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BIO Ceo Report

Biotech Business Models 3.0

Dealmaker War Stories

DNA and Patent Law

Merrimack CEO Bob Mulroy Spells out The ABC’s of
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PerkinElmer

The Venture Capitalist's Dilemma

TRANSATLANTIC COMPANIES – WORTH THE HASSLE?

Transforming Economics of the Biopharmaceuticals Industry

On Feb 15-16th, the Biotechnology Industry Organization (BIO) hosted a CEO and Investor Conference at the Waldorf-Astoria Hotel in New York City. In attendance were executives from hundreds of biotech companies, investment analysts from dozens of investment and VC firms such as PricewaterhouseCoopers and MPM Asset Management, members of the media, and others.

Before I give you an overview of the atmosphere and topics covered at the conference, take a look at the schedule of events.

In between breakfasts, lunches, and the evening socials, the conference featured a total of 6 CEO Roundtable Events, 12 Investor Sessions, and 80 15-minute company presentations.

 

	Tuesday
7AM	Registration (get name tag, pick up schedule and other materials, GET COFFEE!!!
8AM	Plenary Session "How to Make Money in Biotech" - Breakfast
10:15AM	CEO Roundtable 1 "Maximizing the Value and Potential of IP Assets in the New Millennium and Beyond"	Investor Session 1A "Inflammation: A New Pathway to Stop Disease in its Tracks"	Investor Session 1B "Biotech Combination Therapies"	Company Presentations 1. AXYS Pharmaceuticals 2. CEL-SCI Corporation 3. Connetics Corp. 4. Microcide Pharmaceuticals 5. Cell Genesys 6. Matrix Pharmaceutical 7. Cubist Pharmaceuticals
12PM	Luncheon "Biotech 2000: Pushing Innovation and Reaping the Benefits"
1:30PM	CEO Roundtable 2 "New Business Models to Succeed in the Biotechnology Industry"	Investor Session 2A "Approaches to Cancer Treatment in the New Millennium"	Investor Session 2B "Tools for Greater R&D Productivity"	8. Phylos 9. Geron Corp 10. Protein Sciences Corp. 11. Chromos Molecular Systems 12. MassTrace 13. InterMune Pharmaceuticals 14. Bioreason 15. Aradigm Corp 16. AnorMED 17. discovery Therapeutics 18. Kosan Biosciences 19. Kimeragen 20. Genaissance Pharmaceuticals 22. Epigenomics 23. Paladin Labs
3:45PM	CEO Roundtable 3 "High-Performing Strategic Alliances"	Investor Session 3A "From the Thrill of Victory to the Agony of Defeat - HIV & the Development of Drugs for Chronic Viral Infections"	Investor Session 3B "Genomics: Where's the Beef?"
	International Industry Reception & "Bar-top" Exhibition (small booths staffed by company representative) Aeterna Laboratories, AltaRex, American Biogenic Sciences, Array BioPharma, Atugen Biotechnology, Automated Cell, BioTransplant, Cell Based Delivery, Coley Pharmaceutical Group, Cortex Pharmaceuticals, Epimmune, Gene-cell, Genestar, GPC AG, Graffinity Pharmaceutical Design, Ground Zero Pharmaceuticals, IDEA AG, Ingenium Pharmaceuticals, IOMED, Layton BioSciences, Link Technologies, LION Bioscience AG, MetaPhore Pharmaceuticals, MorphoSys AG, Neutrophic Bioscience, november AG, NOXXON Pharmaceuticals, NTI Neurobiological Technologies, Phylos, Protarga, Scil Technology Holding, Scimagix, Selective Genetics, TheraMed, TRACE Biotech, ValiGene, VBU Association of German Biotechnology Companies, York Medical.
	Wednesday
8AM	CEO Roundtable 4 "From Milestones to Money"	Investor Session 4A "Emerging Concepts in Immunotherapy"	Investor Session 4B "New Developments in Respiratory Disease"	23. Telik 24. EPIX Medical 25. Alliance Pharmaceutical Corp 26. Boston Life Sciences 27. Nitromed 28. Immunogen 29. Anesta Corp 30. Genome Therapeutics Corp 31. Aronex Pharmaceuticals 32. Idun Pharmaceuticals 33. Aquila Biopharmaceuticals 34. La Jolla Pharmaceutical Co. 35. Antigenics 36. Applied Molecular Evolution 37. Physiome Sciences 38. ExonHit Therapeutics
9:45PM	57. BioMarin Pharmaceutical 58. PPL therapeutics 59. Coley Pharmaceutical Group 60. LION Bioscience AG 61. Biomira 62. Inflazyme Pharmaceuticals 63. Medigene AG 64. XTL Biopharmaceuticals 65. GLYCODesign	48. Inhale Therapeutic Systems 49. Ligand Pharmaceuticals 50. Alkermes 51. DoubleTwist 52. CV Therapeutics 53. Genzyme General 54. Maxygen 55. Immusol 56. Genzyme Molecular Oncology	39. Ontogeny 40. Pharmacopeia 41. Aurora Biosciences Corp 42. MorphoSys AG 43. Tripos 44. ArQule 45. Cytokinetics 46. Digital Gene Technologies 47. 3-D Pharmaceuticals
12PM	Luncheon "Angiogenesis Research: From Laboratory to Clinic" Speaker: Dr. Moses Judah Folkman, The Children's Hospital, Boston
1:30PM	CEO Roundtable 5 "Accessing Foreign Capital: Why Should a Biotech CEO Bother"	Investor Session 5A "Anti-Angiogenesis: Exciting Approach for the Next Millennium"	Investor Session 5B "Beyond Chemotherapy: Monoclonal Antibodies & Cancer"	66. Xenova Group 67. Valentis 68. Nexell Therapeutics 69. PowderJect Pharmaceuticals 70. Biopure Corp 71. Endorex Corp 72. Acorda Therapeutics 73. OSI Pharmaceuticals 74. LJL BioSystems 75. Trega Biosciences 76. Athersys 77. CYTOGEN Corp 78. Metabolex 79. V.I. Technologies 80. Message Pharmaceuticals
3:45PM	CEO Roundtable 6 "Biotech-to-Biotech Mergers: Case Studies"	Investor Session 6A "Genomics: What's Next"	Investor Session 6B "New Approaches for the Treatment of CNS"
5:30PM	President's Reception (food, drinks, schmoozing...)

The Waldorf-Astoria Hotel is a grand, beautiful building around 50th and Park Ave in the theater district of Manhattan. The conference one grand ballroom, a half dozen conference rooms (each about the size of a tennis court), and another six or so small rooms for intimate break-out session. At all times, there were sponsors' booths in a central hallway and a set of four computers stationed nearby. There were always people seated at the computers and a small group of people hovering behind them, waiting their turn. Invariably, 3 of the 4 computers were displaying stock information on one biotech company or another. Given that biotech stocks were booming during this period (just that time in the 5 year cycle), everyone checking stocks was grinning.

The CEO Roundtables, Investor Sessions, and Company Presentations were scattered among 4 major conference rooms and people were frequently walking in an out of events, sampling a bit of this and a smattering of that. Would you like a company overview with your coffee or a tip on what kind of business models venture capitalists prefer these days?

The attendees were mostly male (40+). Those who were younger (20 something) were usually investment analysts or affiliated with the media. Speakers from several past Biotech Club events were also present, including Janice Bourque, Executive Director of the Mass Biotech Council, John Holaday, President of EntreMed, and Gary Magnant, Vice President of MJ Research (Gary is a Biotech Club Advisor and MJ Research is a Biotech Club sponsor).

Both luncheons were sit-down and full-service, with appetizers, entrees, and desserts. You could sit wherever and with anyone; networking opportunities abounded. The Tuesday evening reception included buffet-style dinner and an open bar. Imagine carrying around a plate of food and a drink, walking from booth to booth, talking to reps (usually the CEOs) about their companies, and trying to exchange business cards without spilling anything on your suit or theirs.

I was only able to attend one event at any given time, which meant missing out on three others. With the exception of the Company Presentations, all the events had a moderated panel discussion format with each panelist and the moderator giving a short Powerpoint presentation. Because I was mostly interested in the business side of biotech, I spent most of my time at the CEO Roundtable events and sat in on several company presentations for variety.

At the company presentation, each speaker prefaced his/her talk with a disclaimer that essentially said, "You would have to be an idiot to take everything I'm about to say at face value. Do your own background research before you make an investment decision based on my presentation". This disclaimer is meant to protect the speaker and the company from lawsuits in the event that the speaker misrepresents important facts.

I, too, would like to include a disclaimer here; the information in this article comes indirectly from the mouths of experts through me to you. Experts don't know everything and I am not the most reliable messenger (I take notes poorly). This article is to be read for entertainment purposes only.

Having gotten that out of the way, let's get down to business...

By far the most interesting session was the CEO Roundtable 2: "New Business Models to Succeed in the Biotechnology Industry". The co-moderators were Michael Lytton of Palmer and Dodge and Todd Foley (HBS '99) of MPM Asset Management (a VC firm), who also served as President of the HBS Healthcare and Biotechnology Club in 1999. Mr. Foley has given us permission to post his Powerpoint Presentation presentation on the Club's website so take a look. The panel consisted of Roger Longman of Windhover Information, Stephen A. Hill, President of ArQule, and Bruno Lucidi of Novirio Pharmaceuticals.

Examples of promising new business models:

1. Database companies that provide access to clients, don't demand royalties, and allow clients to patent discoveries based on information obtained from the database. Examples: Genaissance Pharmaceuticals (private), Gene Logic (GLGC)

2. Service companies that utilize platform technologies to accomplish a needed task for a client company. Technology must have broad application and be proprietary. The technology may be non-exclusively licensed to client companies (including training of personnel, provision of manuals, reagents, etc) without giving the client company the right to sub-license the technology. Examples: Abgenix (ABGX), Medarex (MEDX), ArQule (ARQL)

3. Service companies that operate much like the Database companies described in Example 1, above; pay as you go. Such companies would perform needed development tasks for other firms for a set up-front payment without rights to future royalties or intellectual property. Examples: Array Biopharma (private).

4. Building the Company with the intent to sell it soon. Form the company, build the prototype, maybe even sell a few units, and then get bought out. Take, for example, Genetic Microsystems; GMS was founded in 1997 and developed a machine/technology that allowed for the spotting of biological materials on slides. GMS was recently bought for hundreds of millions of dollars by Affymetrix (AFFX) to complement its own high-end DNA chip technology. No messy IPOs or additional rounds of financing.

5. Pharmaceutical Companies that skip the R&D phases of drug discovery and simply purchase existing drugs already in late phases of clinical trials. This can be expensive, but it takes some of the risk out of drug development. Large Pharmas would be willing to sell rights for drugs that have expected revenues of $100 -$300 Million because these numbers are too small for companies with such large infrastructures; large pharmas only want to channel their energies into blockbusters. Smaller pharmas could thus purchase rights to drugs that target these smaller markets and make a decent living in the semi-blockbuster niche. Examples: Cubist Pharmaceuticals (CBST), The Medicines Company (private)

6. B2B, B2C E-commerce. Yes, we've heard it before and the biotech/pharma industry is no exception. There is a need to utilize the internet to improve every stage of product/drug development and distribution. Examples: B2B- Chemdex (CMDX), B2C-Healtheon (HLTH)

7. Hedging your technology bets. If your company has one good technology, buy another technology platform in case the first one is not as great as you thought. Naturally, lower risk costs money. Examples: Millennium (MLNM) bought Leukosite.

Here's a bit of information I picked up from the CEO Roundtable 3: "High-Performing Strategic Alliances". The Panel consisted of speakers from Hoffman-La Roche, Pfizer, Genentech, Protogene Laboratories, and PricewaterhouseCoopers.

Being unprofitable is not always a bad thing. If you are an unprofitable public company, investors don't necessarily expect you to be profitable anytime soon, and you can afford to take risks. However, as soon as you become profitable, there is no going back.

Profitable public companies have an obligation to their shareholders who expect them to keep revenues high and expenses low (i.e. maintain profitability). Sometimes, doing the right thing might mean spending more money this year so that you can make more money next year. The trouble is that spending more this year means falling short of Wall Street's expectations and watching your stock plummet. Thus, a profitable public company will try to avoid incurring expenses whenever possible. What does this mean for alliances? Well, a large firm would rather buy a stake in a little biotech firm and call it an asset (the transaction does not show up as an expense for that year) rather than pay for a service. It's the difference between paying for your candy bar at the counter and purchasing shares of the candy store at a premium. However, the larger firm's stake in the smaller company must be under 20% or else tricky accounting rules screw things up. (I think that if Company A owns more than 20% in Company B, then Company B's annual losses count towards Company A's bottom line. Since Company A wants to protect its bottom line from losses, it won't purchase more than 20% of Company B. Don't quote me on this). In conclusion, a large firm might enter into an alliance with a smaller firm and take an equity stake in the smaller firm, but this stake will probably be under 20%.

I also attended Investor Session 5B: "Beyond Chemotherapy: Monoclonal Antibodies and Cancer". The panel included speakers from ImClone Systems (IMCL), ILEX Oncology (ILXO), Medarex (MEDX), and Coulter Pharmaceuticals (private). Monoclonals are getting to be super-hot! In 1998, monoclonal antibody therapeutics made up 20% of the new therapeutics in development. Recent advances in transgenic murine technology (Abgenix and Medarex) now allows the rapid generation of humanized monoclonal antibodies. Such antibodies may be tagged with a toxin or radiolabeled and injected into patients suffering from cancer. The antibodies are specific for a tumor antigen and bind to the cancer cells, killing them. Because the antibodies are humanized (either engineered such or because they were produced in transgenic mice that have human antibody genes), the patients do not initiate an immune response against the therapeutic and it may be administered repeatedly.

Abgenix (ABGX) and Medarex (MEDX) are each charging between $7 Million and $10 Million for the production of humanized monoclonals to a single target using their transgenic mouse technologies. They each have a dozen or more contracts with various large firms such as Amgen (AMGN), Chiron (CHIR), Human Genome Sciences (HGSI), and the usual suspects. Both companies have a market capitalization around $2 Billion thanks to the recent Biotech Stock explosion. One technology that might challenge Abgenix and Medarex in the humanized monoclonal market is phage-display library selection. Phage-display libraries allow in vitro selection of tightly binding peptides that can be turned into single-chain humanized monoclonal antibodies. This technology is still around the corner and several companies are in the middle of unpleasant IP disputes, so we'll just have to wait and see.

I found it significant that Dr. M. Judah Folkman, of angiogenesis fame, delivered a speech about this area of cancer research during Wednesday's luncheon. Dr. Folkman is a Harvard researcher at Children's Hospital and is closely associated with EntreMed (ENMD) and its products Endostatin, which is currently in clinical trials. In discussing all the promising Endostatin data, Dr. Folkman mentioned that Endostatin has been shown to work most effectively in conjunction with Angiostatin, another EntreMed anti-angiogenesis product. From what I gathered from my conversations with different people at the conference, the FDA currently does not have a well developed approval process for testing combinations of new drugs. Endostatin is going through clinical trials on its own and Angiostatin will follow close behind, also by itself. Whether or not each turns out to be effective on its own, EntreMed will eventually push the combination therapy through clinical trials and, due in part to the lack of well-defined protocols and regulations, it may take many years before the combination is given FDA approval. Keep in mind that there are currently over a dozen different anti-angiogenesis products in development. Media-hype has placed EntreMed's Endostatin at the forefront, but hype won't change the fact that most drugs fail in clinical trials. The wise investor will overlook all the unwanted attention EntreMed has received and investigate all the companies and their products.

There were a number of companies whose technologies I thought were, for lack of a more appropriate word, cool.

Maxygen (MAXY) uses its DNAShuffling process to recombine genes or gene families to generate libraries of modified genes which can then be screened to select gene products which function better than the products of the genes in the starting pool. Essentially, Maxygen can improve on nature.

Phylos (private) has a technology that can be described as one generation ahead of standard SELEX (RNA evolution in a test tube) techniques. Their technology allows them to evolve proteins in a test tube using repeated rounds of transcription (DNA to RNA), translation (RNA to protein- with the RNA staying associated with its protein product), functional selection (protein sticks to target and tight binders are retained), RT PCR (RNAs that are associated with tight-binding proteins are converted back to DNA and amplified), and then back to transcription. If nature hasn't got it, Phylos will evolve it.

Layton Bioscience (private) has developed a technique for the treatment of CNS disorders that involves injecting patients with engineered human neuronal cells. They are currently in Phase I trials.

We will try to bring in speakers from these companies and others for future Company Spotlight events. Please contact me at peter@thebiotechclub.org if you are interested in being one of the event planners. Event planners get to know the speakers pretty well while planning the event and afterwards at dinner.

This is just a taste of the topics that the conference covered. I would urge those of you with a genuine interest in biotechnology to try to attend such conferences (including the upcoming BIO2000 International Exhibition and Meeting, March 26-30) and to witness the industry's growth and evolution firsthand. In the meantime, the Biotech Club will continue to do its part to bridge the gap between academia and the biotechnology industry.