BELL: Thomas Höger, Apogenix, Finances

Apogenix:

1

Apogenix:

Financial Aspects of a Drug Development

Biotech Company

27.01.2015

Tabel of Content

• Drug Development

• Financial Aspects

− Profit and Loss Statement

− Balance Sheet

− Cash-Flow Statement

− Milestones

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Milestones

− Valuation

− VC Investors

• Apogenix GmbH

BELL Lectures

Drug Development

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Drug Development

BELL Lectures

Drug Development

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Source: http://www.vfa.de/de/arzneimittel-forschung/so-funktioniert-pharmaforschung/so-entsteht-ein-medikament.html

BELL Lectures

Drug Development

Cost of preclinical development

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Source: http://advancingcures.org/blog/2013/09/10/how-much-does-it-cost-estimating-drug-development-costs-before-human-studies/

BELL Lectures

Drug Development

Company Ticker Number of

drugs

approved

R&D Spending Per

Drug

($Mil)

Total R&D Spending 1997-

2011

($Mil)

AstraZeneca AZN 5 11,790.93 58,955

GlaxoSmithKline GSK 10 8,170.81 81,708

Sanofi SNY 8 7,909.26 63,274

Roche Holding AG RHHBY 11 7,803.77 85,841

Pfizer Inc. PFE 14 7,727.03 108,178

Cost of clinical development

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Pfizer Inc. PFE 14 7,727.03 108,178

Johnson & Johnson JNJ 15 5,885.65 88,285

Eli Lilly & Co. LLY 11 4,577.04 50,347

Abbott Laboratories ABT 8 4,496.21 35,970

Merck & Co Inc MRK 16 4,209.99 67,360

Bristol-Myers Squibb Co. BMY 11 4,152.26 45,675

Novartis AG NVS 21 3,983.13 83,646

Amgen Inc. AMGN 9 3,692.14 33,229

Source: InnoThink Center For Research In Biomedical Innovation; Thomson Reuters Fundamentals via FactSet Research Systems

� Cost are estimated to be at least 1 - 1.5bn US$

BELL Lectures

Drug Development

Historical probabilities of success in drug development

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Source: BioMedTracker; BIO

BELL Lectures

Financial Aspects

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Financial Aspects

BELL Lectures

Financial Aspects

• Profit and loss statement

• Cash-flow statement

• Balance sheet

• Milestone payments

• Valuation

• Exit

27.01.2015 9BELL Lectures

Financial Aspects

Profit and loss statement


Financial Aspects

Cash-flow statement


Financial Aspects

Balance Sheet


What German Private Companies Have to Publish

27.01.2015 BELL Lectures 13

Tax Loss Carry Forwards

• Tax loss carry forwards can be offset against profits only in a very limited way

• 1 Mio € can be offset immediately

• Profits exceeding 1 Mio € can be offset by up to 60%

• Example:

50 Mio € recognized tax loss carry forwards in years 2008-2014

Germany


Milestone payment of 30 Mio € in 2014, operating profit 25 Mio €

⇒ 25 – 1 – 15 (60% of 24 Mio €) = 9 Mio € “taxable” income leading to a tax payment

of approx. 2.7 Mio €

• Austria, Switzerland: No limitations

• Money from financing rounds is normally not transferred entirely to the company´s bank

account

• Payment schedule according to a pre-defined milestone plan with clearly defined goals

and time-points

• Within one financing round, an important goal should be reached:

Financial Aspects

Milestone payments

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− Completion of pre-clinical development

− Completion of clinical phase I

− Break-even

� Cave: Don´t be overly optimistic with regard to both,

financial and time requirements

BELL Lectures

Financial Aspects

Valuation of biotech companies by a variety of methods

• DCF-methods („discounted cash flow“)

− Probability of success to reach market

− Year of market entry

− Market size (number of patients, length of treatment [antibiotics vs. chronic treatment]),

market penetration and uptake considering competitors, reimbursement situation etc.)

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market penetration and uptake considering competitors, reimbursement situation etc.)

− Patents (supplementary patent certificates, orphan drug designation)

− Cost of clinical development, of production and marketing

• „Peer-group“ comparables

• „Multiples“ (Sales; Earnings; EBIT; EBITDA)

• „Real Options“

BELL Lectures

Financial Aspects

Methods hardly applicable when it comes to recently founded biotech companies

• Valuation is investor-driven

• To be negotiated with the founders

• Example: Basic research project with a development candidate and promising animal data

− „Pre-money“ valuation: 1 Mio €

− Investor commits 4 Mio € and obtains 4/5 of shares

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− Investor commits 4 Mio € and obtains 4/5 of shares

− „Post-money“ valuation: 5 Mio €

BELL Lectures

Financial Aspects

Value Inflection Points: Wilex AG

End of lock-up period:

Delay in clinical development

of Rencarex

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Positive phase II data

Mesupron

Negative phase III data

Rencarex

BELL Lectures

Financial Aspects

There are different types of investors

• „Business Angels“ (e.g., Rainer Christine, ex-CEO of Amaxa)

• „Family Offices“ (e.g., families Hopp, Strüngmann)

• „Seed“-Investors (e.g., High-Tech Gründerfonds)

• „Classical“ VC-Investors (e.g., TVM, LSP)

• „Corporate“ VC-Investors (e.g., Merck KGaA, Roche Ventures…)

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• „Corporate“ VC-Investors (e.g., Merck KGaA, Roche Ventures…)

BELL Lectures

Financial Aspects

Areas of potential conflicts between founders and investors

• Not every founder is a successful entrepreneur

• Disagreement in valuation

• Disagreement in strength of patent portfolio

• „Drag along rights“: All shareholders agree to sell their stakes to the same conditions as

the investor

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the investor

• „Tag along rights“: If one shareholder sells his stakes, the investor is entitled to sell his

stake (pro rata) at the same price

• „Liquidation preference“

• „Anti dilution“

• Additional financing rounds and new investors

BELL Lectures

Financial Aspects

Hypothetical case study

• Novel treatment for cancer with encouraging animal data

• Pre-money valuation: 2 Mio €

• 2x liquidation preference

• First financing round: 10 Mio €

• Post-money valuation: 12 Mio €

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• Post-money valuation: 12 Mio €

• Toxicological problems with drug candidate ⇒ time delay

• Second financing round of 20 Mio € @ pre-money valuation of 6 Mio €

• Good phase I/II data

• Company is acquired for 100 Mio €

• What do you get (before tax !)? Can you retire early or become a business angel?

BELL Lectures

Financial Aspects

Hypothetical case study

• Founder´s participation after 1st financing round; 12 Mio €:

2/12=16,7%

16,667 shares out of 100,000 shares

1 share = 120€

• Founder´s share after 2st financing round:

pre-money valuation is now 6 Mio € instead of 12 Mio €

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pre-money valuation is now 6 Mio € instead of 12 Mio €

1 share = 60€

To raise 20 Mio €, you have to issue 20,000,000/60=333,333 new shares

This results in a total of 100,000 + 333,333 = 433,333 shares

of which the founders own 3,8%

• Exit: 100 Mio €

Two-fold liquidation preference: 30 x 2 Mio € = 60 Mio €

Rest of 40 Mio €: 100%-3,8% = 96.2% for the investor, i.e. 38.48 Mio €

You receive 1.52 Mio € (before tax), considering a tax rate of 40% you´ll get 0.912 Mio €

BELL Lectures

Financial Aspects

What are VCs looking for?

• Well-written business plan

• Committed, enthusiastic and experienced team

• Address an unmet medical need

• Great returns at low risk

How to identify and convince a potential investor

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How to identify and convince a potential investor

• Networking

• Attend investor meetings

• Directly approach investors (e.g., HTGF) and take advantage of their networks

• See, e.g., http://www.fiercebiotech.com/special-reports/top-venture-capital-firms

BELL Lectures

Financial Aspects

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Source: Ernst&Young, Beyond Borders; Biotechnology Industry Report 2013, 2014

BELL Lectures

� 2013 vs. 2012: increase by 2 bn US$ to 25 bn US$,

� 41 „initial public offerings“ (IPO)

� IPO window remained open in 2014

� European companies chose to go public in the USA (e.g., Affimed)

Financial Aspects

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Source: Ernst&Young, Beyond Borders; Biotechnology Industry Report 2013, 2014

� 2013 vs. 2012: increase by 0.9 bn US$ to 4.2 bn US$,

� Germany: decrease by 50 million € to 164 milion €

� Lack of capital jeopardizes innovation of, e.g., EU drug development companies

BELL Lectures

Financial Aspects

Ways to sell company stakes

• Trade sale(z.B. Cellzome/GSK; mtm/Roche; Alantos/Amgen)

• License agreement

• License agreement is sometimes the first step towards an acquisition

(Bayer / Algeta; 1.8 bn US$)

• IPO (Europe vs. US)

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• IPO (Europe vs. US)

BELL Lectures

Financial Aspects

What is big pharma looking for?

• Difficult to predict, following trends and rapidly changing…

• Great returns at low risk


Apogenix GmbH

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Apogenix GmbH

BELL Lectures

Apogenix GmbH

• Founded in 2005 in Heidelberg, Germany, 26 FTEs

• Focus on development of antibody-like Fc fusion proteins

• Phase II successfully completed for lead compound APG101

• Successful partnering of APG880

Apogenix GmbH

• Founded in 2005 in Heidelberg, Germany, 26 FTEs

• Focus on development of antibody-like Fc fusion proteins

• Phase II successfully completed for lead compound APG101

• Successful partnering of APG880

Status & Outlook for Immunotherapeutic Lead Compound APG101

• Proof of concept in recurrent glioblastoma (GBM) shown:

Status & Outlook for Immunotherapeutic Lead Compound APG101


Company Overview


All endpoints met in a controlled, randomized phase II study

• Dual mode of action: Blocking of invasive growth and overcoming immune

escape of tumors ⇒ broad applicability for treatment of solid tumors

• Proof of principle and ongoing Phase I in myelodysplastic syndromes (MDS)


All endpoints met in a controlled, randomized phase II study

• Dual mode of action: Blocking of invasive growth and overcoming immune

escape of tumors ⇒ broad applicability for treatment of solid tumors

• Proof of principle and ongoing Phase I in myelodysplastic syndromes (MDS)

29BELL Lectures27.01.2015

Finance

• € 55.5m in four financing rounds

• € 8.5m public grants

• Upfront payment through partnering

• Audited IFRS annual financial statements

Finance

• € 55.5m in four financing rounds

• € 8.5m public grants

• Upfront payment through partnering

• Audited IFRS annual financial statements

Focus on development and commercialization of antibody-like Fc fusion proteinsFocus on development and commercialization of antibody-like Fc fusion proteins

CD95 Ligand

Inhibitor

APG101

Discovery Preclinical PoP Phase I Phase II PoC Phase III

Pipeline

Glioblastoma (GBM)

Myelodysplastic syndromes (MDS)

CD40 Agonists

E.g., APG1233

TRAIL Receptor

Agonists

APG880


Solid tumors

Solid tumors (e.g., Pancreas)

Solid tumors Partnered with

Technology PlatformTechnology Platform


Technology PlatformTechnology Platform

Technology Platform

• Novel Fc-fusion proteins engineered on the basis of a proprietary technology

platform overcome limitations of agonistic antibodies targeting the TNF-SF

(Tumor necrosis factor super family)

• Conventional antibodies have two binding sites

• Apogenix´compounds have six binding sites


• Apogenix´compounds have six binding sites

• Binding of Apogenix´ compounds to receptors induces a spatially well defined

receptor assembly (clustering), thereby triggering a strong intracellular signal

leading to, e.g., apoptosis (programmed cell death)

� Receptor clustering leads to higher efficacy compared to antibodies

TRAIL Receptor

Technology Platform

APG880

TRAIL

Receptor

Antibody

TRAIL

Receptor


Cell membrane

• Validated by comprehensive licensing agreement on TRAIL receptor agonists

(e.g., APG880) with

• Increasing deal-making and development activity (see Agenus/Incyte cooperation;

Roche; MedImmune)

• Broadly applicable to, e.g., CD40, OX40, LIGHT pathways

Cell Membrane

Cell Membrane

Company Overview

Success factor: Team


Company Overview

Success factor: Team


Company Overview

Success factor: Committed investors


Company Overview

Success factor: Selection of disease focus

Stroke

Myocardial infarction

Reperfusion injury

AIDS

SCI

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SCI

aGvHD

Glioblastoma

BELL Lectures

Success factor: Reliable partners


Company Overview

APG101

2006

APG101

APG880

Solid Tumors

27.01.2015 39

APG101

GB

BELL Lectures

APG101

MDS

Aggressive brain tumor: Median overall survival 15 months

Standard first line therapy: Surgery, radiation, Temodar

No approved drug treatment in EU for second line therapy

Annual treatment costs, e.g., for Avastin approx. 100,000 US$

Incidence US/EU: 25,000 new cases p.a.; prevalence US/EU: 28,000

APG101 – Indication Glioblastoma Multiforme

APG101 in GB

• Orphan drug designation in US and EU (high unmet medical need)

• Positive feed-back from regulatory authorities (EMA, FDA)

• Support from global KOLs (EU: e.g., Stupp, Weller, Wick; US: e.g., Reardon, Helman, Metha)

• APG101: proof of concept in a randomized, controlled Phase II trial in recurrent GB with 84

patients, all endpoints met, main study centers in Heidelberg, Moscow, Graz

• Sales potential > 750 Mio US$

APG101 in GB

• Orphan drug designation in US and EU (high unmet medical need)

• Positive feed-back from regulatory authorities (EMA, FDA)

• Support from global KOLs (EU: e.g., Stupp, Weller, Wick; US: e.g., Reardon, Helman, Metha)

• APG101: proof of concept in a randomized, controlled Phase II trial in recurrent GB with 84

patients, all endpoints met, main study centers in Heidelberg, Moscow, Graz

• Sales potential > 750 Mio US$


Ref.: www.trajectoryscifi.com

Recurrence DeathProgression

Second Line Therapy

No established standard therapies

First Line Therapy

Completed Phase II Study Design in Recurrent GB

Surgery/

Temodar/RTFollow-up

Randomization

(2:1)

56 patients Radiotherapy (18x 2 Gray)

+ APG101 weekly i.v.; 400mg

No established standard therapies


Centralized, blinded data analysis

(Magnetic resonance imaging, pathology)

Temodar/RT

Biomarker

analysis

Follow-up(2:1)

28 patients

Radiotherapy (18x 2 Gray)

No further treatmentTumor

Tissue

Recurrent GB – Overall Survival Data from Phase II

Su

rviv

al

(%)

100

80

60

Radiotherapy + APG101

Radiotherapy

APG101/RT RT

Mean 16.3 12.7

Median 11.5 11.5

HR (p) 0.6 (p=0.056)

95% Conf. Interv. 0.36-1.01


Su

rviv

al

Time (Months)

At the time of the analysis, 10 patients were still alive (1 in RT, 9 in RT+APG101 group)

40

20

0

3528211470 42

• Genome analysis of tumor tissue from patients of the APG101 PII study identified an epigenetic

biomarker linked to the CD95L gene (CpG2)

• Treatment with APG101 significantly improved progression free survival and overall survival in

patients carrying this new epigenetic biomarker

Predictive Biomarker Identified in Glioblastoma

CG CG CG CG

CD95L Promoter CD95L Gene

CG

Survival in biomarker positive patients(low methylated CpG2)


Survival in biomarker negative patients(high methylated CpG2)

Time

0 10 20 30 40 50 60

Sur

viva

l

0,0

0,2

0,4

0,6

0,8

1,0apg osrt os

APG101+RT RT only

Median OS

(months)

16.1 7.3

P value (log

randk)

0.005

Time

0 10 20 30 40 50 60

Sur

viva

l

0,0

0,2

0,4

0,6

0,8

1,0apg osrt os

APG101 for Treatment of Myelodysplastic Syndromes

(Low-Intermediate I Risk Disease)

Myelodysplastic Syndromes (MDS) = Disease of blood stem cells

characterized by ineffective hematopoiesis, resulting in anemia,

fatigue, life-threatening infections

Limited treatment options (best supportive care, e.g., blood transfusions)

No approved drugs for low-intermediate I classified patients

Standard of care: Transfusions; annual treatment costs ca. 70,000 US$

Incidence US/EU: 35,000 new cases p.a.; prevalence US/EU >100,000


http://nonbloodmedicalmanagement.blogspot.de/

Incidence US/EU: 35,000 new cases p.a.; prevalence US/EU >100,000

APG101 in MDS

• APG101 improves hematopoiesis

-> reduction of transfusion frequency in an ongoing phase I study

• Interim data have been presented at ASH (American Society of Hematology, December 2014)

• Orphan drug designation in US (high unmet medical need)

• Peak sales potential > 800 Mio US$

APG101 in MDS

• APG101 improves hematopoiesis

-> reduction of transfusion frequency in an ongoing phase I study

• Interim data have been presented at ASH (American Society of Hematology, December 2014)

• Orphan drug designation in US (high unmet medical need)

• Peak sales potential > 800 Mio US$

• Phase I data shows clinical efficacy of APG101 in low – int1 risk MDS patients

APG101 Increases Erythropoiesis in MDS Patients

BFU-E*

Arb

itra

ry u

nit

s (%

)

Changes in BFU-E and CFU-G

during the course of the study

Nu

mb

er

of

tra

nsf

usi

on

s/8

we

eks

10

Changes of transfusion frequency

during the course of the study


Start of

Study

Week 13

(EoT)

Week 25 Week 37

(EoS)

BFU-E*

CFU-G*

Arb

itra

ry u

nit

s (%

)

*BFU-E= "Burst forming unit erythrocyte"

*CFU-G= “Colony forming units granulocyte“

Treatment period (12 weeks)

Start

of

Study

Nu

mb

er

of

tra

nsf

usi

on

s/8

0

2,5

5

7,5

10

End of

Study

• Interim data were presented at annual meeting of ASH (Dec 2014)

Contact Information

Apogenix GmbH

Im Neuenheimer Feld 584

D-69120 Heidelberg

Germany

Telephone +49 (0)6221 586080

Fax +49 (0)6221 5860810

Apogenix GmbH

Im Neuenheimer Feld 584

D-69120 Heidelberg

Germany

Telephone +49 (0)6221 586080

Fax +49 (0)6221 5860810

46BELL Lectures27.01.2015

GermanyGermany

www.apogenix.com

BELL: Thomas Höger, Apogenix, Finances

Small Business & Entrepreneurship

mio austria

forwards tax loss

loss statement27

cost of clinical development27

mio taxable income

tax paymentof

predefined milestone

operating profit