Beyond the Business Plan To accompany Building Biotechnology ISBN 9780973467666 Relevant pages are cited within presentation Type CTRL-L to toggle fullscreen view Presentation starts on next page For more information: Yali Friedman, Ph.D. [email_address] www.BuildingBiotechnology.com

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Building Biotechnology

ISBN 9780973467666

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Beyond the Business Plan Managing unexpected risks in biotechnology business development Yali Friedman, Ph.D. – info@thinkbiotech.com

Beyond the Business Plan A good business plan will define company objectives and the path to achieving them, but... How do you deal with unexpected risk?

A good business plan will define company objectives and the path to achieving them,

but...

How do you deal with unexpected risk?

Business risks Reaching markets Freedom to operate Manufacturing problems Post-launch If you build it, they might not come Market size estimates Off label-use General management With partners like these, who needs competitors? Shareholder / board activism

Reaching markets

Freedom to operate

Manufacturing problems

Post-launch

If you build it, they might not come

Market size estimates

Off label-use

General management

With partners like these, who needs competitors?

Shareholder / board activism

Freedom to operate Do other’s patents restrict your business? Upstream patents may impede your ability to practice your invention, or prevent customers from using it E.g. patents on drug formulation or on technology required to use a drug/medical device Blocking patents may restrict which markets you can serve E.g. patents for specific applications What are your options? Design around patents License patents Challenge patents Wait for patents to expire BUILDING BIOTECHNOLOGY Chp 7, p. 267

Do other’s patents restrict your business?

Upstream patents may impede your ability to practice your invention, or prevent customers from using it

E.g. patents on drug formulation or on technology required to use a drug/medical device

Blocking patents may restrict which markets you can serve

E.g. patents for specific applications

What are your options?

Design around patents

License patents

Challenge patents

Wait for patents to expire

Amgen v. Transkaryotic: Amgen’s Epogen First billion-dollar biotechnology drug Produced by introducing human genes into hamster cells Transkaryotic Therapies’ (since acquired by Shire) Dynepo Stimulates expression of the existing erythropoietin gene in cultured human cells Strategic patenting Amgen convinces court that Dynepo infringes on Epogen patents BUILDING BIOTECHNOLOGY p. 120

Amgen’s Epogen

First billion-dollar biotechnology drug

Produced by introducing human genes into hamster cells

Transkaryotic Therapies’ (since acquired by Shire) Dynepo

Stimulates expression of the existing erythropoietin gene in cultured human cells

Strategic patenting

Amgen convinces court that Dynepo infringes on Epogen patents

Monsanto hit by submarine patent BST (bovine somatotropin) Increases milk production in cows by 8 to 12 pounds a day University of California obtains BST patents in 2001 and 2003 Patents filed in 1990, based on patents dating back to 1980 Patents describe DNA sequence coding for BST and an expression system to produce the hormone. Monsanto introduced BST in 1994 Monsanto forced to license patents, or stop selling BST Estimated cost: $185 million BUILDING BIOTECHNOLOGY p. 126

BST (bovine somatotropin)

Increases milk production in cows by 8 to 12 pounds a day

University of California obtains BST patents in 2001 and 2003

Patents filed in 1990, based on patents dating back to 1980

Patents describe DNA sequence coding for BST and an expression system to produce the hormone.

Monsanto introduced BST in 1994

Monsanto forced to license patents, or stop selling BST

Estimated cost: $185 million

Manufacturing problems Chiron’s flu vaccine – It’s your own fault Failure to adequately address contamination problems leads to loss of license Far-reaching effects – 50% of U.S. vaccine supply came from Chiron’s plant Chiron’s stock falls 30%, other companies quickly move in to fill market need Baxter’s heparin – Someone else did it Baxter uses domestic manufacturing partner, who outsources production to China Somewhere along production chain, in apparent case of economic fraud, oversulfated chondroitin sulfate substituted for heparin J&J’s human serum-free Epogen – Blame the government EMEA request to eliminate HSA from Eprex (sold as Epogen by Amgen in the US) Immunogenic responses emerge in Eprex patients Five-year, $100 million investigation, discovers that that Polysorbate 80, the human serum albumin substitute, was reacting with uncoated rubber stoppers used in one of the drug dosage forms BUILDING BIOTECHNOLOGY pp. 202, 346-7, 161

Chiron’s flu vaccine – It’s your own fault

Failure to adequately address contamination problems leads to loss of license

Far-reaching effects – 50% of U.S. vaccine supply came from Chiron’s plant

Chiron’s stock falls 30%, other companies quickly move in to fill market need

Baxter’s heparin – Someone else did it

Baxter uses domestic manufacturing partner, who outsources production to China

Somewhere along production chain, in apparent case of economic fraud, oversulfated chondroitin sulfate substituted for heparin

J&J’s human serum-free Epogen – Blame the government

EMEA request to eliminate HSA from Eprex (sold as Epogen by Amgen in the US)

Immunogenic responses emerge in Eprex patients

Five-year, $100 million investigation, discovers that that Polysorbate 80, the human serum albumin substitute, was reacting with uncoated rubber stoppers used in one of the drug dosage forms

Lessons IP Be prepared for unexpected patent litigation Be prepared to challenge the validity of competitor patents A common response to infringement challenges Don’t short-change IP due diligence Have multiple products in development Manufacturing Don’t lose your manufacturing license Don’t lose control of outsourcers Buy insurance

IP

Be prepared for unexpected patent litigation

Be prepared to challenge the validity of competitor patents

A common response to infringement challenges

Don’t short-change IP due diligence

Have multiple products in development

Manufacturing

Don’t lose your manufacturing license

Don’t lose control of outsourcers

Buy insurance

If you build it, they might not come Biotechnology is, by its nature, revolutionary. Just because something is new or based on exotic science, it’s not guaranteed to sell.

Biotechnology is, by its nature,

revolutionary.

Just because something is new or

based on exotic science, it’s not

guaranteed to sell.

Evacyte: Classic technology push Spun out of UT Austin in 2000 Commercialize patented method to stretch cells between two laser beams Assay for cancer detection: Healthy cells don’t stretch, cancer cells do Perceived primary challenge FDA trials to prove efficacy Actual primary challenge Change the practice of physicians Cell stretchiness was often associated with other signs of cancer, limiting its utility for positive diagnosis In the absence of stretching but presence of other indicators of cancer, oncologists would still treat for cancer Where’s the value? BUILDING BIOTECHNOLOGY pp. 264-265

Spun out of UT Austin in 2000

Commercialize patented method to stretch

cells between two laser beams

Assay for cancer detection:

Healthy cells don’t stretch, cancer cells do

Perceived primary challenge

FDA trials to prove efficacy

Actual primary challenge

Change the practice of physicians

Cell stretchiness was often associated with other signs of cancer,

limiting its utility for positive diagnosis

In the absence of stretching but presence of other indicators of

cancer, oncologists would still treat for cancer

Where’s the value?

Calgene’s Flavr Savr tomato Produce a novel tomato product that can be sold at a premium price Most tomatoes are gas-ripened Picked while green Sprayed with ethylene to ‘ripen’ prior to sale Result is bright red but tasteless tomatoes Vine-ripened tomatoes sell for a premium Tastier than gas-ripened tomatoes Cost more to deliver to market, have shorter shelf-lives, limited availability Polygluconase enzyme was associated with ripening in 1984 Highly expressed in red tomatoes, absent in green tomatoes Calgene set out to reduce expression of polygluconase to delay ripening Goal: Produce tomatoes that can be transported like gas-ripened tomatoes but are worthy of vine-ripened prices BUILDING BIOTECHNOLOGY p. 326

Produce a novel tomato product that can be sold at a premium price

Most tomatoes are gas-ripened

Picked while green

Sprayed with ethylene to ‘ripen’ prior to sale

Result is bright red but tasteless tomatoes

Vine-ripened tomatoes sell for a premium

Tastier than gas-ripened tomatoes

Cost more to deliver to market, have shorter shelf-lives, limited availability

Polygluconase enzyme was associated with ripening in 1984

Highly expressed in red tomatoes, absent in green tomatoes

Calgene set out to reduce expression of polygluconase to delay ripening

Goal: Produce tomatoes that can be transported like gas-ripened tomatoes

but are worthy of vine-ripened prices

Path to development Isolate PG gene and generate antisense tomatoes Develop assay for ripening Flavr Savr tomatoes spoiled slower than wild tomatoes at room temperature 1 lb weight and timer to measure firmness Field test Flavr Savr tomatoes ripened as fast as wild tomatoes, rotted slower File Patents Solicit FDA Approval Demonstrate that Flavr Savr tomatoes do not pose a health risk

Isolate PG gene and generate antisense tomatoes

Develop assay for ripening

Flavr Savr tomatoes spoiled slower than wild tomatoes at room

temperature

1 lb weight and timer to measure firmness

Field test

Flavr Savr tomatoes ripened as fast as wild tomatoes, rotted slower

File Patents

Solicit FDA Approval

Demonstrate that Flavr Savr tomatoes do not pose a health risk

Market launch Taste of Flavr Savr tomatoes not as good as competing premiums Flavr Savr gene was not introduced into premium tomato varieties Flavr Savr tomatoes could not withstand shipping Firmer than vine-ripened, but not as durable as green tomatoes General lack of expertise in the fresh-tomato business Product pulled from market Flavr Savr tomatoes had marginal added value; could not be sold at a profit

Taste of Flavr Savr tomatoes not as good as competing premiums

Flavr Savr gene was not introduced into premium tomato varieties

Flavr Savr tomatoes could not withstand shipping

Firmer than vine-ripened, but not as durable as green tomatoes

General lack of expertise in the fresh-tomato business

Product pulled from market

Flavr Savr tomatoes had marginal added value;

could not be sold at a profit

Why do companies aim for empty markets? Have Potent technologies Want Funding Sell Any opportunity you can Genentech’s first product was a throwaway neurotransmitter, but it proved their technology

Have

Potent technologies

Want

Funding

Sell

Any opportunity you can

Genentech’s first product was a throwaway

neurotransmitter, but it proved their technology

Estimating market size Measuring market size helps: Attract investors and partners Determine royalties and compensation Determine necessary production capacity Inform actions to develop internal sales team / external partnership BUILDING BIOTECHNOLOGY pp 235-239, 273-276

Measuring market size helps:

Attract investors and partners

Determine royalties and compensation

Determine necessary production capacity

Inform actions to develop internal sales team / external partnership

Resolving valuation disagreements Centocor and Schering-Plough disagree on market potential for Remicade First dedicated treatment for Crohn’s disease Centocor estimates: $1 billion in 10y Shering-Plough estimates: 300mm Compromise: Centocor asks for lower royalty up to $300mm in sales, higher royalty past $300mm Result: Remicade achieves $1.2 billion in sales within 6y Contract extended, Centocor’s profit share increased BUILDING BIOTECHNOLOGY p 304

Centocor and Schering-Plough disagree on market potential for Remicade

First dedicated treatment for Crohn’s disease

Centocor estimates: $1 billion in 10y

Shering-Plough estimates: 300mm

Compromise:

Centocor asks for lower royalty up to $300mm in sales, higher royalty past $300mm

Result:

Remicade achieves $1.2 billion in sales within 6y

Contract extended, Centocor’s profit share increased

Low estimates can be detrimental Enbrel: Underestimating market size First-in-class drug for rheumatoid arthritis Difficult to assess market size for first-in-class drugs Immunex is overly-pessimistic in projecting patient drop-out Drug sets 24-month sales growth record Immunex resorts to drug rationing Inability to fully leverage drug popularity leads to acquisition by Amgen BUILDING BIOTECHNOLOGY p 275

Enbrel: Underestimating market size

First-in-class drug for rheumatoid

arthritis

Difficult to assess market size for first-in-class drugs

Immunex is overly-pessimistic in projecting patient drop-out

Drug sets 24-month sales growth record

Immunex resorts to drug rationing

Inability to fully leverage drug popularity leads to acquisition by Amgen

Lessons Know your market What painful unmet need are you filling? Know your market size What assumptions are you making? Why might your estimates be off? What if you’re wrong? How can you hedge you bets?

Know your market

What painful unmet need are you filling?

Know your market size

What assumptions are you making?

Why might your estimates be off?

What if you’re wrong?

How can you hedge you bets?

Off-label use Drug companies are not allowed to advocate usage of drugs for indications which are not FDA approved But physicians are free to use drugs for any indication Upside More sales Downside Loss of control of pricing, patents Potential for side-effects to emerge and prompt market withdrawal BUILDING BIOTECHNOLOGY pp 148-150

Drug companies are not allowed to advocate usage of drugs for indications which are not FDA approved

But physicians are free to use drugs for any indication

Upside

More sales

Downside

Loss of control of pricing, patents

Potential for side-effects to emerge and prompt market withdrawal

Fen-Phen: Yes, you can be too popular Fen-Phen FDA-unapproved combination of fenfluramine and phentermine Fenfluramine: approved for short-term treatment of obesity Phentermine: member of a class of drugs traditionally used for treatment of morbid obesity Fen-Phen becomes widely used by weight-loss clinics. Fenfluramine sees largest the largest single-year increase (300%) of any drug in the United States. Following revelation of heart valve problems, fenfluramine and chemically-similar dexfenfluramine pulled from market BUILDING BIOTECHNOLOGY p 150

Fen-Phen

FDA-unapproved combination of fenfluramine and phentermine

Fenfluramine: approved for short-term treatment of obesity

Phentermine: member of a class of drugs traditionally used for treatment of morbid obesity

Fen-Phen becomes widely used by weight-loss clinics. Fenfluramine sees largest the largest single-year increase (300%) of any drug in the United States.

Following revelation of heart valve problems, fenfluramine and chemically-similar dexfenfluramine pulled from market

Fentora: Don’t buy our drug Fentora For cancer pain untreatable by regular pain medicines Four deaths Fentora used to treat conditions such as headache Response Cephalon sends letters to doctors reaffirming that Fentora is only to be used for cancer pain that is untreatable by regular doses of pain medicines BUILDING BIOTECHNOLOGY p 148

Fentora

For cancer pain untreatable by regular pain medicines

Four deaths

Fentora used to treat conditions such as headache

Response

Cephalon sends letters to doctors reaffirming that Fentora is only to be used for cancer pain that is untreatable by regular doses of pain medicines

Avastin: Controlling off-label use Lucentis and Avastin: Monoclonal antibodies produced by Genentech Lucentis ($2,000 per treatment): approved for advanced, age-related macular degeneration (AMD) Avastin ($150 per treatment): approved for colon and other cancers, but not for macular degeneration Doctors widely using Avastin for AMD Genentech responds by banning Avastin purchases by compounding pharmacies, which repackage it for eye injection Cites FDA concerns regarding the safety and efficacy of drugs from compounding pharmacies Physicians and patients complain Many patients may be unable to access vision-saving drug NIH National Eye Institute initiates trial to test efficacy of Avastin for AMD BUILDING BIOTECHNOLOGY p 282

Lucentis and Avastin: Monoclonal antibodies produced by Genentech

Lucentis ($2,000 per treatment): approved for advanced, age-related macular degeneration (AMD)

Avastin ($150 per treatment): approved for colon and other cancers, but not for macular degeneration

Doctors widely using Avastin for AMD

Genentech responds by banning Avastin purchases by compounding pharmacies, which repackage it for eye injection

Cites FDA concerns regarding the safety and efficacy of drugs from compounding pharmacies

Physicians and patients complain

Many patients may be unable to access vision-saving drug

NIH National Eye Institute initiates trial to test efficacy of Avastin for AMD

Lessons Monitor prescriptions and patient outcomes Be willing to say no: don’t let markets or greed dictate prescription policy

Monitor prescriptions and patient outcomes

Be willing to say no: don’t let markets or greed dictate prescription policy

Shareholder / board activism BUILDING BIOTECHNOLOGY pp. 193-197

Dyadic: Et tu Brute Entrepreneur uses shipping arbitrage to dominate landscaping stone market Wants to diversify, so he sells pumice to Levi’s for stonewashed jeans Emergence of cellulases starts eroding pumice stonewashing market If someone’s going to put me out of business, it might as well be me Repeats strategy used to dominate landscaping stone market: find a cheaper source Forms partnership with Moscow State University to select and engineer fungi for optimal cellulase activity Creates first fungal mass protein-production system Starts targeting pharmaceutical applications Attack from within Financial irregularities with Chinese partner Board ousts founder

Entrepreneur uses shipping arbitrage to dominate landscaping stone market

Wants to diversify, so he sells pumice to Levi’s for stonewashed jeans

Emergence of cellulases starts eroding pumice stonewashing market

If someone’s going to put me out of business, it might as well be me

Repeats strategy used to dominate landscaping stone market: find a

cheaper source

Forms partnership with Moscow State University to select and engineer

fungi for optimal cellulase activity

Creates first fungal mass protein-production system

Starts targeting pharmaceutical applications

Attack from within

Financial irregularities with Chinese partner

Board ousts founder

Shareholder letter

Founder regains control … of what?

MedImmune: Shareholder activism Shareholders lack faith in management Believe MedImmune would deliver greater value if acquired Carl Icahn buys 1.16 % of MedImmune, threatens a proxy-war (backed by other shareholders) to obtain a board seat and push for acquisition Management relents and seeks acquisition MedImmune reaches agreement to be acquired by AstraZeneca for $15 billion Icahn makes $300 million BUILDING BIOTECHNOLOGY pp. 195

Shareholders lack faith in management

Believe MedImmune would deliver greater value if acquired

Carl Icahn buys 1.16 % of MedImmune, threatens a proxy-war (backed by other shareholders) to obtain a board seat and push for acquisition

Management relents and seeks acquisition

MedImmune reaches agreement to be acquired by AstraZeneca for $15 billion

Icahn makes $300 million

With partners like these, who needs competitors Your technology may work Your market may be good Your execution may be flawless but, Watch your back!

Your technology may work

Your market may be good

Your execution may be flawless

but,

Watch your back!

Suing the Red Cross J&J vs. Red Cross 100 year-old agreement to share “red cross” symbol: J&J uses it for commercial products Red Cross uses it for humanitarian mission 2007: Red Cross licenses symbol for first-aid kits Trademark law requires owners to actively police their mark or risk losing it (e.g. Bayer no longer owns “aspirin” trademark) J&J sues Red Cross Initial ruling sides with Red Cross J&J withdraws case, loses face BUILDING BIOTECHNOLOGY p 131

J&J vs. Red Cross

100 year-old agreement to share “red cross” symbol:

J&J uses it for commercial products

Red Cross uses it for humanitarian mission

2007: Red Cross licenses symbol for first-aid kits

Trademark law requires owners to actively police their mark or risk losing it (e.g. Bayer no longer owns “aspirin” trademark)

J&J sues Red Cross

Initial ruling sides with Red Cross

J&J withdraws case, loses face

IP disputes with major backers Sandoz and Ciba Geigy merge to form Novartis Shelve SPP100 due to inability to profitably manufacture it Ciba Geigy scientist Alice Huxley forms spin-off to pursue drug Novartis licenses drug with buy-back option Becomes major funder, owns 10% of Speedel Speedel develops new manufacturing process SPP100 gains FDA approval, launched as Tekturna First in a new class of drugs for high blood pressure Novartis charged with using new manufacturing process for other drugs, without license Solution: Novartis announces plans to buy Speedel for $880mm BUILDING BIOTECHNOLOGY p 186

Sandoz and Ciba Geigy merge to form Novartis

Shelve SPP100 due to inability to profitably manufacture it

Ciba Geigy scientist Alice Huxley forms spin-off to pursue drug

Novartis licenses drug with buy-back option

Becomes major funder, owns 10% of Speedel

Speedel develops new manufacturing process

SPP100 gains FDA approval, launched as Tekturna

First in a new class of drugs for high blood pressure

Novartis charged with using new manufacturing process for other drugs, without license

Solution: Novartis announces plans to buy Speedel for $880mm

Nektar: Running with the big dogs Insulin market is mature, VERY large Nectar develops inhalable version of insulin. Projected $2-3B annual sales. After six years of clinical trials, delivery system is approved Need large partner to market drug effectively Pfizer charged with marketing drug, leveraging their massive sales force Pfizer gets scared Long term effects of protein administration via lungs is unknown Vioxx-like recall could bankrupt Pfizer Deal with Nektar was made three CEOs ago Pfizer pulls drug Nectar’s outcome Learns of Pfizer’s withdrawal via press release Gets $135mm payoff, pays $38mm to suppliers 150 staff cut, COO leaves, company to change focus to drug development BUILDING BIOTECHNOLOGY pp.250-251, 308

Insulin market is mature, VERY large

Nectar develops inhalable version of insulin. Projected $2-3B annual sales.

After six years of clinical trials, delivery system is approved

Need large partner to market drug effectively

Pfizer charged with marketing drug, leveraging their massive sales force

Pfizer gets scared

Long term effects of protein administration via lungs is unknown

Vioxx-like recall could bankrupt Pfizer

Deal with Nektar was made three CEOs ago

Pfizer pulls drug

Nectar’s outcome

Learns of Pfizer’s withdrawal via press release

Gets $135mm payoff, pays $38mm to suppliers

150 staff cut, COO leaves, company to change focus to drug development

Lessons Know when to ask for help Entrepreneurs are exceedingly good at starting companies, but they may need professional assistance in running them Avoid outsized partnerships or opportunities Find a compatible partner: Pfizer had much more to lose from a tort suit than from not selling inhalable insulin Contract with Pfizer should have clearly laid out expectations and included punitive penalties for underperformance MedImmune’s enterprise value had outgrown management Don’t sue the Red Cross

Know when to ask for help

Entrepreneurs are exceedingly good at starting companies,

but they may need professional assistance in running them

Avoid outsized partnerships or opportunities

Find a compatible partner: Pfizer had much more to lose from a tort suit than from not selling inhalable insulin

Contract with Pfizer should have clearly laid out expectations and included punitive penalties for underperformance

MedImmune’s enterprise value had outgrown management

Don’t sue the Red Cross

The business plan is but the beginning It is not the planning that is important; it is the planning that makes you able to change it Dwight D. Eisenhower Business plan should: Define framework for operations Set objectives and milestones If you don’t know where you’re going, you’ll end up somewhere else – Yogi Berra Provide a basis for contingency plans Remain flexible Yali Friedman – info@thinkbiotech.com

It is not the planning that is important; it is the planning that makes you able to change it

Dwight D. Eisenhower

Business plan should:

Define framework for operations

Set objectives and milestones

If you don’t know where you’re going, you’ll end up somewhere else – Yogi Berra

Provide a basis for contingency plans

Remain flexible

Building Biotechnology on Facebook Join the Building Biotechnology group on Facebook to ask questions and network with biotechnology students from other schools http://www.BuildingBiotechnology.com/support or http://www.facebook.com/group.php?gid=11590055093

Join the Building Biotechnology group on Facebook to ask questions and network with biotechnology

students from other schools

http://www.BuildingBiotechnology.com/support

or

http://www.facebook.com/group.php?gid=11590055093