Financing in 2003 289 B in 2004 334 B

Fig. 1.34. Financing in Biotechnology Industry as scientific milestones are achieved (e.g., a regulatory application being submitted, or the successful completion of a key phase 2 study, or an approval of a product). The small company usually gives up one of their lead products to the partner or has a co-marketing agreement. The investment here can be $25 million to $600 million spread out over 5 or more years. Usually, all these monies will run out over the 5 plus years that will occur during the basic science research and early product development stages. After a new company has progressed in their research with unique targets for disease mitigation or especially has products in a pipeline, they can "go public" and offer stock (IPO, initial public offering) to the investment community and public. In 2004, IPOs were $2.5 billion providing $50 million to $160 million to one company. Becoming a publically held company is a large source of income for operations, and it gives the company freedom to operate without the control or oversight of a partner. A follow-on is a later stock offering following an IPO. A company can certainly go to banks and investment companies, creating debt by offering corporate bonds or taking on a loan of money, both of which pay interest to the lender, a bank or investor. The lender expects near-term good news in product advancement and approval as their collateral for the loan. A PIPE is a private investment in public equity, which is special funding by outside investors outside of the typical stock purchase.

Venture capital (VC) from such financial companies is often the first area of financing for a new company, often started by a scientist from a university who has a significant scientific advance with good promise for a new drug down the road to favorably impact a disease. The size of the investment may be $5 million to $250 million, often at the smaller end of this range. The VCs become company owners with the founding scientists, holding equity or debt convertible to equity, and often sit on the board of directors. The VC is a wealthy individual (also called an "angel") or a VC company. Venture capital is provided usually in stages (up to seven) as the company advances its science and product development; starting at seed stage ($1 MM) to form the company, create a business plan, and early validation of the science, series A ($1-5 MM)/series B ($5-20 MM), series C/D ($15-50 MM) to cover through pre-clinical and early clinical product development, mezzanine (before an IPO or acquisition), and bridge (before an IPO or buy-out by the VC group), based on the maturity of a company and its needs. For any one company to move from a new startup company to marketing a product over the 10 years, they usually will need to employ a variety of these funding sources at different times. Another common outcome related to funding, especially for a small biotechnology company with a unique technology or a lead product, will be an acquisition by a larger company, who needs the technology or product and values it highly. Alternatively, a merger between two small biotech companies, who perceive synergy in their technology and operations, can assist in achieving product approval and both science and business success [21, 22, 23, 30].

R&D in the industry at any one company must decide on which areas of science to focus for research on at least two dimensions, platforms of basic science (technologies) and clinical areas, that is, either therapeutic areas, or pharmaco-logic categories, or disease areas (Fig. 1.35). This focus is a critical decision for a company, because everyone has limits on resources, that is, financial (budget) and personnel (number and expertise), and the potential science areas number over 100 for the possible disease areas, involving any organ system and research platforms. Also, a company wants to invest

Inflammation Metabolism Hematology Cancer Clinical Areas

" Development"

"Discovery"

" Development"

"Discovery"

Platforms Proteins Mabs Genetics HTS Molecular Small

Engineering Engineering

Fig. 1.35. Discovery Technology Supports Development significantly and enough in specific areas to build the necessary depth of experience of its scientists and marketing staff to assume a leadership role in those areas. Such expertise often will foster better science-based decisions in choices for targets and product candidates and permit the funding to make the decisions potentially more successful. The investment is not only in their bright scientists but also in sufficient lab space, high enough budget for the work, and enough budget for appropriate collaborations in their focus area. Figure 1.35 displays the focus areas in the 1995-2002 time frame for the Amgen company with five platforms (proteins, monoclonal antibodies (MABs), genomics, high-throughput screening (HTS), and small molecules) and four clinical areas (hema-tology/renal disease, oncology, inflammation, and neurology). Flexibility in these focuses with exploratory lab operations is needed to take advantage of a unique discovery or license opportunity in a new area, which will allow for expansion into a significant new research area, as science evolves and the company evolves.

Along with an internal focus in technology represented in the above discussion, every company must look outside their own laboratories for scientific discoveries to universities, research centers, government research (e.g., NIH), and other small companies worldwide. A basic premise often mentioned is that 90% of new discoveries in your own area of expertise will occur somewhere else at these other research places. Besides this discovery phase of R&D for diseases and new molecules, the standard operations of clinical research and product marketing, which are core functions, will need supplementation to meet all the episodic work demands. Figure 1.36 lists many of the collaborations for the Amgen company during the 1990s up to about 2002. For core functions, clinical research organizations (CROs) are companies that are dedicated to performing clinical research for FIPCOs, because the work demands for a newly advanced product may exceed the work capacity of the company at a particular point in time. A marketing core function would be market research for competitive product assessments or direct to consumer advertising, wherein specific expertise is needed and found outside your company. Also, the company collaborations will involve technologies in which a company has no expertise, but it might be important in developing their products. For example, a protein company wants to expand to monoclonal antibodies and genomics or needs more high-throughput screening for a new set of targets. Access to more molecules and products to put into a company's pipeline is probably from a business perspective the most important collaboration. A company licenses in a product from a university or other company and shares the costs of R&D, costs of marketing, and later future revenues. Mergers and acquisition usually occur when a company elevates their decision for access to a product or technology area, which is principal to their R&D and business success, and it needs to be fully incorporated into their operations through acquisition and integration.

Five areas for the collaborations are listed on Figure 1.36 along with the company partners: (1) core operational functions, expanding opportunity to complete standard work projects on pipeline and marketed products; (2) technology, expanding the search for molecules and creating other types of products or formulations for existing pipeline products; (3) product candidates (individual products or a new family of compounds), licensed in from companies, government, or a university; (4) research centers, wherein labs are funded and a company has access to scientists and their discoveries; and (5) mergers or acquisitions [58].

A major impediment to success of mergers and even collaborations between companies can be the culture of each company, which will thwart realistic communication, collaboration, shared operations, and decision making. The business culture for small biotechnology companies with a new product often based on a new technology is discussed in Figure 1.37. This small company is more representative of a university-type environment. The companies usually were started by a university professor, who hires the early basic scientists from other universities. Scientists and research predominate in the culture, which is almost the fulltime focus of more than 90% of the employees, including often the CEO and the board of directors. The science is novel, cutting edge. The primary topic at management meetings is the k General - Core Operations :

■ Global Partners in Marketing & Research c Clinical Research Organizations k General - R&D - Research centers: k General - Merger (Products, R&D, Manufacturing): k Specific - Products : c Leptin & Lab output (D/C later) o Keritinocyte Growth Factor o Calcimimetics multiproduct (Cinacalcet) c Abarelix (D/C later) c Neuroimmunophilin products (D/C later) c Fibrolase o Interferon alfacon-1 (Out-license) o Epratuzumab (D/C later) k Specific - Technologies:

o Manufacturing & Inflammation products o Small molecules o Mab technology & Panitumumab c Signaling drug discovery

Company / Institution: Roche and J & J Quintiles/Radiant MIT

Immunex

Rockefeller University

National Institutes of Health

NPS Pharmaceuticals

Praecis

Guilford

Hyseq

Yamanouchi Immunomedics

Synergen (Acquired) Kinetix (Acquired) Abgenix (Acquired) Tularik (Acquired)

Fig. 1.36. Alliances & Collaborations by a Company* *Amgen, 2002; Public information r University style - academic (origin)

r Research predominates r Scientists predominate r CEO & Board scientists r Dress casual r Communications very open & challenging r Cutting edge science r Small companies r Team concepts for decision making r Best ideas predominate r Naivete' in marketing & product needs Fig. 1.37. Biotech vs. Pharma Companies Culture latest scientific developments and their related product opportunities. Dress is casual as in universities, helping to foster a relaxed environment. Communication is very open and challenging among all levels of the organization. Disagreement is fostered as in universities to get to the best answers in problem solving. Independence of scientists is common in their work decisions. Processes are much less structured. A team of scientists that work on the project usually form the decision-making group. The best ideas in science predominate, which often is a quite good outcome. However, the best business assessments and plans may be missing, because of the naivete of the scientists and even their leadership. These cultural factors will inhibit collabo ration with a major FIPCO, which normally has a hierarchical structure, many specific procedures for work and decisions, slower decision-making, and more management oversight.

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