By - Swaroop Vakkalanka Incozen Therapeutics SP Biotech Park, Genome Valley Hyderabad, India

1. Swaroop Vakkalanka Incozen Therapeutics SP Biotech Park, Genome Valley Hyderabad, India How to start a discovery based R&D company in India?

3. Pharmaceutical Research - Background Business Model Infrastructure Operations

4. Background - Global Diminishing R&D Productivity IRR on small molecule R&D is now ~ 7.5% Average return falls below the cost of capital – NPV ~ $65million Key factors – POS decreased by 5 percentage points, time required for R&D increased by 12-18 months and R&D costs rising 8% annually Identified levers for change – Cost, Speed and Quality of Decision making Pharmaceutical R&D – Road to positive returns Nature reviews – Drug discovery, Vol.8, Aug 2009, P-609

5. Background – Indian till 2000 Highly divided pharmaceutical market – numerous players Largely branded generics due to non-recognition of IP till 2005 Biggest players are known as leading global generic companies Risk aversion due to lack of reward Lack of understanding of key factors for early stage R&D success Operations – extension of existing facilities Global turbulence in pharmaceutical R&D

6. Background – Indian 2000-2009 Introduction of Patent Law in 2005 Better profit margins due to global generic sales – increased R&D allocations Indigenous industry adopted Biotech Route Increased number of Out-Licensing deals Market recognition of R&D companies Return of trained manpower from West An encouraging progress of CRO activity Resource availability and simplification of government procedures – due to economic liberalization

7. Business Model - Opportunity The success of early stage new drug discovery in India Availability of high quality resources Growth pressure in the generic industry Alignment with global need – Decrease in the cost of R&D by 15% increases IRR to 9.5% and rises NPV to ~ $ 250 million Acceleration of drug development by 18 months – Increase in IRR to 11% and pushes NPV to ~ $ 440 million Improved decision making – Fixing the Phase II problem – increases IRR to 13% and rises NPV to ~ $ 1.2 billion

8. Business Model - Gaps Drug research in India – not capable to provide end to end activity Significant gaps – Safety evaluation, Clinical development, Global regulatory compliance etc Lack of support to Start-up biotech industry Non-availability of risk capital Absence of scientific activity – discussions, annual meetings etc Lack of Industry – Academia collaboration Global market understanding

9. Business Model - Licensing A license is permission to do something that would, in the absence of permission, infringe intellectual property rights “ Big pharma would capture the greatest expected value from early stage licensing virtually 100 percent of the time because the greater risk of failure for these assets was more than offset by the low terms available early on” - The New math for Drug Licensing, McKinsey Quarterly 2002, No.4

10. Infrastructure – Factors for success Management - Leadership connecting clinical and market needs to discovery research - Team that shares ambitious vision and intellectual honesty - Long term commitment of the founders and the team - Entrepreneurial culture - Proven track record - Experience and networking

11. Infrastructure – Factors for success Ability to Adapt and timing - Adherence to the vision - Flexibility to change business plans - Allow the business model to evolve - Priority for long term sustainability - Constant market and competitor evaluation - Timing the market removes product risk

14. Operations – R&D Structure till ‘80s “Waterfall” model. For profit industry at downstream. Dominated by random screening methodology Low hanging fruits – Less complexity. Flexibility in selection. Integrated large R&D activity “Open science practice” – Government funded basic research.

15. Operations – R&D Structure till ‘80s Extensive preclinical evaluation based on animal studies Driven by mechanism and disease process Preclinical evaluation – 5 years and clinical – 2 years Less integrated with development Help from CRO restricted to Toxicology majorly Success is driven by correlations in disease based models

16. Operations – R&D Structure from ‘90s Translational Research Significant entry of more focused players having better coordination with “Open Science” Rational drug design at centre stage Revolutionary changes in scientific, technological, economic and legal aspects of drug discovery Era of collaborations and contracts Active academic participation with shift to molecular level exploration

17. Operations – R&D Structure from ‘90s Translational Research Signal transduction in cellular studies Animal models to mimic in-vitro evaluations Introduction of knock-out and transgenic models Preclinical evaluation – 2 years and clinical – 5 years Focused CROs shifted to collaborative role PK/PD correlations to establish Conc.-Response Biomarker assessment to help clinical designs Potential of combinations - explored

18. Current model – Two faces of drug development Early stageLate stage R&D Goal Seek Truth Seek success R&D Approach Reduce risk Maximize value Loyalty to Expt Loyalty to product Focus on science Focus on business Operate with low cost High fixed cost Small expt based teams Large prod. based teams Emphasize testing Emphasize refining

19. Thank You