The Missing Ingredient Canadian Life Sciences Industry ... · PDF fileThe Missing Ingredient...

The Missing IngredientCanadian Life Sciences IndustryForecast 2013September 2013

Agenda

• Overview of the Global Pharma Life Sciences Industry

• Overview of the 2013 Canadian Life Sciences Forecast

• Q&A

PwC's Canadian Life Sciences Industry Forecast 20132

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About PwC

3

PricewaterhouseCoopers LLP

PwC’s Canadian Life Sciences Industry Forecast 2013

Thought leadership in the sector

4PwC’s Canadian Life Sciences Industry Forecast 2013


Overview of the Global Pharma & LifeSciences Industry


• Patent cliff

• Low R&D productivity

• U.S. healthcare reform

• Generic consolidation

• Biologics

• Personalized medicine

• Emerging markets

• Mergers & acquisitions

A record number of top-selling drugs will go off-patent by 2015,impacting industry sales growth


• Patent expiration is expected to remain high until 2018,especially for the ‘Big Pharma’ companies

− Drugs accounting for almost half of 2010 US pharma salesare expected to go off-patent by 2015

− A record number of drugs have already gone off-patentduring the last four years

− Sales of branded drugs can decline by more than 50% inthe first few months after the LOE

• Further, these newly off-patent drugs can be a threat tocompeting drugs that continue to be under patent protection,due to therapeutic substitution

• Patent expiration and therapeutic substitution have led todecline in sales growth of blockbuster drugs

• Decline of blockbusters impacts drug sales model

• Patent expirations will benefit generic drug makers, as theyget to increase their revenue base

Source Company reports, PwC analysis

Low R&D productivity compounds the challenge from patentexpirations


• Industry is also facing the challenge of low R&Dproductivity, which makes it difficult to replacerevenues lost from patent expirations

− Over the last 10 years, global R&D spending bydrug companies has almost tripled, whereas thenumber of NMEs (New Molecular Entities) andBLAs (Biologic License Applications) filed orapproved by the FDA has declined by almost half

• This decline in NMEs will result in fewer newblockbuster drugs in the future

• Improving R&D productivity is a top priority forpharmaceutical and life sciences companies

• Companies are focusing on the following productivitydrivers:

− Identify and allocate resources to high valuecandidates (e.g. large unmet need, best-in-class)

− Increase pipeline success rate

− Reduce cycle time

− Reduce development costs

− Expand the pipeline through licensing andacquisitions

R&

D


Healthcare reform shifts payer focus to superior outcomes,requires higher rebates and imposes taxes

• Growth of generic drugs, together with increased consolidation, has resulted in globalgeneric players

− Teva, the leading generic company, is a product of several acquisitions in recentyears

− Mylan and Watson are also active in M&A

• Large generic players are becoming increasingly aggressive in patent challenges and ‘at-risk’launch generic drugs

− These strategies present highly profitable opportunities for generic players, but are a keychallenge for branded Pharma

• Branded Pharma is increasingly focusing on its ‘generic strategy, and is pursuing multiplestrategies to manage this threat, including:

− Patent settlements that create opportunities for both the branded and generic drug makers

− Authorized generics that limit opportunities for generic players

− Build presence in generics market (e.g. Sanofi, Novartis)

Increased consolidation and high growth of generic industry is athreat to Branded Pharma

9

Reven

ue

($M

N)

Source: Company reports and press release


Biologics are a key growth opportunity, but requires changes inindustry business model

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• Biologics are the fastest growing segment, and as perDatamonitor, they will account for more than half ofindustry growth over next decade

• Biologics enjoy longer life-cycle due to less genericcompetition, higher barriers-to-entry due to theircomplexity, and higher success rate

• Growth of biologics will impact industry functionsincluding sales and marketing, R&D, manufacturing,distribution, and pricing

• The need for biologic manufacturing capabilities andpipeline is a drive of recent M&A activity

Source: Company reports, PwC analysis


Personalized medicine is another growing driver and will driveconvergence among multiple industries

11

• Growth of biologics and advancements inpharmacogenomics are expected to drive adoptionof personalized medicine

• Personalized medicine correlates specific clinicaland genetic features of individuals (or groups)with the differential risk and/or efficacy to providetargeted therapies

• Personalized medicine will help improve outcomesand reduce ineffective therapies, which will reducehealthcare costs

• Growth of personalized medicine will driveincreased collaboration, changes in R&D model,and increased deal activity

• Growth of personalized medicine requires

• Collaboration between not only pharmaceuticaland medical device companies, but also withproviders and new entrants from the field of IT,retail, distribution, and consumer products

• New R&D/clinical trial models based on geneticstratification

Ev

olv

ing

mo

de

l


Emerging markets will remain a growth driver, but drug makersneed to invest in sales and branding

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• Growing income levels is creating demand for healthcarein emerging markets, resulting in rapidly growing drugsales in top emerging markets in recent years

• In contrast, US, which accounts for 42% of global drugmarket, is seeing a slowdown due to patent expirationand cost-containment pressures from payers

• Emerging market sales are expected to continue to growrapidly due to growing income levels

• Anti-infectives, vaccines, and basic health are the topopportunity areas in emerging markets

• Chronic diseases, such as cancer and diabetes, whichrequire long-term management, are also on the increasein middle-income countries

• Pharma companies will need to target physicians andpharmacists, as they are the key decision makers in mostemerging markets

• Pharmaceutical companies will need to build brandawareness, a low cost structure, and a large primary caresales force to drive EM sales


Industry business model are being fundamentally altered bythese secular trends



2012 Trends

15


M&A & licensing will continue to bestrong due to the current state of theglobal pharma industry and thesignificant cash balances that existon pharma’s & big biotech’s balancesheet


Overview of the Global Pharma & Life Sciences Industry -Summary

Overview of 2013 Canadian Life SciencesForecast – The missing ingredient

16PwC's Canadian Life Sciences Industry Forecast 2013

• Outlook and challenges

• Access to capital

• Government partnership

• Product life cycle and profitability

• Mergers and acquisitions (M&A) and strategic alliances

• What’s next?


Figure2: Which of the following issues do you feelwill be the most challenging over the next two yearsfor your organization? (respondents were asked toselect top 3 choices)

58%

54%

42%

32%

28%

60%

43%

31%

31%

39%

54%

22%

31%

21%

25%

Raising capital

Attracting a licensing orstrategic partner

Product development

Managing the regulatoryprocess

Attracting and retaining keyemployees

2013

2011

2009

17

Figure 3: What do you believe are the key challengesfor the Canadian life sciences and biotech industry tobecome a stronger global competitor? (respondentswere asked to select top 3 choices)

87%

54%

33%

33%

22%

84%

46%

32%

26%

33%

78%

47%

41%

17%

26%

Ability to access capital

Ability to access strategicpartners

Development of experiencedentrepreneurs

Synchronization of variousgovernment initiatives

Availability of expertise withinCanada

2013

2011

2009

Outlook and challenges


Figure 6: Approximately how much funding willyou be seeking in your next round of financing?

18

35%

15%

33%

15%

2%

34%

18%

34%

9%

4%

44%

17%

23%

12%

4%

$0 to $5 Million

$5+ to $10 Million

$10+ to $25 Million

$25+ to $100 Million

$100 + Million

2013

2011

2009

Access to capital

Figure 5: What do you perceive to be the top threechallenges to successfully raising capital for a Canadianlife sciences and biotech business? (respondents wereasked to select top 3 choices)

64%

62%

52%

51%

80%

49%

56%

63%

64%

31%

38%

NA

Unfavourable industry/marketconditions for raising capital

Investors' inability tounderstand the value

proposition

Too many business risks forthe investors

Investors have other moreattractive options, e.g. flow-

through shares

2013

2011

2009


Figure 7: From what sources do you expect to getthis funding? (respondents were asked to selecttop 3 choices)

19

79%

44%

42%

29%

29%

25%

23%

12%

84%

29%

42%

37%

25%

24%

22%

18%

35%

20%

19%

16%

18%

14%

12%

11%

30%

20%

27%

24%

17%

14%

20%

NA

Strategic partners

Private equity funds

Venture capitalists

Government - federal andprovincial

Angel investors

Debt financing

Secondary public offering

Mergers and acquisitions

2013

2011

2009

2007

Figure 8: What do you believe are the most importantactions that government can take to improve Canada'sability to compete globally in the life sciences andbiotech industry? (respondents were asked to select top3 choices)

87%

54%

51%

28%

78%

63%

49%

37%

75%

62%

38%

37%

NA

67%

51%

40%

Create incentives for riskcapital

Create more favourable taxincentives

Research grants to companies

Improve speed of theregulatory process

2013

2011

2009

2007

Access to capital Government partnership


Figure 11: What is the most likely use of fundsfrom your next round of funding? (respondentswere asked to select top 3 choices)

20

www.biotechgate.com

79%

75%

39%

35%

25%

62%

74%

32%

32%

33%

29%

42%

14%

20%

11%

Working capital/operations

R&D

Manufacturing

Marketing/sales

Hiring key managementexpertise

2013

2011

2009

Figure 9: Number of biotechnology therapeuticproducts in Canada's pipeline(Source: Biotech Gate Life Sciences Statistics 2011 &2012)

141

73

79

26

154

72

76

30

149

72

72

22

Discovery & Preclinical

Phase I

Phase II

Phase III

2012

2011

2010

Products, profits and places


Figure 12: What do you consider to be the mostlikely scenario for the typical successful Canadian lifesciences or biotech business? (respondents wereasked to select top 3 choices)

21

www.biotechgate.com

87%

80%

71%

29%

25%

90%

70%

71%

33%

28%

66%

48%

46%

22%

12%

80%

NA

64%

38%

44%

Being acquired/merger

Co-development/partnerships

Licensing or selling IP

Build or maintain a sustainablebusiness

Going public

2013

2011

2009

2007

Figure 13: What do you see as the most significantbarriers to mergers and acquisitions in the lifesciences industry? (respondents were asked to selecttop 3 choices)

76%

54%

51%

36%

71%

52%

41%

47%

47%

29%

27%

34%

62%

30%

32%

49%

Valuation issues

Funding

Lack of interest on the part oflarge firms

Conflicting managementpersonalities

2013

2011

2009

2007

Liquidity – M&A and strategic alliances


65%

41%

39%

39%

28%

23%

15%

12%

48%

37%

42%

53%

29%

36%

27%

11%

65%

38%

47%

40%

35%

21%

19%

17%

36%

NA

49%

41%

27%

27%

25%

24%

Continued focus on success incurrent business

Increase volume of in-licensing and out-licensing of

IP

Recruit experienced seniormanagement

Effective lobbying togovernment

Implement mergers oracquisitions

Concentrate business inregional clusters

Support local, regional ornational industry associations

Active involvement inmentoring programs

2013

2011

2009

2007

Figure 14: What do you believe are the most importantactions that industry can take to improve Canada's abilityto compete globally in the life sciences industry?(respondents were asked to select top 3 choices)

What’s next?

Canadian deals


Recent notable deals involving Canadian companies

• USA M&A Alexion & Enobia US$1080 million

• USA M&A Cephalon & GeminX US$525 million

• USA M&A Gilead & YM Biosciences US$510 million

• Canada M&A Valeant & Afexa CA$85 million

• Canada Financing YM Biosciences CA$80 million Share offering

• Canada Financing OncoGenex Pharmaceuticals US $50 million Share offering

• Canada Financing Novadaq CA$40 million Share offering

• Canada Financing Methylgene CA$26 million Share offering

• Canada Financing Resverlogix CA$25 million Debt Offering

Q&A


Thank you

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