Outlook and Trends for Biotech Companies in Europe Sachs Associates 6 th Annual Biotech in Europe Investor Forum October 4, 2006 Dr. Peter Reinisch, Partner Global Life Science Ventures

October 4, The biotech industry is transforming healthcare  A steadily increasing % of new drugs are based on biotechnology  Already 4 out of 5 therapies in development are based on biotechnology  Big pharma is replenishing its pipelines with innovative new biotech products, via M&As as well as in-licensing collaborations, with deals increasingly early stage  Recent success of monoclonal antibodies has confirmed the blockbuster potential of biotechnology (Herceptin, Avastin, etc.)

October 4, The biotech industry is transforming healthcare  Large potential for value generation: $60 billion in global sales last year*  Huge unmet medical needs represent vast market opportunities  Higher success rates for biologics than for small molecules  Understanding diseases on a molecular level gives rise to novel therapeutic approaches  Pharmacogenomics and personalised medicine will dramatically change how patients are treated *Source: Ernst & Young

October 4, Chronic diseases should reach a total market size of more than USD 200 billion in 2007 Source: SG Cowen/ Bank of America estimates USD billion

October 4, European biotech has lagged behind, but there are now strong reasons for optimism  In 2005, €3.2 billion were raised by European biotech companies *  Revenues up (+7% in 2005), increased expenditures on R&D (+15% in 2005) *  Strong interest of pharma in collaborations/acquisitions to strengthen pipelines. Although acquisitions lead to a drop on paper in the number of successful biotech companies, they are a strong boost for investment in the sector. Examples:  Chiron -> Novartis  Rinat -> Pfizer  CAT -> AstraZeneca  Serono -> Merck KGaA *Source: Ernst & Young

October 4, European biotech has lagged behind, but there are now strong reasons for optimism  Good IPO performance, increasing momentum & confidence in the sector  IPO windows are likely to remain more stably open than in the past  Increasing number of European biotech companies with products in Phase III and on the market  Increasing number of European biotech companies have market caps above €500 m  The sector is approaching overall profitablity in the US; Europe will follow

October 4, European life science companies have expanded their pipelines Source: Fortis Bank

October 4, In 2005, Europe had more biotech IPOs than the US, raised more funds and showed better post-IPO performance

October 4, GLSV 2 nd Annual Biotech Investment Barometer  Following the interest in last year’s Barometer, GLSV has conducted a new survey of biotech executives, members of the investment community and others, to gauge their perception of the current investment climate and their expectations for the future  Survey conducted from September 2006  11 multiple choice, 3 rankings, 1 open question  186 reponses received  54 biotech executives  63 VC’s, 15 LP’s, 13 other investors, 12 analysts (= “investment community”)  29 others  88% were based in Europe

October 4, GLSV 2 nd Annual Biotech Investment Barometer How does your view today about the biotech sector compare with your view 12 months ago? 55% of respondents are more optimistic about the biotech sector than 12 months ago

October 4, GLSV 2 nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in Europe? 64% of respondents consider biotech stocks in Europe to be somewhat or very much undervalued

October 4, GLSV 2 nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in the US? Only 28% of respondents consider biotech stocks in the US to be somewhat or very much undervalued

October 4, GLSV 2 nd Annual Biotech Investment Barometer How do you predict biotech shares will perform compared to the stock market in the next year? 63% of respondents predict that biotech shares will strongly or moderately outperform the stock market in the next year

October 4, GLSV 2 nd Annual Biotech Investment Barometer Do you expect the IPO window to remain open more or less than 6 months? EuropeUS 74% expect >6 months in Europe (69% of investors & analysts) 67% expect >6 months in the US (62% of investors & analysts)

October 4, GLSV 2 nd Annual Biotech Investment Barometer What do you feel are the long-term perspectives for investment in the biotech sector? 86% of respondents view the long-term perspectives for investment in biotech as generally or highly favourable

October 4, GLSV 2 nd Annual Biotech Investment Barometer In Europe, how do you rate the current funding environment for early stage biotech companies? 72% of respondents rate the current funding environment in Europe as difficult or very difficult

October 4, GLSV 2 nd Annual Biotech Investment Barometer In the US, how do you rate the current funding environment for early stage biotech companies? Only 26% of respondents rate the current funding environment in the US as difficult or very difficult

October 4, GLSV 2 nd Annual Biotech Investment Barometer How do you currently see the future for the biotechnology sector in Europe? 76% of respondents see the future for biotech in Europe as fairly or highly positive

October 4, GLSV 2 nd Annual Biotech Investment Barometer How significant do you consider the growth of the biotechnology sector in Asia for the industry as a whole? 53% of investors & analysts, 69% of biotech executives consider the growth of biotech in Asia as fairly or highly significant

October 4, GLSV 2 nd Annual Biotech Investment Barometer What kind of biotech-related companies do you currently consider most attractive? (ranking 1-6; 1 = most attractive) After therapeutic products (60% in 1st place), vaccines and medtech are considered the most attractive areas

October 4, GLSV 2 nd Annual Biotech Investment Barometer Which elements do you think biotech start-ups are most often lacking when they look for funding? (ranking 1-7; 1 = most often lacking) 47% of all respondents consider an experienced management team to be the element most often lacking, followed by a solid business concept (46% ranked in top 2)

October 4, GLSV 2 nd Annual Biotech Investment Barometer What do you currently consider the greatest threats to the biotechnology sector? (ranking 1-5; 1 = most important) 41% of all respondents consider insufficient funding to be the greatest threat

October 4, GLSV 2 nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry?  Tax incentives/benefits for investment in early stage, and more generally for financial risk taking  Government early-stage financing  Allow state aid above €0.5 m ceiling  Government incentives for pension funds/insurance companies to invest in VC's  Fairer tax treatment of stock options  Focus on a few strong biotech clusters  Greater access to capital through pan-European funds  One combined stock exchange – a European Nasdaq

October 4, GLSV 2 nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry?  Clear rules not to dilute founders and management to the point where there is no real interest left to increase shareholder value.  More seasoned entrepreneurs, less fear (stigma) of failure  Support of university research, with longer incubation of technologies at universities before spin-out  Support of clinical research (which is getting marginalized in Europe)  Promotion of science and technology education  Publicity about the regained strength and positive restructuring of the sector, and the good investment opportunities

October 4, GLSV 2 nd Annual Biotech Investment Barometer Conclusions  Strong optimism, overwhelming majority views perspectives for investment as favourable.  Biotech stocks considered undervalued in Europe, not in US.  Biotech stocks expected to outperform market in next year.  IPO window expected to stay open more than 6 months.  Early-stage funding considered difficult in Europe, not in US. This is viewed as the single biggest threat to the sector.  Solutions to funding gap include government funding, tax incentives, pan-European access to capital, increased support for academic and clinical research. The European biotech sector continues to mature and offers excellent investment opportunities for discerning investors.