update conference DDT Vol. 6, No. 21 November 2001

1359-6446/01/$ – see front matter ©2001 Elsevier Science Ltd. All rights reserved. PII: S1359-6446(01)02033-51094

The Wall Street Journal Europe’s BioFinanceRoundtable 2001 (11 September 2001,London, UK) took the unusual format of four panel sessions, concluding withan interview with Jonathan Knowles,President of Global PharmaceuticalResearch at The Roche Group (Basel,Switzerland). Topics ranged from issuessurrounding valuation to more scientifictopics such as genomics and proteomics,cellomics and nanotechnology. In thisoverview, each panel will be discussed inturn, concluding with the interview.

ValuationThe first of the four panel discussions focussed on company valuations, factorsthat affect these valuations and ways toimprove your valuation.

How to improve valueCharles Floe (Managing Director, Headof International Healthcare, LehmanBrothers, New York, NY, USA) com-mented that virtually nothing will drivevalue at the moment. News flow fromcompanies is currently relatively highbut instead of this increasing shareprices, people seem to use this as an op-portunity to sell their shares. Large prod-ucts are, therefore, currently the onlyreal area of value, and he commentedhow important it is to your company’svalue to have a platform behind yourpipeline. Jane Fisken (Managing Director,Head of Global Lifesciences, DresdnerKleinwort Capital, London, UK) men-tioned the current uncertainty relatingto the Internet-related healthcare busi-ness where she said they have recentlyrejected many deals and in fact havenow stopped looking at plans for thistype of company altogether. DresdnerKleinwort Capital have done one invest-ment in this area but then pulled out,

preferring to wait and see if this modelreally does work. Instead, they are investing much more in later-stage companies where there is less risk.

François Maison-Rouge (ManagingDirector, Head of European Healthcare,Credit Suisse First Boston, New York, NY,USA) said that valuation of therapeuticcompanies has decreased more than fortechnology-enabling companies. If asmall venture capital-financed companyhas some therapeutic products in thepipeline, everyone assumes it will be suc-cessful but this is not necessarily true. Bycontrast, in big pharma, people almostignore products up to Phase II for valu-ation and Knowles complained that eventhough Roche’s diagnostic unit is thelargest in the world, valuers still seem toignore it.

Fisken commented that an increasingnumber of companies are now convert-ing from being a technology companyto developing their own products.Maison-Rouge and Floe suggested thatmany companies (such as Celera) will dothis by buying a pipeline to help theirpositioning in the market. Floe thoughtthat this was generally such a successfulapproach because investors soon tend toforget that these companies did not get this pipeline by their own means.However, the most valuable commodityis still products that have been devel-oped internally.

M&A and alliancesThe discussion then turned to the sub-ject of mergers and acquisitions (M&A)and why there have been so few amongthe larger pharma companies recently.Jonathan Knowles, questioned as to whyNovartis and Roche had not yet merged,pointed out that Roche has a dual sharestructure and is controlled by majority

shareholders and hence, what the share-holders want, goes. He suggested thatmergers are not currently happening be-cause of a recent change in accountingrules that make it necessary to capitalizegoodwill, putting a big load on prof-itability. Furthermore, both Knowles andFisken commented that many biotechcompanies do not have a clear visionand this is also probably reducing M&A activity. Maison-Rouge said this iscompounded by the fact that there aremany more good business propositionsthan good people to manage them.Furthermore, in places like Germany,there are not enough venture capitalists,and this is important because they canprovide a company with a good sparringpartner and advice to go with the capital. Flow suggested another possiblereason for the lack of mergers was thatcompanies that are unable to keep pacewith growth need to merge, but be-cause none of the top pharma compa-nies are really outperforming anyoneelse on growth at the moment (which isat ~9–12%), the pressure is off com-pared with the beginning of 2001.Furthermore, few of the latest mergersactually created value anyway. Knowlespredicted that one of the new waves ofmergers that we are already starting tosee will be between biotech companieswith complementary abilities.

One emerging new way of doingmergers is the approach taken by Rochewhen buying Genentech. It slowlybought the company and then re-floatedit, generating significant revenue. Otherexamples of this approach include Merckand Rosetta, and Pharmacia and Sugen.Floe highlighted that the element of in-dependence in this approach is the keyto its success, for example, the fact thatthere are only two people from Roche on

Biofinance: what does the future hold?Rebecca N. Lawrence, News and Features Editor

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the Genentech Board. Similarly, Sugenwill remain a research organization and,although 100% owned, its independentstructure means it is likely to do well.Daniel Cohen (Chief Genomic Officerand Directeur General, Genset, Paris,France) agreed that this is an excellentmodel that will be increasingly impor-tant in the future. Another new impor-tant strategy that Roche has taken is toput part of its portfolio outside of thecompany and retain a small share andthen get external financial support for itbut retain some opt-in clauses. Furtheralternative strategies include Knowles’prediction that, in the future, we willstart to see compounds being swappedbetween big pharma companies atPhase I and II stages.

The need, as a biotech company, toapproach big pharma at the right time,that is, when they can convince thepharma company that they not onlyhave a pipeline but the potential to increase the pipeline, was put forward by Cohen. Hence, he suggested the besttime is once you already have a pipelineof highly validated targets (i.e. at least2–3 targets in chemistry and 2–3 targetsin Phase I or II studies). However, Knowlespointed out that, in fact, the sooner abiotech company approaches pharmacompanies, the quicker the product willreach the market and, therefore, themore revenue will be generated.

The panel was then questioned onwhen they thought biotech companieswould start to have a positive impact ondecreasing the risk of creating products.Both Cohen and Knowles said that, initially, biotech had increased the risk by proposing ‘validated’ targets with no clinical evidence to support them.However, they are now decreasing therisk, in part, using genetics. Toxicoge-nomics is also making a significant con-tribution to reducing the likelihood of failure up to Phase IIb studies, anddrug–drug interaction studies are beingdone much earlier in the drug discoveryprocess.

Genomics and proteomicsNumber of human genesBernd Seizinger (CEO, GPC Biotech AG,Martinsried, Germany) sparked off the debate in this panel session by dis-cussing the fact that there are fewergenes in the human genome than origi-nally predicted. However, Rosenthal saidthat the original estimates were just amatter of hype by Celera Genomics,academia and investors because a largergenome is much more interesting to in-vestors. However, those that say thereare 100,000–150,000 splice variants arestill correct and some targets might be asplice variant. Kari Stefansson (Presidentand CEO, deCODE Genetics, Reykjavik,Iceland) disagreed, suggesting that peo-ple genuinely believed that there were100,000–150,000 genes at the time,and that the figure of 30,000–40,000genes is highly underestimated becauseof a lack of sensitivity of the technologiesbeing used.

Furthermore, there was concern overthe usefulness of the current state of thehuman genome sequence. Stefanssonpointed out that a significant proportionof the sequence is incorrect in nucleotideidentity, placement, or interaction withcontigs. When it comes to finding targets and new drugs, a high-densitygenetic map is needed. Knowles con-firmed this, quoting that a comparisonof the Celera and public-domain se-quences showed that only ~15,000genes correlated between the differentversions, with no correlation at all for afurther 15,000 genes.

Should we be using more patientmedical record data?Andre Rosenthal (Chief Scientific Officer,metaGen, Berlin, Germany) raised thepoint that few companies have inte-grated technology platforms with broadmedical and pathology research. He suggested that we need to obtain high-quality tissues to understand the hetero-geneity of these tissues and, therefore,we need to combine patient medical

data with disease tissue. We need tocopy what Kari Stefansson and his teamhas done in Iceland and do it in the UKand other countries in a way that is ethically acceptable.

Although Stefansson said that thismetaGen approach is good for certaindiseases such as cancer, he commentedthat comparing gene expression be-tween healthy and diseased tissue is dangerous because some genes mightbe reactive to disease whereas others areparticipating in the pathogenic processof the disease. However, if you clone thedisease gene, then you know it is part ofthe disease but have the problem of vali-dating it as a drug target, which is whereproteomics comes in. Furthermore,Stefansson highlighted that tissue canprovide much more information thanmedical records. Tissue has already beencollected in an ethical manner inGermany and there have been no re-ported incidents of misuse of this tissueso far.

Genomics versus proteomicsThere were differing views on the rela-tive importance of genomics and pro-teomics to finding new drugs and drugtargets across the panel. N. LeighAnderson (Chairman and CEO, LargeScale Biology Corp., Rockville, MD, USA)argued that it is generally extremely dif-ficult to work purely from genomics. Hesaid that proteins are the bottom line inthe business of biology: almost all drugseither bind to proteins or are proteins.The reason why we are not currentlysucceeding particularly well with pro-teomics is because many proteomicstechnologies are very large scale and notreadily available. Stefansson, however,held a conflicting opinion, arguing thatbecause all proteins are made by genes,the point of least complexity is thegenome. Hence, the only way to developunderstanding of how proteins fail in disease is by understanding the genomeand its role in disease. He further suggested that proteomics technology

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would not be particularly empoweringwithout basing it on what we knowabout the underlying genomics.

CellomicsWilliam Bains (Director and Chief ScientificOfficer, Amedis Pharmaceuticals, Royston,Hertfordshire, UK) introduced this ses-sion by first defining cellomics as ‘the industrial biology of the cell’. It encom-passes whole-cell analysis (analysis of tar-gets and extensions into development);computational simulation, analysis andextrapolation; and whole-system ap-proaches to experiments and modelling.

Anderson pointed out that 100 yearsago, 30,000–100,000 genes seemed im-possibly complex. Now, this large num-ber of genes does not sound so threat-ening but it is still challenging becausewe do not have the right data yet andwe cannot see any way to build modelsthat work without detailed informationsuch as proteomics. The main questionnow is: who has the nerve to do this?Many biologists see this as career-limit-ing, whereas mathematicians see it as agood opportunity to build a new model.However, we still need quantitativeidentification of the biology to put intothese models, which has not been poss-ible so far. The acid test will be to dosomething we could not do without thisknowledge. Many have said that thiswould be the creation of life from earth,fire and water. Anderson suggested thatwe will be able to do this within the next20 years, although Bains thought thiswould be highly unlikely.

Thomas Lengauer (Director of theInstitute for Algorithms and ScientificComputing, GMD – German NationalResearch Centre for InformationTechnology, Sankt Augustin, Germany)commented that the metabolic data weare still lacking should be available in appreciable volumes within the next fiveyears. Successful integration and cu-ration, as well as quality assurance ofthese databases is still a big problem andis both a political and an organizational

issue. One way to analyze all this data is to use inference engines or machinelearning where data is visualized asclouds of points in high-dimensionalspace, and this will provide added valuein the near-term. However, cellomics re-quires a different paradigm of combin-ing structure, sequence information andeverything else. Hence, to analyze this,you need both biological and math-ematical theory and this will take at leastone human generation, which means itis not good for investing in right now.

Anderson further proposed that theremight only be a finite number of drugsand that 30 years might be a reasonabletime to find them all. We already haveenough information to create a model ofthe human heart (Physiome Sciences,Princeton, NJ, USA) but Bains put theease with which this was done down tothe organs’ homogeneity and limitedelectrical activity. Similarly, Bains sug-gested that the brain would also be relatively easy to model, not in terms ofcognition, but in terms of, for example,epilepsy. However, we are nowhere nearbeing able to extend this to other or-gans. The next stage will be to look atmetabolites and then at gene induction,but to do this and to integrate all the different levels of information will re-quire an accurate version of the humangenome sequence.

NanotechnologyScott Mize (Chairman of the AdvisoryBoard, Nanotechnology OpportunityReport) opened this final panel sessionby defining nanotechnology as ‘the science and technology of preciselystructuring and controlling matter onthe nanometer scale’. He compared thecurrent early state of the field with IT before the integrated circuit (early1960s) or biotech before recombinantDNA (early 1970s). The US Institute ofNanotechnology (Evanston, IL, USA; http://www.nanotechnology.northwestern.edu)was set up in 2000, and is akin to the1971 ‘war on cancer’. There are currently

many large companies dominating theactivity in this field, especially in Europe,and Europe and the USA are at compara-ble stages of progress. There are also sev-eral research consortia emerging such as nanobionet (Germany; http://www.nanobionet.com) and some good sourcesof general information on the field (such as http://www.cmp-cientifica.com).Further information will also be availablefrom the upcoming Nano OpportunityReport, a White Paper that is due out inDecember 2001.

One concern expressed by Mize wasthe difficulty some had seen in trying toobtain funding for this research as thereis a perception that this is a long-termfield. Furthermore, the fact that it ismainly large companies that are in-volved in the field at the moment (e.g.Novartis and IBM recently worked to-gether to develop biosensors), can beproblematic because the difference intheir approaches often makes it difficultfor them to work together. Mize, there-fore, suggested that what is reallyneeded is a small cottage industry ofyoung companies that have beenbrought up to think across these differ-ent industries. He said that the CaliforniaNanosystems Institute (based at boththe University of California, Los Angelesand the University of California, SantaBarbara; http://www.cnsi.ucla.edu) isleading a new generation of people thatare already thinking in this new way.

In the near-term, James Gimzewski(Professor, California NanosystemsInstitute Department of Chemistry andBiochemistry, University of California,Los Angeles, CA, USA) suggested thatfast methods for bioassays and diagnosiswill be the first tools to benefit from nanotechnology (e.g. the recent paperin Nature Biotechnology on using mi-crochip microcantilever technology to generate a bioassay for prostate-specific antigen)1. Andrew de Mello(Senior Lecturer of Analytical Sciences,Department of Chemistry, ImperialCollege of Science, Technology and

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Medicine, London, UK) similarly sug-gested the first areas to benefit would bemedicinal and clinical diagnostics. Thereare already many microfluidics devicesthat can do this but they are primarily inthe laboratory at the moment. For ex-ample, de Mello mentioned that CaliperTechnologies is already doing HTS using microfluidics and miniaturization.Gimzewski highlighted other advantagesof nanotechnology such as the potentialto rapidly screen single cells using, forexample, silicon microelectronic struc-tures. Mize suggested that nanotech-nologies that use tagging (i.e. whereradiation or fluorescence is used to showthe presence of a protein or chemicalprecursor) will get to the market muchfaster as they will not have to passthrough the FDA. Meanwhile, areas suchas drug delivery will need to passthrough the FDA and, therefore, the firstnanotechnology in this field is probablyat least seven years away.

Re-engineering the Roche R&DdepartmentIn the final session of the day, Knowleswas interviewed on the reorganization ofthe R&D department at Roche over thepast few years. This reorganization wasdone to try to produce a ‘seamless approach’ to strategy and decision-mak-ing. The new structure comprises threecommittees, each one with 50% rep-resentation on the other committees, enabling good understanding across

50 different disciplines within the com-pany such as clinical, drug discovery anddrug development.

Over the past three years, Roche hasalso moved its screening from a central-ized location in Japan to the implemen-tation with Carl Zeiss of a third-generationscreening system in all sites. Furthermore,multidimensional drug optimization and predictive micro-screens for oral bioavailability, half-life in serum anddrug–drug interactions, are all nowbeing carried out early in the drug dis-covery process. There has also been asignificant change in the company’s dataarchitecture, which has been redesignedto enable real-time global access to allexperiments within the organization.This has, therefore, required standardiza-tion of all experiments across all companysites.

Knowles was, however, critical of thenew model being used at GlaxoSmithKline(GSK) that allows different groups tocompete with each other. He said that Roche had previously used a semi-autonomous site model and this was notparticularly successful in terms of clinicalcandidates selected. It can mean that thekey synergies of the chemistry libraryand informatics are missed (althoughGSK might have ways around this), aswell as missing out on peer-review. Healso commented that internal competi-tion is difficult to manage and can kill an organization as people will have differing views about the value of things

and, if not careful, this will lead to negative views about other parts of the organization.

ConclusionsThis meeting provided interesting dis-cussions on a wide variety of topics. Theformat of having all panel sessions wasgood because it enabled discussions be-tween key people approaching the areasfrom different angles. However, therewas not much interaction in these dis-cussions from the delegates and manycommented it required much more effort to follow all the discussions.

In summary, it appears that there isstill quite a lot of nervousness in the market and concern over the lack of innovation in the pharma industry, but anew wave of more innovative M&As are starting to take place which could helpthis situation. As always, there is stillmuch debate about the best way to goforward with the new information fromthe human genome sequence, but keyto its usefulness will be the creation of amuch more accurate and high-densitymap. Meanwhile, both cellomics andnanotechnology are still in the earlystages and although both fields holdmuch promise for the future, we stillhave a long way to go.

Reference01 Wu, G. et al. (2001) Bioassay of prostate-

specific antigen (PSA) using microcantilevers.Nat. Biotechnol. 19, 856–860

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