Biotechnologyn Introductionn The Drug Development Processn Genomics/Proteomicsn Agricultural Biotechnology

Pharmaceuticalsn Market Size & Current Statusn Major Opportunitiesn Major Playersn Government Policiesn Barriers of Entryn Future Development

Part I: Life Sciences Overview

The Global Pharmaceutical Market:

a critical survey

Pantea HadaeghSherry Y Lin

Luca SchenatoChi Wai Yiu

Six Wrong Beliefs about the IndustrySubtle Indicators of European CompetitivenessHow Europe is Addressing the Problem

Part II: The European Pharmaceutical Market

Biotechnology

Biotechnology: Introduction

n Exponential growth in the past four years, with funding boom in early 2000

Biotechnology: Introduction (2)

n However, boom is slowingn 1996-2001: Biotech index logged 23.1% annualized gain n 2001: Underperformed Dow and S&P (but outperformed

NASDAQ)

n 2002: Industry shake-out expected, with the emergence of a few strong players

--IDEC Pharmaceuticals --Immunex--Vertex --Gilead--Chiron --Amgen

n Genomics and proteomics promises to revolutionize drug discovery/development process

Biotechnology: The Drug Development Process

n FDA: Principle federal agency regulating the introduction of new drugs n 1906: Pure Food and Drug Act

n Official purity standards and labelsn 1938: Food, Drug, and Cosmetic Act

n Evidence of product safetyn 1962: Kefauver-Harris Drug Amendment

n Good manufacturing practicesn Manufacturing facilities subject to FDA approval

n 1997 FDA Modernization Actn Reduce approval time

Biotechnology: The Drug Development Process (2)

n Drug Discoveryn Target identification & Target Validationn 43% of time before market introduction

n Pre-clinical Testingn Phase I (healthy people)n Phase II (patients with disease)n Phase III (placebo)n FDA Approval

Biotechnology: The Drug Development Process (3)

n 12-15 years and $ 880 M for human therapeutic

Biotechnology: Genomics

n Functional genomics. The first step in new drug development is to identify the genes associated with the target disease. Once specific genes have been identified, the arduous task of determining the function of each gene becomes critical in the search for the cause and cure of a disease. Additionally, the activity of individual genes may vary among different tissues throughout the body, as well as between diseased and normal tissues, and tissues in different stages of development. Advances in functional genomics are enabling researchers to

uncover starting points for therapeutic developments. 1

High Performance Drug Discovery, Accenture, 2001

Biotechnology: Genomics (2)

n Structural genomics. These are the genomics information companies, defining the structure of the human genome and its related proteins, providing must-have genomic sequence, variation, and function information in gigantic databases.

Biotechnology: Genomics (3)

n Pharmacogenomics. The objective of pharmacogenomics is ultimately to target drugs specifically to those patients with agenetic make- up (genotype) such that they will have close to 100% response with no side effects. The real long- term potential for pharmacogenomics is to stratify diseases by mechanism and develop therapies, or even preventative approaches, based on genetic risk factors. More immediately, pharmacogenomics can be used to improve the clinical development processes

Biotechnology: Genomics (4)

Biotechnology: Proteomics

n Proteomics. A subset of functional genomics, proteomics focuses on identifying and determining the function of an underlying gene’s protein product. Genes act through their protein mediators, which are responsible for normal biological functions as well as for disease mechanisms. New developments in proteomics should help to identify how diseases start and progress. Researchers hope to be able to use this knowledge to design drugs to activate or inhibit cellular receptors associated with disease. 1

High Performance Drug Discovery, Accenture, 2001

Biotechnology: Proteomics (2)

n Bioinformatics: One of the major challenges for both producers and users of new proteomics technologies is how to manage the huge amounts of data that will be generated over the next few years. Bioinformatics expertise has to be a core competence. Enormous computer processing capabilities is needed to process the vast amounts of raw data generated by mass spectrometry instruments—critical for the rapid identification of proteins from biological samples.

Biotechnology: Agricultural Biotechnology

n Applications: Strengthen crop, create food with enhanced nutritional value, create plants that produce novel products, bioremediation

n US is the dominant producer and consumer of GM crops, followed by Argentina and Canada

n Industry dominated by a few big players. Top five AgBiocompanies by world sales:

n Dupont (Pioneer)n Pharmacia (Monsanto)n Syngenta (Novartis)n Groupe Limagrainn Groupe Pulsar (Seminis)

Biotechnology: Agricultural Biotechnology (2)

n Current trends: the big get biggern proliferation of M&A activities in the past decade due to high sunk

cost (R&D), increased complementary nature of products, and IP issues.

n Moving into molecular farming n What? Using plants instead of animals as host to produce human

proteinn Who? Small startups like Epicyte and CropTech, as well as

established agbio firms Dow and Syngenta

Pharmaceuticals

Pharmaceuticals: Market Size & Current Status

n Largest and fastest growing market

n Values of US$83.2 billion in 2000, 58.5% growth in five yearsn Relatively free marketn Relatively short marketing

delay

n Ethnic healthcare market

n Aging populationn R&D expenditures

rose sharply

Pharmaceuticals: Major Opportunities

n Central Nervous System (CNS)n e.g. Migraine treatments,

Antipsychotics

n Cardiovascularn e.g. Cholesterol Drugs,

Antihypertensives

n Gastrointestinal/Metabolismn e.g. Diabetes Drugs, Antiulcer

Drugs

Pharmaceuticals: Major Players

n Merck and Company, Inc.n GlaxoSmithKline Plcn Bristol-Meyers Squibb Companyn Pfizer Inc.n American Home Products Corporation

Pharmaceuticals: Government Policies

n Intellectual Propertiesn Medicare Program

Pharmaceuticals: Barriers of Entry

n R&D Expenditures and Patentn Pricingn Liability

Pharmaceuticals: Future Development

n Aging Populationn R&D Spendingn Consolidationn Direct-to-Customer Pushn Internet as Marketing Tooln Managed Care Gets Sensitive on Drug Pricen New Role for Drugmakers

Pharmaceuticals: Conclusion

n Faces many challengesn Still very profitable

The European Pharmaceutical Market

The European Pharmaceutical Market

n Is the European pharmaceutical industry losing competitiveness vis-à-vis its US counterpart?

n What is the role of US biotech in Europe?

6 Wrong Beliefs about the Industry (1)

n European global pharmas are losing market share relative to US pharmas

EU-15USA

EU-15USA

EU-15USA

45.726.12460.227.839.01999

45.325.424.858.528.836.01998

38.820.324.762.024.731.21989

44.519.918.664.324.834.21985

EuropeNorth-America

Worldyear

Market share by origin of pharmaceutical corporation

Source:IMS international

6 Wrong Beliefs About the Industry (2)

n Europe trade balance of pharmaceutical products with US is negative

0.881.281.621.54US

2.122.112.002.22EU-15

1998199419901986Year

Worldwide export/import ratio of pharma products

Source:OECD World Trade Statistcs

6 Wrong Beliefs about the Industry (3)

n US pharmas invest more on R&D than its European counterparts

Source:IMS international

6 Wrong Beliefs about the Industry (4)

n US pharmas introduce more drugs than European pharmas

Source: CRIP-EPFIA

6 Wrong Beliefs about the Industry (5)

n Biotechnology drugs are the majority

Source:CMR international

6 Wrong Beliefs about the Industry (6)

n Biotechnology is a profitable business

29Profitable companies (units)

5,9601,570Net loss (Euro million)

1,2731,570Number of companies (units)

USAEuropeIndicator

Biotech in 2000

Source: Ernst&Young,Robertson Stephens

What Does this All Mean?

n Is the European pharmaceutical industry healthy?n Are biotech and bio-informatics the next dot-com

bubble ?

Let’s look at more subtle indicators.

The Subtle Indicators of Competitiveness:Explosive US Market Growth

n US pharmaceutical market has grown faster than European market in the past 20 years

n Almost free-market competition + strong IP rights = 60% worldwide profit in US

n Mostly US pharmas take advantage of this aspect (regional advantage)

The Subtle Indicators of Competitiveness:Growth Strategies

n US: internal growth in US marketn Europe: merger and/or acquisitions in US to tap

specific competencies

Source:COPIIMS Health

The Subtle Indicators of Competitiveness:Drug Portfolio

n European industry is still living off its past success

The Subtle Indicators of Competitiveness:Success Rate of R&D Projects

n Higher success rate of in-house projects in US (%)

80886360712826-40EU

86906167834527US

IIIIIIIIIIIIphase

L success rateH success rateH/Lprojs

H: in-house L: licensed in/out I,II,III: Clinical Phase Source:EC report

The Subtle Indicators of Competitiveness:Employment

n EU is a labor-intensive industry: inefficient management of resources

Source: EuropeanCommission Paper

The Subtle Indicators of Competitiveness:European R&D Goes to US

Source: EPFIA

The Answers:

n European industry is loosing competitiveness and it will be evident in the near future

n Biotech and IT are changing the internal organization of global pharmas:n Competitiveness advantage relative to competitors

These are the Reasons:

n Fragmented and price-controlled national markets n Little financial and legislative incentives to promote

entrepreneurial entitiesn Static labor marketn Little interaction between universities and industry n Vague product IP protection

n Parallel importsn Process vs product patent

n Little investment from venture capital

How Europe is Addressing the Problem

n EMEA: equivalent of FDA for all ECn European Venture Capital (EVC) and other venture funds

have appearedn EFPIA: industry consortium to promote free market in ECn Emergence of secondary stock markets n Fiscal and financial incentives

n Germany: matching funds for biotech n France: financial and credit incentives

Biotech and the Pharma Industry

Univ.Labs

NBFs

$

NIH (70s)

Bayh-Dole Act (80)

Venture Capital

Global Pharmas (US +EC)

Regulatory Revolution:•Biotech patent (83)•Orphan Drug Act (84)•Broad IPRs•PTR (+5y)

CROsPhDs

$$CEOs

$$Licence

R&D ClinicalTrials

FDA

HM

Os

HC

systems

NationalPharmas

MKT

License

MKT

Government