biotech 2006 life sciences: a changing prescription

©2004 Burrill & Company. Confidential & Proprietary.

1

Biotech 2006Life Sciences: A Changing

Prescription

BIO 2006

April 10th 2006

G. Steven Burrill, CEOBurrill & Company


2

Burrill & CompanyExclusive focus on life sciences—human healthcare (Rx and

Dx), nutraceuticals/wellness, agbio, industrial, enabling

technologies

Venture Capital Group Venture Capital—investing across the entire spectrum of the life

sciences/biotechnology . . . over $625 million for investment, raising $300-500 million for BLSCF III

Merchant Banking Practice Strategic Partnering including licensing, research and other collaborations Strategic Advisory Services including new company formation Merger & Acquisitions across life sciences Spin-outs ranging from products, to research divisions to disease area

franchises

Media Conferences Publications

Headcount: 50+ professionals and staff Location: San Francisco


3

Burrill Venture Capital Funds Under Management ($ millions)

Burrill Life Sciences Capital Fund III (2005) $300-500

Funds Under Management: BLSCF III (First Close) $110 Burrill Life Sciences Capital Fund II (2002/2003)* $211 Burrill Life Sciences Capital Fund I $302

Burrill Biotechnology Capital Fund (1999)* $140 Burrill Agbio Capital Funds I & II (1998/2001)* $101 Burrill Nutraceuticals Capital Fund (2000)* $61

Total Under Management at 12/31/05 $623*Including substantially invested reserves/commitments for subsequent financings in existing portfolio companies


4

Merchant Banking Group Services

Strategic DevelopmentEarly Stage Research to Product Development &

Commercialization•P&G/Taigen•Wyeth•ViroPharma/Schering Plough

M&A TransactionsTransactions across Life

Sciences

•Purdue/Safeguard

•Operon/Quiagen

•ViroPharma/Schering Plough

Spin-Outs & Divestitures

Create a new Company or into an established Entity

•RJR/Targacept

•Baxter/VimRX

•Lilly/Ipsen

•Danisco/GenencorAdvisory Services

Strategic Transaction Advice

•Sugen/Pharmacia

•Acrux/Vivus

Financing

Advisory/Private Placement

•SangStat

•Immune Response

Potential Scope of

Merchant Banking Group

Client Relationship


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Burrill Created/Hosted Industry Events

For inquires, contact Thea Schwartz at (415) 591-5477 or [email protected]


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Publishing The 2006 Biotech Industry Book

Life Science Indices (monthly)

Personalized Medicine

Stem Cells

Monthly & Quarterly Newsletters – China, India, Canada, Strategic Partnering/M&A

Burrill Website – Online resource for keeping up-to-date information about the biotech industry

Burrill & Company is the “go to” firm for industry insight


7

Industry ReportsThe seminal industry report for the last 20 years

To order most recent book visit www.burrillandco.com


8

This presentation is available

for download from our website www.burrillandco.com


9

Visit us at BIO

Booth #2300

…and purchase our book!


10

So what’s happened in these 20 years?

(By the way…Biotech started over 10-15 years earlier…late ’60s/early ’70s…

so it’s a 35 year old industry now!)


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1986/Then

• Title: At the Crossroads

• Industry size: 700 Companies– 150 public

• Market Cap: $15B

• Top 5 Companies– Genentech– Cetus– ALZA– ABI– Centecor

We’re Evolving…2006/Now

• Title: A Changing Prescription

• Industry size: 5000+ companies

– 500 public

• Market Cap: $500B (US only)

• Top 5 US Companies– Genentech– Amgen– Gilead– Genzyme– Biogen


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Themes in ’86 book

…At The Crossroads

• Science being converted to business• Products coming to market place• Are product liability, regulatory reform,

patent court behavior insurmountable barriers?

• Partner or vertically integrate?• Acquisitions by pharma desirable?• How will the industry evolve?


13

Themes in ’06 book …A Changing

Prescription• From blockbusters…to niche markets• From genomics, proteomics, and systems biology to

personalized, predictive and preventative medicine (3 P’s)

• From small molecule drugs to MAbs/proteins/stem cells

• From reimbursement to payer issues where CMS becomes the dominant player

• From a healthcare dominated industry to agbio being real and industrial biotech hot

• From a challenging IPO market to M&A

• From the U.S. to “Chindia”, Europe and a global industry


14

Conclusions

• 1986/Then

1986/Then

• A time for confidence, not questioning.

• Biotech companies will survive and prosper as a unique group, not just subsumed into the pharma industry.

• Some of the companies leading today (‘86) will remain industry leaders in the decades ahead.

• The industry will become major contributors to the well being and the economy.

2006/Now

• …A Changing Prescription (the future will be real different.)

• 5000+ companies…it’s a worldwide growing “industry”

• Amgen/Genentech will continue as leaders, yet new ones have emerged (Gilead, Serono, Biogen Idec).

• It has happened, even more than anticipated, and is becoming increasingly important.


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• The time is now for life sciences• Confluence of technologies is changing biotech and the healthcare

world• Personalized, predictive and preventative medicine is changing

healthcare• Payor/reimbursement world is changing with Medicare’s power

(single payors dominate)• Market opportunities are different today (pandemic diseases,

memory, obesity, aging, and wellness)• Wellness is a huge growth market• AgBio is back, animal genomics is ready• Industrial biotech’s time has arrived • Chindia is hot• Capital markets worldwide are robust, but expensive

So what are today’s take home messages?


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Industry Overview• Industry is 30+ years old, generating over $85 billion in

revenues

• 5000 companies worldwide, 600 public companies

• Life sciences has a strong performance record, even in difficult economic and political times; outperformed Dow and NASDAQ

• Over 100 products on the market (many > $1 billion drugs); 350 biotech drugs are in late stage clinical trials (strong pipeline)

• Agbio products are now grown on 200 million acres world wide and growing at 20% per year; over 1 billion acres have been planted

• Patents protect product/technology exclusivity, rewarding innovation and limiting competition

• Broad applications in healthcare (cure & provention), food and agriculture, industrial (chemicals, fuels & materials)


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Biotech’s Globalness Begins Day 1 Science/technology

Intellectual property/patents/FTO People Communications Competition Capital Markets—diseases know no

borders

Even the smallest biotech is a global player from Day One


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Key Industry Stats

$15B

140

12,000

700+

.3B

$3B

Asia/Pacific

$14B

81

7,440

470

$0.6B

$2B

Canada

$26B $491B Market Capitalization

120 ≈ 363# of Public Cos.

68,000146,100# of Employees

1,600+1,500+# of Companies

$5B$19BAnnual R&D

$12B $72BSales / Revenue

EuropeUSA

Source: Burrill & Company, Ernst & Young

Biotech 2006


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Pharma vs. Biotech Industry Market Cap ($B)

186

312

2.0x

491

241

46

65

69

172

12/31/05

1.5x

399

268

47

65

69

184

199

12/31/04

153216133165103Merck

1251451126558BMS

0.9x

342

383

77

154

280

12/31/03

0.6x

213

357

50

112

192

9/30/02 12/31/9912/31/0012/31/01Company

1.1x

277

75

129

124

0.8x1.0xIndustry

425366Total US Biotech

506384Pfizer/Merck

10588Eli Lilly

146181J&J

290251Pfizer

3/31/06

183

174

75

61

48

258

494

1.9x


20

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

AMGN

DNA

Select

PFE

MRK

Burrill Select, Amgen, Genentech vs. Pfizer, Merck 1/1/04–3/31/05 Performance

Last 12 Months


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Biotech Industry Market Cap by Month

0

100

200

300

400

500

600

Dec-

99

Feb-

00

Apr-0

0

Jun-

00

Aug-

00

Oct

-00

Dec-

00

Feb-

01

Apr-0

1

Jun-

01

Aug-

01

Oct

-01

Dec-

01

Feb-

02

Apr-0

2

Jun-

02

Aug-

02

Oct

-02

Dec-

02

Feb-

03

Apr-0

3

Jun-

03

Aug-

03

Oct

-03

Dec-

03

Feb-

04

Apr-0

4

Jun-

04

Aug-

04

Oct

-04

Dec-

04

Feb-

05

Apr-0

5

Jun-

05

Aug-

05

Oct

-05

Dec-

05

Feb-

06

$ Bi

llion

sHistorical Biotech Market Cap 2000–2006

BIO ’05 to BIO ‘06

+ 23%


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U.S. Pharma Market Cap (top 5 companies)

-25%

Source: FBR, Burrill & Company Includes: BMY, LLY, MRK, PFE, SGP, WYE

2004 vs. 2006 (in billions)

$608

$458

0

100

200

300

400

500

600

700

2004 3-31-2006


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Top 5 US Pharma vs. Biotech Market Cap

$0

$100

$200

$300

$400

$500

$600

$700

$800

To

tal M

ark

et

Ca

p (

$ b

illi

on

)

Top US Pharma

Total Biotech Market Cap


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Biotech R&D Spending has Outpaced Pharma

as a Function of Market Cap

Cowen Top 100 Biotech

Top 10 Pharma


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…so that’s the baseline

Now, what’s really happening…


26

Today’s medicine challenge: One size doesn’t fit all


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Pharmacogenomics shapes the healthcare business in 2000+


28

140 Years of Drug Discovery Technology


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EVO Devo

Improving Power Supply/

constant monitoring

Telemetry/Communications/

Telemedicine

Imaging/Visualization Nanotechnology

EHR

IT/digital information

Genomics/Proteomics/Biomarkers

Systems biology(tools, techniques from sequencing to systems)

Redefining Healthcare (Rx/Dx/Device combinations)

(Products/Services/patient care/outcomes)

Confluence of Technology/Tools/Knowledge


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Innovation Gap Getting Wider


31

Drug Development Costs Escalate

Source: Windhover’s In Vivo. The Business & Medicine Report. Bain drug economics model, 2003

Costs are becoming prohibitive


32

A systems biology approach- follow the pathways


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The Molecular Basis of Biological Processes

The Molecular Heterogeneity

of Disease

Individual Genetic Variation

Alterations in Disease Disease Subtypes Pharmaco-genetics

New Targets for Dx, Rx, Vx

Right Rx forDisease

New Targets for Dx, Rx, Vx

DiseasePredisposition

PDxPRx

Analyzing The Molecular Profiles (Biosignatures) of Body Functions in

Health and Disease


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MDx is at the Center of the New Dx World


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Selected Targeted Treatments Personalized cancer vaccines

Favrille – FavId for non-Hodgkin's lymphoma

Genitope – MyVax for non-Hodgkin's lymphoma

Gleevec (Novartis) - pH+ CML kinase inhibitor

Iressa (AstraZeneca) – EGFR tyrosine kinase inhibitor

Tarceva (Genentech/OSI) – HER1/EGFR inhibitor

Erbitux (ImClone/BMS) – HER1/EGFR inhibitor

Avastin (Genentech) – VEGF/VEGFR inhibitor

Herceptin (Genentech) – HER2 inhibitor

BilDil (NitroMed) - heart failure in African American patients

Other “Semi Targeted” Treatments (approved or late stage trials)

Nexavar (Bayer/Onyx) – multikinase inhibitor

Tykerb (GSK) - ErbB-2/EGFR inhibitor

Enzastaurin (Lilly) - PKC-Beta, AKT/P13 inhibitor


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Obesity Related Diseases• Diabetes – Costs $98 billion

– 90% of Type II diabetics are obese– 70% of those at risk are obese

• Heart Disease – Costs $8.8 billion

• Stroke

• Hypertension - $4.1 billion– Doubles incidence of hypertension

• Gall bladder disease – $3.4 Billion

• Osteoarthritis - $21 billion

• Sleep apnea – more prevalent then diabetes !

• Some forms of cancer


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Aging . . . Is it a disease?

About 1.4 million Americans are in their 90s, and another 64,000 are 100 years old or older

Baby boomers represent 30% of the total US population

Per person, seniors consume about five times the drugs of their working-age counterparts

By 2030, 20% of US population will be over 65 years of age


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Medicines in Development for Older Americans*

*some medicines are listed in more than one category


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Chronic Disease

125 million Americans have 1 or more chronic

conditions (e.g. congestive heart failure, diabetes)

Chronic diseases account for 75% of all health care

expenditures

Current costs for chronic diseases is approaching $1

trillion

These expenditures are not delivering what is

possible


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Stratifying into risk categoriesDiabetes type 1: What’s becoming possible?

Predictive/Preventative(Wellness)

Personalized Medicine


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What is Driving Personalized Medicine?

Convergence in technology…scientific advances and new technology

Patient care and rising consumerism

Payors (of all types) have economic incentive

Government health policy an global spending (e.g.: CMS)


42

This Confluence of Healthcare Technology is bringing us…

• Targeted therapies (mutation specific), personalized medicine

• Drug/device combinations (drug eluding stents)

• Molecular diagnostics/Algorithm based diagnostics

• Non-invasiveness

• Non-hospital based with constant monitoring…• Increased predictions and prevention


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…that’s changing the healthcare economy

• Better outcomes/patients living longer

• Costs going up/more patients treatable…

• …But, US system leaves 25-45m uninsured/underinsured

• Consumer healthcare is here to stay (copays ), individuals empowered and informed


44

Healthcare costs have been raising for a long time


45

US Healthcare Expenditures vs. Drug Costs

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

1960 1970 1980 1990 2000 2001 2002 2003 2004

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

% Fraction of NHC Expenditures

NHC Expenditures (billions)

Source: US National Health Statistics


46

Healthcare costs are growing much faster than

productivity (revenue per employee)

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

1998 1999 2000 2001 2002

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

Revenue per employee

Healthcare costs per employee

Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

CAGR=3%

CAGR=10%

GM Cannot CompeteHealthcare costs per car are $1700

more then Toyota


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…So, healthcare cost increases are

on everyone’s agenda-• Politicians/Congress/White House

• Payors/Reimbursors/Insurers

• Physicians/Providers

• Patients/Consumers

…and patients are empowered, have economic costs, and really want to stay well!


48

Medicaid$30

Out of Pocket

$60

Other Public $10

Medicare $65

Private Ins $95

2002 Rx Payment Sources (bil) 2008 Projected (bil)

Medicare $2.6

Out of Pocket $48.6

Medicaid $28.6

Private Ins $77.6

Other Public $5.0

Source: 2002 data: Health Affairs Volume 23, Number 1; January 2004. 2008 data: Tag & Associates estimate.

Total = $162.4 Total = $260

CMS Becomes Dominate Customer(40% of market in 2008)


49

. . . and what’s happeningto big pharma?

Putting Biotech into Context


50

Worldwide Global Pharmaceutical Sales

Global Sales ($USD, B)

$0

$100

$200

$300

$400

$500

$600

1997 1998 1999 2000 2001 2002 2003 2004

To

tal M

arket

Valu

e (

$B

)


51

…by the way, the Global Nutraceuticals Industry is $196 Billion

Functional Food36%

Supplements34%

Natural & Organic Foods21%

Natural Personal

Care9%

Functional Food

Supplements

Natural & Organic Foods

Natural Personal Care

2%2%4%4%

18%

30%

38%

0

10

20

30

40

Pe

rce

nta

ge

s

Source: Nutrition Business Journal/Burrill & Company


52

Despite All Efforts, Total Shareholder Returns Have Fallen by

26 Percentage Points Since 1998

Source: IBM Life Sciences Solutions


53

Looking Forward, Patent Exposure is Set to Increase Significantly


54

Biogeneric Status of Biotech Drugs


55

Manufacturer Reported Serious Adverse Events

Per Fiscal Year


56

Pulled from the MarketDateApproved Drug Name Use Risks

Date Withdrawn

2004

2001

Tysabri

Bextra

Multiple Sclerosis

Pain reliever

Rare, frequently fatal demyleinating disease of CNS

Heart attack/stroke; fatal skin reactions2005

2005

1999 Vioxx Pain reliever Heart attack/stroke 2004

1997 Baycol Cholesterol Severe damage to muscle, that is sometimes fatal

2001

1999 Raplon Anesthesia An inability to breathe normally 2001

1993 Propulsid Heartburn Fatal heart rhythm abnormalities 2000

1997 Rezulin Type 2 diabetes Severe liver toxicity 2000

1988 Hismanal Antihistamine Fatal heart rhythm abnormalities 1999

1997 Raxar Antibiotic Fatal heart rhythm abnormalities 1999

1997 Posicor High blood pressure Dangerous interactions with other drugs 1998

1997 Duract Pain reliever Severe liver damage 1998

1985 Seldane Antihistamine Fatal heart rhythm abnormalities 1998

1973 Pondimin Obesity Heart valve abnormalities 1997

1996 Redux Obesity Heart valve abnormalities 1997

Blockbuster drugs pulled from the

market gave investors concern


57

Number of New Biotech — Big Pharma Collaborations 1993-

2005

Source: BioWorld Financial Watch, American Health Consultants, BioCentury

69

165180

228 224 229

373

425 411384

117

0

50

100

150

200

250

300

350

400

450

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

502

2005

517


58

Selected Biotech Partnering Last 12 Months

• Biogen/Protein Design Labs $800M• Alnylam/Novartis $700M• Medarex/BMS $530M• Pfizer/Coley $505M• Shire/New River $500M• Plexxikon/Wyeth $372M• Nastech/Merck $341M• Avanir/Astra Zeneca $340M• Cilag/Basilea Pharma $308M• Pharmasset/Roche $300M• CancerVax/Serono $278M• Astex/AstraZeneca $275M• GSK/Theravance $252M• Sirna/Allergan $250M• GenMab/Serono $215M• Sucampo/Takeda $210M• Novartis/Avanir $210M

$17 Billion Deals in

2005!


59

2005 Partnering Highlights

Partnering continues to play an important role in our industry – over $17 B in transaction values in 2005

Significant jump in average total Phase I deal values

From $57M in 2004 to $82M in 2005

Big Pharma continues to partner early to access key technologies, targets and products


60

Selected Biotech M&A Last 12 Months

Medicis/Inamed $2.8B

Solvay/Fourier Pharma $2.1B

Pfizer/Vicuron $1.7B

Shire/TKT $1.6B

GSK/ID Biomedical $1.4B

Meda/Viatris $1.0B

OSI/Eyetech $0.9B

Genzyme/BoneCare $0.6B

Danisco/Genencor $0.6B

Pfizer/Angiosyn $0.5B

Protein Design Labs/ESP Pharma $0.5B

GSK/Corixa $0.4B

M&A a better exit for investors then IPOs


61

2005 M&A Highlights Continued generic consolidation

Sandoz-Hexal/Eon; Teva-Ivax

Japanese big pharma acquisitions Sankyo-Daiichi; Takeda-Syrrx; Sosei-Arakis

With the 2005 IPO window tight, M&A became an increasingly attractive “exit” mechanism

Big Pharma acquired for single products (J&J-Peninsula) and strategic technologies (Roche-GlyCart)

Amgen remained acquisitive with Abgenix transaction


62

Selected Significant Mergers Involving Biotechs- 1990-2006

Companies YearValue ($M)

Novartis/Chiron 2006 $5.4B

Amgen/Abgenix 2005 $2.2UCB/Celltech 2004 $2.7Amgen/Tularik 2004 $1.3Amgen/Immunex 2001 $16.0 Millennium/Cor Therapeutics 2001

$2.0 MedImmune/Aviron 2001 $1.5

Shire Pharma/Biochem Pharma 2000 $4.0Invitrogen/Life Technologies 2000 $1.5Ciba-Geigy/Chiron 1994 $2.1

Roche/Genentech (60%) 1990 $2.1


63

So what does Big Pharma do better than anyone else?

• Discovery?

• Development?

• Manufacturing?

• Distribution?

• Disease Management?

Answer: ???


64

Wellness: Its time has come

• Rising healthcare costs are impacting individuals

• Rising incidence of chronic disease

• Recognition of the importance of genetic variation

• Scientific knowledge base for:– Personalization– Cost effective technologies

• Financial markets beginning to recognize opportunity


65

Food and Lifestyle can Influence our Genes

and How they Work• Diet – Gene Interactions• Exercise – Gene Interactions


66

Genetically identical mice from genetically identical mothers were fed different amounts of

specific nutrients during pregnancy

What you eat – “or what your mother ate”

can determine your health!


67

The Emerging Health & Wellness Market

Genotyping

Diet Functional Foods Medical Foods DrugsPrognosis

of Predisposition

Health & Wellness management against a set of

personalized biomarkers

Biomarker monitoring

Personalized nutritionSc

ienc

e Bas

ed

bioa

ctiv

es


68

Many New Players in an Emerging Market

Health and WellnessMarket

Food

Com

pani

es

Consum

er Products

Com

panies Pha

rmac

eutic

al

Com

pani

es

Biotechs

Genom

ics

AgricultureCompanies

Alternative HealthDS Companies

79

Dietary supplements Med

ical

Foo

ds

Biom

arkers

Targets

Bioactives

Func

tiona

l Foo

ds

Personal Care

Products


69

Performance of the Healthy Living and Obesity Indicesvs. the S&P 500 & Russell 2000

40

80

120

160

200

240

280

320

360

400

440

480

520

560

600

640D

ec-9

8F

eb-9

9A

pr-9

9Ju

n-99

Aug

-99

Oct

-99

Dec

-99

Feb

-00

Apr

-00

Jun-

00A

ug-0

0O

ct-0

0D

ec-0

0F

eb-0

1A

pr-0

1Ju

n-01

Aug

-01

Oct

-01

Dec

-01

Feb

-02

Apr

-02

Jun-

02A

ug-0

2O

ct-0

2D

ec-0

2F

eb-0

3A

pr-0

3Ju

n-03

Aug

-03

Oct

-03

Dec

-03

Feb

-04

Apr

-04

Jun-

04A

ug-0

4O

ct-0

4D

ec-0

4F

eb-0

5A

pr-0

5Ju

n-05

Aug

-05

Oct

-05

Healthy Living Obesity S&P 500 Russell 2000

Healthy Living

Obesity


70

Whole Foods Market (WFMI) Stock Performance


71

…And what about the regulators?

Leadership changes

Phase III/IV (Pharmacovigilance)

Drug Safety Review Board (Vioxx, Tysabri)

GMP—Chiron vaccine problems, others

Generics

Theranostics (Rx/Dx)…critical path initiative


72

Number of Products Approved — 1980–2005

0

5

10

15

20

25

30

35

40

45

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

New Indications

Biotech Drugs


73

Biotech’s Big DrugsTop 20 Biotech Drugs Ranked by 2004 Revenue*

Drug Company Disease 2004 Sales ($M) 2003 Sales ($M) % ChangeEpogen Amgen Anemia $2,601 $2,435 7%Aranesp Amgen Anemia $2,473 $1,544 60%Rituxan Genentech and Biogen-IDEC Non-Hodgkin lymphoma $2,326 $1,982 17%Enbrel Amgen Arthritis $1,900 $1,300 46%

Neulasta Amgen Neutropenia $1,740 $1,256 39%Avonex Biogen-IDEC Multiple sclerosis $1,417 $1,168 21%

Neupogen Amgen Neutropenia $1,175 $1,267 -7%Rebif Serono Multiple Sclerosis $1,091 $819 33%

Synagis MedImmune Infectious disease $942 $849 11%Cerezyme Genzyme Gaucher disease $839 $739 14%

Viread Gilead HIV $783 $567 38%Gonal-f Serono Infertility $573 $526 9%Avastin Genentech Metastatic Colorectal Cancer $555 NA NA

Herceptin Genentech Breast cancer $483 $425 14%Visudyne QLT Wet AMD $448 $356 26%Provigil Cephalon Excessive Daytime Sleepiness $439 $290 51%Renagel Genzyme End-stage Renal Disease $364 $282 29%

Actiq Cephalon Breakthrough Cancer Pain $344 $237 45%Erbitux ImClone Metastatic Colorectal Cancer $261 NA NA

AmBisome Gilead Infectious disease $212 $198 7%

* Biotechnology revenues only. Pharma partner revenues excluded.


74

Biotechnology Drugs in Clinical Development


75

. . . and the marketplaceis changing too


76

Big “new” markets

Obesity/diabetes/metabolic disease

Alzheimer's/memory

Anti-aging

Anti infectives (antibiotic resistance)

Wellness (preventative/predictive cure)


77

Is the blockbuster Model Really Dead?

“From a strategic standpoint, of meeting the needs of our customers, the current

blockbuster model doesn’t work.”

Sidney Taurel, Chairman & CEO, Eli Lilly & Co.Drugs Get Smart, Business Week, September 5,

2005


78

The Personalized Medicine ModelThe right drug for the right patient at the right

time• Utilizes pharmacogenomics, which benefits from the recent

advances of genomics/proteomics technology

• Reduced development cost; shorter development time from discovery to launch

• Smaller clinical trials required to prove efficacy in target population

• Greater probability of clinical compounds reaching market

• Better safety profile

• Treat specific populations based on biomarkers or molecular diagnostics/imaging results

• Product focus: personalized medicines (nichebusters) that do not require blockbuster-sized sales to generate attractive returns


79

Market Trends and Drivers: Revolutionary Technologies

and Evolutionary Practices


80

Who cares and who will drive change?

• Individuals– Bearing more of the burden– Already spend almost 30% of drug spend– Role of Self Care & consumer-driven health

care

• HMOs• Re-insurers• Corporations• Baby boomers – aging activists!• Governments (CMS in the US)


81

Ag-BiotechnologyOutlook for the Future


82

The Demands for Agriculture Stay the Same

0

1

2

3

4

5

6

7

8

1950 1975 2000 2020

WorldPopulation

Arable Land(billion ha.)

Farmland perperson(ha)

1999-United Nations

More food on less land with half the water.


83

Market Overview – Agriculture


84

Global Area of Biotech Crops 1996 to 2005 by Crop


85

GM Acreage Continues to Grow Mostly in the Developing World

Source: Bio 2005

Countries% Increase 2003-2004

IndiaSpainBrazilChinaS. AfricaCanadaArgentina USA

40080663225231711


86

Monsanto Relative Performance vs. Merck & Pfizer

-100%

-50%

0%

50%

100%

150%

200%

Jan

-02

Ma

r-0

2

Ma

y-0

2

Jul-

02

Se

p-0

2

No

v-0

2

Jan

-03

Ma

r-0

3

Ma

y-0

3

Jul-

03

Se

p-0

3

No

v-0

3

Jan

-04

Ma

r-0

4

Ma

y-0

4

Jul-

04

Se

p-0

4

No

v-0

4

Jan

-05

Ma

r-0

5

Ma

y-0

5

Jul-

05

Se

p-0

5

No

v-0

5

Jan

-06

Monsanto

Pfizer

Merck


87

Animal genomics: Its time has finally come

• Chicken, Cow sequenced with pig in progress

• Marker assisted breeding now possible

• Traceability and animal sorting creating value

• Comparative genomics brings validity and funding

• Major opportunity in emerging infectious diseases– SARS, BSE, Avian Flu


88

Industrial Bio is here, finally… 2005 was the Year of the Tipping

Point• Robust technology

• Broad applications

• EU has led ‘White Biotech’

• Waiting for market pull

• Concerns over energy “addiction”


89

In 2005 Many of the Drivers Aligned

Cost of crude oil escalated dramatically !


90

Loss of Energy Security• Geopolitical unrest wherever oil is produced• Extreme weather demonstrated the

vulnerability of supply


91

Growing Worldwide Demand for Energy

• Finite reserves will cost more to extract

• Demand is growing rapidly, much in Pac Rim countries, especially China & India

• 420 x 1015 currently going to 650 x 1015

btu by 2030


92

All This Accelerated Policy Changes Worldwide

• Just a few examples– US Farm and Energy bill– EU – Biodiesel subsidies– China – Sustainable energy– Malaysia – Biodiesel

• In 2004 – 2005 things began to move quickly


93

The Biorefinery Platform Using Agricultural Feed Stocks


94

Industrial Biotech is hot…• The limitless potential of IB was there

• The fundamental technology was in place– Sure it will improve and even enable

exotic solutions

• But the economics, markets and policies were not in alignment

• In 2005 demands for energy pushed IB over the tipping point

• More to come - quickly


95

(China/India)» What’s happening?» Impact


96

10,529

4,509

2,719

1,984

1,980

1,869

1,821

1,721

13,783

2,790

7,334

3,291

2,392

1,736

1,725

1,620

1,462

1,449

10,332

2,274

44

37

15

25

15

14

10

14

19

19

China Has A Large And Rapidly Growing Economy

Projected Accumulative GDP Growth (2004-2010) %

Average 17%

Real GDP in US$ billions (Based on Purchasing Power Parity)2004

U.S.

Japan

Germany

France

China

Italy

U.K.

Brazil

Russia

India

2010

Source:CIA world Fact book

U.S.

Japan

Germany

France

U.K.

Italy

China

Brazil

India

Russia


97

Unprecedented Growth in China Life Sciences Markets

2000 2005 2010

2000 2005 2010

Total Health Care Spending(US Billion Dollars)

Total Pharmaceutical Market(US Billion Dollars)

CAGR 16%

CAGR 17%

2000 2005 2010

2000 2005 2010

Total Biotechnology Market(US Billion Dollars)

Total Medical Devices Market(US Billion Dollars)

CAGR 19%

CAGR 19%

Source: IMS; Frost & Sullivan; E&Y; literatures search, World Bank; Burrill Analysis, Goldman Sachs, BCG

•5th largest pharmaceutical market by 2010 (Boston Consulting Group)

•3rd largest medical devices market by 2010 (Goldman Sachs)

•Excellent investment and merchant banking opportunities

34

150

70

1832

70

2.2

8.8

4.5

3.26.3

14.8


98

China Life Sciences Strengths

Low costs in drug R&D and manufacturing

High growth potential in domestic market driven by aging population and improved personal income

Large researcher talent pool with technology and industry knowledge and skills

Strong central and local government support, with favorable tax policies and grants

Special strengths: Gene therapy, stem cell research, Traditional Chinese Medicine (TCM), chemistry services

Sources: *IMS Global Health


99

China’s market size for ethical & OTC drugs in USD$Billion

346Total6China8Mexico8Canada9Spain

13Italy14UK19France20Germany53Japan

196USA2002 Top 10

447Total10Spain10Canada10Brazil14China15Italy16UK21France24Germany65Japan

262USA2005 Top 10

731Total15Brazil16Spain17Canada23Italy24UK24China28France37Germany81Japan

466USA2010 Top 10

Source: Boston Consulting Group

China’s Pharma Market To Become #5 World Wide by 2010


100

China Biopharmaceutical Roadmap

Time

Commodity/

“Copies”

Proprietary/

Innovation

Low Margin

High Margin

We are here

Technology TransferCo-development

Proprietary Pipeline

Services and

Commodity based

businesses


101

• State of Innovation:– Innovation historically has been in process

improvement – However, there are a growing number of

patents and publications from government and academic labs

India – Innovation is Increasing

Indian Patents & Publications

0

50

100

150

200

250

300

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Year

Publications

Patents

-Nature Magazine


102

Findings – Innovation stems from both

Govt. Labs and Industry

– The Government of India (GOI) has doubled biotech research spending from $175 million from 1997-2002 to $350 million from 2002 -2007

– R&D investments of the top 5 pharma companies had crossed $270 million mark in 2004


103

0 10 20 30 40 50 60 70

Israel

Hungary

Taiwan

China

Spain

Italy

India

Selected FDA Approved Plants Outside the U.S.

Source: Businessworld Number of Plants

61

60

25

22

9

5

7


104

Capital Markets


105

US Biotech Industry Fundraising ($ in Millions)

IPO

Follow-on

PIPEs

Debt

Private

VC

Other

Total Financing

Partnering

Total

$670

5,805

1,433

1,520

$1,084

$237

$10,749

$5,844

$16,593

$6,490

12,651

4,061

5,728

$2,872

$203

$32,005

$6,901

$38,906

Public 1999 2000

$440

2,540

1,741

4,848

$2,397

$9

$11,976

$7,486

$19,462

2001

$445

979

1,007

5,251

$2,688

$178

$10,548

$7,496

$18,044

2002

$456

3,536

2,051

7,170

$2,841

$294

$16,348

$8,933

$25,281

2003

$1,701

3,388

2,417

8,418

$3,733

$269

$19,927

$10,933

$30,860

2004

$819

4,194

2,376

5,565

$3,518

$1,114

$17,586

$17,268

$34,854

2005

Source: Burrill & Company

$303

1,522

1,042

5,421

$734

$115

$9,137

$6,436

$15,573

Q106


106

US Biotech Industry Fundraising ($ in Millions)

Bio ’05 to Bio ‘06

$286

$1,337

$858

$2,508

$845

$176

$6,010

$3,279

$9,289

Source: Burrill & Company

IPO

Follow-on

PIPEs

Debt

Private

VC

Other

Total Financing

Partnering

Total

$168

$1,217

$533

$247

$955

$524

$3,644

$7,745

$11,389

Public$303

1,522

1,042

5,421

$734

$115

$9,137

$6,436

$15,573

Q106Q305 Q405 Total$757

4,076

2,433

7,726

$2,534

$815

$18,791

$17,460

$36,251


107

Capital Raised 1980-2005

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Financings Partnering


108

Biotech’s Five Cycles Length of Rallies/Droughts in Months

0

10

20

30

40

50

60

1983 1986 1991 1995 2000 2003

Droughts

Rallies


109

2005 US Biotech IPOsCompany Ticker Pricing Date Issue Price Current Price (3/24/05) % Change to date

MCap 3/24/05 ($M)

Approx.$ Raised

ViaCell VIAC 1/20/2005 $7.00 $5.50 -21% $211 $53Favrille FVRL 2/2/2005 $7.00 $7.05 1% $143 $42Icagen ICGN 2/2/2005 $8.00 $8.35 4% $184 $40Threshold THLD 2/3/2005 $7.00 $14.58 108% $543 $37Aspreva ASPV 3/3/2005 $11.00 $26.97 145% $921 $79Cardiovascular Bio CVBT.OB 3/14/2005 $10.00 $7.40 -26% $911 $17Xenoport XNPT 6/1/2005 $10.50 $25.77 145% $509 $53Gentium S.p.A GNT 6/15/2005 $9.00 $10.10 12% $81 $22Advanced Life Sciences ADLS 8/5/2005 $5.00 $3.33 -33% $94 $35Coley Pharma COLY 8/9/2005 $16.00 $16.00 0% $414 $96Sunesis Pharma SNSS 9/27/2005 $7.00 $6.93 -1% $149 $42Genomic Health GHDX 9/28/2005 $12.00 $11.47 -4% $281 $60Avalon Pharma AVRX 9/29/2005 $10.50 $5.08 -52% $43 $29Accentia Biopharma ABPI 10/27/2005 $8.00 $6.35 -21% $185 $19CombinatoRx CRXX 11/9/2005 $7.00 $10.98 57% $220 $42Somaxon Pharma SOMX 12/14/2005 $11.00 $16.15 47% $291 $55NUCRYST Pharma NCST 12/21/2005 $10.00 $9.88 -1% $163 $45

$9.18 $11.29 23.0% $314 $4517 Companies


110

2006 US Biotech IPOs

Company Ticker Pricing Date Issue Price Current Price (3/24/05) % Change to dateMCap 3/24/05

($M)Approx.$ Raised

Altus Pharmaceuticals ALTU 1/24/2006 $15.00 $23.30 55% $489 $121SGX Pharmaceuticals SGXP 1/31/2006 $6.00 $7.86 31% $112 $25Valera Pharmaceuticals VLRX 2/1/2006 $9.00 $10.38 15% $153 $35Iomai Corp. IOMI 2/1/2006 $7.00 $6.03 -14% $102 $35Acorda Therapeutics ACOR 2/10/2006 $6.00 $5.90 -2% $112 $36Alexza Pharmaceuticals ALXA 3/8/2006 $8.00 $9.84 23% $221 $44

$8.50 $10.55 18.2% $198 $496 Companies


111

# of IPOs Amount Raised * Perf. since IPO Ups / Downs

2003 7 $438 M -6% 2 / 5

2004 29 $1,628 M +30% 14 / 14/ 1acq.

2005 17 $819 M +21% 10 / 7

2006 6 $303 M +18% 4 / 2

TOTAL 60 $2,892 M +16% 30 / 29 / 1acq.

IPO Window Summary 2003-2006 (as of 3/31/06)

* Includes over-allotments


112

IPO Valuations

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

Company Ticker

$M

Capital Raised

Estimated Pre Money

Mean Pre-Money INCLUDING EYET, IDIX & THRX, CVBT.OB

$209MMean Pre-Money EXCLUDING EYET, IDIX & THRX, CVBT.OB

$165M


113

IPO Market Capitalization History 2003-2006

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Biotech IPOs 2003-6

Ma

rke

t C

ap

ita

liza

tio

n (

$M

)

Market Cap. Appreciation Since IPO

Market Cap. Loss Since IPO


114

DJIA, NASDAQ and Burrill Select 2005-Early 2006


115

Burrill Large-, Mid- and Small-Cap 2005-Early 2006


116

• The time is now for life sciences• Confluence of technologies is changing biotech and the

healthcare world• Personalized, predictive and preventative medicine is

changing healthcare• Payor/reimbursement world is changing with Medicare’s

power• Market opportunities are different today (pandemic

diseases, memory, obesity, aging, and wellness)• Wellness is a huge growth market• AgBio is back, animal genomics is ready• Industrial biotech’s time has arrived • Capital markets worldwide are robust, but expensive

Biotech 2006

Biotech is a global businessBe aggressive, be bold…the competition is


117

the next 12 months will be the industry’s best!

Biotech’s on a roll…


118

Biotech 2006Life Sciences: A Changing

Prescription

BIO 2006

April 10th 2006

G. Steven Burrill, CEOBurrill & Company

biotech 2006 life sciences: a changing prescription

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