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Final 2011 dip si thesis oliver vit cv
1. Actelion Pharmaceuticals Ltd
nd
The quest for a 2 partner
A CONFIDENTIAL DISSERTATION SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR A
POST GRADUATE DIPLOMA
IN
ADVANCED STRATEGY
(Dip S&I) 2011
Oliver Vit
Word count: 9,933
2.
3. ABSTRACT
A Schumpeterian wave of creative destruction has swept through the pharmaceutical
industry following the unprecedented growth in biologic products where each success
represents annual revenues in excess of a billion dollars. The source of this revolution was
the discovery of recombinant DNA techniques in the 1970s which enabled researchers to
synthesize large, complex proteins previously unimaginable within the scope of traditional
organic chemistry. The result was a dual market structure in which numerous smaller
innovators linked closely to the cutting edge research of universities rivaled the stable base
upon which the relatively few large incumbents had been built. Several large
pharmaceutical firms which had ignored the full potential of these new products at the
inception of the revolution were later forced to spend valuable resources in an effort to
compete with adversaries who had profited from decisions to embrace the biotech
revolution early on. Various methods have been implemented over the last 30 years in an
effort to harness the growth potential of promising biotechs including mergers, acquisitions,
equity stakes, joint ventures and alliances. The last 20 years have witnessed alliances rise
to displace all other forms of partnerships in terms of sheer quantity primarily due to the
ease with which they can be formed and broken as investment strategies adapt and change
to the results of research.
This paper introduces Actelion Pharmaceuticals and the S1P1 agonist program it wishes to
partner within this complex environment of interwoven alliances between firms of
dissimilar sizes and competences sharing the common goal of returning value to the
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4. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
shareholders with the profits from successful development programs which met previously
unaddressed medical needs. A Stage Gate model has been applied to introduce a process
by which the hundreds of registered pharmaceutical firms can be filtered through a series of
three gates in order to identify candidates best matching Actelion’s present and future
needs. The first gate narrows down the list of potential candidates to 26. The second gate
filters the candidates further using a scoring tool which has been developed to evaluate and
compare the core competences of each candidate, i.e., research, clinical development,
marketing, along with indices for resources, growth & resiliency and productivity. The
third gate is a risk analysis of the remaining candidates leaving a robust strategy reflective
of the dual market appropriate for due diligence efforts with 6 appropriate candidates
eligible for due diligence.
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5. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Table of Contents
Abstract i
Figures vi
Tables x
List of Abbreivations and Acronyms ix
INTRODUCTION
Actelion Pharmaceuticals Ltd 1
S1P1 agonist program 2
Autoimmune disorders 7
Product life cycle 8
Core Competences 9
Research 9
Clinical development 11
Marketing & Sales 12
4th competence 14
PARTNERING
General background 15
Types of partnering arrangements 17
Minority holdings 17
iii
6. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Joint ventures 17
Research, development and marketing pacts & alliances 18
Trends over the past 20 years 18
Genesis to demise, the life cycle of pharmaceutical companies and how
partnering fits to survival in Schumpeterian landscape 22
METHODS
Stage-gate approach 28
RESULTS
Gate I 30
Gate II 32
Scoring tool 32
Research 32
Clinical development 33
Marketing & Sales 33
Resources 34
Growth & Resiliency 34
Productivity 35
Candidate profiling 39
Gate III 50
Risk assessment 50
PESTL 50
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7. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Political 50
Economic 51
Social 51
Technological 52
Environmental 52
Legal 53
Geopgraphic risks 53
Long term risks 56
Connection highway 57
DISCUSSION 64
CONCLUSIONS 69
REFERENCES 71
APPENDIX I 74
APPENDIX II 93
APPENDIX III 119
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8. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Figures
Figure 1 Life cycle of pharmaceutical products p.9
Figure 2 Growth of newly established R&D partnerships 1960-1998 p.20
Figure 3 % of joint ventures in all newly established R&D partnerships 1960-1998 p.21
Figure 4 % of all contractual modes and joint R&D agreements from 1975-1998 p.22
Figure 5 Stage-gate model for partner selection p.29
Figure 6 Cross comparison with large pharmaceutical firms p.37
Figure 7 Cross comparison with biotechs & others p.38
Figure 8 Pfizer scoring results p.39
Figure 9 Bayer Schering scoring results p.40
Figure 10 Novartis scoring results p.41
Figure 11 Abbott scoring results p.42
Figure 12 Bristol-Myers Squibb scoring results p.43
Figure 13 Roche scoring results p.44
Figure 14 Amgen scoring results p.45
Figure 15 Merck KGaA scoring results p.46
Figure 16 Novo Nordisk scoring results p.47
Figure 17 Biogen IDEC scoring results p.48
Figure 18 Teva scoring results p.49
Figure 19 Distribution of R&D partnerships, economic regions (1960-1980) p.54
Figure 20 Distribution of R&D partnerships, economic regions split by decade p.55
Figure 21 R&D partnerships in pharmaceutical biotechnology 1975-1979 p.58
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11. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Figure 66 Ono overview p.116
Figure 67 Ono complete scoring results p.117
Figure 68 Teva complete scoring results p.118
Figure 69 R&D partnerships in pharmaceutical biotechnology 1975-1979 – p.120
reproduced
Figure 70 R&D partnerships in pharmaceutical biotechnology 1980-1984 - p.121
reproduced
Figure 71 R&D partnerships in pharmaceutical biotechnology 1985-1989 - p.122
reproduced
Figure 72 R&D partnerships in pharmaceutical biotechnology 1990-1994 – p.123
reproduced
Figure 73 R&D partnerships in pharmaceutical biotechnology 1995-1999 – p.124
reproduced
ix
12. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
Tables
Table I Properties of sphingosine-1-phosphates p.3
Table II Patented S1Px agonists p.5
Table III Patented S1Px agonists in clinical development p.6
Table IV Bestselling drugs in 2010 p.13
Table V Drug development success rates p.14
Table VI Top 10 pharmaceutical and biotech firms in 2010 p.31
Table VII Scoring tool valuations for large pharmaceutical firms p.36
Table VIII Scoring tool valuations for biotechs & others p.36
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13. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
List of Abbreviations and Acronyms
AS Akylosing spondylitis
BRIC Brazil Russia India China
CD Crohn’s disease
CEO Chief Executive Officer
CHF Congestive heart failure
EIM Entry Into Man
EMA European Medicines Agency
ETA Endothelin-A
ETB Endothelin-B
FDA Food and Drug Administration
GDP Gross Domestic Product
GPCR G protein-coupled receptor
HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency
Syndrome
HTS High Through-put Screening
ICH International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human Use
IPO Initial Price Offering
IT Information Technology
JAK Janus Activated Kinase
JIA Juvenile Idiopathic Arthritis
JV Joint Venture
KOL Key Opinion Leader
MA Marketing Authorization
M&A Mergers & Acquisitions
MS Multiple Sclerosis
NPV Net Present Value
PAH Pulmonary Arterial Hypertension
PD Pharmacodynamics
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14. Candidate number: DSI1057
Diploma Strategy & Innovation
Final thesis
PESTL Political Economic Social Technological Legal
PK Pharmacokinetics
Ps Psoriasis
PsA Psoriatic arthritis
RA Rheumatoid arthritis
R&D Research and Development
SEC Securities and Exchange Committee
SMI Swiss Market Index
S1P Sphingosine-1-phosphate
UC Ulcerative colitis
USD United States Dollar
WO World Intellectual Property Organization
WWI World War I
WWII World War II
xii
15. INTRODUCTION
Actelion Pharmaceuticals Ltd
In the 1990’s F. Hoffmann-La Roche Ltd (Roche) discovered and began developing
bosentan, the world’s first endothelin-1 receptor antagonist at endothelin-A (ETA) and
endothelin-B (ETB) protein receptor sites found on the layer of vascular cells forming the
endothelium. Endothelin-1 had been identified as an endogenous vasoconstrictor and
bosentan’s ability to counteract these effects by blocking its access to ETA and ETB
receptors was seen to represent a break-through in the treatment of cardiovascular diseases
where high blood pressure is regulated by vasoconstriction. Later Roche took the decision
to halt further development of bosentan following safety findings in an on-going Phase II
congestive heart failure (CHF) trial. Believing in the therapeutic promise of both bosentan
and its mechanism of action, five founders pooled together resources, successfully gained
the backing of venture capitalists, out-licensed two endothelin-1 receptor antagonists from
Roche, i.e., bosentan & tezosentan, and established Actelion Pharmaceuticals Ltd
(Actelion) on December 17, 1997 with the vision to continue the research and development
of drugs targeting endothelial receptors - or as the company’s name implies, to “act on
endothelium”.
Shortly after Actelion’s Initial Public Offering (IPO) in April 2000, bosentan as Tracleer®
was licensed by the U.S. Food and Drug Administration (FDA) in November 2001 and the
European Medicines Agency (EMA) in April 2002 for the treatment of a then little known
orphan disease affecting an estimated 10,000 persons: pulmonary arterial hypertension
Page 1
16. (PAH). As the market leader enjoying more than 75% market share Tracleer® is
prescribed to more than 40,000 PAH patients worldwide today and accrues nearly 2 billion
USD in annual revenue. Actelion has grown from a single office of 5 persons into one of
Europe’s largest biopharmaceutical industries listed along with Novartis Pharma AG
(Novartis) and Roche as one of the 20 Swiss securities composing the Swiss Market Index
(SMI) and representing more than 2,500 employees throughout 29 affiliates in 13 years
with a pipeline of more than 30 compounds all seeking to address unmet medical needs
with cutting edge research.
S1P1 agonist program
Although first isolated and identified as an endogenous signaling lipid in the late 19th
century sphingosine-1-phosphate’s function remained such an enigma that the root
“sphingo” was assigned as an intentional allegory referring to the Riddle of the Sphinx. To
date five G protein-coupled receptors (GPCR), S1P1-5, have been isolated from various
tissues with distinct attributable functions listed in Table I beneath. Circulating throughout
the body endogenous S1P agonizes any of the five S1Px receptors with physiological
consequences which may play a role in disease pathophysiology.
Page 2
17. Table I – Properties of sphingosine-1-phosphates
Receptor Distribution Cellular functional expression and consequences
S1P1 brain Astrocyte: migration
heart B-cell: blockade of egress, chemotaxis
spleen Cardiomyocyte: increased β-AR positive inotropy
liver Endothelial cell: early vascular system development, adherens
lung junction assembly, APC-mediated increased barrier integrity
thymus Neural stem cell: increased migration
kidney Pericyte: early vascular system development (VSMC)
skeletal muscle T-cell: blockade of egress, chemotaxis, decreased late-stage
lymphoid maturation
VSMC
S1P2 brain Cardiomyocyte: survival to ischemia-reperfusion
heart Epithelial cell (stria vascularis): integrity/development
spleen Epithelial hair cells (cochlea): integrity/development
liver Endothelial cell (retina): pathological angiogenesis, adherens
lung junction disruption
thymus Hepatocyte: proliferation/matrix remodeling
kidney Fibroblast (MEF)
skeletal muscle Mast cell: degranulation
VSMC: decreased PDGF-induced migration
S1P3 brain Cardiomyocyte: survival to ischemia-reperfusion
heart Dendritic cell (hematopoietic): worsening experimental sepsis
spleen lethality/inflammation/coagulation
liver
lung
thymus
kidney
skeletal muscle
testis
S1P4 lung T-cell: migration/cytokine secretion
lymphoid
S1P5 brain NK cell: trafficking
skin Oligodendrocyte: survival
spleen OPC: glial process retraction; inhibition of migration
Source: Rosen et al., 2009. Sphingosine 1-Phosphate Receptor Signaling, Annual Review of Biochemistry,
78, p. 749
Page 3
18. Novartis successfully developed and launched the first non-selective S1P1,3-5 receptor
agonist, Gilenya® (fingolimod), for the treatment of relapsing form of Multiple Sclerosis
(MS) in 2010 and UBS analyst Fabian Wenner (Bloomberg 2011) estimates annual
revenues of Gilenya® to exceed 5.3 billion USD at peak sales. Based on the presumptions
that inhibition of lymphocyte migration offers therapeutic benefit in the treatment of
autoimmune disorders and that this activity was directly linked to the loss of function at the
S1P1 receptor, many research units in the absence of S1P1 antagonists which would block
activation at the receptor site, developed selective S1P1 receptor agonists which internalize
and destroy the receptor in a manner described as functional antagonism. Currently over 20
declared S1Px compounds are specifically patented and undergoing development within 19
pharmaceutical firms listed beneath in Tables II & IIII.
Page 4
19. Table II – Patented S1Px agonists
Company Selectivity Compound
GSK1842799
PPI-4955
PF-991
LAS-189913
S1P1 BMS-520
(unknown)
S1Px
Page 5
20. Table III – Patented S1Px agonists in clinical development
Development
Company Selectivity Compound
phase
Gilenya®
S1P1,3-5 Launched
(fingolimod)
S1P1,5 BAF312
ONO4641 Phase IIb
Ponesimod
(ACT-128800)
ACT-334441
S1P1
CS-0777
Phase I
RPC1063
2018682
Actelion has already conducted the research to discover selective S1P1 agonists and
successfully brought two compounds, ponesimod and ACT-334441, into clinical
development. Although Actelion has launched multiple Phase II clinical trials in both MS
and psoriasis (Ps) following the rapid establishment of in-house expertise in both neurology
and dermatology, Actelion does not possess the development experience in many other
autoimmune disease areas, e.g. rheumatology, gastroenterology, metabolic disorders, etc.
and the resources to conduct simultaneous clinical trials in parallel to the on-going MS and
psoriasis programs within the limited patent protection period. Furthermore in all cases
Actelion lacks the marketing experience to effectively launch its first selective S1P1 agonist
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21. across these multiple disciplines. Therefore Actelion is interested in establishing an
alliance with a partner who is capable of developing and marketing novel therapeutic
agents in autoimmune disorders.
Autoimmune disorders
Disorders in which the body’s immune system falsely recognizes self tissue as a foreign
antigen and begins an inflammatory T-cell driven response to eliminate the tissue are
termed autoimmune. To date over 130 have been identified inclusive of MS, Ps, psoriatic
arthritis (PsA), Rheumatoid arthritis (RA), Ulcerative colitis (UC), Crohn’s disease (CD),
Ankylosing spondylitis (AS) and Juvenile idiopathic arthritis (JIA) where biologic
therapies such as Avonex®, Copaxone®, Rebif®, Betaseron®, Tysabri®, Enbrel®,
Humira®, Stelara®, Simponi®, and Remicaide® are licensed. Sales with these products in
MS alone breached 10 bio USD in 2010 with < 20 bio USD in cumulative sales across all
indications. All biological therapies suffer from two substantial drawbacks in the form of
(1) the necessity of painful injections over the course of a patient’s lifetime and (2) the
build up of neutralizing antibodies and resultant reduced efficacy over time. Oral S1P1
agonists would possess neither of these disadvantages and could replace biologics in all
autoimmune disorders should equal or better efficacy be established with an acceptable
safety & tolerability profile.
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22. Product Life Cycle
All compounds are products of research units and bear tangible costs from the moment of
discovery. A product’s life cycle in the pharmaceutical industry can therefore be expressed
as a sum of expected investments and profits from the overheads involved with its
discovery to the loss of market protection in all major markets worldwide. As WO patents
grant protection for 20 years and there are various means to extending the market life of a
product, e.g. patent extensions, formulation patents, regulatory data protection, etc., the loss
of value due to inflation and amortization over time are factors which must be considered.
Net present value (NPV) which measures the value of an asset by comparing the fully
burdened costs against future revenues discounted for inflation is one common tool used to
appraise assets and relative investment risks across portfolios.
Figure I illustrates a generalized expenditure vs. profit curve across the three critical stages
of research, clinical development and marketing & sales in a successful product’s life cycle
where the revenue magnitude and timing are product specific.
Page 8
23. Figure 1 – Life cycle of pharmaceutical products
Research Clinical Marketing & Sales
development
Profits
Net profits
time
Expenses
Entry into Marketing Peak Patent
man authorization sales loss
Core Competences
Research
Although as postulated by Santos (2003) the methods of research have undergone multiple
changes from learning-by-doing to learning-before-doing, from the discovery of
acetylsalicylic acid by Franz Hoffman a chemist working at Bayer, then a German dye
manufacturer in 1897, to the isolation of penicillin at Oxford in 1937 through the synthetic
revolution of the 1960’s and underlying the astounding success of biotechnology from 1970
Page 9
24. to present, laboratory research remains unequivocally central to any novel compound’s
origin. Expenditure associated with research units in public hospitals, governmental
organizations, university laboratories or private interests, e.g. pharmaceutical industry, bio-
tech start-ups, etc., represent the first expenses in a product’s life cycle.
In terms of discovery research begins by selecting a medical need and a series of premises
in terms of disease pathology followed by the identification of suitable targets. Thereafter
assays are constructed based on the target(s) and a firm’s library of unique compounds are
tested in an automated fashion called High Through-put Screening (HTS) which permits
analysis of these compounds in the hundreds of thousands to be completed in relatively
short periods of time. Based on the desired activity and known toxicological profiles
structural groups are identified and modified in a continual effort to increase the potency
and selectivity of the molecule until such time as a lead candidate is accepted for further in-
vivo experiments to assess the compound’s pharmacokinetics (PK), pharmacodynamics
(PD), possible efficacy, safety and toxicological potential in two animal species prior to
Entry Into Man (EIM). Throughout the development program following EIM further
research activities are typically conducted including but not limited to long term safety,
new formulations, the search for better follow-up compounds and additional indications for
the lead compound.
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25. Clinical Development
Once the PK/PD and safety profile of a clinical candidate has been appropriately defined
and deemed supportive of short term human exposure, the sponsor may decide to proceed
further towards marketing authorization (MA) by entering into the first of three clinical
development phases, Phase I or clinical pharmacology studies. These are small and rapid
investigations studying the effects of the compound on healthy human subjects and the
effects of a healthy human body has upon the compound & its circulating concentrations
under various circumstances, e.g. alone at rest, in combination with other licensed therapy,
comparison of differing formulations of the same compound, under the effect of exercise,
etc.
Patients whose health by definition is jeopardized, are exposed to the compound in the
second clinical development phase, Phase II or dose-finding. In an attempt to determine the
first signs of clinical utility within the dose range explored in the Phase I experience these
clinical trials are conducted to establish both the lowest efficacious dose and its associated
safety & tolerability profile. Phase III trials represent the greatest effort and expenditure
made by a sponsor to validate the results of the Phase II trial in a much larger number of
patients potentially compared to standard of care with a statistically greater degree of
confidence regarding both the promised efficacy as well as the safety of the clinical
candidate.
Page 11
26. Should the compound prove efficacious with an appropriate safety & tolerability profile,
and cost effective compared to other forms of therapy where available, the sponsor may
decide to file MA dossiers with the health authorities worldwide for a review period of
between 6 to 18 months.
Marketing & Sales
Following successful independent reviews by the health authorities, a new drug can be
launched within a highly competitive marketplace circumscribed by the recommendations
of Key Opinion Leaders (KOLs), behavior of prescribing physicians, patient preferences &
compliance and the annual budgets of payors. However behind every successful launch are
thousands of individuals developing and coordinating the networks supporting the
corporate presence, pricing strategy, reimbursement terms, manufacture, international &
regional distribution, storage, pharmacovigilance and sales. A massive undertaking by any
measure these expenditures dwarf the 1.073 bio USD Tufts (2007) attributes to the average
research & clinical development costs accrued prior to an MA. Furthermore just as
daunting are the enormous potential profits from novel drugs addressing unmet medical
needs as listed in Table IV.
Page 12
27. Table IV – Bestselling drugs in 2010
Rank Brand Name Company(ies) Disease Sales 2010
2010 Medical Use (mio USD)
1 Lipitor® Pfizer,Astellas Pharma Cholesterol 11,8
Bristol-Myers Squibb,
2 Plavix® Thrombotic events 9,4
Sanofi-Aventis
Johnson & Johnson,
3 Remicade® Schering-Plough, Rheumatoid arthritis 8
Tanabe
4 Advair® GlaxoSmithKline Asthma, COPD 7,96
5 Enbrel® Amgen, Wyeth RA, Ps, PsA, JIA, AS 7,4
6 Avastin® Hoffmann La-Roche Oncology 6,8
Schizophrenia,
Otsuka, Bristol-Meyers
7 Abilify® depression, bipolar 6,8
Squibb
disorder
8 Rituxan® Hoffmann La-Roche NHL, CCL, RA 6,7
RA, Ps, PsA, AS,
9 Humira® Abbott Laboratories 5,49
UC, CD, JIA
10 Diovan® Novartis Pharma AG Hypertension 6,1
Source: MedAdNews 200 - World's Best-Selling Medicines, MedAdNews
These annual revenues may appear discrepant when weighed against the average
profitability of only 15.3% for the eleven Fortune 500 pharmaceutical firms Fein (2011)
identifies in 2010. This apparent discrepancy between annual revenues in the billions per
product and less spectacular yearly profits is easily explained when the success rates are
factored into the evaluation as described in Table V. A cumulative probability of between
4.6 - 28.1 % to reach the market from EIM for any clinical candidate signifies that the vast
majority of drugs in clinical development simply fail to gain approval and all associated
R&D expenditures are born by the sponsor alone.
Page 13
28. Table V – Drug development success rates
Disease Group Clinical Clinical Clinical Marketing Cumulative
Phase I Phase II Phase III Approval %
Arthritis/Pain 76.9% 38.1% 78.1% 89.1% 20.4%
CNS 66.2% 45.6% 61.8% 77.9% 14.5%
CV 62.7% 43.3% 76.3% 84.4% 17.5%
GIT 66.8% 49.1% 71.0% 85.9% 20.0%
Immunology 64.8% 44.6% 65.2% 81.6% 15.4%
Infections 70.8% 51.2% 79.9% 96.9% 28.1%
Metabolism 47.8% 52.0% 78.9% 92.8% 18.2%
Oncology 64.4% 41.8% 65.4% 89.7% 15.8%
Ophthalmology 66.0% 39.0% 64.0% 92.0% 15.2%
Respiratory 63.4% 41.1% 59.9% 76.9% 12.0%
Urology 50.0% 38.0% 67.0% 79.0% 10.1%
Women’s Health 39.0% 42.0% 48.0% 59.0% 4.6%
Source: DeMasi 2001, Kola 2004, Avance cited in Valuation in Life Sciences, 2007, p.14
4th competence
It is standard practice to divide pharmaceutical development into the three preceding
competences of research, clinical development and marketing & sales, yet there is an often
underappreciated 4th competence: the ability to coordinate cross-functional development in
a robust, timely, cost effective manner maximizing a compound’s chances to be discovered,
navigate the hurdles of development, reach the market successfully and achieve its full
potential value. Although fickle and certainly intangible, this competence is represented
exclusively by the cumulative savoir-faire of the employees, the company culture and the
processes managing both the compound’s development path as well as the departments &
employees cum caretakers guiding it in this journey from discovery towards patent expiry
each and every day.
Page 14
29. Not only does this value proposition differ distinctly between companies, it can mean the
difference between the very tangible outcomes of success and failure.
Partnering
General background
Galambos (1998) and Pisano (1991) note that beginning at Stanford University in the 1972
with the discovery of recombinant DNA techniques which allowed the manufacture of
complex proteins by biologic organisms, a burgeoning scientific knowledge base drove the
pace of innovation and subsquentially a Schumpeterian wave of creative destruction spread
across the pharmaceutical sector. Roijakkers and Hagedoorn (2005) show that this resulted
in a dual market environment characterized by relatively few incumbents juxtaposed
against numerous rival new entrants within an increasingly competitive marketplace.
Large pharmaceutical companies which failed to recognize and invest in the potential of
new technological breakthroughs suffered a temporal state of “lock-out” from lucrative,
previously unforeseen opportunities, and as demonstrated by Cohen and Levinthal (1990)
sought external alliances or lost entirely at greater expense than an earlier investment would
have represented. Partnering with smaller interests active in the early stages of research at
minimal cost became a tool used within the traditional pharmaceutical industry to capitalize
upon innovation and avoid future lock-out episodes. Cohen and Levinthal (1990) coin the
term absorptive capacity to encapsulate a firm’s ability “to recognize the value of new,
external information, assimilate it and apply it to commercial ends” and show that it is
Page 15
30. indeed proportional to previous exposure and learning as represented by successful R&D
efforts on the part of the assessor.
While in possession of certain intellectual property (IP) representing a capacity towards
radically affecting the shape and scope of future competitive landscapes, Pisano (1991)
shows that smaller more numerous innovators similarly lacked the capital reserves and
downstream capacities of well established incumbents in the form of war chests, clinical
development & regulatory expertise, manufacture, logistics and market access. Galambos
amd Sturchio (1998) explain that larger incumbents offered downstream economies of both
scale and scope in exchange for access to the innovator’s IP.
As a means to conveniently exchange goods or services between two or more parties over a
pre-determined time span there are multiple grounds upon which to build partnerships in
the pharmaceutical industry, e.g., capital investment, in-licensing products, expanding
pipelines, complimenting research activities, market access, etc. However at the essence of
each is the recognition of a unique external competence and the desire to benefit from a
closer relationship hedged against the cost of failure. It is the prohibitive cost of failure
associated with full mergers & acquisitions (M&A) which lends partnering arrangements
particular appeal in the early stages of R&D where the likelihood of failure is distinctly
higher.
An often quoted corporate development director at what was then Glaxo Inc. aptly
summarizes this circumstance: “no emerging or established pharmaceutical company is
Page 16
31. large enough, or smart enough to meet all of its knowledge needs in isolation” (George
1993).
Types of partnering arrangements
Arora and Gambardella (1990) suggest that the outright purchase of a minority stake along
with the creation of joint ventures (JV), research, development & marketing pacts, and
alliances are the four types of investment tools utilized by pharmaceutical firms to
proactively remain abreast of current innovative research and trends in upcoming
technologies in the hopes of maximizing the probability of enjoying first mover advantage
and simultaneously minimizing the risk of lock-out at quantifiable and reasonable costs.
Minority holdings
Representing no more than 50% of a publically traded corporation’s stock the purchase of a
minority stake in a rival or innovative competitor allows the stock holder to profit from any
success the competitor achieves. This is an equity based strategy which permits a
pharmaceutical firm to diversify risks across an investment portfolio.
Joint ventures
JVs are independent companies founded and financially supported by the partners to further
develop and rapidly market an innovation where the influence of either partner is limited to
holding a financial interest in the JV. Although no direct reporting line continues to exist
between the JV employees and the partners, as investors the original partners continue to
Page 17
32. exert a direct influence at the level of the board and the informal relations between the
employees who are often recruited from within one or both of the original partners.
Research, development and marketing pacts & alliances
In an effort to limit the risks of permanent investments the instruments of short term
contracts and longer term alliances present themselves. These permit closer co-operation
between the parties without restructuring and provide incentives based on successful
outcomes of joint efforts, e.g., payments for services rendered, up-front payments,
milestone payments, royalties on sales, marketing opportunities, etc. Hagedoorn and van
Kranenberg (2003) note that joint representation on boards and project teams can be
assured with expenses shared by both parties while minimizing interdependence over
shorter investment periods.
Trends over the last 20 years
As a strictly equity based investment strategy minority holdings are certainly of interest,
however as tools to expand a pharmaceutical firm’s access to both cutting edge innovative
technology and effective development & successful marketing teams, minority holdings are
far from effective. Most early investments would be impossible as smaller innovations may
still be privately held companies and although due dividends and returns, investors have no
rights to a company’s IP.
Page 18
33. Hagedoorn and van Kranenberg (2003) note that the potential of JVs, pacts and alliances in
R&D across all sectors was largely underestimated by academia through the early 1990s as
the locus of academic research centered on 1980’s M&A activity. Håkansson, Kjellberg
and Lundgren (1993) also remark that “alliances are increasingly being used as strategic
tools for corporate survival and growth, shaping the present and future structure of
industries”. These agreements are specific to product(s) or a set of competences and leave
the corporate structure of individual partners largely unchanged in the absence of the large
protracted investments in both capital and infrastructural changes required to enact the
terms of a full merger or acquisition; both parties can limit risk exposure while still
profiting from a mutual association. Thus the larger degree of corporate freedom awarded
to both parties underlies the sheer quantity of R&D partnering arrangements which far
exceed mergers & acquisitions and the increased popularity as witnessed by the growth of
newly established partnerships between 1960 and 1998 as depicted in Figure 2 beneath.
Page 19
34. Figure 2 – Growth of newly established R&D partnerships 1960-1998
Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960
p.480
JVs suffer from the high fiscal and organizational costs of set-up as well as equally high
failure rates and as such there has been a clear decline in the number of JVs as a proportion
of new R&D pacts since 1960 as depicted in Figure 3.
Page 20
35. Figure 3 – % of joint ventures in all newly established R&D partnerships 1960-1998
Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960
p.481
Ruling out equity based investments and JVs, research & development pacts and alliances
remain as nearly the only form of joint R&D agreements as shown in Figure 4. Roijakkers
and Hagedoorn (2006) demonstrate that as an investment tool pacts & alliances present a
lower risk than either JVs or full M&As as the divestment costs are quantifiable contractual
stipulations and significantly lower on average.
Page 21
36. Figure 4 – % of all contractual modes and joint R&D agreements from 1975-1998
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends,
patterns and networks p.434
Genesis to demise, the life cycle of pharmaceutical companies and
how partnering fits to survival in a Schumpeterian landscape
No pharmaceutical firm has consistently grown in vacuo marketing products exclusively
developed in-house; all firms large and small are possible M&A targets as well as potential
partners.
Genetic Engineering Technology, Inc. (Genentech) provides a classic example from its
inception as a small innovator founded in 1976 by a venture capitalist and one of the
Page 22
37. Stanford researchers responsible for the discovery of the recombinant DNA techniques
which launched the biotech revolution through to complete integration with Roche as a
result of complete integration in 2009.
6 years following its founding and 4 years after partnering the human insulin project with
Eli Lilly and Company (Eli Lilly), Genentech received approval to market the first
biologically engineered therapeutic in the form of Humilin® (Roche 2011). Over the next
28 years Genentech received FDA approval for no less than 14 other biosynthetic products
including Rituxan®, Herceptin®, Raptiva®, Avastin®, and Terceva® which were
exclusively developed and marketed with Roche. Nor were Eli Lilly and Roche the only
partners Genentech entertained. Roijakkers and Hagedoorn (2006) show that in the periods
of 1975-1979, 1980-1984 and 1985-1989 Genentech had 3, 14 and 11 R& D partnerships
respectively as registered in the MERIT-CATI databank..
Roche was founded in 1896 primarily as manufacturer of vitamins however following an
intense period of diversification in the mid 20th century it was marketing the results of its
own in-house research programs, e.g., Valium®, Rohypnol®, Ipronaizid® (Roche 2011).
As demonstrated by Galambos and Sturchio (1998) Roche is an example of an incumbent
largely dependent on research devoted to compounds of small molecular weight which
overcame the disadvantages incurred when the biotech revolution took it unawares by
successfully marketing its core competences to smaller partners in the form of R&D
partnerships. Roijakkers and Hagedoorn (2006) demonstrate that with 41 registered
partnerships in the MERIT-CATI databank between 1995 and 1999, Roche led the industry
Page 23
38. in terms of the shear quantity of alliances. With reference to the Genentech collaborations,
Reuters (2009) reports that Roche began as a development partner and capitalized on its
position by continuing to increase its equity stakes in Genentech until it purchased a
controlling share representing 60% for 2.1 billion USD in 1990 prior to the full merger for
46.8 billion USD in 2009.
Galambos and Sturchio (1998) inform that Chiron Pharmaceuticals Inc. (Chiron) was
founded in 1981 by three academics from University of California as a result of a joint
effort with Merck & Co Inc. to develop Recombivax HB®, a new serum based hepatitis B
vaccine at the same time as AIDS was first recognized. Chiron continued to focus its
research activities on vaccines, biosynthetics, and blood screening techniques and between
the years of 1985 and 1989 Roijakkers and Hagedoorn (2006) list 12 R&D partnerships
with a further 13 in the years of 1990 to 1995 as documented in the MERIT-CATI
database; Fisher (1986) reports that one of its early partners was Ciba-Geigy Ltd (Ciba-
Geigy). After years of maintaining a minority stake Tansey (2006) reports that Novartis
eventually bought Chiron for an additional 5.4 billion USD.
Novartis was the product of several mergers over a period of decades. Geigy AG was a
chemical industry founded in 1901 concentrating on continuing a family interest in the
development and marketing of natural and artificial dyes born in the 18th century (Novartis
2011). The Gesellschaft für Chemische Industrie Basel was formed in 1884 by a separate
group of industrialists which manufactured the Geigy AG dies on an industrial scale
(Novartis 2011). In 1914 Geigy AG changed its name to J. R. Geigy Ltd (Geigy) and in
Page 24
39. 1945 the Gesellschaft für Chemische Industrie Basel adopted the acronym CIBA (Novartis
2011). Both Geigy and CIBA continued as rivals until CIBA-Geigy Ltd was formed in
1971 and continued the search for unique small molecular weight compounds on an even
larger scale (Novartis 2011). CIBA-Geigy Ltd later merged with Sandoz AG, another
group with its roots in 19th century dye manufacture, in 1996 to form Novartis. None of the
research conducted by Geigy, CIBA or Sandoz AG was biologic in nature, and Novartis
much like Roche was forced to market its core competences and use its capital reserves to
invest in smaller biotech research units in an effort to survive.
Serono SA (Serono) is as another example of a biotech wonder. Founded in 1906 as
Institutio Farmalogico Serono S.p.A., it was an Italian family business which extracted
proteins from chicken eggs for medicinal purposes before discovering menotropin a
hormone in the urine of post-menopausal women and marketing it as Pergonal® to treat
fertility disturbances in the post World War II era (Funding Universe 2011). After ousting
a troublesome major share holder, Michele Sindona, in the early 1970s the headquarters
relocated to Geneva and the name was changed to Ares-Serono AG (Ares-Serono) where
research remained focused on diagnostics and infertility treatments (Funding Universe
2011). Pergonal® played an important role in the success of the world’s first test tube baby
and sales increased dramatically in time with the biotech revolution and Serono began to
investigate the possibility of using recombinant DNA techniques to develop novel
biosynthetic compounds for unmet medical needs. Ares-Serono went on to develop and
market biological products for the treatment of infertility, Multiple Sclerosis, HIV/AIDS
and other hormone deficiencies (Funding Universe 2011). In 2000 Ares-Serono renamed
Page 25
40. itself Serono and following astounding commercial success which brought it to the status of
the world’s 3rd largest biotech Römer and Becker (2006) report that it sold a majority stake
to Merck KGaA for 10.6 billion euros and finally became Merck-Serono.
Merck KGaA was founded by a pharmacist in the late 17th century and is the oldest
pharmaceutical firm by any standard and has its headquarters in Darmstadt, Germany
(Merck 2011). Due to its affiliation with Germany, Merck suffered set backs with the
outcomes of each world war; it lost its US based affiliate following WWI and all other
subsidiaries as a result of WWII (Merck 2011). It refounded itself in the 1950s and
remained a family business through 1995 when it was registered as Merck KGaA a
publically traded company; however the family interests still possess the controlling
majority.
1978 saw the founding of Biogen NV Inc. (Biogen) in Geneva, Switzerland by group of
independent biologists and researchers in an effort to pool the individual talents and tackle
the challenges of recombinant DNA techniques and genetic engineering (Biogen IDEC
2011). IDEC Pharmaceuticals Corporation (IDEC) was founded in San Diego five years
later and focused its research efforts on monoclonal antibody therapy in oncology(Biogen
IDEC 2011). Both companies successfully launched biosynthetics for autoimmune,
neurological and oncological disorders, e.g. Intron A®, Avonex®, Tysabri®, Rituxan®,
etc., prior to a merger in 2003 to form Biogen-IDEC Inc.
Page 26
41. As pharmaceutical firms grow risks are taken, research opportunities missed, market
dynamics change and occasionally a technological revolution led by numerous smaller
innovators affiliated with universities spawns a period of Schumpeterian creative
destruction. Galambos and Sturchio (1998) have shown that although large
pharmaceutical firms either rapidly develop in-house expertise with the new technology
and apply it across therapeutic areas or contract state of the art research in the form of
licensing, research and equity relationships in an effort to maintain a competitive advantage
and conclude that the latter was the more successful strategy due to IP rights and the limited
number of experts in a new field of technical expertise.
By analogy the gradual increase of equity stake in parallel to the progress made in a
successful alliance were harbingers for the eventual mergers of Roche-Genentech, Merck-
Serono, Novartis-Chiron and serve as one survival strategy for the larger pharmaceutical
firms. However the more recent hostile bid by Sanofi-Aventis SA to purchase Genzyme
Corporation clearly attests to the viability of M&A activity in the absence of a prior R&D
partnership.
Page 27
42. METHODS
Stage-gate approach
Taking inspiration from Wheelwright and Clark (1992) a stage-gate approach was used to
evaluate and filter the potential partnering candidates. In Stage I the pharmaceutical market
was divided into four categories: the top ten largest pharmaceutical firms ranked by 2010
annual revenues (USD), the top ten biotechs defined as firms where more than 50% of the
2010 annual revenues were attributable to the sales of biologics, those pharmaceutical firms
which have S1P1 agonists in clinical development, and any pharmaceutical company which
markets blockbuster MS product(s) and was not captured by the first three categories.
Passing the Gate I, 28 companies were identified and 26 of which were evaluated in Stage
II based on core competences & performance indices with a scoring tool to arrive at a short
list of 11 candidates. Thereafter these 11 were reviewed for attributes excluded by the
scoring tool, e.g., network, competitive products or interests, etc. in passing Gate III prior
to a due diligence offer in Stage III and eventual negotiation and contractual finalization.
This paper does not concern itself with the results of Stage III.
Page 28
43. Figure 5 – Stage-gate model for partner selection
Stage
I
In-house
S1P1 agonist
Stage
program or II
MS blockbuster
Stage
III
Top ten
All potential pharmaceutical Approach
firms Selected
pharmaceutical with due diligence
partners
partners offer
Top ten
biopharmaceutical
firms Gate
III
Gate
II
Gate
I
Source: Wheelwright and Clark 1992, Revolutionizing Product Development, The Free Press, NY 1992
Page 29
44. RESULTS
Gate I
Gate I delivered 26 potential candidates, 19 of which based on annual revenues are depicted
in Table V. Additionally 6 companies which are active in the field of S1Px agonists were
identified: Bristol-Myer Squibb, Almirall SA, Arena Pharmaceuticals Inc, Receptos Inc,
Daiichi Sankyo Co Inc, and Ono Pharmaceuticals Co Inc. Marketing Copaxone® a
blockbuster in MS, Teva Pharmaceutical Industries Ltd was also added to the list.
Page 30
45. Table V – Top 10 pharmaceutical and biotech firms in 2010
Pharmaceutical Biotech
2010 2010
Company Annual Company Annual
revenues revenues
(bio USD) (bio USD)
67.8 56.3
61.6 15.1
50.7 13.4 *
50.6 12.8
46.2 11.7
45.9 4.9˚
43.6 4.7˚
35.2 4.7
33.3 4.1
†
23.1 0.5
° Merck Serono is a division of Merck KGaA
* CSL annual revenues declared from Jun09-Jun10
† Genzyme Corporation was purchased by Sanofi-Aventis in Apr11
Source: Contract Pharma for Pharmaceutical and Biopharmaceutical Contract Servicing & Outsourcing report July 2010, individual
annual reports
Page 31
46. Gate II
Scoring tool
In order to efficiently screen and award potential partners points appropriate to desired
strengths & capacities, data was gleaned from 2010 annual reports, SEC filings, websites,
WO patent search, and the FDA website: www.clinicaltrials.gov. Attributes were divided
into 6 categories: research, clinical development, marketing & sales, resources, growth &
resiliency and productivity. All fiscal units are reported in USD (May 2011).
Research
As the most highly guarded resource of any pharmaceutical firm, efforts to evaluate
research pipelines from publically available information are hindered by protective self-
interests of the firm itself. However SEC filings and most annual reports list the R&D
spend and comparison of the absolute values yields insight into the scale of R&D activities.
Although Actelion is not searching for a research partner it would still benefit from the
knowledge of a partner acquainted with the development of S1Px agonists, and so the
results of the WO patent search are added in an unweighted fashion to attribute more value
to those candidates which have filed WO patents in the field.
Page 32
47. Clinical development
R&D spends include the funds used to support on-going clinical development efforts and so
are inseparable for similar comparison however the FDA website proves a reliable
repository of clinical activity. Sponsors are encouraged to list on-going trials by the fact
that reputable journals, e.g., New England Journal of Medicine, Nature, Science, etc.,
refuse to publish articles related to trials that were not listed on the FDA website prior to
database closure. Searches were made by sponsor, phase and therapeutic area where the
raw results by phase were given a weighted score and those which were relevant to MS, Ps,
PsA, RA, UC, CD, AS or JIA were listed separately to attribute more value to activity in
these indications. Additional points were awarded for compounds which had successfully
submitted authorization packages to health authorities and for any S1P1 compound at any
stage of clinical development.
Marketing & Sales
Phase IV trials are post-marketing efforts to better understand the full capacity of a product
either within a licensed indication or as an effort to expand its therapeutic potential across
new indications. These were scored in a similar manner as Phase I-III trials under Clinical
Development. Each marketed product in the autoimmune disorders of interest or
blockbuster in any indication was awarded an individual unweighted score to allow for this
exceptional and fortunate circumstance to outweigh multiple efforts of much smaller
magnitude and relevance to the task at hand. In an effort to gauge and compare the
economies of scope and scale a candidate had to offer, the number of affiliates &
Page 33
48. subsidiaries, costs of sales and costs of marketing, selling & administration were given
scores based on magnitude. Lastly as many of the large pharmaceutical firms manufacture
and market non-pharmaceuticals, e.g., commercial health care products, diagnostics,
vaccines, etc., the proportion of pharmaceutical sales was given an ascending weighted
value.
Resources
Annual revenues, net income, cash & cash equivalents and the number of employees
represent capital and resources required for a successful collaboration. These attributes
were scored and recorded.
Growth & Resiliency
The equity markets of the world are another independent manner in which to gauge and
compare both the material success of a firm as well as continued investor confidence. The
global economic crisis of 2008/2009 erased billions of USD from balance sheets of
governments, industry champions and private investors alike. Where available subtracting
the stock price of Jan07 when markets were at a peak from Jan11 two years following the
aftermath has been done in an effort to establish a value reflective of resiliency and
potential continued growth in terms of investor confidence.
Page 34
49. Productivity
4 indices have been used in an attempt to evaluate the productivity of a potential candidate
and allow for a fair comparison irrespective of the absolute values. Dividing the annual
revenues by the number of employees reveals the productivity of the work force in terms of
capital gains. Similarly dividing the net income by the annual revenue establishes a
profitability index. Lastly an inversely proportional score was awarded to the indices
which divided the cost of sales and cost of manufacturing, selling & administration by the
annual revenues so that those firms with lower proportional costs gained higher scores.
Two different scoring matrices were established; one for large pharmaceutical firms and
one for biotechs & others as witnessed in Tables VI & VII. Actelion was evaluated with
each matrix and then the values of all companies evaluated in each grouping were plotted
on a single graph. Those companies whose aggregate score was significantly higher than
Actelion’s were then considered candidates for due diligence a process by which both
parties agree to granting mutual unrestrained access to all knowledge, processes and
activities potentially affected by a partnering agreement.
Page 35
50. Table VI – Scoring tool valuations for large pharmaceutical firms
Pharmaceuticals
Attribute Absolute value
R&D spend ≥ 10 bio USD 7.5 - 9.9 bio USD 6.5 - 7.4 bio USD 5 - 6.4 bio USD < 5 bio USD
Development compounds per phase ≥ 40 30 - 39 20 - 29 11 - 19 < 10
Clinical trials (historical & ongoing) ≥ 600 450 - 599 300 - 449 150 - 299 < 150
Number of affiliates & subsidiaries ≥ 250 200 - 249 151 - 199 100 - 150 < 100
Cost of sales ≥ 18 bio USD 15 - 17.9 bio USD 10 - 14.9 bio USD 4 - 9.9 bio USD < 4 bio USD
Cost of marketing, selling & administrative ≥ 18 bio USD 15 - 17.9 bio USD 10 - 14.9 bio USD 4 - 9.9 bio USD < 4 bio USD
Annual revenues ≥ 65 bio USD 55 - 64.9 bio USD 45 - 54.9 bio USD 35 - 44.9 bio USD < 35 bio USD
Net income ≥ 12 bio USD 9 - 11.9 bio USD 6.5 - 8.9 bio USD 4 - 6.4 bio USD < 4 bio USD
Cash & cash equivalents ≥ 18 bio USD 13 - 17.9 bio USD 8 -12.9 bio USD 3 - 7.9 bio USD < 3 bio USD
Number of employees ≥ 100,000 80,000 - 99,000 60,000 - 79,999 40,000 - 59,999 < 40,000
Annual revenues/number of employees ≥ 1,000,000 750,000 - 999,000 500,000 - 749,999 250,000 - 499,999 < 250,000
Scoring tool value 5 4 3 2 1
Table VII – Scoring tool valuations for biotechs & others
Biotech & others
Attribute Absolute value
R&D spend ≥ 2 bio USD 1.25 - 1.9 bio USD 600 mio - 1.24 bio USD 100 mio - 599 mio USD < 100 mio USD
Development compounds per phase ≥ 20 20 - 15 10 - 14 5-9 <5
Clinical trials (historical & ongoing) ≥400 300 - 399 150 - 299 10 - 149 <10
Number of affiliates & subsidiaries ≥100 75 - 99 50 - 74 25 - 49 < 25
Cost of sales ≥ 5 bio USD 3 - 4.9 bio USD 1.5 - 2.9 bio USD 500 mio - 1.5 bio USD <500 mio USD
Cost of marketing, selling & administrative ≥ 5 bio USD 3 - 4.9 bio USD 1.5 - 2.9 bio USD 500 mio - 1.5 bio USD <500 mio USD
Annual revenues ≥ 15 bio USD 10 - 14.9 bio USD 5 - 9.9 bio USD 1 - 4.9 bio USD <1 bio USD
Net income ≥ 4 bio USD 3 - 3.9 bio USD 2 -2.9 bio USD 1 - 1.9 bio USD < 1 bio USD
Cash & cash equivalents ≥ 3 bio USD 2 - 2.9 bio USD 1 - 1.9 bio USD 500 mio - 900 mio USD < 500 mio USD
Number of employees ≥50,000 35,000 - 49,000 20,000 - 34,999 10,000 - 19,999 < 10,000
Annual revenues/number of employees ≥ 800,000 500,000 - 799,000 250,000 - 499,999 100,000 - 249,000 < 100,000
Scoring tool value 5 4 3 2 1
Gate II reduced the list from these 26 to a short list of 11: Pfizer Corp, Bayer Schering AG,
Novartis Pharma AG, Abbot Laboratories Inc, Bristol-Myer Squibb, F. Hoffmann-La
Roche Ltd, Amgen Inc, Merck KGaA, Novonordisk A/S, Biogen IDEC Inc, Teva
Pharmaceutical Industries Ltd illustrated in Figures 6 & 7. Detailed results can be found in
Appendices I & II.
Page 36
51. Figure 6 – Cross comparison with large pharmaceutical firms
250
200
150
Productivity
Growth & Resiliency
Resources
100
Marketing & Sales
Clinical Development
Research
50
0
‐50
Page 37
52. Figure 7 – Cross comparison with biotechs & others
250
200
150
Productivity
Growth & Resiliency
Resources
100
Marketing & Sales
Clinical Development
Research
50
0
‐50
Page 38
53. Candidate profiling
Figure 8 – Pfizer scoring results
120
100
80
Research
60 Clinical development
Marketing & Sales
Resources
40 Growth & Resiliency
Productivity
20
0
‐20
US based
Founded in 1849
Merged with Wyeth, former division of American Home Products Corp. (2009)
Merged with King Pharmaceuticals, Inc. (2010)
110,600 employees
Key overlap marketed products
Enbrel® RA, JRA, PsA, Ps, AS (Amgen collaboration)
Revatio® PAH
Key overlap development compounds
tasocitinib (CP-690550) RA
Divisions
Biopharmaceutical, Diversified
Page 39
54. Figure 9 – Bayer Schering scoring results
40
35
30
25
Research
Clinical development
Marketing & Sales
20
Resources
Growth & Resiliency
Productivity
15
10
5
0
Germany based
Founded in 1863
111,400 employees
Acquired (2010)
Key overlap marketed products
Betaseron® (interferon β-1b) CIS, RMS
Key overlap development compounds
Alemtazumab (Anti CD50) Phase III MS
Riociguat (sGC stimulator) Phase III PAH
Divisions
HealthCare, Crop Science, Material Science
Page 40
55. Figure 10 – Novartis scoring results
100
80
60
Research
Clinical development
Marketing & Sales
40
Resources
Growth & Resiliency
Productivity
20
0
‐20
Switzerland based
Founded in 1996 by merger of CIBA Geigy & Sandoz
Merged with Alcon, Inc. (2010)
119,418 employees
Key overlap marketed products
Gilenya® RMS
Key overlap development compounds
Gilenya® Phase III PPMS
BAF312, Phase II, MS & Polymyositis Dermatomyositis
Linked to Roche via Lucentis/Xolair Genentech, holds 33.3% of outstanding
shares in Roche holding
Divisions
Pharmaceuticals, Vaccines & Diagnostics, Sandoz, Consumer Health, Alcon
Page 41
56. Figure 11 – Abbott scoring results
100
90
80
70
60 Research
Clinical development
50 Marketing & Sales
Resources
Growth & Resiliency
40
Productivity
30
20
10
0
US based
Founded in 1888
Merged with Solvay S.A. in 2009
90,000 employees
Key overlap marketed products
Humira® (adalimumab) RA, PsA, Ps, CD, UC, AS, JIA
Divisions
Pharmaceuticals, Nutritional Products, Medical Devices, Diagnostics
Page 42
57. Figure12 – Bristol-Myers Squibb scoring results
70
60
50
40 Research
Clinical development
Marketing & Sales
Resources
30
Growth & Resiliency
Productivity
20
10
0
US based
Founded in 1989 by merger of Bristol-Myers and Squibb Corporations
27,000 employees
Acquired Medarex, Inc (2009)
Acquired ZymoGenetics, Inc (2010)
Key overlap marketed products
Orencia® (abatacept) RA
Alliances with Sanofi (Avapro/Avalide® hypertension, diabetic nephropathy),
Otsuka (Abilify® antipsychotic), Gilead (Sustiva® HIV)
Page 43
59. Figure 14 – Amgen scoring results
100
80
60
Research
40 Clinical development
Marketing & Sales
Resources
Growth & Resiliency
20
Productivity
0
‐20
‐40
France based
Founded in 1980
17,400 employees
Key overlap marketed products
Enbrel® (etanercept) RA, PsA, Ps, AS, JIA (co-marketed with Pfizer)
Kineret® (anakinra) RA
Key overlap development compounds
Denosumab (monoclonal antibody) RA
Page 45
60. Figure 15 – Merck KGaA scoring results
50
40
30
Research
Clinical development
20 Marketing & Sales
Resources
Growth & Resiliency
Productivity
10
0
‐10
Switzerland based
Founded in 2004 by merger of Merck KGaA and Serono SA
40,562 employees
Key overlap marketed products
Rebif® (interferon β-1a) CIS, RMS
Raptiva® (efalizumab) Ps (co-marketed with Roche)
Key overlap development compounds
Mylinax® (cladribine) Phase III CIS, RMS
Divisions
Merck Serono, Pharmaceuticals, Chemicals, Laboratory, Corporate & other
Page 46
61. Figure 16 – Novo Nordisk scoring results
60
50
40
Research
Clinical development
30
Marketing & Sales
Resources
Growth & Resiliency
Productivity
20
10
0
Denmark based
Founded in 1989 by merger of Novo Industri A/S and Nordisk Gentofte A/S
30,483 employees
Key overlap development compounds
4 monoclonal antibodies, Phase I/IIa RA
Divisions
Diabetes Care, Biopharmaceuticals
Page 47
62. Figure17 – Biogen IDEC scoring results
60
50
40
Research
Clinical development
30
Marketing & Sales
Resources
Growth & Resiliency
20 Productivity
10
0
US based
Founded in 2003 by merger of Biogen and IDEC
4,850 employees
Key overlap marketed products
Avonex® (interferon β-1a) CIS, RMS
Tysabri® (natalizumab) RMS, CD, PPMS (off-label) (co-marketed with Elan)
Rituxan® (rituximab) RA, MS (off-label) (co-developed/marketed with Roche)
Amevive® (alefacept) Ps
BG-12 (dimethyl fumarate) Ps
Key overlap development compounds
Ocrelizumab Phase III RMS (co-developed with Roche)
Fampridine Phase III RMS
Pegylated Interferon β-1ab Phase III RMS
BG-12 (dimethyl fumarate) Phase III RMS
Daclizumab Phase III MS
Anti-Lingo antibody Phase I MS
Baminercept (LTßR-Ig) Phase I MS, failure in RA
Dexpramipexole Phase II ALS (co-developed with Knopp Neuroesciences, Inc.)
Page 48
63. Figure 18 – Teva scoring results
45
40
35
30
Research
25 Clinical development
Marketing & Sales
Resources
20
Growth & Resiliency
Productivity
15
10
5
0
Israel based
Founded in 1944
39,660 employees
Acquired Laboratoire Théramex (2010)
Key overlap marketed products
Copaxone® (Glatiramer Acetate) CIS, RMS
Key overlap development compounds
Laquinimod (α-4 integrin antagonist) Phase III MS, Phase II CD
Copaxone® (Glatiramer Acetate) Phase II CD
TLOII Phase II RA
Page 49
64. Gate III
Risk Assessment
PESTL
Gillespie (2007) introduces the PESTEL analysis as a widely accepted risk assessment tool
which splits possible risks into 6 categories: political, economic, social, technological,
environmental, and legal. Actelion operates exclusively within the pharmaceutical industry
and therefore any collaboration should be viewed in light of these risks the industry as a
whole faces in addition to those specific to each possible collaboration.
Political
The largest political risk to the pharmaceutical industry or any alliance would be a change
in governmental practices which incentivize & reward successful drug development. The
recent actions by the US government to reform health care insurance & re-imbursement
policies in the wake of the world economic crisis highlight first the immediate
repercussions, second particular exposure of the pharmaceutical industry to the political
environment and third the possibility that the ever increasing growth in profits within the
pharmaceutical industry may have peaked. Although not all governments provide public
health care programs, lobbyists from private insurers will continue to hold sway with
governments around the globe.
Governmental health authorities, e.g., FDA, EMA, etc., also regulate the framework for
development and manufacture of new compounds and provide specific guidance in the way
Page 50
65. of International Conference on Harmonisation of Technical Requirements for Registration
of Pharmaceuticals for Human Use (ICH) guidelines which seek to provide harmonized
international standards. As penultimate guidance strict accordance with these guidelines on
a case by case basis often requires dialog between the pharmaceutical industry and health
authorities at joint meetings throughout development.
Lastly barriers to trade, e.g., tarrifs, import procedures, etc., have been greatly reduced in
the last three decades, however re-introduction as a result of unexpected, protective trade
wars could sincerely disturb the manufacture, distribution and sales units of any
pharmaceutical firm.
Economic
Given the rising development costs and ever higher prices new products are commanding,
the economic risk facing the pharmaceutical industry is considerable. A sustained
economic downturn which left patients and private & public insurers unable to purchase
high priced medicines would be detrimental to the industry as a whole. Eligible partners
with the cash reserves to withstand a second recession would be desirable.
Social
The etiology of autoimmune disorders is not well understood however many speculate that
the rise in incidence which the National Institutes of Health (2009) presented to the US
Congress correlates to a reduction in the general health of the population in the developed
world consequent to the unprecedented economic growth experienced since 1970. Obesity
Page 51
66. and autoimmune disorders specifically are on the rise; with respect to obesity Sefer Natan
and Ehrenfeld (2009) have shown that the paediatric population’s health has suffered in
relation to the lifestyle options now available. Were social changes beneficial to its general
health to prove effective in reducing rates of autoimmune diseases, the NPV of any product
targeting autoimmune disorders would suffer along with the collaboration supporting it.
Technological
Personalized medicine, proteomics, and genomics all present the pharmaceutical industry
with the next possible Schumpeterian revolution in that at present development assumes a
universal dosage per patient with few exceptions for up-/down-titration based on efficacy &
safety signals. These innovative approaches hold the potential of disrupting future markets
in a revolutionary manner similar to that experienced following the introduction of
recombinant DNA technologies in the1970s. Research efforts by any potential partner
would be advantageous.
Environmental
The apparent increase in the number and intensity of tropical storms driven by rising
atmospheric temperatures may affect the manufacture, distribution and sales of
pharmaceutical goods worldwide. However this effect would be normalized over the entire
sector and should not effect the selection of an appropriate partner.
Page 52
67. Legal
The largest legal risks the pharmaceutical industry faces would be a changes in patent law
or law regulating fare trade within the market. Radical change would undermine the
manner in which business is conducted to these stalwarts can be considered minimal.
However with reference to partnering in particular, several parties previously identified in
Stage II face lawsuits over IP rights to key products and any alliance could be negatively
affected.
Geographic risks
Although geographic location of a potential partner for co-development and co-marketing
of an S1P1 agonist in autoimmune disorders would be expected to play a minimal role when
reviewing largely international pharmaceutical firms operating in the developed world
where trade barriers have been actively reduced in the past 30 years and ICH guidelines
attempt harmonizing development requirements, it is worth noting that the largest
proportion of partnerships occur between firms registered in North America and
furthermore the growth of alliances between North American and European partners has
not significantly increased between the years of 1980 and 1998 as depicted in Figures 19 &
20 beneath.
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68. Figure 19 – Distribution of R&D partnerships, economic regions (1960-1980)
Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960
p.488
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69. Figure 20 – Distribution of R&D partnerships, economic regions split by decade
1960-1969 1970-1979
1980-1989 1990-1998
Source: Hagedoorn 2001, Inter-firm R&D partnerships: an overview of major trends and patterns since 1960
p.489
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70. Long term risks
The patent life of ponesimod runs through 2028 and any collaboration should be viewed
from this perspective as well. Although predicting specific risks 15+ years into the future
may be an exercise in futility, scenario planning allows any partnering proposal to be
considered in light of unexpected changes in the contextual environment outside of the
transactional environment previously reviewed over this long time span. Two plausible
outcomes are posited beneath.
The US market alone represents sales largely of the same magnitude as those of Europe,
Canada and Japan combined although the US population only represents ~30% of the
combined population of the others. The economic recovery in the US was highly
dependent upon the Federal Reserve reducing interest rates and extending emergency
capital reserves at a time of extreme need. Continued economic stability is reliant upon
restoring federal revenues and encouraging fiscal responsibility upon private institutions
including households. However it is distinctly possible that in a time when the US
Government (2011) reports a debt currently over 90% of annual Gross Domestic Product
(GDP) and predicted to breach 100% in 2011, that these reserves will not be available in
the event of a double-dip recession. Such an occurrence would detrimentally affect the US
market and the revenues accrued by the pharmaceutical industry.
International trade is bound to be affected by the growth in Brazil, Russia, India and China
block (BRIC). As these countries continue to expand and develop stable middle classes
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71. health care expenditure will rise alongside. Growth and eventual dependence upon modern
pharmaceuticals in these markets may help to offset the inordinate reliance upon the US
market as a source of revenues.
A partner with a diversified pipeline and operationally active in BRIC would help to hedge
against the undue exposure to the US market and maximize a potential positive outcome of
continued global economic growth.
Connection highway
Knowledge in the form of IP, pre-clinical investigations, clinical relevance & applications,
manufacture, regulatory interactions, marketing prowess, processes and even IT itself is
central to the pharmaceutical industry and any partnership will involve the exchange of
such knowledge in a joint effort to capitalize on a larger body of knowledge and resources
under the competitive pressure of the market; networks in the pharmaceutical industry are
in fact networks of knowledge. Galambos (1998) makes specific mention of the need for
“scientific leaders with diplomatic skills and links to the relevant networks that would
enable building the teams and productive programs necessary to sustain biotech R&D over
the long term” driving the search for partners.
Roijakkers & Hagedoorn (2006) demonstrate that the intensity of partnerships between
large pharmaceutical firms and a growing number of biotechs has nevertheless rapidly
increased since 1975 and that the network dynamics are fluid as depicted in Figures VIII,
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72. IX, X, XI & XII (also reproduced in Appendix III for the sake of legibility). This is due
primary to two factors: new technological advances are many yet at the moment of
inception the IP is held in the hands of a few and the magnitude of the annual revenues a
innovative product which effectively meets present unmet medical needs is expected to
yield.
Figure VIII –R&D partnerships in pharmaceutical biotechnology 1975-1979
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.436
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73. Figure IX –R&D partnerships in pharmaceutical biotechnology 1980-1984
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.437
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74. Figure X –R&D partnerships in pharmaceutical biotechnology 1985-1989
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.438
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75. Figure XI –R&D partnerships in pharmaceutical biotechnology 1990-1994
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.439
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76. Figure XII –R&D partnerships in pharmaceutical biotechnology 1995-1999
Source: Roijakkers 2006, Inter-firm R&D partnering in pharmaceutical biotechnology since 1975: Trends, patterns and networks p.440
The undeniable trend held within these diagrams is that the power of alliances has been
unleashed over the past 3 decades due to the ability to quantify and limit the risk of
exposure and simultaneously reduce the cost of breaking an alliance should either the
compound fail in the course of development or larger corporate pipeline & partnering
strategy re-evaluations result in the need to break ties and promises.
However inherent to the risk of embarking on a closer co-operation with a partner is the
loss of competitive advantage in terms of trade secrets to its other parnters. An example of
which would be the present collaboration between Roche and Biogen-IDEC to develop
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