feeding the pipeline iv: a licensing...

Feeding the Pipeline IV:Feeding the Pipeline IV:A Licensing ComplexA Licensing Complex

Ed Saltzman Ed Saltzman President President Defined HealthDefined Health

LES 2003 Annual MeetingLES 2003 Annual MeetingSan DiegoSan Diego

© Defined Health, 2003

© Defined Health, 2003LES – 2003, San Diego

definedhealth.com


The Venue For Feeding The Pipeline III The 2002 LES Annual Meeting


Feeding The Pipeline I-III

• Three Years of Research

• One Singular Conclusion: – There are no late stage products with blockbuster

potential available for in-licensing.


Feeding The Pipeline 2001 – 02:Taking The “Opportunity Inventory”

Total Compounds US Phase III and Above

2001 2002

817 833

6363 77

(695)Taken or Very Unlikely (695)

122 138

(131)Estimated Peak US Sales

(59)<$200mln <$500mln

Precious Few Products, Few Precious Deals: Announced Deals 9/2002-9/2003

Color = Phase IIII +. Orange = PCP, Yellow = Specialty.Recap


Date Company Deal Size Product Stage Disease Area09-03 BMS 30 Inhaled Insulin I Diabetes09-03 Aventis 510 VEGF Trap I Cancer/Ophthalmics09-03 Amgen 86.5 11b-HSD1 enzyme inhibitor II Diabetes08-03 BMS 165 Basulin II Diabetes07-03 BI 137 MIV-310 II Anti-HIV07-03 Roche 90 IL-15 Antagonist Preclinical Anti-inflammatory07-03 Roche 188 Avastin Ex-US III Cancer/Ophthalmics06-03 GSK 160 MT-400 II Migraine06-03 Ortho Biotech 535 Velcade Ex-US Approved Cancer/Ophthalmics06-03 Aventis 110 ZP10 I/II Diabetes06-03 Amgen 133.5 IL-15 receptor program II Anti-inflammatory05-03 Pfizer 57 NAALADase Inhibitors Preclinical CNS05-03 GSK 102 MIV-210 I Anti-HIV05-03 Roche 230 Interferon Alpha & Beta Discovery Hep B & C03-03 Novartis 350 IL-I Trap II Anti-inflammatory03-03 Novartis 862 2 HepB drugs, plus options to others III/I Anti-Virals01-03 GSK 545 Long-acting Beta2 agonist I Asthma/COPD12-02 Lilly/BI 280 Duloxetine Filed SUI/Depression12-02 Pfizer 760 Macugen III AMD & DME12-02 Roche 150 Diflomotecan and BN 80927 II Cancer12-02 Pfizer 575 Indiplon III CNS11-02 Roche 500 Drug Portfolio III Cancer11-02 Endo 57 Chronogesic Pain Therapy III/II Pain09-02 Lilly 445 Exanatide III Diabetes


Which is the Sorrier Spectacle?

# of Candidates in California

Gubernatorial Recall Election

# of Opportunities

> $500 mlnin 2001

# of Opportunities

> $200 mlnin 2001

63 7

247


Feeding The Pipeline I-III

• 3 Years of Research

• One singular reaction:

– Whew! Thanks! Could you please, pretty please, share this data with my boss?

So, how is our search for

a late stage in-licensing opportunity

going?

LES – 2003, San Diego© Defined Health, 2003

Well, unfortunately, ah umm, things are very tough out

there right now. There doesn’t appear to be very much that looks attractive.


Well, of course, I know that, but as you know we only need one. The more the

better but let’s just find one, OK?


Well as you know, with all due respect, we are

working very hard. Our finders have attended 314 meetings in the last four

months, gone to 56 partnering events where we

sat in on a total of 432 presentations and reviewed

every record in the PharmaProjects, IDDB, NDA Pipeline and R&D

Insight databases.


In total, we have examined 870 compounds in Phase

II or later, have built business cases for 104 of them and have taken 14 of

those though full due diligence. We have

incorporated all of our learning into our global opportunity database,

which we feel is the very best in the industry.


We even hired Defined Healthto do their own independent search. Despite the negative

tone of this preamble, I am now very pleased to finally have some have some very good

news to report!



Great! I knew you would

come through. What is the name of the

product?

Oh, we still don’t have a product. As I have told you a hundred times, there ARE

NO late stage potential blockbuster products

available for in-licensing.


I just saved a bundle on

my car insurance at

GEICO!!!



Feeding the Pipeline I-III

• Three Years of “Shouting from the Rooftops” There

are no available late stage products

• One singular post-script:– Can you find us one anyway?


Alternatives To Futility And Frustration


Alternatives To Futility And Frustration

1. Simple Questions/Simple Answers

2. Complex Questions/Complex Answers


Simple Questions/Simple Answers

If there aren’t any late stage products available, should we license earlier?

Of course. You’ve been doing it all along anyway, since you always got them on the cheap. Unfortunately, today’s most coveted early-stage opportunities have greater impact and are priced as high as yesterday’s late-stage opportunities.


The New “Late Stage” Deal Math

$1,000 -1,500 mln

$510mln

$80mln + $45 mlnequity

Phase I

9/03Regeneron/ Aventis

VEGF Trap

$800 -1,000 mln

$187mln

$25mln + $70 mlnequity

Phase II

1/01OSI/ Genentech-Roche

EGFRInhibitor

Estimated Peak Year

SalesTotal Deal Value

Committed $

Stage at Signing

Date SignedCompanies

Product Class

Recap, Defined Health estimates

I am very pleased to tell you I found a late stage

product. I’m sorry I had to do your job for you, but if you want it done well, as

they say, you have to do it yourself.


Well, I’m certainly very

curious to know what it is.


Wonder no more. It’s AT7942, a novel VEGF inhibitor from

Angiomute. Go get it!


But, but with all due respect,

that’s still in pre-clinical

development


Yes, but it works just like Avastin!



Press Release

Phase III Trial of Avastin Plus Chemotherapy Markedly Extends Survival of Metastatic Colorectal Cancer Patients

SOUTH SAN FRANCISCO, Calif. -- May 19, 2003 -- Genentech, Inc. (NYSE: DNA) today announced that a Phase III study of Avastin™ (bevacizumab, rhuMAb-VEGF) plus chemotherapy in previously-untreated metastatic colorectal cancer patients met its primary endpoint of improving overall survival. The magnitude of the benefit observed far exceeded what the study was designed to demonstrate. The trial also met the secondary endpoints of progression-free survival, response rate, and duration of response. Genentech plans to submit data from this Phase III metastaticcolorectal cancer trial to the annual meeting of the American Society of Clinical Oncology (ASCO), May 31 - June 3.

"This study also provides the first Phase III clinical validation of the long-pursued 'anti-angiogenic' hypothesis - that by targeting a tumor's blood supply, you may impact its viability. Based on the strength of these data, Genentech plans to discuss the filing of a Biologics License Application with the U.S. Food and Drug Administration," continued Dr. Hellmann.


Working Just Like Avastin

Positive Colorectal Cancer DataNegative Breast Cancer Data

Avastin Clinical Data: Impact on Genentech’s Stock Price

BigCharts.com



Is our company too choosy? Given how few possibly legitimate opportunities there are out there – at all stages of development – and how underwhelming our internal productivity has been, should we reconsider some of our rejects?

Good idea. Aside from that old demon, NIH, it is easy after sifting though piles of doggy compounds to become very jaded. Try very hard to keep as many as compounds as possible in the more positive of the following two categories.


The Billion Dollar “Dissed” Club


OriginatorOriginator

Lundbeck

Reason DissedReason Dissed

As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Late undifferentiated entrant in highly competitive class.

Stage In-Licensed

Stage In-Licensed

Peak SalesPeak Sales

II/III

$1,452 mln

CelexaCelexa

MDs and patients welcomed another option in treatment algorithm characterized by frequent brand switching. Differentiation on side effects

was also accomplished.

Forest




OriginatorOriginatorLipha


As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Biguanide already on the market in Europe – not an accepted treatment mode for Type II Diabetes

in US market.

US physicians accepting of managing insulin resistance, a key differentiating factor versus

established SFU drugs.

Stage In-Licensed

Stage In-Licensed


Marketed in Europe

$1,838 mln

GlucophageGlucophage

BMS




OriginatorOriginator IDEC


As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Small market – Incidence of 50,000 NHL patients.

Prevalent treatment population is a more appropriate market size indicator.

Stage In-Licensed

Stage In-Licensed


II

> $3,000 mln (est.)

RituxanRituxan

Genentech


Recap, Defined Health Estimates


OriginatorOriginator Shionogi


As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Late entrant in hugely competitive class.

Market shifted heavily in direction of LDL lowering effect. Due to recent launch, outcome TBD, but

most pharmacos would take it!

Stage In-Licensed

Stage In-Licensed


II

>$3,000 mln (est.)

CrestorCrestor

AstraZeneca




OriginatorOriginatorSanofi


As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Anti-platelet activity not much greater than aspirin; using both together would increase bleeding risk

to unacceptable levels.

When added to aspirin benefit is synergistic, with only a slight increase in bleeding events.

Stage In-Licensed

Stage In-Licensed


II

>$4,000 mln (est.)

PlavixPlavix

BMS




OriginatorOriginator

Otsuka


As It Turned Out

As It Turned Out

ContrarianWinner

ContrarianWinner

Late-in-class entrant, not meaningfully differentiated, perhaps less efficacious than

marketed drugs.

With market becoming crowded with similarly effective atypical agents, competition moves to

side effect profiles, where Abilify wins. TBD due to recent launch, but trend is highly favorable.

Stage In-Licensed

Stage In-Licensed


III

$1,450 mln (est.)

AbilifyAbilify

BMS





It’s one thing to become jaded, but my company seems to be going in the other direction. We are obsessed with novel targets and being first-in-class, and turn up our noses at anything else. Is this a problem?

Sure. Like all other fields, licensing has its flavors of the moment. Getting too wrapped up in one way of thinking leads to rejection of perfectly valid opportunities which may currently be out of fashion. There is also kind of a “bubble effect,” which can leave the last company in paying way too much for an opportunity.

What’s In Vogue?A decade plus of Big Pharma “Fashion”

20031995 2000

What’s NOT!!

Commercially-Precedented Targets

Novel Targets

Novel Targets

Commercially-Precedented Targets

Clinically Validated Novel Targets


1990

What’s HOT!!


Simple Questions/Complex Answers

OK. You win. Even my boss now realizes we can’t rely on opportunistic late stage in-licensing as a strategy to save the company. Now that I can stop wasting time chasing the impossible, I have plenty of time to think strategically about other challenges ahead. What do you think should be on my mind?

Glad you asked! Given how busy you have been in the futile chase, you may not have noticed you live in a complex of Big Pharma, Biotech and Specialty Pharmaceutical companies.



I know that, but why should I care?

Because within the complex has existed the perfect symbiosis of wants and needs, a microcosm of the “global village.” However, pressures within each sector of the complex arising from foundational problems with existing business models threaten this symbiosis. This, in turn, may make your job of bringing in products at any stage either much easier or much harder, depending on the strategy your company elects to pursue.


Huh????

Hey, I warned you the answer would be complex! Bear with me as I explain the current and future dynamics of “A Licensing Complex”



Main Entry: 1com-plex

Pronunciation: ‘kam-”pleks

Function: noun

Etymology: Late Latin complexus totality, from Latin, embrace from complecti

Date: 1643

2: a group of culture traits relating to a single activity, process or culture unit

Merriam-WebsterDICTIONARY

Merriam-Webster

1: a whole made up of complicated or interrelated parts

“Complex” Defined


Complex Reverberations

Event:

Pfizer acquires Pharmacia

1 less buyer for biotech products

Pfizer announces that 75% of combined R&D portfolio will be developedPotential product outflow to Specialty Pharma

Pfizer acquires Oncology franchise, driving them to do more Oncology in-licensing50% of biotech product development is in Oncology


Welcome To Pharmbiospeci Village


Big Pharma

Biotech$$$$

Specialty Pharma

Welcome to PHARMBIOSPECI

Village


Life in the Complex

• The Perfect Symbiosis


Let’s Be Honest!

“Without Biotech, we would be launching even fewer new products than we are now.”

TRUE or FALSE?

Big Pharma


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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 20010%

5%

10%

15%

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30%

35%

40%

NMEs Launched WW % of Biotech Derived NMEs

PAREXEL’s Pharmaceutical R&D Statistical Sourcebook 2002, CMR International

Pharma Needs Biotech’s Products


Pharma Needs Biotech’s Products

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1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Companies included in analysis: US: BMS, Lilly, Merck, JNJ, Pfizer/Pharmacia, Schering Plough, WyethEU: AstraZeneca, Aventis, GSK, Novartis, Roche

Evaluate Pharma, Defined Health estimates

WW Sales ($mil) of Launched Pharma Products, Originated by Biotech, 1987-2002


Let’s Be Honest!

“Without Big Pharma, we would have no money.”

TRUE or FALSE?

Biotech


Big Pharma Holds The Cash

-10

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$B

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Top 20 Pharma Specialty Big Biotech


Free Cash Flow


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Tota

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Windhover’s Strategic Transactions Database, Recap

Biotech Needs Pharma’s Cash

Total Funding (in $mil) By Big Pharma in Biotech Alliances 1998-2002

$5501$6275

$6988$7688

$9460


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1997 1998 1999 2000 2001 2002BioCentury

Biotech Needs Pharma’s Cash

0%

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120%

Funding Dollars For Biotech (in $bil) and Percentage Contribution of Funds From Big Pharma, 1997-2002


Let’s Be Honest!

“Without Big Pharma’s cast-offs, we would have no business at all.”

TRUE or FALSE?

Specialty Pharma


Specialty Pharma Needs Pharma’s Products

CarnrickTanabeGalenTanabePfizer

Lundbeck

ShireAllerganHoechstLundbeckOriginator

$3,952Total145metaxaloneElanSkelaxin148diltiazemBiovailCardizem175levothyroxineKingLevoxyl181diltiazemForest Tiazac249brimonidine tartrateAllerganAlphagan

254escitalopram oxalateForest Lab

Lexapro

428dextroamphetamineShireAdderallXR

440botulinum toxin type AAllerganBotox481ramiprilKingAltace

$1,451citalopramForest Celexa

WW Sales ($$MM)Generic NameCompanyProduct



A Licensing Complex in Flux

• Life in Pharmbiospeci Village is changing, and becoming more complex

• Threats to traditional business models are disrupting the perfect symbiosis.

– The Endangered List


Now Let’s Be REALLY Honest!

“We are no longer competitive in the PCP market. In-licensing cannot help us. Even if there were something out there, we would never get it. We need to partner with biotech in specialty markets.”

TRUE or FALSE?

Big Pharma(Except Pfizer, GSK, AstraZeneca, Merck, Novartis)


Big Pharma’s Endangered List

• The Primary Care-centered, “One Size Fits All” blockbuster drug.

• The business model set up to chase (internally or externally) those precious few opportunities.

• Big pharma companies with significant primary care franchises.

• Deal power in non-therapeutic franchise areas.


Worldwide Rx Sales $338 Billion

Primary Care

Other

Estimated WW Primary Care Market (2002): $187 bil.

Evaluate Pharma, Defined Health


Evaluate Pharma, MedAdNews

Drug Classes Introduced or Grown to Peak, 1995-2001:

PPI

SSRI

Statin

ARB

COX-2

$11.38.8

17.7

5.06.3

Worldwide Sales ($bln)

A Golden Era for Primary Care Medicines


26106Top 20 Product Sales Growth ($bln)

2002199819951992

Top 20 Blockbusters’ Contribution to Total Sales Growth

674740Top 20 Pharmaco Total Rx Sales Growth ($bln)

65392923Top 20 Product Sales ($bln)

24718013393Top 20 Pharmaco Total Rx Sales ($bln)

Evaluate Pharma and Defined Health estimates

Pharma’s Value Contribution Imbalance

16% 21% 39%


Money Checks In…

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New

NM

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($b)

New NME ApprovalsDomestic R&D

FDA, PhRMA

But Doesn’t Check Out


Dry pipelines undermining EMEAMonday, December 30, 2002 A dramatic drop in new drug applications is now threatening Europe’s medicines regulator the EMEA with a financial crisis, and could hinder plans to expand its role.In October, the Agency announced it was slashing its budget by €5 million in response to a sharp fall in the number of new drugs submitted for approval, now confirmed at 31 for 2002, down from 58 in 2001 and 54 in 2000.Called to discuss the EMEA’s expected financial problems with the European Parliament’s Environment, Public Health and Consumer Policy committee, Executive Director Thomas Lonngren said:

The EMEA, like its US counterpart the FDA and other national regulators, relies on fees from applicants to fund its work. Earlier this year the FDA said fewer new drug applications had meant “significantly less” users fees from the industry, and in turn less money to fund its drug review operations. The US regulator approved just 16 drugs in 2002, compared to 24 in 2001, and the record 53 in 1996.

“Never has so much money been spent on R&D with so little result.”

Money Checks In…But Doesn’t Check Out


0%

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30%

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50%

60%

70%

1997 1998 1999 2000 2001

Preclinical Phase 1 Phase 2 Phase 3 Pre-registration

PAREXEL’s Pharmaceutical R&D Statistical Sourcebook 2002

Phase II: Pharma’s New “Valley of Death?”Number of Products Discontinued in Development, by Phase


0%

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20%

30%

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50%

60%

70%

1997 1998 1999 2000 2001

Preclinical Phase 1 Phase 2 Phase 3 Pre-registrationPAREXEL’s Pharmaceutical R&D Statistical Sourcebook 2002

Phase II: Pharma’s New “Valley of Death?”Number of Products Discontinued in Development, by Phase


0%

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30%

40%

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60%

70%

1997 1998 1999 2000 2001 2002

Preclinical Phase 1 Phase 2 Phase 3 Pre-registration

PAREXEL’s Pharmaceutical R&D Statistical Sourcebook 2002

Phase II: Pharma’s New “Valley of Death?” Number of Products Discontinued in Development, by Phase


A Rising Wave Of Generic Erosion

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15000

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Sal

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MM

)

2001 2002 2003 2004 2005 2006 2007

Total Projected WW Sales of Drugs Losing Patent In That Year 2001-2007



Going, Going Gone.....

ZyrtecMevalotinZoladexEpogen*Ortho-Novum

SeroquelActosRocephinParaplatinAccupril

EffexorAmbienZofranDiflucanFlonase

NorvascZocorZoloftAllegraPaxil

FosamaxPravacholZithromaxCelexaCipro

RisperdalNeupogen*BiaxinDuragesicFlovent

PulmicortLotensin

ToprolLamisilArediaSerzone

20072006200520042003

* Assume no generics

N O T A B L E P A T E N T E X P I R A T I O N S


Specialty DrugPCP Drug


LipitorasaurusRex


Zoloftapatosaurus


Allegraopsisaurus


New Product Launches from Top 10 Pharmas

12

25

24

46

20

23

19

35

010203040506070

93-95 96-99 00-03 04-07*

PCP Focused Specialist Focused

* Probability of success adjusted

Defined Health


Only 4 Of Top 10 Pharmacos Generate the Majority of Sales From PCP Products

0%

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80%%

of 2

002

Rx

Sale

s

Ast

raZe

neca

Mer

ck

Pfiz

er*

GSK

Nov

artis

BM

S

Lilly

JNJ

Roc

he

Ave

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* Post merger salesDefined Health estimates


Pfizer Will Continue To Thoroughly Dominate Primary Care

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12

14

Pfizer

Novartis

GSK

Merck

JNJ

AZN

Lilly

BM

S

Aventis

Roche

# of New PCP Product Launches Expected During 2004-2007

Defined Health estimates


Pfizer Rules in Sales Force Size

0 2000 4000 6000 8000 10000 12000 14000

Pfizer

GSK

Merck

AstraZeneca

Novartis

BMS

Aventis

Lilly

Roche# of Sales Reps in the U.S.

MedAdNews September 2003


But Pfizer Will remain Less Competitive in Specialty Markets

0123456789

10

JNJ

Novarti

s

BMS

LillyAve

ntis

Roche

Pfizer

GSK

AZNMerc

k# of New Specialist Product Launches Expected During 2004-2007



Top 10 Pharma’s New Competitive Segments


Brawny Big Pharma

• > 50% Of Rx Sales From Primary Care Dominated Drugs


Brainy Big Pharma

• >75% Of Rx Sales From Specialist Dominated Drugs


Hybrids

• 55%-70% Of Rx Sales From Specialist Dominated Drugs


The Next Hybrid?

Merck Licenses Amrad Technology to Develop New Asthma Drugs WHITEHOUSE STATION, N.J., June 23, 2003 - Merck & Co., Inc. and Amrad Corporation Limited (ASX:AML) today announced an exclusive licensing and multi-year research collaboration agreement between Merck Sharp & Dohme(Australia) Pty. Limited, the Australian subsidiary of Merck, and Amrad. Based on the results of the collaboration, Merck will seek to develop drugs with therapeutic potential in areas such as asthma, other types of respiratory disease, and oncology.Dr. Peter S. Kim, president of Merck Research Laboratories, cites this agreement as a significant entry by Merck into the biologics arena and consistent with Merck’s continuing emphasis on external partnerships to supplement its world-class research capabilities.


Big Pharma’s New Competitive Segments

• Conventional view of Big Pharma as a group of huge “PCP-focused” companies is already more than slightly inaccurate.

• Primary care power is rapidly consolidating in the hands of a few companies.– These companies will need to feed their primary care

pipelines largely internally as Biotech development remains mainly specialty-focused.

– Safe prediction: When they can’t do this, they will acquire!

• Doing neither well: Hybrid companies will remain, but may become less competitive in both primary care and specialty markets; these companies may have trouble staying on Biotech’s therapeutic area preferred provider lists.


The Revenge Of The Nerds

• True specialty-focused Big Pharmacos will win a greater number of sought-after deals as their growing franchise strength conveys competitive advantage as preferred partners. These companies will compete more effectively for Biotech’s specialist–targeted products.


The Revenge Of The Nerds

• Will sales force reduction return?

– Initial driver was early 90’s fear of healthcare reform

– New driver may be lack of primary care products!

– 3,000 reps for 3800 Rheumatologists?


Biotech Develops Products for Specialists

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PhRMA Survey of New Medicines In Development – Biotechnology; 2002.


23Phase II

55Deals Over Last Three Years (Pre-clinical –Discovery Stage)

43Deals Over Last Three Years (Development Stage)

31Phase III and Up

108Age of Portfolio (Years)

63Total # of Patented In-Line Products

42Therapeutic Oncology Sales Ranking (2002)

RocheAventisTherapeutic Oncology

Preferred Partners Do More Deals

Adis, Evaluate Pharma, Defined Health estimates


The Penalty For Not Picking The Preferred?

JNJ Velcade co-promotion announced


Specialist Driven Therapeutic Area Health Report Card: 2002 - 2008

High Patent Exposure Low Patent Exposure

Low

Pip

elin

e O

ppor

tuni

tyH

igh

Pipe

line

Opp

ortu

nity

BMSDiabetes

GSKInfectiousDisease

PfizerNeurology

GenentechOncology

BMSOncology Lilly

Diabetes


SGPInfectiousDisease

Size of the bubble corresponds with the relative sales in the therapeutic area in 2002

AventisOncology

RocheOncology

PfizerOphthal

NovartisDerm

J&JAnemia

RocheAnto-

immune

RocheInfectiousDisease



“We will never create true value by saving Big Pharma. We can access the specialty market for our lead product with a small sales force.”

TRUE or FALSE?

Biotech


Biotech’s Endangered List

• Realistic chances of any company becoming the “next Amgen.”

• Companies with pipeline strength sufficient to build strong therapeutically focused commercial franchises.


Given the number of high profile — and even more low profile —mergers and acquisitions in the pharma industry in recent years, one might expect the total number of companies involved in Pharma R&D to have shown a steady decrease. In fact, quite the reverse is true. The number of companies has been rising every year — from 956 in May 1997 to 1,269 in January 2002 — a spectacular increase of nearly 30%. Interestingly, most of this growth is because the number of small companies, many with only one or two projects, has increased by almost 200 in the same period. Thus, the picture is one of an industry which is consolidating at one end, while diversifying at the other.SCRIP Magazine: Scrip’s Review of 2001, February 2002

Too Many Mini-FIPCOs?


Too Many Mini-FIPCOs?

# of development-stage Biotechs (no marketed products)# Phase II/III products in development by these companies Assumed success rate

# approved products

Average # of approved products by company

138

55%

76

0.26

291

Company websites, Parexel Sourcebook 2002/2003


Approval Perhaps, Franchise No-Chance!Biotech’s New Commercial Grads

VariousIHistamine·2HCl (topical)

CancerIIIHistamine·2HClMaxim

ImmunosuppressionILJP 1082

ImmunosuppressionIIIAbetimusLa Jolla

Alzheimer’sIPPI 1019

CancerPre-RegAbarelixPraecis

Bacterial InfectionsICB 181963

Bacterial InfectionsApprovedDaptomycinCubist

InflammationIMLN 2201

CancerIING-1

Crohn’sIINeuprex (opebacan)

PsoriasisPre-RegRaptiva (efalizumab)Xoma

IndicationPhaseDrugCompany



“Our food bowl of Big Pharma cast-offs is empty. It’s obvious we’d better start to do some development.”

TRUE or FALSE?

Specialty Pharma


Specialty Pharma’s Endangered List

• Marketed products with any real growth potential that can be obtained from Big Pharma.

• Growth potential (without any major step-up in R&D spend).

• Freedom from Big Pharma competition.


Specialty Pharma’s Growing Pains

42664935624223%1,196Shire Pharmaceuticals

1,00980844330134%1,489King Pharmaceuticals

1,3411,38776151729%2,557Forest Labs2,71937420513983%689Cephalon1,04951628319245%951Biovail$377$861$472$32117%$1,586Allergan

Same as 00-

0330%20%15%CAGR:

00-032003E Sales

CAGR: 2003-2008

Average Annual Revenue Growth Required to Meet Targeted Growth Rate (in $MM):

Evaluate Pharma; Defined Health estimates


The Costs Of A Pipeline

0%2%4%6%8%

10%12%14%16%18%20%

Kin

g

Bio

vail

Fore

st

Alle

rgan

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Defined Health; Company reports

R&D Spending As % Of Pharmaceutical Revenue


Recently Launched Products by Major Pharmacos: PCP vs. Specialty Audience

IressaFaslodexLantusAbilify**ReyatazStratteraForteoBexxarTrizivirEmendCancidas

CrestorNexium *Symbicort *KetekGlucophage XR *Glucovance *Metaglip *Cialis **Avodart **Levitra **

AdvairConcertaReminylZetiaStarlix **ZelnormRelpax **Bextra **Dynastat *Zyvox

ZometaGleevecXolairGeodon**Rebif**SomavertVfendPegasys **ZenapaxFuzeonElidel

PCP SPECIALTY

* Line extension; ** Me tooDefined Health


The Value Of A Niche: Old vs. New Therapies

$400 (Expected

Peak)

$25 (2002)

US Sales (mil)

$7,000-10,000$270*

Average Annual

Cost

AmeviveCutivate

$1,170 (2002)

$75 (2002)

US Sales (mil)

$15,000**$516*Average Annual

Cost

RemicadePentasa

* AWP for daily dose of 2g and a total of 95 days of therapy annually

* AWP for 4g total a day for 8 weeks per year** AWP for 310mg every 8 weeks

Redbook, Defined Health estimates


Guess who’s moving in?

BIG PHARMABIOTECH SPECIALTY

PHARMA

Primary Care Market Specialty

Markets


BIG PHARMA BIOTECH SPECIALTY PHARMA

Guess who’s moving in?

BIG PHARMA

Primary Care Market Specialty

Markets


Welcome to the Future Pharmbiospeci Village

• The Complex Truth


PCP, MD

Spec, MD

Pfizer

GSK

AZ

MerckNovartis

BMS

Lilly

J&JRoche

AventisBMS

LillyJ&J

Roche Aventis


Welcome to the future Pharmbiospeci Village

• The Complex Truth is :

• IT’S ABOUT THE FRANCHISE…….!!!!


A synergistic combination ofintellectual property intellectual capital

competitive advantage sustained

andconfers upon its owner some measure of meaningful

which

over a period of time.

“Franchise” Defined


• Every sector needs to build franchise strength. – Even big Pharma can only be in a handful of

therapeutic areas.– Biotechs can’t be in more than one, maybe two.– With few exceptions, “Specialty” Pharma has

never really built specialty franchise strength.

A Licensing Complex: Strategic Implications from the Changing Neighborhood


• Pharma needs to decide whether it wants to be brawny, brainy or a hybrid, or whether this decision will be made for them.– In all the noise, try - at all costs - to avoid

cynicism and “group think”– Indecision results in cacophony for L&BD –

chasing Primary Care blockbusters on the one hand, and trying to focus on strategic therapeutic franchise plays on the other.

– Pharma should look to licensing to build integrated, clinically and commercially relevant therapeutic franchise portfolios offering sustainable value.



• Biotech needs to think harder about building a genuine commercial presence, not just about commercializing a single product and moving on to the next, unrelated product in its pipeline.– In-licensing will become just as important as out-

licensing as a core competency for Biotech L&BD execs, as they focus on building their second act – creating a viable commercial presence and becoming a genuine player for in-licensing deals.



• Specialty Pharma needs to move beyond the “scavenger” model by developing a credible value proposition for the other elements of the complex.– L&BD execs need to be aware that, lacking

internal discovery capability, their company’s future is wholly dependent on getting past their purely opportunistic mindset so that sources of compounds in Pharma and Biotech see them in some type of preferred partner position.



• Future deal making in all sectors will be much more strategically driven and complex than in the past!



definedhealth.com

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