Transcript Beyond Borders - Life Sciences

Beyond Borders
Global biotechnology report 2008
Vancouver, Canada
29 October 2008
Headlines: the big picture
Strong growth in 2007
 Record deals
 Booming financings
 Improved
profitability
3
Beyond Borders
 All-time high, led
by mega-mergers
 VC sets new record
of US$7.4 billion
 US publicly traded
industry’s net loss
reaches record low
Emerging challenges
 Safety concerns
 Regulatory
challenges emerge
 Public equity
markets cool late in
year
4
Beyond Borders
 Several new black
box warnings
 Lowest FDA NME
approvals in 25
years
 CMS, NICE
decisions
 Credit crunch
drives flight to
safety
A challenging landscape in 2008
5
 Credit crisis, global
recession fears
drive risk-averse
public investors
 Market cap decline,
IPO drought,
debt offerings
down
 Companies focus on
efficiency, survival
 VC, alliances, M&A
remain strong
 Restructuring,
bankruptcies up
 Activity on par with
recent years
Beyond Borders
Reinventing drug development
 Pharma’s patent
productivity
challenges drive
change
6
Beyond Borders
 Short-term: cost
cutting, stock
buybacks, latestage acquisitions
 Long-term:
platform deals,
restructuring R&D
(smaller teams,
networked, more
autonomous)
Americas overview: the road lengthens
US financial performance
+11%
Revenues (US$b)
+6%
30
70
60
50
40
30
20
10
0
20
10
0
2006
2006
2007
+3%
Employees (000)
6
100
4
50
2
0
0
2007
Beyond Borders
2007
-95%
Net loss (US$b)
150
2006
8
R&D expense (US$b)
2006
2007
Behind the numbers:
acquisitions and black box warnings
Acquisitions and black box warnings dented revenue growth in 2007
20%
Growth rate
15%
19%
14%
11%
10%
5%
0%
2006
Source: Ernst & Young
9
Beyond Borders
2007
2007 adjusted
Behind the numbers: net loss in context
US publicly traded industry historically close to profitability
35%
Net loss / revenues
30%
Less than 0.5% of
revenues
25%
20%
15%
10%
5%
0%
2000
2001
2002
Source: Ernst & Young
10
Beyond Borders
2003
2003
2004
2005
2006
2007
Current public market turmoil in the US
Biotech stock market performance, 2007
EY Biotech Industry
Nasdaq
DJIA
1.2
1.1
1.0
0.9
0.8
0.7
12/19/2007
12/5/2007
11/21/2007
11/7/2007
10/24/2007
10/10/2007
9/26/2007
9/12/2007
8/29/2007
8/15/2007
8/1/2007
7/18/2007
7/4/2007
6/20/2007
6/6/2007
5/23/2007
5/9/2007
4/25/2007
4/11/2007
3/28/2007
3/14/2007
2/28/2007
2/14/2007
1/31/2007
1/17/2007
1/3/2007
0.6
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.
11
Beyond Borders
Current public market turmoil in the US
Biotech stock market performance, 1 Jan – 15 Oct 2008
EY Biotech Industry
Nasdaq
DJIA
1.2
1.1
1.0
0.9
0.8
0.7
10
/1
0/
20
08
10
/3
/2
00
8
9/
26
/2
00
8
9/
19
/2
00
8
9/
12
/2
00
8
9/
5/
20
08
8/
29
/2
00
8
8/
22
/2
00
8
8/
15
/2
00
8
8/
8/
20
08
8/
1/
20
08
0.6
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.
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Beyond Borders
US financing
US financing reaches second-highest total on record
Venture
IPO
Follow-on
Other
35
30
US$b
25
20
15
10
5
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
H1
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
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US financing: public equity
Public equity markets are challenging for biotech companies
IPO
Follow-on
25
Genomics
bubble
Recovery
Financial market
uncertainty
The “end of windows”
US$b
20
15
10
5
?
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
14
Beyond Borders
US financing: regional distribution
Capital raised by leading US regions in 2007
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US deals: mergers and acquisitions
Pharma-biotech mega deals
Pharma-biotech
Biotech-biotech
Biotech-biotech mega deals
35
30
US$b
25
20
15
10
5
0
1999
2000
2001
2002
2003
2004
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
16
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2005
2006
2007
2008 H1
US deals: mergers and acquisitions
adjusted for mega deals
Pharma-biotech
Biotech-biotech
35
30
US$b
25
20
15
10
5
0
1999
2000
2001
2002
2003
2004
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
17
Beyond Borders
2005
2006
2007
2008 H1
US deals: alliances
Pharma-biotech
Biotech-biotech
30
25
US$b
20
15
10
5
0
1999
2000
2001
2002
2003
2004
Source: Ernst & Young, BioWorld, Recombinant Capital and Windhover
18
Beyond Borders
2005
2006
2007
2008 H1
Behind the numbers: shrinking IPO returns
More money in …
Avg pre-IPO investment
140
120
US$m
100
80
60
40
20
0
1997
Recovery
(2002-2003)
Source: Ernst & Young analysis of company financial statements
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"End of windows"
(2004-2007)
Behind the numbers: shrinking IPO returns
More money in … and relatively less money out
Avg pre-IPO investment
Avg pre-money preferred stock
valuation at IPO
140
120
US$m
100
80
60
40
20
0
1997
Recovery
(2002-2003)
Source: Ernst & Young analysis of company financial statements
20
Beyond Borders
"End of windows"
(2004-2007)
Behind the numbers: shrinking IPO returns
More money in … and relatively less money out
Avg pre-IPO investment
Avg pre-money preferred stock
valuation at IPO
140
120
1.60x
US$m
100
1.55x
80
60
2.16x
40
20
0
1997
Recovery
(2002-2003)
Source: Ernst & Young analysis of company financial statements
21
Beyond Borders
"End of windows"
(2004-2007)
Behind the numbers: the valuation gap
Selected acquisitions of private “IPO ready” companies, 2006-2007
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 million
Average pre-money IPO valuation: $150-160 million
Source: Ernst & Young
22
Beyond Borders
US financing: creative financings
Symphony Capital
RRD
International
Clinical development assistance (optional)
Shares / warrants
Funding
clinical
development
Symphony
Capital
NewCo
$
►Inlicenses
$
IP
►Funds clinical development
IP
License to IP
Portfolio
Company
►Retains
right to
acquire IP
►Conducts
clinical
developmt
IP
$
Future option to re-acquire IP
at pre-negotiated premium
Source: Ernst & Young
23
Beyond Borders
US public policy: a changing environment
Legislative issues strike at heart of biotech’s risk-reward model
Upward
pressure on
Downward
pressure on
risk
reward
▲FDAAA and REMS
▲Drug safety concerns
▲Patent reform
Source: Ernst & Young
24
Beyond Borders
▼Pricing pressures
▼MMA negotiations
▼Follow-on biologics
Canadian overview: sustainability?
25
Beyond Borders
Canadian financial performance – Public
Companies
+1%
Revenues (US$ B)
1.0
.8
.6
.4
.2
0
2.5
2.0
1.5
1.0
.5
0
2006
2006
2007
+ 2%
Employees (000)
10.0
2007
+ 21%
Net Loss (US$ B)
.8
.6
7.5
.4
5.0
.2
2.5
2006
26
+12%
R&D Expense (US$ B)
2007
Beyond Borders
2006
2007
Canadian financing
Venture
IPOs
Follow-on
Other
2.0
1.8
1.6
US$b
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2000
2001
2002
2003
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
27
Beyond Borders
2004
2005
2006
2007
Financing public companies
– IPOs
►
►
►
►
►
28
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 Borders
Canadian financing by province
Canadian census 2007
Public companies
Private companies
400
350
300
250
200
150
100
50
0
Quebec
British Columbia
Source: Ernst & Young
29
Beyond Borders
Ontario
Alberta
Other
Canadian public company financing
by quarter $M
800
770
700
600
500 493
400
300
352
248
190
200
100
87
87
79
21
27
39
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006
30
Beyond Borders
2007
2008
BC public company financing
by quarter $M
$400
$350
$300
$250
$200
$150
$100
$50
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006
31
Beyond Borders
2007
2008
VC funding – Canada $M
$200
$174
$180
$160
$140
$125
$120
$96
$100
$81
$80
$61
$57
$50
$46
$60
$33
$40
$20
$19
$20
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006
2007
2008
32
Beyond Borders
VC funding – British Columbia ($M)
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2006
33
Beyond Borders
2007
2008
Number of VC financings and average value
Avg. $USM
$12.00
$11.40
17
$10.00
$8.00
$6.10
$6.00
$4.00
$2.00
$2.50
55
$7.50
$4.90
47
42
110
$0.00
2004
34
Beyond Borders
2005
2006
2007
2008 TO
DATE
Canadian financial performance
Market Capitalization (US$ B)
17
17.442
16
15
13.837
14
13.685
13.219
12.909
13
12.934
12
10.844
11
10
8.867
9
8.500
8
2000
35
2001
2002
Beyond Borders
2003
2004
2005
2006 2007
2008
Mid
Year
Ernst & Young’s survival index for Canadian public
companies – 2007
40%
30%
Less than 1 year of cash
Between 1 and 2 years of
cash
Between 2 and 3 years of
cash
More than 4 years of cash
23%
8%
36
Beyond Borders
Canadian private biotech companies
400
350
300
250
Total
Ontario
Québec
BC
200
150
100
50
0
2006
37
Beyond Borders
2007
Number of companies
Canadian census 2007
Public companies
Private companies
Number of companies
140
120
100
80
60
40
20
nd
la
nd
ic
k
sw
N
ew
fo
u
ru
n
B
ew
N
Ed
e
Beyond Borders
Is
la
nd
w
ar
d
an
ito
ba
Pr
in
c
Source: Ernst & Young
38
M
lb
er
Sa
ta
sk
at
ch
ew
an
N
ov
a
Sc
ot
ia
ol
um
C
h
B
rit
is
A
bi
a
ec
ue
b
Q
O
nt
ar
io
0
Canadian financing by leading clusters
Capital raised by leading Canadian biotech clusters in 2007
39
Beyond Borders
Distribution of Canadian companies
2004
Drug deliveriy
Advanced materials
Environment
Diagnostics
Genomics / BioInformation
Ag / Aq Bio
Therapeutics
3%
4%
6%
6%
9%
15%
57%
100%
Other
2%
Ag / Aq
19%
Geonomics
8%
Environment
7%
Drug Delivery
3%
Biomaterials
5%
Diagnostics
9%
Therapeutics
47%
40
Beyond Borders
Distribution of Canadian companies
2007
Drug deliveriy
Advanced materials
Environment
Diagnostics
Genomics / BioInformation
Ag / Aq Bio
Therapeutics
3%
5%
8%
10%
8%
19%
47%
100%
Other
2%
Ag / Aq
19%
Geonomics
8%
Environment
7%
Drug Delivery
3%
Biomaterials
5%
Diagnostics
9%
Therapeutics
47%
41
Beyond Borders
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
42
Beyond Borders
BC Transactions in 2008
►
►
►
►
43
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 Borders
European overview: growing strengths
44
Beyond Borders
European financial performance
-6%
Revenues (€b)
4
12
10
3
8
2
6
4
1
2
0
0
2006
2006
2007
+6%
Employees (000)
60
2007
108%
Net loss (€ b)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
40
20
0
2006
45
+7%
R&D expense (€ b)
2007
Beyond Borders
2006
2007
Behind the numbers: the Serono acquisition
The Serono acquisition had a huge impact on biotech financial results
60%
120%
108%
Growth rate
100%
40%
20%
20%
13%
0%
3%
-2%
-6%
-20%
2006
2007
2007
adjusted for
Serono
Revenues
Source: Ernst & Young, BioCentury, BioWorld and VentureOne
46
Beyond Borders
2006
2007
Net loss
2007
adjusted for
Serono
European financing: IPOs
900
800
700
€m
600
500
400
300
200
100
0
2001
2002
2003
2004
2005
2006
2007
Source: Ernst & Young, BioCentury, BioWorld, VentureOne and company news (through NewsAnalyzer)
47
Beyond Borders
2008 H1
European financing: follow-on and other
4000
3500
3000
€m
2500
2000
1500
1000
500
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: Ernst & Young, BioCentury, BioWorld, VentureOne and company news (through NewsAnalyzer)
48
Beyond Borders
2008 H1
European financing: regional distribution
Capital raised by major European countries in 2007
49
Beyond Borders
European deals: mergers and acquisitions
Biotech-biotech
Pharma-biotech
Pharma-biotech mega deals
16
14
12
€b
10
8
6
4
2
0
2005
2006
2007
2008 H1
Source: Ernst & Young, Windhover, BioWorld, Recombinant Capital and company news (through Newsanalyzer)
50
Beyond Borders
European deals: alliances
Biotech-biotech
Pharma-biotech
12
10
€b
8
6
4
2
0
2005
2006
2007
2008 H1
Source: Ernst & Young, Windhover, BioWorld, Recombinant Capital and company news (through Newsanalyzer)
51
Beyond Borders
European pipeline by phase
European pipeline shows strong growth, particularly in Phase II
Number of product candidates in studies
2006
800
700
600
500
400
300
200
100
0
Preclinical
Source: Ernst & Young and company websites
52
2007
Beyond Borders
Phase I
Phase II
Phase III
Outlook: the year ahead
Rules of the road
Deals
Financing
Products &
regulatory
Look for
Rules of the road
► Increasing
urgency around big
pharma pipeline issues
► Stiff competition for biotech assets
► High valuations, more negotiating
power for biotechs
“Bargaining power matters”
► Sustained
strength in venture
investments
► Challenging public equity markets
► New, creative financing options
► Restructuring
“Stay lean, mean and focused”
► Increased
“Show me the value”
safety scrutiny, including
post-marketing
► Higher bar from payors, pay-forperformance
► Continued focus on sales/mktg.
Source: Ernst & Young
54
Beyond Borders
► Dual-tracking
preserves options
for private companies
► Creative deal structures can retain
flexibility, capture greater share of
value
► Capital
efficiency for leaner times
► Alternative sources of capital
► Articulate
value props early in
R&D
► New reimbursement / pricing
approaches
Long-term outlook:
reinnovation and reinvention
Is a pattern emerging?
Big pharma companies announce layoffs, restructurings
Stock buybacks ► Velcade gives NICE an unprecedented
Safety concerns take bite out of money-back guarantee
Product safety
product sales FDA NME approvals
incidents in the
Creative deal ►fall to lowest level in
structures R ? ? ? ? over 25 years rising China market
►
&?
more pricing
$
F
F
D
pressures
►
I
π?
R
D
emerging
€
M&A
P
►
►
►
E
A
N
The
Biotech companies
¥
M
E
A
mega
►
8%
retain more
T
S
A
deal…
£
rights in deals
s
►
►
is back
Big pharma’s search for pipeline productivity propels a
booming deal environment ► Government negotiation of
► drug prices under MMA returns to public policy debate
re-in
56
Beyond Borders
Reinvention
BigThe
pharma
companies
announce
layoffs,
restructurings
drug
industry
is being
reinvented
Stock buybacks ► Velcade gives NICE an unprecedented
by three
sweeping
trends: guarantee
Safety concerns
take bite
out of money-back
Product safety
product sales FDA NME approvals
incidents in the
Creative deal ►fall to lowest level in
structures R ? ? ? ? over 25 years rising China market
►
&?
more pricing
$
F
F
D
pressures
►
I
π?
R
D
emerging
€
M&A
P
►
►
►
E
A
N
The
Biotech companies
¥
M
E
A
mega
►
8%
retain more
T
S
A
deal…
£
rights in deals
s
►
►
is back
Big pharma’s search for pipeline productivity propels a
►Personalized
medicine
► Government negotiation of
booming
deal
environment
►R&D productivity
► drug prices under MMA returns
to public policy debate
►Globalization
re-in
57
Beyond Borders
These drivers will fundamentally change the
business of drug development
►
►
►
►
►
►
58
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
Beyond Borders
ig pharma companies announce layoffs, restruc
tock buybacks ►Velcade gives NICE an unprece
afety concerns take bite out of money-back gu
Product
roduct sales FDA NME approvals
incidents
reative deal ►fall to lowest level in
ructures R ? ? ? ? over 25 years rising China
►
&?
more pricing
The first
F
D driver of reinvention:
pressures
π?
D
R
emerging
R&D
productivity
M&A
►
►
E
A
The
Biotech companies
M
A
mega
8%
retain more
S
A
deal…
rights in deals
►
►
is back
g pharma’s search for pipeline productivity pr
ooming deal environment ► Government negoti
drug prices under MMA returns to public policy
The problem: patent expirations
Projected sales losses from patent expirations to reach US$67b by 2012
25
20
US$b
15
10
5
0
2007
2008
Source: Sanford C. Bernstein & Co.
60
Beyond Borders
2009
2010
2011
2012
Big companies need sustainable solutions
Buying
pipeline
assets
Cutting
costs
Boosting
EPS
prices lower
upside potential
► Limited reserves of
cash
► High
► Short-term
► Short-term
gains
► Limited reserves of
cash
Source: Ernst & Young
61
gains
Beyond Borders
Companies
need
sustainable
solutions to
fix the real
problem:
low R&D
productivity
The inertia of size
Small companies
Conduct and performance
Large companies
Conduct and performance
Structure
►
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
►
►
Incentives
►
►
Stock-based
compensation is a
strong incentive
►
Private investors
with longer
horizons
►
Driven to raise capital
Lean operations,
sometimes cut corners
►
Strong cash flow
►
Not as “hungry” or
driven to succeed
Direct financial tie to
performance
►
Stock-based
compensation is
not meaningful
►
Less tied to outcomes
Less passion
Less focused on shortterm financial
performance
►
Public investors
demanding
quarterly results
►
►
More sensitive to shortterm impact of longterm decisions
Structure and incentives drive conduct and performance
Source: Ernst & Young
62
Beyond Borders
Emulating biotech
Creating small,
autonomous R&D
units
Emulate
culture
Large
monolithic
big pharma
company
Preserving entities
after acquisitions
Adopting networked
structures
of
small
biotech
Pay-for-performance
tied to small-team
milestones
Source: Ernst & Young
63
Beyond Borders
companies
ig pharma companies announce layoffs, restruc
tock buybacks ►Velcade gives NICE an unprece
afety concerns take bite out of money-back gu
Product
roduct sales FDA NME approvals
incidents
reative deal ►fall to lowest level in
ructures R ? ? ? ? over 25 years rising China
►
&?
more pricing
The second
driver pressures
of reinvention:F
D
π? medicine
D
R
emerging
Personalized
M&A
►
►
E
A
The
Biotech companies
M
A
mega
8%
retain more
S
A
deal…
rights in deals
►
►
is back
g pharma’s search for pipeline productivity pr
ooming deal environment ► Government negoti
drug prices under MMA returns to public policy
Personalized medicine: why now?
Safety
concerns
Pricing
pressures
► Targeted
approaches
► Less misdiagnosis,
fewer adverse events
► Smaller
clinical trials
► Cheaper drug
development
► More
R&D
productivity
efficient
identification and
development of drug
targets
Source: Ernst & Young
65
Beyond Borders
Move from
efficacy to
efficiency
in drug
development
and
healthcare
delivery
Challenge 1: end of the blockbuster model
Old model
New model
► Large
clinical trials
► Pharma’s Phase III abilities a key
strength
► Smaller
► Large-scale
► Smaller
► DTC
► Drugs
manufacturing for
high volumes of blockbuster
drugs
advertising, armies of sales
reps for poorly-differentiated
drugs
► Reimbursement
based on efficacy
Source: Ernst & Young
66
Beyond Borders
trials for targeted drugs
► Scale less relevant
volumes, but more complex
manufacturing
better differentiated, compete
on merits
► Scale less relevant in sales
► Pay-for-performance
requires greater
allocation of resources to
demonstrate value
Challenge 2: making the numbers work
Rx
Dx
3x
► Incentives
► Targeted
► Diagnostics
therapeutics for
more efficient
treatment of
disease
► More efficient drug
development with
smaller, cheaper
clinical trials
for
more efficient:
► Prediction
► Diagnosis
► Dosing
► Monitoring
► Lower healthcare
costs from new
efficiencies
Source: Ernst & Young
67
Beyond Borders
and
metrics to support
the economics and
ROI for investors:
► Better pricing for
diagnostics
► Reimbursement
based on value
► Measures across
healthcare
system
ig pharma companies announce layoffs, restruc
tock buybacks ►Velcade gives NICE an unprece
afety concerns take bite out of money-back gu
Product
roduct sales FDA NME approvals
incidents
reative deal ►fall to lowest level in
ructures R ? ? ? ? over 25 years rising China
►
&?
more pricing
The third
reinvention: F
D driver of pressures
π?
D
R
emerging
Globalization
M&A
►
►
E
A
The
Biotech companies
M
A
mega
8%
retain more
S
A
deal…
rights in deals
►
►
is back
g pharma’s search for pipeline productivity pr
ooming deal environment ► Government negoti
drug prices under MMA returns to public policy
Drivers and limitations
Driver
Short-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
Selling drugs to
rapidly-growing
emerging markets
► Emerging
market
companies looking to
develop innovative
pipelines
► Goals become more
competitive, less
complementary
► Tremendous
?
Source: Ernst & Young
69
Long-term play
Beyond Borders
opportunity as
emerging middle
classes, rising
prosperity create
markets that can
afford western drugs
Globalization:
the challenge of the next billion consumers
Per-capita income thresholds:
Market size/potential:
1.5 b
patients
Mature markets with
slow growth potential
1b patients
“The next billion”
Emerging markets with
high growth potential
US$20,000
US$3,000
4b patients
6b patients by 2017
Source: Ernst & Young and International Finance Corporation (IFC)
70
Beyond Borders
“The unserved base”
US$30b market
US$65b by 2017
ig pharma companies announce layoffs, restruc
tock buybacks ►Velcade gives NICE an unprece
afety concerns take bite out of money-back gu
Product
roduct sales FDA NME approvals
incidents
reative deal ►fall to lowest level in
ructures R ? ? ? ? over 25 years rising China
►
&?
more pricing
F
D
pressures
The shape π?
of the future
D
R
emerging
M&A
►
►
E
A
The
Biotech companies
M
A
mega
8%
retain more
S
A
deal…
rights in deals
►
►
is back
g pharma’s search for pipeline productivity pr
ooming deal environment ► Government negoti
drug prices under MMA returns to public policy
Changing business models
Personalized medicine changes the nature of competition
Present state
Source: Ernst & Young
72
Beyond Borders
Changing business models
Personalized medicine changes the nature of competition
Future state
Source: Ernst & Young
73
Beyond Borders
Changing business models
Personalized medicine redistributes value in the value chain
100%
Sales and marketing
Sales and marketing
80%
Manufacturing
60%
40%
Manufacturing
Late development
Late development
Early development
Early development
20%
Research
Research
0%
Current state
Future state - personalized medicine
Source: Ernst & Young
74
Beyond Borders
Value
accrues to
innovation
The need for new models
Pharma
R&D
► Boost
productivity
► Adapt
Operations
Capital
formation &
efficiency
Deals
to smaller scale
► Variabilize fixed costs
► Tap networks
► Efficient
allocation &
deployment of capital
► Portfolio
approach
► Manage risk
Source: Ernst & Young
75
Beyond Borders
Biotech
► Remain
innovative
► Value
chain
specialization
/ non-FIPCO models
► Access
capital with
less dilution
► Minimize burn rate
► Retain
control & rights
► Higher share of value
Opportunities for companies
Biotech
Biotechs
gaining
more
bargaining
power
More
flexibility
Minimize
P&L impact
of
investments
Greater
rights
retention
Accept more
risk to
increase
potential
upside
Greater
share of
value
produced
Source: Ernst & Young
76
Pharma
Beyond Borders
Creative
deals
Acquire
culture, not
just pipeline
Pharma’s
imperative
to fix R&D
productivity
Models of the future
Biotech
Pharma 1
FIPCOs:
less infrastructure
required
► Value-chain
specialization
► Becoming FIPCOs
less imperative
with higher
royalties, copromotion rights
► For
► Leaner
► Some
successfully
reinvent R&D
► New Models:
► More risk
accepting in
R&D
► Leaner sales
► More networked
Source: Ernst & Young
77
Pharma 2
Beyond Borders
those that don’t
succeed at
reinvention:
► Core strengths
are lower-margin
► Competition
from emerging
markets
► De facto CROs
or CMOs?
Thank you
Stay tuned:
ey.com/biotech
ey.com/beyondborders
Reinnovate.
Reinvent.
You in?
84
Beyond Borders