1. Business Models That Biotech Companies Employ
A. M. Pappas & Associates
Francis J. Meyer, PhD
Vice President, Enterprise Development
KFBS Biotech Speakers Series
November 25, 2002

2. Francis J. Meyer, PhD Vice President, Enterprise Development
PhD, Pharmacology, University of Maryland Medical School
Senior Management of 2 medical product companies
Associate Dean for Technology Licensing, Johns Hopkins University School of Medicine, 10 years
Associate Vice Provost for Technology Development, University of North Carolina-Chapel Hill, 5½ years
A. M. Pappas & Associates, 2 years
Life Science Venture Capital Fund Management & Advisory Services

3. Presentation Outline Mission of biotechnology companies
Biotech business models with examples
Linking financial models with business models
Regulatory or ethical concerns that could alter the business model
How does a technology itself influence the business model

4. Mission of Biotechnology Companies
Varies
Focus on Human Health Companies
Using a platform to develop drugs

5. Designing Drugs

6. Leads to Drugs

7. Drug Development - A High Risk Undertaking
Time years from discovery to market; patent life 20 years
Cost $700 million + (includes costs of failures)
Success 1 approval/ 5000 cmpds screened; 1 approval /5 cmpds entering clinical trials
Return 3 in 10 approved drugs recover development costs

8. Clinical Trials Discovery/ Preclinical Testing Phase I Phase II
Phase III
FDA
Phase IV
Years
6.5
1.5 2
3.5
Test Population
Laboratory and animal studies
20 to 100 healthy volunteers
100 to 500 patient volunteers
1,000 to 5,000 patient volunteers
Review process/ approval
Additional post-marketing testing required by FDA
Purpose
Assess safety, biological activity and formulations
File IND at FDA
Determine safety and dosage
Evaluate effectiveness, look for side effects
Confirm effectiveness, monitor adverse reactions from long-term use
File NDA at FDA
Success Rate
5,000 compounds screened; 250 enter preclinical
5 enter clinical testing
1 approved

9. Preclinical Development
Life Science Development Cycle
PATIENT MANAGEMENT
Genomics
Proteomics
System Pathways
Cell Biology
THERAPEUTICS
DIAGNOSTICS
BIOLOGY
COMMERCIALIZATION
Screening
Sequencing
FDA
Expression
Target Validation
Assay Development
Target ID
Human Trials
Natural Extracts
Lead ID
Lead Optimization
Preclinical Development
Synthesis
Compounds
HTS
FDA
CHEMISTRY
Discovery
Development

10. Business Models for Human Health Biotech Companies
Product Companies
Subscription Companies
Service Companies

11. Product Companies Product Company
Develop products through clinical trial stage
initial products partner with pharma
later products sell and market directly
Examples: Inspire, Panacos, Signase

12. Subscription Companies
Subscription company
Develop genomics databases
Pharma subscribes to databases
Subscription fees
No downstream royalties
Examples: Millennium Pharmaceuticals, Inc., Incyte Genomics, Inc., Celera Genomics Corp., GeneLogic

13. Changed Model
Most subscription companies have become fully integrated pharma or research companies
Wall Street less value for subscription-only companies
Examples: Human Genome Sciences, Inc., Millennium Pharmaceuticals, Inc., Incyte Genomics, Inc., Celera Genomics Corp.

14. Service Model Product is service
Full range of services to support pharmaceutical companies ideal
Technology know-how strong
IP less important

15. Service Model Contract Research Organization (CRO)
Full range of services to support pharma
Preclinical
Clinical
Regulatory
Post marketing
Production/Manufacturing
Specialty Testing
Staff, know how, databases are the assets
Examples: Quintiles, Piedmont Research

16. Service Model Chemistry Service Companies Smart Screening Companies
Chemical Libraries, Scaffolds,Synthesis
Staff, Know How, Databases, Libraries, IP, Robotics are the Assets
Examples: Albany Molecular Research, Aurora Biosciences, Tripos, Synexis Chemistry & Automation
Smart Screening Companies
Development and Use of Proprietary Models ( animals & others)
Staff, Know How, Databases, Models, IP, Robotics are the Assets
Example, EnVivo

17. Tool Companies
Product companies that sell tools, not as a service, but as a product
Example: Chip companies such as Affymetrix, Aclara, Caliper

18. Development Companies
Development companies (Devco model)
In-license compound, take it through Phase II or III clinical trial
Out-license to big pharma
Downstream royalties
Example: Pozen Pharmaceutical, Inc., DevCo Pharmaceuticals, Inc.,

19. Bioinformatics Companies
Service & software company
Variation under subscription
Many to categorize
Examples: Bioinformatics Group, Incellico, Divisions of IBM, SAS

20. Linking Financial Models with Business Models
Business model independent of source of capital funding
Example: AlphaVax, Inc.
NCBC
SBIR
Foundation
Venture Capital
There is a point when co.may not want venture capital money
Very early stage

21. Regulatory or Ethical Concerns That Could Alter Business Model
Drugs
Diagnostics
Medical Devices
Research Reagents/Tools
Stem Cell Research
Geron & Univ. of Wisconsin

22. How Does the Technology Itself Influence the Business Model?
Platform technology
Products
Services
Databases / Tools

23. Critical Factors in Start-Up
Management Team
Business Model
Technology

24. A Company for Today Profile: Post Genomic
Rapidly Identify & Validate Disease-Causing Cancer Genes
High-Throughput Functional Cloning
Developing Data, Tools and Therapeutics
Treat Based on Individual Disease Profiles

25. A Business Model for Today
Profile:
Combination of Subscription, Tools & Products
Logical Evolution of Income Producers Over Time
Strategic Partners from Day One
Several Sources of Cash & Conserve

26. Today’s Fund Raising Climate
Cash is Very Hard to Get
Only the BEST are Obtaining Funding
BEST Management
BEST Business Model
BEST Technology
BEST Products
BEST Markets

27. Conclusions Constant change will continue Which model is best?????
Biz models change to adapt to science change
Genomics, functional genomics, bioinformatics, proteomics, etc.
Which model is best?????
“ Morphing”
Management team
First 8 years of genomics will pale compared to next 25

29. A. M. Pappas & Associates
If interested in additional information contact:
Fran Meyer at or

30. Pappas Ventures I Portfolio
Aclara BioSciences (Nasdaq: ACLA) (Mountain View, CA)
Arena Pharmaceuticals (Nasdaq: ARNA) (San Diego, CA)
ArgoMed (Cary, NC)
Bio-Informatics Group (Cary, NC)
EBM Solutions (Nashville, TN)
Elitra Pharmaceuticals (San Diego, CA)
Nereus Pharmaceuticals (San Diego, CA)
Panacos Pharmaceuticals (Gaithersburg, MD)
Reprogenesis (acquired by Curis) (Nasdaq: CRIS) (Cambridge, MA)
Signase (Houston, TX)
Variagenics (Nasdaq: VGNX) (Cambridge, MA)
X-Ceptor Therapeutics (San Diego, CA)

31. Pappas Ventures I Portfolio
Aclara Biosciences
biochip company developing microfluidic lab-on-a-chip technology with applications for genetic analysis, high throughput drug screening and clinical diagnostics
Arena Pharmaceuticals
biopharmaceutical company that has developed a technology to accelerate the development of lead compounds targeting G-protein coupled receptors
ArgoMed
company developing a proprietary, water-induced thermotherapy device and technique to address the non-surgical treatment of benign prostatic hyperplasia (BPH)

32. Pappas Ventures I Portfolio
Bio-Informatics Group
company developing an innovative, proprietary 3-D biochip to enhance the capacity, efficiency, accuracy and automation of gene screening; NC State University
EBM Solutions
healthcare information company that provides evidence-based disease treatment protocols via the Web to physicians and patients; Duke, Emory, Mt. Sinai NYU, OHSU, Vanderbilt and Washington University
Elitra Pharmaceuticals
antimicrobial functional genomics company focused on the identification, development and commercialization of novel antimicrobial compounds that target essential gene products of pathogenic organisms

33. Pappas Ventures I Portfolio
Nereus Pharmaceuticals
drug discovery and development company focusing on marine environments as a source of small-molecule compounds for the treatment of inflammation, cancer, and infectious diseases; Scripps Institution of Oceanography
Panacos Pharmaceuticals
drug discovery and development company focusing on novel antiviral compounds targeting the treatment of HIV, RSV and hepatitis; University of North Carolina at Chapel Hill
Reprogenesis (now Curis)
company developing in vivo tissue augmentation/ repair products; MIT and Harvard

34. Pappas Ventures I Portfolio
Signase
cancer therapeutics company developing novel, small molecule inhibitors of a critical cell replication pathway to inhibit tumor growth; M. D. Anderson Cancer Center
Variagenics
pharmacogenomics company with proprietary gene variance detection technology anticipated to streamline drug development
X-Ceptor Therapeutics
biopharmaceutical company focused on research in the field of orphan nuclear receptors; Salk Institute, Baylor College of Medicine, UT Southwestern and Ligand Pharmaceuticals

35. Pappas Ventures II Portfolio
Calyx Therapeutics Inc. (Hayward, CA)
Cognetix, Inc. (Salt Lake City, UT)
Dynogen Pharmaceuticals, Inc. (Boston, MA / RTP, NC)
Incellico, Inc. (Durham, NC)
NuVasive, Inc. (San Diego, CA)
Peninsula Pharmaceuticals Inc. (Fremont, CA)
Plexxikon, Inc. (Berkeley, CA)
Sensys Medical, Inc. (Chandler, AZ)
Syntonix Pharmaceuticals, Inc. (Waltham, MA)

36. Pappas Ventures II Portfolio
Calyx Therapeutics
pharmaceutical company focusing on oral therapies for diabetes and inflammatory diseases utilizing natural plan extracts with demonstrated clinical activity in humans
Cognetix
biopharmaceutical company developing peptide therapeutics for the treatment of epilepsy, pain and anesthesia; University of Utah
Dynogen Pharmaceuticals
neuroscience-based drug discovery and development company targeting novel therapies for genitourinary and gastrointestinal disorders

37. Pappas Ventures II Portfolio
Incellico
bioinformatics company developing proprietary solutions that will significantly streamline biological and genomic data mining and processing
NuVasive
medical device company that has developed a minimally invasive system for spine surgery
Peninsula Pharmaceuticals
pharmaceutical development company focused on in-licensing and developing clinical stage pharmaceutical products.

38. Pappas Ventures II Portfolio
Plexxikon
drug discovery company that utilizes a structural proteomics approach to discover novel pharmaceuticals
Sensys Medical
developer of non-invasive technology for blood glucose monitoring
Syntonix
biopharmaceutical company focused on the discovery and development of innovative drug delivery technologies for improved administration of protein drugs and vaccines; Harvard Medical School