Evolution in the making: emergence of new life science business models

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Overview of policy and financial issues negatively impacting biotechnology innovation; presentation calls for a stakeholder approach to new biotechnology business models.

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  • Evolution in the making: emergence of new life science business models

    1. 1. BIOMEDevice Conference, 2009 Boston, Ma Evolution in the making: emergence of new life science business models.
    2. 2. Fitness landscape and selection pressure Fitness landscape - current conditions under which a species thrives, having been best “outfitted” for survival in the environment Selection pressure – imposition of new conditions on a species within an ecosystem  Forces those species with attributes best suited to survive under new conditions
    3. 3. Global fitness landscape Specialty and emerging clusters are becoming increasingly attractive as pharma and biotech companies strive to reduce costs and increase flexibility Established “Specialty Clusters” Cluster Size Large Emerging Cluster Capability Small World-class SF MA SD Singapore India China United Kingdom Ireland Switzerland Philadelphia RTP Canada Madison DC / Baltimore Integrated Clusters Emerging Clusters Leading Integrated Clusters Lagging Integrated Clusters
    4. 4. Current fitness landscape in Massachusetts Source: Deloitte research, MBC website and business plan Key Facts About MA Biotech Cluster <ul><ul><li>240 biotech / pharma companies – mix of both start-up and veteran companies </li></ul></ul><ul><ul><ul><ul><li>Big pharma has a substantial presence, 8 of the largest 11 have operations in the state </li></ul></ul></ul></ul><ul><ul><li>450+ medical device companies </li></ul></ul><ul><ul><li>Top 5 funded research hospitals in the country </li></ul></ul><ul><ul><ul><li>16 Academic Medical Centers </li></ul></ul></ul><ul><ul><ul><li>World-class expertise in medical research and clinical translation </li></ul></ul></ul><ul><ul><li>2nd in NIH funding (lower than CA) but highest NIH funding per capita </li></ul></ul><ul><ul><li>1st in the number of life science patents per capita awarded to MA institutions (2001- 2005) – 3X national average </li></ul></ul><ul><ul><li>30 major VCs actively focusing on the industry </li></ul></ul><ul><ul><li>20,000 + employed in the Biotech sector </li></ul></ul><ul><ul><li>10+ industry associations serve the Massachusetts biotech industry </li></ul></ul><ul><ul><ul><ul><li>Focusing on variety of issues (distribution of funds, advocacy etc) </li></ul></ul></ul></ul><ul><ul><li>High public policy awareness of the biotechnology industry </li></ul></ul><ul><ul><ul><li>Number of legislative acts – Life Sciences Initiative; Life Sciences Talent Initiative (LSTI) and BioTeach; BioReady Communities Campaign </li></ul></ul></ul><ul><ul><li>MA’s education system produces the steady stream of skilled workers </li></ul></ul><ul><ul><ul><li>13 local colleges granting life-science doctorate degrees, three are ranked in the national top 20 </li></ul></ul></ul>
    5. 5. <ul><li>Since 1999, 253 recorded rounds of VC financing raising $5.32 billion </li></ul><ul><li>135 companies have raised VC Funding since 1999 </li></ul><ul><li>38 companies completed IPO, Reverse Merger, or Trade Sale </li></ul><ul><li>Seven companies liquidated or closed </li></ul><ul><li>90 Current Active MA Private Companies </li></ul>Fitness landscape in Massachusetts <ul><li>1/2 - 2/3 will be looking to raise their next round of financing in 2009 </li></ul>Private Companies <ul><ul><li>~83 public companies - Market cap of ~$80 billion </li></ul></ul><ul><li>46 companies have market cap <$100 million </li></ul><ul><li>63 companies have market cap <$1 billion </li></ul><ul><li>Genzyme has the largest cap ~$17.5 billion </li></ul>Public Companies <ul><li>Almost fifty percent of companies risk running out of cash by the end of 2009 </li></ul>Source: Deloitte Recap LLC, 2008 data through 2Q08 <2006 2006 2007 2008 Total: 90 Private Companies
    6. 6. Selection pressures-changing conditions Policy Financing Market Uncertainty Innovation Commercialization
    7. 7. Fitness landscape changes <ul><li>Creative destruction … </li></ul><ul><li>Three hidden deep structural problems emerge: </li></ul><ul><ul><li>a dysfunctional technology investment-banking ecosystem; </li></ul></ul><ul><ul><li>diminishing support from institutional investors for VC-backed enterprises; </li></ul></ul><ul><ul><li>an increasingly onerous and counterproductive regulatory environment. </li></ul></ul><ul><li>None of which enable one to cross the Valley of Death </li></ul>Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ; Basic Research Clinic Innovator
    8. 8. Going the way of the dinosaur <ul><li>Creative destruction technology investment banking ecosystem </li></ul>Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ <ul><ul><li>Counterproductive measures hampering VC community </li></ul></ul><ul><ul><ul><li>Regulate VCs as if they are hedge funds </li></ul></ul></ul><ul><ul><ul><li>Quashing incentive to build companies </li></ul></ul></ul><ul><li>Skewed expectations of demand-side investors </li></ul><ul><ul><ul><li>Impatient with small growing companies </li></ul></ul></ul><ul><ul><ul><li>Shift in focus to unfavorable current EBITDA multiples rather than long term predictors of success </li></ul></ul></ul><ul><ul><ul><ul><li>market size </li></ul></ul></ul></ul><ul><ul><ul><ul><li>growth rate </li></ul></ul></ul></ul><ul><ul><ul><ul><li>technology </li></ul></ul></ul></ul><ul><ul><ul><ul><li>and management experience. </li></ul></ul></ul></ul><ul><ul><li>Demise of sell-side investment banks that supported VC backed IPOs </li></ul></ul>
    9. 9. On the biotech side- what does the environment look like
    10. 10. On the biotech side- what does the environment look like
    11. 11. On the device side- what does the environment look like
    12. 12. Selection pressures-changing conditions Policy Financing Market Uncertainty <ul><li>Economic Crisis </li></ul><ul><ul><li>Lack of available credit </li></ul></ul><ul><ul><li>VC funding for mid-rounds unavailable </li></ul></ul><ul><ul><li>Non-existent IPOs </li></ul></ul>NIH funding Innovation Commercialization
    13. 13. Selective policy pressures <ul><li>Health care reform </li></ul><ul><li>Pharma companies are the “bad guys” </li></ul><ul><ul><li>Drug pricing as a function of near universal healthcare </li></ul></ul><ul><ul><ul><li>Government becomes the biggest purchaser and gains huge leverage over pharma, biotechnology, and medical device companies </li></ul></ul></ul><ul><ul><ul><li>prescription drugs represent 20% of the therapeutic market  drive innovation and new medicines via the R&D process </li></ul></ul></ul><ul><ul><ul><li>generics and “me-too”(the other 80%) don’t contribute to innovation </li></ul></ul></ul><ul><ul><li>Gift and sales ban </li></ul></ul><ul><ul><li>Follow-on biologicals </li></ul></ul><ul><ul><li>Drug Importation </li></ul></ul><ul><ul><li>Comparative Effectiveness </li></ul></ul><ul><li>Onerous FDA requirements increases the burn rate of biotechnology companies </li></ul><ul><li>Patent Reform </li></ul>Creates downward pressure on innovation attenuates pipeline for life saving medicines
    14. 14. Selection pressures-changing conditions Policy Financing Market Uncertainty <ul><li>Health care reform </li></ul><ul><ul><li>Comparitive Effectiveness </li></ul></ul><ul><ul><li>Drug pricing </li></ul></ul><ul><ul><li>Universal healthcare </li></ul></ul><ul><li>FDA Reform </li></ul><ul><li>Follow on biologics </li></ul><ul><li>Drug importation </li></ul><ul><li>Patent Reform </li></ul><ul><li>Economic Crisis </li></ul><ul><ul><li>Lack of available credit </li></ul></ul><ul><ul><li>VC funding for mid-rounds unavailable </li></ul></ul><ul><ul><li>Non-existent IPOs </li></ul></ul>NIH funding Innovation Commercialization
    15. 15. Better adapted business models are needed <ul><li>Moving from shareholders to stakeholders </li></ul><ul><ul><li>Identify stakeholders necessary to the success of a business </li></ul></ul><ul><ul><ul><li>Providers </li></ul></ul></ul><ul><ul><ul><li>Payors </li></ul></ul></ul><ul><ul><ul><li>Disease foundations </li></ul></ul></ul><ul><ul><ul><li>Academic endowments/academic innovation </li></ul></ul></ul><ul><ul><ul><li>Regulatory agencies </li></ul></ul></ul><ul><ul><ul><li>VC/Industrial innovation models </li></ul></ul></ul><ul><ul><li>Assess how all participants in the healthcare value chain could support and provide value for business </li></ul></ul><ul><ul><li>New models for R&D </li></ul></ul><ul><ul><ul><li>Open Innovation to get to scientific proof of concept </li></ul></ul></ul><ul><ul><ul><li>Social networking and information exchange </li></ul></ul></ul><ul><ul><ul><li>Academic alignment with Industry requirements </li></ul></ul></ul>
    16. 16. Integrate stakeholders and shareholders to sustain life science companies
    17. 17. Swimming to the next island of financing…

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