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EY Biotechnology Report 2017: Beyond borders - Staying the course

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This deck provides the top takeaways and market insights from the EY annual biotechnology industry report, Beyond borders – staying the course (ey.com/beyondborders). This deck was presented by Glen Giovannetti, EY Global Biotechnology Leader (glen.giovannetti@ey.com), at the 2017 BIO International Convention (http://convention.bio.org/2017/) in June in San Diego.

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EY Biotechnology Report 2017: Beyond borders - Staying the course

  1. 1. Biotechnology Industry Report 2017 Staying the course Beyond borders
  2. 2. Page 1 Biotechnology Industry Report 2017 | Beyond borders Beyond borders 2017 Key trends and implications
  3. 3. Page 2 Biotechnology Industry Report 2017 | Beyond borders Despite multiple uncertainties, the biotech industry stays the course in 2016 Industry financing dips 27%, but … … is third highest total in 31 years Decline in IPOs and follow-ons, but … … robust early stage VC investment Deal milestones more common, but … … M&A total second highest in history Market cap falls below US$1t, but … … rebounded in 2017 Net income drops 52%, but … … R&D spending hits new record FDA approvals drop sharply, but … … FDA remains science and access focused Ongoing drug pricing pressure, but … … industry adapting to value-based payments
  4. 4. Page 3 Biotechnology Industry Report 2017 | Beyond borders In the dynamic biotech landscape, the only certainty is uncertainty “I can’t think of a period that has been characterized by so much uncertainty as the past six to nine months. … The uncertainty is a factor that comes up in every board meeting I attend.” – Alan Mendelson, Partner Latham and Watkins Successful companies have “learned to filter that [uncertainty] out and focus on the things that are right for the company. There may be tax reform. There may be repatriation. But you can’t count on it – and you can’t wait for it either.” – John Milligan, CEO Gilead Sciences
  5. 5. Page 4 Biotechnology Industry Report 2017 | Beyond borders Key performance metrics for US and EU biotechs (US$b) Numbers may appear inconsistent because of rounding. Commercial leaders are companies with revenues in excess of US$500m. Sources: EY; S&P Capital IQ and company financial statement data.
  6. 6. Page 5 Biotechnology Industry Report 2017 | Beyond borders Financial performance of US biotechnology commercial leaders and other companies (US$b) US biotechnology: commercial leaders and other companies (US$b) 2016 2015 US$ change % change Commercial leaders Revenues 98.8 93.7 5.1 5% R&D expense 21.9 18.8 3.1 16% Net income (loss) 29.1 32.0 (2.9) (9)% Market capitalization 522.0 660.3 (138.3) (21)% Number of employees 87,930 77,823 10,107 13% Other companies Revenues 13.4 13.7 (0.3) (2)% R&D expense 16.9 15.2 1.8 12% Net income (loss) (19.9) (16.6) (3.2) 19% Market capitalization 176.7 231.0 (54.3) (24)% Number of employees 47,846 52,316 (4,470) (9)% Numbers may appear inconsistent because of rounding. Commercial leaders are companies with revenues in excess of US$500m. Sources: EY; S&P Capital IQ and company financial statement data.
  7. 7. Page 6 Biotechnology Industry Report 2017 | Beyond borders Financial performance of European biotechnology companies (US$b) European biotechnology: commercial leaders and other companies (US$b) 2016 2015 US$ change % change Commercial leaders Revenues 23.6 19 4 23% R&D expense 3.5 3.8 (0) (8)% Net income (loss) 2.0 3.0 (1) (32)% Market capitalization 120.9 43.3 78 179% Number of employees 48,233 31,893 16,340 51% Other companies Revenues 3.7 3.6 0 3% R&D expense 3.4 2.9 0 16% Net income (loss) (3.3) (2.0) (1) 66% Market capitalization 43.2 132.3 (89) (67)% Number of employees 19,405 16,721 2,684 16% Source: EY, S&P Capital IQ and company financial statement data.
  8. 8. Page 7 Biotechnology Industry Report 2017 | Beyond borders Financing Investors downshift in 2016
  9. 9. Page 8 Biotechnology Industry Report 2017 | Beyond borders 2016 was another strong year for “innovation capital” in the US and Europe Sources: EY; S&P Capital IQ and VentureSource.
  10. 10. Page 9 Biotechnology Industry Report 2017 | Beyond borders VC investment in early stage US- and EU-based biotechs is a reason for optimism Sources: EY; S&P Capital IQ and VentureSource.
  11. 11. Page 10 Biotechnology Industry Report 2017 | Beyond borders US and European venture investment by round Sources: EY; S&P Capital IQ; VentureSource.
  12. 12. Page 11 Biotechnology Industry Report 2017 | Beyond borders New sources of capital are emerging, especially in Asia Size of bubbles shows number of financings per region Innovation capital is the amount of equity capital raised by companies with revenues of less than US$500 million. Sources: EY; S&P Captial IQ and VentureSource.
  13. 13. Page 12 Biotechnology Industry Report 2017 | Beyond borders Dealmaking Dealmaking remains active, though not as lucrative, for biotechs
  14. 14. Page 13 Biotechnology Industry Report 2017 | Beyond borders 2016 was another strong year for biotech M&A Chart excludes transactions where deal terms were not publicly disclosed. Sources: EY; S&P Capital IQ; MedTRACK and company news.
  15. 15. Page 14 Biotechnology Industry Report 2017 | Beyond borders US M&As (2007–16) Chart excludes transactions where deal terms were not publicly disclosed. Sources: EY; S&P Capital IQ; MedTRACK and company news.
  16. 16. Page 15 Biotechnology Industry Report 2017 | Beyond borders European M&As (2007–16) Chart excludes transactions where deal terms were not publicly disclosed. Sources: EY; S&P Capital IQ; MedTRACK and company news.
  17. 17. Page 16 Biotechnology Industry Report 2017 | Beyond borders Top biotechnology IPOs by region (2016) Sources: EY; BioCentury; S&P Capital IQ and VentureSource.
  18. 18. Page 17 Biotechnology Industry Report 2017 | Beyond borders Navigating complexity: key issues for biotechs
  19. 19. Page 18 Biotechnology Industry Report 2017 | Beyond borders Continued success requires the ability to navigate complexity on multiple fronts 1 Product reimbursement 2 R&D efficiency 3 Digital strategy 4 Deal- making How can biotechs accelerate value-based payment models? How can biotechs improve the ROI for their R&D spend? What deal structures and partners give companies the most optionality? What technologies should companies invest in today? 5 Financing volatility What sources of financing are most relevant?
  20. 20. Page 19 Biotechnology Industry Report 2017 | Beyond borders Complexity: product reimbursement As conversations shift from price to value, what steps do biotechs need to take? ► As emphasis on demonstrating value grows, biotechs should consider: ► Investing in real-world evidence to capture patient-centric data during development ► Using biomarkers to segment populations to demonstrate improved efficacy ► Incorporating stakeholders’ definition of value into pricing decisions ► Around-the-product services that will enable better outcomes ► Proactive pay-for-performance deals with payers (depending on therapeutic area) Future strategiesTraditional strategies Emerging strategies Rebates and discounts Patient assistance Indication- specific pricing Financial- based risk sharing Performance- based risk sharing Annuity models Capitation 1
  21. 21. Page 20 Biotechnology Industry Report 2017 | Beyond borders Complexity: R&D efficiency How can companies improve efficiency via new technologies and capabilities? ► Right drug to right patient at right time ► Highest use in oncology ► Shortened development time ► Increased probability of success ► Increase probability of success ► Reduce capital invested ► Shortened development time ► Increased sales ► Using technology to monitor trials remotely ► Increased regulatory compliance ► Shortened development time ► Use social, mobile and big data ► Develop disease models and advanced therapy solutions ► Targeted clinical recruitment ► Real world efficacy and safety Precision medicine Biopharmas must overcome challenges to transform the R&D process. Emerging understanding of disease Data security and governance issue Partnering with new players Lack of FDA guidance- regulatory fears Lack of resources (talent and funds) 2 New trial designs Risk-based monitoring Data analytics
  22. 22. Page 21 Biotechnology Industry Report 2017 | Beyond borders Complexity: digital strategy Technological advances will change biotech value chain Smart and connected Sensors Device miniaturization Artificial intelligence Cheaper sequencing technology Block chain 3-D printing Cloud computing Robotics Memory processing More data has been created in the past two years than in the entire previous history of the human race. Empowered by data Data-focused companies are disrupting the retail, entertainment and transportation industries. Data generation + new technology will disrupt traditional biotech R&D and commercial activities. 3
  23. 23. Page 22 Biotechnology Industry Report 2017 | Beyond borders Complexity: dealmaking What deal structure give biotechs the greatest optionality? ► A significant portion of biotechs will be acquired at some point: ► From 2012-16, 10 of 37 commercial leaders (US and EU) were acquired ► How can companies be more strategic to realize full value from portfolio? M&A optionality Option to buy LLC model Single asset co Sell minority stake Divest business Spin out assets Biogen/Bioverativ JNJ buys Actelion; spins out Idorsia Lonza sells peptide biz to PolyPeptide Roche/Genentech Gilead/Nimbus Apollo program in NASH Takeda/Maverick Therapeutics Medicxi funds Kymo Therapeutics through POC 4
  24. 24. Page 23 Biotechnology Industry Report 2017 | Beyond borders Complexity: financing volatility Sharp decline in US and EU IPOs underscores financial volatility 5 Sources: EY; S&P Capital IQ and VentureSource.
  25. 25. Page 24 Biotechnology Industry Report 2017 | Beyond borders Complexity: financing volatility How can biotechs build access to multiple pools of capital? ► Ongoing market volatility driving financial volatility: ► IPO window didn’t slam shut in 2016-17, but for many, it’s not open ► Tougher climate for follow-ons ► Private companies tapping a more diverse set of investors (by type and geography): ► Traditional venture vs. corporate venture/biopharma business development ► Foundations/family endowments vs. growth investors ► Life sciences vs. technology ► US vs. Europe vs. China/Asia-Pacific ► Long time cycles and cash required to bring products to market still bias to public listings 5
  26. 26. Page 25 Biotechnology Industry Report 2017 | Beyond borders EY survival index for US and EU biotechs (2015–16) Chart shows percentage of biotech companies with each level of cash. Numbers may appear inconsistent because of rounding. Sources: EY; S&P Capital IQ and company financial statement data.
  27. 27. Page 26 Biotechnology Industry Report 2017 | Beyond borders Beyond borders 2017: key findings Payers’ cost containment efforts result in slowing top-line growth for biotechs. Product reimbursement1 R&D investment increased but FDA approvals dropped; improving R&D efficiency is an ongoing area of focus. R&D efficiency2 Partnering with new technology entrants to access new digital capabilities is a key topic. Technological change3 Capital markets pull back significantly in 2016; biotechs must take advantage of a broader investment pool. Financing4 M&A activity remains strong, but up-front commitments for alliances decline as biotech valuations fall. Dealmaking5
  28. 28. Page 27 Biotechnology Industry Report 2017 | Beyond borders When the only certainty is uncertainty, is staying the course your best bet?
  29. 29. Page 28 Biotechnology Industry Report 2017 | Beyond borders Additional resources Contact an EY advisor: ► Glen Giovannetti EY Global Biotechnology Leader glen.giovannetti@ey.com ► Jürg Zürcher EY Biotechnology Leader, Germany/Switzerland/Austria juerg.zuercher@ch.ey.com ► Ellen Licking EY Global Life Sciences Senior Analyst ellen.licking@ey.com Also: ► Download the report: ey.com/beyondborders ► Explore/subscribe for new content: ey.com/VitalSigns ► Follow us on Twitter: @EY_LifeSciences
  30. 30. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2017 Ernst & Young LLP. All Rights Reserved. EYG no. 04481-174Gbl CSG no. 1706-2348176 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made. ey.com/lifesciences ey.com/vitalsigns

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