March 8, 2012 MassBio State of the Industry Biotechnology 2012: The New Normal?
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Transcript of March 8, 2012 MassBio State of the Industry Biotechnology 2012: The New Normal?
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& Company
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& CompanyJ ohnst on Bl akel y
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March 8, 2012
MassBio State of the Industry
Biotechnology 2012: The New Normal?
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Biotechnology 2012: The New Normal?BTK Performance (Jan 2000 – pres.)
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The BTK has more than doubled since September 2008.
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Biotechnology 2012: The New Normal?NBI Performance (Jan 2001 – pres.)
The NBI is at its all-time high.
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1/1/20
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2011
1/1/20
1240.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0% NBINasdaqS&P 500
Performance (1/1/11 – pres.)
28.6%
8.0%
4.4%
Biotechnology 2012: The New Normal?Index Performance (Jan 2008 – pres.)
Over the past 12+ months, the biotech sector has outperformed both the technology sector and the broader market.
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Biotechnology 2012: The New Normal?Recent Headlines
“Ambit Withdraws IPO, Cites Market Conditions”
“Biotech IPO Forecast for 2012 Expected to Remain Chilly”
“Biotech funding hits four-year high as startups suffer”
“Prospect Venture Dumps Latest Fund, Won’t Make New Biotech Bets”
- Bloomberg (Jan 2012)
- Xconomy (June 2011)
- GEN (Jan 2012)
- Fierce Biotech (Oct 2011)
Despite the sector’s performance, indications of troubled times abound.
Biotechnology 2012: The New Normal?
Pharma Industry Perspectives
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Industry Specific DynamicsPotential Generic Launches: 2012-2016
2012 2013 2014 2015 20160.0
5.0
10.0
15.0
20.0
25.0
bill
ions
of
doll
ars
$21.2 b
Source: Company reports, Cowen & Co
$10.1 b
$15.0 b
$17.8 b
$11.4 b
The $75 billion in US revenue at risk over the next 5 years represents 30% of the industry’s 2011 US revenue.
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1999 2000 2001 2002 2003 2004 2004 2006 2007 2008 2009 20100.0
10.0
20.0
30.0
40.0
50.0$
tota
l R&
D e
xpen
ditu
re s
(b$
)
$3,000
$2,500
$2.000
$1,500
$1.000
$500
$0
R&
D cost per N
ME
($mm
)Pharma R&D Expenditures1999 - 2010
Industry productivity continues to decline.
Source: PhRMA, Ernst & Young
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1989 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Pre/non clinical %: 51.0% 44.0% 39.0% 32.0% 25.9% 25.7% 27.2%
Pe
rce
nt
of
tota
l R&
D e
xpen
ditu
res
Pharma R&D Expenditures1989 – 2010E (by function)
• Pre/non clinical
• Ph I – III clinicals
• Post-approval studies
• Regulatory/ other
Source: PhRMA,Note: Pre/non-clinical category includes process development, QC and formulation related expenditures.
32.5% 31.9% 27.3% 27.0%
$29.2 B $32.4 B $36.1 B $37.0 B $38.7 B $42.0 B $43.8 B $46.2 B $49.6 B $47.2 B $46.4 B $49.4 B
25.2% 24.3%
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Per
cent
of a
nnua
l new
dru
g ap
prov
al
21 3949 40 43 38 33 31 41 45
Bio/Specialty Pharma:Large Pharma:
66.7%33.3%
74.4%25.6%
40.8%59.2%
42.5%57.5%
51.2%48.8%
57.9%42.1%
39.4%60.6%
48.4%51.6%
70.7%29.3%
84.4%15.6%
Source: PhRMA, BIO, FDALarge Pharma Bio/specialty pharma
35 4335
80.0%20.0%
76.7%23.3%
60.0%40.0%
31 36
74.2%25.8%
58.3%41.7%
Pharmaceutical InnovationRelative New Therapeutic Contributions (1997 – 2011)
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Target Acquiror Purchase Price
• Genentech • Roche • $47.0 billion
• Genzyme • Sanofi Aventis • $20.1 billion
• Millienium Pharma • Takeda • $8.7 billion
• OSI Pharma • Astellas Pharma • $4.0 billion
• King Pharma • Pfizer • $3.6 billion
• Crucell • Johnson & Johnson • $2.3 billion
• Medarex • Bristol-Myers Squibb • $2.1 billion
• Imclone Systems • Eli Lilly • $6.5 billion
• Cougar Biotech • Johnson & Johnson • $2.1 billion
Industry Specific DynamicsAcquisition Activity: Pharmaceutical Industry
• Inhibitex • Bristol-Myers Squibb • $2.5 billion
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Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 110
10
20
30
40
50
60
70
80
Num
ber
of a
nnou
nced
tran
sact
ions
Source: Johnston Blakely & Co. research
68
40
53
57
4240 40
57
50
70
29
Merger & Acquisition ActivityLife Science Sector (Q4 2007 – Q4 2011)
67
6063 63
61
55
Acquisition activity in the life science sector remains robust.
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Pharmaceutical InnovationEscalating Risk Profiles
Clinical Risk
Regulatory RiskReimbursement
Risk• outcomes-based pricing• comparative effectiveness
• significant drop in post Vioxx approvals
• increasing approval times
ReimbursementDevelopment Costs
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Regulatory ChallengesNew Drug Approvals (1996 – 2010)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
10
20
30
40
50
60NMEs
BLA Median approvals
Post-VioxxPre-Vioxx
Note: Figures based on CDER approvals only.Source: Ernst & Young, FDA
num
ber
of a
nnua
l app
rova
ls
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Reimbursement ChallengesCase Study: Dendreon
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$45.00
pric
e pe
r sh
are
• Provenge sales guidance withdrawn• reimbursement concerns• inability to identify eligible patients
Biotechnology 2012: The New Normal?
Capital Markets Perspectives
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Biotechnology Equity Financings(2000 – 2011)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0
2.0
4.0
6.0
8.0
10.0
12.0$
(dol
lars
in b
illi
ons)
venture
follow-on
IPO
$4.3
$3.5
$6.1
$8.0 $7.9
$9.4 $9.2
$6.2
$10.4
$8.5
Source: Ernst & Young, BioCentury, BioWorld, VentureSource, Burrill & Co
$10.5
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Capital Market ReviewVenture Investment: Biotechnology (2000 – 2011)
Note: Dollar amounts adjusted to reflect 2011 dollarSource: Thomson Reuters; PwC Moneyytree
(dol
lars
in m
illi
ons)
$5.2b
$4.1b$4.0b
$4.4b$4.3b
$5.0b $5.0b
$6.2b
$3.9b $3.9b
$4.7b$4.8b $4.6 billion
Measured in constant dollar terms, venture investment in biotechnology has remained relatively consistent for more than a decade.
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Venture Investment: BiotechnologyFirst Round Investment (2000 – 2011)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%
5.0%
10.0%
15.0%
20.0%
25.0%
17.2% average
(per
cent
of
tota
l ven
ture
inve
stm
ents
)
$716 $631 $662 $393 $675 $578 $938 $1,034 $890 $498 $534 $842
Source: Thomson Reuters; PwC Moneytree
The percentage of dollars invested in initial venture rounds has remained in the 15% and 20% range.
• Invested capital ($mm)
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Capital Market ReviewVenture Investment: Biotechnology (2000 – 2011)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201150.0%
60.0%
70.0%
80.0%
90.0%
100.0%
(per
cent
of
tota
l)
512 440358 334 319 355 395 397 472 510 446488
• Percent first round financings
27.3% 19.1%34.6% 32.3% 34.2% 25.6% 27.3% 29.7% 29.7% 27.6% 22.0%24.8%
• Total # of financings
Source: Thomson Reuters; PwC Moneytree
Based on number of completed transactions, there has been a trend towards later-stage investments.
• 1st round financings
• other venture rounds
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1st Round Venture Investment: BiotechnologyAverage Financing Size (2000 – 2011)
Note: Dollar amounts adjusted to reflect 2011 dollarSource: Thomson Reuters; PwC Moneytree
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0$
$6.8 million average
(mil
lion
s of
dol
lars
)
In constant dollar terms, the size of first-round financings has been fairly consistent.
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Venture Investment: BiotechnologyNet Cash Flows (2005 – 2011)
Series1
-$5,000
-$4,000
-$3,000
-$2,000
-$1,000
$0
$1,000
$2,000
(dol
lars
in m
illi
ons)
2005 2006 2007 2008 2009 2010 2011
Ven
ture
Exi
tsV
entu
re I
nve
stm
ents
$0.3b $1.1b
($3.8b) ($4.5b) ($5.8b) ($3.7b)($4.6b)
More recently, venture realizations have outpaced dollars invested.
Note: Venture exit totals include dollars from IPO and disclosed M&A activity.Source: Thomson Reuters; NVCA
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Venture Investment: BiotechnologyIPO Profile
1999-2001 2002-2004 2005-2007 2008-20100
20
40
60
80
100
120
140
160
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
Num
ber
of I
PO
’sM
edian age at IPO
Source: Ernest & Young, BioCentury, BioWorld, Venture Source
Holding times for venture investments continue to lengthen.
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Nu
mb
er
of
issu
es
• % life science issues
• 23.5% • 14.9% • 9.7% • 8.8%
All Industries
Life Science
Capital Market PerspectivesAnnual IPO Activity: 2000 – 2011
293
74 72 8069
11 7 7
234
44
• 18.8%
Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co
100
200
300
400
2000 2001 2002 2003 2004
196
• 12.2%
2005
24
195
27
• 13.8%
2006
210
• 16.6%
2007
31 31
2008
3
• 9.7% • 6.3% • 12.2%
139
17
2010
4
2009
63
2011
116
13
• 11.2%
IPO activity in the life science sector remains weak.
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Capital Market PerspectivesBiopharma IPO Activity
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2000
53
Preclinical
Phase I
Phase II
Phase III
NDA filed
37.7%
Pe
rce
nt
of
tota
l IP
Os
Source: SEC filings
Note: Includes biopharmaceutical and related issues only. Development stage of lead compound
• % of total life science IPOs
• 76.8%
100.0%
2011
Phase II
Phase III
• 61.5%
8
NDA filed/approved
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IPO Performance: BiotechnologyPricing vs. Expected Range: 2011 Issues
Pac
ira
BG
Med
icin
e
En
doc
yte
Ace
lRx
Sag
ent
Hor
izon
New
Lin
k
Clo
vis$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
XX
X
X
X
X
X
X
Source: SEC filings
Pri
ce P
er S
hare
X
expected range
IPO pricing
New issues continued to price below the expected per share range.
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IPO Performance: Biotechnology2011 IPOs: Insider Participation
Pac
ira
BG
Med
icin
e
En
doc
yte
Ace
lRx
Sag
ent
Hor
izon
New
Lin
k
Clo
vis0%
20%
40%
60%
80%
100%
% i
nsid
er p
arti
cipa
tion
6 mm 5 mm 5 .8 mm 8 mm 5.8 mm 5.5 mm 6.2 mm 10 mm
Source: SEC filings
To succeed, many new issues required meaningful insider support.
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IPO Performance: Biotechnology2010 – 2011 Issues
CL
VS
PC
RX
SGN
T
TZ
YM
NL
NK
BG
MD
EC
YT
HZ
NP
AE
GR
AN
AC
AV
EO
IRW
D
TSR
X
AN
TH
ZG
NX
GN
OM
AL
IM
PA
CB
TN
GN
CR
MD
-100.0%
-75.0%
-50.0%
-25.0%
0.0%
25.0%
50.0%
75.0%
100.0%
Per
Shar
e Pe
rfor
man
ce P
ost I
PO
Class of 2011 Class of 2010
• Aggregate return 17.4 % (19.0 %)
Note: Aggregate return represents collective return from one share of each new issue.
Biotechnology 2012: The New Normal?
The New Normal?
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The New Normal?Traditional Investment Model
IND
NDA
Discovery Development Phase I Phase II Phase III Approval
Pre clinical Candidate Clinical Development Marketed Product
Go publicVenture funding
• traditional investment model
Follow on offerings
Private Institutional Investors Public Markets
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The New Normal?Sector Influences
Transitioning from revolutionary advances to evolutionary advances− sign of continuing maturation of the industry
− M&A activity blurs of sector boundaries
Less public market enthusiasm for hope/hype.− increasing attention on products and profits
Primary interest of big pharma is ability to leverage downstream capabilities.
− biopharma sector continued to be viewed as outsourced R&D function.
− resource allocation (of necessity) skewed towards later stage candidates.
Venture investors required to adjust their investment horizon – and their exit strategy - accordingly.
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The New Normal?Shifting Investment Dynamics
IND
NDA
Discovery Development Phase I Phase II Phase III Approval
Pre clinical Candidate Clinical Development Market
Go publicVenture funding
• traditional investment model
Acquisition/ go publicVenture funding
• current investment model
Follow on offerings
Private Institutional Investors Public Markets
Private Institutional InvestorsThe Financial Abyss?
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March 8, 2012
MassBio State of the Industry
Biotechnology 2012: The New Normal?
Benjamin Conway
978-526-4014617-834-8482