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Driving Value for Pharma and Biotech Companies: Insights from Biotech Showcase 2012

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The 2012 Biotech Showcase investor conference in San Francisco drew a record number of life science interests from all over the world.

In four years, the annual event went from 350 to 1,500 attendees with 858 companies participating, including 76 public companies, according to Sara Jane Demy, president of Demy-Colton Life Science Advisors and conference co-founder. The conference, which ran Jan. 9–11, gave small-cap and private biotech companies and investors a focused home during the busy J.P. Morgan Healthcare Conference. "This industry attracts really smart people who are trying to find ways to cure disease and, along the way, earn money for their investors. Their passion for finding cures and developing new therapies helps drive these companies forward even when times are challenging," she said. They are delivering needed drugs—either on their own or in partnership with other biopharma companies.

Several presentations at the conference focused on solutions for small life sciences companies during challenging times as well as on the number and type of deals done in 2011—or lack of them—and what might be waiting in the year ahead. Ben Bonifant, vice president at Campbell Alliance, shared his company's Dealmakers' Intention Survey during a panel discussion at the conference. The initial results of the fourth annual poll of senior decision makers showed an expectation of an increase in early stage deals in the year ahead. Although 2011 may have been the worst year in a decade for the number of Phase 2 and 3 deals worth $10 million or more upfront, he reported, going forward, licensors expect an increase in the level of Phase 3 deal activity as experts seem to believe the bottom may have been hit. Respondents also seem to be optimistic about the prospects for early stage companies. "We saw that hint last year. The enthusiasm for early stage deals—preclinical and phase one—has been sustained," he said. Bonifant cautioned that there are still only a handful of very large early stage deals, but he believes the results mark a shift in attitude. With that in mind, he asked a panel of experts if they are feeling the same sense of optimism and how they are approaching development.

Shaun Grady, vice president of business development for AstraZeneca Plc (AZN:NYSE), said his company is focused on five small molecule therapy areas called Innovative Medicine Units. "This enables us to more effectively apply our resources. If it doesn't fit in those buckets, we say no. I think that quick no is as important to the companies we work with," he said. Grady said his company targets 40% of the pipeline for products coming from outside the company. "We are probably pretty close to that already," he reported.

AstraZeneca is not the only big pharmaceutical company looking outside for part of its creative pipeline. Merck & Co., Inc. (MRK:NYSE) employs licensing scouts all over the world who are responsible for finding opportunities in seven franchise areas based around medical need, commercial profitability and scientific tractability. "We are looking for something better than the molecules we're working on internally," said Greg Wiederrecht, vice president and head of External Scientific Affairs. "We are constantly prioritizing licensing opportunities against internal projects. If something is better on the outside then we try to go after that." Although about 55% of Merck's current pipeline comes from candidates that were licensed outright, that doesn't mean every company—or even half the companies—that come to them get deals. Last year Merck looked at almost 8,000 opportunities and executed 50 highly significant deals, not great odds.

Those numbers highlight the movement of the minimum quality requirements bar higher for adoption of Investigational New Drugs. AstraZeneca's Grady said his company took 30% of projects out of the pipeline at one point "because we felt they didn't have the quality criteria that we would expect." The same high standards apply to licensing. "We spend a lot more time thinking about differentiation and reimbursement then we did previously. But I don't think we're being overly particular; I think we are being realistic in terms of what you can take through and actually get registered and get paid for it," he said. "It is not about pleasing pharma companies. We have become the proxy for what will get through the FDA and get reimbursement. We are the filter to getting products to patients."

Merck's Wiederrecht agreed. "All the pharmaceutical companies now are trying to make wise use of their money by doing a killer experiment as soon as they possibly can to quickly get rid of things that ultimately won't work," he shared.

Not all the experts had the same cutthroat approach. "From an innovation perspective, killing projects is the wrong approach because no one knows what will be successful," said Gunnar Weikert, chairman at Inventages Venture Capital, a firm with $1.5 billion under management and focused on alternative medicine, preventive medicine and chronic care. "We need the entrepreneurial spirit to fight for a project. Small companies take all the risk and need to be given a chance to succeed," he said

Weikert said his company does very tough due diligence and applies the same market criteria as the big pharmaceutical companies, but once he is in a project, he tries to support the companies for the long term. "If you kill too early, you will have no innovation," he warned. "Pharma companies follow trends, investing in all the same areas. We are trying to stay ahead of the curve by investing in areas the big guys would say are nuts."

Fighting for the life of a project can take its toll. Dennis Purcell, senior managing partner at Aisling Capital, a venture capital firm based in New York that manages about $2 billion, said the VC community could learn something from the big pharma development system. "In the venture community, we are always hoping that the next experiment will work, the next trial will work and we will keep on going. We have done a relatively poor job across the industry of cutting our loses and moving on. It's something we have to get better at doing."

Not all innovation starts in the private sector. David Flores, president and CEO of BioCentury Publications Inc., pointed to the overwhelming amount of material in academia. He estimated that about 2% of what is published has commercial potential and, the risk of having to redo the work is high because the academic tests either aren't the right ones or aren't done in the right way to move the solution closer to regulatory approval. "What we are really getting at is the question, 'Who should pay to do the work?'" he said. "Everyone is having to make decisions about what development money is worth spending."

Early and often seemed to be a theme. Merck's Wiederrecht said his company is doing translational research deals with academia all the time. "The secret is to work with them early to make sure that they are conducting the right kinds of experiments," he said. AstraZeneca's Grady said his company wants to get in earlier and define the quality for small companies doing early stage trials.

Wiederrecht framed the development life cycle this way: "We focus on validated mechanisms and solving solvable scientific problems. It's not just wishful thinking."

Plans are already in the works for Biotech Showcase 2013 Jan. 7–9 as even more companies, analysts and industry representatives gather for discussions, presentations and one-to-one meetings.

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