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VC Perspective – A Vision for Global Investing
Fred Craves, PhD
The $7 Trillion Complex, Global Healthcare Industry
HEALTHCARE EXPENDITURES AS A PROPORTION OF GDP (%)
16
Health expenditures as a proportion of GDP (%)
Government Health Expenditure
Private (out of pocket)
12
Private (private insurance plans)
8
4
0
2
Source: Datamonitor, OECD Statistical Extracts 2009, WHOSIS, 2010, taken from Datamonitor Pharmaceutical Key Trends 2011 – Healthcare System and Drug Regulatory Overview, March 2011, p. 16
Life Sciences: The Premise
 We live in an era of accelerating change.
 Healthcare spending is robust in developed countries and growing in emerging economies
 Scientific progress is occurring as a factor of advances in biological understanding.
 As large pharmaceutical firms continue to struggle with R&D productivity, they are increasingly turning to
small firms and universities to create and validate new biological and other scientific insights.
 VC can serve as the key liaison to academia and capitalize early-stage companies.
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Rosling Video
4
An Emerging Middle Class
% global middle class
&
% purchasing power
represented by Asia
Global middle class
(in billions of people)
5
100%
4
80%
66%
3
60%
59%
2
40%
28%
1
20%
23%
0
0%
2009
2020
2030
Source: OECD Observer – An Emerging Middle Class, June 2013
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Increasing Life Expectancy and Chronic Diseases in China
CHINA’S AGING POPULATION
800
700
200
Population (millions)
600
500
130
400
100
300
520
200
380
300
100
0
2007
2015
Pop >50
2025
Pop >65
Source: US Census Bureau, International database. China Cardiovascular Disease Report 2005.
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Expanding Healthcare Expenditures in China
1,000
10%
884
800
8%
569
600
6%
20%
CAGR
400
17%
CAGR
200
4%
233
2%
108
Healthcare Expenditure as % of GDP
Healthcare Expenditure ($US Bn)
High Growth Stage
57
0
0%
2000
2005
Healthcare Expenditure
2010E
2015E
2020E
Healthcare Expenditure As % of GDP
Source: Goldman Sachs Global Investment Research; Guo Hua Securities Research estimates
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China Pharmaceutical Industry Growth
US$ (billions)
200
30%
150
25%
100
20%
50
15%
0
10%
2004
2005
2006
2007
China Pharmaceutical Industry Sales (USD)
2008E
2009E
2010E
2011E
YOY%
Source: MOH, Morgan Stanley Research
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Multinational Pharma’s Increasing Activities in China
 Multinational companies continue to build infrastructure in China, invest in R&D, and acquire local
companies with the expectation that the Chinese market will provide desperately sought after revenue
growth
2005
2006
2007
2008
Pfizer
announces
opening of
new China
R&D Center
in Shanghai
AstraZeneca
announces
$100M R&D
investment
in China
GSK
blueprints
$100M
Chinese
R&D center
and doubles
China R&D
staff
J&J opens
R&D center
in Shanghai
Source: Bay City Capital analysis
2009
Novartis
invests $1B
in Shanghai
R&D center
Pfizer
announces
opening of
New China
R&D Center
in Wuhan
2010
BMS
moves
R&D
base to
China
Merck
boosts R&D
investment
in China
2011
Merck
announces
$1.5B over
5 years to
establish new
R&D center in
Beijing
2012
Pfizer establishes
generics joint
venture in China
Novartis
launches
Galvus
Boehringer announces plans
to double production
capacity in Shanghai plant
by 2013
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Pharma Increasingly External Sourcing of Drug Candidates
PROPORTION OF EXTERNALLY SOURCED DRUG CANDIDATES IN CLINICAL DEVELOPMENT (%, 2007 vs 2011)
100%
80%
80%
2007
2011
65%
59%
60%
50%
44%
40%
21%
17%
20%
9%
0%
Roche
AstraZeneca
Pfizer
Sanofi
Source: Datamonitor R&D Trends 2012
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Innovation’s Impact on the Cost / Care Continuum: Precision Medicine
 Recent advances in sequencing technology will allow for optimization of an individual’s healthcare by
tailoring care to his/her unique genetic profile
COST OF HUMAN GENOME NOW ON PAR WITH OTHER DX TESTING
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Innovation’s Impact on the Cost / Care Continuum: Targeted Therapy
EFFICACY RATES OF SELECTED DRUGS FOR MAJOR THERAPEUTIC AREAS
Analgesics (Cox-2)
80%
Depression (SSRI)
62%
Schizophrenia
60%
Cardiac Arrythmias
60%
Asthma
60%
Diabetes
57%
Migraine (acute)
52%
Rheumatoid Arthritis
50%
Migraine (prophylaxis)
50%
Osteoporosis
48%
HCV
47%
Incontinence
40%
Alzheimer's
Oncology
30%
25%
Source: Spear, Heath-Chozzi and Hunt: “Clinical application of pharmacogenetics,” Trends in Molecular Medicine, Vol 7 No.5, May 2011
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Smaller Companies Generate Higher Number of Approvals
 Small companies generate higher percent of new molecular entity (NME) approvals, a category once
dominated by large pharma
NME PRODUCTIVITY
Source: Nature Reviews: Drug Discovery, Lessons Learned from the Pharma Industry, December 2009
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Early and Later Stage Assets Meet the Needs of Acquirers:
Investor Focus Should Reflect Their Needs
 Acquirers seek early-stage assets to build long-term pipelines and later-stage assets with potential to
alleviate potential revenue losses from patent expirations
BIFURCATION OF EXIT VALUES (SAMPLE FROM 2008-2011)
59
60
35
40
19
20
Platform
(n=19)
0
Early
Mid
Late / Marketed
Number of M&A Transactions by Stage of Lead Asset Over Time 2008 - 2011 (1, 2)
20
19
17
15
10
9
10
16
9
9
7
5
2
0
3
2008
Early
Mid
7
5
2009
2010
2011
Late / Marketed
(1): Early stage includes Preclinical, Phase 1 and Proof-of-Concept Phase 2; mid stage includes Post-Proof-of-Concept Phase 2 and Phase 3; late staged / marketed includes NDA submitted,
FDA approved and commercial assets.
(2): Includes announced transactions of $100M or more; excludes terminated transactions and reverse mergers; excludes transactions where deal value was not disclosed.
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Source: Bay City Capital
Healthcare Investment Trending Position:
M&A Realizations Exceeding Investment
NET CAPITAL FLOWS
More M&A
$2,000
Private Biotech M&A Realizations vs Total Private Biotech Company Financing
$1,000
$-
More financing
$(1,000)
$(2,000)
$(3,000)
$(4,000)
2007
2008
2009
2010
2011
Source: Bruce Booth, “Venture-Backed Biotech’s 2011 M&A Exits Outpaced Both Investments and Fundraising”, Forbes, January 16, 2012
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Implications for Venture Capital Investors
 Focus on getting the right drug to the right patient at the right time to address both care and cost
 Pharma’s dependence on innovation will continue
 The imperative to go global: growth will come from outside of the United States
 Shifting paradigms and capital scarcity present unique and compelling investment conditions
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Ingredients for Success
 Leaders in a community should realize that there is robust international competition for preeminence in life
sciences.
 A strong commitment to collaboration and partnership is a condition precedent.
 The Quebec Consortium for Drug Discovery (CQDM) is a good step.
 The research commitment from the government to fund basic research must be present.
 Canada leads the G7 in per capita funding of public sector research
 There must be an active and effective technology transfer capability within leading universities.
 University of British Columbia (#14), University of Toronto (#22), and McGill University (#24) all rank
among the top 50 life sciences universities
 The most important ingredient to the secret sauce of success in life sciences is access to capital.
 Private or venture capital is the central component that is often missing from most life science economic
development plans.
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Next Steps
What can be done in Canada and Quebec to improve access to venture or risk capital?
And how can smaller firms more easily secure an opportunity to sell their product or company, or license their
invention to a larger entity?
 Organizations like CQDM are working to address these issues by fostering partnerships between academia,
government, and industry
 Working as a consortium with six of the world’s major pharmaceutical companies around the table
 Fostering partnerships with organizations across provinces to build out the life sciences community
throughout Canada, such as the Ontario-Quebec Life Sciences Corridor initiative
 A financial commitment from the private sector is necessary to create a pool of venture money sufficient to
create and sustain young Canadian companies.
 Examples such as Merck’s collaboration with Lumira Capital, Teralys Capital, and others to provide investment
capital to early-stage biotech companies in Quebec.
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VC Perspective – A Vision for Global Investing
Fred Craves, PhD