A Strategic Market Analysis Cellular Assays · Cell-based assays* are critical to screening the behavior of a drug compound in a cell. The objective of creating a cellular environment

Cellular AssaysA Strategic Market Analysis

2002

For information contact: Frontline Strategic Consulting, Inc.1065 E. Hillsdale Blvd, Suite 403, Foster City, CA 94404 650-525-1500 x125, x135 or x145 [email protected]

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E. Worldwide Market

1. Annual Worldwide Revenues (2002E-2007E)

The cellular assays market is expected to grow at a compound annual rate (CAGR) of x% from$x million in 2002 to an estimated $x million in 2007. The revenues include assay development,reagents, screening, and other products and services associated with cellular assays within drugdiscovery.

Source: Front Line Strategic Consulting, Inc.; company annual reports; analyst reports

Figure I-6WORLDWIDE CELLULAR ASSAYS MARKET

xxxx x%

xxxx x%

xxxx x%

2002E GEOGRAPHIC BREAKDOWNCAGR = x%

CAGR = x%

0

50

100

150

200

250

300

350

400

450

500

2002E 2003E 2004E 2005E 2006E 2007E

Mill

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(U

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F. Trends in Cellular AssaysThe cellular assays market is one that is young and evolving. Multiple key trends will shape thisindustry over the next five years.

FIGURE I-9KEY CELLULAR ASSAYS TRENDS

DiscussionTrend

DiscussionTrend

DiscussionTrend

Source: Front Line Strategic Consulting, Inc.

DiscussionTrend

DiscussionTrend

DiscussionTrend

By using up-to-date knowledge of trends in cellular assays, companies in this marketcan make customers more aware of their expertise and provide them with strategicinsight.

By using up-to-date knowledge of trends in cellular assays, companies in this marketcan make customers more aware of their expertise and provide them with strategicinsight.

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2. Leading Business Scenarios

There is great promise that the application of cellular assays technologies will advance thediscovery and development of high value drugs. For this reason, technology companies arefollowing various business strategies, with revenue and profit optimization as the end goal.


Figure I-13CELLULAR ASSAYS BUSINESS MODELS

• Description

Business ModelBusiness Model

• Company A andCompany B

• Description



Exa

mp

leC

om

pan

ies

• Description



Des

crip

tio

ns

H. Strategic Analysis

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A. Overview

1. Scientific Background

Cell-based assays* are critical to screening the behavior of a drug compound in a cell. Theobjective of creating a cellular environment is to be as comparable as possible to its presumedsite of action in the living human body. Cellular assays can be used to determine a drugcompound’s ability to enter a cell, toxicity, and overall efficacy. Advances in imagingtechnologies, fluorescent probes, and assay automation have allowed the quantitativeexamination of cell structure and function in greater detail than ever before possible. This has ledto cellular assays becoming a critical tool in the drug discovery process.

* Cell-based assays will be referred to as “Cellular Assays” in the remainder of the reportSource: Front Line Strategic Consulting, Inc.

Figure III-1BIOLOGICAL PARADIGM OF CELLULAR ASSAYS

Cell

Insertion of lead compound

Cell response used for compound optimization

III. CELLULAR ASSAYS BACKGROUND AND TECHNOLOGY

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Aside from testing individual signaling pathways, cellular assays can be used to influence the cellas a whole. Functional cellular assays are in early stages of development. Functional cellularanalysis provides highly detailed information on the functions of particular targets of interest, andallow the observation of specific pathways and the functional consequences of activating targetsunder different conditions. For example, the ability of a drug to activate or inhibit a wide range ofgene products can be measured to assess the functional relevance of potential drug targets.

Figure III-3FUNCTIONAL CELLULAR ANALYSIS

Gene X

Gene Y

Gene Q

Potential genetargets

Transferred to cells Gene Q

Gene XGene B

Gene Y

Gene B

- Test compound Cells grow until they encounter another cell

Only cells that have gene Y grow(only activates Gene Y’s product)

Gene YGene Y

Gene Y

Gene YGene Y

Gene Y

+ Test compound

Source: Front Line Strategic Consulting, Inc.; Acadia Pharmaceuticals

Cell Growth

Cell Growth Stops

Selection and Amplification

A.1. Scientific Background

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C. Applications of Cellular Assays in the Drug Discovery Process

Cellular assays have a variety of uses in the drug discovery process. Currently, the mostcommon application of cellular assay technology is as a lead compound identification andoptimization tool. However, companies are working with cellular assays to discover potentialdrug targets without the need to sequence and profile genes. Cellular assays are also used asdiagnostic tools to be used in clinical screening for certain indications. Diagnostic cellularassays are not covered in this report as they do not apply to the drug discovery process.

Figure III-6THE DRUG DISCOVERY CONTINUUM

Target Identification

Lead Identification

PreclinicalDevelopment

ClinicalDevelopment

Lead Optimization

TargetValidation

NDA

Discovery Development

Current Applications

FutureApplications

FutureApplications

“Current cell based assays are high content, not high throughput. At the end of the day, if you end up with 500 hits, what then is the next process?The bottlenecks are still there for high throughput. Screening with a cell based assay is slower, but the quality is much higher, and efficiency at theend of the whole process is better.”

-Medium-Sized Cellular Assay Company

Cellular assays are being developed for use in all aspects of the drug discovery process.Cellular assays are being developed for use in all aspects of the drug discovery process.

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3. Technologies

a. Detection Methods

Facing the challenge of turning information derived from cellular assay technology into viabletherapies, companies apply a myriad of specific technologies to evaluate genes in a functionalsense and ascertain their relevance and importance in disease onset and progression. Cellularanalysis technology will permit the design of live cell assays with the ability to analyze individualbiological responses across cell populations, and measure nuclear activation following theintracellular signaling. Several labeling methods are used for detection of the desired event incellular assays.


Figure III-9CELLULAR ASSAY TECHNOLOGIES

Bio/chemiluminescenceBio/chemiluminescence

Fluorescence Other Detection Methods• Nano-particles• Quantum dots• Radiometric labeling• Other novel technologies

Other Detection Methods• Nano-particles• Quantum dots• Radiometric labeling• Other novel technologies

D. Cellular Assays

Cellular AssaysCellular Assays

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b. Fluorescence

Fluorescent tags are the most commonly used detection methods in cellular assays for drugdiscovery. Green fluorescent protein (GFP) technology is the leading application offluorescence-based signaling. GFP was discovered from the study of the luminescent PacificNorthwest jellyfish, Aequorea victoria. GFP was first produced through stimulation of thejellyfish. The incorporation of GFP into the cellular DNA allows GFPs to be produced by thecells. Unlike other reporters, GFP fluoresces in the absence of any other proteins orsubstrates.

Figure III-11GFP FLUORESCENCE REACTION

GFP Energy transfer Green Fluorescence


D.3. Technologies

“Reporter molecules are used within cells to indicate gene expression and transcription. Fluorescence in the sample indicates genequantification by looking at how much of the proteins are illuminated in the sample.” - Large Instrument and Reagent Manufacturer

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b. Bio/Chemiluminescence

The bio/chemiluminescence segment market share will grow with a CAGR of x% from 2002E to2007E.


Figure IV-5BIO/CHEMILUMINESCENCE SEGMENT REVENUE

A.2. Segment Market Shares

0

20

40

60

80

100

120

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2002E 2003E 2004E 2005E 2006E 2007E

CAGR = 18 %

CAGR = 12 %

Mill

ions

(U

S$)

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3. Supplier Market Shares - 2002E and 2007E

Company X and Company X are currently the dominant players in the cellular assays market.Front Line expects many companies will emerge with innovative technologies by 2007.

2002E TOTAL MARKET = $x MILLION 2007E TOTAL MARKET = $x MILLION


Figure IV-9CELLULAR ASSAYS COMPANY MARKET SHARE

The main players in the cellular assays market have strong and dominant positions.However, we expect some companies to move their strategic focus away from thedevelopment of drug discovery technologies and toward pharmaceutical development.

The main players in the cellular assays market have strong and dominant positions.However, we expect some companies to move their strategic focus away from thedevelopment of drug discovery technologies and toward pharmaceutical development.

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

*Others include: Companies x, y, z and other companies.

A. Worldwide Market

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

Companyx-x%

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Figure IV-10CELLULAR ASSAYS KEY PLAYER STRATEGIC COMPARISON 2002E


TECHNOLOGY/PIPELINE MARKET POSITION

OverallCompetitive

Strength

OverallTechnology

Position

= Low

= Moderate

= High

Company

Company

Company

Non-DrugDiscovery

ApplicationTechnicalOutlook

CurrentTechnology Deals

Breadth ofProductOfferings Market Share

B. Supplier Competitive Analysis

1. Comparison in 2002E

Company

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Tec

hn

olo

gy

Po

siti

on

Market Position/Competitive Strength* Analysis, description of criteria, and basis of rankings can be found in Section II.Bubble size estimates 2002 revenues and market shares.

Strong

StrongWeakWeak


Company X Worldwide 2002ECellular Assay Revenues= $x-x million




Figure IV-11CELLULAR ASSAYS KEY PLAYER POSITIONING MATRIX 2002E*

Company X currently has the most competitive strength in terms of technologies and marketposition.

B.1. Comparison in 2002E

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Key Strong Growth

Moderate Growth

Low Growth

Strong Decline

Moderate Decline

Low Decline

Discussion

Discussion

DiscussionProducts Description ExpectedRevenue Trend

Product X Description



Discussion

Company X’s products for cellular assay market consist mainly of product x technologies.

Figure IV-15SAMPLE PRODUCTS LISTING

B.3. Amersham Pharmacia Biosciences

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Figure IV-24DIFFICULTIES IN GROWING HUMAN CELL LINES

2. Difficulties In Growing Human Cell Lines

• Discussion

• Discussion

• Discussion

• Discussion

• Discussion

• Discussion

Difficulties in GrowingHuman Cell Lines

- Negative Factor- Negative Factor


C. Technical Benefits and Limitations

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b. Outsourcing Rate

Less than x% of major pharmaceutical and biotechnology companies outsource their cellularassay development. The most compelling reasons for outsourcing cellular assays in the futurewill be to reduce costs and to ease the internal workload.

Figure V-7ASSAY DEVELOPMENT CURRENTLY OUTSOURCED

Percentage of Assay Development Outsourced

x% x%x%

x%

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0% 1-5% 6-10% >10%

Fre

quen

cy o

f Res

pons

es (

%)

Source: Front Line Strategic Consulting, Inc.; Interviews

“When we don’t have enough manpower, we outsource, butinternal assay development meets most of our needs.”

- Large pharmaceutical company

“The big pharmaceutical companies can pay high prices associated withoutsourcing. It would have to be a lot cheaper for us to do it.”

- Medium biotechnology company

A.6. Outsourcing Assay Development V. Trends and Drivers

By offering moderate price ranges for service, the cellular assay market can penetratesmall and medium size as well as larger pharmaceutical companies.

By offering moderate price ranges for service, the cellular assay market can penetratesmall and medium size as well as larger pharmaceutical companies.

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1. Patents

a. From Cellular Assays to Genes and Proteins

Cellular assays provide detailed information on the function of genes and proteins that cansignificantly enhance the strength of filed patents and the intellectual property position of theholder. This is particularly important now that the U.S. Patent and Trademark Office finalizedguidelines, in January of 2001, to forbid “stealth patenting” where patents are filed on genesequences that researchers have identified but have not discovered their biological functions.

Figure V-10CELLULAR ASSAY PATENTS

Source: Front Line Strategic Consulting, Inc; www.bio.org

Genes

Proteins

PATENT

While genomic studies provide sequence information that can be used as the basis ofpatents, cellular assays can supply additional functional information useful for the patentclaims.

While genomic studies provide sequence information that can be used as the basis ofpatents, cellular assays can supply additional functional information useful for the patentclaims.

B. Drivers of Cellular Assays

Cellular Assays

V. Trends and Drivers

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c. Cellular Assays Useful Patent Claims

The explosion of information from the Human Genome project has caused the U.S. governmentto develop more stringent guidelines to define “ownership” and to prevent overlapping patents forresearch tools. In addition to sequence information that can be generated from genomics studiesand used as the basis of patents, cellular studies can supply the following information useful forthe patent claims.

Source: Front Line Strategic Consulting, Inc; Philipkoski, K. 2001. New Quest: Mapping Gene Patents.

Quantitation

Discussion

Characterization

Discussion

Interaction

Discussion

Figure V-12USEFUL INFORMATION FOR PATENT CLAIMS

B.1. Patents V. Trends and Drivers

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2. Drug Discovery

a. Drug Discovery Bottleneck: Target Validation

Target validation is a widely recognized bottleneck in genomic-based drug discovery anddevelopment. The explosion of genomic data has produced an approximate 100-fold increasein the number of known drug targets, without an increase in information about those targets.As a result, target validation has become essential for pinpointing the most valuable parts.After potential drug targets have been identified, cellular assay technologies can be used toassist in the important process of validation. Target validation refers to methods that addsufficient supporting information to conclude that an individual protein or gene, if affected by adrug in a specified way, could alter the initiation or continuation of a disease.

Figure V-13 CELLULAR ASSAYS FOR TARGET VALIDATION


Disease

Nucleus

Normal VALIDATION

Identification of proteininteractions within the cell; role

in signal transductionpathways is assessed.

Identification of proteininteractions within the cell; role

in signal transductionpathways is assessed.

Overexpress proteins in anormal cell

?

Does the protein cause the“disease phenotype” when

overexpressed in a normal cell?

Nucleus

Nucleus

Normal

B. Drivers of Cellular Assays V. Trends and Drivers

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B. Near Term Industry Landscape

We expect the supply of drug targets to increase dramatically due to the information from thehuman genome project and rapid advances in technology. In addition, current contracts todeliver over 2,000 targets to pharmaceutical partners will drive down the cost of drug targetsover time.

The cellular assay market is undergoing strong growth and will experience heavy demand forproducts that provide rapid and accurate results in a cost efficient manner. To this end, theindustry landscape is expected to continue to evolve and mature in a number of ways.

Specifically, we feel three dramatic changes are likely to occur within the cellular assayindustry over the next 3 to 5 years.

Figure VI-2MAJOR CHANGES IN THE CELLULAR ASSAY INDUSTRY


• Trend

• Trend

• Trend

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1. Licensing Deals

Licensing deals increase the value of a company’s products without costly in-house researchand development. Company X signed a distribution and licensing agreement with Company X,now a wholly-owned subsidiary of Company X. Company X will distribute a range of productsmanufactured by Company X, including Product Line X products. Product Line X products arecommonly used in conjunction with Company X products, such as Product Line X, for drugdiscovery purposes.

This agreement allows Company X and Company X to create a complete solution for their drugdiscovery customers. They will also work together to co-develop related future products in thisline, and work to make the current products function optimally together.

C. Leading Business Scenarios

Figure VI-9AMERSHAM AND PACKARD DISTRIBUTION AGREEMENT

SignalScreen LeadSeeker

Source: Front Line Strategic Consulting Inc.

Complete Drug Discovery Solution

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b. High Quality

i. Human Cell-Based Systems

It is widely believed that a shift must be made to high quality data generation, potentially at thecost of high-throughput. As the movement toward cell-based screening is apparent in the drugdiscovery arena, technologies currently provide reliable cellular assays in high throughputformats. However, most of the cell models currently bear no resemblance to the humansystem they are trying to reflect. Therefore, the development of new and more relevant cellsare essential. Achieving a balance between stability of cellular response and original tissuetypes is greatly needed.

With the development of relevant human cell-based systems for correlating molecularassumptions, an early and accurate picture of biological responses can be observed, enablinga greater degree of confidence when submitting compounds to the development pipeline.


Figure VI-16HUMAN CELL-BASED SYSTEM

Fully exploiting the potential of cellular assays will require the implementation of othercomplementary technologies such as precise engineering of cell phenotypes.

Fully exploiting the potential of cellular assays will require the implementation of othercomplementary technologies such as precise engineering of cell phenotypes.

Current NeedNew and more relevant

human system cellsEngineering Cells

FutureObtain more accuratepicture of human biology

D.2. Technology Opportunities

Documents

A Strategic Market Analysis Cellular Assays · Cell-based assays* are critical to screening the behavior of a drug compound in a cell. The objective of creating a cellular environment