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Beyond the Business Plan - Managing unexpected risks in biotechnology business development


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An case-based overview of unexpected risks encountered in biotechnology entrepreneurship, and guidance on developing business plans to accommodate these risks.

An case-based overview of unexpected risks encountered in biotechnology entrepreneurship, and guidance on developing business plans to accommodate these risks.

Published in: Business
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  • 1. 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]
  • 2. Beyond the Business Plan Managing unexpected risks in biotechnology business development Yali Friedman, Ph.D. –
  • 3. 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?
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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.
  • 11. 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?
  • 12. 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
  • 13. 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
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. 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?
  • 20. 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
  • 21. 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
  • 22. 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
  • 23. 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
  • 24. Lessons
    • Monitor prescriptions and patient outcomes
    • Be willing to say no: don’t let markets or greed dictate prescription policy
  • 25. Shareholder / board activism BUILDING BIOTECHNOLOGY pp. 193-197
  • 26. 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
  • 27.  
  • 28. Shareholder letter
  • 29. Founder regains control … of what?
  • 30. 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
  • 31. 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!
  • 32. 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
  • 33. 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
  • 34. 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
  • 35. 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
  • 36. 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 –
  • 37. Building Biotechnology on Facebook
    • Join the Building Biotechnology group on Facebook to ask questions and network with biotechnology
    • students from other schools
    • or