Beyond borders Global biotechnology report 2010 To our clients and friends As economies around the world begin to recover from the worst diminished means, key constituents in the biotechnology economic crisis since the Great Depression, it is clear that a “new ecosystem — investors, pharmaceutical companies, payors, normal” is emerging. Among other things, this is a world in which governments and biotech firms — need to do more with less. capital flows are far more constrained than during the easy money- Companies that are able to develop creative solutions to boost fueled decade that preceded the downturn. What impact has this efficiency will be best positioned to succeed in the new normal. capital-constrained environment had on biotechnology — a business Readers of Beyond borders will notice some structural changes that is based on an enormous hunger for capital coupled with an in this year’s report. In prior years, we organized the report by exceptionally long path to commercial payback? geography, with sections on the Americas, Europe and Asia-Pacific. We set out to answer that question in this year’s Beyond borders. This year, we have instead organized the report thematically. As usual, we analyze key indicators of the industry’s performance: The Global perspective section brings together our point of view financing activity, deal trends, financial results, pipeline strength on salient trends and implications as well as some perspectives and product approvals. While the overall results are robust, the gap from company leaders. This is followed by a Country profiles between the industry’s haves and its have-nots has widened. section, where we summarize key developments in countries with developing biotechnology sectors. In the Industry performance Our Global introduction article pulls together these trends and section, we analyze data from locations with established assesses their implications for biotechnology companies. In biotechnology centers: the US, Europe, Canada and Australia. We particular, we focus on new models and creative approaches that think this allows us to more appropriately analyze developments companies and investors are taking to adapt to today’s challenging in markets of different maturity and allows readers to more easily economic climate. Accompanying our article are six Perspectives access and compare thematic trends. for the new normal by leaders of companies that are using innovative approaches to finance companies, raise capital, conduct Ernst & Young’s life sciences professionals stand ready to help you R&D and structure deals. as you navigate the unprecedented challenges and opportunities in the new normal. The common thread that runs through this discussion — indeed, the mantra of the new normal — is the search for efficiency. In a time of Glen T. Giovannetti Gautam Jaggi Global Biotechnology Leader Managing Editor, Beyond borders Global Life Sciences Center Global Life Sciences Center Ernst & Young Ernst & Young Contents The new normal: the global perspective 2 Global introduction The new normal 7 Perspectives for the new normal Asset-centric financing Francesco De Rubertis and Michèle Ollier, Index Ventures 9 Perspectives for the new normal Lean proof of concept Michael Clayman, Flexion Therapeutics 12 A closer look Reforming US health care Connie Austin, Ernst & Young LLP 14 Perspectives for the new normal Focus and leverage Edward Lanphier, Sangamo BioSciences 16 Perspectives for the new normal Succeeding together Leonard Schleifer, Regeneron Pharmaceuticals 17 Perspectives for the new normal Efficiency and leverage John Maraganore, Alnylam Pharmaceuticals 20 Perspectives for the new normal There's gold in those efficiencies Werner Lanthaler, Evotec AG 21 Bioech innovation and the role of public policy James Greenwood, Biotechnology Industry Organization 22 Using FIPNet to supercharge the innovation engine John Lechleiter, Eli Lilly and Company New opportunities: country profiles 26 Conversation on emerging markets New opportunities Kiran Mazumdar-Shaw, Biocon Canwen Jiang, Genzyme 30 China year in review Accelerating reforms 31 A closer look Providing incentives to encourage continuous quality improvement Cherrie Che, Ernst & Young Advisory Services Ltd 36 India year in review Preparing for the opportunities ahead 39 Japan year in review Rekindling investment 41 A closer look Funding innovation Yuji Anzai, Ernst & Young Shin Nihon LLC 43 Singapore year in review Manufacturing a biopharmaceutical hub 45 New Zealand year in review A new pragmatism 47 Brazil year in review Fueling the future 50 Malaysia year in review A strategic focus on biotech A transformational year: industry performance 54 Financial performance A transformational year • United States • Europe • Canada • Australia 55 A closer look Seeking efficiency: considerations when operating beyond borders Bruce Bouchard, Ernst & Young LLP 63 Venturing forth with creative approaches Søren Carlsen, Novo Ventures 64 Financing A higher bar • United States • Europe • Canada • Australia 68 A closer look Anatomy of a private equity IPO Michael Constantino, Ernst & Young LLP 74 A closer look Tapping economic development incentives Ron Xavier, Ernst & Young LLP 75 Turbulent financial markets and the impact on biotech Fred Frank, Peter J Solomon Company 76 Deals A new landscape • United States • Europe • Canada • Australia 79 A closer look Valuing milestones Michelle Mittelsteadt, Ernst & Young LLP 85 Striking a healthy balance Dan Zabrowski, Roche 86 Products and pipeline Steady growth • United States • Europe 92 A closer look Uncertain by design: preparing for outcomes-based pricing arrangements Anthony Masherelli, Ernst & Young LLP 96 Perspectives on personalized medicine What one thing would you change to accelerate the adoption of personalized medicine? • Edward Abrahams, Personalized Medicine Coalition • Ken Berlin, Rosetta Genomics Ltd. • Anne Wojcicki, 23andMe • Kathy Giusti, Multiple Myeloma Research Foundation/Multiple Myeloma Research Consortium • Brook Byers, Kleiner Perkins Caufield & Byers • Jay Wohlgemuth, Quest Diagnostics • Robert Epstein, Medco • Steven Averbuch, Bristol-Myers Squibb 98 Roundtable on biofuels Embracing the future • Gil Forer, Ernst & Young LLP • Mark Bandak, Blackstone Advisory Partners • Olivier Mace, BP Biofuels • Bill Haywood, LS9 • William Roe, Coskata 103 Acknowledgments 104 Data exhibit index 106 Global biotechnology contacts 108 Ernst & Young thought leadership The new normal The global perspective Global introduction The new normal Last year’s Beyond borders was written in emerging biotechnology companies took usual?”) dwelt on these developments and late 2008 and early 2009, in the darkest drastic restructuring measures, focusing their likely impact on the biotech business depths of the global financial crisis. In those pipeline development efforts, trimming model. Despite restructuring efforts, we dramatic months — as policy-makers and payrolls and even predicted that there would be a significant regulators struggled to avert a total meltdown selling assets. reduction in the number of companies, of global banking and finance — stock markets and that access to capital would likely Not surprisingly, last year’s Global plummeted, credit froze and capital seized remain constrained for the foreseeable introduction article (“Beyond business as up. Amid pervasive uncertainty, many future. We worried about the implications The not-quite-global crisis: estimated GDP growth rates in 2009 China India Vietnam Indonesia Philippines Poland Australia Brazil Israel South Korea New Zealand Switzerland France US Singapore Malaysia Belgium Denmark EU UK Netherlands Sweden Germany Japan Ireland Russia -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Estimated 2009 GDP growth rate Source: CIA World Factbook 2 Beyond borders Global biotechnology report 2010 for biotech’s sustainability — that the businesses — traditionally a key engine Haves and have-nots: more of the business model the industry has long of job creation. Amid talk of a prolonged same? thrived on would be starved of its key input “jobless recovery,” most economists now (funding) and companies’ efforts to cull expect that high unemployment levels will While the overall numbers mentioned their pipelines would lower the model’s remain part of the new normal for some above — capital raised, alliance activity, key output (innovation). We wondered time to come, with potential implications for profitability — are heartening, they only tell whether recovery, when it came, might economic and social stability. part of the story. Economic dislocations bring not a return to normal, but rather the produce winners and losers, and the real The situation for biotech is similarly emergence of a “new normal,” requiring impact is found not in aggregates and mixed. On the surface, it would appear new models for sustainability. And we averages but in measures of variance that the worst is indeed over. Aggregate described four paradigm-shifting trends and standard deviation. While aggregate funding levels rebounded nicely in 2009 that could potentially create a path to more financing levels have held up well, the and strategic alliance activity remains sustainable business models in the future. availability of capital is challenging for robust. Financial performance has many companies. A year later, the dust has settled and the been fairly strong — particularly under outlines of a new normal are indeed starting the circumstances — with remarkable Indeed, our analysis shows