Beyond borders Global biotechnology report 2012 To our clients and friends: Welcome to the 26th annual issue of Beyond borders, Ernst & Young’s annual report on the global biotechnology industry. Our analysis of trends across the leading centers of biotech activity reveals both signs of hope and causes for concern. The financial performance of publicly traded companies is more robust than at any time since the onset of the global financial crisis, with the industry returning to double-digit revenue growth. Companies that had made drastic cuts in R&D spending in the aftermath of the crisis are now making substantial increases in their pipeline development efforts. But even as things are heading back to normal on the financial performance front, the financing situation remains mired in the “new normal” we have been describing for the last few years. While the biotech industry raised more capital in 2011 than at any time since the genomics bubble of 2000, this increase was driven entirely by large debt financings by the industry’s commercial leaders. The money flowing to the vast majority of smaller firms, including pre-commercial, R&D-phase companies — a measure we refer to as “innovation capital” — has remained flat for the last several years. As such, the question we have posed for the last two years is more relevant than ever: how can biotech innovation be sustained during a time of serious resource constraints? In this year’s Point of view article, we offer a perspective that addresses not just the challenges in the changing health care ecosystem but also the latent opportunities. The paradigm we present — the holistic open learning network, or HOLNet — takes advantage of health care’s move to an outcomes-focused, patient-centric, data-driven future. HOLNets could fundamentally change how R&D is funded and conducted, by bringing together a diverse range of participants, encouraging the pooling of precompetitive data and permitting researchers to learn in real time from each others’ insights and missteps. These are timely topics, and we look forward to exploring them with you — and helping each other learn in real time — through our Global Life Sciences Blog and other social media venues. Please look for information about the blog on ey.com/lifesciences in the months ahead and join the conversation. Ernst & Young’s global organization stands ready to help you address your business challenges. Glen T. Giovannetti Gautam Jaggi Global Biotechnology Leader Managing Editor, Beyond borders Contents 1 Perspectives 1 Point of view HOLNets: learning from the whole network 2 Focusing on what you do best • Bruce Booth, Atlas Venture 5 Collaborative innovation • David Steinberg, PureTech Ventures 7 More pharma spinoffs? • Ron Cohen, Acorda Therapeutics 8 Case study: Coalition Against Major Diseases (CAMD) • Marc Cantillon, Coalition Against Major Diseases 9 Case study: One Mind for Research • Magali Haas, One Mind for Research 10 Leveraging our strengths • Samantha Du, Sequoia Capital China 12 Making it happen: building collective intent care networks to change health care delivery • Sanjeev Wadhwa, Ernst & Young 15 Getting personal, getting networked • Christian Itin, Micromet 17 Partnering for specialization • John Maraganore, Alnylam Pharmaceuticals 20 Patient-centric innovation N. Anthony Coles, Onyx Pharmaceuticals 21 Protecting the biotech ecosystem Moncef Slaoui, GlaxoSmithKline 22 To boost R&D, stop flying blind and start observing Joshua Boger, Vertex Pharmaceuticals 25 Financial performance Recovery and stabilization 27 • United States 32 • Europe 36 • Canada 37 • Australia 39 Financing Innovative capital 44 • United States 51 • Europe 55 • Canada 59 Deals Pharma recalibrates 67 • United States 69 • Europe 71 • Canada 73 Products and pipeline Promising signs 81 Acknowledgments 82 Data exhibit index 84 Global biotechnology contacts Perspectives Point of view HOLNets: learning from the whole network The same old new normal Over the last two years, we’ve written and as numerous pressures have squeezed For much of the past, learning from extensively about the global financial crisis VC multiples — both of those preconditions the outside has been a particularly and the “new normal.” This has mainly have come under increasing strain. In the acute challenge for big pharma, as the been a new normal for capital markets aftermath of the financial crisis, therefore, “not invented here” mentality led large and financing, with implications for the the tensions that have always existed companies to dismiss innovative ideas biotechnology industry because of the beneath the surface have bubbled to that did not originate from their own labs. capital-intensive nature of biotech R&D. the top. The underlying inefficiency and Pharma companies paid a steep price for Investors and companies have responded redundancy of drug development have this closed mindset, as emerging biotech with creative approaches to make R&D become particularly incongruous in the companies stole the lead in developing more efficient and sustainable. They have current financing climate — an extravagance new generations of game-changing tweaked the existing drug development we can no longer afford. The solutions platforms and efficacious new products. paradigm (e.g., fail fast approaches) and/ we’ve seen so far, while very creative and Today, pharmaceutical companies have or made reductions in operating costs innovative, are largely tinkering around the a more outside-in approach. Not only and overhead (e.g., asset-centric models, edges — refinements and adjustments to has big pharma come to rely on biotech outsourcing, virtual business models). a long-standing drug development model. for a significant portion of its pipeline, These efforts continued over the last year. They lead to incremental improvements in but pharma companies are also boldly We have even seen the emergence of some efficiency but are unlikely to change the experimenting with new business models to new models (e.g., pharma/VC strategic numbers in a fundamental way. prepare for a future in which success will be partnerships — more on these later). determined by not just drug sales, but also the ability to demonstrably improve health However, these creative approaches are Even as health care is being outcomes. To develop these models, pharma making only marginal improvements to completely reinvented in response companies are beginning to experiment a funding and innovation business model to unsustainable increases in with partnerships with other life sciences that, while under unprecedented strain in costs, the drug development firms as well as a range of companies from the current environment, has long grappled paradigm has remained other industries: health care providers and with basic tensions. Gary Pisano of Harvard essentially unchanged. payers, information technology companies, University, for instance, has pointed out mobile telephony providers, retailers and that intellectual property (IP) is highly others. (For a deep discussion of pharma’s fragmented in the biotech industry, in part What we need, more than ever, is a new “Pharma 3.0” business model innovation, because the murky and complex nature of paradigm — something that radically refer to the 2010–12 issues of our sister IP and IP law makes companies unwilling rethinks the ways in which scientific publication, Progressions.) to share. This inevitably wastes resources insights are gained and translated into new as companies duplicate efforts. In prior products, and which creates new ways of In many ways, it is now time for the drug issues of Beyond borders, we have similarly assembling resources to fuel this important development side of the industry (including pointed to the timing mismatch between endeavor. In this year’s Point of view article, biotech) to do the same. Even as the the investment horizons of venture funds we present one such solution, something we health care ecosystem around us is being and drug development time frames. Such call holistic open learning networks. It’s an completely reinvented in response to tensions did not matter much as long as idea that builds on trends already visible in unsustainable increases in health costs, the investors were willing to put up the large the market and, more importantly, involves drug development paradigm has remained sums of capital required to fund drug learning from beyond the life sciences essentially unchanged. To understand development, and as long as they could industry and leveraging the strengths of a where the opportunities lie for reinventing earn returns high enough to keep them diverse range of entities — from providers drug development, let’s start by revisiting coming back. In the new normal — as the era and patient groups to social media networks how health care itself is changing. of easy money and high leverage has ended and data analytics firms. Point of view HOLNets: learning from the whole network 1 Outcomes, technology and big data: the new ecosystem Even as biotech adjusts to its new normal, we are in the midst of programs, payment regimes that shift financial risk to providers and other seismic shifts in the health care ecosystem, all of which have in some cases drug companies, and more. The bottom line for life implications — both challenges and opportunities — for companies in sciences companies is that they will increasingly find themselves in the business of drug development. the business of changing patient behaviors and delivering health outcomes rather than purely in the historic business of selling The shift is being driven by two trends that are occurring products. simultaneously. The first — the need to make health care costs sustainable — is driving payers to change incentives. Through Accompanying the increasingly urgent need to bring health care a range of health care reforms across key markets, payers are costs under control is the emergence of the second driver of focusing increasingly on health outcomes. Systems are shifting change — an explosion of new technologies that have the potential away from paying for products and procedures and toward paying to make health care delivery radically more efficient.