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VC Perspective – A Vision for Global Investing Fred Craves, PhD

VC Perspective – A Vision for Global Investing Fred Craves, PhD. The $7 Trillion Complex, Global Healthcare Industry. HEALTHCARE EXPENDITURES AS A PROPORTION OF GDP (%).

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VC Perspective – A Vision for Global Investing Fred Craves, PhD

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  1. VC Perspective – A Vision for Global Investing Fred Craves, PhD

  2. The $7 Trillion Complex, Global Healthcare Industry HEALTHCARE EXPENDITURES AS A PROPORTION OF GDP (%) Source: Datamonitor, OECD Statistical Extracts 2009, WHOSIS, 2010, taken from Datamonitor Pharmaceutical Key Trends 2011 – Healthcare System and Drug Regulatory Overview, March 2011, p. 16

  3. Life Sciences: The Premise • We live in an era of accelerating change. • Healthcare spending is robust in developed countries and growing in emerging economies • Scientific progress is occurring as a factor of advances in biological understanding. • As large pharmaceutical firms continue to struggle with R&D productivity, they are increasingly turning to small firms and universities to create and validate new biological and other scientific insights. • VC can serve as the key liaison to academia and capitalize early-stage companies.

  4. Rosling Video

  5. An Emerging Middle Class % global middle class&% purchasing powerrepresented by Asia Global middle class (in billions of people) 66% 59% 28% 23% Source: OECD Observer – An Emerging Middle Class, June 2013

  6. Increasing Life Expectancy and Chronic Diseases in China CHINA’S AGING POPULATION Source: US Census Bureau, International database. China Cardiovascular Disease Report 2005.

  7. Expanding Healthcare Expenditures in China High Growth Stage 20%CAGR 17%CAGR Source: Goldman Sachs Global Investment Research; GuoHua Securities Research estimates

  8. China Pharmaceutical Industry Growth US$ (billions) Source: MOH, Morgan Stanley Research

  9. Multinational Pharma’s Increasing Activities in China • Multinational companies continue to build infrastructure in China, invest in R&D, and acquire local companies with the expectation that the Chinese market will provide desperately sought after revenue growth 2005 2012 2006 2007 2008 2009 2010 2011 Merck announces $1.5B over 5 years to establish new R&D center in Beijing Novartisinvests $1B in Shanghai R&D center BMS moves R&D base to China Pfizer announces opening of new China R&D Center in Shanghai AstraZeneca announces $100M R&D investment in China GSK blueprints $100M Chinese R&D centerand doubles China R&D staff J&J opens R&D center in Shanghai Pfizer establishes generics joint venture in China Novartis launches Galvus Merck boosts R&D investment in China Pfizer announces opening of New China R&D Center in Wuhan Source: Bay City Capital analysis Boehringer announces plans to double production capacity in Shanghai plant by 2013

  10. Pharma Increasingly External Sourcing of Drug Candidates PROPORTION OF EXTERNALLY SOURCED DRUG CANDIDATES IN CLINICAL DEVELOPMENT (%, 2007 vs 2011) Source: Datamonitor R&D Trends 2012

  11. Innovation’s Impact on the Cost / Care Continuum: Precision Medicine • Recent advances in sequencing technology will allow for optimization of an individual’s healthcare by tailoring care to his/her unique genetic profile COST OF HUMAN GENOME NOW ON PAR WITH OTHER DX TESTING

  12. Innovation’s Impact on the Cost / Care Continuum: Targeted Therapy EFFICACY RATES OF SELECTED DRUGS FOR MAJOR THERAPEUTIC AREAS Source: Spear, Heath-Chozzi and Hunt: “Clinical application of pharmacogenetics,” Trends in Molecular Medicine, Vol 7 No.5, May 2011

  13. Smaller Companies Generate Higher Number of Approvals • Small companies generate higher percent of new molecular entity (NME) approvals, a category once dominated by large pharma NME PRODUCTIVITY Source: Nature Reviews: Drug Discovery, Lessons Learned from the Pharma Industry, December 2009

  14. Early and Later Stage Assets Meet the Needs of Acquirers: Investor Focus Should Reflect Their Needs • Acquirers seek early-stage assets to build long-term pipelines and later-stage assets with potential to alleviate potential revenue losses from patent expirations BIFURCATION OF EXIT VALUES (SAMPLE FROM 2008-2011) Platform(n=19) Number of M&A Transactions by Stage of Lead Asset Over Time 2008 - 2011 (1, 2) • (1): Early stage includes Preclinical, Phase 1 and Proof-of-Concept Phase 2; mid stage includes Post-Proof-of-Concept Phase 2 and Phase 3; late staged / marketed includes NDA submitted, FDA approved and commercial assets. • (2): Includes announced transactions of $100M or more; excludes terminated transactions and reverse mergers; excludes transactions where deal value was not disclosed. Source: Bay City Capital

  15. Healthcare Investment Trending Position: M&A Realizations Exceeding Investment NET CAPITAL FLOWS Private Biotech M&A Realizations vs Total Private Biotech Company Financing More M&A More financing Source: Bruce Booth, “Venture-Backed Biotech’s 2011 M&A Exits Outpaced Both Investments and Fundraising”, Forbes, January 16, 2012

  16. Implications for Venture Capital Investors • Focus on getting the right drug to the right patient at the right time to address both care and cost • Pharma’s dependence on innovation will continue • The imperative to go global: growth will come from outside of the United States • Shifting paradigms and capital scarcity present unique and compelling investment conditions

  17. Ingredients for Success • Leaders in a community should realize that there is robust international competition for preeminence in life sciences. • A strong commitment to collaboration and partnership is a condition precedent. • The Quebec Consortium for Drug Discovery (CQDM) is a good step. • The research commitment from the government to fund basic research must be present. • Canada leads the G7 in per capita funding of public sector research • There must be an active and effective technology transfer capability within leading universities. • University of British Columbia (#14), University of Toronto (#22), and McGill University (#24) all rankamong the top 50 life sciences universities • The most important ingredient to the secret sauce of success in life sciences is access to capital. • Private or venture capital is the central component that is often missing from most life science economic development plans.

  18. Next Steps • What can be done in Canada and Quebec to improve access to venture or risk capital? • And how can smaller firms more easily secure an opportunity to sell their product or company, or license their invention to a larger entity? • Organizations like CQDM are working to address these issues by fostering partnerships between academia, government, and industry • Working as a consortium with six of the world’s major pharmaceutical companies around the table • Fostering partnerships with organizations across provinces to build out the life sciences community throughout Canada, such as the Ontario-Quebec Life Sciences Corridor initiative • A financial commitment from the private sector is necessary to create a pool of venture money sufficient to create and sustain young Canadian companies. • Examples such as Merck’s collaboration with Lumira Capital, Teralys Capital, and others to provide investment capital to early-stage biotech companies in Quebec.

  19. VC Perspective – A Vision for Global Investing Fred Craves, PhD

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