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Podd slides 1
1. An Analystâs View: The Drug Delivery Opportunity
Ian Sanderson
Managing Director
Senior Research Analyst
Specialty Pharmaceuticals
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2. An Analystâs 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?
â the Wall Street perspective
3. Valuing drug delivery development programs
4. Financing drug delivery development
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3. Market perspectives â How we define drug delivery
Old: New:
ïź Reformulation of an existing ïź New molecular entities, with
compound â usually off- new PD profile
patent
ïź Differentiating profiles for
ïź Mostly oral controlled-release complex molecules
ïź Out-licensed post POC - or ïź Site-specific, targeted delivery
earlier - in return for royalty technologies
stream
ïź Internally developed or
ïź Once a life-cycle management partnered
strategy, now a generic
development requirement ïź NME risk and economics
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5. Market perspectives â Where do the opportunities lie?
Evolving regulatory and reimbursement landscape
1. Gradual shift toward comparative effectiveness evaluation â
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
ïź fewer lifecycle extension programs
ïź greater focus on changing/improving therapeutic profile
âŠdriving shift toward NME/NCE development for drug delivery
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6. Market perspectives â 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.
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7. Valuing drug delivery development programs
4 key valuation factors:
1. Targeted patient population and likely penetration
2. Estimated pricing
ïź Incorporates therapeutic profile/differentiation
3. Discount rate
ïź Incorporates cost of capital plus hurdle return rate
ïź We assume positive NPV in our analyses
4. Probability of clinical/regulatory/market success
ïź Usually a rough estimate based on what we know of clinical
trial design, FDA guidance, and medical need
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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
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9. Valuing drug delivery development programs
Changing Assumptions:
Revenues â
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 â
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:
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10. Financing drug delivery development
Options more limited in volatile current market environment
Public market equity financing currently expensive
â if available at all
Debt/Convertible financing more available
â inflexible in a downside scenario
Pharma/Biotech partner financing
â important external validation to investors
â development goals aligned
â usually non-dilutive to equity investors
Royalty-based financing
â available for later-stage programs only
â lower capital costs than equity, less restrictive than debt
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12. An Analystâs View: The Drug Delivery Opportunity
Conclusions:
1. Drug Delivery returning to its routes of solving Tx problems
ï” Platform technologies targeting more complex delivery problems
ï” Development costs increasing â increased reliance on partnerships
ï” NPVâs remain positive â aided by good royalty terms
2. Investors again looking for transformative delivery technologies
ï” High unmet medical needs, strong pricing trends, little managed care
ï” ButâŠless willing to fund development risks and commercialization
3. âŠBut Pharma companies willing to pay up for novel technologies
in earlier development stages
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13. An Analystâs View: The Drug Delivery Opportunity
Ian Sanderson
Managing Director
Senior Research Analyst
Specialty Pharmaceuticals
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