Beyond borders

Global biotechnology report 2012

To our clients and friends:
Welcome to the 26th annual issue of Beyond borders, Ernst & Youngs 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 industrys 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 years 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 cares 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 & Youngs global
organization stands ready to help you address your business challenges.
Gautam Jaggi
Managing Editor, Beyond borders
Glen T. Giovannetti
Global Biotechnology Leader
1 Perspect ives
1 Point of view
HOLNet s: learning from t he whole net work
2 Focusing on what you do best
Bruce Booth, Atlas Venture
5 Collaborat ive innovat ion
David Steinberg, PureTech Ventures
7 More pharma spinoffs?
Ron Cohen, Acorda Therapeutics
8 Case st udy: Coalit ion Against Major Diseases (CAMD)
Marc Cantillon, Coalition Against Major Diseases
9 Case st udy: One Mind for Research
Magali Haas, One Mind for Research
10 Leveraging our st rengt hs
Samantha Du, Sequoia Capital China
12 Making it happen: building collect ive int ent care net works t o change healt h care delivery
Sanjeev Wadhwa, Ernst & Young
15 Get t ing personal, get t ing net worked
Christian Itin, Micromet
17 Part nering for specializat ion
John Maraganore, Alnylam Pharmaceuticals
20 Patient-centric innovation
N. Ant hony Coles, Onyx Pharmaceut icals
21 Protecting the biotech ecosystem
Moncef Slaoui, GlaxoSmit hKline
22 To boost R&D, stop flying blind and start observing
Joshua Boger, Vert ex Pharmaceut icals
25 Financial performance
Recovery and st abilizat ion
27 United States
32 Europe
36 Canada
37 Australia
39 Financing
Innovat ive capit al
44 United States
51 Europe
55 Canada
59 Deals
Pharma recalibrat es
67 United States
69 Europe
71 Canada
73 Product s and pipeline
Promising signs
81 Acknowledgment s
82 Dat a exhibit index
84 Global biot echnology cont act s
Contents
Perspectives
1
Point of view
HOLNets: learning from the
whole network
The same old new normal
Over the last two years, weve written
extensively about the global financial crisis
and the new normal. This has mainly
been a new normal for capital markets
and financing, with implications for the
biotechnology industry because of the
capital-intensive nature of biotech R&D.
Investors and companies have responded
with creative approaches to make R&D
more efficient and sustainable. They have
tweaked the existing drug development
paradigm (e.g., fail fast approaches) and/
or made reductions in operating costs
and overhead (e.g., asset-centric models,
outsourcing, virtual business models).
These efforts continued over the last year.
We have even seen the emergence of some
new models (e.g., pharma/VC strategic
partnerships more on these later).
However, these creative approaches are
making only marginal improvements to
a funding and innovation business model
that, while under unprecedented strain in
the current environment, has long grappled
with basic tensions. Gary Pisano of Harvard
University, for instance, has pointed out
that intellectual property (IP) is highly
fragmented in the biotech industry, in part
because the murky and complex nature of
IP and IP law makes companies unwilling
to share. This inevitably wastes resources
as companies duplicate efforts. In prior
issues of Beyond borders, we have similarly
pointed to the timing mismatch between
the investment horizons of venture funds
and drug development time frames. Such
tensions did not matter much as long as
investors were willing to put up the large
sums of capital required to fund drug
development, and as long as they could
earn returns high enough to keep them
coming back. In the new normal as the era
of easy money and high leverage has ended
and as numerous pressures have squeezed
VC multiples both of those preconditions
have come under increasing strain. In the
aftermath of the financial crisis, therefore,
the tensions that have always existed
beneath the surface have bubbled to
the top. The underlying inefficiency and
redundancy of drug development have
become particularly incongruous in the
current financing climate an extravagance
we can no longer afford. The solutions
weve seen so far, while very creative and
innovative, are largely tinkering around the
edges refinements and adjustments to
a long-standing drug development model.
They lead to incremental improvements in
efficiency but are unlikely to change the
numbers in a fundamental way.
What we need, more than ever, is a new
paradigm something that radically
rethinks the ways in which scientific
insights are gained and translated into new
products, and which creates new ways of
assembling resources to fuel this important
endeavor. In this years Point of view article,
we present one such solution, something we
call holistic open learning networks. Its an
idea that builds on trends already visible in
the market and, more importantly, involves
learning from beyond the life sciences
industry and leveraging the strengths of a
diverse range of entities from providers
and patient groups to social media networks
and data analytics firms.
For much of the past, learning from
the outside has been a particularly
acute challenge for big pharma, as the
not invented here mentality led large
companies to dismiss innovative ideas
that did not originate from their own labs.
Pharma companies paid a steep price for
this closed mindset, as emerging biotech
companies stole the lead in developing
new generations of game-changing
platforms and efficacious new products.
Today, pharmaceutical companies have
a more outside-in approach. Not only
has big pharma come to rely on biotech
for a significant portion of its pipeline,
but pharma companies are also boldly
experimenting with new business models to
prepare for a future in which success will be
determined by not just drug sales, but also
the ability to demonstrably improve health
outcomes. To develop these models, pharma
companies are beginning to experiment
with partnerships with other life sciences
firms as well as a range of companies from
other industries: health care providers and
payers, information technology companies,
mobile telephony providers, retailers and
others. (For a deep discussion of pharmas
Pharma 3.0 business model innovation,
refer to the 201012 issues of our sister
publication, Progressions.)
In many ways, it is now time for the drug
development side of the industry (including
biotech) to do the same. Even as the
health care ecosystem around us is being
completely reinvented in response to
unsustainable increases in health costs, the
drug development paradigm has remained
essentially unchanged. To understand
where the opportunities lie for reinventing
drug development, lets start by revisiting
how health care itself is changing.
Point of view HOLNet s: learning from t he whole net work
Even as health care is being
completely reinvented in response
to unsustainable increases in
costs, the drug development
paradigm has remained
essentially unchanged.
2
Outcomes, technology and big data: the new ecosystem
Even as biotech adjusts to its new normal, we are in the midst of
other seismic shifts in the health care ecosystem, all of which have
implications both challenges and opportunities for companies in
the business of drug development.
The shift is being driven by two trends that are occurring
simultaneously. The first the need to make health care costs
sustainable is driving payers to change incentives. Through
a range of health care reforms across key markets, payers are
focusing increasingly on health outcomes. Systems are shifting
away from paying for products and procedures and toward paying
for performance. This is playing out in multiple ways: comparative
effectiveness research, prevention and disease management
programs, payment regimes that shift financial risk to providers and
in some cases drug companies, and more. The bottom line for life
sciences companies is that they will increasingly find themselves in
the business of changing patient behaviors and delivering health
outcomes rather than purely in the historic business of selling
products.
Accompanying the increasingly urgent need to bring health care
costs under control is the emergence of the second driver of
change an explosion of new technologies that have the potential
to make health care delivery radically more efficient. Electronic
health records, which have existed in concept for decades but never
really gained much traction, are being used in larger numbers than
Beyond borders Global biot echnology report 2012
Focusing on what you do best
Bruce Booth, PhD
Atlas Venture, Partner
The simple answer to sustaining innovation is that each player in the ecosystem should focus on what it does best.
Academics should focus on basic research and early biologic target validation. Start-ups, with experienced talent, unleashed from
the constraints of big-company behavior, should experiment with lots of approaches for high-value, emerging targets: biological
variables (e.g., different drug modalities such as NCEs, mAbs, peptides, antisense and RNAi), clinical variables (e.g., patient subtypes,
new translational designs, repurposing and indications discovery), organizational variables (e.g., virtual CRO-enabled models vs.
fully integrated teams) and business model variables (e.g., drug platforms vs. single-asset companies). We should let a lot of start-up
flowers bloom. Some will grow, some wont.
Venture capitalists traditional and corporate venture funds along with alternative capital providers such as angel investors and
philanthropic foundations should strive to allocate resources to winning experimental start-up models. Importantly, these capital
providers need to be disciplined about reducing the costly false positives in drug research and reallocate to new opportunities more
efficiently.
Big pharma companies should participate in this diverse research ecosystem through open innovation strategies that pair up their
deep capabilities (e.g., chemical libraries, biologics technologies) and creative partnering power with the agility, specific expertise,
and passion of the start-up culture. As valuable, high-impact medicines emerge from this research ecosystem into the later stages of
clinical development, big pharma should bring its balance sheet and unparalleled global development and marketing capabilities to
successfully drive new drug approvals and commercial launches.
Sharing value across these various elements from target validation through product sales would help foster a vibrant, healthy
ecosystem. Of course, this is all great in theory. Unfortunately, things such as legacy infrastructure, cultural differences, decision-
making inertia, frictional costs, resource misallocation, misperception of risk, and winner-take-all mindsets conspire to make this
efficient ecosystem a challenge. But that doesnt mean we shouldnt keep trying.
3
ever before, as policy makers increase incentives for adoption.
Mobile health technologies have taken off in a big way, as an
incredible variety of smartphone apps are empowering patients with
more transparent information and a greater ability to monitor and
manage their own health. Health-specific social media platforms
have emerged, allowing patients and physicians to interact with
their peers and with each other to discuss their progress and side
effects and learn from each other in real time. A sea of sensors
embedded not just in new generations of medical technology
products but even in everyday objects such as mobile phones,
weighing scales, running shoes, sportswear and wristwatches
are providing real-time feedback to patients and their caregivers,
allowing for better management of health and a greater focus on
prevention.
Since all of these technologies are generating massive amounts of
data, a significant corollary of the changing ecosystem is health
cares move to the era of big data. We are already seeing dramatic
increases in the amount of data being generated from numerous
sources genomic research, clinical trials, electronic medical
records, wireless devices, smartphone apps and social media
platforms, to name a few with the volume expected to grow
exponentially. The 1000 Genomes Project an initiative to analyze
large amounts of genomic data to find genetic variants that affect
at least 1% of the population has already built a data set that
is 200 terabytes in size, the equivalent of 16 million file cabinets
worth of text. Across the US health care system, it is estimated
that the amount of data crossed the 150 exabyte threshold
(150 billion gigabytes) last year. But big data is not just about
more information. Its also about more types of information (e.g.,
health records, medical claims data, social media threads, imaging
data, video feeds, data from sensors) from more diverse sources.
While drug development companies have always been steeped in
a culture of data (indeed, their very success has depended on the
quality of the clinical trial data they generate), in the era of big
data, most of this information will be generated in real time, will be
controlled by others and will cut across the value chain, from R&D
to health care delivery.
In the 2010 issue of Progressions, we discussed how big data
is driving a new trend with tremendous implications for drug
companies. Payers and others are mining electronic health records
and other data to identify correlations and make assessments about
interventions and standards of care. This development something
we termed value mining, or the use of data mining to make
decisions about the relative value of products and interventions
means that other entities are making decisions about drug
companies products using data that is outside the control of these
firms. Even more compelling, value mining is much quicker and
cheaper than the way drug companies have traditionally gained
insights about the value of medical products the extended process
of hypothesis testing through clinical trials.
To date, value mining has only happened at the commercial end of
the value chain, to assess the value of marketed products. But what
if the power of big data could be harnessed to similarly develop
quicker, real-time insights about candidates in the pipeline? How
much power could we unleash by connecting the dots between the
huge volumes of data scattered across the ecosystem? How do we
achieve this potential and who could take the lead? We think these
are compelling questions, and we turn to them next.
Point of view HOLNet s: learning from t he whole net work
What if the power of big data could be harnessed to
similarly develop quicker, real-time insights about
candidates in the pipeline?
4 Beyond borders Global biot echnology report 2012
Reinventing R&D: learning from the ecosystem
Over the last few decades, as the emergence of the modern
biotechnology industry introduced new technologies to the drug
development process, there has been considerable innovation in
the capabilities used to conduct R&D. Combinatorial chemistry
and high-throughput screening have brought industrial-scale
processes to drug development by allowing for the automated
generation and testing of enormous numbers of potential drug
candidates. Pharmacogenetics and other personalized medicine
approaches have created the potential for developing therapeutics
that are vastly more targeted and efficacious on individual patients.
Meanwhile, the emergence of bioinformatics brought with it the
promise of bringing drug development into the information era,
by enabling the use of computers for understanding disease
mechanisms, predictive modeling, drug synthesis, testing and more.
Yet, despite these innovations, R&D productivity has not improved
drug approvals have not increased to any appreciable degree,
while development costs have escalated. Indeed, the process of
developing drugs has remained unchanged in several key respects.
Despite the new technologies that have been introduced, drug
development is still linear, slow, inflexible, expensive and siloed:
Linear. Drug R&D is conducted in a stepwise manner. Through
a series of preclinical studies and clinical trials in sequentially
larger populations, researchers seek to answer questions related
to safety, ef cacy and dosages.
Slow. The process of taking a compound or molecule from
early research to approved product takes well over a decade. In
essence, researchers come up with an idea and then wait years
to nd out whether it works.
Inflexible. The drug development process is also very rigid.
This is particularly tragic given the length of the process.
Over months and years of trials, valuable information is being
gathered. Yet, the double blinding of trials effectively means
that researchers can only learn at a few points along the process
when the current phase of clinical trials is completed and the
data analyzed. There is little ability to learn continuously and
adjust ones approach based on real-time information.
Expensive. An inevitable consequence of this slow and in exible
process is that drug development has become increasingly
expensive. On average, companies spend well over US$1 billion
to bring an approved drug to market (a number that includes the
cost of products that fail along the way).
Siloed. Lastly, the R&D process is highly fragmented. Driven by
the need to protect their intellectual property, companies fail to
learn from experiences and the mistakes of others.
Of course, there is good reason for much of this, including
regulatory requirements that define the approval process and the
fact that firms have always succeeded or failed on the strength
of their intellectual property. But we can no longer afford to keep
doing things this way, particularly in todays resource-constrained,
escalating-cost environment. Instead of a drug development
paradigm that is linear, slow, inflexible, expensive and siloed,
we desperately need one that is iterative, fast, adaptive, cost-
efficient and open/networked.
We are already seeing examples that are taking us in this direction.
As discussed extensively in the last two issues of Beyond borders, a
host of new approaches are attempting to make drug development
faster and more cost-efficient, from fail-fast R&D paradigms to
asset-centric funding models that attempt to get to a value-creating
proof-of-concept milestone with minimal overhead. To make R&D
more fast, iterative and adaptive, there has been a growing focus
on adaptive clinical trials. In one particularly noteworthy example,
the I-SPY2 trial, three drug companies are collaborating to screen
multiple breast cancer drugs, each targeting a different pathway.
The trial has an adaptive design under which patient outcomes are
immediately used to inform treatment assignments for subsequent
trial participants. The trial designers claim that I-SPY 2 can test
new treatments in half the time of standard trials, at a fraction of
the cost and with significantly fewer participants. Meanwhile, weve
seen several examples of more open approaches, from an uptick in
precompetitive collaboration to GlaxoSmithKlines contribution of
intellectual property for neglected tropical diseases.
To take such efforts to the next level, we now need mechanisms for
breaking down silos more broadly. We need processes for sharing
information and learning from the ecosystem in real time. We
need to move to a world in which the division between the R&D
and commercial ends of the value chain becomes increasingly
meaningless because scientists and practitioners are continuously
gaining insights from data being generated across the value chain
and throughout the cycle of care. To achieve all of this, we propose
the widespread use of holistic open learning networks (HOLNets).
The four characteristics embedded in this moniker dont just define
HOLNets each one of them is also a critical requirement for the
success of this approach:
Holist ic. The HOLNet approach represents a vastly different
and inclusive approach to R&D. The boundaries between drug
development, product commercialization and health care
delivery are blurred. Rather than being con ned to the traditional
siloed and sequential approach to drug development, HOLNets
would share data and connect dots across the entire value chain
of companies (from early research to marketing) and cycle of
care of patients (from prevention to cure).
Open. One of the biggest changes in the HOLNet approach is
openness. While the speci c rules of each HOLNet will depend on
the needs and preferences of its members, these networks will
typically require that members pool their strengths and assets
(e.g., talent and precompetitive data). They will also involve
sharing any resulting output (e.g., creating open standards,
making insights available to all members and often to non-
members as well). This is one of the most powerful aspects of a
HOLNet, since it has the potential to make R&D radically more
ef cient and productive, by reducing redundant expenditures
and allowing researchers to learn from each others insights and
mistakes. But in an industry where companies have historically
operated under shrouds of secrecy, this is also one of the
biggest obstacles to the adoption of HOLNets by life sciences
rms. Consequently, HOLNets will need to address intellectual
property concerns by clearly de ning precompetitive information
that is available for sharing as opposed to information that is
proprietary. It is encouraging that the term precompetitive
is being used more broadly in recent years, as companies
grow willing to collaborate in areas once considered sources of
competitive advantage. But we believe that the notion of the
precompetitive space will have to expand even further, changing
to some extent the very basis of competition. For example, while
it is entirely appropriate for companies to compete based on
the effectiveness of molecules they discover, is it essential that
they compete on all underlying technologies (e.g., biomarkers)
and even on processes such as clinical trial enrollment?
Companies are growing increasingly comfortable with the
notion of collaborating with competitors, and as well see later,
early examples of networks that are taking open approaches to
intellectual property have had no problem attracting large and
small life sciences members.
Learning. Above all, HOLNets are about learning their
raison dtre. But while learning in the drug development process
has historically been slow, sequential and siloed, HOLNets are
about learning rapidly, in real time, by connecting data from
across the ecosystem. Real-time learning allows constituents to
quickly adjust their approaches from clinical trials to standards
of care saving time and money and increasing success rates.
But to learn from big data, we need standards that allow data to
be combined as well as sophisticated analytics to mine insights
capabilities that HOLNets will need to enable and foster.
Net work. Last, but not least, a HOLNet has to be a network.
Radically reinventing R&D and unleashing the transformative
potential of big data requires the participation of diverse players
from across the ecosystem. The network needs a common goal
a collective intent around which all its members are aligned.
Different entities dont all need to do the same thing indeed,
given their diverse backgrounds and strengths, it would be
better if they didnt but they do need to be pulling in the same
direction. The optimal network size and participants will depend
on the challenge being addressed.
5 Point of view HOLNet s: learning from t he whole net work
Collaborat ive innovat ion
David Steinberg
PureTech Ventures, Partner
To sustain innovation, we could do two things. First, lets reduce
redundant research. Theres no reason every pharma has to
study fundamental biology in every research area, wasting
hundreds of millions of dollars in the process. Academics, NIH,
pharma and entrepreneurs should work together to explore
new biology areas and get them drug development ready.
Pharma and biotech can access the assays, probes, etc., and do
their own drug development. Second, lets parallelize biotech
entrepreneurship. Typically, solo entrepreneurs work for two
years and then pitch to VCs, who then pivot, work for two to
three more years, and pitch to pharma, who then discard all but
the one program of interest. Lets get entrepreneurs, VCs and
pharmas working together, at the same time, to start and fund
biotech start-ups around a common vision.
6 Beyond borders Global biot echnology report 2012
HOLNets in action
When all of this comes together when an initiative is a truly
holistic, open, learning network with a diverse set of stakeholders
it has the potential to tangibly transform the ways in which insights
are gathered and new drugs developed. In practice, a HOLNet could
play a critical role in:
Pooling dat a. Because of their charter to be open and learn by
connecting diverse data sets, HOLNets can enable the pooling
of data in precompetitive spaces. This becomes particularly
compelling given their diverse membership, since these networks
could bring together genetic data from patients, claims data
from payers, outcomes data from providers EHR systems, data
on failed clinical trials from life sciences companies, insights from
disease foundations and more. They can create common pools
for their members (and perhaps non-members) to draw from,
including shared libraries and tissue banks.
Creat ing st andards. The pooling of data raises a corollary
question: standards. This is another area where HOLNets can
play a much-needed role. After all, data sharing means nothing
unless data can also be combined and studied holistically.
Without uniform standards and the ability to collectively analyze
this information, pooled data is not big data its just a collection
of smaller data sets. Developing standards will also play a big
role in accelerating the creation of promising R&D tools, such
as biomarkers and disease models. And once again, by putting
these standards, assets and insights into the public domain, a
HOLNet can help make drug R&D vastly more productive and
ef cient across the breadth of the ecosystem.
Engaging regulators. As articulated earlier, much of what life
sciences companies and other health care entities do is de ned
by regulatory regimes. To truly unleash the potential of the
HOLNet approach, it will be essential that regulators adapt to
a world in which insights can be gathered in real time through
more exible approaches. As entities that represent a broad
coalition of partners often focusing on diseases that are
becoming high priorities for policy makers HOLNets will have
the credibility to engage with regulators and/or to encourage
new approaches to R&D and clinical trial design. The good news
is that regulators recognize the need to move in this direction.
Senior leaders from the FDA, for instance, have gone on
record encouraging experimentation, and there is at least one
compelling example of a exible, learning clinical trial paradigm
the I-SPY2 trial discussed earlier.
Engaging pat ient s. But regulators are not the only entities
with which HOLNets will engage. The new ecosystem is, in
essence, a patient-centric world, and HOLNets will need to
engage with patients by identifying relevant populations
(perhaps with the assistance of disease foundations), developing
ongoing relationships with them and collecting their data
with their informed consent. This has the potential to enable
better outcomes through an increased focus on prevention
and health management, but it also has tremendous bene ts
for drug R&D. Based on these ongoing relationships and a
deeper understanding of patients real-world experiences with
their conditions and medications, HOLNets can provide new
insights for the drug development process. In addition, it may
be possible to substantially speed up clinical trial enrollment.
The existing paradigm of clinical trials in which a hypothesis is
articulated rst, a trial protocol is developed next and only then
do researchers start looking for appropriate patients to enroll
can be turned on its head. A world in which HOLNets have
existing patient relationships and databases with comprehensive
information including contact information, genetic pro les,
conditions, disease states and prior treatments is one in which
patients have in essence been pre-screened. With patients
already identi ed (and perhaps consent to participate in trials
obtained in advance) appropriate individuals can quickly and
easily be enrolled once a suitable trial comes along.
7 Point of view HOLNet s: learning from t he whole net work
To achieve their full potential, HOLNets will need an organization
at the center to orchestrate all these activities and to balance the
needs and priorities of members. The organization needs dedicated
human resources, which could be a combination of full-time
employees and talented individuals on secondment from member
organizations.
We are seeing examples that do much, but not all, of this. At the
R&D end of the value chain, the charge is being led by disease
foundations and other nonprofits, often focused on brain diseases.
For instance, the Alzheimers Disease Neuroimaging Initiative
(ADNI), an early example of this sort of collaboration, was set up in
the early 2000s to identify biomarkers that show the progression
of Alzheimers. The initiative a public-private-partnership with
funding from the National Institutes of Health as well as private
partner support from various companies and associations
deliberately took an open approach to information. All data coming
out of its studies are immediately released to the public over the
internet. NewDrugs4BadBugs, a new European initiative to combat
antibiotic-resistant bacteria, is bringing together several entities,
including the Innovative Medicines Initiative, GlaxoSmithKline,
Sanofi, AstraZeneca, Janssen and Basilea. The initiative plans
to share data openly, develop better networks of researchers
and create more fluid trial designs. Two other initiatives in the
neuroscience space One Mind for Research and the Coalition
Against Major Diseases are profiled in greater depth in the
accompanying articles by Marc Cantillon and Magali Haas on
pages 8 and 9. These initiatives and numerous other examples
the CommonMind Consortium, the Biomarkers Consortium, the
Structural Genomics Consortium, the Multiple Myeloma Research
Consortium and others are seeking to assemble a diverse network
of actors to pool data, develop common standards and accelerate
research, often with the requirement that data and insights be
shared openly.
More pharma spinoffs?
Ron Cohen, MD
Acorda Therapeutics, President and CEO
Were already seeing the ecosystem trying to adapt to the
challenge of sustaining innovation. For example, some VCs are
now emphasizing single-product plays, designed to be advanced
to a value-creating clinical endpoint with minimal infrastructure
and cost, relying heavily on outsourcing to CROs and with
the aim of selling to a pharma company once milestones are
attained. Some are entering into funds together with pharma
companies to leverage both capital and expertise though this
may not be truly novel, since many pharma companies have had
their own venture arms for years. In the recently announced
partnership between Johnson & Johnson, GlaxoSmithKline and
Index Ventures, the pharma companies will get a first look at
early-stage projects funded by the Index fund. Sanofi and Third
Rock Ventures have an arrangement that is focusing on single
product plays. Several pharma companies are trying to inject a
biotech-like risk-taking ethos into their discovery/development
programs, by creating smaller, more focused units, often with a
mandate to partner with outside academic and biotech
groups as needed (e.g., GlaxoSmithKlines Discovery
Performance Units).
One could imagine more variations. Pharma might actually
create mechanisms for some of its talent to propose ideas for
spinoff companies based on ideas or products in development,
giving the pharma right of first offer after certain milestones
are attained. The companies could be funded by the pharma
company or in partnership with a VC fund.
continued on page 10
When all of this comes together when an initiative is
a truly holistic, open, learning network with a diverse
set of stakeholders it has the potential to tangibly
transform the ways in which insights are gathered and
new drugs developed.
Marc Cantillon, MD
Former Executive Director and R&D Consultant
Case study
Coalition Against Major Diseases (CAMD)
8 Beyond borders Global biot echnology report 2012
Behavior originates in needs and signals from the environment.
So my decision to be a founding member of the Coalition Against
Major Diseases (CAMD) in 2008 was guided by my needs. At
the time, I was head of neuroscience clinical development
at Schering-Plough and was seeking a neutral venue for the
precompetitive sharing of development tools. As a collaborative
effort to accelerate the translation of scientific discoveries
into treatments, CAMD a part of the Critical Path Institute
provided such a venue. The coalition, which focuses on diseases
in which the efforts of individual pharma actors have made little
headway, took on Alzheimers disease (AD) and Parkinsons
disease (PD) as its first challenges.
CAMD members are scientists from pharma, biotech, universities,
government organizations (e.g., FDA and NIH) and patient/
voluntary health organizations. All members must abide by
a uniform charter, which requires them to share data and
contribute time and energy. To avoid even a perceived conflict of
interest, CAMD doesnt accept money from the pharma industry,
relying instead on competitive grants. A uniform charter requires
that any IP developed by the consortium is shared creating a
pool of knowledge and assets that could truly accelerate R&D
while allowing members to protect material that they developed
independently of their collaborative efforts. Yet, IP concerns have
in no way hampered the ability to attract life sciences members.
To the contrary, these companies see a net benefit from joining.
The advantages of being a member of CAMD span the three areas
in which the coalition is focused: data sharing, disease modeling
and biomarkers.
Dat a sharing. CAMD, working with the Clinical Data
Interchange Standards Consortium, has done groundbreaking
work in creating common AD data standards something no
company could achieve alone. Indeed, different standards
even within companies prevented rms from combining their
own clinical trials, much less those of multiple entities, in
a common database. For instance, there was no consistent
way of recording answers to questions on memory, recall,
etc., that are part of the Alzheimers Disease Assessment
Scale-Cognitive subscale (ADAS-cog, the main benchmark
for measuring outcomes). In June 2010, CAMD solved this
problem when it created a standard database combining the
placebo arms of members Alzheimers trials. Data sharing
and common standards could drive faster drug development
and faster review by the FDA. Today, we are in the early stages
of an explosive increase in the amount of health data, and
its happening faster than most people probably would have
anticipated. But again, unless these data are collected in a
standardized way, their true potential will not be realized.
Disease modeling. Standardizing and sharing data will
allow for the development of disease models to understand
differences in progression in different categories of patients
(e.g., by age, ethnicity and medication). This does not need to
be limited to traditional research settings. With large volumes
of secure anonymized data, theres no reason we couldnt use
these assets to better understand when memory problems
begin, identify early warning signs and track the course of the
disease which could help develop new treatments and also
boost prevention. To be used in the regulatory context, these
disease models need to be widely accepted. It can be a tough
sell for a drug company to get the FDA to accept proprietary
disease models when the agency hasnt had a say in vetting
these models. But all of that changes in a coalition like CAMD,
where the FDA is a member and actively involved in developing
disease models.
Biomarkers. Biomarkers have tremendous potential for helping
us understand disease mechanisms and subtypes and selecting
patients in clinical trials. Once again, we need standards
biomarkers that are validated, standardized and quali ed
for use and a single company will have less credibility and
resources to establish standards than a collaborative effort.
Approaches such as CAMD are not just for large pharma; they are
equally relevant and useful for R&D-stage biotech firms. While
small companies may sometimes see biomarker identification
as a source of competitive advantage, the truth is that they
stand to benefit from establishing standards in such areas. In
addition, members can gain early access to the FDA potentially
working to create review standards and gaining early visibility
into standards as they are being created. For too long, our
industry has resisted sharing. Today, we are seeing a rethinking
of where companies should compete and where they might join
forces. Collaborations such as CAMD can be critical in sharing
data, establishing standards and accelerating the development of
much-needed cures.
Magali Haas, MD, PhD
Incoming Chief Science & Technology Officer
Case study
One Mind for Research
9 Point of view HOLNet s: learning from t he whole net work
One Mind for Research was founded by Patrick Kennedy (son of
the late Senator Ted Kennedy) and Garen Staglin (co-founder of
the International Mental Health Research Organization). They
launched the One Mind Campaign on 25 May 2011, the 50th
anniversary of President John F. Kennedys famous moon-shot
speech.
One Minds mission is to accelerate neuroscience research so that,
within a decade, all humanity can experience a lifetime free of
brain disease. Like President Kennedys moon shot, this is a bold,
audacious goal, but we feel that without an ambitious target, we
will not get the urgency, resources and alignment thats needed.
A collaborative approach is critical for this challenge. The brain
is the most complex organ in the human body and also one
of the most inaccessible. To date, neither academia nor the
pharmaceutical industry has fully understood the mechanisms of
the brain. We will need the holistic involvement of all stakeholders
industry, governments, patients, academic organizations,
advocacy groups each of which holds a piece of the puzzle.
Historically, the level of investment in brain research has not
been proportionate to the burden this disease imposes on society
something we are only starting to appreciate. Last year, for
the first time, the European Brain Commission estimated the
aggregate burden imposed by 19 brain disorders on that society.
The total they came up with was a staggering US$1 trillion. For
the first time, Europe recognizes that this is the number one
priority for their health care agenda.
We have yet to do such a comprehensive assessment in the US,
where we still look at brain disorders disease by disease instead of
thinking of the brain as one organ system. However, a preliminary
independent study conducted for the US came up with a similar
estimate for the economic burden in this country.
When you add to that the social stigma still associated with these
conditions, one can appreciate why we havent focused on how
burdensome brain disorders are and how much the loss of mental
capital constrains our society.
Compounding the challenge, we are now seeing a reduction in
investment in brain research. Investors have become frustrated
by relatively low returns on investment, driven by the poor
understanding of brain disease mechanisms and the inability to
translate basic science to advance the drug pipeline.
To really change things, we have to change the way we work. That
is what One Mind is attempting to do, by gathering resources,
aligning stakeholders, prioritizing an agenda, promoting a culture
of sharing, transforming public policy and eliminating stigma. We
see ourselves as a central trusted third-party organization whose
single mission is to accelerate the development of preventions and
cures and eliminate the silos that have slowed our progress.
We are going about this in three ways. First, we are raising
awareness about the impact and burden of these disorders. This
is critical for building public support among policy makers and the
public and making brain disorders a top priority on the health care
agenda.
Second, we are seeking to de-risk the model to stimulate
investment. To do this, we will need to accelerate research by
generating a knowledge base across disorders, understanding
mechanisms of action, conducting large-scale trials, identifying
biomarkers and developing disease models. All of this requires
combining data from various stakeholders not just clinical trial
data, but also real-time information from patients about their
conditions.
Third, we are trying to alter the policy landscape. This
encompasses everything from incentive models to motivate
cooperation and sharing, to regulatory constructs, IP patent
constructs and more. These are all issues that need to be
systematically addressed.
Our corporate partners are essential to this effort. It will take the
combined capabilities of companies from numerous industries
pharma, biotech, information technology and others to advance
this field. Depending on their strengths, companies can contribute
different assets data, platforms, imaging capabilities and, of
course, financial investments. We hope that many companies will
allow representatives from their organizations to work with us in
workshops or even do rotational fellowships with us.
The One Mind model is every bit as relevant for early-stage R&D
companies, and we have a number of small biotech companies as
members. At a time when the FDA is revising its guidelines for
medical device companies and biomarker platforms, companies
in these areas need evidence that their platforms provide valid
clinical insights. This typically requires larger studies than small
companies can afford. But in this cooperative model, small
companies can test their platforms against the large datasets,
which is far quicker and more cost-effective than if they tried to
generate their own large datasets. Similarly, a small therapeutic
company will benefit from the disease models One Mind is
building, which will allow them to pursue personalized medicine
approaches more efficiently.
One Mind is already reshaping the boundaries between
competitive research and precompetitive collaboration. For
example, we are developing disease models that we plan to put
into the public domain. Not too long ago, this was an area where
companies would have wanted their own unique IP protected
models. To accelerate the development of new cures, such shifts
are long overdue.
10 Beyond borders Global biot echnology report 2012
One organization that is playing a central role in driving for more
open drug development is Sage Bionetworks, a Seattle-based
nonprofit organization that was founded in 2009. One of the
organizations first initiatives, the Sage Commons, has created
an open source community where computational biologists can
develop and test competing models built from common resources.
The Sage Commons platform allows for integrating large data sets
from various health ecosystem constituents and making them freely
available for genomics analysis and predictive disease modeling.
Earlier this year, Sage announced the creation of Portable Legal
Consent (PLC), a potentially game-changing standard that reverses
the way in which consent is typically obtained from patients. Anyone
participating in a clinical trial or having their genome sequenced
would now have the option of making their data available to any
researcher who accepts the terms of the PLC approach (including
the requirement that any discoveries from this data must also be
put in the public domain). The data is anonymized and Sage has
gone to considerable lengths to make sure that consent is truly
informed (e.g., through online tutorials that cannot be bypassed).
With PLC, researchers would save time, because they do not have to
obtain consent from subjects every time they initiate a new study,
while patients could have greater confidence that any use of their
data will comply with a standard set of rules. Perhaps the most
promising implication of the PLC approach, though, is that having
a widely adopted standard for consent could allow for data sets to
be combined and analyzed in aggregate unleashing the power of
big data.
At the same time, we are also seeing examples at the other end
of the value chain health care delivery. For instance, Sanofi has
recently partnered with the Baltimore County Department of Aging,
the John A. Hartford Foundation and the National Coalition on
Aging on a pilot program to help doctors connect older diabetics
with evidence-based education and wellness support. Merck & Co.
has partnered with the Camden Coalition of Healthcare Providers
to create the Camden Citywide Diabetes Collaborative to implement
comprehensive diabetes prevention and management programs
in the city of Camden, New Jersey. Similarly, Eli Lilly and Company
is partnering with Anthem Blue Cross Blue Shield and five Indiana-
based health care providers to achieve better health outcomes
for diabetes patients. (For more on how collaborative network
approaches are transforming health care delivery, refer to the
article by Sanjeev Wadhwa on page 12.)
Many of these initiatives at both ends of the value chain have
key aspects of HOLNets. They are networks that bring together a
diverse set of actors. They are often open, insisting that information
be shared openly to facilitate greater learning. For the most part,
though, they are not holistic, in that they are still confined to
traditional definitions of R&D and commercial delivery.
Over time, we believe there is a case for more of these initiatives
to expand across the value chain, to truly unleash the power of
data being generated throughout the ecosystem. In particular, as
discussed below, we think that pharma companies could play a big
role in driving the widespread adoption of these networks.
Leveraging our st rengt hs
Samantha Du
Sequoia Capital China, Managing Director
By leveraging our strengths, biotech firms, investors and
pharma companies can effectively increase R&D productivity
and efficiency. Biotechs strengths are its entrepreneurship,
operational efficiency (much less bureaucracy) and focus,
while pharma can contribute high-quality late development and
commercialization excellence. Biotech start-ups need to think
very early about partnering with pharma companies to access
their domain expertise. Investors will continue to be critical in
todays challenging business climate. For a resource-constrained
biotech start-up, it is crucial to work with investors that can
provide not just capital but also appropriate knowledge and
networks. Lastly, non-dilutive capital from governments and
foundations can be very helpful in todays resource-constrained
environment.
A key part of the solution will be robust and relevant regulatory
regimes. In a highly regulated industry such as ours, regulators
(e.g., the FDA, EMEA and SFDA) are key ecosystem stakeholders.
Without efficient and progressive regulators, no amount of
effort from biotech and pharma will change the productivity and
capital efficiency of the drug development model.
11 Point of view HOLNet s: learning from t he whole net work
Getting there
While the HOLNet is a compelling vision of a future state that could
make drug development vastly more efficient and productive, it
has always been easy to imagine utopian health care systems. The
challenge in this business is inevitably in how we get there. The
health care ecosystem is so complex and intertwined with so many
competing constituencies and interests that aligning incentives
and structures is no mean task.
The good news is that health care has never been more primed for
this sort of collaborative approach. The unprecedented pressures
that many of its denizens now face from payers wrestling with
runaway costs and rapidly aging populations, to big pharmas
pipeline challenges, to emerging biotech startups and investors
grappling with a strained innovation model are starting to change
mindsets and dismantle long-standing barriers. This is being further
catalyzed by changing incentives, new technologies and new
sources of data all of which play a key role in driving the shift to
HOLNets.
Now, more than ever, the approach we describe above is feasible
because it is in the self-interest of the entities that would need to be
part of it:
Big pharma
We think that the pharmaceutical industry is well positioned at this
point in time to play a major role in making this approach more
mainstream and widespread, for several reasons. For pharma
companies, the biggest challenge, of course, is the patent cliff over
which they are now plunging and the fact that their pipelines are not
robust enough to fill the significant revenue gaps that will inevitably
follow.
Pharma companies have been reacting to these challenges
by restructuring and sharpening their strategic focus. As it
becomes increasingly clear that companies cannot do everything,
everywhere that they have in the past, pharma firms are evaluating
which diseases, product segments and geographic markets are
most strategic for them leading companies to sell or spin off entire
divisions while moving more aggressively into other segments.
As their strategies move in different directions against a backdrop
of an ecosystem where innovation is under pressure pharma
companies recognize that it is in their strategic interest to sustain a
robust ecosystem of innovative biotech companies and investors. It
is not surprising, therefore, that we have seen a dramatic uptick in
transactions in which pharma companies are partnering with VCs to
send more capital in directions that are strategic to them. In the last
few months alone, we have seen such partnerships between Shire
and Atlas Venture (to invest in rare diseases), GlaxoSmithKline,
Johnson & Johnson and Index Ventures (targeting early-stage
investments), Merck and Flagship Ventures and others.
But the ripple effects of pharma companies patent expirations
extend beyond their walls. As more and more products become
subject to generic competition, pharma will have less aggregate
capacity to engage in activities such as corporate venture capital,
strategic alliances and M&A transactions all of which have
provided a continuing source of funding for biotech companies
even as financial investors (VCs and public markets) have become
more stringent. For this years Beyond borders, Ernst & Youngs
Transaction Advisory Services professionals have built a model
to estimate the reduction in big pharmas firepower to support
the innovation ecosystem. By our calculations, the capacity of
the top 28 biopharmaceutical companies has already declined by
about 30% between 2006 and 2011. Much of pharmas remaining
capacity will also be targeted for building their presence in higher-
growth emerging markets, rather than supporting innovation in
mature ones. With more patent expirations ahead, and continuing
pressures from investors (who expect continued high dividends
and stock repurchases), we dont anticipate that this situation will
appreciably improve in the foreseeable future.
continued on page 14
12 Beyond borders Global biot echnology report 2012
Making it happen: building collective intent care networks
to change health care delivery
Sanjeev Wadhwa
Ernst & Young
While holistic open learning networks (HOLNets) have the
potential to reinvent drug R&D for biotech and pharma
companies making drug development more efficient and
productive and enabling real-time learning these networks
also have tremendous potential to reinvent both the delivery of
health care and the ways in which drug companies go to market
(their commercial models). After all, HOLNets are holistic by
definition, and as already articulated, they are expected to make
old demarcations, such as the distinction between the R&D
and commercial phases of product development, increasingly
irrelevant. And, in a construct that is open by design and built
for real-time learning, it stands to reason that there would be
opportunities for health care delivery to benefit from these
networks as well.
In other spaces, we have discussed the need for collective intent
care networks (CICNs) that would bring together providers,
payers, pharmacies, academic medical centers, pharmaceutical
industry researchers and non-traditional partners to deliver
health care in more patient-centric and outcomes-driven
ways. CICNs will be jointly accountable for delivering improved
health outcomes and will align the behaviors of all participants
around outcomes through financial and other incentives. These
networks will transform health care delivery by increasing patient
engagement, enabling remote health monitoring, expanding
access and building prevention into care.
CICNs are similar to HOLNets but with a focus on care delivery.
To realize their full potential, CICNs need to follow the four basic
principles of HOLNets, by being holistic in scope, being open by
design, encouraging real-time learning and building a network of
diverse participants. In fact, we expect that, even though such a
network starts with participants from the health care delivery end
of the value chain, over time it would find benefits in expanding
to include a more holistic set of participants, and would in turn
deliver benefits across the ecosystem.
The move to such networks is being driven, of course, by the
increasingly urgent need to make health care costs sustainable
manifested in developments such as the passage of the Patient
Protection and Affordable Care Act in the US and the move
toward comparative effectiveness research in several major
markets. These trends are fundamentally changing health care
delivery. Payer incentives (and hence provider behaviors) are
driving the move to patient-centric health care organizations that
are fully aligned around patient outcomes and value.
Achieving better patient outcomes will, in turn, require that
providers get closer to patients and build long-term relationships
with them. Over time, we will move to a paradigm in which
patients enroll in lifelong protocols of care with specific payers
and/or providers. Having such enduring relationships will be
critical for improving health outcomes, since they will enable an
increased focus on preventive care and allow all stakeholders to
take a more holistic view of patients health and diseases.
In the next decade, patient-doctor relationships and health care
delivery will be radically different from how they are today. We
will move from a world in which care is delivered in just two
types of locations (hospitals and doctors offices) to a paradigm
in which care is delivered in the communities where patients
live. The emphasis will move toward virtual care and remote
health delivery with the majority of patients using integrated
CICNs staffed by collaborative teams of drug researchers, clinical
development scientists and health care providers. Seeking to
provide better care at lower cost, primary care teams will join with
community partners to address factors that affect a communitys
health. To achieve the triple aim of health care initiatives (i.e.,
enhancing patients experience of care, reducing per-capita
health care costs and improving population health) patient-
centricity will inevitably need to be transformed into community-
centricity. Advanced knowledge technologies, along with multi-
comorbidity epidemiology, behavioral interactions, ethnographic
commercial interventions, predictive patient profiles (health
avatars) and disease opportunity maps identifying undiagnosed
patients will allow people to take over many functions of primary
care for themselves.
As already articulated in this years Point of view article, HOLNets
promise to make drug development vastly more efficient and
productive, by allowing for R&D paradigms that are adaptive
and have the ability to learn from real-time data and the
insights and missteps of others. But such networks also provide
opportunities for payers and providers to learn from real-time
data. By connecting the dots between datasets that are currently
owned by individual entities, these networks will provide better
information on benefits, risks and relative effectiveness of
new therapies. They will enable greater access to affordable
treatments and more effective ways to measure unmet needs.
13 Point of view HOLNet s: learning from t he whole net work
Drug companies can play a relevant role in CICNs by adopting
communities with the goal of improving health outcomes,
often within a specific disease. BMS, for instance, launched a
program in South Africa called Secure the Future to support
the development and evaluation of cost-effective, sustainable
and replicable models for providing care and support to
people living with HIV/AIDS in Africa. The program sought to
supplement the half hour of care that patients received at the
clinic with 23 hours of disease management, and ongoing
support was provided in patients homes and communities.
Similarly, the Merck Foundation has committed US$15 million
to fund the Alliance to Reduce Disparities in Diabetes, a public/
private partnership encouraging evidence-based collaborative
approaches to improve care, improve health outcomes and
reduce care disparities in low-income, underserved populations in
Camden, New Jersey. This approach will have implications for the
commercial models of drug companies. Successfully
launching products in such networks will require
an altogether different focus on understanding and
articulating the value proposition to a community of
patients and the network of participants.
Building a network of this magnitude, and with this
much disruptive potential, is no trivial task. For
organizations interested in moving in this direction,
a good starting point might be to create disease
networks which leverage the creative models that
many health care systems are now piloting from
accountable care organizations and patient-centered medical
homes in the US to primary care trusts in the UK. By focusing
on outcomes, patient-centric approaches and preventive care,
such programs already provide some of the key building blocks
of a HOLNet approach. HOLNets could supplement such models
by bringing a broader spectrum of constituents from across the
ecosystem. They could also bring a disease-specific focus and,
more important, create a bold collective intent to cure or radically
improve outcomes within that disease.
At Ernst & Young, we are actively engaging with a broad
spectrum of health care stakeholders to build CICNs. People
see the need for change and recognize the tremendous
transformative potential of a holistic network approach.
Getting there wont be easy, but were moving in the right
direction. Stay tuned.
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14 Beyond borders Global biot echnology report 2012
Despite these pressures, pharma companies are acutely aware
that more needs to be done to sustain the ecosystem of innovative
emerging companies not least because their own future growth
depends on it. This is a subject that large companies are giving
serious consideration. How can they do more to boost R&D
productivity and support the ecosystem of emerging companies at a
time when their own resources are growing relatively constrained?
One solution that has been proposed by some industry veterans
is that pharma companies should band together to create a
fund to purchase biotech IPOs. In the 9 January 2012 issue
of BioCentury, for instance, Moncef Slaoui, John Maraganore
and Stelios Papadopoulos argue that such an approach could
validate companies and their approaches for other investors
and give a boost to the market for biotech public offerings. (For
more on this approach, see the article by Moncef Slaoui on page
21; John Maraganores views on making R&D more sustainable
and productive can be found on page 17.) While this is certainly
an innovative idea that might be worth trying (assuming that
governance and other challenges could be appropriately
addressed), it is not clear that catalyzing several more IPOs every
year would be sufficient to truly address the strains on biotech
funding and the overall drug innovation model.
More important, pharmaceutical companies have much more to
offer than just financial capital. Even more valuable than funding are
the other assets that pharma could contribute data, knowledge
(including valuable lessons about what has not worked) and human
capital. If each large pharma shared some of these assets and
allocated a tiny fraction of what it spends each year on in-house
R&D to set up a HOLNet with other constituents around a particular
area of interest, it might well have more impact on the efficiency
and economic return of drug development than a business-as-usual
approach. Pharma companies that take the lead in establishing
HOLNets could also benefit by attracting the most innovative
biotech and academic collaborators. This would represent a clear
departure from the current business development model, which
is focused on securing technology/product rights and maintaining
control of key decisions and data.
In Progressions, we talk about the challenge that pharma companies
face when trying to serve as aggregators in their experiments
with outcomes-focused approaches and partnerships. Pharma
companies are often viewed with suspicion in these coordinating
roles because they are perceived to have several conflicts of
interest in the outcomes business (e.g., increasing the use of
generics and focusing on prevention could save health systems
large sums of money but would cannibalize pharma product
sales). But HOLNets are an area where they could play a central
role in developing a new business model, while establishing their
credibility by contributing their own assets, bringing together a wide
range of participants (including, where appropriate, competitors)
and setting up rules for open sharing and access. Unlike their
experiments with outcomes-focused business models, this would
be much closer to their traditional business of drug development.
It would also be consistent with their corporate missions focus on
bringing meaningful new medicines to patients. And the payoff
could be bigger: a way to truly jump-start innovation, accelerate
the development of new products and improve health care delivery.
By embracing and developing HOLNets, pharma companies would
be helping themselves, helping the ecosystem of emerging biotech
companies and, ultimately, helping patients.
Pharmaceutical companies have much more to offer
than just their nancial capital.
15 Point of view HOLNet s: learning from t he whole net work
Biotech companies and investors
As weve been discussing in these
pages for the last few years, the biggest
challenge for biotech companies and
their investors is sustaining innovation at
a time when the long-standing business
model for investment and R&D is under
unprecedented strain. Sustaining
innovation will inevitably involve some
combination of drastically reducing
development costs and time frames on the
one hand and significantly boosting pipeline
output on the other.
These pressures have led to much soul-
searching by biotech leaders and investors.
Already, we have seen challenges to
long-established ways of operating and
increasingly creative approaches to
partnering, financing and conducting R&D
that attempt to adjust the risk/reward
equation. Yet, these initiatives are not
enough even in aggregate to truly make
the biotech innovation model sustainable
and fuel the leaps in productivity and
efficiency that are needed.
Against this backdrop of challenges,
companies and investors are more likely
to be receptive to new approaches than
at any point in the industrys past, and
HOLNets have many advantages for
biotech companies as well. As part of
such a consortium, biotech firms could
contribute their own innovative strengths
but, importantly, would also gain insights
from other members, including into
previously unsuccessful approaches for
target selection, clinical trial design and
the like. In addition, biotech firms may
gain access to regulators in a way that an
individual company would be unlikely to
achieve in effect getting an early view at
new standards as they are being developed
and even playing a role in shaping them.
Gett ing personal, gett ing networked
Christian Itin, PhD
Micromet, Former President, CEO and Director
As demographic trends and increasing prosperity increase health care costs, innovators
need solutions that truly address underserved medical needs while also reducing
overall costs. To do this, constituents across health care will need to avoid unnecessary
treatments making personalized medicine approaches increasingly relevant. Yet,
biotech and pharma companies face several challenges in accomplishing this goal.
For most diseases, we lack diagnostic markers for selecting appropriate patients. The
economics are challenging, with smaller market segments, clinical trials and ongoing
post-approval commitments to ensure safety.
To truly achieve the potential of personalized medicine, we will need more
collaboration. We are in early days of identifying molecular biomarkers correlated
with disease progression and outcomes. Today, the search for biomarkers in clinical
trials and development of companion diagnostics is done by individual companies.
But to really succeed, we need larger databases and uniform standards. Creating
this knowledge base systematically for all key disease areas is a huge undertaking in
terms of scope, time and resources and can only be tackled through a broad common
effort. Payers, pharmaceutical companies, regulators and clinicians have a common
interest and will need to work together to generate such data sets, building on
initiatives under way in the US and Europe. Policy makers may need to create stronger
incentives for biomarker studies. We will need strong protections for patients privacy
and other rights. It will be critical to get a broad spectrum of entities to join these
networked efforts and we will need to negotiate access to their data from the massive
claims databases of payers to R&D data developed by the life sciences industry and
government. Pooling such data and making it publicly available would provide a key
starting point for new innovations in diagnostics, therapeutics and patient care.
For small companies in particular,
such access is both hard to come by
and increasingly valuable at a time of
heightened regulatory uncertainty and risk.
For small companies, participation will
likely be a trade-off between the perceived
need to hold on to information and the
benefits of participation, such as access
to regulators and earlier insight into
new standards before they are publicly
disclosed. As Marc Cantillon and Magali
Haas articulate in their articles, early
examples of open learning networks have
had no problem attracting small companies.
In an environment where the existing
model is under strain and companies and
investors are looking for ways to reduce
the regulatory and other risks associated
with drug development, we think that
others may similarly see a net benefit in
participating. Over time, if this approach
gains traction and shifts the very paradigm
of drug development, companies may find
that investors see participation in a HOLNet
as a significant risk-reduction strategy.
16 Beyond borders Global biot echnology report 2012
Providers
For providers, a key challenge in the new ecosystem will be
figuring out how to succeed in an outcomes-driven, patient-centric
world. In the US, physicians will increasingly find themselves
moving from a fee-for-service model to one in which they are
rewarded based on episodes of care or their ability to improve
outcomes. Indeed, the emphasis on outcomes is likely to affect
providers everywhere, as payers across the world look at ways to
manage costs.
To succeed in this environment, providers will need to improve
patient outcomes and to do that, they will invariably need to
get closer to patients. While one could argue that providers are
already closer to patients than most other potential HOLNet
members, the interactions they currently have with patients are
a far cry from what success will increasingly require enduring
relationships and a deep understanding of individuals needs,
conditions and behaviors. Health care delivery will need to move
from a world in which patients only meet their doctors sporadically
typically for an annual checkup or when they fall sick to one
in which new technologies and more sophisticated data allow
providers to monitor patients conditions on an ongoing basis and
develop real-time insights into the progression of their diseases.
This is one reason we are seeing an acceleration in EHR adoption
and the use of data to better define standards of care. Over time,
providers will also need to develop enduring relationships with
patients to truly provide holistic care.
Providers would have much to contribute EHR data, patients for
clinical trials, etc. and would also gain much in return, including
the ability to improve outcomes by learning in real time from
research and from a richer pool of data that makes connections
between EHRs, genetic profiles, claims data and much else.
Payers and policy makers
The interests of payers and policy makers, perhaps more than
those of any other entities, are perfectly aligned with the move to
HOLNets. Indeed, the changes they are making to incentives to
address their biggest challenges the need to tame health care costs
while simultaneously covering more unmet medical needs due to
demographic changes and expansions in coverage are accelerating
the shift.
As already discussed, these entities have so far been addressing
these challenges by moving toward outcomes-based models such
as adopting some form of health technology assessment and
negotiating pay-for-performance or episode-of-care reimbursement
arrangements. With HOLNets, they have the opportunity to take
this to the next level. Payers might contribute claims data and would
benefit significantly if these networks are able to drive down costs
across the spectrum of health care. Additionally, HOLNets provide an
opportunity to increase the focus on developing cures for diseases
where there is significant unmet social need a big gap between
the costs a disease imposes on society and the resources currently
devoted to R&D. It is no coincidence that early examples of this
approach are often focusing on diseases where this gap is large, such
as Alzheimers disease and Parkinsons disease.
Non-traditional entrants
The move to an outcomes-focused ecosystem is attracting a host of
non-traditional entrants. Firms from a broad range of industries
information technology, telecommunications, retail trade and others
are drawn by the opportunity to apply their skills to the challenge
of making health care costs sustainable. Developing new offerings
that are patient-centric and outcomes-driven will involve combining a
wide variety of capabilities. And at a time when finding new sources
of growth is often challenging, the sheer size of the opportunity in
health care is an attractive target. It will often be necessary to include
some of these companies in HOLNets, since the skills and assets
they bring (e.g., data mining, analytics, mobile technology to interact
with patients) could be very valuable. They might participate as full
partners or on a more limited, fee-for-service basis.
17 Point of view HOLNet s: learning from t he whole net work
Patients and disease foundations
Last, but certainly not least, patients will
need to be part of the HOLNet approach.
Indeed, as already discussed, patients are
at the center of the new ecosystem, with
more control over their data and health
care. Certainly, they have much to gain
by participating no one has a bigger
interest in improving health outcomes than
patients themselves. And, as discussed
above, HOLNets are often likely to focus
on intractable diseases where there are
significant unmet needs something that
patients in those disease groups should be
happy to encourage, particularly at a time
when there is increased competition for
relatively scarce R&D budgets.
To make this happen, patients will need to
contribute their data genetic information,
social media threads, data about their
conditions, disease progression, side
effects, etc. As we move to a world where
patients have more control over their
data, it will be important for HOLNets and
their member entities to be transparent
about how this data will be used, clearly
articulate the benefits to patients and
ensure compliance with their data usage
policies. Privacy remains a sensitive issue
particularly in an area as personal as health
but with appropriate protections (such
as separating medical data from personally
identifiable information), informed consent
and a full understanding of the benefits,
patients can be motivated to participate. As
trusted brokers, disease foundations could
help encourage patient participation.
So far, disease foundations have led the
charge on behalf of patients by driving
academic researchers, companies and
regulators to focus on the urgent needs of
patients with a particular condition. These
organizations will continue to play a critical
role, since they have the trust of patients
and can serve as an important intermediary.
In some cases, however, it may also become
imperative to broaden the focus beyond
individual diseases as we currently define
them. We turn to this aspect next.
Part nering for specializat ion
John Maraganore, PhD
Alnylam Pharmaceuticals, CEO
If big pharmas pipelines are any indication, the drug industry is
starving for innovation. While pharma needs to access biotechs
innovation, biotechs and their investors are resistant to cede
its value. This is a recipe for stalemate. The industry needs
different partnership structures which fully pay biotech firms for
innovation and leave early-stage development in their hands,
while allowing pharma to conduct later-stage development and
commercialization.
The question is whether pharma can rely fully on biotech for its
innovation and whether biotech can rely fully on pharma for its
late-stage development and global commercialization. For too
long, the industry has been splintered into camps, each focused
on building value within its own organizations the only way it
knows: by maintaining control over the entire value chain. But
drug R&D and commercialization are now far too complex for
any one company to be good at all of those disparate activities.
The solution is increasingly obvious: partnership structures
in which the discovery innovator gets paid for, and maintains
control of, higher-risk stages and where the pharma partner
provides downstream expertise. But this solution in turn requires
a fundamental rethinking of transaction and company structure.
No biotech will forfeit the value of its innovation without a
considerable rethink of the economics. Nor will it readily give
up control of early development, for fear of being buried in a
large companys bureaucracy or sidelined in favor of an in-house
candidate. Only when companies cede authority over those
areas in which they arent competitive will we see an industry
whose productivity is commensurate with its investment, an
industry best prepared to harness the remarkable pace of
biomedical discovery and capable of meeting its obligations to
patients.
It may become imperative
to broaden the focus beyond
individual diseases as we
currently dene them.
18 Beyond borders Global biot echnology report 2012
Beyond disease
It is not surprising that many of the early examples of R&D networks are focused on
brain diseases. After all, these are conditions where there is a large (and, thanks to aging
populations, growing) unmet medical need coupled with insufficient R&D investment
relative to the cost imposed on society. The brain is perhaps the most complex system in the
human body, but because of our limited ability to access this organ, it is also one of the least
understood. These challenges have made it exceedingly difficult to develop treatments in
this area leading investors and companies to pull back because of the high risk involved.
While this investment gap between the societal cost and level of investment might be
most significant in brain diseases, similar gaps exist for other ailments. Chronic diseases,
for instance, are expected to impose a very large and rapidly escalating societal cost as
populations age and emerging markets grow increasingly prosperous. While we have proven
drugs to manage these conditions, very little has been done to apply personalized medicine
approaches to better classify these diseases into subtypes and develop treatments that are
more targeted and efficacious. At the same time, the economics of developing drugs for
these diseases has become increasingly difficult, as drug developers have to compete with
newly generic versions of their own past successes and an exceedingly cautious regulatory
environment has escalated safety concerns in these indications. Chronic diseases would
therefore be another prime candidate for a HOLNet approach, to close the gap between the
high societal cost/medical need and relatively low levels of investment.
It is equally noteworthy that most of the efforts to close such gaps are being led by
disease foundations and other nonprofits. Yet, HOLNets may at times also need to rethink
traditional boundaries and definitions of disease. This has already been happening in
personalized medicine, as insights from genetic data have redirected how we think about
disease. In cancer the area where personalized medicine approaches have made greatest
headway it has become increasingly apparent that whats relevant is not where the
disease is manifested (breast cancer or blood cancer) but the mechanism that causes
it (e.g., a specific genetic mutation). By the same token, a disease foundation focused on a
particular type of cancer may be too narrow if it seeks to develop a HOLNet purely for this
ailment. It is therefore appropriate that organizations such as One Mind for Research are
focusing on all brain diseases holistically rather than focusing only on individual diseases
such as Alzheimers or Parkinsons. Over time, such groups may find that even a widening of
disease boundaries is too limiting an approach. After all, the human body is a very complex
and interconnected system.
The bottom line is that, while many of the early examples are being led by disease
foundations, it will be imperative to ensure that the focus is not overly narrow. Todays
networks have often been referred to as disease networks, but we think this name is too
narrow and have intentionally chosen a broader term to emphasize that whats important
is not the focus on a specific disease but the creation of a framework that allows for
continuous learning from real-time information sharing and openness.
19 Point of view HOLNet s: learning from t he whole net work
Conclusion
Today, the health care ecosystem and its constituents face historic challenges. At a time
when key stakeholders payers, pharma companies, biotech firms and their investors
are increasingly resource-constrained, we need R&D paradigms that are several shades
more efficient and productive. With aging populations and rapidly growing middle classes
in emerging markets, societies need ways to accelerate cures for ailments that are
expected to impose huge societal costs, such as neurodegenerative and chronic conditions.
And as health care moves to a new patient-centric, outcomes-focused ecosystem, its
constituents need ways to develop deeper relationships with patients to demonstrably
improve their outcomes.
HOLNets provide some answers to all of these challenges. At a time when traditional
approaches have become increasingly untenable, the HOLNet is a boldly different paradigm
that seizes the opportunities latent in the changing health care ecosystem big data, real-
time insights, the diverse strengths of a wide range of players.
Getting there will take some adjustments. If HOLNets are about openness and learning,
health cares constituents will often need to be open to new approaches and learn new
ways of doing things. For life sciences companies, this will involve different ways of thinking
about intellectual property and recognizing that in some situations, sharing information
may create more value than protecting it. Regulators will need to adapt frameworks to allow
for drug development paradigms that are flexible and learn in real time. And ultimately,
patients will need to willingly share their personal health data, with the recognition that
they might reap some of the biggest dividends from this approach: better health outcomes,
better drugs and cures for long-intractable diseases.
The HOLNet is a boldly different paradigm that seizes the opportunities
latent in the changing health care ecosystem big data, real-time
insights, the diverse strengths of a wide range of players.
20 Beyond borders Global biot echnology report 2012
Patient-centric innovation:
networked and personalized
N. Anthony Coles, MD
Onyx Pharmaceuticals
President, CEO and Member of the Board
Over the past decade, the traditional one-size-fits-all, chemistry-
based approach to pharmaceutical drug development has become
increasingly untenable. It now takes an average of more than
US$1 billion and 12 years to bring new products to patients, and
only 10% of promising compounds become new medicines. Spurred
by the need to make drug development more cost-effective and by
advances in genomics and genetics, a new paradigm has emerged
that balances traditional chemical approaches with biological
and genomic techniques to identify a new generation of targeted
therapies. These smart drugs can be given to the right patient at
the right time and can treat the individual basis of disease.
Meanwhile, our industrys long-standing go-it-alone approach, in
which companies attempt to single-handedly discover and develop
new medicines, is being challenged for its scientific productivity
and efficiency, and for the absence of scale in an age of rapid
innovation. We have to and are starting to find new ways to
accelerate the development of even better therapies for unmet
medical needs. Underpinning this new approach is the opportunity
to collaborate with key groups and stakeholders to, in effect,
network innovation. By partnering with networks of academicians,
scientists, regulators, policy makers and patient communities, we
can create more breakthroughs that patients desperately need.
First, and most important, our focus must remain on the patient.
As clinicians, we understand that no two patients are alike. For
industry to embrace the individual differences between patients,
we will need an intense focus on personalized medicine. By taking a
holistic, patient-centered approach and integrating patients genetic
information with genomic research, we can partner with patients
to move beyond one-size-fits-all pills and create new approaches to
personalized health. Access to electronic medical records, biometric
data and emerging technologies from the digital revolution leads to
the assimilation and utilization of state-of-the-art clinical knowledge,
which can allow us to move even closer to patients to meet their
needs.
At the same time, we must work even more closely with
governments and regulators around the world. It currently takes
too long to bring a new drug to market, particularly when one
considers the benefit and life extension many therapies provide.
Efforts are currently under way by both regulators and lawmakers,
in collaboration with industry, to shorten the time from bench to
bedside. But more work must be done to incorporate the latest
thinking about new clinical trial approaches and the acceptable
trade-offs between risk and benefit in order to race forward with
much-needed improvements to our existing crop of therapies.
Despite the progress we have made in several disease areas, several
others cancer, Parkinsons disease and Alzheimers disease, to
name a few still need new and effective treatments.
Finally, we must be creative and open-minded about new
partnerships with other companies, academic institutions,
government and nonprofit organizations and need to move
beyond the standard technology licensing approach. This means
more unique collaborations, such as the one between Ford Motors
and Medtronic to create an in-car glucose monitor, or between
Novartis and Nintendo to raise disease awareness and educate
patients through the use of online gaming. In an effort to create one
of these new approaches, Onyx has recently initiated an innovative
research alliance with the University of Texas MD Anderson
Cancer Center to accelerate the discovery and translation of new
knowledge about cancer from the laboratory to patients.
The biopharmaceutical environment grows ever more complex
and potentially more prolific as new technologies give us fresh
insights into biology and the genome and as new digital tools make
it possible for researchers, patients and providers to collaborate
in ways that would have been impossible even a decade ago. This
fundamental shift in thinking and activity creates the potential for
tremendous upheaval, and with this disruption comes unparalleled
opportunity to experiment with new models of collaboration. With
so many people pulling toward a common goal, our challenge now is
to all pull in the same direction.
21 Moncef Slaoui Prot ect ing t he biot ech ecosyst em
Protecting the biotech ecosystem
Moncef Slaoui, PhD
GlaxoSmithKline
Chairman, Research & Development
At GlaxoSmithKline, we have about 14,000 scientists and spend
almost US$6.4 billion a year on R&D. With such vast resources, one
could easily believe and many large companies did as recently as a
decade ago that having a healthy ecosystem of emerging biotech
companies is not terribly material to our success.
In fact, we believe the opposite. We have 14,000 scientists, but
there are probably a million life science scientists in the world
which suggests that we will generate only 0.1% of the good ideas.
So, everything we do is built on the premise that we need a strong
ecosystem of biotech companies.
Yet, today this ecosystem is threatened. The biotech industry
has historically thrived because investors could earn high returns
commensurate with the huge risks involved in drug R&D. In recent
years, investors willingness to make such high-risk bets has
declined, for two reasons. First, as pharma companies resources
got squeezed, they started looking for lower-risk approaches and
investments. Second, returns from IPOs have declined putting the
VC investment model under strain.
As a result, GSK is beefing up its venture arm, SR One. We have
also announced deals with at least three other VCs Europes
Index Ventures, Bostons Longwood Fund and North Carolina-
based Hatteras Venture Partners where we are investing as
limited partners. And we continue to look for similar opportunities
elsewhere with the right VCs.
We are also very active in business development, with alliances
with about 50 different biotech companies. Almost all of these are
strategic in the sense that they are not focused on a single project
but rather on an entire segment of the companys portfolio. This is
critical, because it creates multiple exit opportunities for investors.
Beyond these efforts, Ive also proposed with a couple of other
industry veterans, John Maraganore and Stelios Papadopoulos
that pharma companies should consider creating investment funds
with the purpose of buying biotech IPOs. Acquisitions do not
currently represent a sustainable exit strategy, since they have very
high hurdles and are relatively infrequent events beyond the control
of small companies and their venture investors. Pharma-supported
investment funds could boost the IPO market by validating
companies after all, pharma buyers have the most sophisticated
technical capabilities for assessing technology risks and the value
of companies.
Another way in which pharma companies could do more to support
the ecosystem is through precompetitive collaboration. In target
validation, for instance the process of figuring out whether a
certain target can affect a particular biology and physiology for a
disease about 60%70% of the targets we are working on are also
being pursued by our competitors. This is expensive and wasteful,
because target validation is not where we ultimately compete. The
competitive play really comes after a target has been validated for
instance, in the kinds of chemistry we develop to create a drug.
This is particularly relevant in neurodegenerative diseases such
as Alzheimers, where target validation is tremendously slow and
expensive for numerous reasons. Animal models have proven
ineffective, so validation has to happen in the clinic. Cognition is a
subjective measure, and you need very large patient populations
to truly understand it. Lastly, neurodegeneration is a very slow
process it takes 1020 years to express itself clinically.
Precompetitive collaboration may not be universally applicable.
In disease areas where target validation is fairly quick and
straightforward, companies may not have much incentive to
collaborate, and many biotech companies, in particular, view
target validation as a source of competitive advantage. But in
certain disease areas, precompetitive collaboration could be a
game changer.
Now, more than ever, we need game changers. Sustaining the
biotech ecosystem is not an act of charity or corporate social
responsibility it is in the self-interest of big pharma companies.
The good news is that through approaches such as the ones
described here, we can use our extensive resources to really make
a difference.
22 Beyond borders Global biot echnology report 2012
To boost R&D, stop flying blind
and start observing
Joshua Boger, PhD
Vertex Pharmaceuticals
Founder and Board Director
Drug development is often described as a linear process:
formulating a hypothesis and then testing it in a series of
experiments. Thats accurate as far as it goes, but it minimizes
another pillar of science, observation. Science is an inherently
iterative process: hypotheses are refined based on observations
and learning from prior experiments. Yet in our industry, drug
development has become less and less about observation and
more and more about a rigid approach to hypothesis testing. This is
particularly true in Phase II clinical trials, the central and arguably
most important phase of the development process.
The purpose of Phase II is to identify and begin to frame a drugs
possible benefits how it improves health outcomes and the risks
it might carry which involves observing benefits and risks and
assembling data to determine dosage amount and schedule. While
this definitely requires hypotheses based on previous observations,
the process of observation and hypothesis generation needs to
continue in Phase II, as well.
Unfortunately, todays Phase II trials often pay lip service to
observation and exploration, breezily truncate dose selection
and do not welcome hypothesis generation often before a drug
candidates effects and side effects have been well characterized. In
too many cases, we blow past experimental learning and go straight
to confirmation. So whats wrong with that? Doesnt that get you to
a drug sooner? Well, no, almost never.
In an era of scientific breakthroughs, almost every important new
drug will be forging new paradigms, breaking ground on endpoints
and mechanisms and may even be the first therapy targeting a
disease. At the start of Phase II, there may be some anecdotal
clinical observations and even considerable biochemical evidence
thought to be predictive of benefit, but all of these data are usually
based on assumptions and analogies with other approaches. One of
the many guarantees of clinical research is that you are going to be
surprised, with both downside and upside surprises. If youve locked
in your hypotheses before you get to Phase II, youre going to miss
much of that upside, and you wont be agile enough to cope with the
downside.
Over the last couple of decades, Phase II trials have often grown
from exploratory observational experiments at one or two clinical
centers to quite large mini-Phase-III trials at tens of clinical sites,
often on multiple continents, with tightly defined primary endpoints
and structures designed to obtain the holy grail: p-value. This
drive to obtain a p-value of significance (i.e., below the arbitrary
and religious cutoff of 5%) on a primary endpoint thought to be
approvable (i.e., acceptable for Phase III and for drug approval)
often leads to overreaching. In many cases, more modest endpoints
would be more appropriate for the state of the drug candidate and
the known data. The result is Phase II trials that are larger, longer
and more expensive than should be necessary to advance the drug
into Phase III.
Exacerbating the problem is the perceived need to blind Phase
II trials, keeping all but the most catastrophic observations under
wraps until the process is completed and the data locked. Ironically,
Phase II trials of this kind often generate a wealth of information
about rich secondary endpoints (in addition to the primary
endpoints) and about other scientific and mechanistic questions,
but none of these data are available for examination in real time,
due to the desire to preserve the integrity of the precious primary
endpoint and its p-value. This strict blinding of Phase II trials
imposes significant costs, including: lengthening the development
process; losing the ability to quickly incorporate lessons from the
trial into subsequent, even overlapping, trials; and losing the ability
to manage overall R&D resources in a more rational and timely
fashion. For sure, there are disease areas where, because of the
lamentable lack of objective endpoints, blinding of trials may be
required. But increasingly, efficacy endpoints for modern trials are
(or should be) beyond subjective influence. Safety reports, many of
which are self-reported by patients, might be unduly influenced by
inappropriate dissemination of ongoing data, but even here, there
are procedures available to minimize this bias.
So if running Phase II trials in a more open and exploratory manner
has so many possible advantages, who is against it? Why doesnt it
happen more often? The interests of many constituencies maintain
this p-value-worshipping status quo. Investors and analysts crave
simplicity, and there is no simpler discriminator than Whats the
p-value? Complex, multi-endpoint, dose-range-finding trials are
punished on Wall Street. Investors ask, Why are your trials so
hard to understand? (The answer that they were not designed
to be easy for investors to understand is usually not welcomed.)
In addition, regulators often insist on p-value trials. In the last
couple of decades, the FDA has taken a far more directive role
in the design of Phase II trials. Ironically, as the opportunities for
23 Joshua Boger To boost R&D, st op flying blind and st art observing
drug breakthroughs have increased, many in the FDA have taken
a more conservative and dogmatic approach to mid-stage clinical
development. Under the mandate of safety, detailed control of
Phase II clinical plans by regulators has become the norm. The
implicit message from too many medical reviewers is: design it my
way or face a clinical hold. In new therapeutic areas or in existing
areas witnessing paradigm shifts, this often drives doctrinaire
exploratory trials, which prematurely slot a new drug development
plan into the closest precedent, rather than letting new insights
drive new hypotheses and testing. Science by consensus is rarely
innovative. Lastly, management at drug development companies
are often overly cautious. Who can criticize the crisp thumbs-up
or thumbs-down of a definitive Phase II trial? Lost opportunity and
missed serendipity are invisible losses, and the hyperbolic escalation
of costs and time continues with no finger-pointing.
The best clinical experiments gather the most (and most relevant)
information in the shortest possible time and with the least possible
resources. Phase III awaits with its immutable endpoints and black-
and-white success criteria. Meanwhile, lets preserve Phase II as the
place in development to learn every day, not just in fits and starts
separated by months or even years of self-imposed blindness.
Time and money are wasting, and our patients need us faster than
any definitive Phase II shortcut will allow.
In my experience, drugs that do not work and drugs that
substantially exceed minimal expectations are easy to spot. While
there are exceptions, if you need a statistician to measure benefit in
Phase II, then the drug didnt work that well. In a world of profound
opportunity to change medicine, maybe we shouldnt be working
on those middling cases. Identify as fast as possible the drugs that
dont work (and learn from them), and identify as fast as possible
the upside surprises. Get on with the breakthroughs and leave the
rest behind.
Financial performance
25 Financial performance The big pict ure
Financial performance
Recovery and stabilization
The big picture

The aggregate financial performance of publicly traded
biotechnology companies in the four established clusters the
United States, Europe, Canada and Australia was encouraging
in 2011, as the industry built on the recovery that had started
a year earlier. To fully appreciate this, one needs to view the
years numbers not just against the performance in 2010, but
also in the context of the situation in 2009, when the industry
was hit hard by the financial crisis and initiated a wave of cost
cutting unlike anything it had seen before. This resulted in a
truly remarkable development the industry reached aggregate
profitability for the first time in its history, not because of the
success of its commercial leaders, but because of steep cost
cutting by a broad swath of companies.
To get a true picture of the years performance, we also need
to adjust for the fact that three large US-based companies were
acquired by non-biotech buyers, effectively removing them
from the biotech pool in 2011. The loss of these three firms
Genzyme Corp., Cephalon and Talecris Biotherapeutics which
collectively had revenues of US$8.5 billion in 2010, made a
significant dent in the industrys 2011 performance. To get a
sense of the organic apples-to-apples growth of the industry, we
have therefore calculated normalized growth rates that remove
these three firms from the 2010 numbers.
With these adjustments, it becomes apparent that the biotech
industry continued its return to pre-crisis levels of normalcy
in 2011. The revenue growth of public companies in the four
established clusters returned to double-digit territory for the first
time since the advent of the crisis. The sectors top-line growth
of 10% compares favorably to the 8% growth rate in both 2010
and 2009 (adjusted for the Genentech acquisition). While this is
still a far cry from the high double-digit growth rates the industry
delivered through much of the last decade, companies are also
operating in a new reality now, with more cautious regulators and
increased pricing pressure from payers.
Growth in established biotechnology centers, 201011 (US$b)
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 % change
% change
(normalized for
large acquisitions)
Public company dat a
Revenues 83.4 84.1 -1% 10%
R&D expense 23.1 22.6 2% 9%
Net income 3.8 5.0 -24% -5%
Market capit alizat ion 376.0 401.1 -6% 0.2%
Number of employees 163,630 177,100 -8% 4%
Number of companies
Public companies 617 629 -2% -1%
26 Beyond borders Global biot echnology report 2012
Perhaps the strongest measure of the industrys increasingly
stable financial picture is R&D expenses. The industry, which had
slashed R&D by 21% in 2009 (the only time in its history that this
research-driven sector has cut R&D spending in aggregate), had
seen a cautious return to positive territory in 2010, when R&D
grew by a modest 2%. In 2011, the picture strengthened further,
as R&D increased by 9% (on a normalized basis). Even more telling
is evidence that the growth in R&D spending was broad-based, not
driven by the activities of a few large firms. In the US, 62% of public
companies increased R&D spending in 2011, which is roughly in line
with historic trends. This represents a significant improvement from
2010, when 51% of companies had increased R&D spending, and a
dramatic reversal of the situation in 2009, when an almost identical
percentage 64% had decreased R&D spending. The situation
in Europe was similarly encouraging, with 58% of companies
increasing R&D spending in 2011 (up from 55% in 2010).
On the other hand, the industrys net income fell in 2011, even
after adjusting for the three large acquisitions mentioned earlier.
Among the commercial leaders that experienced a decline in net
income in 2011 were Amgen (which incurred a US$780 million
charge for a legal settlement), Amylin Pharmaceuticals (which
incurred a US$431 million charge related to the termination of a
strategic alliance) and Actelion (which incurred a US$407 million
charge related to a lawsuit). To a considerable extent, however, the
fall in net income was driven not by events at a few companies as
much as broader trends across the industry. Companies that were in
deep cost-cutting mode in 2009 and cautiously optimistic in 2010
may have become somewhat more willing to loosen their purse
strings in 2011. After all, while the huge aggregate profits of the
last two years have been a noteworthy event, this is an industry that
has been in the red for the vast majority of its history. A decline in
profitability may simply be a sign that things are indeed starting to
return to normal.
US Europe Canada
2011 2010 2011 2010 2011 2010
More t han 5 years of cash 22% 24% 27% 39% 10% 18%
35 years of cash 9% 7% 10% 6% 10% 6%
23 years of cash 10% 13% 10% 14% 7% 7%
12 years of cash 20% 21% 21% 19% 24% 16%
Less t han 1 year of cash 39% 35% 32% 34% 49% 53%
Source: Ernst &Young and company financial statement data.
Chart shows percentage of biotech companies with each level of cash. Numbers may appear inconsistent because of rounding.
Ernst & Young survival index, 201011
27 Financial performance Unit ed St at es
US biotechnology at a glance, 2010-11 (US$b)
United States
As always, since the US accounts for a large majority of the
industrys revenues, the US story is very similar to the global one.
The revenues of US publicly traded biotech companies declined
in 2011, but this was driven by the acquisitions of Genzyme,
Cephalon and Talecris by non-biotech acquirers. After normalizing
for these large acquisitions, the US industrys revenues increased
by 12%, outpacing the 10% growth rate seen in 2010 and
2009 (adjusted for the Genentech acquisition). R&D increased
by 9% on a normalized basis, after having declined sharply in
2009 and increasing by a modest 3% in 2010. The industrys
net income position weakened, even after normalizing for the
three megadeals mentioned above. The number of companies
held steady and employees grew by 5% on a normalized basis
identical to the increase in headcount in 2010.
2011 2010 %change
%change
(normalized for
large acquisit ions)
Public company dat a
Revenues 58.8 61.1 -4% 12%
R&D expense 17.2 17.2 0% 9%
Net income 3.3 5.2 -36% -21%
Market capit alizat ion 278.0 292.1 -5% 4%
Number of employees 98,560 113,010 -13% 5%
Financings
Capit al raised by public companies 25.4 17.1 49% 49%
Number of IPOs 10 15 -33% -33%
Capit al raised by privat e companies 4.4 4.4 -1% -1%
Number of companies
Public companies 318 320 -1% 0%
Privat e companies 1,552 1,594 -3% -3%
Public and privat e companies 1,870 1,914 -2% -2%
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
28 Beyond borders Global biot echnology report 2012
US commercial leaders, 2008-11
As mentioned earlier, the US biotech industry lost three of its
commercial leaders (firms with revenues in excess of US$500
million) in 2011 due to the purchase of Genzyme, Cephalon and
Talecris. But biotech has always been a dynamic industry, and
even as these big companies were taken out, a fresh crop of
companies graduated into the ranks of the commercial leaders.
Specifically, the revenues of Salix Pharmaceuticals, Vertex
Pharmaceuticals and ViroPharma crossed the US$500 million
threshold, leaving the total number of commercial leaders
unchanged at 16.
Source: Ernst &Young and company financial statement data.
Commercial leaders are companies with revenues in excess of US$500 million.
2008
13 companies
2009
13 companies
2010
16 companies
2011
16 companies
Organic growt h Alexion Alexion
Amgen Amgen Amgen Amgen
Amylin Amylin Amylin Amylin
Biogen Idec Biogen Idec Biogen Idec Biogen Idec
Bio-Rad Laborat ories Bio-Rad Laborat ories Bio-Rad Laborat ories Bio-Rad Laborat ories
Celgene Celgene Celgene Celgene
Cephalon Cephalon Cephalon Acquired by Teva
Organic growt h Cubist Cubist Cubist
Organic growt h Gen-Probe Gen-Probe
Genent ech Acquired by Roche
Genzyme Genzyme Genzyme Acquired by Sanofi
Gilead Sciences Gilead Sciences Gilead Sciences Gilead Sciences
Illumina Illumina Illumina Illumina
Life Technologies Life Technologies Life Technologies Life Technologies
Organic growt h Salix Pharmaceut icals
Sepracor Acquired by Dainippon Sumit omo
IDEXX Laborat ories IDEXX Laborat ories IDEXX Laborat ories IDEXX Laborat ories
IPO Talecris Biot herapeut ics Talecris Biot herapeut ics Acquired by Grifols
Organic growt h Unit ed Therapeut ics Unit ed Therapeut ics
Organic growt h Vert ex Pharmaceut icals
Organic growt h ViroPharma
29 Financial performance Unit ed St at es
US biotechnology: commercial leaders and other companies, 2010-11 (US$b)
Even though the number of commercial leaders remained
unchanged at 16, the big firms that were acquired were much
larger than the three companies that replaced them. As a
result, these mega-acquisitions had a significant impact on
the performance of the industrys commercial leaders. On a
normalized basis (i.e., removing the three acquisitions and
the three new commercial leaders from the 2010 and 2011
numbers), the revenues of the commercial leaders grew by 9%
and R&D expenses grew by 4%. However, net income decreased
by 7% even after normalization.
The performance of the other companies the vast majority of
the publicly traded US biotech industry was relatively flat, with
very small changes in revenues, R&D expense and net loss.
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 US$ change % change
Commercial leaders
Revenues 48.0 50.3 (2.3) -5%
R&D expense 9.2 9.4 (0.2) -2%
Net income (loss) 10.0 11.5 (1.5) -13%
Market capit alizat ion 190.6 193.4 (2.7) -1%
Number of employees 64,050 79,000 (14,950) -19%
Ot her companies
Revenues 10.8 10.8 (0.0) 0%
R&D expense 7.9 7.7 0.1 2%
Net income (loss) (6.6) (6.2) (0.4) 6%
Market capit alizat ion 87.0 97.1 (10.1) -10%
Number of employees 34,510 34,010 500 1%
30 Beyond borders Global biot echnology report 2012
The market capitalization of the US
biotech industry slightly outperformed
leading stock market indices during
2011 and the first five months of 2012.
Micro caps did significantly better than
companies of other sizes during this
period, continuing the trend observed in
last years report.
The US biotech industry outperformed the overall market in most of
2011 and early 2012
-20%
-15%
-10%
-5%
0%
+5%
+10%
+15%
+20%
+25%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2011 2012
EY biotech industry NASDAQ Composite Index
Dow Jones Industrial Average S&P 500 Index
Source: Ernst &Young and finance.yahoo.com.
EY biotech industry represents the aggregate market cap of all US public biotech companies as defined by Ernst & Young.
US micro caps led the industrys stock market performance in
2011 and early 2012
Source: Ernst &Young and finance.yahoo.com.
EY biotech industry represents the aggregate market cap of all US public biotech companies as defined by Ernst & Young.
-30%
-20%
-10%
0%
+10%
+20%
+30%
+40%
+50%
+60%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2011 2012
Mid-cap (US$2bUS$10b) Largest cos (market cap above US$10b) EY biotech industry
Small-cap (US$200mUS$2b) Micro-cap (below US$200m)
31 Financial performance Unit ed St at es
Selected US biotechnology public company financial highlights by geographic area,
2011 (US$m, %change over 2010)
Region
Number
of public
companies
Market
capitalization
31.12.2011 Revenue R&D
Net income
(loss)
Cash and
equivalents
plus short-term
investments Total assets
San Francisco Bay Area 68
5%
61,108
4%
14,376
7%
3,954
11%
1,412
-31%
16,698
129%
30,691
55%
New England 46
-2%
64,994
2%
10,326
-17%
3,473
-17%
842
207%
6,685
-10%
18,935
-29%
San Diego 33
-3%
21,215
-31%
6,733
11%
1,383
6%
(810)
148%
4,252
46%
16,655
27%
New Jersey 24
-4%
42,723
29%
5,570
26%
1,541
3%
964
56%
3,836
-2%
11,908
-1%
New York St at e 23
10%
7,607
17%
1,164
19%
770
18%
(336)
-28%
1,188
60%
2,479
17%
Sout heast 20
5%
3,211
9%
209
-29%
200
-17%
(238)
11%
528
29%
828
36%
Mid-At lant ic 18
-5%
6,658
-45%
1,399
9%
816
10%
(400)
74%
1,720
-17%
4,465
3%
Los Angeles/ Orange Count y 13
0%
51,791
-3%
15,787
4%
3,358
9%
3,320
-23%
20,716
18%
49,165
12%
Pacic Nort hwest 13
0%
3,916
-48%
501
137%
431
16%
(701)
-8%
585
-23%
756
-40%
Pennsylvania/ Delaware
Valley
11
-21%
5,021
-48%
907
-76%
378
-51%
(186)
-157%
994
-58%
2,104
-70%
Texas 10
0%
1,463
5%
214
34%
143
28%
(112)
22%
398
74%
738
87%
Nort h Carolina 9
-25%
3,564
-55%
739
-67%
310
14%
25
-71%
711
-42%
1,816
-44%
Midwest 9
-10%
406
-32%
29
-10%
129
37%
(227)
48%
162
139%
272
155%
Colorado 8
14%
825
8%
148
66%
167
46%
(206)
7%
354
49%
420
34%
Ut ah 3
0%
1,861
-17%
402
11%
48
-4%
60
-42%
453
-16%
735
-2%
Ot her 10
25%
1,638
109%
295
79%
101
12%
(71)
-36%
394
159%
676
201%
Total
318
-1%
278,000
-5%
58,800
-4%
17,202
0%
3,334
-36%
59,676
24%
142,644
5%
Source: Ernst &Young and company financial statement data.
Percent changes refer to change over December 2010. Some numbers may appear inconsistent because of rounding.
New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
Mid-Atlantic: Maryland, Virginia, District of Columbia
Southeast: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Tennessee, South Carolina
Midwest: Illinois, Michigan, Ohio, Wisconsin
Pacific Northwest: Oregon, Washington
Europe
32 Beyond borders Global biot echnology report 2012
European biotechnology at a glance, 201011 (US$m)
In Europe, as in the US, publicly traded
biotechnology companies increased
their top lines by 10%, compared to
12% in 2010 and 8% in 2009. R&D
expense, which had declined by 2% in
2009 and increased modestly by 5% in
2010, grew by a much more robust 9%
in 2011. A significant difference from
the US performance, however, was on
the bottom line. While US companies
net profit decreased in 2011, European
companies went in the other direction,
essentially bringing the industry to the
brink of aggregate profitability for the
first time in its history. However, this
was essentially driven by a single event
at a commercial leader: Elans sale of its
drug technology to US-based Alkermes
for US$500 million. The number of
employees increased by 4%, compared
to 1% in 2010 and 2009 another
positive indication.
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 % change
Public company data
Revenues 18,911 17,233 10%
R&D expense 4,921 4,513 9%
Net income (loss) (0.3) (568) -100%
Market capit alizat ion 71,519 78,639 -9%
Number of employees 48,330 46,450 4%
Financings
Capit al raised by public
companies
1,570 2,407 -35%
Number of IPOs 6 10 -40%
Capit al raised by privat e
companies
1,321 1,371 -4%
Number of companies
Public companies 167 170 -2%
Privat e companies 1,716 1,758 -2%
Public and privat e companies 1,883 1,928 -2%
33 Financial performance Europe
European biotechnology: commercial leaders and other companies, 2010-11 (US$m)
In the US, the list of commercial leaders
has been quite dynamic, with some
companies being acquired and others
crossing the US$500 million threshold
through organic growth. In Europe,
however, the list of commercial leaders
Actelion, Elan Corporation, Eurofins
Scientific, Ipsen, Meda, Novozymes,
Qiagen and Shire has not changed
since 2007.
In 2011, the performance of these
commercial leaders stood in stark
contrast to that of the rest of the
industry. The revenues of commercial
leaders increased by 19%, while those
of the other companies decreased by an
identical percentage. The same pattern
was repeated across all the major
indicators, with the health of a few large
companies increasing as the rest of the
industry saw its performance worsen.
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 US$ change % change
Commercial leaders
Revenues 15,522 13,042 2,480 19%
R&D expense 2,641 2,100 541 26%
Net income (loss) 2,024 1,429 595 42%
Market capit alizat ion 51,667 48,697 2,970 6%
Number of employees 33,570 30,970 2,600 8%
Other companies
Revenues 3,389 4,191 (802) -19%
R&D expense 2,280 2,413 (133) -6%
Net income (loss) (2,024) (1,997) (27) 1%
Market capit alizat ion 19,852 29,942 (10,090) -34%
Number of employees 14,760 15,480 (720) -5%
34 Beyond borders Global biot echnology report 2012
Europes largest biotech companies outperformed the rest of the industry
in 2011 and early 2012
As one might expect from the analysis
of commercial leaders and other
companies, the market capitalization
of the largest companies outperformed
that of the rest of the industry in 2011
and the first five months of 2012. Small-
and micro-cap stocks performed worst
during this time frame.
-50%
-40%
-30%
-20%
-10%
0%
+10%
+20%
+30%
+40%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
2011 2012
Largest cos (market cap above US$2.5b) EY biotech industry Mid-cap (US$1bUS$2.5b)
Small-cap (US$200mUS$2.5b) Micro-cap (below US$200m)
Source: Ernst &Young and finance.yahoo.com.
EY biotech industry represents the aggregate market cap of all European public biotech companies as defined by Ernst & Young.
35 Financial performance Europe
Selected European biotechnology public company financial highlights by country,
2011 (US$m, %change over 2010)
Source: Ernst &Young and company financial statement data.
Percent changes refer to change over December 2010. Some numbers may appear inconsistent because of rounding.
Country
Number
of public
companies
Market
capitalization
31.12.2011 Revenue R&D
Net income
(loss)
Cash and
equivalents
plus short-term
investments Total assets
Unit ed Kingdom 36
-10%
23,173
7%
4,967
13%
1,073
0%
626
54%
1,346
0%
8,662
14%
France 19
-14%
5,985
-26%
3,371
12%
588
-5%
(80)
925%
1,098
14%
4,989
8%
Sweden 24
9%
4,964
-22%
2,612
14%
676
121%
124
4,943%
438
-7%
7,798
17%
Israel 21
11%
1,604
-11%
82
-8%
92
-20%
(176)
26%
202
-26%
454
7%
Denmark 9
0%
10,737
-2%
2,195
12%
529
3%
(12)
-172%
422
-56%
3,657
5%
Germany 14
0%
1,458
-28%
295
34%
249
14%
(151)
-6%
208
-53%
1,123
3%
Swit zerland 9
0%
4,664
-37%
2,128
5%
762
32%
(425)
-214%
1,861
1%
3,636
5%
Norway 9
0%
1,581
1%
117
2%
78
30%
(44)
-2%
219
-16%
361
1%
Net herlands 5
-29%
3,329
-56%
1,185
-31%
150
-55%
40
109%
290
-79%
3,839
-31%
Belgium 6
0%
1,617
-22%
232
-12%
256
7%
(209)
142%
367
-1%
768
0%
Ot her 15
15%
12,407
36%
1,727
51%
467
3%
307
-132%
834
16%
3,879
18%
Tot al 167
-2%
71,519
-9%
18,911
10%
4,921
9%
(0)
-100%
7,285
-13%
39,166
12%
36 Beyond borders Global biot echnology report 2012
Canada
Canadian biotechnology at a glance, 2010-11 (US$m)
The financial performance of Canadian
publicly traded biotech companies
continued to decline in 2011. Revenues
decreased 21% to US$998 million.
R&D expenditures fell for the third
consecutive year, to US$431 million,
driven largely by continued cost-
cutting measures. This drive to achieve
efficiencies and cut costs also resulted
in a fall in employment in the sector.
There are, however, some signs of hope.
After the financial crisis in 2008, the
Canadian biotech sector responded
with cost-cutting and efficiency
measures. The drive to do more with
less has in turn led to some successes
on the product development front, and
many Canadian biotech companies
announced positive clinical news in
2011 a trend we havent seen for
a while. Some companies obtained
clinical and regulatory successes and
others announced that they successfully
advanced their products. These
promising results were rewarded with
an overall 53% increase in financing in
2011. However, despite this significant
increase in financing over 2010, the
sector is still below financing levels of
2005, 2006 and 2007.
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 % change
Public company dat a
Revenues 998 1,271 -21%
R&D expense 431 449 -4%
Net income (loss) (344) (358) -4%
Market capit alizat ion 4,042 4,714 -14%
Number of employees 3,600 4,880 -26%
Financings
Capit al raised by public companies 574 396 45%
Number of IPOs 0 0 0%
Capit al raised by privat e companies 166 87 91%
Number of companies
Public companies 71 72 -1%
Privat e companies 146 153 -5%
Public and privat e companies 217 225 -4%
37 Financial performance Aust ralia
Australia
Australian biotechnology at a glance, 2010-11 (US$m)
The performance of Australian publicly
traded biotechnology companies showed
robust improvement in 2011. Revenues
grew by 6%, R&D expenses by 13% and the
collective bottom line improved by 15%
relative to 2010. As always, these results
are strongly affected by CSL, the colossus of
Australias biotech sector, which continued
to post healthy product sales and revenue
growth. In addition, the 2011 numbers
were affected by transaction-related events
at a couple of other Australian firms.
Melbourne-based Mesoblast saw a significant
improvement in its top and bottom lines
thanks to a US$263 million up-front
payment from US-based Cephalon as part
of a strategic alliance in which Cephalon
acquired global rights in three treatment
areas to products derived from Mesoblasts
adult mesenchymal precursor stem cell
technology. Similarly, results at Acrux
were considerably boosted by a milestone
payment of US$87 million from US-based
Eli Lilly and Co. after the FDA issued
marketing approval for Axiron.
Source: Ernst &Young and company financial statement data.
Numbers may appear inconsistent because of rounding.
2011 2010 % change
Public company dat a
Revenues 4,712 4,465 6%
R&D expense 583 517 13%
Net income 822 717 15%
Market capit alizat ion 22,411 25,626 -13%
Number of employees 13,140 12,760 3%
Number of companies
Public companies 61 67 -9%
Financing
39 Financing The big pict ure
Financing
Innovative capital
At first glance, 2011 might appear to be an impressive year
for biotech fund-raising. Companies in the industry raised a
staggering US$33.4 billion during the year, second only to 2000,
when the genomics bubble was at its height. Venture capital held
steady at US$5.8 billion essentially unchanged from last year
and comparable to amounts raised by the industry in the years
preceding the global financial crisis.
But the overall numbers do not tell the real story, and the true
picture is very different. The dramatic increase in capital raised
can be explained in one word debt. Specifically, a handful of
commercial leaders (companies with revenues in excess of
US$500 million) took advantage of low interest rates to raise
large sums of debt, propelling debt totals to US$17 billion the
highest amount in the last decade, by a wide margin. As mature,
cash-flow-positive entities, these companies do not need to
raise capital to fund R&D. Instead, they raised these large sums
for other purposes, such as financing acquisitions or stock
buybacks. The debt-to-equity and debt-to-market-capitalization
ratios of some big biotech companies now rival and in some
cases, exceed those of their big pharma counterparts.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
IPOs 602 484 2,157 1,781 1,806 2,263 116 840 1,316 857
Follow-on and ot her 3,885 12,894 12,968 10,235 19,972 14,246 5,360 11,270 8,497 9,780
Debt 2,628 92 33 2,958 561 6,249 4,758 4,078 10,117 16,915
Vent ure 3,623 4,096 5,682 5,417 5,379 7,638 6,184 5,743 5,867 5,838
Total 10,738 17,566 20,840 20,391 27,719 30,396 16,418 21,931 25,797 33,389
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
Numbers may appear inconsistent because of rounding. Convertible debt instruments included in follow-on and other.
Capital raised in North America and Europe by year (US$m)
Source: Ernst &Young and company financial statements.
Ratios based on financial results as of 31 December 2011.
Debt to equity
Debt to market
capitalization
Big biot ech
Amgen 113% 42%
Gilead Sciences 111% 25%
Celgene 33% 5%
Biogen Idec 17% 4%
Big pharma
Pfizer 47% 24%
Johnson & Johnson 34% 11%
Merck & Co. 30% 15%
Debt ratios of selected companies: big biotech reaches maturity
The big picture
40 Beyond borders Global biot echnology report 2012
Innovation capital: enough to sustain innovation?
Conversely, the amount of capital raised in 2011 by the vast majority of firms that are not mature
commercial leaders what we term innovation capital remained relatively unchanged at US$16.8 billion.
Indeed, the amount of innovation capital has remained remarkably flat over the last four years, averaging
US$16.2 billion about US$2 billion below the average amount of innovation capital raised between 2004
and 2007. In addition, there is a haves-and-have-nots story even within the ranks of those that raised
innovation capital. These funds were not evenly distributed, and a relatively small number of companies
garnered a significant portion of the total innovation capital invested in any given year.
The differing realities for biotechs haves and have-nots are likely to persist for the foreseeable future.
Investors have moved beyond buying dreams of better, faster and cheaper drug development. Instead, in
todays market, an increasingly concentrated and sophisticated group of investors sets the terms of most
fund-raising transactions. (See the 2011 issue of Beyond borders for a discussion of the skills leaders of
earlier-stage companies need to thrive in this environment.)
0
5
10
15
20
25
30
35
40
2011 2010 2009 2008 2007 2006 2005 2004
U
S
$
b
Innovation capital Capital raised by commercial leaders
Enough to sustain innovation? Innovation capital in North America and Europe by year
Source: Ernst &Young, Capital IQ, BioCentury and VentureSource.
Innovation capital is the amount raised by companies with revenues of less than US$500 million.
41
Since innovation capital is the lifeblood of the biotech industry, lets
take a closer look at where these funds are going. Some facts:
Private companies raised US$5.8 billion in venture capital in
2011 an amount that has remained remarkably steady despite
all the turmoil over the last several years. Indeed, venture
capital totals during 200412 have averaged US$5.9 billion
annually. Within the US and Europe, the number of venture
rounds larger than US$5 million decreased by 33 (or 12%) from
2010, while the average amount raised per round increased by
15% to US$22.1 million. This increased concentration re ects
an ongoing trend: investors are being more selective, but once
they decide to back a technology, they are willing to provide
signi cant capital to fund at least the initial value-creating
activities. Despite expectations that a multiyear decline in
fund-raising by venture rms would negatively impact new
company formations, the number of rst-round transactions
larger than US$5 million actually increased modestly in 2011
to 63 (from 55 in 2010) and the average amount invested per
round increased a robust 24%. As we have pointed out in prior
years, the announced values in rst rounds are typically invested
in tranches over many months, or even years, as companies
achieve development milestones. The 2011 average gures were
also affected by three large initial rounds in the US that ranged
between US$60 million and US$100 million. Overall, these
gures show a more positive picture for venture nancing than
is often re ected in the conventional wisdom about the industry.
That said, less than 10% of the 3,000-plus companies operating
across North America and Europe garnered over 70% of the
aggregate venture capital invested.
The amount of innovation capital arising from initial public
offerings remains a modest part of overall capital raised. In
2011, there were 16 IPOs in the US and Europe with aggregate
proceeds of US$857 million. Of this amount, US$227 million was
raised by the industrial biotech company Solazyme, reducing the
take for therapeutic and diagnostic biotech companies.
The decline in IPOs has been well documented in many
forums, including a recent cover story in The Economist which
noted that the number of IPOs across all industries in the
US declined from an average of 311 per year between 1980
and 2000 (a period that was also the heyday of biotech IPOs)
to an average of 99 per year between 2001 and 2011. The
article further points out that companies with revenues under
US$50 million (the typical biotech IPO) have been hardest hit,
declining from an annual average of 165 IPOs during 1980
2000 to only 30 per year in the 200109 period. The most
commonly cited reasons for this decline are the increased
regulatory burden and related ling costs. For biotech
companies, however, the decline in IPOs is not attributable
to increased compliance costs, but rather to market realities.
Many VCs and management teams now prefer to exit by selling
the company to a strategic investor rather than pursue an IPO.
In addition, generalist funds often avoid biotech IPOs because
of liquidity considerations or an inability to evaluate emerging
technologies or regulatory/reimbursement risks. As a result,
companies going public must meet the standards of an
increasingly savvy group of specialist investors who can, and
do, set transaction terms. This is one reason why most biotech
IPOs in recent years priced below their desired offering ranges.
The bulk of innovation capital comes from equity and
convertible debt nancings of publicly traded biotech
companies. This has also held reasonably steady over the past
few years, though the list of companies accounting for most of
the capital raised varies somewhat from year to year. In 2011,
these offerings raised a total of US$9 billion, a 14% increase
from 2010. Of this amount, approximately US$6 billion was
raised in just 45 deals larger than US$50 million each. In
2010, there were 46 offerings larger than US$50 million,
which raised US$4.8 billion in aggregate. The US was home to
the vast majority of these offerings in both years.
Financing The big pict ure
42 Beyond borders Global biot echnology report 2012
Trend watch: evolving structures, exits and paths
The biotech industry has, by necessity, been at the forefront of novel business and financing
structures over its history. Recently, many of the novel structures have centered on
efficient exits for venture investors who are seeking quicker and more reliable paths to exit
in the absence of an IPO market. In previous reports, we have described venture investors
pursuing capital-efficient project financing structures, typically around a single asset (see,
for example, the article by Francesco DeRubertis of Index Ventures in the 2009 issue of
Beyond borders). More players have adopted this approach (e.g., Atlas Venture through its
Atlas Development Corp.) for the right types of assets. Beyond capital efficiency, the goal
is to balance the overall portfolio between assets that will fail fast (and fail cheaply) and
those that will provide a quicker exit through a sale.
Tax minimization has not been a significant consideration for much of the history of biotech,
since taxable income was a distant concept for most companies. However, as investors
and companies adapt to the financing environment and seek ways to provide liquidity to
investors sooner, we have seen a proliferation of tax-efficient limited liability company
(LLC) structures. These structures have the advantage of allowing a company (or holding
company) to sell or license multiple assets and return capital to shareholders without
incurring corporate-level tax. Meanwhile, companies retain the flexibility of converting to a
traditional corporate structure at a later date if an IPO becomes a real possibility. Examples
of companies that have used the LLC approach include firms with licensing models such as
antibody company Ablexis and Resolve Therapeutics, as well as holding company structures
such as Forma Therapeutics (which reorganized itself under an LLC parent and may seek
different buyers for individual programs that are held in discrete subsidiaries).
Reverse mergers have offered an alternative path to the public market, with 610 such
transactions occurring in each of the last several years. However, regulators have tightened
the listing requirements for reverse mergers, leading some companies to consider other
alternatives. In 2011, Coronado Biosciences became the first biotech to take a different
path. The company voluntarily registered its securities (without a public offering of stock),
then sought permission to trade over the counter and subsequently pursued a listing on a
national exchange. In early 2012, OvaScience initiated a similar process. This approach may
become a viable alternative for companies that require a path to liquidity but want or need
to avoid the time, expense and execution risk of a traditional IPO.
For a small-cap public company seeking to access the public market, announcement (or
leak) of its intent to conduct a follow-on offering inevitably drives down the stock price
before the deal. In the past, PIPE deals allowed companies to address this problem by
conducting a privately negotiated transaction, but PIPEs have fallen out of favor with
investors, who are unwilling to wait for liquidity in a volatile market. A new innovation
has therefore emerged to fill the gap the at-the-market, or ATM, offering. Under this
arrangement, a company engages an investment bank to sell up to a certain number of
shares in the open market (to fulfill buy orders that arise in the ordinary course of business)
at prices that fall within a pre-established range. While it may take several weeks to
complete the full fund-raising, depending on the daily volume of trading in the companys
stock, if managed correctly a company may achieve a better overall result.
43
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
5%
15%
80%
8%
17%
76%
4%
22%
22% 22%
74%
5%
73%
7%
71%
3%
26%
71%
3%
16%
3%
17%
81%
79%
2%
9%
89%
2%
15%
83%
US Europe Canada
Distribution of total capital raised in North America and Europe by year
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2010 2009 2008 2007 2006 2005 2004
4%
24% 24% 24%
72%
6%
71% 71%
10%
27%
15%
63%
5% 3%
82%
3%
16%
3%
22%
81%
75%
4%
15%
80%
US Europe Canada
Distribution of innovation capital raised in North America and Europe by year
Financing The big pict ure
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
Percentages may not total to 100% due to rounding.
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
Percentages may not total to 100% due to rounding. Innovation capital is the amount raised by companies with revenues of less than US$500 million.
44 Beyond borders Global biot echnology report 2012
US biotechnology financings by year (US$m)
As the US goes, so goes the world in terms of biotech
financing. Capital raised in the US rose by an impressive
38%, to US$29.8 billion. However, the increase was
driven by debt issuances by commercial leaders,
principally Amgen (which issued debt in excess of
US$10.5 billion), Gilead Sciences (US$4.7 billion) and
Illumina (US$800 million). Amgen also repaid US$2.5
billion of debt, repurchased US$8.3 billion of its common
stock and paid its first-ever dividend of US$500 million.
United States
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
IPOs 456 448 1,618 626 944 1,238 6 697 1,097 814
Follow-on and ot her 3,442 9,986 10,337 8,110 15,242 8,944 4,250 8,745 6,313 8,199
Debt 2,564 53 9 2,857 282 5,930 4,641 3,421 9,717 16,395
Vent ure 2,164 2,826 3,551 3,328 3,302 5,464 4,445 4,556 4,409 4,352
Total 8,626 13,313 15,515 14,922 19,770 21,576 13,342 17,419 21,537 29,760
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
Numbers may appear inconsistent because of rounding. Convertible debt instruments included in follow-on and other.
45 Financing Unit ed St at es
US innovation capital flatlines, even as total funding rises sharply
0
5
10
15
20
25
30
35
2011 2010 2009 2008 2007 2006 2005 2004
U
S
$
b
Innovation capital Capital raised by commercial leaders
Innovation capital, while increasing slightly in 2011,
has reached a plateau of approximately US$14 billion
annually in the US virtually unchanged from the levels
seen before the financial crisis, with the exception
of 2007. Significant transactions in 2011 included
convertible debt issuances by Dendreon (US$620
million), Human Genome Sciences (US$495 million)
and Regeneron Pharmaceuticals (US$560 million) as
these companies ramped up commercial operations. The
industry also saw 11 follow-on equity offerings of greater
than US$100 million each, led by the US$258 million
raised by Ariad Pharmaceuticals and four venture
rounds of around US$100 million each (Tesaro, Ascletis,
Intrexon Corp. and Portola Pharmaceuticals). Ascletis,
which received an initial US$50 million tranche, is a
particularly interesting story, as the companys business
plan is built around operating in both the US and China,
and the majority of the investment came from investors
in China. As noted previously, the largest IPO of the
year was the US$227 million raised by industrial biotech
Solazyme, while Clovis Oncology had the largest IPO by
a therapeutics company (US$139 million) as well as a
subsequent follow-on offering of US$75 million.
Source: Ernst &Young, Capital IQ, BioCentury and VentureSource.
Innovation capital is the amount raised by companies with revenues of less than US$500 million.
46 Beyond borders Global biot echnology report 2012
Source: Ernst &Young, BioCentury, BioWorld, Windhover and VentureSource.
Figures in parentheses are number of financings. Numbers may appear inconsistent because of rounding.
Quarterly breakdown of US biotechnology financings (US$m), 2011
First quarter Second quarter Third quarter Fourth quarter Total
IPOs $295
(5)
$287
(2)
$49
(1)
$182
(2)
$814
(10)
Follow-on and ot her $3,374
(56)
$1,923
(57)
$720
(29)
$2,183
(40)
$8,199
(182)
Debt $1,176
(23)
$3,514
(17)
$457
(17)
$11,248
(23)
$16,395
(80)
Vent ure $966
(79)
$1,200
(72)
$819
(78)
$1,366
(83)
$4,352
(312)
Total $5,811
(163)
$6,924
(148)
$2,046
(125)
$14,979
(148)
$29,760
(584)
Macroeconomic trends are evident
in the pattern of capital raised during
2011, as growing confidence in
the economy prompted increasing
investment in the latter half of 2010
and the first half of 2011. However,
that forward momentum slowed
significantly in the second half of
the year (with the exception of debt
offerings by commercial leaders)
as public market investors sought
lower-risk investments in the wake
of the debt ceiling debate in the US
Congress and the growing economic
challenges in the Eurozone. Venture
capital with its inherently longer-
term view of the world held steady
through 2011.
47
Capital raised by leading US regions, 2011
There is a haves-and-have-nots
story even within the ranks of
companies raising innovation
capital. The equivalent chart in
prior years reports has presented
total capital raised and venture
capital raised on the two axes.
This year, we replaced total capital
raised with innovation capital raised
effectively removing the skewing
effect of the large financings of
commercial leaders. This had a
dramatic impact on Los Angeles/
Orange County, which was typically
an outlier on the top left hand
corner of the chart because
of Amgens debt transactions.
New England, San Francisco Bay
Area and San Diego retain their
positions as the three leading
clusters for venture capital raised.
Source: Ernst &Young, BioCentury and VentureSource.
Size of bubbles represents number of financings per region. Innovation capital is
the amount raised by companies with revenues of less than US$500 million.
I
n
n
o
v
a
t
i
o
n

c
a
p
i
t
a
l

r
a
i
s
e
d

(
U
S
$
b
)
Vent ure capit al raised (US$m)
1,200 1,400 1,600 1,800 2,000 0 200 400 600 800 1,000
0
1.0
0.5
1.5
2.0
2.5
3.0
3.5
4.0
Pacif ic Nort hwest
San Diego
New Jersey
New York St at e
Mid-At lant ic
San Francisco Bay Area
Los Angeles/ Orange Count y
New England
Financing Unit ed St at es
48 Beyond borders Global biot echnology report 2012
US biopharmaceutical venture capital as a share of total venture capital by year
US biotechnology IPOs by year
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2011 2010 2009 2008 2007 2006 2005
While the amount of innovation
capital and venture capital
raised by biotech has held
steady in recent years, the
industrys share of total venture
capital raised has fallen over
the last two years. In 2011,
biopharmaceutical companies
attracted 12% of US venture
capital, down from 13% in
2010 and 17% in 2009. This
represents the lowest share that
the industry has garnered in
the last seven years. The share
of venture capital raised by
health care companies showed
a similar decline, from 28% in
2010 to 26% in 2011.
In 2009 and 2010, the US IPO
market rebounded from its
2008 financial-crisis depths.
In 2011, however, the market
retreated both in terms of the
number of completed deals and
the aggregate proceeds raised.
The median amount raised
in 2011 was US$55 million
(similar to the prior years
US$52 million) and the smallest
transaction was US$40 million.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
C
a
p
i
t
a
l

r
a
i
s
e
d

i
n

I
P
O
s

(
U
S
$
b
)
N
u
m
b
e
r

o
f

d
e
a
l
s
Capital raised Number of deals
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
5
10
15
20
25
30
Source: VentureSource.
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
49
The vast majority of 2011 US IPOs priced below their desired ranges
Only Solazyme drew enough investor interest for its IPO to price above the expected range
in 2011, while Fluidigm Corp. and Clovis Oncology priced within their expected ranges.
In the remaining transactions, investors required companies to reset their expectations
of value and in some cases issue additional shares so that proceeds would be sufficient to
fund operations to the next meaningful development milestone.
$0
$5
$10
$15
$20
P
C
R
X
E
C
Y
T
B
G
M
D
A
C
R
X
F
L
D
M
T
Z
Y
M
S
Z
Y
M
H
Z
N
P
N
L
N
K
C
L
V
S
Source: Ernst &Young, finance.yahoo.com and media reports.
Vertical lines indicate IPO filing ranges; horizontal dashes indicate offer prices.
Financing Unit ed St at es
50 Beyond borders Global biot echnology report 2012
2011 US IPO performance
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
+10%
+20%
+30%
CLVS NLNK HZNP SZYM TZYM FLDM ACRX BGMD ECYT PCRX
3
1

D
e
c
e
m
b
e
r

2
0
1
1

c
l
o
s
i
n
g

p
r
i
c
e

r
e
l
a
t
i
v
e

t
o

o
f
f
e
r

p
r
i
c
e
Despite lower-than-expected IPO prices on debut, most new
listings declined significantly by the end of 2011, further
dampening investor enthusiasm for more new listings. Overall,
the IPO class of 2011 traded down 22% through the end of
2011. However, this has improved to just a 1% decline as we
go to press at the end of May 2012. Two-thirds of companies
that went public over the last three years are now trading below
their IPO prices, and 40% lost more than half of their value
by the end of 2011 (the overall performance is a decrease
of 25%). The companies suffering the biggest declines fall
into two categories: commercial-stage companies that have
missed revenue growth expectations and development-stage
companies that have had clinical setbacks on their lead, and in
some cases only, product candidate.
Source: Ernst &Young and Capital IQ.
51 Financing Europe
European biotechnology financings by year (US$m)
In contrast to the US, financing in Europe has not regained the
levels seen prior to the financial crisis. A retreat in the public
markets in 2011 resulted in overall financing levels that are
back to those seen in 2008 the height of the global financial
crisis reflecting the continuing struggles of the Eurozone
countries over the sovereign debt of some member countries.
While the biotechnology sectors of these countries are
relatively small, the uncertainty has driven investors across the
continent to seek lower risk. One bright spot is that, similar to
the US, Europe has seen venture capital hold relatively steady.
Across Europe, there were 56 venture rounds of greater than
US$5 million (down from 65 in 2010). The most significant
venture capital transactions included US$139 million raised
by Symphogen (Denmark), US$99 million raised by Biocartis
(Switzerland) and US$96 million raised by Circassia (United
Kingdom). In aggregate, biotech accounts for approximately
15% of total venture capital investment across Europe, a slightly
higher percentage than in the US in 2011. European companies
issued US$393 million in debt, about two-thirds of which came
from Switzerland-based Actelion.
Europe
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
IPOs 136 36 454 995 853 1,021 111 143 219 43
Follow-on and ot her 126 1,769 2,196 1,587 3,141 4,600 872 1,892 1,792 1,134
Debt 63 39 24 100 279 319 108 654 396 393
Vent ure 1,259 1,064 1,860 1,776 1,872 1,821 1,531 1,091 1,371 1,321
Total 1,585 2,908 4,534 4,459 6,146 7,761 2,622 3,779 3,778 2,891
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
Numbers may appear inconsistent because of rounding. Convertible debt instruments included in follow-on and other.
52 Beyond borders Global biot echnology report 2012
European innovation capital by year
Reflecting the fact that Europe has fewer large commercial stage companies, the vast majority of all capital raised
meets our definition of innovation capital. Capital raised by commercial leaders in 2011 includes a US$265 million
debt transaction by Actelion Pharmaceuticals.
0
1
2
3
4
5
6
7
8
9
2011 2010 2009 2008 2007 2006 2005 2004
U
S
$
b
Innovation capital Capital raised by commercial leaders
Source: Ernst &Young, Capital IQ, BioCentury and VentureSource.
Innovation capital is the amount raised by companies with revenues of less than US$500 million.
53
The year began strong for Europe,
as capital raised in the first quarter
of 2011 represented an increase
of approximately 18% over the
fourth quarter of 2010. However,
concerns about overall economic
conditions caused a precipitous
decline in funding beginning in
the second quarter. This was
particularly marked in the public
markets, where investors became
more risk averse in the face of
mounting concerns about recession
and debt defaults. These conditions
had less of an impact on venture
capital investing, since VCs can take
a longer-term view and increasingly
expect to achieve returns from
strategic sales rather than the
equity markets.
European biotechnology IPOs by year
0.0
0.2
0.4
0.6
0.8
1.0
1.2
C
a
p
i
t
a
l

r
a
i
s
e
d

i
n

I
P
O
s

(
U
S
$
b
)
N
u
m
b
e
r

o
f

d
e
a
l
s
Capital raised Number of deals
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
5
10
15
20
25
30
The IPO market has been virtually
closed in Europe since the financial
crisis, with no improvement
expected in the near term. Many
of the transactions that have
been completed in recent years
were listed on alternative market
exchanges with lower listing
standards. The 2011 IPOs took
place on such exchanges in Sweden
and Israel and raised less than
US$15 million each.
Financing Europe
First quarter Second quarter Third quarter Fourth quarter Total
IPOs $30
(4)
$12
(2)
$0
(0)
$0
(0)
$43
(6)
Follow-on and ot her $606
(31)
$284
(21)
$139
(20)
$105
(19)
$1,134
(91)
Debt $72
(3)
$50
(5)
$2
(2)
$268
(2)
$393
(12)
Vent ure $455
(40)
$190
(39)
$252
(37)
$423
(37)
$1,321
(153)
Total $1,164
(78)
$537
(67)
$394
(59)
$796
(58)
$2,891
(262)
Quarterly breakdown of European biotechnology financings (US$m), 2011
Source: Ernst &Young, BioCentury, BioWorld, Windhover and VentureSource.
Figures in parentheses are number of financings. Numbers may appear inconsistent because of rounding.
Source: Ernst &Young, BioCentury, BioWorld and VentureSource.
54 Beyond borders Global biot echnology report 2012
Capital raised by leading European countries, 2011
As in prior years, the UK led Europe in
number of financing rounds and venture
capital raised. The venture amount
raised in 2011 rose slightly from 2010.
Switzerland retains its perennial strength
in venture capital and rose up the rankings
due to the debt offering of Actelion.
The size and position of the remaining
countries is heavily dependent on whether
a single large investment occurs in any
particular year.
Source: Ernst &Young, BioCentury and VentureSource.
Size of bubbles represents number of financings per country.
T
o
t
a
l

c
a
p
i
t
a
l

r
a
i
s
e
d

(
U
S
$
b
)
Vent ure capit al raised (US$m)
250 300 0 50 100 150 200
0
0.1
0.2
0.3
0.4
0.5
0.6
Sweden
Net herlands
Denmark
France
Germany
Aust ria
Swit zerland
Unit ed Kingdom
55 Financing Canada
Canadian biotechnology financings by year (US$m)
Canada
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
IPOs 10 0 85 160 9 5 0 0 0 0
Follow-on and ot her
318 1,139 435 537 1,589
703 238 633 392 447
Debt 0 9 3 4 127
Vent ure 199 206 271 313 205 352 207 97 87 165
Total 527 1,345 791 1,010 1,803 1,060 453 733 482 739
Source: Ernst &Young, Canadian Biotech News and company websites.
Numbers may appear inconsistent because of rounding. Separate subtotals for follow-on and other and debt are not available prior to 2007.
In 2011, Canadian public biotech companies raised
US$574 million, a US$178 million increase over 2010. Fifteen
public companies raised 80% of the total public financing
take, including Atrium Innovations, which conducted a large
debt transaction. This represents an improvement over
2010, when most of the public company financing went to
just eight companies. Private companies raised more than
US$165 million, which represents a 91% increase over 2010.
In addition, 2012 is already off to a strong start with just over
US$50 million in investments announced.
The Canadian government, along with several of the provinces,
announced various programs to help stimulate innovation in the
sector. Some big pharma companies have also partnered with
the public sector to create investment funds that should result
in increased investments in private companies. Similar to trends
in the US, there has been an increase in venture financings
of single-product companies with lean operations that focus
on advancing a technology or molecule in the most capital-
efficient manner possible. With a complete dearth of IPOs over
the last five years, the focus of venture investors is clearly on
positioning companies and their technologies for acquisition.
56 Beyond borders Global biot echnology report 2012
Capital raised by leading Canadian biotech clusters, 2011
The relative position of leading clusters
changed in 2011. Quebec moved into
first place in total capital raised on the
strength of Atrium Innovations large
debt financing. On the venture capital
front, Montral and Vancouver switched
places relative to their 2010 standings,
with Montral taking the lead.
T
o
t
a
l

c
a
p
i
t
a
l

r
a
i
s
e
d

(
U
S
$
m
)
Vent ure capit al raised (US$m)
40 50 60 70 80 0 10 20 30
0
100.0
50.0
150.0
200.0
250.0
Qubec
Calgary
Toront o
Ot t awa
Mont ral
Vancouver
Source: Ernst &Young, BioCentury and VentureSource.
Size of bubbles represents number of financings per country.
57
Quarterly breakdown of Canadian biotechnology financings (US$m), 2011
On a quarterly basis, the total
amounts raised in 2011 were
relatively consistent for three of
the four quarters and approximated
quarterly amounts in 2010.
Financings in the third quarter in
2011 were double those of the
other three quarters. Based on
a preliminary review of the first
quarter of 2012, the upward trend
observed in 2011 appears to be
continuing.
First quarter Second quarter Third quarter Fourth quarter Total
IPOs $0
(0)
$0
(0)
$0
(0)
$0
(0)
$0
(0)
Follow-on and ot her $121
(23)
$125
(17)
$105
(15)
$97
(19)
$447
(74)
Vent ure $40
(7)
$2
(4)
$102
(10)
$21
(5)
$165
(26)
Debt $4
(1)
$1
(1)
$116
(4)
$6
(4)
$127
(10)
Total $165
(31)
$128
(22)
$323
(29)
$124
(28)
$739
(110)
Source: Ernst &Young, BioCentury, BioWorld and Venture One.
Figures in parentheses are number of financings. Numbers may appear inconsistent because of rounding.
Financing Canada
Deals
59 Deals The big pict ure
Deals
Pharma recalibrates
The big picture
Mergers and acquisitions
Based on the overall numbers, merger and
acquisition (M&A) activity in the biotech
industry looked robust in 2011. The number
of pharma-biotech and biotech-biotech
M&As in the US and Europe increased from
49 in 2010 to 57 in 2011, while their total
value grew from US$20 billion to about
US$25 billion over the same time period
(after normalizing the numbers by removing
US$31 billion of megadeals from the 2011
totals). The US$25 billion in megadeal-
adjusted M&A transactions represents the
second-highest total in the last six years,
second only to 2008, when the industry
announced US$28 billion of M&A deals.
But the overall numbers mask some
troubling trends. In particular, big pharma
was conspicuously absent from the buyers
table in 2011, with many of the largest
deals being driven by non-big pharma
acquirers (e.g., Teva Pharmaceutical
Industries, Grifols and Forest Laboratories).
Given the critical role that big pharma could
play in supporting the biotech innovation
ecosystem (discussed in this years Point
of view article) and the fact that the
expected exit for most venture investors
is an acquisition, this lack of activity is
unsettling. With big pharma in the midst of
crossing the long-awaited patent cliff, many
observers assumed that we would witness a
more pronounced upsurge in transactions
particularly for targets with product revenue
or very late-stage product candidates. In
this light, its remarkable how few pharma-
biotech acquisitions actually occurred in
2011. Only Sanofis acquisition of Genzyme
(which really played out in 2010 but did not
get finally negotiated and closed until 2011)
entered the ranks of the years 10 largest
deals. Even more noteworthy, big pharma
was the buyer in only 7 of the years 57
M&A transactions.
We are unlikely to see many (if any)
additional megadeals involving big
pharma in the foreseeable future, as
most companies have announced their
intention to focus on smaller tuck-in deals
(acquisitions of products and technologies)
valued below US$5 billion, and quite often
below US$1 billion (e.g., Merck & Co.s
acquisition of Inspire Pharmaceuticals
and Novartis purchase of Genoptix in
2011). This trend continued to be visible
in early 2012 with GlaxoSmithKline
taking a run at Human Genome Sciences
with a US$2.6 billion offer, and Bristol-
Myers Squibb Co. buying Inhibitex for
US$2.5 billion and reportedly offering
US$3.5 billion for Amylin Pharmaceuticals
(which, according to media reports,
subsequently attracted the interest of other
bidders as well.)
The reasons for big pharmas focus on more
modest-sized deals are varied. Many big
players have taken on more debt thanks to
large mergers in prior years (e.g., Pfizer/
0
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40
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60
70
Biotech-biotech Pharma-biotech Pharma-biotech megadeals Biotech-biotech megadeals
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Number of deals
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70
US and European M&As, 2006-11
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart excludes transactions where deal terms were not publicly disclosed.
60 Beyond borders Global biot echnology report 2012
Wyeth, Merck/Schering-Plough, Novartis/
Alcon, Roche/Genentech). In addition, all of
the big pharmas are focused on rationalizing
their operations and seeking new markets
for growth (including pursuing deals in
emerging markets). As mentioned in the
Point of view article, this increased debt
load combined with slowing revenue growth
and the need to maintain dividends and
stock buybacks has resulted in a decrease
in acquisition firepower of the pharma
industry by as much as 30%, according to
an internal Ernst & Young analysis. And
of course previous consolidation in the
industry has reduced the absolute number
of buyers with the scale to execute a large
transaction.
Meanwhile, the market caps of biotech
commercial leaders (companies with
revenues in excess of US$500 million
essentially the only firms that are likely to
move the needle on big pharma revenues)
are high enough to ensure that there are no
bargains to be had. Gilead Sciences, Biogen
Idec and Celgene Corp. all have market caps
of more than US$30 billion, while Amgens
value rivals that of several big pharma
companies. Such valuations effectively
place these companies out of reach of most
big pharma acquirers, especially when
one factors in a premium and accounts for
pharmas reduced firepower. The next tier
of commercial leaders valued above US$5
billion includes Alexion Pharmaceuticals
(an orphan-drug-focused company with
one product on the market), with a value
in excess of US$17 billion, up nearly
100% over the last 12 months; and Vertex
Pharmaceuticals, valued above US$13
billion, a nearly 20% rise from the previous
year. These market values likely reflect
optimism regarding a takeover, but given
that only Genentech and Genzyme have
been purchased for values above US$15
billion in the history of the industry, deals of
this magnitude cannot be considered likely.
In Europe, Shire also has a value above
US$16 billion, although its stock price has
remained relatively flat over the last year.
Actelion Pharmaceuticals, with a market
cap of US$5 billion, has seen its stock under
pressure over the last year. Other European
firms with significant market caps include
Elan Corp., Novozymes and Qiagen.
So who was active in M&A deals? In the
relative absence of big pharma, acquirers
included: big biotech firms (Amgen, Gilead
Sciences, Cephalon, Alexion and Shire);
generic/specialty pharma players (the
previously mentioned Teva and Forest);
Japanese pharma companies (Daiichi
Sankyo, Kyowa Hakko Kirin and Takeda
Pharmaceuticals) seeking technologies and
sources of growth beyond the domestic
market where they have traditionally
been strong; diagnostic companies
(Quest Diagnostics); and even a food
company (Nestl).
Company Country Acquired or
merged company
Country Total potenial
value (US$m)
CVRs/milestones
(US$m)
Sanofi France Genzyme US 20,100 3,800
Gilead Sciences US Pharmasset US 11,200
Teva Pharmaceutical Industries Israel Cephalon US 6,200
Grifols Spain Talecris Biotherapeutics US 4,000 -
Forest Laboratories US Clinical Data US 1,200
Alexion Pharmaceuticals US Enobia Pharma Canada 1,080 470
Alkermes US Elan Drug Technologies Ireland 1,000
Amgen US BioVex US 1,000 575
Daiichi Sankyo Japan Plexxikon US 935 130
Shire UK Advanced Biohealing US 750 ND
Quest Diagnostics US Celera US 657 ND
Gilead Sciences US Calistoga Pharmaceuticals US 600 225
Cephalon US Gemin X Pharmaceuticals US 525 300
Bristol-Myers Squibb US Amira Pharmaceuticals US 475 150
Selected M&As, 2011
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Total potential value includes up-front, milestone and other payments from publicly available sources. ND refers to deals where CVR/milestone
amounts were not publicly disclosed.
61 Deals The big pict ure
Premiums, multiples and
risk sharing
Gilead Sciences made a huge splash with
its fourth-quarter offer for hepatitis C
virus company Pharmasset for a startling
US$11.2 billion an 89% premium over
the value the company was trading at
prior to the deal announcement, and
well above the industrys average deal
premium. By contrast, the other significant
transactions of 2011, Sanofi/Genzyme
and Teva/Cephalon, had premiums of 48%
and 39%, respectively. After a protracted
negotiation, Sanofi paid a premium of
five times Genzymes sales. While this is
in the range of other biotech tie-ups, it
is substantially higher than the multiples
seen in big pharma mergers such as Pfizer/
Wyeth (3x) or Merck/Schering (2.2x),
indicating higher growth expectations for
the Genzyme business.
In last years report, we noted the increased
use of post-close milestones to help bridge
valuation gaps between buyers and sellers.
It is interesting to note that all of the
largest acquisitions of private companies
included in the chart on page 60 and two
of the public-company acquisitions (Sanofi/
Genzyme and Forest Labs/Clinical Data)
used milestones.
Not afraid
In last years report, we also commented
on the emergence of hostile takeovers
in biotech, beginning with the Astellas
acquisition of OSI Pharmaceuticals (which
ultimately became friendly after a period
of negotiation). While Sanofi and Genzyme
were ultimately able to negotiate a deal
that was acceptable to both parties, the
prospect of Sanofi taking the offer directly
to Genzymes shareholders was certainly
present during the deliberations. In 2011,
Cephalon negotiated a deal to be acquired
by Teva Pharmaceuticals in the years third-
largest transaction after defending against
a hostile bid from Valeant Pharmaceuticals.
In early 2012, GlaxoSmithKline took its
appeal directly to shareholders after Human
Genome Sciences rejected its bid. In the
past, biotech M&As were rarely hostile
because of the fear of losing key scientists
or other employees some of the targets
most valuable assets during an extended
battle. The newfound willingness to go
hostile suggests that suitors are often
placing most of the value of the transaction
on commercialized products.
62 Beyond borders Global biot echnology report 2012
Strategic alliances
Fewer deals, smaller deals
By now, every large pharma company has embraced a strategy that
involves externalizing more of its R&D as part of an effort to reverse
the multiyear decline in pipeline productivity. These strategies
include many elements: direct alliances with smaller biotechs,
corporate venture capital, enhanced relationships with leading
academic institutions, outsourcing of non-core activities, and even
arrangements with payers to access patient-level real-world data.
While the ultimate payoff of these efforts will not be known for
many years, the early pipeline progress appears to be encouraging.
With all the attention on externalization, one might expect the
volume and value of strategic alliances with biotech companies to
be increasing. In reality, the opposite has occurred. The number of
strategic alliance transactions declined for the second straight year,
and the potential biobucks value of these deals hit a six-year low.
Of course, biobucks numbers may not be the best marker of deal
trends, given the creative accounting that occurs in many deal
announcements. It is therefore even more distressing that 2011
saw a significant fall-off, for the second year running, in announced
up-front payments. Up-fronts fell to US$2.1 billion in 2011,
approximately 64% below the level in 2009. Abbotts US$400
million up-front payment to Reata for a portfolio of preclinical
compounds comprised 19% of the total up-front payments for the
year. In aggregate, up-front payments made by pharma companies
to biotech companies as part of strategic alliance transactions have
declined from a high of US$5.3 billion in 2009 to US$1.6 billion
in 2011.
Clearly, strategic alliances are still important to both pharma
and biotech companies, but the overall trends indicate that
pharmaceutical buyers are being more selective in their deal
interests and are focused on negotiating up-front payments that
reflect only the value that has been proven to date presumably
with more consideration reflected in downstream, success-based
milestones. For biotechs, while an alliance transaction is still
considered to be a validation of the companys technology, the
reduced capital flows from licensing increase the importance of
capital efficiency.
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2006 2007 2008 2009 2010 2011
Number of deals Pharma-biotech Biotech-biotech
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30
35
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45
50
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Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart shows potential value, including up-front and milestone payments, for alliances where deal terms are publicly disclosed.
US and European strategic alliances based on biobucks, 2006-11
63 Deals The big pict ure
Company Country Partner Country Total potential
value (US$m)
Up-front payments
(US$m)
Vertex Pharmaceuticals US Alios BioPharma US 1,525 60
Astellas Pharma Japan Aveo Pharmaceuticals US 1,425 125
Les Laboratoires Servier France miRagen Therapeutics US 1,000 ND
Johnson & Johnson US Pharmacyclics US 975 150
Amgen US Micromet US 967 14
Les Laboratoires Servier France Xoma US 885 35
Roche Switzerland Evotec Germany 830 10
Takeda Pharmaceutical Japan Intra-Cellular Therapies US 750 ND
Roche Switzerland Array BioPharma US 713 28
Merck KGaA Switzerland F-star Austria 692 ND
GlaxoSmithKline (GSK) UK Epizyme US 650 20
Pfizer US Theraclone Sciences US 632 ND
Pfizer US Santaris Pharma Denmark 614 14
Johnson & Johnson US Aveo Pharmaceuticals US 555 15
Big biobucks alliances, 2011
Source: Ernst &Young, MedTRACK and company news.
Total potential value includes up-front, milestone and other payments from publicly available sources. ND refers to deals where up-front amounts were not publicly disclosed.
64 Beyond borders Global biot echnology report 2012
Alliances with big up-front payments, 2011
Source: Ernst &Young, MedTRACK and company news.
Total potential value includes up-front, milestone and other payments from publicly available sources.
Company Country Partner Country Up-front payments (US$m)
Abbott Laboratories US Reata Pharmaceuticals US 400
Johnson & Johnson US Pharmacyclics US 150
Astellas Pharma Japan Aveo Pharmaceuticals US 125
Celgene US Elan Corp. Ireland 78
Valeant Pharmaceuticals Canada Meda Sweden 76
Astellas Pharma Japan Optimer Pharmaceuticals US 68
Salix Pharmaceuticals US Progenics Pharmaceuticals US 60
Allergan US MAP Pharmaceuticals US 60
Vertex Pharmaceuticals US Alios BioPharma US 60
Human Genome Sciences US Five Prime Therapeutics US 50
Mundipharma International UK Allos Therapeutics US 50
65 Deals The big pict ure
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Pharma-biotech Biotech-biotech Up-fronts/biobucks
2006 2007 2008 2009 2010 2011
0%
2%
4%
6%
8%
10%
12%
14%
16%
US and European strategic alliances based on up-front payments, 200611
Source: Ernst &Young, Windhover Information, MedTRACK and company news.
66 Beyond borders Global biot echnology report 2012
Breakups
While alliance transactions are frequently terminated early, and the product candidate
returned to the biotech, this is usually because of a clinical setback or a strategic portfolio
review after a change in ownership or management. Often the end of the alliance does
not mean the end of the product, and several biotechs have regrouped, reinvested and
even re-partnered a returned asset. One of the largest transactions of 2011, however,
involved a termination related to an approved product. Amylin Pharmaceuticals and
Eli Lilly and Company terminated their long-standing deal related to the diabetes drugs
Byetta and Bydureon (which won FDA approval shortly after the breakup). Amylin agreed to
pay US$250 million up-front, including royalties of 15% and other future consideration.
Similar territory new deals for a new market
The regulatory pathway for biosimilars and the time and cost to obtain marketing
approval is still uncertain in many markets, including the US. Nevertheless, in 2011,
companies began staking out their biosimilar alliances. Biotech commercial leaders
Amgen and Biogen Idec struck deals that take advantage of their biologic development
and manufacturing expertise while leveraging the financial resources of other companies
(Watson Pharmaceuticals and Samsung, respectively). Baxters alliance with Momenta
Pharmaceuticals was motivated by the desire to access the biotech companys cutting-edge
analysis technology, which allowed Momenta to assist partner Sandoz in obtaining approval
for a generic version of Lovenox (a complex mixture drug) without the need for extensive
clinical trials to prove equivalence.
67 Deals Unit ed St at es
US M&As, 2006-11
While the headlines were captured by the
years megadeals the Sanofi/Genzyme
saga, which concluded with a negotiated
agreement in the first quarter, and
the offer by Gilead Sciences to acquire
Pharmasset in the fourth quarter 2011
was very strong on the US M&A front,
even without these large transactions.
The number of M&A deals rebounded
to 37 from a low of 26 in 2010. The
increase in megadeal-adjusted aggregate
deal values was driven by the acquisitions
of biotech commercial leaders Cephalon
and Talecris Biotherapeutics, as well
as Forest Laboratories acquisition
of Clinical Data for US$1.2 billion. In
2011, the median value of acquisitions
of US-based biotech companies was
US$370 million (including the potential
value of post-close milestones), compared
to US$135 million in 2010 and only
US$95 million in 2009.
United States
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Pharma-biotech Biotech-biotech Pharma-biotech megadeals Biotech-biotech megadeals Number of deals
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45
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart excludes transactions where deal terms were not publicly disclosed.
68 Beyond borders Global biot echnology report 2012
US strategic alliances based on biobucks, 2006-11
The number of alliances with announced
deal terms decreased by 10% in 2011,
building on a 14% decline the prior year.
Even more striking, aggregate potential
deal values plummeted to a level not
seen for at least the last five years. It
is probably reasonable to assume that
biobucks were calculated and disclosed
in a similar manner over the last six
years, and this decline reflects fewer
large transactions (nine deals with US
biotechs in 2010 had biobuck values
above US$1 billion) as well as lower up-
front payments, as can be seen in the
next chart.
Licensors in strategic transactions have
clearly become more price sensitive in
recent years, with the aggregate value
of up-front payments declining for the
third year running from the high-water
mark in 2008. The up-fronts received by
US biotechs on the sell side of strategic
alliance transactions declined by
approximately US$1.5 billion compared
to 2009, a sum which has not been
made up by increased funding from
the capital markets, as discussed in the
financing section of this report.
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Pharma-biotech Biotech-biotech Number of deals
2006 2007 2008 2009 2010 2011
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160
US strategic alliances based on up-front payments, 2006-11
V
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2010 2011 2009 2008 2007 2006
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Pharma-biotech Biotech-biotech Up-fronts/biobucks
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Source: Ernst &Young, Windhover Information, MedTRACK and company news.
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart shows potential value, including up-front and milestone payments, for alliances where deal terms are
publicly disclosed.
69 Deals Europe
European strategic alliances based on biobucks, 2006-11
The number of strategic alliances
involving European biotechs fell to a six-
year low in 2011, as did the aggregate
biobucks values of those transactions.
The 29% decline in number of deals
is in contrast to a 16% increase in the
number of deals in 2010. Merck KGaA
and France-based Ipsen Pharmaceuticals
closed three deals each with European
biotechs, while a number of big pharma
companies did two transactions each.
Despite the decline in the number of
strategic alliances, announced up-front
payments were largely unchanged in
2011 as compared to 2010. European
companies on the sell side of alliances,
however, garnered up-front payments
of US$461 million, a significant decline
from the US$621 million received in
2010 and the US$2.5 billion received
in 2009 (which included nearly US$900
million received by Elan Corp. in a
transaction with Johnson & Johnson).
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Pharma-biotech Biotech-biotech Number of deals
2006 2007 2008 2009 2010 2011
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European strategic alliances based on up-front payments, 2006-11
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Pharma-biotech Biotech-biotech Up-fronts/biobucks
2006 2007 2008 2009 2010 2011
0
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15
20
25
Source: Ernst &Young, Windhover Information, MedTRACK and company news.
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart shows potential value, including up-front and milestone payments, for alliances where deal terms are publicly disclosed.
70 Beyond borders Global biot echnology report 2012
European M&As, 2006-11
M&A activity in Europe also improved
in 2011 for the second straight year.
There were 22 transactions with
announced deal terms, an increase
from the 17 seen in each of the two
previous years. The improvement in
aggregate deal values was largely
driven by Grifols acquisition of US-
based Talecris Biotherapeutics. Only
one of the 19 acquisitions of European
biotechs was by a big pharma
company. The median deal size of
biotech companies sold was US$84
million, up from US$65 million in
2010. Only four transactions involving
the sale of a European biotech included
meaningful post-closing milestone
payments, which is in contrast to the
high percentage of private-company
acquisitions in the US that included
milestones.
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2011 2010 2009 2008 2007 2006
Pharma-biotech Biotech-biotech Pharma-biotech megadeals Number of deals
0
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20
25
Source: Ernst &Young, Capital IQ, MedTRACK and company news.
Chart excludes transactions where deal terms were not publicly disclosed.
71
Canada
In 2011, Canadian M&A activity remained consistent with the levels
seen in recent years. Significant transactions included those by
Paladin Labs, which acquired Laval-based Labopharm for US$20
million, and Valeant Pharmaceuticals, which outbid Paladin Labs to
purchase Edmonton-based Afexa Life Sciences for US$76 million.
Two private Canadian companies were also acquired in 2011,
providing very significant sums to their early investors at closing
and the prospect of even higher returns if downstream milestones
are achieved. Gemin X Pharmaceuticals was acquired by Cephalon
(just prior to Cephalon itself being acquired by Teva Pharmaceutical
Industries) for US$225 million up-front and up to US$300 million
in milestones. Meanwhile, Montreal-based Enobia Pharma was
acquired by Alexion Pharmaceuticals for US$610 million up-front
and up to US$470 million in milestones. Given the lack of an IPO
market, these exits were certainly welcome news for Canadian
venture capital investors.
Contrary to 2010, there were only a few licensing agreements in
2011 involving Canadian biotech companies. For instance, both
Paladin Labs and Bioniche Life Sciences in-licensed product rights
for specific territories.
Deals Canada
Products and pipeline
73 Products and pipeline
Product s and pipeline
Promising signs
The big picture
For much of its history, biotechnology has
attracted researchers, entrepreneurs,
investors and strategic partners because of
its promise the game-changing potential
of innovative platforms and targeted, vastly
efficacious therapies. In recent years,
however, investors have been less allured
by biotechs promise and more concerned
about paths to commercialization and
returns on investment. This has, at least
in part, been driven by concerns about an
uncertain regulatory environment.
In 2011, there were signs of a different
kind of promise. The US Food and Drug
Administration (FDA) approved more
new drugs than at any time since 2004,
when the recalls of Vioxx and other COX-2
inhibitors spawned the current environment
of heightened concerns about drug safety.
The agency also reported progress on the
speed with which these new medicines
were approved all but one of the drugs
approved in fiscal year 2011 were approved
on or before their target dates, and 70% of
them were approved in the US before they
received approval anywhere else in the
world.
These are certainly encouraging
developments, and continued progress
on this front will be a critical part of the
answer to the challenge of sustaining
biotech innovation. While the FDA pointed
out that over half of the drugs approved
in FY2011 were approved on the first
cycle of review (i.e., without requests for
additional information) the industry remains
concerned about the unpredictability of
the requests for additional information,
adding to the cost, time and risk of drug
development.
Ultimately, an approval process that is
more transparent, predictable and timely
is not just important for sustaining biotech
innovation. With aging populations and
large unmet medical needs, an efficient
regulatory regime will be required to
develop cures for neurodegenerative
diseases such as Alzheimers disease and
Parkinsons disease and more targeted and
efficacious treatments for chronic ailments
such as diabetes. By making such changes,
regulators will help the industry fulfill
another promise its commitment to bring
patients better treatments and cures to
address their most critical ailments.
74 Beyond borders Global biot echnology report 2012
0
10
20
30
40
50
60
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
p pp
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New molecular entities Biologic license applications
Source: Ernst &Young, FDA.
US product approvals are based on CDER approvals only.
FDA product approvals, 19962011
The FDA approved 24 new molecular entities and 6 biologic license applications in 2011 the second-highest total in
the last dozen years.
75
Selected FDA approvals, 2011
Company Brand name Generic name Type of approval Indication Month
Centocor Ortho
Biotech (Johnson &
Johnson)
ZYTIGA Abiraterone acetate New molecular entity Late stage prostate cancer April
Human Genome
Sciences
BENLYSTA Belimumab
New biologic license
application
Systemic lupus
erythematosus
March
Merck & Co. VICTRELIS Boceprevir New molecular entity Hepatitis C May
Vertex
Pharmaceuticals
INCIVEK Telaprevir New molecular entity Hepatitis C May
Optimer
Pharmaceuticals
DIFICID Fidaxomicin New molecular entity
Clostridium difficile-
associated diarrhea
May
Johnson & Johnson XARELTO Rivaroxaban New molecular entity Non-valvular atrial fibrillation July
Regeneron
Pharmaceuticals
EYLEA Aflibercept
New biologic license
application
Neovascular wet age-
related macular degeneration
November
Source: Ernst &Young, FDA and company websites.
There were a number of noteworthy
drugs approved in 2011, including
two new medications for hepatitis C, a
viral infection that affects an estimated
130 million170 million people, or
approximately 3% of the worlds
population. Massachusetts-based Vertex
Pharmaceuticals much-anticipated
Telaprevir was approved in May, and
sales of the new product soon catapulted
Vertex into the ranks of the industrys
commercial leaders. (See the Financial
performance section.) Earlier that same
month, Merck & Co. gained approval for
its competing drug, Victrelis (boceprevir),
setting up a contest between the two
products.
Reflecting the strength of the industrys
pipeline in oncology, a number of the
new approvals were for various types of
cancer. One of the promises of applying
genetic engineering techniques in this
area is, of course, the potential for
personalized medicine approaches that
are many shades more efficacious in
specific cancer subtypes. In this regard,
it is worth noting that two of the years
cancer approvals were approved with
companion diagnostics: Genentech/
Roches Zelboraf (vemurafenib) for
late-stage melanoma and Pfizers Xalkori
(crizotinib) for late-stage lung cancer.
Products and pipeline
76 Beyond borders Global biot echnology report 2012
Selected orphan drug approvals by the FDA, 2011
Company Brand name Generic name Type of approval Indication Month
Bristol-Myers Squibb YERVOY Ipilimumab
New biologic license
application
Metastatic melanoma March
IPR Pharmaceuticals CAPRELSA Vandetanib New molecular entity
Advanced medullary
thyroid cancer
April
Bristol-Myers Squibb NULOJIX Belatacept
New biologic license
application
Prevent organ
transplant rejection
June
Seattle Genetics ADCETRIS Brentuximab vedotin
New biologic license
application
Hodgkin lymphoma and
systemic anaplastic large
cell lymphoma
August
Roche ZELBORAF Vemurafenib New molecular entity Metastatic melanoma August
Shire FIRAZYR Icatibant acetate New molecular entity Hereditary angioedema August
Pfizer XALKORI Crizotinib New molecular entity Late stage lung cancer August
ApoPharma Ferriprox Deferiprone New molecular entity Thalassemia October
Lundbeck ONFI Clobazam New molecular entity
Seizures associated
with Lennox-Gastaut
syndrome
October
Incyte Jakafi Ruxolitinib New molecular entity Myelofibrosis November
EUSA Pharma ERWINAZE
Asparaginase Erwinia
chrysanthemi
New biologic license
application
Acute lymphoblastic
leukemia
November
Source: Ernst &Young, FDA and company websites.
It is also noteworthy that 11 of the years
drug approvals were approved with orphan
designations. The economics of orphan
drugs are changing dramatically as the
focus in the health care ecosystem shifts
to health outcomes. Even at a time of
escalating pricing pressures, payers have so
far been willing to pay high prices for life-
saving treatments, particularly in disease
areas where no cures have previously
existed and where the prevalence of very
small patient populations means there is
little impact on overall costs.
77
Source: Ernst &Young, MedTRACK and company websites.
Cancer
32%
Neurology
13%
Infectious disease
7%
Metabolic and
endocrine
7%
Autoimmune
4%
Cardiovascular
3%
Respiratory
3%
Other
31%
US Phase III pipeline by indication, 2011
US clinical pipeline by indication, 2011
As in prior years, cancer continues to
dominate the US clinical pipeline. Not
surprisingly, cancer is the area where
science has made the greatest progress
in understanding and classifying
disease into subtypes based on specific
genetic mutations. Cancer also remains
attractive because the relatively small
patient populations imply smaller clinical
trials and the large unmet medical needs
can give companies more traction in the
market. Neurology, which ranks second,
will become increasingly important in
the years ahead, as aging populations
increase the need for cures for a number
of neurodegenerative diseases.
Products and pipeline
Source: Ernst &Young, MedTRACK and company websites.
Cancer
44%
Neurology
10%
Infectious disease
9%
Metabolic and
endocrine
6%
Autoimmune
4%
Cardiovascular
4%
Respiratory
4%
Other
19%
78 Beyond borders Global biot echnology report 2012
Source: Ernst &Young, MedTRACK and company websites.
Cancer
33%
Neurology
12%
Infectious disease
10%
Metabolic and
endocrine
7%
Autoimmune
14%
Cardiovascular
6%
Respiratory
3%
Other
15%
European clinical pipeline by indication, 2011
Source: Ernst &Young, MedTRACK and company websites.
Cancer
29%
Neurology
11%
Infectious disease
6% Metabolic and
endocrine
9%
Autoimmune
16%
Cardiovascular
8%
Respiratory
3%
Other
18%
European Phase III pipeline by indication, 2011
The European pipeline by indication
looks fairly similar to that of the US,
with cancer on top and neurology in
second place.
2008 2009 2010 2011
0
100
200
300
400
500
600
700
Phase III Phase II Phase I
N
u
m
b
e
r

o
f

p
r
o
d
u
c
t

c
a
n
d
i
d
a
t
e
s

i
n

s
t
u
d
i
e
s
Source: Ernst &Young, MedTRACK and company websites.
European clinical pipeline by year The clinical pipeline of European
biotechnology companies continues
to grow on an overall basis. Growth in
the Phase II pipeline, which had been
proceeding at a very fast clip in recent
years, essentially flatlined in 2011, but
growth in Phase III continues unabated.
79 Products and pipeline
0 50 100 150 200 250
Finland
Norway
Ireland
Netherlands
Belgium
Spain
Austria
Israel
Italy
Sweden
France
Switzerland
Denmark
Germany
United Kingdom
Phase I Phase II Phase III
Number of product candidates
Source: Ernst &Young, MedTRACK and company websites.
European clinical pipeline by country, 2011
On a country-by-country basis, the distribution of European clinical assets remains very similar to that in 2010. The relative
position of the top five countries did not change. Countries that showed strong growth in their clinical pipelines included Italy
(which overtook Israel to move into 7
th
place), Austria (which moved from 11
th
place to 9
th
place) and Belgium (which moved
from the 14
th
to the 11
th
spot).
80 Beyond borders Global biot echnology report 2012
Acknowledgments
81 Acknowledgments
Project leadership
Glen Giovannetti, Ernst & Youngs Global Life Sciences Leader,
provided overall strategic vision for this project and brought his
years of experience to the analysis of industry trends. Glens
perspective and insights helped define many of the themes we
explore in the book. Beyond leadership, Glen brought a hands-on
approach, writing articles and helping to compile and analyze data.
Gautam Jaggi, Managing Editor of the publication, directed the
project, wrote or edited all of the articles and helped manage the
data analysis.
Siegfried Bialojan, Germany Biotechnology Leader, led and
managed the development of the global data. His teams high-
quality analysis was invaluable in producing this book.
Strategic direction
Special thanks to Scott Morrison and Jrg Zrcher, who
continued to play a key role in the development of this publication,
by providing invaluable strategic insights based on their long
experience and a feel for the pulse of the industry. Sanjeev
Wadhwas insights played an integral role in guiding and informing
the development of this years point of view.
Data analysis
The research, collection and analysis of global financial,
financing, deals and pipeline data was conducted by Ulrike Trauth,
Eva-Marie Hilgarth and Claudia Pantke. The Canadian financing
data was collected by Paul Karamanoukian. Additional analysis
was conducted by Gautam Jaggi, Glen Giovannetti and Paul
Karamanoukian.
Jason Hillenbach, Kim Medland, Ulrike Trauth and Samir
Goncalves conducted fact checking and quality review of numbers
throughout the publication.
Writing and editing assistance
The Canada section was written by Paul Karamanoukian.
Russ Colton was the copy editor and proofreader for this project.
Russ also played an integral role in managing the workflow of edits
and ensuring that edits were implemented correctly.
Design and layout
Christian Gonswa was the lead designer for this project.
Assisting Christian were David Eshenbaugh (chart design) and
Robert Fernandez, Brittney Cline and Chris Grapa (design
and text layout).
Logistics and marketing
Alison DeCourcey served as Project Manager. Jason Hillenbach
and Rebekah Craig helped with various logistical aspects of the
project.
Public relations efforts related to the book and its launch were led
by Sue Lavin Jones, Dan Cusworth and the PR firm of Feinstein
Kean Healthcare, led by Greg Kelley and Dan Quinn.
82 Beyond borders Global biot echnology report 2012
Data exhibit index
Growth in established biotechnology centers, 201011 (US$b) ...................................... 25
Ernst & Young survival index, 201011 ......................................................................... 26
US biotechnology at a glance, 2010-11 (US$b) ............................................................. 27
US commercial leaders, 2008-11 ................................................................................. 28
US biotechnology: commercial leaders and other companies, 2010-11 (US$b) ............... 29
The US biotech industry outperformed the overall market in most of 2011
and early 2012 ........................................................................................................ 30
US micro caps led the industrys stock market performance in 2011
and early 2012 ........................................................................................................ 30
Selected US biotechnology public company nancial highlights by geographic
area, 2011 (US$m, % change over 2010) .................................................................. 31
European biotechnology at a glance, 201011 (US$m) .................................................. 32
European biotechnology: commercial leaders and other companies,
2010-11 (US$m) ..................................................................................................... 33
Europes largest biotech companies outperformed the rest of the industry
in 2011 and early 2012 ............................................................................................ 34
Selected European biotechnology public company nancial highlights by
country, 2011 (US$m, % change over 2010) ............................................................. 35
Canadian biotechnology at a glance, 2010-11 (US$m) .................................................. 36
Australian biotechnology at a glance, 2010-11 (US$m) ................................................. 37
Capital raised in North America and Europe by year (US$m) ........................................... 39
Debt ratios of selected companies: big biotech reaches maturity .................................... 39
Enough to sustain innovation? Innovation capital in North America
and Europe by year .................................................................................................. 40
Distribution of total capital raised in North America and Europe by year .......................... 43
Distribution of innovation capital raised in North America and Europe by year ................. 43
US biotechnology nancings by year (US$m) ................................................................ 44
US innovation capital atlines, even as total funding rises sharply .................................. 45
Quarterly breakdown of US biotechnology nancings (US$m), 2011 .............................. 46
Capital raised by leading US regions, 2011 .................................................................... 47
US biopharmaceutical venture capital as a share of total venture capital by year ............. 48
US biotechnology IPOs by year ..................................................................................... 48
The vast majority of 2011 US IPOs priced below their desired ranges ............................. 49
83 Data exhibit index
2011 US IPO performance ........................................................................................... 50
European biotechnology nancings by year (US$m) ...................................................... 51
European innovation capital by year ............................................................................. 52
Quarterly breakdown of European biotechnology nancings (US$m), 2011 .................... 53
European biotechnology IPOs by year ........................................................................... 53
Capital raised by leading European countries, 2011 ....................................................... 54
Canadian biotechnology nancings by year (US$m) ....................................................... 55
Capital raised by leading Canadian biotech clusters, 2011 .............................................. 56
Quarterly breakdown of Canadian biotechnology nancings (US$m), 2011 .................... 57
US and European M&As, 2006-11 ................................................................................ 59
Selected M&As, 2011 .................................................................................................. 60
US and European strategic alliances based on biobucks, 2006-11 .................................. 62
Big biobucks alliances, 2011 ........................................................................................ 63
Alliances with big up-front payments, 2011 .................................................................. 64
US and European strategic alliances based on up-front payments, 200611 ................... 65
US M&As, 2006-11 ...................................................................................................... 67
US strategic alliances based on biobucks, 2006-11 ........................................................ 68
US strategic alliances based on up-front payments, 2006-11 ......................................... 68
European strategic alliances based on biobucks, 2006-11 .............................................. 69
European strategic alliances based on up-front payments, 2006-11 ............................... 69
European M&As, 2006-11 ............................................................................................ 70
FDA product approvals, 19962011 ............................................................................. 74
Selected FDA approvals, 2011...................................................................................... 75
Selected orphan drug approvals by the FDA, 2011 ........................................................ 76
US clinical pipeline by indication, 2011 ......................................................................... 77
US Phase III pipeline by indication, 2011 ....................................................................... 77
European clinical pipeline by indication, 2011 ............................................................... 78
European Phase III pipeline by indication, 2011 ............................................................. 78
European clinical pipeline by year ................................................................................. 79
European clinical pipeline by country, 2011 .................................................................. 80
Global Life Sciences Leader
Glen Giovannet t i glen.giovannet t [email protected] +1 617 585 1998
Global Pharmaceut ical Leader/ EMEIA
Life Sciences Leader Pat rick Flochel pat [email protected] +41 58 286 4148
Global Life Sciences Assurance Leader
Scot t Bruns scot t [email protected] +1 317 681 7229
Global Life Sciences Advisory Leader
Thomas Sileghem t [email protected] +32 2 774 9536
Global Life Sciences Tax Leader
Neil Byrne [email protected] +353 1 221 2370
Global Life Sciences Transact ion Advisory Services Leader
Jeff Greene [email protected] +1 212 773 6500
Managing Edit or of Beyond borders
Gaut am Jaggi gaut [email protected] +1 617 585 3509
Aust ralia
Brisbane Winna Brown [email protected] +61 7 3011 3343
Melbourne Denise Brot hert on denise.brot hert [email protected] +61 3 9288 8758
Sydney Gamini Mart inus gamini.mart [email protected] +61 2 9248 4702
Aust ria
Vienna Erich Lehner erich.lehner@at .ey.com +43 1 21170 1152
Isabella Schwart z-Gallee isabella.schwart z-gallee@at .ey.com +43 1 21170 1072
Belgium
Brussels Thomas Sileghem t [email protected] +32 2 774 9536
Brazil
So Paulo Frank de Meijer [email protected] +55 11 2573 3383
Canada
Mont ral Paul Karamanoukian [email protected] +1 514 874 4307
Lara Iob [email protected] +1 514 879 6514
Edmont on Trevor Lukey t [email protected] +1 780 638 6644
Toront o Darrell Jensen [email protected] +1 416 943 2475
Mario Piccinin [email protected] +1 416 932 6231
Vancouver Nicole Poirier [email protected] +1 604 891 8342
Winnipeg Tanis Pet reny t anis.l.pet [email protected] +1 204 933 0251
Czech Republic
Prague Pet r Knap pet [email protected] +420 225 335 582
Denmark
Copenhagen Benny Lynge Srensen [email protected] +45 35 87 25 25
Finland
Helsinki Timo Virkil t [email protected] +358 207 280 190
France
Lyon Philippe Grand [email protected] +33 4 78 17 57 32
Paris Brigit t e Geny brigit t [email protected] +33 1 46 93 6760
Germany
Mannheim Siegfried Bialojan [email protected] +49 621 4208 11405
Munich Elia Napolit ano elia.napolit [email protected] +49 89 14331 13106
Great er China
Beijing St anley Chang st [email protected] +86 10 5815 3628
India
Mumbai Murali Nair [email protected] +91 22 61920000
Hit esh Sharma hit [email protected] +91 22 61920620
Ajit Mahadevan ajit [email protected] +91 22 61920000
Ireland
Dublin Aidan Meagher [email protected] +353 1221 1139
Israel
Tel Aviv Yoram Wilamowski [email protected] +972 3 623 2519
It aly
Milan Lapo Ercoli lapo.ercoli@it .ey.com +39 02 7221 2546
Global biotechnology contacts
84 Beyond borders Global biot echnology report 2012
Japan Tokyo Hironao Yazaki [email protected] +81 3 3503 2165
Yuji Anzai [email protected] +81 3 3503 1100
Net herlands Amst erdam Jules Verhagen [email protected] +31 88 407 1888
New Zealand Auckland Jon Hooper [email protected] +64 9 300 8124
Norway Trondheim/ Oslo Willy Eidissen [email protected] +47 918 63 845
Poland Warsaw Mariusz Wit alis mariusz.wit [email protected] +48 225 577950
Singapore Singapore Swee Ho Tan swee.ho.t [email protected] +65 6309 8238
Sout h Africa Johannesburg Sarel St rydom sarel.st [email protected] +27 11 772 3420
Sweden Uppsala Bjrn Ohlsson [email protected] +46 18 19 42 22
Swit zerland Basel Jrg Zrcher [email protected] +41 58 286 84 03
Unit ed Kingdom Brist ol Mat t Ward [email protected] +44 11 7981 2100
Cambridge Cat hy Taylor ct [email protected] +44 12 2355 7090
Rachel Wilden [email protected] +44 12 2355 7096
Edinburgh Mark Harvey [email protected] +44 13 1777 2294
Jonat han Lloyd-Hirst jlloydhirst @uk.ey.com +44 13 1777 2475
London/ Reading Ian Oliver [email protected] +44 11 8928 1197
Unit ed St at es Bost on Michael Donovan [email protected] +1 617 585 1957
Bruce Bouchard [email protected] +1 617 585 6890
Chicago Jo Ellen Helmer [email protected] +1 312 879 5262
Dallas Kennet h Bernst ein kennet h.bernst [email protected] +1 214 969 8903
Houst on Carole Faig [email protected] +1 713 750 1535
Los Angeles Abdul Lakhani [email protected] +1 213 977 3070
Don Ferrera [email protected] +1 213 977 7684
New York/ New Jersey Tony Torringt on ant hony.t orringt [email protected] +1 732 516 4681
Tony Masherelli ant [email protected] +1 732 516 4719
Kim Ramko [email protected] +1 615 252 8249
Sanjeev Wadhwa [email protected] +1 732 516 4183
Orange Count y Dave Copley [email protected] +1 949 437 0250
Kim Let ch kim.let [email protected] +1 949 437 0244
Redwood Shores Scot t Morrison scot t [email protected] +1 650 496 4688
Chris Nolet chris.nolet @ey.com +1 650 496 1620
Philadelphia St eve Simpson st [email protected] +1 215 448 5309
Howard Brooks [email protected] +1 215 448 5115
Raleigh Michael Const ant ino michael.const ant [email protected] +1 919 981 2802
San Ant onio David King [email protected] +1 210 242 7108
San Diego Dan Kleeburg [email protected] +1 858 535 7209
Seat t le Kat hleen Smit h kat hy.smit [email protected] +1 206 654 6305
Washingt on, D.C. Rene Salas [email protected] +1 703 747 0732
85 Global biotechnology contacts
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