Mixed Signals: Understanding the Outlook for Pharma R&D Spending Through 2015 www.pharmsource.com 1
Presenters Jim Miller President and Founder, PharmSource Saul Richmond, PhD Director of Market Intelligence, PharmSource www.pharmsource.com 2
Overview Objectives To enhance participants understanding of the factors that drive R&D spending To enhance participants business planning by forecasting market conditions for contract R&D services for the 2014 2015 period Agenda Mixed signals Analytical framework Prospects for selffinancing companies Prospects for externally financed companies Outlook for R&D spending Final thoughts www.pharmsource.com 3
Mixed signals R&D spending, financing are up Amount Raised-$B Bio/Pharma Financing Activity $60 $50 $40 $30 $20 $10 $0 R&D Spend $ billion Bio/Pharma R&D Spending $130 $128 $126 $124 $122 $120 $118 $116 $114 Self Financed Bio/Pharma Externally Financed Bio/Pharma $112 FY10 FY11 FY12 FY 13 Source: PharmSource Lead Sheet Source: PharmSource analysis of public data www.pharmsource.com 4
Mixed signals But clinical trial activity declining 3,500 3,000 2,500 2,000 1,500 1,000 500 IND Filings 6,000 5,000 4,000 3,000 2,000 1,000 Clinical Trial Registrations 0 2007 2008 2009 2010 2011 2012 Commercial Non Commercial 2008 2009 2010 2011 2012 2013 P 3 P 2 P 1 Source: PharmSource analysis of FDA data Source: PharmSource analysis of data from clinicaltrials.gov www.pharmsource.com 5
Analytical framework Segmenting the bio/pharma universe Self-Funded Companies Externally Funded Companies Type Revenue R&D % Sales Example Type Revenue R&D % Sales Example Global Biopharma >$ 5 billion >10% Pfizer Early Commercial >$0 >20% < 200% Seattle Genetics Mature Biopharma $1-5 billion >10% Forest Labs Emerging Biopharma NA Tetraphase Specialty Biopharma <$1 billion 10-20% Salix Generic/ Consumer No threshold <10% Teva www.pharmsource.com 6
Analytical framework R&D competes with other uses of funds Sources of Funding Company Types Uses of Funding Operating Profits Public/Private Equity Licensing + Milestone Fees Venture Capital Self Funding: Global/Mid size/ Generic Externally Funded: Early Commercial Externally Funded: Emerging Dividends/ Buy backs Company Acquisitions Product licensing and acquisition R&D Capital Expenditure Commercial Infrastructure www.pharmsource.com 7
Global bio/pharma dominates spend by growth R&D Spend CAGR 2010 2013 Early Comm/Emerging Generic/OTC Specialty Early Comm Emerging Mature+ Specialty R&D Spend by Company Type Generic/ OTC Global Partnering Global Mature Global 0.0% 5.0% 10.0% 15.0% At least 20% of global bio/pharma spend going to partners Source: PharmSource analysis of public data www.pharmsource.com 8
Self financing companies Global bio/pharma account for trial decline Number of trials registered 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Phase 2 & 3 Trials Registered in CT.gov 500 All others 2010 2013 Top 14 Bio/Pharma Global bio/pharma registrations down by almost half Others down by just 8% Factors: Portfolio retrenchment: exiting therapeutic areas and discontinuing candidates Killing compounds faster in early development Greater dependence on partners Source: PharmSource analysis of data from clinicaltrials.gov www.pharmsource.com 9
Self financing companies M&A depresses R&D R&D spend of acquirer relative to combined spend pre Impact of M&A on R&D Spending 100 98 96 94 92 90 88 86 R&D savings a big factor in acquisition rationale Continuing acquisition activity will depress R&D growth 84 Y0 Y+1 Y+2 Years Post Acquisition Global BioPharma Smaller Transactions Source: PharmSource analysis of public data www.pharmsource.com 10
Self financing companies Global bio/pharma strategies differ Change in R&D Spend 2010 2013 (horizontal axis) Change in Revenue 2010 2013 (vertical axis) Pfizer 10.0% Novartis Pharma Merck Sanofi Roche Pharma Amgen JnJ Pharma 0.0% 35.0% 25.0% 15.0% 5.0% 5.0% 15.0% 25.0% 35.0% 45.0% GSK Lilly Retrencher 30.0% 20.0% 10.0% AstraZeneca 20.0% Abbvie BMS Biogen Idec Novo Nordisk Allergan True Believers Rich Pipelines Source: PharmSource analysis of public data www.pharmsource.com 11
Externally funded bio/pharma Early stage Biopharma well funded $ Raised (bn) 20 18 16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 2012 2013 Debt & mixed Private equity placement Secondary public offering IPO completed Venture capital investment VC and PE have remained consistent IPO way up but overall contribution is small IPO significance is access to secondary offerings and bolstering VC confidence Global partnering funds equal external financing When externally funded companies are confident they can get more funding, they will spend Source: PharmSource Lead Sheet www.pharmsource.com 12
Externally funded bio/pharma IPO and SPOs raise R&D and SG&A Spend ($M) Spending Impact of IPO $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Spend ($M) Spending Impact of SPO 350 300 250 200 150 100 50 0 R&D SG&A R&D SG&A Source: PharmSource analysis of public data www.pharmsource.com 13
Externally funded bio/pharma Declining number of early VC deals a concern Follow on VC Deals First Round VC Deals VC Investments $ (M) $4,000 $3,600 $3,200 $2,800 $2,400 $2,000 $1,600 $1,200 $800 $400 $0 300 275 250 225 200 175 150 125 100 75 50 25 0 Number of Deals VC Investments $ (M) $4,000 $3,600 $3,200 $2,800 $2,400 $2,000 $1,600 $1,200 $800 $400 $0 300 275 250 225 200 175 150 125 100 75 50 25 0 Number of Deals Value ($m) Number Value ($m) Number Source: PharmSource Lead Sheet www.pharmsource.com 14
Externally funded bio/pharma Global bio/pharma depends on emerging bio/pharma % of Global Bio/Pharma NMEs from Licenses or Acquisitions 40.0% 30.0% Growing share of approvals come from partnered and acquired candidates % NME derived from 20.0% external source 10.0% 0.0% 2003 2008 2009 2013 Global bio/pharma allocating major share of R&D spend to partnering to maintain flow of NMEs Source: Data from HBM Partners www.pharmsource.com 15
Outlook Modest growth for most segments to 2015 Normalized R&D spend 130 120 110 100 90 80 70 60 R&D Spend 2010 2015 2010 2011 2012 2013F 2014F 2015F Global Biopharma Mature Biopharma Emerging Biopharma Early Commercial Early commercial to grow 10 15% p.a. as product revenues grow Global bio/pharma R&D only 1 2% p.a. but wide variation Others at 5% rate Assumes continued favorable financial markets Speciality Biopharma Generic/Consumer Source: PharmSource analysis www.pharmsource.com 16
Outlook External environment can change outlook Downside risks Mega acquisitions Slow decision making Pipeline consolidation Continued restructuring by global bio/pharma Increased pricing pressure leading to more cost cuts Financial markets turn unfavorable Emerging companies afraid to spend Upside opportunities Continued boom in public equity finance Increased early round VC funding for externallyfinanced companies Price and reimbursement stability Run of success in new line therapies, e.g., ADCs and immunotherapy www.pharmsource.com 17
Final thoughts An especially good time for bio/pharma R&D thanks to the Federal Reserve and global bio/pharma efforts to restock pipeline But market can turn quickly due to external financial shocks and clinical failures Service providers will benefit differently Pipeline is 50% biologics, less small molecule opportunity Clinical CROs will do well in late development, but CMOs may do less well as manufacturing outsourcing not increasing Less spending at early phases thanks to POC More on discovery and preclinical to rebuild pipeline www.pharmsource.com 18
Q & A www.pharmsource.com 19
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