Business Development & Licensing Journal www.plgeurope.com A great journal for biz dev, commercial development, you should subscribe The Reverse Start-Up Model: An organisational approach to bridge the innovation gap What needs to be done to improve or change the lack of commercial development productivity of the life science industry, specifically the pharmaceutical and medical device industries? Having an innovative approach to creating diversified commercial opportunities can drive enterprise value, share appreciation and diminish the attrition rates of development failure. Having a model that outlines the end results and the steps necessary to achieve it can provide a sustainable and scalable approach to managing and growing your life science organisation, be it large, small or an early-stage venture.

1. Issue 7 • Winter 2009 www.plgeurope.com
Business Development
& Licensing Journal
For the Pharmaceutical Licensing Groups
Partnerships: Necessary but not Sufficient?
The Perfect Business Development Organisation
The Reverse Start-Up Model
Opportunities and Challenges in Licensing
Creating Real Value in Pharmaceuticals

2. Business Development & Licensing Journal
The Reverse Start-Up Model:
An organisational approach to
bridge the innovation gap
What needs to be done to improve or change the lack of commercial development productivity of the
life science industry, specifically the pharmaceutical and medical device industries? Having an innovative
approach to creating diversified commercial opportunities can drive enterprise value, share appreciation
and diminish the attrition rates of development failure. Having a model that outlines the end results and
the steps necessary to achieve it can provide a sustainable and scalable approach to managing and
growing your life science organisation, be it large, small or an early-stage venture.
by Neil J Campbell, Many think that 2007 may be remembered as the year to the ability of the biotech sector to understand
that Big Pharma decided that consolidation with larger more deeply their scienific platforms and to be able
CEO, Mosaigen, Inc Biotech companies would be the answer to the many to apply that knowledge to better, more targeted
and Partner, Endeavour problems currently plaguing Big Pharma’s ability to disease indications. Some of the biotech companies
drive new product innovation, which is turn, drives the are just plain lucky as well.
Capital Asia Ltd enterprise value and long-term stakeholder value. The
Big Pharma component of the industry spent over US$ Some limited successes over the past decade in the
55.2 billion in 2006 (2007 estimates are over US$ 63 pharmaceutical sector as related to new product
billion) on drug R&D an increase from US$ 26 billion innovation came from such tactics as new indications
they spent in the year 2000 with a declining number for existing approved products, new formulations of
of drug approvals after that according to the PhRMA existing approved products, and in an interesting, but
report released in 2007. Over the past decade, Big early trend, drugs developed into medical devices
Pharma has continued this downward trend of called therapeutic devices such as the drug-eluting
decreasing late-stage drug candidates and stagnant stent used in angioplasty for opening up arteries.
regulatory approval rates. With the severe melt-down Other tactical moves have included the expansion of
of the worldwide financial markets in 2008 and the generics in a portfolio management play with ethical
lack of continued innovation of pharmaceutical drugs. The most advanced and aggressive tactics
companies, an innovation gap has occurred and is have been to drive the nutritional and natural aspects
widening at an alarming rate. Biopharmaceuticals on of compounds in an approach towards nutraceuticals
the other hand have seen an increase in productivity in and functional food, beverages and ingredients. In
both the number of drugs developed and approved. fact, there has been a big push from the Indian
sub-continent and Asia/Pacific to incorporate these
Some would argue that the biotech sector’s success nutraceutical ingredients into new formulations
has been attributed to its increase in specificity of combining them with approved drug products.
how drugs work towards the intended target
indications. Others will attribute the greater success All of these approaches highlight a need to continue
to innovate in order to generate, a viable pool of
candidates for drug products. Combine this trend
Figure 1: The Pharma Innovation Gap
with the increasing nature of various disciplines’
Increased R&D spending yielding lesser drug approvals
integrating into the biological and pharmaceutical
sciences and you have new and proprietary
$70 60 technologies to generate more ways you can make
Pharma R&D
an organisation become more sustainable and
investment
scalable over time. The reason for this sustainability
Biopharm R&D
$60
and scalability is that past proven success in
50 investment
understanding the science and technology acts like a
New drug
building block. These building blocks serve as a
$50 approvals US
Pharma R&D ($Billions)
foundation; much like a house has a foundation, to
New drug approvals
40 FDA
support further development of infrastructure and
Pharma
$40 the resulting products that come from these efforts.
Innovation
30
Gap
In order to take advantage of this ‘out of the box’
$30
thinking in approaching drug and device
development, the organisation must have strong
20
interdisciplinary technical capabilities along with a
$20
strong corporate and business development
function. The deal-making that results from this kind
10
$10 of approach is very intense, sometimes a challenge to
manage and must result in a unified approach in
managing the overall portfolio of deals.
$0 0
1992 1996 2000 2001 2002 2003 2004 2005 2006 2007
Sources: Pharmaceutical Research and Manufacturers (PhRMA) Annual Report 2007; Burill & Company Report 2003;
PhRMA Annual Member Survey, 2007; US Food & Drug Administration Databases
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3. Issue 7 • Winter 2009
Why is that? Whether you are developing bioscience Figure 2a: Three or more mid or later-stage assets thematically linked
products, selling them, or trying to license them, it is
a numbers game and the more projects you have in
parallel, but staggered, the higher the odds that you
will get something finished. The high attrition rates in
“Repurpose technology
development lend themselves to this ‘numbers in your Build the long-term growth
whenever possible”
favour’ approach to getting something approved. The (add earlier stage)
Adoption rates of customers
Market share of customers
approach in business development is no different, as
there are many deals where the timing is long, and
complicated in how the science could be developed.
If you are thinking more broadly and with the License/acquire or build a Pipeline
ever-changing roles of managers today in companies, of follow-on development candidates
you are most certain to lose a significant number of
deals to attrition. Add to this dilemma the need to
have a broader range of technical expertise on staff
and the situation can be quite daunting.
Start with a base of
We outline in a summary way a new approach to Near-marketed products or marketed products
creating sustainable revenues and enterprise value.
By starting with the end results in mind for an
Time to commercialisation and breakeven
organisation, the organisation can use an approach
called The Reverse Start-Up (RSU) Model. In Figure
2a, we outline the process to create an organisation
whereby it will have staged products according to
the market needs in a designated franchise area. You actions to the surface in building out the
start with the requirements necessary to drive the organisation. Then by combining later-stage
initial growth of the organisational by defining later products/technologies/services first and working your
stage products/technologies and work your way way back to earlier stage, you create a broader, stable
back to early-stage products. platform for commercial development.
At the same time you define the steps in a five year In Figure 2b, we outline a real company that was
time horizon to achieve the desired outcome. In a evolving from solely a research and diagnostics
process called the Five by Five (5x5) as depicted in product company to an integrated company with full
Figure 2b, developed by the author over fifteen years therapeutics capability in cancer and metabolic
ago, you lay out the most critical actions to be syndrome. The disease focus resulted in a process of
achieved in descending order per year for five years. targeting two small companies with scientific
capabilities in these areas along with the mechanism
You can’t progress to year two, until you satisfy all of of action of the drug programs coinciding with the
the five in the previous year and so forth. If after the proprietary nature of the molecular and protein
first year, you realise the five actions were not the diagnostic technologies. In this case, to increase
proper ones you must restate them in order to patient care success, diagnostics helps to increase the
achieve closure and move onto the next year period. effectiveness of treatments.
This strategic thinking process forces the organisation
to identify the most important elements in each year The RSU approach provides for broader thinking in
to accomplish the number one company goal which what is needed to analyze, develop and manage a
is listed on top of the five. Like climbing stairs, you plan of research, development and commercialisation
must complete the five each year before you can of a group of products by focusing on the science
move into the next year. By utilising a 5 by 5 and technology needed to support such a broader
approach, you statistically will force the most pressing perspective. Be it a small or large company, if the
Figure 2b
Theranostics Company
Mission of company
To become the leading theranostic company 1. Expand research products
in Oncology, CNS or Metabolic by providing 2. Expand clinical Dx
leading-edge technologies & products in the 3. Move Proj X to Group #2
Theranostics
areas of DNA-based and proteomic research 4. Clinical studies of Rx drug
integration
& diagnostic assays. 5. Increase revenue to $60M
Our company will offer the most advanced 1. Partnership launch of kit(s) Tx
Organise
detection and processing system for 2. Product line expansion of assays & kits
diagnostics
quantatative DNA & Protein Analysis. 3. Project X in field use by Group #1
Continue research 4. Start pre-clinical studies for Rx candidate
We will eventually evolve into a full
products 5. Increase research, grants & revenue to $45M
theranostic company by moving into drug
development. 1. Pick lead disease area
2. Conduct clinical Dx work
3. Develop arrays & assay kits, expand sales
Develop Dx 4. Conduct Project X clinical studies
Find Rx 5. Increase research, grants & revenue to $30M
1. Secure Dx partner, new assays, proteins
2. Develop kits & high density quant. Protein microarray product
3. Secure Project X grant funding, NGO approval
Spinout: become 4. In-license Rx protein target for theranostic: Cancer, CNS or Metabolic
sustainable TGT: $10M 5. Increase research, grants & research revenue to $15M
1. Spin out from parent company, minority owned
2. Transfer grants/new grants: target $3M first 12 months
3. Obtain $6M from parent company
4. Sell research reagents (OEM) increase 50%
5. Do assay development: Strategic partners, bring in $5M
13

4. Business Development & Licensing Journal
company can define all of the material elements companies, either through M&A activity or one-off
necessary to have a global expertise and presence, licensing/asset sale build truly sustaining disease
then it can define what the resulting company will franchises. The majority of company or asset
look like. Are you a cancer company, or a women’s acquisitions/ in-licensing are intended to solve the
health company focusing on reproductive cancers in shorter-term need for revenues than to build a
terms of pharmaceuticals, diagnostics and medical broader, more diversified franchise in a particular
devices? This more holistic approach allows market need segment or disease area. Over the last
companies to build franchises around prevention, twelve months, a trend of buying U.S.-based
treatment and monitoring for classes of disease and companies (five of the acquisitions were U.S.-based)
their resulting products than approaching a ‘one-off’ by companies in Asia and Europe are showing this
approach to cancer or any other disease. Very few philosophical difference in approaching longer-term
value building of their companies.
Table 1
The Asian and EU companies in Table 1 are growing
Buyer Buyer Acquiree Acquiree Deal Deal
their mix of both product types (generics, small
home city home city size announced
molecules, biopharm) along with over-the-counter
AstraZenecaPLC London MedImmune Gaithersburg, Md. $13.8 billion April 24, 2007
(OTC) in their drug strategies. Some such as Novartis,
Novartis AG Basel, Switzerland Alcon Vevey, Switzerland 10.5 April 8, 2008 AstraZeneca, Takeda and Teva are moving to combine
drugs, devices, and diagnostics in areas that will require
Takeda Osaka Millennium Cambridge, Mass. 8.8 April 10, 2008
Pharmaceuticals
a more diversified approach to health management.
Hologic Bedford, Mass. Cytyc Marlborough, Mass. 6.3 May 21, 2007
Siemens AG Munich Dade Behring Deerfield, Ill. 6.2 July 26, 2007
Holdings
The Reverse Start-UP Applied
Warburg Pincus New York Bausch & Lomb Rochester, N.Y. 3.6 May 17, 2007
Model (RSU)
Eisai Co., Ltd Tokyo MGI PHARMA Bloomington, Minn. 3.3 December 11, 2007
Medtronic Minneapolis Kyphon Sunnyvale, Calif. 3.3 July 28, 2007
Roche Holding Basel, Switzerland Ventana Medical Tucson, Ariz. 3.1 June 26, 2007
With any model or approach comes a set of guidelines
Systems
that drive a framework to thinking and resulting
Celgene Summit, N.J. Pharmion Boulder, Co. 2.5 November 19, 2007
actions. The RSU provides a simple, yet unique, way to
define your business in both terms of strategic value
as well as the shorter term tactical value of your
Figure 3
enterprise. The RSU is more of a process whereby an
organisation can define business opportunities that
will drive growth as well as to build platform and
#7 #8 #9 #10 #11 #12
Products product opportunities for an organisation longer term.
Let’s take a closer look at the RSU approach. In any
situation whereby you are trying to minimise risk and
increase the possibility of gains, you want to generate
an approach/model that generates multiple, but
Platform Platform Foundation Platform related, options or conduits for growth that can build
on each other. These could be technology platforms,
mechanisms of action, pathways in disease, drug
classes, drug/device and/or drug/diagnostic
combinations. By analysing and planning out your
#1 #2 #3 #4 #5 #6
Products operational strategy around this Multiplicity strategy,
you can increase your odds of success and mitigate
your chances of failures. (See Figure 3).
A more balanced development portfolio produced
Platform Foundation Platform Foundation by using the Multiplicity approach is shown in Figure
4 for drug development, by combining varying
approaches to manage risk, reward and
organisational expertise. Co-promote and
Co-development options allow an organisation to
Figure 4: Drug development and approval process
build out the capabilities if not already mature or can
give an organisation an even footing with a partner
by sharing the risk and rewards. Although many
Postmarketing – Phase IV “Co-Promote” Approaches
companies may use these strategies individually, the
majority do not use them in a more collective and
directed way to develop a portfolio of commercial
Preregistration – FDA/EMEA “Co-Development” Approaches
development as outlined in Figure 4.
File NDA at FDA
“PDC” Development Approaches The ‘PDC’ or pharmaceutical development company
Clinical Trial Phase III approach is a good way to either manage larger scale
opportunities where the company couldn’t pursue
them all or where a higher-risk or lower priority
Clinical Trial Phase II
project can still have life and bring some monetisation
“Foster” Development Approaches
possibilities to the source company. One option in this
drug multiplicity strategy is the ‘foster’ choice for
Clinical Trial Phase I
“Sponsored” developing projects. Fostering is a process whereby a
Development Approaches company with one or more resources doesn’t have
File IND at FDA
the time, money or franchise expertise to adequately
develop the project or, where a larger company does
Preclinical Testing
have the money and franchise expertise but, doesn’t
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5. Issue 7 • Winter 2009
Figure 5
– Grants
Revenue Now
Revenue Products Exit: Sale Now
– OEM
– Alliance
– Brand Sales
– Existing Sales
– Consulting
Near-Term Exit: Sale
Revenue 1-3 Yrs
Revenue Products Near-Term
Global Investment Banks
Form Division Non-Dilutive Funding
NexGen NewCo
Exit: Sale,
P&L spinouts from Revenue 0-6 Yrs Partner
holding Co.
Institutional Funding Global Investment Banks
Venture Philanthropy, Angel, VC or PE
have the resources to pursue this and other possibly having increased options by default lowers risk by
related projects. For the larger company, the fostering increasing the numbers to choose from and if done
approach allows competing interest projects to move well, can be very capital efficient as you can utilise
along the development path with options of bringing existing resources, expertise and networks to move
those fostered projects back in-house if results along the most valuable projects.
warrant it. For smaller companies, fostering provides
the building of operational capabilities and expertise The main points for success are to:
in drug development and the chance to option into
Clearly define the OVERALL market opportunity and
a drug resource for future pipeline with a favoured
unmet needs across the complete
nation position.
product/technologies needed to service that market
and unmet needs.
The RSU approach also provides financial and
operational ‘out of the box’ thinking to grow Define the organisation structure and resources
opportunities for expansion of deal flow, ability to needed to develop those capabilities and outline
monetise assets earlier or in tranches or to build a those in a 5 by 5 model for priority thinking. You
diversified healthcare approach to a particular then select the assets/companies that can build the
disease area. Drugs are more capital intensive, take new defined structure, starting with the end in mind
longer to develop and have higher risk profiles or later stage to earlier stage.
associated with them. If the trend of management
As you define the organisation, make sure to
is more holistic, approaches to preventing,
prioritise potential assets/companies on their ability
diagnosing or treating the diseases, the RSU model
to provide more multiplicity of options in
can incorporate the additions of devices, diagnostics,
development. One example that leverages the drug
services and software solutions. With the
development resources of a medium size company
longer-term possibilities of personalised healthcare
is in Figure 4.
and specific disease management and eventual
prevention, the multi-disciplined approach will serve If you define, develop, and execute a reverse thinking
the company better in the long-run. In Figure 5, we or startup approach to building your franchise, you
outline a simple high-level of options outlining the will be more comprehensive in your scope of
ability to generate revenue, manage risk and to build coverage for the market and to the givers of care and
off of earlier capabilities in creating a more diversified will likely have more options that provide security
and holistic operating business. when some projects fail during development.
Lastly, the RSU model can be used to drive a wider
In summary, if an organisation can clearly define a
array of financing and monetisation options to raise
market overview with the unmet needs over a five
non-dilutive money for continued operations and to
year time horizon, then identify the later stage to
drive more sustaining forms of revenue.
earlier stage assets needed, then it can provide for
an initial framework of operating strategy. By
screening and selecting candidates based upon the
ability to create next-generation products or lateral
Neil J. Campbell is currently Chairman & CEO for MosaigeTM, Inc., a global Life Science
products that can increase the multiplicity of
development corporation, located in Germantown, Maryland USA and Partner with
opportunities in the development program, then you
Endeavour Capital, a private equity fund in Asia. During his career, he has successfully
can achieve a greater number of options. This
developed and introduced over 200 products in healthcare, life sciences and information
multiplicity approach as stated earlier will give
technologies. He earned his MBA and MA in Management Systems from Webster University
increase chances of development success by having
in Saint Louis, MO and his BS-BA from Norwich University in New England.
more options to include repurposing of projects,
15