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

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

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

  1. 1. Beyond the Business Plan <ul><li>To accompany </li></ul><ul><li>Building Biotechnology </li></ul><ul><li>ISBN 9780973467666 </li></ul><ul><li>Relevant pages are cited within presentation </li></ul><ul><li>Type CTRL-L to toggle </li></ul><ul><li>fullscreen view </li></ul>Presentation starts on next page For more information: Yali Friedman, Ph.D. [email_address]
  2. 2. Beyond the Business Plan Managing unexpected risks in biotechnology business development Yali Friedman, Ph.D. –
  3. 3. Beyond the Business Plan <ul><li>A good business plan will define company objectives and the path to achieving them, </li></ul><ul><li>but... </li></ul><ul><li>How do you deal with unexpected risk? </li></ul>
  4. 4. Business risks <ul><li>Reaching markets </li></ul><ul><li>Freedom to operate </li></ul><ul><li>Manufacturing problems </li></ul><ul><li>Post-launch </li></ul><ul><li>If you build it, they might not come </li></ul><ul><li>Market size estimates </li></ul><ul><li>Off label-use </li></ul><ul><li>General management </li></ul><ul><li>With partners like these, who needs competitors? </li></ul><ul><li>Shareholder / board activism </li></ul>
  5. 5. Freedom to operate <ul><li>Do other’s patents restrict your business? </li></ul><ul><li>Upstream patents may impede your ability to practice your invention, or prevent customers from using it </li></ul><ul><ul><li>E.g. patents on drug formulation or on technology required to use a drug/medical device </li></ul></ul><ul><li>Blocking patents may restrict which markets you can serve </li></ul><ul><ul><li>E.g. patents for specific applications </li></ul></ul><ul><li>What are your options? </li></ul><ul><li>Design around patents </li></ul><ul><li>License patents </li></ul><ul><li>Challenge patents </li></ul><ul><li>Wait for patents to expire </li></ul>BUILDING BIOTECHNOLOGY Chp 7, p. 267
  6. 6. Amgen v. Transkaryotic: <ul><li>Amgen’s Epogen </li></ul><ul><li>First billion-dollar biotechnology drug </li></ul><ul><li>Produced by introducing human genes into hamster cells </li></ul><ul><li>Transkaryotic Therapies’ (since acquired by Shire) Dynepo </li></ul><ul><li>Stimulates expression of the existing erythropoietin gene in cultured human cells </li></ul><ul><li>Strategic patenting </li></ul><ul><li>Amgen convinces court that Dynepo infringes on Epogen patents </li></ul>BUILDING BIOTECHNOLOGY p. 120
  7. 7. Monsanto hit by submarine patent <ul><li>BST (bovine somatotropin) </li></ul><ul><li>Increases milk production in cows by 8 to 12 pounds a day </li></ul><ul><li>University of California obtains BST patents in 2001 and 2003 </li></ul><ul><li>Patents filed in 1990, based on patents dating back to 1980 </li></ul><ul><ul><li>Patents describe DNA sequence coding for BST and an expression system to produce the hormone. </li></ul></ul><ul><li>Monsanto introduced BST in 1994 </li></ul><ul><li>Monsanto forced to license patents, or stop selling BST </li></ul><ul><li>Estimated cost: $185 million </li></ul>BUILDING BIOTECHNOLOGY p. 126
  8. 8. Manufacturing problems <ul><li>Chiron’s flu vaccine – It’s your own fault </li></ul><ul><li>Failure to adequately address contamination problems leads to loss of license </li></ul><ul><li>Far-reaching effects – 50% of U.S. vaccine supply came from Chiron’s plant </li></ul><ul><li>Chiron’s stock falls 30%, other companies quickly move in to fill market need </li></ul><ul><li>Baxter’s heparin – Someone else did it </li></ul><ul><li>Baxter uses domestic manufacturing partner, who outsources production to China </li></ul><ul><li>Somewhere along production chain, in apparent case of economic fraud, oversulfated chondroitin sulfate substituted for heparin </li></ul><ul><li>J&J’s human serum-free Epogen – Blame the government </li></ul><ul><li>EMEA request to eliminate HSA from Eprex (sold as Epogen by Amgen in the US) </li></ul><ul><li>Immunogenic responses emerge in Eprex patients </li></ul><ul><li>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 </li></ul>BUILDING BIOTECHNOLOGY pp. 202, 346-7, 161
  9. 9. Lessons <ul><li>IP </li></ul><ul><li>Be prepared for unexpected patent litigation </li></ul><ul><li>Be prepared to challenge the validity of competitor patents </li></ul><ul><ul><li>A common response to infringement challenges </li></ul></ul><ul><li>Don’t short-change IP due diligence </li></ul><ul><li>Have multiple products in development </li></ul><ul><li>Manufacturing </li></ul><ul><li>Don’t lose your manufacturing license </li></ul><ul><li>Don’t lose control of outsourcers </li></ul><ul><li>Buy insurance </li></ul>
  10. 10. If you build it, they might not come <ul><li>Biotechnology is, by its nature, </li></ul><ul><li>revolutionary. </li></ul><ul><li>Just because something is new or </li></ul><ul><li>based on exotic science, it’s not </li></ul><ul><li>guaranteed to sell. </li></ul>
  11. 11. Evacyte: Classic technology push <ul><li>Spun out of UT Austin in 2000 </li></ul><ul><li>Commercialize patented method to stretch </li></ul><ul><li>cells between two laser beams </li></ul><ul><li>Assay for cancer detection: </li></ul><ul><ul><li>Healthy cells don’t stretch, cancer cells do </li></ul></ul><ul><li>Perceived primary challenge </li></ul><ul><li>FDA trials to prove efficacy </li></ul><ul><li>Actual primary challenge </li></ul><ul><li>Change the practice of physicians </li></ul><ul><ul><li>Cell stretchiness was often associated with other signs of cancer, </li></ul></ul><ul><ul><li>limiting its utility for positive diagnosis </li></ul></ul><ul><ul><li>In the absence of stretching but presence of other indicators of </li></ul></ul><ul><ul><li>cancer, oncologists would still treat for cancer </li></ul></ul><ul><ul><li>Where’s the value? </li></ul></ul>BUILDING BIOTECHNOLOGY pp. 264-265
  12. 12. Calgene’s Flavr Savr tomato <ul><li>Produce a novel tomato product that can be sold at a premium price </li></ul><ul><li>Most tomatoes are gas-ripened </li></ul><ul><li>Picked while green </li></ul><ul><li>Sprayed with ethylene to ‘ripen’ prior to sale </li></ul><ul><li>Result is bright red but tasteless tomatoes </li></ul><ul><li>Vine-ripened tomatoes sell for a premium </li></ul><ul><li>Tastier than gas-ripened tomatoes </li></ul><ul><li>Cost more to deliver to market, have shorter shelf-lives, limited availability </li></ul><ul><li>Polygluconase enzyme was associated with ripening in 1984 </li></ul><ul><li>Highly expressed in red tomatoes, absent in green tomatoes </li></ul><ul><li>Calgene set out to reduce expression of polygluconase to delay ripening </li></ul><ul><li>Goal: Produce tomatoes that can be transported like gas-ripened tomatoes </li></ul><ul><li>but are worthy of vine-ripened prices </li></ul>BUILDING BIOTECHNOLOGY p. 326
  13. 13. Path to development <ul><li>Isolate PG gene and generate antisense tomatoes </li></ul><ul><li>Develop assay for ripening </li></ul><ul><ul><li>Flavr Savr tomatoes spoiled slower than wild tomatoes at room </li></ul></ul><ul><ul><li>temperature </li></ul></ul><ul><ul><li>1 lb weight and timer to measure firmness </li></ul></ul><ul><li>Field test </li></ul><ul><ul><li>Flavr Savr tomatoes ripened as fast as wild tomatoes, rotted slower </li></ul></ul><ul><li>File Patents </li></ul><ul><li>Solicit FDA Approval </li></ul><ul><ul><li>Demonstrate that Flavr Savr tomatoes do not pose a health risk </li></ul></ul>
  14. 14. Market launch <ul><li>Taste of Flavr Savr tomatoes not as good as competing premiums </li></ul><ul><ul><li>Flavr Savr gene was not introduced into premium tomato varieties </li></ul></ul><ul><li>Flavr Savr tomatoes could not withstand shipping </li></ul><ul><ul><li>Firmer than vine-ripened, but not as durable as green tomatoes </li></ul></ul><ul><li>General lack of expertise in the fresh-tomato business </li></ul><ul><ul><li>Product pulled from market </li></ul></ul><ul><li>Flavr Savr tomatoes had marginal added value; </li></ul><ul><li>could not be sold at a profit </li></ul>
  15. 15. Why do companies aim for empty markets? <ul><li>Have </li></ul><ul><li>Potent technologies </li></ul><ul><li>Want </li></ul><ul><li>Funding </li></ul><ul><li>Sell </li></ul><ul><li>Any opportunity you can </li></ul><ul><li>Genentech’s first product was a throwaway </li></ul><ul><li>neurotransmitter, but it proved their technology </li></ul>
  16. 16. Estimating market size <ul><li>Measuring market size helps: </li></ul><ul><li>Attract investors and partners </li></ul><ul><li>Determine royalties and compensation </li></ul><ul><li>Determine necessary production capacity </li></ul><ul><li>Inform actions to develop internal sales team / external partnership </li></ul>BUILDING BIOTECHNOLOGY pp 235-239, 273-276
  17. 17. Resolving valuation disagreements <ul><li>Centocor and Schering-Plough disagree on market potential for Remicade </li></ul><ul><li>First dedicated treatment for Crohn’s disease </li></ul><ul><ul><li>Centocor estimates: $1 billion in 10y </li></ul></ul><ul><ul><li>Shering-Plough estimates: 300mm </li></ul></ul><ul><li>Compromise: </li></ul><ul><li>Centocor asks for lower royalty up to $300mm in sales, higher royalty past $300mm </li></ul><ul><li>Result: </li></ul><ul><li>Remicade achieves $1.2 billion in sales within 6y </li></ul><ul><li>Contract extended, Centocor’s profit share increased </li></ul>BUILDING BIOTECHNOLOGY p 304
  18. 18. Low estimates can be detrimental <ul><ul><li>Enbrel: Underestimating market size </li></ul></ul><ul><ul><li>First-in-class drug for rheumatoid </li></ul></ul><ul><ul><li>arthritis </li></ul></ul><ul><ul><ul><li>Difficult to assess market size for first-in-class drugs </li></ul></ul></ul><ul><ul><ul><li>Immunex is overly-pessimistic in projecting patient drop-out </li></ul></ul></ul><ul><ul><ul><li>Drug sets 24-month sales growth record </li></ul></ul></ul><ul><ul><ul><li>Immunex resorts to drug rationing </li></ul></ul></ul><ul><ul><ul><li>Inability to fully leverage drug popularity leads to acquisition by Amgen </li></ul></ul></ul>BUILDING BIOTECHNOLOGY p 275
  19. 19. Lessons <ul><li>Know your market </li></ul><ul><li>What painful unmet need are you filling? </li></ul><ul><li>Know your market size </li></ul><ul><li>What assumptions are you making? </li></ul><ul><li>Why might your estimates be off? </li></ul><ul><li>What if you’re wrong? </li></ul><ul><li>How can you hedge you bets? </li></ul>
  20. 20. Off-label use <ul><li>Drug companies are not allowed to advocate usage of drugs for indications which are not FDA approved </li></ul><ul><li>But physicians are free to use drugs for any indication </li></ul><ul><li>Upside </li></ul><ul><li>More sales </li></ul><ul><li>Downside </li></ul><ul><li>Loss of control of pricing, patents </li></ul><ul><li>Potential for side-effects to emerge and prompt market withdrawal </li></ul>BUILDING BIOTECHNOLOGY pp 148-150
  21. 21. Fen-Phen: Yes, you can be too popular <ul><li>Fen-Phen </li></ul><ul><li>FDA-unapproved combination of fenfluramine and phentermine </li></ul><ul><ul><li>Fenfluramine: approved for short-term treatment of obesity </li></ul></ul><ul><ul><li>Phentermine: member of a class of drugs traditionally used for treatment of morbid obesity </li></ul></ul><ul><li>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. </li></ul><ul><li>Following revelation of heart valve problems, fenfluramine and chemically-similar dexfenfluramine pulled from market </li></ul>BUILDING BIOTECHNOLOGY p 150
  22. 22. Fentora: Don’t buy our drug <ul><li>Fentora </li></ul><ul><li>For cancer pain untreatable by regular pain medicines </li></ul><ul><li>Four deaths </li></ul><ul><li>Fentora used to treat conditions such as headache </li></ul><ul><li>Response </li></ul><ul><li>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 </li></ul>BUILDING BIOTECHNOLOGY p 148
  23. 23. Avastin: Controlling off-label use <ul><li>Lucentis and Avastin: Monoclonal antibodies produced by Genentech </li></ul><ul><ul><li>Lucentis ($2,000 per treatment): approved for advanced, age-related macular degeneration (AMD) </li></ul></ul><ul><ul><li>Avastin ($150 per treatment): approved for colon and other cancers, but not for macular degeneration </li></ul></ul><ul><li>Doctors widely using Avastin for AMD </li></ul><ul><li>Genentech responds by banning Avastin purchases by compounding pharmacies, which repackage it for eye injection </li></ul><ul><ul><li>Cites FDA concerns regarding the safety and efficacy of drugs from compounding pharmacies </li></ul></ul><ul><li>Physicians and patients complain </li></ul><ul><li>Many patients may be unable to access vision-saving drug </li></ul><ul><li>NIH National Eye Institute initiates trial to test efficacy of Avastin for AMD </li></ul>BUILDING BIOTECHNOLOGY p 282
  24. 24. Lessons <ul><li>Monitor prescriptions and patient outcomes </li></ul><ul><li>Be willing to say no: don’t let markets or greed dictate prescription policy </li></ul>
  25. 25. Shareholder / board activism BUILDING BIOTECHNOLOGY pp. 193-197
  26. 26. Dyadic: Et tu Brute <ul><li>Entrepreneur uses shipping arbitrage to dominate landscaping stone market </li></ul><ul><li>Wants to diversify, so he sells pumice to Levi’s for stonewashed jeans </li></ul><ul><li>Emergence of cellulases starts eroding pumice stonewashing market </li></ul><ul><li>If someone’s going to put me out of business, it might as well be me </li></ul><ul><li>Repeats strategy used to dominate landscaping stone market: find a </li></ul><ul><li>cheaper source </li></ul><ul><li>Forms partnership with Moscow State University to select and engineer </li></ul><ul><li>fungi for optimal cellulase activity </li></ul><ul><li>Creates first fungal mass protein-production system </li></ul><ul><li>Starts targeting pharmaceutical applications </li></ul><ul><li>Attack from within </li></ul><ul><li>Financial irregularities with Chinese partner </li></ul><ul><li>Board ousts founder </li></ul>
  27. 28. Shareholder letter
  28. 29. Founder regains control … of what?
  29. 30. MedImmune: Shareholder activism <ul><li>Shareholders lack faith in management </li></ul><ul><li>Believe MedImmune would deliver greater value if acquired </li></ul><ul><li>Carl Icahn buys 1.16 % of MedImmune, threatens a proxy-war (backed by other shareholders) to obtain a board seat and push for acquisition </li></ul><ul><li>Management relents and seeks acquisition </li></ul><ul><li>MedImmune reaches agreement to be acquired by AstraZeneca for $15 billion </li></ul><ul><li>Icahn makes $300 million </li></ul>BUILDING BIOTECHNOLOGY pp. 195
  30. 31. With partners like these, who needs competitors <ul><li>Your technology may work </li></ul><ul><li>Your market may be good </li></ul><ul><li>Your execution may be flawless </li></ul><ul><li>but, </li></ul><ul><li>Watch your back! </li></ul>
  31. 32. Suing the Red Cross <ul><li>J&J vs. Red Cross </li></ul><ul><li>100 year-old agreement to share “red cross” symbol: </li></ul><ul><ul><li>J&J uses it for commercial products </li></ul></ul><ul><ul><li>Red Cross uses it for humanitarian mission </li></ul></ul><ul><li>2007: Red Cross licenses symbol for first-aid kits </li></ul><ul><li>Trademark law requires owners to actively police their mark or risk losing it (e.g. Bayer no longer owns “aspirin” trademark) </li></ul><ul><li>J&J sues Red Cross </li></ul><ul><li>Initial ruling sides with Red Cross </li></ul><ul><li>J&J withdraws case, loses face </li></ul>BUILDING BIOTECHNOLOGY p 131
  32. 33. IP disputes with major backers <ul><li>Sandoz and Ciba Geigy merge to form Novartis </li></ul><ul><li>Shelve SPP100 due to inability to profitably manufacture it </li></ul><ul><li>Ciba Geigy scientist Alice Huxley forms spin-off to pursue drug </li></ul><ul><li>Novartis licenses drug with buy-back option </li></ul><ul><li>Becomes major funder, owns 10% of Speedel </li></ul><ul><li>Speedel develops new manufacturing process </li></ul><ul><li>SPP100 gains FDA approval, launched as Tekturna </li></ul><ul><li>First in a new class of drugs for high blood pressure </li></ul><ul><li>Novartis charged with using new manufacturing process for other drugs, without license </li></ul><ul><li>Solution: Novartis announces plans to buy Speedel for $880mm </li></ul>BUILDING BIOTECHNOLOGY p 186
  33. 34. Nektar: Running with the big dogs <ul><li>Insulin market is mature, VERY large </li></ul><ul><li>Nectar develops inhalable version of insulin. Projected $2-3B annual sales. </li></ul><ul><li>After six years of clinical trials, delivery system is approved </li></ul><ul><li>Need large partner to market drug effectively </li></ul><ul><li>Pfizer charged with marketing drug, leveraging their massive sales force </li></ul><ul><li>Pfizer gets scared </li></ul><ul><li>Long term effects of protein administration via lungs is unknown </li></ul><ul><li>Vioxx-like recall could bankrupt Pfizer </li></ul><ul><li>Deal with Nektar was made three CEOs ago </li></ul><ul><li>Pfizer pulls drug </li></ul><ul><li>Nectar’s outcome </li></ul><ul><li>Learns of Pfizer’s withdrawal via press release </li></ul><ul><li>Gets $135mm payoff, pays $38mm to suppliers </li></ul><ul><li>150 staff cut, COO leaves, company to change focus to drug development </li></ul>BUILDING BIOTECHNOLOGY pp.250-251, 308
  34. 35. Lessons <ul><li>Know when to ask for help </li></ul><ul><li>Entrepreneurs are exceedingly good at starting companies, </li></ul><ul><li>but they may need professional assistance in running them </li></ul><ul><li>Avoid outsized partnerships or opportunities </li></ul><ul><li>Find a compatible partner: Pfizer had much more to lose from a tort suit than from not selling inhalable insulin </li></ul><ul><ul><li>Contract with Pfizer should have clearly laid out expectations and included punitive penalties for underperformance </li></ul></ul><ul><li>MedImmune’s enterprise value had outgrown management </li></ul><ul><li>Don’t sue the Red Cross </li></ul>
  35. 36. The business plan is but the beginning <ul><li>It is not the planning that is important; it is the planning that makes you able to change it </li></ul><ul><li>Dwight D. Eisenhower </li></ul><ul><li>Business plan should: </li></ul><ul><li>Define framework for operations </li></ul><ul><li>Set objectives and milestones </li></ul><ul><ul><li>If you don’t know where you’re going, you’ll end up somewhere else – Yogi Berra </li></ul></ul><ul><li>Provide a basis for contingency plans </li></ul><ul><li>Remain flexible </li></ul>Yali Friedman –
  36. 37. Building Biotechnology on Facebook <ul><li>Join the Building Biotechnology group on Facebook to ask questions and network with biotechnology </li></ul><ul><li>students from other schools </li></ul><ul><li> </li></ul><ul><li>or </li></ul><ul><li> </li></ul>