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EXCLUSIVE LIFE SCIENCE FEATURE leaders LIFESCIENCELEADER.COM MARCH 2014 38 DENNIS PURCELL — BUILDING ON LAST YEAR'S BIOTECH BOOM IN 2014 By W. Koberstein drugs in their pipelines are coming from outside their R&D;, not inside. You see more innovation coming out of pharma in dealing with academics, who them- selves are entering deals where the ven- ture community funds Phase 3 projects and the Big Pharma companies can buy them back later. But the pharma companies face the same issues as the biotechs: once you have a little more cash on the balance sheet, should you stick to your knitting, like Regeneron or Acorda, or do you go out and acquire other companies, as Cephalon or Alkermes has done? When I say it is a chance for the biotechs to be bold, I mean it's a real chance for them to reassess what they want to become as they mature. The following is an inter- esting question I heard posed the other day: Is it better to own 50 percent of four products or to own 100 percent of two products? That is the kind of fundamen- tal question that biotech companies will have to answer. LSL Does the investment climate for small biotechs look as good going into 2014, and what investment trends do you see? We had a really good run in 2013, and we can't expect to have the same kind of gains in 2014. We must deal with three issues for the industry to continue to do well, and I call them "The Three O's." First is "output," or how we can use our capital more efficiently to generate bet- ter output. Second is "outcomes," which is about sharing clinical data. Right now, half of all clinical trials are not reported, but we need to learn from each other's mistakes — not only from the positive outcomes, but also the negative out- comes. Third is "originality." We will see biotech companies develop new kinds of business plans, because the time-worn business plan of doing your Series A, Series B, and so on is not the best way for everybody to make money, so con- sequently we're starting to see Series A rounds that are $100 million or more. 2014 will be a year of transition as we build on the success of 2013. Take a step back and look: There is about $30 trillion in the world right now that's earning less than 2 percent a year, so as an industry, we don't need to give people a 10X return — there are not a lot of other places for them to put their money. If we can show investors a more stable way to make money and money starts flowing into the industry, so much the better. LSL Are there issues that concern you about the industry in 2014? We have to concern ourselves about funding for the NIH and the FDA. The NIH, really over the last decade has lost about 25 percent of its purchasing power to budget cuts and inflation and now faces even worse cuts in the future. FDA's budget sits in limbo, and the agency is dealing not only with past cuts, but also continued uncertainty. So the cuts are disturbing because they hurt the NIH's ability to put out research money and the FDA's ability to keep up with the science and its increasing responsibilities. If this industry had not figured out a way to make AIDS a chronic rath- er than a fatal disease, most hospital beds in New York City would be filled with AIDS patients. And if we don't make progress on brain disorders like Alzheimer's and dementia, 20 years from now most of the beds in New York City and across the country will be filled with Alzheimer's and dementia patients. So, it's really important that we invest government dollars to help keep innovation going. LSL It seems the biotech industry has a twin burden to bear — innovation on one hand and economic stimulus on the other. I agree. The industry has the burden of innovation, but the people who actually fund the industry — by and large, endow- ments, state pension plans, and teachers' retirement systems — have their own issues. They need to fund their retirees or endowments. So we rely greatly on people who sometimes need a quicker return than biotech can give them. LSL What other, larger issues in the industry will affect its fortunes this year and beyond? I would emphasize three big issues: personalized medicine, biotech business models and infrastructure, and public per- ception of our industry. Regarding person- alized medicine, look at cancer treatment: We really treat cancer as a problem at the molecular level, and it's now targeted at specific patient groups, so we've done a good job of moving that ball along in cancer. But companies must think about their business models. In the past, if your drug was safe and effective, you were okay — now it must be safe, effective, differenti- ated, and reimbursed. Also, immunother- apy may be the next wave in cancer, but if you're going to do autologous cell transfer, that's a very expensive proposition. As for infrastructure, I believe we must avoid too much duplication of efforts in biotech. In Boston, just as we have three hospitals within a mile of each other all doing heart transplants, we now have almost 200 bio- tech companies in the area, many of them working in the same areas. Finally, in the pharma/biopharma industry as a whole, we need to be more sensitive about how we're perceived in the public. For example, Forbes put out its list of the 100 most valu- able brands, and there was not one drug on the list. I'll leave you with two last thoughts. One, if you took the U.S. healthcare sys- tem and made it a country, it would be the fifth largest country in the world — after the United States, China, Japan, and Germany. And my final thought is this: Every 12 years, we're adding one billion more people to the planet. L D E N N I S P U R C E L L Senior Managing Partner at Aisling Capital Companies now have an obliga tion to manage their cash better, to make sure that they have enough reserves if the industry goes into a bust cycle. 0 3 1 4 _ F e a t u r e _ P u r c e l l _ F . i n d d 4 0314_Feature_Purcell_F.indd 4 2 / 1 9 / 2 0 1 4 2 : 3 3 : 0 0 P M 2/19/2014 2:33:00 PM