Biotech 2008: A Global Transformation G. Steven Burrill Chief Executive Officer Burrill & Company Wisconsin Life Sciences Transformation: World Perspectives & Wisconsin’s Advantage Madison, WI, February 21, 2008 Last Updated: April 16, 2017
Exclusive focus on Life Sciences Burrill & Company Exclusive focus on Life Sciences Human Healthcare (Rx and Dx) Nutraceuticals/Wellness Agbio Industrial Biofuels/ Bioenergy Enabling Technologies
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Themes in ’88 book …Into The Marketplace Science being converted to business Products coming to market place Are product liability, regulatory reform, patent court behavior insurmountable barriers? Partner or vertically integrate? Acquisitions by pharma desirable? How will the industry evolve?
Biotech is Transforming the Globe …and being transformed by it
Transformation Webster: trans·for·ma·tion Pronunciation: "tran(t)s-f&r-'mA-sh&n”, -Function: noun The act or process of transforming somebody or something Webster: trans.form 1a: To change in composition or structure
A Global Transformation… …From To… Chemistry Biochemistry On Size fits all drugs Personalized medicine Aging (just happens) Aging is optional / controllable Therapeutics/diagnostics/devices “Theranostics” Treating sickness Preventing Sickness Food for survival Food for health
A Global Transformation… …From To… Fossil fuels Alternative fuels (biomass conversion) Unavailable local capital Global arbitrage Fully integrated business model (FIPCO) Virtually Integrated business model (VIPCO) Local companies Global companies US centric biotech industry Global industry Changing the healthcare environment Transforming the world
Life Sciences – Biotech: A Short History … Circa 1953 – Watson and Crick Circa 1973 – Inception of biotech ALZA (`68) Cetus (`71) Amgen (`80), Genentech (`76 ) Biogen (`78), Centocor (`79) Hybritech (`78) Circa 1993 - Meaningful biotech revenue Circa 2008 – Transforming the world
Era of Unprecedented Advances in Medical Research Understand the pieces Hardware of Life (20th Century) genes/proteins Software of Life (21st Century) – systems/network “Biomarkers ‘r us” (Note: “genes ‘r us” biz model failed) Cost per bit of biological info rapidly decreasing (Moore’s law) The consequences are staggering …
Moore’s law – Cost Per Base
Challenges/Opportunities in Improvement of Care And we see its implications: Evidence based medicine Advances in health information (Web MD) Personalized, predictive, preventative medicine - (3 P’s) Electronic Health Records (EHR) BUT … Delivery system so flawed can’t bring healthcare “advances” to market place Government increasingly the payor (Medicare/other government healthcare systems)
Also Era of Macro Issues Climate change Energy needs/alternative fuels Poverty Security/terrorism Philosophical - ideological conflict (religious conflict)
……yet we are the envy of the world FDA NIH CDC DOD/DARPA/SARPA USDA DOE – Energy Alternatives
Total US Spend for Biotech/Pharma Research NIH $29B Pharma $43B Biotech $30+B TOTAL $100+B
Current Healthcare System in “Silos” Insurers Employers (Providing $) Providers/ Managed Care Doctors/Nurses/Hospitals Suppliers Pharma Companies Diagnostic Companies Medical Device Companies Medical Innovators
Integration Is Essential BUT Where Is It Happening? Kaiser Permanente (California) Intermountain Health (Utah) Analogy (Clayton Christiansen/ Harvard) Color TVs invented by RCA but no sales since nobody would broadcast in color RCA then bought NBC, then integration happened …Therefore integration within the healthcare system is essential if benefits of new technologies are to be realized
HHS Secretary Michael Leavitt “Combining gene based medical care with health information technology could transform healthcare…” “Personalized healthcare will combine basic scientific breakthrough of the human genome with computer-age ability to exchange and memorize data”
Regulatory harmonization Not only integration, but a greater need for international collaboration Pandemic diseases Regulatory harmonization Approvals Patents Drug/ Food Safety Diseases know no borders It’s a global economy
Entering a Period of Co-opetition (Cooperation/ Competition) Strategic Partnering Co-development Co-branding Co-promotion Co-marketing Country to country Public/private Big/small Within industry/outside industry (IT/biotech)
Life Science Investment Thesis “To create and capture value across the spectrum of the life-sciences industries” HEAL THE WORLD FEED THE WORLD K Human Health Care Agriculture Therapeutics Diagnostics Traits Tools Services “Sustain & Nourish the world” Wellness Enhancers Food ingredients Seeds Medical devices Bio Processing Bio Fuels Biomaterials Building sustainable businesses Addressing major market needs Biopharmaceuticals FUEL THE WORLD
So let’s look at where we are and what happened during the last year...
Key Industry Stats – Biotech 2008 USA Europe Asia/ Pacific Canada Total Sales / Rev. $89B $12B $3.5B $1.5B $106B Annual R&D $23B $4B $0.4B $0.8B $28B Number of Companies 1,450 1,600 740 450 4300 Number of Employees 131,000 10,000 13,000 7000 151,000 Number of Public Co.’s 370 160 140 75 745 Market Cap $455B $30B $50B $547B
Pharma vs. Biotech Industry Market Cap ($B) Company 12/31/07 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 Pfizer 155 187 172 199 280 192 251 290 Johnson & Johnson 191 180 186 184 154 112 181 146 Merck 127 82 69 69 103 165 133 216 Eli Lilly 60 62 65 65 77 50 88 105 Bristol-Myers Squibb 53 50 46 47 58 65 112 145 Pfizer/Merck 282 269 241 268 383 357 384 506 Total US Biotech 455 496 491 399 342 213 366 425 Industry 1.6x 1.8x 2.0x 1.5x 0.9x 0.6x 1.0x 0.8x
Top ten Biotech Companies by Market Cap Position Biotech 1986 Biotech 1991 Biotech 1996 Biotech 2001 Biotech 2006 Biotech 2007 1 Genentech Amgen 2 Cetus 3 ALZA Chiron Elan Gilead Sciences 4 Applied Biosystems Centocor Shire Celgene Genzyme 5 Biogen Biogen Idec 6 BiogenIdec 7 Nova Genetics Institute Serono (ADR) Shire ADR 8 Synergen Immunex Shire (ADR) 9 IDEXX MedImmune Quest Diagnostices Amylin 10 Diagnostic Products Millennium Millennium Pharmaceuticals
Historical Biotech Market Cap 1997–2006
Top Five US Pharma* vs. Total Biotech Market Cap ….And these small Life Science companies are becoming increasingly important as a source of value creation and innovation in the healthcare sector Top Five US Pharma* vs. Total Biotech Market Cap Market Value of selected Big Pharma acquisitions of public Biotechs (2005-2007) Source: Capital IQ, Windhover, Burrill Analysis
So, what really happened during the last year ? Stem cells politically hot and the science is delivering Technology/platform companies rebounded BioFuels are BOOMING… Industrial biotech is finally happening Ag/animal health show progress acreage is up but “organics” and “natural’ are hot
So, what really happened during the last year ? Increased interest in “wellness” not just sickness Personalized medicine makes real progress Regulatory concerns: IVD/MIA “approvals” FDA Critical Path Theranostics Biogenerics/biosimiliars/follow-on biologics Big pharma buys into the biotech pipeline
So, what really happened during the last year ? Reimbursement dynamics continue to dominate, especially in the US India/China make real progress (Malaysia, Korea, others do too) Industry raises $45b in capital in US alone The last year has been a good year, not a great one … My projections for 2008 will follow at the end
Transformation: Sickness to Wellness
Healthcare Industry Dilemma… Rising Healthcare Costs Loss of Patent Protection for Blockbuster Drugs Need for Innovation; build vs. buy Reimbursement/Payment system changes – Medicare Part D Compulsory Licensing
Healthcare Costs Have Been Rising - For a Long Time
Prescription Drug Costs as Percentage of Healthcare
Estimate of Overall US Healthcare Spending on Prescription Drugs (by general public)
Worldwide Global Pharmaceutical Sales –
…by the way, the Global Nutraceuticals Industry is $228 Billion in 2006 Supplements Natural Foods Functional Foods Personal Care (millions) Source: Nutrition Business Journal May/June 2007
Today’s Medicine Challenge: One Size Doesn’t Fit All
Pharmacogenomics Shapes the Healthcare Business in 2000+
140 Years of Drug Discovery Technology penicillins sulphonamides aspirin psychotropics NSAIDS H2-antagonists beta blockers lipid lowerers ACE-inhibitors Biotech drugs chronic degenerative disease associated with ageing, inflammation, cancer drugs against targets identified from disease genes 1900 2030 1950 1960 1970 1980 1990 2000 2010 2020 2040 New Therapeutic Cycles 1st generation 2nd generation 3rd generation natural products and derivatives serendipity receptors enzyme genetic engineering cell pharmacology/ molecular biology genomics / proteomics Source: CMS, Lehman Brothers research
Confluence of Technology, Tools, and Knowledge
A Systems Biology Approach – Follow the Pathways
Analyzing the Molecular Profiles (Biosignatures) of Body Functions in Health and Disease The Molecular Basis of Biological Processes The Molecular Heterogeneity of Disease Individual Genetic Variation Alterations in Disease Disease Subtypes Pharmaco- genetics Disease Predisposition New Targets for Dx, Rx, Vx Right Rx for Disease New Targets for Dx, Rx, Vx PDx PRx
Selected Targeted Treatments Personalized cancer vaccines Favrille – FavId for non-Hodgkin's lymphoma Genitope – MyVax for non-Hodgkin's lymphoma Gleevec (Novartis) - pH+ CML kinase inhibitor Iressa (AstraZeneca) – EGFR tyrosine kinase inhibitor Tarceva (Genentech/OSI) – HER1/EGFR inhibitor Erbitux (ImClone/BMS) – HER1/EGFR inhibitor Avastin (Genentech) – VEGF/VEGFR inhibitor Herceptin (Genentech) – HER2 inhibitor BilDil (NitroMed) - heart failure in African American patients Other “Semi Targeted” Treatments (approved or late stage trials) Nexavar (Bayer/Onyx) – multikinase inhibitor Tykerb (GSK) - ErbB-2/EGFR inhibitor Enzastaurin (Lilly) - PKC-Beta, AKT/P13 inhibitor
Innovation Gap Getting Wider
Safer, More Effective Drugs Target Identification Validation Lead Development Preclinical Clinical Market Faster path to disease targets using genetic data Speed trials by testing on patients selected for likely high response and safety Knowledge of biological pathways and gene variants help eliminate poor candidates Target optimal population by combining drug with molecular diagnostic testing
Big “New” Markets Obesity/diabetes/metabolic disease Alzheimer's/memory Anti-aging Anti infectives (antibiotic resistance) Wellness (preventative/predictive cure)
Projected Alzheimer’s Disease Prevalence, 2000 to 2100
Aging . . . Is it a Disease? About 1.4 million Americans are in their 90s, and another 64,000 are 100 years old or older Baby boomers represent 30% of the total US population Per person, seniors consume about five times the drugs of their working-age counterparts By 2030, 20% of US population will be over 65 years of age…
Medicines in Development for Older Americans* * Some medicines are listed in more than one category
Chronic Disease 125 million Americans have one or more chronic conditions (e.g. congestive heart failure, diabetes) Chronic diseases account for 75% of all health care expenditures Current costs for chronic diseases is approaching $1 trillion These expenditures are not delivering what is possible
Stratifying Into Risk Categories Diabetes Type 2: What’s Becoming Possible?
Products in WW Development 2007 III and Registration 571 Total 388 Risk-Adjusted to Approval 248 Total 208 Risk-Adjusted to Approval Source: BioCentury Publications
Products in Phase III by Disease / Target Area Source: BioCentury
Number of Products Approved — 1982–2006 45 New Indications 40 35 Biotech Drugs 30 25 20 15 10 5 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Biotechnology Drugs in Clinical Development
MDx is at the Center of the New Dx World
Diagnostic Innovation Makes Impact on Cancer Therapy
In Vitro Diagnostics, By Application
Looking Forward, Patent Exposure is Set to Increase Significantly
Biogeneric Status of Biotech Drugs
Adverse Event Reports 1990-2006 (thousands) Source: CDER OSE report 10/5/07 AERS database (includes all US marketed drug and biologic products)
Blockbuster drugs pulled from the market gave investors concern Date Approved Drug Name Use Risks Withdrawn 2002 2001 Zelnorm Bextra IBS - C Pain reliever Heart attack Heart attack/stroke; fatal skin reactions 2007 2005 1999 Vioxx Heart attack/stroke 2004 1997 Baycol Cholesterol Severe damage to muscle, that is sometimes fatal Raplon Anesthesia An inability to breathe normally 1993 Propulsid Heartburn Fatal heart rhythm abnormalities 2000 Rezulin Type 2 diabetes Severe liver toxicity 1988 Hismanal Antihistamine Raxar Antibiotic Posicor High blood pressure Dangerous interactions with other drugs 1998 Duract Severe liver damage 1985 Seldane 1973 Pondimin Obesity Heart valve abnormalities 1996 Redux Blockbuster drugs pulled from the market gave investors concern
On the Regulatory/Patent/Policy Front… Patent reform (PTO proposals to restrict claims examined in a single application and limit continuation applications) FDA resources – PDUFA IV authorization follow-on biologics (biogenerics) drug safety theranostics food safety (pet food) Biofuels – renewable and alternative energy sources through use of biotechnology Medicare Prescription Drug Price Negotiation Act – Non-interference (proposal to require Medicare interference) Sarbanes Oxley compliance – reducing the burden on small companies SBIR eligibility Agbio/ GMO’s Stem cell research – federal funding
The Cost of Developing a New Drug has Greatly Increased
CMS Becomes Dominant Customer (40% of Market in 2008) 2002 Rx Payment Sources ($B) 2008 Projected ($B) Total = $162.4 Total = $260 Source: 2002 data: Health Affairs Volume 23, Number 1; January 2004. 2008 data: Tag & Associates estimate
Medicare Heads Towards Bankruptcy
Major Government Initiatives in Biotechnology EU/Eastern Europe/Scandinavia China India Japan Malaysia Singapore UAE/Dubai and Kuwait Israel Various Latin American Countries (esp. Chile/Brazil) Australia/New Zealand
Healthcare costs per car are $1700 Healthcare Costs are Growing Much Faster Than Productivity (Revenue Per Employee) CAGR=3% GM Cannot Compete Healthcare costs per car are $1700 more then Toyota CAGR=10% I’ll begin by demonstrating the challenge all of us in healthcare are facing today. You can’t open a newspaper without reading another headline about the skyrocketing costs. Consider the following: - Health care costs are growing much faster than employee productivity (10% CAGR since 1998 versus 3% CAGR revenue growth) Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)
…so, healthcare cost increases are on everyone’s agenda Politicians/Congress/White House Payors/Reimbursors/Insurers Physicians/Providers Patients/Consumers …and patients are empowered, have economic costs, and really want to stay well!
Significant Mergers & Acquisitions 2007 PHARMA/PHARMA PHARMA/BIOTECH BIOTECH/BIOTECH Schering-Plough/Organon $ 14.4 billion AstraZeneca/MedImmune $ 15.6 billion Celgene/Pharmion $ 2.7 billion Siemens/Dade Behring $ 7.1 billion Eisai/MGI Pharma $ 3.5 billion Qiagen NV/Digene $ 1.5 billion Mylan/Merck Generics $ 6.6 billion GSK/Reliant $ 2.7 billion Amgen/Illypsa $ 420 million Hologic/Cytyc $ 5.9 billion Shire/New River $ 2.5 billion Genzyme/Bioenvision $ 308 million
M&A 2007 - Total
M&A
Partnering – Big Pharma
Partnering - Upfronts
Wellness: Its Time Has Come Rising healthcare costs are impacting individuals Rising incidence of chronic disease Recognition of the importance of genetic variation Scientific knowledge base for: Personalization Cost effective technologies Financial markets beginning to recognize opportunity
The Demands for Agriculture Stay the Same More food on less land with half the water. Source: 1999-United Nations
Market Overview – Agriculture
Global Area of Biotech Crops 1996 to 2005 By Crop
2005 Was The Tipping Point For Industrial Biotechnology Perfect Storm Energy security Global Warming Economics Political Will Market pull Ready technology Biofuels Sustainability 2008 89
VC investments increased dramatically Exciting Time Since VC investments increased dramatically Oil companies invested in technology and infrastructure Supportive legislation Frenzy to access technology Frothy Pre-money Valuations No success stories
What Has Happened Since? Ethanol plant construction exploded (All corn based) Now have 113 in operation, 77 under construction Production at 6 billion gallons, potential for 12B Price of feed grains $2 historically, topped $5.00 20% of corn crop today, 50% in two years ! 13% of soybeans going to biodiesel The focus has been on biofuels - Ethanol 91
Unprecedented energizing of rural America Price of corn Implications Unprecedented energizing of rural America Price of corn Feed costs: poultry, beef, and swine Sales of pickup trucks, farm equipment and new kitchens Land values Food costs: Meat, HFCS
Key Future Drivers! Energy Bill & Farm Bill The Energy Independence and Security Act of 2007 By 2022 Renewable Fuel (20% reduction in GHG) 36 B gallons Advanced biofuels (other than corn starch with 50% life cycle reduction in GHG 21 B gallons Cellulosic Biofuel (>60% reduction in GHG) 16 B gallons 2008 Farm Bill – Energy Title (In Conference) Tax incentives Funding for development and demonstration
2007 Great Year But with Storm Clouds Forming Perfect Storm Energy security Global Warming Economics Political Will Market pull Ready technology Second Perfect Storm Social Economic Environmental
Storm Clouds Commodity prices drive up food prices Acreage Swap between Corn and Soybeans The linkage: Corn – Soybeans – Palm Oil Exaggerated by imminent US lead recession Economic discontinuities caused by speed of adoption
Social, Economic and Environmental Issues will Dominate 2008 US recession How long how deep? Fewer IPOs, Fewer Acquisitions What will big oil do ? Access to project financing Funding of small technology companies $5M, $20M, $100 M Will we get the project financing needed given the economic and political uncertainty IPOs early in year critical – several good ones ready to file, some even have revenues! Uncertainty a big risk
From an investor stand point – “Ethanol is dead” Opportunities From an investor stand point – “Ethanol is dead” Cellulosic sourcing of sugars will be hot Increasing interest in alternative fuels Butanols Alkanes Lots of opportunities outside biofuels Bioplastics / Biomaterials APIs Specialty chemicals
Some Learnings From Agbio Be proactive, get ahead of the issues Engage all parties, respect their issues (they may be right) Do not be defensive Find common ground Energy security, sustainability, reduced environmental foot print It is not about the science it is about the political, social, economic and environmental issues
Capital Raised 1980-2007
Biotech’s F=Five cycles Length of Rallies/Droughts in Months
Small, Mid-Cap vs. NASDAQ, DOW
Billion-Dollar Club
IPOs – Not What They Used To Be
IPOs – Not What They Used to Be Number of IPOs Positive since IPO Negative since IPO Acquired Amount Raised* ($ Million) Average D % change Since IPO** 2003 7 1 4 2 $438 (3.34%) 2004 29 6 17 1,628 (12.64%) 2005 5 10 819 4.55% 2006 19 13 920 8.26% 2007 28 11 18 2,041 2.00% Total 100 62 5,846 (0.24%) * Includes over-allotments ** As of 12/31/07 Source: Burrill & Company
2007 Life Science Financing Overview Initial Public Offerings: 27 offerings with proceeds of at least $20.0m $2b total proceeds raised $70m average deal size $162.3m median pre-money valuation The share price of issuing companies increased 2% on average 5 days post pricing The share price since time of offering has increased 2% on average
Finance and Capital Markets The global financial markets have created additional opportunities for companies to look outside their borders for financing Europeans on NASDAQ/NYSE Chinese on NYSE Americans on AIM/Euronext/SWX Other markets are available Mothers (Tokyo) DFX (Dubai) Hong Kong
Transformation: FIPCO’s to VIPCO’s
Changing Business Models FIPCO (Fully Integrated Pharma Co.) VIPCO (Virtually Integrated Pharma Co.) Partnerships Sales & Distribution Research Technology Manufacturing Clinical & Regulatory Sales & Distribution CSO Manufacturing CMO Clinical Development CROs Preclinical Support Preclinical CRO R&D Academia, Scientific, Institutions
So What Does Big Pharma Do Better Than Anyone Else? Discovery? Development? Manufacturing? Distribution? Disease Management? What is the Answer?
Financing Biotech Companies the Old Way Doesn’t Work Difficult financing at early stages Successive venture rounds at increasing value is challenging…public equity values have compressed the whole equation Time and cost of development has been increasing and risk/return has been decreasing Therefore, a new model must emerge
How Does All This Impact Entrepreneurial Start-ups in 2008 VC & Angels are hesitant to invest Business models are changing More financing of projects Selective platforms are coming back Higher bar for regulatory approval Reimbursement compression Capital efficiency required BUT… Rate of start-ups are increasing (go figure…)
So the predictions for 2008…
The Predictions for Biotech in 2008 Sales of products will continue to increase, but reimbursement becomes more challenging Despite stricter regulatory oversight, more products to the marketplace Regulators Raising the bar for innovation, theranostics Pharmacovigilence is the name of the game Drug safety will continue to be a major issue Congress aiming to add power to Medicare to negotiate what it pays for drugs Congress may reduce the capital gains differential (bad for the capital raising side of the industry)
The Predictions for Biotech in 2008 (continued) Biofuels boom Ag/Animal Health continue to progress Biotech’s globality increases with US dominance continuing to decrease US research engine faces challenging times Non-health care aspects of biotech also becoming less dominant as industrial, biofuels, ag increase in importance Clusters are redefined away from geography to virtual clusters (diseases, markets, unique industry segments) Business models continue to evolve
The Predictions for Biotech in 2008 (continued) Both big Pharma and big Biotech will be competing for companies with advanced product pipelines We will see US biotechs accessing capital overseas…international companies accessing capital in non-local markets “Capital Markets” worse than 2007, but 30 IPO’s in 2008 (mostly 2H ‘08) 2008 $50 billion will be raised by the US biotechs MKT Cap will reach $500B Of the 60 IPO’s completed by 2006, most all trading above offer price by end of 2008
It’s going to be a tough, competitive year with biotech companies transforming the world … and being transformed by it!
Biotech 2008: A Global Transformation G. Steven Burrill Chief Executive Officer Burrill & Company Wisconsin Life Sciences Transformation: World Perspectives & Wisconsin’s Advantage Madison, WI, February 21, 2008 Last Updated: April 16, 2017