Wrap-up – brief overview of Pharmaceuticals/Biotech

Biotechnology: One of the World’s oldest emerging industries Most investors think Biotech is the newest whim on earth! From a historical perspective: NOT SO! Biotech’s genesis go back to some 5000 BC when farmers noticed that certain crop grew better in some conditions than others A follow-up took place around 1000 BC when farmers cross-bred the best of two breeds – the female horse and the male donkey – creating a new animal, the mule. The mule became the first genetically engineered species.

Modern biotechnology 1950 Watson and Crick discovered the structure of DNA – not the secret of life, but a secret of life 1973 Boyer and Cohen recombined DNA 1978 Eli Lilly and Genentech announce they are creating genetically engineered insulin 1980, the first IPO – Genentech 1982, FDA approval of synthetic insulin 2000 first Finnish IPO – Biotie Therapies 2001 mapping of the human genome..

The Pharmaceutical Industry Industry Recipe X Company Paradigm Y Strategy Logic Z The Agri Industry Industry Recipe X The Food Industry Industry Recipe X The Pharmaceutical Industry Industry Recipe X’’ Company Paradigm Y’’ Strategy Logic Z’’ The Biotechnology Industry Industry Recipe X’ Company Paradigm Y’ Strategy Logic Z’ Technological Change Technology and Markets in Motion

Lead to… A myriad of POTENTIAL business opportunities all along the entire R&D process Are they profitable? Are they real A variety of NEW BUSINESS MODELS making FIPCOs (Fully Integrated Pharmaceutical Companies) dated Product companies, Technology companies, and Hybrids To this should be added SERVICES

Discovery (2-10 years) Preclinical Testing Laboratory and animal testing Phase I healthy volunteers used to determine safety and dosage Phase II patients used to look for efficacy and side effects Phase III patiens used to monitor adverse reactions to long-term use Regulatory Review/Approval Additional Postmarketing Testing Phase IV Years Preclinical Clinical Drug Development Process – ’the Staircase model’ – the ’FIPCO’ model

The Food Industry Industry Recipe X Company Paradigm Y Strategy Logic Z The Health Care Service Industry Industry Recipe X Company Paradigm Y Strategy Logic Z The Agri Industry Industry Recipe X Company Paradigm Y Strategy Logic Z The Pharmaceutical Industry Industry Recipe X’’ Company Paradigm Y’’ Strategy Logic Z’’ The Biotechnology Industry Industry Recipe X’ Company Paradigm Y’ Strategy Logic Z’ The Materials Industry Industry Recipe X Company Paradigm Y Strategy Logic Z

New Therapeutic Cycles

New Drug Targets

Discovery to Market Process (as viewed by an bio-entrepreneur) AdvancedIntermediateEarly New Medicine Proposal Target Validation Lead Identification Lead Development Lead Optimization EIH Enabling Early Clinical Safety Development Portfolio Preparation Early Clinical Efficacy Phase II Phase III Launched MILESTONE Target Validation Clinical Candidate Selected Start Phase III NDA DiscoveryDevelopmentMarket MILESTONE

Marketer % Developer % Innovator % Sharing the income in the pharmaceutical business

RESEARCH GROUPS MARKETING PARTNERS DEVELOPMENT PARTNERS MANUFACTURING PARTNERS TRANSFER OF PROPRIETARY RIGHTS LISENCE, SUPPLY OF PRODUCT PAYMENTS ROYALTY MILESTONE PAYMENTS, ROYALTY, PART OF GROSS MARGIN  OUTSOURCED RESEARCH AND DEVELOPMENT COST-EFFICIENT INDUSTRIAL SCALE MANUFACTURING DISCOVERY RESEARCH  DISCOVERY RESEARCH  DRUG DEVELOPMENT  OWNER OF PATENTS  COMMERCIALIZATION OF DEVELOPMENT ROJECTS  MANAGEMENT OF OUTSOURCED RESOURCES  PHASE III DEVELOPMENT  MARKETING  SALES Biotech Company

Pharma Outsourcing of R&D Marketing Authorisation Clinical Phase I -III Discovery Outsourcing

The US vs. Europe – the whole industry vs. listed co’s (June 12, 2002) THE WHOLE INDUSTRY USEUROPE Ch.% Ch.% 30,027,010,9Turnover14,410,435 16,514,414,6R&D exp.7,95,835 7,36,315Loss1,61, # Co’s ,000176,0008,5# empl.87,18267,44529 LISTED CO’S 26,623,912Turnover7,24,946 10,99,713R&D exp.4,53,048 5,14,317,1Loss0,580, ,6# Co’s ,000130,0008,5# empl.34,18025,96432

Biotech Global Product Sales and Forecast (Millions of Dollars) Key SectorsBase YearForecastYears‘00-’10 Growth ppa Human Therapeutics11,70020,60036,30012 Human Diagnostics2,5003,7005,4008 Agriculture7801,9504,20018 Specialities5501,1702,40016 Non-Medical Diagn TOTAL15,85027,90049,00012 WORLD TOTAL Source: Consulting Resources Corporation

Porter’s five forces in BIOTECH INDUSTRY COMPETITORS Internal rivalry SUPPLIERS POTENTIAL ENTRANTS BUYERS SUBSTITUTES Bargaining power of Bargaining power of Threat of Government regulation Global market demand Constantly Changing

Issues important in Strategic Market Management Not only technological, regulatory, and financial science and getting scientific results availability of R&D funding; public and private regulatory; FDA, EMEA, KOSEISHO You need to understand – on a long-term basis: Medical and Healthcare system related treatment changes diagnostics changes reimbursement changes which are national who is paying and how much health economics

The regulatory focus areas of the biotech industry – Legal gates to market entry USA (FDA) Japan (Koseisho/ OPRS) EU (EMEA/ CPMP)

Issues important in Strategic Market Management Other issues demographic changes changes in disposable income changes in society cultural diversity treatment praxis varies between countries what is seen as good in one country is seen as bad in another ethical issues varies between countries

Market estimations are not only quantitative estimations of market potential require equally much qualitative assessments It is a combination of BOTH

Future major issues affecting market entry and success Expanding healthcare market nutraceuticals complementary and alternative medicines New drug delivery systems New diagnostic methods validation procedure! Biomaterials Changes in patent regulations

Future major issues affecting market entry and success Rx to OTC switching a way to cut healthcare costs Branding Empowered consumers Direct-to-consumer advertising In the US since 1997 In New Zeeland since 1981 The rest of the world is watching – Europe is about to try a restricted version Direct-to-consumer branding

Conclusions Biotechnology is truly the future horn of plenty. However, achieving success will require business management capabilities. It is not just enough with top technology and some money. It is not enough to know your way in the regulatory jungle Biotech is a global business, moving fast knowledge grows and stuns markets change all the time Companies have to master market management – it is a strategic issue to them

“If you think research is expensive try disease” Mary Lasker “evangelist” for medical research, as quoted by Nobel Prize-winning DNA scientist Arthur Kornberg in the Golden Helix IT WILL BE EVEN MORE EXPENSIVE IF YOU DON’T KNOW YOUR MARKET(S)!