Association of Corporate Contributions Professionals

) have begun an 18-month pilot program to improve companies’ ability to measure the impact of corporate community investment.Through this initiative, 12 ACCP member companies will learn the LBG framework and its impact-measurement tools. Participants will also share their own experiences and best practices to help further develop tools and resources to assist in measuring the impact of community investment. The pilot, focused on the LBG measurement model, launched on Nov. 30, 2011. Over the course of the 18-month program, a series of workshops will take place applying the model, which was adopted by The Dow Jones Sustainability Index as its assessment criteria for measuring corporate community investment. As part of the program, a summary report will be jointly developed by ACCP and LBG upon completion of the pilot and shared with ACCP and LBG members.

 has donated $3.8 million worth of prescription medicines to 

s for chronically ill Americans who rely on safety-net clinics for their medical care. The donation is one of the largest AmeriCares received in the past year for its domestic-aid deliveries. AmeriCares delivers medicines to free clinics and community health centers through its US Medical Assistance Program, which provides free medicines and medical supplies to 400 healthcare facilities serving the poor and uninsured across the United States. The AstraZeneca products are expected to benefit patients of about 100 clinics in 28 states.

 donated $6.9 million in 2011 to support the HealthWell Foundation, an independent nonprofit organization that provides financial assistance to eligible individuals to cover coinsurance, copayments, healthcare premiums, and deductibles for certain treatments. The donation was made to HealthWell’s co-pay assistance funds to help underinsured cancer patients with their out-of-pocket disease-related expenses that are not covered by their insurance plans, regardless of treatment selected.

has announced several new initiatives to help state AIDS Drug Assistance Programs (ADAPs) continue to provide access to medicines to people living with HIV.;These efforts include lowering the price of Isentress (raltegravir) to eligible ADAPs, effective Jan. 1, 2012. The new price will be frozen and will be available as part of the existing Merck special pricing program through Dec. 31, 2013. In addition, Merck and the ADAP Crisis Task Force have agreed to other initiatives. Merck is increasing it operations funding and medication donations for the Welvista ADAP Program.The program helps address the medication needs of ADAP clients who are currently on state ADAP waiting lists by expediting access to HIV medicines through a simplified application process. The company also is working to optimize the use of comprehensive health insurance options available to persons with HIV. Between 2009 and 2010, the use of private insurance by ADAPs tripled to more than 110,000 persons. The National Alliance of State and Territorial AIDS Directors (NASTAD) reported about 40 ADAPs used ADAP funds to purchase health insurance or pay insurance premiums, co-payments, and/or deductibles for individuals eligible for ADAP (provided the insurance has comparable formulary benefits to that of the ADAP). Merck and NASTAD will seek solutions that overcome barriers to more widespread use of such approaches, such as expanding enrollments in Medicare Part D, private insurance and pre-existing condition insurance plans.

 has awarded a grant to the Albert Einstein College of Medicine of Yeshiva University in New York City, which will be used for the establishment of a program to improve basic cancer care in Ethiopia. The grant funding comes from the Roche African Research Foundation. The goal of the project is to increase the capacity for delivering cancer care in Ethiopia by improving patient navigation through the care system, assuring standard protocols and reporting, enhancing public awareness of cancer, and developing a pilot site for regional cancer care centers at the Hawassa College of Medicine and Health Sciences. The initiative will also focus on providing a basic cancer-care training program for healthcare professionals and surgical training for gynecologists as well as support the annual Ethiopian Oncology National Conference, which is a conference by which oncologists within Ethiopia can exchange experiences and knowledge regarding cancer treatment. The program will emphasize women’s reproductive cancers because they represent the greatest burden of cancer disease in Ethiopia and the patients are young. While the average life expectancy for women in Ethiopia is more than 58 years, approximately 44% of patients with breast cancer are under the age of 40.

, the vaccines division of Sanofi, reports that Brazil has chosen to introduce injectable polio vaccine in its national immunization program with inactivated polio vaccine (IPV) from Sanofi Pasteur. The IPV doses will be provided by Bio-Manguinhos, the Institute of Technology in Immunobiologicals of the Oswaldo Cruz Foundation through an agreement with Sanofi Pasteur. IPV will be included in the Brazilian national immunization program starting in 2012.

Articles

CSR and Sustainability Forum

A roundup of developments in corporate social responsibility and sustainability from the bio/pharmaceutical industry, its suppliers, and other private and public organizations.

CSR and Sustainability in the News

The biotechnology industry represents an important source of potential outsourcing for contract providers of drug-development and manufacturing services, particularly among smaller, emerging biopharmaceutical companies. Financing trends in the biotechnology industry, therefore, are important indicators of the health of the biopharmaceutical sector and of the financial strength of a potential customer base for contract service providers. 

Although the biotechnology industry finished the first half of the 2011 on pace for one of its biggest years of fundraising, global economic worries and political fights over government debt in Europe and the United States weighed heavily on financial markets and tempered financing for 2011. “These pressures not only hampered companies' ability to obtain funding in the second half of the year, but also raised the specter of cuts to governments' expenditures on healthcare and biomedical research,” said G. Steven Burrill, CEO of Burrill & Company, a global financial services firm focused on the life sciences industry, in a Jan. 3, 2012, press release. “With capital scarce and expensive, companies will need to focus their investments on clear paths to revenues. They will also have to develop products that push beyond incremental improvements on available products and instead concentrate on disruptive solutions that make healthcare costs more sustainable,” he said. 

On a global basis, life-sciences companies during 2011 raised a total of $82.4 billion in public financings, up from $65 billion in 2010, according to Burrill & Company. Debt financings dominated fundraising both years and accounted for the overall fundraising growth in 2011. On a global basis, life-sciences companies’ debt offerings increased 46.4% from $37.8 billion in 2010 to $55.5 billion in 2011. Global life-sciences public-equity financings (initial public offerings [IPOs], private investment in public equity [PIPEs], and follow-on offerings totaled just $16.0 billion, a 7.9% increase over the $14.8 billion raised in 2010, due largely to follow-on financings in China.

In the United States, public-equity financings in 2011 totaled $5.7 billion, down 17.4% from $6.9 billion a year ago, according to Burrill & Company. As on a global basis, US life-science companies’ debt offerings increased 17.6% in 2011, from $30.6 billion in 2010 to $35.9 billion. Fundraising slowed considerably in the US in the second half of the year as markets swung in the face of the European debt crisis and the fights in the US over the raising of the debt ceiling, the Standard and Poor's downgrade of US credit, and the inability to reach agreement in Congress on how to reduce the budget deficit, explained Burrill & Company in its release. 

On a global basis, 46 life-sciences companies went public in 2011, up from 39 in 2010. Although the number of IPOs increased in 2011, the total amount raised decreased by 44.6% compared to 2010, down from nearly $6.8 billion in 2010 to $3.7 billion in 2010, according to Burrill & Company. In the US, a total of 16 life-sciences companies went public in 2011 and raised $1.4 billion compared to 20 companies that went public in 2010 and that also  raised $1.4 billion in those IPOs. As a group, life-sciences IPOs of 2011 fell 29% from their initial offering prices as of the close of the year. Ten companies that went public did so below their target price ranges and, as a group, these companies sold nearly 28% more shares than they had set out to sell while raising 13% less than they had hoped.

Mergers and acquisitions (M&A) were up in 2011, both globally and in the US. Global biotechnology M&A activity was valued $160 billion in 2011, up 7.5% from 2010, according to Burrill & Company. M&A activity with US targets also rose, up 32.5% in 2011 compared to 2010 from $71.9 billion in 2010 to $95.2 billion in 2011. Some key deals in 2011 included the completion of long negotiation between Sanofi and Genzyme in Sanofi’s acquisition of Genzyme, which included the use of contingent value rights that could be worth up to $14 each, notes Burrill & Company. These rights closed 2011 at $1.17, a reflection of Wall Street's uncertainty about their value. Those rights could add as much as $3.8 billion more to the agreed-on $20.1 billion deal. Other notable deals included generic-drug producer Teva Pharmaceutical buying the biopharmaceutical company Cephalon for $13 billion; Takeda buying Switzerland's Nycomed for $13.7 billion to broaden its access to Europe and emerging markets; and Gilead's planned $11 billion purchase of hepatitis C drug developer Pharmasset. 

Financing raised through partnering deals, however, declined significantly in 2011. Global partnering financing fell 38.3% in 2011, from $61.3 billion in 2010 to $37.8 billion in 2011, according to Burrill & Company. Financing from US partnering and licensing deals took a commensurate plunge and fell 32.8% in 2011 from $34.0 billion in 2010 to $22.9 billion in 2011. 

“As we begin the new year, the volatility that has characterized the financial markets in the second half of 2011 is likely to continue,” noted the Burrill & Company release. “Europe's sovereign debt crisis will take years to work through and with 2012 being an election year in the United States, the divide between the parties is not likely to be bridged. While the industry continues to raise a substantial amount of capital, much of it is going to fund large, well-established companies.”

Biotech

Venture-capital financing was up last year in the US biotechnology industry, but public-equity financing, exclusive of debt, declined.

A Mixed Year for US Biotech Financing

A recent report by The Boston Consulting Group (BCG) examined the performance of the biopharmaceutical industry in comparison to other industries with respect to total shareholder return (TSR) as a measure of value creation during the five-year period of 2006–2010 (1). The report concluded that the biopharmaceutical industry lags other industries in terms of value-creation and that there is opportunity to improve growth prospects with sector-specific strategies for large-cap biopharmaceutical companies, emerging biopharmaceutical companies, and generic-drug companies.

Benchmarking the biopharmaceutical industry


 BCG examined 19 industries, manufacturing- and service-based, and found that the biopharmaceutical industry ranked last in terms of TSR. TSR is a measure of the total annual increase in value given to a shareholder. TSR measures the change in a company’s market value (i.e., often comprising of earnings and the share price/earnings [P/E] multiple) plus its free-cash flow (i.e., dividend yield and changes in net debt and the number of outstanding shares) (1). In compiling the TSR of the biopharmaceutical industry, BCG examined 43 companies with market valuation greater than $5 billion. Annual average TSR across all 19 industries was 6%, well below historical annual averages of 10%, but was only 0.7% in the biopharmaceutical industry. Despite the low ranking overall, there were some bright spots for individual companies. The top five performers in the biopharmaceutical sector had an annual average TSR of more than 17% in the five-year period of 2006–2010 (1). 

Examining biopharmaceutical industry performance


 To examine these rankings in more detail, BCG applied a proprietary system methodology to identify the drivers of TSR performance in the three major sectors in the biopharmaceutical industry: large-cap, emerging, and generic-drug companies. For purposes of this analysis, large-cap biopharmaceutical companies are companies with market capitalization of $30 billion or more, and emerging biopharmaceutical companies have a capitalization between $5 billion and $30 billion. Generic-drug companies are defined as companies that derive more than 60% of their sales from generic drugs. Overall, although sales growth remained strong for the biopharmaceutical industry during the five-year period of 2006–2010, expectations for future growth declined significantly. For example, P/E ratios for the large-cap biopharmaceutical companies declined from multiples of 35 times price to earnings in 2000 to 11 times price to earnings in 2010. More troubling is that the average return on investment (ROI) in R&D for new products is below the cost of capital, making R&D value-destroying (1). Near-term growth was the weakest in large-cap biopharmaceutical sector (7% per year), strongest in the generic-drug sector (21%), and the emerging biopharmaceutical was in between (11%). 

The factors contributing to better performance, as measured by valuation multiples, in each sector differed. Among large-cap biopharmaceutical companies, the key drivers are R&D productivity, operational efficiency and margins, financial policy, and the ability to maximize the sales value of the product portfolio before and after loss of exclusivity. For emerging biopharmaceutical companies, the key drivers were margin, R&D productivity, debt ratio, and sales growth. For generic-drug companies, the key drivers are scale and financial stability, particularly in the debt/enterprise value ratio.

The large-cap biopharmaceutical sector performed poorly on average, with a flat 0% TSR over the five-year period. For companies that performed better, four factors contributed to a higher TSR: improved R&D productivity, operational efficiency and margins, financial policy, and the ability to maximize the sales value of the product portfolio before and after loss of exclusivity. In measuring the net value of R&D as a percentage of enterprise value, the report found that in 2010, five companies–Amgen, Bristol-Myers Squibb, Celgene, Genentech, and Gilead Sciences–had positive ROI for R&D while five companies–AstraZeneca, Merck & Co., Pfizer, GlaxoSmithKline, and Eli Lilly had below average performance. In 2011, only two companies–Bristol-Myers Squibb and Pfizer–performed above average in ROI on R&D and seven companies–Amgen, GlaxoSmithKline, Merck & Co., Gilead Sciences, AstraZeneca, Celgene, and Eli Lilly–had below average ROI on R&D. To improve R&D output, BCG advises strategies to reduce bureaucracy in R&D and facilitate decision-making for “go/no” projects both operationally and culturally.

The report also found that companies that treat life-cycle management as part of product development proactively rather than defensively when confronting loss of exclusivity perform better. The report identifies four key strategies: maximizing patent life through technical, legal, and regulatory means; driving demand and scale immediately before patent expiry; progressively lowering the cost base for the product; and limiting revenue decline due to loss of exclusivity by preserving or replacing lost volumes by lowering prices in certain segments while maintaining a premium price in other segments that support the product (1). For example, the report estimates that as much as 40% of blockbusters’ potential revenue maintenance can come from geographic markets outside the established markets in the United States and five top Western European markets (1).

For emerging biopharmaceutical companies, the key drivers for creating value were margins, R&D productivity, debt ratio, and sales growth. Crucial for these companies is to have a follow-on strategy for a recently launched drug or licensed drug. For generic-drug companies, the key drivers are scale and financial stability, particularly in the debt/enterprise value ratio. Generic-drug companies often face a “land grab” situation, in which companies are building scale to win market share but need to do so without becoming financially extended.  Financial stability tends to favor the larger generic-drug companies that have available funds for investing in new growth opportunities (1).

1. M. Ringel, C. Foley, O. Wierzba, “The 2011 Health Care Value Creators Report: Strength in the Storm: How Biopharmaceutical and Medical Technology Companies Can Create Value in a Challenging Business Environment” (The Boston Consulting Group, Dec. 2011). 

APIs

Improving R&D productivity, life-cycle management, and operational efficiency are key approaches for enhancing growth prospects.

Strategies for Value Creation in the Biopharmaceutical Industry

The year 2011 ended with the buyout of the CRO Pharmaceutical Product Development (PPD) by two private-equity firms, the Carlyle Group and Hellman & Friedman. They paid $3.9 billion, a 30% premium over the company's value shortly before the deal was announced, making it the largest private-equity deal for a publicly traded CRO. 

Clinical CROs such as PPD have proven to be popular takeover targets for private-equity firms: PharmSource counts at least eight publicly owned CROs that have been taken private by private-equity firms since 2003 (see Table I). One CRO, PRA International, had a roundtrip. It was founded as a private company, taken public by its private-equity investor, Genstar Capital, in an initial public offering in 2005, and then taken private again by Genstar in 2007.  

Table I:  Publicly traded CROs acquired in private-equity deals.  

Private-equity buyouts are usually quite attractive to the current shareholders of the company because they offer a significant premium over what the company's stock was selling for shortly before the deal was announced. These deals are usually even more enticing to the senior executives who run the acquired company for two big reasons. Going private allows executives to pursue long-term growth strategies away from the oversight of public shareholders and Wall Street analysts, both of which may be more interested in short-term results than initiatives that promise longer-term, but more uncertain, payoffs. As importantly, the private-equity buyers usually offer the senior executives increased equity stakes in the company that can deliver great riches if those executives are successful in substantially increasing the value of the company through the successful implementation of those long-term strategies. 

The PPD deal illustrates how senior management's frustrations with the public market can drive a company's board to pursue a private-equity buyout. In the past decade, the company had pursued a strategy it called "compound partnering" under which it would acquire or invest in promising early-stage drug candidates. PPD would undertake the early-development efforts to establish proof-of-concept, then out-license or sell the candidate to a drug company for late development and commercialization. Despite some early successes, the stock market and analysts following the company were uncomfortable with this strategy because it introduced a level of risk and uncertainty into a valuation model that expected steady financial performance that was easy to forecast. As a result of the uncertainty, the market discounted the value of the company's stock. A similar problem had been a major reason for another CRO, Quintiles, to undertake a management-led buyout in 2003. 

PPD's board tried to improve its stock's performance by making its compound-partnering business into a separate company, which it spun off to shareholders in 2010. That move, however, did not help the stock's valuation as much as had been hoped. Part of the problem had been the underperformance of PPD's laboratory services business, whose disappointing profitability in recent years has been blamed for depressing the company's stock price.  

Private ownership may enable PPD management to address the laboratory businesses' problems with a long-term view while shielding it from second-guessing by public investors. That was the story at 

PharmaNet Development, which was bought by a private-equity firm after it was cited for noncompliant behavior in running some of its clinical trials. 

The aim of private-equity investors is simple: make a large cash return on the cash invested. This goal is accomplished in two ways: by taking advantage of the acquired company's cash-generating capability and by making the company worth more when it is sold than when it was bought. 

Most private-equity deals take advantage of the acquired company's ability to support a significant debt burden. By using the target's debt capacity, the private firm is able to borrow much of the purchase price and limit the amount of cash it must put up to make the acquisition in the first place. Current interest rates make borrowing especially attractive. 

Clinical CROs are an attractive vehicle for leveraged buyouts. Their capital-

investment requirements are usually small in comparison with manufacturing businesses, so they can throw off a lot of cash. Further, those cashflows are highly predictable because clinical CROs tend to have highly diversified multiyear project backlogs. A growing CRO is likely to be able to pay out substantial dividends to its owners as well as carry a substantial debt burden. 

Enhancing the value of the acquired company may just be a matter of timing, such as by buying the company at a low point in the market cycle and going public when market multiples are high again. The private-equity firm also can improve the value of its target through further acquisitions, expansions of offerings, or restructuring to improve profits. Stock analysts who were following PPD before the acquisition speculated that PPD's laboratory businesses might be in for restructuring.  

Buyouts by private-equity companies are not without risk as such moves are subject to not fully understanding the prospects of the business or changing market conditions. Both of these things appeared to happen to the buyers of the European CMO Nextpharma, whose Belgian injectables manufacturing business was recently forced to file for bankruptcy protection, as well as to the French CMO Osny Pharma, which filed for bankruptcy protection in early 2011 and was absorbed by another CMO, Cenexi. 

While PPD's track record of profitability and market position (it is thought to be the second largest for Phase I–IV clinical research after Quintiles) would seem to guarantee a strong performance  over the typical private-equity holding period of five years, the changing CRO and bio/pharmaceutical research environment could present challenges. As global bio/pharmaceutical companies reduce their CRO relationships to a few preferred providers, competition for those relationships has become intense. There reportedly has been aggressive price cutting in the industry to get those deals, thereby leaving "winners" saddled with lower profit margins but losers shut out altogether.  

Investors have been attracted to the CRO industry because the ongoing reinvention of the bio/pharma business model has outsourcing as a core strategy. The ultimate form of that business model is still being evolved and tested, and there is no guarantee that it will ultimately look like what it looks like today. Buyers of PPD bought one of the crown jewels of the industry. The greater risk is probably faced not by them, but the private-equity firms that bought PPD's small and mid-size competitors.  

 is president of PharmSource Information Services, Inc., and publisher of 

Outsourcing

Some recent private-equity buyouts of CROs show both the upside and downside for investors.

Contract Services in 2012

Neglected tropical diseases (NTDs) remain a key target in global-health initiatives and late last month, the International Federation of Manufacturers and Association (IFPMA), an organization representing the research-based pharmaceutical industry, outlined the industry’s plan for donations to combat nine NTDs. At least one billion people worldwide—one person in seven — suffer from NTDs, according to IFPMA. 

Overall, the pharmaceutical has pledged 14 billion treatments between 2011 and 2020 to support the elimination or control of nine key NTDs (see Figure 1). These NTDs are human African trypanosomiasis, trachoma, fasciollasis, leprosy, schistosomiasis, onchoerclasis, soil-transmitted helminthiases, lyphmatic filariasis, and Chagas disease. The donations average1.4 billion treatments annually and build upon companies’ existing medicines donation programs. The pledge for donations comes in conjunction with an NTD collaboration comprised of pharmaceutical companies, the Bill & Melinda Gates Foundation, the governments of the United States and United Kingdom, international organizations, and endemic countries’ national governments. 

Number of treatments pledged by pharmaceutical companies between 2011â2020 to treat nine neglected tropical diseases. m is millions.Source: International Federation of Pharmaceutical Manufacturers and Associations (IFPMA). Figure 1 is courtesy of IFPMA.  

These donations follow a World Health Organization (WHO) announcement of new NTD targets to be achieved by 20201. WHO highlighted nine NTDs whose elimination or control is achievable with adequate supply and distribution of the relevant medicines. For maximum impact, these donations focus on those nine NTDs that represent more than 90% of the global NTD burden. 

“For decades individual pharmaceutical companies have researched, developed, and donated medicines to fight disease and improve patients’ lives,” said IFPMA Director–General Eduardo Pisani, in a Jan. 30, 2012, IFPMA press release. ,“Today the research-based pharmaceutical industry jointly pledges a further 14 billion treatments to help end these debilitating diseases. This is our commitment as partners to help end NTDs and improve patient health.” 

In addition to medicine donations, the research-based pharmaceutical industry supports the fight against NTDs with capacity-building efforts in developing countries and medical innovation, such as the R&D for new NTDs, and the World Intellectual Property Organization (WIPO)’s Re:Search initiative. WIPO Re:Search enables broad access to clinical-trial data, knowledge, expertise, compound libraries, and intellectual property assets with a view to encourage innovation for treating NTDs. The pharmaceutical industry was the second largest funder of R&D for neglected diseases in 2010, reaching more than $500 million, according to IFPMA. 

Pharmaceutical companies pledge donations of 14 billion treatments for the next decade to combat nine neglected tropical diseases.

PTSM: Pharmaceutical Technology Sourcing and Management-02-01-2012

CSR and Sustainability in the News

A Mixed Year for US Biotech Financing

Strategies for Value Creation in the Biopharmaceutical Industry

Contract Services in 2012

Pharmaceutical Companies Target Neglected Tropical Diseases