Guest content

Guest content from Nicolaj H. Nielsen, managing director of Biostrat.

A case-study on the recent licensing-deal between Myriad and Lundbeck: Information asymmetry, calculated bets and royalties in the biotech industry.

The share-price of Lundbeck has fallen with approximately 10 %, since the Danish pharmaceutical company announced an inlicensing deal with the US biotech company Myriad for a new drug named Flurizan aimed against mild Alzheimer. Why do investors not like the deal, and could the deal be (yet another) good sign for biotech companies?

What we know…
Flurizan has completed
phase II and the results from the two ongoing phase III studies will not be known until June 2008. Lundbeck will pay Myriad USD 100 million for the European commercialization rights + milestone payments + royalties in the range of 20-39 % of sales.

Lundbeck has clearly taken a calculated bet. Lundbeck believes so much in Flurizan that the company is willing to pay a large sum of money before the phase III data is known. The company is thereby trying to avoid a bidding-war against Big Pharma after positive phase III data, but is at the same time taking significant financial risk.

Why is the Market so skeptical?
Biotech is maybe the industry with the largest degree of information asymmetry. Biotech companies simply know much more about the strength and weaknesses of a potential product than outside investors/partners. This has been proven again and again by the lack of shareholder value creation in investment funds – even those that are managed by highly specialized investment companies.
The market believes that the information asymmetry is also in play in the Flurizan deal. If data from the ongoing phase III studies are so promising, why is Myriad outlicensing the product before the phase III data is available? Such a decision could of course be explained by a risk-minimizing strategy by Myriad – but again, if Myriad believes so much in the product, why not take the risk and wait 4 weeks for the data to be available?

The price…
The other thing that worries the market is the price of the drug. Taking the calculated bet could of course be defended if the acquisition price and royalties are very low. Many investors believe that not only have Lundbeck just spent USD 100 million on the roulette, but even if successful – the product will be very expensive for Lundbeck.
The parties have announced that Lundbeck will pay royalties in the range of
20-39 % of sales, which seems very high com compared to industry standards.

We don’t know the details of the agreement, and are therefore not in a position to judge whether the price is too high or not. We can just conclude that the market has voted with its feet, and the share-price has fallen with close to 10 % since the announcement. The market believes that Lundbeck’s bet is not generating shareholder-value.

Is the Myriad-deal good news for biotech companies in general?

We believe that the Myriad deal is yet another sign that the power between (inlicensing) Pharma companies and (outlicensing) biotech-companies are shifting to the favor of the latter.
In a time where many biotech companies, especially the companies with many early-stage projects, are struggling to get new funding, it is encouraging to see how good terms it is possible to negotiate only with phase II data. Most Pharma companies, like Lundbeck, is struggling to fill out their pipeline. The fight over good potential products is constantly getting tougher and tougher – for the benefit of biotech companies with the “right” products in their pipeline.

About the author:

This analysis was written by Nicolaj H. Nielsen, managing director of Biostrat, which provides management consulting services to the biotech industry.

Guest content from Sandy Graham, managing partner at Sequoyah Associates:

Can you “see the field” of opportunity? Have your clearly defined your plan to achieve your entrepreneurial dreams? Have you mapped out the strategic direction to attain your plan? Have you envisioned your market and know how to position your business to acquire it? Do you still have that “entrepreneurial flame” that caused you to spend nearly every wakening minute working ‘on” your business or have you succumbed to the daily chores of working “in” your business? Too often, new entrepreneurs and small business owners get caught up in the “day-to-day” running of their business, and find themselves unable to focus on their passion and keep the “entrepreneurial flame” going in the attainment of business initiatives, envisioning the market, reaching the optimal strategic direction, and seeing the field of opportunity.

The Golf Analogy

A new venture entrepreneur or small business owner who can “see the field” of opportunity is much like the PGA Professional who “sees the field” when he stands in the tee-box and looks down the fairway to the flag stick. He envisions the best approach to the green, determines the strategic direction to get there, and focuses all his efforts on attaining the goal of getting to the green and setting up a short birdie putt. The result is success, and if continuously repeated, will lead to a very strong finish. The great Bobby Jones was said to be the best at this. The present day version is Tiger Woods. In business, I believe we can achieve the same ‘vision’ as Tiger and Bobby if you can ‘see the field’ of opportunity.

How you ‘see the field’ of opportunity will largely determine your level of success. It is here you have the decision to make to either work ‘on’ your business, or work ‘in’ your business. Positioned to work ‘on’ your business keeps your entrepreneurial flame burning, fueled by the passion that first inspired you to leave corporate or blue-collar America and take that entrepreneurial leap-of-faith. Conversely, if the field of opportunity is clouded, foggy and difficult to see, then you likely will succumb to the notion that it is better to work ‘in’ your business to keep it going. There is certainly nothing wrong with that, except it means status quo and not growth.
компютри втора употребаThe Consequence of Not Seeing the Field

Now I am not a biology wiz, but I do know this; in the natural world, if an organism stops growing, assimilating and adapting to its environment, and basically reaches a point of accepting a natural status quo, decay sets in and the result is not good. The same goes for a new venture or small business enterprise. The ability to “see the field” of opportunity is critical to your ability to be successful; where growth, assimilation and adaptation come about through preparation, planning and execution which are extricably linked to how well you see the field of opportunity, followed by how you achieve it.

The Importance of Preparation and Planning

To “see the field” of opportunity, in my opinion, involves spending the requisite time to properly prepare and plan how you are going to attain your entrepreneurial goals, envision your market, and determine the strategic direction to achieve them. In business, any business be it biotech, telecommunications, software, medical, manufacturing, or even golf, preparation involves and includes sound strategic planning, market analysis, profitability assessment, and finally looking at your financing status, options and position.
At Sequoyah Associates we can work with you to review your business objectives and initiatives, and recommend the best strategy for attaining them, both in the near- and long-term. Of course, if there are current growth needs or issues, we can help with those as well. Our service offerings range from strategic planning that includes business plan development and business expansion strategy, to market and opportunity analysis, profitability analysis and financing assessment. Whatever your situation is as a new or growing small business, Sequoyah Associates provides the services that can help you attain your goals. Please feel free to peruse our site at and do give us a call for confidential, FREE, no obligation discussion of your business.

Gerald S. “Sandy” Graham
MBA, MS Economics
Sequoyah Associates

Sandy Graham is Managing Partner at Sequoyah Associates, with over 20 years of progressive senior level experience with some of our Nation’s leading organizations and Fortune 50 companies, as well as new ventures and small business enterprises. His experience includes business strategy, planning and development; new business solution development and delivery; client services delivery; and engagement management. Sandy’s academic credentials include an MBA and an MS in Economics, and is a recipient of the Ewing Marion Kauffman Foundation Internship in Entrepreneurship. In addition, he is a contributing author on Free Cash Flow. Since 2005, Sandy has been driving winning business strategies that have met client needs using consultative, coaching and advising skills to deliver the right business solutions for the small business firm and new venture enterprise.

Guest content from John Avellanet, managing director and principal of Cerulean Associates:

John Avellanet

Follow-on biologics are a foregone conclusion in the US. Too much money is at stake. The more difficult discussion starts with how to prepare your company to compete.

Science Succumbs to Dollars
The financial pull on reimbursement organizations and the constituent push on Congress for less expensive biotechnology treatments will inevitably lead to a regulatory approval pathway for so-called follow-on or generic biologics.

Guest content from John Avellanet, managing director of Cerulean Associates:

The US Food and Drug Administration (FDA) intends to increase regulatory enforcement, extending the recent trend of laboratory and clinical site inspections to unapproved drugs and reformulations. How can you avoid compliance trouble?

At the Food and Drug Law Institute’s 5th Annual Enforcement and Litigation conference, several FDA compliance directors spoke out on FDA enforcement priorities and provided recommendations to improve compliance.

Laboratory & Clinical Inspections
The first two targets for enforcement are laboratories and clinical sites. Of the violations found, data integrity and policy/protocol adherence are the top two by a large margin, with data integrity involved in 95% of findings. Mitch Lazris, an industry defense attorney, noted that IT departments continue to be the weak link in the compliance chain.

Two main factors lead to inspections: problems with the integrity of the information submitted to the FDA and complaints by former employees, contractors, vendors, clinical trial participants and even the sponsors themselves.

Unapproved Drugs
The FDA estimates that approximately 2% of all prescriptions are for unapproved drugs or formulations. Priority will be given to those drugs that pose safety risks, with pediatric formulations at the top of the list. Drugs that lack evidence of efficacy are also considered to be “unapproved” now that all “generally recognized as safe” (GRAS) interpretations were revoked in 1968 (21 CFR 310.100).

Panel members made multiple concrete suggestions for executives:

  1. Conduct benefit-risk analyses for every product-related decision (such as labeling, reformulation, etc.); ask yourself how you’ll defend the decision in front of jurors increasingly suspicious of the high profits of (big) “pharma.”
  2. Train individuals to understand what they are committing to, not just the procedure or protocol steps.
  3. Clarify to IT their accountabilities for electronic data integrity—there are no magic bullet technological solutions, so be wary of “another system” to solve the problem; push for a “quality” approach, not a technological one.
  4. Use caution with universities that perform both the role of sponsor and investigator for clinical trials. Segregation of duties is critical.
  5. Do not use reputation or brand to select sites, vendors or systems; inspectors look for information integrity and process adherence.
  6. Rapidly respond to 483s as this shows you understand the gravity of the findings and have a positive attitude about the need for compliance.
  7. Use design control to your advantage to minimize risks during clinical trials, labeling decisions and so forth.
  8. Address all findings from audits, 483s and so on; remember to document the steps taken and the results. Expect the FDA to pursue court action if you insist on only fixing one or two items.

Following the panel’s recommendations will give you a stronger compliance program, minimize your costs, improve your bottom line and help you avoid enforcement action.
More recommendations and compliance strategies are on the Cerulean website.

About the Author
John Avellanet is a leading authority on simplifying and streamlining regulatory compliance and quality system programs so clients can achieve faster time-to-market. He can be reached through his independent consultancy, Cerulean Associates LLC ( at: john[at]

Guest content Contributed by Jayme Norrie, Chief Strategic Officer, Incite World

From what we have experienced, angel investors are shoring up the gap in new innovations coming forward. However, they seem to be more naive than VC’s in terms of due diligence prior to investing. Scientists from the company march in with charts and scientific graphs 99% of angel investors don’t know anything about. The rule they seem to forget is: there is ALWAYS a patient market, and there is ALWAYS a scientific platform – that undoubtedly has competition. Will any new life science innovation get a percentage of the whole market? Absolutely not. They will get a percentage of a percentage based on third party reimbursement and their label. We end up doing this work for our clients and typically the results are startling to them.

Angels and VC’s tend to think that some phone calls to scientists to provide insight will help. This also hurts investments in the long run as they are asking strangers to give them financial advice. And most of these strangers – albiet with great CV’s – have never seen the data on the platform, or on other similar platforms that will ultimately compete with the innovation. More so – how can those “experts” who are brought in for evaluation on a particular scientific technology know everything about so many varying therapeutic areas? They can’t. So companies depending on a handful of “experts” to give them advice aren’t playing with a full deck – of common sense or investment strategic advice.

What I find the most amazing in the life science investment sector as a whole is the lack of investment review by true experts. Professionals who work for big pharma, biotechnology (of companies we’ve heard of), or big device. When interviewing “experts”, ask them how many successful products they’ve put on the market – Do they understand all of the nuances that lead to a successful life science product? Ask them what actual burn rates are to include FTE’s, clinical trials for THIS particular product, manufaturing and distribution costs – Do they understand and have they demonstrated their understanding above “costs of clinical trials = {blank}”; based on what? In other words, do they understand the regulatory path, the manufacturing, how this product will differentiate its label, and what strategies will be required to secure rapid product uptake?

It concerns me to look at the long term viability of the life science market as investors will continue to shy from it if they continue to get burned. The rate of new innovation discovery is tremendous; finding those that will attract IPO’s and licensing agreements means looking at them as ranking industry would – the big boys – and the only people that can do that are those that are internal to these organziations, or those who have been recently. When looking for advice on life science investments, start with the whole teams experience and make sure – if they have a cross-functional team – that its from a company you’ve heard of.

We’re grateful for the Angel community; without them emerging innovations wouldn’t get a chance in these days of upswing with tech investments. And we support the VC community as well. In the long run it will require better due diligence by ranking professionals and looking beyond level of education to level of documented experience.

Guest content contributed by Agnes Shanley, Editor in Chief, Pharmaceutical Manufacturing

Every day we read about severe shortages of skilled biotech workers in the U.S.. At the same time, the trend to pharma offshoring and outsourcing is becoming more pronounced, and is moving from traditional pharma to biopharma.

We recently touched on some of these issues in Pharmaceutical Manufacturing. One question is whether today’s skills shortages reflect a lack of alignment between biotech training and industry requirements.

We would welcome any comments, critiques and responses from the biotech community.

Here is the article (which includes, on the last page, a very brief and informal poll)

Thank you!

A guest editorial from Emil Ciurczak, Contributing Editor,

While reading a trade magazine recently, I was struck with the detailed information on how to design and implement a Corrective and Preventive Action (CAPA) system. ISO 9001:200, Clause 8.5.2 states, “…the organization shall take action to eliminate the cause of nonconformities encountered…” For medical devices, 21 CFR Part 820.100 states, “…each manufacturer shall establish and maintain procedures for implementing corrective and preventive action…” Similar wording appears in 21 CFR Part 211 for drug companies. Do we really need all these regulations to ensure we make the product as we are “supposed to” be making it?

Now, it strikes me as interesting that we still consider (under cGMP, of course) the NDA (New Drug Application) as “perfect” after all our trial, production-sized batches. What did you say? We only make three batches? But surely, numerous hours of physical and chemical design went into designing the product. And don’t forget how smoothly we went from pilot-size to production-size. What? A full-time staff of troubleshooters, you say? That many people are needed?

So, based on that information, we submit our “perfect” formulation and a plan of what to do when it fails to work. Hmmm…what’s wrong with this picture? An online source says, “Implementing corrective action and preventive action systems for FDA-regulated manufacturers is a necessity to guarantee quality and ensure compliance with Current Good Manufacturing Practices of the Quality System (QS) Regulations.” [1] Well, I’m just a humble country chemist, but (already with the “but”) if we did our homework and actually knew what we were doing, why do we need a corrective action plan?

I remember saying something recently about GMPs stating that relevant measurements should be taken during the process to ensure good product (back in the 1970s, even). I must have missed the part that said to run blindly until we go out of spec then do an investigation to find out why. From speaking with associates who routinely do OOS (Out Of Specification) investigations, there seem to be two categories of findings: the obvious (error in the lab, error in weighing in the plant) and the “como sabe (who knows?)” type, which leads to never knowing.

It is a fact that many, many lots of products simply go out of expiry in the warehouse, waiting for a cause of failure to be found. The problem with current production (under cGMP) is that if we do not know what the critical steps are, how can we find where the product made a wrong turn? We’re not even sure when the product makes a correct turn! We approach the production of pharmaceutical products much like using directions from Whether or not a bridge is out, we proceed down a road. Why? Because we went down that road for the first three NDA batches, that’s why.

PAT is the moral equivalent to using common sense: if we see that a bridge is out, we take a detour. In cGMP, we don’t look for the bridges; we simply say, “It worked last year, so let’s keep driving…we’re covered by cGMPs (read: SOPs).” Check the particle size of the raw materials? Wasn’t in the filing; forget about it. What about polymorphism? Nope, wasn’t in the document specifications 10 years ago. How about flowability, compactability, pore size or density? Nope, nope, nope and nope. I guess it’s much easier to conduct several (dozen?) OOS investigations each year than understand the process. [I have a button that states, “Several months in the lab can save an hour in the library.” Not exactly the same, but close.]

Now, please don’t misconstrue what I am saying. There is no reason not to have a plan, should some disaster strike a production run. Not having such a plan would be akin to leaving your house without insurance. However, to stretch a comparison, that doesn’t mean you can leave a pot on the stove and go to the store. Having a “disaster drill” and “evacuation plan” doesn’t mean not taking all precautions to prevent the disaster.

Assuming that because a product ran smoothly three times in a row (possibly years ago), it is not necessary to keep a vigilant watch on all current incoming materials and process parameters is the ultimate fantasy (yes, even including that website). Under the “traditional” way of manufacturing, using the “three strikes, er, uh, batches and you’re out” approach, it is impossible to do business without a well-thought-out CAPA in place.

What I am saying is that the idea of a CAPA has to morph into something new under the QbD and PAT manufacturing paradigms. In lieu of a change-control based approach, designed to find the problem with a single batch (“Round up the usual suspects”), we will have an ongoing CAPA, using “design space” mini-adjustments throughout the process. Since I already used a driving analogy, I’ll try another: current CAPA documents wait until we go up a curb, then we try to find where we hit a pothole to make us lose control. Using a PAT set-up, we monitor the road constantly and avoid the potholes before we hit the curb.

All we are saying is give PAT a chance… (apologies to John Lennon). We can’t do it sort of, part way, keeping some elements of the process static and changing others. That’s like being “partially pregnant.” DO IT!


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Guest content from John Avellanet, managing director of Cerulean Associates:

As professionals affiliated with the biotechnology industry, we often forget that many of the struggles faced today have been solved before by other fields and industries. As Ambrose Bierce wrote, “There is nothing new under the sun, but there are lots of old things we don’t know.” The question is, where to look for inspiration?

In the 1970’s, the global automobile industry faced a huge push by consumers and regulators to improve quality and safety. Manufacturing costs skyrocketed. At the same time, up went oil prices, adding a third dimension to the problem: how to improve the fuel efficiency of cars while also improving safety and quality?

There were many strategies to tackle this complex problem (Total Quality Management, for instance), but Toyota found, and was the first to capitalize on, a simple, effective answer: following the Japanese principle of kaizen, continuous improvement, to its logical beginnings, Toyota management and engineers found that the sooner quality and safety were built into the process, the more costs declined. In fact, building quality, safety and efficacy into the product at the early concept, design stage was the most cost-efficient (here I use “efficacy” to capture the concept of fuel efficiency, but also features, passenger room and so forth). This then freed them to play with and innovate on the remaining elements such as style, handling and so on.

Admittedly, the days of the Corolla were numbered, but those early attempts provided Toyota the funding and marketplace stature to build today’s Lexus. In fact, the items that most executives at the time argued were massive hurdles for the industry – quality, safety, efficacy – are now bandied about as competitive qualities. Volvo does not make the most beautiful of cars, but surveys of Volvo owners repeatedly point out the top three answers for why they purchased the Volvo over all other options: safety, followed by efficacy and quality.

In my work helping executives at biotechnology, pharmaceutical and life science firms, I often hear attempts to rationalize away such a comparison with “Yes, but we are talking about hundreds of potential compounds in the early preclinical stage, so that’s not really applicable.” Yet automakers today routinely develop hundreds of concept cars and frequently go on to build many more prototype cars for road testing than any biotech or pharmaceutical firm has new treatments in clinical trials. In fact, the cars you and I will be able to buy seven to ten years from now are currently being tested (along with others that won’t make it) on raceways and simulated town streets and rainstorms right now in Michigan, North Carolina, Japan, Germany and so forth.

Lessons and analogies from other fields and industries can help us reframe the compliance challenges we face and point to ways to reduce costs, boost innovation and improve market success. Ultimately, the biotechnology and pharmaceutical firms that take the most advantage of these will be the ones dominating the industry 25 years from now.

If you’d like to read further examples and applications that might be more suited to the situation you face, I’ve made a number of my published articles available as PDF downloads in the Resource Library of Cerulean Associates.

I welcome your comments, suggestions or questions. Please feel free to contact me at any of the points either on the Cerulean Associates website or within my articles.

I look forward to talking with you.