Wrap-up – brief overview of Pharmaceuticals/Biotech.

Wrap-up – brief overview of Pharmaceuticals/Biotech

Biotechnology: One of the World’s oldest emerging industries

Most investors think Biotech is the newest whim on earth! From a historical perspective: NOT SO!

Biotech’s genesis go back to some 5000 BC when farmers noticed that certain crop grew better in some conditions than others

A follow-up took place around 1000 BC when farmers cross-bred the best of two breeds – the female horse and the male donkey – creating a new animal, the mule. The mule became the first genetically engineered species.

Modern biotechnology 1950 Watson and Crick discovered the structure of DNA

– not the secret of life, but a secret of life 1973 Boyer and Cohen recombined DNA 1978 Eli Lilly and Genentech announce they are

creating genetically engineered insulin 1980, the first IPO – Genentech 1982, FDA approval of synthetic insulin 2000 first Finnish IPO – Biotie Therapies 2001 mapping of the human genome .. ..

The Pharmaceutical

Industry

Industry Recipe X

Company Paradigm Y

Strategy Logic Z

The Agri

Industry

Industry Recipe X

Industry Recipe X

Industry Recipe X

The Food Industry

Industry Recipe X

Industry Recipe X

Industry Recipe X

The Pharmaceutical

Industry

Industry Recipe X’’

Company Paradigm Y’’

Strategy Logic Z’’

The Biotechnology

Industry

Industry Recipe X’

Company Paradigm Y’

Strategy Logic Z’

TechnologicalChange

Technology and Markets in Motion

Lead to… A myriad of POTENTIAL business

opportunities all along the entire R&D process Are they profitable? Are they real

A variety of NEW BUSINESS MODELS making FIPCOs (Fully Integrated Pharmaceutical Companies) dated

Product companies, Technology companies, and Hybrids To this should be added SERVICES

Discovery(2-10 years)

Preclinical TestingLaboratory and animal testing

Phase I20-80 healthy volunteers used to determine safety and dosage

Phase II100-300 patients used to lookfor efficacy and side effectsPhase III

1000-5000 patiens used to monitor adverse reactions to long-term use

Regulatory Review/Approval

Additional Postmarketing Testing Phase IV

Years

0 2 4 6 8 10 12

Preclinical

Clinical

Drug Development Process – ’the Staircase model’ – the

’FIPCO’ model

The Food Industry

Industry Recipe X

Company Paradigm Y

Strategy Logic Z

The Health Care Service Industry

Industry Recipe X

Company Paradigm Y

Strategy Logic Z

The Agri Industry

Industry Recipe X

Company Paradigm Y

Strategy Logic ZThe Pharmaceutical

Industry

Industry Recipe X’’

Company Paradigm Y’’

Strategy Logic Z’’

The Biotechnology

Industry

Industry Recipe X’

Company Paradigm Y’

Strategy Logic Z’

The Materials Industry

Industry Recipe X

Company Paradigm Y

Strategy Logic Z

New Therapeutic Cycles

New Drug Targets

Discovery to Market Process(as viewed by an bio-

entrepreneur)

AdvancedIntermediateEarlyNewMedicineProposal Target

Validation

LeadIdentification

LeadDevelopment

LeadOptimization

EIHEnabling

EarlyClinicalSafety

DevelopmentPortfolioPreparation

EarlyClinicalEfficacy

PhaseII

PhaseIII

Launched

MIL

ES

TO

NE

MIL

ES

TO

NE

MIL

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NE

MIL

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MIL

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NE

MIL

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TO

NE

MIL

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TargetValidation

ClinicalCandidateSelected

StartPhase III

NDA

Discovery Development MarketM

ILE

ST

ON

E

MIL

ES

TO

NE

MIL

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TO

NE

MIL

ES

TO

NE

MIL

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TO

NE

MIL

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TO

NE

MIL

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MIL

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Marketer 65-75 %

Developer 10-25 %

Innovator 10-15 %

Sharing the income in the pharmaceutical business

RESEARCH GROUPS

MARKETING PARTNERS

DEVELOPMENT PARTNERS

MANUFACTURING PARTNERS

TRANSFER OFPROPRIETARY

RIGHTS

LISENCE,SUPPLY OFPRODUCT

PAYMENTSROYALTY

MILESTONE PAYMENTS,ROYALTY, PART OFGROSS MARGIN

OUTSOURCED RESEARCH AND DEVELOPMENT

COST-EFFICIENT INDUSTRIAL SCALE MANUFACTURING

DISCOVERY RESEARCH

DISCOVERY RESEARCHDRUG DEVELOPMENTOWNER OF PATENTSCOMMERCIALIZATION OF DEVELOPMENT ROJECTSMANAGEMENT OF OUTSOURCED RESOURCES

PHASE III DEVELOPMENTMARKETINGSALES

Biotech Company

Pharma Outsourcing of R&D

Marketing Authorisation

Clinical Phase I -III

Discovery

Outsourcing

The US vs. Europe – the whole industry vs. listed co’s (June 12,

2002)

THE WHOLE INDUSTRYUS EUROPE

2001 2000 Ch.% 2001 2000 Ch.%

30,0 27,0 10,9 Turnover 14,4 10,4 3516,5 14,4 14,6 R&D exp. 7,9 5,8 357,3 6,3 15 Loss 1,6 1,9 -161457 1374 6 # Co’s 1879 1734 8191,000 176,000 8,5 # empl. 87,182 67,445 29

LISTED CO’S

26,6 23,9 12 Turnover 7,2 4,9 4610,9 9,7 13 R&D exp. 4,5 3,0 485,1 4,3 17,1 Loss 0,58 0,36 60342 344 -0,6 # Co’s 104 107 -3141,000 130,000 8,5 # empl. 34,180 25,964 32

Biotech Global Product Sales and Forecast 2000-2010 (Millions of

Dollars)

Key Sectors Base Year Forecast Years ‘00-’10 Growth2000 2005 2010 ppa

Human Therapeutics 11,700 20,600 36,300 12Human Diagnostics 2,500 3,700 5,400 8Agriculture 780 1,950 4,200 18Specialities 550 1,170 2,400 16Non-Medical Diagn. 320 480 700 8

TOTAL 15,850 27,900 49,000 12WORLD TOTAL 25.000 35.000 85.000

Source: Consulting Resources Corporation

Porter’s five forces in BIOTECH

INDUSTRYCOMPETITORS

Internalrivalry

SUPPLIERS

POTENTIALENTRANTS

BUYERS

SUBSTITUTES

Bargainingpower of

Bargainingpower of

Threat of

Threat of

Government regulation

Globalmarket demand

ConstantlyChanging

Issues important in Strategic Market Management

Not only technological, regulatory, and financial science and getting scientific results availability of R&D funding; public and private regulatory; FDA, EMEA, KOSEISHO

You need to understand – on a long-term basis: Medical and Healthcare system related

treatment changes diagnostics changes reimbursement changes which are national

who is paying and how much health economics

The regulatory focus areas of the biotech industry – Legal gates to market entry

USA(FDA) Japan

(Koseisho/OPRS)

EU(EMEA/CPMP)

Issues important in Strategic Market

Management Other issues

demographic changes changes in disposable income changes in society cultural diversity

treatment praxis varies between countries what is seen as good in one country is seen as

bad in another ethical issues

varies between countries

Market estimations

are not only quantitative estimations of market potential

require equally much qualitative assessments

It is a combination of BOTH

Future major issues affecting market entry and success

Expanding healthcare market nutraceuticals complementary and alternative medicines

New drug delivery systems New diagnostic methods

validation procedure! Biomaterials Changes in patent regulations

Future major issues affecting market entry and success

Rx to OTC switching a way to cut healthcare costs

Branding Empowered consumers

Direct-to-consumer advertising In the US since 1997 In New Zeeland since 1981 The rest of the world is watching – Europe is

about to try a restricted version Direct-to-consumer branding

Conclusions Biotechnology is truly the future horn of plenty.

However, achieving success will require business management capabilities.

It is not just enough with top technology and some money.

It is not enough to know your way in the regulatory jungle

Biotech is a global business, moving fast knowledge grows and stuns markets change all the time

Companies have to master market management – it is a strategic issue to them

“If you think research is expensivetry disease”

Mary Lasker “evangelist” for medical research,as quoted by Nobel Prize-winning DNA scientist

Arthur Kornberg in the Golden Helix

IT WILL BE EVEN MORE EXPENSIVEIF YOU DON’T KNOW YOUR MARKET(S)!