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Ian sanderson

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Ian sanderson

  1. 1. An Analyst’s View: The Drug Delivery Opportunity Ian Sanderson Managing Director Senior Research Analyst Specialty Pharmaceuticals 1
  2. 2. An Analyst’s View: The Drug Delivery Opportunity1. What defines drug delivery in the eyes of Wall Street?2. Where do the opportunities lie in drug delivery? – the Wall Street perspective3. Valuing drug delivery development programs4. Financing drug delivery development2
  3. 3. Market perspectives – How we define drug deliveryOld: New: Reformulation of an existing  New molecular entities, with compound – usually off- new PD profile patent  Differentiating profiles for Mostly oral controlled-release complex molecules Out-licensed post POC - or  Site-specific, targeted earlier - in return for royalty delivery technologies stream  Internally developed or Once a life-cycle management partnered strategy, now a generic development requirement  NME risk and economics3
  4. 4. Market perspectives – Where do the opportunities lie? Investors focused here MARKET OPPORTUNITY NARROW BROAD NME Targeted Therapies Ocular Delivery Oral Pegylation Carrier-Based Depot Injections Pulmonary Delivery Sustained Release Implants Injectable Pegylation REGULATORY COMPLEXITY Transdermal Solubility Enhancement Transmucosal Oral Tamper/Abuse Resistance Oral Controlled Release505(b)2 NDA/ANDA 4
  5. 5. Market perspectives – Where do the opportunities lie? Evolving regulatory and reimbursement landscape 1. Gradual shift toward comparative effectiveness evaluation – moves U.S. standards closer to E.U. standards raises regulatory and reimbursement hurdles raises differentiation standard for development partners 2. Biosimilar regulatory pathway creates opportunities 3. Development/commercial partners: new goals for drug delivery  fewer lifecycle extension programs  greater focus on changing/improving therapeutic profile …driving shift toward NME/NCE development for drug delivery5
  6. 6. Market perspectives – Where do the opportunities lie? Business Models shifting back toward partnership model EVOLUTION OF THE DRUG DELIVERY BUSINESS MODEL 1980s to early 1990s Mid-1990s to Mid-2000s 2008 to currentBroad technology platforms Companies built around products Technology platforms targeting rather than technologies complex drug delivery issuesDevelopment partnership, Internal product development Development partnership, royalty-based model full integration ("FIPCO") royalty-based model niche commercial capabilitiesStandard equity financing Creative, off-balance sheet financing Creative, royalty-based financing M&A Partner financing M&AALZA, Elan, SkyePharma, etc. ALZA, Elan, Alkermes, Inhale, etc Nektar, ImmunoGen, Seattle Genetics, etc. 6
  7. 7. Valuing drug delivery development programs 4 key valuation factors: 1. Targeted patient population and likely penetration 2. Estimated pricing  Incorporates therapeutic profile/differentiation 3. Discount rate  Incorporates cost of capital plus hurdle return rate  We assume positive NPV in our analyses 4. Probability of clinical/regulatory/market success  Usually a rough estimate based on what we know of clinical trial design, FDA guidance, and medical need7
  8. 8. Valuing drug delivery development programsINTERNALLY-DEVELOPED PROGRAMNPV ANALYSIS OF NKT R-1 0 2 2011E 2012E 2013E 2014E 2015E 2016P 2017P 2018P 2019P 2020P Projected Sales $30 $120 $300 $400 $500 $600 $700 COGS $6 $14 $30 $40 $50 $60 $70 Estim ated R&D Spending $100 $150 $100 $65 $50 $45 $45 $40 $35 $30 Estim ated SG&A Spending $5 $20 $36 $60 $70 $80 $90 $100 Operating Ex penses $100 $150 $105 $91 $100 $135 $155 $170 $185 $200 Operating Incom e ($100) ($150) ($105) ($61) $20 $165 $245 $330 $415 $500 % Of Sales 16.3% 55.0% 61.3% 66.0% 69.2% 71.4% Net Cash Flow ($100) ($150) ($105) ($61) $20 $165 $245 $330 $415 $500 Discount Rate 20% Estim ated NPV $210Sour ce: Com pany r epor t s and Cowen and Com pany, LLC est im at esPARTNERED PROGRAMNPV ANALYSIS OF EURX/ CEPHS AM RIX Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 0 Projected Sales $6 $74 $114 $112 $115 $120 $130 $140 Royalties/ Mfg Fees to EURX $1 $13 $19 $19 $20 $20 $22 $24 COGS $0 $0 $0 $0 $0 $0 $0 $0 Estim ated R&D Spending $30 $25 $5 $3 $0 $0 $0 $0 $0 $0 Estim ated SG&A Spending $0 $0 $0 $0 $0 $0 $0 $0 $0 Operating Ex penses $30 $25 $5 $3 $0 $0 $0 $0 $0 $0 Operating Incom e ($30) ($25) ($4) $10 $19 $19 $20 $20 $22 $24 % Of Sales 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% Net Cash Flow ($30) ($25) ($4) $10 $19 $19 $20 $20 $22 $24 Discount Rate 10% Estim ated NPV $48Sour ce: Com pany r epor t s and Cowen and Com pany, LLC est im at es 8
  9. 9. Valuing drug delivery development programsChanging Assumptions:Revenues – Longer development timelines (larger, longer pivotal trials) Slower revenue ramps, due to managed care restrictions in U.S. Higher year 4-8 sales estimates, due to global sales infrastructuresCosts – Higher development costs (+20-40%, depending on the category) Lower GPM in competitive U.S. markets and ROW markets Lower relative promotional/marketing spending (as % of sales)Terminal multiple:Discount rate (cost of capital plus risk premium):Probability of success:9
  10. 10. Financing drug delivery developmentOptions more limited in volatile current market environment Public market equity financing currently expensive – if available at all Debt/Convertible financing more available – inflexible in a downside scenario Pharma/Biotech partner financing – important external validation to investors – development goals aligned – usually non-dilutive to equity investors Royalty-based financing – available for later-stage programs only – lower capital costs than equity, less restrictive than debt10
  11. 11. INDEXED TO 10011 100.00 110.00 120.00 130.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Drug Delivery Index Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 S&P500 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Drug Delivery equity markets = Ugly PRICE PERFORMANCE: DRUG DELIVERY vs. S&P500 vs. RUSSELL2000 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Russel 2000 Apr-11 May-11 Jun-11 Jul-11 Aug-11
  12. 12. An Analyst’s View: The Drug Delivery OpportunityConclusions:1. Drug Delivery returning to its routes of solving Tx problems  Platform technologies targeting more complex delivery problems  Development costs increasing – increased reliance on partnerships  NPV’s remain positive – aided by good royalty terms2. Investors again looking for transformative delivery technologies  High unmet medical needs, strong pricing trends, little managed care  But…less willing to fund development risks and commercialization3. …But Pharma companies willing to pay up for novel technologies in earlier development stages 12
  13. 13. An Analyst’s View: The Drug Delivery Opportunity Ian Sanderson Managing Director Senior Research Analyst Specialty Pharmaceuticals 13

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