Welcome to BioMarketing Insight's monthly newsletter.  

It is the start of a new year and our industry is still experiencing changes with healthcare reform, pricing pressures, patent cliffs, and regulatory requirements. Companies will need new short and long-term business strategies to survive in this stochastic (unpredictable) climate. This newsletter will cover the key areas I believe must be considered. Survival and growth will require changes.

Read on to learn more about this topic and other current news. On the right are quick links to the topics covered in this month's newsletter. The next newsletter will be published on Feb. 15th.   

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Please email me, Regina Au, if you have any questions, comments, or suggestions.

Sincerely,

Regina Au

Principal, Strategic Marketing Consultant

BioMarketing Insight 

Change can be awkward and uncomfortable yet in this current stochastic (unpredictable) environment, change is inevitable. As the market changes one need to change to survive.

So what do I mean by change?

Change means doing business differently and thinking differently. It is no longer "follow the leader" in terms of business models, R&D disease focus, customer focus, manufacturing focus, etc. Looking back at the history of BIG pharma, biotech, and medical device, when one of the BIG companies decided to do something, everyone would follow. Looking at all the major companies, the R&D disease focus is the same; these days everyone has a rare disease business unit. Most companies are focused on emerging markets (BRIC) for growth and have an emerging market business unit. If you did not look at their names, you would not be able to distinguish one company from another.

If companies applied the same rules of marketing to their company the same way they market their products, they would know that every company has different strengths or different core competencies and capitalizing on their strengths in developing drugs or devices is their competitive advantage in the industry. Other companies would look to them for their particular expertise. A company can no longer be good at everything and do everything itself. It must distinguish itself from others to survive. If this means outsourcing (locally or internationally; to academics, consultants or contractors), licensing, partnering, or collaborating in areas outside its core competencies, then it's worth it in terms of acquiring expertise and achieving cost-efficiency. As companies adopt this strategy, they will look very different from one another in terms of infrastructure, R&D disease focus, etc.

Doing business differently also means focusing on areas others are not pursuing. Choosing disease areas or pathways and businesses that are "unpopular" but still lucrative has less competition and you can conduct partnerships, collaboration, or licensing deals at a reasonable price as oppose to areas that everyone is pursuing. I am so glad Chris Viehbacher; CEO of Sanofi in a recent interview with Bloomberg business news has the same philosophy. He said that Sanofi is interested in emerging markets or countries that "aren't everybody's focus," beyond China and India.   

What do I mean by cost-efficiency?

Cost-efficiency means doing what needs to be done to save time, money and obtain the expertise one needs to get the product to market. It does not mean cheap. For example, if you have an R&D problem you are trying to solve and you need it in three months and you don't have any internal expertise, you can do one of two things: option 1 - have the internal people try to solve the problem, which may take six months; option 2 - have an expert come in, which will cost more upfront (consultant fee plus surcharge for rush job), but the expert can solve the problem in three months. Going with option 1 means delaying your deadline and the cost would be a six month cost plus possible lost opportunity cost if the goal is to get your product on the market first. Going with option 2, if the overall cost of the project is less than the six month cost for option 1, then bringing in a consultant is more cost-efficient in expertise, time, money, and achieving the goal of first to market.

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Everyone thinks bigger means the company is more stable, has more resources, and is less risky because its participation in multiple industries spreads the risk. This is true in a deterministic or stable market but not in a stochastic market. Bigger companies tend to have more silos, be more bureaucratic and slow to change. In a stochastic environment, where things are unpredictable, companies need to change more quickly. Abbott realized this when it decided to split into two separate companies, pharma and medical device. Each company is in different industries and operates differently. This results in changes that can be implemented more quickly solely in the relevant industry and it provides more transparency to investors as the companies succeed.

Being number one or the biggest company have made this industry too competitive and focus on quantity and not quality particularly when it comes to acquisitions. Acquisitions are the buzz word but one of the hardest things to do in acquisitions is to integrate the corporate cultures successfully. It also creates redundancies in jobs which no company can support unless there is retraining for other jobs that don't currently exist. But retraining is costly and time consuming as oppose to hiring someone who already has those skills. So unfortunately what we have seen with all sizes of acquisition are layoffs and the bigger the acquisitions such as the mega-mergers the larger number of layoffs.

Does multibillion dollar acquisitions for one product, such as Pharmasset's Hepatitis C (Hep C) product for $11 billion by Gilead, represents a true valuation? Granted, the average R&D cost to bring one drug to market is $1.3 billion dollars, but Pharmasset's drug still needs to pass Phase III, the largest and most costly trial and while you do shave off 8 to10 years of research and it may be the next standard of care in a large market, is it worth $11 billion? The recent acquisition of Inhibitex's Hep C product by Roche was $2.5 billion and this drug appears to have a similar profile to Pharmasset's drug. Let's not forget that there maybe a potential Hep C vaccine (iTherX) down the road. One would surmise that a more expensive acquisition means a better drug but that may not be the case here. Bigger doesn't always mean better.

I like Chris Viehbacher's comment on the Hepatitis C frenzy in a recent interview, "The trick in M&A is to go find something not everybody is looking at," Viehbacher tells Bloomberg news service. He wants to get as far away as he can get from crowded bargaining tables.

We all know that with the current regulatory and reimbursement environment, unless a product is far superior to the existing class of product on the market, the product won't get approved, reimbursed, or used. If a product is not first or second in the market, it will have a very difficult time competing in the market successfully.

The mindset of every company going after the same disease or lucrative market has to change. Every company can not go after the same diseases anymore when only the first two products in the market can succeed; late would-be entrants should instead focus on other diseases with unmet needs, where the return on investment will be more favorable. This is a positive move because as we understand other diseases, we will find that all diseases are related to one another directly or indirectly because our whole body works as an interconnected network. The more we can understand diseases and their relationship to each other, we can then find the most effective cures or treatments with the least amount of side effects.

This is similar to the systems biology approach in understanding diseases from a macro and cellular level and how it relates or is linked to other diseases. In learning more about diseases, partnerships, and collaboration are essential in speeding the discovery, development, and approval of products to the market. There may be only two products in a class of products in a specific market that can compete successfully but there may be at least four companies that can benefit from it instead of two.  

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Business Strategies

Merck CEO Kenneth Frazier said, "The future of the industry is going to be more partnerships," at a Goldman Sachs' event in New York recently. "We're going to continue to look for more partners to create the best therapy for patients." He added: "My goal is to augment the pipeline. The way to augment is to find those assets that we can acquire. Typically, for Merck, the sweet spot has been (to acquire them) earlier rather than later."  

In Merck's case, partnership may refer to acquisitions that decrease cost and time in R&D and speed to market; at other times, partnership may mean joint marketing programs with Roche to promote their Hepatitis C drug Vitrelis. For other companies, partnership can entail collaborations on anything from R&D to manufacturing to marketing to supply chain depending on their core competencies and where they would like to obtain expertise or offer expertise. Partnerships means more companies win rather than just one company. It also means less competition and hopefully, more dollars dedicated to treating other diseases.

For this industry to survive, more companies need to employ partnerships, collaborations and licensing agreements so they can share the wealth and get more products to market to meet the unmet needs of other diseases.

Business Models

In addition to business strategies, companies are trying different types of business models such as Pharma/medical device-diagnostics, pharma/medical device-consumer health, and pharma-animal health.

There are two other business models that companies may want to consider: 1) pharma/medical device - preventive medicine and 2) pharma/medical device - alternative medicine. At first glance, this may not seem like a lucrative business model, but let's take a closer look at what I mean.

1) Pharma/medical device - preventive medicine:

While prevention is the opposite of treatment, with the rising cost of healthcare, if we don't turn towards prevention, our healthcare system will eventually go bankrupt. This is already happening with the pricing pressures and with regulatory requirements for better efficacy and safety profile. Obesity is a good example. The medical industry has spent more money on R&D (at least $5 billion on five drugs) for drugs/devices to treat obesity and the healthcare system has spent more money on treating the complications of obesity which includes type 2 diabetes, hypertension, heart disease, some types of cancer, than any other disease alone. Although many companies have tried to develop products to conquer obesity, no company has been successful yet. Type 2 diabetes is another example.

Obesity and type 2 diabetes can be prevented yet these two disease are growing to epidemic levels (see my June/July newsletter for more info). If we don't aggressively educate and change the mindset of people on eating and living healthy in preventing obesity, the complications resulting from obesity will shorten the life expectance of these people and the cost to treat these complications will only escalate. I compare obesity to cancer. Cancer, if left untreated will progresses to stage 4 (the worst case) and the odds of any drug halting the progression of the disease is very small.

Prevention programs, some may refer to it as Wellness program in the long term can free up dollars that would have been spent to treat complications of obesity to other hereditary, acquired infectious and environmental disease and disease of the aging. Ideally, the pricing pressure will disappear and more government resources can be directed toward prevention and treating other diseases. It takes a whole nation to change the mindset of people to practice prevention such as no fast food, soft drinks, juices, or chocolate milk in schools. Bring back physical education and home economics classes so people will know how to cook appetizing food that is healthy; subsidize fruits and vegetable growers so lower and middle income people can afford to buy them. I realize there is more involved than what I have mentioned, but we have to start somewhere.

Prevention programs should also include vitamin supplements, devices, or software that reminds one to take their medication, check blood pressure or glucose levels, exercise by taking a break for a walk, etc. It can also include games that encourage people to exercise or eat healthy. Companies would generate revenue from products that work with preventive programs or promote wellness. And if insurances companies would reimburse for these products, more people would be incentivized to do these things.

Healthcare software companies are already taking advantage of this trend. Casenet LLC, a Bedford, Mass- based company, recently obtained $3 million for their software that helps healthcare professionals to identify individuals who need a greater level of managed care from wellness programs to caring for serious illnesses. In 2010, the company secured $8.4 million in equity offering.

2) Pharma - Alternative medicine (nutraceuticals):

Nutraceuticals have become a multibillion dollar market and is growing. Global Industry Analyst projects that by 2015, this market will reach $243 billion because there are still many diseases or symptoms that are not understood and physicians who practice alternative medicine have found ways to treat patients where traditional physicians have been unsuccessful. Nutraceuticals include not only vitamins, but herbs and supplements such as coenzyme Q10, probiotics, L-carnitine, D-ribose and natural hormones such as DHEA, which are found in the body. We don't know a lot about these supplements and traditional scientists and medicine don't give them much merit, but until we study them further in trials, we can't judge them.

Medicine is all about keeping the body in balance or in check. It is not only an eastern philosophy of Ying and Yang, but in reality it is a western focus when one considers the reason we use blood tests.  It is to determine if our chemistries or hormones are in or outside of the established normal range indicating whether one may or may not have a disease. The philosophy is the same, just a different definition. Focusing on the balance of our proteins, chemistry, hormones, etc. is beneficial because in the past we have only focused on which pathway to inhibit to cause a decrease in something. What if we increase say a low DHEA level, will it help the situation? Physicians who practice alternative medicine have found that many of their patients have responded to supplements. For example, recent studies, have found that low vitamin D is linked to heart disease.  The addition of supplements may help us learn more about different diseases and it may be the combination of adding supplements with an inhibitor that restores the body to its normal state. In this case, treating a patient may require smaller amounts of both agents as oppose to trying to use larger amount of a single agent for a therapeutic affect. Generally, administering smaller amounts of drug or supplement will result in fewer side effects and minimize safety issues with the FDA.

Cebix, a San Diego start-up is completing a 30 patient study of C-peptide replacement therapy to treat complications of type 1 diabetes. Studies show that C-peptide plays a role in keeping the smallest blood vessels healthy in different tissues. The deficiency of C-peptide, which is produced naturally in the body during the process that forms insulin, leads to nerve damage and a variety of other complications in patients with type 1 diabetes. The company plans to conduct a pivotal study with 600 patients.   The company raised $28.5 million for their first round of funding from Sofinnova Venture, InterWest Partners, and Thomas McNerny Partners.

Even though nutraceuticals can not be protected with patents, nutraceuticals are already being used in significant amounts and sooner or later, the FDA will have to regulate nutraceuticals because taking more supplements is not necessarily better and can be dangerous. The regulatory requirements for studies and GMP in manufacturing will give drug companies an advantage over anyone else trying to enter the market.  

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Some of the things I've talked about are already happening with some companies in terms of partnerships (i.e. Syndax and Roche's Ventana - pharma/medical device), collaborations, and licensing agreements however, it is not mainstream yet. Whether this is happening for the reasons I've stated above, I don't know, but each company will be different based on its goals, strengths, and core competencies. But some of the other topics I covered should be considered in understanding all diseases better and putting more focus in terms of money and research in unpopular diseases. The government is currently giving incentives for orphan diseases, diseases in children and encouraging companies to include more women in trials. But what about the diseases that fall between the multibillion dollar market and orphan diseases? There are a lot of diseases that fall between these two categories that are lucrative or profitable. If everyone focused on a different disease in this space, everyone would profit and have minimal competition.

Is this idealistic? Maybe, but we've gotten to the point where we all "must change" so why not strive for the best where we are all winners? There is no right or wrong business strategy or business model. The challenge is to find the business model and strategy that best suits each company and is profitable. Investors also need to understand this rather than focusing on who has the bigger deal.

In the end, as my former boss at Merck used to say, if you think about the patient first, the profits will follow.

Images of a nanowire endoscope in close contact with a quantum dot cluster in a HeLa cell (left), and separated vertically from the cluster by 2 mm (middle) and horizontally by 6 mm (right). Colored circles and arrows mark the position of the cluster and movement of the endoscope.(Image courtesy of Berkeley Lab)

A team of researchers from the Lawrence Berkeley National Lab and the University of California-Berkeley developed a novel endoscope system by attaching a tin oxide nanowire waveguide to the tapered end of a fiber-optic fluorescent imaging system to emit light into free space.

This novel endoscope system enabled the researchers to "manipulate light at the nanoscale inside living cells for studying biological processes within single living cells with high spatial and temporal resolution,: says Peidong Yang, the lead on the project with Berkeley Lab's Materials Sciences Division. The team showed that the "endoscope can also detect optical signals from subcellular regions and, through light-activated mechanisms, can deliver payloads into cells with spatial and temporal specificity," said Yang.

"Inserting the nanowire into the cell cytoplasm did not induce apoptosis (cell death), significant cellular stress, or membrane rupture. In addition, illuminating the intracellular environment of HeLa cells with blue light using the nanoprobe did not harm the cells because the illumination volume was down to the picoliter scale," said Yang.

The endoscope system solves previous problems with other nanotube-based single-cell delivery systems that required 20-30 minutes for delivery. Quantum dots attached to the tip of nanowire can be cleaved by low-power ultraviolet radiation using photoactivated linkers. Within one minute, the nanowire endoscope was able to release its quantum dot cargo into the targeted intracellular sites.

For the full story in BioOptics World, click here.

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Thirty-eight Medical Device and Twenty Pharma/Biotech Funding Deals

Funding deals are of all types (Angels, VC, foundation, NIH, State Innovation Funds, other drug/device companies, etc.) of investments for both US and Worldwide. Healthcare software or IT companies are also included since investors are focusing on this area.

$0 = No financial terms disclosed. For more information, read more....

$0 = No financial terms disclosed. For more information, read more...     

Acquisitions are for both US and worldwide for companies and specific assets or products. There have been a number of nonmedical consumer companies entering the medical market with Samsung electronics acquiring Nexus, a diagnostics company and Ametek electronics acquiring Reichert Technologies, an eye device maker. Now Fujifilm is entering the medical device market with the acquisition of Sonosite.

$0 = No financial terms disclosed. For information on specific companies, read more....

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