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Article 09 Reverse Start Up Model Neil Campbell


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Business Development & Licensing Journal
A great journal for biz dev, commercial development, you should subscribe
The Reverse Start-Up Model:
An organisational approach to
bridge the innovation gap
What needs to be done to improve or change the lack of commercial development productivity of the
life science industry, specifically the pharmaceutical and medical device industries? Having an innovative
approach to creating diversified commercial opportunities can drive enterprise value, share appreciation
and diminish the attrition rates of development failure. Having a model that outlines the end results and
the steps necessary to achieve it can provide a sustainable and scalable approach to managing and
growing your life science organisation, be it large, small or an early-stage venture.

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Article 09 Reverse Start Up Model Neil Campbell

  1. 1. Issue 7 • Winter 2009 Business Development & Licensing Journal For the Pharmaceutical Licensing Groups Partnerships: Necessary but not Sufficient? The Perfect Business Development Organisation The Reverse Start-Up Model Opportunities and Challenges in Licensing Creating Real Value in Pharmaceuticals
  2. 2. Business Development & Licensing Journal The Reverse Start-Up Model: An organisational approach to bridge the innovation gap What needs to be done to improve or change the lack of commercial development productivity of the life science industry, specifically the pharmaceutical and medical device industries? Having an innovative approach to creating diversified commercial opportunities can drive enterprise value, share appreciation and diminish the attrition rates of development failure. Having a model that outlines the end results and the steps necessary to achieve it can provide a sustainable and scalable approach to managing and growing your life science organisation, be it large, small or an early-stage venture. by Neil J Campbell, Many think that 2007 may be remembered as the year to the ability of the biotech sector to understand that Big Pharma decided that consolidation with larger more deeply their scienific platforms and to be able CEO, Mosaigen, Inc Biotech companies would be the answer to the many to apply that knowledge to better, more targeted and Partner, Endeavour problems currently plaguing Big Pharma’s ability to disease indications. Some of the biotech companies drive new product innovation, which is turn, drives the are just plain lucky as well. Capital Asia Ltd enterprise value and long-term stakeholder value. The Big Pharma component of the industry spent over US$ Some limited successes over the past decade in the 55.2 billion in 2006 (2007 estimates are over US$ 63 pharmaceutical sector as related to new product billion) on drug R&D an increase from US$ 26 billion innovation came from such tactics as new indications they spent in the year 2000 with a declining number for existing approved products, new formulations of of drug approvals after that according to the PhRMA existing approved products, and in an interesting, but report released in 2007. Over the past decade, Big early trend, drugs developed into medical devices Pharma has continued this downward trend of called therapeutic devices such as the drug-eluting decreasing late-stage drug candidates and stagnant stent used in angioplasty for opening up arteries. regulatory approval rates. With the severe melt-down Other tactical moves have included the expansion of of the worldwide financial markets in 2008 and the generics in a portfolio management play with ethical lack of continued innovation of pharmaceutical drugs. The most advanced and aggressive tactics companies, an innovation gap has occurred and is have been to drive the nutritional and natural aspects widening at an alarming rate. Biopharmaceuticals on of compounds in an approach towards nutraceuticals the other hand have seen an increase in productivity in and functional food, beverages and ingredients. In both the number of drugs developed and approved. fact, there has been a big push from the Indian sub-continent and Asia/Pacific to incorporate these Some would argue that the biotech sector’s success nutraceutical ingredients into new formulations has been attributed to its increase in specificity of combining them with approved drug products. how drugs work towards the intended target indications. Others will attribute the greater success All of these approaches highlight a need to continue to innovate in order to generate, a viable pool of candidates for drug products. Combine this trend Figure 1: The Pharma Innovation Gap with the increasing nature of various disciplines’ Increased R&D spending yielding lesser drug approvals integrating into the biological and pharmaceutical sciences and you have new and proprietary $70 60 technologies to generate more ways you can make Pharma R&D an organisation become more sustainable and investment scalable over time. The reason for this sustainability Biopharm R&D $60 and scalability is that past proven success in 50 investment understanding the science and technology acts like a New drug building block. These building blocks serve as a $50 approvals US Pharma R&D ($Billions) foundation; much like a house has a foundation, to New drug approvals 40 FDA support further development of infrastructure and Pharma $40 the resulting products that come from these efforts. Innovation 30 Gap In order to take advantage of this ‘out of the box’ $30 thinking in approaching drug and device development, the organisation must have strong 20 interdisciplinary technical capabilities along with a $20 strong corporate and business development function. The deal-making that results from this kind 10 $10 of approach is very intense, sometimes a challenge to manage and must result in a unified approach in managing the overall portfolio of deals. $0 0 1992 1996 2000 2001 2002 2003 2004 2005 2006 2007 Sources: Pharmaceutical Research and Manufacturers (PhRMA) Annual Report 2007; Burill & Company Report 2003; PhRMA Annual Member Survey, 2007; US Food & Drug Administration Databases 12
  3. 3. Issue 7 • Winter 2009 Why is that? Whether you are developing bioscience Figure 2a: Three or more mid or later-stage assets thematically linked products, selling them, or trying to license them, it is a numbers game and the more projects you have in parallel, but staggered, the higher the odds that you will get something finished. The high attrition rates in “Repurpose technology development lend themselves to this ‘numbers in your Build the long-term growth whenever possible” favour’ approach to getting something approved. The (add earlier stage) Adoption rates of customers Market share of customers approach in business development is no different, as there are many deals where the timing is long, and complicated in how the science could be developed. If you are thinking more broadly and with the License/acquire or build a Pipeline ever-changing roles of managers today in companies, of follow-on development candidates you are most certain to lose a significant number of deals to attrition. Add to this dilemma the need to have a broader range of technical expertise on staff and the situation can be quite daunting. Start with a base of We outline in a summary way a new approach to Near-marketed products or marketed products creating sustainable revenues and enterprise value. By starting with the end results in mind for an Time to commercialisation and breakeven organisation, the organisation can use an approach called The Reverse Start-Up (RSU) Model. In Figure 2a, we outline the process to create an organisation whereby it will have staged products according to the market needs in a designated franchise area. You actions to the surface in building out the start with the requirements necessary to drive the organisation. Then by combining later-stage initial growth of the organisational by defining later products/technologies/services first and working your stage products/technologies and work your way way back to earlier stage, you create a broader, stable back to early-stage products. platform for commercial development. At the same time you define the steps in a five year In Figure 2b, we outline a real company that was time horizon to achieve the desired outcome. In a evolving from solely a research and diagnostics process called the Five by Five (5x5) as depicted in product company to an integrated company with full Figure 2b, developed by the author over fifteen years therapeutics capability in cancer and metabolic ago, you lay out the most critical actions to be syndrome. The disease focus resulted in a process of achieved in descending order per year for five years. targeting two small companies with scientific capabilities in these areas along with the mechanism You can’t progress to year two, until you satisfy all of of action of the drug programs coinciding with the the five in the previous year and so forth. If after the proprietary nature of the molecular and protein first year, you realise the five actions were not the diagnostic technologies. In this case, to increase proper ones you must restate them in order to patient care success, diagnostics helps to increase the achieve closure and move onto the next year period. effectiveness of treatments. This strategic thinking process forces the organisation to identify the most important elements in each year The RSU approach provides for broader thinking in to accomplish the number one company goal which what is needed to analyze, develop and manage a is listed on top of the five. Like climbing stairs, you plan of research, development and commercialisation must complete the five each year before you can of a group of products by focusing on the science move into the next year. By utilising a 5 by 5 and technology needed to support such a broader approach, you statistically will force the most pressing perspective. Be it a small or large company, if the Figure 2b Theranostics Company Mission of company To become the leading theranostic company 1. Expand research products in Oncology, CNS or Metabolic by providing 2. Expand clinical Dx leading-edge technologies & products in the 3. Move Proj X to Group #2 Theranostics areas of DNA-based and proteomic research 4. Clinical studies of Rx drug integration & diagnostic assays. 5. Increase revenue to $60M Our company will offer the most advanced 1. Partnership launch of kit(s) Tx Organise detection and processing system for 2. Product line expansion of assays & kits diagnostics quantatative DNA & Protein Analysis. 3. Project X in field use by Group #1 Continue research 4. Start pre-clinical studies for Rx candidate We will eventually evolve into a full products 5. Increase research, grants & revenue to $45M theranostic company by moving into drug development. 1. Pick lead disease area 2. Conduct clinical Dx work 3. Develop arrays & assay kits, expand sales Develop Dx 4. Conduct Project X clinical studies Find Rx 5. Increase research, grants & revenue to $30M 1. Secure Dx partner, new assays, proteins 2. Develop kits & high density quant. Protein microarray product 3. Secure Project X grant funding, NGO approval Spinout: become 4. In-license Rx protein target for theranostic: Cancer, CNS or Metabolic sustainable TGT: $10M 5. Increase research, grants & research revenue to $15M 1. Spin out from parent company, minority owned 2. Transfer grants/new grants: target $3M first 12 months 3. Obtain $6M from parent company 4. Sell research reagents (OEM) increase 50% 5. Do assay development: Strategic partners, bring in $5M 13
  4. 4. Business Development & Licensing Journal company can define all of the material elements companies, either through M&A activity or one-off necessary to have a global expertise and presence, licensing/asset sale build truly sustaining disease then it can define what the resulting company will franchises. The majority of company or asset look like. Are you a cancer company, or a women’s acquisitions/ in-licensing are intended to solve the health company focusing on reproductive cancers in shorter-term need for revenues than to build a terms of pharmaceuticals, diagnostics and medical broader, more diversified franchise in a particular devices? This more holistic approach allows market need segment or disease area. Over the last companies to build franchises around prevention, twelve months, a trend of buying U.S.-based treatment and monitoring for classes of disease and companies (five of the acquisitions were U.S.-based) their resulting products than approaching a ‘one-off’ by companies in Asia and Europe are showing this approach to cancer or any other disease. Very few philosophical difference in approaching longer-term value building of their companies. Table 1 The Asian and EU companies in Table 1 are growing Buyer Buyer Acquiree Acquiree Deal Deal their mix of both product types (generics, small home city home city size announced molecules, biopharm) along with over-the-counter AstraZenecaPLC London MedImmune Gaithersburg, Md. $13.8 billion April 24, 2007 (OTC) in their drug strategies. Some such as Novartis, Novartis AG Basel, Switzerland Alcon Vevey, Switzerland 10.5 April 8, 2008 AstraZeneca, Takeda and Teva are moving to combine drugs, devices, and diagnostics in areas that will require Takeda Osaka Millennium Cambridge, Mass. 8.8 April 10, 2008 Pharmaceuticals a more diversified approach to health management. Hologic Bedford, Mass. Cytyc Marlborough, Mass. 6.3 May 21, 2007 Siemens AG Munich Dade Behring Deerfield, Ill. 6.2 July 26, 2007 Holdings The Reverse Start-UP Applied Warburg Pincus New York Bausch & Lomb Rochester, N.Y. 3.6 May 17, 2007 Model (RSU) Eisai Co., Ltd Tokyo MGI PHARMA Bloomington, Minn. 3.3 December 11, 2007 Medtronic Minneapolis Kyphon Sunnyvale, Calif. 3.3 July 28, 2007 Roche Holding Basel, Switzerland Ventana Medical Tucson, Ariz. 3.1 June 26, 2007 With any model or approach comes a set of guidelines Systems that drive a framework to thinking and resulting Celgene Summit, N.J. Pharmion Boulder, Co. 2.5 November 19, 2007 actions. The RSU provides a simple, yet unique, way to define your business in both terms of strategic value as well as the shorter term tactical value of your Figure 3 enterprise. The RSU is more of a process whereby an organisation can define business opportunities that will drive growth as well as to build platform and #7 #8 #9 #10 #11 #12 Products product opportunities for an organisation longer term. Let’s take a closer look at the RSU approach. In any situation whereby you are trying to minimise risk and increase the possibility of gains, you want to generate an approach/model that generates multiple, but Platform Platform Foundation Platform related, options or conduits for growth that can build on each other. These could be technology platforms, mechanisms of action, pathways in disease, drug classes, drug/device and/or drug/diagnostic combinations. By analysing and planning out your #1 #2 #3 #4 #5 #6 Products operational strategy around this Multiplicity strategy, you can increase your odds of success and mitigate your chances of failures. (See Figure 3). A more balanced development portfolio produced Platform Foundation Platform Foundation by using the Multiplicity approach is shown in Figure 4 for drug development, by combining varying approaches to manage risk, reward and organisational expertise. Co-promote and Co-development options allow an organisation to Figure 4: Drug development and approval process build out the capabilities if not already mature or can give an organisation an even footing with a partner by sharing the risk and rewards. Although many Postmarketing – Phase IV “Co-Promote” Approaches companies may use these strategies individually, the majority do not use them in a more collective and directed way to develop a portfolio of commercial Preregistration – FDA/EMEA “Co-Development” Approaches development as outlined in Figure 4. File NDA at FDA “PDC” Development Approaches The ‘PDC’ or pharmaceutical development company Clinical Trial Phase III approach is a good way to either manage larger scale opportunities where the company couldn’t pursue them all or where a higher-risk or lower priority Clinical Trial Phase II project can still have life and bring some monetisation “Foster” Development Approaches possibilities to the source company. One option in this drug multiplicity strategy is the ‘foster’ choice for Clinical Trial Phase I “Sponsored” developing projects. Fostering is a process whereby a Development Approaches company with one or more resources doesn’t have File IND at FDA the time, money or franchise expertise to adequately develop the project or, where a larger company does Preclinical Testing have the money and franchise expertise but, doesn’t 14
  5. 5. Issue 7 • Winter 2009 Figure 5 – Grants Revenue Now Revenue Products Exit: Sale Now – OEM – Alliance – Brand Sales – Existing Sales – Consulting Near-Term Exit: Sale Revenue 1-3 Yrs Revenue Products Near-Term Global Investment Banks Form Division Non-Dilutive Funding NexGen NewCo Exit: Sale, P&L spinouts from Revenue 0-6 Yrs Partner holding Co. Institutional Funding Global Investment Banks Venture Philanthropy, Angel, VC or PE have the resources to pursue this and other possibly having increased options by default lowers risk by related projects. For the larger company, the fostering increasing the numbers to choose from and if done approach allows competing interest projects to move well, can be very capital efficient as you can utilise along the development path with options of bringing existing resources, expertise and networks to move those fostered projects back in-house if results along the most valuable projects. warrant it. For smaller companies, fostering provides the building of operational capabilities and expertise The main points for success are to: in drug development and the chance to option into Clearly define the OVERALL market opportunity and a drug resource for future pipeline with a favoured unmet needs across the complete nation position. product/technologies needed to service that market and unmet needs. The RSU approach also provides financial and operational ‘out of the box’ thinking to grow Define the organisation structure and resources opportunities for expansion of deal flow, ability to needed to develop those capabilities and outline monetise assets earlier or in tranches or to build a those in a 5 by 5 model for priority thinking. You diversified healthcare approach to a particular then select the assets/companies that can build the disease area. Drugs are more capital intensive, take new defined structure, starting with the end in mind longer to develop and have higher risk profiles or later stage to earlier stage. associated with them. If the trend of management As you define the organisation, make sure to is more holistic, approaches to preventing, prioritise potential assets/companies on their ability diagnosing or treating the diseases, the RSU model to provide more multiplicity of options in can incorporate the additions of devices, diagnostics, development. One example that leverages the drug services and software solutions. With the development resources of a medium size company longer-term possibilities of personalised healthcare is in Figure 4. and specific disease management and eventual prevention, the multi-disciplined approach will serve If you define, develop, and execute a reverse thinking the company better in the long-run. In Figure 5, we or startup approach to building your franchise, you outline a simple high-level of options outlining the will be more comprehensive in your scope of ability to generate revenue, manage risk and to build coverage for the market and to the givers of care and off of earlier capabilities in creating a more diversified will likely have more options that provide security and holistic operating business. when some projects fail during development. Lastly, the RSU model can be used to drive a wider In summary, if an organisation can clearly define a array of financing and monetisation options to raise market overview with the unmet needs over a five non-dilutive money for continued operations and to year time horizon, then identify the later stage to drive more sustaining forms of revenue. earlier stage assets needed, then it can provide for an initial framework of operating strategy. By screening and selecting candidates based upon the ability to create next-generation products or lateral Neil J. Campbell is currently Chairman & CEO for MosaigeTM, Inc., a global Life Science products that can increase the multiplicity of development corporation, located in Germantown, Maryland USA and Partner with opportunities in the development program, then you Endeavour Capital, a private equity fund in Asia. During his career, he has successfully can achieve a greater number of options. This developed and introduced over 200 products in healthcare, life sciences and information multiplicity approach as stated earlier will give technologies. He earned his MBA and MA in Management Systems from Webster University increase chances of development success by having in Saint Louis, MO and his BS-BA from Norwich University in New England. more options to include repurposing of projects, 15