A Review of Virtual Drug Development Models: two decades of peR.r Sstepphee n P ct orteri, v Phe arm.D. CEO, Chairman VDDI Pharmaceuticals 3 / 3 2 / 3 2 / 3 1 / 2 1 P R P O R P O R P I R E I T E A T R A Y R 11
Agenda • The Distributed Partnering Model for Drug Discovery and Development; is this the salvation of Big Pharma’s or the last gasp of a dying dinosaur • Virtual Drug Development: Examples of wildly successful and failure to launch companies • Shared Risk Shared Reward models: Winners and losers • Chorus: Autonomous Experiment Drug unit: Lil y’s successful paradigm copy of Protodigm 1993 • Hudson Bay fur trapper model vs. the Colonialist Model in China • CRO’s as drug development partners and stake holders; conflict of interest or motivated strategic move 3/23/12 PROPRIETARY 22
Virtual Outsourcing models • Ful y Loaded full service • Ful y Subordinated Models • Deep Channel/Level Collaboration § Shared Risk Shared Reward • Cost plus 10% overhead, end loaded and milestone based • Discount cost plus equity for profit margin and overhead 3/23/12 PROPRIETARY 33
Designing the Virtual Enterprise Bernhard R. Katzy1, Vincent Obozinski21University BW Munich, Werner-von-Heisenberg-Weg 39, 85577 Neubiberg, Germany,email@example.com 2European Commission, 200 rue de la loi, 1049 Bruxel es, Belgium,Vincent.Obozinski@bxl.dg13.cec.be 1. Virtual organizations are a solution for turbulent business environments 2. Agile behavior towards market opportunities is the end to which virtual organizations are designed. 3. As smal er companies lack the power of large multinationals, they have to seize the 4. opportunity to substantial y improve their competitiveness by creating, leading and sharing win-win constel ations with their partners. 5. Essential element is strong advanced management talent cross trained and visionary 6. In the virtual enterprise, value is created, not added. 7. The virtual enterprise is a temporary co-operation to achieve objectives. “Voodoo Lounge Tour “
Why was the Virtual Enterprise • Created? The virtual enterprise is designed to create value of a business opportunity. • The value is the force that drives continuous restructuring of the virtual enterprise. • How can the value be created? § Value is created with the virtual enterprise, as business processes are adapted to the requirements of the short-term business opportunity. • Who are the potential partners? § The potential y participating partners of the network wil in most cases be related parties; independent companies, but also decentralized profit centers or strategic business units of a global holding. 3/23/12 PROPRIETARY 55
Innovation • O TCNp hloe o n se t b alI d n es l In s o t m v pna a eor tio ovp a t t p n leie oin n op le ou w r o rfie k fld o r w u o s r k s of or w eu s • To m p usro t fi idt e fr n o ti m fy R a & n D d , w t e a p m i u n s tot d e is xpco er vtiesr,e doev u e ts lo id p e , m ou a r rket acnod mfo p la o n w y up on it • o u E rxse te lv rneasl R&D can • If c rw e e a d te is s c igov ni e f r ic ant ovuars luelv ; es in , tew r e n a w l il R l &D is needed to claim 3 / 3 2 / 3 2 / 3 1 / 2 1 P R P O R P O R P I R E I T E A T R A Y R have a first-mover 66 asdova m n e t a p g o e rtion of that value
Pros and Cons Vertical integration Pros: § Reduced risk of sharing information. § Improve supply chain coordination. § Provides more opportunities to differentiate by means of increased control over inputs. § Higher profit margins. § Increased entry barriers to potential competitors. § Gains access to downstream distribution channels that otherwise would be inaccessible. § Lead to expansions of core competencies.
Pros and Cons Vertical integration Cons: § Capacity balancing issues. For example, the company needs to be sure that the pipeline is big enough. § Potential y higher costs due to low efficiencies. § Developing new core competencies may compromise existing competencies. § Increased bureaucratic costs.
Pros and Cons Virtual integration Pros: • Focused on core competencies. • Low investments in facilities. Risk sharing, if the research fails. • Innovative, can have huge pipeline with less resources. • Cost savings, need less employees and Facilities. • Calibrations drive innovation; can get access to huge number of scientists. • High efficiency, can focus on promising compounds
Pros and Cons Virtual integration Cons: § Risk of loosing IP rights when sharing information. Companies can copy the research. § Share the profit. § Difficult to manage, few people and many projects. § Lower bureaucratic costs. § Quality of work, CRO qualities vary.
The Sea Change… • World’s economic environment is messy • Obama’s administration in power and moving priorities Reimbursement/payment environment reprioritized • Regulatory: priorities/policies/regulations • Outsourcing/off-shoring, go virtual young man • Capital markets’ permanent restructuring the cost of capital broke the system • Business Models are permanently changed • Pilosaurses walk the land: a Darwinian moment for Big Pharma
The Perfect Storm 1. Biotech Funding and VC investment diminishing 2. Facing a global financial crises 3. Declining productivity and sales 4. Commoditization and downward price pressure 3/23/12 PROPRIETARY
Perfect Storm or Perfect Wave •
Big Pharma: Cultural Armageddon It’s their way of surviving in R&D. You hire/fire 120,000 people last year in R&D – how do you replace that? So you either just become a sales and marketing organization, or you acquire biotech development companies or you in-source/out-source them in a virtual way.
Big Pharma: Cultural Armageddon So traditionally what has happened is that big pharma has bought the small guys and destroyed the companies and their culture aka Lilly and Hybritech in the 1980’s. You take an entrepreneurial fast moving, fast decision making culture and you put in bureaucracy where it takes weeks to months to make decisions, you can really kill the spirit of the company.
Big Pharma: Cultural Armageddon • Hybritech went public in 1981 and, five years later, pharmaceutical giant Eli Lilly and Company paid $480 million for the company. • A former employee of Hybritech described the culture clash that followed Eli Lilly’s buyout as ‘Animal House meets The Waltons.
Darwinian Evolutional Pressures on Pharma
Lil y Chorus Experiment • Independent division to get cpd’s to POC faster • Pursuring only what ist needs to get to POC and eschewing to begin pivotal trials • Versant Ventures early looks at Lilly cpds., and way to use Chorus team to test Portfolio cpds. from versant
Lil y Chorus Experiment • Transforming Drug Development • with a Fully Outsourced Model: • Lessons Learned for Biopharmaceuticals Terri A. Roberson, Director – Chorus OperationsNeil V Smith, Director – Chorus RegulatoryJoel Scherer, Managing Director – ChorusEli Lilly & Co., Inc. Pharmaceutical Outsourcing May | June 2009
Lil y Chorus Experiment • Chorus Performance Efficiencies are Attributed to Its Business Model • The Chorus Outsource Strategy: Selection of the Right Vendor, at the Right Time, for the Right Project• Technology is Essential to Enabling the Implementation of the Outsource Model
Lil y Chorus Experiment • Maintain a minimal organizational infrastructure, staffed with experienced drug developers and operations experts, to enable effective decision making with a low fixed operating cost. • Outsource the bulk of actual work (e.g., clinical development, toxicology, CM&C) to a global vendor network to decrease direct costs and cycle times versus comparable work conducted internally. • Implement a flexible change control process and push decision making down to the lowest appropriate level, removing the need for belabored governance reviews and facilitating decisions in a few days rather than weeks or months. • Conduct functional operations on a streamlined set of SOPs and processes, as well as utilize TPPs’ processes, tools, and templates to minimize imposed sponsor burdens to partners and improve quality of work product. • Provide a flexible global technology platform to bring key information together in a comprehensive, accessible format, to enable multiple external parties to collaborate on a project in a virtual global environment.
Lil y Chorus Experiment • Chorus has been establishing itself as a whol y independent unit that essential y servesan internal outsourcing function for Lil y Research Labs: assets are transferred to Chorus for proof of concept work, which is done by an external network, and then returned to LRL. • “Chorus’ efficiency derives from two principles – minimal infrastructure and smal experiments,” Chorus Chief Operating Officer Neil Bodick • Saves 18 months and is 8-10 x more productive
Lil y Chorus Experimentend game • Flexion is a spin out from originators § Michael Clayman • Versant got short end of the deal Lil y cpds’ dominated the efforts • Lil y has put maximum number of cpds. Into Chorus • Bob Armstrong wil clone more Chorus’s instead of building bigger company. (Stay Virtual)
CHINA: THE TRANSFORMATIVE PROCESS HAS BEGUN 3/23/12 PROPRIETARY
Many Pharmaceutical Companies and CROs Have Announced New R&D Investments and Risk Sharing Partnerships in Asia May06 Dec06 Jan07 Feb07 Mar07 Apr07 Nov06 Jun07 AstraZeneca Novartis $100 Roche plans GSK plans to AstraZeneca GSK sets up a Lilly $100 M M investment, to expand establish a China R&D R&D center $100M investment, R&D Center in R&D center in fully center will be (CEDD) in investmen R&D Center shanghai, 400 Shanghai integrated located in neurodegenerativ t in 5 China FTEs R&D center Shanghai e disease in years Shanghai Amgen sets Merck / Eli Lilly / AstraZeneca GSK / BMS/ Biocon / GSK / Tata up clinical Advinus risk Nicholas sets up Ranbaxy $100 Accenture Consultancy development sharing deal Piramal process R&D M risk sharing $300M Service center in on metabolic $100M risk lab in partnership partnership partnership Mumbai disease target sharing Bangalore India partnership Lilly expands R&D center in Singapore, Captive R&D $150M Note: R&D center partnership Singapore investment 3/23/12 PROPRIETARY 25
AstraZeneca R&D Investments in China Development “In China For China” “In China For Global” / AstraZeneca R&D May06 Dec06 Mar07 Jun07 Sep07 Innovation Centre $100 M Licenses Innovation Opens API China (ICC) Establishes clinical investment in cubicin from Centre China sourcing center, pharmacology unit 3 years, focus Cubist for (ICC) will be target $100M • 70 plus staff grown to at Peking University on oncology, China and located in API sourced over 100 3rd Hospital for build other Asian Shanghai’s from China by • Focus on translational infections, diabetes, research (e.g. China R&D countries for Zhangjiang 2010, eventual y and cardiovascular biomarker study) in Center $10.25M hi-tech Park 90% of API from diseases. oncology China • Headed by Dr. Xiaolin Zhang, Vice President and head of ICC 2004 & 2005 2006 2007 2008 2009 2010 & Earlier Beyond Research $14M collaboration with outsourcing “The development opportunity is enormous in China.” Shanghai Jiaotong partnership University on “China plays an increasingly important role as an emerging neuropsychiatric with Wuxi market in AstraZeneca’s global strategy.” genetics Pharmatech “We’ve got a longer-term view of what China can be that we in chemistry started investing in a few years ago, so India’s not there yet” – AstraZeneca CEO Dan Brennan Apr01 Research Sep06 – Sep, 2007 3/23/12 PROPRICE a T pti A ve R&D R&D ce R nte Y r partnership 26
GSK R&D Investments in China Mar07 Jul07 Development / GSK China CEDD R&D Sets up a R&D Announces 2007 center (CEDD) in investment $40M • $40M in 2007 • 50 to 100 staff in 2007 neurodegenerative and long term • Eventual y grow to 1,000 disease in Shanghai, growth target of scientists in 10 years appoints Dr. Jingwu 1,000 scientists in • Focus on neuro-degenerative Zang as head 10 years disease • Headed by Dr. Jingwu Zang, SVP, who reports directly to GSK global head of R&D, Dr. Moncef Slaoui 2004 & 2005 2006 2007 2008 2009 2010 & Earlier Beyond “We are entering an exciting period of expansion for our R&D organization as it builds on the strength of the Established research superb science now being conducted in China. We intend to be part of a future in which the phrase ‘discovered in China’ is heard as often as ‘made in China’ is heard today. col aboration with Shanghai Institute of “Our initiative in China reflects our commitment to al y GSK with talented researchers wherever we can find them Materia Medica (SIMM) in and to further encourage within R&D the contest of ideas needed to create new medicines. It shows as wel our commitment to the neurosciences, where many of the greatest chal enges in drug discovery and development are the field of combinatorial to be found. Indeed, as we create a centre in China to focus on neurodegenerative disorders, we will re-focus our chemistry largely UK-based neurology drug-discovery efforts on finding new therapies for pain, epilepsy, and brain injury.” – GSK, Chairman, R&D, Moncef Slaoui – Mar 24, 2007 Research Since 1997 R&D Captive 3/23/12 PROPRIETA partnership RR & Y D center 27
Eli Lil y R&D Investments in China Lilly – ChemExplorer Jun07 Partnership Development Plans to invest • Invests $10M Started in 2002 / $100M in R&D • in BioVeda, 250 plus staff R&D in 5 years • China biotech Managed by through VC firm, ChemExplorer, dedicated Chinese local through Lil y to Lilly partners such • Asian Focus on chemistry, with as Ventures additional capabilities in ChemExplorer biology and process R&D being built 2004 & 2005 2006 2007 2008 2009 2010 & Earlier Beyond Established Established partnership with partnership Hutchison China MediTech “We’l expand our activities in those areas where we with Shanghai (Hutchison Medipharma) on can continue to draw on the country’s talent-rich ChemExplorer, cancer and inflammatory base of researchers and scientists,” focus on diseases drug candidates, with “Lilly has already invested nearly $200 mil ion in the chemistry potential milestone payments of country. We are committed to China” $20-29M per candidate – Lil y, President & CEO, John Leichleiter Jun02 Aug07 – Jun 7, 2007 Research Captive R&D R&D center partnership 3/23/12 PROPRIETARY 28
Pfizer R&D Investments in China (Including both publicly disclosed and unannounced activities) Development “China is an important market for Pfizer China R&D Center / Pfizer and it offers a large number of (CRDC) R&D Nov04 Oct05 Jul06 highly skilled and talented scientists. The Research and Development Dev Ops Pfizer China • $25M in 5 years (starting in Pfizer China Center we’re setting up in Shanghai is 2005) pilot R&D Center R&D Center • not only an investment to expand 170 staff as of Sep 2007 started in was new facility • Pfizer’s R&D capability, it is also an Focus on clinical data Shanghai established, opened in management, programming, investment in China’s knowledge $25M Zhangjiang report publishing, statistics, based industry and infrastructure. investment hi-tech park and safety and risk – Dr. Joe Feczko, CMO, in 5 years management, etc. Pfizer • Headed by Dr. Lingshi Tan, – Oct 31, 2005 executive director, reporting to global head of Dev Ops 2004 & 2005 2006 2007 2008 2009 2010 & Earlier Asia Research Established Established Beyond Established Office was collaboration partnerships Established additional established, with Tsinghua with five CROs outsourcing outsourcing focusing on contracts with contracts with implementing University in Shanghai to WuXi other Chinese CGA pilots and conduct R&D PharmaTech: CROs such as developing pilot programs -Template Medicilon to R&D Established Captive R&D compound (Dec explore vendor partnerships col aboration R&D center partnership 01) base – FTE contract with Peking Publicly Not Publicly Jan – Apr 07 (Oct 02) Announced Announced University, Chinese Academy of Research 2005 Sciences 3/23/12 Aug06 PROPR D I e E c0T 6 ARY 29
Major MN Pharmaceutical Investments in China § AstraZeneca § BMS § GSK § Johnson & Johnson § Eli Lil y Virtual § Merck Virtual § Novartis § Pfizer Virtual § Roche § Wyeth
Virtual Vs Vertical • Natural order for doing business in China is virtual • Vertical is more a colonialist approach from MNC’s
Hudson’s Bay Company •HBC is the oldest commercial corporation in North America and one of the oldest in the world. The company was incorporated by British royal charter in 1670 as The Governor and Company of Adventurers of England trading into Hudson’s Bay. •Once to largest private land owner in the world•A network of French and Indian first nation collaborations 3 / 3 2 / 3 2 / 3 1 / 2 1 P R P O R P O R P I R E I T E A T R A Y R 3232
Virtual Outsourcing models • Ful y Loaded full service • Ful y Subordinated Models • Deep Channel/Level Collaboration § Shared Risk Shared Reward • Cost plus 10% overhead, end loaded and milestone based • Discount cost plus equity for profit margin and overhead 3/23/12 PROPRIETARY 3333
Porter’s 8 point Rx for Darwinian Survival • Patience – § If you are patient in one moment of anger, you will escape a hundred days of sorrow. • Persistent- § Pick the flower when it is ready to be picked. and The journey is the reward • Positive § Set yourself as the standard. • Proactive § If you don’t go into the cave of the tiger, how are you going to get its cub?
Porter’s 8 point Rx for Darwinian Survival • People § A single conversation across a table with a wise man is worth a month’s study of books. • Products § There are many paths to the top of the mountain, but the view is always the same. • Processes § The arrogant army will lose the battle for sure. • Payments § If you have money you can make the ghosts and devils turn your grind stone.
Company (founded) CEO URL (New Corporate Name) Therapeutic area Acorda Therapeutics Ron Cohen http://www.acorda.com/ Spinal cord injury (1995) (SCI), multiple sclerosis (MS) and related conditions of the nervous system Cel adon Krisztina M. Zsebo http://www.celladon.net/ Gene and molecular therapies for heart failure Col abRx Jay M. Tenenbaum http://col abrx.com/ Molecular Disease Model in CA therapeutics Conatus Pharmaceuticals, Inc. Stephen J. Mento http://www.conatuspharma.coLm iv / er Disease: hepatitis C (HCV) (2005) CardioPolymers, Inc. (2003) Rayman W. Cohen http://www.symphonymed.com Me / diin ca d l e Dxe.vhictm e f lor post-op Conduction disturbances and CHF Corthera, Inc. (2003) Stan Abel http://investing.businessweek.c A o cum te /r H e easre t a F racilh ur/ e stocks/private/snapshot.asp?privcapId=9118933 Cary Pharmaceuticals (1994) Doug Cary http://www.carypharma.com/Hypertension Chorus (2001) Joel Scherer http://www.choruspharma.com Va / ri in ou d s ex.html Chorus Pharma (2002) Joel Scherer http://www.choruspharma.com Ne/uarb os o ci u e tn-cu e s , .h En tm doclrine, Oncology, Women’s Health Bone/Inflammation, Cardiovascular 3/23/12 PROPRIETARY 3636
Company (founded) CEO URL (New Corporate Name) Therapeutic area Concordia Pharmaceuticals Mark Watson http://www.concordiapharma.c T o arm g / eted Cancer therapeutics (2003) EuMederis Pharmaceuticals, Inc. John Nestor http://www.eumederis.com/ab P o aiunt,_u o s steoporosis, and (2009)1 metabolic disorders Faron Pharmaceuticals, Ltd. Markku Jalkanen http://www.faronpharmaceutica m l e s t .aco b m oli / c syndrome related (2003) vasculopathies, inflammatory diseases, and cancer metastasis Flexion Therapeutics Michael Clayman http://www.flexiontherapeutics. T c ino nm it / u i s,nd Uelx c .ep r h atp ive Colitis, and Autoimmune disease Galera Randy Weiss http://www.galeratx.com/ Radiation protection and CA therapeutics Jasco Pharmaceuticals http://www.jascopharma.com/i O nd c e o x l . o h g tyml Innovative NeuroTechnologies, Shawn Mojtahedian http://www.innovneurotech.co Am lz / h in ei de m x er .’h s tm an ld Inc. (2005) Neurodegenerative disorders Limerick BioPharma (2004) Wendye Robbins http://www.limerickbio.com/Immunosuppression and disorders of lipid accumulation Metabolic Solutions Development, Robert A. Beardsley http://www.msdrx.com/ Metabolic Disease Inc. mitochondrial targets 3/23/12 PROPRIETARY 3737
Company (founded) CEO URL (New Corporate Name) Therapeutic area Protodigm (1996) John Court (Fulcrum Pharma Product development to a Developments) CRO ReGen Therapeutics (1998) Percy Lomax http://www.regentherapeutics.c N o e m ut / ri rceguetn icpalcs/ fh oo r me/ Alzheimer’s and other Neurodegenerative disorders Sirtris Pharmaceuticals George P. Vlasuk http://www.sirtrispharma.com/ Mp e itp a e b li on li e c .ht D m is lease, aging, (2004) Cancer Speedel Andrin Oswald http://www.speedel.com/ Hypertension and metabolic Disorders Stromedix (2005) Michael Gilman http://www.stromedix.com/inId netx e .rh sttm iti l a fibrosis and Tubular atrophy in kidney transplant recipients Syndax Pharmaceuticals, Inc. Joanna Horobin http://www.syndax.com/ Oncology (2005) Tragara Pharmaceuticals Thomas M. Estok http://www.tragarapharma.com O / n in c d ol e o x g .h y tm (2007) Vernalis (2003) Ian Garland http://www.vernalis.com/ Oncology and CNS 3/23/12 PROPRIETARY 3838
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R. Stephen Porter, Pharm.D., FCP, MRCPVDDI PharmaceuticalsChairman, President and CEO115 Penn Warren Drive Suite 300-389 Brentwood, TN 37027 (615)445-5761 (cel )+86.15021242314 (Cel China) http://www.virtualdrugdevelopment.com