Aug 30, 2018 Global Pharmaceuticals Keeping Up with the Biosimilars RESEARCH ANALYSTS Vamil Divan, MD (1)-212-538-5394 vamil.divan@credit-suisse.com Uy Ear (1)-212-325-1729 uy.ear@credit-suisse.com Michael V. Morabito, Ph.D. (1)-212-325-7298 michael.morabito@credit-suisse.com European Pharma Team (44)-207-888-0304 creditsuisse.pharmateam@credit-suisse.com Ray Kim (82)-2-3707-3776 ray.kim@credit-suisse.com DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Updating Our Biosimilar Deep Dive: We published a “biosimilar deep dive” note in May 2018 that was well-received by investors and included a significant amount of background information on the development status of various biosimilars that are targeting important blockbuster products. Given the rapid newsflow in the biosimilar space, we are publishing an update to our deep dive today that includes the latest information around the status of various biosimilars, along with additional thoughts on how the regulatory, legal and payer landscape may evolve to help create a more vibrant biosimilar market, including in the US. Next Week’s FDA Public Hearing Should Provide Important Insights: The FDA is hosting an all-day public hearing on Tuesday, Sept 4th to discuss “Facilitating Competition and Innovation in the Biological Products Marketplace” (agenda). We will be listening closely to the discussion to understand the perspective various stakeholders have in this debate, although we see clear momentum behind the efforts to boost biosimilar adoption in the US. Novartis, Pfizer, Merck Best Positioned, While AbbVie, Roche Amongst Most at Risk: Novartis, Pfizer and Merck all face risk of sales erosion from biosimilars in the coming years, but they are also developing their own biosimilars that we expect to help offset some of that risk. On the other side of the spectrum, we see AbbVie and Roche as the two companies most exposed to biosimilar risk given the threat to their blockbusters Humira (for AbbVie) and Rituxan, Herceptin and Avastin for Roche. 2 Executive Summary Biosimilars Finally Prepared to Make Their Mark The authors of this report wish to acknowledge the contribution made by Selvakumar Nallasamy and Brajesh Nirala, employees of CRISIL Global Research and Analytics, a business division of CRISIL Limited. CRISIL Limited is a third-party provider of offshore research services to Credit Suisse. 3 Greater Proportion of Branded Prescription Drug Sales Coming from Biologics and Complex Molecules Biosimilars Market Opportunity Source: Credit Suisse PharmaValues Database and Credit Suisse Analysis Global Branded Prescription Drug Sales Estimate by Molecule Type (Sales in $ Bn) $0$100$200$300$400$500$600$700$800$90020102011201220132014201520162017201820192020202120222023Small MoleculeBiologics/Complex moleculesVaccinesOthers*Note: Throughout the analyses in this note, complex small molecule drugs (ex: Copaxone, Invega Sustenna) are classified under biological category An estimated ~$115Bn of $293Bn (based on 2022 sales) in annual global biological sales is expected to no longer have patent protection by 2023, leaving door wide open for biosimilar competition 4 Now in the Middle Innings of a Robust Period of Patent Expiries for Branded Biologic Products Biosimilars Market Opportunity Source: Credit Suisse PharmaValues Database and Credit Suisse Analysis Sales During the Year Before Patent Expiry of Biologics Whose Patent Expire by 2023 (Year of Patent Expiry in X axis; Prior Year Sales in $ Bn in Y axis) 20102011201220132014201520162017201820192020202120222023Ex-US$0.8$0.7$5.2$2.0$11.7$13.3$1.3$4.9$12.0$4.8$2.4$6.4$5.7$2.4US$0.7$0.3$3.5$2.2$2.3$12.7$1.3$10.9$7.3$12.5$3.5$3.5$23.2$1.0$0$5$10$15$20$25$30USEx-USNotable productsinclude Humira (US), Victoza, Stelara and Lucentis (Ex-US)Notable productsinclude Lantus, Enbrel (Ex-US), Neulasta (US), Remicade (Ex-US) and Epogen (US)No of patent expiries, US 1 (0) 1 (0) 4 (1) 3 (1) 3 (1) 8 (3) 4 (0) 7 (3) 7 (2) 11 (5) 5 (1) 3 (2) 6 (3) 4 (0) No of patent expiries, ex-US 2 (0) 1 (0) 8 (2) 5 (1) 6 (4) 10 (5) 4 (0) 9 (1) 8 (2) 12 (1) 6 (0) 7 (2) 10 (2) 5 (1) Note: Numbers in the parentheses denote the number of patent expiries of blockbuster drugs (sales >$1bn) 5 Roche, AbbVie Have Most Absolute Sales At Risk from Biologic Patent Expiries, While Novo and AbbVie Have Highest Portion of Sales At Risk Biosimilars Market Opportunity Source: Credit Suisse PharmaValues Database, Thomson Eikon, First Order Analytics and Credit Suisse Analysis $12.4$12.6$7.6$9.0$3.3$5.8$3