Rapidly Building Bones and Bones and Successful...

©2006 Nastech

BioBusiness Network 2006BioBusiness Network 2006

Tim Duffy Tim Duffy EVP, Marketing & Business DevelopmentEVP, Marketing & Business Development

Nastech Pharmaceutical Company Inc.Nastech Pharmaceutical Company Inc.

Jeff DavisJeff DavisHead, Global New Business DevelopmentHead, Global New Business Development

P&G PharmaceuticalsP&G Pharmaceuticals

Rapidly Building Bones and Rapidly Building Bones and Successful Partnerships: Successful Partnerships:

Why The P&G and Nastech Collaboration WorksWhy The P&G and Nastech Collaboration Works

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AgendaAgenda

P&G and Nastech Headline Deal P&G and Nastech Headline Deal

Background on PartnersBackground on Partners

Operating principles that guide negotiationOperating principles that guide negotiation

Overcoming obstacles to a successful partnership Overcoming obstacles to a successful partnership

SummarySummary

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Headline Deal HighlightsHeadline Deal Highlights

$577 million in fees and milestone payments$577 million in fees and milestone payments$10 million upfront license fee$22 million development milestones in 2006

Royalties on product salesRoyalties on product salesDouble-digit royalties

• Escalating based upon achieving sales targets

P&G funds ongoing R&D costs and P&G funds ongoing R&D costs and commercialization activitiescommercialization activities

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Nastech Pharmaceutical Company Inc. and Procter & Gamble Announce Collaboration to Develop and Commercialize Parathyroid Hormone

(PTH1-34) Nasal Spray for Treatment of Osteoporosis (February 2006)

Nastech Pharmaceutical Company Inc. and Procter & Gamble AnnouncNastech Pharmaceutical Company Inc. and Procter & Gamble Announce e Collaboration to Develop and Commercialize Parathyroid Hormone Collaboration to Develop and Commercialize Parathyroid Hormone

(PTH(PTH11--3434) Nasal Spray for Treatment of Osteoporosis) Nasal Spray for Treatment of Osteoporosis (February 2006)(February 2006)

A Partnership Is Created:A Partnership Is Created:Nastech and P&G Join ForcesNastech and P&G Join Forces

P&G:P&G:Responsible for clinical and non-clinical studies and regulatory approvalsWill lead worldwide commercialization, including sales, marketing and promotion

Nastech:Nastech:Responsible for the CMC sections of regulatory submissionsControl of clinical and commercial manufacturing

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AgendaAgenda





SummarySummary

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P&GP&G……Who Are We?Who Are We?

Over Over $68$68 billion in salesbillion in sales

300 brands in over 300 brands in over 160 countries160 countries

#1 or #2 in #1 or #2 in 80%80% of our categoriesof our categories

140,000140,000 employees (incl. Gillette)employees (incl. Gillette)

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Touching lives, improving life.Touching lives, improving life.

P&G’s 22 Billion-Dollar Brands…

Household CareBaby CareFamily CareFabric CareHome Care Pet Health & NutritionSnacks & Coffee

Beauty CareCosmetics

Deodorants

Feminine Care

Hair Care

Personal Cleansing

Skin Care

Health CareOral Care

Personal Health Care

PharmaceuticalsPharmaceuticals

GilletteRazors & BladesDuracellBraun

Three Global Business UnitsThree Global Business Units

$29 Billion$29 Billion$33.5 Billion$33.5 Billion

$6.4 Billion$6.4 Billion

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Health Care BusinessHealth Care Business$7.9 Billion$7.9 Billion

Growth from a balanced OTC and Rx portfolioGrowth from a balanced OTC and Rx portfolioDeveloped and marketed a wide range of Rx Developed and marketed a wide range of Rx products since the 1980products since the 1980’’ss

RxRxOTCOTC

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P&GP&G’’s Innovation Journey s Innovation Journey and Learningand Learning……

What Happens if You Don’t Grow?What Happens if You Don’t Grow?

Year 2000 wake up call>50% drop in stock price!

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P&G background on disruptive changesP&G background on disruptive changes

““InventInvent--ItIt--OurselvesOurselves”” model would not sustain model would not sustain growthgrowth

A.G. Lafley challenge in 2000 to A.G. Lafley challenge in 2000 to reinvent our reinvent our innovation modelinnovation model with a goal to acquire 50% with a goal to acquire 50% of our innovations outside the companyof our innovations outside the company

•• 50%50% from from our own labsour own labs•• 50%50% throughthrough themthem

From From ““R&DR&D”” to to ““C&DC&D””

““Connect & DevelopConnect & Develop””Inside P&GInside P&G’’s Innovation Models Innovation Model

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+35% of new products have elements that +35% of new products have elements that originated from outside P&Goriginated from outside P&G

Up from 15% in 2000

R&D productivity has increased by nearly 60%R&D productivity has increased by nearly 60%

R&D investment as a percentage of sales is down R&D investment as a percentage of sales is down From 4.8% in 2000 to 3.4% today

Since 2000 stock collapseSince 2000 stock collapseShare price has doubled Our portfolio has grown to 22 billion-dollar brands

““Connect & DevelopConnect & Develop””Inside P&GInside P&G’’s Innovation Models Innovation Model

Is it working?Is it working?

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Strategic choice to Strategic choice to exclusivelyexclusively partner, license or partner, license or acquire acquire allall of our new drug candidatesof our new drug candidates

How? Our new drugs will come from a network of How? Our new drugs will come from a network of biotech, academia and pharmaceutical industry biotech, academia and pharmaceutical industry relationshipsrelationships

Restructured our R&D and commercial organizations Restructured our R&D and commercial organizations to excel at identifying, evaluating, negotiating and to excel at identifying, evaluating, negotiating and managing longmanaging long--term, mutually beneficial term, mutually beneficial partnerships.partnerships.

P&G PharmaP&G Pharma’’s Strategic Models Strategic ModelAcquire, Develop & MarketAcquire, Develop & Market……(Connect & Develop)(Connect & Develop)

P&G Pharma February 2006 AnnouncementP&G Pharma February 2006 Announcement

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P&G PharmaP&G Pharma’’s Strategic Models Strategic ModelThe Best of The Best of BothBoth WorldsWorlds……

You & P&GYou & P&G……Think of the possibilitiesThink of the possibilities

Marketing Expertise Marketing Expertise and Unique Insightsand Unique Insightsof the worldof the world’’s largest s largest consumer companyconsumer company

Personal TouchPersonal Touch of a of a small, proven small, proven pharmaceutical company pharmaceutical company with with deep experience deep experience and proven capabilitiesand proven capabilitiesin our focus areasin our focus areas

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Strategically focused on 3 therapeutic areas Strategically focused on 3 therapeutic areas where the patient plays an active role in where the patient plays an active role in

managing their healthmanaging their health

MusculoskeletalMusculoskeletalOsteoporosis, Rheumatoid Arthritis and Osteoarthritis

GastrointestinalGastrointestinalUlcerative colitis, Crohn’s disease, IBS and GERD

WomenWomen’’s Healths HealthOveractive Bladder, Incontinence, Menopausal symptoms

P&G PharmaP&G Pharma’’s Strategic Models Strategic ModelWhy will it work?Why will it work?

Corporate interest: adult incontinence, hair growth, skin agingCorporate interest: adult incontinence, hair growth, skin aging

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P&G Pharma Partnering PhilosophyP&G Pharma Partnering Philosophy

The real test of a successful alliance The real test of a successful alliance negotiation is not a signed contract negotiation is not a signed contract with all desired terms agreed in fullwith all desired terms agreed in full……

……it is whether the companies it is whether the companies share a share a common visioncommon vision, feel like , feel like the the deal is fairdeal is fair, are , are contractually contractually motivated to do whatmotivated to do what’’s rights right, , and can and can work together over work together over the long termthe long term!!

“Negotiate for Implementation”

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Innovative Delivery Solutions Innovative Delivery Solutions That Improve Therapeutic That Improve Therapeutic

Drugs and Meet The Needs of Drugs and Meet The Needs of Patients and PrescribersPatients and Prescribers……

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Nastech Pharmaceutical Company Inc.Nastech Pharmaceutical Company Inc.

A pharmaceutical company focused on the A pharmaceutical company focused on the development and commercialization of innovative development and commercialization of innovative products through solving delivery challengesproducts through solving delivery challenges

Unique expertise is applied both to internal candidates and to key compounds from other pharmaceutical and biotechnology partners

Using proprietary molecular biologyUsing proprietary molecular biology--based drug based drug delivery technology, we deliver both large and small delivery technology, we deliver both large and small molecule drugsmolecule drugs

Non-invasive delivery of peptide and protein therapeuticsDelivery of RNAi therapeutics

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NastechNastech’’s Novel s Novel Drug Development StrategyDrug Development Strategy

What does Nastech offer, that others do not?What does Nastech offer, that others do not?In-depth understanding of tight junction biologyHigh-throughput screening systems for formulation development

• Provides significant increases in peptide bioavailability• Provides rapid screening of formulation libraries

Proprietary permeation enhancers, proven in human studiesEstablished ability to get rapidly into human studiesReduced intersubject variability

• compared with subcutaneous dosing

Expertise in CMC development and nasal spray manufacturing

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Benefits of Intranasal DrugsBenefits of Intranasal Drugs

Pharmacokinetic advantagesPharmacokinetic advantagesRapid onset of Cmax

• Equal PK to SC injectionNo 1st-pass metabolism

Potential for reduced side effects and toxicityPotential for reduced side effects and toxicitySignificantly decreased GI-related side effectsNo pulmonary exposure

Patient comfort and compliancePatient comfort and compliancePreferred by patients

• Comparison based on patients currently taking SC injections

Intellectual Property advantageIntellectual Property advantageAllows for additional IP and enhances product life cycle management

Applicability to a wide range of therapeuticsApplicability to a wide range of therapeuticsFor macromolecules, the most advanced option for non-injectable delivery

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NastechNastech’’s Technology Platforms Technology Platform

What are tight junctions?What are tight junctions?Gate-like structures between cellsRegulate paracellular passage of drugs across cell barrier

Benefits of NastechBenefits of Nastech’’s s technologytechnology

Enables non-invasive paracellular delivery of peptide drugsBroadly applicable for drug deliveryValidated technology

• Proven in numerous clinical studies

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Formulation Screening ExpertiseFormulation Screening Expertise

Experience with diverse Experience with diverse peptides, proteins and small peptides, proteins and small moleculesmolecules

In vitroIn vitro highhigh--throughput throughput screeningscreening

Facilitates rapid testing of hundreds of potential formulations that:

• Enable reversibly opening tight junctions

• Provide low toxicity• Maximize peptide permeation• Promote stability

Data analyzed using Data analyzed using multivariate statistical modelsmultivariate statistical models

Design Of Experiments approachModeling to examine input variables correlating with performance

0

5

10

15

20

0 30 60 90 120Time (min)

% P

erm

eatio

n

HighHigh--throughput screening to optimize throughput screening to optimize formulation for clinical testingformulation for clinical testing

Optimized formulation

Buffer/salt alone

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DOE analysis of a peptide DOE analysis of a peptide formulation unexpectedly formulation unexpectedly reveals:reveals:

Interdependence between two different excipient classesPermeability decreases as concentration of excipient A increases beyond a thresholdExcipient B can be decreased to 75% of maximum with no loss of permeation

Result is an optimized Result is an optimized formulation that maximizes formulation that maximizes permeation, while permeation, while minimizing excipient minimizing excipient concentrationsconcentrations

Optimization of Permeation EnhancersOptimization of Permeation Enhancers

drug

per

mea

tion

0

50%

100%

50%

100%

Conc AConc B

C conc fixed

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NastechNastech’’s Intranasal PTHs Intranasal PTH

Benefits of intranasal Benefits of intranasal PTHPTH11--3434

Non-invasive delivery eliminates pain associated with daily injectionsImproves dosing convenienceSpeed of action mimics injection

Reduced barriers to Reduced barriers to PTHPTH11--3434 product developmentproduct developmentRapidly developed and optimized formulationsEstablished 505(b)(2) regulatory path with FDA

• Significant experience with FDA and international regulatory agency requirements for intranasal products

Expertise with preclinical and clinical trials of intranasal products

• Preclinical and Phase I Clinical data package

Patent estate developed to protect intranasal PTHPatent estate developed to protect intranasal PTH11--3434

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Marketed Product Demonstrates Marketed Product Demonstrates Both Safety and EfficacyBoth Safety and Efficacy

Currently marketed injectable drug is the only current Currently marketed injectable drug is the only current intranasal PTHintranasal PTH11--3434 competitorcompetitor

Only FDA-approved product to promote bone formation (anabolic)Treatment of osteoporosis in men and postmenopausal women at high risk for fracture

Clinical results:Clinical results:PTH1-34 increases bone formation faster, and BMD to a greater magnitude than anti-resorptives alone; resulting in positive bone balance(1)

• Increased bone mineral density• Substantial increase in trabecular bone mass in the spine and hip

–Improved bone microarchitecture and strength

Treatment with PTH1-34 results in reduced spinal fracture incidence compared with bisphosphonates(2)

• PTH1-34 reduces occurrence of spinal fracture 65%, and decreases non vertebral fractures 53%

• Alendronate reduces occurrence of spinal fracture 49% but is non significant at hip and wrist

(1) Opposite Bone Remodeling Effects of Teriparatide and Alendronate in Increasing Bone Mass, M. R. McClung et al, Arch Intern Med, Vol 165, 2005

(2) Forteo and Fosamax package inserts.

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PTH AdvantagePTH Advantage

Osteoporosis studies indicate two potential Osteoporosis studies indicate two potential advances as a result of combination therapyadvances as a result of combination therapy

Cyclic bisphosphonate after PTH maintains BMD increase(1)

• Results in lower spinal fracture incidence compared with bisphosphonates alone

Cyclical treatment of PTH1-34 on a 3-month alternating schedule with continuous bisphosphonate demonstrates:

• “Uncoupling” of formation and resorption markers shown in 12+ months of treatment(2)

• Suggests potential improvement in bone quality

(1) Bone Year of Alendronate after One Year of Parathyroid Hormone (1-84) for Osteoporosis, Black et al. N Engl J Med. 2005 Aug 11;555-65.(2) Daily and Cyclic Parathyroid Hormone in Women Receiving Alendronate, Cosman et al. N Engl J Med. 2005 Aug 11;353(6):566-75.

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AgendaAgenda





SummarySummary

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A Serendipitous MomentA Serendipitous Moment…

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Honesty, From The OutsetHonesty, From The Outset……

Sharing the wants, needs and fears of the partnersSharing the wants, needs and fears of the partnersSpeeds identification and solution of potential problemsCreates realistic expectationsProvides reasonable approaches to valuation and termsAppropriate assessment of capabilities and assignment of project rolesExpressing key assumptions is critical

• Provides focus for overall discussions

Framework for continuous communicationFramework for continuous communicationFree and open communication between principals in each organizationClear milestones expectations and plansRegularly scheduled meetings

Both companies want a partnering relationship that strives for tBoth companies want a partnering relationship that strives for the he same goal and leverages each othersame goal and leverages each other’’s strength to maximize successs strength to maximize success

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NastechNastech’’s Partnering Criterias Partnering Criteria

Strategic Fit(Wants)


Capability Fit(Needs)


Cultural Fit(Fears)

Cultural Fit(Fears)

Supportive of Nastech’s strategy– Participation in ongoing development – Product manufacturer– Development of a specialty sales force

Worldwide reachSophisticated sales and marketing capabilitiesAbility and willingness to support an aggressive marketing program

Compatible with Nastech’s fast-moving, entrepreneurial culturePartner in development decisionsOpen to innovative ideas and approaches

– Peptide therapeutics– Alternative delivery systems

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How Does P&G Measure Up?How Does P&G Measure Up?

Strategic FitStrategic Fit

Capability FitCapability Fit

Cultural FitCultural Fit

Supportive of Nastech’s strategy– P&G maintains continuous open and collaborative communication

throughout our development process

Actonel® -- a leading bisphosphonate for treatment of Osteoporosis

– ~ $1.7B sales in 2005– ~ 20% share of the total osteoporosis market

Selling capacity to +80% of the global marketImmeasurable consumer and customer connections and understanding

P&G: decisive and provides quick turnaroundBusiness model “Connect and Develop”– Recognize potential upside of embracing new delivery technology

No “NIH” mentality and accepts Nastech’s input and expertise

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P&G: Deal Evaluation CriteriaP&G: Deal Evaluation CriteriaNeeds, Wants and FearsNeeds, Wants and Fears



Cultural Fit(Fears)

Cultural Fit(Fears)

Is it an exciting technology that offers the potential to improve patient’s lives?Can P&G add value to the project?Is there strategic value for each partner?

Synchronization of partner’s and P&G’s expectations Decision making must be aligned with the relative spending or risk contributionGood chemistry with the partner

What is the share of rewards versus share of risk? What is the product life expectancy? Does the deal structure motivate proper behaviors that maximize the NPV of the project?

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How Does Nastech Measure UP?How Does Nastech Measure UP?

Strategic FitStrategic Fit

Capability FitCapability Fit

Cultural FitCultural Fit

Clearly fit within our recently defined Musculoskeletal core focus areaInnovative technology coincided with P&G’s “connect and develop” philosophyPresented P&G with a complete product package

Potential synergy between Actonel®

and PTH therapy• Study on bisphosphonates combined with PTH suggests a reversal

of effects from Osteoporosis (Cosman et al. N Engl J Med. 2005 Aug 11;353(6):566-75)

Intranasal delivery offers opportunity for “patient delight”• No more painful injections

Deal structure exhibits risk-sharing and rewards successNastech’s novel IP provides for long product lifeNastech strove to understand P&G and how we work: learning both our strengths and our “blind spots”

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AgendaAgenda




Overcoming obstacles to a successful Overcoming obstacles to a successful partnershippartnership

SummarySummary

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Shared Risk & Shared Risk & Reward Aligned With GoalsReward Aligned With Goals

P&GP&GExpectations for PTH1-34 revenues must be more modest, to protect against down-side scenarios

Competitive issuesRegulatory barriers

Developed a financial forecast that provided a safety net

NastechNastechBelieves intranasal PTH1-34has significant revenue potential

No other non-invasive PTH1-34product on, or close to the market

Developed a financial forecast that foresaw significantly increased PTH1-34 use

Together, we agreed on a deal structure that produced a Together, we agreed on a deal structure that produced a ““winwin--winwin”” outcome for both partners.outcome for both partners.

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Need For SpeedNeed For Speed

NastechNastech’’s s ““culture of speedculture of speed””505(b)(2) drove the needKey clinical programs slated to start Q1-2006Unwilling to slow down clinical programs to wait for partners

P&G wanted input on key clinical decisionsP&G wanted input on key clinical decisionsWorked diligently and decisively to stay with the fast moving process

Deal needed to be completed by 1Deal needed to be completed by 1--3131--20062006Goal achieved

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Summary:Summary:Timing is EverythingTiming is Everything

Decision to explore partnering Decision to explore partnering August 2005August 2005

First P&G contactFirst P&G contact 99--0101--20052005

First faceFirst face--toto--face meetingface meeting 99--3030--20052005

Initial interest and termsInitial interest and terms 1010--3030--20052005

Diligence completedDiligence completed 1111--1515--20052005

Terms agreedTerms agreed 1212--1515--20052005

Deal executedDeal executed 11--2727--20062006

149 days: first meeting to close149 days: first meeting to closeIncluding 3 holiday weeks

Rapidly Building Bones and Bones and Successful...

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