entrepreneurship+in+ biotechnology+ · 2019. 11. 3. · columbia)university)gsas)biot)4180)...
TRANSCRIPT
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 1
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housekeeping
• 10:30 GSAS orientation
• Classroom: 309 Havemeyer for 3 weeks, the 417
IAB
• Office: 613 Fairchild
• Office hours: Friday 12-‐2 or by appt.
• Barnard students
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Columbia University GSAS BIOT 4180
• Communicate with me through email:
• Speakers
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Why Study Entrepreneurship?
• What is entrepreneurship?
– Starting a business?
– Creativity in a business setting?
• Forum for broader range of talent and
expression
• Freedom within work / career context
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Columbia University GSAS BIOT 4180
Healthcare Spending
World GDP 87,000 B • CIA 2013
World healthcare economy 8,700 B • extrapolated
World biotechnology revenue 98.8 B • Ernst & Young 2014
US GDP 16,700B • CIA 2011
US healthcare economy 3,000 B • CMS projection
US biotechnology revenue 71.9 B • Ernst & Young 2014
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World Economy
Databank.worldbank.org
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Columbia University GSAS BIOT 4180
Comparative revenues
• Walmart revenue* 477 B • New York State government spending 127 B
• New York State Division of the Budget
• Pfizer revenue* 51 B • Apple computer revenue* 175 B • Biotech R&D 29 B
• Ernst & Young 2014 • US biotech industry 72 B • Coca Cola revenue* 47 B • NIH grants 30 B • Starbucks revenue* 16 B • Columbia University budget 3.7 B
• Columbia office of Management and Budget • *Capital IQ
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Segments
• TherapeuZcs ß
• Devices
• DiagnosZcs
• Agricultural
• Manufacturing
• Industrial
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Columbia University GSAS BIOT 4180
Why study the biotech industry?
• All entrepreneurship is hard
• Biotech is harder – High regulatory hurdle – Technical difficulty
– Long need for funding – Major shi^s in needed competence
• Discovery, Development (stages)
• Development, Regulatory
• Funding, CommercializaZon, Strategic development
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Columbia University GSAS BIOT 4180
…and not gedng easier
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Assignment
• Be prepared to present a 60 second elevator
pitch at the start of the next class
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Columbia University GSAS BIOT 4180
Concurrent Processes
• Development cycle – Define proof of concept – Pipeline and lead progress
• Funding cycle – IdenZfying value inflecZons – Seed through secondary public or partnerships
• Funding environment may or may not reward value inflecZons
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Columbia University GSAS BIOT 4180
ScienZfic Development
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Columbia University GSAS BIOT 4180
Funding Cycle
• Seed
• Angel
• Venture
• Public
• Secondary
• Partnership or sale
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Columbia University GSAS BIOT 4180
Matching Funding to Value InflecZon
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Columbia University GSAS BIOT 4180
Biotech Companies and Cash
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Columbia University GSAS BIOT 4180
EvoluZon of a business
• Idea
• OrganizaZon and idenZty and pitch
• Seed capital
• Define what is proprietary and iniZate a strategy
to protect it
• Establish proof of concept
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Columbia University GSAS BIOT 4180
Three Statements
• 3-‐5 word descripZon
• Elevator pitch
• Business Plan
• AccounZng
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 2
Elevator Pitches
More on Starting a Company
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Basic science
• Language / communication
• Physiology / operations
• Metabolism / funding and financing
• Immunity / IP protection
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housekeeping
• Room update
• First guest speaker
• Review
• Volunteer
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Columbia University GSAS BIOT 4180
EvoluZon of a business
• Idea
• OrganizaZon and idenZty and pitch
• Seed capital
• Define what is proprietary and iniZate a strategy
to protect it
• Establish proof of concept
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Columbia University GSAS BIOT 4180
Three Statements
• 3-‐5 word descripZon
• Elevator pitch
• Business Plan
• AccounZng
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Columbia University GSAS BIOT 4180
Elevator Pitches
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Columbia University GSAS BIOT 4180
One minute pitch
• Hook: relevant question in need of a solution
• 3-‐5 word description
• Target customer
• Target customer’s specific problem
• Your solution
• Why you are different
• Economic teaser
Adapted from MARSDD.com
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Columbia University GSAS BIOT 4180
The Early Business
• Idea
• Identity
• Entity: the need to choose a business platform
– Single proprietor
– Partnership
– Corporation
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Columbia University GSAS BIOT 4180
• The basis for determining your business form
is to limit your personal liability, establish a
platform to bring in partners (ie raise money)
and to avoid double taxation
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Columbia University GSAS BIOT 4180
Sole Proprietorship
• No division between the founder and the
business
• Tax pass through
• No limits to liability
• Upfront legal costs
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Columbia University GSAS BIOT 4180
Partnership
• No division between the partners on one side and the
business on the other
• Tax pass through
• No limits to liability
• Upfront legal costs
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Columbia University GSAS BIOT 4180
Professional Corporation (PC)
• Attorneys, architects, engineers,
accountants, doctors
• Members still have liability for their actions
but not for those of their partners
(somewhat simplified)
• The corporation pays taxes
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Columbia University GSAS BIOT 4180
Limited Liability Company (LLC)
• Hybrid between partnership and corporation
• Not incorporated
• Limited liability
• Tax pass-‐through
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Columbia University GSAS BIOT 4180
Corporation (C Corp)
• Limited liability
• Double taxation
• Oversight and administrative requirements
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Columbia University GSAS BIOT 4180
S Corporation
• Limited liability
• Tax pass through
• Maximum number of investors
• Corporations cannot invest in S Corps
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 3
Business Plan 1
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housekeeping
• classroom saga
• guest schedule
• attendance
• homework and “pre homework"
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review
• overview: comfort w large numbers
• biotech industry overview
• 4 entrepreneurial tracks
• business types (single prop to corporation)
• brief description, elevator pitch, business plan
• strategy
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Columbia University GSAS BIOT 4180
Purpose of Business Plan
• Convince yourself
• Standard form of communication and
documentation about your business
• Credibility
• Initial roadmap and jump off point for revisions
• Basis for investor presentations
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Columbia University GSAS BIOT 4180
A Business Plan is Not
• A mission statement
• A contract
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Columbia University GSAS BIOT 4180
SWOT analysis
• Strengths
• Weaknesses
• Opportunities
• Threats
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Columbia University GSAS BIOT 4180
Business plan concept
1. Title
2. Problem
3. Solution
4. Business model
5. Underlying magic
6. Marketing and sales
7. Competition
8. Management team
9. Financial projections and key metrics
10. Current status, accomplishments to date, timeline, use of funds
Kawasaki
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Columbia University GSAS BIOT 4180
Business plan method
• Cover page
• Table of contents
• Executive summary
• Industry analysis
• Customer
• Competition
• Company
• Product
• Development or Marketing plan
• Operations
• Team
• Risks
• Offering
• Financial plan
Timmons, Zacharakis, Spinelli
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Business plan vs business model
• Relate your business plan to known models
within the industry or sector
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Columbia University GSAS BIOT 4180
Biotech Models
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Columbia University GSAS BIOT 4180
Biotech Business Models
• Discovery based
• In-‐licensing
• Virtual
• Platform
• Science project (“science project to viable company continuum”)
• Fully integrated bio-‐pharma (“FIPCO”)
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Strategy
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Columbia University GSAS BIOT 4180
Pricing
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Columbia University GSAS BIOT 4180
Demand curve
• Downward sloping
• Curve shifts in response to
changes in taste, availability
of competitive products
• Marketing attempts to shift
the demand curve
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Business Types Economic rent
• Market demand curve
• Differentiated product
• Barriers to entry
• High gross margins
• Monopoly: limit supply
Commodity
• Market price
• Indistinguishable product
• Ease of entry
• Low gross margins
• Consolidation
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 4
Accounting
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housekeeping
• room saga ends
• homework and reading
• office hours Fairchild 613 12-‐2 Fridays
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review
• week 1: intro entrepreneurship and biotech
• week 2: 4 tracks of company formation,
communication, business types
• week 3: business plans, business models,
intro to strategy and pricing
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week 4
• more on pricing
• introduction to accounting
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Columbia University GSAS BIOT 4180
Pricing
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Columbia University GSAS BIOT 4180
Demand curve
• Downward sloping
• Curve shifts in response to
changes in taste, availability
of competitive products
• Marketing attempts to shift
the demand curve
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Business Types Economic rent
• Market demand curve
• Differentiated product
• Barriers to entry
• High gross margins
• Monopoly: limit supply
Commodity
• Market price
• Indistinguishable product
• Ease of entry
• Low gross margins
• Consolidation
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Gross margin Revenue – cost of goods sold
(Can be reported as %)
Direct costs only (aka variable costs)
Does not include overhead (aka fixed costs)
Ability to control pricing implies higher gross margins
Differentiated, innovative products
Growth through reinvestment into the business
Market pricing implies lower gross margins
Growth through cost cutting or consolidation
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Oligopolistic competition Differentiated products competing with each other
Higher gross margins than market pricing
Companies compete on everything but price
Auto
Consumer products
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US healthcare pricing Primary purchaser of healthcare in the US is Medicare
Medicare cannot negotiate prices
Instead, it uses an arcane formula based on the lowest price negotiated
with outside of Medicare
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accounting
• 4th tool of business communication
• name and brief description
• elevator pitch
• business plan
• financial statements
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science and art of accounting
• science: basic and applied
• basic science: matching revenues with the
expenses used to generate them;
(Finance: matching assets with the
financing used to acquire them)
• applied science: GAAP
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science and art of accounting
• discretion over revenue and expense
recognition
• discretion over depreciation, amortization
• ability to control reported earnings
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Columbia University GSAS BIOT 4180
Early Accounting
• Concept of double entry – Cash in or out or receivable or payable – Asset gained or sold
• Match the income or revenue for a period of time with the use of materials to create that revenue
– Depreciation – Amortization
• Three financial statements
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Columbia University GSAS BIOT 4180
Financial Statements
• Balance sheet: point in time summary of what is owned, what is owed and what is left over for the owners
• Income statement: revenue generated over a period of time matched against the expenses needed to generate the revenue
• Cash flow statement: reconciliation between revenue / expenses and change in cash balances
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
![Page 72: Entrepreneurship+in+ Biotechnology+ · 2019. 11. 3. · Columbia)University)GSAS)BIOT)4180) Entrepreneurship+in+ Biotechnology+ Columbia)University) Graduate)School)of)Arts)and)Sciences)](https://reader035.vdocuments.mx/reader035/viewer/2022081616/5fe77c5bf9345e3104047697/html5/thumbnails/72.jpg)
Columbia University GSAS BIOT 4180
Week 5
More on Accounting and Finance
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review
• Overview
• Forming a company
• Business types, communication, strategy
• Pricing
• Introduction to accounting
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accounting
• 4th tool of business communication
• name and brief description
• elevator pitch
• business plan
• financial statements
74
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science and art of accounting
• science: basic and applied
• basic science: matching revenues with the
expenses used to generate them;
(Finance: matching assets with the
financing used to acquire them)
• applied science: GAAP
75
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science and art of accounting
• discretion over revenue and expense
recognition
• discretion over depreciation, amortization
• ability to control reported earnings
76
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Columbia University GSAS BIOT 4180
Early Accounting
• Concept of double entry – Cash in or out or receivable or payable – Asset gained or sold
• Match the income or revenue for a period of time with the use of materials to create that revenue
– Depreciation – Amortization
• Three financial statements
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Columbia University GSAS BIOT 4180
Financial Statements
• Balance sheet: point in time summary of what is owned, what is owed and what is left over for the owners
• Income statement: revenue generated over a period of time matched against the expenses needed to generate the revenue
• Cash flow statement: reconciliation between revenue / expenses and change in cash balances
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Columbia University GSAS BIOT 4180
Day 1 accounting
• Basic equation: Assets = Liabilities + Owner’s Equity
• The ledger: a written record of every transaction
– Debit: asset increase or liability/equity decrease – Credit: asset decrease or liability/equity increase
• Double entry: an enforced balance between inflows and outflows for the company
• First entry: owner(s) writes a check and the company issues equity
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Columbia University GSAS BIOT 4180
Principles
• Accounting – Double entry bookkeeping: every debit increase must be matched by an
offsetting debit decrease or credit increase and visa versa • Debit: increase in asset or decrease in liability • Credit: decrease asset or increase liability or equity
– Financial statements constructed from ledger
– Asset values can change over time: Depreciation and amortization
– Expenses and expensing: match revenue generation to expenses used to generate the revenue
– Tax considerations
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Columbia University GSAS BIOT 4180
Financial Statements
• From the ledger, 3 statements follow
– Balance sheet
– Income statement
– Statement of cash flows
• Balance sheet exists from inception
• Income and cash flow are different
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Columbia University GSAS BIOT 4180
Balance sheet
• “Snapshot in time” of the financial condition of the company
• What the company owns, what it owes and who lays claim to what’s left
• Assets on one side, liabilities and owners’ equity on the other
• Income statement is between two balance sheets
• Acquiring and disposing of assets, plus depreciation of assets, amortization of goodwill
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Columbia University GSAS BIOT 4180
Balance Sheet
• General form – More liquid assets at the top
– Current assets and current liabilities (used within 1 yr)
• What does a company own? – Cash – Receivables – Inventories: raw materials and finished goods
– PP&E: property, plant and equipment
– Intangibles: patents, trademarks, brand names (not on balance sheet except as good will)
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Columbia University GSAS BIOT 4180
Balance sheet
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Columbia University GSAS BIOT 4180
Assets
• Buildings and equipment are depreciable
• Land is not
• Depreciation can be accelerated
• Inventories: can be counted in different ways – FIFO
– LIFO
• General principal is that companies with profits want to maximize recognition of expenses early to decrease taxes
• Opposite can be true (max profits to make stock go up)
• Need for consistency
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
![Page 87: Entrepreneurship+in+ Biotechnology+ · 2019. 11. 3. · Columbia)University)GSAS)BIOT)4180) Entrepreneurship+in+ Biotechnology+ Columbia)University) Graduate)School)of)Arts)and)Sciences)](https://reader035.vdocuments.mx/reader035/viewer/2022081616/5fe77c5bf9345e3104047697/html5/thumbnails/87.jpg)
Columbia University GSAS BIOT 4180
Week 6
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Columbia University GSAS BIOT 4180
rev: Balance Sheet
• General form – More liquid assets at the top
– Current assets and current liabilities (used within 1 yr)
• What does a company own? – Cash – Receivables – Inventories: raw materials and finished goods
– PP&E: property, plant and equipment
– Intangibles: patents, trademarks, brand names (not on balance sheet except as good will)
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Columbia University GSAS BIOT 4180
rev Balance sheet
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Columbia University GSAS BIOT 4180
Capital Structure
• The combination of debt and equity on which the company is built – Debt: borrowed funds with a fixed interest rate and date of
repayment. Debt holders have first liquidation preference
– Equity: ownership of assets after debt holders have been repaid
– Hybrids: preferred stock, convertible debt
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Columbia University GSAS BIOT 4180
Simple Cap Structure
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Columbia University GSAS BIOT 4180
Complex cap structure
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Columbia University GSAS BIOT 4180
Other statements bridge two balance sheets
• Bridges two balance sheets
• Balance sheet assumptions affect the
income statement
– Eg inventory valuation -‐> cost of goods sold
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Columbia University GSAS BIOT 4180
Income statement
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Gross margin
• =Revenue – cost of goods sold (cost of revenue)
• =Revenue – variable costs
• As absolute or as a %
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Columbia University GSAS BIOT 4180
Income Statement with product sales
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Columbia University GSAS BIOT 4180
Income Statement with product sales
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Columbia University GSAS BIOT 4180
Cash Flow Statement reconciles changes in cash bet balance sheets
• Operating income for income statement
– Add back non cash items (dep, amort, prepays,
deferrals)
– Add / subtract financing and investing in/outflow
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Columbia University GSAS BIOT 4180
Cash Flow Statement
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 7
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Columbia University GSAS BIOT 4180
Capital Structure of a Company
• Debt – Borrowed funds
– Fixed repayment
– No share in upside or success of company
– Preference in liquidation of assets
• Equity – Ownership stake
– Different levels: preferred versus common
– Variably liquid
• Hybrids: Convertible debt, convertible preferred
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• The ability to borrow money depends in
large part on the accuracy with which you
can predict future cash flows
• (Or the existence of assets that can be used
as collateral)
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Columbia University GSAS BIOT 4180
Principle of Finance
• Time value of money: a given sum in the future is worth
less than the same sum today
• Risk and uncertainty decrease the value of a sum in the
future
• There is a methodology for calculating the present value of
a future sum
• Concept of discounted cash flow
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Columbia University GSAS BIOT 4180
Discounted Cash Flow
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Columbia University GSAS BIOT 4180
The Funding Cycle
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Columbia University GSAS BIOT 4180
Financial Projections (from business plan)
• Addressable market
– Market size
– Revenue projections
• Product life cycle
• Market exclusivity
• Terminal value
• Discounted cash flow calculations
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Columbia University GSAS BIOT 4180
Time horizons for positive cash flow generation
• Service business
• Franchises
• Software
• Light manufacturing
• Heavy manufacturing
• Exploration
• R&D, regulation
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Columbia University GSAS BIOT 4180
Funding cycle
• Seed capital
• Crowdfunding?
• Angel investors
• Venture capital – Early stage – Late stage
• Public offerings
• Non dilutive funds
– Grants – Business development: cash from partnerships
• Product revenues and profit
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Funding Uncertainty
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agenda
• Homework
• Review discounted cash flow
• Financial statement diagnostics
• Basic equity sales
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agenda
• Homework
• Review discounted cash flow
• Financial statement diagnostics
• Basic equity sales
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Columbia University GSAS BIOT 4180
Discounted Cash Flow
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agenda
• Homework
• Review discounted cash flow
• Financial statement diagnostics
• Basic equity sales
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy
stock?
• What is the cash burn?
• Can the company raise money?
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy stock?
• What is the cash burn?
• Can the company raise money?
• Balance sheet: working capital
• Income statement: gross margin
• Balance sheet: capital structure
• Cash burn: cash flow statement
• Assets or Cash flows (debt), cap structure (equity)
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Columbia University GSAS BIOT 4180
Balance sheet
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy stock?
• What is the cash burn?
• Can the company raise money?
• Balance sheet: working capital
• Income statement: gross margin
• Balance sheet: capital structure
• Cash burn: cash flow statement
• Assets or Cash flows (debt), cap structure (equity)
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Columbia University GSAS BIOT 4180
Pricing
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Columbia University GSAS BIOT 4180
Income Statement with product sales
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy stock?
• What is the cash burn?
• Can the company raise money?
• Balance sheet: working capital
• Income statement: gross margin
• Balance sheet: capital structure
• Cash burn: cash flow statement
• Assets or Cash flows (debt), cap structure (equity)
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Columbia University GSAS BIOT 4180
Simple Cap Structure
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Columbia University GSAS BIOT 4180
Complex cap structure
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy stock?
• What is the cash burn?
• Can the company raise money?
• Balance sheet: working capital
• Income statement: gross margin
• Balance sheet: capital structure
• Cash burn: cash flow statement
• Assets or Cash flows (debt), cap structure (equity)
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Columbia University GSAS BIOT 4180
Cash Flow Statement
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questions
• Can the company pay its bills?
• How profitable is the product(s)?
• How much of the company would I own if I buy stock?
• What is the cash burn?
• Can the company raise money?
• Balance sheet: working capital
• Income statement: gross margin
• Balance sheet: capital structure
• Cash burn: cash flow statement
• Assets or Cash flows (debt), cap structure (equity)
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agenda
• Homework
• Review discounted cash flow
• Financial statement diagnostics
• Debt, equity and convertible debt
• Basics of equity sales
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agenda
• Homework
• Review discounted cash flow
• Financial statement diagnostics
• Basics of equity sales
• Accounting for and use of profits
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 8
cancelled
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Columbia University GSAS BIOT 4180
Demand curve
• Downward sloping, elasticity
• Curve shifts in response to changes in taste, availability of competitive products
• Be careful about narrow definition of competition!
• Marketing attempts to shift the demand curve; news can shift demand curve
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Columbia University GSAS BIOT 4180
Supply curve
• Upward sloping
• Decrease in cost of inputs
can shift supply curve
• Business strategy: increase
efficieny/ decrease cost
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Columbia University GSAS BIOT 4180
Pricing: commodity (generics)
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Columbia University GSAS BIOT 4180
Market Models
• In perfect competition, neither suppliers nor consumers see the market curves
• Monopolists see the market demand and have an incentive to decrease supply to maximize total revenue
• Arbitrage and Canadian drug reimportation
• Oligopolists try to create mini-‐industry demand curves by nonprice differentiation (cardiac stents)
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Columbia University GSAS BIOT 4180
Subsidy (s1 to s2) and Licensure (s2 to s1)
• Changes the supply at all wage points
• Results in lower (licensure) or higher (subsidy) availability at higher price
• Question of consumer protection or guild protection?
• Trade barriers, tariffs, taxi medallions, interior decorators
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Columbia University GSAS BIOT 4180
Minimum Wage
• Greater supply of workers willing to work but
• Less demand for labor at that price
• Helps those who have jobs at that wage but
• ?Harms those who would have worked for less
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• Efficiency trade-‐offs with policy
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Columbia University GSAS BIOT 4180
Pricing
• In a competitive market, suppliers enter freely and bid down the price ~equal to the aggregate prices of inputs
• In competitive market, each firm sees only the market price
• In noncompetitive markets, firm sees the market demand curve
• Limiting supply gives the supplier ability to set the price and maximize gross margin
• Mandated inefficiencies, independent of political / equity issues, result in redirected allocation of resources
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 10
Clinical Development
Regulatory
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Biopharmaceutical Companies’ Investment in R&D Increasing Steadily
$47.60 $51.80
$56.10
$63.20 $63.70 $65.90 $67.40
$15.2 $16.9 $19.0 $21.0 $22.7 $26.0
$29.8 $31.0 $34.5
$37.0 $39.9
$43.4 $47.9 $47.4 $46.4
$49.4
$0
$18
$35
$53
$70
$88
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Expe
nditu
res
(Bill
ions
of D
olla
rs)
Entire Pharma Sector PhRMA Member Companies' R&D Expenditures
Total Biopharmaceutical Company R&D and PhRMA Member R&D: 1995–20101
Sources: 1Burrill & Company, analysis for PhRMA, 2005–2011 (Includes PhRMA research associates and nonmembers); PhRMA, PhRMA Annual Member Survey, 1996-2011; 2CBO, Research and Development in the Pharmaceutical Industry, 2006.
The pharmaceutical industry is one of the most research-intensive industries in the United States. Pharmaceutical firms invest as much as five times more in research and development, relative to their sales, than the average U.S. manufacturing firm.2
— Congressional Budget Office
“ “
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Preclinical Discovery
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Columbia University GSAS BIOT 4180
Development Process
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Columbia University GSAS BIOT 4180
Process
• Phase 1: safety – IND: Investigational New Drug
– Apply to FDA for human dosing
– FDA has 30 days to object
• IRB approval
• Small number of subjects, one dose
– Records adverse events, monitor physiologic process
– Efficacy signals in oncology, infectious disease
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Columbia University GSAS BIOT 4180
Phase 2 trial
• IIA: dosing
• IIB: efficacy
– Target dose for pivotal – Target indication, study design
• Can do one at a time or many phase 2 trials
– Small biotech companies do a minimum
– Large pharma do wide range of studies
• Rarely file NDA/BLA based on phase 2 data
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Columbia University GSAS BIOT 4180
Phase 3
• Typically 2 trials per indication, multicenter
• N=hundreds to thousands
• Why do trials fail? – Poor design
• Difficult identification of treatment group or endpoint
• Poor statistics: gaussian distribution, power
• Placebo groups perform better than historical
• Poor oversight
– The drug does not work
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 11
Partnering, Mergers and Acquisitions and
Exits
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Columbia University GSAS BIOT 4180
Phase 3 considerations
• Physiologic or made-‐up endpoint – ADAS-‐COG and other cognition tests
– Pain scores – How reproducible is the entity being measured?
• Surrogate endpoints: accelerated approval process
• Dealing with drop-‐outs
– Intent to treat vs per protocol
• Ease of enrollment
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Columbia University GSAS BIOT 4180
Post phase 3
• Successful trial – Second trial (unless oncology, unmet need)
– If works: NDA, then PDUFA date (6-‐9 months)
– If approved, marketing and phase 4 studies
• Unsuccessful trial – Data review/ data mining
– Await concurrent study completion
– Tough to kill a molecule
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Outcomes by phase
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The FDA
• F. 1906
• 9,300 FTE’s
• 2012 budget 4.36B; regulates 1 trillion dollars of
consumer goods
• Facilitator of innovation vs protector of the
public
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Columbia University GSAS BIOT 4180
Increase in orphan designations
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Columbia University GSAS BIOT 4180
Orphan Designation
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Columbia University GSAS BIOT 4180
Definitions
• Accelerated approval: surrogate endpoint
• Fast track designation: FDA facilitated communication
• Priority review: 6 vs 10 months
• SPA Special Protocol Assessment
• PDUFA
• Breakthrough designation: early guidance and senior FDA reviewers
• “Special limited use”: under exploration by FDA. Serious drug resistant infection outbreak vis a vis unapproved antibiotic
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Columbia University GSAS BIOT 4180
Entrepreneurship in Biotechnology
Columbia University
Graduate School of Arts and Sciences
BIOT 4180
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Columbia University GSAS BIOT 4180
Week 12
Business Development and Exits, Job
Offers, Stock Options, Patents, Marketing
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Columbia University GSAS BIOT 4180
Good and Bad Deals
• Roche acquiring
Genentech
– Herceptin, Avastin, Lucentis
• Pfizer acquires Warner
Lambert
– Lipitor
• Pfizer acquires Esperion
– Nothing for 1.3B
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Columbia University GSAS BIOT 4180
• 2003: Medivation
inlicenses Dimebon
• Sep 2006: Dimebon meets
5/5 endpoints at 6 months
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Columbia University GSAS BIOT 4180
• June 2007: Dimebon
benefits last 12 months
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Columbia University GSAS BIOT 4180
Small Company Perspective
• Late clinical and regulatory experience
• Risk mitigation
• Orphan drug sales force: 15+
• Blockbuster drug sales force: 3000+
• Cost of sales person: $300,000-‐ 400,000
• Minimal overlap in skill sets between development, regulatory and sales
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Columbia University GSAS BIOT 4180
Large Company Perspective
• Cash flow
• Product(s)
• Pipeline
• Platform
• Leverage existing assets (sales force eg)
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Columbia University GSAS BIOT 4180
Deal variables
• Upfront payment
• Milestone payments
• Royalties
• Costs and profits
• Manufacturing
• Geography
• Co-‐promotion
• Options
• Contingent variable rights / other indications
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Columbia University GSAS BIOT 4180
• July 2008: Dimebon data
published in Lancet
• Sep 2008: Pfizer deal
announced
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Columbia University GSAS BIOT 4180
Dimebon licensing deal
• 225M upfront payment
• 500M on approval
• 60:40 costs and profit split
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Stock vs Cash
• Stock as currency: implicit admission that
the stock is over-‐valued
• Cash: straight-‐forward DCF calculation w/o
need to include a “stock price currency
exchange”
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Columbia University GSAS BIOT 4180
• Mar 2010 Dimebon
fails pivotal trial
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Negotiation
• Dealing from strength
• Multiple buyer dynamic
• Never have no options
• Walking away
• Most programs / companies are bought, not sold
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Columbia University GSAS BIOT 4180
Job Offers
• Assess the economic rent factor
• Job description
• Chain of command
• Compensation package as a financing vehicle
– Duration of financing matching the duration of the asset
– You are the asset
– Cash only vs options
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Columbia University GSAS BIOT 4180
Compensation
• Finance principle: match asset life to financing term
• Salary principles – Per unit, per hour / day, per year – Economic rent
• Cash versus equity
• Options
• Bonuses – ?company goals
– ?individual goals
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Columbia University GSAS BIOT 4180
Assessing Options
• Right but not the obligation to purchase a share of stock at a give price for a duration of time after a vesting period
• Exercise or expire
• Value
– In the money or out of the money
– Likely dilution if they raise cash serially – Not a Black Scholes calculation
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Columbia University GSAS BIOT 4180
Boards of Directors
• Organizational oversight as defined by bylaws
• Elected by shareholders in public companies
– Policies and objectives – Executive oversight – Resource oversight (adequate cash) – Approval of budgets – Reporting performance
– Compensation
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Columbia University GSAS BIOT 4180
Patents
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Patent Timeline
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Columbia University GSAS BIOT 4180
How Not to Screw It Up
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Columbia University GSAS BIOT 4180
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Columbia University GSAS BIOT 4180
Costs
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Patent Types: Biotech
• Composition of matter
• Use patents
• Patent extensions
185
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Columbia University GSAS BIOT 4180
Marketing
• 5 p’s of marketing
– Product
– Price
– Placement
– Promotion
– People
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Product
• Defined in elevator pitch
• Commodity ß-‐-‐à Economic rent
• Market
– Competitive
– Oligopoly with nonprice competition
– Monopoly
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Price
• As discussed, a function of the firm demand
curve, which in turn is derived either by the
market demand curve or by the intersection
of market demand and market supply
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Placement
• Constantly evolving
• Reflects the consumer: where he/she has access
• Physical: general store to Sears catalog to mall to
Amazon
• Dynamics: move from Nieman Marcus to Target
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Promotion
• Awareness
• Advertising
• Media choices
• Research
• Targeting
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People
• Intensity of marketing effort
• Expertise
• Fragmented market
• Language, knowledge, specialization
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Take a bow!