Innovation versus Financialization in the Biopharmaceutical Industry: The PLIPO Business Model
description
Transcript of Innovation versus Financialization in the Biopharmaceutical Industry: The PLIPO Business Model
Innovation versus Financialization in the Biopharmaceutical Industry:
The PLIPO Business Model
Mustafa Erdem Sakınҫ, Groupe de Recherche en Economie Théorique et Appliquée, Université Montesquieu Bordeaux IV
Öner Tulum, The Academic-Industry Research Network (theAIRnet.org) [email protected]
Ford Foundation Conference on Finance, Business Models, and Sustainable Prosperity
New York, December 6, 2012
I - OVERVIEW
• Biopharma is one of the few industries that has been successfully generating funding for innovation for decades– Successfully generated funding in the form of VC, R&D partnership,
M&A, public issuance and etc.– Exponential growth between 1990-2008
• Formation of development stage companies with no product/product revenue, and with less than 100 employees
• However, biopharma overall displays relatively poor performance – Industry overall has yet to generate profit– And relatively very few successful drugs came out given the size of
the money invested• Why have venture capitalists, big pharma, and public investors been
investing so heavily in an industry in which profits are so difficult to generate? (Lazonick & Tulum 2011)
II- the PLIPO Business Model• Given how complex, protracted (10 years+) and expensive (≈$US2-bn) the
product development process is, long term patient capital commitment is required BUT;
• Many development stage SMEs without any positive income figures and without any commercial products seek to go for an initial public offering (IPO) only a couple of years after inception
• We call these firms “PLIPOs”, or, productless companies that have done an IPO• Why does PLIPO occur?
– Major discoveries based on decades of NIH support on R&D activities has supplied the industry viable technologies for further development,
– VC industry recognized the potential value and applies the Silicon Valley model on biopharma
– NASDAQ provides the liquidity investors seek – Legislative changes on IP (Bayh & Dole, Chakrabarty v. Diamond Supreme
Court Decision)
National Institutes of Health budgets 1938-2011
Total NIH spending, 1936-2011 in 2011 dollars=$792 billion
NIH budget for 2012=$30.9 billion
Source: http://officeofbudget.od.nih.gov/approp_hist.html
VC Investment & VC Backed Deals 1972-2012
VC Backed IPOs 1980-2012
How Does a PLIPO Work?
• PLIPO companies are often founded in collaboration with university researchers initially funded by public grants
• NIH and other government funding of basic and preclinical research have been the major sources of funding for early stage drug development.
• Despite the availability of public support, when these scientists decide to form a company they still need more financial resources,
• The blockbuster drugs that big biotech commercialized both underwrote their continued existence and lent credibility to the PLIPO model.
• Lured by the prospect of a quick PLIPO exit on NASDAQ, VC has usually been the suppliers of equity finance anywhere from seed stage and pre-clinical phase
• Longevity of product development process allows market speculation to take place based on “real news” or “events” (milestones, FDA reviews, etc.), speculative investors draw to this feature (ie. Human Genome news during the dotcom era drove the prices overall)
Methodology
• The study is built upon researchers’ prior work, Lazonick & Tulum (2011) and Lazonick & Sakinc (2010)
• An empirical study utilizes:– Descriptive analysis based on the secondary data gathered from various
sources– Case study approach through building cases on biopharma
• Understanding the effects of the current finance model on the industry’s innovation productivity requires a firm level focus
• Constructing a longitudinal database will allow us to trace the companies historically, and by doing so we can conduct firm level analysis on selective company case studies to see how the companies have done overtime
CURRENT DATASET
• We have constructed a dataset of active public biopharma companies that are currently developing or producing therapeutic drugs, and that have secured funding in NASDAQ between 2000 and 2012.
• The dataset has been populated by combining data from Thomson Reuters Venture Xpert and NASDAQ historical records
• Dataset has been refined to 87 active biopharma companies that are operating in the U.S.
• Companies’ financial, R&D, product pipeline, and demographic information have been gathered from various SEC documents and financial reports such as 10-K, S-1, company proxies and various other legal documents.
• Product approval data has been gathered from FDA Orange Book and orphan drug data has been gathered from FDA Orphan Drug Database.
Database Highlights
• An average of 6.5 years from Incorporation to IPO, and ranges from anywhere from 0.4 to 22.3 years
• 61.9 full-time employees at the time of IPO, 119 employees per company average (up 92%) as of 2011,
• Per company average products in the pipeline went up to 5.4 from 4.6 (up 18%)
• Only 8 companies (10% of total) had at least 1 marketed product at the time of IPO. Currently this number is up to 24 companies (%31 of total) with a total of 35 marketed products,
• In 2011, total generated revenue of these 87 company is $US3.2 while the product revenues is only $US1.4bn. Net Income is -$US3.3bn and R&D expense total is $US3.4bn,
• 37 companies in the dataset have a total of 75 orphan designated product candidates, and 9 (out of 35 marketed) products have been granted marketing exclusivity
• It is an average of 10.4 years from inception, and 5.7 from the date of IPO that has taken for the companies in the dataset to get FDA approval
Pre- & Post-IPO Comparison Pipeline Comparison
Productless IPOs
Distribution of companies’ incorporation and IPO years
Source: NASDAQ Composite and Biotech Index data is downloaded from Yahoo! Finance.
Pace of IPOs and Employment Change
CASE STUDIES
• Pharmacyclics– Founded in 1991 (Sunnyvale) by scientists with in-licenses from UT and
went public in 1995– Critical support of NCI in the early period– Major source of finance: secondary offerings (11 times in the last 16
years after its IPO)– Repeated failures of drugs in late-stage Phase III– Restructuring in 2008 with new executives and new product candidates– NASDAQ notification in 2009– Rise and fall of employment (re-rise in 2012)– Continuous stock purchase of current CEO until 2011 within a price
range of $1 to $9. Currently the stock price is around $55– Collaboration with Janssen Biotech (J&J) which brought the only
significant revenue in the 21 year history of the firm– As of December 2012 the most advanced drug candidate is in Phase II– Highly fluctuated ownership structure due to hedge funds
31-Mar-1997
31-Jun-1997
30-Sep-1997
31-Dec-1997
31-Mar-1998
30-Jun-98
30-Sep-1998
31-Dec-1998
31-Mar-1999
30-Jun-99
30-Sep-1999
31-Dec-1999
31-Mar-2000
30-Jun-00
30-Sep-2000
31-Dec-2000
31-Mar-2001
30-Jun-01
30-Sep-2001
31-Dec-2001
31-Mar-2002
30-Jun-02
30-Sep-2002
31-Dec-2002
31-Mar-2003
30-Jun-03
30-Sep-2003
31-Dec-2003
31-Mar-2004
30-Jun-04
30-Sep-2004
31-Dec-2004
31-Mar-2005
30-Jun-05
30-Sep-2005
31-Dec-2005
31-Mar-2006
30-Jun-06
30-Sep-2006
31-Dec-2006
31-Mar-2007
30-Jun-07
30-Sep-2007
31-Dec-2007
31-Mar-2008
30-Jun-08
30-Sep-2008
31-Dec-2008
31-Mar-2009
30-Jun-09
30-Sep-2009
31-Dec-2009
31-Mar-2010
30-Jun-10
30-Sep-2010
31-Dec-2010
31-Mar-2011
30-Jun-11
30-Sep-2011
31-Dec-2011
31-Mar-2012
30-Jun-12
30-Sep-2012
0
5
10
15
20
25
30
Series1
Series2
Series3
Series4
Series5
Series6
Series7
Series8
Series9
Series10
Series11
Series12
Series13
Series14
Series15
Series16
Series17
Series18
Series19
Series20
Series21
Series22
Series23
Series24
Series25
Series26
Series27
Series28
Series29
Series30
a
31-Mar-1997
31-Jun-1997
30-Sep-1997
31-Dec-1997
31-Mar-1998
30-Jun-98
30-Sep-1998
31-Dec-1998
31-Mar-1999
30-Jun-99
30-Sep-1999
31-Dec-1999
31-Mar-2000
30-Jun-00
30-Sep-2000
31-Dec-2000
31-Mar-2001
30-Jun-01
30-Sep-2001
31-Dec-2001
31-Mar-2002
30-Jun-02
30-Sep-2002
31-Dec-2002
31-Mar-2003
30-Jun-03
30-Sep-2003
31-Dec-2003
31-Mar-2004
30-Jun-04
30-Sep-2004
31-Dec-2004
31-Mar-2005
30-Jun-05
30-Sep-2005
31-Dec-2005
31-Mar-2006
30-Jun-06
30-Sep-2006
31-Dec-2006
31-Mar-2007
30-Jun-07
30-Sep-2007
31-Dec-2007
31-Mar-2008
30-Jun-08
30-Sep-2008
31-Dec-2008
31-Mar-2009
30-Jun-09
30-Sep-2009
31-Dec-2009
31-Mar-2010
30-Jun-10
30-Sep-2010
31-Dec-2010
31-Mar-2011
30-Jun-11
30-Sep-2011
31-Dec-2011
31-Mar-2012
30-Jun-12
30-Sep-2012
0
3
6
9
12
15
Series1
Series2
Series3
Series4
Series5
Series6
Series7
Series8
Series9
Series10
Series11
Series12
Series13
Series14
b
CASE STUDIES
• Esperion Therapeuctics– Founded in 1998 (Ann Arbor) by scientists with a license of a single
compound from Pharmacia&Upjohn– IPO in 2000 without any clinical stage drug candidate– Major source of finance: secondary offerings until the acquisition by
Pfizer with $1.3 billion in 2004 after a big jump in stock price– Cancellation of Esperion’s program in 2007 by Pfizer and liquidation of
Esperion– Restart in 2008 by same founder with VC investment and a single
compound reverse licensing from Pfizer– Outsourcing and staying small strategy (only 15 employees as of
November 2012 although it has a Phase II level drug candidate)
DISCUSSION
• Steady rate of BLA approvals since mid 1990s when the biopharma rush began cashing in on the low hanging fruits of 1980s publicly subsidized R&D
• The blockbuster business model and the rapid rise in blockbuster revenues. Yet, there are only two new biological blockbusters in the last five years and a substantial decrease in the rate of increase of BB sales with continuing losses of patent protection
• Rising costs of commercial drugs for the society (drugs cost twice as much or more in the US as they do in any other country)
• Where the money goes: More stock buybacks and more executive compensation in the form of stock options of big pharma and biopharma companies.
• Persisting efforts of the US government to support biomedical research through NIH which is adopting a more radical and proactive approach in biomedical innovation through deploying new resources for late-stage clinical research and trials.
• Research into the validity of the financialization hypothesis and its implications for productive investment in the drug development process addresses a major social concern
Thank you for your attention