‘Trends in healthcare, biotech and
bioIT in Russia & beyond’
13 May 2014: Smart Money Club
Overview:
• A little poetry
• Some financial analysis
• LaunchGurus bent for sector ‘Start-ups’
• Possibly, some words of ...
Global Healthcare is increasingly being driven by the
convergence of Drugs, Devices and Technology:
Global Healthcare
$6 t...
Currently witnessing a pharma M&A frenzy:
• 01 May 2014, FT: “Pharma deals reach new level of Intensity”:
– $163bn USD hea...
Pharmaceutical Market in Russia:
• Grew by 13.6% in 2013 to > 1 trillion RUB.
• Para-pharmaceuticals (dietary supplements)...
Recent trends in Russia:
• Interesting pharma JV 25 April 2014:
– AFK Sistema (Binnopharm) & Fresenius Kabi (51%)
– Levera...
High Risks and Long Lead-times & High Rewards:
• Vioxx, COX-2 inhibitor, October 2004: Merck Corporation lost $24bn USD in...
Regulatory Hurdles:
• My on-the-ground Russian Experience / Exposure started 2005-2007
– Fruits of this work allowed an un...
Medical devices - Russia:
• 20 bn RUB was authorised towards modernisation during
2013, plus another 461bn RUB spent durin...
Some Over-riding trends around the world
and in Russia:
• Enabling Systems:
– Electronic Medical Records
– Molecular Diagn...
Some exciting opportunities inside Russia:
• Without access to technology, Russia cannot afford to modernise its healthcar...
Some exciting new frontiers…….
Synthetic Biology : Life from a test tube
Synthetic genome stitched together: "This is
the first self-replicating species ...
Parent DNA …. Yes; Life …… No
• ‘The Art of Life is, Stopping Life from Stopping’
• Biology does this by :
– keeping the ‘...
New possibilities, but probably a long lead-
time before commercial pay-off :
Life is COMPLEX….
‘Even in its simplest form’
16
Currently, there is healthy appetite for Technology
investing in Russia and elsewhere, particularly in IT
WHY?
17
‘HYPE versus REALITY’
And Twitter today? Why so important?
12 May 2014:
- At close, down 50% so far this year……
- Twitter Inc. (NYSE: TWTR) stoc...
21
Company Start Date
Months
to Exit
Exit Date Exit Type
Capital
Sourced
(bn USD)
Oculus Rift * Sep 2012 18 25 mar 14
Acqu...
22
Recent Technology Success Story
App developer Shazam gets
$40 million backing from
tycoon Carlos Slim
“LONDON - Smartph...
23
Investors’ Dream Scenario №2: Technology Development
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
20
15
...
24
Expectations
Time
IT Hype Cycle (published by Gartner 21 August 2013)
Plateau of productivity
Revenues > OPEX
Great Tim...
25
Recent Great High-Velocity „Stars‟
Published by Gartner
21 August 2013
Exceptions
Reality
Dream №1
3,5 – 4 Years
Dream ...
26
Dream Scenario №2: Need for Growth Capital and Time
Shazam’s Growth
Millions GBP
 REALITY, NOT the exception ...
 Ope...
27
REALITY (753 technology companies across multiple sectors and created since 1995):
7 to 8 years is the norm to Exit, i....
28
Nature of Biotech & Technology Investing has changed
dramatically since 2008
“Global VC model is BROKEN”
Global venture...
29
What other major pain is needing to be cured
for Investors in the high-risk Technology Sector ?
‘The need to divorce RO...
30
Portfolio-wide Insurance (not one-company-at-a-time) through access to Growth
Capital & rapid Route-to-Market in partne...
31
And lessons from King Digital and “Candy Crush Saga”:
October 2013, Candy Crush is the 3rd most popular
free app & the ...
32
And m-Health ??? …..
Beginning of 2013 …. > 9,000 m-Health apps for i-phone
Kleiner Perkins Caufield & Byers, one world...
33
KP recommendations for m-Health: 08 May 2014:
1) Find ways to boost revenue for healthcare Providers & / or Payers:
a) ...
Skolkovo RusInnovations: Objectives
• Business model based on Best International Practice
– IPO and IVO (LSE Tickers)
– Fo...
With thanks for your attention…..
© 2014 Skolkovo RusInnovations (SKRI). All rights reserved.
Ian Humphery-Smith
Posledniy...
Ian hs launch gurus healthcare 13 may 2014
Ian hs launch gurus healthcare 13 may 2014
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Ian hs launch gurus healthcare 13 may 2014

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В новом офисе #LaunchGurus прошла первая закрытая встреча Smart Money Club - бизнес-ангелы и венчурные инвесторы встретились обсудить тренды здравоохранения. Выступает Йен Хамфри-Смит. Он поделился мировым опытом, рассказал о мечтах современных инвесторов и о том, почему реально стоит развивать проекты, связанные с наукой, биологией и здравоохранением.

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Ian hs launch gurus healthcare 13 may 2014

  1. 1. ‘Trends in healthcare, biotech and bioIT in Russia & beyond’ 13 May 2014: Smart Money Club
  2. 2. Overview: • A little poetry • Some financial analysis • LaunchGurus bent for sector ‘Start-ups’ • Possibly, some words of wisdom for would-be sector investors……..
  3. 3. Global Healthcare is increasingly being driven by the convergence of Drugs, Devices and Technology: Global Healthcare $6 tn Global Consumer Electronics $1 tn Global IT $3.6 tn Global Medical Devices $300 bn Global Pharmaceuticals $880 bnGlobal Telecoms $3.4 tn Global Electronic Medical Records $1.9 bn Global mHealth Mobile Apps $84 m
  4. 4. Currently witnessing a pharma M&A frenzy: • 01 May 2014, FT: “Pharma deals reach new level of Intensity”: – $163bn USD healthcare deals in first four months of 2014 • Up 50% with respect to last year • Over just the last few weeks: • 08 April 2014, Sun Pharmaceutical’s bid of $3.2bn USD for Ranbaxy • 24 April 2014, Zimmer agrees $13.4bn USD Biomet acquisition • 25 April 2014, Novartis and GSK enter into asset swap – (GSK will sell its oncology unit for $16bn USD & buy the Swiss group’s vaccine unit for $7bn USD) • 28 April 2014, Shire climbed 15% in a fortnight amid rumours of a rejected take-over offer • 28 April shares of Meda fell after $9bn USD bid from Mylan was rejected • 06 May 2014, Bayer acquires Merck’s consumer business for $14.2bn USD • 09 May 2014, Valeant’s $46bn USD bid for Allergan (Botox maker) • On-going, Pfizer’s $100bn USD bid for Astra Zeneca - Seeking through acquisition access to: - Market Share; Economies of Scale; Off-shore Tax Advantages for US corporations; and Innovation Pipeline - Open Innovation is focused on LARGE sector players, while out-sourced R&D and smaller acquisitions become almost irrelevant to financial ‘bottom line’.
  5. 5. Pharmaceutical Market in Russia: • Grew by 13.6% in 2013 to > 1 trillion RUB. • Para-pharmaceuticals (dietary supplements) increased by 14% to 170 bn RUB • Segment drugs involved in Drug Reimbursement Program (FRP) grew by only 6 % to 83 bn RUB • Hospital purchases increased by 17.2 % to 183 bn RUB
  6. 6. Recent trends in Russia: • Interesting pharma JV 25 April 2014: – AFK Sistema (Binnopharm) & Fresenius Kabi (51%) – Leveraging one another’s strengths to optimise Russia / CIS market expansion • Expanded product offering for Binnopharm • Localise GMP production • Promote ‘new biotech products’ through marketing and sales network of Fresenius • Pharma 2020 will force more Pharmaceutical producers on-shore, alone or in partnership with local players, such as, R-Pharm • Trend towards local players becoming Fully-Integrated Pharmaceutical Companies, (but a long road to travel): – Pharmastandard, R-Pharm, Protek * • Consolidation is supply chain, e.g. 36.6 and A.V.E. Group merger, together they will operate > 1000 stores • Unfortunately, we lack US ‘Reimbursement Schedules’ – But so too does the rest of the world • ………….. ‘A remedy for market turbulence’ • 13% growth y-o-y; consumer demands towards Higher-Priced Drugs; strong cash position, healthy market share 14.5% reimbursed pharmacy sales - RMG Securities, Ksenia Arutyunova
  7. 7. High Risks and Long Lead-times & High Rewards: • Vioxx, COX-2 inhibitor, October 2004: Merck Corporation lost $24bn USD in 36 hours from its Market Capitalisation. • For a current Investee Company, we are looking at TWO years and significant budget just to DESIGN Clinical Trials for use in EU and Russia – US-FDA will add another 3-5 years on top of EU-compliant clinical testing – In-house GMP probably required, plus a wealth of CAPEX • Chasing a $30bn - $40bn USD market, for which few solutions currently exist. • FT: “US biotech stocks suffer sharp slide on Congress letter” (22 March 2014) – “Biotechnology stocks suffered their sharpest decline since October 2011.” – Gilead Sciences (Market Capitalisation = $107bn USD) plans to sell the 12-week treatment, Sovaldi (Hepatitis C Drug), for $84,000 USD. • ‘Will save money in the long-run’ • “These costs are likely to be too high for many patients, both those with public insurance and those with private insurance. ” • Hepatitis C is most prevalent among low-income, minority patients, the expense of the drug will saddle state Medicaid programs with steep costs.
  8. 8. Regulatory Hurdles: • My on-the-ground Russian Experience / Exposure started 2005-2007 – Fruits of this work allowed an understanding of molecular origin COX-2 deleterious cardiac side-effects – Pfizer Executive: • “Must go back to First Principles of pharmacology and start again” • NO SUCH THING as …………. ‘Faster and Cheaper’ medicines……… • CE Mark for Medical Devices and Diagnostics • CLIA-approved testing facilities – US-centric Hurdle, particularly relevant to advances genetic testing (none in Russia today) • US-FDA and EMA (European Medicines Agency)
  9. 9. Medical devices - Russia: • 20 bn RUB was authorised towards modernisation during 2013, plus another 461bn RUB spent during 2011-2012 • Market Size estimated at $6bn USD, sizable w.r.t. Min. of Health total budget • 73% is imports 38% 11% 5% 9% 37% Diagnosting imaging Consumables Dental products Ortopedic and implantable products Other • ‘Lateral Leakage’ remains a serious issue in sector
  10. 10. Some Over-riding trends around the world and in Russia: • Enabling Systems: – Electronic Medical Records – Molecular Diagnostics, including Compan – POCT, Point-of-Care Testing • Prevention & Healthy Life-Style Support: – Disease management, especially for Chronic Disease • Cardiology, Cancer, Respiratory diseases and Diabetes, often under-diagnosed and under- treated – Management of Addictions • Smoking, Alcohol & Drugs – Aging population related illnesses – Well-being support for healthy and less-well, older and younger populations • Innovative Medicines, more focused on ‘macro-molecules’ – Fruits of the Human Genome Project, a decade on….
  11. 11. Some exciting opportunities inside Russia: • Without access to technology, Russia cannot afford to modernise its healthcare infrastructure • Lack of medications • Low Salaries • Insufficient Equipment • The Largest Country in the world • Expanding private Healthcare sector, linked to a growing middle class – PPP ‘Bricks and Mortar’ (BOOT) healthcare facilities • Plus technological and logistic support • Electronic Medical Records • Ever-expanding CRO activity (Still mostly Drugs developed Off-Shore) due to: • Rapid recruitment times • Anglo-Saxon ethnicity • Relative Medication Naïve population • Lower costs • OTC FMGC • E-health for Federal and Regional Government agencies designed to deliver efficiencies in cost, time and improvements in quality of healthcare delivery
  12. 12. Some exciting new frontiers…….
  13. 13. Synthetic Biology : Life from a test tube Synthetic genome stitched together: "This is the first self-replicating species we've had on the planet whose parent is a computer”, Craig Venter told reporters….
  14. 14. Parent DNA …. Yes; Life …… No • ‘The Art of Life is, Stopping Life from Stopping’ • Biology does this by : – keeping the ‘Ingredients of Life’ apart…. – And ….. inheriting Life from its forebears Living colony of Mycoplasma genitalium ‘The simplest Living thing on our planet’ “To see a World in a Grain of Sand And a Heaven in a Wild Flower, Hold Infinity in the palm of your hand And Eternity in an hour.” William Blake
  15. 15. New possibilities, but probably a long lead- time before commercial pay-off : Life is COMPLEX…. ‘Even in its simplest form’
  16. 16. 16 Currently, there is healthy appetite for Technology investing in Russia and elsewhere, particularly in IT WHY?
  17. 17. 17 ‘HYPE versus REALITY’
  18. 18. And Twitter today? Why so important? 12 May 2014: - At close, down 50% so far this year…… - Twitter Inc. (NYSE: TWTR) stock is getting plenty of interest from short-sellers, but …… - Q1, 2014: - Ad revenue growth up 125% year-on-year…... - Mobile ads accounted for 80% of advertising revenue …...
  19. 19. 21 Company Start Date Months to Exit Exit Date Exit Type Capital Sourced (bn USD) Oculus Rift * Sep 2012 18 25 mar 14 Acquisition (Facebook) 2,0 Whats App Nov 2009 52 19 feb 14 Acquisition (Facebook) 19,0 Supercell Jun 2010 40 15 oct 13 Acquisition (Softbank) 2,1 Waze Dec 2008 43 11 jul 13 Acquisition (Google) 1,0 Tumblr Feb 2007 76 20 may 13 Acquisition (Yahoo) 1,1 Instagram Oct 2010 23 08 sep 12 Acquisition (Facebook) 1,0 Zynga Jul 2007 42 18 dec 11 IPO NASDAQ 1,0 Groupon Nov 2008 33 11 jul 11 IPO NASDAQ 0,7 * "Kickstarter" Crowd funded on 01 Sep 2012 with 9,522 financial backers for $2,437,429 USD; and this against a pledge goal of only $250,000 !!! Investors’ Dream Scenario №1: High Velocity „Star‟ Exits Difficult to achieve in Biotech & Healthcare …..
  20. 20. 22 Recent Technology Success Story App developer Shazam gets $40 million backing from tycoon Carlos Slim “LONDON - Smartphone app developer Shazam has found an unlikely ally in the form of Carlos Slim, one of the world's richest men, who is investing $40 million to back the development of the start-up best known for helping music fans identify catchy songs. Slim, ranked the world's top billionaire by Forbes magazine with a net worth of $73 billion, was brought in by one of Shazam's venture capital owners, Silicon Valley fund Kleiner Perkins Caufield & Byers.” Sarah Young July 7, 2013 Shazam has now secured $72m USD since 2009
  21. 21. 23 Investors’ Dream Scenario №2: Technology Development 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20 15 10 5 0 Revenue Operating Costs “Hockey Stick”
  22. 22. 24 Expectations Time IT Hype Cycle (published by Gartner 21 August 2013) Plateau of productivity Revenues > OPEX Great Time to sell Peak of Hype Bubble LUCKY SPECULATION Expectation-driven Star Performers
  23. 23. 25 Recent Great High-Velocity „Stars‟ Published by Gartner 21 August 2013 Exceptions Reality Dream №1 3,5 – 4 Years Dream №1 Dream №2 7 – 8 Years NOW
  24. 24. 26 Dream Scenario №2: Need for Growth Capital and Time Shazam’s Growth Millions GBP  REALITY, NOT the exception ...  Operational difficulties & Pending bankrupcy …  MANY start-ups FAIL here (due to lack of Growth Capital and an inability to secure sufficient revenues to ensure SURVIVAL) 20 15 10 5 0 Revenue Operating Loss Classic «Hockey Stick» inflection point 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 !!!!! Independent of Sector !!!!!
  25. 25. 27 REALITY (753 technology companies across multiple sectors and created since 1995): 7 to 8 years is the norm to Exit, i.e. rule rather than the exception … All >$25m USD Exits from January 2009 to May 2013; and all Companies founded post 1995. Years from Founding to M&A EXIT Years from Founding to IPO 16 14 12 10 8 6 4 2 0 BioPharma Software/ Internet Broader Tech Years January 2009 to May 2013; and all Companies founded post 1995 Biotech Software & Services MedTech & Healthcare services Tech Hardware & Equipment Semi- conductors 72 192 307N =of Companies 55 31 20 1759N = 40 35 30 25 20 15 10 5 0 MAX MIN 25th % 75th % Median Years A long wait for technology sector investors; and this is for the SUCCESS STORIES only !!! In a high-risk sector MNCs
  26. 26. 28 Nature of Biotech & Technology Investing has changed dramatically since 2008 “Global VC model is BROKEN” Global venture capital insights and trends 2013 “VC funds are investing fewer dollars, at a later stage and on tougher terms” “VC investment in 2012 fell to its lowest level since 2009” “We have met the enemy … and he is US”, May 2012 Should one abandon early stage VC all together?QUESTION: If one does, then one will LOSE all potential ‘Star Investments’ Thus, one must seek-out an ALTERNATE investment strategy
  27. 27. 29 What other major pain is needing to be cured for Investors in the high-risk Technology Sector ? ‘The need to divorce ROI from lengthy tech life-cycles’
  28. 28. 30 Portfolio-wide Insurance (not one-company-at-a-time) through access to Growth Capital & rapid Route-to-Market in partnerhsip with multinational giants „Market Pull’ opportunities meeting pre-determined INDUSTRY NEEDS & thus rapid Time to Market DANGER still exists !! Thus, need for pre-assured access to Growth Capital Portfolio companies in innovation sector demand access to Growth Capital Allowing one to catch a multitude of Star Performers
  29. 29. 31 And lessons from King Digital and “Candy Crush Saga”: October 2013, Candy Crush is the 3rd most popular free app & the highest grossing app in the Google Play store. King was founded in 2003 and listed on NY Stock Exchange in……… 26 March 2014 and took….. ………….. > One Decade And took ‘a $1bn hit in first day of trading’ , now only worth ……$5bn USD. Angry Birds: - People are currently spending some ‘200 million minutes of play time every day’ ……..  close to the number of minutes that US viewers watch prime-time TV.
  30. 30. 32 And m-Health ??? ….. Beginning of 2013 …. > 9,000 m-Health apps for i-phone Kleiner Perkins Caufield & Byers, one world’s Top VCs, is no longer investing in ‘e-commerce’: - Considered ……………….. ‘overly cluttered and increasingly difficult to pick winners’ Thus, Why is m-Health attractive ? Consumers are driving more decisions about their own health care U.S. health-care system is a primary driver of the U.S. deficit 15% GDP. Thus, pressure is high to reduce costs, both for consumers and for the system overall. Most of today’s health-care data is …. ‘stuck in silos & locked in antiquated systems’. - Worse in Russia, where Ministry of Health employs in excess of 640 different non-integrated software systems to administer its annual budget of 323 bn RUB - OPPORTUNITY here is HUGE to DEVELOP ‘Leapfrog’ solutions to implement locally and sell to >140 countries globally desperately in need of modern e-Health
  31. 31. 33 KP recommendations for m-Health: 08 May 2014: 1) Find ways to boost revenue for healthcare Providers & / or Payers: a) HealthCatylst who’s clients operate > 135 hospitals & 1,700 clinics = $130 bn USD revenues 2) Build a revenue model, before you build your service: a) ‘Freemium’ models can and do work in health care. Practice Fusion with free EHR platform for physicians (critical mass, connectivity, targeted advertisements and data). 3) High-tech and high-touch are not mutually exclusive. Don’t ignore human element in patient care. People get bored with many fitness and tracking apps: a) Mango Health encourages chronic disease sufferers to take their medications Persuasive Design & Gaming = Engaging product. 4) Tech & Healthcare Entrepreneurs need to join forces (EHR / EMR). Health-care privacy in USA is governed by Health Insurance Portability and Accountability Act (HIPAA). a) HIPAA-compliant data storage TrueVault b) Teladoc regulatory compliance …….. turning a ‘barrier’ into a ‘competitive advantage’.
  32. 32. Skolkovo RusInnovations: Objectives • Business model based on Best International Practice – IPO and IVO (LSE Tickers) – Former currently trades at 3.2 times Book Value • The need to divorce ROI from the lengthy & high-risk technology maturation cycle – Plus access to short-term investor LIQUIDITY via the Public Markets (Not 8 +2 VC Model) – Timely, SPO based on quality of academic alliances and investment partners • Stimulate a broad-base of Russians to invest in the up-side of commercialising Russian technologies (ASI-compliant) – NB: 75% of economic growth of USA since 1945 has been derived from Investments in Technology • Build upon a track-record of having successfully commercialised Russian technologies internationally since 23 years to over 130 multinational technology giants – PHLburg Technologies Inc. – ‘Market Pull’ and near-term route to global markets • Build long-term working relationships with Centres of Technical Excellence with a long track-record of globally-competitive innovation – 3,600 R&D Institutes – Incubators, Accelerators and Proof-of-Concept centres – ‘Technology Push’ • High-risk early-stage investments: – Hedged against lower-risk, later-stage, high-growth investments
  33. 33. With thanks for your attention….. © 2014 Skolkovo RusInnovations (SKRI). All rights reserved. Ian Humphery-Smith Posledniy Pereulok 17 Moscow, 107045 Russian Federation Office: +7 495 258 6262 Mobile: +7 916 391 5426 E-mail: ianhs@skrirussia.com URL: www.skrirussia.com

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