There is no question that the shift to value-based reimbursement models will have a major

There is no question that the shift to value-based reimbursement models will have a major impact on the economics of healthcare. Payers will be looking for ways to significantly reduce costs in all areas where a range of viable lower cost solutions are available, and will force providers to use those wherever possible through increasingly restrictive reimbursement policies. As an example, one area where this type of change has been implemented successfully for years is in the increased use of generic drugs, where payers no longer offer unrestricted reimbursement for the use of high cost, premium priced branded biopharmaceutical products that deliver only minor benefits in terms of convenience, or slight improvements in efficacy to small percentages of patients. This type of value-based review is now going on in all areas within healthcare, and is resulting in changes that are having a major impact on what services and products are selected, and who bears what percentage of the cost of that selection. At the same time that payers and other ‘at-risk’ organizations are looking for any and all opportunities to move to lower cost alternatives, they are also continuing to invest in the adoption of innovative new therapeutics which can both improve outcomes and deliver quantifiable value, even when considering their additional costs and premium pricing. The products that receive this type of support from payers are ones that are focused on addressing truly unmet medical needs and deliver significant efficacy or safety benefits to patients, when compared to existing standards of care. They are also usually based on new technologies that enable novel approaches to the treatment of diseases and disorders. There are vast areas in medicine where large unmet medical needs exist and where scientific and technological progress is enabling entirely new approaches to addressing these. Where these intersect are areas of great opportunity for experienced investors. RAPID ACCELERATION IN INNOVATION IN TARGETED SECTORS Biopharmaceuticals: Decades of government and industry investment in the study of the biological and genetic basis of disease is translating into a steady stream of new products with improved efficacy and decreased toxicity, and these are transforming how many high-morbidity diseases can be treated. Through this growing body of work, a much deeper understanding of the biochemical pathways underlying complex diseases is emerging, which is leading to identification of many new molecular targets for drug therapy. This targeted approach to pharmaceutical R&D is a fundamental change from the historical process that relied on large-scale, random screening of drug candidates for activity. A whole new generation of products targeting diseases at the molecular level is emerging and these offer much higher levels of efficacy and improved safety to specific groups of patients whose disease is well characterized by biomarkers that are tightly linked to the mechanisms of the underlying disease. This more targeted approach to discovery and development offers important benefits to all constituents, which ultimately improves the investment environment in biopharmaceuticals. Oncology (i.e., cancer) is one therapeutic area where some of the most significant progress has been made recently. Targeted therapies in certain indications in oncology now provide for more effective treatments with fewer side effects than one-size-fits-all chemotherapy drugs. For example, new therapies have recently been developed that target specific subsets of malignancy through molecular targets including EGFR, HER2, and BRAF that have led to dramatic improvement in the treatment of certain cancers (e.g., lung, pancreatic, colon, breast, melanoma, and several hematologic cancers). It is expected that the next wave of advances will transform 27 CONTROL NUMBER 257 - CONFIDENTIAL HOUSE_OVERSIGHT_024038