On a Dime in Very Little Time: Biotech's New Value ... - DefinedHealth

On a Dime in Very Little Time: 

Biotech’s New Value Creation 

Challenge 

Edward C. Saltzman 

President 

Defined Health 

Webinar 

June 23, 2009 

© Defined Health 2009 

1 © Defined Health 2009

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 

Therapeutic Insight 2009 - Pg 2 © Defined Health 2009

Acknowledgements 

The Defined Health “TI 2009” Team: 

Janet Czachura 

Ginger Johnson 

Ginny Llobell 

Claire Lu 

Nabil Mouline 

Brandon Saks 

Mayank Shah 

Therapeutic Insight 2009 - Pg 3 © Defined Health 2009 

. . . and Alnylam’s CEO John Maraganore

The End of the Runway Came Suddenly 

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

Therapeutic Insight 2009 - Pg 4 

© Defined Health 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 capital 

needs," 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 



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 



Biotech Looked to be the Solution for Innovation- 

Challenged Pharma 

NDA & BLA Approvals from 1999-2009 

FDA CDER Drug Approval List, and DH Analysis 



And Pharma’s Need Was Increasingly Urgent 

$218 billion Rx Revenues At Risk to Generics by 2012 

Revenue ($ Billions) 

0 

-50 

-100 

-150 

-200 

-250 

SG Cowen. EvaluatePharma 

2008 2009 2010 2011 2012 



WW Sales at Patent Risk 

Estimated Cumulative Losses

So Despite Vanquished IPO Market 

US Biotech IPOs (1998 - 1Q 2009) 

$ Billions 

$6.0 

$5.0 

$4.0 

$3.0 

$2.0 

$1.0 

$0.0 

9 

11 

3 2 



53 

7 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q12009 

29 

Value ($ Billions) 

No. of IPOs 

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

17 

20 

21 

1 

0 

60 

50 

40 

30 

20 

10 

0 

Number of IPOs

VC Outlook Remained Mostly Positive 

AltAssets 



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 

2001-2007 Biotech & Pharma Early Stage Deals 

$900 

$800 

$700 

$600 

$500 

$400 

$300 

$200 

$100 

$0 

MedTRACK, DH analysis 

Upfront Payments Milestones 

Upfront Value 

Average Value 

2001 2002 2003 2004 2005 2006 2007 

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

Total Deal 

Value 



$6,000 

$5,000 

$4,000 

$3,000 

$2,000 

$1,000 

$0 

$60 

$50 

$40 

$30 

$20 

$10 

$0 

Deal Value 


$8,000 

$7,000 

$6,000 

$5,000 

$4,000 

$3,000 

$2,000 

$1,000 

2001 2002 2003 2004 2005 2006 2007 


$0 

Milestone Value 


2001 2002 2003 2004 2005 2006 2007 


$800 

$700 

$600 

$500 

$400 

$300 

$200 

$100 

$0 

$350 

$300 

$250 

$200 

$150 

$100 

$50 

$0

And Hungry Pharma Offering Private Exits 

Value and Number of Pharma/Biotech M&As 

BioCentury, January 2009 


With Many of These Exits Making VCs Happy 

$ millions 

800 

700 

600 

500 

400 

300 

200 

100 

0 

Recap, Company Websites, SEC 10-K 

Total Financing Prior to Acq. ($M) 

Acquisition Price ($M) 

Years in Existence 


Years 

12 

10 

8 

6 

4 

2 

0

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

And Lots of Companies Dying of Thirst 

BioCentury 

Number of Biotech Restructurings 

120 

100 

80 

60 

40 

20 

0 


35 

4Q 

57 

41 

73 

2006 2007 2008 2009 1Q 


114 

52

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” 

Hoping to Cash Out 

Some 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. 

Company 

Stock 

Price 

Cash Per 

Share* 

Avigen $1.04 $1.60 

CombinatorRx $0.69 $1.45 

Neurobiological 

Technologies 

Northstar 

Neuroscience 

Penwest 

Pharma 

$0.58 $1.20 

$1.90 $2.63 ** 

$1.40 

$1.59 – 

$15.36 *** 

Vanda Pharma $0.79 $1.74 

Setback 

Drug for spasticity 

failed in late-stage trial 

Two unsuccessful 

clinical trials 

Stroke drug failed in 

late-stage trial 

Treatment for stroke 

failed in clinical trial 

(device) 

Ended development on 

Parkinson’s drug 

Schizophrenia drug 

initially failed to win 

approval 

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



Investors Making 

the Demand 

Biotechnology Value 

Fund 

Biotechnology Value 

Fund 

Millennium Tech Fund, 

Biotech Value Fund, 

Highland Capital Mgmt, 

MAK Capital One 

RA Capital Management 

Perceptive Advisors, 

Tang Capital Partners 

Tang Capital Partners 

Current Status 

(29-May, 2009) 

* 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. 

31-Mar-09 company fights off BVF 

proposal to remove BoD 

Stock at $1.28 as of 29-May-09 

Positive results for diabetes trial and inked 

$4M upfront, $62M deal with NVS (May 

2009) but still facing delisting as 19-May 


Tang proposal to take over BoD will be 

decided during 10-Jun-09 annual meeting 


In Jan-09, Board decided to shut down the 

company and liquidate its assets, but as 

of 29-May-09 still trading at $2.01 

Company still in existence 


Company received approval for 

schizophrenia drug, Tang withdrew 

liquidation proposal 

Stock at $14.64 as of 29-May-09

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 







A Long Runway Allowed Genentech Its Success 

Genentech Matchmaker Calls Roche Ideal Partner 

By Daniel F. Cuff 

February 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 

Company Founded IPO 

EvaluatePharma, Company websites, SEC, Yahoo Finance 

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 

Company Founded IPO 

EvaluatePharma, Company websites, SEC, Yahoo Finance 

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 

25 

20 

15 

10 

5 

0 

Amgen 

Biogen Idec 

EvaluatePharma, SEC documents 

Years From Company Creation 

to First In-House Marketed Product 

Genentech 

Genzyme 

ImClone 



OSI 

Alexion 

Amylin 

Celgene 

Gilead 

Isis 

MedImmune 

Onyx 

Vertex

In Less Capital-Challenged Times, a “FIPCO Vision” 

Model Provided Multiple “Take Off” Points 

1987 Founded 

A1: $0.30/share 

$199,980 

Company website, SEC documents 

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 

1996 first own product launch 

C: $10.50/share 

$20,211,796 

1992 IPO 5.75MM shares 

$86.25MM ($15ps) 

Acquires NeXstar 1999 

Profitable 2000/2001

But a Dearth of Successful FIPCOs in Recent History 

Biotech Companies That Have for the First Time 

Surpassed $3 Billion in Market Cap 

7 

6 

5 

4 

3 

2 

1 

0 

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

EvaluatePharma, Yahoo Finance 



Cephalon 

Amylin 

OSI 

Actelion 

Onyx 

Biomarin 

MGI

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

the . . . BubbleCo 

TIME 





TIME 







BubbleCos Had “Exciting Science!” 

HGSI Makes a Big Splash 

BioCentury, 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 earlystage 

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 



Therapeutic Insight 2009 - Pg

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 

Regarding Incyte Pharmaceuticals: 

“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.” 

Company website, SEC filings 

Share Price: $9.00 (Dec. 30) 



- Incyte IPO Prospectus

Masquerading as a Business Model 

2000 

Genomics: 

Regarding Incyte Pharmaceuticals: 

“Incyte develops and markets genomic databases and 

partnership programs, genomic data management software, 

microarray-based gene expression services, related reagents 

and services.” 




- Press Release, 2000 

Share Price: $280.50 (Feb. 22)

Cannot Sustain Value 

2003 



Genomics: 

Regarding 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)

NRDOs: Seeking Value on a Shorter Capital Runway 

Growing up backwards 

By Keith Haan 

Monday, 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-risking 

NRDO vs. R&D 

Breakdown of investments in companies founded since January 2000. Includes VC 

and public rounds. NRDOs defined as companies no further upstream than lead 

optimization. 

Group 

# Founded 

Since 2000 

BioCentury, The Bernstein Report on BioBusiness 

% of Total 



Amt. Raised by 

All Companies 

% of Total 

The Bernstein Report 

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

NRDOs: Shorter Runways but Few Lift Offs 

$ millions 

400 

350 

300 

250 

200 

150 

100 

50 

0 

Jazz Pharma Quatrx Vela JDS Pharma Avera 

Pharma 

Recap, Company Websites, SEC 10-K 



Financing In 

Exit Price 

Time Since Inception 

Xytis 

12 

10 

8 

6 

4 

2 

0

Repurposers: Seeking Value on a Shorter Capital 

Runway 

Innovative Strategies for Drug Repurposing 

Drug Discovery & Development 

May 18, 2005 

Rather than chasing new compounds, pharmaceutical companies can reduce risk and costs by 

finding new uses for existing products 

In 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 

$ millions 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 

IDdb, Recap, Company 10-K 

Financing In 

Exit Price 

Time Since Inception 



Bankrupt 

Aspreva CombinatoRx Somaxon Orexigen Dynogen 

8 

7 

6 

5 

4 

3 

2 

1 

0


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 

Sunesis 

Neurocrine 

Metabasis 

Dyax 

Arena 

Altus 

Cadence 

Ardea 

Anadys 

Achillion 

Orexigen 

Ariad 

Vical 

Xenoport 

Athersys 

Savient 

Affymax 

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 



Day Money Runs Out

Though Some May Survive a Little Longer With Some 

Additional “Paving” and/or Slashing Burn 

Sunesis 

Neurocrine 

Metabasis 

Dyax 

Arena 

Altus 

Cadence 

Ardea 

Anadys 

Achillion 

Orexigen 

Ariad 

Vical 

Xenoport 

Athersys 

Savient 

Affymax 

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 



01-Apr-09 Additional Funding 

05-May-09 Restructured 

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 

20-Feb-09 Additional Funding 

22-May-09 Additional Funding 

30-Dec-08 Additional Funding 

03-Apr-09 Additional Funding 

17-Feb-09 Additional Funding

But Those Are Far From the Only Ones Facing Imminent 

Peril! 

200 

180 

160 

140 

120 

100 

80 

60 

40 

Number of Public Biotechs Cash Strapped Companies 

20 

0 

Biotech Industry Organization (BIO), Feb 2009 



Less than 1 year of Cash 

Less than 6 months of Cash 

2008 2007

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 

Expired 

Mar 2010 

Expired 

Sep 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 

Selected Top Biotech Products Acquired/Licensed by Pharma 

Product 

Enbrel 

Biotech 

Originator 

Immunex, 

Amgen 

Pharma 

Acq/Licensor 


Date of Deal or 

Acq 

2008 WW 

Sales ($B) 

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 

Rituxan 

EvaluatePharma, ReCap 

IDEC, 

Genentech 

Jul 2003 

opt-in 

$4.8 

Roche Mar 1995 $2.6

The Bad News: Just as Long as These Were On or 

Almost On the Market! 

Selected Top Biotech Products Acquired/Licensed by Pharma 

Product 

Enbrel 

Biotech 

Originator 

Immunex, 

Amgen 

Pharma 

Acq/Licensor 


Phase at Deal 

or Acq 

Date of Deal or 

Acq 

2008 WW 

Sales ($B) 

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 

Rituxan 

EvaluatePharma, ReCap 

IDEC, 

Genentech 

Jul 2003 

opt-in 

$4.8 

Roche Phase III Mar 1995 $2.6

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 

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

Recap, DH analysis, SEC documents 

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

Disruption? 

ADIS R&D Insight, IDdb 


Only two compounds are 

reportedly in active 

development: 

• 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 

FDA website, DH analysis 

6 year total 

Pre-merger 

26 NMEs 

Filed and 

approved 



6 year total 

Post-merger 

15 NMEs 

Filed and 

approved 

Filing to approval time estimated to 24 months when specific dates not available.

And Hence Destroy Value 

Historical Company Values 

Prior to Merger 

PHA 

PFE 

SKB 

GW 

$51B 

$221B 

$74B 

$91B 

S&P 

500 

S&P 

500 



Current Company Values 

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

PFE 

(6 yrs) 

GSK 

(8 yrs) 

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

-63% 

$103 B 

-48% 

$85 B 

+4.4% 

S&P 

500 

-30% +6% 

S&P 

500

So Surely the New Behemoth Pharmas Will Be Even 

Hungrier for Biotech Sourced Innovation 




Not so Fast: Pharma Had Already Been Becoming More 

Risk 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” 

BusinessWire 03-Mar-2009 



March 03, 2009

Pharma May Need Innovation but Suddenly Seems More 

Enthralled By the “Solid and Measurable” 

BusinessWire 03-Mar-2009 



And “Revenue Flows” From “Formulation 

Technologies” 

GlaxoSmithKline and Stiefel to Create New World-Leading 

Specialist Dermatology Business 

20-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 opportunities 

LONDON, 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 business 

The 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. 


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 

$60 

$50 

$40 

$30 

$20 

$10 

$0 

IPOs 

Follow-ons 

PIPEs 

Venture Capital 

Debt and Other 

Partnering 

2000 2001 2002 2003 2004 2005 2006 2007 2008 

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



For the Cash Challenged, These are Indeed 

Unprecedented Times 


In Short 



In Short 



Lots of Cash Challenged Innovators Out There 

Number of Public & Private Biotech Companies 

By 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-PoC 

World 

Distribution of Products by Phase in Development by Biotechs 

100% 

EvaluatePharma 

80% 

60% 

40% 

20% 

0% 

2003 2004 2005 2006 2007 2008 


Filed 

P3 

P2 

P1 

Pre-Clinical

But Pharma Hardly Needs More Pre-PoC Programs! 

Number of Early Products in Development by Top 10 Pharma 

900 

800 

700 

600 

500 

400 

300 

200 

100 

0 


Phase 1 

Preclinical 

2003 2004 2005 2006 2007 2008 



The Good News: Despite Daunting Obstacles Biotech 

Remains “Opportunity Long” 



Because While There is No Question Pharma Will Have 

Less to Spend on R&D 

$US Billion 

54 

52 

50 

48 

46 

44 

42 

40 


Projected Pharma R&D Spend 

Based on Constant Percentage of Rx Sales 

2011 2012 2013 2014 

Assuming a level of 21% of Rx sales, equal to 2007 reported R&D expenditure. Projected Revenue risk adjusted as follows: 

10% probability of success for phase 1, 20% for a Phase 2, 60% for a Phase 3 and 90% for a registration compound 



The Question is: How Long Can They Continue to 

Spend More on Internally Discovered Programs? 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

Self-originated vs. Licensed-in US R&D Spend 

0 

EvaluatePharma, PhRMA website 

2003 2005 2006 2007 



% R&D Spend 

Uncategorized 

% R&D Spend on 

Licensed-In Projects 

% R&D Spend on Self- 

Originated Project

When the Value Comes from External Programs! 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 


Pharma Sales by Product Derivation 

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 



In-house 

Discovery

And the Answer is: Not For Long! 

The Recession Damages R&D Spending 

January 14, 2009 

Thomas 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 



In the Meantime Though There is Lots of Competition 

for Exits 

E&Y Global Biotechnology Report 2008, DH assumptions 



Applying 2008 M&A rate = 3.5% chance 

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

4400 Biotechs in US/EU/Asia

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 Gaffes 

Nature 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 



And it Would Be Good to Start With a Long Overdue 

“Reality Check” 

Ten Years of Biotech Gaffes 

Nature 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 

Cell Therapeutics: Highlights of “Nine Lives” 

ACTION COUNTERACTION 

2000: Acquires Trisenox 

2001: Leases corporate jet 

2003: Acquires Novuspharma 

2007: Acquires Zevalin from BIIB 

Company website, press releases 

Market Cap at Peak (2000): $1,500 M 

Market Cap (28-May 2009): $563 M 


2005: Divests Trisenox to Cephalon 

2005: Disposes of corporate jet 

2009: Closes Novuspharma facility 

2009: Divests Zevalin to Spectrum

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 Strategy 

June 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 Strategy 

June 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. 



Sign of the Times: VCs Are Re-Directing Spend to 

Device Companies That Can Exit on Short Runways 

Financing of Biopharmaceuticals Vs Medical Devices 

US $ Millions 

$1,400 

$1,200 

$1,000 

$800 

$600 

$400 

$200 

$0 

Biopharmaceuticals 

Medical Devices 

Q1 08 Q2 08 Q3 08 Q4 08 

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 

TLC’s “Flip That House” introduction 



BIOTECH

Introducing the FlipCo!...Here a Flip 

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



May-2003: Peninsula licenses rights to Shionogi's doripenem 

Peninsula (in-licenses antimicrobials) licensed exclusive rights to 

develop and market Shionogi 's doripenem in North America. 

Dec-2003: Peninsula Begins P3 Trial with Doripenem in cUTIs 

Oct-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. 

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) 

Apr-2005: J&J Nabs Peninsula Pharma for $245M 

Ortho-McNeil Pharmaceutical Inc., a subsidiary of drug giant J&J, is 

acquiring Peninsula Pharmaceuticals for $245 million in cash.

There a Flip 




Oct-2003: Start-up NovaCardia licenses renal compound 

from Kyowa Hakko 

Diversified 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. 

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. 

Jul-2007: Merck & Co., Inc. to Acquire NovaCardia for 

$350 million, to Boost Clinical Pipeline of 

Cardiovascular Drug Candidates

Everywhere a Flip, Flip! 




Aug-2005: Cerexa Announces Corporate Launch and 

$50 Million Initial Financing 

Following 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. 

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. 

Dec-2006: Cerexa to be Acquired by Forest for $480 

Million Plus Potential $100 Million Milestone Payment

Eckard Weber, Professional Flipper 

Company website 

Therapeutic Insight 2009 - Pg 

116 

Eckard Weber, MD 

• 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 

• 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, Syndax 

Pharmaceuticals, Tobira Therapeutics 

• Board member of BioVascular and DiObex 


The FlipCo: Nothing but a Modern NRDO With Greater 

“Exit Vision” 

Initial Assets 


FlipCos NRDOs 

Established programs 

(from Pharma usually) 

Established programs 

(from Pharma usually) 

Maturity of Assets Late stage assets Early-mid stage assets 

Fix-up Development 

Strategy 

Goal Sell it fast 

Pharma acquirers in 

mind 


Long-term 

“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 or 

only exit for a Biotech co, then mission critical assignment is to 

understand the needs of the potential buyer 



Because Biotech’s Traditional Approach to Pharma 


Is Suddenly Giving Way to Today’s 


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

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) 



Biotechs Need to Understand Pharma’s Massive New 

Commercial Hurdle 

© www.cartoonstock.com; Used with permission. 



Pharma’s Senior Management Was Late to Understand 

the Differentiation Challenge 

© Scott Maxwell / Fotolia. Used with Permission. 


Differentiation 


$

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 




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 

Size of bubble proportional 

to peak WW sales or sales 

at patent expiration 

EvaluatePharma, DH analysis 



The Impact of a SOC Generic Has Already Hit Home for 

Pfizer 

JP Morgan Prescription Pad, 26 February 2009 


And is Just Now Hitting Home for Schering-Plough 

Flonase (GSK) 

JP Morgan Prescription Pad, 26 February 2009 


fluticasone (generic Flonase) 

Nasocort (SNY) 

Nasonex (SGP)

A SOC Generic Makes Standard LCM Strategy 

Ineffective 

Wall Street Journal 



A SOC Generic Makes Standard LCM Strategy 

Ineffective 

Wall Street Journal 



So a Reliable Strategy From the Past 

$US B 

7.0 

6.0 

5.0 

4.0 

3.0 

2.0 

1.0 

0.0 


Launched 

1988 

Peak Sales 

Launched 

2000 

Projected 

Peak Sales 

Prilosec Nexium Celexa Lexapro 



Follow-on Drugs 

(Past/Projected Peak Sales) 

Launched 

1998 

Peak Sales 

Launched 

2002 

Projected 

Peak Sales

Produces Only Commercial Flops Today 

$US B 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 

Launched 

1991 

Peak Sales 


Follow-on Drugs 

(Past/Projected Peak Sales) 

Launched 

2008 

Projected 

Peak Sales 

Launched 

1995 

Peak Sales 

Imitrex Treximet Coreg IR Coreg CR Effexor Pristiq 



Launched 

2007 

Projected 

Peak Sales 

Launched 

1994 

Peak Sales 

Launched 

2008 

Projected 

Peak Sales

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/ 



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 drugs 

Tue Feb 24, 2009 11:21am EST 

By 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 PD 

332,334. 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 billionplus 

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 



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 drugs 

Tue Feb 24, 2009 11:21am EST 

By 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 PD 

332,334. 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 billionplus 

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 with 

OA of the knee: 

RN624 showed statistically 

significant reduction in pain versus 

placebo. The compound also 

significantly improved joint function, 

and the duration of response was 

at least 56 days. 

2006 acquisition 


RN624 / Tanezumab 

Value Inflection 

Phase III: OA of the knee and hip 

Phase II studies including: 

• Low back pain 

• Post-herpetic neuralgia 

• Interstitial cystitis 

• Endometriosis pain 

• Prostatitis 

• Bone metastasis pain)



IN VIVO May 2006 





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 active 

comparator 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 


TM 


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 201 

Sep 05, 2007 

Very robust findings on the key problems faced by insomniacs, i.e. sleep onset and 

sleep maintenance 

Hamburg, 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

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 201 

Sep 05, 2007 

Very robust findings on the key problems faced by insomniacs, i.e. sleep onset and 

sleep maintenance 

Hamburg, 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

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. 


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 

Plavix (clopidogrel) Worldwide Sales 

$ millions 

10 

8 

6 

4 

2 

0 


US Sales 

ex-US Sales 

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


US Patent Expiry 

November 2011 

The 

Opportunity 

Ex-US Patent Expiry 

December 2013

Nice, but is it Worth More than Generic Plavix? 

Portola company website 


The 

Product

One Program Well Ahead is Already Trying to 

Differentiate 

15 November 2007 

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. 

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 Action 

NEW 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 antiplatelet 

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 


The 

Strategy

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 Sales 

SOUTH 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 


The 

Reward

On the Other Hand, Maybe Just Suggesting That 

Something Might Work Could Prove Valuable! 

Big Pharma R&D: Things Are Tough All Over 

September 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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On a Dime in Very Little Time: Biotech's New Value ... - DefinedHealth

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