Marcus Evans 9th Annual Commercial Translation of Regenerative Medicine - Funding Strategies for RM Companies (London; November 15, 2011)v.1

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An overview of the Regenerative Medicine market; and strategies for commercilizing RM technologies

An overview of the Regenerative Medicine market; and strategies for commercilizing RM technologies

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  • 9th Annual Commercial Translation of Regenerative Medicine Building the international cell therapy industry11:30 Funding options for clinical-stage biotech companies • A brief review of the regenerative medicine market• The regenerative medicine funding environment: Neweconomic realities• New collaborative capital efficient models for regenerative medicinetechnology developments• The role of regenerative medicine in translation centres 
  • The Current Model For the Developmentof RM Technologies9.15am (45 Minutes)| Gregory A. Bonfiglio A Brief Review of the RM Market- Where Are We and How Did We Get Here?- RM Commercialization Challenge- The IP landscape The RM Funding Environment: New Economic Realties- Public Markets: A World Without Biotech IPOs- Venture Capital: Only “Pristine” Deals Need Apply- Alternate Funding Sources Crossing the Valley Of Death With Friends- The Current Model Is BrokenA New Collaborative, Capital Efficient ModelPublic Markets: A World Without Biotech IPOs The Relay Model Is Broken
  • Dr. Alain Vertes (Roche)Dr. Stephen Potter (Genzyme)
  • Genzyme-Osiris Deal (November 2008): $1.25B value; $130 million upfront with $100Ms in milestone payments; Covers Prochymal and Chondrogen;Osiris will commercialize both drugs in the U.S. and Canada, and Genzyme will sell the drugs in all other countries Dendreon’sProvenge was approved for Prostate Cancer in April 2010$97K – approved reimbursementProjected Revenues: $1-3B DNDN Market Cap: $5B+Cephalon & Mesoblast: $2B Deal in December 2010Cephalon buying 19.99% of Mesoblastfor $223 millionCephalon paying $130 million upfront fee $1.7 billion in milestone payments: RE MSC therapies for congestive heart failure, acute myocardial infarction, Parkinson's disease, and Alzheimer‘s
  • TriMark: $3 billion in 2010; expected to reach $4.5 billion by 2014 = 10.67% CAGRScientia Advisors: $1.6 billion in 2010; expected to be $15-20 billion by 2025 = 18.34% CAGR Visiongain: $0.82B in 2010; excepted to reach $8.84B in 2021 = 24.13% CAGR Dendreon: $5.7B Market CapDr. Alain Vertes (Roche) RM Market: $410M (2008); $2.6B (2012); $5.0B (2014) [51.7% CAGR]Chris Mason Cell Therapy Market: $200M (2009); 323,000 Patients treated with Cell Therapies FDA Website (July 2010): 3100+ trials involving “stem cells” Vast majority are in cancer: 2270 lukemia (1129) + lymphoma (1149) 150+ studies in Cardio 2121 involve hematopoietic stem cell transplant
  • Cell Therapy Revenues (2008–2014): $410M (2008) -- $5.1B (2014); 52.22% CAGR Graph showing the estimated CTI revenues from 2008–2014†, together with the value of the regenerative cell therapy market estimated for 2009–2010, based on actual sales of US FDA/EMA approved products‡.†Data taken from: Evers P: Advances in the Stem Cell Industry. Global Business Insights (2009).‡Data taken from: Mason C, Manzotti E: Regenerative medicine cell therapies: numbers of units manufactured and patients treated between 1988 and 2010. Regen. Med.5(3),307–313 (2010).
  • Reliable preservation methodsDevelopment Of Scaffolds & Matrices For Tissue Engineering
  • Patent filing activity in stem cells has been growing steadily since the late 1990s. Given the particular characteristics of stem cells as a broadly enabling technology, many expect the field to be particularly susceptible to the emergence of a patent thicket8–13, alsoknown in property rights theory as an ‘anticommons’ . In a patent thicket, the existence of many overlapping patent claims can cause uncertainty about freedom to operate, impose multiple layers of transaction costs and stack royalty payments beyond levels that can be supported by the value of single innovations. By blocking pathways to market and dampening investor interest in commercialization, a patent thicket has the potential to slow andskew the overall development of new technical applications.The Biotech Industry has long had to make do with less—a valuable trait when the tap runs dry. It forces the sector’s executives tolook constantly for new ways to trim expenses and to partner. This can be seen through collaborations by Symphony Capital (New York), which invests in clinical programs rather than a company itself, or the low-infrastructure model espoused by groups such as Talaris Advisors (Hopkinton, MA, USA), or the use of contract research organizations to outsource portions of drug development.
  • Dendreon (NASDAQ: DNDN) is a Seattle based biotechnology company. Its lead product, Provenge (known generically as sipuleucel-T), is an immunotherapy for prostate cancer. It consists of a mixture of the patient's own blood cells (autologous, with dendritic cells thought to be the most important) that have been incubated with the Dendreon PAP-GM-CSF fusion protein. Phase III clinical trial results demonstrating a survival benefit for prostate cancer patients receiving the drug were presented at the AUA meeting on 28 April 2009. After going through the approval process, Provenge was given full approval by the FDA on April 29, 2010. Dendreon's name derives from the "Dendritic Cell" which forms a major component of the company's product candidates that use the "Dendreon Cassette Technology" to insert a disease-specific target protein into a general platform. Their lead product, Provenge, is an example of their "rationally designed therapeutic process" intended to break immune tolerance to certain disease specific proteins. It is hypothesized that receptor mediated uptake of antigen by dendritic cells occurs when they are exposed to the Dendreonfusion protein which links the disease specific protein to a recognition protein. This approach is in contrast to other dendritic cell vaccines that use methods such as electroporation to get the DC's to present antigen related epitopes. In the case of Provenge, this disease related protein is Prostatic acid phosphatase and the signalling component is GM-CSF.Initial clinical results for Provenge in 2000 showed immune responses supporting the expected mode-of-action, as well as a PSA reduction which was thought to relate to clinical improvement. In 2006, Dendreon built a manufacturing facility in Morris Plains, New Jersey to accommodate production for a Phase III trial and possible 2007 drug approval by the U.S. Food and Drug Administration (FDA). In January 2007, the FDA accepted Dendreon'sBiologic License Application (BLA) filing for Provenge.On March 29, 2007, the FDA Office of Cellular, Tissue and Gene Therapies Advisory Committee voted 17-0 that Provenge is reasonably safe and 13-4 that the trial data showed substantial evidence that it is effective. However, on May 9, 2007, Dendreon received a letter from the FDA demanding more results and information before approval.On April 14, 2009, Dendreon announced that the results for the Phase III trial of Provenge were positive, saying there had been a reduction in the odds of death compared to the use of a placebo. On April 28, 2009, the full details of the study were released. The trial found that patients treated with Provenge lived an average of 4.1 months longer than patients treated with the control (autologous cells without the GM-CSF / PAP fusion protein).On April 29, 2010, the FDA approved Provenge for use in the treatment of advanced prostate cancer.
  • The Current Model For the Developmentof RM Technologies9.15am (45 Minutes)| Gregory A. Bonfiglio A Brief Review of the RM Market- Where Are We and How Did We Get Here?- RM Commercialization Challenge- The IP landscape The RM Funding Environment: New Economic Realties- Public Markets: A World Without Biotech IPOs- Venture Capital: Only “Pristine” Deals Need Apply- Alternate Funding Sources Crossing the Valley Of Death With Friends- The Current Model Is BrokenA New Collaborative, Capital Efficient ModelPublic Markets: A World Without Biotech IPOs The Relay Model Is Broken
  • Reuters: August 3, 2011 - Dendreon Plunges As Provenge Prospects WitherShocks investors by pulling forecast for debut drug* Company points to reimbursement qualms for doctors* News likely to dissuade potential buyers, partners* Shares dive 67.4 percent
  • For 40 years Biotech has depended on easy access to cheap capital; no longer available: Private Equity: VC investments in Early Stage Biotech are down over 40% in last 12 months Public Markets Closed: Only a handful (13) of Biotech IPO in last 24 months Key MetricsAverage Time to Market: 10-15 Years Average Costs: $1B Failure Rate: @90% Under 30% of approved drugs recoup R&D costs
  • Companies trading with less than six months of cash on hand 2007:12 2008: 120 Change: 90% Companies with less than one year of cash remaining 2007: 26 2008: 180 Change: 65%Companies filing for bankruptcies in 2007: 2 2008: 6 Change: 200%Companies delisted from NASDAQ in 2007: 7 2008: 22 Change: 214%a/o Dec 31, 2008 Biotech Valuations Are Substantially Lower Example: Company in Phase II trials, $400M sales potentialValuation: $5M pre / $20M post for $15M raise
  • Biotech IPO Window is Closed – Only 3 IPOs in 2009: Ironwood seriously overreached on its projected share price; and Anthera raised $42 million in an IPO recently after chopping its share price in half; Aveo Pharmaceuticals (cancer drug developer) withdrew its Offering last week (March 10, 2010) 2010: 10 IPOs – All but Talecris performed poorly – reduced offering prices; reduced capital raised; now trading below intial offering priceThe 2010 IPO figures is distorted by the unique case of TalecrisBiotherapeutics (Research Triangle Park, NC, USA). Thecompany develops nonrecombinant protein therapeutics from plasma and is profitable. It was pegged as an acquisition target by rivalCSL (Victoria, Australia) in 2008 for $3.1 billion, but the US government challenged the purchase as anticompetitive, and the deal fellapart. Talecris instead conducted an IPO in 2009 for a whopping $550 million. Toss aside Talecris, and the figure falls more in line with recent years: $42 million.Aveo Pharmaceuticals (cancer drug developer) was supposed to price its shares for a $105 million IPO on March 10, but reportedly pushed that back to today in the face of shareholder resistance to the share price. The company, which wants to raise as much as $105 million by listing on the Nasdaq under the symbol AVEO, has no approved drugs yet and no product revenue.
  • Global biotech IPOs. IPOs in 2010 continued their recovery from a low in 2008, both in amount raised and in number of offerings.The average amount per IPO (Fig. 2) highlights the public appetite for biotechs over time. In 2000, the average was about $85 million—retrospectively, this seems an incredible figure. After the bursting of the genomics bubble, that amount plummeted to $25.5 million as investors soured, and it trended upward from there to an average of $58 million in 2007. The recession dropped that to $22 million in 2008, it rose to $42 million in 2009 (after removing outlier Talecris' $550 million offering) and climbed again to $57 million in 2010. Viewing IPOs through this lens, 2010 was a select, but robust, year for biotech IPOs.The numbers for Average Amount Raised in 2009 are skewed by a single deal: TalcerisBiotherapeutics- they raised $550M. When the Talceris IPO is removed, the 2009 Average Amount Raised is $42M - consistent with previous years
  • Biotech funding was up 46% to $36.2 billion in 2010; from $25.8 billion in 2009.Money mattersThe biotech industry last year had its best year of fund-raising in a decade, by our records (Fig. 1). Biotechs raised $36.2 billion, up 46% from 2009 and miles above the dismal $13.7 billion brought in during 2008's recession year. 2010's take nearly reached the $38.1 billion raised in 2000—a fat year fueled by anticipatory hype around the sequencing of the human genome.However, dissecting those figures reveals completely different investor sentiment for biotech then and now. In 2000, that lofty sum was fueled by more than 100 IPOs, raising about $8.7 billion. Biotech's story was red hot, and companies often went public on nothing more than a technology platform, a partnership and a dream. The industry has not seen an IPO market like it since: not in total amount raised, average per round or number of IPOs.For comparison, there was $1.08 billion raised through IPOs last year (Fig. 2), with the average being $57 million. These figures were helped by the performances of Ironwood Pharmaceuticals (Cambridge, MA, USA) and Pacific Biosciences (Menlo Park, CA, USA), which raised $216 million and $200 million, respectively (Table 1). The Ironwood IPO in particular was anxiously awaited, as the company follows a typical biotech business model, and its lead product had cleared late-stage trials for chronic constipation. Thus somewhat derisked, Ironwood appeared primed for a healthy valuation and celebratory debut. The company filed for the offer in late 2009, seeking a share price of $14 to $16.
  • DoD RM Initiate: AFIRM (Armed Forces Institute of Regenerative Medicine) $50M Collaboration between Universities & Commercialization Partners dedicated to repairing battlefield injuries thru RM technologies. HHS Initiative: BARDA (Biomedical Advanced Research and Development Authority)$MMs for countermeasures for chemical, biological, radiological, and nuclear agents (Cellerant Funding)The Biomedical Advanced Research and Development Authority (BARDA), within the Office of the Assistant Secretary for Preparedness and Response in the U.S. Department of Health and Human Services, provides an integrated, systematic approach to the development and purchase of the necessary vaccines, drugs, therapies, and diagnostic tools for public health medical emergencies.BARDA manages Project BioShield, which includes the procurement and advanced development of medical countermeasures for chemical, biological, radiological, and nuclear agents, as well as the advanced development and procurement of medical countermeasures for pandemic influenza and other emerging infectious diseases that fall outside the auspices of Project BioShield.  In addition, BARDA manages the Public Health Emergency Medical Countermeasures Enterprise (PHEMCE).
  • The picture in 2011 is better than 2009 & 2010 but still down substantially from previous highs. Companies trading with less than six months of cash on hand 2007:12 2008: 120 Change: 90%Companies with less than one year of cash remaining 2007: 26 2008: 180 Change: 65%Companies filing for bankruptcies in 2007: 2 2008: 6 Change: 200%Companies delisted from NASDAQ in 2007: 7 2008: 22 Change: 214%a/o Dec 31, 2008 Biotech Valuations Are Substantially Lower Example: Company in Phase II trials, $400M sales potentialValuation: $5M pre / $20M post for $15M raise
  • Geron Dumps Stem Cell R&D Programs, Axes 38% of WorkforceGeron, for better or worse, has been the poster child for embryonic stem cell therapies for a decade. And now with a new CEO at the helm, that’s all in the past.Menlo Park, CA-based Geron (NASDAQ: GERN) said today it is getting out of the business of developing stem cell therapies so that it can concentrate more on developing cancer drugs. As part of the decision, Geron is cutting 66 jobs, or about 38 percent of its workforce. It will now look to unload its stem cell therapies onto partners.The decision was made to conserve cash, the company said. Geron had $180.3 million in cash and investments in the bank at the end of September, and it had a net loss of about $65 million in the first nine months of the year, according to its most recent quarterly report. Shares of the company dropped about 12 percent in after-hours trading, to $1.93, after the announcement.“In the current environment of capital scarcity and uncertain economic conditions, we intend to focus our resources,” said Geron CEO John “Chip” Scarlett, in a statement.Geron to shut down stem cell programs, shares fallMon Nov 14, 2011 5:04pm EST (Reuters) - Geron Corp said it will stop development of its stem cell programs to focus more on its cancer drugs, sending its shares down as much as 20 percent in after-market trading. The move will see Geron cut 66 full-time positions, or about 38 percent of its workforce and stop the development of the first U.S.-approved human embryonic stem cell trial.The company expects to take a one-time charge of about $5 million in the fourth quarter and about $3 million in the first half of next year."In the current environment of capital scarcity and uncertain economic conditions, we intend to focus our resources on advancing our Phase 2 clinical trials of imetelstat and GRN1005," Chief Executive John Scarlett said."This would not be possible if we continue to fund the stem cell programs at the current levels."Geron expects to end the year with cash and investments in excess of $150 million.Shares of Menlo Park, California-based company were down 20 percent at $1.75 in extended trading. They had closed at $2.20 on Monday on Nasdaq.
  • Geron halting stem cell research, laying off staffThe shift comes barely six weeks after the BOD appointed biotech industry veteran Dr. John A. Scarlett as Geron's new CEO Stem cell pioneer Geron exiting such research, laying off staff, to focus on cancer drug testsTRENTON, N.J. (AP) -- The company doing the first government-approved test of embryonic stem cell therapy is discontinuing further stem cell work, a move with stark implications for a field offering hope of future medicines for conditions with inadequate or no current treatments. Geron Corp., a pioneer in stem cell research that has been testing a spinal cord injury treatment, said late Monday that it's halting development of its stem cell programs to conserve funds. It is seeking partners to take on the programs' assets and is laying off much of its staff. The news sent Geron shares down sharply in after-hours trading. They fell 38 cents, or 17.3 percent, to $1.82. The company is eliminating 66 full-time jobs, or 38 percent of its staff, a process that will bring about $8 million in costs — about $5 million in the current quarter and about $3 million in the first half of 2012. Geron said it expects to end this year with more than $150 million in cash and investments. In a statement, the company said the decision to narrow its focus "was made after a strategic review of the costs, ... timelines and clinical, manufacturing and regulatory complexities associated with the company's research and clinical-stage assets." The shift comes barely six weeks after the company's board appointed biotech industry veteran Dr. John A. Scarlett as Geron's new chief executive. Geron said it is looking for partners who have the technical and financial resources to advance its stem cell programs. Analyst Steve Brozak of WBB Securities said Geron has been trying to find partners "and people have said,'Show us later-stage results.'" Since the recession began in 2008, venture capital funding for the biotech industry has greatly declined as many investors seek projects with quicker potential payoffs. Embryonic stem cells can develop into any type of cell in the body. The hope is that one day they might be used to replace or repair damaged tissue from ailments such as heart disease, Parkinson's and stroke. But using stem cells from embryos has long been controversial and is opposed by some groups for religious and moral reasons. Brozak called Geron's move a sad delay in the development of embryonic stem cell therapies in the U.S. "It could be outsourced to a place like China very easily," he added. "In that case, this would be the de facto abdication of U.S. leadership in biotechnology." Scarlett said his company will keep a core group of employees from its stem cell operations through the end of 2012's second quarter. "Stem cells continue to hold great medical promise," he said in a statement, adding that Geron is recognized as having "among the most innovative, comprehensive and advanced cell therapy programs in the world," which should help it in discussions to find partners to whom it can transfer the programs. Geron in October 2010 began testing an embryonic stem cell therapy called GRNOPC1 in patients with recent spinal cord injuries. It will stop enrolling new patients but will continue to follow those currently participating. The company will continue updating the Food and Drug Administration and doctors and scientists on the study's progress. So far, the treatment with oligodendrocyte progenitor cells — the OPC in the therapy's name — has been tolerated well without any serious side effects, the company said. Geron also is testing embryonic stem cell treatments using cardiac cells for heart disease, a type of pancreas cells for diabetes, cartilage cells for cartilage repair and immune system cells called dendritic cells for immunotherapy treatments. Geron, based in Menlo Park, Calif., now will focus soley on cancer research, particularly on drugs that are in mid-stage human testing. Those include imetelstat for advanced breast cancer, advanced non-small cell lung cancer, a blood-clotting disorder called essential thrombocythemia and multiple myeloma, a bone marrow cancer, and of a therapy called GRN1005, for cancer that has spread to the brain from the breast or lungs.
  • Given the current & likely future status of the IPO market, biotech companies should not rely on an IPO as a financing vehicle. This should free companies to pursue a leaner & more focused model. Under either of the old biotech models (Platform vs. Product), companies built toward the IPO key metrics: a strong “lead” program; several follow-on clinical-stage programs (additional shots on goal); and had substantial bricks & mortar infrastructure. In a post-IPO world, companies do not need this infrastructure or expense
  • The Biotech Industry has long had to make do with less—a valuable trait when the tap runs dry. It forces the sector’s executives tolook constantly for new ways to trim expenses and to partner. This can be seen through collaborations by Symphony Capital (New York), which invests in clinical programs rather than a company itself, or the low-infrastructure model espoused by groups such as Talaris Advisors (Hopkinton, MA, USA), or the use of contract research organizations to outsource portions of drug development. Defensible Business Model Capital Efficient Tech Development Application Engines Project Based Models Virtual Operations
  • A Brief Review of the RM Market- Where Are We and How Did We Get Here?- RM Commercialization Challenge- The IP landscape The RM Funding Environment: New Economic Realties- Public Markets: A World Without Biotech IPOs- Venture Capital: Only “Pristine” Deals Need Apply- Alternate Funding Sources Crossing the Valley Of Death With Friends- The Current Model Is BrokenA New Collaborative, Capital Efficient ModelPublic Markets: A World Without Biotech IPOs The Relay Model Is Broken
  • This is an “Open Innovation” Model. (Open Innovation, by Henry Chesbrough , Harvard Business School Press, 2006 )
  • Cross The Valley Of Death With a Partner
  • RM Translation Centers: Bruce Levine: Clinical Cell and Vaccine Production Facility (CVPF)
  • Patent filing activity in stem cells has been growing steadily since the late 1990s. Given the particular characteristics of stem cells as a broadly enabling technology, many expect the field to be particularly susceptible to the emergence of a patent thicket8–13, alsoknown in property rights theory as an ‘anticommons’ . In a patent thicket, the existence of many overlapping patent claims can cause uncertainty about freedom to operate, impose multiple layers of transaction costs and stack royalty payments beyond levels that can be supported by the value of single innovations. By blocking pathways to market and dampening investor interest in commercialization, a patent thicket has the potential to slow andskew the overall development of new technical applications.

Transcript

  • 1. Funding & Commercialization Strategies forRegenerative Medicine CompaniesGregory A. BonfiglioProteus Venture PartnersNovember 15, 2011
  • 2. AgendaI. The RM Market Is Entering A New Era  RM Has Made Great Progress  But Serious Commercialization Challenges RemainII. New Economic Realties  A Fundamental Shift in Biotech Economics  The Valley of Death Is Expanding  A New Capital Efficient Model Is RequiredII. The Role of RM Translation Centers  Enabling Capital Efficient RM Technology Development  Facilitating Collaborations in RM Technology Development  The RMC: An International Coalition of RMTCs CONFIDENTIAL 2
  • 3. Gartner‟s Hype Cycle of Emerging TechnologiesVisibility Technology Peak of Inflated Trough of Slope of Plateau of Productivity Trigger Expectations Disillusionment Enlightment Time CONFIDENTIAL 3
  • 4. RM Market: On 2nd Half of the Gartner CurveVisibility Peak of Inflated Trough of Slope of Plateau of Expectations Disillusionment Enlightment Productivity 2001: 3300 jobs, 73 firms, mkt cap > $2.5B 2011 Shire Acquires ABH -$750M 2001 Ortec FDA approved 2000 Time Magazine: 2010 Cephalon & Mesoblast $2B Deal TE No. 1 job 2001 Dermagraft FDA approved 2010 Dendreon‟s Provenge Approved 1999 TE bladders in clinic 2001 Bush “partial ban” on HESCs 1999 First FDA approved 2009 Obama Ends Ban on hESCs TE product (Apligraf) 1998 Human ESCs first derived Nov 2008 Genzyme-Osiris $1.25B Deal 1997 Dolly the sheep 2007 iPS Technology Developed 1997 First FDA approved cell therapy (Carticel) 2007 Apligraf - 200,000 Patients Treated 2006 Carticel - 10,000 Patients Treated 2002 ISSCR Founded 1992 Geron founded 2005 CIRM Founded 1988 SyStemix founded 1986 ATS and Organogenesis founded 2003 UK Stem Cell Bank Formed 1980 Early TE research (MIT) 2002 ATS + Organogenesis file Chapter 11 Technology Trigger Stage of Development Time CONFIDENTIAL 4
  • 5. RM Is Entering A New ERA RM Market is Maturing: Key Metrics Rapidly Expanding Market: Commercial Products • $1.6B in 2010 • 400 on Market (Mostly Skin, Tools Media, & Devices); • $20.0B in 2025 – 900+ in Development • CAGR of 18.34% • 44 Cell Therapies on Market – $1B Revenues Dramatic Revenue Growth – 400 in Development • $130M in 2001 – 28 in PIII/Pivotal Trials • $1.6B+ in 2010 1.2M+ Patients Treated with RM Products. Worldwide funding for research Increasing • 320K+ Cell Therapy Patients • $2.5B Now RM Companies • $14B in 10 Years • 600+ Co‟s involved in RM • 50+ Public Co’s; Clinical Programs • Over 3600 Clinical Trials – $8.7B Total Market Cap • Over 400 ex-Oncology • 225+ Private Co’s CONFIDENTIAL 5
  • 6. RM Market: Expanding Rapidly Dramatic Cell Therapy Revenue Growth CTI Revenues: $410M (2008) - $5.1B (2014) Cell Therapy Industry: Billion Dollar Global Business With Unlimited Potential; Regenerative Medicine; Chris Mason, David Brindley, Emily J Culme-Seymour & Natasha L Davie CONFIDENTIAL 6
  • 7. Global Company DistributionCanada UK24 firms 133 firms Europe (ex. UK) 3% 19% 14% 93 firms Asia 56% 2% 32 firms 5% Middle East 17 firms USA 386 firms 600+ RM companies worldwide! CONFIDENTIAL 7
  • 8. RM Has Made Great Progress, but… ….Challenges Remain R&D Manufacturing  Creation And Characterization Of  Technologies For Scale-up Optimal Cells For Therapy Safe & Reliable Expansion – Controlling Differentiation Pathways Sterility Testing & Validation  Standards For The Field Process Control & Reproducibility; – What is an iPS Cell? …or MSC? Consistent Lots Closed Systems  Contaminant Free Cell Lines  Product Characterization  Safe & Reliable Expansion – Safety; Identify; Potency  Track Cell Migration & Engraftment  Process Control : Process Is The Imaging Technology And Product Biological Markers – COGS; QC; & cGMP  Immune Modulation  Centralized Vs. Point Of Care CONFIDENTIAL 8
  • 9. …A Few More Challenges Regulatory& IP Landscape Business Issues  Regulatory Environment Needs  Business Model Questions Clarity Capital Efficient R&D Standards & Guidelines Are Evolving Product V. Service Models Characterization Autologous V. Allogeneic Safety / Efficacy / Consistency Cross Border Inconsistencies  Reimbursement Issues Cost Savings Justification  IP Landscape Is Treacherous : “Patent Thicket”  Sales & Marketing Fragmented Ownership; Complex Channel Arrangements Patents Proliferating Rapidly : 25% GAGR Define Marketable “Product” Inconsistent & Competing Patents: Invites Litigation Educate Consumers Re: New Treatment Paradigms Need “Freedom To Operate” Opinions CONFIDENTIAL 9
  • 10. RM Business Models: Autologous v. Allogeneic Autologous Model Allogeneic Model Patients Own Cells/Tissue Universal Cells in a Bottle • Personalized Medicine • Big Pharma “Drug Model” Advantages: • Autologous Treatment for Prostate Advantages: Cancer Using Dendritic Cells • Easier Regulatory Path • Scalable (GTP) -Centralized Processing • Low COGS • No Immune Response • $93K per Treatment Challenges: Challenges: • More Difficult -$1B+ Projected Revenues Regulatory • Difficult to Scale Path • High COGS• $5.0B Market Cap (Until Aug 3,Response • Immune 2011) Service vs. Product CONFIDENTIAL 10
  • 11. AgendaI. The RM Market Is Entering A New Era  RM Has Made Great Progress  But Serious Commercialization Challenges RemainII. New Economic Realties  A Fundamental Shift in Biotech Economics  The Valley of Death Is Expanding  A New Capital Efficient Model Is RequiredII. The Role of RM Translation Centers  Enabling Capital Efficient RM Technology Development  Facilitating Collaborations in RM Technology Development  The RMC: An International Coalition of RMTCs CONFIDENTIAL 11
  • 12. New Economic RealityComing Out (?) of the Worst Financial Crisis in 75+ Years CONFIDENTIAL 12
  • 13. Dendreon is a Success Story, But…. …Also a Cautionary Tale August 3, 2011 Dendreon plunges 67% on slow sales, plans across the board layoffs Dendreon slashed its sales forecast for 2011 Wednesday after reporting lower than expected second-quarter net revenue of $49.6 million. August 18, 2011 Biotech Stocks Battle The „Dendreon Effect‟ Company‟s Troubles With Provenge Chill Fellow Drug Makers CONFIDENTIAL 13
  • 14. Biotech Product Development Is Dependent on External Funding Probability: Probability: Probability: Probability 66% 70% 40% of success Steps Basic & Discovery Preclinical Preclinical Clinical Clinical Clinical Market Research Research Development Phase I Phase II Phase III 1-3 years 1.4-1.8 year 2.5-3.8 years Outcome Proof of Concept. Therapeutic IND Safety Efficacy Product Candidate ReleaseInvestment PI PII PIII $75=100MM Amount $5-10MM $10-15MM $20-25MM $50-75MM Actors Grants to Universities & Venture Investments IPO & Partnering Deals Research Institutes, • Average Time to Market: 10-15 Years • Average Costs: $1B Key Metrics: • Failure Rate: @90% • Less than 30% of approved drugs recoup development costs CONFIDENTIAL 14
  • 15. Venture Capital: VCs Want “Pristine Deals” Proprietary Commercial Technology Defensible Business Model  Great Science ≠ Great Business  Capital Efficient Tech Development  Proof Of Concept Established  Application Engines  Phase II Clinical Data  Project Based Models  Virtual Operations Strong Management Team  Board Differentiation  SAB  How Is Your Approach Different?  Why Is It Better? Solid Intellectual Property Position  Freedom To Operate Exit Strategy  Defensible IP (Patents & Trade  M&A: Attractive Products For Acquirer Secrets)  Realistic Timeframe Large Market Opportunity Acceptable Risk/Return Profile  Target markets > $1B/year  Multiple Chances To Win CONFIDENTIAL 15
  • 16. Public Capital Markets: Financing Alternatives Key Strategies: IPO - 2ndary - Shelf Registration - PIPE Company sells registered shares under an effective shelf registration statement (or a Follow-On specific registration statement) to public investors after a traditional 2 to 5 day (Fully Marketed) roadshow At-the-Market Company sells registered shares under an effective shelf registration statement to (ATM) investors into the general trading market over an extended period of time SEC Registration Required Upfront Underwritten Company sells registered shares under an effective shelf registration statement to Equity Registered Direct public investors after a 1 to 3 day confidential roadshow (URD) Registered Direct Company sells registered securities under an effective shelf registration statement to (RD) a targeted group of institutional investors on a confidential basis Company sells unregistered shares to a targeted group of institutional investors in a Common Stock private placement and files to register the securities typically within 30 days after the PIPE offering No Upfront SEC Company sells unregistered convertible preferred stock/convertible debt to a Convertible Registration targeted group of institutional investors in a private placement and files to register PIPE Required the securities typically within 30 days after the offering Convertible Preferred/Debt Company sells unregistered convertible debt securities to institutional investors in a Rule 144A Rule 144A offering and files to register the securities typically within 90 days after the Convertible Debt offering (public style execution) Public Transactions Private/Quasi-Public Transactions [Source: Robin Smith – NeoStem] 8 CONFIDENTIAL 16
  • 17. The Old “Relay” Model Is Very CapitalIntensive Strategy: Build Company Toward An IPO Business Models: • “Platform” Company • Develop technology horizontally across many therapeutic applications • High research cash burn • Large R&D staff • “Product” Company (Specialty Pharma) • Apply technology to specific therapeutic applications • Multiple clinical programs • Large clinical trial burn rate Pre-IPO Capital: @$90M IPO Metrics: • Lead Program in late stage development • Additional “shots on goal” (earlier clinical programs, or platform technologies) • Substantial infrastructure (“bricks & mortar” & staff) CONFIDENTIAL 17
  • 18. The New Economic Reality Traditional Capital Sources Are UnavailablePublic Markets: Closed? • Biotech IPO Performance: Very Poor • 2003-2007 Window: 77 Companies • Average VC Return = 1.9X • Oct 2007 (Market Peak): 59% trading below initial PPS • June 2009: 79% trading below initial PPS • 69% Trading Below Total Invested Capital • Only 13 Biotech IPOs in the last 24 months; All Performed Poorly* (Reduced Capital Raised; Reduced Offering Price; Trading Below IPO price)Private Equity: Dramatically Reduced • Venture Investments in Biotech are Down 45+% • Back to pre=1990s level of capital (PWC Survey) • VCs have fled Early Stage investments • First-Time Financings at Some of the Lowest Levels in 40 YearsCONFIDENTIAL 18
  • 19. Global Biotech IPOs: 2002 - 2010 Source: Nature Biotechnology 29, 585–591 (2011)CONFIDENTIAL 19
  • 20. GLOBAL BIOTECH FINANCING Source: Nature Biotechnology 29, 585–591 (2011)CONFIDENTIAL 20
  • 21. Funding Sources: Government Funds UK & EU Development Funds: MRC; Framework 7; European Research Council Traditional US Government Funding Increasing  NIH Funding & DARPA Non-Traditional US Government Funding Is Available  DoD RM Initiate: AFIRM (Armed Forces Institute of Regenerative Medicine)  HHS Initiative: BARDA (Biomedical Advanced Research and Development Authority) State RM Funds: CIRM Actively Funding ($1.2BM); Many Other US States Other Regional Development Funds: Singapore EDB/Bio*One Fund; UK Matching Grants; Gulf; India  Tech Transfer; Develop Biotech Industry CONFIDENTIAL 21
  • 22. The Valley of Death Is Expanding Institutional Funding Is Not Readily Available Until Phase 2 Trials 2-3 years 2-3 years 3-4 yearsRESEARCH DEVELOPMENT CLINICAL TRIALS (Phase 1 and 2) “Valley of Death” VC Investments Grants & Seed Available Money CONFIDENTIAL 22
  • 23. “It‟s a Very Tough Environment” Many Biotech Companies in Peril25% of All Biotech Companies have Failed since 2007Delistings & Bankruptcies in 2008 • 22 Public Companies were Delisted from NASDAQ • 214% increase over 2007 (7 Companies) • 6 Public Companies filed for Bankruptcy Future Losses: • 200% increase over 2007 ( 2) @5% will Fail in Next 12-18 monthsBiotech Casualties in 2009: • 44 Public Companies Lost (Delistings; M&A; BKs)Cash Shortfalls (Oct 2010) • 25% (73) Public Companies have less than 6 months cash • Better than Dec 2008: 45% of Public Co’s Had Cash ShortfallCONFIDENTIAL 23
  • 24. “It‟s a Very Tough Environment” November 14, 2011 Geron Halting Stem Cell Research, Laying Off Staff, Stem Cell Pioneer Exits Field Geron exiting such research, laying off staff, to focus on cancer drug tests MENLO PARK, Calif. (AP) -- Money troubles have forced the first company doing a government- approved test of embryonic stem cell therapy to discontinue further stem cell programs and lay off much of its staff. >>>>>>> In a statement, the company said the decision to narrow its focus "was made after a strategic review of the costs, ... timelines and clinical, manufacturing and regulatory complexities associated with the companys research and clinical-stage assets.". CONFIDENTIAL 24
  • 25. GERON hESC Program: “POST-MORTUM” Geron: Key Metrics• Geron‟s Went Public in 1996 Thru an IPO• Primary Funding Strategy: Shelf Registration (ATM) o A Few PIPEs o Raised Over $500M in Cash Relationship With CIRM:• 52 Week Market Range •Terminated $25M Funding o Stock Price: $6.12 -- $1.82 Agreement o Market Cap: $790M -- $239M • Halted SPI Trial (4 Pts Treated)  @70% Drop in Value • Returned $6.4M• Cash Position: $142M o Monthly Burn: $6.5M• Halting Programs in Diabetes, Cardio, Cartilage & Immunotherapy o Eliminating 65+ JobsCONFIDENTIAL 25
  • 26. WHAT CAN WE LEARN FROM GERON?• Being 1st To The Clinic Isn‟t Necessarily A Win• A Public Market Financing Strategy Can Be Effective If: o The Company Can Access the Public Markets Thru a Credible Vehicle  IPO; Reverse Merger (?) o The Stock is Highly Liquid  Large Trading Volumes o The Stock Price Remains Above $3.00 o Utilize A Shelf Registration To Maintain Cash Reserves Lessons Learned:• A “Walled Garden” Commercialization Strategy Does Not Work o Cross The Valley of Death With Friends o Collaborate & Share ResourcesCONFIDENTIAL 26
  • 27. A New Model Is Required: Capital Efficiency Is Critical CAPITAL EFFICIENCY: DO MORE WITH LESS Extend Technology Development In Academic Setting • Thru Phase II Pursue Alternate Funding Sources • Government Grants (NIH, DARPA, BARDA; Regional Development Funds; Foundations & Disease Advocacy Groups; Partner with Pharma/Big Bio Focus & Conserve Resources • Focus On Core Business & Projects • Reduce Infrastructure & Staffing • Outsource Clinical Development (CRO; RMTs) & Manufacturing (CMO ) Collaborate & Share Resources • Open Innovation Model • Share Facilities, Technologies, Staff & IP Resources CONFIDENTIAL 27
  • 28. A New Model Is Required: Capital Efficiency Is Critical CAPITAL EFFICIENT BUSINESS MODELS Virtual Company • Outsource Clinical Development To RMTC or CRO • Outsource Manufacturing To CMO • Reduce Infrastructure & Staffing • Project Based - POC Model • Fund Specific Projects/Clinical Programs - Focus On Most Compelling Therapeutic Application • Create & Fund Company Post-POC Data • Partnering Model • Collaborative R&D • Shared Facilities, Staff, IP, and Other Resources CONFIDENTIAL 28
  • 29. AgendaI. The RM Market Is Entering A New Era  RM Has Made Great Progress  But Serious Commercialization Challenges RemainII. New Economic Realties  A Fundamental Shift in Biotech Economics  The Valley of Death Is Expanding  A New Capital Efficient Model Is RequiredII. The Role of RM Translation Centers  Enabling Capital Efficient RM Technology Development  Facilitating Collaborations in RM Technology Development  The RMC: An International Coalition of RMTCs CONFIDENTIAL 29
  • 30. The Role of RM Translation Centers:Enabling Capital Efficient Technology Development RM Translation Centers Offer • State of the Art Facilities - cGLP & cGMP Compliant - Focused on Specific RM Technologies • Access Deep Domain Knowledge in RM – Core Expertise in Associated Academic Institution – History of Collaboration • Clinical Development Expertise – Preclinical Thru Phase II • Experienced Support Services – Incubator/Accelerator CONFIDENTIAL 30
  • 31. The Role of RM Translation Centers:Enabling Capital Efficient Technology Development Collaborative Research Leveraging Shared Resources RM Translation Centers • GLP/GMP Facilities • RM Expertise • Clinical Development Experience Pharma Funding Sources New RM Venture • Clinical • Profit Development - Virtual Co • Non-Profit • Manufacturing - POC Project • Marketing • Government - Application Engine • Reimbursement Open Innovation, Henry Chesbrough , CONFIDENTIAL 31 Harvard Business School Press, 2006
  • 32. The Role of RM Translation Centers:Enabling Capital Efficient Technology Development RM Translation Centers CONFIDENTIAL 32
  • 33. The Role of RM Translation Centers:Enabling Capital Efficient Technology Development RM Translation Centers UCI Stem Cell Research Center Clinical Cell and Vaccine Production Facility USC & UCSF RM Centers CONFIDENTIAL 33
  • 34. Regenerative Medicine Coalition: A Coalition of RM Translation Centers Mission of the RMC • Accelerate The Commercialization of Regenerative Medicine Technologies • Enable the Capital Efficient Development of RM Technologies • Facilitate Collaborative Development Projects • Reduce by the Costs and Time Involved in Early Stage Clinical Development of RM Technologies • Share Advances in Enabling/“Platform Technologies”: o Scale-Up, Controlling Lot-Lot Variations; Safety & Efficacy Standards; Delivery Mechanisms; etc CONFIDENTIAL 34
  • 35. Regenerative Medicine Coalition: A Coalition of RM Translation Centers RMC Core Members: RM Translation Centers Associate Members: -Pharma -Biotech -Emerging RM Companies -Funding AgenciesCONFIDENTIAL 35
  • 36. Regenerative Medicine Coalition: Charter MembersCONFIDENTIAL 36
  • 37. Regenerative Medicine Coalition: Finance & Industry SupportCONFIDENTIAL 37
  • 38. The Final Word CONFIDENTIAL 38
  • 39. APPENDIXCONFIDENTIAL 39
  • 40. Proteus: An Investment and AdvisoryFirm Focused on RM Proteus, Inc. Proteus Proteus Proteus Management, LLC Insights, LLC Advisors, LLC (Fund Management) (Consulting Services) (Investment Banking Services)CONFIDENTIAL 40
  • 41. Funding Sources: Corporate & Non-Profit Philanthropic Foundations & Disease Advocacy Groups Provide Funding  JDRF; Michael J. Fox Foundation, CNS Foundation  Stowers Institute Corporate Venture Groups  JJDC (Tengion; NovoCell)  Pfizer; NovoNordisk; GE Healthcare; Genzyme Creative Sources of Funds:  Out license non-core technology  Provide consulting or lab services to generate cash flow  Work with a strategic partner  Biotech, Pharma & Device Companies  Merge with a cash rich company that is tech poor CONFIDENTIAL 41
  • 42. RM IP Landscape: A Patent Thicket Key Patent Metrics (1980-2005) Substantial Activity RM Patents Granted • Patent Applications: 10,000+ • Patents Granted: 2,200+ US: 51% Dramatic Increase in Filings Since 2000 • Over 25% Annual Growth Rate UK: 4% Geographic Patent Distribution: US Dominates Canada: 4% • US: Over 50% of Patents • UK, Canada, Germany: @4% Each Germany: • Australia, Japan, China, Israel: @3% 4% Each Australia: 3% Top 50 Patents Cover Core Technologies • Cell Lines; Media; Differentiation CONFIDENTIAL 42
  • 43. RM IP Landscape: A Patent Thicket Key US RM Patent Metrics  Unusual Patent Distribution 44% Public Sector Entities 56% Private Sector  Fragmented Ownership No Company Owns More Than 3% of Granted Patents  Pharma & Big Bio Are Key Holders Amgen, Novartis, Pfizer & GSK  Osiris, STEM, & Geron Have Large Estates *Only 3% of All USPTO Patents Are Held By Public Entities CONFIDENTIAL 43