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Innovative Mid-Cap Biotechnology Benchmark Report Financial Benchmarking, Pipeline Assessment & Competitive Analysis of Innovative Biotechs

GDHC001SAC / Published January 2013

Executive Summary

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The increase in biotech revenues will not translate into positive margins for some time

The combined peer group revenue for these 15

innovative biotech companies was $2.0 billion in 3Q12, a

31.8% increase from the $1.5 billion the same companies

posted in the year-ago quarter. GlobalData attributes the

majority of the increase to the surge in revenue from

Regeneron’s [REGN] commercialization strategy for its

injectable wet AMD drug Eylea (aflibercept) which helped

to drive the company’s revenue by 315.9% to $427.7m in

the third quarter. Regeneron is continuing its worldwide

roll-out of Eylea, snagging approvals in Japan, Brazil,

and Europe. Regeneron has partnered with Santen

Pharmaceutical and Bayer Yakuhin to aid in driving

adoption and penetration in the Japanese ophthalmology

market, a significant opportunity for Regeneron as wet

AMD is the fourth most-common cause of acquired

blindness, with 1.2% residents over the age of 50 having

wet AMD in at least one eye. (Source: GlobalData;

Regeneron, press release, September 28, 2012).

Regeneron’s territory expansion drove Eylea sales by

26.0% on sequential basis to $244.4m in 3Q12. As a

result, the successful launch of Eylea has led to

Regeneron posting its first profitable full-year since the

company’s inception in 1988.

Below figure shows the combined peer group revenue

and average operating margin.

Combined Peer Group Revenue ($m) and Average Operating Margin, 3Q11–3Q12

$1,546.6 $1,744.6 $1,681.9

$1,913.9 $2,038.8

-33.7%

-19.3% -28.5%

-38.3%

-54.6%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

$0

$500

$1,000

$1,500

$2,000

$2,500

3Q11 4Q11 1Q12 2Q12 3Q12

Revenue Avg. Op Margin

Source: GlobalData & Company SEC filings Combined peer group revenue = $2.0bn

In addition to Regeneron’s growth, the total peer group

revenue for these 15 biotech companies was positively

impacted by the business combinations of both Jazz

[JAZZ] and Alexion [ALXN] following each of their

acquisitions. Jazz’s purchases of Azur Pharma and

EUSA grows the biotech’s footprint overseas to markets

in developed Europe and expands the company’s

product line to include higher-margin cancer therapies.

Meanwhile, Alexion added to its ultra-rare disease

portfolio with its acquisitions of Enobia and Orphatec,

both privately held clinical-stage biotechnology

companies with promising rare disease candidates.

Alexion’s ‘bolt-on’ acquisitions of these specialty players

in the orphan drug market led to Alexion posting record

revenue of $294.1m in the third quarter. These

transactions, combined with higher marketed drug sales

from Jazz and Alexion, contributed approximately $200m

to the total peer group’s revenue in 3Q12.

Executive Summary


While the combined peer group revenue for these biotech

companies grew year-to-year, this came at a very high

opportunity cost for these companies. The combined

peer group operating expenses grew to $1.35 billion in

3Q12, a 26.0% increase from the $1.07 billion spent in

the same period last year. As a result, the 3Q12 average

peer group operating margin was negative at -54.6%, a

decline of 20.9 percentage points when compared to

3Q11. GlobalData believes the ever-increasing expense

of developing innovative medicines and bringing them to

market is the driving force behind the negative margin, as

many of these firms operate in the red until drugs are

approved and begin to generate sales to offset the profit

erosion.

Total op-ex spending will continue to grow, especially for commercialization efforts outside the US

R&D Expenses: Total peer group R&D expenses

increased 20.2% year-to-year, from $621.1m in 3Q11 to

$746.8m in 3Q12. GlobalData attributes the rise in R&D

expenses to the heavy investment these biotech

companies have made to advance their drug candidates

through their respective clinics. At the time this report

was written, there were 24 candidates in Phase III trials

across these biotech companies, accounting for 29.3% of

all entities under development. ViroPharma [VPHM] was

the expense management leader in 3Q12 due to a 27.9%

decrease in R&D spending when compared to the year-

ago quarter. However, GlobalData attributes the decline

to the FDA’s suspension of two of the companies’ clinical

trial studies evaluating Cinryze (C1 esterase inhibitor)

over safety concerns and not due to any cost-cutting

measures.

Below figure depicts the combined peer group R&D and

S,G&A spending.

Combined Peer Group R&D and S,G&A Spend ($m), 3Q11–3Q12

$621.1 $654.8 $673.4

$715.0 $746.8

$447.0

$545.4 $550.0 $579.2 $599.5

$-

$100

$200

$300

$400

$500

$600

$700

$800

3Q11 4Q11 1Q12 2Q12 3Q12

R&D S,G&A

Source: GlobalData & Company SEC filings

S,G&A Expenses: Total peer group S,G&A spending

grew by 34.1% year-on-year, from $447.0m in 3Q11 to

$599.5m in 3Q12. GlobalData attributes the increase in

S,G&A-related expenses to these biotech companies

ramping up headcount and marketing spend to drive the

sales efforts for their recently approved drugs. The rise in

S,G&A spending was also attributed to M&A-related

activities and to these biotech companies expanding their

footprints to markets outside the US in search of new

opportunities to grow revenue.

Executive Summary


Below figure displays the combined peer group total op-

ex spending.

Combined Peer Group Total Op-Ex Spending ($m), 3Q11–3Q12

$1,068.2 $1,200.1 $1,223.4

$1,294.2 $1,346.3

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

3Q11 4Q11 1Q12 2Q12 3Q12

Total Op-Ex

Source: GlobalData & Company SEC filings Combined peer group op-ex spend = $1.3bn

Resource Management: GlobalData believes the

landscape for investing capital to expand plants and

operations is becoming increasingly clearer for these

biotech companies. With revenues beginning to come

online in a more predictable fashion, we expect these

biotech companies will increase their investments in

physical, human, and financial resources to position

themselves competitively moving forward. These biotech

companies are using a variety of strategies in how they

allocate their financial capital, including paying down

outstanding debt and buying back their stock to reinvest

funds back into their clinical projects.

Despite its high cost, oncology franchise will continue to experience increased R&D investment

Across the pipelines of these 15 innovative biotech

companies, four therapy areas accounted for nearly 75%

of all the drugs in clinical development and were as

follows: oncology 28.9%, CNS 19.3%, immunology

15.7%, and metabolic disorders 10.8%. Clearly, the high

cost of developing cancer drugs, along with associated

recruitment hurdles in designing oncology clinical trials

has not impeded R&D spending in this franchise, despite

the limited financial resources of some of these biotech

companies. For instance, San Francisco-based Exelixis

[EXEL] spent $30.7m in R&D in the third quarter of 2012,

almost a three-fold increase above the company’s

revenue for the quarter. In July 2012, Exelixis reported

that the FDA had accepted the company’s New Drug

Application (NDA) evaluating its lead candidate,

cabozantinib, as a treatment for patients with metastatic

Medullary Thyroid Cancer (MTC). This NDA filing was

based on the company releasing the results from its

Phase III EXAM trial that cabozantinib met the primary

endpoint of significantly improving progression-free

survival in patients suffering from MTC when compared

to placebo. GlobalData expects Exelixis’ R&D expenses

will continue to rise in the future, as the company is

concurrently evaluating cabozantinib across a number of

oncology indications, which will lead to its R&D expenses

continuing to outpace its revenue.

Executive Summary


Below figure displays the percentage of drug candidates

by therapeutic area.

Percentage of Drug Candidates by Therapeutic Area, 3Q12

10.8%

15.7%

19.3%

28.9%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

Metabolic

Immunology

CNS

Oncology

Percentage by Therapy Area

Source: GlobalData, Pharma eTrack, [Accessed on: December 12, 2012]; Company Data

Momenta [MNTA] is another example of a small biotech

company investing in oncology despite having a

dwindling revenue base to draw from. In 3Q12 Momenta

initiated dosing phase for clinical candidate M-402, the

company’s novel heparin sulfate proteoglycan for treating

metastatic pancreatic cancer. M-402 has the ability to

bind to multiple growth factors to inhibit tumor

angiogenesis and metastasis with reduced anticoagulant

activity, making the drug attractive for being used across

a broad range of cancers. Momenta anticipates that M-

402 will be administered in combination with gemcitabine,

a first-line standard of care chemotherapy. A pre-clinical

study with the Cancer Research Institute showed that M-

402, in combination with gemcitabine, significantly

improved survival and substantially lowered the incidence

of metastasis compared with groups being treated with

gemcitabine alone.

Incyte [INCY] made a splash in the third quarter,

receiving approval by the European Commission for

Jakavi (ruxolitinib), a selective Janus-Associated Kinase

(JAK) 1 and 2 inhibitor, the first and only JAK inhibitor

approved for myelofibrosis, a rare form of leukemia

associated with an enlarged spleen. Ruxolitinib received

orphan drug status and was approved by the FDA back

in 2011 under the brand name Jakafi. Approval by the

European Commission was based on the results of two

pivotal Phase III COMFORT trials, which demonstrated a

reduction in spleen volume and an improved quality of life

in patients who were taking Jakavi through 48 weeks

when compared to best available therapy. GlobalData

believes that with the combination of its first-in-class

status and its oral administration, Jakavi will capture a

significant share of the myelofibrosis market.

Big Pharma’s exit from CNS franchise creates a gap to be filled by smaller biotechs

The CNS franchise has a history of failed clinical

programs, pulled R&D investment and regulatory hurdles,

which has led many large drug makers to exit the space.

We expect this has created an opening for smaller

players looking to establish their drug portfolios as next-

in-line therapies for treating disorders such as

schizophrenia, depression, epilepsy, and chronic pain. At

the time this report was written, the CNS franchise

accounted for 19.3% of drug candidates across all the

pipelines of these innovative biotech companies, with six

CNS candidates in Phase III, including two dopamine

antagonists in the clinic of Alkermes [ALKS] for the

treatment of schizophrenia. In June 2012, Alkermes and

its marketing partner Janssen Pharmaceuticals, NV,

initiated Phase III of its clinical program investigating a

three-month formulation of Invega Sustenna

(paliperidone palmitate), an injectable therapy for the

treatment of schizophrenia.

Executive Summary


Back in 2011, Invega Sustenna was approved as a once-

monthly injectable medication in the US and in the EU.

Two Phase III trials have been initiated by Alkermes –

one will explore the efficacy, safety and tolerability of the

three-month formulation against placebo, while the other

Phase III trial will compare both three-month and one-

month formulations against relapse prevention.

In September 2012, Nektar [NKTR] announced

encouraging data from its Phase Ia ascending dosage

trial of NKTR-192 candidate for the treatment of

moderate-severe acute pain. NKTR-192 is the company’s

novel rapid onset, short half-life mu opioid analgesic,

which behaves differently than other opioids. Data from

the Phase Ia trial demonstrated that NKTR-192

preserves the relief of pain, but reduces the feeling of

euphoria by changing the way the drug targets receptors

and permeates the blood-brain barrier. By manipulating

this mechanism, NKTR-192 is able to achieve the same

desired pharmacokinetic results as with other opioids,

while at the same time limiting the potential for abuse and

dependency and other unwelcome side-effects like

sedation. Source: GlobalData; Nektar, press release,

Sept. 18, 2012.

Even though Alkermes and Nektar have chosen to

develop CNS drugs internally, Acorda [ACOR] looked to

bolster its CNS portfolio through acquisition. Acorda

currently markets Ampyra (dalfampridine) to improve

walking ability in people with multiple sclerosis. In

February 2012, Acorda acquired Neuronex, a privately-

held development stage biotech, for $10m upfront with

additional contingency payments totaling up to $125m if

specified regulatory and manufacturing milestones are

achieved with respect to a nasal spray formulation of

diazepam (Valium).

Diazepam is an oral benzodiazepine derivative for

treating anxiety disorders, muscle spasms and symptoms

of withdrawal associated with alcohol dependency.

Neuronex was developing a nasal spray formulation of

diazepam as a rescue treatment for certain seizures, but

will now fold-in to Acorda’s development projects.

The rise in generic competition will cause biotechs to reevaluate their product strategies

Looking over the past 12 months, the branded

biopharmaceutical industry has begun to experience the

mercilessness of the ‘patent cliff’. The increasing number

of patent expires on blockbuster drugs (e.g.. Lipitor) has

created an opportunity for cheaper generic alternatives to

flood the market leading to a decrease in revenues on an

industrywide basis. The influx of generic drugs, combined

with pricing pressures from customers, healthcare reform

legislation, and fiscal austerity measures, have all

compressed corporate margins, leaving drug makers with

little choice but to implement rationalization programs to

remain profitable. The biotech companies evaluated in

this report are not immune to these challenges,

especially the negative effect resulting from generic

competition. In 3Q12, Momenta [MNTA] saw its revenue

decline by 94.2% year-to-year to $5.1m in the third

quarter as a result of an introduction of the first

unauthorized generic version of Lovenox (enoxaparin

sodium) being marketed by Amphastar and Watson

Pharmaceuticals. After a couple of years of court battles,

in January 2012, the US Court of Appeals for the Federal

Circuit denied Momenta’s preliminary injunction to keep

Watson and Amphastar from selling their enoxaparin

sodium product in the US market.

Executive Summary


Another company that witnessed significant revenue

erosion as a result of a competing generic product was

ViroPharma [VPHM]. The company’s revenue in the third

quarter decreased 36.3% year-to-year to $91.0m. This

revenue shortfall was the direct result of the impact of

generic oral vancomycin entries into the market. The

FDA indicated to ViroPharma that it had approved three

Abbreviated New Drug Applications (ANDAs) for generic

vancomycin capsules, and in June 2012, the FDA

approved a fourth ANDA from Watson. The influx of

these cheaper generic alternatives drove ViroPharma’s

branded Vancocin (vancomycin) sales lower by 77.0% to

$3.6m in 3Q12. The loss in top-line sales also put

pressure on the company’s operating margin, squeezing

it to -4.6% of total revenue, the first negative operating

margin for ViroPharma in over two years.

In February 2012, Cubist [CBST] received a Paragraph

IV letter from Hospira, notifying Cubist that it has

submitted an ANDA to the FDA seeking approval to

market a generic version of its MRSA–fighting drug

Cubicin (daptomycin) prior to the drug’s expiration in the

US in June 2016. Following the notice letter, on March

21, 2012, Cubist filed a patent infringement lawsuit

against Hospira in response to its ANDA filing with the

FDA. By statute, the FDA is automatically prohibited from

approving Hospira’s ANDA for 30 months unless the

court enters a judgment finding the patents are invalid

before the expiration of the 30-month period. As a result

of Cubist’s over-reliance on Cubicin for nearly all of its

revenue, GlobalData believes if an adverse outcome

were to occur as a result of this litigation, the influx of a

much cheaper generic alternative would evaporate nearly

all sales of Cubicin and negatively impact Cubist’s

financial position.

However, there is hope. These biotech companies, much

like their larger pharmaceutical brethren, are adapting to

this generic competition by putting in place strategies to

extend the life-cycles of their drugs. This includes label

expansions to include additional indications and attempts

to extend their currently approved usage to include

alternative methods of administration. GlobalData

believes both approaches allow these companies to grow

mind share and market share for their therapies, while at

the same time gain the much-needed IP protection to

weather this storm, at least for now.

Life-cycle expansion will be key to growing future revenues and defending asset IP

The high cost of developing innovative therapies coupled

with an increasingly competitive landscape has caused

drug makers, large and small, to evaluate their product

life-cycle strategies more carefully. This is especially true

for these innovative biotech companies, given that their

financial futures are largely tied to only a few marketed

products, many of which never reach blockbuster status.

With limited resources, the challenge of maintaining a

competitive advantage while returning value to

shareholders becomes incredibly burdensome for these

biotechs, causing them to squeeze as much potential as

possible out of every dollar invested. This is evident by

these companies’ implementing a number of strategies to

extend or expand the life-cycles of their drugs. These

approaches can take many forms, but the guiding

principle is the same – gain multiple approvals across as

many indications as possible – this not only grows

product sales by expanding the potential treatment

population, but also provides additional patent protection

safeguarding the company against future generic entry.

Executive Summary


Onyx [ONXX] is one example of a company that is

attempting to extend the life-cycle of its products. In July,

the company received accelerated approval by the FDA

for Kyprolis (carfilzomib injection), a proteasome inhibitor

indicated for the treatment of patients with multiple

myeloma who have received at least two prior therapies.

Post-approval, Onyx is wasting no time with Kyprolis,

currently examining the drug in several clinical trials

either as a single-agent therapy or in combination with

other drugs. Onyx has completed enrollment in a global

Phase III clinical trial, ASPIRE, evaluating lenalidomide

(marketed as Revlimid by Celgene) and bortezomib

(marketed as Velcade by Millennium), and low-dose

dexamethasone with or without Kyprolis in patents with

relapsed and refractory multiple myeloma who have

received up to three prior therapies.

In 3Q12, Acorda [ACOR] announced positive top-line

results from its post-marketing study evaluating 5mg

dose of Ampyra (dalfampridine-ER) to progress walking

ability in people with multiple sclerosis. Currently, Acorda

is separately evaluating Ampyra to expand its label to

include improving walking ability in patients suffering from

post-stroke deficits and cerebral palsy.

Meanwhile, on December 4, 2012, Jazz [JAZZ]

announced the issuance of a new patent for Xyrem

(sodium oxybate) oral solution. The new formulation

patent is entitled “Microbiologically Sound and Stable

Solutions of Gamma-Hydroxybutyrate Salt for the

Treatment of Narcolepsy.” The new patent will expire in

December 2019, and is the ninth patent referencing

Xyrem to be listed in the Orange Book. Xyrem is the only

product approved by the FDA for the treatment of both

cataplexy and excessive daytime sleepiness in patients

with narcolepsy.

GlobalData believes a company’s ability to implement

effective life-cycle management strategies is one of many

crucial factors in determining these companies’ financial

future.

While label expansions are common, they are not

guaranteed. In October, the FDA rejected United

Therapeutics’ [UTHR] application for an oral tablet

version of Remodulin (treprostinil) for the treatment of

Pulmonary Arterial Hypertension (PAH). The FDA

questioned whether the drug slowed the progression of

the life-threatening lung disease and the lack of a

statistically significant effect on the six-minute walking

test (6MWT) distance in two of its studies. The FDA’s

Complete Response Letter (CRL) stated that the design

for the clinical trials did not prove to the US regulator any

particular advantage over currently available

subcutaneous delivery. The FDA’s rejection is certainly a

setback for United, an obstacle the company states could

take nearly three years to overcome. GlobalData believes

United will continue to seek approval for an oral version

of treprostinil, which we expect would significantly

expand the market potential for Remodulin, as there are

no currently approved oral prostacyclins available to PAH

patients in the US or in the EU.

Table of Contents


1 Table of Contents

1 Table of Contents ............................................................................................................... 9

1.1 List of Tables ............................................................................................................. 15

1.2 List of Figures ........................................................................................................... 16

2 Introduction ....................................................................................................................... 18

2.1 Report Scope ............................................................................................................ 18

2.2 Report Catalysts ........................................................................................................ 20

2.3 Upcoming Related Reports ........................................................................................ 20

2.4 Recently Published Reports ...................................................................................... 21

2.5 GlobalData’s Benchmarking Methodology ................................................................. 21

2.6 GlobalData 3Q12 Biotech Benchmark Leader: Regeneron......................................... 22

2.7 Regeneron Overtook Alexion in 3Q12 as Benchmark Leader ..................................... 23

3 Financial Management ...................................................................................................... 25

3.1 Competitive Framework ............................................................................................. 25

3.2 Overview ................................................................................................................... 26

3.2.1 Biotech companies position themselves for revenue growth with higher sales,

but will need to focus on cost containment to improve profit margins .................. 26

3.3 Financial Management: Heat Map ............................................................................. 28

3.3.1 Regeneron was the financial management leader in 3Q12, posting significantly

higher scores across all metrics compared to its peer group ............................... 28

3.4 Financial Metrics ....................................................................................................... 29

3.4.1 Revenue ............................................................................................................. 29

3.4.2 Revenue Growth YtY .......................................................................................... 30

3.4.3 Operating Income ............................................................................................... 31

3.4.4 Operating Income Growth YtY ............................................................................. 32

3.4.5 Operating Margin ................................................................................................ 33

3.5 Expense Management: Heat Map.............................................................................. 34

Table of Contents


3.5.1 ViroPharma was the expense management leader in 3Q12 due to

manufacturing issues ......................................................................................... 34

3.6 Expense Metrics ........................................................................................................ 35

3.6.1 R&D Expense as a Percentage of Revenue ........................................................ 35

3.6.2 R&D Spend Growth YtY ...................................................................................... 36

3.6.3 S,G&A Expenses as a Percentage of Revenue ................................................... 37

3.6.4 S,G&A Spend Growth YtY ................................................................................... 38

3.6.5 Total OpEx as a Percentage of Revenue ............................................................. 39

4 Pipeline Assessment......................................................................................................... 40

4.1 Overview ................................................................................................................... 40

4.1.1 Despite its high cost, biotech companies are still investing in oncology ................ 40

4.1.2 Big Pharma’s exit from CNS creates an opportunity for smaller players ............... 40

4.2 GlobalData Pipeline Matrix and Competitive Positioning ............................................ 42

4.2.1 Quadrant Analysis: Best-In-Class Assessment: Regeneron ................................. 44

4.2.2 Quadrant Analysis: Challengers Assessment: Jazz ............................................. 44

4.2.3 Quadrant Analysis: Laggards Assessment: Exelixis ............................................. 45

4.2.4 Quadrant Analysis: Innovators Assessment: Momenta ........................................ 45

4.3 Pipeline Development................................................................................................ 46

4.4 Clinical Highlights by Company ................................................................................. 48

4.4.1 Acorda ................................................................................................................ 48

4.4.2 Alexion ................................................................................................................ 49

4.4.3 Alkermes............................................................................................................. 49

4.4.4 BioMarin ............................................................................................................. 50

4.4.5 Cubist ................................................................................................................. 51

4.4.6 Exelixis ............................................................................................................... 52

4.4.7 Incyte .................................................................................................................. 53

4.4.8 Jazz .................................................................................................................... 54

4.4.9 Momenta............................................................................................................. 54

4.4.10 Nektar ................................................................................................................. 55

Table of Contents


4.4.11 Onyx ................................................................................................................... 56

4.4.12 Regeneron .......................................................................................................... 57

4.4.13 Seattle ................................................................................................................ 59

4.4.14 United ................................................................................................................. 60

4.4.15 ViroPharma ......................................................................................................... 61

5 Licensing & Acquisition Strategies .................................................................................... 62


5.2 Overview ................................................................................................................... 63

5.3 M&A Analysis ............................................................................................................ 65

5.3.1 Alkermes Acquisition of Elan Drug Technology Creates Leadership in CNS

Therapeutics ...................................................................................................... 65

5.3.2 Jazz Acquisition of EUSA Pharma Expands its Product Line to Include High-

Margin Cancer Therapies ................................................................................... 66

5.3.3 Alexion Adds to its Ultra-Rare Disease Portfolio through Acquisition .................... 67

5.3.4 Jazz Purchase of Azur Complements its Pipeline in CNS and Women’s Health ... 68

6 Resource Management Strategies .................................................................................... 71


6.2 Overview ................................................................................................................... 72

6.3 Operations & Supply Chain ....................................................................................... 73

6.3.1 Acorda Relocates Corporate HQ to Ardsley Park Life Sciences Campus ............. 73

6.3.2 Cubist Expands Research & Development Facility .............................................. 73

6.3.3 Jazz Sells Women’s Health Business to Meda .................................................... 73

6.3.4 Nektar Consolidates Research Assets to its R&D Center in San Francisco, CA ... 74

6.3.5 Regeneron Expands Greenbush Plant to Support its Antibody Clinic ................... 74

6.3.6 ViroPharma Adds Manufacturing Scale to Cinryze Production to Meet Expected

Demand ............................................................................................................. 74

6.4 Resource Management: Heat Map ............................................................................ 75

6.4.1 Cubist was the resource management leader in 3Q12, balancing spending &

headcount with revenue growth.......................................................................... 75

Table of Contents


6.5 Firm Utilization Metrics .............................................................................................. 76

6.5.1 Headcount Growth YtY........................................................................................ 76

6.5.2 Revenue per Employee ....................................................................................... 77

6.5.3 SG&A Expense per SG&A Employee .................................................................. 78

6.5.4 R&D Expense per R&D Employee....................................................................... 79

6.6 Human Capital Leadership Changes ......................................................................... 80

6.6.1 Successfully Implement Commercialization Strategies by Retaining Top Talent ... 80

6.7 Capital Management: Heat Map ................................................................................ 81

6.7.1 Momenta was the Capital Management Leader in 3Q12 Keeping its Operating

Leverage Lower Compared to its Peer Group..................................................... 81

6.8 Capital Structure Metrics ........................................................................................... 82

6.8.1 Debt/Asset Ratio ................................................................................................. 82

6.8.2 Quick Ratio ......................................................................................................... 83

6.8.3 Cash Ratio .......................................................................................................... 84

6.8.4 Return-on-Investment Ratio ................................................................................ 85

6.8.5 Sales/Assets Ratio .............................................................................................. 86

6.9 Share Offerings & Debt Restructurings ...................................................................... 87

6.9.1 Share Repurchases Increase Working Capital and Provide Cash Flow to

Reinvest Back into Internal R&D Programs ........................................................ 87

7 Company Drill-Downs & Forecasts .................................................................................... 88

7.1 Acorda SWOT & Forecast ......................................................................................... 88

7.1.1 With Revenue Flattening, Acorda Looks to Extend Ampyra Labeling to Include

Additional Indications and More Regions in the EU ............................................ 88

7.2 Alexion SWOT & Forecast ......................................................................................... 90

7.2.1 Alexion Supplements its Orphan Drug Strategy with Bolt-on Acquisitions ............ 90

7.3 Alkermes SWOT & Forecast ...................................................................................... 92

7.3.1 Alkermes is Well Positioned for Strong Revenue Generation as the Company

Focuses on Commercializing Internal CNS Drug Candidates ............................. 92

7.4 BioMarin SWOT & Forecast ...................................................................................... 94

Table of Contents


7.4.1 BioMarin Will Treat PKU Patients Across Their Entire Lifespan with PEG-PAL

for Adults ........................................................................................................... 94

7.5 Cubist SWOT & Forecast .......................................................................................... 96

7.5.1 Revenue Growth Driven by Higher-than-Expected Sales of Cubicin – Cubist

Could Take Share from ViroPharma with CB-315 Drug Candidate ..................... 96

7.6 Exelixis SWOT & Forecast ........................................................................................ 98

7.6.1 Exelixis’ Revenue will Remain Flat Until it Maximizes the Commercial Potential

of Cabozantinib for Multiple Oncology Indications............................................... 98

7.7 Incyte SWOT & Forecast ......................................................................................... 100

7.7.1 First-in-Class Jakafi Will Capture a Significant Share of the Myelofibrosis

Market ............................................................................................................. 100

7.8 Jazz SWOT & Forecast ........................................................................................... 102

7.8.1 Jazz’s Revenue Grew through Bolt-on Acquisitions – Higher Margin Cancer

Therapies Complement Sales Growth of Xyrem ............................................... 102

7.9 Momenta SWOT & Forecast .................................................................................... 104

7.9.1 While Momenta is Feeling Pressure on its Top-Line, the Company is Poised to

Capitalize on Opportunities with Heparin Candidates and Biologics .................. 104

7.10 Nektar SWOT & Forecast ........................................................................................ 108

7.10.1 Nektar Will Continue to Invest Internally on Novel Cancer Therapies While Sub-

licensing its PEGylation Technology to Supplement Revenue Growth .............. 108

7.11 Onyx SWOT & Forecast .......................................................................................... 112

7.11.1 The Approval of Kyprolis Contributed to Organic Sales for Onyx; However, the

Company’s High Cost Structure Erodes any Profitability ................................... 112

7.12 Regeneron SWOT & Forecast ................................................................................. 115

7.12.1 Regeneron Posts its First Profitable Full-Year in History – Eylea Success

Continues to Drive Top-line Growth, Clinical Pipeline is Buzzing ...................... 115

7.13 Seattle SWOT & Revenue Forecast ........................................................................ 118

7.13.1 As Revenue Peaks, Seattle Expands Adcetris Availability to Outside the US,

and Gets Creative with Diagnostic Partnership ................................................. 118

7.14 United SWOT & Forecast ........................................................................................ 121

Table of Contents


7.14.1 United Will Press Forward with a Plan to Develop an Oral Version of

Remodulin, as the PAH Landscape Becomes More Complex ........................... 121

7.15 ViroPharma SWOT & Forecast ................................................................................ 124

7.15.1 ViroPharma Experienced Significant Erosion from Generic Vancocin; the

Company will Now Have to Rely Entirely on Cinryze for Profitability ................. 124

7.16 GlobalData Forecast Summary ................................................................................ 127

7.16.1 GlobalData Forecasts vs. Company Reported 3Q12 Results ............................. 127

8 Appendix ........................................................................................................................ 129

8.1 Research Methodology ............................................................................................ 129

8.1.1 Coverage .......................................................................................................... 129

8.1.2 Secondary Research ......................................................................................... 129

8.1.3 Expert Panel Validation ..................................................................................... 130

8.2 About the Authors ................................................................................................... 131

8.2.1 Analysts ............................................................................................................ 131

8.3 Director, Healthcare Industry Dynamics ................................................................... 132

8.4 GlobalHead of Healthcare Research & Consulting ................................................... 132

8.5 About the Industry Dynamics Team ......................................................................... 133

8.6 GlobalData .............................................................................................................. 134

8.7 Contact Us .............................................................................................................. 134

8.8 Disclosure Information ............................................................................................. 134

8.9 Disclaimer ............................................................................................................... 135

Table of Contents


1.1 List of Tables

Table 1: GlobalData Benchmark Rankings, 3Q12................................................................... 22

Table 2: GlobalData Benchmark Rankings, 2Q12 – 3Q12 ...................................................... 23

Table 3: Financial Management Composite Scores, 3Q12 ..................................................... 28

Table 4: Expense Management Composite Scores, 3Q12 ...................................................... 34

Table 5: Recent Merger & Acquisitions, 3Q11 - 3Q12............................................................. 69

Table 6: Recent Licensing Deals, 3Q11-3Q12 ........................................................................ 70

Table 7: Resource Management Composite Scores, 3Q12 .................................................... 75

Table 8: Key Leadership Changes, 1Q12 - 3Q12 ................................................................... 80

Table 9: Capital Management Composite Scores, 3Q12......................................................... 81

Table 10: Share Offerings & Debt Restructurings, 1Q12 - 3Q12 ............................................. 87

Table 11: GlobalData Forecasts vs. Company Report Results ($m), 3Q12 ........................... 127

Table of Contents


1.2 List of Figures

Figure 1: Combined Peer Group Revenue ($m) and Average Operating Margin, 3Q11–3Q12 26

Figure 2: Average Percent Expense by Function, 3Q11–3Q12 ............................................... 27

Figure 3: Revenue ($m) by Company, 3Q12 .......................................................................... 29

Figure 4: Year-to-Year Revenue Growth by Company ............................................................ 30

Figure 5: Operating Income ($m) by Company, 3Q12............................................................. 31

Figure 6: Year-to-Year Operating Income Growth by Company .............................................. 32

Figure 7: Operating Margin by Company, 3Q12 ..................................................................... 33

Figure 8: R&D Expense as a Percentage of Revenue by Company, 3Q12 ............................. 35

Figure 9: Year-to-Year Growth in R&D Spending by Company, 3Q12 ..................................... 36

Figure 10: S,G&A Expense as a Percentage of Revenue by Company, 3Q12 ........................ 37

Figure 11: Year-to-Year Growth in S,G&A Spending by Company, 3Q12 ............................... 38

Figure 12: Total OpEx as a Percentage of Revenue by Company, 3Q12 ................................ 39

Figure 13: Percentage of Candidates by Therapy Area, Through 3Q12 .................................. 41

Figure 14: GlobalData Pipeline Matrix .................................................................................... 42

Figure 15: GlobalData Pipeline Matrix: Competitive Positioning .............................................. 43

Figure 16: Number of Clinical Candidates for Each Company by Clinical Phase, through 3Q12

............................................................................................................................... 46

Figure 17: Percentage of Candidates by Clinical Phase, through 3Q12 .................................. 47

Figure 18: Headcount Growth YtY by Company, 3Q12 ........................................................... 76

Figure 19: Revenue per Employee (In $ Thousands) by Company, 3Q12 ............................... 77

Figure 20: SG&A Expense per SG&A Employee (In $ Thousands) by Company, 3Q12 .......... 78

Figure 21: R&D Expense per R&D Employee (In $ Thousands) by Company, 3Q12 ............... 79

Figure 22: Debt to Asset Ratio by Company, 3Q12 ................................................................ 82

Figure 23: Quick Ratio by Company, 3Q12 ............................................................................ 83

Figure 24: Cash Ratio by Company, 3Q12 ............................................................................. 84

Figure 25: Return on Investment Ratio by Company, 3Q12 .................................................... 85

Figure 26: Sales to Assets Ratio by Company, 3Q12 ............................................................. 86

Figure 27: Acorda Six-Month Revenue Forecast ($m) ............................................................ 89

Table of Contents


Figure 28: Alexion Six-Month Revenue Forecast ($m) ............................................................ 91

Figure 29: Alkermes Six-Month Revenue Forecast ($m) ......................................................... 93

Figure 30: BioMarin Six-Month Revenue Forecast ($m) ......................................................... 95

Figure 31: Cubist Six-Month Revenue Forecast ($m) ............................................................. 97

Figure 32: Exelixis Six-Month Revenue Forecast ($m) ........................................................... 99

Figure 33: Incyte Six-Month Revenue Forecast ($m) ............................................................ 101

Figure 34: Jazz Six-Month Revenue Forecast ($m) .............................................................. 103

Figure 35: Momenta Six-Month Revenue Forecast ($m) ....................................................... 107

Figure 36: Nektar Six-Month Revenue Forecast ($m) ........................................................... 111

Figure 37: Onyx Six-Month Revenue Forecast ($m) ............................................................. 114

Figure 38: Eylea Six-Month Sales Forecast ($m) .................................................................. 117

Figure 39: Seattle Six-Month Revenue Forecast ($m) .......................................................... 120

Figure 40: United Six-Month Revenue Forecast ($m) ........................................................... 123

Figure 41: ViroPharma Six-Month Revenue Forecast ($m) ................................................... 126

Introduction


2 Introduction

2.1 Report Scope

The Innovative Mid-Cap Biotech Benchmark Report applies GlobalData’s proprietary ranking

methodology to compare the competitive position of 15 innovative biotech companies on 20

financial metrics. The performances of these companies are analyzed on financial performance,

cost-containment, capital structure and firm utilization to illustrate the different strategies these

companies are using to increase value for their shareholders. Throughout the report, GlobalData’s

analysts provide you with expert insight, expanding on each of the metrics discussed. In addition to

the financial metrics, this report discusses each company’s recent pipeline and clinical

advancements, along with licensing and acquisition activity, and operations strategy. Lastly, this

report provides GlobalData’s viewpoint on each company’s future revenue outlook, and competitive

position within the biotech space.

Key Questions Answered

What are the specific strategies these innovative biotech companies employing to gain market

share?

What specific therapeutic areas are these biotech companies focusing their spending on?

How does my pipeline and commercialization strategy match up with theirs?

What particular enabling technologies and drug platforms are these biotech companies

developing?

How are these biotech companies maximizing their capital spending to gain a competitive

advantage?

Key Benefits

This report will enable you to:

Analyze and track the strategies that these successful biotech companies are using to gain

share in the increasingly competitive market.

Understand the underlying financial metrics that differentiate certain companies from the pack

in terms of growth and profitability, spending and asset structure.

Organize your sales and marketing strategy to identify companies with proprietary technologies

to maximize opportunities for strategic investment or partnerships.

Use this information as an independent source for your due diligence and transaction strategy.

Introduction


GlobalData Selection Criteria

After extensive exploratory research and client feedback, GlobalData identified 15 emerging

biotech companies based on their revenue growth and/or potential of their clinical pipelines. While

not exhaustive, GlobalData believes these 15 mid-cap biotech companies comprise a

representative cross-section of drug makers that vary by technology and disease focus, providing a

foundation for strategic discussion and analysis. GlobalData’s coverage examines drug makers

from a unique company-centric lens – combining financial performance and resources allocation

with clinical and licensing activity to assess a company’s overall strategy. This type of coverage is

unlike any other analysis available and will deliver a consistent view into the evolution of these

companies corporate growth. Moving forward, GlobalData plans to expand this list of biotech

companies based on market dynamics and customer feedback to provide our clients with the most

current information and analysis on major players in the biotech space to guide their corporate

decision-making.

Companies covered: Acorda, Alexion, Alkermes, BioMarin, Cubist, Exelixis, Incyte, Jazz, Momenta,

Nektar, Onyx, Regeneron, Seattle, United Therapeutics, and ViroPharma

If there is a specific company you would like GlobalData to cover and include in our next report,

please don’t hesitate to contact GlobalData’s Industry Dynamics Team directly and we will make

every attempt to add it to our semi-annual coverage.

Introduction


2.2 Report Catalysts

Regeneron’s global launch of Eylea (aflibercept) injection for wet age-related macular

degeneration.

Regeneron’s approval of Zaltrap (ziv-aflibercept) for the treatment of patients with metastatic

colorectal cancer.

Incyte’s approval of Jakavi (ruxolitinib) in the EU for myelofibrosis.

Onyx’s approval for Kyprolis (carfilzomib) injection for treatment of patients with multiple

myeloma.

Bayer’s (and Onyx’s) approval of Stivarga (regorafenib) for the treatment of patients with

metastatic colorectal cancer.

Seattle Genetics receiving marketing authorization in the EU for Adcetris (brentuximab vedotin)

for patients with Hodgkin lymphoma and systemic anaplastic large cell lymphoma.

Cubist submitted applications for its lead candidates CXA-201 (ceftolozane) and CB-315, both

in Phase III for Gram-negative bacterial infections.

BioMarin’s completed enrollment for Phase III trial for GALNS for the treatment of Morquio A

Syndrome. GALNS is the largest trial in company history.

Regeneron and Sanofi launch Phase III ODYSSEY trial – the first program of an investigational

drug targeting the PCKS-9 pathway to lower LDL-C.

Alexion adds to its rare disease portfolio with Enobia and Orphatec transactions.

Alkermes’ acquisition of Elan Drug Technology.

Jazz’s purchases of EUSA and Azur Pharma.

2.3 Upcoming Related Reports

Report titles are subject to change:

GlobalData (2013). Academic Tech Transfer Deals and Strategy Analyses, TBD 2013

GlobalData (2013). Global Generics Manufacturing Strategy Report, TBD 2013

GlobalData (2013). Contract Research Organizations Benchmark Report, TBD 2013

GlobalData (2013). Early Stage Biotech Funding and Strategy, TBD 2013

Introduction


2.4 Recently Published Reports

GlobalData (2012). Biotech Strategy 2012 – Licensing, Collaboration, and M&A Trends,

November 2012, GDHC0001MAL

GlobalData (2012). Pharmaceutical Leaders 2012 – Key Trends, Emerging Strategies and

Financial Analysis of Top Performers, July 2012, GDHC0001BR

GlobalData (2012). Rare and Niche Disease Catalyst Monitor – Key Events Analysis 1H12,

May 2012, GDHC001DCM

2.5 GlobalData’s Benchmarking Methodology

GlobalData’s Innovative Mid-Cap Biotech Benchmark Report ranks 15 mid-cap biotech companies

on 20 financial metrics. These metrics include company-specific data such as revenues, margins,

expenses and balance sheet ratios that are weighted and combined into an aggregate composite

score that leads to a rank of each company’s overall financial performance. The ranking scale

ranges from 1.00–10.00, with the average being 5.00, and higher rankings representing better

overall performance. GlobalData believes one of the many strengths of our proprietary ranking

methodology is that company rankings are data-driven and empirical, not subjective or whimsical. It

is important to note that these rankings are retrospective and are intended to help illustrate the

strategies that companies are using to succeed financially, and should not be considered as an

endorsement by GlobalData, or a recommendation to purchase any securities. It is essential to

recognize that there are many factors that determine the success of any company, not just financial

performance, such as clinical pipeline, leadership of management and organizational structure,

which are not accounted for directly in our methodology. The rankings are primarily intended to

serve as an impetus for analytical discussion, and for examining a company’s relative competitive

position in a very dynamic industry.

Introduction


2.6 GlobalData 3Q12 Biotech Benchmark Leader: Regeneron

Regeneron [REGN] was GlobalData’s Mid-Cap Biotech Benchmark Leader in the third quarter with

an overall score of 6.75. Regeneron’s leadership status was driven by the company’s significantly

higher financial metrics scores. The company’s aggregated Financial Management (FM) composite

score was 9.24, much greater than the peer group average of 5.00. Rounding out the top three

companies were Alexion [ALXN] which had an overall score of 5.90, and Cubist [CBST] which had

an overall score of 5.43.

Table 1 shows each company’s individual composite scores and overall score for the third quarter.

Table 1: GlobalData Benchmark Rankings, 3Q12 GD

Rank Company Financial Management

Expense Management

Resource Management

Capital Management

Overall Score

1 Regeneron 9.24 5.80 5.71 6.26 6.75

2 Alexion 6.72 5.51 5.56 5.82 5.90

3 Cubist 5.58 5.53 5.80 4.78 5.43

4 Alkermes 5.27 5.85 5.14 5.17 5.35

5 United 5.61 4.48 5.33 5.46 5.22

6 Acorda 4.41 5.46 5.43 5.34 5.17

7 Seattle 5.30 5.48 5.00 4.90 5.16

8 Jazz 5.90 4.33 5.35 4.81 5.10

9 BioMarin 4.74 5.69 4.99 4.81 5.06

10 ViroPharma 4.15 6.03 3.35 4.93 4.61

11 Exelixis 2.97 4.82 5.38 4.97 4.53

12 Incyte 5.05 5.38 4.61 2.68 4.43

13 Onyx 4.35 4.45 2.95 5.23 4.25

14 Nektar 3.69 4.73 5.40 3.15 4.24

15 Momenta 2.02 1.45 4.99 6.71 3.79

Source: GlobalData Note: Scale (1.00 – 10.00, Avg. Score = 5.00)

Meanwhile, Momenta [MNTA] was GlobalData’s Mid-cap Biotech Benchmark Laggard in the third

quarter with an overall score of 3.79. Contributing to the company’s laggard status were very low

scores in Financial Management (FM) metrics and Expense Management (EM) metrics. Momenta’s

aggregate score was 2.02 for FM and 1.45 for EM, both very low when compared to the peer group

average of 5.00. Rounding out the bottom three laggards were Nektar [NKTR] at 4.24 and Onyx

[ONXX] at 4.25.

Introduction


2.7 Regeneron Overtook Alexion in 3Q12 as Benchmark Leader

Regeneron’s [REGN] overall ranking increased 0.85 points to 6.75 when compared to the

company’s rank in 2Q12. Regeneron’s first-place ranking was largely driven by its exceedingly high

(9.24) Financial Management (FM) aggregate composite score. Regeneron posted leading scores

on the following metrics: Revenue Growth Year-to-Year (10.49), Operating Income (9.36) and

Operating Income Growth Year-to-Year (11.57). These scores, combined with Alexion’s [ALXN]

0.41 drop, helped to vault Regeneron to leadership status.

Alexion’s ranked dropped 0.41 to 5.90, putting the company in second place in 3Q12. Pulling down

the company’s rank was its performance in Expense Management (EM), in particular the R&D

Expense Growth year-to-year metric. Alexion’s composite score on this metric was 2.52,

significantly lower than the peer group average of 5.00.

Table 2 depicts each company’s ranking change from the second quarter.

Table 2: GlobalData Benchmark Rankings, 2Q12 – 3Q12 GD Rank 2Q12 3Q12 3Q12 Rank 3Q12 Rank Chng

1 Alexion Regeneron 6.75 0.85

2 Regeneron Alexion 5.90 (0.41)

3 Acorda Cubist 5.43 (0.16)

4 Cubist Alkermes 5.35 0.04

5 United United 5.22 (0.19)

6 Jazz Acorda 5.17 (0.53)

7 Alkermes Seattle 5.16 0.14

8 Incyte Jazz 5.10 (0.17)

9 Momenta BioMarin 5.06 0.50

10 Seattle ViroPharma 4.61 0.00

11 ViroPharma Exelixis 4.53 1.67

12 BioMarin Incyte 4.43 (0.70)

13 Nektar Onyx 4.25 0.48

14 Onyx Nektar 4.24 (0.23)

15 Exelixis Momenta 3.79 (1.28)

Source: GlobalData Note: Scale (1.00 – 10.00, Avg. Score = 5.00)

Introduction


According to our analyses, the largest mover in 3Q12 (based on absolute value) among these

biotech companies was Exelixis [EXEL], which increased 1.67 points from 15th in 2Q12, to 11th in

3Q12. However, this drastic increase was largely due to cost-cutting, not revenue generation.

Momenta [MNTA] was the largest mover in the negative direction. The company’s ranking fell by

1.28 points to 3.79 in the third quarter, from 9th in 2Q12 to 15th in 3Q12. The combination of the

company’s negative revenue growth, margin losses and high cost-structure led to its laggard

performance in the third quarter.

Financial Management

© GlobalData. This report is a licensed product and is not to be copied, reproduced, shared or resold in any form. Page 28 GDHC001SAC / Published JAN 2013

3.3 Financial Management: Heat Map

3.3.1 Regeneron was the financial management leader in 3Q12, posting significantly higher scores across all metrics compared to its peer group

Table 3 displays each company’s Financial Management composite scores and overall FM score.

Table 3: Financial Management Composite Scores, 3Q12 GD Rank Company Revenue Revenue YtY

Growth (%) Op.

Income Op.

Margin Op. Income YtY

Growth (%) Overall FM

Score

1 Regeneron 8.88 9.80 9.36 5.89 11.57 9.10

2 Alexion 6.65 7.10 7.73 5.90 6.98 6.87

3 Jazz 4.66 7.10 5.34 5.67 6.34 5.82

4 United 5.78 5.27 6.03 5.70 5.07 5.57

5 Cubist 5.71 5.24 5.75 5.65 5.40 5.55

6 Incyte 2.74 8.96 3.55 5.02 6.43 5.34

7 Alkermes 3.80 6.07 3.98 5.30 7.40 5.31

8 Seattle 2.54 9.16 3.36 4.76 6.30 5.23

9 BioMarin 3.87 5.16 3.54 5.13 5.82 4.71

10 Acorda 3.02 4.71 4.11 5.43 4.68 4.39

11 Onyx 3.23 5.26 1.86 4.15 7.08 4.32

12 ViroPharma 3.31 4.56 3.71 5.18 3.87 4.13

13 Nektar 2.04 4.48 2.93 2.81 6.13 3.68

14 Exelixis 1.95 3.59 3.13 2.64 3.54 2.97

15 Momenta 1.81 3.52 3.11 (1.73) 3.38 2.02

Source: GlobalData Key: Green represents an area where the company is outperforming its peers Red represents an area where the company is currently challenged versus peers Note: Scale (1.00 – 10.00, Avg. Score = 5.00)



3.4.2 Revenue Growth YtY

3.4.2.1 With a full-year of exclusivity under its belt, Jakafi approval will be a significant revenue driver for Incyte – Seattle reaches milestone

Incyte’s [INCY] revenue grew by 260.5% year-to-year to $60.5m in the third quarter. This growth

rate placed INCY second among its peer group, surpassing its group average of 52.3%.

GlobalData attributes the revenue increase to Incyte’s approval of Jakafi, a JAK-inhibitor, and the

first and only approved drug indicated for the treatment of myelofibrosis.

Figure 4 shows the year-to-year revenue growth by company.

Figure 4: Year-to-Year Revenue Growth by Company

-94.2%

-89.6%

-32.0%-26.5%

-16.8%

13.0%

18.1%

19.3%

20.2%

44.1%

72.2%

139.5%

141.1%

260.5%

315.9%

-200% -100% 0% 100% 200% 300% 400% 500%

Momenta

Exelixis

Nektar

ViroPharma

Acorda

BioMarin

Cubist

Onyx

United

Alexion

Alkermes

Jazz

Seattle

Incyte

Regeneron

3Q12 2Q12

3Q12 Average = 52.3%3Q12 Std. Dev = 117.5%

Source: GlobalData & Company SEC filings

Seattle Genetics’ [SGEN] revenue grew 141.1% year-to-year to $49.8m in the third quarter. The

company’s revenue growth was driven by its July 2012 marketing approval of Adcetris in the

European Union by the EMA. The cancer drug was approved for the treatment of relapsed or

refractory Hodgkin lymphoma and systemic anaplastic large cell lymphoma in the EU, and will now

be available to all 27 member nations. The EU approval triggered two milestone payments totaling

$25m to SGEN under the company’s agreement with commercial partner Millennium, the oncology

wing of Takeda.



3.6 Expense Metrics

3.6.1 R&D Expense as a Percentage of Revenue

3.6.1.1 The use of CROs keeps Jazz’s R&D expenses in check, but spending in the near term will increase due to acquired in-process R&D programs

Jazz [JAZZ] was the peer group leader in 3Q12, spending only 3.9% of its revenue on R&D. Jazz

relies exclusively on contract research organizations and other third parties to assist in the design

and monitoring of its clinical trials for its internal product candidates. Jazz experiences substantial

cost-savings as a result of outsourcing R&D; however, the company does lose some control of its

clinical trial development which could lead to trial failures, and would result in delays in the

company’s regulatory filing process. Moving forward, GlobalData expects Jazz’s R&D expenses to

be higher in 1H13 compared to 2012 due to the acquisition of in-process R&D activities from its

purchases of Azur and EUSA Pharma. Jazz’s development pipeline now includes clinical trials

evaluating intravenously administered Erwinaze, and drug candidates Asparec (Phase I) and

Leukotac (Phase III).

Figure 8 displays each company’s R&D expenses as a percentage of revenue for the third quarter.

Figure 8: R&D Expense as a Percentage of Revenue by Company, 3Q12

396.6%

230.5%

184.8%95.7%

87.6%

82.8%51.7%

37.0%

29.5%

28.3%

26.9%18.5%

18.2%

15.5%

3.9%

0% 100% 200% 300% 400% 500%

Momenta

ExelixisNektar

Onyx

Seattle

IncyteBioMarin

Regeneron

Cubist

AlkermesUnited

Alexion

ViroPharma

AcordaJazz

3Q12 2Q12

3Q12 Average = 87.2%3Q12 Std. Dev = 107.4%3Q12 Average (adj). 41.3%

Source: GlobalData & Company SEC filings Note: Excluding data from the bottom three outliers, the 3Q12 peer group average drops to 41.3% for R&D spend as a percentage of revenue

Pipeline Assessment


4.4 Clinical Highlights by Company

4.4.1 Acorda

4.4.1.1 Acorda announces top-line results from post-marketing study evaluating 5mg dose of Dalfampridine-ER

In 3Q12, Acorda [ACOR] announced top-line results from a post-marketing commitment study

evaluating a 5mg dose of Ampyra (dalfampridine) to improve walking ability in people with Multiple

Sclerosis (MS). The randomized study included 430 participants across three treatment arms:

placebo, 5mg or the currently marketed 10mg of dalfampridine-ER, twice daily. The study failed to

confirm the efficacy of the 5mg dose as measured on the primary outcome of improvement in

change in walking speed. The average change in baseline in walking speed was significantly

greater for the 10mg group compared to placebo but not for the 5mg group over placebo. The

company believes the results show that 10mg twice daily is the appropriate, safe and effective

dose. The trials reported no new safety signals and no seizures were reported. However, two

participants experienced serious adverse events in each of the 5mg and 10mg treatment groups.

The occurrence of adverse events was consistent with the product labeling, with urinary tract

infection and nausea & dizziness being the most highly recorded. Source: GlobalData; Acorda,

press release, August 13, 2012.

4.4.1.2 Acorda acquires nasal spray formulation with purchase of Neuronex

In February 2012, Acorda acquired Neuronex, Inc., a privately-held development stage

pharmaceutical company, for $10m with additional milestone payments totaling up to $125m.

Neuronex was preparing a New Drug Application for a proprietary nasal spray of Diazepam, or

DZNS, as a rescue treatment for certain epilepsy patients. GlobalData believes Acorda’s

experience in developing neurological products will be leveraged and combined with its existing

sales infrastructure for the sale of DZNS, providing a near-term commercial opportunity for the

company. To acquire the technology, Acorda made an upfront payment of $2m and paid $500k of a

pre-closing research funding commitment of up to $1.2m to prepare for the DZNS new drug

application filing with the FDA. Source: GlobalData; Acorda, press release, February 15, 2012.

Acorda will expand Ampyra label to include patients with post-stroke deficits and cerebral palsy

Licensing & Acquisition Strategies


5.3 M&A Analysis

5.3.1 Alkermes Acquisition of Elan Drug Technology Creates Leadership in CNS Therapeutics

5.3.1.1 Alkermes purchases Elan unit for $960m

Alkermes [ALKS] reached a deal to acquire Elan Drug Technologies (EDT) from Irish drug-maker

Elan [ELN] for approximately $960m in cash and stock. The deal included an upfront cash payment

of $500m and 31.9 million Alkermes shares valued at approximately $462m at time of purchase.

EDT’s intangible assets accounted for $689.8m of the total acquisition cost and included

collaboration agreements, in-process R&D and the company’s NanoCrystal drug delivery platform.

As a result of the purchase, Alkermes will create a new holding company, Alkermes, PLC,

headquartered in Dublin, Ireland. Meanwhile, Elan received a 25% stake in the newly minted

company. EDT generated $261m in revenue in 2010 and will fold-in to Alkermes, approximately

doubling its annual revenue to more than $450m.

GlobalData believes the deal joins two companies whose primary business focuses on

technologies that improve the delivery of drugs made and licensed by other companies. Both

companies possess proprietary technologies to make drugs remain stable for longer periods of

time in the bloodstream, thereby requiring less-frequent injections, improving the pharmacokinetics

of their products. EDT formulates Invega Sustenna (paliperidone palmitate), the once-monthly

schizophrenia drug sold by Johnson & Johnson [JNJ], and Ampyra (dalfampridine), which is

developed by Acorda Therapeutics [ACOR] and used to improve walking ability in people who have

multiple sclerosis; whereas Alkermes is the drug-delivery technology partner for Bydureon

(exanatide injection), marketed by Eli Lilly [LLY] and recently acquired Amylin Pharmaceuticals

[AMLN], and continues to receive royalties from this partnership. The deal makes sense for both

parties involved – Elan has been trying to divest its EDT unit for many years and even considered

spinning it off as a separate entity. The sale of EDT will allow Elan to cut its debt and focus on drug

development. Meanwhile, we see Alkermes taking advantage of EDT’s NanoCrystal injection

technology used for Xeplion, another schizophrenia drug developed by J&J, and applying this

injectable platform for projects in its clinic – ALKS-9070, ALKS-33, and ALKS-5461 – which are

being investigated for schizophrenia and alcohol and cocaine dependencies. Source: GlobalData;

Alkermes, press release, September 16, 2011.

Alkermes strengthens its drug delivery business with EDT purchase

Resource Management Strategies


6 Resource Management Strategies

6.1 Competitive Framework

The Resource Management (RM) section discusses how each company is deploying its physical,

human and financial resources. GlobalData benchmarks each of the company’s performance on

several utilization and balance sheet metrics. We use our proprietary ranking system to illustrate

which companies are performing the best on each metric, and discuss what specific drivers and

strategies each of the three top-performing companies are implementing to remain leaders on each

indicator.

A company’s physical resources include the expansion of manufacturing plants, R&D facilities and

supply agreements; human resources includes changes to executive leadership, headcount

attrition and employee utilization; capital management consists of the company’s debt structure,

working capital and return-on-investment.

Key Questions Answered

Is the company investing in R&D capacity to grow inventory to meet demand of the market?

Is the company experiencing any manufacturing issues that could disrupt its supply chain and

increase delivery time for its products?

Is R&D and S,G&A headcount being used efficiently to maximize the company’s bottom line?

Is headcount rationalization contributing to margin growth?

What is the company’s operating leverage?

Is the company paying down its debt to improve its cash flow?

If an unforeseen event occurs, does the company have enough cash on hand to sustain

operations for the next twelve months?



6.5.4 R&D Expense per R&D Employee

6.5.4.1 Onyx invests heavily in Kyprolis R&D, which will begin to pay-off in 1H13 when the company begins to recognize higher Kyprolis sales

Onyx [ONXX] posted $85.7m in R&D expenses in the third quarter, almost entirely accounting for

its $89.5m the company reported in revenue. GD estimates that Onyx spends approximately $465k

per R&D employee, significantly higher than its peer group average of $203k. We estimate the

company’s R&D headcount to be at 184 FTEs, a 16.5% increase from the 158 FTEs we

approximate for 3Q11. GlobalData attributes the company’s laggard status on this metric to clinical

trial costs, which include several Phase III studies evaluating Kyprolis injection either as a single

agent therapy or in combination with other drugs.

Figure 21 shows the R&D expense per R&D employee by company for 3Q12.

Figure 21: R&D Expense per R&D Employee (In $ Thousands) by Company, 3Q12

$465.6$328.4

$271.0$261.9

$238.8

$225.2$206.0$204.1$200.4

$158.3$129.2

$122.1$105.0

$68.9$63.4

$- $100 $200 $300 $400 $500

OnyxUnitedCubist

ExelixisRegeneron

BioMarinIncyte

MomentaViroPharma

AcordaAlexionSeattleNektar

AlkermesJazz

3Q12 2Q12

3Q12 Average = $203.2k3Q12 Std. Dev = $105.4k

Source: Company data and GlobalData estimates



6.8.5 Sales/Assets Ratio

6.8.5.1 The combination of revenue growth with an expanding asset base allows Regeneron to be efficient at generating sales

Regeneron [REGN] was the peer group leader on sales to asset ratio at 0.26, which was higher

than its group average of 0.11. The company had a total asset base of $1.6bn on sales revenue of

$427.7m in the third quarter. As mentioned, the combination of the company’s revenue growth with

an increase in net accounts receivables contributes to the company being very efficient at utilizing

its assets to generate sales.

Figure 26 displays the sales-to-assets ratio by company for 3Q12.

Figure 26: Sales to Assets Ratio by Company, 3Q12

0.01

0.02

0.03

0.07

0.07

0.08

0.09

0.10

0.12

0.12

0.12

0.15

0.19

0.20

0.26

0.00 0.05 0.10 0.15 0.20 0.25 0.30

Momenta

Exelixis

Nektar

Onyx

ViroPharma

BioMarin

Alkermes

Jazz

Alexion

Seattle

Cubist

United

Acorda

Incyte

Regeneron

3Q12 2Q12

3Q12 Average = 0.113Q12 Std. Dev = 0.07

Source: GlobalData and company SEC filings

Company Drill-Downs & Forecasts


7 Company Drill-Downs & Forecasts

7.1 Acorda SWOT & Forecast

7.1.1 With Revenue Flattening, Acorda Looks to Extend Ampyra Labeling to Include Additional Indications and More Regions in the EU

Strength: Lean on Collaborators to Drive Ex-US Revenue Growth. Acorda [ACOR] has

licensing agreements with Biogen Idec and Watson Pharmaceuticals [WPI] which allows the

company to leverage its partners’ commercial capabilities. Acorda’s agreement with Biogen [BIIB]

led to the approval of Ampyra (marketed as Fampyra outside the US) in the EU, Canada and

Australia. The drug is expected to be launched in the remaining European countries by the end of

2012. Acorda’s agreement with Watson Pharma enables it to manufacture generic versions of its

own drug, Zanaflex (tizanidine), in response to potential launches of generic versions of the drug in

the coming months.

Weakness: Overdependency on Ampyra to Sustain Operations. The company is heavily

dependent on Ampyra for most of its revenue. Consequently a sharp decline in Ampyra sales

would result in poor financial performance by the company.

Opportunity: Pipeline Development. Acorda currently has two new drugs in late-stage

development, in addition to investigating the safety and efficacy of Ampyra in multiple MS

indications. Furthermore, the company has other candidates in Phase I and in preclinical discovery

which could potentially be first-in-class treatments for heart failure, stroke, and spinal cord injury.

Threat: Increasing Generic Competition for Zanaflex. In February 2012, Apotex launched a

generic version of Zanaflex, which resulted in a decline in Acorda’s Zanaflex sales. Apotex’s launch

and possible other launches of generic versions of Zanaflex will even further erode Acorda’s top-

line revenue. In May 2012, Acorda received a Paragraph IV letter from Mylan Laboratories [MYL]

informing it of the company’s filing an ANDA to manufacture generic versions of Zanaflex.

Company Drill-Downs & Forecasts


Figure 27 shows Acorda revenue from 3Q11 to 3Q12 and a six-month forecast.

Figure 27: Acorda Six-Month Revenue Forecast ($m)

$68.0

$72.6$71.3

$75.7

$72.2 $71.3

$74.3

$77.5

$62$64$66$68$70$72$74$76$78$80

3Q11 4Q11 1Q12 2Q12 3Q12Actual

3Q12GD Est.

4Q12GD Est.

1Q13GD Est.

(In $

m)

Source: Company data and GlobalData estimates

Appendix


8 Appendix

8.1 Research Methodology

GlobalData’s dedicated research and analysis teams consist of experienced professionals with

marketing, market research and consulting backgrounds in the pharmaceutical industry, and

advanced statistical expertise. GlobalData adheres to the codes of practice of the Market Research

Society (www.mrs.org.uk) and the Strategic and Competitive Intelligence Professionals

(www.scip.org). All GlobalData databases are continuously updated and revised. The following

research methodology is followed for all databases and reports.

8.1.1 Coverage

The objective of updating GlobalData’s coverage is to ensure that it represents the most up-to-date

vision of the industry possible. Changes to the industry taxonomy are built on the basis of extensive

research of company, association and competitor sources. GlobalData aims to cover all major

news events and deals in the pharmaceutical industry, updated on a daily basis. Company

coverage is based on three key factors: revenues, products, and media attention/market potential.

The estimated revenues of all major companies, including private and governmental, are

gathered and used to prioritize coverage.

Companies which are making the news or which are of particular interest due to their

innovative approach are prioritized.

The coverage is further streamlined and strengthened with additional inputs from GlobalData’s

expert panel (see below).

8.1.2 Secondary Research

The research process begins with exhaustive secondary research on internal and external sources

being carried out to source qualitative and quantitative information relating to each market. The

secondary research sources that are typically referred to include, but are not limited to:

Company websites, annual reports, financial reports, broker reports, investor presentations,

and US Securities and Exchange Commission (SEC) filings

Industry trade journals, scientific journals, and other technical literature

Internal and external proprietary databases

Relevant patent and regulatory databases

National government documents, statistical databases, and market reports

Procedure registries

Appendix


News articles, press releases, and web-casts specific to the companies operating in the

market.

8.1.3 Expert Panel Validation

GlobalData uses a panel of experts to cross-verify its databases and forecasts.

GlobalData’s expert panel comprises marketing managers, product specialists, international sales

managers from pharmaceutical companies; academics from research universities, KOLs from

hospitals, consultants from venture capital funds, and distributors/suppliers of pharmaceuticals and

supplies.

Historic data and forecasts are relayed to GlobalData’s expert panel for feedback and adjusted in

accordance with their feedback.

Appendix


8.2 About the Authors

8.2.1 Analysts

Adam Dion, MSc

Mr. Dion is an Analyst in the Healthcare Industry Dynamics Team at GlobalData. Mr. Dion is an

author of GlobalData’s PharmaSphere benchmark reports which rank the competitive positions of

the top companies in the pharmaceutical, biotech, and medical device and CRO sectors. Adam is

the lead author of Pharmaceutical Leaders 2012: Key Trends, Emerging Strategies and Financial

Analysis of the Top Performers. Adam also provides coverage of trends in the healthcare IT space,

including mHealth and cloud computing. Prior to joining GlobalData, Mr. Dion was an Analyst with

Technology Business Research, a leading market research and consulting firm. In this role, he was

responsible for coverage of the leading blue-chip hardware and software and BPO companies,

such as Dell, Apple, SAP, Acer, Wipro and Tata Consultancy, analyzing these companies’ go-to-

market and vertical integration strategies, financial forecasting and competitive benchmarking.

Adam also has been involved in a number of primary market studies in the consumer space,

analyzing the market penetration of tablets, Netbooks, e-readers and mobile devices. His analytical

commentary has been quoted by leading sources, such as the Wall Street Journal, Forbes,

Financial Times, The Guardian, ComputerWorld and eWeek. Adam received his B.S. in

Neuroscience from Merrimack College, and M.S. in Marketing from the University of New Haven.

Adam can be reached by email at: [email protected].

Adefemi Adenuga, MBS

Mr. Adenuga is a key strategic and financial analyst in the Healthcare Industry Dynamics Team at

GlobalData. Mr. Adenuga is an author of GlobalData’s PharmaSphere strategy reports covering:

trends in emerging markets, mergers and acquisitions, generic drug manufacturers, and contract

manufacturing organizations. Femi is the lead author of Biotech Strategy 2012 – Licensing,

Collaboration and M&A Trends. Prior to joining GlobalData, Mr. Adenuga held an analyst position

with the Global Planning and Materials Management Team at Gilead Sciences. Mr. Adenuga also

held an associate position covering business development, credit structuring, international trade,

and financial analysis at Guaranty Trust Bank. He has a strong interest and background in mergers

and acquisitions as well as global manufacturing and corporate strategy. Adefemi has also been

involved in a number of primary and secondary market studies in the US medical devices space

analyzing the dynamics and competitive landscape of the in-vitro diagnostics segment. Adefemi

holds a B.S.in Cell Biology and Genetics from the University of Lagos (Nigeria) and a Masters in

Bioscience Management (M.B.S.) with an emphasis in business administration from the Keck

Graduate Institute of Applied Life Sciences, a member of the Claremont University Consortium.

Femi can be reached by email at: [email protected].

Appendix


8.3 Director, Healthcare Industry Dynamics

Joshua Owide, BS

Mr Owide is the Director of Healthcare Industry Dynamics Team at GlobalData. Prior to joining

GlobalData, Mr. Owide was a senior pharmaceutical company analyst at Datamonitor, covering

large-cap companies from the US, EU and Japan. Prior to joining Datamonitor, Joshua undertook a

bioinformatics studentship at the Ludwig Institute for Cancer Research where he analyzed a

genome wide RNAi screen identifying the importance of specific proteins in cell morphology.

Joshua holds a B.S. in Physiology for the University of Leeds where he conducted and published

research in renal physiology.

8.4 GlobalHead of Healthcare Research & Consulting

Bonnie Bain, Ph.D

Bonnie Bain, Ph.D. is Global Head of Healthcare Research & Consulting for GlobalData, managing

the Medical and Pharmaceutical arms of the business. Prior to this role, she was Vice President

and Global Research & Analysis Director for Informa where she oversaw the global strategy and

operations for Datamonitor Healthcare’s syndicated research business. Dr. Bain has over 15 years’

experience in the healthcare sector and a proven track record of developing innovative solutions on

both the client and vendor sides of the business. Prior to joining Informa, Bonnie was Director of

Product Development at Wood Mackenzie where she oversaw development and management of

two product lines. Bonnie also worked for several years at Decision Resources as an Analyst and

Project Manager. On the client side of the industry, Bonnie worked for several years as a Senior

Manager in Marketing Strategy and Analytics at Boston Scientific where her work contributed to the

successful commercialization of the first ever Access and Visualization Platform at the company.

She has a Ph.D. in Biochemistry and Molecular Biology from Purdue University and was a Post-

Doctoral Fellow in Molecular Pharmacology at The University of Miami School of Medicine.

Appendix


8.5 About the Industry Dynamics Team

The Industry Dynamics Team strives to provide an in-depth series of reports based on solid

financial and strategic analysis to help clients make informed decisions. Our PharmaLeaders and

PharmaSphere portfolios gives clients’ access to company, sector and industry-wide information on

the established and emerging players within the global pharmaceutical marketplace.

Pharma eTrack gives you the key information to drive sales, investment and deal making activity in

your business. It includes the following information:

4,400+ market size data tables across 100+ Indications for 11 countries with historic data from

2002 and forecasted till 2017

35,000+ pipeline products

110,000+ clinical trials

10,000+ marketed products

30,000+ deals

20,000+ company profiles

Appendix


8.6 GlobalData

GlobalData is a leading global provider of business intelligence in the Healthcare industry.

GlobalData provides its clients with up-to-date information and analysis on the latest developments

in drug research, disease analysis, and clinical research and development. Our integrated business

intelligence solutions include a range of interactive online databases, analytical tools, reports and

forecasts. Our analysis is supported by a 24/7 client support and analyst team.

GlobalData has offices in New York, Boston, London, India and Singapore.

8.8 Disclosure Information

GlobalData is a product of GlobalData Ltd, a UK registered company. GlobalData Ltd has no

current or intended investment banking or corporate finance relationships or operations. The

material presented in this report is provided for information purposes only and is not to be used or

considered as a recommendation to buy, hold or sell any securities or other financial instruments.

No GlobalData Ltd directors, officers or employees are on the Board of Directors of a covered

company and no one at a covered company is on the Board of Directors of GlobalData Ltd.

Appendix


8.9 Disclaimer

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any

form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior

permission of the publisher, GlobalData.

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