....but a very worthwhile read: Matt Ridley's 17 Reasons to be Cheerful.
Biotech folks might know Ridley from his excellent book Genome: the Autobiography of a Species, and much of his mainstream writing popularizes genomics/genetics. His most recent (also excellent) book, The Rational Optimist is a mainstream book, though with strong scientific basis, arguing for a very positive future and dispelling many current doom n' gloom concerns. His 17 Reasons article (linked above) is a condensed version of The Rational Optimist, and a very worthwhile and quick read.
Money quote:
"I cannot recall a time when I was not being told by somebody that the world could survive only if it abandoned economic growth. But the world will not continue as it is. The human race has become a problem-solving machine: It solves those problems by changing its ways. The real danger comes from slowing change."
See my links list in the left column to find a link to Ridleys blog, which he regularly updates with more insight.
Monday, April 9, 2012
Thursday, April 5, 2012
Biotech needs more GE
My Dad sold industrial electrical supplies for GE, and from that exposure, I always thought that the drug discovery tools supply & services industry was similarly attractive to GE's for its' scale, business fit, customer base, and exposure to a growth market. (Many of GE's businesses can be described as supplying essential component technology to Fortune 500 business, be they jet engines, electrical transformers, or wind turbines.)
I had been saying that drug discovery was ripe for GE since 1998, when on the executive team at Upstate Biotechnology, at my suggestion, a GE acquisition was listed in our business plan as an exit scenario. In 2003, GE entered the drug discovery market by buying Amersham, and I felt vindicated, and hopeful that GE would continue investing in the drug discovery industry.
That generally hasn't happened, though things may be changing - GE today announced the acquisition of SeqWright, a Texas-based sequencing CRO.
(btw: a good overview of GE Healthcare businesses is available here.)
The press release for the SeqWright acquisition trumpets SeqWright's connection with GE's existing Clarient molecular diagnostics business. (Clarient having been acquired just a year and a half ago), but even together GE still only has its' toe in the molecular diagnostics water. (Especially since the always awesome World Map of High-Throughput Sequencers lists SeqWright as having only 3 machines - one each of 454, SOLiD, and HiSeq.)
The release also affirms that GE's business model in this space is SERVICE, not proprietary R&D/assay development. In other words, both GE and Roche have roughly similar M&A appetites in this space, but GE chose to buy modest capacity in SeqWright, while Roche wants to own an entire technology platform, if the Illumina deal were to close.
(Ironically(?), WSJ's coverage of the GE's acquisition of SeqWright says that Roche is a customer of SeqWright, which I'd bet wouldn't continue if Roche buys ILMN.)
The SeqWright deal reinforces GE's interest in the biotech industry (and more specifically, molecular medicine) not only as a validation statement, but for the fact that more big-league, results-oriented capital is being committed to biotech, as GE invested to generate tangible cash & EPS, whereas the majority of biotech investment is done to create speculative future value (and often only equity value, not cash-flow value.)
Let's face it: biotech needs more investors like GE, and more of their business mentality. GE's acquisition of SeqWright was, in effect, more capital voting for biotech businesses with customers and cash flow, as opposed to transformative technologies or "cool" tech platforms. VCs: why fund any technology company (i.e. company not developing leads) that you couldn't imagine selling to GE? As an example, consider a genetic engineering company like Amyris - sure, they can do proprietary biofuel R&D that might someday pay off, but isn't the highest NPV likely to come from selling the company's capabilities to generate cash flow?
One reason that GE hasn't been more active in the drug discovery industry is that there are not many acquisition targets available to provide scale. Only LIFE, QGEN, VWR, and ThermoFisher could add >$1B in annual revenue to GE, but in general, these companies have generally been valued at a price that would make difficult a non-dilutive acquisition for GE. Still, I can't ignore that LIFE CEO Greg Lucier is a GE-alum, and that QGEN would make a just about perfect complement to GE Healthcare's Life Sciences business.
I could also see GE getting involved in the pursuit of ILMN (it's the Amersham of 2012), but their lack of public involvement to date suggests to me that they either can't make the price work for them, or that GE invests in more predictable technology. (Why make a multi-billion dollar acquisition in Sanger sequencing if other tech platforms (like nanopore sequencing) might overtake Sanger tech?)
(btw: Roche upped their bid last week. ILMN didn't budge at all. I don't think this deal is getting done right now, but rather in 6-18 months time, after the ILMN board of directors experiences an unfavorable quarter.)
As for SeqWright, congrats to them and to any other CRO that manages to get liquid. Deal terms weren't announced, but if SeqWright was growing fast with the rest of the sequencing industry, and cash-flow positive, they probably got a decent price, though, on the flip side for GE, trading GE stock for an ongoing, competitive DNA sequencing lab is more EPS efficient and less risky than opening a lab using their own cash to buy equipment and hire staff, so there is a limit to what GE would pay. GE may have even made acquisition overtures to many sequencing CROs to see who would bite at the lowest price.
Let's hope that GE has a good experience with SeqWright, and further invests in the molecular medicine industry.
I had been saying that drug discovery was ripe for GE since 1998, when on the executive team at Upstate Biotechnology, at my suggestion, a GE acquisition was listed in our business plan as an exit scenario. In 2003, GE entered the drug discovery market by buying Amersham, and I felt vindicated, and hopeful that GE would continue investing in the drug discovery industry.
That generally hasn't happened, though things may be changing - GE today announced the acquisition of SeqWright, a Texas-based sequencing CRO.
(btw: a good overview of GE Healthcare businesses is available here.)
The press release for the SeqWright acquisition trumpets SeqWright's connection with GE's existing Clarient molecular diagnostics business. (Clarient having been acquired just a year and a half ago), but even together GE still only has its' toe in the molecular diagnostics water. (Especially since the always awesome World Map of High-Throughput Sequencers lists SeqWright as having only 3 machines - one each of 454, SOLiD, and HiSeq.)
The release also affirms that GE's business model in this space is SERVICE, not proprietary R&D/assay development. In other words, both GE and Roche have roughly similar M&A appetites in this space, but GE chose to buy modest capacity in SeqWright, while Roche wants to own an entire technology platform, if the Illumina deal were to close.
(Ironically(?), WSJ's coverage of the GE's acquisition of SeqWright says that Roche is a customer of SeqWright, which I'd bet wouldn't continue if Roche buys ILMN.)
The SeqWright deal reinforces GE's interest in the biotech industry (and more specifically, molecular medicine) not only as a validation statement, but for the fact that more big-league, results-oriented capital is being committed to biotech, as GE invested to generate tangible cash & EPS, whereas the majority of biotech investment is done to create speculative future value (and often only equity value, not cash-flow value.)
Let's face it: biotech needs more investors like GE, and more of their business mentality. GE's acquisition of SeqWright was, in effect, more capital voting for biotech businesses with customers and cash flow, as opposed to transformative technologies or "cool" tech platforms. VCs: why fund any technology company (i.e. company not developing leads) that you couldn't imagine selling to GE? As an example, consider a genetic engineering company like Amyris - sure, they can do proprietary biofuel R&D that might someday pay off, but isn't the highest NPV likely to come from selling the company's capabilities to generate cash flow?
One reason that GE hasn't been more active in the drug discovery industry is that there are not many acquisition targets available to provide scale. Only LIFE, QGEN, VWR, and ThermoFisher could add >$1B in annual revenue to GE, but in general, these companies have generally been valued at a price that would make difficult a non-dilutive acquisition for GE. Still, I can't ignore that LIFE CEO Greg Lucier is a GE-alum, and that QGEN would make a just about perfect complement to GE Healthcare's Life Sciences business.
I could also see GE getting involved in the pursuit of ILMN (it's the Amersham of 2012), but their lack of public involvement to date suggests to me that they either can't make the price work for them, or that GE invests in more predictable technology. (Why make a multi-billion dollar acquisition in Sanger sequencing if other tech platforms (like nanopore sequencing) might overtake Sanger tech?)
(btw: Roche upped their bid last week. ILMN didn't budge at all. I don't think this deal is getting done right now, but rather in 6-18 months time, after the ILMN board of directors experiences an unfavorable quarter.)
As for SeqWright, congrats to them and to any other CRO that manages to get liquid. Deal terms weren't announced, but if SeqWright was growing fast with the rest of the sequencing industry, and cash-flow positive, they probably got a decent price, though, on the flip side for GE, trading GE stock for an ongoing, competitive DNA sequencing lab is more EPS efficient and less risky than opening a lab using their own cash to buy equipment and hire staff, so there is a limit to what GE would pay. GE may have even made acquisition overtures to many sequencing CROs to see who would bite at the lowest price.
Let's hope that GE has a good experience with SeqWright, and further invests in the molecular medicine industry.
ex-Pfizer R&D head vs. bank analyst on drug discovery strategy: who ya got?
Forbes magazine unintentionally hosted a good drug discovery strategy debate. It started with a prominent pharma industry bank analyst Jack Scannell critiquing therapeutic R&D productivity. His points: 1) targeted drug development has been less productive than other approaches, and 2) high-throughput R&D technologies really haven't been productive either.
John LaMattina, formerly Pfizer's head of R&D fired back, also in Forbes ("Analysts get it wrong again"), which attributes lower R&D productivity to.........pharma mergers and more demanding regulators and payors. (Never mind that increasing R&D productivity has been the rationale for much of the industry consolidation.)
Both make good points, though. HTS and genomic technologies have definitely under-delivered. But, while the industry in the early days of HTS and genomics truly WAS guilty of treating drug discovery as a numbers game, researchers have become much smarter more efficient in their use of these technologies. (Whereas some R&D centers initially built labs to maximize compounds screened per day ("100,000 per day capacity!"), most are using HTS (and other technologies) to more inexpensively examine smaller focused libraries.)
Note: neither side cites budgets (neither pharma nor NIH) as an inhibitor of R&D productivity.
Scannell says that the numbers don't lie - 33 of the 50 first in class drugs studied started from a phenotypic-centric philosophy, but LaMattina counters that this is explained by the lag inherent with tech adoption, and that a wave of targeted compounds is on the horizon.
This is tough analysis to choose a side on - I think the phenotypic approach has been the benefit of low-hanging fruit (i.e. development to date has benefitted from easy molecules, but there aren't nearly as many easy ones left), while the targeted approach just has an inherent intellectual appeal. ("If we know what causes disease "X," why not just target it?")
(That being said, one of the more significant tech flops of the last decade or so has been "Rational Drug Design.")
I'd also nominate one other reason for low R&D productivity not mentioned by Scannell or LaMattina: organization structure. Innovation becomes the exception and not the rule as organizations grow bigger, while risk tolerance seems to decline. That bigger organizations stifle drug development is reinforced by the notion that many of the successful therapeutic programs were once considered UNsuccessful programs, as LaMattina's story of the invention of Viagra indicates. Another reinforcing story is that of Gleevec's development from Daniel Vasella's book: only the singular efforts, passion, and strength of Dr. Brian Druker kept a Novartis committee from killing off the lead that became known as Gleevec.
Let's hope that pharma R&D rises soon, whether because pharma mergers have slowed, or because productivity is catching up with the technology.
John LaMattina, formerly Pfizer's head of R&D fired back, also in Forbes ("Analysts get it wrong again"), which attributes lower R&D productivity to.........pharma mergers and more demanding regulators and payors. (Never mind that increasing R&D productivity has been the rationale for much of the industry consolidation.)
Both make good points, though. HTS and genomic technologies have definitely under-delivered. But, while the industry in the early days of HTS and genomics truly WAS guilty of treating drug discovery as a numbers game, researchers have become much smarter more efficient in their use of these technologies. (Whereas some R&D centers initially built labs to maximize compounds screened per day ("100,000 per day capacity!"), most are using HTS (and other technologies) to more inexpensively examine smaller focused libraries.)
Note: neither side cites budgets (neither pharma nor NIH) as an inhibitor of R&D productivity.
Scannell says that the numbers don't lie - 33 of the 50 first in class drugs studied started from a phenotypic-centric philosophy, but LaMattina counters that this is explained by the lag inherent with tech adoption, and that a wave of targeted compounds is on the horizon.
This is tough analysis to choose a side on - I think the phenotypic approach has been the benefit of low-hanging fruit (i.e. development to date has benefitted from easy molecules, but there aren't nearly as many easy ones left), while the targeted approach just has an inherent intellectual appeal. ("If we know what causes disease "X," why not just target it?")
(That being said, one of the more significant tech flops of the last decade or so has been "Rational Drug Design.")
I'd also nominate one other reason for low R&D productivity not mentioned by Scannell or LaMattina: organization structure. Innovation becomes the exception and not the rule as organizations grow bigger, while risk tolerance seems to decline. That bigger organizations stifle drug development is reinforced by the notion that many of the successful therapeutic programs were once considered UNsuccessful programs, as LaMattina's story of the invention of Viagra indicates. Another reinforcing story is that of Gleevec's development from Daniel Vasella's book: only the singular efforts, passion, and strength of Dr. Brian Druker kept a Novartis committee from killing off the lead that became known as Gleevec.
Let's hope that pharma R&D rises soon, whether because pharma mergers have slowed, or because productivity is catching up with the technology.
Monday, April 2, 2012
biotech as fantasy baseball
Luke TImmerman @ Xconomy compares bio-pharma to fantasy baseball in an interesting way. Since baseball DOES explain life (and vice versa), here's a few more bio-baseball analogies:
Bryce Harper = Intrexon. Harper - an outfield prospect for the Washington Nats - is arguably the game's greatest prospect, though it has cost a huge amount of money to sign and develop Harper to this point. Likewise, Intrexon, with great prospects in synthetic biology, has required a huge amount of capital investment to date. Both Harper and Intrexon are anticipated to be very productive, but neither is assured of being a net positive.
C.C. Sabathia = Genentech. Sabathia in Cleveland and Genentech on their own had prodigous success, but both have joined much larger 'empires' in the last few years in the form of the NY Yankees and Roche, respectively. Both Sabathia and Genentech have carried on their success in their new uniforms.
Jamie Moyer = GPCR research. Ancient by current standards, both Moyer (49 years old, and new starting pitcher for the Colorado Rockies) and GPCR research keep delivering.
A-Rod = Pfizer. Both are cash-rich giants of their respective industries, and based in NYC, but both have delivered only marginal results over the last few years, perhaps getting by on reputation.
David Freese = Biogen. Both are known for two big hits in particular (Freese in the 2011 World Series, Biogen with Tysrabi and Rituxan). Both really need to deliver in 2012 in order to stay in the big leagues.
Andrew Friedman = _________ (position open.) Friedman, the creative and successful General Manager of the resource-poor Tampa Bay Rays has through innovation and smart deals made Tampa competitive with teams with payrolls twice their size. Bio-pharma badly needs a few Andrew Friedmans to adopt innovative business models and generate R&D success far beyond what a meager budget might suggest.
Average college baseball player = average RX or DX IP from an academic center. Both are really, really, really far from major league success. The only difference is that the college ballplayer knows it.
Bryce Harper = Intrexon. Harper - an outfield prospect for the Washington Nats - is arguably the game's greatest prospect, though it has cost a huge amount of money to sign and develop Harper to this point. Likewise, Intrexon, with great prospects in synthetic biology, has required a huge amount of capital investment to date. Both Harper and Intrexon are anticipated to be very productive, but neither is assured of being a net positive.
C.C. Sabathia = Genentech. Sabathia in Cleveland and Genentech on their own had prodigous success, but both have joined much larger 'empires' in the last few years in the form of the NY Yankees and Roche, respectively. Both Sabathia and Genentech have carried on their success in their new uniforms.
Jamie Moyer = GPCR research. Ancient by current standards, both Moyer (49 years old, and new starting pitcher for the Colorado Rockies) and GPCR research keep delivering.
A-Rod = Pfizer. Both are cash-rich giants of their respective industries, and based in NYC, but both have delivered only marginal results over the last few years, perhaps getting by on reputation.
David Freese = Biogen. Both are known for two big hits in particular (Freese in the 2011 World Series, Biogen with Tysrabi and Rituxan). Both really need to deliver in 2012 in order to stay in the big leagues.
Andrew Friedman = _________ (position open.) Friedman, the creative and successful General Manager of the resource-poor Tampa Bay Rays has through innovation and smart deals made Tampa competitive with teams with payrolls twice their size. Bio-pharma badly needs a few Andrew Friedmans to adopt innovative business models and generate R&D success far beyond what a meager budget might suggest.
Average college baseball player = average RX or DX IP from an academic center. Both are really, really, really far from major league success. The only difference is that the college ballplayer knows it.
Quick hits
Ho-hum, another $1B oncology product for Roche. Despite the mild reception in the business press, this is HUGE news: Roche is about to receive approval for T-DM1, a drug that combines the targeted therapy of Herceptin with the benefit of chemotherapy. Perhaps Herceptin is old news (approved in 1998), but this is a story where everybody wins: Roche gets a product with a "fresh" patent clock and an advantage over any biosimilar Herceptin clones, patients get better outcomes with fewer side effects, and the drug design & drug delivery folks now have another validated approach to beating cancer. Combos are the future!
This just in: science is hard! A research team at Amgen tried to duplicate the research behind 53 important cancer research advancements published in leading journals. They were successful in duplicating the original findings in only 11% of of their experiements. Let's hope that there's some selection bias in Amgen's research, or some other explanation - I'd hate to think that 89% of all cancer research is wrong - though this most likely reflects the pressure to publish among academics.
First setback for a PI3K inhibitor. PI-3 kinase targets have been in vogue for about 4 years, with several of the top 20 pharmas with active discovery programs addressing multiple isoforms of PI3K. The first Phase III clinical trials of a PI3K inhibitor - by Keryx & Aeterna have concluded, with negative results. This might, however, not be a reflection of the merit of PI3K as a target, but rather a reflection of how unlikely microcap drug developers are to successfully develop cancer therapeutics, and another lesson for investors that if a biotech's lead compound can't win a partnership with a big pharma company, you probably shouldn't put your capital behind it either.
This just in: science is hard! A research team at Amgen tried to duplicate the research behind 53 important cancer research advancements published in leading journals. They were successful in duplicating the original findings in only 11% of of their experiements. Let's hope that there's some selection bias in Amgen's research, or some other explanation - I'd hate to think that 89% of all cancer research is wrong - though this most likely reflects the pressure to publish among academics.
First setback for a PI3K inhibitor. PI-3 kinase targets have been in vogue for about 4 years, with several of the top 20 pharmas with active discovery programs addressing multiple isoforms of PI3K. The first Phase III clinical trials of a PI3K inhibitor - by Keryx & Aeterna have concluded, with negative results. This might, however, not be a reflection of the merit of PI3K as a target, but rather a reflection of how unlikely microcap drug developers are to successfully develop cancer therapeutics, and another lesson for investors that if a biotech's lead compound can't win a partnership with a big pharma company, you probably shouldn't put your capital behind it either.
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