Focus on CNS Pharma deals: How to pull in the money

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SPEAKER: Gardiner Smith, Executive Vice-President, Strategic Transactions SHI-Link
For more information on this event, see: http://www.marsdd.com/Events/Event-Calendar/Best-Practices-Series/December-12-2007.html
Part of the MaRS Best Practices Event Series.

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Focus on CNS Pharma deals: How to pull in the money

  1. 1. Best Practices - Focus on CNS Pharma deals: “How to pull in the money “
  2. 2. <ul><li>SHI Link </li></ul><ul><ul><li>Company overview </li></ul></ul><ul><li>Licensing Drivers </li></ul><ul><ul><li>Increasing number and cost of deals </li></ul></ul><ul><ul><li>Drivers outweigh resistors for licensing </li></ul></ul><ul><li>CNS deals </li></ul><ul><ul><li>CNS as a leading revenue generating among mid and big pharma </li></ul></ul><ul><ul><li>Key facts about recent CNS deals </li></ul></ul><ul><ul><li>CNS deals from a personal perspective </li></ul></ul>OUTLINE
  3. 3. Company Overview <ul><li>BD Consulting team </li></ul><ul><li>Officially launched October 1 st , 2007 </li></ul><ul><li>Offices in Toronto and Philadelphia </li></ul><ul><li>Currently a team of 7 people </li></ul><ul><li>LINK’s first client completed their licensing deal Oct. 3 rd , 2007 </li></ul>SHI LINK
  4. 4. Both pharma and biotech face the same challenges <ul><li>Key challenges faced by Pharma and Biotech: </li></ul><ul><ul><li>development and launch of differentiated novel products; </li></ul></ul><ul><ul><li>pressure to achieve growth and meet profitability targets; </li></ul></ul><ul><ul><li>managing investor expectations; </li></ul></ul><ul><ul><li>react to climate change within the industry (increased genericization, P&R and regulatory issues, higher costs of R&D); </li></ul></ul><ul><ul><li>balance short-term challenges against a sustainable future. </li></ul></ul><ul><li>To overcome these hurdles, Biotech and Pharma turn to product in-licensing. </li></ul><ul><li>Biotech and Pharma and have different strengths when it comes to licensing: </li></ul>LICENSING DRIVERS DM Report, 05/06. Both pharma and biotech face the same development challenges Biotech’s strengths Pharma’s strengths Novel products and technology Financial strength Differentiated products Development, sales and marketing expertise Entrepreneurial business culture Global positioning and reputation Creativity Larger share of voice
  5. 5. Both pharma and biotech face the same challenges <ul><li>As the number of partnerships and licensing deals increase, the drivers in today’s market increasingly outweigh the resistors. </li></ul><ul><li>Nevertheless, both the advantages and disadvantages of each proposed partnership must be evaluated fully. </li></ul><ul><li>Incomplete diligence is a likely contributor to the ~50% of deals that are not successful. </li></ul>LICENSING DRIVERS DM Report, 05/06. Drivers of licensing are increasingly outweighing resistors Licensee Licensor Resistors Drivers <ul><li>Lower ROI than in-house products </li></ul><ul><li>Product competition driving up deal cost </li></ul><ul><li>Compensate for declining internal R&D </li></ul><ul><li>Maintain and build pipeline portfolio </li></ul><ul><li>Generate cash </li></ul><ul><li>Share risk </li></ul><ul><li>Access external resources and capabilities </li></ul><ul><li>Loss of control </li></ul><ul><li>Loss of downstream revenues </li></ul>
  6. 6. Both pharma and biotech face the same challenges <ul><li>Demand for late-stage products drives up the cost of deals </li></ul><ul><ul><li>Deal costs have risen from $50 M in 2000 to $400 M in 2005 </li></ul></ul><ul><li>To adapt, manufacturers are now looking to in-license earlier-stage compounds. </li></ul><ul><li>There has been a recent resurgence in preclinical and Phase I licensing deals made by the top 20 pharmaceutical companies. </li></ul>LICENSING DRIVERS Competition for products drives up cost of licensing deals Increased preclinical licensing in recent years DM Report, 05/06.
  7. 7. CNS remains one of the highest revenue generators in mid and big pharma <ul><li>CNS is the top franchise in mid pharma </li></ul><ul><li>CNS is the second most prominent franchise after oncology in big pharma </li></ul>CNS DEALS DM Report, 05/06. % of total peer set revenue Big Pharma Mid Pharma Mid Pharma and Big Pharma therapy area split
  8. 8. Hot area – total number of deals <ul><li>Since January 2006, there have been 262 CNS deals </li></ul><ul><li>The majority of these are research deals, though roughly half involve clinical phase and marketed products </li></ul>CNS DEALS Number of deals Deal types since January 2006 The majority of clinical CNS deals involve PII candidates Licensing deals comprise ~ half of the total CNS transactions Windhover, 2007.
  9. 9. Hot area – total number of deals <ul><li>Of those deals where values are disclosed, most are valued at less than $50 M </li></ul><ul><li>17 CNS deals have been valued at greater than $151 M </li></ul>CNS DEALS Number of deals Disclosed value of CNS deals (since Jan 2006) Small CNS deals predominate Windhover, 2007.
  10. 10. Hot area – total number of deals CNS DEALS Profile of some larger CNS deals Windhover, 2007. UF: $35 M MS: $100 M + $1B in discovery, development and regulatory MS $1.035 B USD Targacept licenses GSK’s Center of Excellence for External Drug Discovery rights to two neuronal nicotinic receptor (NNR) modulators July 1 2007 GSK-Targacept UF: $75 M MS: $275 M $350 M USD Xenoport licenses GSK exclusive WW rights to develop, manufacture and market XP 13512 (PIII restless leg, PII neuropathic pain) Feb 1 2007 GSK-XenoPort UF:$40 M MS:$345M $385 M USD Takeda and H. Lundbeck will exclusively co-develop/ promote several of Lundbeck’s neurology candidates in the US and Japan Sept 1 2007 Takeda-H. Lundbeck UF: $250 M MS: $750 M $1B USD Development and marketing of BMS’s PIII anticoagulant apixaban April 1 2007 BMS-Pfizer Deal terms Potential Deal Value Deal Title Date Companies
  11. 11. SHI Link provides commercial strategy, execution & network support <ul><li>Commercial Strategy: Integration with portfolio analysis </li></ul><ul><ul><li>Evaluation of licensing and acquisition opportunities aligned with disease strategy and therapeutic franchises </li></ul></ul><ul><li>Execution: Full deal cycle support for licensing, collaboration and alliance initiatives </li></ul><ul><ul><li>Introduction of partners </li></ul></ul><ul><ul><li>Composition of business development presentations </li></ul></ul><ul><ul><li>Creation of transaction structures </li></ul></ul><ul><ul><li>Coordination of due diligence </li></ul></ul><ul><ul><li>Negotiation of term sheets </li></ul></ul><ul><ul><li>Management of contract drafting process </li></ul></ul><ul><ul><li>Positioning for corporate approvals </li></ul></ul><ul><li>Network: Knowledge and contacts for pharmaceutical and biotechnology organizations </li></ul><ul><ul><li>Research and development, business development, commercial strategy </li></ul></ul><ul><ul><li>Regional companies (special focus on Asia-Pacific) </li></ul></ul>SHI LINK
  12. 12. Gardiner Smith: Transactional Experience CNS DEALS
  13. 13. SHI Link – Philadelphia 109 N. Orianna Street Philadelphia, PA 19106 (215) 923-8200 SHI Link – Toronto #310 – 162 Cumberland Street Toronto, ON M5N 3R5 (416) 236-1054 www.shilink.com
  14. 14. We deliver a win/win compensation structure <ul><li>SHI Link uses a retainer and success-based engagement model </li></ul><ul><li>Compensation is derived from: </li></ul><ul><ul><li>Retainers </li></ul></ul><ul><ul><li>Milestones </li></ul></ul><ul><ul><li>Product launches </li></ul></ul><ul><li>Strong on sell-side and buy-side of transactions </li></ul><ul><ul><li>Out-licensing </li></ul></ul><ul><ul><li>In-licensing </li></ul></ul><ul><ul><li>Research and development collaborations </li></ul></ul><ul><ul><li>Asset divestitures </li></ul></ul><ul><ul><li>Mergers and acquisitions </li></ul></ul><ul><li>Ongoing dialogues with multiple companies provide insight into portfolio licensing objectives </li></ul>ENGAGEMENT
  15. 15. We assist in understanding the strategic value of assets <ul><li>Pre-engagement feedback on partnering approaches for assets and strategies </li></ul><ul><li>Detailed support for market research and business development </li></ul><ul><ul><li>Licensing and acquisition evaluations to identify new in-licensing opportunities </li></ul></ul><ul><ul><li>Market research and forecasting to support deal terms </li></ul></ul><ul><ul><li>Non-confidential interviews </li></ul></ul><ul><ul><li>Confidential reviews </li></ul></ul><ul><ul><ul><li>Data </li></ul></ul></ul><ul><ul><ul><li>Development plans </li></ul></ul></ul><ul><ul><ul><li>Market positioning </li></ul></ul></ul><ul><li>Coordination of due diligence </li></ul><ul><ul><li>Technical assessment of rationale, development and regulatory issues, intellectual property </li></ul></ul><ul><ul><li>Corporate and commercial </li></ul></ul>ASSET EVALUATION
  16. 16. Our goal is to assist you in getting to signature quickly <ul><li>Co-ordination of deal execution is critical and includes processes such as: </li></ul><ul><ul><li>Negotiation of inter-related key terms </li></ul></ul><ul><ul><li>Management of drafting processes </li></ul></ul><ul><ul><ul><li>Term sheet </li></ul></ul></ul><ul><ul><ul><li>Contracts </li></ul></ul></ul><ul><li>Addressing partner requirements and concerns </li></ul><ul><li>Positioning for Board approvals </li></ul><ul><li>Speed and momentum: establishing a shared culture for success </li></ul><ul><li>News flow and joint press releases (ongoing) </li></ul><ul><li>Implementation of the deal post-signing </li></ul><ul><ul><li>Collaborative asset transfer </li></ul></ul><ul><ul><li>Joint research and development efforts according to contributions </li></ul></ul><ul><ul><li>Product diligence, grant-backs and reversions </li></ul></ul>EXECUTION
  17. 17. We understand both sides of the equation <ul><li>CASE STUDY #1 </li></ul><ul><li>CHALLENGE: A Top 10 pharma company was seeking a consultancy to provide retainer services to evaluate licensing and acquisition opportunities rapidly in three core disease franchise areas. </li></ul><ul><li>APPROACH: SHI Link performs preliminary due diligence on product opportunities in each of the disease franchise areas, evaluating proof of concept, intellectual property issues and developing an initial commercial market assessment. </li></ul><ul><li>IMPACT: Based on our recommendations and projected sales forecasts, the Top 10 pharma client is able to determine the value of each product as a potential in-licensing target. </li></ul>ENGAGEMENTS CASE STUDY #2 CHALLENGE: An oncology company was seeking input on the business development strategy for its lead Phase I product. APPROACH: SHI Link evaluated the product and determined that the mechanism of action is amenable to a drug/device combination product. This strategy enables the company to obtain a partnership at an early stage of clinical development while continuing to develop its lead program for future out-licensing. IMPACT: SHI Link is currently engaged in out-licensing the oncology product to a medical device company. CASE STUDY #3 CHALLENGE: A public, mid-size biopharma company is seeking to in-license a Phase III product to bridge future revenue gaps. APPROACH: SHI Link created databases in two therapeutic areas and is also assisting in negotiations and term sheet creation. IMPACT: SHI Link is currently assisting the client in several ongoing deals.
  18. 18. A team with proven executive track records PRINCIPALS <ul><li>Chia Chia Sun </li></ul><ul><li>Chia Chia advises senior pharma and biotech executives in therapeutic areas such as central nervous system, oncology and immunology. She works with business development and disease area leaders to identify and evaluate in-licensing opportunities, and develop product and disease strategy. As Vice President of SHI Consulting, she has assisted in commercial strategy for billion dollar products and pharma's top disease franchises. Her clientele includes the corporate headquarters of pharma such as Bristol-Myers Squibb, Wyeth, Procter & Gamble, and Merck, as well as public biotech companies in North America and Europe. As President of SHI Link, she leverages her extensive contacts and knowledge of product opportunities to assist her clients in identifying partners and in-licensing candidates in diverse therapeutic areas and in emerging regions, such as the Asia-Pacific. Chia Chia is a member of the Asia-Pacific pharmaceutical executive association, BayHelix. </li></ul><ul><li>Gardiner Smith </li></ul><ul><li>Building on operational and senior executive roles in leading pharma and biotech companies for 20 years, including Senior Vice President, Business Development & Licensing, Aspreva Pharmaceuticals, Chief Business Officer, Memory Pharmaceuticals, Executive Director, Human Genome Sciences, Director, International Licensing, Glaxo Wellcome, Gardiner is focused on consummating major transactions that span creative alliance structures, stages of development and a variety of technology innovations. In addition to leading over a dozen successful transactions between biotech and pharma companies, including with Human Genome Sciences, Memory Pharmaceuticals, Roche, GlaxoSmithKline and Amgen, he has led the execution of an equal number of biotech-biotech alliances between product, antibody, and platform companies such as Affymetrix and Cambridge Antibody Technologies. The total potential up front and milestone value of buy-side and sell-side transactions in which he's had a leading role over the last ten years exceeds $750 MM, excluding royalties. Additionally, he has been part of the transaction team for large acquisitions, such as the Glaxo purchase of Affymax for $530 MM, and the HGS purchase of Principia. </li></ul>
  19. 19. A team with proven executive track records PRINCIPALS <ul><li>John McGraw </li></ul><ul><li>John has worked extensively with pharmaceutical and mid sized biotechnology companies in evaluating products at various stages of development for licensing and development purposes in areas including inflammation, CNS and oncology. As a Senior Consultant at SHI Consulting, John developed clinical development and research strategies, assessed products for therapeutic reprofiling and identified opportunities for licensing and acquisition for leading pharma and biotech companies. As Vice President of SHI Link, John utilizes this expertise to determine opportunities for licensing products and medical devices in various therapeutic areas for regions around the world. John received his PhD in neuroscience from the University of British Columbia (Canada) and is a co- founder of a successful Vancouver-based medical device company with global sales. </li></ul><ul><li>Maryam Sangari </li></ul><ul><li>Maryam holds the position of Director Business Development at SHI Link. She has worked extensively in the areas of product evaluation, therapeutic area assessment, and licensing. With her depth of knowledge in inflammation, immunology, transplantation, and autoimmunity combined with her business expertise, she has managed projects related to product and therapeutic area assessment and identification of licensing/acquisition opportunities. Having worked in medical affairs and life-cycle management, she is also experienced in assessing competitive landscape, market needs, life cycle management issues, defining pre-market awareness for disease states, and developing and executing pre/post-launch strategy to meet product objectives. She obtained her Ph.D. in transplantation immunology and MBA in marketing/strategic management. She has also received two post-doctoral training in autoimmunity and stem cell transplantation in Canada and Europe prior to commencing her career in the pharmaceutical industry. </li></ul>
  20. 20. <ul><li>BMS-Pfizer $1 B deal value – April 2007 </li></ul><ul><ul><li>BMS and Pfizer teamed up to develop and market Bristol-Myers Squibb and Pfizer have teamed up in a global deal to develop and market BMS's Phase III anticoagulant apixaban.;Pfizer pays $250mm up front for exclusive worldwide rights to the drug candidate. (This is the biggest up-front payment in a pharma alliance so far in 2007; the last highest came in January, when BMS received an initial fee of $100mm from AstraZeneca for two diabetes candidates.) It is responsible for $750mm in development and regulatory milestones and 60% of R&D expenses as of the first of this year. Pfizer and BMS will jointly plan apixaban's clinical and marketing strategy and equally split profits/losses and commercialization costs worldwide. BMS has been conducting clinical trials of apixaban--an oral inhibitor Factor Xa, which is a critical enzyme in the coagulation cascade--for venous thromboembolism (including deep vein thrombosis and pulmonary embolism), stroke prevention in atrial fibrillation patients, acute symptomatic DVT, and secondary prevention of cardiovascular events in acute coronary syndrome patients. Regulatory filings are expected between 2009 and 2010. BMS may be looking to this candidate as its future antithrombotic blockbuster as the company continues to face legal battles with generic competitor Apotex and criminal investigations around deals involving Plavix , which has been;BMS's top-selling product by net sales for the past three years. Pfizer adds apixaban to its cardiovascular pipeline that already has a Factor Xa inhibitor, PD348292, in Phase II for venous thromboembolism. Concurrent with the present alliance the companies signed a separate agreement giving BMS rights to Pfizer's discovery-stage metabolic disease compounds. </li></ul></ul><ul><li>Targecept-GSK – 1.035 B deal value – July 2007 </li></ul><ul><ul><li>Targacept (therapeutics that regulate CNS activity) has licensed GlaxoSmithKline 's Center of Excellence for External Drug Discovery (CEEDD) rights to two neuronal nicotinic receptor (NNR) modulators and an exclusive option to NNR discovery programs in multiple indications.;GSK made a $35mm up-front payment, which consists of $20mm in cash plus a $15mm equity stake through the purchase of 1.3mm Targacept shares at $11.76 each (a 28% premium). GSK will pay approximately $1bn in total discovery, development, and regulatory milestones; another $500mm will be sales based. Targacept is eligible for tiered double-digit sales royalties. The deal includes Targacept's oral alpha-4-beta-2 NNR-targeting molecules TC2696 and TC6499, to which Targacept keeps a US option to co-promote to specialists and hospital physicians. TC2696, which is in Phase IIb for acute postoperative pain, is being evaluated in molar extraction surgery, while TC6499 is undergoing preclinical tests in neuropathic pain. Using Pentad , its platform for discovering NNR modulators with minimal side effects, Targacept is responsible for identifying and developing candidates in five therapeutic areas--pain, obesity, smoking cessation, addiction, and Parkinson's disease--and will receive $16mm in milestones for each project before Phase II proof-of-concept studies begin; after proof-of-concept is established, GSK may elect to license, develop, and market the medicines worldwide. GSK last formed a neurology-focused alliance in;February, when it got rights to XenoPort 's restless legs/neuropathic pain candidate. The present collaboration is the first this year for GSK's CEEDD, which spent much of 2006 in-licensing compounds ranging from discovery-stage to Phase II from biotechs such as Epix and Galapagos . </li></ul></ul>DEAL DETAILS
  21. 21. <ul><li>Takeda-Lundbeck – Sept 2007 - $385 M </li></ul><ul><ul><li>Takeda and H. Lundbeck will exclusively co-develop and co-promote several of Lundbeck's neurology candidates in the US and Japan.;Lundbeck gets $40mm up front and up to $345mm in development milestones. Takeda will book total sales, fund development costs, and owe Lundbeck a share of revenues as well as sales royalties. The companies will initially focus on Lu AA21004, a serotonin modulator that is in Phase II clinical trials for major depressive disorder, and Lu AA24530, a Phase I anti-depressant. The deal also includes an option to develop two other earlier-stage projects. Takeda's neuro portfolio consists of Rozerem for insomnia; Nicholin , a brain metabolism enhancer; and the hypnotic Eurodin . Lundbeck sells the anti-depressant Cipralex , the Alzheimer's drug Ebixa , Azilect for Parkinson's, and Serdolect for schizophrenia. </li></ul></ul><ul><li>XenoPort –GSK – Feb 2007 - $350 M </li></ul><ul><ul><li>XenoPort (prodrug candidates for neurological and GI diseases) has licensed GlaxoSmithKline exclusive worldwide rights (excluding Japan, Korea, the Philippines, Indonesia, Thailand, and Taiwan, where Astellas Pharma already has rights) to develop, manufacture, and market XP13512, a gabapentin prodrug in Phase III for restless legs syndrome and Phase II for neuropathic pain.;GSK pays $75mm in cash up front; up to $65mm in development milestones for the RLS indication; an additional $210mm in other development and regulatory milestones; up to $290mm in sales milestones for both RLS and neuropathic pain; and US and ex-US sales royalties (royalties in the US are tiered and in the double digits). XenoPort will finish R&D on the gabapentin prodrug for RLS, and GSK will submit the NDA for this candidate. GSK is in charge of development and regulatory filings for all other indications. Should XenoPort exercise its US co-promotion option, it would get a share of the net profits in that territory instead of sales royalties, and would have the right to market GSK's Requip drug candidates. (While these were not specified, GSK does have an extended-release version of the RLS/Parkinson's drug in Phase III.) XP13512, XenoPort's lead pipeline medicine that incorporates its Transported Prodrug technology, converts to gabapentin and releases into the bloodstream after moving through the gastrointestinal system with help from natural transporter proteins in cells that line the GI tract. XenoPort believes that the prodrug will address some of the problems with gabapentin--sold by Pfizer as;Neurontin and available as a generic--such as unresponsiveness, limited absorption and reduced efficacy, and short half-life. XP13512 joins three Phase I candidates for neuropathic pain in GSK's neuroscience pipeline. The gabapentin prodrug is one of many later-stage treatments that GSK has in-licensed within the last year including Genmab 's cancer antibody HuMax-CD20 , ChemoCentryx 's Traficet-EN for Crohn's, Epix 's PRX03140 for Alzheimer's, and Myogen 's PAH compound ambrisentan. </li></ul></ul>DEAL DETAILS

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