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EXCLUSIVE LIFE SCIENCE FEATURE leaders LIFESCIENCELEADER.COM MARCH 2014 46 Productivity improvements have low- ered Lilly's R&D; costs, despite creating the biggest pipeline in its history, the company reported. Successful launches of its oral diabetes 2 drugs will give the company a good shot at expansion in the primary-care market, it said. As Lilly was open, AstraZeneca was particularly opaque, even in the break- out, and no amount of quibbling queries could roll back the company's official cover. "Why ask such detailed questions about AZ's pipeline when they won't share anything not already disclosed?" I tweeted. "The only novel information companies and their chief executives disclose are insights into their strategic thinking in answer to insightful ques- tions." It was difficult, however, to see anything beyond AZ's single, monolithic strategy these days, which I described as, "Be into everything, overwhelmingly, and you're bound to win more than lose." Merck (MSD), on the other hand, was trying its best to be transparent. CEO Ken Frazier stressed "accelerated stra- tegic actions for growth," but unfortu- nately he was playing against the back- drop of clinical setbacks and patent losses, accenting how good times for the company now appear to lie only in the past or in hopes for the future. It seems Merck still struggles with the integra- tion of Schering-Plough, which forced the company to make hard decisions about products and therapeutic areas that would remain in the combined pipe- lines. Whether Merck made the right choices will only become obvious over time. The more failures it has coming out of the clinic, the greater the pressure on management to reconfigure the pipeline yet again, at least by acquiring some rela- tively low-risk products. Meanwhile the other Merck, aka Merck KGaA or Merck Serono, is looking and sounding more and more at home in the larger world. When I first visited the company in Darmstadt in the early 1990s, it could at best aspire to regional expansion beyond Germany and the EU. Now, thanks to Serono's previous foot- hold in the United States and market growth since the merger, the company has successfully reoccupied territory it lost to reparations after World War I. It was modest in its disclosures at the conference, however, citing sales growth and gross margin "in line" with its peers while also noting below-benchmark spending in R&D; and SG&A; (selling, gen- eral, and administrative). Look for more biosimilars and fewer specialty drugs in this Merck's future, as it tries to squeeze still more productivity out of R&D.; But the company will also continue to innovate in its strong areas, such as endocrinology, and in new ones, such as combination cancer immuno- therapy. Takeda is another company leaving regionalism behind, and over time, it is becoming more global than Japanese in management, strategy, and culture. At this year's JP Morgan Healthcare Conference, Life Science Leader hosted an off-site, private roundtable of small- cap CEOs and investment experts. a number of small companies and even held a private roundtable of small-cap CEOs and investment experts off-site. Much editorial will flow from those encounters over the months ahead, but here I will focus a bit more on the large pharmaceutical companies that are trying to retain, or restart, their own momentum this year. Roche, like its neighbor on the Rhine, had good news to declare. It touted its sales growth and pipeline rebound in the past few years and said it flirted with double-digit growth and margins in 2013. Roche has certainly pumped up its oncology pipeline with a number of candidates for single or combination immunotherapy. On the other end of the teeter-totter from Novartis and Roche was Lilly, whose CEO John Lechleiter displayed extraordinary patience in the breakout as he and his team tackled sometimes picayune queries about the company's pipeline. Setbacks in clinical trials, of which Lilly seems to have had more than its share, put the company in the sights of more than one questioner eager to score sardonic points. Why do disappointing trials still sur- prise us? Doubtless, Lilly needs some successes, but I can see no reason to believe at this point that its remarkable but largely unremarked crop of candi- dates will yield worse results than other companies' pipelines, in the long run. If Lilly has problems in R&D;, they are likely similar to what you would find on close inspection among its peers. Some Big Pharmas obviously have a higher rate of success in picking winners from the well of life sciences discovery. But if companies are now competing as well on clinical trial design and execution or operational excellence in general, none has made an obvious leap ahead of the pack. Lilly is pinning more immediate hopes on its Novel Basal Insulin Analog prod- uct, which would be consistent with its history of leadership in diabetes. If the product launches as hoped in 2016, it will employ much of the company's underused manufacturing capacity. MAINTAINING MOMENTUM: 2014 PHARMA & FUNDING FORECASTS AT JPMHCC By W. Koberstein 0 3 1 4 _ F e a t u r e _ J P M _ F . i n d d 3 0314_Feature_JPM_F.indd 3 2 / 2 0 / 2 0 1 4 4 : 4 6 : 3 1 P M 2/20/2014 4:46:31 PM