BIOTECHNOLOGY

Thomas YipNatasha Sharma

Alfred LiElaine Yip

Justin Hovis

Introduction

• Biotechnology– the use of cellular and biomolecular processes

to solve problems or make useful products.– Collection of technologies that capitalize on the

attributes of cells, such as their manufacturing capabilities, and put biological molecules, such as DNA and proteins, to work for us.

Biotechnology? Pharmaceutical?

• Two Distinctions1. Business model

• Biotech:– Much smaller and limited resources to market drug– Use pharmaceutical companies to market their drugs– Just a research engine

• Pharmaceutical– Larger and market drug to market themselves

2. Field of Research• Biotech:

– Use “genetic engineering”• Pharmaceutical

– Use "empirical screening" to develop drugs

Cells and DNA

• Cells– Basic building blocks of life

– have same basic design, use same construction materials and operate using similar processes

• DNA (deoxyribonucleic acid)– Genetic materials of all living species

– Directs cell construction and operation to creates to proteins

Uses of Biotechnology

• Biotech drug products and vaccines– Ex. Alzheimer’s disease, heart disease, diabetes, multiple sclerosis,

AIDS and arthritis

• Medical diagnostic tests– Ex. Home pregnancy tests

• Biotech foods• Environmental and industrial biotechnology• DNA fingerprinting

Global Industry

• 4,284 companies globally– 622 publicly listed

• Revenues: $35 Billion (72% in US)• R&D: $16 Billion• Employed: 188,000 people

Source: Ernst & Young, 2001

US Industry

• 1,466 companies– 318 publicly traded

• Market capitalization: $311 billion

• Revenues: $29.6 billion

• R&D: $20.5 billion

• Employed: 194,600 people

Sources: Biotechnology Industry Organization, 2004

US Biotech Industry Statistics

Year: 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993

Sales 24.3 21.4 19.3 16.1 14.5 13.0 10.8 9.3 7.7 7.0

Revenues 29.6 29.6 26.7 22.3 20.2 17.4 14.6 12.7 11.2 10.0

R&D Expense 20.5 15.7 14.2 10.7 10.6 9.0 7.9 7.8 7.0 5.7

Net Loss 9.4 4.6 5.6 4.4 4.1 4.5 4.6 4.1 3.6 3.4

No. of Public Companies 318 342 339 300 316 317 294 269 265 235

No. of Companies 1466 1457 1379 1273 1311 1274 1287 1308 1311 1272

Employees (in thousands) 194.6 191 174 162 155 141 118 108 103 97

Biotech Index (5 year)

Biotech Index (1 year)

Biotech Index Figures

Index Value 536.56

Trade Time Nov 12

Change   2.06 (0.38%)

Previous Close 538.62

Open 538.62

Day’s Range 528.75 - 539.47

52w Range 439.04 - 567.94

Market CapitalizationMarket Capitalization

45 41 5283 93

137.9

353.5330.8

225 206

311

050

100150200250300350400

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Do

llars

(in

bill

ion

)

NOTE: 2004 figure as of mid-March

Total Financing

5.4

11.8

38

15.110.5

16.9

0

10

20

30

40

1998 1999 2000 2001 2002 2003

Year

Do

lla

rs (

in b

illio

n U

SD

)

Biotech Industry Financing, 2003

New Biotech Drug and Vaccine Approvals/New Indication Approvals by Year

20 0 1

53 3

6 5

9

47 7

15

25

19

25

20

34

25

36 37

0

5

10

15

20

25

30

35

40

Year

Num

ber o

f App

rova

ls

Drug Discovery Process

FDA

• What is the FDA?– Responsibilities of the FDA

• History of the FDA

• Evolution of US Drug Law– Food and Drugs Act (1906) – Federal Food, Drug, and Cosmetic Act (1938) – Thalidomide Crisis (1962)

Pre-clinical Research

• The beginning of the drug approval process

• Studies using the compound in cell cultures, isolated tissues, and laboratory animals are conducted

• Company decides whether to pursue human testing

• Patent Term Restoration Act (1984)

Total Biotech Patents Granted per Year

2,1601,765 2,077

2,5383,013 2,816 2,926

3,897

5,412

7,834 7,796 7,7327,005

7,763

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Nu

mb

er o

f Pat

ents

IND Filing

• Before testing on humans can begin, the company must file an Investigational New Drug (IND) application

– FDA has 30 days to review the IND application

• The goal of the IND application is to provide pre-clinical data of sufficient quality to justify the testing of the drug in humans

• About 85% of all IND applications move on to begin clinical trials

Phase 1

• Concentrates on developing the drug’s safety profile

• Sample in this phase is small (less than 100 patients)

• How the drug is absorbed, distributed in the body, metabolized, and excreted

• Testing ranges from one to three years

Phase 2

• Consists of small, well-controlled experiments to evaluate the drug's safety and assess side effects

• Sample size of 100 – 300 patients who suffer from the disease

• This phase establishes the optimal dosage of the drug

• Phase 2 trials last an average of two years

Phase 3

• Verifies the effectiveness of the drug against the condition that it targets

• Continues to build the safety profile of the drug and record possible side effects and adverse reactions resulting from long-term use

• Sample size of at least 1000 patients – Double-Blinded– Randomization

• Testing averages between three and four years

NDA Filing

• Can contain up to 100,000 pages of data supporting the efficacy and safety of the drug

• At this point, the drug has better than a 70% chance of being approved by the FDA

• Approval of the NDA can take anywhere from two months to several years

• If approved the company may begin to market and distribute the drug

Phase 4

• Observational studies in an ongoing evaluation of the drug's safety during routine use

• Monitor any usage of the drug for conditions other than the approved medical indication

For The Investor

• The clinical trial process is costly as well as time-consuming

• $350 - $500 million to bring a drug through all phases of the clinical trial process

• Consider companies that already have: – one or more successful products on the market– a large pipeline of candidate drugs– plenty of cash to fund the development of their new drug

candidates

Company Background

• Stock Price: US $49.33 (on Nov. 15, 2004)

• Ticker Symbol: DNA – NYSE

• Workforce: 6226 people

• Location: San Francisco• Outstanding Shares: 1,077,093,000

Company’s History

• 2nd largest biotech company founded in 1976

Robert A Swanson Dr. Herber W Boyer

Stock’s History

• On October 14,1980– First 1 million shares were issued – Traded on NASDAQ, with ticker symbol (GENE)– Share price jumped from $35 to $88 within an hour

• In 1990, Roche acquired Genentech at $2.1Billion • In 1999, Roche reissued Genentech shares

– Genentech (ticker symbol DNA) returned to the NYSE – Started at $97 and closed at $127. – The largest public offering in the history of the US health

care industry

Mission and Value

“ Our mission is to be the leading biotechnology company, using human genetic information to discover, develop, manufacture, and commercialize biotherapeutics that address significant unmet medical needs. We commit ourselves to high standards of integrity in contributing to the best interests of patients, the medical profession, our employees and our communities, and to seeking significant returns to our stockholders, based on the continual pursuit of scientific and operational excellence.”

Top Executives

• Chairman and CEO

– Arthur Levinson, Ph D $2.41M

joined in 1980 as senior scientist• Executive VP

– Louis Lavigne, Jr, CFO $809.00K

• Previously worked in Pennwalt Corp; joined Genentech in 1982

Top Executives

• Pres, Product DevelopmentSusan Desmond-Hellmann, M.D., M.P.H. $1.16M -Joined Genentech in 1995 as a clinical scientist

• Pres, Commercial OperationsMyrtle Potter $1.74M

-Spent 14 years in Merck & Co. then in Bristol Myers Squibb

-Joined Genentech in 2000

• Executive VP, Gen. Counsel, Sec.Stephen Juelsgaard, D.V.M., J.D

-Joined Genentech in 1985 as Corporate counsel

1. Oncology -Cancel treatment

2. Immunology -Immune disorder

3. Vascular Medicine -Heart disease

4. Specialty Biotherapeutics

-Other areas

Manufacture and market 13 products in the U.S.

Products as of 3rd Quarter

Genentech’s Product Pipeline

5

4

8

3

0 2 4 6 8

Pre-Ind/Phase I

Phase II

Phase III

Awaiting FDAAction

Pro

du

ct

Pip

eli

ne

Number of Products in the Pipeline

Number of products

Revenue Composition

Cost Composition

Cost Breakdown in 2003

Cost of sales

Research anddevelopment

Marketing, general andadministrative

Collaboration profitsharing

Recurring chargesrelated to redemption

18.4%

27.7%

30.4%

17.5%

5.9%

Operating revenue vs R&D

9.1%12.2%

13.1%

15.5%

18.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1999 2000 2001 2002 2003

Years

Operating Revenue vs R&D

Operating revenue

R&D

Recent News

• On May 13, Genentech had a 2:1 stock split• In Aug, FDA approved the Biologics License

Application for the manufacturing of Avastin bulk drug substance at Vacaville, Cali facility

• In late Sept, Genentech and Wyeth entered into a manufacturing agreement for Heceptin

• On Sept 28, Genentech announced the extension of its current stock repurchase program for up to an addition $1B of its common stock thru Dec 31, 2005

Highlights of 3rd Qtr in 2004

• Operating Revenues: $1.2 B (46.9%↑ )

• Total Product Sales: $1.0 B (52.7%↑ )

• GAAP Net Income: $230.9M (51.9%↑ )

• GAAP EPS: $0.21 per share (50%↑ )– ↑ is mainly due to the sales growth in the

BioOncology products (accounts for 74% of total product revenues)

(in thousands)2004

(ended Sept) 2003 2002 2001

Share Price (End of period) $52.42 $93.57 $33.16 $54.25

Operating Revenues 3,305,857 3,300,327 2,583,658 2,044,032

R&D 637,317 721,970 623,482 526,230

Marketing, general & admin 788,616 794,845 546,276 446,906

Total costs and expenses 2,467,860 2,495,612 2,661,731 1,896,051

Net Income 578,231 562,527 63,787 155,874

Earning per share (diluted) 0.53 1.06 0.12 0.28

Weighted average shares 1,082,081 528,810 524,408 535,291

Property, Plant and Equip 1,922,313 1,617,912 1,068,734 865,700

Goodwill 1,315,019 1,315,019 1,315,019 1,315,019

Total Assets 9,377,846 8,736,171 6,758,119 7,146,800

Long-term debt 1,310,422 412,250 0 0

Total Liabilities 3,491,322 2,215,873 1,419,235 1,860,800

Free Cash Flow 419,600 536,021 15,910 364,976

Financial Highlights

Key Statistics over years

2003 2002 2001 2000 1999

P/B 3.76 1.59 2.42 3.77 3.29

P/E 44.13 138.17 96.86 -291.07 -14.88

ROE 0.09 0.01 0.03 -0.01 -0.22

Profit margin 0.17 0.02 0.07 -0.05 -0.90

Diluted EPS 1.06 0.12 0.28 -0.14 -2.26

FCF (in millions) 914.98 264.87 267.28 276.10 -971.80

Debt to Equity ratio 0.34 0.27 0.21 0.19 0.24

Financial Snapshot

  Genentech Industry

Price as of Nov 15, 2004 US $49.33  

52 week range 41.00 - 68.25  

P/B (mrq) 7.55  

Beta 1.188  

Market Capitalization 52.30B 147.91M

Net income (ttm) 704.96M (6.75M)

P/E (ttm) 76.31 30.54

EPS (ttm) 0.653 -0.28

P/S (ttm) 12.41 9.13

Genentech vs NASDAQ Biotech over 5 years

Obtained from www.globeinvestor.com

Stock Price Performance: 1 Year

Stock Price Performance: 5 Years

Recommendation

Pros:• Strong financial

performance• Performance above

industry’s average• Good development in

the product pipeline• Anticipate the launch

of Tarceva in Jan 2005

Cons:• High volatility in the

industry (possibly due to speculation)

• Firm specific risk (reliance on FDA approval)

Protein Design Labs

• Current Stock Price: $19.39• Stock Symbol: PDLI – NASDAQ• Workforce: 549 people 157 in R&D• Location: Fremont, CA• Construction of a new manufacturing plant, slated

for completion in 2007.

• Outstanding Shares: 95,198,000

Financial Highlights of 2003

Revenue $66,686,000.00

Net Income ($129,652,000.00)

R&D $82,732,000.00

EPS -1.40

Business Profile

Technology Overview- Humanizing monoclonal antibodies

- use structural information from promising mouse antibodies to capture the benefits of those antibodies while overcoming many of their limitations in treating humans

Collaborations

- In-Licensing

- Out-Licensing

- Humanization Collaborations

- Venture Development

Mission and Goals

Mission Statement: – To be a premier biotechnology company that creates, develops,

manufactures and markets humanized antibodies to alleviate serious human diseases. Building on our core technologies, we will discover a new generation of therapeutics

Future Goals:• Utilize growing royalty stream to selectively develop

antibody pipeline• Market proprietary drugs in U.S. by ’07• Partner clinical programs outside U.S. and CAN• Continue out-licensing efforts to maximize humanization

technology potential

Top 5 paid executives

Mark McDade – Chief Executive Officer, Director since 2002– MBA from Harvard, had been CEO of Signature BioScience, co-founded Corixa

Max Link, Ph.D. – Director since 2003– Chairman since 2004

Glen Sato – Chief Financial Officer, Senior Vice President since 2003

Douglas Ebersole – Senior Vice President since 1992

Steven Benner, M.D. – Chief Medical Officer, Senior Vice President since 2002

• Therapeutic focus:

• Autoimmune

• Inflammatory conditions, asthma

• Cancer

• 7 US marketed drugs licensed under PDL patents

Mylotarg®

Products Development

Products Development

* Marketed as Zenapax® by Roche in kidney transplantation

Zenapax® (daclizumab/anti-CD25)

Pre-Clinical I / II II III MarketedI

*

F200 (Anti-α5β1 integrin Fab)

M200 (Anti-α5β1 integrin)

HuZAF™ (fontolizumab/ anti-gamma Interferon)

Nuvion®

(visilizumab/anti-CD3) Severe refractory ulcerative colitis

Moderate to severe Crohn’s disease

Solid tumors

AMD

Moderate to severe persistent asthma

Prevention of renal allograft rejection following kidney transplantation

**

* * Partnered exclusively with Roche for asthma and other respiratory diseases

Revenue and R&D

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1999 2000 2001 2002 2003

Revenue R&D

Recent News

• Reported 3rd Q earnings for the second time this year, raised revenue guidance for 2004 up 40% over last year's

• Increasing royalty payments from Genentech's drugs - Avastin

Company’s Ratio

　 2003 2002 2001 2000 1999

P/B 3.75 1.39 5.2 3.54 4.10　D/E 0.66 0.32 0.31 0.32 0.11

CurrentRatio 14.3 42.0 52.1 57.6 17.8

ROE -29% -3% 0.4% 0.1% 6%

Profit Margin -195% -31% 6% 1% -36%

EPS -1.4 -0.16 0.03 0.01 -0.14

Recent Key Statistics

P/B* 4.48

D/E* 0.611

Current Ratio* 9.162

ROE** 24.62%

*most recent quarter **trailing twelve month 　

Free Cash Flow

2003 2002 2001 2000 1999

CFO (22,965) (5,071) 2,588 6,827 (10,719

)

- Capital Expenditure 91,118 34,786 8,716 3,355 18,815

FCF(114,083

)(39,857

) (6,128) 3,472 (29,534

)

Financial Snapshot

Price Nov 15, 2004 US $19.39

Beta 1.11

52 Week Range

High/Low

$ 27.58 / $ 12.34

Shares Outstanding 95,198,000

Market Capitalization $ 1,862,072,880

Book Value per Share (most recent quarter)

4.557

10 year Stock Price Movement

PDL VS Nasdaq Biotech

1 year Stock Price Movement

Recommendation

• PDL is still growing– Spend more on R&D

than revenue

• FCF is negative

• Negative Profit Margin, ROE, EPS

• Underperforms Biotech Index

• Current Ratio is decreasing

• D/E is increasing• Cash Burn Company• Might hit a HomeRun but

not within the next couple of years.

Amgen

• Founded: 1980• Headquarters: Thousand Oaks,

California• Staff: 13,000 (2003)• Chairman/CEO: Kevin W. Sharer

                                       

Overview

• Operating Revenue: $8.4B• Product Sales: $7.9B• Net Income:

$614.5M• Diluted EPS: $0.46• R&D Investment: $1.7B

• Stock: Nasdaq: AMGN

• Index: Nasdaq 100

S&P 500

• Sector: Healthcare

• Industry: Biotechnology

Stock InfoStock Info

2003 Highlights2003 Highlights

Mission, Aspirations, Values

• “World’s largest biotech company”

• Mission: “to serve patients”

• Aspiration: “to be the best human therapeutics company”

• Values: science-based, patient-focused, team-oriented, collaborative, and ethical organization

Business Profile

• Pioneers of the development of innovative products based on advances in recombinant DNA and molecular biology

• Human Therapeutics

• Oncology (supportive cancer care)

• Inflammation (rheumatoid arthritis)

• Hematology & nephrology (anemia, kidneys)

• Neurology (brain, nervous system)

• Metabolic Disorders (autoimmune diseases, viruses)

Top 5 Paid ExecsKevin Sharer (1992) $3.8MChairman of the Board, CEO and President

George J. Morrow (2001) $2.2MExecutive Vice President, Global Commercial Operations

Roger M. Perlmutter, M.D., Ph.D (2001) $2.2MExecutive Vice President, R&D

Dennis M. Fenton, Ph.D. (1982) $1.9MExecutive Vice President, Operations and Corporate Compliance Officer

Richard D. Nanula (2001) $1.7MExecutive Vice President, Finance Strategy and Communications, and CFO

Products

ONCOLOGYONCOLOGYFor treatment of chemotherapy induced anemia and infections in cancer patients undergoing chemotherapy

NEPHROLOGYNEPHROLOGYFor treatment of dialysis patients and patients suffering from chronic renal failure

INFLAMMATIONINFLAMMATION

For treatment of rheumatoid arthritis patients

2003 Product Pipeline

1 1 3 2

2 1 2 1

2 1 1

1 1

1 1 1 1

0 1 2 3 4 5 6 7

Oncology

Inflammation

Nephrology

Neurology

Metabolic Disease

Clinical Trial Phase 1 Phase 2Phase 3 Approved In Market

Totals: 55 44 88 11 22 33

Cost Composition

Amgen – 2003 Annual Report

Sales & Revenue - (2003 Annual Report)

Amgen – 2003 Annual Report

Revenue – Geographic Breakdown

Amgen – 2003 Annual Report

• Collaborations– Tularik Inc: $1.3B (Q3 2004)– Immunex Corp: $16B (2002)

• EPS decreased by 61%– From $0.46 to $0.18(Acquired in process R&D write off from Tularik

= $554M)

• R&D rose by 24%(Additional R&D personnel from Tularik)

• Product sales growth = 23%– Led by Aranesp & Enbrel

Company Growth (Q3 2004)

                                 

     

Financial Ratios

Sep 2004 2003 2002 2001

P/B 3.84 4.11 3.33 4.99

P/E (tailing) 35.68 36.61 (41.32) 54.21

D/E 0.157 0.16 0.32 0.31

CurrentRatio 1.305 3.295 4.187 3.847

ROE 8.45% 11.38% (7.61%) 21.46%

Profit Margin 22.24% 36.99% (14.20%) 38.13%

EPS 1.681 1.75 (1.21) 1.07

Free Cash Flow

Sep 2004 2003 2002 2001

CF Operations $2,587 $3,566.6 $2,248.8 $1,480.2

- Purchase of Property, Plant & Equipment (1,040) (1,356.8) (658.5) (441.8)

FCFE $1,547.0 $2,209.8 $1,590.3 $1,038.4

Note: All figures in millions of US Dollars

Financial Snapshot

Price Nov 15, 2004 US $59.92

Beta 0.647

52 Week Range: High - Low $52.00 - $66.88

Shares Outstanding 1.27B

Market Capitalization 76.17B

Book Value per Share (most recent quarter)

$15.59

Institutional Ownership 68%

Insider Ownership 10%

5 Year Trend - AMGN

5 Year Trend – AMGN vs Nasdaq (NBI)

1 Year Trend - AMGN

1 Year Trend – AMGN vs Nasdaq (NBI)

Recommendation

• FDA Approvals– 2 products approved– 3 new products

already in market• Low D/E ratio• Increased Product Sales• Better than industry• Tularik Collaboration

• High Goodwill• Press Releases:

– Nov 11 04: Amgen Ventures Fund ($100M)

– Nov 01 04: Landmark Trial Evaluating Anemia Treatment on CVD Risk