Biotech What's next for the business of big molecules? - PwC

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Dec 1, 2012 (4 years and 10 months ago)

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Biotech
What’s next for
the business of big
molecules?
A special report for
attendees of the 2012 BIO
International Convention
www.pwc.com/pharma
Contents
Page
Introduction 04
Where are we now 04
Fluke or first signs of spring? 04
How many millions did you say? 06
Venture funding falls short 06
Big Pharma can’t bridge the gap 08
Asia smartens up its act… 09
…but the acid test’s innovation 09
Special report: Massachusetts’ biotechs beat the industry blues 11
Joined-up thinking 17
Playing nicely 17
Patient money 18
Back to school 18
United front 18
Collaborating competitors 19
Swapping notes with the big spenders 19
Package deals 20
Pulling together 20
References 21
Contacts 23

28
4 Biotech
What’s next for the business of big molecules?
The biotech industry is a barometer of the world’s health in several respects.
The products it develops are a measure of the progress mankind’s making in
the war on disease; the investment it attracts is a measure of wider economic
conditions; and the way it operates is a measure of the extent to which the
traditional business paradigm is shifting. So we wanted to look at how the
industry’s faring, as the 2012 BIO International Convention unfolds.
PwC’s updated the analysis we completed
two years ago, when we published
“Biotech reinvented”— an assessment of
the industry’s achievements in the 30
years since its birth.
1
We’ve also included
a special section on Massachusetts’
biotechs, in recognition of the major role
they play.
Where are we now?
In mid-2010, when we first reviewed the
state of the biotech sector, we concluded
it hadn’t fulfilled its early promise. It
seemed to us that there were three
particular problems:
The industry hadn’t delivered a

significant increase in productivity,
measured in terms of new medicines
reaching the market
The business model on which it relied

was under great strain; and
The US was in danger of losing its lead,

as the biomedical research base moved
east.
Meanwhile, pharma was also struggling
to translate the discoveries of the past
decade into safe, effective, new
medicines. Mapping the human genome
was one thing; applying the insights the
molecular sciences provided, quite
another. So what was the solution? One
way forward, we suggested, was closer
collaboration. If the biotech and pharma
sectors joined forces, they might be able
to develop new medicines more
effectively and capitalize together on the
opportunities arising from the push
towards personalized healthcare.
Two years on, there’s bad news and good:
productivity’s still low, and money scarce,
but the biotech and pharma industries are
no longer trying to “go it alone.” A growing
number of biotech and pharma companies
are collaborating—with patient advocacy
groups and medical charities, with
academia, and with each other. And these
are real, long-term collaborations, not just
one-off licensing deals.
Fluke or first signs of spring?
Let’s start by looking at productivity. In
2010, we noted that the annual number of
medicines approved by the Food and
Drug Administration (FDA) had remained
broadly constant since 1990, when the
impact of the biotech industry first began
to show. It typically takes a decade to
develop a new medicine, and the earliest
biotech companies originated in the ’80s.
So, if they’d succeeded in improving
productivity, there should have been
some sign of it by this point.
Today, the evidence is more encouraging.
In 2011, the FDA’s Center for Drug
Evaluation and Research (CDER)
approved 30 new medicines—a higher
number than at any time since 2004 (see
Figure 1
). Twelve of them were first-in-
class therapies.
2
And nine are expected to
generate peak sales of more than $1
billion a year.
3

Big Pharma was responsible for more than
a third of these new products, but several
biotech companies also had noteworthy
successes. Massachusetts-based Vertex
Pharmaceuticals was behind Incivek, one
of two medicines that could transform the
treatment of hepatitis C—the other being
Merck & Co.’s Victrelis. Human Genome
Sciences co-developed Benlysta, the first
new therapy for systemic lupus
erythematosus in 50 years, with
GlaxoSmithKline (GSK). And Incyte crept
under the wire at the end of 2011 with
Jakafi, the first approved treatment for
myelofibrosis.
4
Introduction
Biotech
What’s next for the business of big molecules?

5

But a few buds don’t necessarily mean the
backyard’s flourishing, and a closer look
at the figures shows that the number of
biologics approved by the FDA has stayed
the same for the past three years. In fact,
it’s still slightly lower than in 2002, when
seven new biologics were approved. Seen
from a historical perspective, then, the
picture isn’t quite so positive.
There are other issues, too. A recent study
of 4,275 medicines moving through
clinical trials to FDA approval suggests
that the failure rate is actually increasing.
Between 2003 and 2010, only one in 10
treatments reached the market, compared
with a previous rate of one in five or six.
5

Figure 1: The number of new medicines reaching the market has picked up
Number of products approved
New molecular entities
Biologics license applications
23
0
5
10
15
20
25
30
35
Biologics licence applications
New Molecular entities
201120102009200820072006200520042003200220012000
27 2 24 5 17 7 23 6 31 5 18 2 18 4 16 2 21 3 19 6 15 6 24 6
Source: US Food and Drug Administration
Note: New molecular entities and biologics licence applications approved by CDER
The global pipeline is also becoming more
concentrated. Nearly 31% of the
molecules currently in research and
development (R&D) cover cancer and
autoimmune diseases (see
Figure 2
).
Figure 2: The global pipeline’s getting very narrow
1,000 2,000 3,000 4,000 5,000 6,000
Blood
Genito-urinary
Sensory organs
Dermatology
Other
Respiratory
Gastro-intestinal
Endocrine
Musculoskeletal
Cardiovascular
Central nervous system
Systemic anti-infectives
Oncology & immunomodulators
Phase I
Pre-clinical
Research
Phase II
Phase III
Filed
0
23
20
16
18
43
35
28
20
74
40
26
17
38
75
Source: EvaluatePharma
6 Biotech
What’s next for the business of big molecules?
How many millions did you say?
And developing a new medicine is still an
expensive business, although just how
expensive is the subject of fierce debate. In
2006, the Tufts Center for the Study of
Drug Development pegged the average
cost at $1.24 billion for a large molecule
and $1.32 billion for a small molecule
(based on an estimate of $802 million in
2000 dollars, uplifted by 64% to reflect
rising costs).
6

But, in early 2011, two academics
challenged these figures. They argued
that Tufts had committed some serious
methodological “errors” and used too
small a sample to represent the industry
as a whole. The real cost of developing a
new treatment, they claimed, was more
like $59 million in 2006 dollars—the
equivalent of $75 million today.
7

Various other commentators have now
joined the battle. In February 2012, for
example, a couple of journalists at
Forbes

added up the amount invested in R&D by
each of the 12 Big Pharma companies for
the past 15 years, adjusted it for inflation,
and then divided it by the number of
approvals each company secured over the
same period. The result? Amgen was a
model of efficiency; it spent “just” $3.7
billion on each of the molecules it
launched. AstraZeneca, by contrast, spent
nearly three times as much.
8
So where does the truth lie? Harvard
economist Frederic Scherer suggests that
it lies somewhere in the middle. Scherer
finds fault with certain aspects of Tufts’
analysis. But it’s clear “by any reckoning,”
he says, that average costs per approved
molecule “have risen greatly over recent
decades to levels measured in the
hundreds of millions of dollars.”
9

In other words, the biotech industry hasn’t
driven development costs down greatly.
Yet neither—currently, at any rate—is it
bringing in the sort of income the old
blockbusters produced. In 2009, five of the
10 top-selling medicines were biologics.
And market research firm
EvaluatePharma predicts that, by 2016,
there’ll be seven such best-sellers (see
Table 1
).
10
But Humira—the product that
will probably head the league—is forecast
to generate only 80% of the revenues
Lipitor earned in its heyday.
Venture funding falls short
If the biotech industry’s contribution to
productivity is still questionable, what
about the business model on which it’s
historically relied? We argued two years
ago that this model—based as it is on
external investment, typically venture
capital—was under pressure. Again, the
news is mixed.
On the upside, US venture capitalists are
back on the scene; venture funding in the
domestic biotech sector topped $4.7
billion in 2011, 22% more than in 2010.
On the downside, the total number of
deals dipped again, after perking up in
2010 (see
Figure 3
)
11
. And first-round
financings fell by 19%; only 98 of the
deals struck in 2011 involved start-ups.
12

What’s more, only 13% of the venture
capitalists the US National Venture Capital
Association (NVCA) recently polled said
they plan to increase the amount they
invest in the sector.
13
And, to judge from
events in the first quarter of 2012, they
meant what they said. There were just 99
deals with a combined value of $780
million in the three months ending March
2012. That’s little better than in 2009,
when there were 94 deals collectively
worth $705 million.
14

It’s harder still to get venture capital in
Europe and Asia. In 2011, venture funding
in the European biotech industry dropped
to $1.2 billion—down from $1.4 billion
the previous year—as the Eurozone’s
problems cast a shadow over the entire
region.
15
And, in Asia, venture backing
plays a much smaller role. In the first half
of 2011, Asian biotechs raised only $81
million, a fraction of the venture funding
raised in the US and Europe.
16

Table 1: Top of the pops
Top 10 drugs in 2009 (global sales in $bn) Top 10 drugs in 2016 (global sales in $bn)
Lipitor 12.0 Humira 9.7
Plavix 9.1 Avastin 7.6
Seretide/Advair 8.1 Rituxan 7.7
Enbrel 7.3 Crestor 7.5
Humira 6.7 Enbrel 7.2
Remicade 6.5 Seretide/Advair 7.0
Avastin 6.2 Januvia/Janumet 6.8
Diovan 6.1 Herceptin 6.5
Rituxan 6.1 Remicade 6.1
Crestor 6.1 Prevnar 13 (conj. vaccine) 5.8

Source: EvaluatePharma
Biotech
What’s next for the business of big molecules?

7

Things may still pick up: 36% of the US
venture capitalists the NVCA surveyed
hope to invest more heavily in European
biotechs, while 44% have their eyes on
Asia. But even if they do spread their
wings, it’s obvious the industry won’t be
awash with cash. The same NVCA survey
shows that 39% of US venture capitalists
intend to cut the amount they invest in life
sciences firms over the next three years—
some of them by as much as a third.
17

Why? Primarily because there are better
opportunities elsewhere. As
Table 2

shows, the biotech sector delivers much
lower returns than those that can be
obtained from many other sectors.
Indeed, in the past five years, it’s typically
delivered a pooled gross internal rate of
return that’s less than a third of the
return from investing in information
technology.
18

Realizing a return has also, of course,
become much harder. In 2011, there were
only eight initial public offerings (IPOs)
in the US biotech sector, and they raised
only $517 million—compared with the 19
IPOs that fetched more than $1.2 billion
in 2007.
19
In short, venture capitalists
aren’t likely to pile back into the industry
while the economic outlook remains so
uncertain.
Table 2: The biotech sector offers lower returns than many other sectors
2006 2007 2008 2009 2010 Average
Information Tech.19.53 22.45 46.22 59.92 82.97 92.44
Hardware/Systems -0.31 48.74 16.44 70.51 53.13 75.40
Software/Services 9.85 12.83 25.78 44.52 47.14 56.05
Manufacturing 22.02 5.39 22.01 34.17 50.63 53.69
Media/Comms -2.34 4.43 17.41 47.15 56.01 49.06
Chemicals/Materials -4.98 37.21 4.61 1.49 64.73 41.22
Consumer/Retail -0.32 -5.35 10.25 41.19 18.59 25.87
Healthcare/Biotech 3.74 7.76 12.01 11.72 27.31 25.02
Industrial 13.73 -16.94 58.53 N/A N/A 18.44
Financial Services 21.25 -8.05 3.00 14.66 11.73 17.04
Energy 2.18 18.86 6.79 9.24 5.22 16.92
Electronics -5.76 2.31 5.13 14.59 17.52 13.52
Other/Fund of Funds -7.41 12.41 -2.98 16.82 11.48 12.13
Environmental -67.81 4.69 0.05 -1.10 24.25 -15.97
Source: Cambridge Associates

Note: The pooled gross internal rate of return (%) delivered by companies receiving an initial investment in the
years 2006 to 2010
Figure 3: US venture funding is still scarce for first-timers
Amount invested Number of deals
23
0
200
400
600
800
1,000
1,200
1,400
New Molecular entities
Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
94
2
103
119
17
124
23 6
112
153
18
111 112
4 16
108
21
122
105
6
111
6 24
99
0
200
400
600
800
1,000
1,200
1,400
New Molecular entities
Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012
$m
Source: PwC/National Venture Capital Association MoneyTree™
8 Biotech
What’s next for the business of big molecules?
Big Pharma can’t bridge the gap
Some of the largest biopharma companies
are now trying to fill the gap. In 2011,
they collectively contributed $694
million—nearly 15% of the total venture
capital invested in the US biotech sector
that year.
20
Three firms have also topped
up the pot with new funds. In September
2011, Merck & Co. launched the Global
Health Innovation Fund and Merck
Research Venture Fund, with $250
million each to invest.
21
Then, in March
2012, GSK and Johnson & Johnson
teamed up with Index Ventures to create
a $200 million fund for backing early-
stage biotech companies.
22

It’s too early to evaluate the success of this
last fund. But Merck & Co. has already put
$37 million into a digital pharma
marketing company and two diagnostics
providers, via the first of the two funds it
set up.
23
It’s also made four fund-to-fund
investments through its Research Venture
Fund and tied up with Flagship Ventures
to find suitable biotech candidates.
24

Yet Big Pharma’s in no position to pick up
all the slack. Most of the leading players
are under pressure themselves, as their
earnings from aging medicines tumble
over the “patent cliff.” Witness the fact
that the members of trade body
Pharmaceutical Research and
Manufacturers of America (PhRMA) cut
their R&D expenditure by 2.4% in 2011
(see
Figure 4
).
25
That’s the third such
drop in the past five years, and the
equivalent of an 8.5% fall in real terms
since 2007.
26
At least one biopharma firm has now
pulled out of the venture game altogether.
Executives at Biogen Idec, which began
life as a biotech start-up itself, believe
there are better ways of supporting
innovation, such as sponsoring university
research. And they say the usual
argument for becoming a corporate
venture capitalist—that you get
preferential treatment when it’s time to
buy a new technology—is essentially a
myth, or should be, because the backers
owe it to their shareholders to strike the
best deal for all concerned.
27

These trends imply that the business
model on which the biotech industry has
relied is indeed very vulnerable. The
“ivy-league” candidates will still be able
to attract venture funding, but there
won’t be enough cash to sustain the entire
sector.
Figure 4: Big Pharma’s trimming its R&D expenditure
Total R&D expenditure Projected expenditure if rate of increase were constant
23
0
10
20
30
40
50
60
70
Total R&D expenditure
201120102009200820072006200520042003200220012000
26.03
29.77
31.01
34.45
37.02
39.86
42.97
47.90
46.44
50.71
49.48
47.38
$bn
0
10
20
30
40
50
60
70
New Molecular entities
201120102009200820072006200520042003200220012000
Source: Pharmaceutical Research and Manufacturers of America (PhRMA)
Note: Between 2000 and 2007, R&D expenditure rose at a compound annual growth rate of 9.1%. If this trend had continued, PhRMA’s members would now spend
nearly $68 billion a year on R&D
Biotech
What’s next for the business of big molecules?

9

Asia smartens up its act…
What, then, about our next hypothesis:
that the research base is moving east and
the US is losing its lead in biomedical
research? Some of the patterns we
identified in 2010 have continued. The
number of students completing doctorates
in the physical and biological sciences is
still soaring in China, for example.
28
The returnee trend seems to be
accelerating, too. Unfortunately, there’s
no hard data on reverse migration. But
the Chinese Ministry of Education
estimates that, in 2010, 134,800 overseas
Chinese students went back after getting
a foreign education. That’s more than
double the number who returned in
2008.
29
And recruitment consultancy
Kelly Services predicts that as many as
300,000 Indian professionals working
abroad could go home by 2015.
30

The emerging Asian economies are also
still ramping up their investment in
biotech R&D. The Indian government
plans to spend $297 million in the coming
financial year alone. Much of that money
will go on setting up a new national
bioinformatics center and several inter-
institutional centers for translational
research.
31
Meanwhile, the South Korean
government has put about $5 billion into
two biotech clusters in Osong and Daegu,
and is now actively promoting the
development of a domestic biosimilars
industry.
32

Singapore—which already has a thriving
biotech base—has pledged to invest
another $2.8 billion (in US dollars) on
biomedical R&D by 2016.
33
Malaysia
aims to sink nearly $3 billion of public
and private funds in the sector during the
second phase of its national
biotechnology plan.
34
And China dwarfs
them all; in mid-2011, Beijing announced
that it intends to spend more than $300
billion on science and technology in the
next five years, with biotech one of seven
top priorities.
35

These efforts are bearing fruit. Between
2004 and 2009, the number of listed
biopharma companies in Asia climbed
from 276 to 370, and their combined
revenues nearly tripled from $27.4 billion
to $73 billion.
36
At least two Indian and
five Chinese biopharma firms have now
joined the “billion-dollar club,” with
several Malaysian firms close behind.
37
Many of the big multinationals have also
been setting up Asian R&D hubs. In fact,
R&D accounted for 31% of the 653
cross-border biotech and pharma
investments that fDi Markets recorded in
Asia from 2004-2011.
38
China,
Singapore, and India attracted most of
this money, although the US still gets the
biggest share of all foreign direct
biopharma investment (see
Figure 5
).
39

… but the acid test’s innovation
Even so, between 2007 and 2010, Asia’s
top five biopharma players collectively
brought in $70 billion. Yet they continue
to lag way behind the leading developed
economies in terms of innovation. The
number of biotech patent applications
originating in the US is far higher than in
any other country (see
Figure 6
).
40
But
it’s not just the number of applications
that counts, it’s also their quality—and
here, too, the US reigns supreme.
Figure 5: The US still attracts the bulk of all foreign direct biopharma investment
Inward investment (2003-2006)
Inward investment (2007-2010)
Share of investment flows going into
R&D (2007-2010)
23
0
10
20
30
40
50
60
70
Inward investment (2007-2010)
Inward investment (2003-2006)
United StatesMalaysiaSouth KoreaIndiaSingaporeChina
19.7
29.8
27.5
17.7
12.2
16.8
0.7
2.9 2.8
36.7
73.3
2.0
$bn
0
10
20
30
40
50
60
70
Share of investment ￿ows going into R&D (2007-2010)
United StatesMalaysiaSouth KoreaIndiaSingaporeChina
Source: Jones Lang LaSalle
10 Biotech
What’s next for the business of big molecules?
Internationally recognized patents are
generally a better test of innovation than
those that are only recognized in the
inventor’s country of origin. In 2010, 42%
of all US inventors and 37% of all
Japanese inventors who applied for
patents in any field of technology filed
abroad. So did 40% of those based in
India, although the number of
applications was much smaller. But more
than 95% of the applications Chinese
inventors submitted were filed
domestically.
41

That’s not all. One researcher—reasoning
that most of the medicines developed
worldwide are marketed in the US, and
that FDA approval is therefore a good
global benchmark—looked at the location
of every listed inventor of a
pharmaceutical patent in the FDA Orange
Book between 2000 and 2009. Sixty
percent of them were based in the US,
and 31.5% in just seven other countries.
Only one inventor lived in India, and only
two in China (see
Figure 7
).
42

Of course, this doesn’t mean the US—or
any other developed country with a
strong record of biotech R&D—can afford
to be complacent. By the end of 2010,
there were 187 novel investigational
drugs undergoing clinical trials in China,
and 39 of them are covered by US or
European patents, suggesting they have
global potential.
43
China’s standing as a
source of innovation could soon improve,
then, but the US looks likely to stay in
pole position for some time to come.
Figure 7: Most biopharma invention still originates in the US
0
10
20
30
40
50
60
70
80
90
South America
Australia
Middle East
East & South Asia
Europe
North America
2009200820072006200520042003200220012000
North America
Europe
East & South Asia
Middle East
Australasia
South America
26%
31%
41%
52%
50%
21%
31%
44%
42%
34%
No. of patents (%)
Source: Yali Friedman, “Location of pharmaceutical innovation: 2000–2009”
Notes: (1). Data for 2000 only cover January to June; (2). Where inventors from more than one country co-developed a patent, each country was assigned a proportionate
share of the credit.
Figure 6: US scientists apply for more biotech patents than scientists in any other
country (thousands)
United States
Japan
China
Germany
Korean Republic
United Kingdom
France
Switzerland
Netherlands
Canada
Canada
Netherlands
Switzerland
France
United Kingdom
Korean Republic
Germany
China
Japan
United States
16
7
3
5
11
3
59
4
21
5
7
3
Source: World Intellectual Property Organization
Note: The top 10 countries generating biotech patent applications between 2005 and 2009
Testing the local temperature – we’ve assessed the overall state of
the industry in the rest of our report, but what’s happening here in
Massachusetts? More than 500 biotech companies have set up home in the
state—and they’ve already developed more than 50 biologics, with another
900-odd medicines in the pipeline.
1
In short, Massachusetts’ biotechs play a
major role in the global biotech industry. So how are they are coping, as the
business of big molecules evolves?
Capital achievements
The first thing to note is the success
biotechs in Massachusetts—and New
England in general—have enjoyed in
attracting venture funding. Between
January 2009 and March 2012, venture
capitalists invested $13.1 billion in the US
biotech sector. Nearly 25% of the money
went to companies based in New
England.
2

The region’s youngest biotechs have done
especially well. Over the past three years,
they’ve brought in $2.4 billion by way of
seed and early-stage capital—more than
biotechs in any other part of the country,
including Silicon Valley (see
Figure 1
).
3

Massachusetts’ biotechs

beat the industry blues
“The Massachusetts life sciences industry
employs more than 50,000 people”
Special Report
Medicines in the pipeline
900
Biotech companies
500
12
PwC
| Massachusetts’ biotechs beat the industry blues
So Massachusetts’ biotechs seem to be
bucking one of the strongest trends we’ve
noticed in recent years: the decline in
venture backing for scientific start-ups.
Venture capital has played a key part in
financing new biotech firms for the past 30
years, but the global evidence suggests
that it’s getting more and more difficult to
attract such funds.
Of course, venture capital alone isn’t
responsible for the relatively good health
in which the region’s biotechs find
themselves. Massachusetts also brings in a
disproportionate share of federal research
dollars. In 2011, it received $2.5 billion in
funding from the National Institutes of
Health—more than 11% of the total
amount awarded.
4
And the state itself has been very
supportive. In June 2008, the
Massachusetts Legislature passed the Life
Sciences Act—a 10-year, $1-billion
initiative proposed by Governor Deval
Patrick to promote the local life sciences
industry.
5

By June 2011, the Massachusetts Life
Sciences Center, which manages the
program, had disbursed more than $217
million in research grants, loans,
workforce development schemes, and the
like (see
Figure 2
).
6

Figure 1: New England’s biotechs attract the biggest share of early-stage venture capital
Source: PwC/National Venture Capital Association MoneyTree™
Note: Figures include seed and early-stage venture capital
Figure 2: The state is actively supporting the biotech sector
Source: Jones Lang LaSalle
Note: Millions of dollars disbursed between June 2008 and June 2011 (figures rounded)
0
50
100
150
200
250
300
350
400
San Diego
Silicon Valley
New England
Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
New England
Silicon Valley
San Diego
26%
31%
41%
52%
50%
21%
31%
44%
42%
34%
US $m
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012
Capital projects
Company grants and loans
Academic research grants
Tax incentives
Funding of interns for workforce development
Equipment and supply grants for schools
Other grants
Other grants
Equipment & supply grants for schools
Funding of interns for workforce development
Tax incentives
Academic research grants
Company grants and loans
Capital projects
19
23
2.7
3.5
1.2
37
131
Special Report
PwC
| Massachusetts’ biotechs beat the industry blues

13

A biomedical “super cluster”
This biomedical “super cluster” has
produced a clutch of remarkably
innovative companies collectively
employing more than 50,000 people (see
Table 2
). Some of the largest firms are
now in Big Pharma’s hands. In July 2010,
for example, Merck KGaA bought
Millipore for $7 billion.
7
And, in February
2011, Sanofi snapped up Genzyme for just
over $20 billion, with further payments
contingent on how well Genzyme’s
products perform.
8

But Biogen Idec, which started life in 1978
and ranks among the foremost companies
in the region, is still independent. It’s
developed a number of breakthrough
medicines, including multiple sclerosis
treatments Avonex and Tysabri, and
cancer and autoimmune disease therapy
Rituxan. It also has a strong pipeline, with
some very promising products in Phase III
trials, including treatments for hemophilia
and amyotrophic lateral sclerosis.
9

Plenty of smaller firms are making their
mark on the sector as well. Take Vertex
Pharmaceuticals, which developed
hepatitis C protease inhibitor Incivek.
10

The product was approved in May 2011
and generated sales of $456.8 million by
December 2011, making it one of the most
successful launches in recent history.
11

Vertex has now pulled off another coup,
with FDA approval of cystic fibrosis drug
Kalydeco in January 2012. Even though
Kalydeco is only approved for a small
subset of cystic fibrosis sufferers—those
who have the G551D genetic mutation—
analysts expect it to generate peak sales
of $1 billion, rising to as much as $3
billion if it proves effective in the larger
cystic fibrosis population.
12

Table 1: Massachusetts has the country’s highest concentration of people with
scientific and engineering PhDs
State No. of employees with
PhDs in sciences &
engineering, 2008
Population
(thousands)
No. of employees with PhDs
in sciences & engineering
per 100,000 people
Massachusetts 35,000 6,594 531
California 95,700 36,962 259
New York 49,000 19,541 251
Pennsylvania 30,000 12,605 238
Texas 39,900 24,782 161

Source: National Sciences Foundation, Science and Engineering State Profiles
Table 2: More than 50,000 people work in Massachusetts’ life sciences industry
Sector 2007 2008 2009 2010
Biotechnology R&D
24,565 26,439 26,759 26,812
Medical equipment and supplies
manufacturing
11,315 10,963 10,527 10,759
Pharmaceutical and medicine
manufacturing
9,139 9,581 9,706 9,500
Medical and diagnostic laboratories 4,682 4,830 4,976 4,930

Source: National Sciences Foundation, Science and Engineering State Profiles
The private and public cash that’s gone
into the region has helped build a strong
biomedical research hub. Massachusetts’
biotechs can call on some of the country’s
leading scientists, both at universities like
Harvard and MIT, and at research
organizations like the Joslin Diabetes
Center, Whitehead Institute, and Broad
Institute. The area also contains several
world-class hospitals, including
Massachusetts General, Brigham and
Women’s, and the Dana-Farber Cancer
Institute.
Indeed, Massachusetts boasts a higher
concentration of top-flight scientists and
engineers than any other US state. At last
count, there were some 35,000 employees
with engineering and sciences doctorates
working in the region. While that’s less in
absolute terms than in several other
states, when you factor differences in the
size of the population into the equation,
Massachusetts is way ahead of the crowd
(see
Table 1
).
Special Report
14
PwC
| Massachusetts’ biotechs beat the industry blues
New Haven’s Trovis Pharmaceuticals (a
subsidiary of Clinical Data) also scored a
hit in early 2011, when it won approval
for Viibryd, an oral medication for serious
depressive disorders.
13
Meanwhile,
Cubist Pharmaceuticals is in the final
stage of testing a new treatment for
Gram-negative bacterial infections, which
analysts predict could generate revenues
of $2 billion. The company already has a
successful product for Gram-positive
infections under its belt.
14
And Momenta
Pharmaceuticals, a Cambridge-based
biotech specializing in the
characterization and engineering of
complex medicines, has just earned top
place in the latest Globe 100 list of the
state’s best-performing public companies.
Thanks to its generic version of anti-
blood-clotting drug Lovenox, Momenta
nearly quadrupled its profits last year.
15
This pattern of innovation looks set to
continue. In August 2011, Massachusetts’
biotechs had 567 candidates in clinical
trials—76 of them in Phase III—as well as
14 products pending approval.
16
And, if
the latest figures on US patent
applications are any guide, there’s more
in the pipeline. In 2008 and 2009,
scientists in the Boston-Worcester-
Manchester corridor applied for more
biotech patents than scientists in any
other area of the country (see
Table 3
).
17

In other words, Massachusetts’ biotechs
don’t seem to be suffering from the
productivity crisis that’s dogged the
biopharmaceutical industry as a whole for
the past decade. On the contrary, they
appear to be at the top of their game.
Brain buddies
Such success has inevitably attracted Big
Pharma’s attention. Most of the major
European and Asian pharma firms now
have a substantial presence in
Massachusetts, and some of them have
recently been expanding. In October
2010, for example, Novartis announced
plans to spend another $600 million on its
Cambridge research campus.
18
Sanofi has
been building a $65-million oncology
research center in the city.
19
Pfizer has
just moved into Shire Pharmaceuticals’ old
Cambridge premises, while it completes a
new office-lab. And Shire itself has moved
to a new 96-acre site in Lexington, which
it purchased for $165 million in 2010.
20

A number of large pharma companies
have also bought local biotechs, as we’ve
already remarked. What’s arguably more
noteworthy, though, is the trend toward
collaboration rather than acquisition. Two
years ago, when we published “Biotech
reinvented,” we suggested that the biotech
and pharma sectors should cooperate—
both with each other and with other
parties—to develop new medicines more
effectively and capitalize on the growing
demand for personalized healthcare.
21

That now seems to be happening to a
much greater extent.
In the academic arena, for example, Pfizer
has teamed up with eight Boston-based
research institutions to hunt for candidate
drugs.
22
And Gilead Sciences has joined
forces with Yale School of Medicine to
focus on new molecular mechanisms

for cancer.
23

Table 3: Top 10 US regions measured by biotech patent applications, 2008-2009
No. of
applications
Share of US total
(%)
Boston-Worcester-Manchester 1,061.9 5.54
San Jose-San Francisco-Oakland 1,029.3 5.37
New York-Newark-Bridgeport 670.5 3.50
Washington-Baltimore-Northern Virginia 552.3 2.88
San Diego-Carlsbad-San Marcos 544.1 2.84
Philadelphia-Camden-Vineland 394.8 2.06
Los Angeles-Long Beach-Riverside 390.5 2.04
Raleigh-Durham-Carey 253.7 1.32
Seattle-Tacoma-Olympia 175.3 0.91
Chicago-Naperville-Michigan City 174.4 0.91

Source: OECD patents database
Several significant biotech-pharma
partnerships have also been announced.
In February 2011, Aveo Pharmaceuticals
signed a deal with Astellas Pharma under
which the two companies will jointly
develop and commercialize Aveo’s lead
product for renal cancer.
24
Then, in
October 2011, Biogen Idec teamed up
with San Francisco’s Portola
Pharmaceuticals to co-develop an oral
Syk-inhibitor for the treatment of various
autoimmune diseases.
25

A month later, Aileron Therapeutics and
Roche agreed to expand an existing
alliance to develop new medicines using
Aileron’s “stapled peptide” platform. The
collaboration could see Aileron earn more
than $1.1 billion.
26
And, in January 2012,
Forma Therapeutics joined forces with
Boehringer Ingelheim and Janssen
Biotech—a mere seven months after
negotiating a groundbreaking pact with
Genentech, which we’ve discussed in
more detail on p.17 of our report.
27

Special Report
PwC
| Massachusetts’ biotechs beat the industry blues

15

Chill winds
That’s not to say Massachusetts’ biotechs
have been completely immune to the
problems currently facing the sector.
Government funding for basic research
remains a perennial worry, especially
while the US economy continues to
languish in the aftermath of the worst
recession since the 1930s. And though
some of the region’s biotechs have
secured mouth-watering deals, many
others are still struggling to raise the cash
they need.
Lackluster demand for new biotech stocks
has also taken its toll on two highly
regarded local firms that floated earlier
this year. When Merrimack
Pharmaceuticals went public in March
2012, its share price fell 14% on the first
day of trading. But, by mid-April, it was
back in positive territory, where it’s
managed to remain.
28
Meanwhile,
stem-cell manufacturer Verastem has
seen its stock hover around the offering
price of $10 per share since its debut in
February 2012.
29
Yet institutional investors aren’t turning
their backs on all biotechs, as another
local firm has proved. Rare disease
specialist Synageva BioPharma completed
a reverse merger last November and a
follow-on offering in January 2012. It
planned to raise $60 million but ended up
netting $84 million, after selling nearly
3.6 million shares, including an over-
allotment of 466,209 shares.
30
And, by
mid-May, its stock was trading at 52%
more than the opening price.
31
Leading light
In all, then, Massachusetts’ biotechs have
fared much better than many of their
rivals in other parts of the US—and,
indeed, the world. The region has also
been steadily cementing its lead as the
country’s top cluster for early-stage
innovation in the life sciences. Times may
be tough but there are good grounds for
hope. Massachusetts’ biotechs, it seems,
are beating the industry blues.
Special Report
References
Massachusetts Biotechnology Council,
1.
“Massachusetts By the Numbers,” http://www.
massbio.org/economic_development/the_
massachusetts_supercluster/massachusetts_by_
the_numbers
MoneyTreeTM PwC and the National Venture
2.
Capital Association (NVCA), based on data provided
by Thomson Reuters. The biotech sector covers
developers of technologies promoting drug
development, disease treatment, and a deeper
understanding of living organisms. It includes
human, animal, and industrial biotechnology
products, and services; biosensors; biotechnology
equipment; and pharmaceuticals. It excludes
medical devices and equipment.
Ibid.
3.
Massachusetts Biotechnology Council, op. cit.
4.
Massachusetts Life Sciences Center,
5.
“Translating Good Science into Good Business,” p. 3.
Massachusetts Life Sciences Center, “FY 2011
6.
Annual Report: Delivering on the Promise,” p. 6.
Merck Group press release, “Merck KGaA
7.
Completes Millipore Acquisition and Launches New
Merck Millipore Division” (July 15, 2010), http://
www.merckgroup.com/en/media/extNewsDetail.h
tml?newsId=BFC4CF612120F249C12577600051A
CAA&newsType=1
Nina Sovich & Noelle Mennella, “Sanofi to buy
8.
Genzyme for more than $20 billion,” Reuters
(February 16, 2011), http://www.reuters.com/
article/2011/02/16/us-genzyme-sanofi-
idUSTRE71E4XI20110216
“Biogen Idec (BIIB) PT Lifted To $148 By UBS
9.
Securities On Pipeline Optionality, ‘Buy’
Maintained,”
iStockAnalyst
(May 9, 2012), http://
www.istockanalyst.com/finance/story/5831705/
biogen-idec-biib-pt-lifted-to-148-by-ubs-securities-
on-pipeline-optionality-buy-maintained#
Asher Mullard, “2011 FDA drug approvals,”
10.
Nature Reviews Drug Discovery,
Vol. 11 (February
2012), pp. 91-94.
“Vertex posts 4Q profit on growing Incivek
11.
sales,” Associated Press (February 2, 2012), http://
finance.yahoo.com/news/Vertex-posts-4Q-profit-
apf-1137554779.html
Andrew McConaghie, “Kalydeco to be landmark
12.
in cystic fibrosis treatment,”
InPharm
(January 2,
2012), http://www.inpharm.com/news/171406/
kalydeco-be-landmark-cystic-fibrosis-treatment
Liz Jones Hollis & Jennifer Levin, “FDA
13.
approvals of 2011,”
FierceBiotech
(February 1,
2012), http://www.fiercebiotech.com/
node/293810/print
Megg Tirrell, “Drugmaker-Neglected Bacteria
14.
Gives Cubist $2 Billion Market,”
Bloomberg
Businessweek
(September 15, 2011), http://www.
businessweek.com/news/2011-09-15/drugmaker-
neglected-bacteria-gives-cubist-2-billion-market.html
Robert Weisman, “Momenta: The perfect
15.
Massachusetts success story,”
The Boston Globe
(May
20, 2012), http://articles.boston.com/2012-05-20/
globe-100/31699141_1_momenta-chief-executive-
momenta-pharmaceuticals-brand-name-drug
Massachusetts Biotechnology Council,
16.
“Biotechnology Industry Snapshot 2011” (2011).
Organization for Economic Co-operation and
17.
Development, “OECD Biotechnology Statistics,
2009,” (2009), p. 71.
Curt Nickisch, “Novartis Plans $600 Million
18.
Expansion In Cambridge,”
wbur
(October 27, 2010),
http://www.wbur.org/2010/10/27/novartis-
expands-in-cambridge#comments
Todd Wallack, “Another drug giant bringing
19.
jobs to Mass.,”
The Boston Globe
(July 8, 2010),
http://www.boston.com/business/healthcare/
articles/2010/07/08/another_drug_giant_
bringing_jobs_to_mass/
Alex Philippidis, “Massachusetts Sees $2B
20.
Construction Boom from the Biopharma Industry,”
Genetic Engineering & Biotechnology
News (April 6,
2012), http://www.genengnews.com/
keywordsandtools/print/3/26733/
PwC, “Biotech reinvented: Where do you go
21.
from here?” (2010), http://www.pwc.com/gx/en/
pharma-life-sciences/publications/biotech-
reinvented.jhtml
Heidi Ledford, “Drug buddies,”
22.
Nature,
Issue
474 (June 22, 2011), pp.433-434.
Gilead Sciences press release, “Yale and Gilead
23.
Sciences Announce Cancer Research Collaboration”

(March 30, 2011), http://www.gilead.com/
pr_1544168
Ryan McBride, “Aveo Pharma Lands $1.4B Deal
24.
with Astellas, A Few Months Ahead of Cancer Trial
Result,”
Xconomy
(February 16, 2011), http://www.
xconomy.com/boston/2011/02/16/aveo-pharma-
lands-1-4b-deal-with-astellas-a-few-months-ahead-
of-cancer-trial-result/
Luke Timmerman, “Portola Grabs $45M
25.
Upfront From Biogen Idec to Develop Autoimmune
Drugs,”
Xconomy
(October 27, 2011), http://www.
xconomy.com/san-francisco/2011/10/27/
portola-clinches-45m-upfront-from-biogen-idec-to-
develop-autoimmune-drugs/
Aileron Therapeutics news release, “Roche and
26.
Aileron Therapeutics Expand Collaboration for
Stapled Peptide Drugs” (November 16, 2011), www.
aileronrx.com
John Carroll, “Forma scores another Big
27.
Pharma deal in $700M J&J cancer pact,”
FierceBiotech
(January 10, 2012), http://www.
fiercebiotech.com/story/forma-scores-another-big-
pharma-deal-700m-jj-cancer-pact/2012-01-10
Merrimack’s opening price was $7 per share.
28.
The closing price on May 14, 2012, was $7.41 per
share. Details taken from NASDAQ, “Merrimack
Pharmaceuticals Stock Chart,” http://www.nasdaq.
com/symbol/mack/stock-chart
Verastem’s closing price on May 14, 2012, was
29.
$9.53. Details taken from NASDAQ, “Verastem Stock
Chart,” http://www.nasdaq.com/symbol/vstm/
stock-chart
Synageva BioPharma press release, “Synageva
30.
BioPharma Announces $60 Million Proposed Public
Offering of Common Stock” (January 4, 2012),
http://ir.synageva.com/phoenix.
zhtml?c=96240&p=irol-pressArticle&ID=1644729
&highlight=; and Synageva BioPharma press
release, “Synageva BioPharma Announces Closing
of Public Offering and Exercise of Over-Allotment
Option” (January 10, 2012), http://ir.synageva.
com/phoenix.zhtml?c=96240&p=irol-pressArticle
&ID=1646544&highlight=
Synageva BioPharma’s stock closed at $38.29
31.
per share on May 14, 2012, compared with an
opening price of $25.18 on January 10, 2012. Details
taken from NASDAQ, “Synageva Biopharma Stock
Chart,” http://www.nasdaq.com/symbol/geva/
stock-chart
16
PwC
| Massachusetts’ biotechs beat the industry blues
Special Report
Biotech
What’s next for the business of big molecules?

17

Joined-up thinking
So two of the three concerns we
expressed in 2010 still look valid. But,
fortunately, there’ve been other major
developments in the intervening two
years as well. The “biotech-ification” of
Big Pharma has continued, just as we
predicted. The trend towards
collaboration has been even more
pronounced. In 2010, we identified three
particular forms of collaboration:

Pre-competitive discovery

federations—where public and private
institutions pool their resources to
overcome bottlenecks in early-stage
biomedical research

Competitive development consortia—

where rival biopharma companies form
syndicates to develop the most
promising molecules in their combined
portfolios; and

Service-provision alliances—where

biopharma companies and service
providers join forces to offer healthcare
packages for patients with specific
diseases.
We cited a few instances but remarked
that they were rare. Today, there are
many more collaborations—and some of
them hint at the emergence of new
business models.
Playing nicely
Take the way biotech and pharma
companies are starting to come together.
In 2011, there were an estimated 65
alliances worth more than $20 million.
That’s still lower than before (see
Figure
8
).
44
But some of these partnerships have
been structured much more creatively.
The deal Forma Therapeutics struck with
Roche subsidiary Genentech is a good
example. In June 2011, Forma handed
over worldwide rights to one of its early-
stage cancer medication programs. In
return, Genentech paid an upfront lump
sum and will make additional milestone
payments, if Forma meets certain scientific
and commercial criteria.
45
There’s nothing novel about such terms.
What sets the deal apart is the fact that
Genentech also bought an option to
acquire any resulting compound outright,
rather than licensing it in and paying
royalties. So, if Forma succeeds, it will be
able to sell the compound and deliver a
return to its investors without going
public or getting acquired. That means its
venture backers can keep growing the
company and benefit fully from any
subsequent sale.
46

Forma isn’t the only biotech exploring
new ways of realizing value without
turning to the capital markets or a trade
buyer. Antibody specialist Adimab has
built a business based on selling access to
its high-tech platform for discovering new
human antibodies, instead of getting into
drug development itself. Nimbus
Discovery has adopted the same
approach.
47
Quanticel Pharmaceuticals has taken a
slightly different tack. It’s sold Celgene an
exclusive three-and-a-half year license to
its platform for analyzing genetic
variations in individual patients’ tumors.
But the $45-million package includes a
stake in the company and an exclusive
option to buy Quanticel at a later date. So
Quanticel has effectively given its venture
backers an immediate return on their
money, as well as making sure it’s got
capital to grow.
48
Meanwhile, Warp Drive Bio, which aims
to discover new products by analyzing the
genomes of plants, animals and wild
organisms, has given Sanofi—one of its
three venture backers—a non-exclusive
option to buy the company. But the deal
cuts both ways. Warp Drive Bio will retain
the rights to many of the assets it develops
Figure 8: The number of biotech-pharma alliances is creeping up again
Number of deals Average deal value
23
0
10
20
30
40
50
60
70
80
Average deal value
201120102009200820072006
26.03
29.77
Number of deals
Average deal value ($m)
0
50
100
150
200
250
300
350
400
450
Average deal value
201120102009200820072006
Sources: Burrill & Co., Windhover
Note: All deals between biotech and pharma companies exceeding $20 million. Data for 2011 are projected from the figures for the nine months to 30 September 2011
18 Biotech
What’s next for the business of big molecules?
unless Sanofi exercises the option. And, if
it reaches certain milestones, it can force
Sanofi to buy it at a predetermined price.
49

So, even if the stock markets are still
depressed and trade buyers are sparse,
the biotech industry’s actively pursuing
new business models—although the
pressure’s on to deliver. As FierceBiotech
reporter John Carroll recently noted,

“Big Pharma’s trigger finger is getting
increasingly itchy when it comes to killing
unwanted or unsuccessful collaboration
pacts.”
50
Patient money
Some biotech and pharma companies are
also looking for new allies, and several
have turned to patient advocacy groups as
a source of funding. Vertex got $75
million from the Cystic Fibrosis
Foundation when it was developing
Kalydeco, for example. It repaid that trust
in January 2012, when it won FDA
approval for the first medicine to target
the mutated gene that causes cystic
fibrosis. It will also pay the foundation a
share of the proceeds from all sales.
51
Similarly, Amylin Pharmaceuticals has
joined forces with the Juvenile Diabetes
Research Foundation to fund a series of
clinical trials on the effectiveness of a
combination therapy for Type 1
diabetes.
52
And, in April 2012, the
Michael J. Fox Foundation agreed to pay
for further testing of a therapy developed
by Sanofi that might treat the mental
symptoms of Parkinson’s disease.
53

The “venture philanthropist” model, as
it’s been called, is now spreading outside
the US. In March 2012, Britain’s
Wellcome Trust launched a $310-million
fund to invest directly in healthcare and
life sciences companies.
54
Cancer
Research UK has also teamed up with a
European venture capital firm to create a
nearly $78-million fund for boosting the
development of new cancer treatments.
55

These moves mark a profound shift.
Medical charities and patient
organizations have long supported basic
research, but they’re now moving down
the pipeline—and the biotech industry’s
ready to play with them.
Back to school
There’s been a significant rise in the
number of alliances with academic
institutions, too, although this is largely a
Big Pharma trend. Pfizer’s gone “back to
school” in a big way. In May 2010, it
linked up with Washington University
School of Medicine in St Louis to identify
new uses for existing compounds.
56
Then,
in November 2010, it started building a
translational research network that now
includes 20 US universities and academic
medical centers.
57

Other industry giants have also been
dusting off their textbooks (see
Table 3
).
Between January and September 2011,
there were 30 new biopharma alliances
with academic bodies, nearly double the
total for 2010.
58
And the pace shows no
sign of slowing. In early 2012, for
example, Eli Lilly signed Cambridge
University up to its “Open Innovation
Drug Discovery Platform,” bringing the
number of participating European
institutions to more than 60.
59

United front
Several new precompetitive federations
for grappling with “big data” have
simultaneously emerged. The Pistoia
Alliance is one such instance; it draws on
the “crowd” wisdom of pharma and
informatics experts from a wide range of
organizations to devise and document
best practice in R&D.
60
And Sage
Bionetworks is an open-source forum
where computational biologists can pool
their data and brainpower to crack
particularly difficult problems.
61

The National Institutes of Health (NIH)
has also just embraced “crowd-sourcing”
in an effort to “teach old drugs new
tricks,” as Health and Human Services
Secretary Kathleen Sebelius put it. The
NIH’s National Center for Advancing
Translational Sciences and its industry
partners Pfizer, AstraZeneca, and Lilly are
tapping the nation’s “brightest minds” to
test various compounds that have been
studied in humans but shelved, to see
whether new uses can be found for them.
62

Table 3: Big Pharma’s calling on the profs
Academic institution Therapeutic focus
AstraZeneca & GSK Manchester University Inflammatory diseases
Bayer University of California San
Francisco
Translational research
Gilead Sciences Yale School of Medicine Novel molecular mechanisms for
cancer
Johnson & Johnson 10 academic “superstars” Multiple
Merck & Co.Sanford-Burnham Institute Alzheimer’s disease & major
psychiatric disorders
University of Southern California Health science
University of North Carolina HIV
University of California San
Francisco
HIV
Novo Nordisk Oxford University Rheumatoid arthritis & other
autoimmune inflammatory
diseases
Roche University of California Los
Angeles
Genomics
University of Geneva & Institute
of Bioinformatics
Translational research
Sanofi University of California San
Francisco
Oncology, aging, diabetes &
inflammation
Columbia University Diabetes
Stanford University Early-stage research
Weill Cornell Medical College Tuberculosis
University of California San Diego Acne
Source: PwC

Note: Key biopharma alliances with academic institutions in 2011
Biotech
What’s next for the business of big molecules?

19

Collaborating competitors
It’s not just non-competitive or pre-
competitive partnerships that are flavor
of the month, though. Co-development
pacts between rival companies have
become equally popular, especially in the
oncology arena. AstraZeneca and Merck
& Co. kicked off in 2009, when they
agreed to share the cost of testing a
combination therapy based on two
compounds they’d developed separately.
Today, there are at least four more such
arrangements. Novartis and Amgen are
jointly investigating a therapy for breast
cancer. Novartis has also hooked up with
GSK to co-develop a treatment for
advanced solid tumors. Bristol-Myers
Squibb and Roche are collaborating on a
melanoma product. And Sanofi’s working
with Merck KGaA on a combination
therapy for multiple forms of cancer.
63

This new spirit of cooperation is now
spilling over into other therapeutic areas.
In May 2011, Roche and Merck struck a
deal to co-promote Victrelis, Merck’s new
treatment for chronic hepatitis C. More
unusually, the two companies also agreed
to pool resources and study “novel
combinations of marketed and
investigational medicines [for hepatitis C]
from both organizations.”
64

There’s been a similar surge in the
number of alliances with diagnostics
providers, both to satisfy public demand
for personalized medicine and to address
the concerns of healthcare payers
reluctant to reimburse costly new
therapies that can’t be directed at known
“responders.” Last year’s crop of
approvals included two cancer products
with companion diagnostics: Pfizer’s
Xalkori for the treatment of patients with
advanced non-small cell lung cancer
that’s ALK-positive; and Roche’s Zelboraf,
for people with BRAF-positive metastatic
melanoma.
65

This trend’s obviously set to continue. In
2011, the biopharma industry formed 34
new partnerships to develop companion
diagnostics—up from 19 in 2009 (see
Figure 9
). The FDA’s refusal to approve
leukemia treatment Omapro without a
diagnostic to identify the target patient
population probably acted as a spur.
66
But
diagnostic biomarkers have other benefits
as well. They can save a lot of time and
money during clinical trials by narrowing
down the subset of patients on whom a
molecule should be tested and exposing
defects more rapidly.
Swapping notes with the big
spenders
The financial pressure from cash-
strapped healthcare payers has also led to
much more collaboration between
biopharma companies and their
customers. GSK pioneered this policy; its
executives now consult health officials
and insurers at least five years before a
product is due to leave its labs. But GSK’s
certainly not alone in talking to the
people who hold the purse strings.
67

In 2011, Pfizer paired up with US health
insurer Humana to research the health
problems of the elderly. AstraZeneca and
HealthCore agreed to work together on a
study of how to treat disease more
cost-effectively. Sanofi brought in Medco
Health Solutions to stress-test its entire
Phase I development program. And
several smaller companies are starting to
follow suit.
68

Of course, it’s one thing to talk, another
to listen—especially when the feedback’s
not favorable. But some companies are
clearly acting on what they’re told. GSK is
a case in point; the firm pulled a diabetes
product mid-way through development
because healthcare payers weren’t
sufficiently convinced of its value.
69
Figure 9: Twinning with diagnostic providers is on the rise
23
0
5
10
15
20
25
30
35
40
Total R&D expenditure
201120102009200820072006
6
14
7
19
25
34
No. of deals
Source: PwC analysis, using data from Windhover, IDV Technology and company press releases
20 Biotech
What’s next for the business of big molecules?
Package deals
The number of biotech and pharma
companies collaborating with other
organizations to tap into demand for
personalized healthcare and create new
ways of adding value is also on the rise. In
May 2010, for example, Pathway
Genomics entered into a marketing pact
with Walgreens to supply direct-to-
consumer genetic testing kits. The FDA
called a halt to the deal, but it’s indicative
of the direction in which things are
moving.
70
Other, more successful ventures have
since been launched. In January 2012,
Proteus Biomedical signed a contract with
British pharmacy group Lloydspharmacy
to sell pills containing edible microchips
that communicate with a disposable
monitoring patch worn on the shoulder.
The service will cost patients about $78 a
month and the two companies will split
any profits.
71

Meanwhile, GSK has linked up with
specialist technology provider MedTrust
Online to launch an iPhone app that lets
oncologists search for clinical trials by
cancer type and automatically identifies
the trial centers nearest their patients.
72

And Pfizer has started offering an
automated vascular health check service
in British pharmacies.
73

Pulling together
But perhaps the clearest sign of this new
willingness to collaborate is GSK’s
compact with McLaren, the high-tech
engineering firm behind Formula 1
racing. The biopharma industry has
traditionally taken the view that it’s
“different” from other industries—and so
there’s little it can learn from them. In
September 2011, GSK put old prejudices
aside when it embarked on a five-year
partnership to enhance its
manufacturing, R&D, and consumer
healthcare businesses with McLaren’s
engineering and technological
expertise.
74

In general, then, the last two years have
provided fresh grounds for hope. The
biotech sector’s productivity is still open
to question, the business model it’s
traditionally relied on is shaky, and
there’s been an undeniable geographic
shift in the biomedical research base. But
US scientists are as inventive as ever;
some biotech companies aren’t just
tightening their belts, they’re finding new
ways to get funding and add value; and
the biopharma community as a whole is
trying to pull together.
Biotech
What’s next for the business of big molecules?

21

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24.
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35.
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38.
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39.
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40.
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41.
Yali Friedman, “Location of pharmaceutical
42.
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43.
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44.
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45.
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46.
“Partnering,” Nimbus Discovery website, http://
47.
www.nimbusdiscovery.com/index.php?id=72
Luke Timmerman, “Celgene To Pump $45M into
48.
Quanticel to Discover Cancer Drugs, Gets Option To
Acquire,”
Xconomy
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celgene-to-pump-45m-into-quanticel-to-discover-
cancer-drugs-gets-option-to-acquire/
Arlene Weintraub, “Warp Drive Bio Launches
49.
With $125M from Third Rock, Greylock, Sanofi,”
Xconomy
(January 10, 2012), http://www.xconomy.
com/boston/2012/01/10/warp-drive-bio-launches-
with-125m-from-third-rock-greylock-sanofi/
John Carroll, “Analysis: Big Pharma is backing
50.
out of more biotech deals,”
FierceBiotech
(May 16,
2011), http://www.fiercebiotech.com/story/
analysis-big-pharma-backing-out-more-biotech-
deals/2011-05-16
“All together now: Charities help Big Pharma,”
51.
The Economist
(April 21, 2012), http://www.
economist.com/node/21553027
Juvenile Diabetes Research Foundation press
52.
release, “JDRF and Amylin Partner to Investigate
Co-Formulating Two Hormones for Treatment of
22 Biotech
What’s next for the business of big molecules?
Type 1 Diabetes” (May 10, 2011), http://www.jdrf.
org/index.cfm?page_id=115726
“All together now,” op. cit.
53.
“Wellcome Trust launches Venture Capital arm,”
54.
European Biotechnology News
(March 21, 2012),
http://www.eurobiotechnews.eu/news/news/2012-
01/wellcome-trust-launches-venture-capital-arm.
html
Paul Jump, “Cancer Research UK to join forces
55.
with venture capitalist,”
The Times Higher Education

(March 31, 2012), http://www.
timeshighereducation.co.uk/story.asp?sectioncode
=26&storycode=419502&c=1
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56.
“Washington University, Pfizer announce
groundbreaking research collaboration” (May 17,
2010), http://news.wustl.edu/news/Pages/20770.
aspx
Pfizer, “Centers for Therapeutic Innovation,”
57.
http://www.pfizer.com/research/rd_works/
centers_for_therapeutic_innovation.jsp
Morrison, “Biopharma in 2011: A year of
58.
transition,” op. cit.
Gianluigi Cuccureddu, “University of Cambridge
59.
Joins Eli Lilly’s ‘Open Innovation Drug Discovery
Platform,’”
Innovation Management
( January 13,
2012), http://www.innovationmanagement.
se/2012/01/13/university-of-cambridge-joins-eli-
lillys-open-innovation-drug-discovery-platform/
Pistoia Alliance website, http://www.
60.
pistoiaalliance.org/
Luke Timmerman, “Sage Bionetworks Moves
61.
from Thinking Stage to Doing Stage,”
Xconomy

(April 18, 2012), http://www.xconomy.com/
san-francisco/2012/04/18/sage-bionetworks-
moves-from-thinking-stage-to-doing-stage/
Donna Young, “NIH-industry venture taps
62.
‘crowdsourcing’ for teaching old drugs new tricks,”
SCRIP Intelligence
(May 4, 2012), http://www.
scripintelligence.com/home/NIH-industry-venture-
taps-crowdsourcing-for-teaching-old-drugs-new-
tricks-330136
Shannon Fisher, “Big Pharma + Big Pharma =
63.
Collaborative Fight to Cancer,”
PharmaShare
(April
2012), http://www.pharma-share.com/big-pharma-
big-pharma-collaborative-approach-fight-cancer
Merck press release, “Merck and Roche
64.
Establish Strategic Agreements in Fight Against
Chronic Hepatitis C” (May 17, 2011), http://www.
merck.com/newsroom/news-release-archive/
corporate/2011_0517.html
Mullard, op. cit.
65.
Andrew Pollack, “A Push to Tie New Drugs to
66.
Testing,”
The New York Times
(December 26, 2011),
http://www.nytimes.com/2011/12/27/health/
pressure-to-link-drugs-and-companion-diagnostics.
html?pagewanted=all
Lewis Krauskopf, “Insight: Pharma asks the
67.
money question earlier for new drugs,” Reuters
(December 20, 2011), http://www.reuters.com/
article/2011/12/20/us-payors-
idUSTRE7BJ1QG20111220
Ibid.
68.
Ibid.
69.
Bruce Japsen & Sandra M. Jones, “Walgreens
70.
postpones carrying Pathway Genomics genetic test
kit,”
Los Angeles Times
(May 13, 2010), http://
articles.latimes.com/2010/may/13/business/
la-fi-dna-kits-20100513
Andrew Jack, “Pharmacy to offer ‘intelligent
71.
medicines,’”
Financial Times
(January 15, 2012),
http://www.ft.com/cms/s/0/ebe31fac-3e11-11e1-
ac9b-00144feabdc0.html#axzz1thkrCeXt
Peter Mansell, “GSK, MedTrust launch iPhone/
72.
iPad app for cancer trials,”
PharmaTimes
(June 8,
2010), http://www.pharmatimes.com/Article/10-
06-08/GSK_MedTrust_launch_iPhone_iPad_app_
for_cancer_trials.aspx
Pfizer press release, “Pfizer Launches New
73.
Pharmacy-Based
Vascular Health Check Service” (June 7, 2010),
74.
http://www.vascularhealthcheck.com/z_aux/z_
assets/press/news/Pfizer-Vascular-Health-Check-
Press-Release-7-june-2010.pdf
GlaxoSmithKline press release,
75.
“GlaxoSmithKline (GSK) and McLaren Group
announce innovative strategic partnership”
(September 15, 2011), http://www.gsk.com/media/
pressreleases/2011/2011-pressrelease-625498.htm
Biotech
What’s next for the business of big molecules?

23

Doug Strang
Partner, US Pharmaceutical and Life
Sciences Advisory Services co-Leader
PwC US
[1] 267 330 3045

douglas.s.strang@us.pwc.com
Mike Goff
Partner, US Pharmaceutical and Life
Sciences Advisory Services co-Leader
PwC US
[1] 203 219 7722
mike.goff@us.pwc.com
Jim Connolly
Partner, US Pharmaceutical and Life
Sciences Assurance Services Leader
PwC US
[1] 617 530 6213
james.m.connolly@us.pwc.com
Martin Schloh
Partner, Pharmaceutical and Life
Sciences Advisory Services
PwC Germany
[49] 89 5790 5102
martin.schloh@de.pwc.com
Clive Bellingham
Partner, Pharmaceutical and Life
Sciences Advisory Services
PwC Swizerland
[41] 58 792 28 22
clive.bellingham@ch.pwc.com
Simon Friend

Partner, Global Pharmaceutical and Life
Sciences Industry Leader

PwC UK
[44] 20 7213 4875
simon.d.friend@uk.pwc.com
Steve Arlington
Partner, Global Pharmaceutical and Life
Sciences Advisory Services Leader

PwC UK
[44] 20 7804 3997
steve.arlington@uk.pwc.com
Michael Swanick
Partner, Global Pharmaceutical and Life
Sciences Tax Services Leader
PwC US
[1] 267 330 6060
michael.f.swanick@us.pwc.com
Sujay Shetty
Director, Pharmaceutical and Life
Sciences Advisory Services
PwC India
[91] 22 6669 1305
sujay.shetty@in.pwc.com
John Cannings
Partner, Australia Pharmaceutical and
Life Sciences Leader
PwC Australia

[61] 2 826 66410

john.cannings@au.pwc.com
Sally Jeffery
Partner, Healthcare Advisory Services,
Middle East
PwC United Arab Emirates
[971] 4 304 3154

sally.jeffery@ae.pwc.com
Attila Karacsony
Director, US Pharmaceutical and Life
Sciences Marketing
PwC US
[1] 973 236 5640
attila.karacsony@us.pwc.com
Marina Bello Valcarce
Global Pharmaceutical and Life Sciences

Marketing and Knowledge Management
PwC UK
[44] 20 7212 8642
marina.bello.valcarce@uk.pwc.com
Contacts
Global
United States
Middle East
Marketing
Asia Pacific
Jo Pisani
Partner, Pharmaceutical and Life
Sciences, Strategy
PwC UK
[44] 20 7804 3744
jo.pisani@uk.pwc.com
Sandy Johnston
Partner, European Pharmaceutical and
Life Sciences Advisory Services
PwC UK
[44] 20 7213 1952
sandy.johnston@uk.pwc.com
Ingrid Maes
Director, Pharmaceutical and Life
Sciences Advisory Services
PwC Belgium
[32] 3 259 3305
ingrid.maes@.be.pwc.com
Europe
Michael Papetti
Partner, US Pharmaceutical and Life
Sciences

PwC US
[1] 617 530 6327
michael.r.papetti@us.pwc.com
Steve Demarco
Partner, US Pharmaceutical and Life
Sciences

PwC US
[1] 617 530 5519
stephen.a.demarco@us.pwc.com
Tracy Lefteroff
Partner, US Pharmaceutical and Life
Sciences

PwC US
[1] 408 817 4176
tracy.t.lefteroff@us.pwc.com
www.pwc.com/pharma
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