Confidential | © 2013 Third Rock Ventures Building Biotechnology Companies from Scratch: Strategy...

Confidential | © 2013 Third Rock Ventures

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Building Biotechnology Companies from Scratch: Strategy and Approaches

Robert I. Tepper, MD


AGENDA

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• General Principles

• The Changing Landscape of Biotech & Healthcare

• Creating the Biotechnology Ecosystem

• Stages of NEWCO Development

• Decision Criteria for NEWCO Investment & Build

Presentation Outline


BUILDING GREAT COMPANIES THAT MAKE A DIFFERENCE FOR PATIENTS

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• Hard to Build GREAT Companies

• Complex Evolving Landscape

• Innovation Trumps

• Group Genius Helps

• Building a Powerful Ecosystem

GENERAL PRINCIPLES

Confidential | © 2013 Third Rock Ventures 4

Deals/Partnerships

• Pharma needs innovation; Big Biotech stepping up; Deals are done earlier

Investors/ Financial Markets• 2013 robust for life sciences; 2014

continues to be active but investors more selective

Innovation• While innovative therapies

are changing healthcare, cost pressures are rising

Regulatory• FDA is creating faster approval

paths for innovation

Payers/Reimbursement

• Applying pressure on drug prices while trying to balance with the

benefits of innovation

THE CHANGING LANDSCAPE OF BIOTECH AND HEALTHCARE


INNOVATION GAP CONTINUES IN BIG PHARMA

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Source: FDA, PhRMA, Forbes* 2013 R&D spend is estimated

Phar

ma

R&D

Spe

nd ($

B)

New Drug Approvals

PhRMA Member R&D Spend*

Innovation Gap

0

New

Dru

g Ap

prov

als

(NM

Es)

10

20

60

30

40

50

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

$0

$10

$20

$60

$30

$40

$50

26 25

22

28

53

39

30

35

27

17

21 2022

18

24 25

2010

21

2012

30

2011

39

24

2013

27

31


PHARMA RECOGNIZING THE NECESSITY FOR EXTERNAL INNOVATION

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Top 12 big pharma’s late-stage pipeline valuations by source, 2010-2013

SOURCE: Deloitte Consulting and Thomson Reuters

• Pharma continues to access innovation externally through deals• Big pharma spent ~$18B for M&A deals in 2013 • Big pharma entered into 65 partnering deals with an average $375M deal value for a total of ~$24B

in 2013• The deal pace continues in 2014


THE CHANGING LANDSCAPE OF BIOTECH AND HEALTHCARE

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Deals/Partnerships

Investors/ Financial Markets

Innovation

Regulatory Payers/Reimbursement


RECENT TRENDS IN M&A AND PARTNERING

• Deal-making continues at a robust pace in both M&A and partnering

• Continued shift to early-stage deal-making at increasing upfront values

• Big biotech has become a major player in M&A and Partnering

• Deal-making momentum shows every sign of continuing through H2 2014 and beyond

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1H 2014 M&A CONTINUES POSITIVE TREND

9SOURCE: Thomson Reuters Recap

1H 2014 trend towards early-stage M&A activity: 25%of deals involve preclinical companies vs. 2008-2013 where average was 10%

Medtronic/Covidien ($42.9B); Actavis/Forest Labs ($28B)


PARTNERING ALSO CONTINUES AT A ROBUST PACE IN 2014

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• Overall, robust partnering activity in 2013• Continuing in H1 2014

SOURCE: Thomson Reuters Recap


BIG BIOTECH REWARDED IN THE MARKETPLACE FOR ACCESSING INNOVATION

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Biotech PharmaCompany Market Cap Company Market Cap

Gilead $161B J&J $295B

Novo $123B Roche $251B

Amgen $106B Novartis $229B

Biogen Idec $77B Pfizer $188B

Celgene $74B Merck $173B

Shire $50B Sanofi $146B

Teva $44B Bayer $114B

Regeneron $35B GSK $113B

Alexion $33B AstraZeneca $93B

Vertex $22B AbbVie $92B

BMS $84B

Eli Lilly $70B

SOURCE: Yahoo Finance as of 9/11/14


DEALS/PARTNERSHIPS – CONCLUSIONS AND IMPLICATIONS

• Today’s environment generally upbeat for doing early deals

• Still a mix of Pharma out there:– Those who are more aggressive about accessing innovation– Those who resist the changing ecosystem

• Great Biotech companies should continue to push the envelope on deals focusing on:

– Retaining value– High valuations– Creative structures that work for company building and value creation

• In Device and Dx companies– More likely need to take products further towards sales before able to consummate value creating partnerships

• In the trenches, capturing high value in early deals remains challenging:

– Time consuming effort– Senior level experience makes a difference– Building relationships, finding champions inside pharma are key factors– Early success on the science remains key ingredient

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RecruitingGreat Team

Accessing Best Science

Value Creation StrategyPartnering

Financing

ResourceManagement

Accessing BestTechnology Platforms

Building BestBoard

Outsourcing Strategy

Building BestCulture

Clinical & Regulatory

StrategyPipeline Strategy

Manufacturing

Effective Execution

Payer & Commercial

Strategy

BUILDING BIOTECH COMPANY - CHALLENGES TO NAVIGATE


BUILDING GREAT

COMPANY

CEO

Board

Finance/Bankers

Advisors

CREATING THE BIOTECHNOLOGY ECOSYSTEM: GROUP GENIUS

InvestorsPartnersPharmaBig Bio

Manage-ment Team


STAGES OF NEWCO DEVELOPMENT

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FOUNDINGGROUP GENIUS

CPROJECTS

BPROJECTS

APROJECTS

Creating the Idea

Investing Time in the Idea

Initiate Early

Teams & Plan

Business Plan &

Founding Teams

VISIONING

NEW COS

Series A

BUILT TO LAST

PeoplePlan

Execution

DISCOVER LAUNCH BUILD

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TALENT NETWORK – A CRITICAL COMPONENT

• Over 7,000 vetted potential candidate in our database

• 500+ in person talent meet ups each year

• Bi-weekly in-depth reviews of the People Pipeline

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People

? Outstanding World Leaders (PLURAL)? Multi-institutional? Team Of Rivals

Portfolio Requirements

High technical POS?

1+ path to the clinic within 36 mo?

In a highly attractive area for partners?

Firm core competency?

Portfolio fit?

Financial Requirements

Likely 5X+ returns on >$20M from TRV?

Unmet need and value creation (>$300M in 5y)?

Showstopper issues?

Liquidity?

Location

Boston/SF Area?

DECISION CRITERIA FOR NEWCO INVESTMENT

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DISCOVER, LAUNCH, BUILD PROCESS

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• Put in place a continually evolving operating process to support the growing portfolio

• Develop a team-based culture; Group Genius; VIBRANT ECOSYSTEM CRITICAL

• Provide highly leverageable expertise and resources for launching and building companies

• Looking into future areas that will impact our companies as they evolve and putting new teams/resources in place

DISCOVER LAUNCH BUILD

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Confidential | © 2013 Third Rock Ventures Building Biotechnology Companies from Scratch: Strategy...

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