Podd slides 1
- 1. An Analyst’s View: The Drug Delivery Opportunity Ian Sanderson Managing Director Senior Research Analyst Specialty Pharmaceuticals 1
- 2. An Analyst’s View: The Drug Delivery Opportunity 1. What defines drug delivery in the eyes of Wall Street? 2. Where do the opportunities lie in drug delivery? – the Wall Street perspective 3. Valuing drug delivery development programs 4. Financing drug delivery development 2
- 3. Market perspectives – How we define drug delivery Old: New: Reformulation of an existing New molecular entities, with compound – usually off- new PD profile patent Differentiating profiles for Mostly oral controlled-release complex molecules Out-licensed post POC - or Site-specific, targeted delivery earlier - in return for royalty technologies stream Internally developed or Once a life-cycle management partnered strategy, now a generic development requirement NME risk and economics 3
- 4. Market perspectives – Where do the opportunities lie? Investors focused here MARKET OPPORTUNITY NARROW BROAD NME Targeted Therapies Ocular Delivery Oral Pegylation Carrier-Based Depot Injections Pulmonary Delivery Sustained Release Implants Injectable Pegylation REGULATORY COMPLEXITY Transdermal Solubility Enhancement Transmucosal Oral Tamper/Abuse Resistance Oral Controlled Release 505(b)2 NDA/ANDA 4
- 5. Market perspectives – Where do the opportunities lie? Evolving regulatory and reimbursement landscape 1. Gradual shift toward comparative effectiveness evaluation – moves U.S. standards closer to E.U. standards raises regulatory and reimbursement hurdles raises differentiation standard for development partners 1. Biosimilar regulatory pathway creates opportunities 2. Development/commercial partners: new goals for drug delivery fewer lifecycle extension programs greater focus on changing/improving therapeutic profile …driving shift toward NME/NCE development for drug delivery 5
- 6. Market perspectives – Where do the opportunities lie? Business Models shifting back toward partnership model EVOLUTION OF THE DRUG DELIVERY BUSINESS MODEL 1980's to early 1990's Mid-1990's to Mid-2000's 2008 to current Broad technology platforms Companies built around products Technology platforms targeting rather than technologies complex drug delivery issues Development partnership, Internal product development Development partnership, royalty-based model full integration ("FIPCO") royalty-based model niche commercial capabilities Standard equity financing Creative, off-balance sheet financing Creative, royalty-based financing M&A Partner financing M&A ALZA, Elan, SkyePharma, etc. ALZA, Elan, Alkermes, Inhale, etc Nektar, ImmunoGen, Seattle Genetics, etc. 6
- 7. Valuing drug delivery development programs 4 key valuation factors: 1. Targeted patient population and likely penetration 2. Estimated pricing Incorporates therapeutic profile/differentiation 3. Discount rate Incorporates cost of capital plus hurdle return rate We assume positive NPV in our analyses 4. Probability of clinical/regulatory/market success Usually a rough estimate based on what we know of clinical trial design, FDA guidance, and medical need 7
- 8. Valuing drug delivery development programs INTERNALLY-DEVELOPED PROGRAM NPV ANALYSIS OF NKTR-102 2011E 2012E 2013E 2014E 2015E 2016P 2017P 2018P 2019P 2020P Projected Sales $30 $120 $300 $400 $500 $600 $700 COGS $6 $14 $30 $40 $50 $60 $70 Estimated R&D Spending $100 $150 $100 $65 $50 $45 $45 $40 $35 $30 Estimated SG&A Spending $5 $20 $36 $60 $70 $80 $90 $100 Operating Expenses $100 $150 $105 $91 $100 $135 $155 $170 $185 $200 Operating Income ($100) ($150) ($105) ($61) $20 $165 $245 $330 $415 $500 % Of Sales 16.3% 55.0% 61.3% 66.0% 69.2% 71.4% Net Cash Flow ($100) ($150) ($105) ($61) $20 $165 $245 $330 $415 $500 Discount Rate 20% Estimated NPV $210 Source: Company reports and Cowen and Company, LLC estimates PARTNERED PROGRAM NPV ANALYSIS OF EURX/CEPH'S AMRIX Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Sales $6 $74 $114 $112 $115 $120 $130 $140 Royalties/Mfg Fees to EURX $1 $13 $19 $19 $20 $20 $22 $24 COGS $0 $0 $0 $0 $0 $0 $0 $0 Estimated R&D Spending $30 $25 $5 $3 $0 $0 $0 $0 $0 $0 Estimated SG&A Spending $0 $0 $0 $0 $0 $0 $0 $0 $0 Operating Expenses $30 $25 $5 $3 $0 $0 $0 $0 $0 $0 Operating Income ($30) ($25) ($4) $10 $19 $19 $20 $20 $22 $24 % Of Sales 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% Net Cash Flow ($30) ($25) ($4) $10 $19 $19 $20 $20 $22 $24 Discount Rate 10% Estimated NPV $48 Source: Company reports and Cowen and Company, LLC estimates 8
- 9. Valuing drug delivery development programs Changing Assumptions: Revenues – Longer development timelines (larger, longer pivotal trials) Slower revenue ramps, due to managed care restrictions in U.S. Higher year 4-8 sales estimates, due to global sales infrastructures Costs – Higher development costs (+20-40%, depending on the category) Lower GPM in competitive U.S. markets and ROW markets Lower relative promotional/marketing spending (as % of sales) Terminal multiple: Discount rate (cost of capital plus risk premium): Probability of success: 9
- 10. Financing drug delivery development Options more limited in volatile current market environment Public market equity financing currently expensive – if available at all Debt/Convertible financing more available – inflexible in a downside scenario Pharma/Biotech partner financing – important external validation to investors – development goals aligned – usually non-dilutive to equity investors Royalty-based financing – available for later-stage programs only – lower capital costs than equity, less restrictive than debt 10
- 11. INDEXED TO 100 11 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 110.00 120.00 130.00 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Drug Delivery Index Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 S&P500 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Drug Delivery equity markets = Ugly Jul-10 Aug-10 PRICE PERFORMANCE: DRUG DELIVERY vs. S&P500 vs. RUSSELL2000 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 Russel 2000 May-11 Jun-11 Jul-11 Aug-11
- 12. An Analyst’s View: The Drug Delivery Opportunity Conclusions: 1. Drug Delivery returning to its routes of solving Tx problems Platform technologies targeting more complex delivery problems Development costs increasing – increased reliance on partnerships NPV’s remain positive – aided by good royalty terms 2. Investors again looking for transformative delivery technologies High unmet medical needs, strong pricing trends, little managed care But…less willing to fund development risks and commercialization 3. …But Pharma companies willing to pay up for novel technologies in earlier development stages 12
- 13. An Analyst’s View: The Drug Delivery Opportunity Ian Sanderson Managing Director Senior Research Analyst Specialty Pharmaceuticals 13