Beyond Borders Global biotechnology report 2008 Vancouver, Canada 29 October 2008
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Beyond BordersGlobal biotechnology report 2008Vancouver, Canada
29 October 2008
Headlines: the big picture
Beyond Borders3
Strong growth in 2007
Record dealsBooming financings Improved profitability
All-time high, led by mega-mergers
VC sets new record of US$7.4 billion
US publicly traded industry’s net loss reaches record low
Beyond Borders4
Emerging challenges
Safety concernsRegulatory challenges
emergePublic equity markets
cool late in year
Several new black box warnings
Lowest FDA NME approvals in 25 years
CMS, NICE decisions
Credit crunch drives flight to safety
Beyond Borders5
A challenging landscape in 2008
Credit crisis, global recession fears drive risk-averse public investors
Companies focus on efficiency, survival
VC, alliances, M&A remain strong
Market cap decline,
IPO drought, debt offerings down
Restructuring, bankruptcies up
Activity on par with recent years
Beyond Borders6
Reinventing drug development
Pharma’s patent productivity challenges drive change
Short-term: cost cutting, stock buybacks, late-stage acquisitions
Long-term: platform deals, restructuring R&D (smaller teams, networked, more autonomous)
Americas overview: the road lengthens
Beyond Borders8
US financial performance
0
2
4
6
2006 2007
Net loss (US$b) -95%
0
10
20
30
2006 2007
R&D expense (US$b) +6%
010203040506070
2006 2007
Revenues (US$b) +11%
0
50
100
150
2006 2007
Employees (000) +3%
Beyond Borders9
Behind the numbers: acquisitions and black box warnings
19%
11%
14%
0%
5%
10%
15%
20%
2006 2007 2007 adjusted
Gro
wth
rat
e
Acquisitions and black box warnings dented revenue growth in 2007
Source: Ernst & Young
Beyond Borders10
Behind the numbers: net loss in context
0%
5%
10%
15%
20%
25%
30%
35%
2000 2001 2002 2003 2003 2004 2005 2006 2007
Net
lo
ss /
rev
enu
es
US publicly traded industry historically close to profitability
Source: Ernst & Young
Less than 0.5% of revenues
Beyond Borders11
Current public market turmoil in the US
Biotech stock market performance, 2007
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1/3/
2007
1/17
/200
7
1/31
/200
7
2/14
/200
7
2/28
/200
7
3/14
/200
7
3/28
/200
7
4/11
/200
7
4/25
/200
7
5/9/
2007
5/23
/200
7
6/6/
2007
6/20
/200
7
7/4/
2007
7/18
/200
7
8/1/
2007
8/15
/200
7
8/29
/200
7
9/12
/200
7
9/26
/200
7
10/1
0/20
07
10/2
4/20
07
11/7
/200
7
11/2
1/20
07
12/5
/200
7
12/1
9/20
07
EY Biotech Industry Nasdaq DJIA
Source : Ernst & Young, finance.yahoo.com. EY Biotech Industry represents the aggregate market cap of all U.S. public biotech companies, as defined by Ernst & Young.
Beyond Borders12
Current public market turmoil in the US
Biotech stock market performance, 1 Jan – 15 Oct 2008
0.6
0.7
0.8
0.9
1.0
1.1
1.2
8/1/
2008
8/8/
2008
8/15
/2008
8/22
/2008
8/29
/2008
9/5/
2008
9/12
/2008
9/19
/2008
9/26
/2008
10/3/
2008
10/10
/200
8
EY Biotech Industry Nasdaq DJIA
Source : Ernst & Young, finance.yahoo.com. EY Biotech Industry represents the aggregate market cap of all U.S. public biotech companies, as defined by Ernst & Young.
Beyond Borders13
US financing
0
5
10
15
20
25
30
35
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008H1
US
$b
Venture IPO Follow-on Other
US financing reaches second-highest total on record
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
Beyond Borders14
US financing: public equity
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
US
$b
IPO Follow-on
Public equity markets are challenging for biotech companies
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
?
Genomics bubble
Recovery The “end of windows”
Financial market uncertainty
Beyond Borders15
US financing: regional distribution
Capital raised by leading US regions in 2007
Beyond Borders16
US deals: mergers and acquisitions
0
5
10
15
20
25
30
35
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1
US
$b
Pharma-biotech mega deals Pharma-biotech Biotech-biotech Biotech-biotech mega deals
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
Beyond Borders17
US deals: mergers and acquisitions adjusted for mega deals
0
5
10
15
20
25
30
35
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1
US
$b
Pharma-biotech Biotech-biotech
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
Beyond Borders18
US deals: alliances
0
5
10
15
20
25
30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1
US
$b
Pharma-biotech Biotech-biotech
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
Beyond Borders19
Behind the numbers: shrinking IPO returns
More money in …
Source: Ernst & Young analysis of company financial statements
0
20
40
60
80
100
120
140
1997 Recovery(2002-2003)
"End of windows"(2004-2007)
US
$mAvg pre-IPO investment
Beyond Borders20
Behind the numbers: shrinking IPO returns
More money in … and relatively less money out
Source: Ernst & Young analysis of company financial statements
0
20
40
60
80
100
120
140
1997 Recovery(2002-2003)
"End of windows"(2004-2007)
US
$mAvg pre-IPO investment Avg pre-money preferred stock
valuation at IPO
Beyond Borders21
Behind the numbers: shrinking IPO returns
More money in … and relatively less money out
Source: Ernst & Young analysis of company financial statements
0
20
40
60
80
100
120
140
1997 Recovery(2002-2003)
"End of windows"(2004-2007)
US
$mAvg pre-IPO investment Avg pre-money preferred stock
valuation at IPO
2.16x
1.60x 1.55x
Beyond Borders22
Behind the numbers: the valuation gap
Company Acquirer Value (US$ million)
Agensys Astellas 537
Adnexus BMS 505
Rinat Pfizer 478
Domantis GSK 454
Illypsa Amgen 420
Glycofi Merck 400
Avidia Amgen 380
Illumigen Cubist 341
Alantos Amgen 300
Average value of “IPO-ready” company acquisitions: $425 millionAverage pre-money IPO valuation: $150-160 million
Selected acquisitions of private “IPO ready” companies, 2006-2007
Source: Ernst & Young
Beyond Borders23
US financing: creative financingsSymphony Capital
NewCo
►Inlicenses IP►Funds clinical development IP
Funding clinical
development
Symphony Capital
$$
Portfolio Company
►Retains right to acquire IP
►Conducts clinical developmt
License to IP
$
IP
Future option to re-acquire IP at pre-negotiated premium
Shares / warrants
RRD International
Clinical development assistance (optional)
Source: Ernst & Young
Beyond Borders24
US public policy: a changing environment
Legislative issues strike at heart of biotech’s risk-reward model
Upward pressure on
risk▲FDAAA and REMS ▲Drug safety concerns▲Patent reform
Downward pressure on
reward▼Pricing pressures ▼MMA negotiations▼Follow-on biologics
Source: Ernst & Young
Beyond Borders25
Canadian overview: sustainability?
Beyond Borders26
Canadian financial performance – Public Companies
Revenues (US$ B)
0.5
1.01.52.02.5
2006 2007
R&D Expense (US$ B)
0.2.4.6.8
1.0
2006 2007
+12%+1%
Employees (000)
2.5
5.0
7.5
10.0
2006 2007
+ 2% Net Loss (US$ B)
.2
.4
.6
.8
2006 2007
+ 21%
Beyond Borders27
Canadian financing
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2000 2001 2002 2003 2004 2005 2006 2007
US
$b
Venture IPOs Follow-on Other
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
Beyond Borders28
Financing public companies – IPOs
► None to date in 2008► 1 in 2007 - $5 million.► 2 in 2006 - $9 million.► Not a significant source of funding for Canadian
companies since 2004 and 2005 when $85 million and $160 million raised.
► Canada did not follow U.S. trend in 2007.
Beyond Borders29
Canadian financing by province
0
50
100
150
200
250
300
350
400
Quebec British Columbia Ontario Alberta Other
Public companies Private companies
Canadian census 2007
Source: Ernst & Young
Beyond Borders30
Canadian public company financing by quarter $M
2006 2007 2008
493
248
87
770
352
190
87 7921 27 39
0
100
200
300
400
500
600
700
800
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Beyond Borders31
BC public company financing by quarter $M
$0
$50
$100
$150
$200
$250
$300
$350
$400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006 2007 2008
Beyond Borders32
VC funding – Canada $M
2006 2007 2008
$57
$81
$19
$61
$174
$33
$96
$50
$20
$46
$125
$0$20$40$60$80
$100$120$140$160$180$200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Beyond Borders33
VC funding – British Columbia ($M)
$0$5
$10$15$20$25$30$35$40$45$50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006 2007 2008
Beyond Borders34
Number of VC financings and average value
$7.50
$11.40
$2.50
$4.90$6.10
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
2004 2005 2006 2007 2008 TODATE
110
55 42
47
Avg. $USM
17
Beyond Borders35
Canadian financial performance
Market Capitalization (US$ B)
17.442
12.909
8.867
13.837 13.68513.219 12.934
10.844
8.500
8
9
10
11
12
13
14
15
16
17
2000 2001 2002 2003 2004 2005 2006 2007 2008MidYear
Beyond Borders36
Ernst & Young’s survival index for Canadian public companies – 2007
30%
23%
8%
40%
Less than 1 year of cash
Between 1 and 2 years ofcashBetween 2 and 3 years ofcashMore than 4 years of cash
Beyond Borders37
Canadian private biotech companies
0
50
100
150
200
250
300
350
400
2006 2007
Total
Ontario
Québec
BC
Beyond Borders38
Number of companies
0
20
40
60
80
100
120
140
Nu
mb
er o
f co
mp
anie
s
Public companies Private companies
Canadian census 2007
Source: Ernst & Young
Beyond Borders39
Canadian financing by leading clusters
Capital raised by leading Canadian biotech clusters in 2007
Beyond Borders40
Distribution of Canadian companies
Geonomics8%
Environment7%
Drug Delivery3%
Therapeutics47%
Diagnostics9%
Biomaterials5%
Ag / Aq19%
Other2%
Drug deliveriyAdvanced materialsEnvironmentDiagnosticsGenomics / BioInformationAg / Aq BioTherapeutics
2004
3% 4% 6% 6% 9% 15% 57%100%
Beyond Borders41
Distribution of Canadian companies
Geonomics8%
Environment7%
Drug Delivery3%
Therapeutics47%
Diagnostics9%
Biomaterials5%
Ag / Aq19%
Other2%
Drug deliveriyAdvanced materialsEnvironmentDiagnosticsGenomics / BioInformationAg / Aq BioTherapeutics
2007
3% 5% 8% 10% 8% 19% 47%100%
Beyond Borders42
Major Canadian Transactions in 2008
► Axcan Pharma acquired by TPG Capital - $1.3 billion
► Aspreva Pharmaceutical acquired by Galencia Group - US$900 million.
► Draxis Health Inc. acquired by Jubilant Organosys - $255M
► Arius Research Inc. acquired by Roche - $191 million
Beyond Borders43
BC Transactions in 2008
► Tekmira Pharmaceuticals Corporation and Protiva Biotherapeutics Inc. (share deal worth approx. $32M per Tekmira Q2 FS)
► OncoGenex Technologies Inc. reverse takeover of Sonus Pharmaceuticals, Inc. (share exchange deal worth about US$11M per Sonus proxy)
► Medigen Biotechnology Corporation planned reverse takeover of Pacgen Biopharmaceuticals Corporation (per Pacgen October 24 press release)
► Angiotech?
Beyond Borders44
European overview: growing strengths
Beyond Borders45
European financial performance
0.00.20.40.60.81.01.21.4
2006 2007
Net loss (€ b) 108%
0
1
2
3
4
2006 2007
R&D expense (€ b) +7%
0
2
4
6
8
10
12
2006 2007
Revenues (€b) -6%
0
20
40
60
2006 2007
Employees (000) +6%
Beyond Borders46
Behind the numbers: the Serono acquisition
3%
108%
-2%
20%
-6%
13%
-20%
0%
20%
40%
60%
2006 2007 2007adjusted for
Serono
2006 2007 2007adjusted for
Serono
Gro
wth
rat
e
The Serono acquisition had a huge impact on biotech financial results
Source: Ernst & Young, BioCentury, BioWorld and VentureOneRevenues Net loss
100%
120%
Beyond Borders47
European financing: IPOs
0
100
200
300
400
500
600
700
800
900
2001 2002 2003 2004 2005 2006 2007 2008 H1
€m
Source: Ernst & Young, BioCentury, BioWorld, VentureOne and company news (through NewsAnalyzer)
Beyond Borders48
European financing: follow-on and other
0
500
1000
1500
2000
2500
3000
3500
4000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 H1
€m
Source: Ernst & Young, BioCentury, BioWorld, VentureOne and company news (through NewsAnalyzer)
Beyond Borders49
European financing: regional distribution
Capital raised by major European countries in 2007
Beyond Borders50
European deals: mergers and acquisitions
0
2
4
6
8
10
12
14
16
2005 2006 2007 2008 H1
€b
Biotech-biotech Pharma-biotech Pharma-biotech mega deals
Source: Ernst & Young, Windhover, BioWorld, Recombinant Capital and company news (through Newsanalyzer)
Beyond Borders51
European deals: alliances
0
2
4
6
8
10
12
2005 2006 2007 2008 H1
€b
Biotech-biotech Pharma-biotech
Source: Ernst & Young, Windhover, BioWorld, Recombinant Capital and company news (through Newsanalyzer)
Beyond Borders52
European pipeline by phase
0
100
200
300
400
500
600
700
800
Preclinical Phase I Phase II Phase IIINu
mb
er o
f p
rod
uct
can
did
ates
in s
tud
ies
2006 2007
European pipeline shows strong growth, particularly in Phase II
Source: Ernst & Young and company websites
Outlook: the year ahead
Beyond Borders54
Rules of the road
Look for Rules of the road
Deals ► Increasing urgency around big pharma pipeline issues
► Stiff competition for biotech assets► High valuations, more negotiating
power for biotechs
“Bargaining power matters”► Dual-tracking preserves options
for private companies ► Creative deal structures can retain
flexibility, capture greater share of value
Financing ► Sustained strength in venture investments
► Challenging public equity markets► New, creative financing options► Restructuring
“Stay lean, mean and focused”► Capital efficiency for leaner times► Alternative sources of capital
Products & regulatory
► Increased safety scrutiny, including post-marketing
► Higher bar from payors, pay-for-performance
► Continued focus on sales/mktg.
“Show me the value”► Articulate value props early in
R&D► New reimbursement / pricing
approaches
Source: Ernst & Young
Long-term outlook:reinnovation and reinvention
Beyond Borders56
Is a pattern emerging?
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal… is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥ ►
£
R&D
►
??? ? ?►re-in
Beyond Borders57
Reinvention
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal… is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥ ►
£
R&D
►
??? ? ?►
The drug industry is being reinvented by three sweeping trends:
►R&D productivity►Personalized medicine
►Globalization
re-inre-in
Beyond Borders58
These drivers will fundamentally change the business of drug development
► Approaches to research and development► Business models► The value chain► Deal structures► Balance of power between biotech and big pharma► Partnerships between western companies and
companies in emerging markets
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥►
£
R&D
►
??? ? ?►
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥►
£
R&D
►
??? ? ???? ? ?
►
The first driver of reinvention:R&D productivity
Beyond Borders60
The problem: patent expirations
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012
US
$b
Projected sales losses from patent expirations to reach US$67b by 2012
Source: Sanford C. Bernstein & Co.
Beyond Borders61
Big companies need sustainable solutions
Buying pipeline assets
►High prices lower upside potential
►Limited reserves of cash
Cutting costs
►Short-term gains
Boosting EPS►Short-term gains►Limited reserves of cash
Companies need
sustainable solutions to fix the real problem:low R&D
productivity
Source: Ernst & Young
Beyond Borders62
The inertia of size
Small companies Conduct and performance Large companies Conduct and performance
Stru
cture
► Small ► Individuals have more control over outcomes
► Large ► Poor sense of ownership
► Flexible ► Encourages creativity and collegiality
► Rigid ► Centralized, bureaucratic processes
► Risk-aversion over time
► Cash-starved ► Driven to raise capital► Lean operations,
sometimes cut corners
► Strong cash flow ► Not as “hungry” or driven to succeed
Incen
tives
► Stock-based compensation is a strong incentive
► Direct financial tie to performance
► Stock-based compensation is not meaningful
► Less tied to outcomes► Less passion
► Private investors with longer horizons
► Less focused on short-term financial performance
► Public investors demanding quarterly results
► More sensitive to short-term impact of long-term decisions
Structure and incentives drive conduct and performance
Source: Ernst & Young
Beyond Borders63
Emulating biotech
Creating small, autonomous R&D units
Emulate
Large monolithic big pharma company
Preserving entities after acquisitions
Adopting networked structures
Pay-for-performance tied to small-team milestones
culture
of
small
biotech
companiesSource: Ernst & Young
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥►
£
R&D
►
??? ? ?►
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥►
£
R&D
►
??? ? ???? ? ?
►
The second driver of reinvention:Personalized medicine
Beyond Borders65
Personalized medicine: why now?
Safety concerns
►Targeted approaches►Less misdiagnosis,
fewer adverse events
Pricing pressures
►Smaller clinical trials►Cheaper drug development
R&D productivity
►More efficient identification and development of drug targets
Move from efficacy to efficiency
in drug development
and healthcare
delivery
Source: Ernst & Young
Beyond Borders66
Challenge 1: end of the blockbuster model
Old model New model
►Large clinical trials►Pharma’s Phase III abilities a key
strength
►Smaller trials for targeted drugs►Scale less relevant
►Large-scale manufacturing for high volumes of blockbuster drugs
►Smaller volumes, but more complex manufacturing
►DTC advertising, armies of sales reps for poorly-differentiated drugs
►Drugs better differentiated, compete on merits
►Scale less relevant in sales
►Reimbursement based on efficacy ►Pay-for-performance requires greater allocation of resources to demonstrate value
Source: Ernst & Young
Beyond Borders67
Challenge 2: making the numbers work
Source: Ernst & Young
►Targeted therapeutics for more efficient treatment of disease
►More efficient drug development with smaller, cheaper clinical trials
Rx
►Diagnostics for more efficient:
►Prediction►Diagnosis►Dosing►Monitoring
►Lower healthcare costs from new efficiencies
Dx 3x
►Incentives and metrics to support the economics and ROI for investors:
►Better pricing for diagnostics
►Reimbursement based on value
►Measures across healthcare system
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
€►
¥►
£
R&D
►
??? ? ?►
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
FDAAA ►
$►
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R&D
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The third driver of reinvention:Globalization
Beyond Borders69
Drivers and limitations
Driver Short-term play Long-term play
Outsourcing clinical trials and manufacturing
►Cost cutting for western companies
►Sources of revenue for emerging market companies
►Limited window as cost advantages get eroded
►Emerging market companies looking to develop innovative pipelines
►Goals become more competitive, less complementary
Selling drugs to rapidly-growing emerging markets
►Tremendous opportunity as emerging middle classes, rising prosperity create markets that can afford western drugs
Source: Ernst & Young
?
Beyond Borders70
Globalization:the challenge of the next billion consumers
Source: Ernst & Young and International Finance Corporation (IFC)
US$20,000
US$3,000
“The unserved base”US$30b market
US$65b by 20174b patients
6b patients by 2017
1b patients
1.5 bpatients
Mature markets withslow growth potential
Per-capita income thresholds: Market size/potential:
“The next billion”Emerging markets with
high growth potential
Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
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R&D
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Big pharma companies announce layoffs, restructuringsStock buybacksSafety concerns take bite out of product sales
Velcade gives NICE an unprecedented money-back guarantee
FDA NME approvals fall to lowest level in
over 25 years more pricing
pressuresemerging
Product safety incidents in the
rising China market
Product safety incidents in the
rising China market
Big pharma’s search for pipeline productivity propels a booming deal environment
Biotech companies retain more
rights in deals
The mega deal…is back
π?
8%
Government negotiation of drug prices under MMA returns to public policy debate
Government negotiation of drug prices under MMA returns to public policy debate
FIPNETs
Creative deal structures
►
►
►
►
►►M&A R
EMS
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R&D
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The shape of the future
Beyond Borders72
Changing business models
Personalized medicine changes the nature of competition
Source: Ernst & Young
Present state
Beyond Borders73
Changing business models
Personalized medicine changes the nature of competition
Source: Ernst & Young
Future state
Beyond Borders74
Changing business models
Personalized medicine redistributes value in the value chain
Source: Ernst & Young
Research
Research
Early development
Early developmentLate development
Late developmentManufacturing
Manufacturing
Sales and marketing
Sales and marketing
0%
20%
40%
60%
80%
100%
Current state Future state - personalized medicine
Value accrues to innovation
Beyond Borders75
The need for new models
R&D
Source: Ernst & Young
Operations
Capital formation & efficiency
Deals
Pharma
►Boost productivity
Biotech
►Remain innovative
►Adapt to smaller scale►Variabilize fixed costs►Tap networks
►Value chain specialization / non-FIPCO models
►Efficient allocation & deployment of capital
►Access capital with less dilution
►Minimize burn rate
►Portfolio approach►Manage risk
►Retain control & rights►Higher share of value
Beyond Borders76
Opportunities for companies
Biotechs gaining
more bargaining
power
More flexibility
Greater share of value
produced
Source: Ernst & Young
Pharma’s imperative to fix R&D product-
ivity
Greater rights retention
Minimize P&L impact of
investments
Creative deals
Accept more risk to increase
potential upside
Acquire culture, not just
pipeline
Biotech Pharma
Beyond Borders77
Models of the future
Source: Ernst & Young
►Leaner FIPCOs: less infrastructure required
►Value-chain specialization
►Becoming FIPCOs less imperative with higher royalties, co-promotion rights
Biotech
►Some successfully reinvent R&D
►New Models: ►More risk
accepting in R&D
►Leaner sales►More networked
Pharma 1 Pharma 2
►For those that don’t succeed at reinvention:
►Core strengths are lower-margin
►Competition from emerging markets
►De facto CROs or CMOs?
Beyond Borders84
Thank you
Stay tuned:
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Reinnovate. Reinvent. You in?
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