BIOMEDevice Conference, 2009Boston, Ma

Evolution in the making: emergence of new life science business models.

Fitness landscape and selection pressure

Fitness landscape - current conditions under which a species thrives, having been best “outfitted” for survival in the environment

Selection pressure – imposition of new conditions on a species within an ecosystem Forces those species with attributes best suited to survive under new conditions

Global fitness landscape

Established “Specialty Clusters”

Clus

ter S

ize

Larg

e

EmergingCluster Capability

Smal

l

World-class

SFSF

MAMASDSD

SingaporeSingapore

IndiaIndiaChinaChina

United KingdomUnited Kingdom

IrelandIreland

SwitzerlandSwitzerland

PhiladelphiaPhiladelphia

RTPRTPCanadaCanada

MadisonMadison

DC / BaltimoreDC / Baltimore

Integrated Clusters

Emerging Clusters

Leading Integrated Clusters

Lagging Integrated Clusters

Specialty and emerging clusters are becoming increasingly attractive as pharma and biotech companies strive to reduce costs and increase flexibility

Current fitness landscape in Massachusetts

Key Facts About MA Biotech Cluster 240 biotech / pharma companies – mix of both start-up and veteran companies

– Big pharma has a substantial presence, 8 of the largest 11 have operations in the state

450+ medical device companies

Top 5 funded research hospitals in the country– 16 Academic Medical Centers – World-class expertise in medical research and clinical translation

2nd in NIH funding (lower than CA) but highest NIH funding per capita

1st in the number of life science patents per capita awarded to MA institutions (2001- 2005) – 3X national average

30 major VCs actively focusing on the industry

20,000 + employed in the Biotech sector

10+ industry associations serve the Massachusetts biotech industry – Focusing on variety of issues (distribution of funds, advocacy etc)

High public policy awareness of the biotechnology industry– Number of legislative acts – Life Sciences Initiative; Life Sciences Talent Initiative (LSTI) and BioTeach;

BioReady Communities Campaign

MA’s education system produces the steady stream of skilled workers– 13 local colleges granting life-science doctorate degrees, three are ranked in the national top 20

Source: Deloitte research, MBC website and business plan

Since 1999, 253 recorded rounds of VC financing raising $5.32 billion

135 companies have raised VC Funding since 1999

38 companies completed IPO, Reverse Merger, or Trade Sale

Seven companies liquidated or closed

90 Current Active MA Private Companies

Fitness landscape in Massachusetts

1/2 - 2/3 will be looking to raise their next round of financing in 2009

Private Companies

~83 public companies - Market cap of ~$80 billion

46 companies have market cap <$100 million

63 companies have market cap <$1 billion

Genzyme has the largest cap ~$17.5 billion

Public Companies

Almost fifty percent of companies risk running out of cash by the end of 2009

Almost fifty percent of companies risk running out of cash by the end of 2009

Source: Deloitte Recap LLC, 2008 data through 2Q08

<2006 2006 2007 2008

Total: 90 Private Companies

Selection pressures-changing conditions

Policy Financing

Market Uncertainty

Innovation

Commercialization

Fitness landscape changes

Creative destruction … Three hidden deep structural problems emerge:

a dysfunctional technology investment-banking ecosystem; diminishing support from institutional investors for VC-backed

enterprises; an increasingly onerous and counterproductive regulatory

environment. None of which enable one to cross the Valley of Death

Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ;

Basic Research

Clinic

Innovator

Going the way of the dinosaur

Creative destruction technology investment banking ecosystem

Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ

•Counterproductive measures hampering VC community•Regulate VCs as if they are hedge funds•Quashing incentive to build companies

• Skewed expectations of demand-side investors•Impatient with small growing companies•Shift in focus to unfavorable current EBITDA multiples rather than long term predictors of success

• market size•growth rate• technology• and management experience.

• Demise of sell-side investment banks that supported VC backed IPOs

On the biotech side- what does the environment look like

On the biotech side- what does the environment look like

On the device side- what does the environment look like

Selection pressures-changing conditions

Policy Financing

Market UncertaintyEconomic Crisis

• Lack of available credit

• VC funding for mid-rounds unavailable

• Non-existent IPOs

NIH funding Innovation

Commercialization

Selective policy pressuresHealth care reform

•Pharma companies are the “bad guys”

Drug pricing as a function of near universal healthcare

Government becomes the biggest purchaser and gains huge leverage over pharma, biotechnology, and medical device companies

prescription drugs represent 20% of the therapeutic market drive innovation and new medicines via the R&D process

generics and “me-too”(the other 80%) don’t contribute to innovation

Gift and sales ban Follow-on biologicalsDrug ImportationComparative Effectiveness

•Onerous FDA requirements increases the burn rate of biotechnology companies

•Patent Reform

Creates downward pressure on innovation

attenuates pipeline for life saving medicines

Selection pressures-changing conditions

Policy Financing

Market Uncertainty•Health care reform

• Comparitive Effectiveness

• Drug pricing• Universal healthcare

•FDA Reform•Follow on biologics•Drug importation•Patent Reform

Economic Crisis• Lack of available

credit• VC funding for mid-

rounds unavailable• Non-existent IPOs

NIH funding Innovation

Commercialization

Better adapted business models are needed

Moving from shareholders to stakeholders Identify stakeholders necessary to the success of a business

Providers Payors Disease foundations Academic endowments/academic innovation Regulatory agencies VC/Industrial innovation models

Assess how all participants in the healthcare value chain could support and provide value for business

New models for R&D Open Innovation to get to scientific proof of concept Social networking and information exchange Academic alignment with Industry requirements

Integrate stakeholders and shareholders to sustain life science companies

Swimming to the next island of financing…Swimming to the next island of financing…