TM

T

L ife S c ie

eThe 3rd Annual Life

Science ConferenceThe 3rd Annual Life

Science Conference

Miranda Toledano - Ernst & Young, Israel

From Business Plans to BusinessFrom Business Plans to Business FinancingFinancing

February 2001

TM

2February 2001

Bio-Sector Climate in IsraelBio-Sector Climate in Israel

• Lack of well-defined or central bio-infrastructure

• Biotech start-ups require international partnering & IR strategies from the outset

• The trade-off:– viable implementation of global strategy for success

– dealing with local issues of the biotech start-up

• Balancing act

Tech Expertise

(Strong IP)

Winner

StrategyFinancing

TM

3February 2001

Early Stage Decision MakingEarly Stage Decision Making

• Joining the incubator (implications for the future)

• Leaving the incubator in a sound position

• Retaining IP from academia

• Dictating flow of technology development

• Recruiting and retaining key employees, management and SAB

• Selecting Application-driven models that have clear and defined market potential

• Impressing the investor with viable business model

TM

4February 2001

The Industry is Flying High?The Industry is Flying High?

• In 2000, Biotech was ranked as 4th highest grossing IPO sector

• Financial Upsurge follows in Israel

12

20.5

16

40

20

88

24

30.5

0

20

40

60

80

100

120

$Millions

Q1 Q2 Q3 Q4

Israeli VC Funding to Biotech 1999 to 2000

2000

1999

•Israeli VC backed investment doubled itself almost every quarter of 2000

•Total: $200 Million

=3 fold increase over 1999

TM

5February 2001

Internal Drivers: Communicating Internal Drivers: Communicating SuccessSuccess• Entrepreneur’s talent + Availability of funding

• Universal Theme for Biotech start-ups– technological know-how is there– ability to position tech in commercial setting is not

• Key Success Factor: the company that can communicate and execute its potential to be a viable investment and a profitable business

• This takes strategic planning– identifying critical junctions to arrive at desired outcome– articulation of tasks by management

TM

6February 2001

Business Plans can HelpBusiness Plans can Help• Simple tool of communication between start-up and investors• Contribution: exchange of ideas, information, and brainstorming that lead to

the launch of a new venture

• A concise explanation of why we are creating a new business and what is its value proposition to the biotech sector:– technological evaluation of current state of market– logical flow of critical R&D milestones– early stage identification of potential partnering opportunities

• Goal: Translate mission into “revolutionary concept” that will achieve financing goals

TM

7February 2001

Preparing for FundraisingPreparing for Fundraising

• Recognize which stage your company is in:Risk Type Defining Characteristics Financing Timing Investment Additional Partners % Ownership

Early R&D Proof of principle Seed financing$250-600K

Angels, VC and entrepreneur 20-50

3 to 6 months burn

Second Stage R&D

Early in vivo results, Prototypes, resolving technical challenges

First Round Financing

$1-5 million VC, Institutional Investors 20-50

1 year burn

ExecutionEarly product development,

Clinical Trials Early Mezzanine $5-15 millionStrategic Partners

20-301-1.5 years burn

Market

Late Stage Clinical Trials, Regulatory and Product

Development

Later-stage Mezzanine and

IPO$20-50 million Public Markets 25-35

2-3 years burn

TM

8February 2001

Early R&D Stage: Monitoring Early R&D Stage: Monitoring Risk and Delivering ValueRisk and Delivering Value

• All business involves risk but not all risk is equal• Earlier stage financing partners absorb greatest risk

– they are impacted by current and subsequent stages of risk

– they deserve greater opportunity for upside return!

• How to achieve successful seed/first round:– understand when to raise how much cash from whom

– developing rational financing/business plan that:

• Reduces risk• Minimizes equity dilution• Increases opportunity for success

TM

9February 2001

Overcoming Business RisksOvercoming Business Risks

IP Protection

Funder Support

Balanced Business

Model

World Class Science

Experienced Management

Market Focus

Communication

Team Building

Innovation and

Research

Technology Portfolio

INVESTOR RETURNS

TM

10February 2001

Biotechnology – Measures that MatterBiotechnology – Measures that MatterTechnology/Quality of Science

Competitive Advantage

Products, Services

Funding

Alliances

Governance

Management

Is the Company’s tech innovative? IPR portfolio strength, depth, sustainability

Differentiation, bio e-strategy, IT. Alignment to emerging a standards and technological trends. KNOW YOUR PEERS.

Development potential, management of portfolio

Have you budgeted enough to lead to sustainability?

Strength and range of collaborations, impact of pharma consolidation on partnering possibilities; understanding potential partners to optimize alignment

Risk management, internal info flow and monitoring, external newsflow

Experience, motivation, succession

TM

11February 2001

Budgeting...Budgeting...

• Natural tendency for biotech start-up is to ask for as little as possible at stages where investors demand a relatively large equity position

• Remember though:– underestimating funding requirements to avoid dilution could

mean:

• Running out of Cash

• Reentering IR climate too soon (or during a market downturn)

• Ultimately, slowing down R&D program

TM

12February 2001

Modeling the BusinessModeling the Business• Design a modular approach to establish credibility and focus (Like

Rome, most successful biotech companies were not built in day!)

• All biotech start-ups must have a clear mission and identity

• Non-core competencies needs can be outsourced

• Create realistic and achievable short-term goals to increase share-holder value:– first concentrate on “R & D” stage but always remember your market

positioning. Stay FLEXIBLE

TM

13February 2001

Short & Long Term Survival Short & Long Term Survival Through Strategic Alliances (Through Strategic Alliances (SASA))• SA are the fastest and most efficient way to do business in

biotech & constitute an increasingly important source of funding, they:

– enable partners to gain non-core competency products and services

– help develop core competency or hedge industry standard

– validate the biotech start-ups know-how in the commercial setting

– Knowledge management and strategy are key

– IP protection comes first

– But, Biotech business models must recognize external communication obligation

TM

14February 2001

The Historical Context no Longer The Historical Context no Longer AppliesApplies• With few exceptions, the model is not a viable aspiration

• Genentech and Amgen are mostly exceptions to the rule

• Difficulties include:– excessive financial demands in advance of revenue

– a crucial shortage of management skills

– no direct access to customers

– the effect, globally, was to kill biotech ambition and diminish VC funding

Discovery Development ManufacturingSales andMarketing

SupplyChain

TM

15February 2001

SA Need to Move with Increasing SA Need to Move with Increasing Demands of SectorDemands of Sector

BiotechnologyCompanies

HealthcareProviders &

Governments

Investors

PharmaceuticalCompanies

STRATEGIC ALLIANCES

• demand for growth • new products• lower cost• public expectations

• patent expiry• need new products• consolidation• cash rich

• provide innovation• need cash

TM

16February 2001

New Dynamics of SANew Dynamics of SA

• Basic premise of biotech is to streamline process of discovering promising drugs and to develop them into marketable therapies

• Constructive relationships with “Big Pharma” and “Big Biotech” must happen, even earlier on in the game

• Need to Show:– How can “big pharma” decrease true cost of innovation– How does “big pharma” or investor understand that environment

will provide opportunity to achieve financial return

• Interrelation of multiple technologies will drive Israeli biotech industry forward (2 models)

TM

17February 2001

Bio-Therapeutics Converge with Bio-Therapeutics Converge with Targeted Delivery PlatformsTargeted Delivery Platforms• The opportunities are clear

Warner Lambert

AHP

Astra

Schering-Plough

Merck

BMS

Zeneca

Eli LillyGlaxoWellcome

Synthelabo

P&U

NovartisRPR

Bayer

AbbottSBHMRRochePfizer

Sanofi

5%

10%

15%

20%

25%

30%

35%

40%

45%

0% 10% 20% 30% 40% 50% 60%

% Sales Vulnerable to Patent Loss, 1998-2002

% S

ales

fro

m P

rod

uct

s L

aun

ched

199

4-20

00E

• Patent expiry takes a large toll on “big pharma”

• Growth opportunities from new markets & technologies (functional proteins, nutraceuticals)

• $26 Billion spent in 2000 to license enough leads and technologies

TM

18February 2001

Israeli Bio-Delivery Model Israeli Bio-Delivery Model

• Develop horizontal pipelines that ensure short and long term growth– Delivery platform as short term partnering objective

• Significantly less R&D time• Aims to derive initial top-line growth• Establish investor confidence & increase valuation• Demonstrate value creation & validate technology• Serve your partners’ immediate needs

– Therapeutic development as mid or long term partnering objective• Mid-Term: After Phase I/IIa (Safety & Dosage)

• Long-Term: After Phase II (Efficacy and Side Effects)

TM

19February 2001

Partnering StrategyPartnering StrategyPre-Clinical Phase I Phase II Phase III FDA Review Total

Duration (yrs) 4 to 6 1 2 3 1 to 2 11 to 14

Test Population

Laboratory and animal

Study

50-100 healthy

volunteers

100-300 patient

volunteers

1,000 to 3,000 patient

volunteers

Several Thousand

Purpose

Biological Activity

Safety and Dosage

Efficacy, Optimal

Dosage and Side Effects

Efficacy, Safety and

Cost-Effectiveness

Evaluate Clinial

Results for Marketing Approval

Percent of INDs Successful

<1% of Candidates

make it to an IND

70% 33% 25% 20%

1 out of 5 INDs are

Ultimately Approved

Average Cost per Stage

$6 Million $12 Million $12 Million $100 Million $40 Million $170 Million

Delivery Platform to Strategic Alliance

Lead Drug to Strategic Alliance

TM

20February 2001

Model CompaniesModel Companies• Lavsys Biotherapy Ltd.

– Intracellular macromolecule delivery platform for functional proteins ($4.5 billion market)

– Lead drug development for prostate and breast cancer

• J.P.M.E.D. Ltd.

– Taste-Masking Protein granulates to develop functional foods for the elderly

– DNA protection factor based on Sub-Micron Oil-in-Glycerin Gel for intra-dermal delivery of Genistein and other herbal extracts to the skin

• BioSight Ltd.

– Designs a pipeline of proprietary vectors used to target and release prodrugs directly to the sight of malignant tissues and cancer cells (chemotherapy)

– Proprietary protein targets

• Coraltis Ltd.

– Pulsatile delivery system to decrease dosage of nutraceuticals and drugs ($10 billion market)

– Novel formulations for Cyclosporin A and Indomethacin

TM

21February 2001

IT Converges with Drug Discovery, IT Converges with Drug Discovery, Development and Disease Development and Disease ManagementManagement• Pharma Drivers

– Looming NCE gap that makes it increasingly difficult to sustain current high rates of growth

– Objective to ensure that 30% of all drugs launched achieve blockbuster status with sales of over $1 Billion

– To need to compress R&D cycle from 12 to 7 years or less

– Optimization of treatments to enable individualized care regimes

• Disease Management Drivers– Move towards early diagnosis of disease and monitoring disease

progression– Cost-containment to manage pharmacoeconomics of healthcare

– Decreases in human error & increasing “served population”

TM

22February 2001

Model CompaniesModel Companies

• Optimata Ltd.– In silico tools for optimized cancer drug development for “Big

Pharma”

– In silico tools for optimized individual treatment regimes for the clinical market

• Ardia Ltd.– Expert system to aid pathologist in analysis of biopsy tissue

(subscription + pay-per-use revenue models)

• WideMed Ltd.– Internet Monitoring and Mining of Medical Data Platform to provide

integrated telemedicine approach to sleep apnea market

TM

23February 2001

Change your “Time to Market”Change your “Time to Market”

• Investors often equate exit with “IPO” or “M&A”• We Challenge a new model for Israeli Biotech:

– Creation of SA for peripheral value added activities to generate short term top-line growth.

• This is a winning exit strategy but requires:– strong correlation of the Company’s R&D and business milestone

implementation

– continual awareness of market dynamics to assess partnering opportunities that will maximize short term cash-inflows

– Strong acknowledgment of the power of external communication to attract potential partners

– Investment into exposure to multinationals at the right time

TM

24February 2001

–Technology transfer of early stage findings to generate returns for mission critical development goals will alter the investment community’s perception of biotech in Israel