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WBB Securities, LLC © WBB Securities, LLC 2007 A Forward Looking Strategy For Biotech Businesses
WBB Securities, LLC © WBB Securities, LLC 2007 The Landscape Big Pharma (BP) – Many low margin, few high margin products; Significant R&D investment; Size makes formidable, also slow moving; Deep pockets make companies big targets of opportunity. Big Bio (BBio) – A number of products, usually high margin; Must maintain R&D/science collaborations to continue growth; Marketing differs from Pharma in its more focused approach.
WBB Securities, LLC © WBB Securities, LLC 2007 The Landscape Small Bio (SBio) – Early projects, potentially high yields; Significant R&D; Many out there, few will succeed. Generic Pharma (GP)– Low margin, Low cost, High quantity; Lots of competition for market share. New Pharma/Bio (NPB) – Development stage companies with little or no revenue; Regularly in need of cash to fund R&D; More nimble in collaboration and more willing to take risks.
WBB Securities, LLC © WBB Securities, LLC 2007 BP/BBio – A few big earners; Some moderate earners Several losers, Lots in development SP/SBio – One or two cash cows; A few in development GP/GBio –Mature Products; Low margin, High Quantity NP/NBio – Leading Edge Discoveries Early Stage Development Characteristics of Revenue Drivers
WBB Securities, LLC © WBB Securities, LLC 2007 Evolution of Pharma/Biotech Industries Early Consolidation Era Early Pharma/Bio New BP/BBio Early Stage companies bring one or more products to market. SP/SBio New BP/BBio
WBB Securities, LLC © WBB Securities, LLC 2007 Evolution of Pharma/Biotech Industries Diversification Era BP/BBio SP/SBioGP/Bio NP/Bio Characterized by market segmentation
WBB Securities, LLC © WBB Securities, LLC 2007 Evolution of Pharma/Biotech Industry Personalized Medicine/Reconsolidation Era SP/BioGP/BioNP/Bio New BP/BBio Surviving BP/BBio Consolidation into new and existing Big Pharma players
WBB Securities, LLC © WBB Securities, LLC 2007 Evolution of Pharma/Biotech Industry Consolidated Landscape Era SP/Bio GP/GBio NP/Bio Consolidated Landscape Surviving BP/BBio New BP/BBio
WBB Securities, LLC © WBB Securities, LLC 2007 Evolution of Pharma/Biotech Industry Tomorrows Landscape Era SP/BBioGP/BioNP/Bio New landscape anticipates another round of consolidation New BP/BBio Surviving BP/BBio
WBB Securities, LLC © WBB Securities, LLC 2007 Other Industries Recently Subject to Cycle Telecommunications Automobiles Entertainment (Movies, Radio, Television and Publishing) Agriculture and Food Computers Retail Airlines
WBB Securities, LLC © WBB Securities, LLC 2007 Factors Accelerating Pharma/Bio Changes Slow New Drug Approvals - 18 in 2006 Acceleration of Takeovers - up 32% in 2006 Deteriorating Margins - driving inefficiency out of marketplace Freedom to Operate - more complex to secure Maturing Science and Technology - How many new antibiotics? Forced Product Life Cycles - Long development times & fixed patent lives Consumer Protection - activism Less Efficient Organizations - over time New Technologies stem cells - neural stimulation, etc. showing promise Dispersion of IQ - causing competition from many regions and centers of excellence Investor Activism - desire for quick rewards Government Activism – FDA, HHS, CDC Market Downturn – Minus 514 points on the DJIA in 5 days
WBB Securities, LLC © WBB Securities, LLC 2007 Big Pharma/BBio Warning Signs 1 More R&D Spending, Fewer New Molecular Entities CBO Study, R&D in Pharma Industry, October, 2006
WBB Securities, LLC © WBB Securities, LLC $28+ B Total 2006 Pharma Industry R&D $51.3 billion $39.4 B Inflation Adjusted Dollars Big Pharma/BBio Warning Signs 2 Federal Government Funding Lower Percentage of R&D CBO Study, R&D in Pharma Industry, October, 2006
WBB Securities, LLC © WBB Securities, LLC 2007 Big Pharma/BBio Warning Signs 3 Fewer Patents Per R&D Dollar CBO Study, R&D in Pharma Industry, October, 2006
WBB Securities, LLC © WBB Securities, LLC 2007 Big Pharma/BBio Warning Signs 4 Diminishing Return on Assets CBO Study, R&D in Pharma Industry, October, 2006
WBB Securities, LLC © WBB Securities, LLC 2007 Differentiating the Winners in Biotech IP (freedom to operate) IQ (scientists/engineers) Cash Good Scientific Base Excellent Management and Marketing Good Business Case Ability to Work the Government Review Process Ability to Leverage Technology Externally
WBB Securities, LLC © WBB Securities, LLC 2007 Challenges & Opportunities in the Stem Cell Arena Lack of Federal funding for embryonic research Early stage development increases risk and need for $ Misperceptions and lack of information among general population Freedom to operate difficult to acquire because of patent dispersion. High cost and long time required to bring new drug to market. Relatively new field with many unknowns Discovery of multiple sources for adult stem cells Great promise for curing a wide range of diseases Glitzy and glamorous to science fiction writers and lifeline for really sick people Patent arena creates a barrier to entry for competitors Lagging R&D productivity by existing players Relatively new field has great opportunities for innovation. Challenges Opportunities
WBB Securities, LLC © WBB Securities, LLC 2007 What Is Your End-Game Business Strategy? Running a biotech business and other sad stories. Develop milestones that lend themselves to easy quantification and institutional investor explanation. Strategies for continuing independent operation.
WBB Securities, LLC © WBB Securities, LLC 2007 Unique Aspects of Biotech Companies Covered by WBB Securities IP-IP-IP-IP Lead product identified Large partner validation and negotiating acumen Technology and business acumen. Understanding of capital markets
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