Feeding the Pipeline VII: Clearing the Innovation Bar
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Feeding the Pipeline VII: Clearing the Innovation Bar Ed Saltzman Defined Health LES 2006 Annual Meeting New York © Defined Health, 2006 The information in this presentation has been obtained from what are believed to be reliable sources and has been verified whenever possible. Nevertheless, we cannot guarantee the information contained herein as to accuracy or completeness. All expressions of opinion are the responsibility of Defined Health, and though current as of the date of this report, are subject to change. Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 2 The Presenter’s Challenge “The ear tends to be lazy, craves the familiar, and is shocked by the unexpected: the eye, on the other hand, tends to be impatient, craves the novel and is bored by repetition.” -- W.H. Auden Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 3 Feeding the Pipeline VII: Topic Outline I. Still stuck in the No-Fun Zone II. Are the fun times coming back? III. Licensing to the rescue (again!) IV. But an ever-increasing list of challenges for those in L&BD: – The Typical: The Perennial Late Stage Opportunity Shortage – The New: Spiraling Cost of Early Stage Deals V. Implications and Predictions – Lessons from the M&A Space: When Pipelines are Worth More than Products – Reverberations from a brutal Biotech IPO market VI. OK, but I still Need to Find a Product! Take-Homes from the “No- Spin Zone” – The New Regulatory Bar: Safety, Efficacy and Medical Necessity – Unmet Needs: Let’s Get Serious! – Broader isn’t Better: The Coming of the Less Impersonal Blockbuster Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 4 The No Fun Zone Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 5 Pharma Continues to Dwell in a No Fun Zone 18% 17% 17% 16% 16% 16% 16% 16% 14% 14% 13% 12% 12% 12% 12% 11% 11% 11% 11% 10% 10% 10% 10% 9% 9% 9% 8% 8% 8% % Growth % 7% 7% 7% 6% 6% 5% 4% 4% % Sales Growth 4% 3% 2% % EPS Growth 2% 0% A A A A A A A A A A A A A A -1985A 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E A A-1991A 1975 1986 EvaluatePharma, Cowen & Company, June 2006; Defined Health analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 6 Pharma Continues to Dwell in a No Fun Zone Pharma Industry – Trend in Return on Equity Pharma Industry ROE 22% 20% 18% 16% 14% 12% 10% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 EvaluatePharma EvaluatePharma; Defined Health Analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 7 Pharma Continues to Dwell in a No Fun Zone 10% 7% 5% 0% 0% 2002A 2003A 2004A 2005A 2006E* -5% -1% -10% -9% -15% -20% -25% -26% -30% *Through June 20, 2006 Cowen & Company, June 2006; Defined Health analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 8 Spiraling R&D Expense and Decreasing Output 140 $45.0 120 NME Non NME R&D Spend $40.0 120 $38.8 $34.5 $35.0 100 $31.0 $30.0 $29.8 87 82 82 78 78 80 $26.0 $25.0 70 71 $22.7 64 65 $21.1 61 60 $20.0 60 54 $19.0 53 51 $ Billions 48 $16.9 48 47 45 Number of Products Number $15.2 $15.0 41 40 42 $13.4 39 40 $12.7 33 35 30 30 $11.5 30 30 28 27 $10.0 $9.726 25 24 22 20 21 23 23 $8.4 22 21 $4.1 20 $7.3 20 $6.5 17 $5.5 12 $3.6 $5.0 $3.2 $4.7 0 $0.0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Parexel's Pharmaceutical R&D Statistical Sourcebook 2005/2006; DH analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 9 The Innovation Deficit Is Making Things Worse Innovativeness of FDA Approved Drugs (1989-2000) Old Active Ingredients = 65% Increasing Level of Innovation NIHCM Foundation, FDA Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 10 FDA OKs pearly pigments to color pills By ANDREW BRIDGES, Associated Press WriterThu Jul 20, 11:03 PM ET AP Photo: In this photograph provided by EMD Chemicals, Inc., Candurin Pearl Effect Color coated tablets are... If you think beauty can't go more than skin deep, swallow this: Health officials on Thursday said drug companies could start gussying up their pills with pigments like those that give cosmetics a pearly sheen. The pearlescent pigments can be used in any drugs that are swallowed, including pills, tablets and liquids, the Food and Drug Administration said. As a result, drugs may never look the same again. The pigments can produce sparkly metallic, satiny and shimmery finishes, as well as different hues If youof red thinkand gold, beautydepending partly can't on the go color more of the underlying than skin drug. deep, swallow The FDA's publicationthis: of a final Health rule approving officials their use came on eightThursday years after EMD said Chemicals drug Inc. compan of Gibbstown,ies N.J., first petitioned the agency. The chemical and pigment maker is part of the German drug company Merck KGaA. That company is entirely separate fromcould U.S.-based start Merck gussying& Co. Inc. up their pills with pigments like those EMD Chemicals hopesthat the pharmaceutical give cosmetics companies it asupplies pearly will seize sheen. on the technology to give their drugs a look that is unique and hard to copy, said Dan Giambattisto, sales and marketing director for Candurin Pigments at EMD Chemicals. The pigments are madeThe by coating pearlescent the mineral mica pigments with either titanium can dioxide be orused iron oxide in — any or both. drugs The FDA tapprovedhat are using the two separate combinations to color contact lenses in 2002. swallowed, including pills, tablets and liquids, the Food and Similar pigments also are used in makeup, including lipstick, eye shadow and nail polish, as well as in inks and automotive paint. Drug Administration said. As a result, drugs may never look Gatewood Organization LLC, a regulatory consulting group in Hazlet, N.J., had questioned whether the pigments would put some drugs off limits to patientsthe who same must watch again. their intake of iron and whether they would affect the shelf life of drugs. EMD Chemicals also is seeking FDA approval to use the pearly pigments in cereals, candies, chewing gum and other foods. In June, the FDA approved the use of titanium dioxide and mica pigments in some foods; the agency continues to review pigments made with synthetic ironThe oxide. pigments can produce sparkly metallic, satiny and shimmery finishes, as well as different hues of red and gold, Associated Press; Yahoo dependingNews partly on the color of the underlying drug. Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 11 Though Better than Pharma, Biotech Has Its Own Innovation Gap Innovativeness of FDA Approved Drugs (2001-2004) *Distribution of NDAs, Pharma vs. Biotech* Old Active Ingredients = 73% (Total=619 New Drugs) Pharma 11% 16% 6% 60% 7% Priority NME Standard NME Priority IMD Standard IMD Other Increasing Level of Innovation Biotech 29% 16% 6% 43% 6% Old Active Ingredients = 55% •NDA sponsors were designated either Biotech or Pharma; includes BLAs USFDA; DH analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 12 New Biotech Products are Smaller than Current Ones WW Peak Sales by Originator Top 10 Products per Group $70B $60B $50B 2nd Generation Biotech: $40B Alexion, Myogen, Threshold, Antigenics, $30B Telik, Basilea, Dendreon, Keryx and Xenoport WW Peak Peak Sales WW $20B $10B $0B Pharma Biotech 2nd Generation Biotech EvaluatePharma; DH analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 13 Is Biotech Facing its Own Innovation Gap? Biotechnology Companies BiotechnologyAverage Peak Year Companies Sales Forecast for – First Average Marketed PeakProduct Year Sales Forecast for First Marketed Product $1,600 $1,493 $1,400 $1,200 $1,079 $971 $1,000 $800 $ Millions $600 $397 $400 $299 $200 $0 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 Year of Company Formation Company reports; DH analysis Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 14 The Strong Biotechs Are Getting Stronger MarketMarket Cap for Top Cap 10 Biotech for Top as a 10Fraction Biotechs of All Biotechs as a Fraction of All Biotechs 100% 95% 90% 90% 85% 82% 80% 78% 76% 75% 73% 73% 73% 71% 71% 70% 65% 63% 62% 60% 55% 50% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EvaluatePharma; Yahoo! Finance Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 15 But Very Few New Big Biotechs Biotech Companies That Have for the First Time Surpassed $3 Billion in Market Cap 7 6 6 5 Cephalon & 4 Amylin 4 3 OSI 3 2 2 2 1 1 1 1 0 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EvaluatePharma; Yahoo! Finance Feeding the Pipeline VII © Defined Health 2006 September, 2006 - Pg. 16 Ligand to Sell Oncology Line to Eisai © 2006 The Associated Press SAN DIEGO — Ligand Pharmaceuticals Inc. said Friday it agreed to sell its oncology product line and related assets to Eisai Inc. and Eisai Co. for $205 million in cash. Teaneck, N.J.-based Eisai and its Tokyo-based unit develop drugs to treat Alzheimer's, acid reflux and convulsions.