treatment using older therapies are difficult to break. Generics To AstraZenecas Prilosec Loom, But Additional Patents Could Delay Prilosec is the leading proton pump inhibitor for the treatment of ulcers and GERD. In the U.S., Prilosec had a 19.1% new prescription share in January. Many patents protect Prilosec/Losec in various countries. Prilosecs U.S. substance patent expired in October 2001, including a pediatric extension. No generics have been launched thus far, given that Prilosec/Losec is covered by additional patents (i.e., formulation, use, intermediates and processes) which expire in most countries between 2005 and 2016. One of the formulation patents covers the Prilosec/Losec tablets tri-layer coating. These patents are being challenged by Andrx, Eon, GenPharm, Impax, LEK Pharmaceutical, Mylan, Schwartz (Kudco) and Reddy-Cheminor. The first four cases have been consolidated and the trial is underway in the Southern District Court in New York. AstraZenecas Nexium Continues To Gain Share AstraZenecas follow-on proton pump inhibitor, Nexium, had taken 11.0% of new prescriptions in the U.S. as of January 2002. The Prilosec franchise also has increased its market share from 27.2% in April to 30.0% in August, although share gains for the Prilosec/Nexium franchise have slowed during recent months. Indeed, the franchise only gained 0.1 percentage point of market share from August 2001 to January 2002. Overall, however, AstraZeneca is having success converting the franchise to Nexium.
Prilosec Nexium Total

Source: IMS
PRILOSEC/NEXIUM NRX TRENDS April 2001 August 2001 January 2002 25.2% 21.8% 19.1% 2.0% 8.2% 11.0% 27.2% 30.0% 30.1%
Nexium is the active isomer of Prilosec. Its pharmacologic profile suggests more predictable healing rates and improved symptom control. Nexium targets short- and longterm treatment of reflux esophagitis; short-term and on-demand treatment of symptomatic GERD; treatment of H. pylori associated duodenal ulcer disease; and eradication of H. pylori for prevention of recurrence in duodenal ulcer disease. AstraZeneca has applied for a series of specific Nexium patents, including product and process claims. Merck records 32% of AstraZenecas U.S. Prilosec sales, and 27% of Nexium sales, as Merck revenue. The data show that Nexium is superior to Prilosec in controlling pH levels, although our physician consultants view this as a modest advantage given that all new proton pump inhibitors claim better pH control. One-week Nexium triple therapy (with Abbotts Biaxin) was effective in treating H. pylori-associated duodenal ulcers without the need for a threeweek follow-up, although our physician consultants noted that this is accepted practice in Europe. Overall, our consultants believe that the data presented on Nexium, in tandem with AstraZenecas highly regarded sales force within the gastroenterology community, should make Nexium a successful follow-on to Prilosec. While AstraZenecas usage of Nexium 40mg in comparison with Prilosec 20mg is gaming the system according to our physician consultants, they believe that most physicians will not recognize this distinction. On the other hand, AstraZeneca took a gamble in comparing Nexium with Prilosec, and it paid off.
% OF PATIENTS WITH UNHEALED ULCERS AT 8 WEEKS
Prilosec 20mg Nexium 40mg At 8 Weeks Less than 12% Less than 6%
% OF PATIENTS HEALED AFTER 4 WEEKS*

Prilosec 20mg Nexium 40mg Source: Company Data At 4 Weeks 55% 60%
% OF PATIENTS WITH GASTRIC PH ABOVE 4

Prilosec 40mg Nexium 40mg For At Least 12 Hrs 78% 92% For At Least 16 Hrs 33% 56%
*Therapeutic gain greater than 10% and statistically significant
J&Js Aciphex Steadily Increasing Market Share J&Js Aciphex (rabeprazole), a once daily proton pump inhibitor for the treatment of GERD, duodenal, and gastric ulcers, was licensed from Eisai. Aciphexs indications include: (1) healing of erosive or ulcerative gastroesophageal reflux disease (GERD); (2) maintenance of healing of erosive or ulcerative GERD; (3) healing of duodenal ulcer; and (4) treatment of pathological hypersecetory conditions, including Zollinger-Ellison Syndrome. Aciphex new prescription market share has been steadily increasing, totaling 6.0% in January 2002. Internationally the product is known as Pariet and has been on the market in Japan since December 1997 and in several European countries since mid 1998. Thus far in the Japanese market the product has captured over 30% share. We estimate sales of Aciphex/Pariet at $675MM (+21%) in 2002 and $885MM in 2005.
172
PROTON PUMP INHIBITOR MARKET

NEW PRESCRIPTION MARKET SHARE 1999 THROUGH JANUARY 2002
40.0%
30.0%
20.0%
10.0%
0.0% Nov-99 Nov-00 May-99 May-00 May-01 Sep-99 Sep-00 Sep-01 Nov-01 Mar-99 Mar-00 Mar-01 Jul-99 Jul-00 Jan-99 Jan-00 Jan-01 Jul-01 Jan-02
Aciphex
Nexium
Protonix
Prevacid
Prilosec
TAPs Prevacid Share Under Pressure From Competitive Products Prevacid (GERD and gastric/duodenal ulcers) rapidly gained share of the PPI market post launch in 1997, based on solid effectiveness and attractive pricing versus Prilosec. Sales growth has slowed in recent quarters impacted by market share loss and tough comparisons. In the last 6 months of 2001, new prescription share dropped from 36% to 32%, and we expect further erosion. However, we believe market growth for proton pump inhibitors will remain in double-digits. Management has guided to mid-single digit growth in 2002, with the caveat that Q1 is likely to be lower due to unfavorable comparisons (prior year growth of 19% Y/Y). We estimate Abbotts portion of Prevacid sales of $3,020MM (flat) in 2002, declining to $2,610MM in 2005. Protonixs Price And IV Formulation Drive Acceptance Wyeth has done an impressive job with Protonix, achieving 8.9% share in the PPI market during January. A GERD maintenance claim was approved in June. We forecast Protonix sales at $850MM (+52%) in 2002 and $1.45B in 2005, reflecting slowing growth due to the anticipated emergence of generics to market-leading Prilosec (AstraZeneca).
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PROTON PUMP INHIBITOR COMPETITVE LANDSCAPE

PRODUCT Prevacid COMPANY Takeda Abbott Pharmaceuticals STATUS Marketed INDICATIONS Duodenal ulcer Duodenal ulcer associated with H. pylori Gastric ulcer Erosive esophagitis GERD Hypersecretory conditions Duodenal ulcer associated with H. pylori GERD Erosive esophagitis Duodenal ulcer Duodenal ulcer associated with H. pylori Gastric ulcer GERD Erosive esophagitis Hypersecretory conditions GERD Treatment and maintenance of erosive esophagitis IV Duodenal ulcer Maintenance of healing of GERD Hypersecretory conditions GERD GERD Duodenal ulcer Gastric ulcer 2005E SALES ($MM) $2,610
Nexium
AstraZeneca
Marketed
2,100
Prilosec
AstraZeneca
Marketed; generics could impact in 2002-03
1,600
Protonix
Wyeth
Marketed
1,450
Aciphex
JNJ
Marketed
885
Zoton
Takeda/WYE
Marketed ex-U.S.
420
Source: Company data; Physicians Desk Reference; SG Cowen estimates
G H2 Antagonists In Decline, Slowing Overall Ulcer Market Growth

H2 antagonists are expected to lose share in the ulcer category, from 12% in 2001 to 7% in 2005 based on total sales, as generics cut further into brand share. This is dampening ulcer market growth, although shorter treatment regimens for ulcers could be offset by longer treatment regimens for GERD. H2 blockers on the market include GlaxoSmithKlines Zantac and Tagamet, Mercks Pepcid, and Lillys Axid, which are each under pressure from generics. OTC H2 antagonists are not reflected in our analysis, but our consultants tell us that many patients are using them in place of antacids. They provide intermittent relief with a very high level of satisfaction. Based on the last available data, J&J/Mercks Pepcid AC dominated the OTC H2 antagonist market, with about a 45% share, followed by Pfizers Zantac 75 with about 35%. GlaxoSmithKlines Tagamet HB and Wyeth/Eli Lillys Axid AR follow with 15-20% and 5%, respectively.
G IBS Opportunity Remains Sizable, But Newer Therapy Landscape Unclear

The irritable bowel syndrome (IBS) market should become very large, given the sizable number of sufferers and lack of effective current therapies. Furthermore, IBS is a chronic, life-long disease, requiring long-term treatment. It affects 8-22% of the general population and is the second most common cause of sick leave after the common cold. IBS patients comprise 4% of
all primary care visits and 50% of all visits to gastroenterologists. The criteria for the diagnosis of IBS have improved substantially, allowing more patients to be identified. Of all patients with IBS, about one-third have constipation-dominant, one-third have diarrhea-dominant, and the remainder have a mixed form of the disease. Patients with diarrhea-dominant IBS may seek medical attention and complain more often than patients suffering from other forms. However, our physician consultants tell us that these distinctions become blurred in clinical practice. The diagnosis of IBS is based on symptoms of greater than three months duration and consisting of abdominal pain or discomfort, altered bowel frequency, altered form of stool, altered passage of stool, passage of mucus, and bloating or feeling of abdominal distension. While IBS is an intermittent disease, it is not clear whether drugs will be used intermittently or continuously for its treatment. Long-Term Opportunity Remains For Novartis Zelnorm Novartis is developing Zelnorm, a 5HT4 partial receptor agonist, for the treatment of gastrointestinal disorders. Irritable bowel syndrome was the initial indication Norvartis sought for Zelnorm, but it encountered a setback in 2001: the FDA requested additional data for approval given that a greater incidence of cholecystectomy (gallbladder removal) occurred in patients treated with Zelnorm compared with placebo. Gallbladder surgery occurs more frequently in IBS sufferers than it does in healthy patients. Data from a pooled analysis of three Zelnorm pivotal studies showed that 0.16% of patients (5 cases) treated with Zelnorm had gallbladder surgery versus 0.06% of those on placebo (1 case), but this difference was not statistically significant (p=0.22). However, in one study (358), there were 4 cases in the Zelnorm group and one in the placebo group, and this difference apparently was statistically significant. The FDA was concerned with the adverse trend observed in the Zelnorm group. Novartis has appealed to FDA, by reviewing data it already has submitted. Novartis is conducting an additional study to assess the risk of abdominal surgery with Zelnorm. Data from this study likely will not be filed until mid-2003. In June 2001, Novartis withdrew Zelnorms application in Europe due to the EMEA concerns regarding Zelnorms efficacy. Zelnorm offers an early response to treatment (usually within one week), a sustained benefit (out to 12 weeks), a consistent response across all IBS symptoms, and a placebo-like side-effect profile. About 50-60% of patients responded in each of three trials versus a 45-55% response to placebo. Studies with Zelnorm in chronic constipation and functional dyspepsia are ongoing. We estimate sales of Zelnorm at $120MM in 2004 and $300MM in 2005. Solvays Cilansetron In Phase III Solvay is developing Cilansetron, a 5HT3 antagonist for the treatment of irritable bowel syndrome. Cilansetron advanced into Phase III studies in July 2001, after Solvay revised its development program after difficulties with competitive products. Phase II studies show that Cilansetron is useful for men and women with diarrhea-predominant IBS. Solvay is using Quintiles Transnational, a contract research organization, to assist in Cilansetrons development. Solvay plans to file an NDA for Cilansetron in 2003, and is seeking marketing partners. We estimate sales of Cilansetron at $25MM in 2004 and $100MM in 2005. Forests Dexloxiglumide May Have Promise In IBS Forest licensed Dexloxiglumide, a cholecystokinin receptor (CCKA) antagonist for the treatment of constipation-dominated irritable bowel syndrome (IBS), from Rotta Research Laboratorium. CCKA antagonists increase gastric emptying and motility, and reduce sensitivity to intestinal pressure. Phase II studies (conducted in Europe by Rotta Research) showed Dexloxiglumide to be efficacious in treating constipation-dominated IBS. CCKA antagonists as a class have been
shown to cause gall stones, but Dexloxiglumide causes slower gastric emptying than other CCKA antagonists, so may have less impact on the gall bladder. Phase II data showed no unusual incidence of gall stone formation. Phase III studies are expected to enroll early this year. With little visibility on the safety or efficacy profile of Dexloxiglumide, we have made conservative estimates of the drugs sales potential: we estimate Dexloxiglumide sales at $25MM in F2005 and $60MM in F2006. Alizymes Renzapride Another Shot On Goal Alizyme acquired the full rights to Renzapride (ATL-1251) from SmithKline Beecham in May 2000. Renzapride is a 5HT4 agonist and 5HT3 antagonist, that is in Phase II for the treatment of IBS. The FTC required SmithKline, which merged with Glaxo Wellcome, to divest Renzapride given that Glaxo was marketing Lotronex, a competive IBS product, at that time. Early studies show that Renzapride is safe and well tolerated in men and women. We have no sales contribution from Renzapride in our models.
IBS PRODUCTS IN DEVELOPMENT
Compound Name Zelnorm (Tegaserod) Cilansetron Dexloxiglumide Renzapride
Source: SG Cowen
Company Novartis Solvay Forest/Rotta Research Alizyme
Status Not approvable; appeal to FDA ongoing Phase III; NDA 2003 Phase II; Phase III expected in 2003 Phase II; from SmithKline Beecham
G J&Js Remicade Well Positioned In Crohns Disease

There are approximately 250,000 moderate to severe Crohns patients, of whom approximately 15% have fistula, and an additional 20% are refractory to current medications (aminosalicylates, 6-MP, methotrexate, azathioprine, and corticosteroids). There are currently no treatment options for either of these patient populations. Remicade, a chimeric anti-TNF antibody, is marketed with a relatively broad label for reducing the signs and symptoms of moderate-to-severe and fistulizing forms of Crohns disease in patients who are unresponsive to conventional therapies. J&J filed a sBLA for Remicade for maintenance therapy and fistulizing disease in January 2002. Remicade is priced at a wholesale cost of $450 per vial or $1,3501,800 per infusion. Assuming that Crohns fistula patients receive just one course of three infusions per year (a conservative assumption), the annual price of therapy is $4,150-5,400. Likewise, assuming refractory patients receive just two courses of therapy per year (one infusion per course), the annual price is around $3,000. These figures imply a total U.S. market for the drug of just under $300MM. Remicade was approved in Europe for treatment of Crohns disease in mid 1999. Our worldwide sales projections are $960MM (+33%) in 2002 and $1,890MM in 2005.
G Preliminary Encouraging Phase I/II SMART Anti-Gamma IFN MAb Data

In November 2001, PDLI announced promising preliminary results from an ongoing Phase I/II trial of SMART anti-gamma interferon MAb in patients with moderate-to-severe Crohns disease. The trial is a two-staged study enrolling and evaluating 29 patients to date. In Stage A of the double-blind, randomized, placebo-controlled multicenter trial, patients were randomized to receive a single escalating dose of the MAb or placebo. Patients who receive the active drug and have a predefined reduction of the Crohns Disease Activity Index (CDAI) after four weeks may be entered into Stage B. At that arm, patients receive either three additional doses of the MAb or placebo at four-week intervals. Endpoints include safety, tolerability,
pharmacokinetics, pharmacodynamics, immunogenicity and changes in disease state as assessed by CDAI reduction. The preliminary results from Stage A show a dose-dependent effect. We anticipate data at Digestive Disease Week in San Francisco, May 19-22, 2002.
Phase I/II SMART ANTI-GAMMA IFN DATA
Dose Placebo (n=6) 0.1 mg/kg (n=6) 1.0 mg/kg (n=10) 4.0 mg/kg (n=7)
*70-pt drop in CDAI
Response* 50% 50% 80% 85%
Remission** 33% 0% 40% 71%
**CDAI less than or equal to 150 pts
Source: Protein Design Labs
G Data For Millenniums MLN02 Possible At DDW In May

A Phase II study of MLN02 in Crohns Disease has completed enrollment and is concluding follow-up in some patients. The multi-dose, randomized, double-blind, placebo-controlled trial in 180 patients was conducted in Canada. MLN02 is a MAb preventing T-cell migration into afflicted segments of the gut. The trials endpoint was the Crohns Disease Activity Index (CDAI). Data may be available in May 2002 at Digestive Disease Week.
U. S. ULCER MARKET
Total Prescriptions (000's) % Market Share 1987* Proton Pump Inhibitors H2 Blockers Other Antispasmodics Total 36,943 24,340 65,569 2001 72,157 36,691 29,778 139,384 2002E 85,458 7,440 35,926 128,825 2005P 84,500 6,500 39,000 130,000 56% 44% 100% 1987* 2001 52% 26% 21% 100% 2002E 66% 6% 28% 100% CGR 2005P '87-01 '01-05 65% 5% 30% 100% NM -0% +1% +6% +4% -35% +7% -2%
KEY PATENT EXPIRATIONS IN CATEGORY

Drug Prilosec Axid Prevacid/Zoton Protonix Zelnorm Nexium Dexloxiglumide Pariet N/A = Not available Manufacturer AstraZeneca Eli Lilly Abbott/American Home Products/Takeda American Home Products Novartis AstraZeneca Forest Labs Johnson & Johnson Patent Expiration 10/01 4/02 5/09 2010 2013 2014 2/14 N/A U.S. Sales in Year Patent Expires ($MM) $3,000 130 -------------
177
GASTROINTESTINAL R&D PIPELINE

Company Chugai Takeda Eisai Product SUL (Sucralfate) Takepron (AG-1749) fast disintegrating tablet Aciphex P-C I II III NDA Aug-96 Apr-01 MKT Comments Additional indication for reflux esophagitis; suspension Fast disintegrating tablet Proton pump inhibitor for H. pylori eradication; filed for treatment of symptomatic reflux esophagitis Symptomatic GERD; H. pylori eradication 5HT4 agonist for irritable bowel syndrome; U.S. and E.U. filings; non-approvable letter 6/01; discussions with FDA continue; approved and launched in Switzerland GERD; functional dyspepsia; PIII chronic constipation Xanthine oxidase inhibitor for gout; JV with Takeda Reversible acid pump inhibitor; treatment of acid-related gastrointestinal disease Reflux inhibitor; inhibitor of transient lower esophageal sphincter relaxations; GERD 2004 Topical steroid; inflammatory bowel disease Senile disciform macular degeneration; licensed from Toray Inflammatory bowel disease Functional dyspepsia, irritable bowel syndrome, chemotherapy-induced emesis (Japan) CCK antagonist for constipation-dominant IBS; Phase III trials underway in late 2001; from Rotta Research Gastrointestinal complications from HIV and other diseases; approved for ulcerative colitis NK1 antagonist; inflammatory bowel disease Neurotensine receptor antagonist; irritable bowel syndrome Motilin agonist; on hold Injectable formulation 2005 Short-acting reversible PPI for rapid symptomatic relief of dyspepsia; to be filed in 2005 P38 kinase inhibitor; IBD Reversible proton pump antagonist; GERD; from Yuhan CRF antagonist, irritable bowel syndrome 2004 H-pylori eradication; acquired; exclusive rights from Bayer; to be filed in 2004 Gastric ulcer; acid pump antagonist; oral 5 12 3 3 25
Johnson & Johnson Novartis
Aciphex/Pariet Zelnorm
2002 Q1:00
Novartis Abbott Laboratories AstraZeneca AstraZeneca AstraZeneca Daiichi Eisai Eisai Forest Laboratories
Zelnorm TMX 67 AR-H047108 AZD 3355 Rofleponide FERON (interferon-b) E-3040 E-3620 Dexloxiglumide
Procter & Gamble Sanofi-Synthelabo Sanofi-Synthelabo Chugai Takeda Altana
Asacol SR-140433 SR-48692 GM-611 Takepron (AG-1749) injectable APA
GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Altana Sankyo
SB-281832 SB641257 (YH1885) SB723620 Gastroqujinolone (BY 377) R-105266 Total Drugs In Development 2
178
Glaucoma
G The Glaucoma Rx Treatment Market Is Accelerating
It is estimated that more than 2.5MM people in the U.S. and 8-12MM outside the U.S. have glaucoma. An equal number of people likely have elevated intraocular pressure, a glaucoma risk factor. Glaucoma is a disease state in which the optic nerve is damaged and visual field is narrowed and ultimately lost. Glaucoma results from a variety of different 9% 2001-05 CGR conditions, although elevated intraocular pressure (IOP) often is cited as a primary cause. In a normal eye, a watery fluid called aqueous humor fills the void between the cornea and iris, nourishing the cornea and the lens and providing the front of the eye its form and shape. Chronic simple (open, wide angle) glaucoma, the most prevalent type, results from increased resistance in the aqueous humor outflow tract, causing increasing pressure within the eye. As pressure builds the optic nerves are damaged, which results in compromised vision. Therapies that relieve IOP by either reducing the inflow or reducing the outflow of aqueous humor are the preferred treatments. Sales of pharmaceutical treatments for glaucoma are expected to increase 9% annually during 2001-2005, making glaucoma one of the fastest growing pharmaceutical treatment categories. Greater understanding of glaucoma and the importance of early treatment, combined with approval of more effective and convenient agents such as Xalatan and Lumigan, should fuel this growth.
Glaucoma Drug Sales As A Percentage Of The Category PARTICIPANTS

Other 21% Other 29% PHA 38%
2001 $2.2B
2005P $3.2B
PHA 37%
AGN 13%
MRK 32% MRK
AGN 14% MRK 19%
Pharmacias Xalatan led the glaucoma pharmaceutical market in 2001, although Allergan, via Alphagan and newly-launched Lumigan, may cut into Pharmacias lead by 2005. Prostaglandins and related analogs are expected to dominate the glaucoma market for the next several years. Next-generation products are focused on combinations of currently available therapies to improve convenience and compliance. Ocular neuroprotective therapies are in early stages of development.
179
Our scatter plot shows that, through 2005, Pharmacia and Allergan should lead this category, while Merck will be an important player.
Glaucoma
20%
AGN
PHA
15%
10%
5%
0%
MRK
-5% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2005 Sales Contributed By Company To Category ($ In B)
180
U.S. GLAUCOMA / ELEVATED IOP MARKET DYNAMICS ($MM)

2001 2002P 2003P 2004P 2005P CGR Comments
U.S. Glaucoma Sufferers (MM) U.S. Additional Elevated IOP (MM) 5.5 28% 1.5 19% 23.5 18% 34% 7.9 $1.65 $391 9% 2.1 $2.20 $140 3% 0.7 $1.65 $35 5% 1.4 $1.65 $70 7% 2.1 $1.65 $105 9% 2.8 $1.65 $140 10% 3.4 $1.65 $170 +48% 10% 2.6 $2.20 $170 10% 3.0 $2.20 $195 10% 3.1 $2.20 $205 35% 9.3 $1.65 $460 35% 10.3 $1.65 $510 35% 11.4 $1.65 $565 35% 12.3 $1.65 $610 +12% 26.5 13% 29.7 12% 32.7 10% 35.1 +11% - Multiple combination therapies requiring various Rx's 8% - Introduction of new therapies, increased promotional efforts Increased competition from Lumigan clips Consistent growth driven by increasing first-line use Once-daily; solid market penetration/first-mover Approval/success of Xalcom could lead to upside 5.6 33% 1.9 20% 5.7 37% 2.1 14% 5.8 41% 2.4 13% 5.8 +1% - Could be conservative; most prevalant in 45 years old + 44% - Near-term growth rate of 6%; better therapies may increase 2.6 +13% - Driven by improved/convenient therapies may increase 7%
2.6 3.0
2.6 3.0
2.7 3.1
2.7 3.1
2.8 3.1
+2% - Patient population increasing due to aging dynamics +1% - Could be conservative; increased awareness could increase
Total Target Population (MM) % Treated Patients Treated (MM) Growth Rate
Total Rx's (MM) Rx Growth Rate
Xalatan / Xalcom Market Share (PHA) Rx's (MM) Average Daily Cost Sales ($MM)
Cosopt Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM)
9% - Merck's combination dorzolamide-HCl and timolol 3.3 - Newer agents clip $2.20 $215 +11% - Moderating growth forecasted Superior efficacy to Xalatan; does not need refrigeration High incidence of hyperemia has tempered use Once-daily dosing; priced in-line with Xalatan Could be conservative
Lumigan Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM)
181
7% 1.5 $1.40 $65 11% 2.6 $0.90 $70 6% 1.4 $1.15 $50 15% 3.5 $1.70 $180 $1,105 +22% 100% 17% 4.5 $1.70 $230 $1,280 +16% 100% 4% 1.2 $1.15 $40 3% 0.9 $1.15 $30 19% 5.7 $1.80 $310 $1,465 +14% 100% 9% 2.4 $0.90 $65 7% 2.2 $0.90 $60 7% 2.2 $0.85 $55 2% 0.6 $1.15 $20 21% 6.8 $1.90 $385 $1,635 +12% 100% 6% 2.1 $0.80 $50 1% 0.3 $1.15 $10 6% 1.7 $1.40 $70 6% 1.8 $1.40 $75 6% 2.0 $1.40 $85 6% 2.0 $1.40 $85
Alphagan Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM)
15% 3.5 $1.65 $175
13% 3.5 $1.65 $175
12% 3.6 $1.65 $180
11% 3.6 $1.65 $180
9% 3.0 $1.65 $150
-4% -
Launch of Alphagan P has stabilized franchise Increasing recognition of neuroprotective properties drives Priced in-line with Xalatan; once-daily dosing Declining market share assumed; generics clip - Merck's dorzolamide (carbonic anhydrase inhibitor) - Newer agents clip
Trusopt Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM)
+7% - Moderating growth forecasted - Other generic timolol; beta-blockers - Preferred first-line treatment -8% - Slow decline as newer agents enter first-line - Merck's Timoptic/Timoptic XE; beta-blocker; patent expired
Generic Timolol Market Share Rx's (MM) Average Daily Cost Sales ($MM)
Timoptic / XE Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM)
-33% - Generic beta-blockers clip 24% - Includes Novartis's Rescula 8.6 $1.90 $490 +28% - New agents could expand the market $1,780 +13% - New product introductions/increased awareness driving growth +9% 100%
Others Market Share Rx's (MM) Average Daily Cost Sales ($MM)
Total Market Sales (MM) % Growth
INTERNATIONAL GLAUCOMA / ELEVATED IOP MARKET DYNAMICS ($MM)

2001 2002P 2003P 2004P 2005P CGR Comments
International Glaucoma Sufferers (MM) International Additional Elevated IOP (MM) 17.7 18% 3.2 39% 0.71 $1.65 $427 +8% - Increased competition from Lumigan - Merck's combination dorzolamide-HCl and timolol +2% - Newer agents clip +2% - Moderating growth forecasted - Merck's dorzolamide (carbonic anhydrase inhibitor) +4% +4% - Superior efficacy to Xalatan; does not need refrigeration - European launch expected in Q2:02; Japan in '04 - Pricing equivalent to U.S. 13% 0.18 $2.20 $145 7% 0.15 $1.40 $75 3% 0.06 $1.65 $35 7% 0.13 $1.65 $76 7% 0.13 $1.65 $80 6% 0.13 $1.65 $80 5% 0.10 $1.65 $60 4% 0.08 $1.65 $50 4% 0.08 $1.65 $50 5% 0.10 $1.65 $60 5% 0.11 $1.65 $65 7% 0.16 $1.40 $80 7% 0.17 $1.40 $85 7% 0.18 $1.40 $90 7% 0.19 $1.40 $95 13% 0.19 $2.20 $155 13% 0.20 $2.20 $160 12% 0.21 $2.20 $165 12% 0.21 $2.20 $170 37% 0.73 $1.65 $440 38% 0.81 $1.65 $490 40% 0.89 $1.65 $535 43% 0.98 $1.65 $590 - Xalcom approval improves competitive position +8% - Favorably efficacy profile driving near-term 18.0 20% 3.6 18.4 22% 4.0 18.7 25% 4.7 19.2 27% 5.2 +2% - Awareness and education driving demand - Near-term growth rate of 6% w/better therapies +9% - Likely conservative
8.2 9.5
8.3 9.7
8.5 9.9
8.7 10.0
8.8 10.3
+1% - Similar dynamics to U.S.; roughly 3x U.S. population +2%
Total Target Population (MM) % Treated Patients Treated (MM)
Xalatan / Xalcom Market Share (PHA) Number of Patients (MM) Average Daily Cost Sales ($MM)
Cosopt Market Share (MRK) Number of Patients (MM) Average Daily Cost Sales ($MM)
Trusopt Market Share (MRK) Number of Patients (MM) Average Daily Cost Sales ($MM)
Lumigan Market Share (AGN) Number of Patients (MM) Average Daily Cost Sales ($MM)
182
5% 0.23 $0.60 $50 15% 0.38 $1.15 $160 11% 0.31 $1.15 $130 8% 0.24 $1.15 $100 5% 0.17 $1.15 $70 4% 0.23 $0.60 $50 4% 0.23 $0.60 $50 4% 0.25 $0.55 $50 4% 0.27 $0.50 $50 3% 0.10 $1.15 $40 15% 0.47 $1.00 $170 $1,103 +48% $2,208 +33% $1,185 +7% $2,465 +12% 18% 0.59 $1.00 $215 20% 0.71 $1.00 $260 $1,275 +8% $2,740 +11% 23% 0.82 $1.00 $300 $1,330 +4% $2,965 +8% 23% 0.88 $1.00 $320 $1,380 +4% $3,160 +7%
Alphagan Market Share (AGN) Number of Patients (MM) Average Daily Cost Sales ($MM)
- Declining market share assumed; next generation treatments -11% - Increasing recognition of neuroprotective properties drives -10% - Declining market share assumed; next generation treatments - Other generic timolol; beta-blockers +5% +0% - Includes Merck's Timoptic Timoptic XE; beta-blocker -26% -26% - Generic beta-blockers clip - Includes Novartis's Rescula +10% +10% - New agents could expand the market +6%
Generic Timolol Market Share Number of Patients (MM) Average Daily Cost Sales ($MM)
Timoptic / XE Market Share (MRK) Number of Patients (MM) Average Daily Cost Sales ($MM)
Others Market Share Number of Patients (MM) Average Daily Cost Sales ($MM)
Total International Market Sales (MM) % Growth
Total Worldwide Glaucoma Market (MM)
+9% - New products and increased awareness drives growth
G The Glaucoma Treatment Market Is Expanding Rapidly

DETAILED DISCUSSION
Sales of pharmaceutical treatments for glaucoma are expected to grow 9% annually through 2001-2005, making glaucoma one of the fastest growing pharmaceutical treatment categories. Greater understanding of glaucoma and the importance of early treatment, combined with approval of more effective and convenient agents such as Xalatan and Lumigan are expected to fuel this growth. It is estimated that more than 2.5MM people in the U.S. and 8-12MM outside the U.S. have glaucoma. An equal number of people likely have elevated intraocular pressure, a glaucoma risk factor. Our physician consultants estimate that only 50% of people in the U.S. suffering from glaucoma currently are diagnosed and receiving treatment. Early diagnosis and aggressive treatment to lower IOP are increasingly important components of effective glaucoma management. We estimate that total worldwide pharmaceutical sales for treatment of glaucoma exceeded $2.2B in 2001 and could reach $3B+ in 2005.
G Glaucoma Is A Progressive Disease

Glaucoma is a disease state in which the optic nerve is damaged and visual field is diminished and ultimately lost. Glaucoma results from a variety of different conditions; elevated IOP often is cited as the primary cause although some patients with normal IOP have optic nerve damage. This condition is less frequent and the cause is unknown. In a normal eye, a watery fluid called aqueous humor fills the void between the cornea and iris, nourishing the cornea and the lens and providing the front of the eye its form and shape. Chronic simple (open, wide angle) glaucoma, the most prevalent type, results from increased resistance in the aqueous humor outflow tract, causing rising pressure within the eye. As pressure builds the optic nerves are damaged. Glaucoma can be differentiated into several forms, depending on the underlying abnormality. Adult forms strike people over thirty years of age, and include chronic simple glaucoma and narrow angle glaucoma. Congenital glaucoma affects people under thirty years of age, and also has infantile and juvenile forms. Elevated Intraocular Pressure Is Believed To Play Primary Role The cornea, a clear transparent layer, lies in front of and protects the eye. The iris, the circular pigmented band within the eye, widens and narrows to different light intensities. A watery fluid called aqueous humor fills the void between the cornea and the iris. Aqueous humor is produced constantly and an elaborate outflow mechanism allows for drainage. Aqueous humor leaves the eye via the canal of Schlemm, but first must pass through a porous group of cells called the trabecula. Chronic simple (open, wide angle) glaucoma results from increased resistance in the aqueous humor outflow tract and the accompanying increase in ocular pressure. The constriction could lie in the trabecula, the canal of Schlemm, or vessels draining the canal. Aqueous humor production continues at a steady rate, despite slowing outflow, causing a buildup of pressure within the eye. As pressure rises, the optic nerve may be damaged, causing compromised vision. This type of glaucoma follows a chronic, progressive course, often in the absence of symptoms. Initial symptoms may occur late in the course of the disease. A defect in dark adaptation during night driving, such as a slow recovery of vision when oncoming headlights disturb adaptation, may be the first sign. As the disease progresses, patients may experience additional vision problems, but the narrowing of the visual field may be so gradual as to be little noticed until imminent blindness.
183
Drug Therapies For The Treatment of Glaucoma

G Drug Therapies Focus On Lowering Intraocular Pressure (IOP)
If diagnosed early, glaucoma can be effectively treated and optic nerve and vision loss can be minimized. Because increased intraocular pressure (IOP) precedes the optic nerve and visual field changes by several years, lowering intraocular pressure can preserve ocular health and vision. Drug therapy for chronic simple (or open, wide angle) glaucoma usually begins with a single first-line agent titrated to the maximum tolerated dose. Additional agents may be added to the treatment regimen to augment IOP control. An estimated 50% of glaucoma patients eventually require combination treatment to control elevated IOP. Topical medications (i.e., eye drops) are the treatments of choice, as they minimize the systemic side effects common with oral administration. If drug therapy fails to adequately control IOP levels associated with chronic simple glaucoma, surgery is typically performed. Glaucoma drugs act by either decreasing the rate of aqueous humor production or by increasing the rate of aqueous humor drainage. Topically administered beta blockers are the preferred first-line treatment for glaucoma for most patients. Timolol (Mercks Timoptic and Timoptic XE; and multiple generics) and other beta blockers are the most commonly used first-line treatments. Timolol is effective in reducing aqueous humor production and, to a lesser extent, also increases aqueous humor outflow. However, timolol has been associated with a variety of side effects of the beta blocker class, including decreased heart rate and cardiac output, and asthma exacerbation. Prostaglandin-based therapies, led by Pharmacias Xalatan, have become the preferred second-line agents. Xalatan increases the drainage of acqueous humor and therefore is an effective complement to timolol. Xalatans strong efficacy, good safety profile, and once-daily dosing have increased its first-line use and have made it the most widely prescribed brand of glaucoma treatment. Allergans Lumigan also is a prostaglandinbased glaucoma therapy; Lumigan was launched in April 2001. Allergans Alphagan and Alphagan P, both alpha2-receptor agonists, are the second most widely prescribed glaucoma treatments. Alphagan and the Alphagan P formulation are believed to reduce IOP by limiting aqueous humor production and by easing aqueous humor outflow. Alphagan/P is used predominantly as second-line therapy, although once-daily dosing for many patients has led to increased first-line use. Carbonic anhydrase inhibitors, such as Mercks Trusopt (dorzolamide) decreases acqueous humor secretion by the ciliary epithelium. Merck also markets Cosopt, a combination of dorzolamide and timolol. Pilocarpine, a miotic, may also be used as additive therapy, but requires multiple doses per day, which has limited usage to more severe IOP patients.
G Timolol Plus Xalatan Has Become The Standard Of Care

The average IOP in a healthy individual is in a range of 14 to 20 millimeters of mercury (mmHg). IOP of 22 mmHg or higher generally is considered abnormal and treatment is usually initiated, even without any obvious signs of visual field loss or nerve damage. While it generally is believed that lowering and stabilizing IOP below 20 mmHg may prevent glaucoma and the resulting visual field loss, our consultants indicate that many patients may develop visual field loss at IOP levels below 20 mmHg. Recent large-scale studies of glaucoma patients suggest that greater stability in visual fields can be achieved with lower IOPs. Therefore, physicians are lowering their IOP targets and shifting drug therapy toward the single agent or combination of agents providing the greatest level of IOP reduction. Standard first-line treatment of glaucoma is usually twice-daily timolol (beta blocker). Monotherapy treatment with timolol reduces IOP by 6-7mmHg; this is the comparative basis for all new glaucoma
treatments. The package insert for Pharmacias Xalatan indicates that once-daily dosing reduces IOP by 6-8mmHg, similar to Timolol. However, physicians believe that Xalatan is superior to timolol in clinical practice. For more difficult-to-treat patients, timolol dosed in the morning combined with an evening dose of Xalatan has emerged as the preferred standard-ofcare glaucoma treatment.
CURRENTLY AVAILABLE GLAUCOMA TREATMENTS
Topical Medications Beta Blockers Nonselective Timolol Maleate Generics Mercks Timoptic Mercks Timoptic-XE Burning/stinging; transient blurred vision; photophobia; conjunctivitis; blepharitis; punctate keratitis; contact dermatitis; eyelid erythema Decreased heart rate/ cardiac output; bronchospasm; hypotension; depression; decreased libido; impotence; worsened lipid profile; decreased stress response to hypoglycemia Same as timolol Same as timolol Brand Ocular Side Effects Systemic Side Effects
Levobunolol Carteolol Miotics Pilocarpine
Allergans Betagan Ocupress
Increased relative to timolol Same as timolol
Isopto Carpine Ocusert Pilo
Burning; blurred vision; difficulty with night vision; miosis or accommodative spasm; lens opacity (rare); retinal detachment (rare); precipitation of closed-angle glaucoma (rare)
Sweating; salivation; urinary frequency; nausea; diarrhea; bronchospasm; biliary colic; mental status change; variable cardiovascular response
Carbonic Anhydrase Inhibitors Dorzolamide Mercks Trusopt Burning; punctate keratitis; ocular allergies; increased ocular side effects relative to timolol Same as dorzolamide and timolol Bitter taste; headache; nausea; asthenia; kidney stones (rare) Same as dorzolamide and timolol
Dorzolamide plus Timolol
Mercks Cosopt
Sympathomimetics Epinephrine-like Dipivefrin Propine Burning; follicular conjunctivitis; macular edema in patients who are aphakic Increased blood pressure; arrhythmias; tremor
Sympathomimetics Clonidine-like Brimonidine Apraclonidine Prostaglandin And Like Analogs Latanoprost Pharmacias Xalatan Novartis Rescula Bimatoprost Allergans Lumigan Burning/stinging; iris pigmentation; hyperemia Burning/stinging; iris pigmentation; hyperemia Hyperemia, burning/stinging Headache; symptoms of upper respiratory infection Headache; symptoms of upper respiratory infection Headache; symptoms of upper respiratory infection Allergans Alphagan Lopidine Conjunctival blanching; ocular allergy Allergic/local reaction; transient change in visual activity Headache; drowsiness; fatigue; variable blood pressure response Increased central nervous system effects change visual activity
Source: American Academy of Family Physicians and SG Cowen
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G Xalatan Has Become The Market Leader Via Efficacy And Convenience
The unique prostaglandin mechanism of action of Pharmacias Xalatan (latanoprost) has made it the worlds leading brand drug for glaucoma, generating strong use in patients poorly controlled by beta blockers. As of January 2002, Xalatan had 45.1% new prescription share in the U.S. glaucoma market, down from 53.9% in January 2001 due to competition from Allergans Lumigan, which was launched in April 2001. The Japanese rollout of Xalatan is going well; in 30 months, Xalatan has captured 30%+ share of the third-largest glaucoma market in the world. Xalcom, a fixed combination dose of Xalatan and timolol, has been granted three approvable letters by the FDA, but final U.S. approval awaits the completion of additional efficacy studies, pushing the launch into 2003, at the earliest. A Xalcom rollout in Europe is underway. Pharmacia also is pursuing a first-line indication for Xalatan based on a five-year study currently in its fourth year, and is working on a new delivery technology for Xalatan to improve patient dosing. These two new indications/formulations could increase Xalatans target patient market by 50%+. We estimate Xalatan sales of $900MM (+10%) in 2002, $1.0B (+11%) in 2003, and $1.2B in 2005.
G Lumigan Is A Formidable Competitor

Allergan launched Lumigan, a prostamide for reducing intraocular pressure in April 2001. Lumigan ultimately could be a tough competitor to Pharmacias Xalatan given Lumigans slightly greater efficacy, comparable price, and the convenience of room-temperature stability and a two-month prescription option. As of January 2002, Lumigan had captured 8.1% share of new prescriptions in the glaucoma market. Phase III Lumigan Data Compelling In Phase III trials Lumigan significantly reduced mean IOP versus Timolol at every time point measured. At six months, ranges for mean diurnal IOP were 16.6-17.7 mm Hg for patients treated with Lumigan once daily (baseline 26.0 mm Hg), 17.0-18.7 mm Hg with Lumigan twice daily, and 18.4-19.3 mm Hg with Timolol. At 10AM (peak Timolol effect) at month six, IOP < 17 mm Hg was achieved by 63.9% of patients receiving Lumigan once daily compared with 37.3% of patients treated with Timolol. Lumigan once daily was more effective than twice-daily dosing. Given Lumigans strong efficacy and safety profile, we estimate sales of $105MM (+200%) in 2002, rising to $155MM (+48%) in 2003. Allergan has filed Lumigan with the European Union; we anticipate E.U. approval in Q1:2002 and individual European country launches shortly thereafter.
G But Share Build May Be Protracted

Pharmacias Xalatan currently is used widely and the majority of current patients likely will remain on the drug, given its established record of efficacy and safety. However, Allergans Lumigan may gain new patient share over time due to a slight advantage in IOP reduction. Dosing and convenience benefits also could drive Lumigan market share gains. However, a higher incidence of hyperemia (eye redness and irritation) than Xalatan has slowed Lumigans early share gains. As of January 2002, Lumigan had captured 8.1% share of new gluacoma prescriptions, up only 40 basis points since August 2001. Reported market share figures may be understated, due to heavy physician sampling programs by Allergan and Pharmacia, but the ramp in Lumigan market share and product sales has been slower than originally forecast.
186
New Prescription Share Of The U.S. Glaucoma Market

GLAUCOMA MARKET
60.0%
50.0%
40.0% Market Share
30.0%
20.0%
10.0%
0.0% 9-Feb-01 19-Mar-01 26-Apr-01 3-Jun-01 Xalatan 11-Jul-01 Lumigan 18-Aug-01 Travatan 25-Sep-01 2-Nov-01 10-Dec-01 Alphagan P 17-Jan-02
Alphagan
Source: IMS America
G Lumigan Has An Apparent Efficacy Advantage Over Xalatan

Allergan recently presented a three-month, head-to-head trial comparing Lumigan with Xalatan. The trial was a randomized, blinded comparison of Lumigan 0.3% (119 patients) and Xalatan 0.005% (113 patients) each dosed once daily (at night) over three months. Trial patients had baseline IOPs ranging from 22 to 34mm Hg, averaging 25.7mm Hg at entry. The endpoints included mean IOP at 8:00am, percentage of patients achieving pressure of 17mm Hg at 8:00am, and diurnal pressure at 8:00am, 12:00pm, 4:00pm and 8:00pm. Patients on Lumigan achieved a lower mean IOP at 8:00am on all days measured than the patients on Xalatan. This difference was not statistically significant, although the lack of statistical significance was attributed to the small number of patients in the study. 53% of Lumigan patients achieved a pressure of 17mm Hg or less at 8:00am versus 43% of Xalatan patients. This difference was statistically significant at p=0.029. Alternatively, when target pressures were analyzed, the number of patients achieving a target pressure of 17mm Hg was not statistically different in the Lumigan and Xalatan groups. At lower target pressures of 13-15mm Hg, a statistically greater number of Lumigan patients achieved target IOP levels. Lumigan was associated with statistically more hyperemia (eye irritation) than Xalatan. Xalatan was associated with more stinging and headache. Importantly, patients on Lumigan achieved consistently lower diurnal pressures, and the pressures were statistically lower at 12:00pm and 4:00pm relative to Xalatan. Concerns Over Incidence Of Hyperemia Tempering Initial Lumigan Uptake In the Lumigan Phase III trials, hyperemia incidence was reported in 45% of the patients studied, although only 5% of these incidents were reported as more than just a mild case. Importantly, only 3.4% of patients participating in the Phase III trial discontinued Lumigan use due to hyperemia in the first three months and no patient discontinued treatment after three months due to hyperemia. Combined Phase III trials of Xalatan showed roughly a 4187 Therapeutic Categories Outlook 3/2002
5% incidence of hyperemia. Our physician consultants who have dosed over 100 patients with Lumigan report that 10-15% of their patients have reported hyperemia, and that a few patients have discontinued Lumigan use due to this adverse event. The hyperemia tends to occur early in the treatment and diminishes as treatment continues (usually after one-totwo months). We believe the hyperemia side effect has slowed initial physician and patient acceptance of Lumigan and limited switching from Xalatan. Our clinical checks indicate that, if Lumigans apparent efficacy advantage relative to Xalatan holds up, Lumigan may challenge Xalatan as the second-line treatment of choice.
G Alphagan Differentiated By Neuroprotection Qualities

Alphagan (brimonidine; alpha-2 agonist) and recently-launched Alphagan P currently hold 26.1% combined new prescription share of the glaucoma market and 23.9% share of total glaucoma prescriptions (as of January 2002), placing the franchise second to Xalatan in the U.S. Following the launch of Lumigan, Alphagans new prescription market share has been clipped by roughly 300 basis points, but Alphagans market share is stabilizing. Alphagan primarily is used as adjunctive therapy to beta blockers and/or prostaglandins. A strong efficacy and safety profile and convenient once-daily dosing have bolstered use, but allergic reactions in an estimated 10-20% of patients have limited Alphagans growth. Alphagan P is a reformulated version of Alphagan designed to minimize allergic reactions via a non-allergenic preservative. Recent animal studies indicate that Alphagan may offer ocular neuroprotective benefits and help preserve optic nerve cells. Interest in these potential neuroprotective qualities is growing, which could fuel the second leg of growth for Alphagan. Allergan has received two newlyissued patents covering Alphagan neuroprotective benefits. Allergan is conducting additonal studies to further highlight this benefit. Alphagan P Should Improve Tolerability In October 2001, Allergan launched a new formulation of Alphagan (Alphagan P), which uses a new preservative formulation to minimize allergic reactions. Phase III data indicate that Alphagan P reduces allergic reactions by up to 40% relative to Alphagan. Allergan seeks to rapidly convert Alphagan users to Alphagan P as the Alphagan use patent expired in September 2001. As of January 2002, Alphagan P had captured 8.5% new prescription share and 5.1% total prescription share of the glaucoma market (accounting for 32% of franchise new prescriptions). Bausch & Lomb and Alcon have filed ANDAs for generic versions of Alphagan. Allergan filed patent infringement suits against both companies, triggering a 30-month stay on generic approvals. Therefore we anticipate launch of the first generic brimonidines in H1:2004, allowing Allergan 2+ years to convert much of the franchise to Alphagan P. A strong sales and marketing effort behind the rollout of Alphagan P has stemmed market share losses to the newer prostaglandins, including Allergans Lumigan. The differentiated mechanism and the potential neuroprotective benefits of Alphagan and Alphagan P should preserve Alphagans role as a leading adjunctive therapy for glaucoma. We estimate Alphagan sales at $255MM (+2%) in 2002, $260MM (+2%) in 2003, decreasing to $200MM in 2005, as generics likely will clip the franchise.
G Mercks Trusopt/Cosopt Remain Key Treatment Components

Mercks Trusopt (dorzolamide) is a carbonic anhydrase inhibitor that reduces the production of aqueous humor. Merck also markets Cosopt, a combination of dorzolamide and the beta blocker timolol. Cosopt is indicated for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension who are insufficiently responsive to
beta blockers. The Cosopt package insert indicates that the IOP-lowering effect of Cosopt b.i.d. is slightly less than concomitant administration of 0.5% timolol twice-daily and 2.0% Trusopt three-times daily. Cosopt had a 15% share of new glaucoma prescriptions as of January 2002, placing it third behind Xalatan and Alphagan. Cosopt is widely used in patients not well controlled on timolol and non-responsive to Xalatan. Worldwide sales of the Trusopt/Cosopt franchise reached $425MM (+16%) in 2001. We estimate Trusopt/Cosopt franchise sales of $475MM (+12%) in 2002, $515MM (+8%) in 2003, rising to $565MM in 2005.
Next-Generation Agents Target Improved Convenience

Next-generation treatments for glaucoma have focused on combinations of currently available therapies to improve patient convenience and compliance. Research and development programs focused on ocular cell maintenance or ocular nerve repair are in early stages.
G Pharmacias Xalcom Should Improve Patient Compliance

Xalcom, a fixed combination dose of Xalatan and timolol, has been granted three approvable letters by the FDA, but final U.S. approval awaits the completion of additional efficacy studies, pushing the launch into 2003, at the earliest. A Xalcom rollout in Europe is underway. The Xalcom Phase III program enrolled 418 patients, all with either unilateral or bilateral primary open angular glaucoma. Patients were randomized to either receive once-daily Xalcom, oncedaily Xalatan or twice-daily timolol. After six months of treatment, the Xalatan and timolol treatment groups were switched to Xalcom. At six months and one year, Xalcom demonstrated superior efficacy to either of the compounds used in monotherapy. Additionally, Xalcom maintained continuous benefit for the full 52 weeks of treatment. The observed adverse events of iris color change and eyelash growth were not statistically greater than Xalatan monotherapy. The study concluded that Xalcom is a safe and effective glaucoma treatment option, and the convenience of once-daily dosing may be helpful in improving compliance. Xalcom had no higher adverse events in the twelve months of treatment compared with either timolol or Xalatan. We believe the simplified dosing of Xalcom will be well received by both physicians and patients, as glaucoma patients tend to be elderly and have difficulties administering eye drops.
G Allergans Alphagan/Timolol And Lumigan/Timolol Combos In Development

Allergans near-term glaucoma pipeline is led by its combination Alphagan (brimonide alpha-2 agonist) plus timolol (beta blocker) product (Combigan). Combigan is designed to improve dosing convenience and patient compliance. It is estimated that over 50% of Alphagans current use is in combination with beta blockers. Allergan has filed an NDA for Combigan in the U.S. and is anticipating U.S. launch in mid-2002. A European filing for Combigan is expected in late-2002. Allergan believes that the improved intraocular pressure results observed with Combigan versus the monotherapies should be sufficient to garner approval. We estimate Combigan sales of $10MM in 2002, rising to $25MM in 2003, and $75MM in 2005. Allergan also is running Phase III trials of a Lumigan/timolol combination. Allergan anticipates a late-2003 filing; launch for this combination is expected in H2:2004. We estimate Lumigan/timolol sales of $15MM in 2004, rising to $35MM in 2005.
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G Allergans Memantine Focused On Neuroprotection

Allergan also is developing a topical formulation of Memantine, a novel NMDA antagonist, for ocular cell protection. Memantine acts by blocking the N-methyl-D-asparate type of glutamate receptors, preventing excessive glutamate accumulation which leads to neuronal cell damage. Allergan is performing two large Phase III trials involving 1,100-1,200 patients each; the first trial is fully enrolled and the second should conclude enrollment in H2:2002. The clinical endpoint is measurement of change in visual function, which is expected to require 2-3 years for each trial. Therefore, the earliest we could assume an NDA filing for Memantine would by in 2005.
GLAUCOMA R&D PIPELINE

Company/Product Allergan Alphagan+Timolol Combigan Lumigan+Timolol Memantine Pharmacia Corp. Xalcom Dec-99 2003 Glaucoma; combination of Xalatan (latanaprost) plus timolol (beta blocker) for refractory glaucoma; approvable 6/2000; additional studies ongoing; launched in Europe 2003 Glaucoma; prostaglandin analog; studies for first-line treatment of glaucoma NSAID (diclofenac) for glaucoma 2002 Glaucoma; new delivery formulation Glaucoma eye drop; A2 antagonist 4 2 9 2001 H2:02E Glaucoma; combination of brimonidine (alpha-2 antagonist) plus timolol (beta blocker) for refractory glaucoma P-C I II III NDA MKT Comments
H2:03 H2:04E Glaucoma; combination of Lumigan (prostamide) plus timolol (beta blocker) for refractory glaucoma 2005 2006 NMDA antagonist; ocular cell preservation; early Phase III
Xalatan (latanaprost) PNU-180110A Xalatan FFD (latanaprost) Sankyo CS-088 Total Drugs In Development 0 0 3
2002
Progress since last update in bold; movement marked by arrow
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Notes
191
Notes
192

G After A Decade Of Failure, Promising Products Emerging
Approximately 150,000 people each year in the U.S. experience traumatic brain injury (TBI) sufficiently traumatic to need treatment. People over 75 years of age have the highest rate of TBI, followed by those in the 15-24 age group, and males are more than twice as likely as NM 2001-05 CGR females to experience TBI. The effects of TBI vary greatly, from no permanent damage to complete debilitation and/or death. No drugs currently are available specifically to treat TBI, and many drugs have failed in the last decade. Pharmos and Bayer now lead in TBI, post disappointing results with Pfizers CP101-606. Spinal cord injury (SCI), while not as prevalent as TBI, has much more catastrophic results. There are nearly 10,000 cases reported annually and up to 200,000 patients are living with chronic injuries in the U.S. SCI new product development is gaining substantial momentum.
Head Trauma/Spinal Cord Injury Category Market Share By $ Sales

PARTICIPANTS
2001
$90MM
2005P
$685MM
PHA 100%
PHA 100%
Other 8% BAYG 50%
PHA 100%
PHA 10%
PHA 100%
Maas BiolAB 16%
PARS 16%
MAJOR TRENDS AND ISSUES
Pharmacia dominated the spinal cord injury market in 2001. Bayer should lead the head trauma market in 2005. Several compounds hold promise for traumatic brain injury, including Pharmos Dexanabinol and Bayers Repinotan. Pfizer discontinued CP101-606 post disappointing Phase II results. Steroids are expected to dominate the spinal cord injury market. Our scatter plot shows that Bayer and Pharmos should be leaders in the head trauma/spinal cord injury market in 2005.
193

120%
100% % Of Company 2001-05 Sales Growth From Category
PARS
80%
60%
40%
20%
0%
PHA
BAY
-20%
-40% -$0.1
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.8
194
HEAD TRAUMA/SPINAL CORD INJURY MARKET DYNAMICS

2001 2002E 2003E 2004P 2005P
ACUTE HEAD TRAUMA INJURY WW MARKET BUILDUP ($MM)

US Population Suffering TBI (MM) US Population With Brain Surgery(MM) ROW Population Suffering TBI (MM) ROW Population With Brain Surgery (MM) Total Potential Population % Treated # Treated (MM) Cost per Patient (000) Total Market Potential Repinotan (BAY) Market Share Repinotan Sales Potential Dexanabinol (PARS) Market Share Dexanabinol Sales Potential Cyclosporin (Maas BiolAB) Market Share Cyclosporin Sales Potential 0.15 0.15 0.23 0.23 0.76 0.15 0.15 0.23 0.23 0.77 0.15 0.15 0.23 0.23 0.77 0.16 0.16 0.24 0.23 0.78 0.16 0.16 0.24 0.24 0.79 18% 0.14 $0 $431 44% $190 43% $185 13% $55
CHRONIC SPINAL CORD INJURY WW MARKET BUILDUP ($MM)

US Population Suffering Chronic SCI (MM) ROW Population Suffering Chronic SCI (MM) Total Potential Population % Treated # Treated (MM) Annual Cost per Patient (000) Total Market Potential Fampridine (Acorda) Market Share Fampridine Sales Potential 0.26 0.39 0.66 0.27 0.41 0.69 0.29 0.43 0.72 0.30 0.45 0.75 3% 0.02 $2.15 $50 100% $50 0.31 0.47 0.78 6% 0.05 $2.15 $100 100% $100
ACUTE SPINAL CORD INJURY WW MARKET BUILDUP ($MM)

US Population Suffering Acute SCI (MM) ROW Population Suffering Acute SCI (MM) Total Potential Population % Treated # Treated (MM) Cost per Patient (000) Total Market Potential Solumedrol (PHA) Market Share Solumedrol Sales Potential Cyclosporin (Maas BiolAB) Market Share Cyclosporin Sales Potential Source: SG Cowen 0.01 0.02 0.03 100% 0.03 $3 $90 100% $90 0.01 0.02 0.03 100% 0.03 $3 $90 100% $90 0.01 0.02 0.03 100% 0.03 $3 $90 100% $90 0.01 0.02 0.03 100% 0.03 $3 $95 100% $95 0.01 0.02 0.03 100% 0.03 $5 $155 60% $95 40% $60
195
Sizable Patient Population With Very Few Clinical Options

DETAILED DISCUSSION
G Head Trauma And Spinal Cord Injury Both Have Catastrophic Results
Traumatic brain injury (TBI) results from damage to the brain caused by an external force. The leading causes of TBI are motor vehicle accidents, acts of violence, falls, sports and recreational injuries, lightning strikes, electric strikes, and blows to the head. Memory loss, altered mood, and fatigue are common effects. TBI can occur with no physical evidence of injury or trauma; examples include whiplash and shaken babies. Acquired brain injury (ABI) occurs from damage to the brain caused by strokes, tumors, hypoxia, toxins, degenerative diseases, near drowning and other conditions not necessarily caused by an external force. The number of severe TBI cases is declining; more mild/moderate cases are showing up. A successful TBI drug also could become the standard of care post brain surgery, roughly doubling the market potential. The number of patients undergoing brain surgery is about 150,000 a year. Brain injury results in a cascade of biological events that can inflame and kill brain cells. Within minutes of the insult, toxic chemicals, most notably glutamate and other excitatory amino acids, are released in the brain. Within hours, calcium ions enter the cell and trigger intracellular toxic biochemical events that result in cell death. These biochemical events trigger massive release of free radicals, which attack the mitochondria. The attacked mitochondria release toxin which flip the neurons suicide switch, killing brain cells through carefully orchestrated/programmed decomposition. Inflammatory cytokines also are synthesized and are released in massive quantities causing the breakdown of the blood brain barrier and cell death. Intracranial pressure is elevated causing further ischemia and a secondary neurological injury that may increase the probability of an unfavorable clinical outcome. As the number of disconnections between gray and white brain matter increases, the probability of successful outcomes deteriorates.
IMPORTANT CLINICAL FACTORS IN TBI
Blood pressure Body temperature Location of brain injury Enlarged brain mass/oxygen requirements Prolonged extractions from auto/rescue
A Successful TBI Drug Targets A 300,000 Patient Market Annually
Spinal cord injury (SCI) results from damage or, rarely, complete severing of the spinal cord. The leading causes of SCI are motor vehicle accidents (44%), followed by acts of violence (24%), falls (22%), and sports (8%). The prognosis for patients with both SCI and multi-organ injury is particularly poor. The spine is the main relay station for all senses and conscious body movements. Nerve pulses travel up and down the cord to and from the brain. The injury is classified as complete when there is no function below the level of injury, and incomplete when some function remains below the level of injury. The location of the spinal cord damage determines what level of disability the patient will experience. Typically, the nerves above the injury continue to function while the nerves below cease to function. For example, C5 function allows movement of the shoulders. Adding C6 level also lets one flex the elbow. Adding C7 level allows straightening the elbow. Adding C8 lets a paraplegic not only move his arm, but also grip his fingers to hold a cup or spoon. Those with SCI above C3, like Christopher Reeve, cannot breathe on their own. Each level of improvement dramatically improves the quality of life of the SCI victim and his family. There has not been a census of the SCI population since the 1970s, but the chronic population is believed to be about 250,000 in the U.S., with 10,000 new SCI cases a year.
196
G TBI Market Potential: $1B In 2005; Chronic SCI $100MM In 2005

Approximately 150,000 people each year in the U.S. experience TBI sufficiently traumatic to need treatment. In addition, patients undergoing brain surgery also could benefit from drug therapy, doubling the market potential. We estimate that the head trauma market could total $230MM in 2003, rising to $1B in 2005, assuming 40-45% of patients are treated and a cost of $3,000 per patient course. The market for a chronic SCI treatment could total $100MM by 2005.
G Clinical Trial Design Makes TBI Drug Development Challenging

The Glasgow Outcome Scale (GOS) and Extended Glasgow Outcome Scale (GOSE), while crude, are the most commonly used measurements of recovery in TBI. Most clinical trials employ the GOS as the primary endpoint and a 10% improvement at six months fulfills the FDAs requirement for success. GOS measures physical and mental disabilities post injury. While the GOS is widely accepted, other aspects of clinical trial design have been criticized. Most studies use 10% improvement as the endpoint, in sync with FDA requirements, but this level of improvement may be too ambitious. In a catastrophic event such as TBI, even 2% improvement may be acceptable. Recent reviews of prior studies show that a more reasonable expectation of improvement would be 5-8%. The minimum number of patients to achieve statistical significance could be over 800. Many failed studies had an extremely heterogeneous patient population, which challenges the ability to achieve statistically significant results. In fact, many previous studies utilized a prophylaxis approach where all TBI patients admitted into the trial were given the active drug. Another problem is the time of administration. The time window required in an animal could be different from that of a human. Particularly with the NMDA antagonists, the treatment window may expire six to eight hours after the TBI. Some failed drugs may very well be beneficial in head trauma, but due to the poorly designed clinical trials, failed to show efficacy.
GLASGOW OUTCOME SCALE (GOS)
Score 1 2 Description Dead Vegetative Unable to interact with environment; unresponsive Severe Disability Able to follow commands; unable to live independently Moderate Disability Able to live independently; unable to return to work or school Good Recovery Able to return to work or school 1 2
FDA Requires 10% Improvement At 6 Months On GOS
EXTENDED GLASGOW OUTCOME SCALE (GOSE)
Dead Vegetative
3 4 5 6 7 8
Lower Severe Disability Upper Severe Disability Lower Moderate Disability Upper Moderate Disability Lower Good Recovery Upper Good Recovery
Source: Washington University
197
G Types Of Head Trauma

Drugs in clinical trials are being tested for TBI and ABI, with TBI the predominant focus. Depending on where the trauma to the head occurs, any range of outcomes may develop. During head trauma, the patients intracranial pressure (ICP) increases dramatically. If the brain continues to swell, additional damage and even death can occur. The majority of TBIs affect the frontal and temporal lobes because the serrated bone underneath disrupts the brain as it slides during impact.
TYPES OF HEAD/SPINAL TRAUMA
Area of Brain Frontal lobe Location Under Forehead Consequences Difficulties planning and completing tasks in order. Mental rigidity. Increased distractibility and mood swings. Inability to understand words or talk. Diminished math and hand-eye coordination. Difficulties in selfcare because of reduced self-awareness Short and long term memory problems. Word/object association also may suffer. Reduced vision or complete blindness. Hallucinations or color blindness. Altered perception of movement. Tremors may develop. Lack of control in fine movements and dizziness. Rapid movement impaired Problems with balance and movement. Difficulties with organization and perception of environment. Double vision. Swallowing difficulties and slurred speech. Persistent vegetative state (coma). Paralysis and anesthesia of body. Loss of bowel and bladder control and sexual function. Eight pairs of nerves that supply signals to the back of the head, neck, shoulders, arms, hands and the diaphragm. Powers the chest, some back and abdomen muscles.
Parietal lobe Temporal lobe Occipital lobe Cerebellum
Top and back of head Side of head just above the ears Back of the head Attached to brainstem at base of skull Deep inside the brain, leads to the spinal cord Continuation of the lower part of brain stem Neck to the upper shoulders Chest down to end of ribs Stomach to hips
Brain stem
Spinal cord
Cervical nerves
Thoracic nerves
Lumbar nerves
Five pairs that run the lower abdomen, the lower back, the buttocks and parts of the legs and external genitals Five pairs that operate the thighs, lower legs, feet, most of the genitals and areas around the anus.
Sacral nerves
Very end of spinal column
Source: HeadInjury.com and Medem; company data
G Drugs In Development Have Focused On A Handful Of Pathways
NMDA antagonists encountered another development setback for TBI in 2001, with the disappointing Phase II efficacy results for Pfizers CP101-606. Dizocilpine (MK-801; Merck) and NPS-1506 (NPS Pharmaceuticals) also failed in the clinic. Nonetheless, NMDA antagonists have a promising mechanism. These drugs work by blocking the NMDA (calcium and sodium) channels, thus inhibiting glutamate from causing destruction via this subtype of receptor. When head trauma occurs, glutamate is released in large quantities and attaches to the NMDA and other channels, including AMPA. NMDA antagonists, in theory, block these channels. NMDA receptors are found in gray and not white brain matter. NMDA antagonists can cause CNS side effects, such as decreased awareness, and only are useful in acute but not chronic injury.
AMPA antagonists work on the AMPA receptor, which is also a glutamate receptor. Unlike the NMDA receptors, AMPA are located in both white and gray brain matter. There has been some concern over the efficacy of this approach but neuroprotection via the AMPA receptor may be lessened in animal studies due to the fact that humans have considerably more white matter than animals. Cannabinoids are derived from the active chemical in the marijuana plant, tetrahydrocannabinol (THC). THC has significant brain penetration characteristics. BAY 387271 (Bayer) is a cannabinoid and Dexanabinol (Pharmos) is an optical isomer of THC. Immunophilins have another mechanism that has shown success in preclinical tests. Cyclosporin-A (Maas BiolAB) and FK506 (Fujisawa) are potent neuroprotective immunophilin activators. The mechanism of action is unknown, but there are many more receptors for these types of drugs in the brain than elsewhere in the body. Both Cyclosporin and FK506 (Fujisawa) block enzymes producing toxic nitric oxide (NO) free radicals during TBI or stroke. Immunophilins easily enter the brain during TBI because the blood brain barrier is opened by the trauma. A three- to seven-day immunophilin TBI treatment will have minimum immune suppressive effects. Cyclosporin and FK506 have been used clinically in organ transplants for 10+ years. Thus, their toxicology and side-effect profiles are very well known. Adenosine is an endogenous neuroprotectant. It inhibits the release of excitatory amino acids and increases blood flow in the brain. Adenosine may influence the release of several neurotransmitters, such as acetylcholine, glutamate, noradrenaline, dopamine, serotonin, and GABA. Intracranial pressure (ICP) may be reduced via drilling a hole in the skull to monitor and maintain IPC. Only 17% of trauma centers follow this method. It is estimated that up to 10,000 people per year die because this procedure is not used. This is due in part to the fact that many TBI patients are unconscious when they arrive at the hospital and are unable to request specific treatments or second opinions. Mitochondrial pore blockers are especially effective in neuroprotection because they block a final common pathway of neuronal death. While NMDA antagonists and immunophilins have upstream and midstream effects respectively, against glutamate, free radicals and calcium, TBI induces so many dysfunctional cellular pathways at once that the cell is overwhelmed. In TBI, the major downstream cell death pathway is mitochondrial failure. Without ATP energy from the mitochondria, the cell cannot function. When the mitochondria are overwhelmed by calcium and free radicals, they open a megapore. This megapore releases mitochondrial toxic enzymes that kill the neuron. Cyclosporin A is the only drug being developed for TBI that is a mitochondrial megapore blocker.
199
CASCADE IN TRAUMATIC BRAIN INJURY

Physically-damaged brain matter is destroyed. Must halt insult to prevent destruction. Glutamate floods the cells and will attach to NMDA and AMPA (calcium and sodium) receptors. Antagonists of these receptors may block the reaction. One limitation: NMDA receptors are only located in gray matter thus white matter cannot be saved by an NMDA receptor antagonist, yet white matter is critical in brain function. AMPA is also a glutamate (calcium and sodium) receptor to which glutamate attaches. Unlike the NMDA receptors, AMPA receptors are located in both white and gray matter. AMPA antagonists have shown substantial neuroprotective qualities. Kainate is another receptor to which glutamate can bind. Stimulation of the kainate receptor leads to greater apoptosis, or premature violent death featuring cell break down. This unloads the glutamate towards the neighboring cells, restarting the process. Glutamate activates NMDA, AMPA and Kainate type receptors which open the cells to a flood of extracellular calcium. Calcium overstimulates enzyme systems (calcineurin) wasting needed cellular resources, activates massive nitric oxide (NO) free radical production, and attacks the mitochondria. Agents to block calcium, including chelating agents (EDTA) and magnesium, have so far been unsuccessful. The neuroimmunophilins block calcineurin and NO hyperactivity in brain cells. Calcium and free radicals together attack mitochondria. Mitochondria stop producing energy. Neurons use up their fuel reserve, and fall further out of equilibrium. Mitochondria develop large holes in their membrane called megapores, ejecting normal mitochondrial enzymes as well as caspases and excess calcium into the cell fluid. These mitochondrial enzymes are toxic in the cell fluid and some are transported into the nucleus where they switch on the DNA genetic code that instructs the neuron to die. Cyclosporin selectively blocks the formation of the mitochondrial megapore. A cocktail of drugs may be necessary to block all waves of activation via targeting numerous receptors to stem progression of this event.
The diagram below illustrates a portion of this cascade.
Source: University of Bristol
G Treatments For Spinal Cord Injury

SCI, unlike TBI, can easily delineate into groups. The injury is classified as complete when there is no function below the level of injury, and incomplete when some function remains below the level of injury. The location of the spinal cord damage determines what level of
disability the patient will experience. Typically, the nerves above the injury continue to function while the nerves below cease to function. For example, C5 function allows movement of the shoulders. Adding C6 level also lets one flex the elbow. Adding C7 level allows straightening the elbow. Adding C8 lets a paraplegic not only move his arm, but also grip his fingers to hold a cup or spoon. Those with SCI above C3, like the actor Christopher Reeve, cannot breathe on their own. Reeve was paralyzed in a horseback riding accident and has become an advocate for SCI research and product development. Each level of improvement dramatically improves the quality of life of the SCI victim and his family.
ONE EXPERTS VIEW ON APPROACH TO ACUTE SCI TREATMENT
Give methylprednisolone as soon as possible. Studies show that this is most beneficial within three hours of injury, but can have positive effects up to eight hours post injury. Remove bone that is compressing the spinal cord. In most injuries, the spinal cord is compressed, not severed. If the cord is compressed, removing bone may relieve pressure and restore supplies of oxygen and blood. Stabilize the spine as soon as possible. This prevents further compression or twisting of the spinal cord and allows the patient to be hoisted upright into a bed frame, which hastens recovery. Begin rehabilitation as soon as possible.
Source: Dr. Wise Young, Rutgers University
There has been a resurgence of interest in SCI, traced predominantly to Reeve. There are many promising therapies and procedures in the pipeline that could benefit SCI victims. Acordas Fampridine is the first of three products it is developing. The most promising could be the M1 antibody, which was developed at the Mayo Clinic and is currently in preclinical for MS. Acorda is hopeful to begin preclinical testing with the M1 antibody in SCI in 2002. Acordas third pipeline product is an L1 axonal guidance protein. L1 permits regeneration of axons in the white matter. It is present in fetal cells but inhibitors stop axonal growth in adults. L1 axonal guidance protein could allow for axons in the spinal cord and white brain matter to regenerate. Israel-based ProNeuron is testing activated macrophages. Anecdotal reports with activated macrophages have been quite positive. ProNeuron also is developing activated T-cells which should deliver similar response as activated macrophages but can be administered by intravenous infusion. Activated macrophages must be instilled into the spinal cord. Alexion Pharmaceuticals is researching porcine cells in primates with initial success. Additional data are being collected prior to initiating human tests. Immunophilins have shown substantial improvement in axon survival in numerous preclinical SCI studies. Both Cyclosporin and FK506 have demonstrated success and Cyclosporin is being evaluated for clinical trials. There is renewed interest in physical therapy in chronic SCI patients. Early research shows that extensive forced use of areas that are paralyzed can help patients recover function. The training is extremely intensive, requiring many therapists, although robotic equipment can help with the stimulation and movement. Thus, there are many opportunities for equipment manufacturers in this area.
G Agents In The Clinic For Head Trauma/Spinal Cord Injury

Repinotan (Bayer) Repinotan is a 5HT1A-receptor agonist. It hyperpolarizes membranes and activates receptors that block the release of glutamate. This may prompt greater perfusion of damaged tissue and avoid glutamate induced nerve cell damage. Blood levels are monitored closely because different patients metabolize Repinotan at different speeds, necessitating monitoring to keep the drug at a proper plasma level. This is necessary in part due to unusual kinetics: it is potent in microgram quantities and has a U-shaped dose-response
curve. A Phase II 80-patient, open label trial has been completed, but data has not been revealed publicly. We believe that it shows a double-digit improvement versus placebo. This study is expected to be published soon. Phase III testing has begun in Canada and in the U.S. Bayer targets an NDA filing in 2003. Assuming success in the clinic, we forecast Repinotan sales of $190MM in 2005. BAY 38-7271 (Bayer) BAY 38-7271 is a cannabinoid receptor agonist for traumatic brain injury and neuroprotection. It is in very early testing with human volunteers. BAY 38-7271 is administered by intravenous infusion. BAY 44-2041 (Bayer) BAY 44-2041 is an adenosine re-uptake inhibitor for ischemic stroke and traumatic brain injury. Adenosine is an endogenous neuroprotectant that prompts increased perfusion. It is in preclinical testing with a decision regarding additional clinical development due this year. Toxicity data are due in 2002. Dexanabinol (Pharmos) Dexanabinol is an optical isomer of tetrahydrocannabinol, the active molecule of the cannabis (marijuana) plant. This configuration prevents dexanabinol from binding with the cannabinoid receptors in the brain thereby allowing the compound to be used therapeutically without psychotropic side effects. Dexanabinol, when administered at a dose of 150mg via IV within six hours after the TBI, may inhibit the synthesis, release and activity of neurotoxic chemicals, thereby rescuing the brain cells and shielding the brain from an increase in ICP. This could ultimately result in an improved neurological outcome. Dexanabinol is unique in its multiple mechanisms: it acts as an NMDA antagonist, free radical scavenger, and as an anti-inflammatory to reduce ICP. Furthermore, it appears to have a very safe profile. Phase III studies are underway and will consist of 860 severe TBI patients enrolled at 70-80 trauma centers in the U.S. and Europe. The trial should conclude in late 2003 or early 2004. The end-point is a 10% improvement of GOSE at 6 months. We forecast Dexanabinol sales at $190MM in 2005.
Source: Pharmos Corp.
202
Dexanabinol Phase II Clinical Study
INCLUSION CRITERIA
Aged 16 to 65 years. Sustained a head trauma within the last six hours. Hemodynamically stable after resuscitation (BP>90mmHg).
EXCLUSION CRITERIA
Any penetrating head wound. Any spinal cord injury. Major visceral injuries requiring massive blood transfusions (expected to receive 25 blood units or more within the first 24 hours). Any severe concomitant condition (e.g., cancer, hematologic, renal, hepatic or coronary disease) or chronic condition (e.g., psychiatric disorder), that can be ascertained at the time of admission. Known history of disability that may prevent further evaluation (motor, speech, behavioral disorders, previous head injuries, other neurological history). Coma due to drug overdose (except alcohol). Patient received an experimental drug up to four weeks from current injury.
A Glasgow Coma Score of 4 to 8 following stabilization, unless both pupils are fully dilated and unresponsive to light. Injury severity dictates ICP monitoring.
CT scan is not normal (>2 CT classification) not including pure epidural hematoma. Negative pregnancy test in women of child-bearing age.
Source: Pharmos Corp
Fampridine SR (Acorda) Fampridine ("4-aminopyridine or 4-AP") is currently in testing by Acorda Therapeutics (Private) in a controlled-release form, Fampridine-SR. Fampridine enhances conduction in damaged nerves, and is the first compound shown to restore some neurological function to people with spinal cord injury. It operates by selectively blocking potassium channels on axons that are open in a damaged spinal cord. Fampridine has been studied in clinical trials involving over 500 human subjects with chronic SCI or MS. Patients in these trials have shown improvement in a variety of impaired functions, including bladder, bowel, sexual, motor, and sensory functions. It may decrease muscle spasticity and/or chronic pain. Acorda conducted a Phase II clinical study of Fampridine-SR in 90 patients with chronic SCI. This double-blind placebo controlled study was conducted at ten of the leading academic SCI rehabilitation centers in the U.S. and it has been completed. Fampridine was developed by Acordas corporate partner, Elan. Acorda has worldwide licenses to patents covering Fampridine and its use in SCI treatment. We forecast Fampridine-SR sales at $100MM in 2005. Fampridine is the first of three products it is developing. The most promising could be the M1 antibody, which was developed at the Mayo Clinic and is currently in preclinical studies for MS. Acorda is hopeful to begin preclinical testing with the M1 antibody in SCI in 2002. Acordas third pipeline product is an L1 axonal guidance protein. L1 permits regeneration of axons in the white matter. It is present in fetal cells but inhibitors stop axonal growth in adults. L1 axonal guidance protein could allow for axons in the spinal cord and white brain matter to regenerate.
Cyclosporin (Maas BiolAB) Cyclosporin is an immunophilin ligand that has shown neuroprotection capability following head trauma. There are up to 50 times more immunophilin receptors in the brain than elsewhere in the body. Cyclosporin is the only mitochondrial megapore blocker in use for TBI, which prevents neuron suicide or apoptosis. Cyclosporin, which does not usually cross the blood-brain barrier (BBB), has access to the traumatized brain and SCI
spine because trauma opens the BBB to Cyclosporin. Cyclosporin is in TBI Phase IIa by Maas BiolAB (Private). Maas has worldwide patents covering Cyclosporin neuroprotection and its use in TBI, SCI, stroke and neurodegenerative diseases including Alzheimers, Parkinsons, Huntingtons, ALS, and AIDS-dementia. FKBP Neuroimmunophilins (Guilford Pharmaceuticals + Amgen) FKBP Immunophilin ligands are novel neurotrophic compounds that may have application in the treatment of a variety of neurodegenerative disorders including traumatic brain injury and spinal cord injury, among others. FKBPs are small organic molecules that have the potential to regenerate nerve cells damaged by injury or neurodegenerative disorders such as Parkinsons and Alzheimers diseases. These compounds are the first orally active neurotrophic molecules that can cross the blood brain barrier. Guilford Pharmaceuticals appears to lead in this effort, and is collaborating with Amgen on their development. NAALADase Inhibitors (Guilford Pharmaceuticals) NAALADase inhibitors are neuroprotectants for a variety of CNS disorders including TBI and SCI. Unlike most other approaches, NAALADase inhibitors work presynaptically, blocking the release of glutamate. They show great promise in vitro and in vivo up to three hours after the injury. ARR-15896AR (AstraZeneca) ARR-15896AR is an NMDA-receptor antagonist. It was originally studied for stroke and is now in pre-clinical testing for other central nervous system disorders. NS 1209 (Shire/NeuroSearch) NS1209 is one of the most potent AMPA antagonists reported. It has shown remarkable protection of both white and gray matter in preclinical studies, and strong preclinical data to support a role of the AMPA antagonists in the treatment of TBI and SCI. Two Phase I studies with NS1209 were completed in 2000. Additional Phase I studies are ongoing. The companies are seeking a marketing/development partner for NS1209. S-1746 (Shionogi + GlaxoSmithKline) S-1746 is an AMPA receptor antagonist that acts at the glycine site of the NMDA receptor. S-1746 is scheduled to enter Phase I development in H1:02. It is part of the Shionogi/GlaxoSmithKline joint venture. Neurotrofin AIT-082 (NeoTherapeutics) AIT-802 sparks growth of new connections between nerve cells. This could allow it to help in many CNS disorders, including TBI and SCI. It is currently in Phase II testing for SCI. Memantine And Neramexane (Forest Labs + Merz) Memantine is the leading prescription product in Germany for dementia, marketed by Merz. It is being developed in the U.S. by Forest for the treatment of Alzheimer's disease, neuropathic pain and AIDS-related dementia. Memantine is a NMDA receptor antagonist. Forest recently licensed a second NMDA receptor antagonist called Neramexane from Merz, which it will investigate for several neurological applications. Macrophage Therapy (ProNeuron) Israel-based ProNeuron is testing activated macrophages, derived from the patients white blood cells. Normally, the spinal cord has a suppressive aspect to healing and is unable to
repair itself. However, activated macrophages stimulate repair and regrowth of nerve cells in the spinal cord. Anecdotal reports about activated macrophages have been quite positive. T-Cell Therapy (ProNeuron) ProNeuron also is developing activated T-cells that should deliver response similar to activated macrophages but can be administered by intravenous infusion. Activated macrophages must be instilled into the spinal cord. T-cells are critical components of the immune system, yet have almost no presence in the CNS. Since therapy is tailored to individual patients, it may not be viable for acute injuries such as stroke or TBI, but may find utility in SCI. Porcine Stem Cell Transplants (Diacrin) Fetal porcine stem cells may be viable for implantation into humans. The procedure may re-establish pathways in the damaged spinal cord by replacing or reconnecting axons and nerve cells. If this is successful, the procedure could be used in many CNS disorders, including TBI. Treatment for SCI is in Phase I. Methylprednisolone (Pharmacia) Methylprednisolone was the first approved neuroprotective drug for spinal cord injury. It is administered to nearly every patient who has a SCI. A dose of about 10 grams is given over 24 hours. While some controversy about its use exists, it is the neuroprotection gold standard in SCI. Controlled studies showed it to improve function by one spinal level.
G Down For The Count?

CP101-606 (Pfizer) Pfizer has discontinued CP101-606 (NMDA NR2B antagonist) for head trauma and stroke. In 2001, results from a 400-person Phase II trial revealed that the effectiveness of CP101606 was not superior to placebo. The trial sought to achieve a 15% improvement at six months, a high hurdle. The disappointing results add another chapter to NMDA antagonists, which have proven to be challenging to develop as evidenced by numerous failures in the clinic. This may be due to the fact that there are many variations of the NMDA receptor, and blocking a single type has not been shown to generate a benefit. Perhaps even more discouraging, CP101-606 apparently works by a slightly different mechanism than prior NMDA antagonists that failed. CP101-606 targeted patients with severe head injury as evidenced by brain scans. This was done to screen a heterogeneous population to find patients that might benefit most. Pfizer also conducted Diffusion Perfusion Weighted Imaging to assess relative level of intracellular and extracellular volume, another level of rigor. Endpoints of the CP101-606 study included (1) Glasgow outcome score; (2) extended Glasgow outcome score; and (3) Disability rating scale. The chart below summarizes the characteristics of glutamate antagonists, all of which have failed.
205
GLUTAMATE ANTAGONISTS*
Agent Selfotel (Ciba-Geigy) EAA494 (Sandoz) Cerestat (CNS 1102) ACEA 1021 Eliprodil (Synthelabo) CP101-606 (Pfizer) BW619 (BW-Glaxo) Enadoline (Parke-Davis) MK801 (nonclinical) Efficacy in Models 4 5 4 3 -3-4 4 4 5 Brain Penetration 1 2 4 -3? 4 --5 Safety 3? 4 4 -4 3 -4 -4 1-2 Tolerability 3 2 2 -4 4 -4 0
*Ranked by four criteria on an arbitrary 0-5 scale (0 = poor, 5 = best)
Source: Journal of Neurotrauma, Vol. 14, No. 2, 1997
NPS 1506 (NPS Pharmaceuticals) NPS 1506 targets open NMDA receptor-operated calcium channels and blocks the channel by binding to a unique site and/or binding by a novel mechanism. Significant neuroprotection is achieved in animal models of stroke when NPS 1506 is administered two hours after the onset of stroke. This is longer than for many other experimental stroke therapies in similar animal models, and may translate into an even longer window in humans. In animal models, NPS 1506 does not exhibit side effects that have plagued other NMDA receptor antagonists. At neuroprotective doses of NPS 1506 in animal tests, PCPlike behavioral effects, learning or memory impairment, neuronal vacuolization and significant sedation or cardiovascular side effects are not observed. Development of NPS1506 was stopped in Phase I due to lack of corporate sponsorship.
Maxi-Post (Bristol-Myers Squibb) Bristol had conducted two Phase III clinical trials of Maxi-Post in the treatment of stroke, but dropped the product due to lack of statistical significance in the treated versus control groups. However, Bristol determined that the doses used in earlier clinical trials (0.1 and 1mg) were a log order low, but raising the dose presented problems because of low solubility. Bristol has developed a water-soluble pro-drug in a non-TWEEN formulation that may be administered in 10-20mg doses. Formulation work is complete and Maxi-Post is headed for trials in human volunteers. Bristol has several advantages this time around: 1) it has good contacts in the neurology community, 2) it has learned a lot about brain imaging, 3) virtually all competitive products have dropped out of clinical trials, and 4) Bristol will stress to a greater extent the need to administer the drug quickly.
Zoloft (Pfizer) A very early trial in ten patients showed no benefit of administering Zoloft to TBI patients. However, there is still hope for Zoloft and related drugs. In TBI, 35% of patients show severe depression, much more than the general population. Drugs that treat depression may lessen permanent brain damage.
Hypothermia Treatment For many years, it was widely believed that hypothermia could help TBI patients, but there were no well-controlled studies prior to the past decade. However, a recent study was stopped early due to patient safety concerns. Patients over the age of 45 had a higher incidence of poor outcomes after the injury. A possible explanation for the discrepancy between this study and earlier tests could be that the control group may have worsened more in the prior tests. In TBI, many patients come to the hospital already hypothermic.
The control group must be warmed to normal temperature; if this is done too quickly it may hinder the recovery of the control group and make the test group appear to recover more than in reality. The test did, however, show improvements in patients that were admitted with very high intracranial pressure.
G And Those That Were KOd

Dizocilpine (MK-801; Merck) Dizocilpine (MK-801) is an NMDA receptor antagonist that acts on the NR2B subtype. This is the same receptor that CP101,606 acts upon. While it showed good promise in primates, it produced PCP-like side effects in humans, which lead to its demise. Not only does it exhibit automotive hyperactivity like PCP, but it also has extremely poor tolerability and can even be toxic. However, it is considered the benchmark against which to measure other TBI drugs, due to its very high brain penetration and efficacy in models. Eliprodil (Synthelabo) Eliprodil is an NMDA antagonist that was in development for stroke and TBI. It was dropped after Phase III testing. Freedox (Upjohn) Freedox (tirilizard) is a free radical scavenger. Results of Freedox clinical trials varied widely. Women seemed to gain no benefit in one study; the mortality rate and incidence of complications in males appeared much lower. Additional studies showed that only the mortality rate in men changed; none of the other factors changed. FDA seemed to view Upjohns statisticians as being creative to salvage their work. Freedox also was tested in SCI patients immediately after the injury and failed in these trials as well. Freedox was tested for several other conditions, but finally was dropped for all indications by late 1998. Despite Freedoxs failure, many experts believe the mechanism is still valid. PNQX (Pfizer/Neurosearch) PNQX is tricyclic fused piperidine quinoxaline-2,3-dione, one of the most potent AMPA/ GlyN antagonists reported. While possessing a desirable in vitro and in vivo activity profile, this compound suffered from low aqueous solubility and hence was returned to Neurosearch. To improve the selectivity and activity at either of the receptors, a series of second generation PNQX analogs are being synthesized. Antagonism of the AMPA receptor has shown efficacy in TBI preclinical studies. Sygen (Fidia) Sygen, also known as GM-1, is a synthetic protein that is thought to encourage nerve growth. It was tested in many conditions, including SCI and stroke. The lack of benefit in SCI is thought to be due to the drug being unable to reach the spinal fluid. Sygen was to be given via intravenous infusion. Compared to the placebo group, patients on Sygen experienced a greater incidence of liver problems and possibly Guillain-Barre Syndrome. Sygen has been marketed in Europe since 1985.
207
PRODUCTS IN DEVELOPMENT FOR TRAUMATIC BRAIN INJURY AND SPINAL CORD INJURY
Product Repinotan Dexanabinol Cyclosporin Company Bayer Pharmos Maas BiolAB Status Phase II/III Phase II/III Phase IIA Mechanism 5HT1A receptor agonist Cannabinoid; mild NMDA antagonist Immunophilin and mitochondrial pore blocker Neurotrophic factors Potassium channel blocker Cannabinoid receptor agonist Activated Macrophages AMPA receptor antagonist Porcine Stem Cells AMPA receptor antagonist NMDA receptor antagonist Adenosine re-uptake inhibitor Immunophilin NAALADase inhibitor T-cells NMDA receptor antagonist Comment Blocks nerve damage, increases perfusion in TBI Anti-inflamatory; reduces ICP in TBI Neuroprotectant; neurotrophic compound for TBI and SCI Stimulates nerve regeneration in SCI Allows nerve pulses to travel farther in SCI Neuroprotectant for TBI Stimulates regrowth of spinal cord nerve cells in SCI Protects both white and gray matter in rodent stroke models of TBI and SCI Replaces axons and nerve cells in TBI and SCI Part of Shionogi/GlaxoSmithKline joint venture; for TBI Originally for stroke; now in testing for TBI and other CNS disorders Increases perfusion in TBI Neuroprotectant; novel neurotrophic compounds; for TBI and SCI Neuroprotectant; works presynaptically; for TBI and SCI Neuroprotectant for secondary damage in SCI Several neurological applications
AIT-082 Fampridine SR BAY 38-7271 Macrophages NS1209 Porcine Stem Cell Transplants S-1746 ARR-15896AR BAY 44-2041 FKBP Immunophilins NAALADase Inhibitors T-Cell Therapy Neramexane
NeoTherapeutics Acorda Bayer ProNeuron Shire/NeuroSearch Diacrin Shionogi/GlaxoSmithKline AstraZeneca Bayer Guilford Guilford ProNeuron Forest Labs/Merz
Phase II Phase II Phase I Phase I Phase I Phase I Phase I Pre-clinical Pre-clinical Pre-clinical Pre-clinical Pre-clinical Unknown
Source: SG Cowen, company data
208
Infectious Disease
G Infectious Diseases Are A Perpetual Opportunity
Antibiotic/antiviral drugs treat infectious diseases, which occur when microorganisms either release toxins or provoke the immune system, harming otherwise healthy cells. Antibiotics work either by killing the organism (bactericidal) or by preventing it from multiplying, allowing 8% 2001-05 CGR the patients immune system to clear the remaining bacteria (bacteriostatic). Organisms often mutate over time to become resistant to an antibiotic/antiviral agents action. The development of resistance creates a perpetual opportunity for the drug industry, as new antibiotics are constantly needed to target resistant organisms. According to the CDC, an estimated 500MM acute infections require antibiotic treatment in the U.S. annually.
Infectious Disease Category Market Share By $ Sales

2001 $31B
GSK 26% Other 39%
2005P
$42B
GSK 27% Other 38%
PARTICIPANTS
PFE 12%
BMY 11%
BAY 6%
MRK 7%
BMY 10%
WYE 7%
SGP 8%
PFE 9%
GlaxoSmithKline leads the antibiotic/antiviral drug category, with a 26% dollar share, and this dominance should continue through 2005. We expect Pfizers share of the category to decline to 9% in 2005, from 12% in 2001. Bristol-Myers Squibbs share could increase by one percentage point to 11% during 2001-05. By 2005, Schering-Plough could claim a #4 position, and 8% market share.
Older penicillins and cephalosporins should remain frequently prescribed antibiotics through 2005, but their dollar value will decline due to generic competition. Bristol-Myers Squibb, Eli Lilly, Pfizer, GlaxoSmithKline, and generics dominate this segment. Newer quinolones (Bayer, Bristol-Myers Squibb, Johnson & Johnson) are expected to gain share at the expense of older antibiotics, and grow at double the rate of the overall market. Macrolides may suffer from emerging resistance, and grow more slowly than the overall market. Newer categories of antibiotics and antivirals hold varying degrees of promise. HIV, hepatitis, and influenza offer large market opportunities for new drugs. Schering-Plough should benefit. Our scatter plot shows that through 2005, GlaxoSmithKline should dominate this category, and this category is critical to its growth. We view six other companies as emerging participants in this category.
70%
SGP
50%
30%
BMY WYE GSK
10%
PHA AZN NVS AVE TDCHF
LLY
ABT BAY PFE
-10%
JNJ MRK ROHHY
-30% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0
ESTIMATED WORLDWIDE MARKET FOR INFECTIOUS DISEASE DRUGS BY CLASS ($MM)

$ NRx 2001 2005P 01-05 87-01 Market % Total Market % Total CGR CGR Comments $10,767 35% $17,981 43% 14% 15% - Various therapies; GSK and BMY lead 3,477 3,830 3,224 2,652 3,681 21 354 101 2,678 $30,786 11% 12% 10% 9% 12% 0% 1% 0% 9% 5,995 4,282 3,732 2,975 2,359 1,050 267 57 3,543 14% 10% 9% 7% 6% 2% 1% 0% 8% 100% 15% 3% 4% 3% -11% NM -7% -13% 7% 8% NM - BMY's Tequin, BAYG's Cipro, JNJ's Levaquin 0% - Generics dominate NM - PFE's Zithromax, ABT's Biaxin 5% - MRK's Cancidas, PFE's Diflucan, JNJ's Sporanox 4% - Generics dominate NM - LLY's Xigris, PHA's TFPI 1% - Generics dominate -10% - Generics dominate 3% - Various other antibiotics 3% - Driven by newer quinolones and antivirals
Drug Class Antivirals Quinolones Penicillins Macrolides Antifungals Cephalosporins Sepsis Tetracyclines Erythromycins Other Therapies Total Market
100% $42,239
210
G Positioning and New Formulations Bolster Augmentin's Outlook

DETAILED DISCUSSION
Penicillins and cephalosporins are expected to remain the most frequently prescribed class of antibiotics through 2005, although emerging resistance is expected to gradually impact physician prescribing patterns. Although this class is predominantly generic, the leading brand product is GlaxoSmithKline's Augmentin, a combination of amoxicillin and the beta lactamase inhibitor, clavulanate potassium. The continued success of Augmentin is due to efficacy against a wide range of bacteria, as well as more convenient BID dosing. Despite patent expirations in a number of European countries, sales of Augmentin should continue to grow due to a compelling profile, new high-dose formulations, and patent protection in the U.S. The substance patent for Augmentin expires in June 2002 in the U.S., (excluding pediatric extension) but GlaxoSmithKline has four patents covering clavulanic acid, potentially extending Augmentins U.S. patent protection through 2008. There are two threats to these patents: (1) a Chicago-based law firm has asked the U.S. Patent and Trademark Office to reexamine the patents, and (2) Geneva has filed an ANDA and recently asked the Eastern District Court of Virginia for declaratory relief. We believe that GlaxoSmithKline will be successful in defending Augmentins U.S. patents. Some European patents covering Augmentin already have expired, although the patents in France and Italy extend through 2002. Augmentins exclusivity has expired in Germany, although no generics have yet been introduced. Our models assume generic competition in Europe, but not in the U.S. GlaxoSmithKline is jockeying for stronger positioning in a few key markets, including pediatric AOM (acute otitis media or middle ear infections). It is estimated that 75% of children experience middle ear infections, accounting for more than 30MM doctor visits per year. GlaxoSmithKline has performed a number of head-to-head trials demonstrating Augmentin's superior efficacy versus Pfizer's Zithromax in eradicating the bacteria that cause AOM. The Sinus & Allergy Health Partnership recently issued guidelines ranking 17 antibiotics by order of predicted efficacy; Augmentin was listed as having predictive efficacy greater than 90%, in line with newer fluoroquinolones. A new high dose formulation, Augmentin ES, was approved for the treatment of pediatric AOM in Q3:2001. The approved indication is expected to cover the majority of penicillin-resistant pneumococci. While the labeling does place boundaries on the resistant strains covered, penicillin-resistant patients likely will be identified by high-risk criteria, not bacteriologic data. Thus, any limitations within the label are unlikely to be realized in prescribing patterns. GlaxoSmithKline also is pursuing regulatory approval of a sustained release formulation, Augmentin SR, for treatment of adult sinusitis (NDA filed 12/2000). A non-approvable letter was issued in December; GlaxoSmithKline is providing additional clinical data to the FDA.
G New Quinolones Likely To Exploit Deficiencies Of Other Antibiotics

Quinolones have broad spectrums of activity and are likely to benefit from resistance to macrolides, oral cephalosporins, and penicillins. Cipro (Bayer), the category leader, could generate sales of $1.6B in 2002, and claimed new prescription market share of 35.1% in January. J&Js Levaquin has been successful based on heavy promotional support. BristolMyers Squibbs Tequin and Bayers Avelox each achieved rapid share gains in the quinolone market. The status of GlaxoSmithKlines Factive (NDA 12/99) is unclear; the FDA issued a not approvable letter due to safety concerns, believed to be related to skin rash. Given similar efficacy in the treatment of respiratory pathogens, we expect heavy competition among the many quinolones. Growth of the quinolone market likely will come at the expense of older penicillins and cephalosporins. A hurdle for all new quinolones is toxicity at higher doses,
although in clinical practice, toxicity has not been a problem. All quinolones have similar side effect profiles, although tolerability varies. A number of these agents have been used in veterinary medicine; therefore, human resistance may develop more quickly due to exposure in food. Limited resistance to quinolones has been seen in France; if resistance does develop in the U.S., it could compromise the class.
QUINOLONE ANTIBIOTIC MARKET LANDSCAPE
Number of Indications 11 10 7 5 3 2 2 3 6 6 1 1 NA
Product Company Cipro Bayer Floxin Johnson & Johnson Levaquin Johnson & Johnson Maxaquin Unimed Noroxin Merck, Roberts Penetrex Aventis Zagam Mylan Avelox Bayer Tequin Bristol-Myers Squibb Factive GlaxoSmithKline DU-6859a Daiichi CS940 Sankyo BMS 284756 Bristol-Myers Squibb NA=Data not available
Status Marketed Marketed Marketed Marketed Marketed Marketed Marketed Marketed Marketed Filed 12/99 Phase III Phase II Phase II
Comments Dominates market with 48.3% NRx share Switch to Levaquin Strong performance with 36.5% share Modest market share Narrow label Modest market share Modest market share Side effect concerns may clip potential A solid competitor Side effect issues stall
Could be superior to Tequin
Johnson & Johnsons Levaquin JNJs Levaquin (levofloxacin) is the single active isomer of Floxin, making it twice as active as Floxin. Indeed, Levaquin is dosed at 500mg once daily, while Floxin is dosed at 400mg twice daily. Levaquin appears to have more activity against the pneumococcus, although it is positioned for upper respiratory tract infections. JNJ has aggressively marketed Levaquin. As of January, Levaquin had 40.4% new prescription market share. We peg Levaquin/Floxin sales at $1,150MM in 2002 and $1,500MM in 2005. Bristol-Myers Squibbs Tequin - Tequin is a once-daily, oral, broad spectrum quinolone antibiotic. It has high oral bioavailability (98%) and important indications, including sinusitis, bronchitis, pneumonia, urinary tract, skin/soft tissue, and gonorrhea infections; Phase IIIB filings will expand the indications further. Tequin has a very good safety profile, including no phototoxicity, no drug interactions, minimal neurological side effects, and no liver toxicity. A 5-day bronchitis treatment indication was approved in November 2001. Tequin is tracking below the successful rollout of Johnson & Johnsons Levaquin, although Tequin is the first quinolone to have generated 1MM prescriptions within twelve months of its launch. New prescription share totaled 12.3% in January. We project Tequin sales at $500MM in 2002 and $1,100MM in 2005.
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18% 16% 14% % Market Share 12% 10% 8% 6% 4% 2% 0% 1 2
QUINOLONE NEW PRESCRIPTION COMPARISON DURING FIRST YEAR POST LAUNCH
10
11
12
Levaquin
Tequin
Trovan
Months of Launch
Source: IMS
Bayers Avelox - Avelox (moxifloxacin) offers 5-day dosing for the treatment of acute exacerbation of chronic bronchitis, versus 7-day therapy with Tequin. Avelox carries stronger labeling regarding heart rhythm disturbances than do competitve products in this class. Canibalization of Bayers huge Cipro franchise has been minimal thus far, given that Cipro is used mainly for urinary tract infections and Avelox for respiratory tract infections (although 10-15% of Cipro usage is for respiratory tract infections, usually within hospitals). We peg Avelox sales at $480MM in 2002 and $825MM in 2005. GlaxoSmithKlines Factive - Factive, a quinolone antibiotic licensed from L.G. Chemical, was filed in 12/99. In the U.S., the approvability of Factive is unclear. The FDA issued a non-approvable letter for Factive given safety concerns. GlaxoSmithKline is in discussions with the FDA regarding its questions, which we believe to be related to skin rash. Phase II studies illustrated Factives effectiveness against gram positive and gram negative organisms; six indications are in development. We estimate Factive sales at $185MM in 2003 and $585MM in 2005. Bristol-Myers Squibbs Des-Quinolone - Des-Quinolone is a follow-on quinolone that Bristol-Myers licensed from Toyama. Des-Quinolone offers cure rates of 90%+ one to two weeks post dosing in important respiratory infections. The safety profile is also very good, lacking QTc interval prolongation, hepatotoxicity, CNS toxicity and arthrotoxicity. DesQuinolone will be filed in H2:02 for multiple indications. We estimate sales of DesQuinolone at $100MM in 2004 and $200MM in 2005.
G Emerging Resistance Could Be Problem For Macrolide Antibiotics

Macrolide antibiotics (Abbotts Biaxin, Pfizers Zithromax) should continue to enjoy growth driven by good effectiveness and safety profiles, and new indications. Biaxin might have superior gram positive coverage while Zithromax leads against gram negative bacteria. Indications include treatment of otitis media (middle ear infection) via activity against chlamydia infections, and potentially coronary artery disease (again due to treatment of chlamydia infections). Two factors could clip macrolide growth longer term: competition from
new quinolones and the development of resistance to macrolides. Emerging resistance to strep pneumoniae, which has started to appear in the treatment of community-acquired pneumonia, could be a longer-term risk factor for macrolides. While the level of resistance to macrolides remains low currently, it could become troublesome over time, and perhaps lead to use of alternative agents in the treatment of certain organisms. Emerging resistance needs to be monitored, although it will precede broad changes in macrolide usage. Resistance already is an issue with many older antibiotics, including penicillins and cephalosporins, but usage remains high. Biaxin sales are estimated at $1,155MM in 2002 and $1,230MM in 2005, and Zithromax sales are pegged at $1,635MM in 2002 and $2,085MM in 2005. Pfizers Zithromax Zithromax has been a huge success, and is the #1 prescribed antibiotic in the U.S. Zithromax holds a 78.9% new prescription share in the macrolide antibiotic market. This success has been driven by its broad efficacy and favorable side effect profile, which bolster compliance. The IDSA, American Thoracic Society, and CDC recommend Zithromax as first-line therapy for community-acquired pneumonia. Zithromax is administered as a 3-day regimen in the U.S., and the FDA recently approved Zithromax as a single-dose for the treatment of otitis media, based on efficacy that is equivalent to a 10-day regimen of GlaxoSmithKlines Augmentin. Pfizer seeks to bolster the franchise with new studies. One of these studies is WIZARD, which is examining whether targeting chlamydia may result in a reduction of atherosclerotic plaque via the decreased accumulation of fatty deposits. WIZARD utilizes once-weekly Zithromax (600mg) with mortality and morbidity endpoints in 7,500 patients. Results for WIZARD will be available at the American College of Cardiology meeting in March, 2002, although we do not believe that Zithromax will generate a statistically significant reduction in cardiovascular events. Approval of a mycobacterium avium complex treatment claim and the Japanese rollout, are bolstering the franchise. Zithromaxs patent expires in November 2005, but a new dihydrate patent, covering the marketed formulation, could extend exclusivity.
G Newer Categories Of Antibiotics Hold Varying Degrees Of Promise

Pharmacias Zyvox - Zyvox is marketed for treatment of resistant gram-positive infections. It is the first completely new class (oxalidinones) of antibiotic introduced in 35 years. The oxalidinones originally were synthesized as antipsychotics by the Japanese. Dupont discovered the antibacterial effect but also bone marrow toxicity and lost interest. Upjohn found ways to reduce the toxicity. Phase III data showed Zyvox to have broad coverage against both sensitive and antibiotic-resistant gram-positive infections, the basis of 60% of serious bacterial infections. Zyvox acts earlier in the protein synthesis cycle than most antibiotics to inhibit bacterial replication. So far, Zyvox has shown limited cross-resistance with other antibiotics, although resistance can develop via mutation. Zyvox is 100% orally bioavailable and is absorbed rapidly, which enables improved dosing flexibility and better efficacy. Zyvox also is available in an IV formulation for hospital use, enabling a smooth in-patient to out-patient usage transition. Anemia and reversible thrombocytopenia cloud prospects. Pharmacia and AstraZeneca have second-generation oxazolidinones in development that may have a wider coverage spectrum, including tuberculosis. Dupont, Abbott, Bayer and JNJ also are working in the area. We estimate Zyvox sales at $190MM in 2002 and $450MM in 2005. Aventis Ketek Ketek is a member of the ketolide antibiotics family, which are a novel type of macrolidelincosamide-streptogramin (MLS) antibiotic. Ketek, Aventis lead compound, is batericidal, demonstrates good effectiveness in respiratory tract infections such as community-acquired pneumonia (CAP), acute exacerbations of chronic bronchitis
(AECB) and acute sinusitis and tonsillitis/pharyngitis. Adverse effects include gastrointestinal side effects and liver enzyme elevations. An NDA for Ketek for the treatment of adult respiratory tract infections was filed in the U.S. in March 2000; an approval letter was issued in July 2001. Additional data has been requested for the chronic bronchitis and sinusitis indications. Aventis has performed an additional 24,000 patient trial and should file this supplemental data in mid-2002; we anticipate U.S. approval and launch in H1:2003. Ketek was approved in Europe in Q4:2001 and individual country rollouts are underway. Aventis filed Ketek for the treatment of respiratory tract infections (RTI) in Japan in January 2002. We estimate sales of Ketek at $75MM in 2002 and $545MM in 2005. Abbott, Pfizer and Bayer are believed to be working on similar compounds.
KETEK'S EFFICACY IN TREATING RTI Infection Community Acquired Pneumonia Sinusitis Acute Exacerbations of Chronic Bronchitis Tonsillitis/Pharyngitis
Source: Aventis
Cure Rate Ketek Dosing >90% Once daily for 7-10 days >80% >85% >85% Once daily for 5 days Once daily for 5 days Once daily for 5 days
Abbotts ABT-773 ABT-773, also a ketolide, offers increased potency, activity against resistant bacteria and reduced resistance, relative to the current macrolides. In clinical trials, the drug has achieved 85% cure rates in patients with sinusitis, bronchitis, or pneumonia, and has shown activity against resistant S. pneumoniae. To date, ABT-773s profile looks to be similar to that of Aventis Ketek. Abbott will use the 01-02 cough
cold season to try to finish up PIII trials in early 2002, which would enable the company to file an NDA by mid-2002. However, we believe it is likely that an additional cough-cold season may be required to complete the clinical trials which would push off a filing until mid-2003.
Aventis Synercid Synercid is a streptogramin antibiotic, from the erythromycin class. Synercid is bacteriostatic (similar to erthromycins), not bactericidal. The drug is useful against certain Vancomycin resistant enterococcus and resistant staph infections, where no other currently available drugs are useful. Synercid is available only in an intravenous formulation for hospital use, and has been approved for serious or life-threatening vancomycin-resistant enterococcus, limiting its use. Synercid sales are estimated at $30MM in 2002 and $50MM in 2005. Mercks Invanz Invanz (broad-spectrum, parenteral carbapenem antibiotic) offers high activity against cephalosporin-resistant bacteria and good activity against anerobes. It is dosed via once daily injection. Invanz appears effective for prophylaxis and treatment of abdominal surgery, and infections of the urinary tract, lower respiratory tract, and skin/skin structure infections. Our physician consultants have a mixed reading on compounds in this class. The carbapenems share some of the positive attributes of cephalosporins but also cause nephrotoxicity and appear only modestly active against methicillin-resistant staphylococcus aureus. Invanz sales are forecast at $50MM in 2002 and $125MM in 2005. The injectable antibiotic market currently totals about $7B.
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Wyeths Tigecycline Tigecycline is a modified tetracycline antibiotic that targets resistant infections. It has a broad spectrum covering gram positive and negative infections, anaerobes, and atypical infections, with excellent activity against chlamydia and mycoplasma. Wyeth will seek indications for complicated skin infections, hospital acquired pneumonia, community acquired pneumonia, and intra-abdominal infections. Tigecycline is administered via intravenous infusion twice daily. The most common side effects are nausea and vomiting. An oral dosage is in development, but formulation apparently is challenging. Wyeth initiated a 5,000-patient Phase III program in May 2001, and targets an NDA filing in 2004. We have no sales contribution in our models for Tigecycline.
HOW EACH DRUG CLASS WORKS TO TREAT INFECTIOUS DISEASE
Drug Class Cephalosporins Erythromycins Macrolides Penicillins Quinolones Tetracyclines Action Bactericidal; inhibits metabolic functions vital to normal cell walls Bacteriostatic; prevents the production of protein in bacteria; often used in patients allergic to penicillin Bacteriostatic; alters chemical activity in bacteria, halting growth Bactericidal; inhibits metabolic functions vital to normal cell walls Bactericidal; interferes with enzymes used in the production of bacteria Bacteriostatic; alters chemical activity in bacteria, halting growth
Source: Express Scripts' Formulary Guide, Merck Manual, 1998 Physicians' Desk Reference
G Numerous New Antifungals In Development

In addition to currently available agents, including Pfizers Diflucan, Johnson & Johnsons Sporanox, and Mercks Cancidas, other promising antifungals are in development at Pfizer, Bristol-Myers Squibb, and Schering-Plough. Pfizers Vfend leads the group of new conazoles in development, although Vfend may only be a niche drug given ocular side effects, erratic kinetics, and drug interactions. Schering-Ploughs Noxafil, also a conazole-type antifungal, has a broad spectrum with greater potency against candida, aspergillus and Diflucan-resistant fungi. Bristol-Myers Ravuconazole, licensed from Eisai, also targets aspergillus and candidiasis. Ravuconazole is in Phase II clinical trials with an NDA filing targeted for 2004. Proof of efficacy has been established in candidiasis. Ravuconazole is being developed in oral and intravenous formulations, and is distinguished by its long half-life (4-5 days). New targets for the eradication of fungal diseases likely will be forthcoming over the next few years. Liposomal amphotericin products are effective, but generally are not sufficiently superior to justify their higher cost relative to generic amphoteracins. A limiting factor for all antifungals is that the severe patient market appears to be fully satisfied because of the reduction in AIDS-related fungal disease. Therefore, drug usage will have to be adopted at earlier stages of disease to sustain growth. Mercks Cancidas Cancidas is a bactericidal antifungal for the treatment of candidiasis and aspergillus. A much larger opportunity is empiric therapy; data from a trial in empiric
therapy will be available in 2002. Cancidas is not cross-resistant with the con azoles, offers excellent G.I. tolerability, good renal safety, and is administered once daily by intravenous infusion. Given the class from which it is derived, its coverage spectrum is narrower than other development-stage antifungals. Cancidas will compete with a number of other new antifungals to be launched over the next several years. The lack of an oral equivalent will limit Cancidas potential. Merck has additional fungal targets under investigation. Cancidas sales are forecast at $70MM in 2002 and $150MM in 2005, in the $1B WW injectable antifungal market. Pfizers Vfend Vfend targets treatment of severe fungal infections, such as systemic aspergillus or candidiasis, and offers a wide spectrum of activity, oral and IV dosing, and utility in pediatric patients. Vfend had a statisticaly significant survival benefit compared with amphoteracin B in one study. However, given a number of limitations, Vfend may occupy no more than a niche opportunity. These limitations include unpredictable kinetics which make the drug hard to dose consistently, drug interactions, a potential need for blood monitoring, and some ocular toxicity. Given these limitations, our Vfend sales estimate is pegged at a rather modest $200MM in 2005. An approvable letter was issued in December 2001. Vfend was recommended for approval by the CPMP and should receive full approval in Europe in early 2002. Schering-Ploughs Noxafil - Noxafil (Posaconazole) is an oral once-daily antifungal with a good spectrum of activity currently in Phase III. As a class, the azoles are cytostatic, but Mercks Cancidas has cidal properties, and Schering-Plough claims that Noxafil also could have cidal activity. Data is being collected in azole-refractory fungi, aspergillus, and candidiasis. Animal data on Noxafil suggest that it is 4-6 times more potent than Pfizers Vfend. Unlike Vfend, there apparently have been no visual or liver toxicities with Noxafil. We peg Noxafil sales at $50MM in 2003 and $100MM in 2005.
ANTIFUNGAL MARKET LANDSCAPE
Product Fungizone Diflucan Sporanox Company Bristol-Myers Squibb Pfizer Johnson & Johnson Status Marketed Marketed Marketed Marketed Approvable PIII NDA 2004 Indications Candida Candida, cryptoccal meningitis Candida, blastomycosis, histoplasmosis, aspergillus Candida, aspergillus Aspergillus, cryptococcus Candida, aspergillus Candida, aspergillus Comments Toxicity limits usage Market leader with 75.5% share 1.9% market share Rollout underway Side effects a hurdle Azole-type Azole-type
Cancidas Merck Vfend Pfizer Noxafil Schering-Plough Ravuconazole Bristol-Myers Squibb Source: Company data
G HIV Market: New Products Expected To Combat Resistance

Approximately 1.5M people in North America and Western Europe are living with HIV and nearly 34M people are living with HIV worldwide. In the U.S., 300-400K patients receive treatment while the remaining patients either receive no treatment or are unaware they are infected with HIV. Major improvements in the treatment of HIV have resulted in decreased transmission rates along with a dramatic decline in AIDS-related deaths. The current standard of care remains triple-drug therapy. Triple drug therapy consists of a protease inhibitor (PI) or a non-nucleoside reverse transcriptase inhibitor (NNRTI) and two nucleoside reverse transcriptase inhibitors (NRTI). For patients who are treated early, and are compliant, the current HIV drugs work well. If the patient is not compliant, or if the patient
has been infected with a resistant strain of the virus, then the results are not as good. Roughly 50% of all patients on HIV therapy (including nave and previously treated) can be expected to experience treatment failure within 12 months as defined by either a 0.5 log viral load increase or two consecutive assays above the detection limit. Regimen adherence is the main reason for the high failure rates, as patients who cannot comply with multiple daily doses, food restrictions, or hydration requirements may develop resistance and fail therapy. In general, anything over twice-daily is deemed inconvenient and results in lower compliance. Also, as a result of developing resistance, physicians need ever more potent regimens that can suppress the activity of resistant HIV strains. G Simplicity & Durability Put Pfizer, Bristol, and GlaxoSmithKline On Top The current market for HIV treatment is dominated by regimens that are either once or twice daily: Pfizer's twice-daily formulation of Viracept (PI), Bristol-Myers Squibbs once-daily Sustiva (NNRTI), and a combination of NRTIs such as GlaxoSmithKline's Combivir (single pill combination of Epivir and Retrovir), or the combination of Epivir and Bristol-Myers Squibb's Zerit. In 2000 and 2001, the NNRTI market captured a significant share of the cocktail from protease inhibitors due in large part to the success of Bristol's Sustiva. Unlike other drugs in the NNRTI class (Boehringer Ingelheim's Viramune and Pfizer's Rescriptor), Sustiva has improved dosing convenience as well as similar durability when compared to protease inhibitors such as Merck's Crixivan. Crixivan and Roches Invirase/Fortovase, continue to lose market share due to difficult dosing regimens, developing resistance, and side effects, such as lipodystrophy (elevated cholesterol, abnormal fat distribution). However, newly developed combination PI regimens, in particular that of Roche's Fortovase/Invirase and Abbott's Norvir, are establishing a "renaissance" of sorts for these products. G Abbott's Kaletra Making Rapid Gains; Expected To Be Top Among PIs In an attempt to avoid the wide range of metabolic abnormalities that develop in HIV patients (lipodystrophy, insulin resistance, and HIV-related cachexia or wasting), along with the development of resistant HIV strains, drug companies are developing more potent protease inhibitors. Abbotts Kaletra, a single capsule combination of the second-generation protease inhibitor Lopinavir (ABT-378) and Norvir, is rapidly gaining share at the expense of older PIs like Mercks Crixivan. Kaletras pivotal Phase III data demonstrated particularly robust results at 24 and 40 weeks when compared to the current market leader, Viracept, which holds nearly 1/3 of the PI market. At 40 weeks, 79% of patients randomized to the Kaletra regimen had undetectable levels of virus (<400 copies/mL) compared to 64% of patients randomized to the Viracept regimen, based on the more rigorous intent-to-treat (ITT) analysis. Kaletra also was well tolerated through 40 weeks, with only two percent of patients discontinuing due to Kaletra-related adverse events. As of January 2002, Kaletra had captured 24.4% of new PI prescriptions and 22.4% of total PI prescriptions. The nearest competitor to Kaletra, BristolMyers Squibb's once daily PI (BMS 232632, atazanavir) should be filed with the FDA in H2 2003. Data from Phase II trials showed BMS 232632 to have efficacy similar to Pfizer's Viracept only at the highest dose, but with an improved side-effect profile. Based upon a review of this data, and checks with our physician consultants, we believe that BMS 232632 will pose little threat to Kaletra and that Kaletra soon will be the PI of choice among physicians. We estimate Kaletra worldwide sales will reach $490MM in 2002, with peak sales potential of $9001,000MM.
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Protease Inhibitors New Prescription Trends

Growth Y/Y
Aug-01 Sep-01 -22% -34% -32% -35% -35% -44% -14% Oct-01 -15% 120% -30% -33% -36% -33% -35% -13% -25% -26% -25% -31% -43% -10% Nov-01 -17% 93% -26% -25% -28% -22% -36% -10% Dec-01 -14% 98% -29% -25% -24% -20% -40% -9% Jan-02 -11% 98% -23% -21% -26% -21% -33% -5% Aug-01 29.8% 18.5% 20.3% 15.8% 7.3% 6.7% 1.5% 100.0% Sep-01 30.5% 19.9% 19.4% 15.2% 7.2% 6.5% 1.3% 100.0%
% Market Share
Oct-01 29.5% 21.5% 19.0% 15.3% 7.2% 6.2% 1.3% 100.0% Nov-01 29.2% 23.5% 18.7% 14.1% 6.6% 6.6% 1.4% 100.0% Dec-01 29.0% 23.6% 18.3% 14.5% 7.0% 6.4% 1.2% 100.0% Jan-02 29.2% 24.4% 18.3% 14.1% 6.5% 6.2% 1.3% 100.0%
Viracept (Pfizer) Kaletra (Abbott) Crixivan (Merck) Norvir (Abbott) Fortovase (Roche) Agenerase (GSK) Invirase (Roche) Total
-23%
G Combination Regimens Breathing Life Into Older PIs

One of the primary problems with older protease inhibitors such as Roche's Fortovase and Merck's Crixivan is bioavailability. Due to rapidly diminishing circulating levels of these products, patients must follow difficult dosing schedules requiring multiple doses, 3-4 times daily. These schedules often include food restrictions. When tested in combination with other PIs, in particular Roche's Fortovase, low doses of Norvir resulted in a dramatic increase in steady state levels of Fortovase, improving the dosing schedule from thrice-daily to twice-daily. Although this effect is not isolated to Fortovase, other than Abbott's Kaletra, Roche's twicedaily combination is furthest along in clinical testing with an sNDA filing expected in the near future. Pharmacokinetic studies of this combination suggest a once-daily dosing schedule may be feasible. Other PIs that are being tested using low dose Norvir include Crixivan and GlaxoSmithKline's newest PI, Agenerase, which was developed by partner Vertex Pharmaceuticals. Perhaps the strongest validation of combination PI regimens comes from the success of Kaletra, and the inclusion of the Fortovase/Norvir combination among the strongly recommended options for initial treatment. G Bristol and GSK Maintain NRTI Leadership With New Formulations GlaxoSmithKline and Bristol-Myers Squibb continue to dominate the NRTI class with over 90% of new and total NRTI prescriptions in January 2002. Both companies have capitalized on the markets desire for simplified dosing regimens and reduced pill-burden. GlaxoSmithKline continues to hold over 60% market share driven by key combination products including the standard of care, Combivir, and newer combinations such as Trizivir. Trizivir is a fixed-dose combination of the three GlaxoSmithKline nucleoside analog reverse transcriptase inhibitors: Epivir (150 mg lamivudine), Retrovir (300 mg zidovudine) and Ziagen (300 mg abacavir). Trizivir can be used alone or in combination with other antiretroviral agents for the treatment of HIV. Bristol-Myers should continue to maintain market share of 30% or greater bolstered by new once-daily formulations of Videx and Zerit. The Videx extended release formulation, Videx EC, was approved in October 2000 and is quickly converting existing Videx patients. An extended release formulation of the market leader Zerit should be filed with the FDA in 2002.
G Gileads Viread Experiencing Rapid Market Acceptance

Perhaps the most promising new product among the NRTIs is Gilead Pharmaceuticals Viread (tenofovir). Viread, a one tablet, once-daily NRTI, was approved in October 2001. Phase III data in treatment experienced patients showed that patients who received Viread in addition to an existing antiretroviral regimen achieved a significant mean HIV RNA reduction of 0.61 log10 copies/mL (n=368) vs. 0.03 log10 copies/mL (n=182) in the control arm (p<0.0001). Patients had a mean of 5.4 years of prior antiretroviral treatment (48% of the patients had NNRTI resistance mutations, 58% had PI resistance mutations, 94% had NRTI resistance mutations). At 24 weeks, 45% of patients randomized to the Viread regimen had undetectable levels of virus
(<400 copies/mL) compared to 13% of patients in the control arm. Importantly, CD4 cell count increased by 12.6 cells/mm3 vs. a decrease of 10.6 cells/mm3 in control (p=0.0008). These results were durable with 41% patients having undetectable level of the virus through 48 weeks of therapy. Viread performed well in a difficult-to-treat patient population with few treatment alternatives and represents a useful addition to increasingly important HIV salvage regimens. In only 3 months on the market, Viread has captured more than 5% of new prescriptions.
Nucleoside Reverse Transcriptase Inhibitors (NRTI) Total Prescription Trends
Growth M/M
Dec-01 Jan-02 6% 7% 9% 10% 8% 17% 22% 71% 9% 10%
Growth Y/Y
Dec-01 -5% -5% -4% -13% 298% >1000% -17% na -58% 4% Jan-02 -6% -5% -2% -8% 147% 414% -9% na -54% 3%
Market Share %
2001 26.0% 23.1% 22.4% 9.6% 6.5% 3.8% 3.4% 0.3% 4.9% 100.0% Dec-01 24.4% 22.2% 21.6% 9.2% 8.3% 5.7% 2.9% 2.2% 3.5% 100.0% Jan-02 23.6% 21.6% 21.3% 9.2% 8.1% 6.1% 3.2% 3.5% 3.5% 100.0%
Zerit (Bristol) Combivir (GSK) Epivir (GSK) Ziagen (GSK) Videx EC (Bristol) Trizivir (GSK) Retrovir (GSK) Viread (Gilead) Other Total
3% 2% 3% 2% 5% 5% -3% 85% -5% 2%
Source: IMS America
G New NNRTIs On The Horizon From Pfizer and Bristol-Myers

Pfizers Capravirine (AG 1549), a novel NNRTI, is currently in Phase III trials. When tested in vitro, this compound halted replication of HIV strains resistant to other approved NNRTIs, raising the possibility that patients who no longer respond to other members of this class may benefit from Capravirine. In January 2001, enrollment in Phase III Capravirine studies was limited when vasculitis was observed in animals at high doses. New animal toxicology studies were performed and human clinical trials have been re-started. No vasculitis has been observed in humans thus far. Bristol-Myers DPC-083, a Sustiva follow-on product, has also demonstrated promising results. Preliminary Phase II data at 8 weeks in 51 patients failing NNRTI regimens showed a pooled response rate of 57% and a mean decrease in viral load of 1.28 log. Phase III trials using DPC-083 are expected to begin in 2002.
G Fusion Inhibitors: A New Target Emerges From Biotech

Within the last few years, treatment targets, called fusion inhibitors, have emerged as the newest focus in HIV research. Fusion inhibitors target a receptor complex, called CXCR4/CCR5, located on the surface of CD4 cells, or the complementary HIV binding protein gp41. Before HIV can invade CD4 + T cells, it typically attaches, via gp41, to one of two chemokine receptors, CCR5 or CXCR4, on the cell surface and then fuses with the cell membrane. The company furthest along in the development of fusion inhibitors is Trimeris with its development partner, Roche. The lead compound, T-20, is a peptide that works by binding to a region of the HIV gp41 protein, normally responsible for fusion with and penetration of the cell membrane. This prevents the virus from binding either CCR5 or CXCR4 and fusing with the cell membrane. In Phase II trials, T-20 demonstrated good efficacy in combination with existing antiretroviral therapy among patients with multiple HIV resistance mutations. ITT analysis at 16 weeks showed a one-log decline in viral load for 50-55% of patients with a positive resistance profile. The companies completed enrollment of both Phase III studies in the summer of 2001. Roche and Trimeris established a new facility to scale up production of T-20. We believe T-20 should be filed before the end of 2002, with launch expected in 2003. Other promising candidates in this class include T-1249 from Trimeris, and
PRO-542 and PRO-140 from Progenics, another Roche partner. Schering-Plough is conducting clinical studies of a small molecule compound, called SCH-C, that targets the CCR5 receptor and may allow for easier oral delivery. Early Phase I clinical data in 12 patients demonstrated SCH-C is a potent inhibitor of viral activity, but QTc prolongation did occur at the 2 highest tested doses of 400mg & 600mg daily. Although a number of companies have decreased their focus on HIV or exited the category completely, HIV treatment remains an area of growth for companies developing new products.
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Infectious Disease - Hepatitis C

G Patient Population Expected To Expand Dramatically
The total population of patients with chronic hepatitis C infections is estimated at 2.0MM in the U.S., a similar number in Europe, and up to 10MM patients worldwide a huge target patient population. However, the cumulative treatment rate is very low about 9% of the chronically infected in the U.S. and roughly 3% of the chronically infected in developed overseas markets have been treated. The low treatment rate is attributable to the asymptomatic nature of hepatitis C and a difficult treatment regimen. Because hepatitis C is largely asymptomatic, the virus can be undetected for 10-20 years. Many people who contracted the virus in the 1980s may now be experiencing initial symptoms. And the treatment regimen which prevailed from 1998 through H1:2001 (interferon alpha injections three times weekly combined with daily oral doses of ribavirin, an anti-viral) is difficult to dose and causes adverse side effects, which has compromised tolerability and compliance. Disease awareness is increasing, as more asymptomatic patients are becoming symptomatic and information campaigns reach practitioners and the public. Importantly, next-generation therapies (led by combinations of pegylated alpha interferon with ribavirin) provide superior efficacy and improved dosing profiles, which should improve treatment and compliance rates. While many of the interferon side effects of flu-symptoms, gastro-intestinal irritation and depression are present in the pegylated formulations, the lower frequency of injection reduces the frequency of those side effects. We estimate that the number of new patients treated for HCV could reach 210,000+ (WW) this year, versus an estimated 160,000 patients in 2001 and just 145,000 in 2000. By 2005, we estimate that the total new treatment population could grow to 350,000+ patients worldwide.
G Schering-Plough And Roche Dominate The Therapy Market

Schering-Plough and Roche have been the leading players in the hepatitis C treatment market for the past few years, and are expected to continue to lead the market through 2005. ScheringPlough and Roche have the leading franchises in alpha interferon, which has become the mainstay for hepatitis C therapy. Schering-Plough has received U.S. and European Union approval of its long acting, pegylated alpha interferon product PEG-Intron. Roche has received approval for its pegylated alpha interferon product Pegasys in Switzerland and should receive U.S. and full European Union approvals in late 2002 or early 2003. New antivirals to be used in combination with alpha interferon are in development; these new combination treatment options may come to the market beginning in 2005, lead by ICN Pharmaceuticals Viramidine and levovirin, and Vertex Pharmaceuticals VX-497.
G Alpha Interferon Plus Ribavirin Has Emerged As The Standard Of Care

Interferons are proteins produced in cells in response to a viral invasion, helping the cells to counter the virus. It is believed that there are three classes of interferons; alpha, beta and gamma. Schering-Plough was the first to gain approval for an interferon treatment for chronic hepatitis C with the introduction of Intron A, an alpha version of interferon. Until 1998, Intron A was used predominantly as monotherapy for hepatitis C. However, following experiments with multiple antiviral compounds used in combination with alpha interferon, ICNs Rebetol (ribavirin) was found to be particularly synergistic. The synergistic mechanism of ribavirin (a nucleoside analog) in the combination is not fully known. The combination of Intron A and ribavirin produces a sustained viral response (defined as hepatitis C viral RNA levels below
limits of detection at 24 weeks post-treatment) in 43-48% of patients, according to the package insert. Intron A alone produces a sustained viral response in only 12-15% of patients. Schering-Plough received FDA clearance for Rebetron, the combination of Intron A and ribavirin, in July 1998, and it rapidly became the gold standard of treatment. In January 2001, Schering-Plough received approval for PEG-Intron (pegylated alpha interferon) for monotherapy treatment of hepatitis C, and in August 2001, Schering-Plough received approval for the PEG-Intron/ribavirin combination. Following the October 2001 launch of ScheringPloughs independent Rebetol (ribavirin), which enabled use of the PEG-Intron/ribavirin combination, the PEG-Intron/ribavirin combination has become the new standard of care given its superior efficacy and improved dosing profile relative to standard Rebetron. Success in treating hepatitis C can vary widely, depending on several factors, including the infected individuals hepatitis C genotype, subtype, and viral variant profile. There also are patient tolerability and compliance issues with all current treatments.
CURRENT TREATMENTS FOR HEPATITIS C Product Company Status Comments
Alpha Interferon Monotherapy Intron A Schering-Plough Approved Alpha Interferon monotherapy. Efficacy and side effect profile limits usage. Roferon Roche Approved Alpha Interferon monotherapy. Efficacy and side effect profile limits usage. PEG-Intron Schering-Plough Approved Pegylated Alpha Interferon monotherapy. Enhanced efficacy, dosing, and side effect profile. Pegasys Roche Pending in U.S. and E.U. Infergen Amgen Approved Pegylated Alpha Interferon monotherapy. Enhanced efficacy, dosing, and side effect profile. Consensus Interferon monotherapy. No real differentiation from alpha.
Alpha Interferon / Ribavirin Combination Therapy Rebetron PEG-Intron/Rebetol combination Source: SG Cowen Schering-Plough Schering-Plough Approved Approved Alpha Interferon injected w/ oral ribavirin. Prior standard of care. Pegylated alpha Interferon injected w/ oral ribavirin. New standard of care treatment.
G Longer Lasting Versions Of Alpha Interferon Should Boost Compliance

It is believed that the difficult dosing regimen of the standard hepatitis C treatment had been a major impediment to more widespread treatment of the infected patient population. The dosing frequency of alpha interferon (three-times weekly by subcutaneous injection) and ribavirin (5-6 oral capsules per day), and the flu-like symptoms (fevers, chills, nausea) associated with the frequent interferon injections, tempered patient usage. The longer-acting formulations of alpha interferon, led by Schering-Ploughs PEG-Intron and Roches Pegasys, employ pegylation technology to extend the circulating half-life and duration of efficacy of the alpha interferon. Pegylation involves the attachment of polyethlene glycol polymer strands to the interferon molecule, increasing the molecular weight of, and protecting the interferon molecule from degradation, which prolongs circulation time. In addition to the dosing benefits, the longer circulation time of the pegylated interferons results in an efficacy
improvement. Both Schering-Plough and Roche have shown a doubling of hepatitis C sustained viral response results for their pegylated alpha interferons versus standard alpha interferon. Phase III results for Schering-Ploughs PEG-Intron/ribavirin combination therapy achieved a sustained viral response in 61% of patients treated with weight-optimized dosing. Roches Pegasys/ribavirin combination achieved a sustained viral response in 57% of patients treated, also with weight-optimized dosing. Schering-Ploughs PEG-Intron has been approved for monotherapy treatment and in combination with ribavirin in the U.S. (August 2001) and in the European Union (March 2001). Roche filed a BLA for Pegasys in May 2000 and received a Complete Response letter in April 2001. Final U.S. approval is pending validation of a new Pegasys manufacturing facility. Roche now is expecting full FDA and E.U. approval for Pegasys monotherapy in late 2002 or early 2003.
COMPETITIVE COMBINATION PRODUCT PROFILES
PEG-REBETRON 1,530 68% genotype 1 PEG-Intron:1.5ug/kg once weekly inj. (body weight dependent) ribavirin: 800-1,200mg/day /(body weight dependent) Sustained Viral Response (%patients w/ viral load elimination) All patients (all genotypes) Genotype-1 patients Non-genotype-1 patients Safety/Adverse Events Source: Company reports, SG Cowen research 61% 48% 88% No major adverse events Number of Patients Genotype mix Dosing (both studies were considered to be weight optimized dosing studies) PEGASYS/RIBAVIRIN 1,149 65% genotype 1 Pegasys: 180mg once weekly inj. (fixed dose) ribavirin: 1,000-1,200mg/day (body weight dependent) 57% 46% 77% No major adverse events
New Patient Starts Accelerating Post Launch Of Schering-Ploughs Rebetol We estimate that a total of approximately 120,000-125,000 hepatitis C patients in the U.S. and 210,000-220,000 hepatitis C patients worldwide could enter or re-enter the treatment stream over the next 12-18 months, versus about 55,000 patients treated last year in the U.S. and about 160,000 worldwide. The draw for new patients: the new pegylated interferon (Schering-Plough/Enzons PEG-Intron and Roche/Inhales Pegasys) plus ribavirin therapies show dramatic improvements in efficacy over the prior gold standard therapy, Schering-Ploughs Rebetron, with an easier treatment regimen. Upside to our projections could come from the re-treatment patient population estimated at 120,000 patients (50% of the estimated 240,000 previously treated but non-responsive or relapsed patients) over the next 24-36 months, as several studies have shown 25-39%+ sustained viral response rates in patients that previously had failed Rebetron therapy. Despite improvements in efficacy and compliance, we assume that approximately 20-25% of patients initiating PEGIntron/ribavirin therapy will likely discontinue treatment due to tolerability issues and lack of efficacy.
Straining Schering-Ploughs PEG-Intron Manufacturing Capacity New patient demand for the PEG-Intron/Rebetol combination has been so strong following the U.S. launch of independent Rebetol in October 2001 that Schering-Plough implemented the waiting list component of the PEG-Intron patient registration program in January 2002. Schering-Plough maintains a real-time projection of PEG-Intron capacity requirements based on hepatitis C patients registering for access, to ensure that each patient
has access to 48 weeks of therapy. 65,000 hepatitis C patients enrolled in the patient registration program by mid-January, well ahead of the roll-out pace projected by ScheringPlough. We estimate that Schering-Ploughs current PEG-Intron manufacturing capacity is sufficient to cover 80,000-90,000 patients under treatment in the U.S., assuming 48 weeks of therapy for every patient. As the patient roll-off cycle begins, we estimate that a shorteraverage duration of therapy could boost that capacity by 10-15%, to 90,000-100,000 patients. The first wave of patient roll-offs is expected to begin in late-March/early-April, as 30% of patients (HCV genotype 2 and 3 patients) will be treated for only 24 weeks, and another 20% of patients will either be non-responsive or intolerant to therapy at 24 weeks. Therefore, current waiting list patients may have to wait 6-10 weeks to fill their PEG-Intron prescription. Our physician consultants also have indicated that another PEG-Intron production line is expected to be validated in April or May, adding 20% to ScheringPloughs manufacturing capacity.
G Next Generation Of Drug Development May Yield New Treatment Options

Much of the focus of hepatitis C research is on maximizing the benefits and reducing the sideeffect burden of the anti-viral portion of the alpha interferon/anti-viral combination. Several companies are researching ribavirin analogs and other anti-viral agents, seeking to duplicate or improve the therapeutic effects of ribavirin while reducing the side-effect profile. While ribavirin enhances the immune response to interferon and prolongs the viral response, the mechanism of action is not well understood, making it difficult to develop alternative agents. Among the compounds in development is Levovirin, a single-isomer version of ICNs ribavirin, which may have an improved side-effect profile. Developed by ICN, this compound is in Phase I testing. ICN is also developing a second analog of ribavirin, Viramadine, which should enter Phase I trials in H1:2002. Roches CellCept is an alternative IMPDH inhibitor; CellCept currently is marketed as an immunosuppressant and now is under consideration for use in hepatitis C. Vertex also has an IMPDH inhibitor entering Phase III development. Protease inhibitors specific to the hepatitis C virus are being developed, likely for use as cocktail therapy. Schering-Plough also is pursuing clinical development of IL-10 in hepatitis C: small pilot studies have shown encouraging reductions in liver scarring.
NEXT-GENERATION TREATMENTS FOR HEPATITIS C Therapy
Pegylated Interferons / Ribavirin
Comments
Long-acting interferon. Enhances efficacy and patient compliance with better dosing profile. However, anemia side-effects of ribavirin remain problematic.
Ribavirin Analogs Protease Inhibitors Interleukin 10 (IL-10)
Single isomer versions of ribavirin; same antiviral activity without the associated toxicity. Primary target is the Hep C NS3 protease enzyme; key role in Hep C viral replication. Naturally occurring human protein that regulates the inflammatory response and may help to reduce liver scarring.
IMPDH Inhibitors Source: SG Cowen, Company reports
IMPDH enzyme regulates the production of nucleotides, the paramount building blocks of RNA and DNA. Ribavirin is an IMPDH inhibitor, but not a pure IMPDH inhibitor.
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WW HEPATITIS C SALES BUILDUP ($MM) 2000 Hepatitis C Incidence Infected Patients (MM) Chronic Infected Patients (MM) Newly-Diagnosed Patients (000s) Total Diagnosed Patients (000s) Percent Diagnosed Hepatitic C Treatment Population (000's) Total Treated Patients % Penetration Newly-Treated Patients Schering-Plough Market Share PEG-Intron Annual Sales ($MM) Rebetron Annual Sales ($MM) Rebetol Annual Sales ($MM) Intron A Annual Sales ($MM) Total Schering-Plough Sales Roche Market Share Pegasys Annual Sales ($MM) Roferon Annual Sales ($MM) Total Roche Sales Others Total Other Sales ($MM) Total Hepatitis C Product Sales $196 $196 2% $30 $1,243 $223 $223 4% $55 $1,505 $310 $310 4% $110 $3,095 11.2 7.5 203 628 8.3% 304 4.0% 143 82% $26 $619 $170 $202 $1,017 16% 2001 11.1 7.5 226 855 11.3% 438 5.8% 159 82% $360 $380 $355 $132 $1,227 15% 2002E 11.0 7.5 244 1,098 14.7% 670 9.0% 268 86% $1,390 $240 $975 $70 $2,675 10% 2003E 10.8 7.3 320 1,419 19.4% 972 13.3% 342 73% $1,660 $175 $1,125 $40 $3,000 21% $840 $35 $875 5% $215 $4,090 2004E 10.7 7.2 362 1,780 24.7% 1267 17.6% 341 72% $1,760 $100 $1,240 $30 $3,130 20% $865 $0 $865 8% $370 $4,365 2005E CGR Comments 10.7 7.2 -1% - Declining incidence w/better prevention -1% - 65-70% chronic infection rate
578 +26% - Newly-diagnosed patients rising 2,358 +29% - Awareness program by SGP and Roche 32.8% - Our assumptions 1573 +38% 21.8% - Penetration reaching 15-20% in U.S. 346 +21% - 48-week duration of therapy plus patients refractory to earlier therapies 73% $1,840 $70 $1,320 $30 - Upside from better pricing - Launched in the U.S. 6/98 -31% - Clipped by PEG-Rebetron in H2:2001 - Priced at a premium to Intron A +50% - European launch 6/00; U.S. launch 1/01 - Market converting to PEG-Intron
$3,260 +28% - Market timing and commercial presence 18% $810 $0 - Assumes discount to PEG-Intron - U.S. launch expected in late H1:2003 - Standard alpha interferon - Market converting to pegylated interferons
$810 +38% - Could be upside depending on combo efficacy 9% - Other products in development $405 +65% - IMPDH inhibitors, other interferons $4,475 +31% - Could be upside from better penetration
Source: Company reports and SG Cowen estimates
Hepatitis C Presents Complex Treatment Challenges

G Hepatitis C Part Of A Large Viral Family
Hepatitis is an inflammation of the liver caused primarily by infection by one or more of the seven hepatitis viruses A, B, C, D, E, F and G. Hepatitis B and C are thought to be the more serious of the hepatitis viruses because they usually lead to chronic infection. Chronic infection over the course of 10-20 years may lead to liver damage, including scarring, cirrhosis, cancer, and possibly liver failure. The damage to the liver of chronically infected hepatitis C patients is believed to be exacerbated by the hosts own cellular immune response to the infection, in addition to the destruction of host cells by the invading virus. It is believed that 70-80% of hepatitis C infected individuals eventually proceed from acute to chronic infection.
THE VIRAL HEPATITIS FAMILY
Virus Hepatitis A Hepatitis B Hepatitis C Hepatitis D Hepatitis E Indication Acute Acute/Chronic Acute/Chronic Acute Acute Comments Self-limiting, non-enveloped RNA virus spread predominantly by fecal-oral transmission Enveloped DNA virus that is blood-borne; spread primarily through sexual contact Enveloped RNA virus that is blood-borne; spread primarily through needle sharing Dependent on Hep B virus Self-limiting, nonenveloped RNA virus spread predominantly by fecal-oral transmission Recent viral discovery which may or may not be implicated in liver disease
Hepatitis G Acute Source: SG Cowen
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G A Huge Patient Population In Need Of Treatment

Approximately 2.0 million people in the U.S. have chronic hepatitis C infection, joined by a similar number in Europe, and up to 10MM patients worldwide. The cause of infection is often difficult to determine, but it is believed that contaminated intravenous needles are the primary source of transmission. To a lesser extent, sexual contact and blood handling are also causes of transmission. Blood transfusion once was the primary cause of transmission, but with the advance of blood screening techniques since 1992, it is now rarely responsible for new infections. However, many U.S. patients now presenting with symptoms of chronic hepatitis C infections contracted the virus via pre-1992 blood transfusions. Hepatitis C infection does not usually present symptoms to the patient or the physician and therefore can go undetected for many years. After 10 to 20 years of chronic infection, an estimated 25% of the infected population will develop severe liver disease. Approximately 40% of chronic liver disease is caused by hepatitis C infection and an estimated 30-35% of all U.S. liver transplants are necessitated by the effects of the virus. An estimated 8,000 to 10,000 deaths per year in the U.S. are directly attributable to the effects of hepatitis C infection. These numbers are expected to rise over the next two decades as more people develop liver disease symptoms after twenty years of infection.
G Therapeutic Goal Focused On Containing Viral Load

Since hepatitis C has an extended latency period, liver disease progression is not rapid and treatment is focused on control of the viral load. Treatment with alpha interferon and ribavirin is designed to clear the blood of hepatitis C RNA and to decrease liver inflammation, as measured by liver enzyme levels. The primary endpoint for most clinical trials is elimination of hepatitis C RNA, although newer studies also are measuring the rate of liver scarring as a secondary endpoint. Because many patients do not clear the virus but do show evidence of decreased inflammation, demonstrating the quality of life improvements and/or survival benefits of reduced liver inflammation might expand the treatment population and lengthen duration of treatment.
G Hepatitis C Is An Extremely Complex And Nimble Virus.

Hepatitis C is an RNA virus with 6 major genotypes. Genotype 1, 2 and 3 are found worldwide. Genotype 4 is primarily found throughout Africa, genotype 5 specifically in South Africa and genotype 6 throughout Asia. In the U.S. roughly 70% of the hepatitis C infected population is genotype 1. Even within individual patients viral variants often develop, which may change rapidly to avoid the bodys immune system.
G .Which Creates Drug Development And Treatment Challenges

This variability within the virus, coupled with the fact that there is not a robust tissue culture system for hepatitis C available, makes effective drug and vaccine design more difficult. The standard of care treatment of alpha interferon and ribavirin has only moderate success in certain genotypes. Genotype 1, the most prevalent hepatitis C genotype in the U.S., showed a 45-50% sustained viral response rate to Schering-Ploughs PEG-Intron/ribavirin combination. Genotype 2 and 3, the prevalent European genotypes, have much higher response rates, in the 60-70% range. As hepatitis C viral genotyping technology becomes more accessible, physicians are increasingly customizing treatments for specific viral genotypes.
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Next-Generation Agents Could Deliver Greater Benefits

G SGP/ENZNs PEG-Rebetron Should Enhance Viral Response And Compliance
Pegylation is a sustained-release injection technology based on the attachment of polythylene glycol strands to a drug molecule. This technology extends alpha interferons circulating halflife, increasing efficacy and potentially reducing side effects. Currently, successful hepatitis C treatment is defined as complete and sustained viral clearance from the blood, as well as complete viral clearance from the liver and other organs. Since there are no readily available markers for viral clearance in organs, treatment is required for an extended period, usually 48 weeks. Hepatologists are beginning to pursue a longer-term course of PEG-Intron monotherapy (2-4 years) for patients that have relapsed following a course of combination therapy or are refractory to combination therapy. Treatment duration depends on the individual patients response and tolerability, both of which should be greatly improved with pegylated versions of alpha interferon.
Schering-Plough/Enzon PEG-Intron currently is marketed in the U.S. and Europe for

monotherapy treatment of hepatis C and in combination treatment with Schering-Ploughs ribavirin. In Phase III trials, PEG-Intron/ribavirin achieved a sustained viral response (SVR) in 54% of patients, which compares favorably to standard Rebetrons 47% SVR. When PEG-Intron and ribavirin doses were adjusted for each patients body weight, PEGIntron/ribavirin achieved a sustained viral response in 61% of patients. U.S. uptake of PEGIntron and ribavirin has accelerated post the launch of independent ribavirin in October 2001, which allowed for combination use.
Roche Pegasys, Roches pegylated alpha interferon, is pending approval by the FDA, following receipt of a Complete Response letter in April 2001. Roche has transferred Pegasys manufacturing to a new facility, which requires FDA validation prior to final approval. Roche submitted additional information, together with a supplemental BLA for the combination of Pegasys and ribavirin, in November and December 2001. Management now believes that Pegasys could be launched in the U.S., with combination labeling, in late 2002 or early 2003. The initial European approval for Pegasys monotherapy was received in Switzerland in August 2001. Pegasys uses a similar pegylation technology to PEGIntron, but is a larger molecule (via longer polyethlene glycol strands), which gives it a longer circulating half-life, at 6-7 days versus 3-4 days for PEG-Intron. The pharmacokinetic difference may not be clinically significant; our physician consultants view the pegylated interferons as therapeutically similar.
G Multiple Ribavirin Analogs May Add To Armamentarium

The next developments in the treatment of hepatitis C could be analogs of ribavirin. Most of these analogs will seek to mimic ribavirins unique synergy in combination with alpha interferon, while improving on ribavirins side effect profile. Multiple candidates are in Phase I/II. The exact mechanism of ribavirins activity is not known, which complicates development of follow-on compounds.
ICN Pharmaceuticals Levovirin is a single isomer formulation of ribavirin. Levovirin

may have the same antiviral activity, but with less toxicity than ribavirin. Ribavirin causes anemia, which precludes use of the Intron/ribavirin combination in many co-infected patients. ICN and Roche have entered into a development and commercialization
agreement for Levovirin; Phase I studies in combination with Pegasys are underway. ICN recently filed an IND for Viramidine, another pro-drug formulation of ribavirin; Phase I clinical trials should begin in H1:2002. Viramidine also is believed to have the same antiviral activity as ribavirin, but was found to have reduced side effects given its selectivity to the liver.
G Protease Inhibitors Could Be Promising Combination Therapies

Protease inhibitors designed to inhibit hepatitis C viral replication are in development. Without a robust tissue culture system for hepatitis C, protease inhibitor drug design has been difficult. The primary target is the hepatitis C virus NS3 protease, an enzyme that plays a key role in hepatitis C viral replication in liver cells.
Vertex Pharmaceuticals/Eli Lilly: Vertex is collaborating with Eli Lilly to develop orally
active hepatitis C NS3-4A protease inhibitors. Multiple compounds are in pharmacokinetic evaluation.
Corvas/Schering-Plough: The Corvas/Schering-Plough collaboration also targets orally

available inhibitors for the hepatitis C NS3 protease. To date, this program has identified compounds with NS3 inhibitory activity. Lead candidates are in pre-clinical development.
ViroPharma/American Home Products - VP50406: VP50406 is an orally available small molecule that may inhibit RNA replication of the hepatitis C virus. The collaboration with American Home Products includes development of additional compounds that may inhibit several key hepatitis C virus-encoded enzyme activities. Phase I trials for VP50406 commenced in February 2000.
the hepatitis C NS3 protease.
Gilead Sciences: Gilead is in pre-clinical development for various inhibitor candidates for G Interleukin 10 May Help Reduce Liver Scarring
Interleukin 10 is a naturally occurring human protein that regulates inflammatory response. Controlling inflammation in the liver may aid in the reduction of liver scarring (fibrosis). Scarring is a major complication of chronic hepatitis C infection and the first stage in the progression of liver disease towards cirrhosis and/or liver cancer.
Schering-Plough: Schering-Plough is developing recombinant IL-10 for treatment of

chronic hepatitis C and hepatic fibrosis. Early this year, Schering-Plough released results of a small Phase II trial consisting of 24 hepatic fibrosis patients who did not respond to alpha interferon or the combination of alpha interferon and ribavirin. 19 of 22 patients showed a decrease in liver inflammation; liver scarring was decreased in 14 patients. Although viral load levels in the blood did not change, the ALT levels were normalized in 19 patients by completion of the study.
G Newer IMPDH Inhibitors Target Liver Inflammation

Inosine monophosphate dehydrogenase (IMPDH) inhibitors are designed to mimic the activity of ribavirin in hepatitis C treatment (ribavirin is a non-selective IMPDH inhibitor). IMPDH is an enzyme that regulates the production of nucleotides, the paramount building blocks of RNA and DNA. Invading viruses need these nucleotides for replication, so the inhibition of these nucleotides may inhibit the invading virus's ability to continue the replication process. Since lymphocytes and other virus-infected cells are dependent on the IMPDH enzyme, IMPDH
inhibitors may be useful as both immunosuppressive products and anti-viral agents. Specific to hepatitis C, the immunosuppressive actions of IMPDH inhibitors prevent certain lymphocyte activities that result in inflammation of the liver.
Vertex Pharmaceuticals VX-497: VX-497 is a selective IMPHD inhibitor. A Phase II

clinical trial indicated that VX-497 was well tolerated and appeared to reduce liver inflammation in patients with hepatitis C infection. VX-497 also reduced levels of ALT in hepatitis C patients treated for 28 days. Vertex plans to initiate a 60-patient, randomized, placebo-controlled, Phase II trial in Europe in H1:2002. Patients will receive pegylated interferon and ribavirin with or without VX-497. Patients will be treated for six months at which point those patients having low viral titers will be treated for an additional six months. Data will be available in 2003.
Roche CellCept: CellCept is a highly selective IMPDH inhibitor, currently indicated for
use as an immunosuppressant in renal and cardiac transplant. Roche is developing CellCept in hepatitis C because it is believed to inhibit proliferation of T- and B-lymphocytes. These lymphocytes are believed to cause liver inflammation in chronic hepatitis C infection.
G Hepatitis C Vaccines
Hepatitis C has six major genotypes, over 90 sub-types and a myriad of viral variants complicating effective vaccine discovery. However, there are various vaccine programs in early stages of development. A preventive vaccine for hepatitis C is unlikely to be developed in the near term.
Chiron Hepatitis C MF59: Chiron is in Phase II development for a hepatitis C vaccine.

Little information has been released to date on the mechanism or preliminary efficacy of this vaccine.
Vical/Merck: Vical has licensed its naked DNA vaccination technology to Merck for
development of vaccines for infectious disease. The program is in Phase I testing for HIV and in earlier-stage development for six additional disease targets.
G Other Targets May Yield Future Treatment Options
Serono Rebif: Seronos recombinant interferon beta-1a is currently marketed in Europe for treatment of patients with relapsing-remitting multiple sclerosis. Serono is actively developing Rebif for expanded indications, including an indication for hepatitis C. Vertex Pharmaceuticals: Vertex is focusing on the design and development of inhibitors
of hepatitis C virus helicase, a viral enzyme necessary for hepatitis C virus replication. In January 1998, Vertex researchers published the three-dimensional atomic structure of the hepatitis C NS3 helicase enzyme. Vertex scientists are using structural information to identify and optimize inhibitors of the enzyme.
ISIS/Elan - ISIS 14803: Isiss ISIS14803, an antisense inhibitor of the hepatitis C virus, is
in Phase I/II clinical trials for patients with chronic hepatitis C. Antisense inhibitors are synthetic strands of DNA that can bind to a target gene and prevent the disease-causing protein from producing.
Ribozyme/Eli Lilly: Ribozyme is developing a new class of drugs based on "ribozymes." Ribozymes are engineered molecules that have the ability to cleave RNA, including mRNA, and thereby selectively inhibit protein production. Research and preclinical testing have
indicated that Ribozymes anti-HCV ribozyme selectively cleaves hepatitis C RNA in a manner that significantly inhibits viral replication in cell culture. It is also expected to be effective against all known hepatitis C sub-types, which now number over 90. Phase I trials were initiated in February 2000.
XTL Biopharmaceuticals: XTL is developing its own pipeline of novel monoclonal antibodies for the hepatitis B and hepatitis C virus. XTL also is assisting pharmaceutical companies in the creation and development of novel MAb therapeutics. XTLs TrimeraXTL system can generate small animal models of human disease and XTL currently has clinically validated and functional Trimera disease models for the hepatitis B and hepatitis C virus. Eli Lilly and Roche currently are using XTLs proprietary animal models for hepatitis C drug development. Immune Response/Schering-Plough: The companies are collaborating on the
development of Immune Responses GeneDrug system. This gene therapy is designed to improve current interferon therapy by achieving continuous, low-level expression and secretion of the protein specifically in liver cells. Preclinical models demonstrated successful expression of interferon protein at therapeutic levels that persist for several months.
Maxim Pharmaceuticals/Roche: The companies recently completed Phase II clinical

trials testing the combination of Maxamine, a naturally occurring histamine, with standard alpha interferon, in chronic hepatitis C patients. Maxamine is believed to protect critical immune cells, and when used in combination with alpha interferon, improve the immune systems ability to identify and disable infected cells.
231
SUMMARY OF NEXT-GENERATION TREATMENTS FOR HEPATITIS C Product Pegylated Interferon PEG-Intron Pegasys SGP/Enzon Roche Pegylated version of alpha interferon; Approved in EU and U.S. Pegylated version of alpha interferon; BLA filed May 2000; Complete Response letter in April 01. Approved in Switzerland; U.S. approval expected in late 02. Pegylated Interferon Combination Ribivirin PEG-Intron/ribavirin Pegasys/ribavirin Ribivirin Anologs Levoviron/Viramidine ICN Pharmaceuticals Single isomer versions of ribavirin; Levovirin is in Phase I development (with Roche); Viramidine Phase I studies are expected in H1:2002. Protease Inhibitors Eli Lilly/Vertex SGP/Corvas WYE/ViroPharma Gilead Sciences Interleukin 10 IL-10 IMPDH Inhibitors VX-497 CellCept Vertex Roche IMPDH inhibitor; Phase III could begin in H1:2002. IMPDH inhibitor; marketed for immune suppression for transplants; in early clinical development for hepatitis C applications. Vaccine Hepatitis C MF59 Chiron Merck/Vical Selected Other Eli Lilly/Ribozyme Rebif Ares-Serono Vertex ISIS14803 ISIS/Elan Immune Resp/SGP Maxamine Maxim/Roche Developing ribozymes to cleave RNA to inhibit viral replication. Recombinant interferon-beta; Line extension to M.S. franchise. Hepatitis C virus helicase inhibitor; Pre-clinical development. Antisense inhibitor of hepatitis C virus; Phase I/II. Gene therapy focused on improving interferon therapy; Pre-clinical development. Immuno-modulator combined with alpha interferon; Phase II trials. Phase II development. Pre-clinical development. SGP Recombinant interleukin 10 to prevent scarring; Phase II development. Hepatitis C NS3 protease inhibitor; Pre-clinical development. Hepatitis C NS3 protease inhibitor; Pre-clinical development. Several Hepatitis C protease inhibitor targets; VP50406 in Phase I. Hepatitis C NS3 protease inhibitor; Pre-clinical development. SGP/Enzon Roche Combination of PEG-Intron and ribavirin. Approved in EU and U.S. Combination of Pegasys and ribavirin. Filed in U.S. in Q4:2001. Company Comments
Source: Company reports and SG Cowen
232
G Vaccines Represent Large Markets

Favorable demographics provide strong underlying demand for vaccines. Infections are a leading cause of death globally, with death from respiratory (3.5MM), AIDS (2.3MM) and diarrheal diseases (2.2MM) most common. The impact of flu tends to be overlooked because healthy adults are usually able to fight off a round of infection, suffering a short-term fever en route. However, the illness has a much more serious impact on the young and the old, causing 50,000 pediatric hospitalizations and 20,000 deaths per annum in the U.S. It also has a substantial economic impact; 20-25MM physician visits per annum are attributed to flu. Current vaccines have 70-90% efficacy in adults but are relatively ineffective in the highest-risk groups children and the elderly. Vaccination rates also are lowered by needle-phobia, which partly underlies attempts by BioChem Pharma and Aviron to develop nasal spray versions. Wyeths Prevnar Prevnar (pneumococcal disease) has been the most successful vaccine launch ever, based on its first two years on the market. Prevnar is effective against invasive disease (meningitis, bacteremia/sepsis) and non-invasive disease (pneumonia, otitis media). In clinical studies, Prevnar reduced the incidence of invasive disease by 93%, lobar pneumonia by 73%, all x-ray pneumonia by 34%, pneumococcal otitis media by 33% and any otitis media by 7%. Surgery for ear tubes dropped by 20% for children treated with Prevnar. Approved in the U.S. in February 2000 and in the European Union, Australia, Brazil and Mexico in February 2001, Prevnar now is marketed in 30 countries. An otitis media indication is approvable in the U.S. (May 2001). There are roughly 140MM worldwide cases of otitis media annually. New pneumococcal vaccines are in development, including a 9-valent meningococcal combination and an 11-valent pneumococcal vaccine. We estimate sales of Prevnar at $900MM (+13%) in 2002 and $1,200MM in 2005. Wyeths Meningitec Meningococcal disease is a rare but severe infection that can impact the skin, joints, and meninges of the infected person. Meningitec currently prevents only one of five serogroups that cause meningococcal disease. American Home is developing a meningococcal vaccine that contains 4-5 serogroups (2006-08 launch expected). Sales of Meningitec were $79MM in 2001; we forecast sales at $25MM in 2002, remaining flat through 2005. Avirons FluMist Avirons major focus is on the development of live, attenuated vaccines, which contain active virus particles that have been altered to be infectious and confer longlasting immunity without causing disease. Avirons lead product, FluMist, is an intranasal influenza vaccine that has successfully completed Phase III trials. Advantages of live, attenuated vaccines over inactivated (killed-virus) or subunit (portions of virus) vaccines include: (1) mimicry of natural infection, (2) presentation of all potential disease-causing virus proteins to the immune system, and (3) ability to elicit a broad immune response, which includes antibodies at the site of natural infection. We believe that live, attenuated viruses may offer the best approach to childhood immunization, particularly for the very young, whose immune systems are poorly developed and in a constant state of flux. Despite the potential difficulties associated with manufacturing live attenuated vaccines, several have been successfully marketed for many years (polio, measles, mumps, rubella, and chicken pox). FluMist was rejected for approval at an FDA Advisory Committee review in July 2001 based on safety concerns, specifically usage in patients with asthma or pneumonia. Effectiveness was not a concern to the FDA panel. Aviron was issued a complete response letter in August, but no new clinical trials were requested. Indeed, FluMist is effective in patients
up to 64 years old, and it reduces the rate of culture-confirmed influenza by 91.7%. Aviron submitted its responses to the FDAs questions in January 2002; a Q3:2002 approval is expected. The label for FluMist likely will not include infants under the age of 18 months or elderly over the age of 65. We estimate FluMist sales at $110MM in 2002 and $720MM in 2005. Three Major Safety Concerns Need To Be Addressed: Asthma, Pneumonia, And Concurrent Use - While the FDAs advisory panel overwhelmingly signed off on FluMists efficacy in patients aged 2-64, a few key issues were raised regarding the safety profile. Asthma. Although the incidence of asthma was not statistically significantly increased in any trial as a whole, the FDAs advisory committee expressed concern over a signal from the 10,000-child Kaiser safety study conducted last year and requested more analysis. In the Kaiser trial (study AV019) there was a statistically significant increase in the incidence of asthma in 18-35 month old children following the first dose of FluMist (9.3 cases per 1,000 children on FluMist vs. 2.3 cases per 1,000 children on placebo, p=0.019). However, the incidence of asthma was decreased in the Kaiser study in the 12-17 month age group (2.5 cases per 1,000 children on FluMist vs. 14.4 cases per 1,000 children on placebo, p=0.067, not statistically significant). Aviron believes that these conflicting results are probably a result of the relatively small number of children in both age groups in the trial and neither result is likely attributable to FluMist. In the overall study (ages 1-17) the incidence of asthma was nearly identical (4.6 cases per 1,000 children on FluMist vs. 4.8 cases per 1,000 children on placebo, p=0.42). All cases of asthma were mild to moderate and resolved without need for hospitalization. In addition, there was no temporal relationship between the receipt of FluMist and the onset of asthma. Nonetheless, the FDA panel asked for an analysis of a relationship between FluMist and asthma in a more detailed evaluation of the Kaiser trial as well as in the combined database of all trials. Pneumonia. In trial AV006 (the pediatric efficacy trial), the relative risk of pneumonia was increased in FluMist recipients (R.R. = 2.98), although this increase was not statistically significant (95% confidence intervals of 0.36 24.78 overlapping 1.0). The committee was not sufficiently reassured by the fact that in the 9,700 Kaiser pediatric safety trial (AV019) the relative risk of pneumonia was decreased (R.R. = 0.83, p=N.S.) in FluMist recipients. The committee requested final results of the FDAs ongoing analysis of the combined dataset of all trials before recommending approval. Aviron has since filled in some of the blanks in the FDAs analysis and has determined that the incidence of pneumonia in all FluMist recipients is 0.18%, while the incidence in all placebo patients was 0.27%. Concurrent Use. Children between the ages of 12 and 18 months receive a variety of other vaccinations, and therefore it is possible that the efficacy or safety of FluMist in these children could be altered. A trial testing the concomitant administration of FluMist with the measles, mumps, rubella (MMR) and varicella (chicken pox) vaccinations is ongoing. The 1,200 patient trial enrolled approximately 200 patients and results are expected shortly.
234
U.S. ANTIBIOTIC/ANTIVIRAL MARKET

Total Prescriptions (000's) % Market Share 1987* Macrolides Penicillins Quinolones Cephalosporins Antivirals Antifungals Other Tetracyclines Erythromycins Total 106,327 22 36,918 4,211 31,083 37,978 26,926 46,878 290,341 2001 64,978 109,255 43,760 62,478 28,728 58,766 54,399 29,845 10,401 462,609 2002E 94,911 115,237 58,209 74,788 38,382 63,378 64,505 38,123 12,055 559,588 2005P 160,000 96,000 83,200 64,000 64,000 57,600 57,600 44,800 12,800 640,000 13% 1% 11% 13% 9% 16% 100% 37% 1987* 2001 14% 24% 9% 14% 6% 13% 12% 6% 2% 100% 2002E 17% 21% 10% 13% 7% 11% 12% 7% 2% 100% CGR 2005P '87-01 '01-05 25% 15% 13% 10% 10% 9% 9% 7% 2% 100% NM +0% NM +4% +15% +5% +3% +1% -10% +3% +25% -3% +17% +1% +22% -0% +1% +11% +5% +8%

Drug Vantin Diflucan Pediavax HIB Engerix-B Cipro Zithromax Valtrex Zerit Epivir Primaxin Famvir Entecavir Levaquin Crixivan Manufacturer Pharmacia Pfizer Merck GlaxoSmithKline Bayer Pfizer GlaxoSmithKline Bristol-Myers Squibb GlaxoSmithKline Merck Novartis Bristol-Myers Squibb Johnson & Johnson Merck Patent Expiration 12/01 1/04 9/04 12/04 6/05 11/05 9/07 6/08 2/09 9/09 9/10 10/10 12/10 5/13 U.S. Sales in Year Patent Expires ($MM) $35 560 100 105 1,000 1,560 -----------------
235
INFECTIOUS DISEASE R&D PIPELINE

Company Aventis Product Ketek PC I II III NDA 20002001 MKT Comment 2003 Respiratory tract infections (drug resistant); Ketolide; oral; approved July 2001 in EU; approvable letter from FDA June 2001 for CAP; regulatory submission in Q4:01 in Japan; acute otitis media (pediatrics) NDA planned for Q1:03 2003 Oral antiviral product; common cold (VRI), U.S. only; (collaboration with Viropharma) Quinolone; i.v. /oral launched; I.v. launched only in the U.S. Once-daily Zerit Sparfloxacin; quinolone Respiratory tract infections; modified release form; not approvable Reverse transcriptase inhibitor; once-daily dosing for HIV Approvable for dermatophytes; 7-day tinea pedis capsule Antifungal; treatment of deep mycosis; filed in Japan; PIII USA & Europe Broad spectrum quinolone; not approvable due to safety issues; PIII I.V. formulation; licensed from L.G. Chemical
Aventis Bayer Bristol-Myers Squibb Dainippon GlaxoSmithKline GlaxoSmithKline Johnson & Johnson Fujisawa GlaxoSmithKline
Picovir Avelox (moxifloxacin) Zerit ER Supara Augmentin SR Epivir Sporonox Micafungin (FK-463) Factive
Oct-01 Q4:01 Dec-00 Aug-01 Jun-01 Dec-99
Inhale Therapeutic
Pegasys
May-00 H2:02 Pegylated alpha interferon; Hepatitis C; oncology indications ongoing; with Roche; PEG supply agreement Nov-00 2002 Voriconazole; broad spectrum antifungal; niche utility for aspergillus; cryptococcus; oral, IV; unpredictable kinetics, drug interactions, need for blood monitoring and ocular toxicity limit utility; approvable by FDA; favorable CPMP opinion Ketolide antibiotic; improved version of Biaxin; now part of Taisho joint effort NNRTI; first product from Triangle pipeline; NDA filing uncertain Sepsis; PIII complete in U.S.; to be outlicensed Q2:01 Hospital & community acquired penumonia; use in neutrapenics; cystic fibrosis Nosocomial pneumonia; marketed in VRE, SST 2003 Complicated and uncomplicated UTI; once a day 2003 First oral penem 2003 2004 Novel once-daily NNRTI with superior antiviral profile Hepatitis B virus inhibitor; highly potent; superior efficacy to lamivudine in Phase II and well tolerated 2003 Haemophilus influenza B conjugate vaccine; with Aventis
Pfizer, Inc.
Vfend
Abbott Laboratories Abbott Laboratories Abbott Laboratories AstraZeneca Aventis Bayer Bayer Bristol-Myers Squibb Bristol-Myers Squibb
ABT-773 Coactinon Segard (Afelimomab) Merrem (carbapenem antibiotic) Synercid (Japan) Cipro Faropenem DPC 083 Entecavir
Q4:02
Daiichi
DF-098
236

Company Daiichi Elan Eli Lilly GlaxoSmithKline Product DU-6859a Sporanox (itraconazole) Resiquimod GW433908 PC I II III 2004 2002 NDA MKT Comment 2003 Quinolone; broad spectrum; sitafloxacin; oral, injectable Anti-fungal; injectable formulation with NanoCrystal technology; with JNJ Topical immune response modifier; recurrent genital herpes; with 3M Next generation protease inhibitor; with Vertex; bioequivalence to Agenerase with goal of cutting pill count in half Antifolate made from two existing anti-malaria drugs (chlorproguanil and dapsone) for treatment of malaria Polymerase inhibitor; treatment of adult and pediatric helminth intestinal infections; MAA 2002 2002 2002 Malaria prophylaxis (adults); 8-aminoguinoline Herpes simplex virus: cold sores; CMV prevention; HSV suppression in immunocompromised patients; prevention of HSV transmission; nucleoside analogue Reverse transcriptase inhibitor; pediatric hepatitis B; approved U.S. August 2001; filed June 2001 Europe Reverse transcriptase inhibitor; in combination with Epivir for HIV Empiric therapy data available in 2002 HIV/AIDS; non-nucleoside reverse transcriptse inhibitor Intravenous form of Diflucan Chlamydia-induced atherosclerosis (onceweekly); WIZARD trial in 7,500 patients with heart attack; mortality (powered for 15% benefit) and morbidity endpoints; 2-3 year study 2003 HIV fusion inhibitor; AIDS/HIV Anti-parasitic; intestinal microsporidiosis Anti-picornavirus; viral respiratory syndrome; European rights licensed from Viropharma Posaconazole; broad spectrum antifungal; greater potency against Candida, Aspergillus and Diflucan-resistant fungi; oral/IV, qD, good safety profile 2004 GAR-936; tetracycline core plus GAR domain; antibiotic for serious gram +, -, anerobic, atypical, and resistant infections; oral form in development PI/PII for pediatric otitis media; PIII for nosocomial pneumonia and prostatitis NRTI antiviral; HBV indication in Phase I/II studies
GlaxoSmithKline
LAPDAP
GlaxoSmithKline
Oxibendazole
GlaxoSmithKline GlaxoSmithKline
Tafenoquine Valtrex/Zelitrex (valacyclovir)
GlaxoSmithKline
Zeffix
Jun2001 2003
GlaxoSmithKline Merck Pfizer, Inc. Pfizer, Inc. Pfizer, Inc.
Ziagen Cancidas Capravirine Fosfluconazole Zithromax
Roche Sanofi-Synthelabo Sanofi-Synthelabo Schering-Plough
R698 - T20 Fumagilline Pleconaril Noxafil
Wyeth
Tigecycline
Johnson & Johnson Abbott Laboratories
Levaquin Coviracil
2002
237

Company Bristol-Myers Squibb Product Atazanavir PC I II III NDA Q3:02 MKT Comment Azepeptide protease inhibitor (AIDS); similar efficacy to ritonavir; favorable resistance and lipid profiles; once-daily; PIII to commence soon; BMS 232632 Quinolone; oral and IV; broad spectrum, novel chemical structure, unique toxicity profile; from Toyama; WW rights including Japan' BMS 284756 Treatment of hepatitis Endotoxin antagonist for septic shock; (U.S.) Treatment of septic shock Ravuconazole; broad-spectrum antifungal for immunocompetent and immunocompromised patients; with Bristol-Myers Squibb Nasopharyngeal BPSI; prevention of recurrent sinusitis Phospholipid anti-endotoxin emulsion; sepsis; from Sepsicure Integrase inhibitor; HIV infection; joint venture with Shinogi Treatment of chronic hepatitis B 2003 Treatment of visceral lieshmaniasis Respiratory infections; rhinovirus 3C protease inhibitor HIV/AIDS 2004 Quinolone antibiotic; outlicensure candidate PII for HIV/AIDS; preclinical for HBV indication Broad spectrum triazole antifungal; Candida, Cryptococcus, Aspergillus; similar to itraconazole and voraconazole; from Eisai; oral, IV; half life of 4-5days Carbapenem antibiotic; PI U.S; PII Europe and Japan Quinolone antibiotic for RTI, UTI Oxazolidinone antibiotic; gram positive infections, including multi-resistant strains 2004 2004 Twice a day protease inhibitor; PII Q1:2002 Nucleoside Reverse Transcriptase Inhibitor; PII Q1:02 Carbapenem antibiotic Lipid A antagonist; sepsis and septic shock Additional anti-viral therapeutic effect Treatment of hepatitis B Anti-Factor IX monoclonal antibody; severe sepsis & septic shock (also stroke) HIV; in-licensed from ICN Antibacterial; carbapenem; injectable Anti-fungal; lanosterol-14; demethylase inhibitor HIV infection; receptor antagonist Influenza 238 Therapeutic Categories Outlook 3/2002
Des-Quinolone
H2:02
Eisai Eisai Eisai Eisai
E-3330 E-5531 E-5880 ER-30346
GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Pfizer, Inc. Roche Sankyo Abbott Laboratories Bristol-Myers Squibb
Bactroban GR270773 S-1360 SB M00026 Sitamaquine Ruprintrivir R724 (T-1249) CS-940 DAPD Ravuconazole
Sankyo Abbott Laboratories AstraZeneca Bristol-Myers Squibb Bristol-Myers Squibb Eisai Eisai Enzon GlaxoSmithKline GlaxoSmithKline Roche Sankyo Sankyo Schering-Plough Abbott Laboratories
CS-834 ABT-492 AZD 2563 DPC 684 DPC 817 E-1010 E-5564 PEG-Intron (HIV) GW/PowderJect SB249417 R1270 (levovirin) CS-023 CS-758 CCR5 RA Flu compound

Company Abbott Laboratories Bayer Bayer Bayer Bristol-Myers Squibb Bristol-Myers Squibb Inhale Therapeutic Product L-FMAU BAY 41-4109 BAY 55-8800 BAY 57-1293 DPC A78277 HIV Entry Inhibitor Interferon Alpha PC I II III NDA MKT Comment NRTI compound; HBV; with Triangle 2005 Non-nucleoside inhibitor; hepatitis B Antiviral HIV; IL-2 selective agonist Anti-HIV HIV Hepatitis B and C; various cancers, AIDS; feasibility studies completed; internal development; no partner Unique mechanism; Phase I to start in 2002 HIV/AIDS; protease inhibitor Cytomegalovirus Hepatitis C HIV/AIDS` PD178390 Second generation follow-on to Zyvox HIV 13 17 31 12 89
Merck Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pharmacia Corp. Roche
HIV integrase inhibitor AG1776 (JE-2147) CMV Protease Inhibitor Hepatitis C Inhibitor HIV Integrase HSV-1 Protease Inhibitor Oxazolidinones R944 Total Drugs In Development
16
239
Notes
240
Oncology/Hematology
G Cancer Shows Steady Growth
DEFINITION/ BACKDROP Cancer comprises numerous different diseases characterized by abnormal and/or uncontrolled cell growth. This cell growth may be triggered by external (e.g., chemicals, radiation, viruses) and internal (e.g., hormones, immune conditions, inherited mutations) factors. There are three 11% CGR 2001-05 general cancer classifications: (1) carcinomas, cancers originating in the epithelial tissue; (2) sarcomas, cancers originating in connective tissue and muscle; and (3) gliomas, cancers originating in nerve tissue. Approximately 8.2MM Americans have cancer, and an estimated 1.2MM new cancer cases will be diagnosed this year in the U.S. It is estimated that over 550,000 Americans and 6.2MM people worldwide died of cancer in 2001. Lung (169,500 estimated deaths in 2001), colon and rectum (135,400 deaths), breast (192,200 deaths), and prostate (198,100 deaths) are prevalent cancers. Antineoplastic agents, which prevent the development, maturation, and spread of cancerous cells, are used along with surgery and radiation to treat cancer. Several types of antineoplastics exist: alkylating agents; anti-tumor antibiotics; antimetabolites; hormonal agonists/antagonists; nitrosoureas; and plant alkaloids. Novel drugs, including immunotherapies, adjunct/supportive care products, and chemopreventives could transform the market over the next several years.
Oncology/Hematology Drug Sales As A Percentage Of The Category

PARTICIPANTS
2001
$26B
JNJ 17%
2005P
$39B
AMGN 15%
Other 44%
AMGN 14%
Other 49%
JNJ 12%
BMY 9% NVS 8% AZN 8% NVS 6% AZN 8%
ROHHY 10%
Via their blood cell factor franchises, J&J (Procrit) and Amgen (Epogen and Neupogen) had the greatest dollar share (17% and 14% in 2001) in the category. Bristol fell from third place due to Taxol generic competition. Roche and AstraZeneca are expected to have strong oncology/hematology franchises in 2005. Novartis may lose modest share in the category. MAJOR TRENDS & ISSUES Chemotherapy is expected to remain a mainstay in the treatment of malignancies. New strategies and agents are emerging to prevent, control and cure cancer. Disease management approaches similar to treatment of hypertension and vaccination are emerging, stemming from development of less-toxic oral therapies. More than 170 oncology/hematology products are in development, representing more development activity than any other category.
FDA approvals have been rapid given acceptance of new clinical trial endpoints (i.e., response rates/clinical benefit versus solely survival rates) and the fast-track program, allowing certain therapies to garner accelerated marketing approval based on Phase II data. The FDA recently has been requiring survival benefit studies and data prior to full marketing approval, which allows for complete labeling and promotion. Our scatter plot shows that through 2005, Amgen and Roche should dominate this category. This category is critical to their growth. Genentech and five other companies have rapidly emerging portfolios.
Oncology/Hematology
90%
70%
50%
DNA AMGN ROHHY
30%
PHA SGP LLY

10%
AVE AHP GSK NVS AZN JNJ
ABT MRK
-10%
BAY BMY
TDCHF
-30% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0
DETAILED DISCUSSION
G Cancer Is A Large, But Fragmented Market Opportunity

Cancer is the #2 cause of death in the U.S., with an estimated 550,000 deaths and 1.2MM new cases diagnosed this year. Demographic trends and improved screening technologies will accelerate the diagnosis rate, as 85% of cancers occur in the over-50 population. The National Cancer Institute (NCI) estimates the overall cost for cancer at $107B in the U.S.; $37B for direct medical cost, $11B for morbidity cost and $59B for mortality cost. Treatment of breast, lung, and prostate cancers accounts for over half of the direct medical cost.
242
ESTIMATED WORLDWIDE MARKET FOR ONCOLOGY/HEMATOLOGY DRUGS BY CLASS ($MM)

2001 Market % Total $13,553 53% 7,234 0 154 90 4,732 $25,762 28% 0% 1% 0% 18% 100% $ NRx 2005P 01-05 87-01 Market % Total CGR CGR Comments $20,024 51% 10% 9% - BMY's Taxol and Paraplatin, LLY's Gemzar, TDCHF's Lupron 10,565 1,000 328 50 7,546 $39,513 27% 3% 1% 0% 19% 100% 10% NA 21% -14% 12% 11% NM - AMGN/JNJ's Epogen/Procrit; AMGN's Neupogen and NESP NA - AZN's Iressa, IMCL/BMY's Erbitux NA - NVS's Sandoglobulin NA - Various in early-stage development NA - Includes adjuvant/supportive care therapies 10% - Driven by improved chemotherapeutics, adjuvant therapies
Drug Class Chemotherapeutics Blood Cell Factors EGF Receptor Antagonists Immunotherapies Chemopreventatives Other Therapies Total Market
G FDA Has Eased Access To New Therapies Via Accelerated Approval Process
In 1996, the FDA undertook initiatives to improve patient access to new cancer therapies. Most important, the FDA implemented a two-tiered approval system, providing an accelerated approval track to get new therapies to the market prior to completion of longer-term survival benefit studies, followed by a full approval designation when those studies are completed and reviewed. With this system, the FDA began accepting clinical endpoints other than improvement in survival (for accelerated approval), enabling shorter clinical trials and easier enrollment. Such surrogate endpoints include response rates (e.g., tumor shrinkage), progression-free survival (i.e., time to tumor progression), and clinical benefit. Legislation also was enacted to approve drugs intended to treat serious/life-threatening medical conditions and address unmet medical needs on a fast-track basis at the request of the product innovator. Provisions include the requirement of only one pivotal controlled clinical study, which may be a Phase II study, to prove efficacy and safety. In certain cases, fast-tracking has dramatically reduced the amount of time to receive marketing approval of novel cancer therapies, from over a year to approximately six months. The FDA has been requiring survival benefit data for full approval, especially of add-on indications for currently marketed drugs.
G Cancer Characterized By Unregulated Cell Growth

Cancer is a disease characterized by unregulated cell growth. Cancer typically develops when the genetic material in normal cells prepares it to become cancerous. This early stage of cancer is the initiation stage. Carcinogens (i.e., radiation, chemicals, and hormones) can trigger changes to the genetic material of a cell, and typically prompt the initiation phase to commence. Cells that have been initiated may become cancerous (promotion phase) leading to changes in the cells DNA, and ultimately uncontrolled growth. Cancer cells can spread to other areas of the body (metastasize), and form tumors, which can destroy normal tissue or organs. Risk factors for cancer include family history, age (roughly 80% of cancer is diagnosed at age 55 or older), diet, and exogenous factors (i.e., exposure to ultraviolet sunlight, smoking). Cancers can be classified in stages to document disease severity, measured by I to IV scale (IV represents greater severity), and based on tumor size, involvement of lymph nodes, and metastases.
G Numerous Types Exist

Cancer is characterized by the area in the body where it originates and its appearance. Breast, prostate, lung, and colorectal are the most prevalent forms of cancer. Cancer types vary
geographically. Indeed, the risk of colon and breast cancer is lower in Japan than in the U.S., but people living in Japan have higher rates of stomach cancer.
U.S. CANCER INCIDENCE AND SURVIVAL
Cancer Site Breast (Female) Prostate Lung Colorectal Lymphoma Bladder Melanoma Uterus Oral Cavity Pancreas Kidney Leukemia Ovarian All Sites Est. New Cases 2001 192K 198 170 135 56 53 48 36 30 30 29 30 23 1.27MM CAGR 1992-97 -0.1% 5.8 0.4 -2.7 4.5 0.8 4.6 1.6 -0.2 0.4 2.1 0.3 2.9 3.4% 5-Year Survival 85% 92 14 61 51 81 88 84 53 4 60 43 50 60%
Source: Cancer Facts & Figures, the American Cancer Society, 2001
G Numerous Types Of Products Are Used To Treat And Prevent Cancer

The following table describes the classes of oncology/hematology drugs, their mechanisms of action, and applications in cancer treatment and prophylaxis.
ONCOLOGY/HEMATOLOGY AGENTS: TYPES, ACTION, AND USES
Type/Drug Class Blood Cell Factors Mechanism of Action Stimulate proliferation, differentiation, and mobilization of blood cells Prevent carcinogenesis or stimulate apoptosis of pre-cancerous cells Kill cancer cells by affecting DNA synthesis Kill cells by directly attacking DNA Uses Increase blood cells, which allow more aggressive chemotherapy administration and decrease infection Chronic treatment of pre-malignant conditions to prevent cancer progression Broad usage Certain carcinomas (breast, lung, ovary, prostate); chronic leukemias; Hodgkins disease; lymphomas Wide variety of cancers Acute and chronic leukemias; choriocarcinoma; tumors of the breast, GI tract, and ovary Breast cancer, prostate cancer Brain tumors; lymphomas; malignant melanoma; multiple myeloma Leukemia; breast, lung, and testicular cancers; lymphomas; neuroblastoma Non-Hodgkins lymphoma, breast cancer
Chemopreventive Agents Chemotherapeutics Alkylating Agents
Bind with DNA and prevent RNA synthesis Block cell growth by interfering with certain development activities, usually DNA synthesis; halts normal development and cell reproduction Hormonal Agents Modify growth of hormone-dependent cancer cells Nitrosoureas Kill cells by inhibiting changes necessary for DNA repair; cross blood-brain barrier Plant (Vinca) Alkaloids Block cell division during mitosis (cell reproduction) Immunotherapy/Monoclonal Boost immune system function or may directly Antibodies/Biological Therapies attack cancer cells Adjunct/Supportive Care Add-on drugs used to enhance the efficacy or Therapies improve the side-effect profile of agents Source: University of Pennsylvanias OncoLink.
Anti-Tumor Antibiotics Antimetabolites
G Breast Cancer
In the U.S., breast cancer developed in roughly 192,000 women in 2001. In the early stages, breast cancer may have no symptoms, and can be detected only through mammography
screening. During the later phases, symptoms may include tenderness, swelling, lumps, and skin irritation. The use of mammography screening has decreased the mortality associated with breast cancer. Treatment of breast cancer typically includes surgery to remove tumors and lymph nodes. Usually a combination of radiation, chemotherapy or hormonal therapy is used post surgery. Bristol-Myers Squibbs Taxol (Paclitaxel) is indicated for metastatic breast cancer after failure of combination chemotherapy or relapse within six months. AstraZenecas Nolvadex (Tamoxifen) is a hormonal therapy indicated for the treatment of breast cancer in women following mastectomy. Virtually Every HER2 Positive Breast Cancer Patient Receives Genentechs Herceptin Genentechs Herceptin, a humanized antibody, inhibits the growth of cells that overexpress HER-2. It is effective in cancers that overexpress HER-2 protein on cell surfaces. HER-2 is an oncogene, which is overexpressed in approximately 25-30% of breast cancers and is associated with a worsened prognosis. In the U.S., the treatment-eligible patient population includes 45,000-55,000 of the estimated 180,000 cases of metastatic breast cancer, as well as prostate and lung cancers. Herceptin sales growth has decelerated appreciably in recent quarters. Herceptin appears to have almost fully penetrated its market of eligible patients, and remaining growth will come from an increase in the number of infusions given to each patient, and use in adjunctive therapy. Genentech hopes that increased physician awareness of Herceptins survival benefit will continue to spur first-line usage. Indeed, Herceptins survival benefit was granted marketing approval in December. Ongoing Herceptin trials include: prostate, lung, and ovarian cancers. Genentechs ongoing combination therapy study for Herceptin plus chemotherapy as adjuvant (post-surgical) treatment for breast cancer continues to enroll patients. The trial is being run by the National Cancer Institute and could provide early efficacy data in 1-2 years. We estimate Genentechs Herceptin sales at $410MM (+18%)in 2002, rising to $525MM in 2005. Roches Xeloda Third-Line Treatment Option Xeloda is an oral medication used for the treatment of metastasic breast cancer and was launched in the U.S. in 1998. Xeloda has shown that after the failure of standard therapies (Paclitaxel and an anthracycline therapy) 20% of patients experienced a more than 50% reduction in the size of their tumors. Some patients even experienced a complete remission. In addition, the drug is well tolerated and resulted in only minimal hair loss. This relative lack of side effects stems from the way Xeloda works: it only becomes active once it comes into contact with the tumor. Furthermore, it was shown that in combination therapy with two other cancer treatment drugs (Taxotere and Epirubicin), Xeloda improves the response rate in patients with advanced and non-treated cancer. Xeloda has just been approved in the U.S. and is expected to be approved in Europe (2002, positive opinion given by the CPMP in October 2001) as a combination therapy with Taxotere in the firstand second-line treatment of metastatic breast cancer. However, the FDA and Roche added in November 2001 a black box warning and strengthened the precautions section in the label of Xeloda in the treatment of colorectal and breast cancer. In fact, a clinically important Xeloda-Warfarin drug interaction was demonstrated in a clinical pharmacology trial. In February 2001, the FDA approved Xeloda for treating patients with metastasic colorectal cancer. We estimate sales of Xeloda at $210MM (+42%) in 2002 and $445MM in 2005.
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SERM Breast Cancer Incidence Reduction Data Compelling AstraZenecas Nolvadex (Tamoxifen) is a selective estrogen receptor modulator (SERM) which has been used for breast cancer treatment for many years. It was approved in 1998 for short-term reduction of risk of breast cancer in high-risk patients. The risk reduction indication was based on an NCI study of 13,388 healthy women considered to be at high risk of developing breast cancer. Results showed a 44% reduction in breast cancer incidence in women treated with Tamoxifen for five years, versus a placebo group. However, Tamoxifen also was shown to increase the risk of endometrial cancer and thromboembolic events, which may restrict use to patients at relatively high risk of breast cancer. Eli Lillys Evista (raloxifene) also is a SERM, approved for osteoporosis prevention and treatment. Evistas effect on breast cancer incidence is being studied in several large clinical trials. Four-year breast cancer data was revealed at ASCO in 2000, and showed that Evista reduced the relative risk of cancer by 65% overall, by 72% in invasive tumors, and by 84% in estrogen receptor positive tumors. Lilly is studying these women in a four-year continuation trial called CORE. The STAR trial (sponsored by the NCI) will evaluate 22,000 postmenopausal women at risk of breast cancer, comparing Evista with tamoxifen. STAR began enrollment in mid-1999 and should be completed in 2007.
Breast Cancer Incidence Reduction Data Supporting Evista Evistas label reflects breast cancer incidence reduction data. The clinical pharmacology effects on the breast section of Evistas label reports the breast cancer incidence data seen in clinical studies (0.41 per 1000 invasive tumors in 7017 women on Evista and 1.43 per 1000 invasive tumors in 3368 women on placebo). However, the label mentions that Evistas ability to prevent breast cancer has not been fully established. Evistas label also mentions that breast pain and tenderness were experienced at a rate similar to placebo in Evista-treated women, and that this rate was below that of estrogen. The breast cancer incidence reduction data is sufficient to allow Lilly reps to discuss the findings with physicians, which is supporting Evistas outlook. Our physician consultants believe that the breast cancer incidence reduction data are very compelling and that, within five years and based in part on this work, breast cancer will be a fully preventable and/or curable disease. All breast cancers go through an early atypical hyperplasia phase which is estrogen receptor positive. Therefore, if women at risk start taking Evista or another SERM early, there is a good chance they will avoid breast cancer development in later life. We peg Evista sales at $750MM (+13%) in 2002 and $1,120MM in 2005.
COMPARISON OF THE EVISTA AND TAMOXIFEN TRIALS
Evista Double blind, placebo-controlled, randomized 7,705 67 low Less than 3 More than 3 Fractures Breast cancer, endometrial cancer, cardiovascular disease, safety Reduction ? Reduction ? Increase ?/Reduction Tamoxifen Double blind, placebo-controlled, randomized 13,388 55 high Less than 4 More than 5 Breast cancer Fractures, endometrial cancer, cardiovascular disease, safety Reduction Reduction Reduction ? Increase Increase
Trial design Trial size (patients) Mean age (years) Breast cancer risk among patients Follow-up (years) Treatment duration (years) Endpoint (primary) Endpoints (secondary) Invasive breast cancers In situ breast cancers Fractures Ischemic cardiovascular disease Deep vein thrombosis Endometrial cancer
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G Prostate Cancer
An estimated 198,100 new cases of prostate cancer occurred in the U.S. in 2001. The incidence of prostate cancer is increasing, as earlier diagnosis is possible through prostate-specific antigen screening (PSA). It is recommended that men over 50 years old receive PSA testing. Symptoms of prostate cancer include weak urinary flow, increased urinary frequency, and blood or pain accompanying urination. Surgery and radiation are usually performed on patients with prostate cancer. Hormonal agents, such as TAPs Lupron are the leading drug treatments. Mercks Proscar, currently indicated for benign prostatic hyperplasia, is being tested in the prevention of prostate cancer. Praecis Abarelix offers a novel mechanism for treating the disease. TAPs Lupron Depot The Market Leader TAPs Lupron Depot is a luteinizing hormone releasing analog that reduces testosterone levels. Testosterone prompts growth of cancerous cells. Lupron Depot is effective in slowing the disease progression and reducing symptoms associated with prostate cancer, including difficulty urinating and bone pain. Lupron Depot is given via an injection once every 1-4 months depending on the dose administered. Common side effects include hot flashes, increases in urinary symptoms that can occur typically only after the first injection, and impotence. We estimate sales of Lupron at $1,040MM (+4%) in 2002, but remaining flat though 2005. Jury Out On Proscars (Merck) Ability To Prevent Prostate Cancer Mercks Proscar is currently undergoing a large-scale, National Cancer Institute trial to determine its ability to prevent prostate cancer. The conclusion of the study is at least several years away. Our oncology physician consultants have a neutral position relative to the studys outcome. However, urologists with whom we have spoken believe that Proscar will not show a benefit in the prevention of prostate cancer given insufficient inhibition of the 5-alpha-reductase enzyme. We peg Proscar sales at $600MM (+4%) in 2002 and $675MM in 2005. GlaxoSmithKlines GI198745 is approved for BPH and could benefit if Proscar were to show an ability to decrease the incidence of prostate cancer. Phase I studies of LY320236 in the treatment of prostate cancer show promise. This compound inhibits both isoforms (type 1 and 2) of the 5-alpha-reductase enzyme. However, it is a low priority for Lilly. Praecis Could Re-File Additional Data For Plenaxis In 2002 Praecis Pharmaceuticals is continuing to develop Plenaxis (Abarelix), a gonadotropinreleasing hormone (GnRH) antagonist, post questions raised by the FDA concerning rare allergic reactions. In December, the FDA permitted Praecis to continue with clinical studies designed to further assess these concerns. Praecis initiated new studies in February, and plans to submit the data by year-end. Approval of Plenaxis could occur in 2003. Plenaxis is a synthetic peptide that inhibits the binding of GnRH to the pituitary gland, thereby blocking the production of testosterone in men and estrogen in women. Plenaxis ability to rapidly decrease hormone levels may prove to be a key advantage vs. other hormonal therapies in the treatment of hormone-responsive prostate cancer in men and endometriosis in women. Current GnRH super-agonists (TAPs Lupron and AstraZenecas Zoladex) induce a surge in hormone levels prior to inducing a state of anergy. This surge can be associated with adverse clinical consequences. Praecis has completed three pivotal trials in prostate cancer. Results of the pivotal trials, one comparing Plenaxis with Lupron Depot and one comparing Plenaxis with Lupron Depot
plus Casodex, were presented at ASCO 2000. In each case, Abarelix achieved and maintained medical castration in more than the 90% of patients, which is required by the FDA for approval.
G Lung Cancer
Lung cancer is a leading cause of death in the U.S., and an estimated 165,500 new cases occurred in 2001. There are two types of lung cancer: small cell and non-small cell, which are divided depending on the how the cells look under a microscope. Smoking is the primary cause of both types of lung cancer. A persistent cough is the most common symptom, making early detection of lung cancer difficult. Treatment typically involves surgery to remove the tumor, followed by radiation and chemotherapy. According to the American Cancer Society, 1year survival rates for lung cancer (40-45%) have been increasing, but the 5-year survival rate remains around 14%. Early detection increases the survival rate. Bristol-Myers Taxol The Chemotherapy Gold Standard, But Generics Pressure Bristol-Myers Squibb continues to develop the Taxol (Paclitaxel) franchise via new taxane formulations, despite generic competition in the U.S. and a few other markets. Non-smallcell lung (NSCL) and first-line ovarian cancer are key indications. The NSCL cancer claim could have especially large potential for the Paclitaxel molecule given the large number of newly diagnosed patients each year. Taxol lost exclusivity in October 2000; IVAX, Mylan, and Bedford Labs have approval for generic versions of Paclitaxel. Napro/Abbotts ANDA is pending and the companies could receive approval at any time. Onxol, the IVAX generic, sells at about a 20% discount to Taxol, and had roughly 95% share of the generic and 40% share of the branded market. Our Taxol sales forecasts reflect this generic competition. The U.S. market consumes 200-250 kilograms of paclitaxel annually, requiring 1,250 metric tons of biomass (twigs and needles of the Pacific Yew tree). European exclusivity for Taxol expires in 2003, while exclusivity in Japan extends beyond 2010. We estimate Taxol sales at $900MM (-24%) in 2002, declining to $100MM in 2005 due to generic competition. Bristol Continues To Develop The Taxane Franchise Bristol-Myers has a number of products in clinical trials that are derivatives of paclitaxel, offering clinical improvements. BMS 184476 and BMS 188797 are new injectable taxanes, both of which are active in Taxol-resistant tumors. BMS 184476 appears to act in animal models where Taxol and Taxotere (Aventis) do not work, perhaps including gastrointestinal tumors, yet has a better side-effect profile, given improved solubility, onethird less Cremophor in the formulation, and a two-hour infusion regimen. BMS 184476 is in Phase III clinical trials and an NDA filing is planned in 2003-04. BMS 188797, a further enhancement of paclitaxel, is administered by short infusion (over one hour), and requires no pre-medication. BMS 188797 is in Phase I clinical development. Epothilone is unique in three ways: (1) it beats Taxol in nave and Taxol-resistant cells; (2) it is administered orally; and (3) it is a non-taxane. Additionally, it is not a substrate for the BGP pump, which expels foreign materials from cells, allowing Epothilone to stay in cells longer. Epothilone is in Phase II trials and is involved in a National Cancer Institute (NCI) clinical program. A derivative of Epothilone was originally obtained from a German fermentation company and then chemically modified. Two competitive chemical classes are similar but difficult to manufacture. The first of multiple oral taxane analogs has high oral bioavailability in multiple species (50%+) and is being tested as an antiangiogenic compound.
Eli Lillys LY9 Targets Lung Cancer LY9 is in Phase III development for the treatment of non-small cell lung cancer (NSCLC). LY9 is an antisense agent that inhibits protein kinase C alpha. Lilly also is developing a protein kinase C beta inhibitor for the treatment of cancer. One trial is ongoing with LY9 in combination with paclitaxel and carboplatin, and a second trial with Gemzar and cisplatin is scheduled to start in April. Phase II data showed that LY9 in combination with paclitaxel and carboplatin increased survival from 8-9 months to 15.9 months in patients with NSCLC. Lilly plans to file an NDA for LY9 in 2004. We have no sales contribution for LY9 in our models.
G Colorectal Cancer
Colorectal cancer occurred in roughly 135,400 people in the U.S. during 2001. Symptoms of the disease typically include rectal bleeding, blood in the stool and pain or a change in bowel movements. The gold standard for treating colorectal cancer is the combination of Pharmacias Camptosar, 5-FU, and leucovorin. Pharmacias Camptosar Remains Gold Standard; Side Effect Concerns Manageable Camptosar (irinotecan) has been a big success in the treatment of metastatic colorectal cancer. Follow-on indications will help to maintain sales growth: early-stage colorectal cancer, lung cancer, and ovarian cancer studies are under way. The stoppage of two Camptosar studies in 2001 due to side effects created a good deal of concern. These studies were halted due to numerically, but not statistically, higher mortality rates in patients treated with Camptosar in combination with Fluorouracil (5-FU) and leucovorin. Our physician consultants were concerned over these findings. However, the higher death rate seen in the Camptosar groups likely stemmed from more cavalier patient monitoring by physicians, and administration issues with 5-FU. Patients need to be monitored carefully due to the risk of diarrhea and dehydration. U.S. and European oncologists employ different methods for administering 5-FU. In the U.S., 5-FU is administered via a bolus injection (the Saltz regimen), while in Europe, 5-FU is administered by continuous intravenous infusion (the Douillard regimen). Bolus injection of 5-FU may lead to complications. In the two studies that were halted, patients received bolus injections of 5FU. In January, the FDAs Oncologic Drugs Advisory Committee unanimously recommended no change to Camptosar administration. We estimate Camptosar sales at $740MM (+21%) in 2002 and $1,050MM in 2005. Outlook For Improved 5-FU Agents Unclear 5-fluorouracil (5-FU) is a very widely used chemotherapeutic agent for various solid tumors, but it must be given by infusion/injection, and it needs to be given with other agents to control its toxicity. A variety of agents seek to improve upon 5-FUs profile with respect to administration or side effects. Roches Xeloda (capecitabine), the first of these next-generation agents, is approved for use in refractory breast cancer. While its usage is associated with lymphedema (hand and foot syndrome), our physician consultants do not believe this is dose limiting. Bristol-Myers Squibbs UFT (a combination of uracil and tegafur) was recommended for approval for first-line colorectal cancer treatment by the Oncologic Drugs Advisory Committee in September 1999, but subsequently received a notapprovable letter. UFT, which is administered orally, shows similar efficacy to intravenous 5-FU, but has an improved side-effect profile. UFT is sold in numerous foreign markets, but its outlook in the U.S. is uncertain.
Pharmacia/Pfizers Celebrex Indicated For Prevention Of Colon Polyps Pharmacia/Pfizers Celebrex is approved, and Mercks Vioxx is in Phase III, for the prevention of colon polyps associated with familial adenomatous polyposis (FAP), a precursor to colorectal cancer. FAP is a rare genetic condition in which patients develop hundred or thousands of colorectal polyps. It is estimated that only 1% of colorectal cancer stems from FAP, but the condition almost always leads to colorectal cancer. We peg Celebrex/Bextra sales at $3.35B (+8%) in 2002 and $4.13B in 2005; Vioxx/Arcoxia sales are estimated at $3B (+17%) in 2002 and $4.1B in 2005. In both cases, sales potential is dominated by arthritis and pain management use; chemoprevention use is likely to be relatively small.
G Lymphoma
Lymphoma is cancer of the lymphatic system, which is responsible for transporting white blood cells. Non-Hodgkins disease is the most prevalent type of lymphoma, accounting for an estimated 56,200 new cases in 2001. Hodgkins lymphoma occurs to a lesser extent (7,400 new cases estimated in 2001) and has a higher survival rate (82% versus 52% after five years) compared with non-Hodgkins disease. Patients with lymphoma are treated with radiation and chemotherapy. IDEC/Genentechs Rituxan Growing, As Learning Curve, Off-Label Use Ramps Up Rituxan is a monoclonal antibody approved for treatment of relapsed or refractory lowgrade or follicular B-cell non-Hodgkins lymphoma. Sales of Rituxan increased by an impressive 78% in 2001, after growing by 59% in 2000. Genentech attributes the strong sales growth worldwide to increased penetration of the non-Hodgkins lymphoma (NHL) and Chronic Lymphocytic Leukemia (CLL) market. Genentech estimates that Rituxan has now achieved 48% penetration of the combined NHL/CLL market, and a greater than 50% penetration in its labeled indication, the treatment of relapsed or refractory low-grade NHL. Powered by the results of the GELA study, Rituxan has penetrated >65% of the frontline aggressive NHL market. Approximately 60% of the drugs use is now in first-line therapy of NHL or CLL. Average infusions per patient increased to slightly more than six during 2001. Drivers of Rituxans growth will continue to be: (1) further adoption of the GELA study; (2) earlier treatment; (3) increasing overall patient penetration; (4) increasing the number of infusions per patient; and (5) retreatment. Nonetheless, the rapid growth in Rituxan sales seen during 2001 was largely driven by the GELA data on use as frontline therapy in aggressive NHL, and therefore growth should moderate as the drug has already penetrated that market to a very significant extent. We estimate that 30 Rituxan studies are planned or ongoing in Europe and another 30-40 studies are planned or ongoing in the U.S., many of which are physician-sponsored INDs. A bolus of positive Rituxan clinical data, including intermediate/advanced NHL studies and combination chemotherapy studies presented at ASCO, are driving Rituxans sales growth. We estimate Rituxan sales of $1,070MM (+31%) in 2002, rising to $1,635MM in 2005. IDECs Zevalin Is Poised To Repeat Rituxans Success In NHL Zevalin is a radiolabeled antibody that was approved in February 2002 for the treatment of relapsed or refractory low grade, follicular, or transformed B-cell non-Hodgkins lymphoma, including patients with Rituxan refractory follicular NHL. IDEC expects to begin shipping Zevalin within 30 or 60 days of approval. In our view, the market opportunity for radiolabeled antibodies, including Zevalin and the likely competitor Corixa's Bexaar in the
treatment of refractory NHL, is significant. Despite Rituxans great commercial and clinical success, the majority of NHL patients still eventually become refractory to treatment and mortality rates in NHL have continued their steady ascent. We expect Zevalin will initially be used in patients who have already failed Rituxan therapy, given that the drug is a novel therapeutic modality (the first radiolabeled therapeutic antibody), has a slightly more cumbersome administration profile (including indium-111 imaging), and carries a modestly greater risk of bone marrow suppression than Rituxan. IDEC also needs to educate oncologists, nuclear medicine physicians and radiopharmacists about Zevalins formulation and administration in order to penetrate this market effectively. Our total U.S. revenue estimates for Zevalin are $55MM in 2002 and $225MM in 2005. GlaxoSmithKline/Corixas Bexaar Heading Back To FDA GlaxoSmithKline is developing Bexxar (monoclonal antibody with a radiographic isotope) for the treatment of non-Hodgkins lymphoma. Bexxar has shown solid efficacy data, but complexity of administration remains a concern (Bexxar is administered once during a tenday period). In one study, 40% of patients who were refractory to DNAs Rituxan showed complete responses after receiving Bexxar. Results of a pivotal study in Bexxar in patients with chemotherapy refractory low-grade and transformed low-grade NHL were published in the Journal of Clinical Oncology in October 2001. The study evaluated the safety and efficacy of Bexxar in comparison with the patients last chemotherapy treatment in 60 patients. The study showed that 20% of patients had a complete and 45% partial response to Bexxar compared with 3% complete and 25% partial response after the last chemotherapy treatment. The median duration of response was 6.5 months in the Bexxartreated group versus 3.4 months following the last chemotherapy round. The study concluded that a single course of Bexxar was more efficacious than the last qualifying chemotherapy regimen received by extensively pretreated patients who are chemotherapyrefractory. In September 2001, the FDA accepted the resubmission of the Bexxar BLA. The response is of the Class II variety, which means that the FDA has six months to review the filing. Contained in the submission is a review of data from two new clinical trials that were not previously reviewed by the FDA. We peg sales of Bexxar at $100MM in 2002 and $265MM in 2005. How Bexxar Stacks Up Against IDECs Zevalin While clinical data suggest that Bexxar and IDECs Zevalin are both safe and effective, Bexxar could hold a clinical advantage in that its 131I isotope can be used both as an imaging and therapeutic agent and does not require labeling on site. Additionally, Bexxar is cleared through the kidney, allowing the drug to be dosed at the maximum tolerated dose required to effectively treat the tumor. In contrast, Zevalin is dosed by body weight, a method not necessarily indicative of tumor burden, and therefore is susceptible to under- or overdosing. In addition, while Zevalin infusion takes approximately four hours, Bexxar can be administered in one hour. The fact that Zevalins 90Y free isotope accumulates in bone may lead to accumulated myelotoxicity beyond that caused by the primary disease.
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COMPARISON OF RADIOIMMUNOTHERAPEUTICS Attribute Bexxar Zevalin Antigen target CD20 CD20 MAb scaffold Tositumomab Y2B8 MAb type Murine Murine Isotope 1 isotope 2 isotopes Therapeutic Iodine-131 Yttrium-90 Imaging Iodine-131 Indium-111 Pre-labeled Yes No Half-Life 8.5 days 2.7 days Emission Beta, gamma Beta only Free isotope accumulates Thyroid, stomach Bone, liver Renal clearance Yes No Dosimetry More accurate Less accurate Method Renal clearance Body weight Efficacy Excellent Excellent Safety Excellent Excellent Data vs. Rituxan No Yes Data in Rituxan-failures Yes Yes Transformed NHL data Extensive Minimal Data w/chemotherapy Yes No Infusion Time 1 hr. 4 hrs. Outpatient precautions Minimal No Cold MAb reimbursement Unknown Yes (Rituxan) First-to-market No Yes Sales/marketing U.S. CRXA/GSK IDEC E.U. Amersham Health Schering AG
G Leukemia
Leukemia is cancer of the blood cells, typically white blood cells. Several different types exist, including acute (rapid disease progression), chronic (slower progression), lymphocytic (lymphoid cells), and myelogenous (granulocytes or monocytes). Chronic lymphocytic leukemia (CLL) is the most prevalent form of adult leukemia, affecting an estimated 120,000 people in the U.S. and Europe or about one quarter of leukemia cases. The illness is characterized by an excessive amount of white blood cells in the bone marrow, blood, liver, spleen, and other organs. CLL is progressive and usually fatal. Acute myelogenous leukemia (AML) occurs when there are too many granulocytes present in the bone marrow. Patients with AML have a 20% survival rate. Chronic myelogenous leukemia (CML) is associated with a chromosal abnormality of the Philadelphia chromosome. Tyrosine kinase inhbitors, such as Novartis Gleevec, represent a major advance in the treatment of CML, albeit a relatively small market opportunity. Novartiss Gleevec Fully Penetrated CML; Other Indications On Tap Novartiss Gleevec, a tyrosine kinase inhibitor for the treatment of CML, is orally administered, highly effective, and relatively non-toxic. Our physician consultants note that Gleevac is one of the most important advances in oncology to date, and that full market penetration in CML has occurred. The extent of off-label usage that may occur with Gleevec in other tumor types is unclear. Gleevec is effective in gastrointestinal stromal tumors (about 5,000 cases annually), and could have activity in small cell lung cancer, prostate, brain and colon cancer, if these tumors express the c-kit receptor. We estimate sales of Gleevec at $240MM (+56%) in 2002 and $415MM in 2005.
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ILEXs Campath May Have Been Worth The Wait Following nearly eighteen months at the FDA, Campath received final FDA approval in May 2001 and was launched shortly thereafter. European Union approval followed in June 2001 and selected individual country launches began in July. Campath is indicated for use with alkylating agents in fluderabine-refractory patients with chronic lymphocytic leukemia (CLL), an aggressive form of leukemia. In the pivotal studies, 93 patients with refractory CLL were treated with Campath at 20 centers in the U.S. and Europe, receiving 30mg of Campath intravenously three times per week for 4-12 weeks. Of the patients treated, 31 (33%) showed either a complete (2%) or partial (31%) response. Median survival time increased from 6-7 months to 16 months. Side effects have been an issue in the studies, notably infections (serious infections occurred in 20% of the study patients), but good efficacy warrants use in refractory patient populations. ILEX has been asked to perform post-marketing Phase IV follow-up studies to confirm safety, survival time and/or provide evidence that Campath should be used earlier in the treatment cycle; nearly 300 patients currently are enrolled in this trial. ILEX also is studying Campath in Non-Hodgkins lymphoma, T-Cell malignancies and stem cell transplant (immunosuppressant sparing). Our physician consultants have noted that Campath may have utility in combination with other monoclonal antibodies (e.g., DNAs Rituxan) in the treatment of lymphomas; it binds to different receptors (CD52) than other monoclonal antibodies. However, the relatively high infection rate may curb off-label use of Campath until additional clinical data are generated.
Eli Lillys LY335979 Increases Effectiveness Of Chemotherapy Lilly is developing LY335979, a multidrug resistance (MDR) modulator, which increases the efficacy of existing cancer drugs. Phase II data showed that LY335979 increased the overall response and complete remission rates in patients with relapsed acute myeloid leukemia. We have no sales contribution for LY335979 in our models.
Cytotoxic Antibiotics Used To Treat AML Cytotoxic antibiotics treat a variety of cancers including AML, by disrupting DNA replication and protein synthesis. Commonly prescribed cytoxic antibiotics include Doxorubicin (Pharmacia; generics), Idamycin (Pharmacia), Novantrone (Immunex), and Daunorubicin. Sales of Adriamycin are forecast at $35MM (-24%) in 2002 and $5MM in 2005 due to generic competition. Liposomal Doxorubicins (JNJs Doxil in the U.S. and Schering-Ploughs Caelyx internationally) increase penetration into the tumor, thus providing efficacy with fewer side effects compared with standard Doxorubicin. We estimate sales of Doxil at $110MM (+16%)in 2002 and $140MM in 2005, and Caelyx at $50MM in 2002 and $110MM in 2005.
G Brain Tumors
The most common type of brain tumors are gliomas, which may develop within the brain or via metastasis. Normal brain cells do not divide in adults, but adults with genetic abnormalities can have brain cells which divide, leading to tumors. Brain tumors are named for how they appear under a microscope and graded for severity. The most common and aggressive form of brain tumor is glioblastoma multiforme, which affects the glial cells. Astrocytoma is a type of cancer that arises from astrocytes, cells that perform a variety of CNS funtions. Roughly 18,000 patients per year are diagnosed with primary malignant gliomas in the U.S., and an additional 25,000 patients are diagnosed annually in Europe. The annual incidence of anaplastic
astrocytoma in the U.S. is 2-3,000 cases. Surgery, radiation and chemotherapy are the most common treatments for gliomas. Schering-Ploughs Temodar Targets Malignant Melanoma And Glioma Schering-Ploughs Temodar, for malignant glioma in relapse patients and as first-line therapy for malignant melanoma, is the lead drug in a new class of compounds known as imidazotetrazines. Temodar is an oral chemotherapeutic agent entering a market currently dominated by injectables (the glioma market). Temodar effectively crosses the blood brain barrier, delivering more drug to the brain than comparative glioma therapies. Additionally, Temodar is an active metabolite, and thus does not need to be metabolized once inside the body to become effective. This differs from existing injectable treatments which must be converted by the liver to become active and therefore have associated side effects and drug interactions. Schering-Plough licensed Temodar from Cancer Research Technology Campaign (CRTC), a U.K.-based company that discovered the compound. Temodar was approved for treatment of anaplastic astrocytoma in August 1999. In addition to the primary indications, Schering-Plough has several early-phase studies exploring Temodars effect on other solid tumors. We estimate Temodar sales at $225MM (+25%) in 2002, rising to $375MM in 2005.
G EGFR Antagonists Generating Excitement

EGF receptor antagonists block EGFs ability to activate the receptor and signal tumor growth. Although the EGF receptor was characterized as a viable target for intervention in 1983, most drug candidates including those from Pfizer, Abgenix, Medarex, Entremed, Wyeth, and Novartis are still in very early-stage testing. Three promising candidates are in development: Bristol-Myers Squibb/ImClones Erbitux (filed in November; BLA rejected but discussions with FDA continue), AstraZenecas Iressa (filed in December), and Genentech/OSI Pharmas Tarceva. Erbitux is an injectable agent targeting colorectal cancer, while Iressa and Tarceva are oral therapies for NSCLC initially. While each of these three drug candidates has generated encouraging early data, it is too early to determine the most efficacious and safe agent. EGFR expression is common in many solid cancers, and is critical in promoting tumor growth. AstraZenecas Iressa Now The Front Runner; 2002 Rollout On Tap Iressa was filed with the FDA for its first indication, monotherapy for non-small cell lung cancer, in December. The compelling response rate in the Iressa Phase I clinical studies led AstraZeneca to go straight to pivotal clinical studies in non-small cell lung cancer. Preliminary results from a pivotal Phase II trial conducted with Iressa were presented at the AACR meeting in November. In this study, 210 patients who were not selected based on EGFR status, were enrolled and treated with Iressa 250 and 500mg per day. The overall tumor response rate was 18.7%. Patients treated with Iressa had a disease control rate, which included response plus disease stabilization, of 52.9%. There was no difference in efficacy between Iressa 250 and 500mg. All told, Iressas NDA filing included 600-700 patients. AstraZeneca plans to submit survival data for Iressa to the FDA in 2002; these data are expected to be presented at the ASCO meeting in May 2002.
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IRESSA PHASE II EFFICACY DATA NSCLC Trial (n=210) 18.7% 52.9% 34.2% 84 days N/A
Overall Response Overall Disease Control Disease Stabilization Progression Free Survival One Year Survival Rate
Source: American Association for Cancer Research
Safety data also are compelling for Iressa, with diarrhea and rash the most common side effects. Iressa 250mg was better tolerated than 500mg. Indeed, 32% of patients treated with Iressa 250mg had an incidence of grade III/IV adverse events compared with 50.9% of those treated with Iressa 500mg.
IRESSA PHASE II SAFETY DATA Iressa 250mg Iressa 500mg Grade III/IV AE's Grade III/IV Diarrhea Grade III/IV Rash Diarrhea withdrawals 32.0% 1.0% 1.0% 1.9% 50.9% 8.5% 6.6% 9.4%
Source: American Association for Cancer Research
The longer term potential for Iressa depends on it gaining additional indications in prostate, breast and gastric cancer. AstraZeneca has initiated pivotal trials for these indications and targets NDA filings in 2005. Physicians likely will prescribe Iressa off-label in these indications, assuming the data are compelling. AstraZenecas Expanded Access Program, which has enrolled about 5,000 patients, currently is restricted only to NSCLC sufferers. We estimate Iressa sales at $75MM in 2002 and $600MM in 2005. Outlook Unclear Post Bristol-Myers Squibb/ImClones Erbitux Delay Bristol and ImClone are developing Erbitux, an EGF receptor antagonist that targets various tumors. ImClone commenced a rolling BLA filing in refractory colorectal cancer in June based on Phase II data, and was granted priority review. The filing was completed in November. However, FDA deemed the Erbitux BLA unacceptable. ImClone claimed that the non-acceptance was unrelated to efficacy and safety, but concerned insufficient train of documents from raw data to the conclusions drawn from radiographic images. The core issue appeared to be a clarification of the Phase II data designed to determine response rate and whether patients were truly refractory to Camptosar (Pharmacia). However, details revealed in the Cancer Letter suggested that FDA concerns were much more extensive, and that additional trials almost certainly would be required. Bristols reaction to these revelations was severe: Management issued an ultimatum to ImClone to relinquish control and renegotiate the agreement or Bristol would walk away. ImClone refused, and Bristol backed off its ultimatum. While ImClone has a number of additional trials ongoing, it remains unclear when they would be completed and whether or not FDA would accept this data. While colorectal offers a substantial market opportunity, the EFG receptor is overexpressed in a variety of tumors, including prostate, lung, breast and head/neck, bolstering the opportunity long term. Erbitux offers Bristol numerous synergistic opportunities, with other products it markets and those it has in development in the U.S., Canada and in Japan
via a sharing arrangement. Erbituxs use patent expires in 2018. Under the terms of the initial agreement, Bristol paid ImClone $200MM upon signing and will pay $300MM upon acceptance of the BLA filing, and $500MM upon Erbituxs approval. Bristol purchased via a tender offer 19.9% (14.5MM shares) of ImClones outstanding stock. Bristol will recognize this stake in its financial statements via equity accounting. The deal comes with a 5-year standstill prohibiting Bristol from increasing its stake in ImClone, although Bristol has certain rights of first negotiation to other ImClone products. Bristol will record 40% of Erbitux profits, post paying ImClone a manufacturing fee plus markup and a royalty, a sharing of research costs, and all marketing and promotional fees. Bristol borrowed $2B, via bonds and commercial paper, to finance the transaction, and took a $735MM charge for initial investment and for in-process R&D. $465MM remains on the balance sheet as an equity asset. Our Erbitux sales estimates of $200MM in 2004 and $400MM in 2005 are intact, although our 2003 sales forecast was reduced from $100MM to $25MM. Genentech/OSIs Tarceva Could Be Second Oral Entrant Genentech/OSI Pharmaceuticals Tarceva is an EGF receptor antagonist initially in development for the treatment of NSCLC. In July, Genentech/OSI initiated Phase III trials for Tarceva. In May at ASCO, data were presented for Tarceva in non-small cell lung cancer and head and neck cancer. Phase II head-and-neck cancer patients (n=124) received 150 mg/day Tarceva (monotherapy) until disease progression. The drug produced a partial response rate of 5.6%, a respectable achievement in this refractory and heavily pre-treated population. Disease stabilization was achieved in 39% of patients receiving Tarceva. In Phase II NSCLC trials, Tarceva also delivered compelling efficacy results. 2% and 14% of patients had complete and partial responses, respectively, and 26% of patients had stable disease.
TARCEVA PHASE II EFFICACY DATA NSCLC Trial (n=57) 1 (2%) 8 (14%) 15 (26%) 257 days 48% Head/Neck Trial (n=124) None 7 (6%) 49 (39%) 174 days N/A
Complete Responses Partial Responses Disease Stabilization Median Survival Time One Year Survival Rate
Source: OSI Pharmaceuticals
In the head and neck cancer trial, Tarceva was generally well tolerated at 150mg daily, with acne-form rash (72% of patients), diarrhea (34%), and headache (9%) the only significant side effects. In most of the cases, rash (66% of patients), diarrhea (30%), and headache (8%) were defined as mild to moderate. In a second single-agent trial in patients with stage IIIB or IV EGFR-expressing NSCLC, 7 of 56 (11%) patients achieved a complete (1) or partial (6) response at 8 weeks, and 26% had stable disease. Median survival in this study was 8.6 months, an improvement over the expected median survival (5.5 to 7.5 months). Common side effects included rash in 65% and diarrhea in 30% of patients.
TARCEVA PHASE II SAFETY DATA NSCLC Trial (n=57) 41 (72%) 19 (34%) 5 (9%) Head/Neck Trial (n=124) 81 (65%) 37 30% N/A
Rash Diarrhea Headache

Source: OSI Pharmaceuticals
256
Genentech and OSI are undertaking a broad development program for Tarceva. The companies have initiated Phase III studies in front-line NSCLC, pancreatic, and refractory NSCLC. Genentech also began a Phase II trial investigating Tarceva in patients with advanced breast cancer. Additional studies are in discussion with the National Cancer Institute for epithelial gastrointestinal, genitourinary, and gynecological malignancies, and brain tumors. Early Data Compelling For Abgenix/Immunexs Anti-EGFR Antibody At the AACR conference in November, Abgenix and Immunex reported interim results from an ongoing Phase I trial of ABX-EGF, a fully-human IgG2 MAb generated by Abgenixs XenoMouse technology. The Phase I multi-dose trial in patients with advanced solid tumors (renal, prostate, non-small cell lung, pancreatic, esophageal, colorectal) enrolled 35 patients to date to receive ABX-EGF weekly for 4 weeks with a 5 week followup. Thus far, preliminary results indicate that dosing will likely not require a loading dose and that high doses (>IC90 concentrations) may be used due to the drugs favorable safety profile. No hypersensitivity reactions or anti-human antibodies (HAHA) have emerged in patients treated with ABX-EGF. Patients receiving the 2.0 mg/kg dose developed a transient, mostly mild acne-like rash. No correlation to clinical efficacy has been seen in the limited preliminary data available thus far. In the trial, 3 patients (9%) achieved disease stabilization and/or minor response to therapy. The presence of efficacy in this Phase I trial is encouraging. Also, the fact that some patients were receiving low doses (0.1, 0.75, and 1.5 mg/kg) leads us to conclude that dosing in the range of 2.0-2.5 mg/kg may be promising. ABX-EGF was well tolerated in this study. Five Phase II clinical studies with ABX-EGF have been initiated in a variety of cancers. In January 2002, Abgenix initiated the second Phase II study for the treatment of colorectal cancer. This study will enroll up to 84 patients, who will receive weekly infusions of ABXEGF 2.5mg/kg in combination with Camptosar, leucovorin, and 5-FU for six-week cycles (for up to eight cycles). In July, Abgenix started a Phase II trial of ABX-EGF as a first-line therapy in chemotherapy-nave patients with non-small cell lung cancer (NSCLC). The trial will assess the tolerability and efficacy of ABX-EGF in combination with standard chemotherapy (paclitaxel and carboplatinum). The multi-center Phase II study is enrolling up to 210 patients across North America. Patients will receive weekly intravenous infusions of ABX-EGF in combination with standard chemotherapy or standard chemotherapy alone. The endpoints will be partial response and survival. This trial will be conducted by Immunex. A prostate indication likely will be initiated in 2002. Abgenix currently is conducting a Phase II single agent trial in renal cell carcinoma in advanced disease patients who previously failed chemotherapy or IL- 2. The 100-patient trial is an open-label, dose escalation, multicenter study. Preliminary results may be presented at ASCO in May 2002. Accrual is ongoing and roughly 50 patients are currently on protocol.
G Numerous Other Therapies Hold Promise

ARANESPs U.S. Label In Line With Our Expectations ARANESP is on track to become Amgens next blockbuster. ARANESP (novel erythropoiesis stimulating protein) is a second-generation hyperglycosylated erythropoietin with a half-life roughly three times longer than native protein. Amgen owns full rights to ARANESP in all U.S. and European markets. In the U.S., ARANESP was approved in
September with a label that is generally in line with our expectations and corresponds closely to the drugs label in Europe. Initially, patients receive ARANESP 0.45 ug/kg either I.V. or subcutaneous injection once weekly. This compares to three times per week dosing for Epogen. A subset of patients (those end-stage renal disease patients who are treated successfully with Epogen once per week or patients with chronic renal insufficiency) can be switched to maintenance regimens of once every two week injections. In June, Amgen received European approval of ARANESP for the treatment of anemia in dialysis and predialysis patients and the company has since launched the drug in seven countries including Germany and the U.K. Launch in Spain, Italy, and France will occur in the next six to nine months pending reimbursement. Pre-dialysis represents a large and new market opportunity for Amgen (the company is currently excluded from marketing Epogen in this indication under its commercialization agreement with Johnson & Johnson). Using conservative estimates for defining renal insufficiency, there are roughly 800,000 patients in the U.S. with the condition, 3-4 times the number of patients with end-stage renal disease. ARANESP provides a safe, effective, and more convenient therapy to pre-dialysis patients compared with EPO. A BLA for ARANESP in oncology was filed in September. Positive data from ARANESPs pivotal Phase III oncology trial was presented at last years ASCO meeting. ARANESPs longer half life could allow cancer patients to receive one ARANESP dose per chemotherapy cycle, a vast improvement over current EPO dosing regimens. Pivotal Data For ARANESP In Oncology Look Compelling At ASCO, Phase III data on ARANESP in oncology was presented. Three hundred twenty anemic (hemoglobin 11.0 g/dL) patients with lung cancer who were being treated with platinum-containing chemotherapy were enrolled in the study. Patients were randomized to ARANESP 2.25 g/kg or placebo subcutaneously once per week for a maximum of 12 weeks. The primary endpoint of the study was the need for red blood cell transfusions. Secondary endpoints included the effect on hemoglobin concentrations and on self-reported fatigue. The safety of ARANESP and the effect of ARANESP on the median time to disease progression also were evaluated. The data were positive, meeting all primary and secondary endpoints. In its primary endpoint, ARANESP significantly decreased the proportion of patients requiring a red-blood cell transfusion from week 5 to the end of treatment. Fiftyone percent of patients on placebo required a red blood cell transfusion, compared with 21% on ARANESP (p<0.001). ARANESP also reduced the proportion of patients requiring red blood cell transfusions at any time during the course of treatment (week 1 to the end of treatment), from 57% to 28% (p<0.001). ARANESP reduced the mean number of standard units of red blood cell transfusions over the course of treatment from 2.64 to 1.14 units (p<0.001) and increased the hemoglobin concentration from baseline (+8%; p<0.05). In comparison, the hemoglobin concentration of patients on placebo decreased over the 12 weeks of therapy (-20%). Fifty-six percent of patients on ARANESP compared with 44% of patients on placebo reported an improvement in fatigue (p=0.052). ARANESPs effect on fatigue was more pronounced for patients who reported 25% or more improvement in the Functional Assessment of Cancer Therapy-Fatigue (FACT-Fatigue) Scale. Thirty-two percent of patients on ARANESP compared with 19% on placebo reported a 25% improvement in the FACT-Fatigue scale (p=0.019). ARANESP was extremely well tolerated, with no significant difference in adverse events between patients on ARANESP and patients on placebo. No antibodies were detected to ARANESP in this study. Perhaps the most surprising and novel data were ARANESPs effect on the median time to cancer progression and on the number of days of patient hospitalization. Patients receiving ARANESP were hospitalized for a mean of 10.3 days, compared with 13.0 days for the
placebo group. The median time to cancer progression was greater for patients receiving ARANESP (27 weeks) compared with the placebo group. The difference was most apparent for the small-cell lung cancer subset, where the median time to cancer progression was increased from 23.0 weeks for placebo patients to 34.0 weeks for patients on ARANESP. However, trial investigators cautioned that these results were preliminary and would need to be investigated in further studies. Indeed, the fact that patients were not stratified according to several prognostic criteria make the progression data difficult to interpret. ARANESP For Oncology Could Be Approved In Q3:02 Amgen filed for approval of ARANESP in oncology in September, and we expect approval in Q3:02. ARANESPs long serum half-life (~50 hours in the chemotherapy setting) could make it ideal for once-per-cycle dosing. The label should foster reimbursement and place ARANESP at least on par with Procrit dosing, which is typically provided once-per-week, yet labeled only for more frequent (three times per week) dosing. We expect pivotal onceper-cycle (once-per-three week) data in oncology in the future and such data could provide Amgen with a distinct marketing advantage over Johnson & Johnson. At ASCO, data were presented for extended dosing regimens of ARANESP. A Phase I/II study compared the efficacy of once-weekly and once every two weeks doses of ARANESP. This study demonstrated that a reduction in the frequency of injections from once weekly dosing to every-two-week dosing resulted in no apparent loss of efficacy for ARANESP, and did not change the adverse events reported. A study examining the pharmacokinetics of ARANESP administered once every three weeks found that the pharmacokinetic properties of ARANESP would allow once-per-cycle dosing. ARANESP Satisfies Unmet Need For Anemia Treatment In Oncology Our physician consultants indicate that there is a significant portion of the anemic cancer patient population currently untreated. Indeed, only 20-30% of the cancer patients with hemoglobin levels less than 10 g/dL are currently given erythropoietin, suggesting that there is significant room to grow the market. The cost of therapy and reimbursement likely are the most significant reasons that anemic cancer patients were not treated for their anemia. Amgens SD/01, Sustained-Release Neupogen, Looks Promising SD/01 is a next-generation, self-regulating, sustained duration form of Neupogen created by binding a polyethylene glycol (PEG) molecule to Neupogen. SD/01s longer half-life has the potential to permit once-per-cycle dosing to control chemotherapy-induced neutropenia. SD/01s Phase III studies were positive and an NDA has been filed for U.S. approval. At ASCO, data were presented from U.S. and European randomized, double blind, Phase III trials comparing the safety and efficacy of a single dose of SD/01 per chemotherapy cycle vs. daily Neupogen. In both trials, patients with stage II-IV breast cancer receiving doxorubicin and docetaxel for four cycles were given either SD/01 or Neupogen. Cytokines were administered via an initial subcutaneous injection 24 hours post-chemotherapy and continued as daily injections of Neupogen or placebo until either 14 days had elapsed or a post-nadir ANC 10 x 109/L was achieved. In the European study, patients were given a single 6mg dose of SD/01. In the American study, patients were given a single dose of 100g/kg SD/01. The primary endpoint of both was the duration of severe neutropenia in cycle one of chemotherapy, with SD/01 considered noninferior to Neupogen if the difference was less than one day. Both studies met the primary endpoint. In the American study, the primary analysis indicated a mean duration of severe
neutropenia of 1.7 days in the SD/01 arm (n=131) versus 1.6 days in the Neupogen arm (n=129). In the European study, the mean duration was 1.8 days in the SD/01 arm and 1.6 days in the Neupogen arm. There was no significant difference in the incidence of severe neutropenia between treatment arms in either study. There were also no significant differences in safety measures, including bone pain between treatment arms, in either study. Taken together, the data imply that once-per-cycle SD/01 is as effective and as well tolerated as daily injections of Neupogen. We expect FDA approval and launch during 2002. Farnesyl Protein Transferase Inhibitor Progressing In Clinical Studies A number of companies are developing drugs that inhibit farnesyl protein transferase (FPT). These companies include Bristol-Myers Squibb, Johnson & Johnson, Pfizer, and Schering-Plough. Farnesyl protein transferase inhibits RAS, which is overexpressed in pancreatic and lung cancer. These drugs may have anti-tumor activity even when RAS is not overexpressed, and appear effective alone and in combination with other agents. Most FPT inhibitors are being developed for oral BID dosing, as they may have to be administered chronically. No serious safety issues have been observed in human studies; the more advanced compounds have had up to one year of human exposure. Johnson & Johnson is in Phase III development with R115777; Schering-Ploughs SCH 66336 is in Phase II; and Bristol-Myers Squibbs BMS214662 is in Phase II. Pfizers CP-609,754 is in pre-clinical development. Merck ceased its FPT development effort claiming that sufficient activity could not be achieved without creating tolerability problems, and believes they will be cytostatic rather than cytotoxic. Gemzar The Linchpin Of Lillys Cancer Division Gemzar is approved for the treatment of pancreatic and non-small cell lung cancer (NSCLC), and Lilly is pursuing additional indications in breast, bladder and ovarian cancer. Gemzar has 75-80% share of the pancreatic cancer market in the U.S. and Europe. In NSCLC, Gemzar has become the standard of care with 27% share of first-line therapies. Lilly has a 500-patient study underway versus paclitaxel for the treatment of metastatic breast cancer and a regulatory filing is planned for this indication in Europe in 2002. Lilly notes that 50-70% of bladder cancer patients are treated with Gemzar. We peg Gemzar sales at $880MM (+22%) in 2002 and $1,180MM in 2005. Lillys Alimta Has Potential In Numerous Tumors Alimta, a multi-targeted antifolate, is in Phase III for malignant pleural mesothelioma (cancer of the lining of the lung), non-small-cell lung (NSCL) cancer, and pancreatic cancer. The Phase III trial for the treatment of mesothelioma is expected to conclude in H1:02. Alimta is in Phase II for the treatment of breast, colorectal, and gastric cancer. The estimated number of patients previously treated with anthracycline and a taxane is 4,500 for mesothelioma, 123,500 for metastatic first-line NSCLC, 43,500 for metastatic secondline NSCLC, and 78,000 for metastatic breast cancer. Alimta blocks three enzymes involved in cell replication. Response rates of 15-25% have been observed in various cancers when Alimta was used as a single agent, and 50% in the combination treatment of NSCLC. Breast cancer patients who failed prior therapy showed 23-28% response rates in Phase III studies. Combination studies of Alimta and Gemzar are ongoing. An NDA filing is planned for H2:02. Alimta sales are forecast at $50MM in 2003 and $150MM in 2005.
260
Vicals Allovectin-7 Has Activity In Treating Metastatic Melanoma Allovectin, a novel therapeutic for melanoma and other cancers, delivers the HLA-7 gene to tumors as a means to stimulate immune system rejection. The drug currently is in a controlled 200-patient Phase III trial comparing Allovectin plus dacarbazine with dacarbazine monotherapy as first-line treatment in patients with metastatic melanoma. All patients in the pivotal trial will complete their treatment cycles by the end of Q1:02, and data will be released during H2:02. Results from a Phase II trial in metastatic melanoma were positive. Seventy-three of the total 78 patients had been enrolled at the time of latest analysis, and 54 patients were evaluable for response (patients who completed at least 1 cycle of Allovectin). The trial enrolled patients having stage III or IV disease with visceral metastases limited to the lung. Treatment consisted of 10g Allovectin-7 administered by intratumoral injection weekly for six weeks followed by a 4-week observation period. All patients received prior systemic therapy. Thirty-six patients completed a single cycle of Allovectin and 18 completed two or more cycles. The overall response rate was 10.9% (8/73) in the intent-to-treat population, and 14.8% (8/54) in the evaluable population. Responses include 2 complete responses and 6 partial responses with a median duration of response of 21 weeks. Stable disease was documented in 21% (10/48) of the evaluable population. There was a single death due to ascites (fluid in the abdominal cavity) that was possibly related to drug, but overall the most common side effects were mild to moderate injection site reactions and flu-like symptoms, all of which were self resolved. We assume that Vical will need to complete its ongoing Phase III trial before seeking approval, and estimate sales of Allovectin at $10MM in 2003 and $110MM in 2005.
U.S. ONCOLOGY/HEMATOLOGY MARKET
Total Prescriptions (000's) % Market Share 1987* 2001 16,040 655 4,574 16,696 2002E 17,058 1,422 18,480 2005P 22,950 2,550 25,500 100% 1987* 100% 2001 96% 4% 100% 2002E 92% 8% 100% CGR 2005P '87-01 '01-05 90% 10% 100% +9% NM +10% +9% +40% +11%
Chemotherapeutics Blood Cell Total Source: IMS America
4,574
* 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements.

Drug Paraplatin Camptosar Gemzar Evista Gleevec Orzel Manufacturer Bristol-Myers Squibb Pharmacia Eli Lilly Eli Lilly Novartis Bristol-Myers Squibb Patent Expiration 4/04 8/07 2010 2013 2013 2013 U.S. Sales in Year Patent Expires ($MM) $500 -----------
261
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE

Company AstraZeneca Aventis Product Casodex Dynepo PC I II III NDA Dec-01 H2:01 MKT Comment Additional dosages/indications (early prostate cancer); monotherapy; filed in U.K. 3/01 Anemia due to chronic renal failure; epoetin gamma anemia; BLA withdrawn 11/00--to be resubmitted H2:01; with TKT Epidermal growth factor receptor inhibitor; BLA filing for refractory colorectal completed 11/01, but BLA not accepted; other tumors in development; C225; with ImClone Packaging of UFT plus leucovorin; not approvable; U.S. outlook very uncertain Breast cancer; aromatase inhibitor; under codevelopment with Novartis, Japan Limited Additional indication for refractory anemia, other types of anemia; injection Sonermin; anticancer 2002 Non-Hodgkins lymphoma; priority review; complete response letter received; more data submitted; new information filed by Corixa 2002 Pegylated Neupogen for oncology; with Amgen; PEG supply agreement Zoledronate; bisphosphonate; bone metastasis treatment and prevention in every tumor-type studied; approved 8/01 for tumor-induced hypercalcemia Anemia associated with hemological tumors (line extension) Adjunctive breast cancer; filed in Europe Head and neck Colorectal cancer and other indications; oral, fewer side effects than 5-FU; from Taiho; administered 3x daily; not approvable; U.S. outlook very uncertain Numerous tumors; sNDA filed 10/16/2001 for GIST
Erbitux
Nov-01
Bristol-Myers Squibb Chugai Chugai Dainippon GlaxoSmithKline
Orzel CGS20267 (letrozole) EPOCH (epoetin beta) Tienef Bexxar
Aug-00 Jul-00 Jun-94 Sep-00
Inhale Therapeutic Novartis
Neulast Zometa
Mar-01 Aug-01
Roche AstraZeneca Bristol-Myers Squibb Bristol-Myers Squibb
NeoRecormon (epoietin beta) Zoladex Taxol UFT
Q1:03 Apr-99
Novartis Roche
GleeVec Pegasys
Oct-01
May-00 H2:02 Chronic hepatitis C; hepatitis B (filing 2004E); cancer (PII); pegylated interferon; launched in Switzerland Mar-01 Anti-estrogen; breast cancer/benign gynecology; once-monthly injection; PI for prostate, ovarian, endometrial cancers; filed for 2nd line advanced breast cancer Endothelin antagonist for prostate cancer; refractory malignancies Ovarian cancer; from Knoll Q1:02 1st line; adjuvant breast cancer; Phase II Japan; ATAC trial Therapeutic Categories Outlook 3/2002
AstraZeneca
Faslodex
Abbott Laboratories Abbott Laboratories AstraZeneca
ABT-627 Pemtumomab (formerly Theragyn) Arimidex
2003
262

Company AstraZeneca Bristol-Myers Squibb Eli Lilly Eli Lilly Product Iressa (ZD 1839) BMS 275291 Gemzar LY9 PC I II III 2004 NDA Q4:01 200405 MKT Comment Receptor tyrosine kinase inhibitor; major solid tumors; NSCLC mono and combo therapy Matrix metalloprotease inhibitor; antiangiogenesis; colorectal, NSCL; oral (BID) Breast (2002 EU), ovarian (2003 EU) NDA filings; bladder data published NSCL; selective inhibitor of PKC-Alpha; Phase II results show median survival of 15.9 months vs. 8-9 months typically; well tolerated; exclusive WW rights; ISIS 3521 2004 Phase III trials ongoing for malignant melanoma and chronic myelogenous leukemia; Phase I and II trials ongoing for various solid tumor indications Topo-isomerase I inhibitor; oral formulation Non-small cell lung cancer 2005 Polyamine inhibitor (cytostatic); Phase III studies for superficial bladder cancer w/NCI; Phase IIb for recurrent colon polyps; Phase II for Barrett's esophagus Filed for high dose chemotherapy; PIII critical care Letrozole; adjuvant therapy for early breast cancer; oral Adjuvant breast cancer Phase III for small cell lung (sNDA 2005), earlystage colorectal (sNDA 2005), ovarian, pancreatic (sNDA 2003) 2003 Colorectal cancer Adjuvant breast cancer; indicated for metastatic breast cancer (Europe and Japan) 2002 Bone metastases in breast cancer; oral; filing in H1:2002 in Europe Post-operative nausea and vomiting Neutropenia; with Amgen; Roche to co-promote 2002 2003 2003 Aggressive treatment of non-Hodgkins lymphoma; U.S. 2004 Various solid tumors; in-licensed from OSI; positive phase II data in ovarian cancer, NSCL Urate oxydase; hyperuricaemia induced by chemotherapy in malignant disease (launched in EU; PIII in U.S.) 2003 Q1:01 Bio-reductor agent; non-small-cell lung cancer in combination with cisplatin and vinorelbine H2:02 Anti-CD20 Mab; non-Hodgkin's lymphoma; with Idec Pharmaceuticals Doxorubicin; pegylated stealth liposome; breast (PIII) cancer; international rights only Pancreatic cancer; matrix metalloproteinase inhibitor; oral; British Biotech
Enzon
PEG-Intron
2003
GlaxoSmithKline GlaxoSmithKline Ilex Oncology
Hycamtin Navelbine Eflornithine/DFMO
2002 2002 2004
Johnson & Johnson Novartis Pharmacia Corp. Pharmacia Corp.
Procrit/Eprex (EPO) Femara Aromasin Camptosar
2002 2004 2004
Roche Roche Roche Roche Roche Roche Roche Sanofi-Synthelabo
Anti-VEGF (Genentech) Herceptin (Genentech) Ibandronate Kytril PEG GCSF Rituxan (Genentech) Tarceva -OSI 774 Fasturtec/Elitek
Sanofi-Synthelabo Schering-AG Schering-Plough Schering-Plough
Tirapazamine Zevalin Caelyx Marimastat
263

Company Schering-Plough Watson Pharmaceuticals Wyeth Yamanouchi Eli Lilly Product Melacine Actigall (ursudiol) PC I II III NDA MKT Comment Malignant melanoma therapeutic vaccine; with Corixa; approved in Canada Prevention of colon polyps; with Novartis; marketed for gallstones; Watson has negotiation rights to polyposis Crohn's Disease rDNA interleukin-11; licensed from Genetics Institute; for chemotherapy-induced platelet loss H2:02 2003 Thymidylate synthetase inhibitor; intravenous; similar to 5-FU and UFT; multi-targeted antifolate; lung (PII), breast (PII), mesothelioma (PIII), gastric (PI) Topo-isomerase I inhibitor; first line: ovarian (III), NSCL (PII), SCL (PII); second line: colorectal (PII) Multidrug resistance modulator; breast cancer; small cell lung cancer; with Mitsui Pharmaceuticals; 2003 filing in Japan Irofulven; apotosis inducer 2002 - Farnesyl protein transferase inhibitor; PI for 2003 ALM; PII breast and lung; PIII colorectal, pancreatic cancer 2002- Advanced breast; non-small cell lung, first line; 2005 head and neck; gastric; breast cancer adjuvant; prostate; rolling U.S. and European launches; PI, PII for various combinations Incorporating Enzons PEG technology; CML (PIII), malignant melanoma (PIII), and solid tumors (PI) Small molecule cancer compound licensed from Cephalon; JV with Takeda Endometriosis/fibroid compound licensed from Jenapharm; JV with Takeda Angiogenesis inhibitor for unresponsive cancer; JV with Takeda 2005 New formulation of Taxotere with better safety profile; metastatic breast cancer and NSCLC Taxoid resistant tumors; evaluation for oral administration 2004 Metastatic renal cell carcinoma, metastatic melanoma; IL2-receptor agonist; activity similar to Proleukin 200304 200405 2006+ Novel taxane; IND; active in taxol resistant tumors in animals and humans; more soluble; 2hour. Infusion Novel taxane; backup; active in taxol resistant tumors in animals and humans; I hr. infusion; no pre-meds needed RAS-farnesyl transferase inhibitor; superior antitumor effect; oral (BID), IV; selected for NCI clinical program Therapeutic Categories Outlook 3/2002
IL-11 YM-294 (oprelvekin) Alimta
GlaxoSmithKline
Hycamtin
20022004 2003 (JP)
Schering-AG
MS-209
Dainippon Johnson & Johnson
MGI-114 Zaranestra (R115777)
Aventis
Taxotere
Schering-Plough
PEG-Intron A
Abbott Laboratories Abbott Laboratories Abbott Laboratories Aventis Aventis Bayer
CEP-701 (tyrosine kinase inhibitor) J-867/J-956 TNP 470 LIT 976 Taxoid 109881 BAY 50-4798
BMS 184476
BMS 188797
BMS 214662
264

Company Bristol-Myers Squibb Chugai Product Epothilone EPOCH (epoetin beta) PC I II III NDA 200405 MKT Comment Non-taxane; not a substrate for BGP pump; selected for NCI clinical program; BMS 247550 Predeposit of autologous blood transfusions; subcutaneous injection; additional Phase II indications for blood transfusions in premature babies (subcutaneous injection) Treatment of multiple myeloma PII in UK and USA; injection (Anti IL-6 receptor Mab) 2005 Cancer chemotherapeutic; injecttion; irinotecan Multi-drug resistance modulator; enhances oncolytic efficacy; product decision in 2002 Pegylated version of camptothecin (topoisomerase inhibitor) for various cancer indications Anticancer Recombinant; treatment of lung cancer/melanoma Selective RNA polymerase inhibitor; solid tumors Bisphosphonate ester derivative that induces apoptosis; Phase II for melanoma, multiplemyeloma, breast cancer; pre-clinical developoment for osteoporosis Monocolonal antibody; chronic lyumphocytic leukemia; launched in U.S. and Europe; Phase II studies for NHL, multiple sclerosis Nucleoside analog; Phase II for AML, ALL and CLL; licensed via Bioenvision 2005 Epothelone; stabilize microtubules; IV bolus; broad activity; diarrhea is dose-limiting toxicity 2004 Chronic iron overload; thalassemia 2004 Somatostatin receptor-positive tumors; breast, neuroendothelial 2004 Anti-tumor indication; tyrosine protein C kinase inhibitor; solid tumors EGF tyrosine kinase inhibitor and HER-2 inhibitions; solid tumors Oral inhibitor of angiogenesis; oral, well tolerated; prostate, glioblastoma; colon; ovarian GARFT inhibitor Epidermal growth factor receptor inhibitor Cancer; head and neck; systemic use only; P53based adenovirus; Onyx-015 Oral, cytostatic histone deactylation inhibitor; activity against highly refractory tumor models, solid tumors, leukemia Cancer; VEGF receptortor Cancer prevention, colon cancer, breast cancer Liposomal doxorubicin; breast and prostate cancer; from NeoPharm Liposomal taxanes; breast, NSC lung cancers; from NeoPharm 265 Therapeutic Categories Outlook 3/2002
Chugai Daiichi Eli Lilly Enzon
MRA CPT-11 LY335979 Prothecan
Fujisawa GlaxoSmithKline GlaxoSmithKline Ilex Oncology
FK-228 SB 249553 SB 596168 Apomine
Ilex Oncology
Campath
Ilex Oncology Novartis Novartis Novartis Novartis Novartis Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc.
Clofarabine (Clofarex EPO906 ICL670 OctreoTher PKC-412 PKI-166 PTK787 AG-2037 CI-1033 CI-1042 CI-994
Pfizer, Inc. Pharmacia Corp. Pharmacia Corp. Pharmacia Corp.
CP-547,632 Celebrex PNU-108112 PNU-93914

Company Pharmacia Corp. Product SU-6668 PC I II III NDA MKT Comment Multi-mechanism inhibitor; angiogenesis plus tumor growth suppressor; various solid tumors; from Sugen 2004 2005 Thrombocytopenia; in-licensed from Genentech Solid tumors; cell cycle inhibitor; in PC effective in a range of cancers; phase II initiated in breast, NSCL and colorectal cancers; oral Amemia; new generation epo Cell drug in the treatment of melanoma; from IDM CCK1 receptor antagonist; pancreatic cancer Peripheric sigma receptor antagonist; myeloma/breast cancer Neurotensine receptor antagonist; colorectal/prostate cancer 2005 Colorectal cancer, prostate cancer and other solid tumors; with Novartis Post menopause; other indications; oral; collaboration with Labrie University in Canada Farnesyl protein transferase inhibitor; prevents activation of RAS Oncogene; variety of solid tumors; including pancreatic, head, and neck; leukemia Various solid tumors; oral Malignant tumors; U.S.; anti-angiogenesis agent Solid tumor chemotherapy, oral, licensed for Japanese market from British Biotech Injectable iron for anemias; from Schein/Makoff R&D Labs; pilot studies in cancer with Procrit started in H2:01 Various cancers (breast and prostate most notable); multiple tumor responses observed; safe and well tolerated Aromatase inhibitor; Phase II in Europe and Japan for breast cancer, endometriosis, uterine myoma Endothelin ETA antagonist; advanced prostate cancer 2004 2003 Antimetabolite; thymidilate synthase inhibitor; major solid tumors; i.v. and oral 2004 Advanced and refractory tumors; in Phase IIb, expected U.S./EU submission in 2003; in PI in combination trials Solid tumors; breast; low on priority list; seeking partner Solid cancers Anti-CD52 Mab; approved for chronic lymphocytic leukemia; humanized monoclonal antibody; additional indications in PI (M.S., transplant rejection) and PII (non-Hodgkins lymphoma) with LeukoSite and Ilex Oncology
Pharmacia Corp. Roche
TPO (thrombopeoitin) R440
Roche Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Sanofi-Synthelabo Schering-AG Schering-Plough Schering-Plough
R744 IDD3 SR-27897 SR-31747 SR-48692 VEGF inhibitor Pure Anti-Estrogen SCH 66336
2005
Schering-Plough Takeda Tanabe Watson Pharmaceuticals Wyeth
Temodar TNP-470 Marimastat (TA-2516) Ferrlecit
CCI-779
Yamanouchi
YM-511
Yamanouchi AstraZeneca Aventis
YM-598 ZD 9331 Flavopiridol
Eli Lilly Fujisawa Schering-AG
LY309887 FK-317 Campath
266

Company Abbott Laboratories Abbott Laboratories AstraZeneca Product ABT-510 ABT-751 AZD 2171 PC I II III NDA MKT Comment Anti-angiogenesis; solid tumors Anti-mitotic agent; formerly E 7010 Anti-angiogenic (vascular endothelial cell growth factor receptor tyrosine kinase inhibitor); solid tumors, hematological malignancies 2004 Farnesyl protein transferase inhibitor; solid tumors Vascular targeting agent; solid tumors 2004 Anti-angiogenic (vascular endothelial cell growth factor receptor tyrosine kinase inhibitor); solid tumors Phase I started 2004 Camptothecin glycoconjugate 2006 Colorectal, pancreatic, non-small-cell lung cancer and others; Raf kinease inhibitor (noncytotoxic) 2004 New generation taxane; ovarian non-small cell lung, breast, brain metasteses; oral and i.v. MGV polyvalent vaccine; small cell lung cancer Cancer; highly selective; blocks tumor cell proliferation, induces apoptosis Inhibits topoisomerase I Exotoxin + monoclonal antibody combination; 140x more potent than doxorubicin Multiple myeloma in UK; injection (Anti HM1.24 Mab) Bone metastases in USA; injection DDS cancer chemotherapeutic; injection; camptothecin Cancer chemotherapeutic; oral, injection; taxane Cancer chemotherapeutic; PI Japan; PII Europe; injection; exatecan, camptothecan derivative Cancer chemotherapeutic; injection; drastatin derivative Prostate cancer; 5 alpha-reductase inhibitor; inhibits Type 1 and Type 2; low priority Lung and colon tumors; partnered to ILEX Pegylated version of paclitxel; Phase I trials initiated in H1:01 Erb-B2 and EGFR dual kinase inhibitor; solid tumors CXC chemokine; prevention of chemotherapyinduced cytopenias & stem cell mobilisation 2004 Maytansine-antibody conjugate for colorectal and pancreatic cancer; as second-line therapy; from Immunogen
AstraZeneca AstraZeneca AstraZeneca
ZD 3409 ZD 6126 ZD 6474
Aventis Bayer Bayer
AVE-8062 BAY 38-3441 BAY 43-9006
Bayer Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Chugai Chugai Daiichi Daiichi Daiichi Daiichi Eli Lilly Eli Lilly Enzon GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline
BAY 59-8862 BMS 247967 CDK-2 Inhibitor Indolocarbazole PE 40 (BMS 191352) AHM CAL (Anti PTH relate Protein Mab) DE-310 DJ-927 DX-8951f TZT-1027 LY320236 Sulfonylurea PEG-Paclitaxel GW572016 SB 251353 SB408075
267

Company Ilex Oncology Product ILX-651 PC I II III NDA MKT Comment Dolastatin analog; similar to taxanes with improved response to taxane-resistant tumors; Phase I solid tumors Angiogenesis inhibitor; oral small-molecule; targets VEGF; from Convergence ; Phase I in U.S. and Europe Prostate cancer; internal development; no partner Cytotoxic agent for treatment of solid tumors Inhibition of histone deacetylation; solid tumors Chemoprotection; solid tumors 3rd generation angiogenesis inhibitor; variety of tumors Treatment of advanced solid tumors, oral liquid formulation Solid tumors; in preparation for Phase II Cancer Antineoplastic agent; DNA polymerase alpha inhibitor Angiogenesis inhibitor in the treatment of solid tumors, from Cephalon 2005 2006 Pegylated Arginin-deiminase; hepatoma, melanoma Lung and colon cancer; with Mitsui Pharmaceuticals Anti-progestin; breast cancer Inflammatory; injectable Cancer Bone marrow and kidney transplantation; GVHD Cancer Cancer Cancer Lung and gynecological cancer 2004 Selective Estrogen Receptor Modulator (SERM); treatment of tamoxifen-resistant breast cancer; first-line hormonal therapy of ER-positive breast cancer; adjuvant treatment of breast cancer Integrin-Directed Radiotherapeutic; treatment of solid cancers; first-line therapy of metastatic cancers alone or in combination with chemotherapy; adjunct to surgery; second-line therapy of advanced cancers Superior efficacy and tolerability; oral; tested as antiangiogenic compound TOPO V Inhibitor Cancer treatment Pegylated formulation of undisclosed oncology compound(s) 268 Therapeutic Categories Outlook 3/2002
Ilex Oncology
NM-3
Inhale Therapeutic Novartis Novartis Novartis Pharmacia Corp. Procter & Gamble Roche Roche Sankyo Sanofi-Synthelabo Schering-AG Schering-AG Schering-AG Schering-Plough Wyeth Wyeth Abbott Laboratories Bayer Bayer Bristol-Myers Squibb Bristol-Myers Squibb
Leuprolide LAF-389 LAQ-824 RAD-001 SU-11248 FB-642 R1273 R804 CS-682 CEP 7055 ADI-PEG MS-275 ZK 230 211 Tenovil (IL-10) EKB-569 Humanized B7 antibodies ABT-271 Undisclosed preclinical projects Undisclosed preclinical projects Anthracycline DPC 974
DPC A80350
200405
Bristol-Myers Squibb Dainippon Eisai Enzon
Taxane analogs AG-7352 Angiogenesis Inhibitor Undisclosed oncology compound

Company Enzon Enzon Enzon Ilex Oncology Product Undisclosed oncology compounds Undisclosed oncology compounds Undisclosed oncology compounds Angiogenesis inhibitor candidates in preclinical developoment Synthetic delta-9tetrahydrocannabinol cdk2/cdk4 Inhibitor CP-471, 358 CP-564, 959 CP-609, 754 GnRh Antagonist LB30057 PARP Inhibitor PD 184352 R-109339 SR-146131 SR-271425 Total Drugs In Development 30 44 57 39 17 PC 5 I II III NDA MKT Comment Pulmonary delivery of three undisclosed compounds; with Inhale` Pulmonary delivery of three undisclosed compounds; with Inhale Pulmonary delivery of three undisclosed compounds; with Inhale 5 proteins; based on blockage of endothelial cell formation; includes MUC-1 Nausea and vomiting associated with chemotherpay; with Unimed; first metered dose inhaler collaboration Cancer Matrix metaloproteinase and angiogenesis inhibitor Potent and selective inhibitor of tyrosine kinase enzyme Farnesyl protein transferase inhibitor Cancer, endometriosis Joint development with L.G. Chem Cancer; chemotherapy and radiation therapy adjuvant Coxib; anti-neoplastic CCK1 agonist Cytolitic thioxanthone 187
Inhale Therapeutic
Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Sankyo Sanofi-Synthelabo Sanofi-Synthelabo
269
Notes
270
Osteoporosis/Hormone Replacement Therapy

G Chronic, Widespread Disease; Market Could Double
DEFINITION/ BACKDROP Osteoporosis is a chronic condition in which bone tissue deteriorates, leading to the loss of bone mass. All bones become more fragile and susceptible to fracture as the condition progresses, but fractures of the hip, spine, and wrist are most common. An estimated 28MM Americans, 80% of whom are female, have or are at high risk of developing osteoporosis.
19% 2001-05 CGR
Osteoporosis/Hormone Replacement Drug Sales As A Percentage Of The Category

2001 2005P
$12B
Other 17% MRK 28% WYE 37% ROHHY 3%
PARTICIPANTS
$6B
Other ESALY 7% 2% LLY 11%
NVS 13%
LLY 11%
MRK 30%
NVS 14%
WYE 27%
Wyeth leads the osteoporosis/hormone replacement market with its oral estrogen replacement therapies (ERTs), but Mercks bisphosphonate, Fosamax (alendronate), should allow Merck to capture the top position in this market in 2005. Eli Lillys selective estrogen receptor modulator (SERM), Evista, and its injectable parathyroid hormone, Forteo, should allow the company to maintain market share through 2005.
The ERT market could increase by 40% by 2005, led by Wyeths Premarin franchise. However, growth of SERMs could be 50% higher than that of ERT, with Lilly best positioned to benefit. Biphosphonate sales should more than double by 2005, led by drugs from Merck and Aventis. Once-weekly formulations will dominate usage. Our scatter plot shows that through 2005, Wyeth, Eli Lilly, Merck, and Novartis should dominate the osteoporosis/HRT segment, and this category is important to the growth of Merck and Wyeth.
271
Osteoporosis/HRT
35%
30%
MRK
25%
20%
15%
NVS LLY
WYE
10%
TDCHF
5%
ROHHY PFE JNJ PHA
AVE
0%
-5%
ESALY
-10%
-15% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0
G Big Market Attracting Numerous Treatment Alternatives

DETAILED DISCUSSION The prevalence of osteoporosis increases with age. An estimated 28MM Americans (about 80% female) have or are at high risk of developing osteoporosis. The condition results in substantial morbidity and mortality, and cost. Approximately 1.5MM individuals suffer from an osteoporotic fracture annually. These people are often hospitalized and, subsequently, require daily living assistance. About 20% of them die as a result of post-operative complications. The range of treatment and prevention options has expanded and now includes ERTs, calcitonins, bisphosphonates, and SERMs. Parathyroid hormone (PTH) and other therapies also are in development to prevent and treat osteoporosis.
$ NRx 2005P 01-05 87-01 Market % Total CGR CGR Comments $4,940 41% 27% NM - MRKs Fosamax, AVE's Actonel 3,488 1,120 2,503 29% 9% 21% 100% 9% 14% 29% 19% 13% - WYEs Prempro/Premphase dominate; LLY's Forteo NM - LLYs Evista 28% - Calcitonin, sodium fluroride, parathyroid hormone 15% - Driven by bisphosphonates and SERMs
ESTIMATED WORLDWIDE MARKET FOR OSTEOPOROSIS/HORMONE REPLACEMENT DRUGS BY CLASS ($MM)

2001 Market % Total $1,920 32% 2,471 665 891 $5,947 42% 11% 15%
Drug Class Bisphosphonates Hormonal Agents SERMs Other Therapies Total Market
100% $12,051
Roughly three-fourths of those affected by or at risk of osteoporosis have not sought treatment. Hence, we believe that the potential for market growth is substantial as physicians and patients
become more educated about the health benefits of pharmacotherapy. We estimate revenues of drugs to treat osteoporosis at $12B in 2005, up from $6B in 2001.
COMPONENTS OF THE OSTEOPOROSIS MARKET
Drug Class Bisphosphonates Mechanism of Action Limit bone breakdown and slow bone removal by inhibiting osteoclast activity Naturally secreted by the thyroid gland. Increases deposition of calcium and phosphate in the bone while lowering calcium levels in blood Pros Increase bone mass density Cons Poor bioavailability Side effects, primarily gastrointestinal
Calcitonins
Modest efficacy in comparison to Useful in premenopausal bisphosphonates, ERTs, and women or patients who cannot SERMs tolerate or refuse to take bisphosphonates, ERTs, and Expensive at approximately SERMs $2,500/year Available in nasal spray and injection Available OTC Not as effective as other drug classes when used as monotherapy
Calcium Supplements Estrogens
Reduce the bodys need to resorb calcium from the skeleton; reduce osteoclast activity
Most effective single modality 20-25% of scrips are for Produced in the ovaries, estrogens osteoporosis indication for osteoporosis prevention reduce bone resorption by reducing bone breakdown Potentially increases the risk of Cost effective at cancer in some women approximately $200/year Compliance an issue due to side effects (breast tenderness, migraine, resumption of periods, etc.) HERS study suggested no cardiovascular benefit in severely ill women over age 65 Naturally secreted hormone PTH stimulates bone formation Potentially best natural bone building capabilities Not yet approved; recommended for approval Tumors detected in rat bone not seen in humans
Parathyroid Hormones (PTHs)
Selective Estrogen Receptor Modulators (SERMs)
Stimulate certain estrogen receptors that prevent bone destruction and block uterine estrogen receptors, tempering the unfavorable side effects of ERTs
Unfavorable perception among Increase bone mass density some clinicians who think more Favorable lipid effects: bone is better decrease total and LDL Less efficacious than estrogens cholesterol by approximately 10%; no increase in HDL Initial data show a reduction in breast cancer Favorably impacts fibrinogen; benefit unclear Results encouraging when used in combination with calcium Controlled-release formulation lowers incidence of side effects New bone growth of poor quality Inconclusive clinical evidence
Sodium Fluoride
Sodium fluoride improves the rate of bone formation
Vitamin D/ Vitamin Vitamin D aids in calcium absorption in D Metabolites the intestine
Widely used in Japan and Italy Safety concerns regarding metabolite use
Source: National Osteoporosis Foundation, PDR, Stedmans Medical Dictionary, SG Cowen.
273
G Premarin Poised To Remain Wyeths Largest Drug Through 2003

Premarin (estrogen) was launched in 1942 as hormone replacement therapy (HRT) for post menopausal women. The drug has been the market leader since launch and continues to hold a dominant share of the HRT market. Indeed, as of January, Premarin had 72.2% new prescription share, with Eli Lillys Evista its nearest competitor garnering a single-digit share. Wyeth expects that Premarin sales will grow by 8% annually during 2000-04, with price contributing more than half of growth, although these prospects look a bit aggressive. We forecast Premarin franchise sales at 5% annually during 2001-05. Premarin should be supported by demographics and a low-dose version which should roll out in 2002. Wyeth received an approvable letter for Prempro 0.45/1.5mg in April and is responding to the FDAs questions. Currently, Prempro 0.625/2.5mg is the lowest marketed dose. This lower strength of Prempro has 40% less progestin and 30% less estrogen, with better tolerability and similar efficacy. The Womens HOPE study confirmed the efficacy and safety of Prempro 0.45/1.5mg: Prempro 0.45/1.5mg relieved post menopausal vasomotor symptoms and prevented post menopausal bone loss on par with Prempro 0.625/2.5mg. An endometrial hyperplasia rate of 0.5% or less was observed with Prempro 0.45/1.5mg. Prempro 0.45/1.5mg lowered LDL cholesterol by 6.7% and raised HDL cholesterol by 9.7% among patients in HOPE. Premarin/Trimegestone, a fixed-dose combination, is scheduled to be submitted in Q1:02. Trimegestone is a new progestin which Wyeth licensed from Aventis. Progestins are natural or synthetic agents that mimic progesterones effect on the body. Trimegestone has the advantage of lacking androgenic, mineral corticoid, and estrogenic activity, while remaining metabolically neutral. Thus Trimegestone may have a lower incidence of bloating and dysphoria. Our Premarin franchise sales estimates are $2.15B (+4%) in 2002 and $2.55B in 2005, underpinned by the fact that the number of women older than 45 years is expected to increase by 10MM to 63MM in 2010. Womens Health Initiative (WHI) is a long-term study designed to assess various therapies impact on coronary heart disease, breast and colorectal cancer, and fractures in postmenopausal women. The study is assessing 68,000 women aged 50-79 in one to three of the following: (1) hormone replacement therapy; (2) dietary modification (low-fat, high fruit diet); and (3) Calcium/Vitamin D. The hormone replacement therapy section compares Premarin with placebo on the prevention of heart disease and osteoporosis, and measures associated risk of breast cancer. The dietary modification component evaluates the impact of normal eating habits with a low-fat diet with high amounts of fruits, grains, and vegetables on the prevention of breast and colorectal cancer. The Calcium/Vitamin D component assesses these supplements and placebo on the prevention of fractures associated with osteoporosis and colorectal cancer. Enrollment for the WHI completed in 1998, and subjects will be followed for 8-12 years. Once completed, the WHI should be the definitive study for Premarins benefit in postmenopausal women.
G Novartis Estraderm Under Pressure From Oral Estrogens

Estraderm is a leading transdermal estrogen for hormone replacement therapy and osteoporosis. Estraderm 50 and 100mcg per day is administered twice-weekly, and given that transdermal delivery bypasses the liver, it allows for steady and continuous delivery of estrogen. Smokers may benefit from transdermal estrogen therapy, given that oral estrogen may not be as efficacious in women who smoke. Minor skin irritation is the most common side effect. In January 2002, Estraderm had 17.8% new prescription share of the transdermal estrogen market. We estimate sales of Estraderm at $300MM (+5%) in 2002 and $350MM in 2005.
G Novartis Miacalcic The Option For Women Intolerant To Estrogen

Miacalcic (calcitonin), a polypeptide hormone, occurs naturally and is secreted by the thyroid gland. It is prescribed for the treatment of symptomatic Pagets disease, hypercalcemia, and postmenopausal osteoporosis. Miacalcic is administered by injection and nasally, and acts by regulating calcium levels to increase bone mass in patients. However, there are no data supporting Miacalcic in the reduction of vertebral fractures. Miacalcic nasal formulation is recommended for the treatment of osteoporosis only in women who cannot tolerate estrogen. Circulating antibodies occur in about half of patients taking Miacalic, and it also is associated with rare allergic reactions. We estimate sales of Miacalcic at $445MM (+6%) in 2002 and $475MM in 2005.
G Once-Weekly Formulation Driving Mercks Fosamax

Fosamax has been a big success in the osteoporosis market, supported by new indications and formulations. In patients who will not take estrogen, Fosamax is the drug of choice, especially in women who have been through menopause and have diminished vasomotor side effects. Younger patients are tried on other agents before Fosamax, because Fosamax resides in bone for decades, and the full effect of this is not yet known. A once-weekly form of Fosamax in doses of 70mg for treatment and 35mg for prevention has rapidly cannibalized the once-daily franchise. Once-weekly Fosamax has safety language similar to the once-daily version. Merck also has a patent on the once-weekly oral delivery of bisphosphonates. New competitors include Aventiss Actonel, which is administered daily; Lillys Forteo (parathyroid hormone) which is more effective; and potentially Roches Bonviva and Novartiss Zometa. At three years, Fosamax once-daily increased the bone mineral density of the spine by 8-9% and hip by 4-6%. Data at five years show a further increase in bone density, but the increase in the out years is small and may not be biologically meaningful. In clinical trials, the incidence of side effects in patients on Fosamax and placebo was comparable, although our physician consultants state that 15-25% of their patients on Fosamax complain of side effects. These patients may be taken off the drug, later put on at a lower dose, and seem to then respond well. Fosamax is indicated for treatment of steroid-induced osteoporosis; bone mineral density increased by 2-3% at the spine and 1% at the hip. Fosamax in combination with estrogen and in male osteoporosis also shows a benefit. Fosamax is being studied in the prevention of hip prosthesis loosening (2001 filing), which is a major problem post surgery. Merck has discontinued Fosamax for the prevention of periodontal disease due to disappointing results. Fosamax was launched in Japan in 2001. Fosamax franchise sales are forecast at $2.2B (+25%) in 2002 and $3.4B in 2005. FIT I Showed Fosamax Has Powerful Ability To Lower Fractures - FIT I (Fracture Intervention Trial), which was published in Lancet in December 1996, looked at women with vertebral fractures at baseline. The FIT I primary end point was new vertebral fractures, and the secondary end point was risk of any clinical fracture. The study concluded that, among women with low bone mass and existing vertebral fractures, Fosamax statistically significantly reduced the frequency of clinical vertebral fractures, as well as any clinical fracture. The proportion of women in the Fosamax group with fractures was statistically significantly lower at the spine (p=0.001), hip (p=0.047), wrist (p=0.013), and at any site (p=0.004). The incidence of nonvertebral fractures was not statistically significant in the two groups, although there was a strong trend: There were 148 nonvertebral fractures in the placebo group and 122 nonvertebral fractures in the Fosamax group.
FIT II Showed Statistically Significant Reduction In Certain Fractures - The FIT II study of Fosamax was published in JAMA in December 1998. FIT II looked at women without vertebral fractures at baseline.
FIT II: WOMEN WITH ONE OR MORE FRACTURE OF EACH TYPE Type Of Fracture % Risk Reduction p Value Any clinical fracture Any nonvertebral Hip fracture Wrist fracture Other clinical Vertebral fractures (1 or more) Vertebral fractures (2 or more)
Source: JAMA, December 1998
14% 12% 21% (19%) 21% 44% 60%
0.070 0.130 0.440 0.280 0.020 0.002 0.110
FIT II showed that Fosamax reduces vertebral fractures and other clinical fractures to a statistically significant extent. Other clinical consists of fractures other than the hip, wrist, or spine. There was no significant reduction in nonvertebral, hip, wrist, or any clinical fractures. Any clinical fracture includes clinical vertebral fractures. An editorial accompanying the FIT II publication pointed out that these somewhat disappointing results do not so much represent a failure of the bisphosphonates, which are extremely useful agents overall; rather, they reflect the complexity of osteoporosis fragility. The editorial also pointed out that the important clinical issue is whether bisphosphonates reduce fragility in individuals who have only low bone mass and have not exhibited bony fragility. The answer from this study the largest of its kind is maybe. Lastly, the editorial notes for now, with the exception of asymptomatic spine deformities, the antifracture benefit of bisphosphonates in women with low bone mass but without prevalent fracture must be judged to be small.
G Aventis Actonal Once-Weekly Formulation Targets 2002 Launch

Actonel (risedronate) is a bisphosphonate for the prevention and treatment of osteoporosis, and Pagets disease. It was launched in the U.S. and Europe in 2000, and has garnered a 14.9% share as of January, 2002. Clinical studies for Actonel enrolled more than 16,000 patients, showing solid effectiveness and a relatively benign side effects. Actonel is reported to have a better gastrointestinal side-effect profile than Fosamax, but our physician consultants believe the side-effect profiles of these products are similar. In 2001, studies were published revealing Actonels efficacy in patients beyond one year. Actonel reduced vertebral fracture risk by 60% after three years, and by 50% after five years. Data presented at the American College of Rheumatology in November showed that Actonel 35mg once-weekly was as effective in increasing bone mineral density as Actonel 5mg once daily. Aventis targets a 2002 U.S. launch for Actonel once-weekly, igniting a patent battle with Merck. We estimate Actonel sales at $65MM (+40%) in 2002 and $100MM in 2005.
G Oral Formulation Of Roches Bonviva On Track For NDA Filing In H1:02

Roches Bonviva (ibandronate), an oral bisphosphonate for the treatment and prevention of osteoporosis, currently is in Phase III. It is administered in a once-daily formulation and Roche has another formulation in development that may be dosed less frequently. Phase III data for Bonviva will be presented at a scientific meeting in early 2002. Roche targets an NDA filing for Bonviva once daily in H1:02. Phase III trials of Bonviva for bone metastases in breast cancer are complete, and an NDA also could be filed for this indication in H1:02. An injectable
formulation of Bondronate, administered four-times-per-year, failed possibly due to incorrect dosing; Bonviva injectable may be pursued post approval of the oral formulation. Roche has restarted Bonvivas Phase III trials with a range of doses and regimens. We estimate Bonviva sales at $150MM in 2002 and $385MM in 2005.
G Novartis Zometa May Have Big Administration Advantage

Novartis Zometa (zolendronic acid) is approved in more than 60 countries for the treatment of hypercalcemia of malignancy. Numerous other indications are in development. Three Phase III studies for Zometa have commenced, including (1) a three-year study that assesses fracture risk in post menopausal women; (2) treatment of Pagets disease; and (3) treatment of men and women with recent hip fractures. Novartis targets filing an NDA for osteoporosis in 2005. For the treatment of osteoporosis, Zometa 5mg is administered intravenously only once per year, a big advantage versus existing competitors. We estimate sales of Zometa at $415MM in 2002 and $890MM in 2005.
G Eli Lillys Evista Share Now Stabilized Post Fosamax Once-Weekly Rollout
Evistas market share has stabilized, and sales continue to grow robustly post the rollout of Fosamax Once Weekly. Lilly highlights Evistas efficacy in building bone, citing that it reduces vertebral fractures by 68% at one year, reduces multiple fractures by 93% at three years, and reduces first-time vertebral fractures by 55% with sustained effectiveness for at least four years. Lilly has engaged Professional Detailing (PDI) to increase its selling effort for Evista. Longterm studies of Evista for the treatment of breast cancer showed a 72% reduction after four years. Lilly targets an NDA for the prevention of breast cancer in 2005. Reimbursement for Evista was granted in France, and a regulatory filing in Japan is scheduled for 2002. We forecast Evista sales at $750MM (+13%) in 2002 and $1,120MM in 2005. In Evistas MORE (Multiple Outcomes Of Raloxifene Evaluation) trial, Evista lowered vertebral fractures by 35% at three years overall. In women with osteoporosis but without a previous fracture, Evista lowered vertebral fractures by 55%. In women with osteoporosis and at least one previous fracture, Evista lowered vertebral fractures by 30%. In Evista trials, 30% of patients had at least one previous fracture. Evista resulted in a small reduction in nonvertebral fractures, but the difference was not statistically significant. These nonvertebral fractures included fractures of the hip and wrist. Post longer-term follow-up, Evista may show a statistically significant difference versus placebo in nonvertebral fractures, but Evista may never produce a significant reduction in hip fractures.
COMPARISON OF MORE AND FIT I AND II STUDIES
MORE Drug Population Reduction in vertebral fractures Evista 70% had no previous fracture; 30% had previous fracture 35% overall; 55% with no previous fracture; 30% with previous fracture; statistically significant 9%; not statistically significant FIT I Fosamax Previous fracture 47%; statistically significant FIT II Fosamax No previous fracture 44%; statistically significant
Reduction in nonvertebral fractures Reduction in any clinical fracture
Not statistically significant Statistically significant
12%; not statistically significant 14%; not statistically significant
277
Fracture Reduction Studies Should Be Compared Cautiously - Fracture reduction studies should be compared cautiously for several reasons. First, women in Evistas MORE trial received 500mg of calcium and 400-600 IU of vitamin D, and roughly 80% of women in Fosamaxs FIT received calcium and 250 IU of vitamin D. Calcium and vitamin D play a role in reducing fracture incidence. Second, in the MORE trial, the incidence of hip fractures was only 0.7%, while in the FIT trial, the incidence of hip fractures was 2.2%. Obviously, an event which happens more frequently is easier to find. Lastly, FIT may not be comparable with MORE based on the primary and secondary end points of each study and the populations of patients involved. Evista Shows Modest Increase In Bone Mineral Density - Evista offers good effectiveness and a good side-effect profile. Placebo patients in the Evista Phase III trials experienced a 1% decline in bone mineral density at 2 years, a bit better than expected, given that they received 400-600mg of calcium daily. Evista patients experienced a 1-2% increase in bone mineral density, or 2.5% above placebo. Evista results were statistically significant versus placebo and baseline, and this benefit was seen at all body sites and at all doses (30mg, 60mg, 150mg). While the increase in bone mineral density is less than that achieved with estrogen or Fosamax (at either treatment or prevention doses), we do not view this as critical. In the prevention of osteoporosis, substantial increases in bone might be viewed as unnecessary. Evista Side-Effect Data Are Clean - Overall, Evistas side-effect profile is clean, and there are only two significant side effects: hot flashes and leg cramps. Higher doses of Evista caused hot flashes to a statistically significant greater extent than placebo during the first 26 months of treatment. There was no difference in the rate of hot flashes between Evista 30mg and placebo. Only 2% of women discontinued therapy due to the hot flashes, and only 2% of women considered them serious. Evista also caused leg cramps to a statistically significant greater extent than placebo, although the incidence is relatively low, and this is also seen with hormone replacement therapies. Evista was found to have no impact on the uterus, which is an important positive. Evista causes deep vein thrombosis (DVT) at a rate similar to hormone replacement therapy. Indeed, 51 patients in total experienced DVT in Evista clinical trials. There was no increase in myocardial infarction or stroke in Evista versus placebo patients. There was also no impact on cognitive function.
CHOLESTEROL IMPACT: EVISTA VERSUS ESTROGEN
Evista 30 mg -5.2% -6.2 -3.1 0.0 Evista 60 mg -6.4% -10.1 -3.8 +3.2 Evista 150 mg -9.7% -14.1 -4.5 +0.5 Estrogen -5.0% -12.0 +10.0 +20.0
Total Cholesterol LDL Cholesterol HDL Triglycerides
Evistas Other Benefits Also Bolster Prospects - Evistas cardioprotective aspects are positive, stemming from a 10-12% decrease in LDL cholesterol. However, the HERS study, which showed no cardiovascular benefit in women on Premarin, calls into question the cardioprotective qualities of estrogens overall. Evistas ability to reduce fibrinogen is encouraging, but more data are needed. In the Phase III trials, Evista was shown to lower fibrinogen by 12-14%. Hormone replacement therapies lower fibrinogen by 2% or so. Fibrinogen is involved in venous clotting processes (its clotting effect in arteries apparently is unclear). In general, an increase in fibrinogen can lead to an increase in the number of adverse cardiovascular events.
278
Evistas Breast Cancer Incidence Reduction Data Very Compelling Thus far, 48-month breast cancer incidence reduction data in women on Evista have been revealed. The data show that at 48 months, women on Evista experienced 72% fewer cases of invasive breast cancer than women on placebo in the Integrated Database. Also, Evista decreased the risk of estrogen positive cancer by 84% compared with placebo. The Integrated Database includes 10,575 women, consisting of 7,705 women from the MORE (Multiple Outcomes Of Raloxifene Evaluation) trial, and the remaining women are from other trials. 6,786 patients (64% of the total) were greater than 60 years of age (average age of 68.5 years), and 3,767 patients (36% of the total) were less than 60 years of age (average age of 54.6 years). Of the 10,575 women in the Integrated Database, there were 67 total cancers, with 1.7 per 1,000 patients in Evista arms and 3.8 per 1,000 patients in the placebo arms. The rates per 1,000 patients were even more compelling as time went on.
G Lillys Forteo Rollout In 2002 Post Resolution Of Manufacturing Issues

Forteo, or recombinant parathyroid hormone, should be the first anabolic agent approved for the treatment of postmenopausal women with osteoporosis and to increase bone mass in men with osteoporosis. Forteo has spectacular fracture reduction properties in women with osteoporosis. For example, a study of Forteo enrolled 1,637 women with at least one vertebral fracture at 99 sites in 17 countries. Patients were randomized to subcutaneous injections of Forteo 20mcg, 40mcg or placebo daily, and all women received calcium and vitamin D. Data from this study are summarized on the following page. Forteo will be administered once-daily in a pen delivery system. Lilly filed an NDA for Forteo in 12/00, and recieved an approval recommendation during the July 2001 FDA Advisory review. In October 2001, Lilly received an approvable letter for Forteo and expects to receive final approval post resolution of labeling discussions regarding the risk of osteosarcoma in humans (osteosarcoma was seen only in rats), resolution of manufacturing issues, and post satisfying FDA questions surrounding product use. Post approval, Lilly will position Forteo as an effective short-term (18-month) therapy to rebuild bone in patients with severe osteoporosis. Then patients could be switched to Evista for long-term maintenance. Forteo sales are estimated at $50MM in 2003 and $150MM in 2005.
RECOMBINANT PARATHYROID HORMONE FRACTURE REDUCTION RATES
20mcg 40mcg *Statistically significant Vertebral* 63% 69% Non-Vertebral* 54% 54%
RECOMBINANT PARATHYROID HORMONE SIDE EFFECT SUMMARY

Placebo PTH 20mcg PTH 40mcg Backpain 22.6% 16.8% 15.8% Nausea 7.5 9.4 17.8 Headache 8.3 8.1 13 1637 women with 1 prevalent vertebral fractures were randomly assigned to 1 of 3 equal study arms. All patients received daily calcium (1000 mg) and vitamin D (400-1200 U) supplements. The median follow-up was 21 months. Source: Endocrine Society
G Pfizers Lasofoxifene Could Be Superior To Evista

Lasofoxifene is a SERM in Phase III clinical development. At doses of 0.25mg/day, it boosts bone mineral density by 1.5%, twice that of Evista at 60mg. It also is reported to lower LDL cholesterol by 17% after six months of therapy, and may be significantly superior to Evista in
this regard. Pfizer states that Lasofoxifene lowers breast tumor formulation at a rate on par with that of AstraZenecas Nolvadex (Tamoxifen).
G Wyeths Bazedoxifene Looks To Be A Solid Competitor In SERM Market

Bazedoxifene is a SERM that showed greater potency and selectivity than Evista in preclincial studies. Phase III was initiated in May, 2001. Phase II results in nearly 800 women showed that Bazedoxifene 20 and 40mg are comparable to Evista 60mg in terms of impact on bone. Bazedoxifene 20-40mg increased endometrial thickness similar to placebo. Wyeth plans to file an NDA for Bazedoxifene in 2005.
G More Data Needed On Sodium Fluoride

Sodium fluoride (Mission Pharmacal) has an advantage over parathyroid hormone in that it is oral. The drug has shown very good effectiveness in small studies, but there is significant debate regarding its effectiveness, and larger studies are needed. A FDA advisory committee recommended sodium fluoride for approval based on one very small study several years ago, but the FDA probably will not act on this approval recommendation until larger studies are completed.
U.S. OSTEOPOROSIS/ESTROGEN MARKET
Total Prescriptions (000's) % Market Share 1987* Estrogens Bisphosphonates SERMs Other (Calcitonins) Total 160 24,840 24,681 2001 135,936 23,466 8,924 5,043 173,369 2002E 155,428 36,074 11,557 4,837 207,895 2005P 227,500 87,500 31,500 3,500 350,000 1% 100% 1987* 99% 2001 78% 14% 5% 3% 100% 2002E 75% 17% 6% 2% 100% CGR 2005P '87-01 '01-05 65% 25% 9% 1% 100% +13% NA NA +28% +15% +14% +39% +37% -9% +19%

Drug Premarin Prempro/Premphase Fosamax Forteo Bonviva Evista Actonel Wyeth Wyeth Merck Eli Lilly Roche Eli Lilly Aventis Manufacturer Patent Expiration Expired; no generics yet 2006 2008 2010+ 2011+ 2013 2013 U.S. Sales in Year Patent Expires ($MM) ---------------
280
ENDOCRINE/METABOLIC/HORMONES R&D PIPELINE

Company Inhale Therapeutic Product Somavert P-C I II III NDA H2:00 MKT Comments 2004 Pegylated human growth hormone receptor antagonist; acromegaly; with Pharmacia; PEG supply agreement; delayed due to manufacturing issues Low dose contraceptive Topical estrogen lotion for HRT; from Novavax Treatment of osteoporosis, transdermal formulation; estradiol/norethisterone acetate Dienogest & estradiol; progestogen agonist; menopause H2:02 Hormone replacement therapy; sNDA for osteoporosis prevention claim; via Theratech Hormone replacement therapy; non-approvable letter received 10/2000; additional data submitted in 11/2000 Low dose for vasomotor symptoms Low dose for vasomotor symptoms 2002 Recombinant parathyroid hormone; osteoporosis; oral approvable pending labeling discussions and resolution of manufacturing issues; buccal, injectable, nasal, pulmonary collaboration with Inhale HRT; transdermal; 2001 filing in Europe Osteoporosis; bone resorption inhibitory agent; w/ Ajinomoto; filed in Japan Low-dose estrogen/progestin oral contraceptive; Europe 2003 rhBMP-2/ACS; bone morphogenic protein; tibial fracture repair; applied directly; not approvable for long bone fractures; one-year delay anticipated; spinal; and dental craniofacial (Phase III); Advisory review possible by YE 2002 for long bond indication Bone morphogenetic protein-2 (rhBMP-2); bone healing; implantable; Phase III in Japan; filed in Europe for open long bone fracture Bisphosphonate; filed in Japan for osteoporosis; oral; PII for periodontitis in Japan Pediatric version launched 6/28/00; with DNA in U.S.; adult indications Phase II/III; Schwarz Pharma partner in Europe; Sumitomo in Japan Once weekly bisphosphonate; with P&G; U.S. launch in 2002E; EU launch in 2003E 2003 Rheumatoid arthritis; Japan launch expected in 2003 Treatment of osteoporosis; bridging study; under codevelopment with Eli Lilly, Japan K.K.
Johnson & Johnson Novartis Schering-AG Watson Pharmaceuticals Watson Pharmaceuticals Wyeth Wyeth Eli Lilly
NGM/EE Estalis Klimodien Alora (Estradiol TD Patch) Estradiol/Progestin TD Patch Premarin Prempro Forteo
Aug-00 Jun-01 H1:01 Oct-99
King Pharmaceuticals Estrasorb
Jul-00 Jun-00 Dec-00
Schering-AG Takeda Wyeth Wyeth
Climara Pro NE-58095 Gestodene/ EE Indux
2000 Dec-00; Apr-01
Yamanouchi
YM-484
Yamanouchi Alkermes
Incadronate Nutropin Depot (ProLease Human Growth Hormone) Actonel (risedronate) Arava LY139481 (raloxifene)
Aventis Aventis Chugai
281

Company Chugai Product PB-94 (sevelamer) P-C I II III NDA MKT Comments Hyperphosphatemia under codevelopment with Kirin Brewery; in-licensed from GelTex (Genzyme) LY353381; SERM for prevention and treatment of breast and ovarian cancer; treatment of endometriosis symptoms; 20x potency of Evista; on hold Prevention of breast cancer vs. AstraZeneca's Tamoxifen; STAR study; 22,000 patient study ends 2006; Evista is more selective than Tamoxifen Secondary prevention of coronary events; RUTH study; 10,000 patient, 5-year study ends 2004; fully enrolled Breast cancer prevention; Evista vs. placebo; CORE trial (continuation of MORE cohort); 5,000 patient, 4 year study; fully enrolled; data in 2003 2002 Hip prosthesis loosening Skin aging Highly potent SERM; increases BMD, lowers LDL; osteoporosis prevention and treatment; breast cancer prevention; lipid lowering effects 2002 2003- Pegvisomant; growth hormone antagonist for 04 acromegaly; via Sensus; approvable; refile 2002 Third generation bisphosphonate/bone calcium regulator for prevention and treatment of osteoporosis in postmenopausal women and in glucocorticoid users, once-weekly formulation Q1:02 Bondronate; treatment and prevention of osteoporosis; 3rd generation bisphosphate; oral; injectable may be redeveloped 2002 New indication for prevention of Type II diabetes; 3000 patient Scandinavian trial (XENDOS) completed in 2002; PIII pediatric obesity Central cannabinoid receptor (CB1) antagonist; obesity 2001 2003 2002 2005 Drospirenone/estradil; oral; 2001 filing in U.S.; 2002 in Europe Dienogest/estradiol valerate; oral 2003 Hormone replacement therapy; oral combination therapy; Phase III enrolling in late 2001 Tissue selective estrogen/HRT, osteoporosis; may be more potent and selective than Evista; no effect on endometrium or flushing New progestin from Aventis; combo with Premarin Bisphosphonate; bone metastasis with breast and lung cancer (oral, injectable), multiple myeloma; Japan
Eli Lilly
Arzoxifene
Eli Lilly
Evista
Eli Lilly
Evista
Eli Lilly
Evista
Merck Pfizer, Inc. Pfizer, Inc.
Fosamax FemHRT Lasofoxifene
Pharmacia Corp. Procter & Gamble
Somavert Actonel
Roche
Bonviva
Roche
Xenical (orlistat)
Mar-01
Sanofi-Synthelabo Schering-AG Schering-AG Watson Pharmaceuticals Wyeth
Rimonabant Angeliq E2 Pill Oral Estradiol/Progestin Bazedoxifene
Wyeth Yamanouchi
Trimegestone/Premarin Minodronate
Q1:02
282

Company Alkermes Product EstroLast (Pulmonary Estradiol) ProLease FSH Anti-obesity agent 1426 P-C I II III NDA MKT Comments Hormone replacement therapy; once-daily and twice-weekly pulmonary delivery formulations; internal pipeline With Ares-Serono; ProLease formulation; deal announced January 2000 Obesity, agent without central effects, new peripheral mode of action, delay gastric emptying; moving into PIIa Hypercholesterolemia 2005 Rheumatoid arthritis; oral inhibitor of IL-1 beta converting enzyme; antinflammatory; codevelopment with Vertex; expected U.S./EU launch in 2005 Post-menopausal osteoporosis; SERM; moving into PIIb Treatment of osteoporosis; activated vitamin D derivative Aldose reductase inhibitor for diabetic neuropathy Collaboration with Alkermes/AIR 5-alpha reductase inhibitor; alopecia Topical testosterone lotion for women; Phase III expected to commence in H2:02; from Novavax Bisphosphonate: osteoclast inhibitor; postmenopausal osteoporosis; I.v.; dose annually MMP-13 inhibitor; arthritis Insulin sensitivity enhancer for Type II diabetes; in-licensed from Japan Tobacco; good lipid profile; on hold Testosterone; treatment of decreased libido in surgically menopausal women; patch; second Phase II study enrolling 2004 2004 2004 Levonorgestrel; endometrial protection under estrogen therapy Adult growth hormone deficiency; with Mitsui Pharmaceuticals Drospirenone; ethinylestradiol for OC; low dose Osteoporosis; bone fracture Female hormone replacement therapy; transdermal; via Theratech; with Procter & Gamble Female hormone replacement therapy; transdermal; via Theratech; with Procter & Gamble Progestin-free therapy for HRT and osteoporosis; prevents flushes, strengthens bone, and improves lipids without impact on endometriaum or breast Gestodene/Ethinylestradiol; transdermal Endometriosis
Alkermes Aventis
Aventis Aventis
BARI 1453 Pranalcasan (HMR 3480)
Aventis Chugai Dainippon Eli Lilly GlaxoSmithKline
SERM 3339 ED-71 AS-3201 Pulmonary Insulin GI-198745
King Pharmaceuticals Androsorb Novartis Pfizer, Inc. Pharmacia Corp. Zometa (zoledronate) CP-544, 439 PNU-182716/JTT-501
Procter & Gamble
Fem-T
Schering-AG Schering-AG Schering-AG Takeda Watson Pharmaceuticals Watson Pharmaceuticals Wyeth
Mirena/MLS MS-706 Yasmin 20 TAK-778-SR Estradiol/Testosterone TD Patch Testosterone TD Patch
Premarin/TSE-424
Schering-AG Takeda
FC Patch TAK-013
283

Company Alkermes Product ProLease Erythropoeitin P-C I II III NDA MKT Comments Oncology indications; with JNJ; 2-4 week depot injection formulations of Procrit; Phase II development halted by JNJ 6/2000 due to stability problem 2007 Osteoporosis; progestin receptor agonist Osteoporosis; recombinant parathyroid hormone; nasal spray; co-developed with Suntory CCK-A receptor agonist; obesity and gallstone prophylaxis Osteoclast vitronectin receptor antagonist; rheumatoid arthritis; osteoporosis Non-hormonal in-vitro treatment of infertility Naturaceutical; with Phytopharm; highly potent anti-obesity agent With Eli Lilly; partnership announced February 2000; second Phase I trial ongoing Osteoporosis and liver disease Osteoporosis and liver disease Osteoporosis and liver disease Osteoporosis and liver disease Pegylated axokine; obestity; Regeneron; PEG supply, manufacturing and royalty agreement Small molecule insulin mimetic; from fungus Beta 3 receptor agonist for obesity Obesity; NGD-95-1 Utilizes Ligand's intracellular receptor technology Increases glucose transporter expression Decreases appetite in CNS; with Neurogen; multiple candidates Obesity; 5HT2c; with DNA Osteoporosis CCK1 agonist; obesity Contraceptoin; via Theratech; in pre-clinical development 8 24 23 16 87
Bayer Chugai GlaxoSmithKline GlaxoSmithKline Novo Nordisk Pfizer, Inc. Alkermes Bayer Bayer Bayer Bayer Inhale Therapeutic Merck Merck Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Sanofi-Synthelabo Watson Pharmaceuticals
BAY 39-9624 CHS13340 GI 181771 SB 273005 NN-5492 CP-644, 673 Pulmonary Human Growth Hormone Undisclosed preclinical projects Undisclosed preclinical projects Undisclosed preclinical projects Undisclosed preclinical projects PEG-Axokine L-783,281 L739,574 CP-422, 935 Estrogen partial agonist Hypoglycemic NPY-inhibitor R1065 R1164 SSR-125180 Contraceptive TD Patch Total Drugs In Development
16
284
Respiratory
G Newer Therapies Should Expand Huge Market
DEFINITION/ BACKDROP Asthma results from a reversible narrowing of the airways due to external stimuli, such as exercise or exposure to cold air. These 7% 2001-05 CGR stimuli prompt the release of histamine and leukotrienes from mast cells, creating mucus secretion and inflammation. Symptoms, which are episodic, include cough, wheezing, and chest tightness. The incidence of asthma is increasing worldwide, especially in children, perhaps due to pollution or degradation of the ozone layer. Chronic obstructive pulmonary disease (COPD) is a chronic, slowly progressive, and poorly reversible airflow obstruction. The airflow limitation is due to combinations of airway disease: chronic bronchitis (smokers cough) and emphysema (destruction of the lungs). Symptoms include shortness of breath, cough, phlegm, and activity limitation. COPD mortality is expected to double over the next three decades, making it the third leading cause of death worldwide during this time. Currently, the disease is largely hidden, with 50-75% of patients undiagnosed. 30MM patients in the U.S. suffer from COPD, with 6MM receiving treatment. Seasonal and perennial allergies result from degranulation of mast cells, which release histamine, leukotrienes, and other mediators, which, in turn, constrict the airways. This leads to allergic symptoms that commonly manifest in the nose and eyes. An estimated 45MM Americans suffer from allergies, but only 8MM seek prescription treatment.
Respiratory Diseases Category Market Share By $ Sales

2001
$16B
Other 13% GSK 31%
PARTICIPANTS
MRK 8%
AZN 9%
AVE 14%
SGP 25%
In 2001, GlaxoSmithKline and Schering-Plough dominated the respiratory category, with 31% and 25% dollar shares, respectively. Through 2005, their leading positions appear sustainable, although Scherings share is expected to decline to 17%, due to the launch of generics to Claritin. Aventis could claim a #3 market position, despite a virtually flat market share during this time. Merck could grow share by 4 percentage points to 12% in 2005, entirely due to Singulair (leukotriene receptor antagonist). Pfizers share is forecast to grow from 6% in 2001 to 10% in 2005, powered by the Zyrtec and Spiriva franchises. MAJOR TRENDS & ISSUES Short-acting beta agonist inhalers should remain a dominant therapeutic modality, given the need for acute exacerbation relief. However, sales could be nearly cut in half since generics dominate this segment.
285
Long-acting beta agonist inhalers from AstraZeneca, GlaxoSmithKline and Novartis are forecast to maintain only modest market share, due to limited relative utility; sales are expected to grow modestly. Steroid inhalers (AstraZeneca, Aventis, Forest Labs, GlaxoSmithKline, and ScheringPlough) should enjoy good growth, given their ability to control disease. The ACRN longterm study may more precisely define the role of steroids. Good effectiveness, anti-inflammatory action, ease of administration and pediatric application should allow leukotriene antagonist growth to outpace that of steroids through 2005. Merck and AstraZeneca are poised to benefit. However, leukotriene antagonists have not made significant inroads into the steroid market. Phosphodiesterase type 4 inhibitors (GlaxoSmithKline, Schering-Plough) and anticholinergic agents (Boehringer-Ingelheim/Pfizer) are poised to enjoy great success in treating chronic obstructive pulmonary disease. Oral, non- or low-sedating antihistamines should continue to dominate the allergy market. Schering-Plough, Aventis, and Pfizer will benefit. We expect generics to Claritin in 2003, tempering sales growth of this class. Nasal steroid sales growth likely will be modest. Our scatter plot shows that through 2005, Aventis, GlaxoSmithKline, and Merck should dominate this category, and this category is important to their growth.
Respiratory
25%
MRK
20%
15%
AVE
10%
PFE
5%
GSK
FRX NVS
0%
BAY
AZN
-5%
SGP
-10% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0
286
G GlaxoSmithKline Is Well Positioned

Respiratory disease could be one of the fastest growing therapeutic categories through 2005 because incidence and mortality rates are growing. GlaxoSmithKline should continue to dominate this category, although Aventis and Merck are significant participants as well. The chart below depicts a summary of asthma therapies.
SUMMARY OF ASTHMA THERAPIES
Anti-Inflammatory Steroids Cromones Active Short-acting beta agonists Long-acting beta agonists Bronchodilators Passive Steroids Leukotriene antagonists
DETAILED DISCUSSION
G Vigorous Debate On Approach To Asthma Treatment

It is estimated that there are 15MM people who suffer from asthma in the U.S., with roughly 30% of these asthmatics having mild, persistent illness. About one-third of asthma patients are compliant with drug therapy consistently, one-third are compliant inconsistently, and one-third are not compliant. In asthma, it is estimated that 50-70% of doses are taken as directed, 15% of patients are fully compliant, and drugs are taken as directed on 30% of asthma treatment days. In 1997, the National Institutes of Health (NIH) issued updated Asthma Guidelines stating that asthma should be treated with a stepwise approach that puts a greater emphasis on the use of anti-inflammatory drugs. Intermittent asthmatics reside on the first level, and about one-third of all asthmatics fit in this category. Short-acting beta agonists, taken as needed to treat symptoms, usually are sufficient for intermittent asthmatics. Long-acting beta agonists could have a delayed onset of action, lowering their effectiveness in severe asthma attacks. Thus, long-acting beta agonists are more effective for the prevention of asthma attacks, especially attacks associated with exercise. The next three levels of asthma are classified as persistent asthma, with the individual levels labeled mild, moderate, and severe. Generally, it is believed that persistent patients need an asthma controller (e.g., inhaled steriods or leukotriene antagonists), but there is debate as to when this therapy is best initiated. About one-half of persistent/mild patients are cared for adequately by standard doses of inhaled steroids. Alternatives to inhaled steroids in these patients include cromolyn or leukotriene antagonists; the leukotrienes are especially useful in patients that are sensitive to aspirin. In moderate/persistent asthma, patients are given higher doses of inhaled steroids and long-acting beta agonists. Theophylline and leukotriene antagonists are sometimes added. In severe/persistent asthma, patients are given oral steroids. The NIH guidelines also recommended more aggressive therapy for children with asthma.
G Could Be Addressed By Position Papers

While there has been no update of the Asthma Guidelines since 1997, position papers are being developed that address key issues, including: (1) what is the appropriate starting therapy in adults; (2) what is the appropriate starting therapy in children; and (3) what is the role of combination products? While those position papers have been in development for some time, there is little visibility on timing of publication.
G Studies Could Clarify Steroid Versus Leukotriene Antagonist Debate

A handful of long-term studies are ongoing to answer several questions, including if untreated inflammation leads to chronic disease over time. If untreated inflammation leads to chronic disease, then steroids likely would be viewed more favorably than leukotriene antagonists given
superior anti-inflammatory action. Alternatively, if untreated inflammation does not exacerbate chronic disease, then leukotriene antagonists could be favored given more acceptable side-effect profiles. The ACRN (Asthma Clinical Research Network) is conducting IMPACT (IMProving Asthma Control Trial), a long-term study, assessing steroid or leukotriene treatment in patients with mild persistent asthma. Patients are being treated with (1) inhaled corticosteroid; (2) leukotriene antagonist; or (3) oral and inhaled placebo for 18 months. The primary endpoint is change in AM peak expiratory flow (PEF). Secondary endpoints include: PEF measured after a period of intense therapy, change in PEF during the last year of treatment, change in FEV1, and number of exacerbations. IMPACT will enroll 234 adults, and is expected to be completed in 2003.
ESTIMATED WORLDWIDE MARKET FOR RESPIRATORY DRUGS BY CLASS ($MM)
2001 Market % Total $5,978 37% 4,012 25% $ NRx 2005P 01-05 87-01 Market % Total CGR CGR Comments $6,354 30% 2% 12% - SGP's Claritin/Clarinex, AVE's Allegra, PFE's Zyrtec 5,760 27% 9% 16% - GSK's Advair and Flovent, SGP's Asmanex, FRX's Aerobid, AZN's Turbuhaler, AVE's Azmacort NM - MRK's Singulair and AZN's Accolate 22% - SGP's Vancerase, Nasonex, AVNT's Nasacort/AQ; GSK's Flonase NM - BI's Atrovent; BI/PFE's Spiriva; GSK's Ariflo NM - GSK's Serevent, NVS' Foradil, AZN's Oxis 6% - GSK's Ventolin, SGP's Proventil, generics -8% - SGP's Unidur/Theodur NA 6% - Driven by steroids, leukotriene antagonists, and COPD therapies
Drug Class Antihistamines Steroids (Inhaled)
Leukotreine Antagonists Steroids (Nasal) COPD Therapies Beta Agonists, Long Acting Beta Agonists, Short Acting Xanthines Other Allergy/Asthma Total Market
1,524 1,582 650 1,160 777 45 462 $16,190
9% 10% 4% 7% 5% 0% 3%
2,723 1,681 1,580 1,323 425 25 1,401
13% 8% 7% 6% 2% 0% 7% 100%
16% 2% 25% 3% -14% -14% 32% 7%
100% $21,271
G Beta Agonists Should Remain Widely Prescribed

The utility of beta agonists should allow them to retain one-third of asthma prescriptions over the next 5 years. However, generics have pressured short-acting inhaled beta agonist aerosol sales, specifically albuterol. The beta agonist inhaler market has not yet shifted toward nonchloroflurocarbon (CFC) ozone-friendly propellants, a shift which would have hurt generics since they are only available in CFC formulations. Schering-Plough markets an albuterol product in a non-CFC inhaler called Proventil-HFA, and a number of similar products are in development. Schering has not put a significant promotional push behind its product. Our consultants prescribe Proventil-HFA in patients who are concerned about the environmental impact of ozone-depleting CFCs. The product also gives patients a different dosing sensation; it generates a warm slow puff rather than a rush of air, which some patients view as a disadvantage. Aventis has filed Azmacort in a non-CFC formulation, and Nasocort and Intal are in Phase III. GlaxoSmithKlines Serevent, Novartis Foradil, and AstraZenecas Oxis Turbuhaler, which are long-acting beta agonists, have moderate market potential as they provide effective symptom control but do not treat the underlying disease. In this role, they are viewed similarly to leukotriene antagonists, although they may have special utility in control of
exercise-induced asthma and nighttime symptoms. Novartis and AstraZeneca claim that their long-acting products also may be used for short-term symptom relief. GlaxoSmithKlines Serevent Supported By COPD Indication Serevent (beta agonist) is indicated for: long-term, maintenance treatment of asthma, including nighttime asthma; prevention of exercise-induced bronchospasm; and treatment of COPD. Servent improves COPD symptoms, but does not slow disease progression. Glaxo has been de-emphasizing Serevent post the launch of Advair. In January, Serevent Diskus had 10.7% share of the aerosol beta agonist market, while the Diskus formulation had 53.0% share of the other beta agonist category. Serevent Diskus can be used in patients 4 years of age and older. We estimate sales of Serevent at $900MM (-3%) in 2002, declining to $790MM in 2005. Novartis Foradil A Solid Competitor Foradil is a long-acting beta agonist for the maintenance treatment of asthma and prevention of bronchospasm in patients 5 years of age and older. Foradil is administered twice daily via Novartis Aerolizer, which is a dry powdered inhaler. In January, Foradil had 44.4% share of new prescriptions in the other beta agonist category. We peg sales of Foradil at $295MM (+28%) in 2002 and $535MM in 2005. RELIEF Study Could Boost AstraZenecas Oxis Oxis combines a fast onset and long duration of action, making it useful in acute asthma exacerbations. Oxis offers a number of potential advantages in effectiveness and patient convenience, which should contribute to improved asthma control. In a study published in Lancet in January 2001, 362 patients with moderate asthma who were using inhaled steroids at a mean daily dose of 870mcg, but not receiving long-acting beta agonists, were randomized to Oxis 4.5mcg or terbutaline 0.5mg, both given via Turbuhaler, for 12 weeks. Oxis was associated with a significantly greater improvement in lung function, and a reduction in the number of extra relief inhalations needed. The probability of remaining free from a severe asthma exacerbation was higher in patients receiving Oxis. The benefits of Oxis are currently being assessed in The Real Life Effectiveness (RELIEF) study of Oxis Turbuhaler. This six-month study involves over 15,000 patients from 20 countries, and compares Oxis with salbutamol. Patients receive either Oxis 4.5mcg or salbutamol 200mcg, as their only reliever medication. Prescribed controller medication for asthma is permitted. The primary endpoint is the time to the first severe asthma exacerbation. We estimate sales of Oxis at $140MM (+10%) in 2002 and $250MM in 2005. Sepracors Xopenex Making Inroads In Respiratory Market Sepracors Xopenex (levalbuterol) is a short-acting beta agonist for the treatment of reversible obstructive airway disease in patients suffering from asthma or COPD. Sepracor launched Xopenex 0.63 and 1.25mg for the treatment of patients more than 12 years old in 1999. In January 2002, Xopenex had 16.9% new prescription share of the beta agonist nebulizer market, up from 12.3% in August. In January 2002, Xopenex was approved for the treatment of children aged 6-12 years old. Large trials involving Xopenex HFA metered-dose inhaler in children and adults are ongoing. A metered-dose inhaler verion of Xopenex is in Phase III clinical trials. Sepracors (R,R)-Formoterol On Track For NDA Filing In 2002 Sepracor is developing (R,R)-Formoterol for the treatment of bronchospasm in patients with obstructive airway disease. (R,R)-Formoterol is a long-acting beta agonist administered once daily via inhalation. Existing long-acting beta agonists are typically administered twice daily. In September, (R,R)-Formoterol advanced to Phase III studies. Phase II results demonstrated
(R,R)-Formoterols effectiveness. In a 340-patient study, (R,R)-Formoterol improved FEV1 by 24-27% and was superior to placebo (p<0.001). Post launch, (R,R)-Formoterol will compete with other inhaled long-acting beta agonists, such as Serevent. Sepracor plans to file an NDA for (R,R)-Formoterol in 2003.
G Steroids Should Enjoy Moderate Growth

Physicians have embraced steroid-based products because steroids treat inflammation, the cause of asthma. In countries where steroids are used heavily, such as in northern Europe, asthma deaths occur at a rate lower than in countries where steroid usage is less. Differences in hospitalization rates are less clear, but should decline over time where steroids are used more extensively. We believe that steroids will continue to grow, based on favorable morbidity and mortality data. However, some physicians question their role since they may improve the disease but not change the underlying biology. AstraZenecas Pulmicort has been only modestly successful with its unique Turbuhaler (dry powder inhaler), likely due to the U.S. markets lack of familiarity with dry powders. In contrast, Aventis integrated spacer device has been quite successful. When used with the companys Azmacort steroid inhaler, it increases the respirable fraction of drug inhaled. The uptake of any new product may be blunted by the fact that patients are not switched from one product to another unless there is a compelling reason to switch. Precautionary language has been added to labels of all inhaled steroids regarding growth suppression in children. GlaxoSmithKlines Advair Off To A Terrific Start GlaxoSmithKlines Advair (Seretide internationally) is a combination of Serevent (salmeterol), a long-acting beta agonist, and Flovent (fluticasone), an inhaled steroid. As of the week ended February 2, Advair had 10.3% share of new prescriptions in the asthma market. GlaxoSmithKlines Flovent is being cannibalized by Advair, but is still a leader in the inhaled steroid market. Advairs dual mechanism targets both inflammation and bronchoconstriction, the underlining components of asthma. Advair targets the treatment of patients with mild persistent asthma initially, and will pursue more severe patients (e.g., asthmatics on multiple therapies) thereafter. Advair was launched in the U.S. in April 2001 and the rollout was the best seen in the asthma therapeutic area. A large sales force of 2,300 is now marketing Advair as their primary detail, focusing on its superior efficacy relative to other steroids and Mercks Singulair (oral leukotriene antagonist). Advair was launched with a broad label for use in patients aged 12 years and older while Singulair is approved for the treatment of asthma in children older than two years, a differentiating feature. GlaxoSmithKline is pursuing an indication in children aged four and older. A table assisting physicians switching patients from inhaled steroids is included in Advairs label. In January 2002, an FDA advisory committee recommended approval of Advair for the treatment of COPD. Thirty million patients in the U.S. suffer (6MM currently receiving treatment) from COPD, and hence, this indication represents a sizable opportunity. Advair provides good control of COPD symptoms and improves patient compliance. Advair is available in multiple strengths targeting a range of asthma severity, in adult and pediatric formulations. Additionally, Advair could be used in combination with BI/Pfizers Spiriva. GlaxoSmithKline expects to receive approval of Advair for COPD in Q2:02.
290
ASTHMA MARKET
16.0%
14.0%
12.0%
10.0% Market Share
8.0%
6.0%
4.0%
2.0%
0.0% 21-Dec-01 13-Apr-01 27-Apr-01 9-Nov-01 3-Aug-01 12-Oct-01 16-Mar-01 30-Mar-01 26-Oct-01 7-Dec-01 2-Mar-01 8-Jun-01 11-May-01 25-May-01 23-Nov-01 20-Jul-01 4-Jan-02 22-Jun-01 17-Aug-01 31-Aug-01 14-Sep-01 28-Sep-01 16-Feb-01 18-Jan-02 2-Feb-01 6-Jul-01 1-Feb-02
Advair
Singulair
Flovent
Source: IMS
Numerous Studies And New Indications Could Support Advair Gaining Optimal Asthma Control (GOAL) is a 3,000-patient trial examining Advairs efficacy in achieving asthma-control guidelines. Ten additional studies are ongoing, including a head-to-head study versus Singulair in mild-persistent asthma; treatment of chronic-induced asthma; steroid-sparing studies; and head-to-head trials versus Flovent in pediatric patients and versus Schering-Ploughs Asmanex (to commence post launch). A dry powder formulation of Advair has been launched in the U.S. and nine countries in Europe, including the U.K. and Germany. GlaxoSmithKline also has received approval for a metered dose inhaler version of Advair in several European countries, including the U.K. Italy, Spain, and France. We peg sales of Advair/Seretide at $1,680MM (+65%) in 2002 and $3,065MM in 2005. Cannibalization of the Flovent and Serevent franchises is reflected in our GlaxoSmithKline model. Timing Of Schering-Ploughs Asmanex Unclear Asmanex was filed in the U.S. in 11/98 and received an approvable letter; the timing of approval is unclear due to presumed issues with Asmanex, such as dosing reproducibility and stability, as well as the manufacturing issues. Asmanex has been approved in thirteen countries, and will roll out worldwide over time. Asmanex may be suitable for delivery once-daily in most patients, although it is not clear whether this labeling will be granted from the FDA for all patients. Schering also continues to claim that Asmanex is associated with low systemic absorption. Asmanex was filed in a dry powder Twisthaler formulation, with the CFC-free multi-dose inhaler in Phase III. The U.S. has been slow to adopt dry powder inhalers, adding risk to ScheringPloughs strategy of filing the dry powder first. We forecast Asmanex sales at $25MM in 2002 and $300MM in 2005.
291
AstraZenecas Pulmicort Turbuhaler Market Performance Has Been Disappointing Pulmicort Turbuhaler combines the steroid budesonide with AstraZenecas dry powder Turbuhaler device. In January 2002, the product had 7.8% market share. This market share is held down by a larger unit of sale, i.e., number of treatment days per prescription. Our physician consultants view budesonide as an important alternative steroid, given that it shares Flovents efficacy but with less systemic absorption. The Turbuhaler is viewed more cautiously; our consultants believe that patients may prefer a multi-dose inhaler because it is mechanically less complex. Supply constraints tempered acceptance early on. We estimate sales of Pulmicort at $800MM (+3%) in 2002, declining to $650MM in 2005.
G Leukotriene Antagonists Have Not Challenged Steroids

Leukotriene receptor antagonists block important mediators of bronchoconstriction and asthmatic inflammation. Released from mast cells and eosinophils, leukotrienes are potent constrictors of bronchial smooth muscle and have other inflammatory properties. By inhibiting leukotrienes at the receptor sites, leukotriene antagonists mitigate inflammation and bronchoconstriction. In head-to-head studies, leukotriene antagonists were shown to be as effective as steroids. Mercks Singulair has outdistanced AstraZenecas Accolate, in part due to its advantages, which are depicted below.
COMPARISON OF SINGULAIR AND ACCOLATE
Singulair (Merck) Dosing Food Interactions Once Daily None in U.S.; food interactions in European label Use in Children Drug Interactions Above 2 Years None Accolate (AstraZeneca) Twice Daily Must be given 1 hour before or 2 hours after meals Above 7 years Theophylline and warfarin
Leukotriene Antagonist Data Solid - Leukotriene receptor antagonists demonstrate a 1015% improvement in lung function in patients with baseline of 66% of predicted lung function (patients on placebo experience a 4-5% improvement). Merck states that Singulair is dosed at the top of the dose response curve, such that all leukotriene receptors are saturated, thus higher levels of effectiveness than seen with Singulair would be impossible to obtain. The following table compares data of competitive products. As the baseline increases, a lesser degree of improvement would be expected. Patients appear to derive benefit from leukotriene antagonists exceeding that which would be predicted by the objective improvement in lung function. For this reason, quality-of-life studies are critical. Quality-of-life studies of Accolate and Singulair show substantial benefit. Also, Accolate and Singulair oral tablet dosage forms enhance compliance and remove the stigma associated with steroid inhalers, especially for children.
EFFICACY COMPARISON OF ASTHMA TREATMENTS
Drug Singulair (MRK) Zileuton (ABT) Accolate (AZN) Flovent (GSK)
Type Leukotriene Antagonist 5-Lipoxygenase Inhibitor Leukotriene Antagonist Steroid
Lung Function Improvement 10-15% 15-20% 12% 10-22%
Baseline % of Predicted Lung Function In Patients Studied 66% 60% 67% 63-73%
Leukotriene Antagonists Have Good Data In Children And In Steroid Withdrawal Singulairs efficacy in children 2-5 years of age and in steroid withdrawal is especially
noteworthy. Asthma attacks are the leading cause of hospitalization of children. An adult study in steroid withdrawal showed that when Singulair is added to an asthma treatment regimen, there is no exacerbation of asthma symptoms even as the steroid dose is lowered. When Accolate is added to an existing steroid regimen, studies show a two to threefold preference for Accolate. Leukotriene Antagonist Side Effect Profiles Show Important Differences - In the normal population, 0.5-0.7% of people have elevated liver enzymes. For reasons that are unclear, asthma patients have a higher incidence of elevated liver enzymes (between 1.01.5%); this may stem from the disease or the drug therapy. By comparison, Abbotts Zyflo is associated with a 4.6-4.7% incidence of elevation. Zyflo patients must receive routine liver enzyme monitoring. Just below 2% of patients on placebo, Singulair or Accolate experience elevated liver enzymes. Although Accolates label mentions rare elevations in liver enzymes at four times the recommended dose, no similar language is found in Singulairs label. Churg-Strauss Syndrome Could Be Class Effect Or Result From Steroid Weaning Churg-Strauss syndrome is a very rare, life-threatening syndrome characterized by heart failure and rash, but is reversible if caught in time. Originally, the syndrome was believed to either stem from usage of leukotriene antagonists (perhaps a class effect, albeit very rare) or from the concomitant weaning of patients from moderate to high doses of steroids that the leukotriene antagonist allows. The latter reason now is accepted as the likely mechanism. Indeed, in all cases documented thus far, patients were weaned from oral steroids and, thus, suffered from severe disease.
COMPARISON OF NEWER ASTHMA THERAPIES
Aerobid Manufacturer Status Type Forest Labs Marketed Steroid Flovent Glaxo Marketed Steroid MDI 10-22% (63-73%) Adrenal suppression, URI, oral candidiasis Age = 12 -23% Pulmicort AstraZeneca Marketed Steroid DPI 20% (68%) Adrenal suppression, URI, oral candidiasis Age = 6 -11% Asmanex Accolate Singulair Merck Marketed Leukotriene Antagonist Tablet 1X/day 10-15% Zyflo Abbott Marketed 5-LO Inhibitor Tablet 4X/day 22% Schering-Plough AstraZeneca NDA filed 11/98 Marketed Steroid Leukotriene Antagonist DPI/MDI Tablet 2X/day 5-13% (PII) 12% (65%) URI, oral candidiasis
Dosage Form MDI Change in FEV1 N/A (Baseline % of predicted lung function) N/A Possible Side Effects URI, oral candidiasis
(67%) (66%) (62%) Comparable to Comparable to Elevated LFT placebo placebo in 4% of pts.
Pediatric labeling Y/Y % change in NRX, 1/02 - 1/01
Age = 6
N/A N/A
Age 7 -25%
Age 2 +23%
Age > 12 N/A
-31% Source: Company data; IMS Americas N/A = Data not available
Singulair Long-Term Success Keyed To Growth Of Asthma Market Singulair had 90.0% share in the leukotriene antagonist market as of January 2002. Singulairs indications include use in children age two and over, an important market in the treatment of asthma; it accounts for 25%+ of all Singulair prescriptions. Singulair also seeks an indication for allergic rhinitis, a big market segment. Merck will file a new indication for allergic rhinitis in early 2002. We are a bit skeptical about the potential of Singulair as an allergic rhinitis treatment given that it was statistically inferior to Claritin in daytime nasal
symptoms and composite symptoms, and only on par on nighttime symptoms. Singulair recently was launched in Japan. Singulair sales are forecast at $1.7B (+24%) in 2002 and $2.6B in 2005.
G Genentechs Xolair Submission Expected Late 2002

Xolair targets a large market opportunity in asthma and allergic rhinitis. In July, the FDA issued a completed review letter for Xolair requesting additional data. As a consequence of this letter, Xolairs approval was delayed, and Genentech will now seek a more narrow label. Genentech was targeting a broad label for the treatment of allergic asthma and rhinitis in both children and adults. Now it appears that Xolair ultimately will be labeled for the treatment of adult allergic asthma only. The consequence of the removal of rhinitis from the label is minimal, as we had forecast limited use in rhinitis due to Xolairs expense and inconvenient administration. The exclusion of children is a bit more significant, but not direly so, as children make up approximately 20% of the asthmatic population. Following discussions with the FDA, resubmission of Xolair is expected by the end of 2002. Genentech/Novartis expect to launch Xolair in 2004. Xolair sales are forecasted at $50MM in 2003 and $200MM in 2005.
G Older Therapies Have Niche Utility

Xanthines (theophylline) are expected to erode only moderately in terms of market share, after a substantial decline in 1987-01, due to continued utility in non-asthmatic pulmonary disease. Xanthines could be boosted if they are found to have anti-inflammatory activity, as is now suspected. Anti-inflammatory drugs, such as Aventis Intal and Tilade, should continue to find niche utility as they are very safe, making them good choices in pediatric asthmatics.
G New Therapies Generating Enthusiasm In COPD Market

Chronic obstructive pulmonary disease (COPD) is a chronic, progressive disease characterized by airway obstruction, shortness of breath, and cough. Chronic bronchitis and emphysema can prompt COPD. Affecting an estimated 600MM people globally, the disease has an asymptomatic phase and thus many patients are undiagnosed. One in five smokers could develop COPD, and it leads to 3MM deaths annually. Currently, Boehringer-Ingelheims Atrovent (anticholinergic) and Combivent (Atrovent plus albuterol) are the standard of care for treating COPD, but offer only symptomatic relief and must be administered four times per day. 20-25% of Advair prescriptions are written for COPD, roughly comparable to the 20% of Flovent prescriptions and 30% of Serevent prescriptions written for the same indication. In January 2002, an FDA advisory committee recommended approval of Advair for the treatment of COPD. GlaxoSmithKline expects to receive approval of Advairs COPD indication in Q2:02. Newer therapies, such as Boehringer-Ingelheim/Pfizers Spiriva (anticholinergic) and GlaxoSmithKlines Ariflo (PDE-4 inhibitor) hold promise of symptom relief and are more convenient than Atrovent. However, pulmonologists await drugs able to affect the diseases natural history, and thus view palliative agents with limited enthusiasm. A long-term epidemiologic study performed in Canada, Northern Europe, and New Zealand showed that patients were 29% less likely to die of COPD when using aggressive steroid therapy. Spiriva: Pfizers Entry Into Sizable COPD Market Pfizer formed a long-term worldwide development agreement with Boehringer-Ingelheim for Spiriva (tiotropium). Spiriva seeks an indication for the treatment of COPD (chronic obstructive pulmonary disease). Spiriva was filed in the U.S. in December, and mutual recognition is expected to begin in early 2002 in the E.U. Spiriva is an anticholineric agent similar to current treatment mainstays Atrovent and Combivent. Spirivas advantage over Atrovent and Combivent is once-daily
dosing, while Atrovent and Combivent are dosed 4+ times per day. Inhaled steroids also are used for the treatment of COPD and, similar to anticholinergics, offer only symptom relief with no change in the natural history of the disease. Based on its clinical trials, Spiriva clearly is effective and safe. Very few side effects are associated with its usage. Once-daily dosing is a plus, but one viewed as only a moderate positive among pulmonologists with whom we have spoken. Pulmonologists await drugs able to affect the diseases natural history, and thus view palliative agents with limited enthusiasm. We believe Spiriva sales could total $100MM in 2002 and $600MM in 2005. A portion of these sales is reflected in Pfizers alliance revenue. Boehringer-Ingelheim received a 483 warning letter on the Indiana plant that will serve as a backup facility for manufacture of Spiriva, adding some risk to our assessment of regulatory progress. Despite Setback, Large Opportunity Remains For GlaxoSmithKlines Ariflo In COPD Ariflo, an oral phosphodiesterase type 4 inhibitor, has potential to treat the three principal components of airway disease: inflammation, neuromodulation/bronchoconstriction, and airway structural modification. It is effective from the first dose in improving small airway function, global symptom rating, and exercise-induced asthma. COPD is the biggest opportunity for Ariflo, given the wide-open COPD market and the tough competitive landscape in asthma. Ariflo showed promising Phase II results in COPD patients. Numerous competitive PDE-4 inhibitors have failed in development, but always due to differing toxicities. Ariflo has better selectivity for low-affinity receptors in the lung, so it has less impact on the high-affinity PDE-4 receptors in the nervous system. This should give Ariflo a better side-effect profile than other PDE-4 inhibitorsand no significant side effects have been reported with Ariflo thus far. Preliminary analysis suggests that Ariflo could be competitive with alternative therapies such as the inhaled steroids Serevent and Flovent. Despite these advantages, our physician consultants view Ariflo and other phosphodiesterase type-4 inhibitors as only a modest advance over theophylline. After equivocal results in one arm of the Phase III trial for Ariflo, the FDA requested more data, delaying the NDA filing for Ariflo by about two years until late 2002. The asthma claim is about a year behind due to the need to repeat Phase II trials. We forecast Ariflo sales at $45MM in 2003 and $365MM in 2005.
Allergy
Schering-Ploughs Clarinex Off To A Great Start Clarinex is rolling out for allergic rhinitis (SAR and PAR) and chronic urticaria, and it is off to a fast start. As of the week ended February 2, Clarinex had 9.5% share of new prescriptions in the allergy market. Schering is employing a strategy to cannibalize rapidly the existing Claritin franchise, given the upcoming patent battle over Claritin. Clarinex, under the brand names Aerius and NeoClarityn, is marketed in the EU. The EMEA issued a positive opinion recommending approval of the rapidly-disintegrating tablet and syrup formulations. Three new Clarinex formulations have been filed in the U.S.: syrup (12/00), D-12 (12/00), and rapidly disintegrating tablet (12/00). Clarinex could have advantages over Claritin, such as greater potency and fewer drug interactions, but these advantages are modest and it likely will have to compete against generic Claritin at some point. Our Clarinex sales estimates are $625MM in 2002, and $1.7B in 2005, implying U.S. total prescription share of 10% in 2002 and 31% in 2005. A key question in our mind is whether or not Clarinex can grow in the face of Claritin generic competition.
295
U. S. Antihistamine Market Dynamics

Sales
U.S. Antihistamine Sales 2001E
Total Prescriptions
U.S. Total Prescriptions Of Antihistamines 2001E
Zyrtec 24%
Zyrtec 26%
Claritin 44%
Claritin 48%
Allegra 28%
Allegra 30%

Clarinex 5%
Clarinex 4%
Zyrtec 26% Claritin 41%
Zyrtec 27%
Claritin 37%
Allegra 29%
Allegra 31%

Claritin 7%
Clarinex 17%
Clarinex 19%
Claritin 6%
Allegra 40%
Allegra 39%
Zyrtec 36%
Zyrtec 36%
U.S. Antihistamine Sales 2005P

Claritin 1% Clarinex 26% Allegra 38%
U.S. Total Prescriptions Of Antihistamines 2005P

Claritin 1% Clarinex 27% Allegra 37%
Zyrtec 35%
Zyrtec 35%
296
COMPARISON OF CLARITIN AND CLARINEX PACKAGE INSERTS Status/Indications Claritin Seasonal allergic rhinitis and chronic urticaria for adults and children 2 years and older 10mg once daily Similar efficacy with clemastine 1mg twice daily 1 to 3 hours 1.3 hours 12% 12% 4% 3% Cytochrome P450 3A4 and D26 Clarinex Allergic rhinitis and chronic urticaria for adults and children 12 years and older 5mg once daily Similar to Claritin Not in label; previous data suggested 30 minutes 3 hours <2% 3% 3% 4% Metabolized to 3hydroxydesloratadine, and then glucuronidated (water solubility increased allowing for easier excretion). The enzyme(s) involved in this process have not been identified. Not clinically significant interactions AWP = $2.19 per tablet Net Direct = $1.83 per tablet
Dosage Effectiveness Onset Tmax Side Effects (In Labels): Headache Somnolence Fatigue Dry Mouth Metabolism
Drug Interactions
Not clinically significant interactions Price AWP = $2.67 per tablet Net Direct = $2.22 per tablet Source: package inserts, clinical data
Schering-Ploughs Claritin Faces Litigation Hurdles Schering is converting Claritin to Clarinex in advance of generic competition, which could occur in 2003. The discovery phase of the Claritin litigation is complete. Magistrate Judge Donald Haneke presided over the discovery phase. Attorneys from both sides filed motions to Judge Haneke, meeting the deadline of December 21. Oral arguments related to the motions will be heard on April 25-26. After hearing the oral arguments, which is expected to last for one day, the judge will render a written opinion of the motions, and a trial date could be established shortly thereafter. Judge Joseph Greenaway will preside over the court hearing. We peg sales of Claritin/Claritin D at $2.7B (-12%) in 2002, declining to $550MM in 2005, due to generic competition.
PATENT AND EXCLUSIVITY ESTATE
Generic Name Loratadine Application Number 020641 Patent Number or Exclusivity Status 4282233 Exclusivity 4659716 Exclusivity 4863931 Exclusivity 5314697 6132758 Date of Expiration 06/19/02 12/19/02 04/21/04 10/21/04 09/15/08 03/15/09 04/23/13 06/01/18 Description Compound patent; treatment of seasonal allergic rhinitis Pediatric exclusivity Metabolite patent; method of treating allergic reactions in mammals by using the active metabolite Pediatric exclusivity Process patent for Desoloratadine Pediatric exclusivity Claritin-D 24 hours Oral syrup
Source: FDAs Approved Drug Products with Therapeutic Equivalence Evaluations
297
Schering has numerous patents covering Claritin, including substance (6/02), desloratadine metabolite substance (4/04), process (9/08), decongestant-24 hour (10/12), Clarinex (desloratadine) use in allergic rhinitis (12/14), and five-years of Clarinex Hatch-Waxman exclusivity that began upon approval in December. These patents cover non-sedating antihistamine compounds and their use. Three Schering patents (#4,282,233, 4,659,719, and 4,863,931) are key to Claritins exclusivity and are being challenged by Geneva (Novartis), Teva, Zenith (IVAX), Andrx, Mylan, Lederle (Wyeth), and Impax. These cases have been consolidated. Aventis Allegra Once Daily Supporting The Franchise Allegra is a non-sedating antihistamine indicated for the treatment of seasonal allergic rhinitis and chronic urticaria. Allegra once daily was launched in 1998 and has accelerated prescription trends. The Allegra franchise had a 27.3% new prescription share of the U.S. antihistamine market in January. Aventis has supported Allegra via heavy DTC promotion. Approval of several new indications and formulations is expected during the coming years, including skin disease (Japan; Q2:02), Allegra once daily (Japan; Q1:04), Allegra-D (U.S.; Q1:04), and Allegra fast melt tablets (U.S.; Q1:04). Results from a 91-patient Allegra Phase II asthma study were positive. Allegra 120mg plus Singulair 10mg improved FEV1 more than Singulair monotherapy after four weeks. Aventis plans to file an NDA for Allegra for asthma in Q2:03. In November 2001, Barr Labs filed an ANDA for generic Allegra. In February, Aventis filed a lawsuit against Barr, prompting a 30-month stay of generic approvals. The case will be heard in the District Court of New Jersey. We forecast sales of the Allegra franchise at $1,885MM (+18%) in 2002 and $2,130MM in 2005. Full Rollout For Pfizers Zyrtec D Boosting Franchise Zyrtec is the #3 antihistamine in the U.S. market with 24.0% share in January 2002, up from 22.6% in March 2001. It is administered once daily and has efficacy on par with Claritin and Allegra. Zyrtec is safe (drowsiness is the most common side effect) and can be prescribed in children older than 2 years. Pfizer initiated a partial launch of Zyrtec D (antihistamine with decongestant) in the Fall, and launched a full rollout in January 2002. Zyrtec D has captured 10% new prescription share of the antihistamine/decongestant market. We forecast Zyrtec sales of $1.15B (+16%) in 2002 and $1.45B in 2005. Industry sources believe that the FDA has the will and capability to force the conversion of the non-sedating antihistamines (Claritin, Allergra, and Zyrtec) from prescription to OTC status. This stems in part from the fact that OTC status is the default position for all drugs, unless they are (1) not sufficiently safe; (2) for an indication that is not easily diagnosed; (3) require collateral procedures, such as diagnostics; or (4) administered or used in a complex fashion. Non-sedating antihistamines meet none of these criteria since they are safe, for a condition that is easy to diagnose, require no collateral procedures, and are easily administered. The FDA makes the decision as to whether to force the conversion, and usually prevails despite opposition. However, 12+ months could be consumed in the process, resulting in a conversion of the products around the time of Claritins patent expiration, assuming the 4/04 metabolite patent is not defended successfully. This time lag is due to the fact that the FDA must issue guidelines, which could take a year to develop. Clarinex is likely to preserve Rx status for 2-4 years, until its safety profile is fully assessed. Schering-Ploughs Conversion To Nasonex Has Gone Well Vancenase (nasal-steroid for allergies) and Vanceril (oral-steroid inhaler for asthma), which Schering markets in the U.S., have been hurt by the manufacturing difficulties and our sales forecasts depict steep declines. Nasonex
Forced Conversion Of Non-Sedating Antihistamines Looks Likely, But Time Lag Long
(nasal-steroid inhaler for allergies), which Schering markets in the U.S. and more than 30 other markets, appears to have avoided any impact. Vancenase lost patent protection in 6/99 although there are no generics yet. Given that the FDA has not published guidelines for generics, exclusivity could be enjoyed for some time. The switch from Vancenase to Nasonex is nearly complete. We forecast sales of Nasonex at $625MM (+19%) in 2002 and $925MM in 2005. Sepracors Soltara Not Approvable Sepracor filed an NDA for Soltara (tecastemizole; formerly norastemizole) for the treatment of allergic rhinitis in May 2001. Data from seven large, and more than thirty smaller, studies that enrolled 3,700+ patients were included in the application. However, the FDA deemed the application not approvable for several reasons including phospholipidosis (an adaptive storage respnose to drug administration), cardiomyopathy (pathologic condition of heart muscle), and the need for additional documentation of the absence of any potential for QTc prolongation. Soltara is administered orally at doses of 15 and 30mg. Soltara D and rapidly dissolving tablet formulations are in early-stage clinical development. Data for Soltara were presented at the American Academy of Allergy Asthma & Immunology meeting in March. A summary of the data is below. Abstract #273: Soltara 30mg Effectively Reduces The Symptoms Of Allergic Rhinitis This study was a randomized, double-blind, trial that assessed the efficacy of Soltara in patients with seasonal allergic rhinitis (SAR). Patients received Soltara 30mg or placebo for 2 weeks, and completed daily diary cards at 12 and 24 hours following each dose. Twelve hours after the first dose, Soltara provided significant reductions in Total Symptoms Score (TSS: the sum of runny nose/postnasal drip, sneezing, itchy nose, itchy/gritty eyes, tearing/watery eyes, red/burning eyes, and ear/palate itching scores) compared with placebo (p=0.001). Soltara was more effective than placebo in reducing TSS, Nasal TSS, Trough Nasal TSS, Non-Nasal TSS, and Trough Non-Nasal TSS (p=0.049 for each parameter). Soltara produced no significant adverse events, no change in the number or intensity of adverse events, and did not affect laboratory parameters, vital signs, or ECG results including QT intervals. Fewer patients treated with Soltara had sedation compared to those receiving placebo (0.5% vs 4.3%, respectively). Abstract #274: Soltara Induces A Rapid And Sustained Inhibition Of Wheal And Flare Reactions Pharmacodynamics, safety, and tolerability at single oral doses of Soltara ranging from 25 to 100mg were studied in this double-blind, placebo-controlled, doseranging trial. Subjects received a morning dose of Soltara 25, 50, or 100mg or placebo (n=16 per group). Histamine-induced wheal and flare measurements were performed at 0.5 hours before and 0.5, 1, 2, 4, 6, 8, 12, and 24 hours after dosing. Wheal and flare inhibition occurred within 0.5 to 1 hour, peaked around 4 hours, and lasted at least 8 hours for all doses. All Soltara doses inhibited the wheal reaction. All Soltara doses were safe and well tolerated, as adverse events were minor and laboratory parameters, vital signs, and EKGs were not adversely affected by any Soltara dose. No relationship was observed between QTc intervals and plasma concentrations of Soltara. Abstract #275: Soltara Effectively Reduces Total And Nasal Allergic Symptoms This was a multi-dose, double-blind, randomized, placebo-controlled, trial that evaluated the efficacy of Soltara when administered to subjects with seasonal allergic rhinitis. Subjects were randomized to placebo, Soltara 15, 30, or 45mg once daily for 2 weeks. Symptoms were assessed prior to dosing (AM snapshot assessment) and 12 hours after dosing (PM reflective assessment) each day. Total Symptoms Score (TSS) improved most for patients treated with Soltara 30mg compared with placebo (p=0.007). Soltara 30mg also reduced non-nasal symptoms compared with placebo (p=0.023). All Soltara doses were more
effective than placebo in reducing NTSS. There were no clinically or statistically significant changes in laboratory parameters, vital signs, EKG measures, including QTC, or number and frequency of clinical adverse events among all treatments, except for significantly fewer adverse events for Soltara 30mg versus placebo. Abstract #285: Soltara Produces Rapid and Sustained Symptom Reduction in Seasonal Allergic Rhinitis This was a large, randomized, double-blind, multicenter trial that assessed Soltaras onset and duration. Subjects were randomized to single doses of Soltara 30mg (n=445) or placebo (n=440). Symptoms were measured in the clinic at 20minute intervals for 4 hours, then outside the clinic at 6 and 8 hours. Onset was defined as the first of 2 consecutive time points with a statistically significant difference between groups. At the first time point 20 minutes after dosing, Soltara reduced symptoms 43%, 25%, and 100% more than placebo as measured by the total symptoms score (TSS), nasal symptoms score (NTSS), and non-nasal symptoms score (NNTSS), respectively. The onset for NNTSS was 20 minutes; all subsequent time points were significantly different from placebo (p-value=0.04). The onset of action for TSS and NTSS was 40 minutes; Soltara reduced TSS (p-values=0.02) and NTSS (p-value=0.04) at all time points when compared with placebo. Adverse events, including sedation and changes in vital signs, were similar in patients treated with Soltara and placebo.
U.S. RESPIRATORY MARKET
Total Prescriptions (000's) % Market Share Beta Agonists-short acting Steroids (Bronchial Inhalers) Leukotriene/5-Lipoxy. Inhibit. Anti-Cholinergics Xanthines & Combos Beta Agonists-long acting Anti-Inflamatory Total 66,959 831 28,505 1987* 34,684 2,938 2001 75,931 23,855 19,315 16,143 8,515 9,113 1,069 153,942 2002E 92,603 26,234 24,720 21,803 9,582 9,286 978 185,206 2005P 92,250 41,000 41,000 20,500 4,100 4,100 2,050 205,000 100% 1% 43% 1987* 52% 4% 2001 49% 15% 13% 10% 6% 6% 1% 100% 2002E 50% 14% 13% 12% 5% 5% 1% 100% CGR 2005P '87-01 '01-05 45% +6% +5% 20% 20% 10% 2% 2% 1% 100% +16% NM +24% -8% NM NM +6% +14% +21% +6% -17% -18% +18% +7%
U.S. ALLERGY MARKET

Total Prescriptions (000's) % Market Share 1987* Antihistamines Steroids (Nasal) Total 20,826 2,880 23,705 2001 105,894 45,834 151,728 2002E 108,258 50,862 159,120 2005P 110,000 90,000 200,000 1987* 88% 12% 100% 2001 70% 30% 100% 2002E 68% 32% 100% CGR 2005P '87-01 '01-05 55% 45% 100% +12% +22% +14% +1% +18% +7%
300

Drug Beconase Vanceril Beclovent Claritin Flovent Accolate Zyrtec Turbuhaler Aerobid Serevent Singulair Aerospan Manufacturer GlaxoSmithKline Schering-Plough GlaxoSmithKline Schering-Plough GlaxoSmithKline AstraZeneca Pfizer AstraZeneca Forest Labs GlaxoSmithKline Merck Forest Labs Patent Expiration 6/99 12/99 12/99 12/02* 11/03 2006-2010 6/07 2007 2007 2/08 8/09 2/13 U.S. Sales in Year Patent Expires ($MM) $90 40 20 1,540 630 ---------------
*Substance patent including pediatric extension; metabolite patent expires 10/04; other patents also provide protection
RESPIRATORY R&D PIPELINE

Company Aerogen Product AeroNeb Pro P-C I II III NDA Q1:02 MKT Comments Q2:02 Continuous mechanical ventilation; 510(k) to be filed in Q1:02; European launch underway; U.S. launch anticipated in Q2:02 Propeon oxide vecro-medisone; bronchial asthma steroid; filed in Japan; launched in U.S. and Europe H1:02 CFC-free version of Aerobid; smaller particle size to increase lung depositon and lower dose; BID; with built-in spacer COPD, anticholinergic; licensed from BoehringerIngelheim; once daily; mutual recognition in E.U. early 2002 Japan; treatment of urticaria Anti-allergy agent; co-developed with Ube Industries, Ltd. Long-acting beta2 agonist; MAA filed for pediatric asthma; PIII for COPD Asthma; dry powder inhaler for Seretide/Advair, Ventolin; Seretide/Advair, Serevent Chronic obstructive pulmonary disease; qD dosing Asthma and COPD; Serevent, Flovent/Flixotide, Ventolin, Advair Beta 2 agonist; asthma, first-line therapy; COPD Q1:03 Monoclonal antibody; anti-IgE-antibody; asthma, allergic rhinitis; with Tanox and Genentech; BLA amendment filing planned for fourth quarter 2002; complete review letter 7/5/01 (FDA requests additional data analysis)
Dainippon
Cubal
Forest Laboratories
Aerospan (Flunisolide HFA) Spiriva
Apr-00
Pfizer, Inc.
Dec-01
Schering-Plough Tanabe AstraZeneca GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Novartis
Claritin Betotastine (TAU-284) Oxis Turbohaler Diskus/Accuhaler Flovent/Flixotide Non-CFC propellant MDIs (GR106642) Seretide/Advair Xolair
Jan-01 Apr-01 2001 200002 Jan-00 20002003 Dec-00
301

Company Schering-Plough Product Asmanex P-C I II III NDA Nov-98 MKT Comments Asthma; MDI (PIII) and dry powder (filed) inhaler; mometasone; approvable letter 10/1/99 2002E Antihistamine; active metabolite of Hismanel; potentially rapid onset and long duration of action Desloratadine; w/Sepracor; various line extensions: syrup (approvable), D12 (approvable), rapidly disintegrating tablet (approvable) 2004 Inhaled steroid for asthma; licensed in U.S. to Aventis in co-development and co-marketing agreement; expected to be launched in 2003 in EU and 2004 in US 2003 2004 Highly selective PDE 4 inhibitor; oral; asthma & COPD; expected to be filed in 2003 and launched in 2004 for COPD indication; asthma indication 1 year behind Lung surfactant factor (LSF); acute respiratory distress syndrome (ARDS); in PIII in EU/US; studies in shock lung did not meet expectations Q3:03 2004 2003 Long-acting beta2 agonist; asthma, COPD Inhaled steriod/long acting beta2 agonist; asthma; COPD 2004 Inhaled corticosteroid with potent antiinflammatory activity; moderate to severe asthma; cooperation with Altana (Byk Gulden) in U.S. Selective, orally active PDE4 inhibitor; COPD Asthma - once daily dosing Beta 2 agonist; asthma and COPD IV for acute use in hospitals 2002 Allergic rhinitis monotherapy Allergic rhinitis; Phase III trials failed to demonstrate a statistically significant improvement versus each product administered separately;fixed-dose combination offers synergistic impact; with Schering-Plough via joint venture Pediatric indications Cystic fibrosis; pediatric indication Seasonal allergis rhinitis; fixed dose combination; Phase III trials failed to demonstrate a sstatistically significant improvement versus each product administered separately 2002E 2003E Beta agonist; single-isomer fomr of Novartis' Foradil; potential benefits over existing longacting bronchodilators Single-isomer form of the leading bronchodilator, albuterol; PIII pediatric studies Therapeutic Categories Outlook 3/2002
Sepracor
Tecastemizole (Soltara)
Q4:00
Schering-Plough
Clarinex
Sep-00
Altana
Ciclesonide MID
Altana
Roflumilast
Altana
Venticute
AstraZeneca AstraZeneca Aventis
Oxis pMDI Symbicort pMDI Ciclesonide
GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Merck Merck Merck
Ariflo Flovent Serevent Singulair Singulair Singulair & Claritin
2002 2001 2003
Pfizer, Inc. Roche Schering-Plough
Zyrtec Pulmozyme (Genentech) Claritin & Singulair
Sepracor
(R,R)-formoterol
Sepracor
Levalbuterol (Xopenex)
302

Company SkyePharma Product Foradil (DPI) P-C I II III NDA 2002 MKT Comments 2003- Multi-dose dry powder aerosol system; long04 acting beta agonist for asthma; in development with Novartis 2003 Single- and multi-dose canister; pediatric asthma, COPD, and CF 2006 Patient adjustable; marketing partner expected in H1:2002 2003 Single- and multi-dose canister; pediatric asthma, COPD, and CF Asthma; once-daily pulmonary delivery; internal pipeline 5-lipoxygenase inhibitor; COPD Novel compounds for asthma and other inflammatory diseases 2004 Recombinant interleukin 4 antagonist; severe asthma 2004 Phosphodiesterase inhibitor (PDE IV); mild to moderate asthma, chronic obstructive pulmonary disease (COPD) 2004 Congenital AAT deficiency; cystic fibrosis Asthma/PAF antagonist (Japan) Asthma - steroid sparing; anti-IL 5 monoclonal antibody Emphysema; with Aventis Behring; two Phase I studies completed; Orphan Drug; Phase II/III in H1:2002 Asthma and COPD; oral, once-daily; good side effect profile; combination with Singulair in development 2004 Dual NK1/NK2 antagonist for treatment of rhinitis, asthma and chronic obstructive pulmonary disease; oral Long-acting beta 2 agonist for asthma; multidose dry powder inhaler Blocks cytokine involved in migration of inflammation-producing eosinophils to lungs; potent, selective antibody for asthma; with Celltech 5-lipoxygenase activating protein inhibitor as oral treatment for asthma; with Vanguard Medical Allergy; PI Japan, PII Europe Continuous; undisclosed biotechnology partner for an undisclosed compound 2006 Oral anti-TNF-alpha (inflammatory inhibitor); successor to roflumilast; COPD Local lung deivery for undisclosed respiratory disease; with undisclosed partner; Phase I studies ongoing 303 Therapeutic Categories Outlook 3/2002
Aerogen Aerogen Aerogen Alkermes
AeroDose Albuterol AeroDose Insulin AeroDose Ipratropium AlbuLast (pulmonary albuterol) pulmonary albuterol ZD 4407 VLA-4 antagonists BAY 16-9996 BAY 19-8004
2002 2005 2002
AstraZeneca Aventis Bayer Bayer
Bayer Eisai GlaxoSmithKline Inhale Therapeutic
Recombinant alpha 1 antitrypsin E-6123 Mepolizumab Alpha-1 Proteinase Inhibitor Phosphodiesterase-4 inhibitor DNK-333
Merck
Novartis
Novartis Schering-Plough
Foradil Anti-IL-5 Mab
2002
Abbott Laboratories
ABT-089
Takeda Aerogen Altana Aradigm
TAK-427 AeroNeb nebulizer Pumafentrine Undisclosed (small molecule)

Company GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Inhale Therapeutic Inhale Therapeutic Inhale Therapeutic Novartis Novartis Roche Roche Product GW-559090 GW328267 SB 683698 (TR14035) SB223412 Albuterol Budesonide Tobramycin E26 QAB-149 R411 R667 P-C I II III NDA MKT Comments Dual alpha 4 integrin antagonist (VLA4); asthma and upper respiratory inflammatory disease Adenosine A2 agonist; asthma, COPD Dual Alpha4 integrin antagonist (VLA4); asthma and rheumatoid arthritis NK-3; COPD Asthma; with PulmoSpheres technology; Phase I ongoing Asthma; with PulmoSpheres technology; Phase I ongoing Cystic fibrosis; with Chiron; Phase I; PulmoSpheres Anti-IgE monoclonal antibody, asthma and allergic rhinitis Long-acting beta-2 agonist for treatment of asthma and COPD Asthma; integrin antagonist; inhibitor of inflammatory cell infiltration Emphysema; selective retinoid agonist; in animal studies restored lung function / regenerate lung tissue COPD; tachykinin receptor antagonist Asthma; chronic obstructive pulmonary disease; selective inhibitor of phosphodiesterase type 4 enzyme; oral 2003 2004 Single- and multi-dose canister; pediatric asthma, COPD, and CF Undisclosed anti-inflammatory; single- and multidose canister; pediatric asthma, COPD and CF Multiple compounds with multiple undisclosed biotechnology partners; single-dose canister Sustained-release pulmonary delivery; with GlaxoSmithKline; deal signed February 2000 Sustained-release pulmonary delivery; with GlaxoSmithKline; deal signed February 2000 Sustained-release pulmonary delivery; with GlaxoSmithKline; deal signed February 2000 2005 Multi-powder inhaler 2005- Seasonal and allergic hay fever 06 2004 Cystic fibrosis; serin protease-inhibitor/channel activating protease inhibitor Asthma and COPD Asthma and COPD PDE4 inhibitor for asthma Asthma; inhaled steroid; non-CFC 304 Therapeutic Categories Outlook 3/2002
Sankyo Schering-Plough
CS-003 PDE4 Inhibitor
Aerogen Aerogen Aerogen Alkermes
AeroDose Budesonide AeroDose Undisclosed AeroDose Undisclosed Undisclosed Small Molecules (Multiple compounds) Undisclosed Small Molecules (Multiple compounds) Undisclosed Small Molecules (Multiple compounds) Ciclesonide DPI Ciclesonide nasal BAY 39-9437 Further preclinical projects Undisclosed preclinical projects AE-0217 Budesonide
Alkermes
Alkermes
Altana Altana Bayer Bayer Bayer Dainippon Kos Pharmaceuticals

Company Kos Pharmaceuticals Pfizer, Inc. Sankyo Sanofi-Synthelabo SkyePharma Product Triamcinolone Modipafant R-133633 SSR-69071 Non-CFC Pulmicort P-C I II III NDA MKT Comments Asthma; non-CFC; IND approved 8/98 PAF antagonist, asthma Pollen allergy hyposensitizer; oral Human leukocyte elastase inhibitor Non-CFC version of AstraZeneca's Pulmicort; corticosteroid for asthma; pre-clinical development 16 19 18 15 86
Total Products In Development
18
305
Notes
306
Sexual Dysfunction
G Quality Of Life Disorder Afflicts Both Men And Women
DEFINITION/ BACKDROP Sexual dysfunction is the inability or unwillingness to engage in sexual intercourse. Male erectile dysfunction (MED), defined as the inability to maintain an erection suitable for sexual intercourse, is very easily diagnosed. Female sexual dysfunction (FSD) is a complex disorder with many types and forms, and is often more difficult to diagnose. 31% CGR 2001-05 We estimate there are about 64MM MED sufferers worldwide, perhaps rising to 77MM in 2005. The FSD market is believed to be of equal size. Drugs are available for MED, and a number are in development. FSD has proven to be a more challenging area in which to develop drugs.
PARTICIPANTS
Sexual Dysfunction Drug Sales As A Percentage of The Category

2001
$1.6B
PHA 2% Other 5% GSK/ BAY 10% Other 10%
2005P
$5B
PFE 49%
PFE 93%
LLY/ICOS 29%
Pfizer should continue to dominate the MED market through 2005, but Eli Lilly/ICOS and Bayer/GlaxoSmithKline are expected to make substantial inroads into the market. MAJOR TRENDS & ISSUES Oral 5-phosphodiesterase inhibitors should remain the mainstay of therapy for MED. Competition is intensifying and we expect a fierce marketing battle between Pfizers Viagra, ICOS/Lillys Cialis and Bayer/GlaxoSmithKlines Vardenafil. Assuming efficacy and safety profiles hold up, topical products (MacroChem, NexMed) eventually could rival oral therapies in terms of share. However, MacroChem has suffered development setbacks. The implants/surgery market likely will not change appreciably given that these options are reserved for patients with no alternatives. The female sexual dysfunction (FSD) market has big potential, but is very early in development. Clinical studies in women are ongoing. Our scatter plot shows that, through 2005, Pfizer and Lilly will dominate the sexual dysfunction market. Sexual dysfunction is important to sales growth for both companies.
307
Sexual Dysfunction
90%
70%
50%
30%
LLY
10%
BAY
PFE
-10%
-30% $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
G MED Market Could Total $4.7B In 2005 Versus $1.6B In 2001

DETAILED DISCUSSION We expect the MED market to total $4.7B in 2005 from $1.6B in 2001. Our estimates are based on 64MM worldwide sufferers currently, rising to 77MM in 2005, with growth stemming from the aging population where the incidence of MED is higher. Most importantly, we anticipate that the percentage of patients seeking treatment will accelerate, driven by newer oral therapies and the pharmaceutical industrys marketing and awareness programs. Currently, about 7-8% of MED sufferers in the U.S. seek help, and we assume a similar percentage of patients seek help worldwide. We expect the percentage of men seeking treatment for MED to expand to 15%+ by 2005. Oral therapies are prescribed first regardless of the degree of MED due to ease of administration, despite being most effective in the treatment of mild/moderate disease. Their effectiveness, and a substantial placebo effect, make oral therapies serious competitors in the moderate/severe segments. Thus, we see oral therapies continuing to dominate the market through 2005, with an estimated market share of 90%+. Invasive therapies previously dominated the market, but have lost share with the introduction of oral drugs. While probably more effective than oral therapies in moderate/severe disease, administration hurdles lowered invasive therapys market share prospects from roughly 70% in 1997 to only 3% in 2001. We expect market share for topical/invasive therapies to increase gradually between now and 2005.
308
MED MARKET DYNAMICS

MED Sufferers (MM) % Seeking Treatment Patients Treated (MM) Oral Therapies Market Share Patients (MM) Viagra Share Number of Patients Price Per Dose Sales (MM) Cialis Number of Patients Price Per Dose Sales (MM) Vardenafil Number of Patients Price Per Dose Sales (MM) Uprima/Ixense Share Number of Patients Price Per Dose Sales (MM) Topical Other/Invasive Market Share Patients (MM) Other Invasive/Topical Therapies Number of Patients Price Per Dose Sales (MM) MUSE Share Number of Patients Price Per Dose Sales (MM) Caverject Share Number of Patients Price Per Dose Sales (MM) Other Therapies Market Share Patients (MM) Implant Share Number of Patients Average Cost of Procedures Sales (MM) Surgery Share Number of Patients Average Cost of Procedures Sales (MM) Total Market Sales (excluding surgery and implants) 1% 0.0 $5 $10 3% 0.1 46% 0.1 $15 $47 22% 0.0 $16 $25 32% 0.0 $16 $35 1% 0.04 70% 0.0 $5,000 $155 30% 0.01 $10,000 $130 $1,635 1% 0.1 $5 $15 4% 0.2 69% 0.1 $10 $75 17% 0.0 $16 $30 14% 0.0 $16 $25 1% 0.05 70% 0.0 $5,000 $183 30% 0.02 $10,000 $156 $1,935 2001 64 7% 4.4 96% 4.2 99% 4.2 $7 $1,518 2002E 67 8% 5.2 95% 5.0 94% 4.7 $7 $1,700 5% 0.2 $7 $90 2003E 70 10% 7.0 94% 6.6 79% 5.2 $7 $1,900 18% 1.2 $7 $425 2% 0.1 $7 $50 1% 0.1 $5 $20 5% 0.4 83% 0.3 $10 $155 12% 0.0 $16 $35 5% 0.0 $16 $15 1% 0.06 69% 0.0 $5,000 $195 31% 0.02 $10,000 $175 $2,600 2004P 74 13% 9.8 93% 9.2 63% 5.8 $7 $2,100 27% 2.5 $7 $900 7% 0.7 $7 $250 2% 0.2 $5 $40 6% 0.6 91% 0.5 $10 $275 8% 0.0 $16 $40 1% 0.0 $16 $5 1% 0.06 68% 0.0 $5,000 $215 32% 0.02 $10,000 $205 $3,610 2005P 77 17% 12.8 92% 11.8 53% 6.3 $7 $2,300 33% 3.8 $7 $1,400 12% 1.4 $7 $500 2% 0.2 $5 $60 7% 0.9 93% 0.8 $10 $435 6% 0.1 $16 $45 1% 0.0 $16 $5 1% 0.08 67% 0.1 $5,000 $280 33% 0.03 $10,000 $275 $4,745
Note: All sales calculations, except for surgical procedures, assume usage of 52 doses per year.
309
G MED Is A Widespread Disorder

MED, the inability to achieve or maintain an erection sufficient for satisfactory sexual performance, is a problem that greatly inhibits a mans quality of life. Men with MED often suffer from depression, impaired relationships, and low self-esteem. Incidence of MED is closely correlated with age, but is not an inevitable result of aging, although organic conditions resulting in MED are seen more frequently in older patients. Indeed, moderate/severe MED afflicts about 5% of men at age 40, rising to 15-25% at age 65+. Patients over 50 years of age account for 75% of all patients with MED. In 1994, The Massachusetts Male Aging Study showed that more than one-half of men over age 40 have some degree of erectile dysfunction. The degree to which stress exacerbates MED may not be fully appreciated.
G Various Therapies Help Vast Number Of Patients

Viagra, the first important oral medication, dominates the MED market. We expect Viagras share of the oral market to decline to 53% in 2005, post the introduction of Cialis and Vardenafil. Given side effect concerns, we forecast that TAPs Uprima (Ixense in Europe) will be a niche player in the MED market. Ixense is rolling out in Europe and we project sales at $60MM in 2005. Schering-Plough/Zonagens Vasomax received a not-approvable letter, and clinical development remains on hold pending the completion of additional animal toxicology studies. We have no sales for Vasomax in our Schering-Plough model. VIVUS MUSE should continue to lead the invasive therapy market, with sales in 2005 forecast at $45MM. Topicals, such as NexMeds Alprox and MacroChems Topiglan, ultimately could rival orals as the agents of first choice if efficacy and side-effect profiles hold up in more advanced clinical trials. Injectable products likely will have a small place in the overall market, but dominate the market for patients in whom other therapies do not work. Pharmacias Caverject sales are estimated at only $5MM in 2005, due to generic competition which began in 1998. The market for other non-surgical therapies is forecast at $555MM in 2005.
G PDE-5 Inhibitors Likely To Remain Oral Therapies Of First Choice

The phosphodiesterase-5 (PDE-5) inhibitors likely will remain options of first choice based on efficacy, and benign side-effect profiles. New PDE-5 inhibitors should make inroads into the oral MED market.
PDE5 INHIBITOR MED DRUGS
Attribute Time to onset of action t (h) Food Interaction Duration of action (intercourse >1 in 24h period) IC50 (nM) for PDE5** IC50 (nM) for PDE6** IC50 (nM) for PDE1** Most common side effects Cialis 16 min.* 16-20 No Yes Vardenafil NA 4 NA NA Viagra 30 min. 4 Yes NA Comment Likely to be relatively similar for all drugs Longer half life could increase dosing convenience Delays onset of action Longer half life provides for larger window of effect Target enzyme in corpus cavernosum muscle of penis PDE isoform in retina PDE isoform believed to mediate flushing Differential selectivity causing slight differences in sideeffect profile Inhibition of unknown PDEs potentiates effects of nitrates
1 0.7 6 780 157 10 >10,000 180 80 Headache/ Headache/ Headache/ dyspepsia flushing flushing Nitrate interaction Likely Likely Yes *First responder: 16 minutes for Cialis vs. 11 minutes for Viagra Time to maximum effect: 2 hours for Cialis vs. 50-55 minutes for Viagra **Low numbers imply greater affinity for enzyme Source: Company Data, SG Cowen
310
Pfizers Viagra Likely To Remain First Line Therapy - Viagra is a phosphodiesterase type-5 inhibitor approved for the treatment of MED, and in Phase II development for FSD. More than 15MM men have been treated with Viagra thus far, and it is supported by over 100 clinical trials. Viagra should continue to dominate the MED market for the foreseeable future, given that it is effective and well tolerated by patients. Viagras growth has been steady and more predictable in recent quarters. Refills account for roughly 60-65% of total Viagra prescriptions, suggesting that the majority of patients who use Viagra are satisfied with the efficacy and side-effect profile of the product. Indeed, 86% of men are satisfied with Viagra after two years of therapy, according to Pfizer. Our physician consultants are most impressed with Viagras ability in the treatment of mild/moderate disease, probably given that these patients are the easiest to treat. Viagra is believed to increase performance of not only men suffering from MED, but also men with normal function. Viagra works by correcting a specific deficiency seen in patients with MED, low levels of nitric oxide, and this is accomplished by inhibiting the enzyme type 5-phosphodiesterase, which inhibits breakdown of nitric oxide. Pfizer believes that it is the leader in phosphodiesterase science, and notes that there are 11 types of phosphodiesterase located throughout the body. PDE11 recently was discovered and has an unknown role in the body, but is concentrated in the testes, pituitary glands, and heart. Eli Lilly/ICOS Cialis inhibits PDE-11; the clinical significance of this inhibition is unknown. Viagra and Bayer/GlaxoSmithKlines Vardenafil apparently do not inhibit PDE-11. We estimate sales of Viagra at $1,700MM (+12%) in 2002 and $2,300MM in 2005. Pfizers European Patents Unlikely To Block Competitors From Approvals The European Patent Office rejected patent #702,555 owned by Pfizer in July 2001. The patent claims compounds of specific chemical structure that are inhibitors of PDE enzymes and that are used as a treatment for male erectile dysfunction. The action mirrors a previous decision by the United Kingdoms High Court in November 2000 that certain claims of the patent were invalid because of obviousness. In January 2002, the U.K. Court of Appeals upheld the earlier ruling. Although composition of matter protection remains for sildenafil (the active ingredient in Viagra) under European patent #463,756 until 2011, rejection of the 555 patent allows commercialization of drugs with a dissimilar chemical structure that are used to treat MED by inhibiting PDE enzymes. Claims #9-11 of the 555 patent describe use of inhibitors of cGMP PDE enzymes to cure or prevent male erectile dysfunction. Cialis and Vardenafil are inhibitors of the type 5 PDE isoform. Given the U.K. Court ruling last year, the action by the EPO was expected. Nonetheless, the decision should clear the way for Cialis and any other effective drugs that target the PDE5 enzyme as a means of treating MED to be commercialized in Europe. If Pfizer appeals the decision, it is unlikely that resolution would occur before 18-24 months. ICOS/Eli Lillys Cialis Could Expand MED Market - Cialis (IC351), a phosphodiesterase (PDE) type-5 inhibitor for the treatment of male erectile dysfunction, is being co-developed with ICOS. Cialis is more selective than Viagra for the PDE-5 enzyme, perhaps avoiding ocular side effects and offering superior efficacy. Cialis duration is much longera potentially significant benefitbut the long-term effects of this duration are still being clarified. Cialis improves erections in men with mild to severe MED, has a long duration, rapid onset, and can be taken with or without food. Lilly filed an NDA for Cialis in June 2001. We estimate Cialis sales at $90MM in 2002 and $1.4B in 2005.
311
Bayer/GlaxoSmithKlines Vardenafil Looks More Similar To Viagra Than Cialis Bayer/GlaxoSmithKlines Vardenafil is a PDE-5 inhibitor for the treatment of MED. Vardenafil is administered at 1/5th the dose of Viagra given that it is 9-10x more potent. It may lack a nitrate interaction, given higher specificity for the PDE-5 receptor seen in animal models. Bayer/GlaxoSmithKline filed an NDA for Vardenafil in September 2001. We forecast sales of Vardenafil at $50MM in 2002, rising to $500MM in 2005. Relevant data from a Phase III study of 601 men are depicted below.
VARDENAFIL IN TREATMENT OF ED (CHANGE FROM BASELINE)
Dosing group Placebo Vardenafil 5 mg* Vardenafil 10 mg* Vardenafil 25 mg* IIEF Q#3 0.2 1.2 1.3 1.5 IIEF Q#4 0.5 1.4 1.5 1.7
*p<0.001 Source: Abstract #57 Vardenafil, a New Highly Selective PDE5 Inhibitor, Improves Erectile Function Irrespective of the Baseline Severity and Etiology of ED or Age of Patient
Vardenafils half-life is reported to be approximately 3.9 hours versus a half-life of approximately 3.8 hours for Viagra. As shown in the following table, Vardenafil is more selective for the PDE5 than the PDE6 enzyme than is Viagra. Data for Cialis suggest that the drug has a substantially higher degree of specificity as well as a several-fold longer half life than does either Vardenafil or Viagra. Although Vardenafil would appear to be more similar to Cialis with respect to target specificity, its relatively short half-life could make it more similar to Viagra with respect to efficacy.
VARDENAFIL/VIAGRA RELATIVE SELECTIVITY RATIOS*
PDE Isoform PDE1 PDE5 PDE6 Vardenafil 257 1 224 Viagra 80 1 10
UK-369,003: Could Improve Upon Viagra Pfizer is developing a second generation 5phosphodiesterase inhibitor, UK-369,003, to determine whether improvements might be made on Viagra. UK-369,003 is more selective for PDE-5 versus PDE-6, an important feature relative to side-effect profiles. UK-369,003 is in Phase II.
G Outlook For Other Oral Therapies Mixed

Other oral therapies have encountered development setbacks for a variety of reasons. TAPs Uprima (apomorphine), Ixense in Europe, has been plagued by side effect concerns, most notably nausea and interaction with alcohol. Schering-Plough/Zonagens Vasomax remains on clinical hold post data associating the drug with tumor formation in rats. TAPs Uprima/Ixense Rolling Out In Europe; NDA To Be Refiled Late 2002 Uprima/Ixense (apomorphine) acts within the central nervous system via agonism of dopamine receptors, producing erections when given by sublingual tablet. The drug is not an opiate. Side effect questions were raised by the FDA, and thus TAP initiated a 750 patient Phase III study aimed at addressing these concerns. The study is expected to be completed in H2:02, and an NDA submission is anticipated in late 2002. In the meantime, the drug is rolling out in select European countries. Schering-Plough/Zonagens Vasomax Clinical Development Remains On Hold Vasomax, for the treatment of mild to moderate MED, was filed in the U.S. in July 1998 and
in the U.K. in August 1998. Zonagen accepted a not-approvable letter on Vasomax in May 1999, rather than undergo an FDA Advisory Committee review. At that time, Schering was conducting 12-week clinical studies, which it believed were important for the panel to consider. These trials would not have concluded before the panel review. In August 1999, the FDA prevented the initiation of new studies with Vasomax due to adverse animal toxicology data, although it allowed a 12-week Vasomax study to conclude. Brown fatty deposits, which is fat stored by animals that hibernate, were found in 3-5% of the male rats treated with Vasomax, and this was statistically different from that seen in rats given placebo. There was no statistical difference between Vasomax and placebo in female rats. Vasomax remains on clinical hold in the U.S. (clinical hold has been lifted in the U.K.) at least until the mechanistic study is completed and analyzed. It could be submitted to the FDA in mid-2002. An amendment was submitted to U.K. authorities in late 2001. We have no contribution for Vasomax in our Schering-Plough models. NexMeds Alprox-TD/Femprox Leads The Race Within Topical Agents - NexMed is developing Alprox-TD, a topical cream formulation of alprostadil, which uses a skin penetrating technology called NextACT. In November 2001, NexMed initiated two pivotal Phase III clinical studies with Alprox-TD. The program will enroll up to 2,500 men with mild, moderate and severe MED at approximately 80 U.S. sites. The two pivotal Alprox-TD Phase III trials are randomized, double-blind, placebo-controlled, and will assess the efficacy and safety of Alprox-TD in patients with various degrees of MED. Patients in the studies are required to administer twenty-four at-home applications of Alprox-TD, and attempt intercourse after each application. Upon completion, patients will have the option to continue to receive Alprox-TD in a one-year, open-label study. NexMed's Phase III studies will include patients who cannot take currently approved oral ED medication. In a Phase II study, men with severe MED (n=142) reported improvement in their erections (measured by Global Assessment Questionnaire) of 83%, 76% and 59% in the high, medium and low dose groups, respectively, compared with 26% for those treated with placebo. The results suggest a dose response (p=0.009) based on the change in the Erectile Function (EF) scores of the IIEF (International Index of Erectile Function). After six weeks of treatment, the changes in the EF scores were 9.4, 6.5 and 6.3 for the high, medium and low dose groups, respectively, versus 2.7 for the placebo-treated patients. The change in score was 6.7 between the high dose (9.4) and the placebo (2.7) groups. The side effects observed were described as mostly mild to moderate, and Alprox-TD was well tolerated. Alprox-TD was launched in China in 2001. NexMed also is developing Femprox, a topical alprostadil for female sexual dysfuction. FemProx entered Phase II in May 2001. The Phase II trial will randomize 110 premenopausal women diagnosed with female sexual arousal disorder (FSAD) to Femprox cream or placebo for six weeks. Patients will undergo 10 at-home applications and attempt intercourse after each application, and maintain a diary. Efficacy will be based on the patients' assessment of satisfactory sexual arousal during intercourse. NexMed expects to complete the study by the end of March. Alprox-TD/Femprox sales are estimated at $10MM in 2002 and $100MM in 2005. Outlook For MacroChems Topiglan Unclear Post Setback - MacroChem is developing a topical gel formulation of alprostadil called Topiglan for the treatment of MED. Topligan is applied to the glans of the penis prior to intercourse. Topiglan utilizes MacroChems proprietary SEPA (Soft Enhancer of Percutaneous Absorption) technology to increase the alprostadil uptake through the skin. In September 2001, Phase III results revealed that
Topiglan improved erectile function, but did not improve intercourse rates. Hence, it appears another pivotal study will be necessary to garner approval which likely will delay the NDA filing until Q4:02 (originally targeted for Q4:01). Macrochem is seeking a development partner to fund the additional pivotal studies that are necessary for approval. The most frequent side effect observed with Topiglan is mild to moderate transient warmth. We peg sales at $25MM in 2003 and $100MM in 2005.
G Female Sexual Dysfunction (FSD) Market Could Rival MED In Size

A survey taken in 1997 showed that, of 527 women who responded, roughly 35% experienced a loss of libido, 12% had a low intercourse enjoyment level, and 7% were orgasmic dysfunctional. The poll was taken in women of all ages, although the average age was not disclosed. A small age-related trend was observed, with post-menopausal women experiencing a greater incidence of sexual dysfunction. This survey highlights the large population of women that have FSD. Findings from the Sex In America study performed in 1994 demonstrated that approximately 54% of all women suffer from FSD in one form or another. Viagra has brought attention to FSD. Some experts believe that the worldwide FSD market eventually could surpass the MED market in terms of number of patients. Many Disorders Comprise Female Sexual Dysfunction - FSD is a culmination of many disorders. In most cases the various disorders overlap, making diagnosis and treatment difficult. The most prevalent disorder is hypoactive sexual desire: the persistent absence (as judged by the clinician, not the patient) of sexual desire. However, normal sexual desire is subjective, thus a clinician may not be able to accurately determine a womens sexual desire. There are no reliable sexual desire markers, making it difficult to create a meaningful endpoint for this disorder. Drug therapy is unlikely to have an effect in this segment because few drugs increase libido. Sexual aversion disorder is the unwillingness to engage in sexual intercourse usually resulting from sexual abuse or rape. Psychiatric counseling appears to be the best treatment for sexual aversion disorder. Arousal disorder is the failure to attain proper lubrication and occurs most often in post menopausal women. Indeed an estimated 50%+ of post menopausal women are estimated to suffer from arousal disorder. Often very painful, arousal disorder can affect desire for intercourse. Evidence suggests arousal disorder may be the result of insufficient blood flow to the clitoris and vagina, suggesting that the problem could be vascular. Vasoactive drugs, such as Viagra, could be effective in this population. Early work involving rabbits supports the thesis that arousal disorder is vascular. Female orgasmic disorder is the delay or absence of orgasm during intercourse. This disorder is also difficult to diagnose due to the relationship that exists between intercourse duration and the ability of a woman to achieve orgasm. Drug or hormonal therapy could have a role in this segment of the FSD market, as both increase the sensitivity of the genitalia. Dyspareunia is the presence of recurrent genital pain. This disorder is partially, but not exclusively, due to vaginismus, the severe tightening of the muscle in the vagina. Dyspareunia is very hard to diagnose due to the fact that it is difficult to reproduce in a physicians office. Arousal Disorder Is Widespread Among Post Menopausal Women - Arousal disorder is the most prominent form of FSD among post menopausal women and early studies point toward the efficacy of drug therapy. It is estimated that of the 26 million post menopausal women in the U.S., 65% are sexually active at least once per year and 56% (17MM) suffer from arousal disorder. Of these 17 million women, 8 million have intercourse at least 24 times per year. Of those 8 million women, 2 million have intercourse 120 times per year.
Thus, roughly 565+ million intercourse episodes occur each year in the U.S. post menopausal population, with an estimated 315+ million (56%) occurring with women suffering from arousal disorder. The large number of women sufferers creates a huge market opportunity for a multitude of drugs that could alleviate the symptoms of arousal disorder.
Frequency of Arousal Disorder

Post menopausal U.S. women % that have intercourse 12x per year Total Number (MM) % that have intercourse 24x per year Total Number (MM) % that have intercourse 120x per year Total Number (MM) 26MM 65% 17 29% 8 6% 2 X 24 = 183 # of intercouses per year X 12 = Total # of intercourses 203
120
183 568 56% 318
Total # of Intercourses Per Year % of Women Estimated With Arousal # of Intercourses Estimated To Occur With Arousal Disorder
G Drug Therapies Have Shown Mixed Results For FSD Thus Far
The use of vasoactive drugs, such as Viagra or topical formulations of alprostadil, could be the best alternatives in treating FSD. Hormone replacement therapy also holds promise. While each therapy has advantages and drawbacks, we believe that FSD likely will be treated with combination therapies. Vasoactive Drugs Increase Blood Flow To Relevant Tissues - Vasoactive drugs are thought to increase blood flow to the clitoris because smooth muscle cells, similar to penile erectile tissue, are present in the clitoral tissue (PDE-5 is also present). It is hypothesized that increasing the blood flow to the genitals would increase the sensitivity of the area, allowing women to experience a heightened sense of pleasure. While many physicians believe this is the case, others point out that many post-menopausal women suffer from vaginal dryness and as a result, would probably find this alternative to be very painful. Viagra could have potential in pre-menopausal women without vaginal dryness that suffer from arousal disorder. Unfortunately, Viagra does not increase sexual desire and would not be effective in treating hypoactive sexual desire. Viagra was not effective in treating FSD in a small Phase II study. Vasoactive intestinal polypeptide (VIP) is hypothesized to have a role in treating FSD associated with the vagina (dryness and muscle tightening). In addition, Abbotts Uprima and NexMeds Alprox are potential FSD treatments. Hormones May Reverse Atrophy, Dryness And Dyspareunia - Hormone replacement therapy is the most attractive FSD solution due to a possible correlation between hormone levels and FSD. Specifically, estrogen replacement may reverse genital atrophy, improve vaginal dryness, decrease dyspareunia, and alleviate depression. However, estrogen likely
has little effect on libido. Results of several clinical studies have been inconsistent and more trials are needed to determine estrogens utility in treating FSD. There are not many studies involving the use of progesterone in treating FSD and early results appear unfavorable due to side effects. In fact, progesterone may dampen sexual desire. Testosterone could be an attractive treatment for FSD in cases where women are surgically testosterone deficient. The Burger study in 1984 and the Cardora study in 1987 support the use of testosterone in women. However, several questions remain unanswered with the use of testosterone: physicians do not know the appropriate dose, how to determine which patients are candidates, or whether a minimum level of testosterone is needed for normal female sexual function. Also, there are three very unfavorable side effects associated with the use of testosterone: (1) HDL cholesterol reduction, although this can be negated with the use of estrogen; (2) severe acne; and (3) a deepening of the voice. The best method of administering testosterone is also unclear. Currently available tablets and patches are given at doses too high for women. Implants and monthly injections could be options, but are less desirable methods of administration. Lack Of Clear Endpoints Makes Study Design Complicated - Endpoint assessment is very difficult with FSD. Unlike MED, which has an endpoint that can be documented easily, FSD is largely subjective. This makes it difficult, but not impossible, to create endpoints that can be demonstrated in clinical trials. In addition, there are no markers for the diagnosis of FSD, making it more difficult to accurately diagnose patients. Surrogate endpoints, like vaginal lubrication or muscle relaxation, may not lead to a higher level of sexual satisfaction. Thus, results of clinical trials could be meaningless. Endpoints of FSD trials must be clearly defined and support the drugs indication. Full clinical trials are needed for a drug to get an indication in women, although off-label usage already is underway with Viagra. Early Studies Underway; Much Work Remains To Be Done - Phase II trials of Viagra in FSD are ongoing. Phase II focused upon finding the best dose, screening for vascular side effects, and determining utility in pre and post menopause. Additional studies are expected with Viagra and other compounds. MacroChem is in the preliminary stages of determining the role of topical gels in the treatment of FSD. NexMed has initiated a Phase II study in women with Femprox which should conclude in March. Of course, safety data in men may not be applied to women; thus full safety data needs to be compiled.
U.S. SEXUAL DYSFUNCTION MARKET
Total Prescriptions (000's) % Market Share 1987* Viagra (PFE) Cialis (LLY) Vardenafil (Bayer) Uprima (ABT) MUSE (VVUS) Caverject (PHA)/Generics Other Total Source: IMS America; SG Cowen estimates 2001 20,046 0 0 0 182 222 48 20,499 2002E 22,929 0 0 0 185 240 55 23,409 2005P 31,800 12,000 12,000 3,000 600 600 600 60,000 1987* 2001 98% 0% 0% 0% 1% 1% 0% 100% 2002E 98% 0% 0% 0% 1% 1% 0% 100% CGR 2005P '87-01 '01-05 53% 20% 20% 5% 1% 1% 1% 100% +12% NA NA NA +35% +28% NA +31%
* 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements.
316

Drug Viagra Uprima Vardenafil Cialis Manufacturer Pfizer Abbott/Takeda Bayer Lilly/ICOS Patent Expiration 6/11 4/14 2014 1/16 U.S. Sales in Year Patent Expires ($MM) --
317
Notes
318
G New Therapies Expanding The Market
Urinary incontinence (UI) the loss of bladder control or the leakage of urine results from numerous causes, including pelvic muscle instability, pregnancy, surgery, urinary tract infections, and certain foods and medications. Urinary incontinence includes urge incontinence (characterized by a frequent desire to urinate) and stress 30% CGR 2001-05 incontinence (characterized by weak bladder muscles). Overactive bladder encompasses both increased urinary frequency and urge urinary incontinence. More than 13MM Americans suffer from some form of urinary incontinence, and 18MM+ from overactive bladder. Pharmacologic therapies, pelvic muscle rehabilitation, and surgery are most frequently used to treat urinary incontinence and overactive bladder. The demonstrated effectiveness of older treatments varies widely and side effects are an issue, providing a ready market for newer therapies.
Urinary Incontinence Drug Sales As A Percentage Of The Category

PARTICIPANTS
2001
$852MM
JNJ 12% Other 26% PHA 40%
2005P
$3.1B
JNJ 9% PHA 88%
PFE 20%
Pharmacias Detrol (tolterodine) franchise, indicated for overactive bladder, should continue to lead the overactive bladder/incontinence drug market through 2005. Pfizer should displace JNJ from the #2 position, capturing 20% dollar share in 2005. Eli Lilly has a clinical development program that could alter the market landscape by 2005. MAJOR TRENDS & ISSUES The UI and overactive bladder patient populations are large, but difficult to penetrate given lack of effective therapies and embarrassment over the consequences of the ailments. A large number of patients have entered the treatment stream over the past three years, due to the new drug therapies, which have an improved side-effect profile over older treatments. New oral agents for urge incontinence and overactive bladder, led by Pharmacias Detrol LA and JNJs Ditropan XL, appear comparable in terms of effectiveness and side effects. Pfizers Darifenacin has a novel mechanism and is generating excitement.
319
Our scatter plot shows that through 2005, Pharmacia should dominate the incontinence market. Urinary incontinence is critical to the sales growth of Pharmacia.
30%
PHA
25%
20%
15%
10%
5%
PFE JNJ
0%
-5%
-10% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40
DETAILED DISCUSSION
G Utilization Of Drug Therapy For Incontinence Expected To Increase

Drug therapy is the primary treatment for both urge and mixed urinary incontinence and overactive bladder. Until the approval of Pharmacias Detrol in March 1998, the FDA had approved only two compounds, oxybutynin and flavoxate, both indicated for urge incontinence. Treatment of incontinence with drugs historically has been disappointing due to adverse side effects and/or poor efficacy. The anti-cholinergic agent oxybutynin is the most widely used compound to treat UI; however, its use has been limited by the fact that, in its immediate release form, it causes moderate to severe dry mouth in more than 70% of patients. Utilization of drug therapy also has been reduced by the fact that many sufferers do not seek treatment. It is estimated that half of the roughly 18MM+ adults suffering from overactive bladder either are too embarrassed to discuss their symptoms with health care providers or are not aware that pharmacological treatment is available. Therefore, the most prevalent therapies for incontinence and overactive bladder remain over-the-counter remedies, such as pads and diapers. We estimate that only 5-6% of the overactive bladder population in the U.S. used drug therapy in 2001. Aggressive direct-to-consumer advertising campaigns and physician detailing programs by Pharmacia and JNJ are raising patient awareness and shifting incontinence treatment toward drug therapy. We project that 10-12% of the overactive bladder patient population may use drug therapy in 2005.
ESTIMATED WORLDWIDE MARKET FOR URINARY INCONTINENCE DRUGS BY CLASS ($MM)

$ NRx 2001 2005P 01-05 87-01 Market % Total Market % Total CGR CGR Comments $852 100% $1,724 55% 19% NA - PHA's Detrol LA, JNJ's Ditropan XL 0 $852 0% 1,400 45% 100% NM 30% NM - PFE's Darifenacin, WPI's Oxytrol 18% - Driven by switch to drug therapy
Drug Class Anticholinergic Agents Emerging Therapies Total Market
100% $3,124
The majority of pharmaceutical sales for the treatment of urinary incontinence are in the United States. International sales are anticipated to accelerate over the next few years as physician awareness increases.
ESTIMATED U.S. MARKET FOR URINARY INCONTINENCE (UI) DRUGS*
2000 2001 2002E 2003E 2004E 2005E CGR Comment
U.S. Patient Population/Prescriptions (000's) Overactive Bladder Sufferers % Growth % With Urge UI Symptoms Urge UI Sufferers % UUI Patients Seeking Treatment UUI Patients Seeking Treatment Drug Therapy Market Share UUI Patients Seeking Drug Tx % UUI Patients On Drug Therapy Number of Scrips Filled/Year % Growth Detrol LA (PHA) Market Share Prescriptions (000's) % Growth Price Therapy/Day Price/Prescription Detrol LA Sales ($MM) Darifenacin (PFE) Market Share Prescriptions (000's) % Growth Price Therapy/Day Price/Prescription Darifenacin Sales ($MM) Ditropan XL (JNJ/AZA) Market Share Prescriptions (000's) % Growth Price Therapy/Day Price/Prescription Ditropan XL Sales ($MM) Detrol (PHA) Market Share Prescriptions (000's) % Growth Price Therapy/Day Price/Prescription Detrol Sales ($MM) Oxytrol (WPI) Market Share Prescriptions (000's) % Growth Price/Prescription Oxybutynin TD Patch Sales ($MM) Duloxetine (LLY) Market Share Prescriptions (000's) % Growth Price Therapy/Day Price/Prescription Duloxetine Sales ($MM) Oxybutynin Market Share Prescriptions (000's) % Growth Price/Prescription Oxybutynin Generics Sales ($MM) Other Therapies Sales ($MM) Total Incontinence Drug Sales ($MM) % Growth 26% 2,341 -5% $17.50 $41 $10 $560 +37% 21% 2,350 +0% $16.00 $40 $15 $780 +39% 14% 1,900 -19% $16.00 $30 $20 $1,025 +31% 24% 2,148 +124% $2.75 $82.50 $179 48% 4,287 +22% $2.50 $75.00 $324 25% 2,790 +30% $2.75 $82.50 $230 27% 2,975 -31% $2.80 $84.00 $250 28% 3,820 +37% $2.75 $82.50 $315 16% 2,200 -26% $2.80 $84.00 $185 3% 438 $80.00 $35 17,955 +3% 30% 5,385 36% 1,960 38% 745 14% 8,940 +28% 18,475 +3% 30% 5,545 40% 2,220 42% 925 17% 11,100 +24% 26% 2,885 $2.75 $82.50 $238 19,050 +3% 30% 5,715 44% 2,490 46% 1,135 20% 13,734 +24% 38% 5,275 +83% $2.75 $82.50 $435 19,640 +3% 30% 5,890 47% 2,785 54% 1,495 25% 17,940 +31% 38% 6,790 +29% $2.75 $82.50 $560 13% 2,381 $2.80 $84.00 $200 25% 4,485 +17% $2.75 $82.50 $370 11% 2,025 -8% $2.80 $84.00 $170 6% 1,000 +129% $80.00 $80 1% 180 $2.75 $82.50 $15 6% 1,100 -42% $16.00 $18 $25 $1,440 +40% 20,270 +3% 30% 6,080 48% 2,945 64% 1,895 31% 22,740 +27% 41% 9,335 +37% $2.75 $82.50 $770 20% 4,524 +90% $2.80 $84.00 $380 22% 5,090 +13% $2.75 $82.50 $420 6% 1,310 -35% $2.80 $84.00 $110 6% 1,375 +38% $80.00 $110 2% 365 +103% $2.75 $82.50 $30 4% 800 -27% $16.00 $13 $30 $1,865 +30% 20,900 +3% 30% 6,270 49% 3,070 +3% - 18MM+ Americans with overactive bladder, 13MM+ Americans w/ UI (1MM overflow UI, 4MM stress UI, 3MM urge UI, 5MM mixed UI) - Includes portion of patients with mixed UI - Assumes 38-40% of patients now seek treatment +8% - NAFC survey (100K members) showed 50%+
+3%
74% 2,285 +25% 36% 27,420 +25% +21% 41% 11,275 +21% $2.75 $82.50 $930 +41% 24% 6,548 +45% $2.80 $84.00 $550
- Assumes all patients compliant - Aggressive marketing improving diagnosis - Once-daily LA launched 1/01 - Improved side-effect profile compared to Detrol - 2,100+ U.S. reps detail - Priced at par with standard Detrol
- Phase III complete; NDA 2002E; 2003E launch
- Assumes priced at par with Detrol/LA NA - Pfizer's Darifenacin and Watson's Oxytrol clip - Launched 2/99 for overactive blatter - JNJ/ALZA, UCB Pharma and Bayer co-promotion - 1,200+ U.S. reps detail - Conversion to once-daily accelerates in 2002
21% 5,695 +12% $2.75 $82.50 $470 +20% 3% 835 -36% $2.80 $84.00 $70 6% 1,750 +27% $80.00 $140 2% 605 +66% $2.75 $82.50 $50 3% 700 -13% $16.00 $10 $35
-27%
- Likely will remain dominant franchise with LA - Oxybutynin patch; improved side-effect profile - Marketed by Women's Health, GP Division & CSO combined 1000E+ U.S. reps to detail
NA - Eli Lilly - Stress urinary incontinence; limited efficacy
NM
- Assumes NDA filed in 2002 - Share decline with launch of new therapies
-29% +24% - Various others - Improved treatments, better compliance (Market sales include generics)
$2,260 +30% +21%
Source: SG Cowen estimates, IMS America. * Patient population and scrips in 000's; sales in $MM.
321
URINARY INCONTINENCE: TYPES, CAUSES, AND WHO IT AFFECTS Type Overflow Causes Associated with the overdistension of the bladder due to an underactive/acontractile detrusor or bladder outlet/urethral obstruction Occurs when the bladder is unable to handle increased compression during certain activities (e.g., coughing, exercise, lifting); very common and usually curable Caused by a sudden, involuntary bladder contraction Patient Population Men with benign prostatic hyperplasia and/or prostate cancer People with certain neurological conditions (diabetic neuropathy, spinal cord injury, etc.) Female adults Radiation therapy patients Surgical patients (e.g., prostate surgery) Trauma patients Patient Population Number % Total 1MM 10%
Stress
4MM
30%
Urge
50%+ of the elderly and people living in long-term care facilities Diabetics Stroke victims 20%+ of acute care hospital patients People with neurological disorders (dementia, multiple sclerosis, Parkinsons, etc.) Older women
3MM
20%
Mixed All UI Types Overactive Bladder
A combination of both stress and urge UI; the most common type of UI
5MM+ 13MM+
40% 100%
People with symptoms of urinary frequency
18MM+
Source: Agency for Health Care Policy and Research; Merck Manual; National Association for Continence; National Institutes of Health. DRUGS THAT ARE USED TO TREAT URINARY INCONTINENCE UI Type/Drug Class Overflow UI Cholinergic Agonists Stress UI Alpha Adrenergic Agonists Class Action/Comments Increases tonicity and contractility of bladder Only useful for short-term acute urinary retention Examples of Marketed Drugs MRKs Urecholine*, Shires Duvoid* rarely used
Increases smooth muscle tone at the bladder outlet and, hence, Ephedrine*, increases bladder outlet resistance phenylpropanolamine*, pseudoephedrine*
Estrogen Therapy
May restore urethral mucosal coaptation and increase

vascularity, tone, and alpha-adrenergic responsiveness of urethral muscle and, hence, improves bladder outlet resistance
Estrogens*
Urge UI Anticholinergics
Inhibits detrusor contraction; may produce increased bladder capacity, and delay and reduce amplitude of involuntary contractions May decrease bladder contractility Has anticholinergic and direct relaxant effects on the detrusor
PHAs Detrol/LA, JNJ/AZAs Ditropan XL, JNJ/AZAs Urispas
Non Steroidal AntiInflammatory Drugs Tricyclic Antidepressants Various UI Types Many Other Drug Classes
Various Novartis Tofranil*
Certain beta agonists, calcium channel blockers, muscle relaxants, and potassium channel activators have been used offlabel with mixed results or are in development for a UI indication Source: National Institutes of Health. * Drugs are FDA approved but lack a UI indication.
322
G Detrol/LA and Ditropan XL Dominate The Treatment Market

Both Detrol/LA and Ditropan XL are advances over prior therapy due to their reduced incidence of side effects (particularly dry mouth) and improved dosing regimen. Immediate-release oxybutynin generally is dosed at 2.5mg two or three times daily. At the 5mg dose, up to 70% of patients discontinue use of immediate-release oxybutynin within six months due to side effects, particularly dry mouth. Detrol is dosed at 2mg twice daily, with no titration. Detrol LA is dosed at 2-4mg once-daily and Ditropan XL is dosed at 5-30mg once daily, with the dose titrated to efficacy and patient tolerance. In the clinical studies published on the respective package inserts, Detrol and Detrol LA show superior tolerability to Ditropan XL, with overall dry mouth incidence reported at 39.5% for Detrol and 23.5% for Detrol LA, versus 60.8% for Ditropan XL. On the efficacy front, the drugs appear similar in their reduction (17-22%) of urinary frequency. These two franchises (Detrol and Ditropan XL) garnered 75%+ of new prescriptions in the incontinence market as of January 2002. Pharmacias Detrol/LA Franchise Holding Steady Pharmacias Detrol (tolterodine; overactive bladder) franchise has tightened its hold on the overactive bladder/urinary incontinence market. For the past two years, Pharmacia has conducted a wide-reaching patient and physician education program to increase treatment of incontinence and overactive bladder. Indeed, Detrols franchise growth has been maintained by increasing utilization in the primary care market. Detrol is efficacious in reducing the number of micturitions and the volume voided per micturition, and Detrol LA has shown similar results with an improved dosing profile. Given the good relative tolerability, acceptable efficacy, and strong marketing support, we believe the Detrol franchise will maintain its market leadership position. Detrol new prescription market share has declined from 46.6% in January 2001 to 19.2% in January 2002, while Detrol LA has garnered 31.2% NRx share since its launch in January 2001, a net increase of 3.8% for the franchise. With 2,100 reps now promoting Detrol and Detrol LA in the U.S., Pharmacia is enjoying strong penetration of the general practitioner market, which now accounts for 60%+ of Detrol and Detrol LA sales. Pharmacia cites new launches in Europe and Japan, new data (ACET, STAT, MERIT), and new indications as key drivers of the Detrol franchise. We estimate Detrol franchise sales of $775MM (+26%) in 2002, rising to $915MM (+18%) in 2003, and $1.2B+ in 2005.
URINARY INCONTINENCE MARKET
40.0%
35.0%
30.0%
25.0% Market Share
20.0%
15.0%
10.0%
5.0%
0.0% 16-Feb-01 2-Mar-01 8-Jun-01 11-May-01 25-May-01 22-Jun-01 4-Jan-02 17-Aug-01 31-Aug-01 14-Sep-01 28-Sep-01 21-Dec-01 18-Jan-02 3-Aug-01 7-Dec-01 1-Feb-02 16-Mar-01 30-Mar-01 23-Nov-01 15-Feb-02 13-Apr-01 27-Apr-01 20-Jul-01 12-Oct-01 26-Oct-01 9-Nov-01 6-Jul-01
Detrol
Ditropan XL
Detrol LA
Source: SG Cowen
323
JNJ/ALZAs Ditropan XL Performing Well In More Severe UI Population JNJ/ALZAs Ditropan XL is performing well in the face of Detrol LAs rollout: as of January 2002, Ditropan XL held new prescription market share of 27.3%, up 3.4% from January 2001. In the pivotal Phase III studies, Ditropan XL reduced overall incontinence episodes by 81% (83% for urge UI) and urination frequency by 15% after 12 weeks of treatment. More than 43% of patients achieved complete continence. The overall incidence of severe dry mouth was 17%, and only 1.2% of patients dropped out due to dry mouth. The Ditropan XL label indicates a high rate of dry mouth (60.8%), giving Detrol and Detrol LA a tolerability advantage over Ditropan XL. Ditropan XL appears to have an advantage over Detrol in reducing overall incontinence episodes (approximately 83% vs. 50%), although clinicians are not convinced there is a significant difference between the drugs. Aggressive marketing efforts by JNJ/ALZA and U.S. co-promotion partners Bayer and UCB Pharma have resulted in better-than-expected penetration of the target patient population, notably the more severe urinary incontinence patients treated by urologists.
OBJECT Study Results Favor Ditropan XL, As Expected In April 2001, ALZA announced the results of its OBJECT study, a double-blinded, head-tohead comparison of Ditropan XL versus Detrol twice-daily. Results of this ALZA-sponsored study showed Ditropan XL to be more effective than Detrol in each of the main urinary incontinence measures. Urge incontinence episodes per week were 6.1 (baseline 25.5) for Ditropan XL versus 7.8 (baseline 24.1) for Detrol (p-value = 0.03); total incontinence episodes per week were 7.1 (baseline 28.6) for Ditropan XL versus 9.3 (baseline 27.0) for Detrol (p-value = 0.02); and urination frequency episodes per week were 67.1 (baseline 91.8) for Ditropan XL verse 71.5 (baseline 91.6) for Detrol (p-value = 0.02). Ditropan XL had a slightly superior side effect profile, with an incidence of total reported dry mouth of 28.1% versus 33.2% for Detrol. However, the side effect results were not statistically significant. The commercial impact of the trial is diminished by the use of Detrol for the comparator arm, rather than Detrol LA. We believe that the increased promotional effort by JNJ following its acquisition of ALZA in Q2:2001 has helped expand the incontinence treatment market. Our 2002 sales estimate for Ditropan XL is $330MM (+43%), increasing to $370MM (+12%) in 2003, and $470MM in 2005.
OBJECT STUDY RESULTS
Parameter Urge Incontinence Ep/wk Baseline End of study (95% CI) Total Incontinence Ep/wk Baseline End of study (95% CI) Micturation Frequency Ep/wk Baseline End of study (95% CI) Source: Johnson & Johnson/ALZA
Ditropan XL 25.6 +/- 14.7 6.1 +/- 9.7 (4.4-7.3) 28.6 +/- 17.9 7.1 +/- 12.0 (5.2-8.6) 91.8 +/- 22.6 67.1 +/- 22.1 (64.6-70.0)
Detrol BID 24.1 +/- 14.5 7.8 +/- 11.1 (6.7-9.5) 27.0 +/- 17.0 9.3 +/- 13.4 (8.0-11.3) 91.6 +/- 20.2 71.5 +/- 20.5 (69.1-74.2)
P-value 0.24 0.03
0.34 0.02
0.86 0.02
324
COMPARISON OF DITROPAN XL, DETROL LA AND DETROL PACKAGE INSERTS Detrol LA (Tolterodine QD)
Marketed for the treatment of overactive bladder with symptoms of urge urinary incontinence, urgency, and frequency 2-4 mg once-daily with or without food; 4 mg once-daily is recommended dose Incontinence episodes/week with Detrol LA reduced by 11.8 (baseline of 22.1) compared with placebo of 6.9 (baseline of 23.3) 8.4 hours Patients with urinary or gastric retention, or uncontrolled narrow-angle glaucoma Patients with hepatic or renal impairment, bladder outflow obstruction Prozac; CYP3A4 inhibitors
Ditropan XL (Oxybutynin QD)
Detrol (Tolterodine BID)

Marketed for the treatment of overactive bladder with symptoms of urge urinary incontinence, urgency, and frequency 1-2 mg BID with or without food; 4 mg daily is recommended dose Incontinence episodes/week with Detrol reduced by 8.4 (baseline of 16.8) compared with placebo of 5.6 (baseline of 17.5) 3.1 hours Patients with urinary or gastric retention, or uncontrolled narrow-angle glaucoma Patients with hepatic or renal impairment, bladder outflow obstruction Prozac; CYP3A4 inhibitors
Status/Indications
Marketed for the treatment of overactive bladder with symptoms of urge urinary incontinence, urgency, and frequency
Daily Dosage
5-30 mg once daily with or without food
Efficacy
Incontinence episodes/week with Ditropan XL reduced by 15.8 (baseline of 15.9) compared with placebo of 7.6 (baseline of 20.9)
Half-Life
13.2 hours
Contraindications
Patients with urinary or gastric retention, or uncontrolled narrow-angle glaucoma
Precautions
325
Patients with hepatic or renal impairment, bladder outflow obstruction, and GERD
Drug Interaction
Other agents that cause dry mouth; PK studies with other agents that are metabolized by the cytochrome P450 enzyme have not been conducted
Safety Profile: Dry Mouth
60.8% of patients treated with Ditropan XL reported dry mouth; rate of dry mouth with placebo not disclosed primarily cytochrome P450
23.4% of patients treated with Detrol LA reported dry mouth versus 7.7% of placebo-treated patients Hepatic; 2D6 primarily cytochrome AWP of $2.80 per day (4mg dose) P450
39.5% of patients treated with Detrol reported dry mouth versus 15.9% of placebo-treated patients Hepatic; 2D6 primarily cytochrome P450 AWP of $2.80 per day (4mg total dose)
Metabolism
Hepatic; CYP3A4
Price
AWP of $2.75 per day (10mg dose)
Source: Physician's Desk Reference
G Pfizers Darifenacin Targets Overflowing Market

Pfizer is developing Darifenacin, an M3 receptor antagonist, for the treatment of overactive bladder. Phase III studies of Darifenacin involving 2,000 patients are complete, and Pfizer targets an NDA filing in 2002. Darifenacin blocks M3 muscarinic receptors, but is very specific to M3 receptors in the gut. Darifenacin 7.5 and 15mg administered once daily have shown solid efficacy, reducing both urgency (primary symptom of overactive bladder) and number of incontinence episodes per week relative to placebo. Constipation has been observed in patients, but is reversible upon discontinuation, led to only a small dropout rate during clinical trials, and is treatable with a laxative. Pfizer claims that Darifenacin has less impact on salivary flow, and also is associated with less blurred vision and cognitive impairment than other M3 antagonists. Darifenacin may test the role of selectivity in increasing bladder excitability. Our physician consultants are skeptical that selectivity is important, and believe Darifenacin could have side-effects relating to the existence of M3 muscarinic receptors in the bowel and eye. However, our consultants also note that, if selectivity proves to be important, Darifenacin could be a huge success. Extensive head-to-head studies are underway. We estimate sales of Darifenacin at $200MM in 2003 and $600MM in 2005.
G Watson May Have Patched Together A Solid Niche Market Opportunity

In April 2001, Watson filed an NDA for its oxybutynin transdermal patch (Oxytrol) for the treatment of overactive bladder. By avoiding first pass metabolism, and by providing a steady therapeutic blood level, Oxytrol may moderate the dry mouth side-effects common to oxybutynin. A 520-patient Phase III trial at varying transdermal doses (1.3, 2.6 and 3.9 mg/day), demonstrated statistically significant efficacy relative to placebo, for both incontinence episodes and urinary frequency, with the best results seen at the 3.9 mg/day dose. The 3.9 mg arm showed statistical significance relative to placebo in reducing the median number of incontinence episodes per week, reducing the median micturition frequency per day, and increasing urine volume per urination (p<0.05). Importantly, Oxytrol 3.9 mg/day showed only a 10% incidence of dry mouth, comparing favorably to Ditropan XL and Detrol LA. We assume Oxytrol will be primarily used as a second-line therapy for patients intolerant to the dry-mouth side effects of Detrol LA Ditropan XL, or for geriatric patients that have difficulty swallowing tablets. Watson plans to structure a co-promotion agreement with a pharmaceutical partner or enlist a contract sales organization to support the Oxytrol launch. Watson plans to finalize its Oxytrol commercialization strategy by the end of Q1:2002, and is anticipating approval in late-April and launch in May/June 2002, following the presentation of additional Oxytrol data at the May 2002 American Urological Association meetings. Oxytrol Vs. Detrol LA Study A Rigorous Test For Oxytrol, But Results Are Mixed In February 2002, Watson announced preliminary results from the Phase IIIb study comparing Watsons Oxytrol to Detrol LA and placebo. The trial included 361 adult patients (93% women) with urinary urgency, frequency and urge incontinence symptoms; patients were treated for 12 weeks and tracked urinary frequency, volume and incontinence episodes via a diary. The trial was designed as double-blind, double-dummy; patients were randomized into three arms receiving either Detrol LA 4mg once daily plus a placebo transdermal patch, Oxytrol 3.9mg daily dose (via a twice-weekly transdermal patch) plus a placebo tablet, or placebo patches and tablets. Importantly, the patient population was fully-enriched; i.e., all patients had been previously treated with drug therapy for overactive bladder and were responsive to, and tolerant of, the drug therapy. The Oxytrol treatment group showed a statistically significant reduction (p<0.05) in incontinence
episodes per day from baseline (-62%), versus a 42% reduction in the placebo group, and similar efficacy to the Detrol LA treatment arm (-64%). As previously observed in the Oxytrol Phase III trials, the incidence of dry mouth reported by the Oxytrol patients was not statistically different from that reported by the placebo patients: dry mouth occurred in 4.1% of Oxytrol treated patients versus 1.7% for placebo. However, the surprise was the relatively low 7.4% incidence of dry mouth for Detrol LA, which compares favorably to the Detrol LA label (23-24%). We do not believe that these results meaningfully differentiated Oxytrol from Detrol LA on dry mouth side effects. And the incidence of application site irritation (primarily minor itching) observed in the Phase IIIB study apparently was similar to the 17% observed in the Phase III studies, a competitive disadvantage relative to the oral therapies. Assuming a mid-2002 launch, we estimate Oxytrol patch sales of $35MM in 2002, $80MM (+129%) in 2003 and $140MM in 2005.
G Additional Products Could Slowly Emerge From The Pipeline

Several additional compounds for incontinence are in development, highlighted by Sepracors S-oxybutynin and Eli Lillys duloxetine. Sepracors S-oxybutynin is a single isomer formulation of oxybutinin, and may demonstrate greater efficacy while reducing anticholinergic side effects (primarily dry mouth). S-oxybutynin is in Phase III studies for urge incontinence, but higher S-oxybutinin doses require three-year carcinogenicity testing, which will delay NDA filing until 2002. In June 2001, Sepracor initiated an additional twelve-week, Phase III study for Soxybutynin in a sustained-release formulation; the study will include approximately 850 patients. Duloxetine is a norepinephrine reuptake inhibitor that is in Phase III studies for stress UI in the U.S., Europe and Japan; an NDA filing for stress incontinence is planned for 2002. Our physician consultants indicate that Lilly also is pursuing clinical studies of Duloxetine in urge urinary incontinence. Lilly also is studying duloxetine as a treatment for depression. Yamanouchi is in Phase III development for YM-905, a muscarinic M3 antagonist. AstraZeneca has a potassium channel activator in Phase II development, which appears to be well tolerated. Interneuron Pharmaceuticals is in Phase II trials for once-daily Trospium, a muscarinic receptor antagonist, which may have similar efficacy to immediate-release oxybutinin, with a more favorable side-effect profile.
U.S. URINARY INCONTINENCE MARKET
Total Prescriptions (000's) % Market Share 1987* Detrol, Detrol LA Ditropan, Ditropan XL Oxybutinin, others Total 1,456 1,456 2001 7,794 3,466 3,922 15,182 2002E 11,058 5,760 27,009 43,827 2005P 15,400 15,400 13,200 44,000 100% 100% 1987* 2001 51% 23% 26% 100% 2002E 25% 13% 62% 100% 35% 35% 30% 100% +7% +18% CGR 2005P '87-01 '01-05 NA +19% +45% +35% +30%

Drug Ditropan XL Duloxetine Darifenacin Detrol LA Manufacturer JNJ/ALZA Eli Lilly Pfizer Pharmacia Patent Expiration 12/03 2008-16 3/10 2012 U.S. Sales in Year Patent Expires ($MM) ---------
327
UROLOGY R&D PIPELINE

Company Watson Pharmaceuticals Daiichi Eli Lilly Pfizer, Inc. Product Oxytrol (Oxybutynin TD Patch) KMD-3213 Duloxetine Darifenacin Q4:02 2002 P-C I II III NDA Apr-01 MKT Comments 2002 Urge urinary incontinence and overactive bladder; via Theratech; comparative data vs. Detrol LA in H1:02 Treatment of dysuria; selective a 1A blocker; oral; with Kissei 2003 Stress urinary incontinence; inhibits serotonin and norepinephrine; twice daily 2003 Gut-selective M3 mjuscarinic antagonist for urge urinary incontinence; less impact on salivary flow, less blurred vision and cognitive iimpacts; head-to-head comparisons underway Incontinence; single-isomer form of Ditropan; in developoment for the treatment of urge incontinence New indicaton: alpha-1 receptor antagonist; lower urinary tract symptoms Urinary incontinence, muscarinic M3 antagonist; PIII in Europe and U.S.; PII in Japan Urinary stress incontinence; tachykinin inhibitor; JV with Takeda 2004 Stress urinary incontinence; Alpha 1 agonist Chronic nephropathy; absorption of uremic toxins Anti-urinary incontinence patch Form addition; oral controlled absorption system; Europe Urinary incontinence; PI in Japan; PII in Europe and U.S.; PII for depression and IBS in U.S.; on clinical hold K channel opener; overactive bladder; erectile dysfunction Urinary incontinence; NK3RA 2005 Overactive bladder Overactive bladder 6 6 1 17
Sepracor
(S)-Oxybutynin
Yamanouchi Yamanouchi Abbott Laboratories Roche Sankyo Sankyo Yamanouchi Takeda
YM-617 (tamsulosin) YM-905 TAK-637 R450 Kremezin MM-801 YM-617 (tamsulosin) TOCAS TAK-637
Abbott Laboratories GlaxoSmithKline Roche Roche
ABT-598 SB223412 R483 R701 Total Drugs In Development 0
328
329
330
331
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Pharmaceutical Therapeutic Categories Outlook: March 2002

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Pharmaceutical Therapeutic Categories Outlook: March 2002

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March 2002

Pharmaceutical Therapeutic Categories Outlook

Kenneth C. Cacciatore (617) 946-3968 cacciatk@sgcowen.com

Jean B. Perreault (617) 946-3967 perreauj@sgcowen.com

Pharmaceutical Therapeutic Categories Outlook

SG COWEN PHARMACEUTICAL UNIVERSE

Pharmaceutical Sales Could Expand 8% Annually During 2001-05

Head Trauma/SCI 0.2% Transplant 0.8% Glaucoma 1.1% Incontinence 1.1%

Respiratory 7% Cancer 13%

Therapeutic Categories Outlook 3/2002

Central Nervous System................................................................... 101 Diabetes .......................................................................................... 137

Epilepsy ........................................................................................... 161

Gastrointestinal/Ulcer ..................................................................... 169

Glaucoma ................................................................................................ 179

Head Trauma/Spinal Cord Injury .................................................... 193

Infectious Disease............................................................................ 209

Oncology/Hematology.................................................................... 241 Osteoporosis/Hormone Replacement................................................ 271

Respiratory ...................................................................................... 285

Sexual Dysfunction.......................................................................... 307

Urinary Incontinence ....................................................................... 319

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Therapeutic Categories Outlook 3/2002

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

$6,403 $14,635 $13,494

$685 $25,762 $39,513

Therapeutic Categories Outlook 3/2002

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

$16,190 $21,271 $1,635 $4,745 $1,775 $2,478

$852 $3,124 $172,697 $219,852 $372,402 $509,284

Therapeutic Categories Outlook 3/2002

Major Trends & Issues In Therapeutic Categories Through 2005

% Of Company 2001-05 Sales Growth From Category

2005 Sales Contributed By Company To Category ($ In B)

% Of Company 2001-05 Sales Growth From Category

SGP WYE JNJ

ROHHY BMY GSK AVE TDCHF NVS ESALY

2005 Sales Contributed By Company To Category ($ In B)

Therapeutic Categories Outlook 3/2002

% Of Company 2001-05 Sales Growth From Category

2005 Sales Contribution By Company To Category ($ In B)

Therapeutic Categories Outlook 3/2002

G Central Nervous System

% Of Company 2001-05 Sales Growth From Category

ELN MRK AVE ROHHY ABT NVS BMY

WYE JNJ AZN

2005 Sales Contributed By Company To Category ($ In B)

Therapeutic Categories Outlook 3/2002

% Of Company 2001-05 Sales Growth From Category

LLY AVE PFE GSK

ABT JNJ BAY 0% NVS PHA ESALY

2005 Sales Contribution By Company To Category ($ In B)

Therapeutic Categories Outlook 3/2002

% Of Company 2001-05 Sales Growth From Category

2005 Sales Contributed By Company To Category (S In B)

Therapeutic Categories Outlook 3/2002

% Of Company 2001-05 Sales Growth From Category

WYE NVS LLY ESALY GSK MRK ABT TDCHF

2005 Sales Contributed By Company To Category ($ In B)

Therapeutic Categories Outlook 3/2002

G Head Trauma/Spinal Cord Injury

100% % Of Company 2001-05 Sales Growth From Category

2005 Sales Contributed By Company To Category ($ In B)