Transcript Slide 1

Global Bio-pharmaceutics and Healthcare
Biotechnology, Capital Markets & Macroeconomics
Robert Lepley, Ph.D.
TIS Group, Inc.
North Oaks, Minnesota
Lecture Material Presented March 31, 2010
CFANS 1501
Biotechnology, People and the Environment
Dr. Doug Foster
College of Food, Agriculture and
Natural Resources Sciences
St. Paul Campus
University of Minnesota
TIS Group
Increased Awareness of Global Health & Food Security
- Macroeconomic Changes in Global Architecture • Increasing transfer of wealth from developed to developing world
• Emergence of global middle class
• Geopolitical power decentralized
• Global information parity
• WWW provides rapid global dissemination
• Limitations imposed by asymmetrical access, generation and exploitation
• Alteration in global perception of risk
• Demand for wealth protection
• Cultural self identity at expense of national ideology
• Shift in work force from agriculture and manufacturing to services
• Productivity gains
• Increase in discretionary / leisure time
• Increase in discretionary income
• Increased demand for nutritional resources
• Increased dietary consumption of high value foods
• Anthropogenic climate change
• Moving away from attribution and prediction to mitigation and adaptation
• Carbon management affects all industries
TIS Group
Perspectives on Global Healthcare
sovereign economies & macroeconomic imbalances
World Distribution of Wealth and Population 2008
% World GDP
60%
% World Populaiton
51%
50%
37%
40%
26%
30%
22%
20%
15%
13%
10%
2% 2%
3% 2%
5%
5%
5% 6%
Oceana
South
3%
3%
0%
Latin Am & Middle East
Caribbean
North
America
Europe
Africa
Asia
America
Source Data: World Bank
http://web.worldbank.org/
TIS Group
How Are Macroeconomic Forces Changing Bio-pharmaceuticals?
Post-symptomatic Medicine Based Healthcare System Too Expensive?
Less costly to “treat” wellness?
National Healthcare Expenditure
US GDP (Chain Weighted)
% of GDP
$12
25%
20%
$8
15%
% of GDP
US$ Trillions
$10
$6
10%
$4
5%
$2
$0
0%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source Data: Centers for Medicare and Medicaid Services
TIS Group
Summary of Life Sciences Global Market Data
Human Healthcare Market is the Dominant Global Market
Relative Market Size %
Relative Size by US$ (blns)
Relative Size by %
Animal
Human Healthcare
$773
Medical Technology
$268
Animal Healthcare
$18
Molecular Diagnostics
2008 Total
Healthcare
Medical
1.7%
Molecualr
Diagnostics
0.29%
Technology
25%
$3
$1,063
Human
Healthcare
73%
TIS Group
Human and Animal Pharmaceutical Markets
Different Sizes and Patterns of Growth
Human healthcare market
growth in Asia and Latin
& South America
Source Data: IMS Health
http://www.imshealth.com/
2008
2008
2009
Market
Market
Forecast
US$ Bln
Share
Growth
North America
$311.8
40.3%
-1% to 4%
Europe
$247.5
32.0%
3% to 4%
Asia / Africa / Australia
$90.8
11.7%
11% to 12%
Japan
$76.6
9.9%
4% to 5%
Latin America
$46.5
6.0%
9% to 10%
Global Total
$773.1
Sales %
%
Sales
Market
Growth
US$ Blns
Share
YoY
North America
$6.1
34.1%
8.8%
Latin & S. America
$2.1
11.6%
11.2%
Western Europe
$5.7
31.7%
16.9%
Eastern Europe
$0.8
4.6%
10.8%
Asia
$2.7
15.3%
7.2%
Rest of World
$0.5
2.8%
9.8%
Total Market
$17.9
100.0%
11.4%
100.0% 2.5% to 3.5%
Animal healthcare market growth
in Western & Eastern Europe
along with Asia
Source Data: Vetnosis
http://www.vetnosis.com/
TIS Group
Human and Animal Pharmaceutical Markets
Market Changes Require Adaptation
Critical Strategic Challenges
High costs of research, clinical development and registration
• Global market must repay R&D costs
• “Blockbuster” pharma model flawed – too few innovator drugs
• Pharmaceuticals must change business model to survive
• Developed economies primary markets by sales
• Looming problems:
• Weak growth – increasing generic penetration
• Healthcare policy reform and directives to contain costs
• Shift from post-symptomatic medicine to wellness
• Macro economic shift in funding priorities
• Emerging economies primary markets by growth
• Emerging middle class demand for health and food security growing
• Healthcare and food provisioning infrastructure poorly developed
• Affordability
• Accessibility
• Adoption
TIS Group
Global Pharmaceutical Industry Applies
Same Basic Template for Drug Discovery & Development
Pharmaceutical Research and Development Cycle
Preclinical
Clinical
Market
• ‘Discovery’
• Preclinical
• Set the dose
• Phase I
• Phase II
• Phase III
• Revenue
• Phase IV
• New Label
USPTO Patent Critical
Next Generation - “Evergreen”
• 20 years – When? Overlap?
• No patent → No innovator drug
• $$$ No Revenue $$$
TIS Group
Pharmaceutical Preclinical Drug Discovery
Complex Biology Requires Synchronization of Many Skill Sets
Project Teams are the Essential Core from which
Developmental Drug Candidates Emerge
Biology
Marketing
Chemistry
Genomics /
Proteomics
Regulatory
/ Legal
Formulation
Project Team
Consultants
Molecular Biology
/ Fermentation
Screening
Statistics
Biomarkers
Informatics /
Computational
TIS Group
Pharmaceutical Drug Development Pathway - Preclinical
Preclinical Research
Early / Mid
Late
Discovery
Lead Declaration
Target Identification
Senior management approval
Target Validation
Set the dose
Lead finding chemistry
Go to humans
PK & PD
Lead is the prospective drug
Very Late
Investigational New Drug Application
• Regulatory transition
• IND to FDA
• Defines approach to clinical trials in
great detail
• “The Protocol” - doesn’t change, costly!!
Pathology & Toxicology
Formulation
IP
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Drug Candidate Development
Overview of U.S. FDA Clinical Trial Process
Small Mql Drug
FDA CDER
NDA
IND
Biologic Drug
PI/PII/PIII
FDA CBER
Panel
Approval / PIV
BLA
Some Class III Devices are “Combination Products”
that enter the CDER/CBER approval pathway
Medical Device
FDA CDRH
510(k)
Class III
Class II
Class I
PMA
Panel
Approval / PIV
Approval
IV Diagnostic
FDA CDRH
IDE
Class I
Class II
Class III
PMA
Panel
Approval / PIV
TIS Group
Pharmaceutical Drug Development Pathway - Clinical
Clinical Development
Phase I
• Numbers: 20 -100
• Length: several months
• Goal: Safety
• Cost: $10s Millions
Attrition Rate
≈ 15%
Successful Launch
≈ 40%
Phase II
Phase III
•Numbers: 100’s
•Length: months - 2yrs
•Goal: Efficacy
•Cost: $10’s – $100’s Mlns
•Numbers: 1000’s
•Length:1 - 4+yrs
•Goal: safety, dose, efficacy
•Multi-center / Transnational
•Cost: $100’s Mlns
Attrition Rate
≈ 29%
Successful Launch
≈ 52%
Attrition Rate
≈ 6.5%
Successful Launch
≈ 76%
Source Data: PharmaProjects
TIS Group
Development Pathway –Registration / Launch Boundary
Phase I, II & III and Clinical
• Preclinical To Launch
• Cost: $100s Mlns to Blns
• Preclinical Costs Variable
• $100s Mlns to Blns
• Preclinical to Successful Launch
• 2006 data ≈ 10%
• Variable – depends on therapeutic class
• Oncology ≈ 4%
• Anti-infective ≈ 10%
• Variable - depends on compound
• NCE generally lower
• Biologics vs small molecules?
Launch
$$$
Marketing & Sales
• Name
• Advertisement
• Hospital / Clinic / Physician contacts
• Feedback
Phase IV
• Numbers: 100’s to 1000’s
• Length: indefinite
• Goals: Population specific effects,
safety, dosages, efficacy, toxicity.
New label claims
• Cost: $10’s to $100’s millions
• Withdrawal Possible
• COX II Inh / Rezulin / Tysabri
• FDA re-approval possible
• Tysabri
Patent Life is 20 Years !!
• Don’t patent too early
• Stack IP
Next generation underway in preclinical.
TIS Group
Pharmaceutical R&D Pipeline Census
Global Status of Compounds at R&D Stages
2007
5000
4000
2008
4734
3927
3000
2000
1084
1334
1414
1648
1000
462 540
558
145 162
0
Pre-clinical
Phase I
Phase II
Phase III
Pre-
622
85 86
Registration Licensed
Registration
Source Data: PharmaProjects
TIS Group
While Biotechnology is Applied to Nearly All Aspects of R&D
The Majority of New Drugs Are NOT Biologics
New Medical Entity and Biologic Approvals
NME Approvals
60
Biologic Approvals
50
Approvals
40
Annual
Average = 27
30
20
10
0
1993
1995
1997
1999
2001
2003
2005
2007
2009
Source Data: U.S. FDA
TIS Group
What’s Wrong With Pharmaceutical
Preclinical Research & Drug Discovery? Lack of Innovation!
The majority of FDA drug approvals are “me too” drugs
FDA Standard vs Priority Approvals
Priority Appriovals
Standard Approvals
140
120
100
80
60
40
20
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source Data: U.S. FDA
TIS Group
Pace of Innovation Has Slowed in Pharma and Biotech
Too few innovator drugs in pipelines to support blockbuster model
Sharp decline in the number of triadic biotech patent families
20,000
Renewable Energies
Biotechnology
Pollution & Waste Mgmt
2,500
Triadic Patent Familes
18,000
Nanotechnology
Electrical & Hybrid Vehicles
2,000
16,000
14,000
Energy Eff Bldg & Lighting
Internet Communications
1,500
12,000
10,000
8,000
1,000
6,000
4,000
500
2,000
0
Internet Communications Triadic Familes
3,000
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source Data: OECD
TIS Group
What’s Wrong With the Pharmaceutical Industry
Why the Lack of Innovation?
Major fault lies with failure of “blockbuster drug” business model
• Merger and acquisition strategy emerged in the early 1990’s
• Created huge internal R&D apparatus to focus on billion Dollar drugs
• Gave rise to “blockbuster drug” business model
• Idea that synergies of scale would make blockbuster drug discovery efficient
• Assumed era of no price controls and long periods of patent exclusivity
• Business model driven by R&D speed and efficiency
• No real understanding of the biology – metric driven
• Macro level management view that discovery needed to be everywhere
• Biology was too complex and discovery programs were not well integrated
• Management focus on performance metrics that did not correlate well
with discovery of innovator drugs
• M&A led to internal competition between acquired sites
• Post merger strategy should have been top close sites
• But by keeping sites open, duplicated efforts became competitive
•Management did not want personalized medicine
• Because markets were not blockbuster drug oriented
TIS Group
Macro Economic Forces Have a HUGE Impact on Corporations
U.S. Pharma Market Is NOT Growing – Capital Market Effects
NYSE Top 10 Pharmaceuticals‡
Market Cap and Total Assets on Balance Sheet
US$ Blns
Market Cap
Total Assets on Balance Sheet
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
2000
2001
‡ Top NYSE by R&D Spending
1 PFIZER INC
2 NOVARTIS AG-ADR
3 JOHNSON&JOHNSON
4 GLAXOSMITHKLINE
5 MERCK & CO
2002
6 SANOFI-AVENTIS
7 ASTRAZENECA PLC
8 ELI LILLY & CO
9 BRISTOL-MYER SQB
10 ABBOTT LABS
2003
2004
2005
2006
2007
2008
2009
Source Data: Bloomberg, LP
TIS Group
Macro Economic Forces Have a HUGE Impact on Corporations
U.S. Pharma Market Is NOT Growing – Capital Market Effects
NYSE Top 10 Pharmaceuticals Ranked by R&D Spending‡
US$ blns
Total R&D Spending
Average R&D to Net Sales Ratio
$60
20
18
16
14
$40
12
$30
10
8
$20
6
Ratio R&D / Net Sales
Total R&D Spending by Top-10
$50
4
$10
2
$0
0
2000
2001
2002
2003
‡ Top NYSE by R&D Spending
1 PFIZER INC
2 NOVARTIS AG-ADR
3 JOHNSON&JOHNSON
4 GLAXOSMITHKLINE
5 MERCK & CO
6 SANOFI-AVENTIS
7 ASTRAZENECA PLC
8 ELI LILLY & CO
9 BRISTOL-MYER SQB
10 ABBOTT LABS
2004
2005
2006
2007
2008
2009
Source Data: Bloomberg, LP
TIS Group
Pharmaceutical R&D Requirement for Innovator Drugs
Is Very Costly - Must Justify ROI in Drug Price
US$ mlns
Clinical Trial Phase
Preclinical Phase
$1,400
$1,241
$1,200
$1,000
$802
$615
$800
$600
Total R&D Cost
$335
to market
$318
$400
$626
$138
$214
$200
$0
$84
$54
$104
1975
1987
$467
2000
2006
Source Data: DiMasi, J.A., R.W. Hansen, and H.G. Grabowski, “The Price of Innovation:
New Estimates of Drug Development Costs,” Journal of Health Economics 22:151-185. 2003
Tufts CSDD. Cost to develop new biotech products is estimated to average $1.2 billion."
Impact Report Volume 8 Number 6. November/December 2006.
TIS Group
Pharmaceutical Branded Drugs
Face Increasing Pressure from Generic Drugs
Government pressure to contain healthcare costs favors generic drug market
Branded Drug
$140
Generic Drug
$121.20
$120
$107.48 $109.62
$97.65
$100
$91.80
$85.57
$77.49
$80
$53.51
$60
$40
$20
$60.66
$65.29
$69.75
$49.55
$40.22
$14.84
$35.20
$16.95
$17.33
$18.76
$19.33
$21.72
$24.89
$27.69
$28.23
$29.21
$29.76
$32.60
$0
1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source Data: U.S. Census Bureau. The 2009 Statistical Abstract:
The National Data Book - Health & Nutrition: Health Expenditures.
http://www.census.gov/compendia/statab/cats/health_nutrition/health_expenditures.html
TIS Group
The Pharmaceutical Sector Faces New Strategic Challenges
• Healthcare reform in U.S. market – world’s largest drug market by sales
• Significant downward pressure on prescription drug costs
New R&D risk mitigation strategies needed
• New markets in Asia, Latin America and South America
Personalized medicine – phenotypic drug response differences
Imposition of new globalized discovery strategies
Companies can’t export culture
• Healthcare paradigm shift to wellness
Emphasis on prophylaxis: vaccines, biomarkers and surrogate endpoints
Wellness based therapeutics
• Anthropogenic climate change
Unknown healthcare implications
• Innovation needed!
TIS Group
What are likely business solutions to the innovation problem?
• Biopharma is adapting a partnership based approach to drug discovery
• Internal R&D operational units becoming smaller
• Focused, inter-firm partnerships
• Shift away from outsourcing to avoid loss of synergy in internal talent pool
• Repurpose preclinical discovery projects
• Less emphasis on target driven approaches: target = technology = metrics
• Integrate all aspects of biology
• Translational medicine and systems biology have increasing importance
• Drug discovery will shift to smaller market scales
• Personalized medicine
• Couple pharmacogenomics to get companion diagnostics for drugs
• Identify in advance of treatment in who drug will work and wont work
• Longer term, pharmaceuticals will demerge to become small “biotech-like”
TIS Group
Most Important Solution Will be Talented People
• Knowledge of science, the technology, the business and the global context
• Strong problem solving skills
• Willing to be part of a team
• Dedicated, goal oriented and focused
• Willing to adapt as changes are imposed on R&D
• Innovative and entrepreneurial
TIS Group