on a dime in very little time: biotech’s new value creation...

© Defined Health 2009

On a Dime in Very Little Time: Biotech’s New Value Creation Challenge

Edward C. SaltzmanPresidentDefined Health

WebinarJune 23, 2009

1 © Defined Health 2009

Therapeutic Insight 2009 - Pg

The information in this report has been obtained from what are believed to be reliable sources and has been verified whenever possible. Nevertheless, we cannot guarantee the information contained herein as to accuracy or completeness.

All expressions of opinion are the responsibility of Defined Health, and though current as of the date of this report, are subject to change.

Without the prior written consent of Defined Health, this report may not be relied on in whole or in part for any other purpose or by any other person or entity, provided that this report may be disclosed where disclosure is required by law.

© Defined Health, 2009



Acknowledgements

The Defined Health “TI 2009” Team:

Janet CzachuraGinger JohnsonGinny LlobellClaire LuNabil MoulineBrandon SaksMayank Shah


. . . and Alnylam’s CEO John Maraganore

Therapeutic Insight 2009 - Pg © Defined Health 20094444

The End of the Runway Came Suddenly


“Cash Dries Up for Biotech Drug Firms” in Wall Street Journal, March 16, 2009


With the End of “Permissiveness”

Biotech In Decline by David Ewing Duncan Jan 19 2009

No high technology sector has been riskier for investors than biotechnology, which means that many of the hundreds of companies anxiously trolling for investors at J.P. Morgan's annual biotech conference in San Francisco last week faced a bleak future. In an era when safe-as-houses investments like mortgages are felling banks left and right, investors are understandably reluctant to roll the dice on an industry like biotech, where it takes 10 to 15 years and as much as a billion dollars to produce a single drug, and new medicines in human testing fail about 87 percent of the time. Even the industry's lobbying group, the Biotechnology Industry Organization, says that 45 percent of publicly traded biotech companies will run out of cash in the next 6 to 12 months. A mere 10 percent of the 370 listed companies have a positive cash flow.

For decades, investors have been willing to be patient, in hopes of striking it rich eventually. But investors' patience is running out. In 2007, 41 biotech I.P.O.'s raised $1.9 billion, in 2008 a single I.P.O. raised $5.8 million. BIO President and CEO James Greenwood has asked the incoming Obama administration for a biotech stimulus plan, but gave the odds of such a bailout succeeding in Congress at only one in three. Hope for government aid comes as investors here talk about a dramatic contraction in private funding from venture capitalists and others that see little prospect for pay-outs for small and many medium-sized companies.

"The biotech model over the last 25 or so years has been to assemble innovative science, raise two or three rounds of venture capital, advance your R&D program to a point at which you can go public, and then continually tap the public markets to meet your capitalneeds," said Richard Aldrich, co-founder of RA Capital Management, a Boston investment firm. "But the backdrop for all of this was the greatest bull market in history," Aldrich added. "It was a very permissive financial environment, which is what early stage biotech needs. The bull market has ended, and the biotech model we all came to know and love, has ended with it.“ Aldrich and others said they still see companies worth investing in, but not many. "There will be a Darwinian winnowing," says Bryan Roberts, a partner in Venrock, a venture capital firm in Palo Alto, California. "The mediocre middle will certainly go away. There will still be winners, but far fewer.“

Much of the activity at the J.P. Morgan conference involved companies and investors that still have money shopping for deals. "We are being visited by a number of companies," said Jay Flatley, CEO of the genomic sequencing company Illumina, based in San Diego.Illumina recently announced an $18 million development deal with Oxford Nanopore of Britain for its next-generation genetic sequencing technology. Illumina has remained profitable with a healthier-than-average stock price even during the downturn.

It's a great time to be looking for acquisitions if you have the resources, Flatley said. "There is a sugar daddy aspect to it," he added, though he is finding only a few worthy prospects. For many struggling biotech companies, however, the sugar may be running out.


Portfolio.com: http://www.portfolio.com/news-markets/top-5/2009/01/19/Biotech-Boom-Finally-Peters-Out


With the End of “Permissiveness”


Portfolio.com: http://www.portfolio.com/news-markets/top-5/2009/01/19/Biotech-Boom-Finally-Peters-Out

Therapeutic Insight 2009 - Pg © Defined Health 20097777 © Defined Health 20097

But < One Year Ago Pharma’s Troubles Drove Strong Investment and Business Case for Biotech

InVivoBlog: Innovation Is the Pharmaceutical Industry's Only Salvation, 27-Feb-09


Pharma’s R&D Futility Seen as Biotech’s Opportunity


Parexel, 2008/2009; DH analysis; FDA website; Phrma.org website - http://www.phrma.org/news_room/press_releases/ R&D Spending


NDA & BLA Approvals from 1999-2009

Biotech Looked to be the Solution for Innovation-Challenged Pharma


FDA CDER Drug Approval List, and DH Analysis


And Pharma’s Need Was Increasingly Urgent

-250

-200

-150

-100

-50

02008 2009 2010 2011 2012

Rev

enue

($ B

illio

ns)

WW Sales at Patent RiskEstimated Cumulative Losses

$218 billion Rx Revenues At Risk to Generics by 2012


SG Cowen. EvaluatePharma


97

29

1720 21

3 2

53

01

11

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q120090

10

20

30

40

50

60

Value ($ Billions)

No. of IPOs

11

So Despite Vanquished IPO Market

$ B

illio

nsN

umber of IP

Os

US Biotech IPOs (1998 - 1Q 2009)


Ernst-Young, BioCentury, BioWorld, Dow-Jones, VentureOne, Burrill & Company, Genetic Engineering & Biotechnology News, www.fma.org, DH analysis


VC Outlook Remained Mostly Positive


AltAssets


So It Was “Business Development” As Usual


With Pharma Buying Even Early-Stage Programs at Yesterday’s Late-Stage Prices

Upfront Payments Milestones

Total DealValue

2001-2007 Biotech & Pharma Early Stage Deals

MedTRACK, DH analysis

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2001 2002 2003 2004 2005 2006 2007

Pharma, Biotech, Discovery, Pre-Clin, Ph 1, Products ($ Millions)

$0

$50

$100

$150

$200

$250

$300

$350

Milestone ValueAverage Value

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2001 2002 2003 2004 2005 2006 2007


$0

$10

$20

$30

$40

$50

$60

Upfront ValueAverage Value

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2001 2002 2003 2004 2005 2006 2007


$0

$100

$200

$300

$400

$500

$600

$700

$800

Deal ValueAverage Value


And Hungry Pharma Offering Private Exits

© Defined Health 2009161616 © Defined Health 2009

Value and Number of Pharma/Biotech M&As

BioCentury, January 2009


With Many of These Exits Making VCs Happy

0

2

4

6

8

10

12

0

100

200

300

400

500

600

700

800Total Financing Prior to Acq. ($M)

Acquisition Price ($M)

Years in Existence


$ millionsYears

Recap, Company Websites, SEC 10-K



So, Though Not Exactly Like the Good Old Days Biotech’s Access to Capital was at Least Possible



That was Until the Global Economic Crisis Brought a Sudden Drought


2008


527335 57

41

0

20

40

60

80

100

120

2006 2007 2008 2009 1Q


And Lots of Companies Dying of Thirst

Number of Biotech Restructurings

4Q


114

BioCentury


And Now Fighting With Investors Over the “Remains”

Drug Investors Lose Patience By ANDREW POLLACK / March 10, 2009

As merger mania plays out among the pharmaceutical giants, a different sort of financial frenzy has seized some small, struggling drug makers. Investors are demanding that stragglers close up shop and hand over any remaining cash. That is what happened to one company, Avigen, after its most promising drug failed in a clinical trial last October. Avigen said it would do what countless other biotechnology companies had done in similar circumstances: move on to the next product in its pipeline. Not so fast, said its biggest shareholder, the Biotechnology Value Fund. The fund demanded that Avigen, after 16 years of trial and error, immediately liquidate itself and return its remaining cash to shareholders. So much for the traditional model of patience in biotechnology investing, in which companies may burn through more than a decade and hundreds of millions of venture capital or shareholder dollars before reaching profitability — if they ever get there. Now, with cash scarce, credit tight and big drug companies like Merck intent on branching into biotechnology themselves, struggling start-ups may no longer get second and third chances to succeed. In at least eight cases in the last year, anxious investors have tried to block an unsuccessful biotech company’s quest for the next blockbuster, and have fought with management for control of the corporate carcass. The investors argue that the remaining cash belongs to them and that they — not a losing company’s executives — should decide how to invest it. Some companies, including Avigen, are fighting back. “I hear that argument” about shareholder rights, said Kenneth G. Chahine, Avigen’s chief. “But it’s really ‘I want to raid the cash.’ We’re back to 1987 and ‘Barbarians at the Gate.’ ”


New York Times, March 10, 2009: Drug Investors Lose Patience


And Now Fighting With Investors Over the “Remains”


New York Times, March 10, 2009: Drug Investors Lose Patience


Fighting Over the “Remains”

New York Times, March 10, 2009: Drug Investors Lose Patience, Finance Yahoo updates

Company Stock Price

Cash Per Share* Setback Investors Making

the DemandCurrent Status(29-May, 2009)

Avigen $1.04 $1.60 Drug for spasticity failed in late-stage trial

Biotechnology Value Fund

31-Mar-09 company fights off BVF proposal to remove BoDStock at $1.28 as of 29-May-09

CombinatorRx $0.69 $1.45 Two unsuccessful clinical trials

Biotechnology Value Fund

Positive results for diabetes trial and inked $4M upfront, $62M deal with NVS (May 2009) but still facing delisting as 19-MayStock at $0.79 as of 29-May-09

Neurobiological Technologies $0.58 $1.20 Stroke drug failed in

late-stage trial

Millennium Tech Fund, Biotech Value Fund, Highland Capital Mgmt, MAK Capital One

Tang proposal to take over BoD will be decided during 10-Jun-09 annual meetingStock at $0.76 as of 29-May-09

NorthstarNeuroscience $1.90 $2.63 **

Treatment for stroke failed in clinical trial (device)

RA Capital ManagementIn Jan-09, Board decided to shut down the company and liquidate its assets, but as of 29-May-09 still trading at $2.01

PenwestPharma $1.40 $1.59 –

$15.36 ***

Ended development on Parkinson’s drug

Perceptive Advisors, Tang Capital Partners

Company still in existenceStock at $2.39 as of 29-May-09

Vanda Pharma $0.79 $1.74Schizophrenia drug initially failed to win approval

Tang Capital Partners

Company received approval for schizophrenia drug, Tang withdrew liquidation proposalStock at $14.64 as of 29-May-09

* As of Dec. 31, includes short-term investments.** Company is proposing to liquidate itself and estimates that shareholders will receive $1.90 to $2.10 a share.*** Figure cited is not cash on hand, but value of the royalty stream from a drug sold by another company as estimated by Perceptive Advisors.

Hoping to Cash OutSome biotechnology companies that have had setbacks, like having drugs fail in clinical trials, are being urged by investors to fold, and return the company’s remaining cash to shareholders. Because that cash is usually more than the value of the stock, the investors would profit. Here are some companies under pressure from their shareholders.


But Biotech’s Investors Were Losing Confidence Long Before the “Crisis”


Lost Confidence: IPOs Go From Endangered to Extinct


BioCentury, Quarterly Stock Roundups, 2007/2008, DH Analysis


Lost Confidence: Follow-Ons Now on the Endangered List


Nature Biotechnology volume 27 number 2 February 2009 Pg. 113, BCIQ, Burrill & Co


Lost Confidence: Few “Haves” in a World of “Have Nots”


Cowen Industry Outlook January


Lost Confidence: NASDAQ Needs to Offer Relief from “Foreclosure”

Nature Biotechnology 27(1) January 2009


Biotech Ran Out of Cash Late in 2008, But It Ran Out of a Viable and Sustainable Business Model Long Before That


FIPCOsReformulatorsNRDOs

Repurposers

High-Throughput Sequencers

Genomics Platforms

Proteomics

Combinatorial Chemistry


A Long Runway Allowed Genentech Its Success

Genentech Matchmaker Calls Roche Ideal PartnerBy Daniel F. CuffFebruary 7, 1990

The investment banker behind Genentech Inc.'s plan to sell a 60 percent interest to Roche Holdings Ltd. for $2.1 billion is Frederick Frank, who brought the management of the two companies together and shepherded the deal through.''I thought for a variety of reasons that Roche would be an ideal partner,'' Mr. Frank said yesterday. Roche, the big Swiss company, whose main operating company is F. Hoffmann-La Roche & Company, can bankroll Genentech's costly genetically engineered drug-development programs, he said, while Genentech is freed from the pressures of meeting shareholders' expectations for short-term gains.Mr. Frank, 57, has put together several big transactions in the health care field, including the marriage of Marion Laboratories with Merrill Dow. He also represented Eastman Kodak in its purchase of Sterling Drug. Mr. Frank, who works for Shearson Lehman Hutton Inc., is part of a Genentech advisory team from Shearson and Wasserstein, Perella& Company.''I contacted the Roche executives and arranged a meeting to discuss the opportunity from both sides,'' Mr. Frank said. ''The key thing here was to come up with the financial architecture. We came up with a new security called the redeemable common share. Embedded in this common stock is a call option that can be exercised by Roche.''There were also what Mr. Frank called ''unusual aspects of governance'' to be addressed in the combination, with Roche taking the role of ''enlightened self-interest and a contributing partner, not a dominating owner,'' he said.Mr. Frank, who was on business in Los Angeles yesterday, said he spends a good deal of time on the West Coast. ''There are a lot of health care companies out here, including Genentech,'' he said. The banker was up and about at 6 A.M., on the phone to clients and his New York office.Mr. Frank is a graduate of Yale University and the Stanford Business School, with Army service in between. He worked for Smith Barney, Harris Upham from 1958 to 1969 and was director of research before leaving for Lehman Brothers as a partner in 1969. Lehman subsequently merged with Shearson.Biogenetic companies need an enormous amount of capital, Mr. Frank said, adding: ''It's an industry in the early stage of commercialization. In biotechnology the clinical regulatory clearance is very capital intensive.''


The New York Times


A Long Runway Allowed Genentech Its Success


The New York Times


FIPCO Model Produced Some Sustainable Success for Companies Financed in the 1980s

EvaluatePharma, Company websites, SEC, Yahoo Finance

Company Founded IPO Years to First Product Launch

Year of First Profit

Market Cap (22 March 2009)

Genentech 1976 1980 6 1979 $98.7 billion

Biogen Idec 1978 1983 8 1989 $14.4 billion

Amgen 1980 1983 9 1986 $50.3 billion

Genzyme 1981 1986 10 1986 $14.8 billion


FIPCO Model Also Produced Some Sustainable Success for Companies Financed in the 1990s

EvaluatePharma, Company websites, SEC, Yahoo Finance

Company Founded IPO Years to First Product Launch

Year of First Profit

Market Cap (22 March 2009)

Amylin 1987 1992 18 Not Yet $1.6 billion

MedImmune 1987 1991 4 - $10 billion (prior to acquisition)

Gilead 1987 1992 9 2000 $40.4 billion

Isis 1989 1991 9 Not Yet $1.3 billion

Vertex 1989 1991 10 Not Yet $4.6 billion


All Successful FIPCOs Achieved Lift Off on Long Runways

0

5

10

15

20

25

Amgen

Biogen

Idec

Genen

tech

Genzy

me

ImClon

eOSI

Alexion

Amylin

Celgen

eGile

ad Isis

MedIm

mune

Onyx

Vertex

Years From Company Creationto First In-House Marketed Product


EvaluatePharma, SEC documents


In Less Capital-Challenged Times, a “FIPCO Vision”Model Provided Multiple “Take Off” Points

Profitable 2000/2001

1992 IPO 5.75MM shares $86.25MM ($15ps)

1987 Founded

1996 first own product launch

Acquires NeXstar 1999

A1: $0.30/share$199,980

A2: $0.90/share$599,940

A3: $2.70/share$1,329,866

B: $3.75/share$9,994,000

C: $9.00/share$8,009,199

C: $10.50/share$20,211,796


Company website, SEC documents


But a Dearth of Successful FIPCOs in Recent History

0

1

2

3

4

5

6

7

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

OSI

CephalonAmylin

Actelion

OnyxBiomarinMGI

Biotech Companies That Have for the First Time Surpassed $3 Billion in Market Cap

EvaluatePharma, Yahoo Finance


In the Wake of Some “Over-Enthusiasm” That Created the . . . BubbleCo


TIME




TIME


BubbleCos Had “Exciting Science!”

HGSI Makes a Big SplashBioCentury, December 6, 1993

The hottest IPO of the year, Human Genome Sciences Inc., closed on Friday at $23.25, almost double its $12 IPO price, after trading as high as $27.75 in its second day of trading.

The deal was sold almost exclusively to institutional investors, and the stock's continued rise was apparently due to heavy demand, as none of the investors got large positions in the offering.

HGSI's closing price gives it a market cap of $328 million, putting it in a league with companies such as CellPro Inc. and Alpha-Beta Technology Inc. CPRO will file a PMA on its first product this month, while ABTI's lead compound has completed one set of Phase II trials.

HGSI is focusing on human gene discovery through automated gene sequencing. As an early-stage discovery company that may never put anything into the clinic, possibly preferring to license out genes to others for development, it's not easy to relate HGSI's stock price to the underlying value of the company.

Institutional buyers in on the deal said they invested because of the company's exciting science. One fund manager, who didn't wish to be quoted, said HGSI has a very compelling story, having cornered the market on gene sequencers. Similarly, another investor described the company as having three to four times the capacity of any competitor.

BioCentury


BubbleCos Had “Exciting Science!”

BioCentury


And BubbleCos Were Really Fun Places to Work!


Xconomy.com: How to Survive the Downturn; Five Questions with Boston Biotech Leaders, Part 1, 15 January 2009


Can You Find the Bubble in the Bubble?

EvaluatePharma, Company websites, SEC, Yahoo Finance, DH analysis


BubbleCos Were Too Good to be True . . .


Signals Magazine; Illustration by Dorit Rabinovitch


Because An Exit Model


1993

Share Price: $9.00 (Dec. 30)

- Incyte IPO Prospectus

“Incyte is one of the first biopharmaceutical companies to engage in high throughput computer aided gene sequencing for the purpose of identifying genes and their corresponding proteins with potential human therapeutic applications.”

Regarding Incyte Pharmaceuticals:

Company website, SEC filings


Masquerading as a Business Model


2000Genomics:

Regarding Incyte Pharmaceuticals:

- Press Release, 2000

“Incyte develops and markets genomic databases and partnership programs, genomic data management software, microarray-based gene expression services, related reagents and services.”

Share Price: $280.50 (Feb. 22)Company website, SEC filings


Cannot Sustain Value


Genomics:

50

2003Regarding Incyte Pharmaceuticals: Corporation:

“Incyte is a drug discovery company that . . . applies its expertise in medicinal chemistry and molecular, cellular and in vivo biology to the discovery of novel small molecule and protein therapeutics.”

- Press Release, 2003

Share Price: $3.35 (Apr. 28)Company website, SEC filings


NRDOs: Seeking Value on a Shorter Capital Runway

Growing up backwardsBy Keith HaanMonday, May 6, 2002

Judging by the recent venture rounds, more private equity investors are marching to a similar tune: putting money behind spin-offs and "no-research, development only" (NRDO) companies in a bid to manage their risk and perhaps boost their internal rate of return.

From management's point of view, the voracious financing needs of the traditional bottom-up, or discovery-to-market, business model can leave companies orphaned if investors lose interest along the way. To avoid such vulnerability, some companies are developing backwards -from development towards discovery. By forming around marketed or near-to-market products, they promise investors an earlier return.

BioCentury, The Bernstein Report on BioBusiness

The Bernstein Report


Though Runway Paving Was Still Expensive!

Deconstructing De-riskingNRDO vs. R&DBreakdown of investments in companies founded since January 2000. Includes VC and public rounds. NRDOs defined as companies no further upstream than lead optimization.

BioCentury, The Bernstein Report on BioBusiness

Group # Founded Since 2000 % of Total Amt. Raised by

All Companies % of Total Average Per Company

NRDO 32 16% $1.7 B 30% $53.2 M

R&D 163 84% $4.0 B 70% $24.6 M

Total 195 100% $5.7 B 100% NA

The Bernstein Report


NRDOs: Shorter Runways but Few Lift Offs

0

50

100

150

200

250

300

350

400

Jazz Pharma Quatrx Vela JDS Pharma AveraPharma

Xytis0

2

4

6

8

10

12Financing InExit PriceTime Since Inception

Recap, Company Websites, SEC 10-K

$ millions


Repurposers: Seeking Value on a Shorter Capital Runway

Innovative Strategies for Drug RepurposingDrug Discovery & DevelopmentMay 18, 2005

Rather than chasing new compounds, pharmaceutical companies can reduce risk and costs by finding new uses for existing productsIn recent years, an increasing number of biotechnology companies have been focusing on drug repurposing, the development of novel uses for existing drugs. Although repurposing is not new to the pharmaceutical industry—large companies using classical life-cycle management strategies often extend drug use into new indications to preserve or extend the value of a pharmaceutical brand—the emergence of companies founded exclusively on repurposing reflects a general trend evident in biotechnology today that seeks to reduce the risks of drug development. Given the relative youth of the new class of repurposing companies discussed above—the majority have yet to translate their discoveries in clinical trials—the jury is still out on whether this new strategy will yield profitable and biologically interesting results. Biotech fads come and go, and repurposing may well turn out to be transient. However, historical examples of repurposing from large pharma provide a clear precedent for today's repurposing companies, suggesting that success is possible. If the products of the current class of repurposing firms succeed, more capital may be attracted to repurposing endeavors with a potential concomitant expansion of repurposing strategies and technologies.


Drug Discovery & Development, May 2005


Repurposers: Seeking Value on a Shorter Capital Runway


Drug Discovery & Development, May 2005


With More Failure to Lift Off




Repurposers: Shorter Runways but Few Lift Offs

0

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2

3

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5

6

7

8

0102030405060708090

100

Aspreva CombinatoRx Somaxon Orexigen Dynogen

Financing InExit PriceTime Since Inception

IDdb, Recap, Company 10-K

Bankrupt

$ millions


Biotech’s Investment Proposition Problem at a Glance

Too Much Runway Paving Required

BioTech To Achieve Any Chance Of Lift Off

Which Happens Far Too Infrequently


So Not Surprisingly Others Stare Down the End of the Runway

Affymax

Savient

Athersys

Xenoport

Vical

Ariad

Orexigen

Achillion

Anadys

Ardea

Cadence

Altus

Arena

Dyax

Metabasis

Neurocrine

Sunesis

Sep 2008 Dec 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009 Mar 2010 Jun 2010 Sep 2010

Day Money Runs Out


Cowen & Co. Biotech Industry Outlook January 2009, EvaluatePharma, DH analysis


Though Some May Survive a Little Longer With Some Additional “Paving” and/or Slashing Burn

Affymax

Savient

Athersys

Xenoport

Vical

Ariad

Orexigen

Achillion

Anadys

Ardea

Cadence

Altus

Arena

Dyax

Metabasis

Neurocrine

Sunesis

Sep 2008 Dec 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009 Mar 2010 Jun 2010 Sep 2010


Cowen & Co. Biotech Industry Outlook January 2009, EvaluatePharma, DH analysis

05-May-09 Restructured

01-Apr-09 Additional Funding

27-May-09 Restructured

18-Mar-09 Additional Funding

23-Mar-09 Additional Funding

26-Jan-09 Restructured

19-Feb-09 Additional Funding

18-Dec-08 Additional Funding


22-May-09 Additional Funding

30-Dec-08 Additional Funding

03-Apr-09 Additional Funding



But Those Are Far From the Only Ones Facing Imminent Peril!

020406080

100120140160180200

2008 2007

Less than 1 year of Cash

Less than 6 months of Cash

Num

ber o

f Pub

lic B

iote

chs

Cash Strapped Companies

Biotech Industry Organization (BIO), Feb 2009


Perhaps Only Darwin Could Have Made Money as a Biotech Investor

From Portfolio.com: Biotech In Decline, by David Ewing Duncan, Jan 19 2009


Except That These Guys, Not Darwin, Will Sort the Mediocre From the Worthy



With Potentially Frightening Reverberations for our Future Medicine Cabinet

ExpiredMar 2010

ExpiredSep 2012

Hmm . . .


Because with Survival of Potential Breakthrough Programs at Stake, We Should be Very Worried About the “Judge”



The Good News: Pharma has Excelled at Recognizing the Value of Biotech Programs

Product Biotech Originator

Pharma Acq/Licensor

Date of Deal or Acq

2008 WW Sales ($B)

Enbrel Immunex, Amgen Wyeth Sep 1997 $6.2

Humira Knoll Abbott Mar 2001 $4.9

Procrit/Eprex Amgen J&J Aug 1985 $2.5

Remicade Centocor J&J Oct 1999 $5.3

Avastin Genentech Roche Jul 2003opt-in $4.8

Rituxan IDEC, Genentech Roche Mar 1995 $2.6


EvaluatePharma, ReCap

Selected Top Biotech Products Acquired/Licensed by Pharma



The Bad News: Just as Long as These Were On or Almost On the Market!

Product Biotech Originator

Pharma Acq/Licensor

Phase at Deal or Acq

Date of Deal or Acq

2008 WW Sales ($B)

Enbrel Immunex, Amgen Wyeth Phase III Sep 1997 $6.2

Humira Knoll Abbott Phase III Mar 2001 $4.9

Procrit/Eprex Amgen J&J Preclinical Aug 1985 $2.5

Remicade Centocor J&J Marketed Oct 1999 $5.3

Avastin Genentech Roche Phase III Jul 2003opt-in $4.8

Rituxan IDEC, Genentech Roche Phase III Mar 1995 $2.6


EvaluatePharma, ReCap

Selected Top Biotech Products Acquired/Licensed by Pharma



Meanwhile, Pharma’s Track Record of Judging Earlier Programs is Less than Stellar



Indeed, It Took Pharma 30 Years to “Recognize”Genuine Disruptive Technology


“Antibodies Stage a Comeback in Cancer Treatment” , Science, V280, N5367, 22 May 1998, pp. 1196 -1197


Meanwhile, What Pharma “Recognized” as “Disruptive”Innovation


Technology Review: http://www.technologyreview.com/biomedicine/12694/


Disrupted Nothing But Cash

Company Committed Funds to Millennium

Roche $70 M

Eli Lilly $120 M

Astra $60 M

Bayer $235 M

Bristol Myers Squibb $32 M

Becton Dickinson $70 M

Aventis $367 M

Abbott $250 M

Committed Funding in Deals w/ Millennium (1993 – 2001)


Recap, DH analysis, SEC documents


Disruption?

Only two compounds are reportedly in active development:


ADIS R&D Insight, IDdb

• One in P2• One in P1 (at SNY)

All others are noted as:− Preclinical− Discontinued, or− No development

reported


Complicating Matters, Today’s Pharma Executives are a Bit Distracted



And are Seeking “Comfort” in Same Old Same Old

Pfizer To Acquire Wyeth, Creating The World's Premier Biopharmaceutical Company

• Diversification, Flexibility And Scale Position New Company For Success In Dynamic Global Health Care Environment

• Establishes Leadership In Human, Animal, And Consumer Health, Including Primary And Specialty Care; In Vaccines, Biologics And Small Molecules; And Across Developed And Emerging Markets

• Unique And Flexible Business Model Features Focus And Agility Of Smaller Enterprises Backed By Resources And Scale Of Global Company

• Combination Strengthens Platform For Improved, Consistent, And Stable Earnings Growth And Sustainable Shareholder Value

• New Company Will Promote Health And Wellness And Respond More Effectively To Unmet Needs Of Patients, Physicians, And Customers Around The World

http://www.pfizer.com/news/press_releases/pfizer_press_releases.jsp


And Making All the Old Familiar Promises

Merck And Schering-Plough To Merge

• Combined Company Positioned For Sustainable Growth Through Scientific Innovation And A Stronger, More Diversified Product Portfolio

• Powerful Joint R&D Pipeline With Strong Candidates In All Development Phases Doubles The Number Of Late-stage Compounds To 18

• Broader Product Portfolio In Critical Therapeutic Areas

• Expanded Global Presence Including High-growth Emerging Markets

• Expected To Be Significantly Accretive, Increase Efficiencies And Result In Cost Savings Of Approximately $3.5 Billion Annually

• Merck Committed To Maintain Current Dividend

http://www.merck.com/newsroom/press_releases/corporate/2009_0309.html


Even Though Consolidation Has Never Been Proven to Do Anything but Destroy Innovation

26 NMEsFiled andapproved 15 NMEs

Filed and approved

6 year total Pre-merger

6 year totalPost-merger

Filing to approval time estimated to 24 months when specific dates not available.FDA website, DH analysis


Current Company Values~6 years (PFE) & ~8 years (GSK) Post-Merger

Historical Company ValuesPrior to Merger

$91B

$74B

$85 BS&P500 S&P

500

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+6%-48%

$221B

$51B

$103 B

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PFE

-63%

PFE(6 yrs)

And Hence Destroy Value

-30%

+4.4%

SEC filings, Yahoo Finance, DH analysis, S&P 500: 27-Dec-00 = 1320, 16-Apr-03 = 880, 29-May-09 = 919


So Surely the New Behemoth Pharmas Will Be Even Hungrier for Biotech Sourced Innovation




Not so Fast: Pharma Had Already Been Becoming MoreRisk Adverse Before This Latest Round of Consolidation


From Pharma's Strategic Divide: Focus or Diversify, In Vivo, September 2008


Pharma May Need Innovation but Suddenly Seems More Enthralled By the “Solid and Measurable”

March 03, 2009

BusinessWire 03-Mar-2009


Pharma May Need Innovation but Suddenly Seems More Enthralled By the “Solid and Measurable”

BusinessWire 03-Mar-2009

Therapeutic Insight 2009 - Pg © Defined Health 2009848484 © Defined Health 200984 © Defined Health 2009

And “Revenue Flows” From “Formulation Technologies”

GlaxoSmithKline and Stiefel to Create New World-Leading Specialist Dermatology Business20-Apr-2009

• Stiefel, the world’s largest independent dermatology company, acquired by GSK in deal valued up to $3.6B• New global business will have combined revenues of approximately $1.5B and robust new product pipeline• Significant step forward to grow and diversify GSK’s business, providing immediate new revenue and

synergy opportunitiesLONDON, April 20 /PRNewswire-GlaxoSmithKline plc (GSK) and Stiefel Laboratories Inc. today announced that they have signed an agreement to create a new world-leading specialist dermatology business. Under the terms of the agreement GSK will acquire the total share capital of Stiefel for a cash consideration of $2.9 billion. GSK also expects to assume $0.4 billion of net debt upon closing. A potential further $0.3 billion cash payment is contingent on future performance. GSK’s existing prescription dermatological products will be combined with Stiefel’s and the new specialist global business will operate under the Stiefel identity within the GSK Group.Andrew Witty, Chief Executive Officer of GSK said, “As part of our strategy to grow and diversify GSK’s business, we are continuing to make new investments through targeted acquisitions. This transaction will create a new world-leading, specialist dermatology business and re-energise our existing dermatology products. The addition of Stiefel’s broad portfolio will provide immediate new revenue flows to GSK with significant opportunities to enhance growth through leveraging our existing global commercial infrastructure and manufacturing capability. We look forward to working with Stiefel to develop this exciting opportunity.”

New world-leading specialist dermatology businessThe new business will have a broad portfolio of dermatology products including Stiefel’s leading brands: Duac, for acne, Olux E for dermatitis and Soriatane for the treatment of severe psoriasis. GSK’s key dermatology brands include: Bactroban, Cutivate and recently launched Altabax. Combined pro forma revenues for the calendar year ended 2008 were approximately $1.5 billion, representing an 8% share of the global prescription dermatology market. Sales of Stiefel’s products for the calendar year ended 2008 were approximately $900 million. Sales of GSK’s prescription dermatology products were approximately $550 million.The new business will have a robust development pipeline, with Stiefel currently having more than 15 projects in late-stage development across a wide variety of dermatological conditions, such as acne, dermatoses and fungal infection. The new business also has access to significant innovative and proprietary formulation technologies.

Therapeutic Insight 2009 - Pg © Defined Health 2009858585 © Defined Health 200985 © Defined Health 2009

And “Revenue Flows” From “Formulation Technologies”


Harbinger or Aberration? Early Stage Deals Peaked in 2006


Recap

Biotech Out-Licensing: Distribution by Stage



Harbinger or Aberration? In 2008, Pharma Looks to Have Lost Some Confidence in Biotech as Well

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Nature Biotechnology volume 27 number 2 February 2009 Pg. 113, BCIQ, Burrill & Co.


For the Cash Challenged, These are Indeed Unprecedented Times



In Short



Lots of Cash Challenged Innovators Out There

Number of Public & Private Biotech CompaniesBy Type, By Region

E&Y Global Biotechnology Report 2008


Facing Overwhelming Obstacles

• Pharma mostly remains mostly myopic in terms of seeing downstream value of early stage, pre-PoC programs and is becoming more risk adverse not less


Unfortunately, Most of Biotech Remains in a Pre-PoCWorld

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EvaluatePharma



But Pharma Hardly Needs More Pre-PoC Programs!

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EvaluatePharma


The Good News: Despite Daunting Obstacles Biotech Remains “Opportunity Long”



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Because While There is No Question Pharma Will Have Less to Spend on R&D

Projected Pharma R&D SpendBased on Constant Percentage of Rx Sales

EvaluatePharma


The Question is: How Long Can They Continue to Spend More on Internally Discovered Programs?

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When the Value Comes from External Programs!

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And the Answer is: Not For Long!

The Recession Damages R&D SpendingJanuary 14, 2009Thomas Alva Edison accumulated 1,093 US patents over his lifetime. Most R&D operations are not that efficient. Corporations hate research. It is expensive. The scientists know more about a company’s products than the management or sales staff do. But, research is a necessary evil for all pharmaceutical and technology firms and they have to support research or fall behind their competitors.In the last quarter, Pfizer (PFE) spent $1.8 billion on R&D. The firm’s revenue for the period was under $12 billion, so this cost puts a lot of pressure on profits especially at a pharma company which is facing increasing competition from biotech companies and generic manufacturers.High tech and internet companies are facing the same trouble. Google (GOOG) spent $704 million on R&D last quarter against $5.5 billion in revenue. Slowing internet advertising is going to make each and every one of those dollars seem more expensive.The typical series of cost cuts that companies with research arms go through in a slow economy is first to chop sales and marketing. If that does not work, they fire any mid-level managers that they can find. If the financial challenges get worse, they take the axe to R&D. Pfizer says it is going to fire a large number of its R&D staff. According to The Wall Street Journal, the drug company "is laying off as many as 800 researchers in a tacit admission that its laboratories have failed to live up to the tens of billions of dollars it has poured into them in recent years." With drugs reaching the end of their patent periods, management can no longer plan to recoup this R&D money over the next decade. What counts is next year. During a recession, that is the extent of the vision that most companies can muster.In 2007, US firms spent $219 billion on R&D Most reasonable analysis would show that as a good investment. Companies such as Microsoft (MSFT), Google, (NASDAQ:AAPL) and Genentech (DNA), the biotech giant, are rare outside America. The people who started these companies were gamblers by nature and relied on a certain amount of audacity to drive R&D spending which they were willing to believe would be easily eclipsed by their sales.Every time an economic slowdown hits the economy, the obituaries for R&D come out. The federal government and university budgets get pruned. The idea of investing in the future gets trampled..


MarketWatch


And the Answer is: Not For Long!


MarketWatch


4400 Biotechs in US/EU/Asia

In the Meantime Though There is Lots of Competition for Exits


Assume 50% want to be bought (2,200)

Applying 2008 M&A rate = 3.5% chance

E&Y Global Biotechnology Report 2008, DH assumptions


Thus Swaying a Reluctant Judge is Biotech’s Current Survival Challenge


And it Would Be Good to Start With a Long Overdue “Reality Check”

Ten Years of Biotech GaffesNature Biotechnology 24, 270 - 273 (March 2006 online)

Much of biotech's success has been built on lessons learned from mistakes. But the past ten years has also witnessed mistakes many in biotech would prefer to forget. With gaffes ought to come culpability. Someone is surely responsible for the howlers that cost investors and companies millions of dollars in lost revenue or market capitalization. And in a few of the cases outlined above, a culprit can be identified and punished by imprisonment or disavowal. But what appears to be more common in biotech is that—despite the abundance of brainpower, regardless of the ample sprinkling of PhDs, MDs and MBAs, and notwithstanding the layers of regulatory oversight imposed—there is a huge capacity for mass self-deception. Almost every national biotech sector started as a sprinkling of startup companies, the vast majority of which quickly ran out of money without achieving anything. And yet every subsequent nation starts lemming-like down the same doomed path. In every investment boom we start off with the same unrealistic expectations and exhibit the same symptoms of shock and disbelief when economic reality dawns, or when we find out that bench researchers are not necessarily the right people to run businesses after all. Each product developer overlooks the obvious obstacles met by innovative products and sees only the theoretical therapeutic upsides.Although we can never entirely condone the irrational and the unreasonable, perhaps biotech can only exist because we are all willing to indulge in a mass suspension of disbelief, to relax our critical facilities to allow ourselves to believe—despite all the reasons to the contrary—that we can create something that simply did not exist before.


http://www.nature.com/nbt/journal/v24/n3/full/nbt0306-270.html


This Means No Time or Money for Runway Detours

ACTION COUNTERACTION


Cell Therapeutics: Highlights of “Nine Lives”


2000: Acquires Trisenox

2001: Leases corporate jet

2003: Acquires Novuspharma

2007: Acquires Zevalin from BIIB

2005: Divests Trisenox to Cephalon

2005: Disposes of corporate jet

2009: Closes Novuspharma facility

2009: Divests Zevalin to Spectrum

Company website, press releases

Market Cap at Peak (2000): $1,500 M Market Cap (28-May 2009): $563 M


Exiting on Shorter Runways Will Be Biotech’s Ongoing Challenge



Because at Least for Now, Biotechs’ Goal is No Longer This



But This



Blunt but Right to the Point!

Index Ventures Launches Biotech With Speedy Exit StrategyJune 2, 2009, 10:37 AM ET, The Wall Street Journal

Index Ventures has teamed up with a small biotech company to launch a drugmaker that it hopes will quickly catch the eye of pharmaceutical heavies: Versartis Inc.Index has formed a joint venture with Amunix Inc., a biotech concern in Mountain View, Calif., to launch Versartis, which the firm has fueled with $11 million in Series A financing. Index and Amunix each own 50% of Versartis, which will advance three Amunix metabolic-disease compounds.Within 18 months Versartis expects to have completed Phase I proof-of-concept trials for one of these drugs, said Chief Executive Jeffrey L. Cleland. With positive results, the company plans to sell that compound or potentially the entire business. Index has an option to invest an additional $5 million in the round, which could be used to support Versartis if it runs into delays or to further develop the other two programs, said Index Partner Mark de Boer, Versartis’ chairman.Because Versartis will concentrate on drug development, not research, it should be able to advance its pipeline quickly, de Boer said. The company, based in Redwood City, Calif., will operate virtually, with fewer than 10 full-timers managing contract researchers and manufacturers. The company’s first product should enter the clinic in the first half of 2010, said Cleland, a former executive of Genentech Inc., BaroFold Inc., Novacea Inc. and Targesome Inc.Splitting research from development makes sense for multiple reasons, de Boer said. Small companies frequently struggle to blend research and development cultures: Once a start-up enters the clinic, nearly all its attention revolves around that drug. Pharmaceutical companies, meanwhile, are principally interested in products, not the technology that produced it, he argues. When a start-up is acquired, its scientists often depart to escape the “big pharma” environment, he said.This is the first time Index has launched a company through a joint venture, de Boer said, but more of these deals may be on the way. The firm will consider additional joint ventures with Amunix and with other companies or research centers, he said. Index Ventures’ move comes as venture capitalists continue to search for ways to generate fast investment returns in the midst of one of the toughest periods for exits.



Blunt but Right to the Point!

Index Ventures Launches Biotech With Speedy Exit StrategyJune 2, 2009, 10:37 AM ET, The Wall Street Journal

Index Ventures has teamed up with a small biotech company to launch a drugmaker that it hopes will quickly catch the eye of pharmaceutical heavies: Versartis Inc.Index has formed a joint venture with Amunix Inc., a biotech concern in Mountain View, Calif., to launch Versartis, which the firm has fueled with $11 million in Series A financing. Index and Amunix each own 50% of Versartis, which will advance three Amunix metabolic-disease compounds.Within 18 months Versartis expects to have completed Phase I proof-of-concept trials for one of these drugs, said Chief Executive Jeffrey L. Cleland. With positive results, the company plans to sell that compound or potentially the entire business. Index has an option to invest an additional $5 million in the round, which could be used to support Versartis if it runs into delays or to further develop the other two programs, said Index Partner Mark de Boer, Versartis’chairman.Because Versartis will concentrate on drug development, not research, it should be able to advance its pipeline quickly, de Boer said. The company, based in Redwood City, Calif., will operate virtually, with fewer than 10 full-timers managing contract researchers and manufacturers. The company’s first product should enter the clinic in the first half of 2010, said Cleland, a former executive of Genentech Inc., BaroFold Inc., Novacea Inc. and Targesome Inc.Splitting research from development makes sense for multiple reasons, de Boer said. Small companies frequently struggle to blend research and development cultures: Once a start-up enters the clinic, nearly all its attention revolves around that drug. Pharmaceutical companies, meanwhile, are principally interested in products, not the technology that produced it, he argues. When a start-up is acquired, its scientists often depart to escape the “big pharma”environment, he said.This is the first time Index has launched a company through a joint venture, de Boer said, but more of these deals may be on the way. The firm will consider additional joint ventures with Amunix and with other companies or research centers, he said. Index Ventures’ move comes as venture capitalists continue to search for ways to generate fast investment returns in the midst of one of the toughest periods for exits.



Financing of Biopharmaceuticals Vs Medical Devices

Sign of the Times: VCs Are Re-Directing Spend to Device Companies That Can Exit on Short Runways

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Irving Levin Associates - Five-Year Trend Ends In Health Care Venture Cap, Reports Healthcare Corp Finance News, National Venture Cap Assoc Money Tree Report



Meanwhile in Biotech, Shorter Runways Have Brought Us Yet Another Business Model


BIOTECHBIOTECH

TLC’s “Flip That House” introduction


Introducing the FlipCo!...Here a Flip

Apr-2005: J&J Nabs Peninsula Pharma for $245MOrtho-McNeil Pharmaceutical Inc., a subsidiary of drug giant J&J, is acquiring Peninsula Pharmaceuticals for $245 million in cash.

Dec-2003: Peninsula Begins P3 Trial with Doripenem in cUTIsOct-2004: FDA Grants Fast Track Designation for Doripenem"We believe Doripenem has advantages that differentiate it from existing therapies and are pleased that the FDA has granted this drug candidate Fast Track designation," stated Matthew A. Wikler, M.D., FIDSA, CMO and EVP at Peninsula.

May-2003: Peninsula licenses rights to Shionogi's doripenemPeninsula (in-licenses antimicrobials) licensed exclusive rights to develop and market Shionogi 's doripenem in North America.

Peninsula will spin out an antibiotic that is a fifth-generation broad-spectrum cephalosporin into a newly created company called Cerexa (which will not be owned by J&J)

Company press releases, TLC’s “Flip That House” introduction


There a Flip

Jul-2007: Merck & Co., Inc. to Acquire NovaCardia for $350 million, to Boost Clinical Pipeline of Cardiovascular Drug Candidates

Aug-2006: Phase 3 trials initiated NovaCardia's management team has done an exceptional job advancing KW-3902 into P3 clinical trials, demonstrating the compound's potential and building NovaCardia into a successful company,” said Eckard Weber, M.D., founder and chairman of NovaCardia and partner at Domain Associates.

Oct-2003: Start-up NovaCardia licenses renal compound from Kyowa HakkoDiversified Japanese pharmaceutical company Kyowa Hakko licensed NovaCardia exclusive worldwide development and marketing rights outside of Asia to its adenosine A1 receptor antagonist (KW-3902) for regulating renal function.



Everywhere a Flip, Flip!

Dec-2006: Cerexa to be Acquired by Forest for $480 Million Plus Potential $100 Million Milestone Payment

Oct-2005: Cerexa Initiates P2 Clinical Trial of PPI-0903"With the rapidly increasing incidence of serious and life-threatening infections caused by resistant bacteria, we are pleased to be accelerating the development of PPI-0903," said Dennis G. Podlesak, Chief Executive Officer of Cerexa.

Aug-2005: Cerexa Announces Corporate Launch and $50 Million Initial FinancingFollowing successful spin out from Peninsula Pharmaceuticals -Cerexa licensed from Takeda the exclusive right to develop and commercialize PPI-0903 (next-generation broad-spectrum cephalosporin antibiotic) in all countries worldwide except Japan.



Eckard Weber, Professional Flipper

• Chairman of Peninsula Pharmaceuticals until the company was sold to J&J in 2005

• Chairman of Cerexa until the company was sold to Forest Laboratories in 2007


Eckard Weber, MD

• Chairman of NovaCardia until the company was sold to Merck in 2007• Board member of Conforma until it was sold to Biogen-IDEC• Board member of Cabrellis until it was sold to Pharmion• Chairman of the Board at Ascenta Therapeutics, Ocera Therapeutics,

Orexigen Therapeutics, Sequel Pharmaceuticals, SyndaxPharmaceuticals, Tobira Therapeutics

• Board member of BioVascular and DiObex

Company website


The FlipCo: Nothing but a Modern NRDO With Greater “Exit Vision”

FlipCos NRDOs

Initial Assets Established programs(from Pharma usually)

Established programs(from Pharma usually)

Maturity of Assets Late stage assets Early-mid stage assets

Fix-up Development Strategy

Pharma acquirers in mind Long-term

Goal Sell it fast “Live in it” at least for awhile



Some Cautions for Would Be Flippers


FlipCo Model Not Practical for Most Biotechs but Strategy Lessons are Nonetheless Valuable



FlipCo Model Not Practical for Most Biotechs but Strategy Lessons are Nonetheless Valuable

• Flipped companies all exited on late-stage programs, typically acquired from Pharma

• The number of these late-stage opportunities is very limited and access to them is limited even further

• Vast majority of Biotechs will need to exit on the attractiveness of much earlier stage programs

• But FlipCo lesson must resonate: if trade sale is most likely oronly exit for a Biotech co, then mission critical assignment is to understand the needs of the potential buyer


But Pharma Will Still Want to See Data



Understanding the Buyer Needs to Go Deeper than Looking at Pharma’s Current Shopping List

• Pharma’s “buying behavior” sends false signals to VCs driving start up activity in overheated areas, such as “next wave”biological platforms

• However, Pharma will take years to “digest” biological platforms they have just recently partnered for or acquired. Overcrowding is likely in many target validated categories

• After obsession with large molecules subsides, Pharma will return to need for novel small molecule products, especially after years of cutting internal R&D!

• Lesson: When Pharma is buying platform companies, finance product companies!


Biological Deals, Rare <5 Years Ago are Now Nearly Half of Deals

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Recap; Signals Magazine: Much Ado About Biologics, April 2008

Num

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Understanding the Buyer: Mere Claims of Enormous Market Opportunity are Insufficient

• Three late stage obesity programs (Orexigen, Arena, Vivus) remain unpartnered as these companies continue to “bleed”cash and market cap

• All three companies have all produced credible efficacy and safety data but Pharma fears insurmountable regulatory hurdle

• Orexigen and Vivus programs are repurposed drugs: Repurposed drugs were once compelling to investors but never so much to Pharma, which worries about IP and therapeutic substitution (“NitroMed effect”)

• Can you name any re-purposed drugs bought by Pharma?



However, the Foundational Drivers of What Pharma Will Want to Buy Over Long-Term Will Remain Unchanged

• Pharma will be a long-term customer for innovation but only so far as it can be demonstrated that:

The innovation is capable of translating into:

• A product addressing a heretofore totally unmet need

• A product clearly differentiated from those already on market (especially in categories already or in process of genericizing)


Pharma’s Senior Management Was Late to Understand the Differentiation Challenge


Differentiation

$

© Scott Maxwell / Fotolia. Used with Permission.


As They Were Told for Far Too Long that “Follow-On Strategy” was the Way to Go

Much of the industry’s past value creation has come not from first-in-class drugs against completely new targets, but from follow-on drugs that improve the efficacy or reduce the side effects of existing compounds.

Nature Reviews Drug Discovery, Oct 2003


With Examples Like This

EvaluatePharma


But Dwelling on Past Success of Follow-On Strategy Ignored the Impact of Therapeutic Substitution With Standard of Care (SOC) Generics


Simvastatin (Zocor) Was First SOC Generic to Have a Major Impact, but Others are Imminent


Currently Marketed Blockbusters Under Threat From Emerging SOC Generics

EvaluatePharma, DH analysis

Size of bubble proportional to peak WW sales or sales at patent expiration


The Impact of a SOC Generic Has Already Hit Home for Pfizer

JP Morgan Prescription Pad, 26 February 2009


Therapeutic Insight 2009 - Pg 135 © Defined Health 2009

And is Just Now Hitting Home for Schering-Plough

Flonase (GSK)fluticasone (generic Flonase)

Nasonex (SGP)

Nasocort (SNY)

JP Morgan Prescription Pad, 26 February 2009


A SOC Generic Makes Standard LCM Strategy Ineffective


Wall Street Journal


So a Reliable Strategy From the Past

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Produces Only Commercial Flops Today

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So Differentiation is Pharma’s Most Urgent and Long-Term Need

http://blogs.wsj.com/health/2008/07/02/roche-ceo-wont-shy-away-from-primary-care-drugs/tab/print/


Biotechs Must Consider: If Pharma are Killing Theirs in Phase III, Why Should They Want Yours in Phase II?

Pfizer cancels development of two late-stage drugsTue Feb 24, 2009 11:21am ESTBy Toni Clarke and Bill Berkrot

- Drugs dropped are for fibromyalgia and anxiety- Says drugs didn't offer benefit over current treatments

BOSTON/NEW YORK, Feb. 24 (Reuters) - Pfizer Inc said it is dropping two drugs in late-stage development -- one for anxiety and one for fibromyalgia -- after data showed they would not work much better than existing treatments. The dropped drugs are the latest casualties of the No. 1 drugmaker's sputtering research engine. Earlier this year the company halted a late-stage trial of a drug that failed to improve survival in pancreatic cancer patients and last year it dropped a late-stage obesity drug."This is just another sign that Pfizer's research and development operation is not as effective as it needs to be," said David Moskowitz, an analyst at Caris & Co. "If they are killing projects like this in Phase II, it is understandable. If they are killing them in Phase III, they need to go back and look at their decision process."Pfizer said on Tuesday it is canceling its fibromyalgia drug esreboxetine, as well as a drug for generalized anxiety disorder known as PD332,334. The company's shares rose 13 cents to $13.40 in morning trading on the New York Stock Exchange after falling to a new 52-week low of $13.21 at the open."I think people are so pessimistic on Pfizer right now that they are yawning over this - it's just another piece of negative Pfizer news," said Damien Conover, an analyst at Morningstar.Pfizer, which is desperately searching for new products to replace its $13 billion-a-year cholesterol drug Lipitor, which goes off patent in late 2011, said it plans to focus on products that address unmet medical needs. The company has struggled recently to produce any big-selling products from its own pipeline, despite an annual research and development budget of roughly $7.5 billion. As a result, it has offered to buy rival Wyeth for $68 billion. The company is also streamlining its product portfolio. While the latest dropped drugs may each have generated $1 billion-plus in annual sales, according to Conover, they still would not have done much to improve Pfizer's value."The drugs were important, but from a valuation standpoint it won't hurt Pfizer that much to drop them because it is so big," he said.Pfizer said it will continue to pursue an application for its drug Lyrica as a treatment for chronic anxiety disorder. Lyrica is already approved to treat epilepsy and fibromyalgia, a condition characterized by chronic pain and fatigue. The company said it plans to focus its attention on areas where there are few effective treatments. It said it is moving forward with an experimental drug, tanezumab, in broad areas of pain management. It is already studying the drug in patients with osteoarthritis. In addition, the company sees potential opportunities for its experimental drugs to treat Alzheimer's disease and thrombosis.


Reuters


Indeed, Pharma is Already Making Early Use of Active Comparators

Clinicaltrials.gov

Active Comparator

Active Comparator


But When Generic SOC is Inadequate, Placebo Comparisons Can Still Drive Tremendous Value


Phase I study in 42 patients withOA of the knee: RN624 showed statisticallysignificant reduction in pain versus placebo. The compound also significantly improved joint function, and the duration of response was at least 56 days.

Phase III: OA of the knee and hipPhase II studies including:

• Low back pain• Post-herpetic neuralgia• Interstitial cystitis• Endometriosis pain• Prostatitis• Bone metastasis pain)

2006 acquisition

RN624 / TanezumabValue Inflection





IN VIVO May 2006


Which Means PoC Must = PoR in Order to Drive Value

• Biotechs need to build differentiation strategy into early development, including earlier use of active comparator studies,especially if SOC is strong

• Biotechs will see declining ROI on many (but not all) placebo controlled studies and corresponding increase in value of activecomparator trials even if not “registration worthy”

• Validating novel targets/mechanisms is < important than demonstrating clinical differentiation if a generic SOC, regardless of mechanism, is either in place or anticipated


TMTM


Shorter Runways and a Need to Exit on Data Have Clear Implications for Clinical Development in Biotech

• Most biotechs should focus on “brainy” PoC studies and leave “muscular” registration studies to Pharma post-deal


PoR Studies Do Not Leave Pharma Thinking . . .

big whoop



Clinical Proof of Concept is Not Always Proof of Relevance

Evotec Reports Details of the Positive Proof-of-Concept Phase II Study in Insomnia with EVT 201Sep 05, 2007

Very robust findings on the key problems faced by insomniacs, i.e. sleep onset and sleep maintenanceHamburg, Germany | Oxford, UK - Evotec AG (Frankfurt Stock Exchange: EVT) presented today at the worldsleep07 congress in Cairns, Australia the details of the results from its first Phase II clinical trial of EVT 201 in patients with primary insomnia. EVT 201 is a partial positive allosteric modulator (pPAM) of the GABAA receptor complex. The double-blind, placebo controlled cross-over study of two doses of EVT 201 (1.5mg and 2.5mg) in 67 completed patients was conducted in sleep labs in the US using objective polysomnography (PSG). After having published top-line results in a press release on 4 June 2007, the results of the detailed analysis are herewith reported.The detailed analysis showed that all endpoints achieved an even higher level of statistical significance than first indicated. The pre-specified intention-to-treat analysis of the study showed that on both of the co-primary endpoints of Total Sleep Time (TST) and Wake After Sleep Onset (WASO) the statistical significance of both doses against placebo was p<0.0001.Highly statistically and clinically meaningful effects were also found on both the Latency to Persistent Sleep (LPS) and TST in the second half of the night, indicating strong effects on both sleep onset and sleep maintenance. In addition to these objective PSG results, there were highly significant improvements, at both dose levels, on the subjective perception of sleep quality.The following morning there was no subjective perception of any residual sedation. The Digit Symbol Substitution Test (DSST) showed a small but clinically insignificant change tested the next day 9 h after dosing. The PSG analysis also showed that EVT 201 did not have a negative impact on sleep architecture unlike many benzodiazepine full agonists. As in all previous clinical studies, EVT 201 was demonstrated to be safe and well-tolerated at both doses. No serious or unexpected adverse events were reported.

From Thomson Partnering (IDdb) March 2009:Evotec, following its acquisition of Evotec Neurosciences (ENS) in May 2005, under exclusive license from Roche, is developing EVT-201, a partial positive allosteric modulator of the GABA A receptor, for the potential oral treatment of insomnia. In September 2006, Evotec initiated its phase II program in the US. In September 2007, Evotec reported that it would be seeking to outlicense the program in 2008; in November 2008, the company hoped to sign a contract in early 2009. In March 2009, the company reported it had changed the risk/reward ratio for EVT-201 and had stopped internal investment.


But Early Proof of Relevance can Precede Clinical Proof of Concept

Astex Presents Key Data Differentiating its Phase I HSP90 inhibitor, AT13387, at the AACR Annual Meeting 2009

Cambridge, UK, 14th April 2009. Astex Therapeutics announced today that key data differentiating its HSP90 inhibitor, AT13387, from other compounds in this class, will be presented at the 100th American Association for Cancer Research (AACR) Annual Meeting 2009, to be held April 18-22, 2009, at the Colorado Convention Center in Denver, Colorado. AT13387 was discovered using the Company’s leading fragment-based drug discovery platform, Pyramid™. The compound is a selective small molecule inhibitor of Heat Shock Protein 90 (HSP90) to treat cancer and is the third drug candidate from Astex’s internal discovery and development programs to be approved for clinical trials.

Preclinical data showing the efficacy of AT13387 in tumour models was previously presented at the AACR Annual Meeting in April 2007 and Astex commenced the first Phase I clinical trial of the compound in cancer patients during 2008. Data reported at this meeting will highlight the significance of the extremely long duration of the tumour-targeted pharmacodynamic action of AT13387. Studies in tumour models in vivo show that a single dose of AT13387 results in loss of client proteins for 72 hrs or more, substantially longer than reported for other inhibitors in this class. Newly presented in vitro data reveal how this property provides a means to clearly differentiate the superior profile of AT13387 from other drugs in this class. The significance of these observations to the ongoing Phase I clinical study with AT13387 are under investigation.


Portola: Making a PoC Study Count

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US Sales

ex-US Sales

US Patent ExpiryNovember 2011

$ millions

Plavix (clopidogrel) Worldwide Sales

EvaluatePharma


Ex-US Patent ExpiryDecember 2013

The Opportunity


Nice, but is it Worth More than Generic Plavix?


TheProduct

Portola company website


One Program Well Ahead is Already Trying to Differentiate

Prasugrel versus Clopidogrel in Patients with Acute Coronary Syndromes

Conclusions: In patients with acute coronary syndromes with scheduled percutaneous coronary intervention, prasugrel therapy was associated with significantly reduced rates of ischemic events, including stent thrombosis, but with an increased risk of major bleeding, including fatal bleeding. Overall mortality did not differ significantly between treatment groups.

15 November 2007

New England Journal of Medicine 15-Nov-2007


The Competition


So Portola Made Their PoC Study Count

Portola Announces Data Showing Its Anti-Platelet Drug Inhibits Platelets in Clopidogrel (Plavix®) Non-Responders Direct-Acting PRT060128 Provides Reversible, High-level Platelet Inhibition with Immediate Onset of ActionNEW ORLEANS AND SOUTH SAN FRANCISCO, CA -- Nov. 12, 2008 -- Portola Pharmaceuticals, a biopharmaceutical company developing innovative drugs that provide significant advances in cardiovascular and inflammatory diseases, and cancer, today announced new clinical data that demonstrate PRT060128, the Company’s novel anti-platelet drug that directly and reversibly inhibits the P2Y12 ADP receptor, overcomes high platelet reactivity (HPR) in patients who do not respond to clopidogrel (Plavix®). The results [Abstract #5603] were presented at the American Heart Association (AHA) Scientific Sessions 2008 in New Orleans, LA. Studies show there is substantial variability in patient response to clopidogrel therapy with up to 30% of patients not responding to treatment. Numerous studies link this suboptimal treatment response to poor clinical outcomes.

Portola company website - news


TheStrategy


And Cashed In Very Soon Afterward

Portola Pharmaceuticals Enters Worldwide License Agreement for Development and Commercialization of Novel Antiplatelet Drug Elinogrel Portola to Receive $75 M Upfront Cash Payment, $500 M in Potential Milestone Payments Plus Royalties on Future SalesSOUTH SAN FRANCISCO, Calif., (Feb. 12, 2009) -- Portola Pharmaceuticals, Inc., a privately-held biopharmaceutical company developing innovative drugs that provide significant advances in cardiovascular disease, inflammatory disease and cancer, today announced an exclusive worldwide license agreement with Novartis to develop and commercialize elinogrel, Portola’s novel, proprietary intravenous (i.v.) and oral P2Y12 ADP receptor antagonist currently in Phase 2 clinical development. Elinogrel has shown potential to offer clinical improvements over current anti-clotting medications in helping patients avoid heart attacks and strokes.

Portola company website - news


TheReward


On the Other Hand, Maybe Just Suggesting That Something Might Work Could Prove Valuable!

Big Pharma R&D: Things Are Tough All OverSeptember 24, 2008, 6:23 PM ET

Steven Paul (Mr. $3.5 billion at Lilly) said that industry wide only 25% of experimental drugs in phase II make it to phase III. “And that’s bad,” he said, in case anyone wasn’t sure. Attrition in phase III is still lousy at 50%, Paul said. To be clear, he was only talking about stats for novel drugs, or NMEs–not line extensions. Still, the bottom line is that Big Pharma’s business model “won’t work” if these high failure rates continue, he said.

Martin Mackay (Mr. $8.1 billion at Pfizer) seconded Paul’s view, adding that the failure of drugs in phase III is a relatively recent development for Pfizer. Mackay called phase II the “battleground” for big improvements in research productivity. Determining efficacy in those mid-stage studies remains a challenge. To complicate things, internal funding of R&D is coming under pressure. When asked if Pfizer’s spending on research will increase next year, Mackay answered quickly and emphatically: “No.”

Mikael Dolsten (Mr. $3.3 billion at Wyeth) said the smart set will spend more time in phase II on studies that do a better job figuring out how well a drug works before moving it along to phase III or killing it. “How clinically meaningful is the new drug,” is the question to answer, he said. Not an easy one to resolve early on, everybody agreed. * R&D figures from 2007

Wall Street Journal: Execs spoke at Windhover Information’s annual PSA connference


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