Biotech Business Model Shifts To Boost Prospects For Faster Development And Quicker Market Introduction Of New Treatments

• On 12:35 pm EDT, Monday October 19, 2009

67 WALL STREET, New York - October 19, 2009 - The Wall Street Transcript has just published its Biotechnology Report offering a timely review of the sector to serious investors and industry executives. This 70 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Heightened M&A Activity - Trend Toward Orphan Disease Drug Development - Generic Drug Competition - Current Length Of FDA Approval Process - Ownership Ego Preventing Shareholder Returns - IPO And Secondary Offering Window Opening - Big Pharma R&D Pipeline - Decreased Clinical Development Risk - Impact Of Health Care Reform - Convergence Of Large-Cap Biotech And Pharmaceutical Companies - Easier Credit For Small Cap Biotech Companies - Developments In Cancer Chemotherapeutics - Gene Delivery Technology

Companies include: ADVENTRX (ANX); Abbott Labs (ABT); Advaxis (ADVX); Amedisys (AMED); Amgen (AMGN); Amylin Pharmaceuticals (AMLN); Antares Pharma (AIS); BioDelivery Sciences (BDSI); Biogen Idec (BIIB); Biomarin (BMRN); Boston Scientific (BSX); Bristol Myers (BMY); CVS Caremark (CVS); Celgene (CELG); Cerner (CRN); Cerus (CERS); Coke (KO); CombiMatrix (CBMX); Coventry Health Care (CVH); DARA (DARA); Eisai (ESALY); Eli Lilly (LLY); GenVec (GNVC); Gilead (GILD); GlaxoSmithKline (GSK); Health Management Associates (HMA); Human Genome Sciences (HGSI); Inspire Pharmaceuticals (ISPH); Intellect Neurosciences (ILNS.OB); InterMune (ITMN); International Stem Cell (ISCO.OB); Javelin Pharmaceuticals (JAV); Johnson & Johnson (JNJ); Keryx Biopharmaceuticals (KERX); Kraft (KFT); MAP Pharmaceuticals (MAPP); Medco (MHS); Merck (MRK); Merit Medical (MMSI); Novartis (NVS); Novelos (NVLT.OB); Novo Nordisk (NVO); Nutrisystem (NTRI); OSI Pharmaceutical (OSIP); Orexigen (OREX); Pepsi (PEP); Pfizer (PFE); Rite Aid (RAD); Schering-Plough (SGP); Takeda (TKPHF); Teva Pharmaceuticals (TEVA); Viropro (VPRO.PK); Walgreens (WAG); Wyeth (WYE); XOMA (XOMA); ZIOPHARM (ZIOP).

In the following brief excerpt from just one of the 17 in depth interviews in this 70 page report, a Biotech industry expert analyst discusses the outlook for the sector and for investors.

MATTHEW L. KAPLAN is Managing Director, Health Care Group - Equity Research at Ladenburg Thalmann. He focuses on therapeutic companies, cardiovascular and drug delivery. Mr. Kaplan spent 13 years as a Biotechnology Analyst at PZ & Co., Evolution Capital and The Carson Group. He has six years of research experience with the Albert Einstein College of Medicine/Montefiore Hospital Department of Cardiology and is co-author of numerous articles on gene regulation in the heart. Mr. Kaplan has a B.S. in biology from the University of Michigan.

TWST: Are you seeing changes in the business model of these companies?

Mr. Kaplan: We had a shift in the business model from the late 1990s and then really starting in 2001, where the ethos and the attractiveness of biotechnology was that smaller companies could be more agile, develop drugs more cost-effectively and figure out perhaps a faster route to market than a large pharmaceutical company. Some of those characteristics disappeared during the earlier part of this decade. We began to observe that a number of companies were, instead of doing the most with the least, you started to see companies build extremely large teams of 300, 400 or 500 employees in combination with massive research platforms. I want to emphasize these are companies which didn't have products on the market or revenues to support that infrastructure. So instead of doing the most with the least, they became less efficient. What we've seen more recently, which has been driven by the tightness of the capital markets over the last two years, is kind of a retrenching movement back towards trying to be more efficient, more cost-effective, doing more with less. This was largely predicated on the lack of investor appetite to fund these bloated business models. I think companies have also become more realistic in terms of what they can accomplish, and there is less of an interest in executing a strategy focused on building a fully integrated company, meaning having all the capabilities of a large pharma company, including R&D, manufacturing and sales capabilities. The business model of building a fully integrated pharmaceutical company is no longer in vogue, and this change in what is acceptable has been driven by investors demanding more efficient use of capital. We are seeing a more frequent trend of companies shifting towards utilizing outsourcing, utilizing more CROs, so instead of having these massive internal structures, they are outsourcing a lot of their capabilities to keep the cost down and become efficient. Companies are also becoming more open to partnering products at later stages, as they have realized it's not the most efficient thing to develop a sales force on your own unless it's a niche market opportunity that you can cover with a very small concentrated sales force. You're definitely seeing a different business discipline brought to bear in the space.

TWST: What about the kinds of drugs or therapies companies are developing? Have you seen a shift in that?

Mr. Kaplan: There was a shift a number of years back towards specialty pharma. Companies were trying to take existing drugs that might be on the market outside of the U.S. or might be on the market in the U.S. for specific indications and perhaps take those to market trying to broaden the indication or for a different use. The objective was looking at ways to lower the clinical development risk and lower the clinical development cost, and trying to find ways to bring products to market more efficiently and cost effectively. One of the avenues companies have pursued to reduce regulatory and clinical risk is to follow something called a 505(b)(2) pathway. The 505(b)(2) pathway is a regulatory pathway that lies between a generic ANDA and a full NDA for a new chemical entity. It allows you to leverage and use data from a safety point of view from a drug that's already out in the market. So companies have been looking at that as a strategy to increase the efficiency, time to market and lower the clinical development costs. Additionally, it is viewed as a regulatory avenue to decrease the clinical development risk. That's one of the approaches companies are taking, and we still view it as an attractive model. However, at the same time you still continue to see innovation and innovative products emerging. For example, there has been a strong move by large pharmaceutical companies to move into biologics, whether it's proteins, peptides and antibodies. One of the reasons for the interest of Big Pharma in biologics is if you look at the biologics from an intellectual property point of view, it's much more difficult to develop a generic for any of the biologic products than a small molecule. From a defensive point of view, they've also seen that there is a much longer life cycle for these products on the market than for a typical small molecule. So you see a trend towards large pharma looking to become involved in the biologics area. Biologics have been left, to a large extent, to biotechnology companies that have dominated the area especially in antibodies. We saw large pharma start to diversify into biologics back in the 1990s, the acquisition of Centocor by Johnson & Johnson (JNJ) is an example, and we have seen this trend accelerate recently as can be seen with the acquisition of Wyeth (WYE) by Pfizer Inc. (PFE), and the acquisition of Medarex by Bristol Myers (BMY). Nevertheless, innovation is still robust in biotechnology and companies are trying to do it more efficiently.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 70 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

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