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Funding & Commercialization Strategies for Regenerative Medicine Companies
Gregory A. BonfiglioProteus Venture Partners"November 15, 2011"
Agenda
I. The RM Market Is Entering A New Era § RM Has Made Great Progress § But Serious Commercialization Challenges Remain
II. New Economic Realties § A Fundamental Shift in Biotech Economics § The Valley of Death Is Expanding § A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers § Enabling Capital Efficient RM Technology Development § Facilitating Collaborations in RM Technology Development § The RMC: An International Coalition of RMTCs
CONFIDENTIAL 2
Gartner’s Hype Cycle of Emerging Technologies
CONFIDENTIAL 3
Technology Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightment
Plateau of Productivity Time"
Visibility"
RM Market: On 2nd Half of the Gartner Curve
Stage of Development"
Visibility"
Technology Trigger"
Peak of Inflated Expectations"
Trough of Disillusionment"
Slope of Enlightment"
Plateau of Productivity"
1980 Early TE research (MIT)"
1986 ATS and Organogenesis founded"
1988 SyStemix founded"
1992 Geron founded"
1997 First FDA approved cell therapy (Carticel)"
1997 Dolly the sheep"
1998 Human ESCs first derived"
1999 First FDA approved TE product (Apligraf)"
1999 TE bladders in clinic"
2000 Time Magazine:TE No. 1 job"
2001 Bush “partial ban” on HESCs"
2001 Dermagraft FDA approved"
2001 Ortec FDA approved"
2001: 3300 jobs, 73 firms, mkt cap > $2.5B"
2002 ISSCR Founded"
2002 ATS + Organogenesis file" Chapter 11"
Time"
2009 Obama Ends Ban on hESCs"
2007 iPS Technology Developed "
2005 CIRM Founded"
2003 UK Stem Cell Bank Formed"
CONFIDENTIAL 4
2010 Dendreon’s Provenge Approved"
2010 Cephalon & Mesoblast $2B Deal"
Nov 2008 Genzyme-Osiris $1.25B Deal"
2011 Shire Acquires ABH -$750M "
2007 Apligraf - 200,000 Patients Treated"2006 Carticel - 10,000 Patients Treated"
RM Is Entering A New ERA
RM Market is Maturing: Key Metrics
Rapidly Expanding Market: • $1.6B in 2010 • $20.0B in 2025 • CAGR of 18.34%
Dramatic Revenue Growth • $130M in 2001 • $1.6B+ in 2010
Worldwide funding for research Increasing • $2.5B Now • $14B in 10 Years
Clinical Programs • Over 3600 Clinical Trials • Over 400 ex-Oncology
Commercial Products • 400 on Market (Mostly Skin, Tools
Media, & Devices); – 900+ in Development
• 44 Cell Therapies on Market – $1B Revenues – 400 in Development – 28 in PIII/Pivotal Trials
1.2M+ Patients Treated with RM Products.
• 320K+ Cell Therapy Patients
RM Companies • 600+ Co’s involved in RM • 50+ Public Co’s;
– $8.7B Total Market Cap • 225+ Private Co’s
CONFIDENTIAL 5
RM Market: Expanding Rapidly
CONFIDENTIAL 6
Cell Therapy Industry: Billion Dollar Global Business With Unlimited Potential; "Regenerative Medicine; Chris Mason, David Brindley, Emily J Culme-Seymour & Natasha L Davie"
Dramatic Cell Therapy Revenue Growth
CTI Revenues: $410M (2008) - $5.1B (2014)"
Global Company Distribution
5%
Asia 32 firms
3%
Canada 24 firms
56%
USA 386 firms
14%
Europe (ex. UK) 93 firms
UK 133 firms
19%
2%
Middle East 17 firms
600+ RM companies worldwide!"
CONFIDENTIAL 7
RM Has Made Great Progress, but… ….Challenges Remain
R&D
§ Creation And Characterization Of Optimal Cells For Therapy – Controlling Differentiation Pathways
§ Standards For The Field – What is an iPS Cell? …or MSC?
§ Contaminant Free Cell Lines
§ Safe & Reliable Expansion
§ Track Cell Migration & Engraftment
- Imaging Technology And Biological Markers
§ Immune Modulation
Manufacturing
§ Technologies For Scale-up - Safe & Reliable Expansion
- Sterility Testing & Validation
- Process Control & Reproducibility; Consistent Lots
- Closed Systems
§ Product Characterization – Safety; Identify; Potency
§ Process Control : Process Is The Product – COGS; QC; & cGMP
§ Centralized Vs. Point Of Care
CONFIDENTIAL 8
…A Few More Challenges
Regulatory& IP Landscape
§ Regulatory Environment Needs Clarity - Standards & Guidelines Are Evolving
- Characterization
- Safety / Efficacy / Consistency
- Cross Border Inconsistencies
§ IP Landscape Is Treacherous : “Patent Thicket” - Fragmented Ownership;
- Patents Proliferating Rapidly : 25% GAGR
- Inconsistent & Competing Patents: Invites Litigation
- Need “Freedom To Operate” Opinions
Business Issues
§ Business Model Questions - Capital Efficient R&D
- Product V. Service Models
- Autologous V. Allogeneic
§ Reimbursement Issues - Cost Savings Justification
§ Sales & Marketing - Complex Channel Arrangements
- Define Marketable “Product”
- Educate Consumers Re: New Treatment Paradigms
CONFIDENTIAL 9
RM Business Models: Autologous v. Allogeneic
Autologous Model
Patients Own Cells/Tissue • Personalized Medicine
Advantages: • Easier Regulatory Path
(GTP) • No Immune Response
Challenges: • Difficult to Scale • High COGS
Allogeneic Model
Universal Cells in a Bottle • Big Pharma “Drug Model”
Advantages: • Scalable • Low COGS
Challenges: • More Difficult Regulatory
Path • Immune Response
CONFIDENTIAL 10
Service vs. Product"
• Autologous Treatment for Prostate Cancer Using Dendritic Cells -Centralized Processing
• $93K per Treatment -$1B+ Projected Revenues
• $5.0B Market Cap (Until Aug 3, 2011)
Agenda
I. The RM Market Is Entering A New Era § RM Has Made Great Progress § But Serious Commercialization Challenges Remain
II. New Economic Realties § A Fundamental Shift in Biotech Economics § The Valley of Death Is Expanding § A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers § Enabling Capital Efficient RM Technology Development § Facilitating Collaborations in RM Technology Development § The RMC: An International Coalition of RMTCs
CONFIDENTIAL 11
New Economic Reality"
Coming Out (?) of the Worst Financial Crisis in 75+ Years
CONFIDENTIAL 12
Dendreon is a Success Story, But….
CONFIDENTIAL 13
…Also a Cautionary Tale August 3, 2011 "
"" Dendreon plunges 67% on slow sales, plans 'across the board'
layoffs""
Dendreon slashed its sales forecast for 2011 Wednesday "after reporting lower than expected second-quarter net revenue of $49.6 million."
August 18, 2011""" Biotech Stocks Battle The ‘Dendreon Effect’" Company’s Troubles With Provenge Chill Fellow Drug Makers" "
Basic & DiscoveryResearch"
Preclinical" Research"
Venture Investments"Grants to Universities & Research Institutes,"
IPO & Partnering Deals"
TherapeuticCandidate"
Product Release"
Proof of Concept."
PI"$10-15MM"
Probability: 66%"
Probability: 70%"
Probability: 40%"
Preclinical" Development"
Clinical" Phase I"
Clinical" Phase II"
Clinical" Phase III" Market"
1-3 years" 1.4-1.8 year" 2.5-3.8 years"
PII"$20-25MM"
PIII"$50-75MM"
IND" Safety" Efficacy"
Biotech Product Development Is "Dependent on External Funding "
Probability"of success"
Steps"
Outcome"
Investment"Amount"
Actors"
$5-10MM" $75=100MM"
CONFIDENTIAL 14
Key Metrics:"
• Average Time to Market: 10-15 Years"• Average Costs: $1B"
• Failure Rate: @90%"• Less than 30% of approved drugs recoup development costs"
Venture Capital: VCs Want “Pristine Deals”
Proprietary Commercial Technology § Great Science ≠ Great Business § Proof Of Concept Established § Phase II Clinical Data
Strong Management Team § Board § SAB
Solid Intellectual Property Position § Freedom To Operate § Defensible IP (Patents & Trade
Secrets)
Large Market Opportunity § Target markets > $1B/year
Defensible Business Model § Capital Efficient Tech Development § Application Engines § Project Based Models § Virtual Operations
Differentiation § How Is Your Approach Different? § Why Is It Better?
Exit Strategy § M&A: Attractive Products For Acquirer § Realistic Timeframe
Acceptable Risk/Return Profile § Multiple Chances To Win
CONFIDENTIAL 15
Public Capital Markets: Financing Alternatives
8
Equity
SEC Registration Required Upfront
Follow-On (Fully Marketed)
Company sells registered shares under an effective shelf registration statement (or a specific registration statement) to public investors after a traditional 2 to 5 day roadshow
At-the-Market (ATM)
Company sells registered shares under an effective shelf registration statement to investors into the general trading market over an extended period of time
Underwritten Registered Direct
(URD)
Company sells registered shares under an effective shelf registration statement to public investors after a 1 to 3 day confidential roadshow
Registered Direct (RD)
Company sells registered securities under an effective shelf registration statement to a targeted group of institutional investors on a confidential basis
No Upfront SEC Registration
Required
Common Stock PIPE
Company sells unregistered shares to a targeted group of institutional investors in a private placement and files to register the securities typically within 30 days after the offering
Convertible Preferred/Debt
Convertible PIPE
Company sells unregistered convertible preferred stock/convertible debt to a targeted group of institutional investors in a private placement and files to register the securities typically within 30 days after the offering
Rule 144A Convertible Debt
Company sells unregistered convertible debt securities to institutional investors in a Rule 144A offering and files to register the securities typically within 90 days after the offering (public style execution)
Public Transactions Private/Quasi-Public Transactions
CONFIDENTIAL 16
Key Strategies: IPO - 2ndary - Shelf Registration - PIPE
[Source: Robin Smith – NeoStem]"
The Old “Relay” Model Is Very Capital Intensive
Business Models: • “Platform” Company
• Develop technology horizontally across many therapeutic applications • High research cash burn • Large R&D staff
• “Product” Company (Specialty Pharma) • Apply technology to specific therapeutic applications • Multiple clinical programs • Large clinical trial burn rate
IPO Metrics: • Lead Program in late stage development • Additional “shots on goal” (earlier clinical programs, or platform technologies) • Substantial infrastructure (“bricks & mortar” & staff)
CONFIDENTIAL 17
Strategy: Build Company Toward An IPO
Pre-IPO Capital: @$90M"
The New Economic Reality
Public Markets: Closed? • Biotech IPO Performance: Very Poor
• 2003-2007 Window: 77 Companies • Average VC Return = 1.9X • Oct 2007 (Market Peak): 59% trading below initial PPS • June 2009: 79% trading below initial PPS • 69% Trading Below Total Invested Capital
• Only 13 Biotech IPOs in the last 24 months; All Performed Poorly* (Reduced Capital Raised; Reduced Offering Price; Trading Below IPO price)
Private Equity: Dramatically Reduced • Venture Investments in Biotech are Down 45+%
• Back to pre=1990s level of capital (PWC Survey)
• VCs have fled Early Stage investments • First-Time Financings at Some of the Lowest Levels in 40 Years
CONFIDENTIAL 18
Traditional Capital Sources Are Unavailable
Global Biotech IPOs: 2002 - 2010
CONFIDENTIAL 19
Source: Nature Biotechnology 29, 585–591 (2011)"
GLOBAL BIOTECH FINANCING
CONFIDENTIAL 20
Source: Nature Biotechnology 29, 585–591 (2011)"
Funding Sources: Government Funds
UK & EU Development Funds: MRC; Framework 7; European Research Council
Traditional US Government Funding Increasing § NIH Funding & DARPA
Non-Traditional US Government Funding Is Available § DoD RM Initiate: AFIRM (Armed Forces Institute of Regenerative
Medicine) § HHS Initiative: BARDA (Biomedical Advanced Research and
Development Authority)
State RM Funds: CIRM Actively Funding ($1.2BM); Many Other US States
Other Regional Development Funds: Singapore EDB/Bio*One Fund; UK Matching Grants; Gulf; India § Tech Transfer; Develop Biotech Industry
CONFIDENTIAL 21
RESEARCH DEVELOPMENT CLINICAL TRIALS (Phase 1 and 2)
2-3 years 2-3 years 3-4 years
Institutional Funding Is Not Readily Available Until Phase 2 Trials
“Valley of Death” Grants & Seed Money
VC Investments Available
The Valley of Death Is Expanding
CONFIDENTIAL 22
“It’s a Very Tough Environment”
25% of All Biotech Companies have Failed since 2007
Delistings & Bankruptcies in 2008 • 22 Public Companies were Delisted from NASDAQ
• 214% increase over 2007 (7 Companies) • 6 Public Companies filed for Bankruptcy
• 200% increase over 2007 ( 2)
Biotech Casualties in 2009: • 44 Public Companies Lost (Delistings; M&A; BKs)
Cash Shortfalls (Oct 2010) • 25% (73) Public Companies have less than 6 months cash
• Better than Dec 2008: 45% of Public Co’s Had Cash Shortfall
CONFIDENTIAL 23
Many Biotech Companies in Peril
Future Losses: "@5% will Fail in Next 12-18 months "
“It’s a Very Tough Environment”
CONFIDENTIAL 24
" " " " " " November 14, 2011!"
" Geron Halting Stem Cell Research, Laying Off Staff, Stem Cell Pioneer Exits Field "
Geron exiting such research, laying off staff, to focus on cancer drug tests!!
MENLO PARK, Calif. (AP) -- Money troubles have forced the first company doing a government-approved test of embryonic stem cell therapy to discontinue further stem cell programs and lay off much of its staff. "
" " " ">>>>>>>"In a statement, the company said the decision to narrow its focus "was made after a strategic review of the costs, ... timelines and clinical, manufacturing and regulatory complexities associated with the company's research and clinical-stage assets.". "
! "
GERON hESC Program: “POST-MORTUM”
WHAT CAN WE LEARN FROM GERON?
A New Model Is Required: Capital Efficiency Is Critical
CAPITAL EFFICIENCY: DO MORE WITH LESS
Extend Technology Development In Academic Setting • Thru Phase II
Pursue Alternate Funding Sources • Government Grants (NIH, DARPA, BARDA; Regional Development Funds;
Foundations & Disease Advocacy Groups; Partner with Pharma/Big Bio
Focus & Conserve Resources • Focus On Core Business & Projects • Reduce Infrastructure & Staffing • Outsource Clinical Development (CRO; RMTs) & Manufacturing (CMO )
Collaborate & Share Resources • Open Innovation Model • Share Facilities, Technologies, Staff & IP Resources
CONFIDENTIAL 27
A New Model Is Required: Capital Efficiency Is Critical
CAPITAL EFFICIENT BUSINESS MODELS
Virtual Company • Outsource Clinical Development To RMTC or CRO • Outsource Manufacturing To CMO • Reduce Infrastructure & Staffing
• Project Based - POC Model • Fund Specific Projects/Clinical Programs - Focus On Most
Compelling Therapeutic Application • Create & Fund Company Post-POC Data
• Partnering Model • Collaborative R&D • Shared Facilities, Staff, IP, and Other Resources
CONFIDENTIAL 28
Agenda
I. The RM Market Is Entering A New Era § RM Has Made Great Progress § But Serious Commercialization Challenges Remain
II. New Economic Realties § A Fundamental Shift in Biotech Economics § The Valley of Death Is Expanding § A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers § Enabling Capital Efficient RM Technology Development § Facilitating Collaborations in RM Technology Development § The RMC: An International Coalition of RMTCs
CONFIDENTIAL 29
The Role of RM Translation Centers: Enabling Capital Efficient Technology Development
RM Translation Centers Offer
• State of the Art Facilities - cGLP & cGMP Compliant - Focused on Specific RM Technologies
• Access Deep Domain Knowledge in RM – Core Expertise in Associated Academic Institution – History of Collaboration
• Clinical Development Expertise – Preclinical Thru Phase II
• Experienced Support Services – Incubator/Accelerator
CONFIDENTIAL 30
The Role of RM Translation Centers: Enabling Capital Efficient Technology Development
New RM Venture - Virtual Co
- POC Project - Application Engine
Funding Sources
• Profit • Non-Profit • Government
RM Translation Centers
• GLP/GMP Facilities • RM Expertise • Clinical Development
Experience
Pharma • Clinical
Development • Manufacturing • Marketing • Reimbursement
CONFIDENTIAL 31
Collaborative Research Leveraging Shared Resources
Open Innovation, Henry Chesbrough , Harvard Business School Press, 2006 "
RM Translation Centers
The Role of RM Translation Centers: Enabling Capital Efficient Technology Development
CONFIDENTIAL 32
RM Translation Centers
The Role of RM Translation Centers: Enabling Capital Efficient Technology Development
CONFIDENTIAL 33
UCI Stem Cell Research Center"
Clinical Cell and Vaccine Production Facility"
USC & UCSF RM Centers "
Regenerative Medicine Coalition: A Coalition of RM Translation Centers
Mission of the RMC
Regenerative Medicine Coalition: A Coalition of RM Translation Centers
RMC
Core Members: RM Translation Centers
Associate Members: -Pharma -Biotech -Emerging RM Companies -Funding Agencies
CONFIDENTIAL 35
Regenerative Medicine Coalition: Charter Members
CONFIDENTIAL 36
Regenerative Medicine Coalition: Finance & Industry Support
CONFIDENTIAL 37
CONFIDENTIAL 38
The Final Word
CONFIDENTIAL 39
APPENDIX
CONFIDENTIAL 40
Proteus: An Investment and Advisory Firm Focused on RM
Proteus, Inc."
Proteus Management, LLC"
"(Fund Management) "
Proteus Insights, LLC"
"(Consulting Services) "
Proteus Advisors, LLC"
"(Investment
Banking Services)"
Funding Sources: Corporate & Non-Profit
Philanthropic Foundations & Disease Advocacy Groups Provide Funding § JDRF; Michael J. Fox Foundation, CNS Foundation § Stowers Institute
Corporate Venture Groups
§ JJDC (Tengion; NovoCell) § Pfizer; NovoNordisk; GE Healthcare; Genzyme
Creative Sources of Funds:
§ Out license non-core technology § Provide consulting or lab services to generate cash flow § Work with a strategic partner
§ Biotech, Pharma & Device Companies § Merge with a cash rich company that is tech poor
CONFIDENTIAL 41
RM IP Landscape: A Patent Thicket
Key Patent Metrics (1980-2005)
Substantial Activity • Patent Applications: 10,000+ • Patents Granted: 2,200+
Dramatic Increase in Filings Since 2000
• Over 25% Annual Growth Rate Geographic Patent Distribution: US Dominates
• US: Over 50% of Patents • UK, Canada, Germany: @4% Each • Australia, Japan, China, Israel: @3%
Each
Top 50 Patents Cover Core Technologies • Cell Lines; Media; Differentiation
CONFIDENTIAL 42
RM Patents Granted
US: 51%
UK: 4%
Canada: 4%
Germany: 4%Australia: 3%
RM IP Landscape: A Patent Thicket
Key US RM Patent Metrics
CONFIDENTIAL 43
"§ Unusual Patent Distribution"
- 44% Public Sector Entities "- 56% Private Sector"
"§ Fragmented Ownership"
- No Company Owns More Than 3% of Granted Patents "
§ Pharma & Big Bio Are Key Holders "- Amgen, Novartis, Pfizer &
GSK "
§ Osiris, STEM, & Geron Have Large Estates"
""
*Only 3% of All USPTO Patents Are Held By Public Entities"
Funding & Commercialization Strategies for Regenerative Medicine Companies
Gregory A. BonfiglioProteus Venture Partners"November 15, 2011"