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  • 1. Actelion Pharmaceuticals Ltd nd The quest for a 2 partnerA CONFIDENTIAL DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR A POST GRADUATE DIPLOMA IN ADVANCED STRATEGY (Dip S&I) 2011 Oliver Vit Word count: 9,933
  • 2. ABSTRACTA Schumpeterian wave of creative destruction has swept through the pharmaceuticalindustry following the unprecedented growth in biologic products where each successrepresents annual revenues in excess of a billion dollars. The source of this revolution wasthe discovery of recombinant DNA techniques in the 1970s which enabled researchers tosynthesize large, complex proteins previously unimaginable within the scope of traditionalorganic chemistry. The result was a dual market structure in which numerous smallerinnovators linked closely to the cutting edge research of universities rivaled the stable baseupon which the relatively few large incumbents had been built. Several largepharmaceutical firms which had ignored the full potential of these new products at theinception of the revolution were later forced to spend valuable resources in an effort tocompete with adversaries who had profited from decisions to embrace the biotechrevolution early on. Various methods have been implemented over the last 30 years in aneffort to harness the growth potential of promising biotechs including mergers, acquisitions,equity stakes, joint ventures and alliances. The last 20 years have witnessed alliances riseto displace all other forms of partnerships in terms of sheer quantity primarily due to theease with which they can be formed and broken as investment strategies adapt and changeto the results of research.This paper introduces Actelion Pharmaceuticals and the S1P1 agonist program it wishes topartner within this complex environment of interwoven alliances between firms ofdissimilar sizes and competences sharing the common goal of returning value to the i
  • 3. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisshareholders with the profits from successful development programs which met previouslyunaddressed medical needs. A Stage Gate model has been applied to introduce a processby which the hundreds of registered pharmaceutical firms can be filtered through a series ofthree gates in order to identify candidates best matching Actelion’s present and futureneeds. The first gate narrows down the list of potential candidates to 26. The second gatefilters the candidates further using a scoring tool which has been developed to evaluate andcompare the core competences of each candidate, i.e., research, clinical development,marketing, along with indices for resources, growth & resiliency and productivity. Thethird gate is a risk analysis of the remaining candidates leaving a robust strategy reflectiveof the dual market appropriate for due diligence efforts with 6 appropriate candidateseligible for due diligence. ii
  • 4. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisTable of ContentsAbstract iFigures viTables xList of Abbreivations and Acronyms ixINTRODUCTION Actelion Pharmaceuticals Ltd 1 S1P1 agonist program 2 Autoimmune disorders 7 Product life cycle 8 Core Competences 9 Research 9 Clinical development 11 Marketing & Sales 12 4th competence 14PARTNERING General background 15 Types of partnering arrangements 17 Minority holdings 17 iii
  • 5. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesis Joint ventures 17 Research, development and marketing pacts & alliances 18 Trends over the past 20 years 18 Genesis to demise, the life cycle of pharmaceutical companies and how partnering fits to survival in Schumpeterian landscape 22METHODS Stage-gate approach 28RESULTS Gate I 30 Gate II 32 Scoring tool 32 Research 32 Clinical development 33 Marketing & Sales 33 Resources 34 Growth & Resiliency 34 Productivity 35 Candidate profiling 39 Gate III 50 Risk assessment 50 PESTL 50 iv
  • 6. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesis Political 50 Economic 51 Social 51 Technological 52 Environmental 52 Legal 53 Geopgraphic risks 53 Long term risks 56 Connection highway 57DISCUSSION 64CONCLUSIONS 69REFERENCES 71APPENDIX I 74APPENDIX II 93APPENDIX III 119 v
  • 7. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisFiguresFigure 1 Life cycle of pharmaceutical products p.9Figure 2 Growth of newly established R&D partnerships 1960-1998 p.20Figure 3 % of joint ventures in all newly established R&D partnerships 1960-1998 p.21Figure 4 % of all contractual modes and joint R&D agreements from 1975-1998 p.22Figure 5 Stage-gate model for partner selection p.29Figure 6 Cross comparison with large pharmaceutical firms p.37Figure 7 Cross comparison with biotechs & others p.38Figure 8 Pfizer scoring results p.39Figure 9 Bayer Schering scoring results p.40Figure 10 Novartis scoring results p.41Figure 11 Abbott scoring results p.42Figure 12 Bristol-Myers Squibb scoring results p.43Figure 13 Roche scoring results p.44Figure 14 Amgen scoring results p.45Figure 15 Merck KGaA scoring results p.46Figure 16 Novo Nordisk scoring results p.47Figure 17 Biogen IDEC scoring results p.48Figure 18 Teva scoring results p.49Figure 19 Distribution of R&D partnerships, economic regions (1960-1980) p.54Figure 20 Distribution of R&D partnerships, economic regions split by decade p.55Figure 21 R&D partnerships in pharmaceutical biotechnology 1975-1979 p.58 vi
  • 8. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisFigure 22 R&D partnerships in pharmaceutical biotechnology 1980-1984 p.59Figure 23 R&D partnerships in pharmaceutical biotechnology 1985-1989 p.60Figure 24 R&D partnerships in pharmaceutical biotechnology 1990-1994 p.61Figure 25 R&D partnerships in pharmaceutical biotechnology 1995-1999 p.62Figure 26 Actelion scoring results as a large pharmaceutical firm p.75Figure 27 Pfizer complete scoring results p.76Figure 28 Johnson & Johnson overview p.77Figure 29 Johnson & Johnson complete scoring results p.78Figure 30 Bayer Schering complete scoring results p.79Figure 31 Novartis complete scoring results p.80Figure 32 GlaxoSmithKline overview p.81Figure 33 GlaxoSmithKline complete scoring results p.82Figure 34 Merck & Co overview p.83Figure 35 Merck & Co complete scoring results p.84Figure 36 Sanofi overview p.85Figure 37 Sanofi complete scoring results p.86Figure 38 Abbott complete scoring results p.87Figure 39 AstraZeneca overview p.88Figure 40 AstraZeneca complete scoring results p.89Figure 41 Eli Lilly overview p.90Figure 42 Eli Lilly complete scoring results p.91Figure 43 Bristol-Myers Squibb complete scoring results p.92 vii
  • 9. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisFigure 44 Actelion scoring results as a biotech p.94Figure 45 Roche complete scoring results p.95Figure 46 Amgen complete scoring results p.96Figure 47 Merck KGaA complete scoring results p.97Figure 48 Baxter overview p.98Figure 49 Baxter complete scoring results p.99Figure 50 Novo Nordisk overview p.100Figure 51 Allergan overview p.101Figure 52 Allergan complete scoring results p.102Figure 53 CSL Limited overview p.103Figure 54 CSL Limited complete scoring results p.104Figure 55 Biogen IDEC overview p.105Figure 56 Alexion overview p.106Figure 57 Alexion complete scoring results p.107Figure 58 Almirall overview p.108Figure 59 Almirall complete scoring results p.109Figure 60 Arena overview p.110Figure 61 Arena complete scoring results p.111Figure 62 Receptos overview p.112Figure 63 Receptos complete scoring results p.113Figure 64 Daiichi Sankyo overview p.114Figure 65 Daiichi Sankyo complete scoring results p.115 viii
  • 10. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisFigure 66 Ono overview p.116Figure 67 Ono complete scoring results p.117Figure 68 Teva complete scoring results p.118Figure 69 R&D partnerships in pharmaceutical biotechnology 1975-1979 – p.120 reproducedFigure 70 R&D partnerships in pharmaceutical biotechnology 1980-1984 - p.121 reproducedFigure 71 R&D partnerships in pharmaceutical biotechnology 1985-1989 - p.122 reproducedFigure 72 R&D partnerships in pharmaceutical biotechnology 1990-1994 – p.123 reproducedFigure 73 R&D partnerships in pharmaceutical biotechnology 1995-1999 – p.124 reproduced ix
  • 11. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisTablesTable I Properties of sphingosine-1-phosphates p.3Table II Patented S1Px agonists p.5Table III Patented S1Px agonists in clinical development p.6Table IV Bestselling drugs in 2010 p.13Table V Drug development success rates p.14Table VI Top 10 pharmaceutical and biotech firms in 2010 p.31Table VII Scoring tool valuations for large pharmaceutical firms p.36Table VIII Scoring tool valuations for biotechs & others p.36 x
  • 12. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesisList of Abbreviations and Acronyms AS Akylosing spondylitis BRIC Brazil Russia India China CD Crohn’s disease CEO Chief Executive Officer CHF Congestive heart failure EIM Entry Into Man EMA European Medicines Agency ETA Endothelin-A ETB Endothelin-B FDA Food and Drug Administration GDP Gross Domestic Product GPCR G protein-coupled receptor HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome HTS High Through-put Screening ICH International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use IPO Initial Price Offering IT Information Technology JAK Janus Activated Kinase JIA Juvenile Idiopathic Arthritis JV Joint Venture KOL Key Opinion Leader MA Marketing Authorization M&A Mergers & Acquisitions MS Multiple Sclerosis NPV Net Present Value PAH Pulmonary Arterial Hypertension PD Pharmacodynamics xi
  • 13. Candidate number: DSI1057Diploma Strategy & InnovationFinal thesis PESTL Political Economic Social Technological Legal PK Pharmacokinetics Ps Psoriasis PsA Psoriatic arthritis RA Rheumatoid arthritis R&D Research and Development SEC Securities and Exchange Committee SMI Swiss Market Index S1P Sphingosine-1-phosphate UC Ulcerative colitis USD United States Dollar WO World Intellectual Property Organization WWI World War I WWII World War II xii
  • 14. INTRODUCTIONActelion Pharmaceuticals LtdIn the 1990’s F. Hoffmann-La Roche Ltd (Roche) discovered and began developingbosentan, the world’s first endothelin-1 receptor antagonist at endothelin-A (ETA) andendothelin-B (ETB) protein receptor sites found on the layer of vascular cells forming theendothelium. Endothelin-1 had been identified as an endogenous vasoconstrictor andbosentan’s ability to counteract these effects by blocking its access to ETA and ETBreceptors was seen to represent a break-through in the treatment of cardiovascular diseaseswhere high blood pressure is regulated by vasoconstriction. Later Roche took the decisionto halt further development of bosentan following safety findings in an on-going Phase IIcongestive heart failure (CHF) trial. Believing in the therapeutic promise of both bosentanand its mechanism of action, five founders pooled together resources, successfully gainedthe backing of venture capitalists, out-licensed two endothelin-1 receptor antagonists fromRoche, i.e., bosentan & tezosentan, and established Actelion Pharmaceuticals Ltd(Actelion) on December 17, 1997 with the vision to continue the research and developmentof drugs targeting endothelial receptors - or as the company’s name implies, to “act onendothelium”.Shortly after Actelion’s Initial Public Offering (IPO) in April 2000, bosentan as Tracleer®was licensed by the U.S. Food and Drug Administration (FDA) in November 2001 and theEuropean Medicines Agency (EMA) in April 2002 for the treatment of a then little knownorphan disease affecting an estimated 10,000 persons: pulmonary arterial hypertension Page 1
  • 15. (PAH). As the market leader enjoying more than 75% market share Tracleer® isprescribed to more than 40,000 PAH patients worldwide today and accrues nearly 2 billionUSD in annual revenue. Actelion has grown from a single office of 5 persons into one ofEurope’s largest biopharmaceutical industries listed along with Novartis Pharma AG(Novartis) and Roche as one of the 20 Swiss securities composing the Swiss Market Index(SMI) and representing more than 2,500 employees throughout 29 affiliates in 13 yearswith a pipeline of more than 30 compounds all seeking to address unmet medical needswith cutting edge research.S1P1 agonist programAlthough first isolated and identified as an endogenous signaling lipid in the late 19thcentury sphingosine-1-phosphate’s function remained such an enigma that the root“sphingo” was assigned as an intentional allegory referring to the Riddle of the Sphinx. Todate five G protein-coupled receptors (GPCR), S1P1-5, have been isolated from varioustissues with distinct attributable functions listed in Table I beneath. Circulating throughoutthe body endogenous S1P agonizes any of the five S1Px receptors with physiologicalconsequences which may play a role in disease pathophysiology. Page 2
  • 16. Table I – Properties of sphingosine-1-phosphatesReceptor Distribution Cellular functional expression and consequencesS1P1 brain Astrocyte: migration heart B-cell: blockade of egress, chemotaxis spleen Cardiomyocyte: increased β-AR positive inotropy liver Endothelial cell: early vascular system development, adherens lung junction assembly, APC-mediated increased barrier integrity thymus Neural stem cell: increased migration kidney Pericyte: early vascular system development (VSMC) skeletal muscle T-cell: blockade of egress, chemotaxis, decreased late-stage lymphoid maturation VSMCS1P2 brain Cardiomyocyte: survival to ischemia-reperfusion heart Epithelial cell (stria vascularis): integrity/development spleen Epithelial hair cells (cochlea): integrity/development liver Endothelial cell (retina): pathological angiogenesis, adherens lung junction disruption thymus Hepatocyte: proliferation/matrix remodeling kidney Fibroblast (MEF) skeletal muscle Mast cell: degranulation VSMC: decreased PDGF-induced migrationS1P3 brain Cardiomyocyte: survival to ischemia-reperfusion heart Dendritic cell (hematopoietic): worsening experimental sepsis spleen lethality/inflammation/coagulation liver lung thymus kidney skeletal muscle testisS1P4 lung T-cell: migration/cytokine secretion lymphoidS1P5 brain NK cell: trafficking skin Oligodendrocyte: survival spleen OPC: glial process retraction; inhibition of migration Source: Rosen et al., 2009. Sphingosine 1-Phosphate Receptor Signaling, Annual Review of Biochemistry, 78, p. 749 Page 3
  • 17. Novartis successfully developed and launched the first non-selective S1P1,3-5 receptoragonist, Gilenya® (fingolimod), for the treatment of relapsing form of Multiple Sclerosis(MS) in 2010 and UBS analyst Fabian Wenner (Bloomberg 2011) estimates annualrevenues of Gilenya® to exceed 5.3 billion USD at peak sales. Based on the presumptionsthat inhibition of lymphocyte migration offers therapeutic benefit in the treatment ofautoimmune disorders and that this activity was directly linked to the loss of function at theS1P1 receptor, many research units in the absence of S1P1 antagonists which would blockactivation at the receptor site, developed selective S1P1 receptor agonists which internalizeand destroy the receptor in a manner described as functional antagonism. Currently over 20declared S1Px compounds are specifically patented and undergoing development within 19pharmaceutical firms listed beneath in Tables II & IIII. Page 4
  • 18. Table II – Patented S1Px agonists Company Selectivity Compound GSK1842799 PPI-4955 PF-991 LAS-189913 S1P1 BMS-520 (unknown) S1Px Page 5
  • 19. Table III – Patented S1Px agonists in clinical development Development Company Selectivity Compound phase Gilenya® S1P1,3-5 Launched (fingolimod) S1P1,5 BAF312 ONO4641 Phase IIb Ponesimod (ACT-128800) ACT-334441 S1P1 CS-0777 Phase I RPC1063 2018682Actelion has already conducted the research to discover selective S1P1 agonists andsuccessfully brought two compounds, ponesimod and ACT-334441, into clinicaldevelopment. Although Actelion has launched multiple Phase II clinical trials in both MSand psoriasis (Ps) following the rapid establishment of in-house expertise in both neurologyand dermatology, Actelion does not possess the development experience in many otherautoimmune disease areas, e.g. rheumatology, gastroenterology, metabolic disorders, etc.and the resources to conduct simultaneous clinical trials in parallel to the on-going MS andpsoriasis programs within the limited patent protection period. Furthermore in all casesActelion lacks the marketing experience to effectively launch its first selective S1P1 agonist Page 6
  • 20. across these multiple disciplines. Therefore Actelion is interested in establishing analliance with a partner who is capable of developing and marketing novel therapeuticagents in autoimmune disorders.Autoimmune disordersDisorders in which the body’s immune system falsely recognizes self tissue as a foreignantigen and begins an inflammatory T-cell driven response to eliminate the tissue aretermed autoimmune. To date over 130 have been identified inclusive of MS, Ps, psoriaticarthritis (PsA), Rheumatoid arthritis (RA), Ulcerative colitis (UC), Crohn’s disease (CD),Ankylosing spondylitis (AS) and Juvenile idiopathic arthritis (JIA) where biologictherapies such as Avonex®, Copaxone®, Rebif®, Betaseron®, Tysabri®, Enbrel®,Humira®, Stelara®, Simponi®, and Remicaide® are licensed. Sales with these products inMS alone breached 10 bio USD in 2010 with < 20 bio USD in cumulative sales across allindications. All biological therapies suffer from two substantial drawbacks in the form of(1) the necessity of painful injections over the course of a patient’s lifetime and (2) thebuild up of neutralizing antibodies and resultant reduced efficacy over time. Oral S1P1agonists would possess neither of these disadvantages and could replace biologics in allautoimmune disorders should equal or better efficacy be established with an acceptablesafety & tolerability profile. Page 7
  • 21. Product Life CycleAll compounds are products of research units and bear tangible costs from the moment ofdiscovery. A product’s life cycle in the pharmaceutical industry can therefore be expressedas a sum of expected investments and profits from the overheads involved with itsdiscovery to the loss of market protection in all major markets worldwide. As WO patentsgrant protection for 20 years and there are various means to extending the market life of aproduct, e.g. patent extensions, formulation patents, regulatory data protection, etc., the lossof value due to inflation and amortization over time are factors which must be considered.Net present value (NPV) which measures the value of an asset by comparing the fullyburdened costs against future revenues discounted for inflation is one common tool used toappraise assets and relative investment risks across portfolios.Figure I illustrates a generalized expenditure vs. profit curve across the three critical stagesof research, clinical development and marketing & sales in a successful product’s life cyclewhere the revenue magnitude and timing are product specific. Page 8
  • 22. Figure 1 – Life cycle of pharmaceutical products Research Clinical Marketing & Sales development Profits Net profits timeExpenses Entry into Marketing Peak Patent man authorization sales lossCore CompetencesResearchAlthough as postulated by Santos (2003) the methods of research have undergone multiplechanges from learning-by-doing to learning-before-doing, from the discovery ofacetylsalicylic acid by Franz Hoffman a chemist working at Bayer, then a German dyemanufacturer in 1897, to the isolation of penicillin at Oxford in 1937 through the syntheticrevolution of the 1960’s and underlying the astounding success of biotechnology from 1970 Page 9
  • 23. to present, laboratory research remains unequivocally central to any novel compound’sorigin. Expenditure associated with research units in public hospitals, governmentalorganizations, university laboratories or private interests, e.g. pharmaceutical industry, bio-tech start-ups, etc., represent the first expenses in a product’s life cycle.In terms of discovery research begins by selecting a medical need and a series of premisesin terms of disease pathology followed by the identification of suitable targets. Thereafterassays are constructed based on the target(s) and a firm’s library of unique compounds aretested in an automated fashion called High Through-put Screening (HTS) which permitsanalysis of these compounds in the hundreds of thousands to be completed in relativelyshort periods of time. Based on the desired activity and known toxicological profilesstructural groups are identified and modified in a continual effort to increase the potencyand selectivity of the molecule until such time as a lead candidate is accepted for further in-vivo experiments to assess the compound’s pharmacokinetics (PK), pharmacodynamics(PD), possible efficacy, safety and toxicological potential in two animal species prior toEntry Into Man (EIM). Throughout the development program following EIM furtherresearch activities are typically conducted including but not limited to long term safety,new formulations, the search for better follow-up compounds and additional indications forthe lead compound. Page 10
  • 24. Clinical DevelopmentOnce the PK/PD and safety profile of a clinical candidate has been appropriately definedand deemed supportive of short term human exposure, the sponsor may decide to proceedfurther towards marketing authorization (MA) by entering into the first of three clinicaldevelopment phases, Phase I or clinical pharmacology studies. These are small and rapidinvestigations studying the effects of the compound on healthy human subjects and theeffects of a healthy human body has upon the compound & its circulating concentrationsunder various circumstances, e.g. alone at rest, in combination with other licensed therapy,comparison of differing formulations of the same compound, under the effect of exercise,etc.Patients whose health by definition is jeopardized, are exposed to the compound in thesecond clinical development phase, Phase II or dose-finding. In an attempt to determine thefirst signs of clinical utility within the dose range explored in the Phase I experience theseclinical trials are conducted to establish both the lowest efficacious dose and its associatedsafety & tolerability profile. Phase III trials represent the greatest effort and expendituremade by a sponsor to validate the results of the Phase II trial in a much larger number ofpatients potentially compared to standard of care with a statistically greater degree ofconfidence regarding both the promised efficacy as well as the safety of the clinicalcandidate. Page 11
  • 25. Should the compound prove efficacious with an appropriate safety & tolerability profile,and cost effective compared to other forms of therapy where available, the sponsor maydecide to file MA dossiers with the health authorities worldwide for a review period ofbetween 6 to 18 months.Marketing & SalesFollowing successful independent reviews by the health authorities, a new drug can belaunched within a highly competitive marketplace circumscribed by the recommendationsof Key Opinion Leaders (KOLs), behavior of prescribing physicians, patient preferences &compliance and the annual budgets of payors. However behind every successful launch arethousands of individuals developing and coordinating the networks supporting thecorporate presence, pricing strategy, reimbursement terms, manufacture, international &regional distribution, storage, pharmacovigilance and sales. A massive undertaking by anymeasure these expenditures dwarf the 1.073 bio USD Tufts (2007) attributes to the averageresearch & clinical development costs accrued prior to an MA. Furthermore just asdaunting are the enormous potential profits from novel drugs addressing unmet medicalneeds as listed in Table IV. Page 12
  • 26. Table IV – Bestselling drugs in 2010Rank Brand Name Company(ies) Disease Sales 20102010 Medical Use (mio USD) 1 Lipitor® Pfizer,Astellas Pharma Cholesterol 11,8 Bristol-Myers Squibb, 2 Plavix® Thrombotic events 9,4 Sanofi-Aventis Johnson & Johnson, 3 Remicade® Schering-Plough, Rheumatoid arthritis 8 Tanabe 4 Advair® GlaxoSmithKline Asthma, COPD 7,96 5 Enbrel® Amgen, Wyeth RA, Ps, PsA, JIA, AS 7,4 6 Avastin® Hoffmann La-Roche Oncology 6,8 Schizophrenia, Otsuka, Bristol-Meyers 7 Abilify® depression, bipolar 6,8 Squibb disorder 8 Rituxan® Hoffmann La-Roche NHL, CCL, RA 6,7 RA, Ps, PsA, AS, 9 Humira® Abbott Laboratories 5,49 UC, CD, JIA 10 Diovan® Novartis Pharma AG Hypertension 6,1Source: MedAdNews 200 - Worlds Best-Selling Medicines, MedAdNewsThese annual revenues may appear discrepant when weighed against the averageprofitability of only 15.3% for the eleven Fortune 500 pharmaceutical firms Fein (2011)identifies in 2010. This apparent discrepancy between annual revenues in the billions perproduct and less spectacular yearly profits is easily explained when the success rates arefactored into the evaluation as described in Table V. A cumulative probability of between4.6 - 28.1 % to reach the market from EIM for any clinical candidate signifies that the vastmajority of drugs in clinical development simply fail to gain approval and all associatedR&D expenditures are born by the sponsor alone. Page 13
  • 27. Table V – Drug development success rates Disease Group Clinical Clinical Clinical Marketing Cumulative Phase I Phase II Phase III Approval %Arthritis/Pain 76.9% 38.1% 78.1% 89.1% 20.4%CNS 66.2% 45.6% 61.8% 77.9% 14.5%CV 62.7% 43.3% 76.3% 84.4% 17.5%GIT 66.8% 49.1% 71.0% 85.9% 20.0%Immunology 64.8% 44.6% 65.2% 81.6% 15.4%Infections 70.8% 51.2% 79.9% 96.9% 28.1%Metabolism 47.8% 52.0% 78.9% 92.8% 18.2%Oncology 64.4% 41.8% 65.4% 89.7% 15.8%Ophthalmology 66.0% 39.0% 64.0% 92.0% 15.2%Respiratory 63.4% 41.1% 59.9% 76.9% 12.0%Urology 50.0% 38.0% 67.0% 79.0% 10.1%Women’s Health 39.0% 42.0% 48.0% 59.0% 4.6%Source: DeMasi 2001, Kola 2004, Avance cited in Valuation in Life Sciences, 2007, p.144th competenceIt is standard practice to divide pharmaceutical development into the three precedingcompetences of research, clinical development and marketing & sales, yet there is an oftenunderappreciated 4th competence: the ability to coordinate cross-functional development ina robust, timely, cost effective manner maximizing a compound’s chances to be discovered,navigate the hurdles of development, reach the market successfully and achieve its fullpotential value. Although fickle and certainly intangible, this competence is representedexclusively by the cumulative savoir-faire of the employees, the company culture and theprocesses managing both the compound’s development path as well as the departments &employees cum caretakers guiding it in this journey from discovery towards patent expiryeach and every day. Page 14
  • 28. Not only does this value proposition differ distinctly between companies, it can mean thedifference between the very tangible outcomes of success and failure.PartneringGeneral backgroundGalambos (1998) and Pisano (1991) note that beginning at Stanford University in the 1972with the discovery of recombinant DNA techniques which allowed the manufacture ofcomplex proteins by biologic organisms, a burgeoning scientific knowledge base drove thepace of innovation and subsquentially a Schumpeterian wave of creative destruction spreadacross the pharmaceutical sector. Roijakkers and Hagedoorn (2005) show that this resultedin a dual market environment characterized by relatively few incumbents juxtaposedagainst numerous rival new entrants within an increasingly competitive marketplace.Large pharmaceutical companies which failed to recognize and invest in the potential ofnew technological breakthroughs suffered a temporal state of “lock-out” from lucrative,previously unforeseen opportunities, and as demonstrated by Cohen and Levinthal (1990)sought external alliances or lost entirely at greater expense than an earlier investment wouldhave represented. Partnering with smaller interests active in the early stages of research atminimal cost became a tool used within the traditional pharmaceutical industry to capitalizeupon innovation and avoid future lock-out episodes. Cohen and Levinthal (1990) coin theterm absorptive capacity to encapsulate a firm’s ability “to recognize the value of new,external information, assimilate it and apply it to commercial ends” and show that it is Page 15
  • 29. indeed proportional to previous exposure and learning as represented by successful R&Defforts on the part of the assessor.While in possession of certain intellectual property (IP) representing a capacity towardsradically affecting the shape and scope of future competitive landscapes, Pisano (1991)shows that smaller more numerous innovators similarly lacked the capital reserves anddownstream capacities of well established incumbents in the form of war chests, clinicaldevelopment & regulatory expertise, manufacture, logistics and market access. Galambosamd Sturchio (1998) explain that larger incumbents offered downstream economies of bothscale and scope in exchange for access to the innovator’s IP.As a means to conveniently exchange goods or services between two or more parties over apre-determined time span there are multiple grounds upon which to build partnerships inthe pharmaceutical industry, e.g., capital investment, in-licensing products, expandingpipelines, complimenting research activities, market access, etc. However at the essence ofeach is the recognition of a unique external competence and the desire to benefit from acloser relationship hedged against the cost of failure. It is the prohibitive cost of failureassociated with full mergers & acquisitions (M&A) which lends partnering arrangementsparticular appeal in the early stages of R&D where the likelihood of failure is distinctlyhigher.An often quoted corporate development director at what was then Glaxo Inc. aptlysummarizes this circumstance: “no emerging or established pharmaceutical company is Page 16
  • 30. large enough, or smart enough to meet all of its knowledge needs in isolation” (George1993).Types of partnering arrangementsArora and Gambardella (1990) suggest that the outright purchase of a minority stake alongwith the creation of joint ventures (JV), research, development & marketing pacts, andalliances are the four types of investment tools utilized by pharmaceutical firms toproactively remain abreast of current innovative research and trends in upcomingtechnologies in the hopes of maximizing the probability of enjoying first mover advantageand simultaneously minimizing the risk of lock-out at quantifiable and reasonable costs.Minority holdingsRepresenting no more than 50% of a publically traded corporation’s stock the purchase of aminority stake in a rival or innovative competitor allows the stock holder to profit from anysuccess the competitor achieves. This is an equity based strategy which permits apharmaceutical firm to diversify risks across an investment portfolio.Joint venturesJVs are independent companies founded and financially supported by the partners to furtherdevelop and rapidly market an innovation where the influence of either partner is limited toholding a financial interest in the JV. Although no direct reporting line continues to existbetween the JV employees and the partners, as investors the original partners continue to Page 17
  • 31. exert a direct influence at the level of the board and the informal relations between theemployees who are often recruited from within one or both of the original partners.Research, development and marketing pacts & alliancesIn an effort to limit the risks of permanent investments the instruments of short termcontracts and longer term alliances present themselves. These permit closer co-operationbetween the parties without restructuring and provide incentives based on successfuloutcomes of joint efforts, e.g., payments for services rendered, up-front payments,milestone payments, royalties on sales, marketing opportunities, etc. Hagedoorn and vanKranenberg (2003) note that joint representation on boards and project teams can beassured with expenses shared by both parties while minimizing interdependence overshorter investment periods.Trends over the last 20 yearsAs a strictly equity based investment strategy minority holdings are certainly of interest,however as tools to expand a pharmaceutical firm’s access to both cutting edge innovativetechnology and effective development & successful marketing teams, minority holdings arefar from effective. Most early investments would be impossible as smaller innovations maystill be privately held companies and although due dividends and returns, investors have norights to a company’s IP. Page 18
  • 32. Hagedoorn and van Kranenberg (2003) note that the potential of JVs, pacts and alliances inR&D across all sectors was largely underestimated by academia through the early 1990s asthe locus of academic research centered on 1980’s M&A activity. Håkansson, Kjellbergand Lundgren (1993) also remark that “alliances are increasingly being used as strategictools for corporate survival and growth, shaping the present and future structure ofindustries”. These agreements are specific to product(s) or a set of competences and leavethe corporate structure of individual partners largely unchanged in the absence of the largeprotracted investments in both capital and infrastructural changes required to enact theterms of a full merger or acquisition; both parties can limit risk exposure while stillprofiting from a mutual association. Thus the larger degree of corporate freedom awardedto both parties underlies the sheer quantity of R&D partnering arrangements which farexceed mergers & acquisitions and the increased popularity as witnessed by the growth ofnewly established partnerships between 1960 and 1998 as depicted in Figure 2 beneath. Page 19
  • 33. Figure 2 – Growth of newly established R&D partnerships 1960-1998Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960p.480JVs suffer from the high fiscal and organizational costs of set-up as well as equally highfailure rates and as such there has been a clear decline in the number of JVs as a proportionof new R&D pacts since 1960 as depicted in Figure 3. Page 20
  • 34. Figure 3 – % of joint ventures in all newly established R&D partnerships 1960-1998Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960p.481Ruling out equity based investments and JVs, research & development pacts and alliancesremain as nearly the only form of joint R&D agreements as shown in Figure 4. Roijakkersand Hagedoorn (2006) demonstrate that as an investment tool pacts & alliances present alower risk than either JVs or full M&As as the divestment costs are quantifiable contractualstipulations and significantly lower on average. Page 21
  • 35. Figure 4 – % of all contractual modes and joint R&D agreements from 1975-1998Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends,patterns and networks p.434Genesis to demise, the life cycle of pharmaceutical companies andhow partnering fits to survival in a Schumpeterian landscapeNo pharmaceutical firm has consistently grown in vacuo marketing products exclusivelydeveloped in-house; all firms large and small are possible M&A targets as well as potentialpartners.Genetic Engineering Technology, Inc. (Genentech) provides a classic example from itsinception as a small innovator founded in 1976 by a venture capitalist and one of the Page 22
  • 36. Stanford researchers responsible for the discovery of the recombinant DNA techniqueswhich launched the biotech revolution through to complete integration with Roche as aresult of complete integration in 2009.6 years following its founding and 4 years after partnering the human insulin project withEli Lilly and Company (Eli Lilly), Genentech received approval to market the firstbiologically engineered therapeutic in the form of Humilin® (Roche 2011). Over the next28 years Genentech received FDA approval for no less than 14 other biosynthetic productsincluding Rituxan®, Herceptin®, Raptiva®, Avastin®, and Terceva® which wereexclusively developed and marketed with Roche. Nor were Eli Lilly and Roche the onlypartners Genentech entertained. Roijakkers and Hagedoorn (2006) show that in the periodsof 1975-1979, 1980-1984 and 1985-1989 Genentech had 3, 14 and 11 R& D partnershipsrespectively as registered in the MERIT-CATI databank..Roche was founded in 1896 primarily as manufacturer of vitamins however following anintense period of diversification in the mid 20th century it was marketing the results of itsown in-house research programs, e.g., Valium®, Rohypnol®, Ipronaizid® (Roche 2011).As demonstrated by Galambos and Sturchio (1998) Roche is an example of an incumbentlargely dependent on research devoted to compounds of small molecular weight whichovercame the disadvantages incurred when the biotech revolution took it unawares bysuccessfully marketing its core competences to smaller partners in the form of R&Dpartnerships. Roijakkers and Hagedoorn (2006) demonstrate that with 41 registeredpartnerships in the MERIT-CATI databank between 1995 and 1999, Roche led the industry Page 23
  • 37. in terms of the shear quantity of alliances. With reference to the Genentech collaborations,Reuters (2009) reports that Roche began as a development partner and capitalized on itsposition by continuing to increase its equity stakes in Genentech until it purchased acontrolling share representing 60% for 2.1 billion USD in 1990 prior to the full merger for46.8 billion USD in 2009.Galambos and Sturchio (1998) inform that Chiron Pharmaceuticals Inc. (Chiron) wasfounded in 1981 by three academics from University of California as a result of a jointeffort with Merck & Co Inc. to develop Recombivax HB®, a new serum based hepatitis Bvaccine at the same time as AIDS was first recognized. Chiron continued to focus itsresearch activities on vaccines, biosynthetics, and blood screening techniques and betweenthe years of 1985 and 1989 Roijakkers and Hagedoorn (2006) list 12 R&D partnershipswith a further 13 in the years of 1990 to 1995 as documented in the MERIT-CATIdatabase; Fisher (1986) reports that one of its early partners was Ciba-Geigy Ltd (Ciba-Geigy). After years of maintaining a minority stake Tansey (2006) reports that Novartiseventually bought Chiron for an additional 5.4 billion USD.Novartis was the product of several mergers over a period of decades. Geigy AG was achemical industry founded in 1901 concentrating on continuing a family interest in thedevelopment and marketing of natural and artificial dyes born in the 18th century (Novartis2011). The Gesellschaft für Chemische Industrie Basel was formed in 1884 by a separategroup of industrialists which manufactured the Geigy AG dies on an industrial scale(Novartis 2011). In 1914 Geigy AG changed its name to J. R. Geigy Ltd (Geigy) and in Page 24
  • 38. 1945 the Gesellschaft für Chemische Industrie Basel adopted the acronym CIBA (Novartis2011). Both Geigy and CIBA continued as rivals until CIBA-Geigy Ltd was formed in1971 and continued the search for unique small molecular weight compounds on an evenlarger scale (Novartis 2011). CIBA-Geigy Ltd later merged with Sandoz AG, anothergroup with its roots in 19th century dye manufacture, in 1996 to form Novartis. None of theresearch conducted by Geigy, CIBA or Sandoz AG was biologic in nature, and Novartismuch like Roche was forced to market its core competences and use its capital reserves toinvest in smaller biotech research units in an effort to survive.Serono SA (Serono) is as another example of a biotech wonder. Founded in 1906 asInstitutio Farmalogico Serono S.p.A., it was an Italian family business which extractedproteins from chicken eggs for medicinal purposes before discovering menotropin ahormone in the urine of post-menopausal women and marketing it as Pergonal® to treatfertility disturbances in the post World War II era (Funding Universe 2011). After oustinga troublesome major share holder, Michele Sindona, in the early 1970s the headquartersrelocated to Geneva and the name was changed to Ares-Serono AG (Ares-Serono) whereresearch remained focused on diagnostics and infertility treatments (Funding Universe2011). Pergonal® played an important role in the success of the world’s first test tube babyand sales increased dramatically in time with the biotech revolution and Serono began toinvestigate the possibility of using recombinant DNA techniques to develop novelbiosynthetic compounds for unmet medical needs. Ares-Serono went on to develop andmarket biological products for the treatment of infertility, Multiple Sclerosis, HIV/AIDSand other hormone deficiencies (Funding Universe 2011). In 2000 Ares-Serono renamed Page 25
  • 39. itself Serono and following astounding commercial success which brought it to the status ofthe world’s 3rd largest biotech Römer and Becker (2006) report that it sold a majority staketo Merck KGaA for 10.6 billion euros and finally became Merck-Serono.Merck KGaA was founded by a pharmacist in the late 17th century and is the oldestpharmaceutical firm by any standard and has its headquarters in Darmstadt, Germany(Merck 2011). Due to its affiliation with Germany, Merck suffered set backs with theoutcomes of each world war; it lost its US based affiliate following WWI and all othersubsidiaries as a result of WWII (Merck 2011). It refounded itself in the 1950s andremained a family business through 1995 when it was registered as Merck KGaA apublically traded company; however the family interests still possess the controllingmajority.1978 saw the founding of Biogen NV Inc. (Biogen) in Geneva, Switzerland by group ofindependent biologists and researchers in an effort to pool the individual talents and tacklethe challenges of recombinant DNA techniques and genetic engineering (Biogen IDEC2011). IDEC Pharmaceuticals Corporation (IDEC) was founded in San Diego five yearslater and focused its research efforts on monoclonal antibody therapy in oncology(BiogenIDEC 2011). Both companies successfully launched biosynthetics for autoimmune,neurological and oncological disorders, e.g. Intron A®, Avonex®, Tysabri®, Rituxan®,etc., prior to a merger in 2003 to form Biogen-IDEC Inc. Page 26
  • 40. As pharmaceutical firms grow risks are taken, research opportunities missed, marketdynamics change and occasionally a technological revolution led by numerous smallerinnovators affiliated with universities spawns a period of Schumpeterian creativedestruction. Galambos and Sturchio (1998) have shown that although largepharmaceutical firms either rapidly develop in-house expertise with the new technologyand apply it across therapeutic areas or contract state of the art research in the form oflicensing, research and equity relationships in an effort to maintain a competitive advantageand conclude that the latter was the more successful strategy due to IP rights and the limitednumber of experts in a new field of technical expertise.By analogy the gradual increase of equity stake in parallel to the progress made in asuccessful alliance were harbingers for the eventual mergers of Roche-Genentech, Merck-Serono, Novartis-Chiron and serve as one survival strategy for the larger pharmaceuticalfirms. However the more recent hostile bid by Sanofi-Aventis SA to purchase GenzymeCorporation clearly attests to the viability of M&A activity in the absence of a prior R&Dpartnership. Page 27
  • 41. METHODSStage-gate approachTaking inspiration from Wheelwright and Clark (1992) a stage-gate approach was used toevaluate and filter the potential partnering candidates. In Stage I the pharmaceutical marketwas divided into four categories: the top ten largest pharmaceutical firms ranked by 2010annual revenues (USD), the top ten biotechs defined as firms where more than 50% of the2010 annual revenues were attributable to the sales of biologics, those pharmaceutical firmswhich have S1P1 agonists in clinical development, and any pharmaceutical company whichmarkets blockbuster MS product(s) and was not captured by the first three categories.Passing the Gate I, 28 companies were identified and 26 of which were evaluated in StageII based on core competences & performance indices with a scoring tool to arrive at a shortlist of 11 candidates. Thereafter these 11 were reviewed for attributes excluded by thescoring tool, e.g., network, competitive products or interests, etc. in passing Gate III priorto a due diligence offer in Stage III and eventual negotiation and contractual finalization.This paper does not concern itself with the results of Stage III. Page 28
  • 42. Figure 5 – Stage-gate model for partner selection Stage I In-house S1P1 agonist Stage program or II MS blockbuster Stage III Top ten All potential pharmaceutical Approach firms Selected pharmaceutical with due diligence partners partners offer Top ten biopharmaceutical firms Gate III Gate II Gate ISource: Wheelwright and Clark 1992, Revolutionizing Product Development, The Free Press, NY 1992 Page 29
  • 43. RESULTSGate IGate I delivered 26 potential candidates, 19 of which based on annual revenues are depictedin Table V. Additionally 6 companies which are active in the field of S1Px agonists wereidentified: Bristol-Myer Squibb, Almirall SA, Arena Pharmaceuticals Inc, Receptos Inc,Daiichi Sankyo Co Inc, and Ono Pharmaceuticals Co Inc. Marketing Copaxone® ablockbuster in MS, Teva Pharmaceutical Industries Ltd was also added to the list. Page 30
  • 44. Table V – Top 10 pharmaceutical and biotech firms in 2010 Pharmaceutical Biotech 2010 2010 Company Annual Company Annual revenues revenues (bio USD) (bio USD) 67.8 56.3 61.6 15.1 50.7 13.4 * 50.6 12.8 46.2 11.7 45.9 4.9˚ 43.6 4.7˚ 35.2 4.7 33.3 4.1 † 23.1 0.5 ° Merck Serono is a division of Merck KGaA * CSL annual revenues declared from Jun09-Jun10 † Genzyme Corporation was purchased by Sanofi-Aventis in Apr11Source: Contract Pharma for Pharmaceutical and Biopharmaceutical Contract Servicing & Outsourcing report July 2010, individualannual reports Page 31
  • 45. Gate IIScoring toolIn order to efficiently screen and award potential partners points appropriate to desiredstrengths & capacities, data was gleaned from 2010 annual reports, SEC filings, websites,WO patent search, and the FDA website: www.clinicaltrials.gov. Attributes were dividedinto 6 categories: research, clinical development, marketing & sales, resources, growth &resiliency and productivity. All fiscal units are reported in USD (May 2011).ResearchAs the most highly guarded resource of any pharmaceutical firm, efforts to evaluateresearch pipelines from publically available information are hindered by protective self-interests of the firm itself. However SEC filings and most annual reports list the R&Dspend and comparison of the absolute values yields insight into the scale of R&D activities.Although Actelion is not searching for a research partner it would still benefit from theknowledge of a partner acquainted with the development of S1Px agonists, and so theresults of the WO patent search are added in an unweighted fashion to attribute more valueto those candidates which have filed WO patents in the field. Page 32
  • 46. Clinical developmentR&D spends include the funds used to support on-going clinical development efforts and soare inseparable for similar comparison however the FDA website proves a reliablerepository of clinical activity. Sponsors are encouraged to list on-going trials by the factthat reputable journals, e.g., New England Journal of Medicine, Nature, Science, etc.,refuse to publish articles related to trials that were not listed on the FDA website prior todatabase closure. Searches were made by sponsor, phase and therapeutic area where theraw results by phase were given a weighted score and those which were relevant to MS, Ps,PsA, RA, UC, CD, AS or JIA were listed separately to attribute more value to activity inthese indications. Additional points were awarded for compounds which had successfullysubmitted authorization packages to health authorities and for any S1P1 compound at anystage of clinical development.Marketing & SalesPhase IV trials are post-marketing efforts to better understand the full capacity of a producteither within a licensed indication or as an effort to expand its therapeutic potential acrossnew indications. These were scored in a similar manner as Phase I-III trials under ClinicalDevelopment. Each marketed product in the autoimmune disorders of interest orblockbuster in any indication was awarded an individual unweighted score to allow for thisexceptional and fortunate circumstance to outweigh multiple efforts of much smallermagnitude and relevance to the task at hand. In an effort to gauge and compare theeconomies of scope and scale a candidate had to offer, the number of affiliates & Page 33
  • 47. subsidiaries, costs of sales and costs of marketing, selling & administration were givenscores based on magnitude. Lastly as many of the large pharmaceutical firms manufactureand market non-pharmaceuticals, e.g., commercial health care products, diagnostics,vaccines, etc., the proportion of pharmaceutical sales was given an ascending weightedvalue.ResourcesAnnual revenues, net income, cash & cash equivalents and the number of employeesrepresent capital and resources required for a successful collaboration. These attributeswere scored and recorded.Growth & ResiliencyThe equity markets of the world are another independent manner in which to gauge andcompare both the material success of a firm as well as continued investor confidence. Theglobal economic crisis of 2008/2009 erased billions of USD from balance sheets ofgovernments, industry champions and private investors alike. Where available subtractingthe stock price of Jan07 when markets were at a peak from Jan11 two years following theaftermath has been done in an effort to establish a value reflective of resiliency andpotential continued growth in terms of investor confidence. Page 34
  • 48. Productivity4 indices have been used in an attempt to evaluate the productivity of a potential candidateand allow for a fair comparison irrespective of the absolute values. Dividing the annualrevenues by the number of employees reveals the productivity of the work force in terms ofcapital gains. Similarly dividing the net income by the annual revenue establishes aprofitability index. Lastly an inversely proportional score was awarded to the indiceswhich divided the cost of sales and cost of manufacturing, selling & administration by theannual revenues so that those firms with lower proportional costs gained higher scores.Two different scoring matrices were established; one for large pharmaceutical firms andone for biotechs & others as witnessed in Tables VI & VII. Actelion was evaluated witheach matrix and then the values of all companies evaluated in each grouping were plottedon a single graph. Those companies whose aggregate score was significantly higher thanActelion’s were then considered candidates for due diligence a process by which bothparties agree to granting mutual unrestrained access to all knowledge, processes andactivities potentially affected by a partnering agreement. Page 35
  • 49. Table VI – Scoring tool valuations for large pharmaceutical firms Pharmaceuticals Attribute Absolute value R&D spend ≥ 10 bio USD 7.5 - 9.9 bio USD 6.5 - 7.4 bio USD 5 - 6.4 bio USD < 5 bio USD Development compounds per phase ≥ 40 30 - 39 20 - 29 11 - 19 < 10 Clinical trials (historical & ongoing) ≥ 600 450 - 599 300 - 449 150 - 299 < 150 Number of affiliates & subsidiaries ≥ 250 200 - 249 151 - 199 100 - 150 < 100 Cost of sales ≥ 18 bio USD 15 - 17.9 bio USD 10 - 14.9 bio USD 4 - 9.9 bio USD < 4 bio USD Cost of marketing, selling & administrative ≥ 18 bio USD 15 - 17.9 bio USD 10 - 14.9 bio USD 4 - 9.9 bio USD < 4 bio USD Annual revenues ≥ 65 bio USD 55 - 64.9 bio USD 45 - 54.9 bio USD 35 - 44.9 bio USD < 35 bio USD Net income ≥ 12 bio USD 9 - 11.9 bio USD 6.5 - 8.9 bio USD 4 - 6.4 bio USD < 4 bio USD Cash & cash equivalents ≥ 18 bio USD 13 - 17.9 bio USD 8 -12.9 bio USD 3 - 7.9 bio USD < 3 bio USD Number of employees ≥ 100,000 80,000 - 99,000 60,000 - 79,999 40,000 - 59,999 < 40,000 Annual revenues/number of employees ≥ 1,000,000 750,000 - 999,000 500,000 - 749,999 250,000 - 499,999 < 250,000 Scoring tool value 5 4 3 2 1Table VII – Scoring tool valuations for biotechs & others Biotech & others Attribute Absolute value R&D spend ≥ 2 bio USD 1.25 - 1.9 bio USD 600 mio - 1.24 bio USD 100 mio - 599 mio USD < 100 mio USD Development compounds per phase ≥ 20 20 - 15 10 - 14 5-9 <5 Clinical trials (historical & ongoing) ≥400 300 - 399 150 - 299 10 - 149 <10 Number of affiliates & subsidiaries ≥100 75 - 99 50 - 74 25 - 49 < 25 Cost of sales ≥ 5 bio USD 3 - 4.9 bio USD 1.5 - 2.9 bio USD 500 mio - 1.5 bio USD <500 mio USD Cost of marketing, selling & administrative ≥ 5 bio USD 3 - 4.9 bio USD 1.5 - 2.9 bio USD 500 mio - 1.5 bio USD <500 mio USD Annual revenues ≥ 15 bio USD 10 - 14.9 bio USD 5 - 9.9 bio USD 1 - 4.9 bio USD <1 bio USD Net income ≥ 4 bio USD 3 - 3.9 bio USD 2 -2.9 bio USD 1 - 1.9 bio USD < 1 bio USD Cash & cash equivalents ≥ 3 bio USD 2 - 2.9 bio USD 1 - 1.9 bio USD 500 mio - 900 mio USD < 500 mio USD Number of employees ≥50,000 35,000 - 49,000 20,000 - 34,999 10,000 - 19,999 < 10,000 Annual revenues/number of employees ≥ 800,000 500,000 - 799,000 250,000 - 499,999 100,000 - 249,000 < 100,000 Scoring tool value 5 4 3 2 1Gate II reduced the list from these 26 to a short list of 11: Pfizer Corp, Bayer Schering AG,Novartis Pharma AG, Abbot Laboratories Inc, Bristol-Myer Squibb, F. Hoffmann-LaRoche Ltd, Amgen Inc, Merck KGaA, Novonordisk A/S, Biogen IDEC Inc, TevaPharmaceutical Industries Ltd illustrated in Figures 6 & 7. Detailed results can be found inAppendices I & II. Page 36
  • 50. Figure 6 – Cross comparison with large pharmaceutical firms 250 200 150 Productivity Growth & Resiliency Resources 100 Marketing & Sales Clinical Development Research 50 0 ‐50 Page 37
  • 51. Figure 7 – Cross comparison with biotechs & others 250 200 150 Productivity Growth & Resiliency Resources 100 Marketing & Sales Clinical Development Research 50 0 ‐50 Page 38
  • 52. Candidate profilingFigure 8 – Pfizer scoring results 120 100 80 Research 60 Clinical development Marketing & Sales Resources 40 Growth & Resiliency Productivity 20 0 ‐20 US based Founded in 1849 Merged with Wyeth, former division of American Home Products Corp. (2009) Merged with King Pharmaceuticals, Inc. (2010) 110,600 employees Key overlap marketed products Enbrel® RA, JRA, PsA, Ps, AS (Amgen collaboration) Revatio® PAH Key overlap development compounds tasocitinib (CP-690550) RA Divisions Biopharmaceutical, Diversified Page 39
  • 53. Figure 9 – Bayer Schering scoring results 40 35 30 25 Research Clinical development Marketing & Sales 20 Resources Growth & Resiliency Productivity 15 10 5 0 Germany based Founded in 1863 111,400 employees Acquired (2010) Key overlap marketed products Betaseron® (interferon β-1b) CIS, RMS Key overlap development compounds Alemtazumab (Anti CD50) Phase III MS Riociguat (sGC stimulator) Phase III PAH Divisions HealthCare, Crop Science, Material Science Page 40
  • 54. Figure 10 – Novartis scoring results 100 80 60 Research Clinical development Marketing & Sales 40 Resources Growth & Resiliency Productivity 20 0 ‐20 Switzerland based Founded in 1996 by merger of CIBA Geigy & Sandoz Merged with Alcon, Inc. (2010) 119,418 employees Key overlap marketed products Gilenya® RMS Key overlap development compounds Gilenya® Phase III PPMS BAF312, Phase II, MS & Polymyositis Dermatomyositis Linked to Roche via Lucentis/Xolair Genentech, holds 33.3% of outstanding shares in Roche holding Divisions Pharmaceuticals, Vaccines & Diagnostics, Sandoz, Consumer Health, Alcon Page 41
  • 55. Figure 11 – Abbott scoring results 100 90 80 70 60 Research Clinical development 50 Marketing & Sales Resources Growth & Resiliency 40 Productivity 30 20 10 0 US based Founded in 1888 Merged with Solvay S.A. in 2009 90,000 employees Key overlap marketed products Humira® (adalimumab) RA, PsA, Ps, CD, UC, AS, JIA Divisions Pharmaceuticals, Nutritional Products, Medical Devices, Diagnostics Page 42
  • 56. Figure12 – Bristol-Myers Squibb scoring results 70 60 50 40 Research Clinical development Marketing & Sales Resources 30 Growth & Resiliency Productivity 20 10 0 US based Founded in 1989 by merger of Bristol-Myers and Squibb Corporations 27,000 employees Acquired Medarex, Inc (2009) Acquired ZymoGenetics, Inc (2010) Key overlap marketed products Orencia® (abatacept) RA Alliances with Sanofi (Avapro/Avalide® hypertension, diabetic nephropathy), Otsuka (Abilify® antipsychotic), Gilead (Sustiva® HIV) Page 43
  • 57. Figure 13 – Roche scoring results Page 44
  • 58. Figure 14 – Amgen scoring results 100 80 60 Research 40 Clinical development Marketing & Sales Resources Growth & Resiliency 20 Productivity 0 ‐20 ‐40 France based Founded in 1980 17,400 employees Key overlap marketed products Enbrel® (etanercept) RA, PsA, Ps, AS, JIA (co-marketed with Pfizer) Kineret® (anakinra) RA Key overlap development compounds Denosumab (monoclonal antibody) RA Page 45
  • 59. Figure 15 – Merck KGaA scoring results 50 40 30 Research Clinical development 20 Marketing & Sales Resources Growth & Resiliency Productivity 10 0 ‐10 Switzerland based Founded in 2004 by merger of Merck KGaA and Serono SA 40,562 employees Key overlap marketed products Rebif® (interferon β-1a) CIS, RMS Raptiva® (efalizumab) Ps (co-marketed with Roche) Key overlap development compounds Mylinax® (cladribine) Phase III CIS, RMS Divisions Merck Serono, Pharmaceuticals, Chemicals, Laboratory, Corporate & other Page 46
  • 60. Figure 16 – Novo Nordisk scoring results 60 50 40 Research Clinical development 30 Marketing & Sales Resources Growth & Resiliency Productivity 20 10 0 Denmark based Founded in 1989 by merger of Novo Industri A/S and Nordisk Gentofte A/S 30,483 employees Key overlap development compounds 4 monoclonal antibodies, Phase I/IIa RA Divisions Diabetes Care, Biopharmaceuticals Page 47
  • 61. Figure17 – Biogen IDEC scoring results 60 50 40 Research Clinical development 30 Marketing & Sales Resources Growth & Resiliency 20 Productivity 10 0 US based Founded in 2003 by merger of Biogen and IDEC 4,850 employees Key overlap marketed products Avonex® (interferon β-1a) CIS, RMS Tysabri® (natalizumab) RMS, CD, PPMS (off-label) (co-marketed with Elan) Rituxan® (rituximab) RA, MS (off-label) (co-developed/marketed with Roche) Amevive® (alefacept) Ps BG-12 (dimethyl fumarate) Ps Key overlap development compounds Ocrelizumab Phase III RMS (co-developed with Roche) Fampridine Phase III RMS Pegylated Interferon β-1ab Phase III RMS BG-12 (dimethyl fumarate) Phase III RMS Daclizumab Phase III MS Anti-Lingo antibody Phase I MS Baminercept (LTßR-Ig) Phase I MS, failure in RA Dexpramipexole Phase II ALS (co-developed with Knopp Neuroesciences, Inc.) Page 48
  • 62. Figure 18 – Teva scoring results 45 40 35 30 Research 25 Clinical development Marketing & Sales Resources 20 Growth & Resiliency Productivity 15 10 5 0 Israel based Founded in 1944 39,660 employees Acquired Laboratoire Théramex (2010) Key overlap marketed products Copaxone® (Glatiramer Acetate) CIS, RMS Key overlap development compounds Laquinimod (α-4 integrin antagonist) Phase III MS, Phase II CD Copaxone® (Glatiramer Acetate) Phase II CD TLOII Phase II RA Page 49
  • 63. Gate IIIRisk AssessmentPESTLGillespie (2007) introduces the PESTEL analysis as a widely accepted risk assessment toolwhich splits possible risks into 6 categories: political, economic, social, technological,environmental, and legal. Actelion operates exclusively within the pharmaceutical industryand therefore any collaboration should be viewed in light of these risks the industry as awhole faces in addition to those specific to each possible collaboration.PoliticalThe largest political risk to the pharmaceutical industry or any alliance would be a changein governmental practices which incentivize & reward successful drug development. Therecent actions by the US government to reform health care insurance & re-imbursementpolicies in the wake of the world economic crisis highlight first the immediaterepercussions, second particular exposure of the pharmaceutical industry to the politicalenvironment and third the possibility that the ever increasing growth in profits within thepharmaceutical industry may have peaked. Although not all governments provide publichealth care programs, lobbyists from private insurers will continue to hold sway withgovernments around the globe.Governmental health authorities, e.g., FDA, EMA, etc., also regulate the framework fordevelopment and manufacture of new compounds and provide specific guidance in the way Page 50
  • 64. of International Conference on Harmonisation of Technical Requirements for Registrationof Pharmaceuticals for Human Use (ICH) guidelines which seek to provide harmonizedinternational standards. As penultimate guidance strict accordance with these guidelines ona case by case basis often requires dialog between the pharmaceutical industry and healthauthorities at joint meetings throughout development.Lastly barriers to trade, e.g., tarrifs, import procedures, etc., have been greatly reduced inthe last three decades, however re-introduction as a result of unexpected, protective tradewars could sincerely disturb the manufacture, distribution and sales units of anypharmaceutical firm.EconomicGiven the rising development costs and ever higher prices new products are commanding,the economic risk facing the pharmaceutical industry is considerable. A sustainedeconomic downturn which left patients and private & public insurers unable to purchasehigh priced medicines would be detrimental to the industry as a whole. Eligible partnerswith the cash reserves to withstand a second recession would be desirable.SocialThe etiology of autoimmune disorders is not well understood however many speculate thatthe rise in incidence which the National Institutes of Health (2009) presented to the USCongress correlates to a reduction in the general health of the population in the developedworld consequent to the unprecedented economic growth experienced since 1970. Obesity Page 51
  • 65. and autoimmune disorders specifically are on the rise; with respect to obesity Sefer Natanand Ehrenfeld (2009) have shown that the paediatric population’s health has suffered inrelation to the lifestyle options now available. Were social changes beneficial to its generalhealth to prove effective in reducing rates of autoimmune diseases, the NPV of any producttargeting autoimmune disorders would suffer along with the collaboration supporting it.TechnologicalPersonalized medicine, proteomics, and genomics all present the pharmaceutical industrywith the next possible Schumpeterian revolution in that at present development assumes auniversal dosage per patient with few exceptions for up-/down-titration based on efficacy &safety signals. These innovative approaches hold the potential of disrupting future marketsin a revolutionary manner similar to that experienced following the introduction ofrecombinant DNA technologies in the1970s. Research efforts by any potential partnerwould be advantageous.EnvironmentalThe apparent increase in the number and intensity of tropical storms driven by risingatmospheric temperatures may affect the manufacture, distribution and sales ofpharmaceutical goods worldwide. However this effect would be normalized over the entiresector and should not effect the selection of an appropriate partner. Page 52
  • 66. LegalThe largest legal risks the pharmaceutical industry faces would be a changes in patent lawor law regulating fare trade within the market. Radical change would undermine themanner in which business is conducted to these stalwarts can be considered minimal.However with reference to partnering in particular, several parties previously identified inStage II face lawsuits over IP rights to key products and any alliance could be negativelyaffected.Geographic risksAlthough geographic location of a potential partner for co-development and co-marketingof an S1P1 agonist in autoimmune disorders would be expected to play a minimal role whenreviewing largely international pharmaceutical firms operating in the developed worldwhere trade barriers have been actively reduced in the past 30 years and ICH guidelinesattempt harmonizing development requirements, it is worth noting that the largestproportion of partnerships occur between firms registered in North America andfurthermore the growth of alliances between North American and European partners hasnot significantly increased between the years of 1980 and 1998 as depicted in Figures 19 &20 beneath. Page 53
  • 67. Figure 19 – Distribution of R&D partnerships, economic regions (1960-1980)Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960p.488 Page 54
  • 68. Figure 20 – Distribution of R&D partnerships, economic regions split by decade 1960-1969 1970-1979 1980-1989 1990-1998Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960p.489 Page 55
  • 69. Long term risksThe patent life of ponesimod runs through 2028 and any collaboration should be viewedfrom this perspective as well. Although predicting specific risks 15+ years into the futuremay be an exercise in futility, scenario planning allows any partnering proposal to beconsidered in light of unexpected changes in the contextual environment outside of thetransactional environment previously reviewed over this long time span. Two plausibleoutcomes are posited beneath.The US market alone represents sales largely of the same magnitude as those of Europe,Canada and Japan combined although the US population only represents ~30% of thecombined population of the others. The economic recovery in the US was highlydependent upon the Federal Reserve reducing interest rates and extending emergencycapital reserves at a time of extreme need. Continued economic stability is reliant uponrestoring federal revenues and encouraging fiscal responsibility upon private institutionsincluding households. However it is distinctly possible that in a time when the USGovernment (2011) reports a debt currently over 90% of annual Gross Domestic Product(GDP) and predicted to breach 100% in 2011, that these reserves will not be available inthe event of a double-dip recession. Such an occurrence would detrimentally affect the USmarket and the revenues accrued by the pharmaceutical industry.International trade is bound to be affected by the growth in Brazil, Russia, India and Chinablock (BRIC). As these countries continue to expand and develop stable middle classes Page 56
  • 70. health care expenditure will rise alongside. Growth and eventual dependence upon modernpharmaceuticals in these markets may help to offset the inordinate reliance upon the USmarket as a source of revenues.A partner with a diversified pipeline and operationally active in BRIC would help to hedgeagainst the undue exposure to the US market and maximize a potential positive outcome ofcontinued global economic growth.Connection highwayKnowledge in the form of IP, pre-clinical investigations, clinical relevance & applications,manufacture, regulatory interactions, marketing prowess, processes and even IT itself iscentral to the pharmaceutical industry and any partnership will involve the exchange ofsuch knowledge in a joint effort to capitalize on a larger body of knowledge and resourcesunder the competitive pressure of the market; networks in the pharmaceutical industry arein fact networks of knowledge. Galambos (1998) makes specific mention of the need for“scientific leaders with diplomatic skills and links to the relevant networks that wouldenable building the teams and productive programs necessary to sustain biotech R&D overthe long term” driving the search for partners.Roijakkers & Hagedoorn (2006) demonstrate that the intensity of partnerships betweenlarge pharmaceutical firms and a growing number of biotechs has nevertheless rapidlyincreased since 1975 and that the network dynamics are fluid as depicted in Figures VIII, Page 57
  • 71. IX, X, XI & XII (also reproduced in Appendix III for the sake of legibility). This is dueprimary to two factors: new technological advances are many yet at the moment ofinception the IP is held in the hands of a few and the magnitude of the annual revenues ainnovative product which effectively meets present unmet medical needs is expected toyield.Figure VIII –R&D partnerships in pharmaceutical biotechnology 1975-1979Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.436 Page 58
  • 72. Figure IX –R&D partnerships in pharmaceutical biotechnology 1980-1984Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.437 Page 59
  • 73. Figure X –R&D partnerships in pharmaceutical biotechnology 1985-1989Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.438 Page 60
  • 74. Figure XI –R&D partnerships in pharmaceutical biotechnology 1990-1994Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.439 Page 61
  • 75. Figure XII –R&D partnerships in pharmaceutical biotechnology 1995-1999Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.440The undeniable trend held within these diagrams is that the power of alliances has beenunleashed over the past 3 decades due to the ability to quantify and limit the risk ofexposure and simultaneously reduce the cost of breaking an alliance should either thecompound fail in the course of development or larger corporate pipeline & partneringstrategy re-evaluations result in the need to break ties and promises.However inherent to the risk of embarking on a closer co-operation with a partner is theloss of competitive advantage in terms of trade secrets to its other parnters. An example ofwhich would be the present collaboration between Roche and Biogen-IDEC to develop Page 62
  • 76. ocrelizumab in MS whereby any collaboration with either partner bears the inherent risk ofindirectly cross-fertilizing the other’s programs in direct conflict with the terms of anypartnering agreement.Furthermore when considering that the community of patients, physicians, and researchexperts in the autoimmune arena remains relatively small and tight-knit due to lowerprevalence rates, networks of KOLs, prescribers and payors will necessarily overlap withthose of competitors. A point for due diligence would be to assess the relative depth andbreadth of the connections a potential candidate has established. Page 63
  • 77. DISCUSSIONFollowing Gates I and II the cumbersome number of registered and largely unsuitablepotential partners was successfully reduced to 26 and 11 respectively. The results of GateIII are discussed beneath.Pfizer is based in the US and unquestionably the dominant pharmaceutical firm as of 2010,with higher scores predominantly due to marketing prowess in association with itscollaboration with Amgen to market Enbrel®, however positive results with a JAK-3inhibitor tofacitinib in RA announce it’s own intention to enter the autoimmune marketwith an oral agent (Pfizer 2011). Furthermore it is highly dependent upon the sales ofLipitor® which accrued 11.2 bio USD in 2010 and will lose US patent protection in June2011 ( Pfizer 2011).Based in Germany, Bayer Schering is active in the MS market with both Betaseron® whichhas successfully maintained its value due to a co-marketing agreement with Novartis to sellthe generic form at only a 20% discount and alemtazumab which is co-development withSanofi. Furthermore Bayer Schering is active in the PAH market which is central toActelion’s profitability and could provide a source of future positive synergy as itsmarketed products can be viewed as complimentary to Tracleer® and Actelion’s pipeline. Page 64
  • 78. With headquarters located in Switzerland, Novartis has developed and now markets thefirst non-selective S1P1 agonist, Gilenya®, in MS and has a dual S1P1,5 agonist BAF312 inPhase II MS trials providing direct competition to Actelion’s ponesimod.US based Abbott has developed and marketed Humira® in six autoimmune indications andhas submitted marketing authorization dossier for UC as a seventh indication (Abbott2011). Furthermore it has an S1P1 program in Phase I well behind ponesimod andHumira® faces direct competition from Pfizer’s oral tofacitinib in RA.Bristol-Myers Squibb, a US interest, has a high score for clinical development andpossesses an S1P1 agonist program in Phase 0 however is not active in the marketing ofproducts for autoimmune disorders. However as a partner with minimal competitiveinterests and large reserves of capital, it remains an interesting candidate.Roche another Swiss based company would be an ideal partner across many of the desiredparameters, however not only does it have ocrelizumab, a competitive product in Phase IIMS development, it was Actelion’s first partner in 2005. After paying 105 million Swissfrancs in a 75 million Swiss franc up-front payment and another 30 million Swiss francs infurther milestone payments associated with clinical development programs in MS and Ps,Roche opted to terminate the alliance in 04Q09 based on a re-evaluation of its own pipelineand investment strategies following the Genentech merger earlier that year. Page 65
  • 79. US based Amgen also has no competitive development products in MS or psoriasis whereActelion’s ponesimod is now currently studied in Phase II. It does have extensivemarketing capabilities in psoriasis with the sales of Enbrel®.Merck KGaA situated in Germany markets Rebif® in MS and has suffered the rejection ofthe Mylinax® authorization applications. It has an S1P1 agonist program far behind that ofActelion’s and no other development programs in other autoimmune disorders.The Danish Novonordisk relies heavily on the sales of diagnostics and hormonal therapiesfor diabetes which account for ~75% of annual revenues. It has no experience inautoimmune disorders including MS and psoriasis nor does it have an S1P1 agonistprogram.Biogen IDEC a US biotech markets Avonex®, Tysabri®, and Rituxan® and is heavilyreliant on these MS therapies however its market presence cannot be underestimated. Itcurrently markets BG-12 an oral agent for psoriasis and has published positive Phase IIIdata with BG-12 in MS. Biogen IDEC is co-developing ocrelizumab in MS with Rochethereby greatly reducing the risks associated with knowledge seepage as Roche was alreadyprivy to Actelion’s S1P1 agonist program.The Isreali based Teva markets Copaxone® in MS, has published positive Phase III MSresults with laquinimod a competitive oral therapy and is exploring the use of both agentsin Phase II CD trials. Although its marketing prowess is limited to MS and generics Page 66
  • 80. laquinimod’s recent success speaks in favor of Teva’s recent expansion out of the genericsmarket to explore & develop innovative in-house compounds.The selection process in Stage II was based on the arbitrary decision that cumulative pointssignificantly higher than those represented by Actelion correctly identified suitablecandidates and could have missed key opportunities. Accounting for possible eliminationerrors Johnson & Johnson, Eli Lilly, AstraZeneca, Sanofi, GlaxoSmithKline and Alexiondeserve a second review. Johnson & Johnson although in possession of substantial cash &cash equivalents suffers from a distinct lack of relevant clinical development experience.Eli Lilly has extensive clinical development experience however as refelected in one of theworst growth & resiliency scores, investors lack confidence in its ability to overcome theloss of patent protection for some of its main revenue earning products. AstraZeneca isreasonably balanced across all variables however fails to show a distinctive advantage overActelion. Sanofi, although a good candidate, has purchased Genzyme Corporation in 2011and so will not likely be in the position to offer a high up-front payment. GlaxoSmithKlineis very close to Actelion and has an S1P1 agonist program with a candidate in Phase I. Asdemonstrated by Roijakkers and Hagedoorn (2005) previous relationships between partnersof unequal size and competence is positively correlated with future collaborations andtherefore it is proposed to add GlaxoSmithKline to the list of firms to be approached fordue diligence. Lastly Alexion approaches Actelion as a biotech candidate however drivingits higher score is a simply a rising stock price and not related to the core competencesActelion currently desires. Page 67
  • 81. This paper suggests balancing the risks reviewed with a selection of both largepharmaceutical firms and smaller biotechs located in differing geographic blocs. The largemajority of these candidates should have experience in the autoimmune arena, specificallyMS and Ps as these represent ponesimod’s most advanced development destinations andpose no direct competitive risk to ponesimod’s continued development in these indications.An interesting point would be the identification of Almirall, Arena and Receptos aspossible M&A targets for Actelion.Gate III left 6 potential candidates based in the US, Europe and Israel for possible duediligence: Bayer Schering AG, Abbott Laboratories Inc, Bristol-Myers Squibb, AmgenInc, Merck KGaA, Biogen IDEC Inc, Teva Pharmaceutical Industries Ltd., andGlaxoSmithKline plc. Page 68
  • 82. CONCLUSIONSBloomber (2011) recently published Actelion’s CEO stating that the future of the companyis to remain independent. This is highly dependent upon the success of multiple in-housedevelopment programs including the S1P1 agonists, prior to the expiry of marketexclusivity for Tracleer® in 2015. A diversified licensing strategy representing both in-and out-licensing across multiple partners of varying size and competences can assist inhedging against take over bids from either a partner in successful alliances attempting toreduce liabilities of long-term royalty payments with an immediate purchase andintegration or an external interest seeking to compliment a pipeline or product portfolio in acost effective manner. Actelion currently enjoys alliances with Merck & Co. Inc,GlaxoSmithKline plc, Nippon Shinyako Co Ltd and Trophos SA on the rennin inhibitor,orexin antagonist, oral PGI2 and olesoxime development programs respectively.This paper has produced a robust two-fold partnering strategy and suggests entering intodue diligence proceedings with 6 candidates representing a collection of largepharmaceutical firms and biotechs which are geographically separate and have successfullylaunched products within the autoimmune market. The candidates also generally meet ahigher standard than Actelion in terms of cumulative reserves, potential for growth,resiliency & productivity. This choice hedges against the potential risks reviewed howeverin the absence of a due diligence process, no further advice can be made; risks andopportunities emergent from the eventual due diligence process will require furtherassessment and contractual negotiations to be minimized and maximized respectively. Page 69
  • 83. Specifically the due diligence process will allow the assumptions in the model to bevalidated and a better understanding of the 4th competence and network potential of eachcandidate to be evaluated.Actelion stands to gain not simply a partner however another step towards maintaining itsindependence. Pisano (1991) demonstrates that M&A is still on the rise and in light of therecent activity between Chiron:Novartis, Sanofi-Aventis:Genzyme, Pfizer:Wyeth,Abbott:Solvay, and Genentech:Roche unlikely to diminish in the future given the cash &cash equivalents and shrinking pipelines the large pharmaceutical firms possess. Thispaper proposes that Actelion entertain candidates from both sides of the post-Schumpeterian revolution with the proposal to offer these firms collaboration in anadvanced S1P1 agonist program in exchange for the core competences needed to fullymaximize the value of its assets and/or protect against an udesirable corporate takeover.The possibility of a larger incumbent eventually instigating a full merger following asuccessful co-development program to reduce the eventual contractually stipulated royaltypayments & profit sharing terms will need to be evaluated against the risk of failure with asmaller partner in an effort to reduce the risks associated with a loss of corporateindependence upon the results of the full due diligence process in the knowledge that onlyone partner can be selected and that it is impossible to hedge against all potential risks. Page 70
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  • 87. Appendix I – Large incumbent pharmaceutical firms Page 74
  • 88. Actelion Pharmaceuticals LtdFigure 26 - Actelion scoring results as a large pharmaceutical firm Competences Attribute Score Absolute values Number of filed S1P agonist patents 23 Research R&D spend 1 576 mio USD 24 Number of Phase I compounds in pipeline 1 1 Number of Phase I trials 1 1 Number of Phase II compounds in pipeline in all indications 1 6 Number of Phase II trials 1 1 Number of Phase II trials in MS 1 1 Number of Phase II trials in psoriasis 1 2 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 1 3 Number of Phase III trials 1 1 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 2 10 Number of Phase IV compounds in pipeline in all indications 2 11 Number of Phase IV trials 1 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 1 Number of affliates & subsidiaries 1 29 Cost of sales 1 238 mio USD Cost of marketing, selling & administrative 1 885 mio USD % of annual revenue earned from pharmaceutical sales 10 1 17 Annual revenue 1 2.3 bio USD Net income 1 465 mio USD Resources Cash & cash equivalents 1 1.4 bio USD Number of employees 1 2441 4 Growth & Resiliency Jan11 stock price minus Jan07 stock price 26 (58) (32) 26 Annual revenue/number of employees 4 942237 Net income/annual revenue 2 0.20 Productivity Cost of sales/annual revenue 9 0.10 Cost of marketing, selling & administrative/annual revenue 6 0.38 21.13 30 25 20 Research Clinical development Marekting & Sales 15 Resources Growth & Resiliency Productivity 10 5 0 Page 75
  • 89. Pfizer IncFigure 27 – Pfizer complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 2 Research R&D spend 4 9.4 bio USD 6 Number of Phase I compounds in pipeline 5 49 Number of Phase I trials 4 689 Number of Phase II compounds in pipeline in all indications 4 35 Number of Phase II trials 4 474 Number of Phase II trials in MS 1 Number of Phase II trials in psoriasis 3 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 12 Clinical development Number of Phase III compounds in pipeline in all indications 3 25 Number of Phase III trials 5 601 Number of Phase III trials in MS 2 Number of Phase III trials in psoriasis 8 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 28 Number of compounds under regulatory review 9 Number of S1P agonists in clinical development 0 88 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 4 492 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 13 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 48 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 15 Number of affliates & subsidiaries 0 Cost of sales 4 16.3 bio USD Cost of marketing, selling & administrative 5 19.6 bio USD % of annual revenue earned from pharmaceutical sales 9 0.86 98 Annual revenue 5 67.8 bio USD Net income 4 8.3 bio USD Resources Cash & cash equivalents 1 1.74 bio USD Number of employees 5 110600 15 Growth & Resiliency Jan11 stock price minus Jan07 stock price -9 (16) (25) -9 Annual revenue/number of employees 3 613020 Net income/annual revenue 1 0.12 Productivity Cost of sales/annual revenue 8 0.24 Cost of marketing, selling & administrative/annual revenue 7 0.29 19 120 100 80 Research 60 Clinical development Marekting & Sales Resources 40 Growth & Resiliency Productivity 20 0 ‐20 Page 76
  • 90. Figure 28 - Johnson & Johnson overview 30 25 20 15 Research Clinical development Marketing & Sales 10 Resources Growth & Resiliency Productivity 5 0 ‐5 ‐10 US based Founded in 1886 114,000 employees Key overlap marketed products Remicade® RA, CD, UC, PsA, Ps, AS (co-marketed with Centocor Ortho Biotech, Merck & Co, Mitisubishi Tanabe Pharma) Stelara® (ustekinumab) Ps Simponi® (golimumab) RA, PsA, AS (co-marketed with Centocor Ortho Biotech) Divisions Consumer, Pharmaceutical and Medical Devices & Diagnostics Page 77
  • 91. Johnson & Johnson IncFigure 29 - Johnson & Johnson complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 3 6.8 bio USD 4.4 bio USD 3 Number of Phase I compounds in pipeline 0 Number of Phase I trials 1 141 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 1 124 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 3 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 2 249 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 3 Number of compounds under regulatory review 4 Number of S1P agonists in clinical development 0 14 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 50 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 1 Number of MS products marketed 0 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 2 Number of blockbusters (>1 bio revenues/annum) 7 Number of affliates & subsidiaries 5 >250 Cost of sales 5 18.8 bio USD Cost of marketing, selling & administrative 5 19.4 bio USD % of annual revenue earned from pharmaceutical sales 4 0.36 31 Annual revenue 4 61.6 bio USD 22.4 bio USD Net income 5 13.3 bio USD 7.1 bio USD Resources Cash & cash equivalents 5 19.4 bio USD Number of employees 5 114000 19 Growth & Resiliency Jan11 stock price minus Jan07 stock price -6 (62) (68) -6 Annual revenue/number of employees 3 540351 Net income/annual revenue 2 0.22 Productivity Cost of sales/annual revenue 7 0.31 Cost of marketing, selling & administrative/annual revenue 7 0.31 19 35 30 25 20 Research Clinical development 15 Marekting & Sales Resources 10 Growth & Resiliency Productivity 5 0 ‐5 ‐10 Page 78
  • 92. Bayer Schering Pharma AGFigure 30 - Bayer Schering complete scoring results HealtCare (pharmaceuticals only) Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 1 4.4 bio USD 2.5 bio USD 1 Number of Phase I compounds in pipeline 0 Number of Phase I trials 3 161 Number of Phase II compounds in pipeline in all indications Number of Phase II trials 5 285 Number of Phase II trials in MS 6 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 2 13 Number of Phase III trials 4 234 Number of Phase III trials in MS 8 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 6 Number of S1P agonists in clinical development 0 34 Number of Phase IV compounds in pipeline in all indications 2 11 Number of Phase IV trials 2 112 Number of Phase IV trials in MS 5 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 4 Number of affliates & subsidiaries 5 297 Cost of sales 5 24.7 bio Cost of marketing, selling & administrative 3 12.7 bio % of annual revenue earned from pharmaceutical sales 3 0.31 29 Annual revenue 3 50.7 bio USD 15.8 bio USD Net income 1 1.9 bio USD Resources Cash & cash equivalents 2 3.9 bio USD Number of employees 5 111400 38000 11 Growth & Resiliency Jan11 stock price minus Jan07 stock price 27 (79) (52) 27 Annual revenue/number of employees 2 455117 Net income/annual revenue 0 0.04 Productivity Cost of sales/annual revenue 5 0.49 Cost of marketing, selling & administrative/annual revenue 7 0.25 15 40 35 30 25 Research Clinical development Marekting & Sales 20 Resources Growth & Resiliency Productivity 15 10 5 0 Page 79
  • 93. Novartis Pharma AGFigure 31 - Novartis complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 24 Research R&D spend 4 9.1 bio USD 7.1 bio USD 28 Number of Phase I compounds in pipeline 0 Number of Phase I trials 2 253 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 4 487 Number of Phase II trials in MS 10 Number of Phase II trials in psoriasis 11 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 22 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 5 665 Number of Phase III trials in MS 13 Number of Phase III trials in psoriasis 3 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 10 Number of compounds under regulatory review 8 Number of S1P agonists in clinical development 2 90 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 3 335 Number of Phase IV trials in MS 2 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 1 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 7 Number of affliates & subsidiaries 4 229 Cost of sales 3 14.5 bio USD 5.4 bio USD Cost of marketing, selling & administrative 3 13.3 bio USD 8.7 bio USD % of annual revenue earned from pharmaceutical sales 6 0.60 29 Annual revenue 3 50.6 bio USD 30.7 bio USD Net income 4 9.9 bio USD 8.8 bio USD Resources Cash & cash equivalents 2 5.3 bio USD Number of employees 5 119418 58242 14 Growth & Resiliency Jan11 stock price minus Jan07 stock price -5 (54) (59) -5 Annual revenue/number of employees 2 423722 Net income/annual revenue 2 0.20 Productivity Cost of sales/annual revenue 7 0.29 Cost of marketing, selling & administrative/annual revenue 7 0.26 18 100 80 60 Research Clinical development Marekting & Sales 40 Resources Growth & Resiliency Productivity 20 0 ‐20 Page 80
  • 94. Figure 32 – GlaxoSmithKline overview Page 81
  • 95. GlaxoSmithKline plcFigure 33 - GlaxoSmithKline complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 20 Research R&D spend 2 6.4 bio USD 5 bio USD 22 Number of Phase I compounds in pipeline 4 34 Number of Phase I trials 1 19 Number of Phase II compounds in pipeline in all indications 5 53 Number of Phase II trials 1 34 Number of Phase II trials in MS 1 Number of Phase II trials in psoriasis 1 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 3 Clinical development Number of Phase III compounds in pipeline in all indications 4 37 Number of Phase III trials 1 31 Number of Phase III trials in MS 1 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 1 Number of compounds under regulatory review 10 Number of S1P agonists in clinical development 1 34 Number of Phase IV compounds in pipeline in all indications 3 22 Number of Phase IV trials 0 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 2 Number of affliates & subsidiaries 2 127 Cost of sales 2 7.4 bio USD Cost of marketing, selling & administrative 3 12.3 bio USD % of annual revenue earned from pharmaceutical sales 4 0.45 16 Annual revenue 3 46.2 bio USD 20.6 bio USD Net income 2 6.2 bio USD Resources Cash & cash equivalents 3 9.9 bio USD Number of employees 4 96461 13000 12 Growth & Resiliency Jan11 stock price minus Jan07 stock price -12 (40) (52) -12 Annual revenue/number of employees 2 483615 Net income/annual revenue 1 0.13 Productivity Cost of sales/annual revenue 8 0.16 Cost of marketing, selling & administrative/annual revenue 7 0.26 19 40 30 20 Research Clinical development Marekting & Sales 10 Resources Growth & Resiliency Productivity 0 ‐10 ‐20 Page 82
  • 96. Figure 34 - Merck & Co overview 30 25 20 15 Research Clinical development Marketing & Sales 10 Resources Growth & Resiliency Productivity 5 0 ‐5 ‐10 US based Founded in 1891 as a subsidiary of Merck KGaA Independent since 1917 Merged with Schering-Plough Corporation in 2009 94,000 employees Key overlap marketed products Simponi® RA, PsA, AS (co-marketed with Centocor Ortho Biotech Inc) Remicaide® (infliximab) Ps (co-marketed with Centocor Ortho Biotech Inc) Key overlap development compounds MK-3415A Phase III Clostridium difficile infection SCH 900222 Phase II Ps SCH 697243 & SCH 039641 Phase III Allergy Suvorexant Phase III Insomnia Page 83
  • 97. Merck & Company IncFigure 35 - Merck & Co complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 12 Research R&D spend 5 11 bio USD 17 Number of Phase I compounds in pipeline 0 Number of Phase I trials 2 276 Number of Phase II compounds in pipeline in all indications 2 17 Number of Phase II trials 2 223 Number of Phase II trials in MS 1 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 5 Clinical development Number of Phase III compounds in pipeline in all indications 2 19 Number of Phase III trials 3 436 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 1 Number of compounds under regulatory review 6 Number of S1P agonists in clinical development 0 24 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 75 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 1 Number of blockbusters (>1 bio revenues/annum) 9 Number of affliates & subsidiaries 0 Cost of sales 5 18.4 bio USD Cost of marketing, selling & administrative 3 13.2 bio USD % of annual revenue earned from pharmaceutical sales 9 0.87 29 Annual revenue 3 45.9 bio USD 39.8 bio USD Net income 1 982 mio USD 24 bio USD Resources Cash & cash equivalents 3 10.9 bio USD Number of employees 4 94000 11 Growth & Resiliency Jan11 stock price minus Jan07 stock price -5 (38) (43) -5 Annual revenue/number of employees 2 488298 Net income/annual revenue 0 0.02 Productivity Cost of sales/annual revenue 7 0.29 Cost of marketing, selling & administrative/annual revenue 6 0.40 15 35 30 25 20 Research Clinical development 15 Marekting & Sales Resources 10 Growth & Resiliency Productivity 5 0 ‐5 ‐10 Page 84
  • 98. Figure 36 – Sanofi overview 50 40 30 20 Research Clinical development Marketing & Sales 10 Resources Growth & Resiliency Productivity 0 ‐10 ‐20 ‐30 France based Founded in 2004 by merger of Aventis SA and Sanofi-Synthélabo Merged with Genzyme (2011) 101,575 employees Key overlap marketed products Copaxone® CIS, RMS (comarketed with Teva Pharmaceutical Industries Ltd) Cerezyme®, Type 1 Gaucher’s disease Key overlap development compounds Collaboration with Incyte Corp RA compound (2009) Divisions Pharmaceuticals, Human Vaccines Page 85
  • 99. Sanofi SAFigure 37 - Sanofi complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 1 Research R&D spend 2 6.3 bio USD 5.6 bio USD 3 Number of Phase I compounds in pipeline 3 21 Number of Phase I trials 1 80 Number of Phase II compounds in pipeline in all indications 2 11 Number of Phase II trials 2 263 Number of Phase II trials in MS 6 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 5 Clinical development Number of Phase III compounds in pipeline in all indications 1 7 Number of Phase III trials 3 444 Number of Phase III trials in MS 6 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 4 Number of compounds under regulatory review 5 Number of S1P agonists in clinical development 0 38 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 244 Number of Phase IV trials in MS 1 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 3 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 6 Number of affliates & subsidiaries 3 151 Cost of sales 3 12.5 bio USD 10.5 bio USD Cost of marketing, selling & administrative 3 10.9 bio USD 10 bio USD % of annual revenue earned from pharmaceutical sales 9 0.88 29.76146789 Annual revenue 2 43.6 bio USD 38.2 bio USD Net income 5 15.8 bio USD Resources Cash & cash equivalents 3 9.3 bio USD Number of employees 5 101575 16983 15 Growth & Resiliency Jan11 stock price minus Jan07 stock price -21 (63) (84) -21 Annual revenue/number of employees 2 429239 Net income/annual revenue 4 0.36 Productivity Cost of sales/annual revenue 7 0.29 Cost of marketing, selling & administrative/annual revenue 8 0.25 20 50 40 30 20 Research Clinical development Marekting & Sales 10 Resources Growth & Resiliency Productivity 0 ‐10 ‐20 ‐30 Page 86
  • 100. Abbott Laboratories IncFigure 38 - Abbott complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 7 Research R&D spend 1 3.7 bio USD 8 Number of Phase I compounds in pipeline 0 Number of Phase I trials 1 93 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 1 136 Number of Phase II trials in MS 1 Number of Phase II trials in psoriasis 8 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 9 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 2 196 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 18 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 53 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 1 94 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 63 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 2 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 9 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 1 Number of blockbusters (>1 bio revenues/annum) 3 Number of affliates & subsidiaries 5 200+ Cost of sales 3 14.7 bio USD Cost of marketing, selling & administrative 3 10.4 bio USD % of annual revenue earned from pharmaceutical sales 10 1 37 Annual revenue 3 35.2 bio USD Net income 3 4.6 bio USD Resources Cash & cash equivalents 2 3.6 bio USD Number of employees 4 90000 12 Growth & Resiliency Jan11 stock price minus Jan07 stock price 1 (47) (46) 1 Annual revenue/number of employees 3 391111 Net income/annual revenue 1 0.13 Productivity Cost of sales/annual revenue 6 0.42 Cost of marketing, selling & administrative/annual revenue 7 0.30 17 100 90 80 70 60 Research Clinical development 50 Marekting & Sales Resources Growth & Resiliency 40 Productivity 30 20 10 0 Page 87
  • 101. Figure 39 - AstraZeneca overview 40 35 30 25 20 Research 15 Clinical development Marketing & Sales Resources 10 Growth & Resiliency Productivity 5 0 ‐5 ‐10 ‐15 UK based Founded in 1999 by merger of Astra AB and Zeneca Group plc 61,000 employees Acquired Novexel SA (2010) Key overlap marketed products Enbrel® RA, PsA, Ps, CD, UC, AS, JIA Page 88
  • 102. AstraZeneca plcFigure 40 - AstraZeneca complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 0 Research R&D spend 2 5.3 bio USD 2 Number of Phase I compounds in pipeline 4 34 Number of Phase I trials 3 391 Number of Phase II compounds in pipeline in all indications 4 32 Number of Phase II trials 2 241 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 7 Clinical development Number of Phase III compounds in pipeline in all indications 1 9 Number of Phase III trials 3 313 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 5 Number of compounds under regulatory review 4 Number of S1P agonists in clinical development 0 33 Number of Phase IV compounds in pipeline in all indications 2 17 Number of Phase IV trials 1 119 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 10 Number of affliates & subsidiaries 3 100+ Cost of sales 2 6.4 bio USD Cost of marketing, selling & administrative 3 10.5 bio USD % of annual revenue earned from pharmaceutical sales 10 1 31 Annual revenue 1 33.3 bio USD Net income 4 11.5 bio USD Resources Cash & cash equivalents 3 11.1 bio USD Number of employees 3 61000 11 Growth & Resiliency Jan11 stock price minus Jan07 stock price -9 (48) (57) -9 Annual revenue/number of employees 3 545902 Net income/annual revenue 3 0.35 Productivity Cost of sales/annual revenue 8 0.19 Cost of marketing, selling & administrative/annual revenue 7 0.32 21 40 35 30 25 20 Research 15 Clinical development Marekting & Sales Resources 10 Growth & Resiliency Productivity 5 0 ‐5 ‐10 ‐15 Page 89
  • 103. Figure 41 -Eli Lilly overview 50 40 30 20 Research Clinical development 10 Marketing & Sales Resources Growth & Resiliency 0 Productivity ‐10 ‐20 ‐30 US based Founded in 1876 38,350 employees Acquired ImClone in 2008 Acquired Avid in 2010 Acquired Alnara in 2010 Key overlap marketed products Orencia® RA Key co-development / co-marketing agreements Erbitux® BMS & Merck KGaA Necitumumab BMS Exenatide® Amylin Pharmaceuticals Inc. Cymbalta® Boehringer Ingelheim GmbH Effient® Daiichi Sankyo Company, Ltd Divisions Human Pharmaceuticals, Animal Health Page 90
  • 104. Eli Lilly and CompanyFigure 42 -Eli Lilly complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 0 Research R&D spend 1 4.9 bio USD 1 Number of Phase I compounds in pipeline 5 42 Number of Phase I trials 1 110 Number of Phase II compounds in pipeline in all indications 3 28 Number of Phase II trials 2 287 Number of Phase II trials in MS 4 Number of Phase II trials in psoriasis 2 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 7 Clinical development Number of Phase III compounds in pipeline in all indications 1 10 Number of Phase III trials 2 248 Number of Phase III trials in MS 4 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 4 Number of compounds under regulatory review 4 Number of S1P agonists in clinical development 0 39 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 131 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 9 Number of affliates & subsidiaries 2 130 Cost of sales 2 4.4 bio USD Cost of marketing, selling & administrative 2 7.1 bio USD % of annual revenue earned from pharmaceutical sales 10 1 26 Annual revenue 1 23.1 bio USD Net income 1 5.1 bio USD Resources Cash & cash equivalents 2 6 bio USD Number of employees 1 38350 5 Growth & Resiliency Jan11 stock price minus Jan07 stock price -19 (38) (57) -19 Annual revenue/number of employees 3 602347 Net income/annual revenue 2 0.22 Productivity Cost of sales/annual revenue 8 0.19 Cost of marketing, selling & administrative/annual revenue 7 0.31 20 50 40 30 20 Research Clinical development 10 Marekting & Sales Resources Growth & Resiliency 0 Productivity ‐10 ‐20 ‐30 Page 91
  • 105. Bristol-Myers SquibbFigure 43 - Bristol-Myers Squibb complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 5 Research R&D spend 1 3.6 bio USD 6 Number of Phase I compounds in pipeline 3 28 Number of Phase I trials 2 222 Number of Phase II compounds in pipeline in all indications 3 20 Number of Phase II trials 2 201 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 4 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 12 Clinical development Number of Phase III compounds in pipeline in all indications 1 6 Number of Phase III trials 2 170 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 23 Number of compounds under regulatory review 6 Number of S1P agonists in clinical development 0 58 Number of Phase IV compounds in pipeline in all indications 2 12 Number of Phase IV trials 1 33 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 1 Number of blockbusters (>1 bio revenues/annum) 5 Number of affliates & subsidiaries 3 187 Cost of sales 2 5.3 bio USD Cost of marketing, selling & administrative 1 3.7 bio USD % of annual revenue earned from pharmaceutical sales 10 1 25 Annual revenue 1 19.5 bio USD Net income 2 4.5 bio USD Resources Cash & cash equivalents 2 5 bio USD Number of employees 1 27000 6 Growth & Resiliency Jan11 stock price minus Jan07 stock price 1 (26) (25) 1 Annual revenue/number of employees 3 722222 Net income/annual revenue 2 0.23 Productivity Cost of sales/annual revenue 7 0.27 Cost of marketing, selling & administrative/annual revenue 8 0.19 21 70 60 50 40 Research Clinical development Marekting & Sales Resources 30 Growth & Resiliency Productivity 20 10 0 Page 92
  • 106. Appendix II – biotechs & others Page 93
  • 107. Actelion Pharmaceuticals LtdFigure 44 - Actelion scoring results as a biotech Competences Attribute Score Absolute values Number of filed S1P agonist patents 23 Research R&D spend 5 576 mio USD 28 Number of Phase I compounds in pipeline 1 1 Number of Phase I trials 1 1 Number of Phase II compounds in pipeline in all indications 2 6 Number of Phase II trials 1 1 Number of Phase II trials in MS 1 1 Number of Phase II trials in psoriasis 1 2 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 1 3 Number of Phase III trials 1 1 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 2 11 Number of Phase IV compounds in pipeline in all indications 3 11 Number of Phase IV trials 1 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 1 Number of affliates & subsidiaries 2 29 Cost of sales 1 238 mio USD Cost of marketing, selling & administrative 2 885 mio USD % of annual revenue earned from pharmaceutical sales 10 1 20 Annual revenue 2 2.3 bio USD Net income 1 465 mio USD Resources Cash & cash equivalents 3 1.4 bio USD Number of employees 1 2441 7 Growth & Resiliency Jan11 stock price minus Jan07 stock price 26 (58) (32) 26 Annual revenue/number of employees 5 942237 Net income/annual revenue 2 0.20 Productivity Cost of sales/annual revenue 9 0.10 Cost of marketing, selling & administrative/annual revenue 6 0.38 22 30 25 20 Research Clinical development Marekting & Sales 15 Resources Growth & Resiliency Productivity 10 5 0 Page 94
  • 108. F. Hoffmann-La Roche LtdFigure 45 - Roche complete scoring results Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 5 10.7 bio USD 9.7 bio USD 5 Number of Phase I compounds in pipeline 3 36 Number of Phase I trials 2 177 Number of Phase II compounds in pipeline in all indications 3 25 Number of Phase II trials 2 260 Number of Phase II trials in MS 4 Number of Phase II trials in psoriasis 1 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 12 Clinical development Number of Phase III compounds in pipeline in all indications 2 15 Number of Phase III trials 2 268 Number of Phase III trials in MS 3 Number of Phase III trials in psoriasis 5 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 53 Number of compounds under regulatory review 10 Number of S1P agonists in clinical development 0 102 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 192 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 7 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 7 Number of MS products marketed 0 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 2 Number of blockbusters (>1 bio revenues/annum) 11 Number of affliates & subsidiaries 0 Cost of sales 4 15.8 bio USD 9.5 bio USD Cost of marketing, selling & administrative 3 14.7 bio USD 7.9 bio USD % of annual revenue earned from pharmaceutical sales 8 0.78 45 Annual revenue 4 56.3 bio USD 43.9 bio Net income 4 10.6 bio USD Resources Cash & cash equivalents 1 2.2 bio USD Number of employees 4 80653 53187 13 Growth & Resiliency Jan11 stock price minus Jan07 stock price -9 (36) (45) -9 Annual revenue/number of employees 3 544307 Net income/annual revenue 2 0.19 Productivity Cost of sales/annual revenue 7 0.28 Cost of marketing, selling & administrative/annual revenue 7 0.26 19 120 100 80 Research 60 Clinical development Marekting & Sales Resources 40 Growth & Resiliency Productivity 20 0 ‐20 Page 95
  • 109. Amgen IncFigure 46 - Amgen complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 6 Research R&D spend 5 2.9 bio USD 11 Number of Phase I compounds in pipeline 5 21 Number of Phase I trials 2 69 Number of Phase II compounds in pipeline in all indications 3 14 Number of Phase II trials 3 156 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 3 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 18 Clinical development Number of Phase III compounds in pipeline in all indications 2 9 Number of Phase III trials 2 106 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 10 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 20 Number of compounds under regulatory review 24 Number of S1P agonists in clinical development 0 92 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 36 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 5 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 17 Number of MS products marketed 0 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 2 Number of blockbusters (>1 bio revenues/annum) 4 Number of affliates & subsidiaries 1 19 Cost of sales 3 2.2 bio USD Cost of marketing, selling & administrative 4 4 bio USD % of annual revenue earned from pharmaceutical sales 10 1 49 Annual revenue 5 15.1 bio USD Net income 5 4.6 bio USD Resources Cash & cash equivalents 5 3.3 bio USD Number of employees 2 17400 17 Growth & Resiliency Jan11 stock price minus Jan07 stock price -21 (54) (75) -21 Annual revenue/number of employees 5 867816 Net income/annual revenue 3 0.30 Productivity Cost of sales/annual revenue 9 0.15 Cost of marketing, selling & administrative/annual revenue 7 0.26 24 100 80 60 Research 40 Clinical development Marekting & Sales Resources Growth & Resiliency 20 Productivity 0 ‐20 ‐40 Page 96
  • 110. Merck KGaAFigure 47 - Merck KGaA complete scoring results Merck Serono Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 9 Research R&D spend 5 2 bio USD 1.7 bio USD 14 Number of Phase I compounds in pipeline 2 5 Number of Phase I trials 3 276 Number of Phase II compounds in pipeline in all indications 2 7 Number of Phase II trials 3 223 Number of Phase II trials in MS 3 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 3 Clinical development Number of Phase III compounds in pipeline in all indications 2 7 Number of Phase III trials 5 436 Number of Phase III trials in MS 14 Number of Phase III trials in psoriasis 3 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 3 Number of compounds under regulatory review 2 Number of S1P agonists in clinical development 0 45 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 75 Number of Phase IV trials in MS 10 Number of Phase IV trials in psoriasis 7 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 1 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 1 Number of affliates & subsidiaries 5 276 Cost of sales 4 3.4 bio USD 1.3 bio USD Cost of marketing, selling & administrative 4 3.2 bio USD 2.1 bio USD % of annual revenue earned from pharmaceutical sales 6 0.62 41 Annual revenue 5 13.4 bio USD 8.3 bio USD Net income 2 1.6 bio USD Resources Cash & cash equivalents 3 1.4 bio USD Number of employees 4 40562 14 Growth & Resiliency Jan11 stock price minus Jan07 stock price -5 -5 Annual revenue/number of employees 3 399389 Net income/annual revenue 1 0.12 Productivity Cost of sales/annual revenue 7 0.25 Cost of marketing, selling & administrative/annual revenue 8 0.24 19 50 40 30 Research Clinical development 20 Marekting & Sales Resources Growth & Resiliency Productivity 10 0 ‐10 Page 97
  • 111. Figure 48 – Baxter overview 18 16 14 12 10 Research Clinical development Marketing & Sales 8 Resources Growth & Resiliency 6 Productivity 4 2 0 US based Founded in 1931 48,000 employees Acquired ApaTech Ltd (2010) Acquired Edwards CRPT (2009) Key co-development / co-marketing agreements Hemophilia-related assets Archemix Corp Divisions Bioscience, Medical Products Page 98
  • 112. Baxter International IncFigure 49 - Baxter complete scoring results BioScience Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 3 915 mio USD 3 Number of Phase I compounds in pipeline 1 2 Number of Phase I trials 2 23 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 2 40 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 3 14 Number of Phase III trials 2 52 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 10 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 27 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 1 Number of affliates & subsidiaries 2 49 Cost of sales 1 6.9 bio USD Cost of marketing, selling & administrative 3 2.9 bio USD % of annual revenue earned from pharmaceutical sales 4 0.44 13 Annual revenue 4 12.8 bio USD 5.6 bio USD Net income 2 1.9 bio USD Resources Cash & cash equivalents 4 2.7 bio USD Number of employees 4 48000 14 Growth & Resiliency Jan11 stock price minus Jan07 stock price 5 (50) (45) 5 Annual revenue/number of employees 3 266667 Net income/annual revenue 1 0.15 Productivity Cost of sales/annual revenue 5 0.54 Cost of marketing, selling & administrative/annual revenue 8 0.23 17 18 16 14 12 10 Research Clinical development Marekting & Sales 8 Resources Growth & Resiliency 6 Productivity 4 2 0 Page 99
  • 113. NovoNordisk A/SFigure 50 - Novo Nordisk overview Biopharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 4 1.5 bio USD 550 mio USD 4 Number of Phase I compounds in pipeline 3 11 Number of Phase I trials 2 83 Number of Phase II compounds in pipeline in all indications 2 5 Number of Phase II trials 2 40 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 1 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 4 Clinical development Number of Phase III compounds in pipeline in all indications 2 5 Number of Phase III trials 2 129 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 18 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 62 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 4 Number of affliates & subsidiaries 4 77 Cost of sales 3 2.2 bio USD 298 mio USD Cost of marketing, selling & administrative 3 2 bio USD 651 mio USD % of annual revenue earned from pharmaceutical sales 2 0.25 18 Annual revenue 4 11.7 bio USD 2.9 bio USD Net income 2 1.3 bio USD 60 mio USD Resources Cash & cash equivalents 5 3 bio USD Number of employees 3 30483 14 Growth & Resiliency Jan11 stock price minus Jan07 stock price 55 (100) (45) 55 Annual revenue/number of employees 1 95135 Net income/annual revenue 1 0.11 Productivity Cost of sales/annual revenue 8 0.19 Cost of marketing, selling & administrative/annual revenue 8 0.17 19 60 50 40 Research Clinical development 30 Marekting & Sales Resources Growth & Resiliency Productivity 20 10 0 Page 100
  • 114. Figure 51 – Allergan overview Page 101
  • 115. Allergan IncFigure 52 - Allergan complete scoring results Speciality Pharmaceuticals Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 5 Research R&D spend 3 805 mio USD 8 Number of Phase I compounds in pipeline 0 Number of Phase I trials 2 12 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 2 53 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 2 51 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 4 Number of S1P agonists in clinical development 0 10 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 42 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 1 Number of affliates & subsidiaries 2 36 Cost of sales 2 722 mio USD Cost of marketing, selling & administrative 3 2 bio USD % of annual revenue earned from pharmaceutical sales 8 0.82 18 Annual revenue 2 4.9 bio USD 4 bio USD Net income 1 258 mio USD Resources Cash & cash equivalents 4 2.6 bio USD Number of employees 1 9200 1800 8 Growth & Resiliency Jan11 stock price minus Jan07 stock price 10 (68) (58) 10 Annual revenue/number of employees 4 532609 Net income/annual revenue 1 0.05 Productivity Cost of sales/annual revenue 9 0.15 Cost of marketing, selling & administrative/annual revenue 6 0.41 19 20 18 16 14 12 Research Clinical development 10 Marekting & Sales Resources 8 Growth & Resiliency Productivity 6 4 2 0 Page 102
  • 116. Figure 53 - CSL Limited overview Page 103
  • 117. CSL LimitedFigure 54 - CSL Limited complete scoring results CSL Biotherapies Holding division Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 2 335 mio USD 2 Number of Phase I compounds in pipeline 2 5 Number of Phase I trials 1 7 Number of Phase II compounds in pipeline in all indications 1 2 Number of Phase II trials 2 17 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 1 9 Number of Phase III trials 2 28 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 9 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 10 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 2 32 Cost of sales 3 2.3 bio USD Cost of marketing, selling & administrative 2 517 mio USD % of annual revenue earned from pharmaceutical sales 2 0.19 11 Annual revenue 2 4.7 bio USD 883 mio USD Net income 2 1.5 bio USD Resources Cash & cash equivalents 3 1.1 bio USD Number of employees 2 10340 9 Growth & Resiliency Jan11 stock price minus Jan07 stock price 16 (34) (18) 16 Annual revenue/number of employees 4 541586 Net income/annual revenue 3 0.32 Productivity Cost of sales/annual revenue 5 0.49 Cost of marketing, selling & administrative/annual revenue 9 0.11 21 25 20 15 Research Clinical development Marekting & Sales Resources 10 Growth & Resiliency Productivity 5 0 Page 104
  • 118. Biogen IDEC IncFigure 55 -Biogen IDEC overview Competences Attribute Score Absolute values Number of filed S1P agonist patents 3 Research R&D spend 4 1.8 bio USD 7 Number of Phase I compounds in pipeline 1 4 Number of Phase I trials 2 41 Number of Phase II compounds in pipeline in all indications 1 2 Number of Phase II trials 2 37 Number of Phase II trials in MS 10 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 8 Clinical development Number of Phase III compounds in pipeline in all indications 2 7 Number of Phase III trials 2 28 Number of Phase III trials in MS 18 Number of Phase III trials in psoriasis 1 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 2 Number of compounds under regulatory review 2 Number of S1P agonists in clinical development 0 51 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 20 Number of Phase IV trials in MS 17 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 3 Number of psoriasis products marketed 2 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 2 Number of affliates & subsidiaries 2 29 Cost of sales 1 400 mio USD Cost of marketing, selling & administrative 2 1 bio USD % of annual revenue earned from pharmaceutical sales 10 1 41 Annual revenue 2 4.7 bio USD Net income 2 1 bio USD Resources Cash & cash equivalents 4 2 bio USD Number of employees 1 4850 9 Growth & Resiliency Jan11 stock price minus Jan07 stock price 12 (64) (52) 12 Annual revenue/number of employees 5 969072 Net income/annual revenue 2 0.21 Productivity Cost of sales/annual revenue 9 0.09 Cost of marketing, selling & administrative/annual revenue 8 0.21 24 60 50 40 Research Clinical development 30 Marekting & Sales Resources Growth & Resiliency 20 Productivity 10 0 Page 105
  • 119. Figure 56 - Alexion overview Page 106
  • 120. Alexion Pharmaceuticals IncFigure 57 - Alexion complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 0 Research R&D spend 1 98 mio USD 1 Number of Phase I compounds in pipeline 1 2 Number of Phase I trials 1 3 Number of Phase II compounds in pipeline in all indications 2 9 Number of Phase II trials 2 12 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 1 Number of Phase III trials 1 6 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 1 Number of S1P agonists in clinical development 0 9 Number of Phase IV compounds in pipeline in all indications 1 1 Number of Phase IV trials 0 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 1 17 Cost of sales 1 64 mio USD Cost of marketing, selling & administrative 1 228 mio USD % of annual revenue earned from pharmaceutical sales 10 1 14 Annual revenue 1 541 mio USD Net income 1 97 mio USD Resources Cash & cash equivalents 1 362 mio USD Number of employees 1 792 4 Growth & Resiliency Jan11 stock price minus Jan07 stock price 49 (74) (25) 49 Annual revenue/number of employees 4 683081 Net income/annual revenue 3 0.28 Productivity Cost of sales/annual revenue 9 0.12 Cost of marketing, selling & administrative/annual revenue 6 0.42 21 60 50 40 Research Clinical development 30 Marekting & Sales Resources Growth & Resiliency Productivity 20 10 0 Page 107
  • 121. Figure 58 - Almirall overview 20 15 10 Research 5 Clinical development Marketing & Sales Resources Growth & Resiliency 0 Productivity ‐5 ‐10 ‐15 Spain based Founded in 1943 3,125 employees 20 alliances in 2011 Looking for a partner for LAS18993 (S1P1 agonist) & on-going research pso program Key overlap marketed products Sanitex® (cannabinoid mix) MS (spasticity relief) Balneum® range of emollients Ps Key overlap development compounds LAS186323 & LAS18993 (DHOD inhibitors) Phase I RA, MS LAS18993 (S1P1 agonist) Phase 0 MS Page 108
  • 122. Almirall SAFigure 59 - Almirall complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 4 Research R&D spend 1 208 mio USD 5 Number of Phase I compounds in pipeline 0 Number of Phase I trials 0 Number of Phase II compounds in pipeline in all indications 1 2 Number of Phase II trials 2 13 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 2 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 1 2 Number of Phase III trials 1 6 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 2 Number of S1P agonists in clinical development 0 9 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 1 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 1 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 1 12 Cost of sales 1 482 mio USD Cost of marketing, selling & administrative 1 522 mio USD % of annual revenue earned from pharmaceutical sales 10 1 15 Annual revenue 2 1.3 bio USD Net income 1 170 mio USD Resources Cash & cash equivalents 1 449 mio USD Number of employees 1 3125 5 Growth & Resiliency Jan11 stock price minus Jan07 stock price -13 (9) (21) -13 Annual revenue/number of employees 3 448000 Net income/annual revenue 1 0.12 Productivity Cost of sales/annual revenue 7 0.34 Cost of marketing, selling & administrative/annual revenue 6 0.37 17 20 15 10 Research 5 Clinical development Marekting & Sales Resources Growth & Resiliency 0 Productivity ‐5 ‐10 ‐15 Page 109
  • 123. Figure 60 - Arena overview Page 110
  • 124. Arena Pharmaceuticals IncFigure 61 - Arena complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 8 Research R&D spend 1 75 mio USD 9 Number of Phase I compounds in pipeline 1 4 Number of Phase I trials 1 9 Number of Phase II compounds in pipeline in all indications 1 1 Number of Phase II trials 1 4 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 1 3 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 5 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 0 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 0 Cost of sales 1 7.4 mio USD Cost of marketing, selling & administrative 1 28 mio USD % of annual revenue earned from pharmaceutical sales 0 0 2 Annual revenue 1 17 mio USD Net income 0 (125 mio) USD Resources Cash & cash equivalents 1 151 mio USD Number of employees 1 351 3 Growth & Resiliency Jan11 stock price minus Jan07 stock price -11 (2) (13) -11 Annual revenue/number of employees 1 48433 Net income/annual revenue 0 -0.01 Productivity Cost of sales/annual revenue 6 0.44 Cost of marketing, selling & administrative/annual revenue 10 0.02 16 20 15 10 5 Research Clinical development Marekting & Sales 0 Resources Growth & Resiliency Productivity ‐5 ‐10 ‐15 Page 111
  • 125. Figure 62 – Receptos overview Page 112
  • 126. Receptos IncFigure 63 - Receptos complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 3 Research R&D spend 0 3 Number of Phase I compounds in pipeline 1 Number of Phase I trials 1 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 0 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 0 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 2 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 0 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 0 Cost of sales 0 Cost of marketing, selling & administrative 0 % of annual revenue earned from pharmaceutical sales 0 Annual revenue 0 Net income 0 Resources Cash & cash equivalents 0 Number of employees 0 0 Growth & Resiliency Jan11 stock price minus Jan07 stock price 0 Privately held 0 Annual revenue/number of employees 0 Net income/annual revenue Productivity Cost of sales/annual revenue Cost of marketing, selling & administrative/annual revenue 0 3.5 3 2.5 Research 2 Clinical development Marekting & Sales Resources 1.5 Growth & Resiliency Productivity 1 0.5 0 Page 113
  • 127. Figure 64 – Daiichi Sankyo overview 25 20 15 10 Research 5 Clinical development Marketing & Sales Resources 0 Growth & Resiliency Productivity ‐5 ‐10 ‐15 ‐20 Japan based Founded in 2005 by merger of Daiichi Pharmaceutical Co., Ltd and Sankyo Co., Ltd 29,825 employees Divisions Innovative Pharmaceuticals, Vaccines, Established Pharmaceuticals Page 114
  • 128. Daiichi Sanky Co LtdFigure 65 - Daiichi Sankyo complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 7 Research R&D spend 5 2.5 bio USD 12 Number of Phase I compounds in pipeline 0 Number of Phase I trials 2 20 Number of Phase II compounds in pipeline in all indications 2 5 Number of Phase II trials 2 43 Number of Phase II trials in MS 0 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 2 7 Number of Phase III trials 2 41 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 6 Number of S1P agonists in clinical development 0 16 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 24 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 2 35 Cost of sales 4 3.5 bio USD Cost of marketing, selling & administrative 4 4.8 bio USD % of annual revenue earned from pharmaceutical sales 10 1 22 Annual revenue 4 11.8 bio USD Net income 1 521 mio USD Resources Cash & cash equivalents 5 3.2 bio USD Number of employees 3 29825 13 Growth & Resiliency Jan11 stock price minus Jan07 stock price -16 (21) (37) -16 Annual revenue/number of employees 3 395641 Net income/annual revenue 0 0.04 Productivity Cost of sales/annual revenue 7 0.30 Cost of marketing, selling & administrative/annual revenue 6 0.41 16 25 20 15 10 Research 5 Clinical development Marekting & Sales Resources 0 Growth & Resiliency Productivity ‐5 ‐10 ‐15 ‐20 Page 115
  • 129. Figure 66 - Ono overview 20 18 16 14 Research 12 Clinical development Marketing & Sales 10 Resources Growth & Resiliency 8 Productivity 6 4 2 0 Japan based Founded in 1947 2,661 employees Page 116
  • 130. Ono Pharmaceuticals Co IncFigure 67 - Ono complete scoring results Competences Attribute Score Absolute values Number of filed S1P agonist patents 5 Research R&D spend 2 494 mio USD 7 Number of Phase I compounds in pipeline 0 Number of Phase I trials 1 6 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 1 20 Number of Phase II trials in MS 2 Number of Phase II trials in psoriasis 0 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 2 14 Number of Phase III trials in MS 0 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 6 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 1 1 Number of Phase IV trials in MS 0 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 0 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 0 Number of affliates & subsidiaries 0 Cost of sales 1 259 mio USD Cost of marketing, selling & administrative 2 937 mio USD % of annual revenue earned from pharmaceutical sales 10 1 14 Annual revenue 2 1.7 bio USD Net income 1 347 mio USD Resources Cash & cash equivalents 2 897 mio USD Number of employees 1 2661 6 Growth & Resiliency Jan11 stock price minus Jan07 stock price 1 (46) (45) 1 Annual revenue/number of employees 4 638858 Net income/annual revenue 2 0.20 Productivity Cost of sales/annual revenue 8 0.15 Cost of marketing, selling & administrative/annual revenue 4 0.55 19 20 18 16 14 Research 12 Clinical development Marekting & Sales 10 Resources Growth & Resiliency 8 Productivity 6 4 2 0 Page 117
  • 131. Teva Pharmaceuticals Industries LtdFigure 68 - Teva complete scoring results Non-generic Holding Sales Competences Attribute Score Absolute values Absolute values Number of filed S1P agonist patents 0 Research R&D spend 3 933 mio USD 3 Number of Phase I compounds in pipeline 0 Number of Phase I trials 3 185 Number of Phase II compounds in pipeline in all indications 0 Number of Phase II trials 2 50 Number of Phase II trials in MS 8 Number of Phase II trials in psoriasis 6 Number of Phase II trials in RA, PsA, CD, UC, AS, JIA 0 Clinical development Number of Phase III compounds in pipeline in all indications 0 Number of Phase III trials 2 45 Number of Phase III trials in MS 9 Number of Phase III trials in psoriasis 0 Number of Phase III trials in RA, PsA, CD, UC, AS, JIA 0 Number of compounds under regulatory review 0 Number of S1P agonists in clinical development 0 30 Number of Phase IV compounds in pipeline in all indications 0 Number of Phase IV trials 2 28 Number of Phase IV trials in MS 12 Number of Phase IV trials in psoriasis 0 Number of Phase IV trials in RA, PsA, CD, UC, AS, JIA 0 Number of MS products marketed 1 Number of psoriasis products marketed 0 Marketing & Sales Number of products marketed for RA, PsA, CD, UC, AS, JIA 0 Number of blockbusters (>1 bio revenues/annum) 3 Number of affliates & subsidiaries 3 60 Cost of sales 5 7.1 bio USD Cost of marketing, selling & administrative 3 3 bio USD % of annual revenue earned from pharmaceutical sales 10 1 39 Annual revenue 5 16.1 bio USD 4.8 bio USD Net income 4 3.3 bio USD Resources Cash & cash equivalents 3 1.3 bio USD Number of employees 4 39660 16 Growth & Resiliency Jan11 stock price minus Jan07 stock price 19 (50) (31) 19 Annual revenue/number of employees 3 405951 Net income/annual revenue 2 0.20 Productivity Cost of sales/annual revenue 6 0.44 Cost of marketing, selling & administrative/annual revenue 8 0.19 19 45 40 35 30 Research 25 Clinical development Marekting & Sales Resources 20 Growth & Resiliency Productivity 15 10 5 0 Page 118
  • 132. Appendix III – Networks Page 119
  • 133. Figure 69 R&D partnerships in pharmaceutical biotechnology 1975-1979 – reproducedSource: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.436 Page 120
  • 134. Figure 70 R&D partnerships in pharmaceutical biotechnology 1980-1984 - reproducedSource: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.437 Page 121
  • 135. Figure 71 R&D partnerships in pharmaceutical biotechnology 1985-1989 - reproducedSource: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.438 Page 122
  • 136. Figure 72 R&D partnerships in pharmaceutical biotechnology 1990-1994 – reproducedSource: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.439 Page 123
  • 137. Figure 73 R&D partnerships in pharmaceutical biotechnology 1995-1999 – reproducedSource: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.440 Page 124