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EXCLUSIVE LIFE SCIENCE FEATURE leaders LIFESCIENCELEADER.COM MARCH 2014 48 What we may be witnessing is a race among companies to set the gold standards for clinical data at both the investment and regulatory lev els. The company plans to promote its new COO, ex-GSK exec Christophe Weber, to the CEO position after current President and CEO Yasuchika Hasegawa becomes chairman in June. Both men participated in the company's breakout session, and they left the strong impression the tran- sition would happen soon. Hasegawa told me the company has become steadily more diverse through the years and will become more so as new leaders emerge from its internation- al operations and acquisitions such as Millennium (though Weber "parachuted in" from GSK last November). Takeda's top financial and strategic goals for 2014 come right out of the Western playbook: efficiency, productivity, globalization of operations, procurement, integration of R&D;, and intellectual property protec- tion. In the GI therapeutic area, as oth- ers' patents expire, the company aims to claim the territory as global number one. GlaxoSmithKline's CFO, Simon Dingemans, may have coined a new industry euphemism in saying the com- pany had encountered "unexpected headwinds" in 2013. Beyond its bribery scandal in China, however, the company news was mostly good: "We put growth back in the system," said Dingemans, as shown by a modest but positive rise in sales of 2 percent. Still, GSK has also trimmed down — simplifying its business portfolio to just pharmaceuti- cals, vaccines, and OTC medicines. The restructuring delivered billions of dol- lars in savings, but the company is now looking at cost-of-goods and the supply chain for more weight reduction even as it bulks up its sales volume and lifts new revenues. In fact, Dingemans said the company wants its EPS to grow faster than sales. GSK's R&D; delivered five new products in 2013, but the products are "still in their early days." Likewise, the company expects an "interesting wave" of Phase 3 data in 2014, but Dingemans downplayed any excitement about the late-stage pipe- line. Following a noticeable trend among the big companies, GSK ended the year with a large share buy-back, explaining it wants to "keep the balance sheet tight" but with plenty of room for investment opportunities. CARPE DIEM FOR THE SMALL-CAPS Those investment opportunities for GSK and its industry peers lie mainly in the small-cap life sciences sector, of course, which is increasingly active in the small- molecule side as well as biotech. But there was a palatable change in the air this year. Even though the past year's IPO boom may be behind us, the momentum it has created now sustains a new level of confidence among the smaller play- ers. Undaunted by the continued cool- ness among VCs, the small-caps now have somewhere else to turn besides Big Pharma to fund drug development, as well as the potential for regulatory relief from the costs of late-stage trials. The IPO attrition in the new year has been visible, at times dramatic, but somehow optimism has persisted. Though my imagination may be fooling me, I sensed greater pride and confi- dence among the small-company execs encountered at the conference — as well as a more solicitous attitude toward them by the big companies. If any company could be expected to douse cold water on its sector, it would be one like Ariad. Only a few months before the end of 2013, Ariad was a dar- ling of Wall Street. With its leukemia drug Iclusig (ponatinib) on the market thanks to an accelerated review by the FDA and Phase 3 trials under way that would have greatly expanded Iclusig's market, the company sported an extraor- dinary market cap of about $4 billion. Then last fall, serious safety prob- lems suspended the product's sales and the clinical trials. Although Iclusig has returned to the market for a narrowly targeted patient group in CML (chron- ic myeloid leukemia), its future is, to understate the matter, highly uncertain. At the conference, the most the company could say about the product was that it appears to stabilize patients in its current use. Interestingly, though, Ariad has generally traded up since its big fall in October, and it has not dragged the sector down as some predicted. I am going to hazard a highly specula- tive theory to explain the case: However much investors may reward or punish a single company, they appear ready to learn from the experience rather than run from it. What we may be witness- ing is a race among companies to set the gold standards for clinical data at both the investment and regulatory levels. Even though Wall Street and the FDA have opened new routes for Phase 2-based entries, they will base their cri- teria on a comparison of different com- panies' data, creating a natural selection mechanism and inevitably raising the general standard for IPOs and for acceler- ated reviews. Now, if only the life science investors of 2013 could also acquire a more long- term perspective, their optimism would not wane, however, their realism could sustain them. Rougher, discouraging times will come again, and the historical vola- tility of the stock market in the sector may stimulate but can never maintain the momentum of small-cap innovation. For the needed change to happen, naïve inves- tors must grow up to become wise inves- tors. By next year's JPMHCC, we shall no doubt see which way the wave breaks: Will small-caps be forced to turn once more to Big Pharma with hat in hand, or will the latest crop of life science investors develop some staying power? L MAINTAINING MOMENTUM: 2014 PHARMA & FUNDING FORECASTS AT JPMHCC By W. Koberstein " " 0 3 1 4 _ F e a t u r e _ J P M _ F . i n d d 4 0314_Feature_JPM_F.indd 4 2 / 2 0 / 2 0 1 4 4 : 4 6 : 4 7 P M 2/20/2014 4:46:47 PM