Business Models That Biotech Companies Employ

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Business Models That Biotech Companies Employ

• A. M. Pappas Associates
• Francis J. Meyer, PhD
• Vice President, Enterprise Development
• KFBS Biotech Speakers Series
• November 25, 2002

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Francis J. Meyer, PhDVice President, Enterprise
Development

• PhD, Pharmacology, University of Maryland Medical
  School
• Senior Management of 2 medical product companies
• Associate Dean for Technology Licensing, Johns
  Hopkins University School of Medicine, 10 years
• Associate Vice Provost for Technology
  Development, University of North Carolina-Chapel
  Hill, 5½ years
• A. M. Pappas Associates, 2 years
• Life Science Venture Capital Fund Management
  Advisory Services

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Presentation Outline

• Mission of biotechnology companies
• Biotech business models with examples
• Linking financial models with business models
• Regulatory or ethical concerns that could alter
  the business model
• How does a technology itself influence the
  business model

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Mission of Biotechnology Companies

• Varies
• Focus on Human Health Companies
• Using a platform to develop drugs

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Designing Drugs
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Leads to Drugs
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Drug Development - A High Risk Undertaking

• Time 10-15 years from discovery to market
  patent life 20 years
• Cost 700 million (includes costs of
  failures)
• Success 1 approval/ 5000 cmpds screened 1
  approval /5 cmpds entering clinical trials
• Return 3 in 10 approved drugs recover
  development costs

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Clinical Trials
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Life Science Development Cycle
PATIENT MANAGEMENT
DIAGNOSTICS
THERAPEUTICS
BIOLOGY
COMMERCIALIZATION
Screening
Sequencing
FDA
Expression
Target Validation
Assay Development
Target ID
Human Trials
Natural Extracts
Lead Optimization
Preclinical Development
Lead ID
FDA
Synthesis
Compounds
HTS
CHEMISTRY
Discovery
Development
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Business Models for Human Health Biotech
Companies

• Product Companies
• Subscription Companies
• Service Companies

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Product Companies

• Product Company
• Develop products through clinical trial stage
• initial products partner with pharma
• later products sell and market directly
• Examples Inspire, Panacos, Signase

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Subscription Companies

• Subscription company
• Develop genomics databases
• Pharma subscribes to databases
• Subscription fees
• No downstream royalties
• Examples Millennium Pharmaceuticals, Inc.,
  Incyte Genomics, Inc., Celera Genomics Corp.,
  GeneLogic

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Changed Model

• Most subscription companies have become fully
  integrated pharma or research companies
• Wall Street less value for subscription-only
  companies
• Examples Human Genome Sciences, Inc., Millennium
  Pharmaceuticals, Inc., Incyte Genomics, Inc.,
  Celera Genomics Corp.

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Service Model

• Product is service
• Full range of services to support pharmaceutical
  companies ideal
• Technology know-how strong
• IP less important

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Service Model

• Contract Research Organization (CRO)
• Full range of services to support pharma
• Preclinical
• Clinical
• Regulatory
• Post marketing
• Production/Manufacturing
• Specialty Testing
• Staff, know how, databases are the assets
• Examples Quintiles, Piedmont Research

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Service Model

• Chemistry Service Companies
• Chemical Libraries, Scaffolds,Synthesis
• Staff, Know How, Databases, Libraries, IP,
  Robotics are the Assets
• Examples Albany Molecular Research, Aurora
  Biosciences, Tripos, Synexis Chemistry
  Automation
• Smart Screening Companies
• Development and Use of Proprietary Models (
  animals others)
• Staff, Know How, Databases, Models, IP, Robotics
  are the Assets
• Example, EnVivo

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Tool Companies

• Product companies that sell tools, not as a
  service, but as a product
• Example Chip companies such as Affymetrix,
  Aclara, Caliper

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Development Companies

• Development companies (Devco model)
• In-license compound, take it through Phase II or
  III clinical trial
• Out-license to big pharma
• Downstream royalties
• Example Pozen Pharmaceutical, Inc., DevCo
  Pharmaceuticals, Inc.,

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Bioinformatics Companies

• Service software company
• Variation under subscription
• Many to categorize
• Examples Bioinformatics Group, Incellico,
  Divisions of IBM, SAS

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Linking Financial Models with Business Models

• Business model independent of source of capital
  funding
• Example AlphaVax, Inc.
• NCBC
• SBIR
• Foundation
• Venture Capital
• There is a point when co.may not want venture
  capital money
• Very early stage

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Regulatory or Ethical Concerns That Could Alter
Business Model

• Drugs
• Diagnostics
• Medical Devices
• Research Reagents/Tools
• Stem Cell Research
• Geron Univ. of Wisconsin

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How Does the Technology Itself Influence the
Business Model?

• Platform technology
• Products
• Services
• Databases / Tools

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Critical Factors in Start-Up

• Management Team
• Business Model
• Technology

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A Company for Today

• Profile
• Post Genomic
• Rapidly Identify Validate Disease-Causing
  Cancer Genes
• High-Throughput Functional Cloning
• Developing Data, Tools and Therapeutics
• Treat Based on Individual Disease Profiles

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A Business Model for Today

• Profile
• Combination of Subscription, Tools Products
• Logical Evolution of Income Producers Over Time
• Strategic Partners from Day One
• Several Sources of Cash Conserve

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Todays Fund Raising Climate

• Cash is Very Hard to Get
• Only the BEST are Obtaining Funding
• BEST Management
• BEST Business Model
• BEST Technology
• BEST Products
• BEST Markets

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Conclusions

• Constant change will continue
• Biz models change to adapt to science change
• Genomics, functional genomics, bioinformatics,
  proteomics, etc.
• Which model is best?????
• Morphing
• Management team
• First 8 years of genomics will pale compared to
  next 25

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A. M. Pappas Associates
If interested in additional information
contact Fran Meyer at 919-998-3314 or
fmeyer_at_ampappas.com
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Pappas Ventures I Portfolio

• Aclara BioSciences (Nasdaq ACLA) (Mountain View,
  CA)
• Arena Pharmaceuticals (Nasdaq ARNA) (San Diego,
  CA)
• ArgoMed (Cary, NC)
• Bio-Informatics Group (Cary, NC)
• EBM Solutions (Nashville, TN)
• Elitra Pharmaceuticals (San Diego, CA)
• Nereus Pharmaceuticals (San Diego, CA)
• Panacos Pharmaceuticals (Gaithersburg, MD)
• Reprogenesis (acquired by Curis) (Nasdaq CRIS)
  (Cambridge, MA)
• Signase (Houston, TX)
• Variagenics (Nasdaq VGNX) (Cambridge, MA)
• X-Ceptor Therapeutics (San Diego, CA)

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Pappas Ventures I Portfolio

• Aclara Biosciences
  
• biochip company developing microfluidic
  lab-on-a-chip technology with applications for
  genetic analysis, high throughput drug screening
  and clinical diagnostics
• Arena Pharmaceuticals
• biopharmaceutical company that has developed a
  technology to accelerate the development of lead
  compounds targeting G-protein coupled receptors
• ArgoMed
• company developing a proprietary, water-induced
  thermotherapy device and technique to address the
  non-surgical treatment of benign prostatic
  hyperplasia (BPH)

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Pappas Ventures I Portfolio

• Bio-Informatics Group
  
• company developing an innovative, proprietary
  3-D biochip to enhance the capacity, efficiency,
  accuracy and automation of gene screening NC
  State University
• EBM Solutions
• healthcare information company that provides
  evidence-based disease treatment protocols via
  the Web to physicians and patients Duke, Emory,
  Mt. Sinai NYU, OHSU, Vanderbilt and Washington
  University
• Elitra Pharmaceuticals
• antimicrobial functional genomics company
  focused on the identification, development and
  commercialization of novel antimicrobial
  compounds that target essential gene products of
  pathogenic organisms

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Pappas Ventures I Portfolio

• Nereus Pharmaceuticals
  
• drug discovery and development company focusing
  on marine environments as a source of
  small-molecule compounds for the treatment of
  inflammation, cancer, and infectious diseases
  Scripps Institution of Oceanography
• Panacos Pharmaceuticals
• drug discovery and development company focusing
  on novel antiviral compounds targeting the
  treatment of HIV, RSV and hepatitis University
  of North Carolina at Chapel Hill
• Reprogenesis (now Curis)
• company developing in vivo tissue augmentation/
  repair products MIT and Harvard

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Pappas Ventures I Portfolio

• Signase
• cancer therapeutics company developing novel,
  small molecule inhibitors of a critical cell
  replication pathway to inhibit tumor growth M.
  D. Anderson Cancer Center
• Variagenics
• pharmacogenomics company with proprietary gene
  variance detection technology anticipated to
  streamline drug development
• X-Ceptor Therapeutics
• biopharmaceutical company focused on research in
  the field of orphan nuclear receptors Salk
  Institute, Baylor College of Medicine, UT
  Southwestern and Ligand Pharmaceuticals

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Pappas Ventures II Portfolio

• Calyx Therapeutics Inc. (Hayward, CA)
• Cognetix, Inc. (Salt Lake City, UT)
• Dynogen Pharmaceuticals, Inc. (Boston, MA / RTP,
  NC)
• Incellico, Inc. (Durham, NC)
• NuVasive, Inc. (San Diego, CA)
• Peninsula Pharmaceuticals Inc. (Fremont, CA)
• Plexxikon, Inc. (Berkeley, CA)
• Sensys Medical, Inc. (Chandler, AZ)
• Syntonix Pharmaceuticals, Inc. (Waltham, MA)

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Pappas Ventures II Portfolio

• Calyx Therapeutics
  
• pharmaceutical company focusing on oral
  therapies for diabetes and inflammatory diseases
  utilizing natural plan extracts with demonstrated
  clinical activity in humans
• Cognetix
• biopharmaceutical company developing peptide
  therapeutics for the treatment of epilepsy, pain
  and anesthesia University of Utah
• Dynogen Pharmaceuticals
• neuroscience-based drug discovery and
  development company targeting novel therapies for
  genitourinary and gastrointestinal disorders

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Pappas Ventures II Portfolio

• Incellico
• bioinformatics company developing proprietary
  solutions that will significantly streamline
  biological and genomic data mining and processing
• NuVasive
• medical device company that has developed a
  minimally invasive system for spine surgery
• Peninsula Pharmaceuticals
• pharmaceutical development company focused on
  in-licensing and developing clinical stage
  pharmaceutical products.

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Pappas Ventures II Portfolio

• Plexxikon
• drug discovery company that utilizes a
  structural proteomics approach to discover novel
  pharmaceuticals
• Sensys Medical
• developer of non-invasive technology for blood
  glucose monitoring
• Syntonix
• biopharmaceutical company focused on the
  discovery and development of innovative drug
  delivery technologies for improved administration
  of protein drugs and vaccines Harvard Medical
  School