SIRTRIS PHARMACEUTICALS: LIVING HEALTHIER, LONGER

John Burr Ph.D.

Warm-up Question 1

1. According to www.wineinstitute.org, which of the following countries has the highest wine consumption per capita in 2008?

A. Switzerland

B. United States

C. Spain

D. United Kingdom

Warm-up Question 1

1. According to www.wineinstitute.org, which of the following countries has the highest wine consumption per capita in 2008?

A. Switzerland

B. United States

C. Spain

D. United Kingdom

Warm-up Question 2

2. Borders Bookstore derived its name from:

A. The first store was built in El Paso, Texas, just two miles from the Mexican border.

B. Tom and Louis Borders, brothers from Ann Arbor, Michigan

C. Borders was originally a place to order books, not buy them...hence the name Book Orders

D. Nothing in particular; the founders just thought it sounded interesting

Warm-up Question 2

2. Borders Bookstore derived its name from:

A. The first store was built in El Paso, Texas, just two miles from the Mexican border.

B. Tom and Louis Borders, brothers from Ann Arbor, Michigan

C. Borders was originally a place to order books, not buy them...hence the name Book Orders

D. Nothing in particular; the founders just thought it sounded interesting

Warm-up Question 3

3. The common, but fallacious story behind the creation of eBay is that Pierre Omidyar's wife had a large PEZ candy dispenser collection, and that he created eBay in 1995 to help her acquire even more containers. Urban myth? Maybe so, but what was the domain name that Pierre originally wanted to use?

A. Collectible.com

B. Shop24.com

C. BuyItHere.com

D. EchoBay.com

Warm-up Question 3

3. The common, but fallacious story behind the creation of eBay is that Pierre Omidyar's wife had a large PEZ candy dispenser collection, and that he created eBay in 1995 to help her acquire even more containers. Urban myth? Maybe so, but what was the domain name that Pierre originally wanted to use?

A. Collectible.com

B. Shop24.com

C. BuyItHere.com

D. EchoBay.com

Warm-up Question 4

4. What popular clothing company took its name from a derogatory term often applied to Central American countries?

A. Coconut Country

B. Sugar Shack

C. Mango Mansion

D. Banana Republic

Warm-up Question 4

4. What popular clothing company took its name from a derogatory term often applied to Central American countries?

A. Coconut Country

B. Sugar Shack

C. Mango Mansion

D. Banana Republic

CBS News 60 minutes:

http://www.youtube.com/watch?v=fWkRN-0KjeM

http://www.youtube.com/watch?v=uGD0rm2By2A&feature=related

Sirtris Study Questions

1. Describe the FDA approval process of a new drug application.

2. What are the three major decisions facing the company at the time of the case?

3. At the time Westphal joined Sirtris, what is your assessment of the odds that the company will ever generate substantial revenues? If you were Westphal, would you have left Polaris for Sirtris?

4. Should Sirtris launch SRT501 nutraceutical business? Why or why not? 

5. Should Sirtris do the deal with the pharmaceutical company? Why or why not? If you recommend a deal, which equity stake (20% or 51%) would you prefer?

Sirtris Study Question 11. Describe the FDA approval process of a new drug

application.

Sirtris Study Question 4

4. Should Sirtris launch SRT501 nutraceutical business? Why or why not? 

Fact: Nearly two-thirds of the American population takes at least one type of nutraceutical health product.

Fact: The use of nutraceuticals, as an attempt to accomplish desirable therapeutic outcomes with reduced side effects, as compared with other therapeutic agents, has met with great monetary success.

 

Sirtris Study Question 5

Should Sirtris do the deal with the pharmaceutical company? Why or why not? If you recommend a deal, which equity stake (20% or 51%) would you prefer?

Update• Sirtris went public at $10/share in May 2007, raising >

$60 million. • In April 2008, agreed to be acquired by GSK in a $720

million deal (purchased at $22.50/share when it was trading at $12/share, an 80% premium).

• Westphal stayed on to lead merger integration effort. “This is likely to be the most important thing I do in my life.” His stock options and restricted stock vested out to 2011.

• A small number of scientists left to launch other start-ups.

• Sirtris remained a standalone

division inside GSK.

GSK Abnormal Returns around Acquisition Date

GSK Abnormal Returns around Acquisition Date

IN SOME BUSINESS MODELS: CREATING VALUE IS ABOUT INCREASING EXPECTED VALUE, NOT GENERATING NEAR-TERM REVENUE AND PROFITS

Lesson 1

Biotech – What’s it worth!

Step-downs in risk and funding

July 2004 Tatar and Sinclair report resveratrol extends life of roundworms

August 2004

Round A -$5 million

October 2004

Round A1 - $13 million

March 2005

Sinclair started getting data that showed resveratrol extends lifespan in a mammalRound B - $27 million

April 2006 Confirmatory results that high doses of resveratrol affect obese miceRound C - $22 million

Feb 2007 Reserveratrol increased stamina of mice two-foldRound C1 - $35.9 million

0.01%

Time zero payoff distribution

99.99%

E(Exit Value) = .9999 * Lose All + .0001 * Make Billions

Lose All Make Billions

Time zero payoff distribution

5%

95%%

E(Exit Value) = .95 * Lose All + .05 * Make Billions

Lose All Make Billions

After Christoph joins & science advances

Q4: Entering Nutraceuticals business

5%

95%

E(Exit Value) = .95 * DCF Nutraceuticals + .05 * Make Billions??

Lose All Make Billions

95%

??

Q5: Adding pharmaceutical deal

5%

95%%

E(Exit Value) = ?? * Lose All + ?? * (Make Billions / 2)

Lose All Make Billions

??

UNDERSTANDING MOTIVES FOR DIVERSIFICATION

Lesson 2

CROSS-SELLING BENEFITS

ECONOMIES OF SCOPE

Horizontal Scope

Decision In what businesses?

INTERNAL MARKETS

DIVERSIFYRISK

SPILLOVERS ACROSS BUSINESS UNITS IF:

Diversify Risk

• Generally, not a good reason– Corporate investors can diversify more efficiently

themselves

• Makes sense if– Corporation can diversify risk better than external

market– In “new” markets, there may not be available risk

hedging alternatives for investors, so corporations have to diversify for them.

IMPORTANT TO THINK ABOUT THE INCENTIVE STRUCTURES & PROS AND CONS OF STRATEGIC PARTNERSHIPS, ESPECIALLY FROM THE PERSPECTIVE OF THE SMALLER PARTNER

Lesson 3

Big PharmaTable: Number of New Drugs Released by Top Ten Pharmaceutical Companies,

listed in order of market capitalization, from 1998 to 2002

Pharmaceutical company New Drugs• Pfizer 5• Johnson & Johnson 0• Merck 7• GlaxoSmithKline 6• Novartis 8• Amgen 0• Eli Lilly & Co. 1• AstraZeneca 2• Abbot Laboratories 3• Wyeth 4

Source: Bryan Bergeron & Paul Chan, BIOTECH INDUSTRY: A GLOBAL, ECONOMIC, AND FINANCING OVERVIEW 58 (2004).

Small Biotech• Source of Capital

• Validation to partners, investors

• Experienced teams to go through the FDA approval process

• Tension: Different time frames under which pharmaceutical and biotech companies operate?

• Tension: Competition?

Feb. 10 Noodles & Company

• Readings: the case and the assigned article “Franchising”

• Study Questions for Case: Noodles & Co.– What are the challenges faced by Noodles at the time of the case?– What’s your evaluation of Noodles’ performance? Compare it to

industry competitors such as Panera, Starbucks, and Chipotle.– What are the G&A/sales ratios of Noodles (2000-2002)? Use

numbers from Exhibits to calculate. High or low compared with industry average?

– Do you recommend Noodles & Company expand by franchising or company-owned stores? What are the quantitative and qualitative implications of each alternative?

– What issues would you recommend Kennedy include in his presentation to the board?