The biotech cycle: Some views from the top

STOCKHOLM – After its fall meeting in Germany, EBD Group's BIO-Europe spring partnering meeting normally heads south to the warmer climes of Spain or Italy. This year, however, it headed north to Stockholm, where spring is still more a suggestion than a reality. The relative chill that greeted delegates arriving in Sweden's capital could be a metaphor for what's ahead for the biotechnology sector in the coming year. The exuberance that was on display even as recently as the fall event last November has all but evaporated. The capital markets are weakening; the U.S. political discussion on pricing remains focused on rogue price-gougers rather than on innovators; and the wider economic picture is still shaky.

Although none of the speakers at the meeting's opening plenary stated it explicitly, the recent cycle of robust investment and deal-making seems to have passed its peak.

As the world's biggest and most profitable drug market, the market conditions prevailing in the U.S. affect all companies with global ambitions. The current debate on pricing remains an ongoing concern for BIO. "Recent political discussions based in the U.S. have moved away from talking about the incredible value that biopharmaceutical R&D has for patients. This is at a time when innovation is at its highest," David Thomas, senior director of industry analysis and research at BIO, told delegates during the opening session.

The promise of personalized medicine is beginning to be realized, he added, unveiling new data which underscores the benefits of incorporating biomarkers for patient selection in clinical trials. Since 2006, phase I drugs developed without the use of biomarkers have an 8.4 percent chance of gaining approval. The success rate is three times higher – 25.9 percent – for development programs that did employ biomarkers. "Just 15 years ago there were 15 biomarkers," Thomas said. "Today there are 160 and that number is increasing every year."

In terms of financing, U.S. capital has opened up new opportunities for many European firms. That also creates a dependency, however. Many of the European companies that have benefited from the recent upswing in funding from American investors may have to beef up their investor relations skills to ensure that their backers remain interested over the coming years. Managing investor expectations in a downturn is a different ball game from managing them during a bull run.

In that context, the relative performance of Schlieren, Switzerland-based Molecular Partners AG, which opted for an IPO on its local SIX exchange in Zurich in late 2014, will be a useful guide. Speaking during the opening plenary, CEO Christian Zahnd told delegates that the company opted to stay local in order to tap into "local champion" sentiment, instead of heading to Wall Street. Switzerland has a deep pool of investor expertise, owing to the presence there of Novartis AG, Roche Holding AG and Actelion Pharmaceuticals Ltd.

Swedish firms no longer have that luxury. Although the Mayor of Stockholm, Karin Wanngård, name-checked Astra and Pharmacia, now part of Astrazeneca plc and Pfizer Inc., respectively, during her welcoming address, the harsh reality for Sweden's biotech sector is that it no longer has a home-based big pharma firm to act as an anchor. Stockholm – and Sweden as a whole – remains an important center for life sciences innovation, but investor support from its public capital market is thin. For that reason, Solna-based Aprea AB, which raised $51 million in a series B round last month to develop a first-in-class p53 reactivator, is planning to build a leadership team in the U.S. Its main goal is to secure a trade sale, but its backup plan is to undergo an IPO on Wall Street. Either way, the U.S. is central to its plans.

EUROPE PLAYS SECOND FIDDLE

"Whether we in Europe like it or not, the U.S. did, does and will continue to play first violin in the biotechnology business," Aprea chairman Bernd Seizinger told delegates.

For big pharma firms, business development, partnering and M&A remain core to their business models, even if the emphasis can vary from company to company, depending on their strategic positioning at any given time. For London-based Astrazeneca plc, May 4 is a key date. It marks the expiry of its U.S. patent on Crestor (rosuvastatin calcium), sales of which topped $5 billion last year.

"We've known that since the Crestor patent was filed, 20-something years ago," vice president of business development operations Shaun Grady told delegates. To plug the gap, CEO Pascal Soriot has pursued an expansive business development strategy since joining the company in 2012.

It has not come cheap – asset prices have never been higher. "Just for a lead compound, companies want $800 million up front," Jan Lundberg, president of the Lilly Research Laboratories arm of Indianapolis-based Eli Lilly and Co., said during the same session. But there are signs that the exuberance may be waning. "Clearly, if the valuations are lower – and they may be in certain areas – doing deals becomes more attractive," he said.

"When you are at the top of the cycle, you have to run the numbers – you have to do the math and you have to be disciplined," Richard Mason, newly appointed head of Johnson & Johnson Innovation London, said during the same session. In terms of patent expiries, J&J, of New Brunswick, N.J., is already out of the woods. It is eyeing 10 product filings between now and 2019, each with more than $1 billion revenue potential, "There is no room for complacency," Mason said.

NO ROOM FOR COMPLACENCY

South San Francisco-based Genentech has maintained a business development arm – Genentech Partnering – that operates independently from that of its parent firm Roche. It has five business development executives in Stockholm this week. Its focus over the last six months, senior director of business development Tom Zioncheck told BioWorld Today, has been on the research tools and technology space. "The theme has been accessing unique molecules that would help us with drug discovery," he said.

The overriding aim is to find molecules that can hit targets that are intractable to traditional approaches. Macrocycles are one particular area of interest – Zioncheck locates Genentech's recent deal with Tokyo-based Peptidream Inc. in that context. It majors in the generation of diverse peptide structures that incorporate non-natural amino acids. Any hits could potentially be developed into drug leads or translated into small-molecule peptidomimetics.

"We have the opportunity to use the technology broadly," Zioncheck said. Novartis AG and Bristol-Myers Squibb Co. have already done so.

Genentech is also exploring natural products discovery, an area that fell out of favor with big pharma several decades ago. Its alliances in this space include deals with Granada, Spain-based Fundación Medina, which majors in microbial and fungal chemistry, and with an undisclosed firm focused on plant-based metabolites.

BIO-Europe Spring 2016 is marking its 10th anniversary this year, with 2,400 attendees from 49 countries. More than 12,500 meetings are scheduled over the next three days at the Kistamässan Convention Center. "We have over 3,000 licensing opportunities in the system," EBD group managing director Anna Chrisman told delegates during the opening session. The meeting continues Tuesday. //

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