VC Perspective – A Vision for Global Investing
Fred Craves, PhD
HEALTHCARE EXPENDITURES AS A PROPORTION OF GDP (%)
USFra
nce
German
yIta
ly UK
Australia Sp
ainBraz
ilJap
anRussi
aChina
India0
4
8
12
16
Government Health Expenditure
Private (out of pocket)
Private (private insurance plans)
Heal
th e
xpen
ditu
res a
s a p
ropo
rtion
of G
DP (%
)
Source: Datamonitor, OECD Statistical Extracts 2009, WHOSIS, 2010, taken from Datamonitor Pharmaceutical Key Trends 2011 – Healthcare System and Drug Regulatory Overview, March 2011, p. 162
The $7 Trillion Complex, Global Healthcare Industry
3
Life Sciences: The Premise
We live in an era of accelerating change.
Healthcare spending is robust in developed countries and growing in emerging economies
Scientific progress is occurring as a factor of advances in biological understanding.
As large pharmaceutical firms continue to struggle with R&D productivity, they are increasingly turning to small firms and universities to create and validate new biological and other scientific insights.
VC can serve as the key liaison to academia and capitalize early-stage companies.
4
Rosling Video
2009 2020 20300
1
2
3
4
5
0%
20%
40%
60%
80%
100%
5
An Emerging Middle Class
Source: OECD Observer – An Emerging Middle Class, June 2013
Global middle class (in billions of people)
% global middle class&
% purchasing powerrepresented by Asia
28%
66%
23%
59%
6Source: US Census Bureau, International database. China Cardiovascular Disease Report 2005.
Increasing Life Expectancy and Chronic Diseases in China
2007 2015 20250
100
200
300
400
500
600
700
800
300380
520
100
130
200
Pop >50 Pop >65
Popu
latio
n (m
illio
ns)
CHINA’S AGING POPULATION
Expanding Healthcare Expenditures in China
7
Source: Goldman Sachs Global Investment Research; Guo Hua Securities Research estimates
2000 2005 2010E 2015E 2020E0
200
400
600
800
1,000
0%
2%
4%
6%
8%
57 108
233
569
884
Healthcare Expenditure Healthcare Expenditure As % of GDP
Heal
thca
re E
xpen
ditu
re ($
US
Bn)
Healthcare Expenditure as % of G
DP
17%CAGR
20%CAGR
High Growth Stage
8
China Pharmaceutical Industry Growth
Source: MOH, Morgan Stanley Research
2004 2005 2006 2007 2008E 2009E 2010E 2011E0
50
100
150
200
10%
15%
20%
25%
30%
China Pharmaceutical Industry Sales (USD) YOY%
US$ (billions)
9
2006 2007 2008 2010
Novartisinvests $1B in Shanghai R&D center
20092005
Pfizer announces opening of new China R&D Center
in Shanghai
AstraZeneca announces $100M R&D investment in China
GSK blueprints $100M Chinese R&D centerand doubles China R&D staff
Pfizer announces opening of New China R&D Center in Wuhan
Merck boosts R&D investment in China
J&J opens R&D center in Shanghai
BMS moves R&D base to China
2011 2012
Novartis launches Galvus
Source: Bay City Capital analysis
Merck announces $1.5B over 5 years to establish new R&D center in Beijing
Boehringer announces plans to double production capacity in Shanghai plant by 2013
Pfizer establishes generics joint venture in China
Multinational companies continue to build infrastructure in China, invest in R&D, and acquire local companies with the expectation that the Chinese market will provide desperately sought after revenue growth
Multinational Pharma’s Increasing Activities in China
Source: Datamonitor R&D Trends 2012
PROPORTION OF EXTERNALLY SOURCED DRUG CANDIDATES IN CLINICAL DEVELOPMENT (%, 2007 vs 2011)
Roche AstraZeneca Pfizer Sanofi0%
20%
40%
60%
80%
100%
65%
21%17%
9%
80%
59%
50%44%
2007 2011
10
Pharma Increasingly External Sourcing of Drug Candidates
Recent advances in sequencing technology will allow for optimization of an individual’s healthcare by tailoring care to his/her unique genetic profile
Innovation’s Impact on the Cost / Care Continuum: Precision Medicine
COST OF HUMAN GENOME NOW ON PAR WITH OTHER DX TESTING
11
Source: Spear, Heath-Chozzi and Hunt: “Clinical application of pharmacogenetics,” Trends in Molecular Medicine, Vol 7 No.5, May 2011
Oncology
Alzheimer's
Incontinence
HCV
Osteoporosis
Migraine (prophylaxis)
Rheumatoid Arthritis
Migraine (acute)
Diabetes
Asthma
Cardiac Arrythmias
Schizophrenia
Depression (SSRI)
Analgesics (Cox-2)
25%
30%
40%
47%
48%
50%
50%
52%
57%
60%
60%
60%
62%
80%
Innovation’s Impact on the Cost / Care Continuum: Targeted Therapy
EFFICACY RATES OF SELECTED DRUGS FOR MAJOR THERAPEUTIC AREAS
12
13Source: Nature Reviews: Drug Discovery, Lessons Learned from the Pharma Industry, December 2009
NME PRODUCTIVITY
Small companies generate higher percent of new molecular entity (NME) approvals, a category once dominated by large pharma
Smaller Companies Generate Higher Number of Approvals
35
19
59
0
20
40
60
Early Mid Late / Marketed
Number of M&A Transactions by Stage of Lead Asset Over Time 2008 - 2011 (1, 2)
Platform(n=19)
(1): Early stage includes Preclinical, Phase 1 and Proof-of-Concept Phase 2; mid stage includes Post-Proof-of-Concept Phase 2 and Phase 3; late staged / marketed includes NDA submitted, FDA approved and commercial assets.
(2): Includes announced transactions of $100M or more; excludes terminated transactions and reverse mergers; excludes transactions where deal value was not disclosed.
10 99
7
2
9
35
17
7
19
16
0
5
10
15
20
2008 2009 2010 2011
Early Mid Late / Marketed
Source: Bay City Capital
BIFURCATION OF EXIT VALUES (SAMPLE FROM 2008-2011)
Acquirers seek early-stage assets to build long-term pipelines and later-stage assets with potential to alleviate potential revenue losses from patent expirations
Early and Later Stage Assets Meet the Needs of Acquirers:Investor Focus Should Reflect Their Needs
14
2007 2008 2009 2010 2011 $(4,000)
$(3,000)
$(2,000)
$(1,000)
$-
$1,000
$2,000 Private Biotech M&A Realizations vs Total Private Biotech Company Financing
Mor
e fin
ancin
gM
ore
M&
A
Source: Bruce Booth, “Venture-Backed Biotech’s 2011 M&A Exits Outpaced Both Investments and Fundraising”, Forbes, January 16, 2012
NET CAPITAL FLOWS
Healthcare Investment Trending Position: M&A Realizations Exceeding Investment
15
Focus on getting the right drug to the right patient at the right time to address both care and cost
Pharma’s dependence on innovation will continue
The imperative to go global: growth will come from outside of the United States
Shifting paradigms and capital scarcity present unique and compelling investment conditions
Implications for Venture Capital Investors
16
17
Ingredients for Success
Leaders in a community should realize that there is robust international competition for preeminence in life sciences.
A strong commitment to collaboration and partnership is a condition precedent.
The Quebec Consortium for Drug Discovery (CQDM) is a good step.
The research commitment from the government to fund basic research must be present.
Canada leads the G7 in per capita funding of public sector research
There must be an active and effective technology transfer capability within leading universities.
University of British Columbia (#14), University of Toronto (#22), and McGill University (#24) all rankamong the top 50 life sciences universities
The most important ingredient to the secret sauce of success in life sciences is access to capital.
Private or venture capital is the central component that is often missing from most life science economic development plans.
18
Next Steps
What can be done in Canada and Quebec to improve access to venture or risk capital?
And how can smaller firms more easily secure an opportunity to sell their product or company, or license their invention to a larger entity?
Organizations like CQDM are working to address these issues by fostering partnerships between academia, government, and industry
Working as a consortium with six of the world’s major pharmaceutical companies around the table
Fostering partnerships with organizations across provinces to build out the life sciences community throughout Canada, such as the Ontario-Quebec Life Sciences Corridor initiative
A financial commitment from the private sector is necessary to create a pool of venture money sufficient to create and sustain young Canadian companies.
Examples such as Merck’s collaboration with Lumira Capital, Teralys Capital, and others to provide investment capital to early-stage biotech companies in Quebec.
VC Perspective – A Vision for Global Investing
Fred Craves, PhD