Biotechnology 2010 Bridging the Financing Divide October 15 th, 2010 MBC Finance Committee Presentation

Copyright © 2009 All Rights Reserved Biotechnology 2010 Where We Were: Biotechnology 2009  Access to capital markets severely restricted – particularly for high beta investments − Five quarters passed without a single life science IPO − Significant shift in public market interest towards more mature companies − Severe contraction in venture capital financing with committed capital down more than 60% from its 2007 peak − Life science issues coming public in the first decade of the new millennium had not performed well - down 20% + in aggregate  Sustained interest in early-stage companies among large pharmaceutical companies. − Industry had pursued strategy of discovery and preclinical development “outsourcing” − Apparent recognition of premium markets were placing on innovation − Consolidation pressures likely to drive increase in M&A activity Where do we stand?

Copyright © 2009 All Rights Reserved Capital Market Perspectives Biotechnology 2010

Copyright © 2009 All Rights Reserved NBI DJIA Nasdaq Capital Market Perspectives Select Market Indices (Jan 2007 to present) Note: Indices values as of Sept 22, 2010 Source: Yahoo! Finance; Capital IQ Indexed Values Period Hi/Lo Delta NBI DJIA Nasdaq 38% 54% 53%

Copyright © 2009 All Rights Reserved $2.8 billion PIPEs dollars in millions Public Equity Financings Biotechnology (2008 – 2010 YTD) Note: Represents dollars raised through IPO, follow-on and PIPE financings. Source: Burrill & Co., BioCentury, Canaccord Genuity $8.3 billion Follow on financings IPOs IPO $ raised $6 mm$1.1 billion$525 mm $3.0 billion

Copyright © 2009 All Rights Reserved Number of issues % life science issues 23.5% 14.9%9.7%8.8% All Industries Life Science Capital Market Perspectives Annual IPO Activity: 2000 – Present % Note: 2010 figures as of Sept 22, 2010 Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co % % % % 6.3% 12.4% *

Copyright © 2009 All Rights Reserved Capital Market Perspectives Biopharma IPO Activity 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Preclinical Phase I Phase II Phase III NDA filed 37.7% 92.0% Preclinical Phase II Phase III NDA filed Percent of total IPOs Source: SEC filings Note:Includes biopharmaceutical and related issues only. Lead compound in clinical development % of total life science IPOs 76.8%56.8% 100.0% 2007 Phase I Phase II Phase III NDA filed/approved 48.4% % 2009/10 Phase II Phase III 73.3% 11 NDA filed/approved

Copyright © 2009 All Rights Reserved Biotechnology IPOs (2009/10) IPO Pricing vs. Expected Range IPO price per share Note: % change from expected range calculated using the midpoint of the expected range. Source: SEC filings % PPS priced below expected PPS 9.1%17.6%0.00%25.0%50.0%37.5%7.1%44.4%31.3%61.5%33.3%

Copyright © 2009 All Rights Reserved Number of issues IPO Performance Life Science IPOs (2000 to 2010) Total Life Science IPOs Issues currently above IPO PPS % life science issues above IPO PPS 63.6%14.3%28.6%31.1%29.2%18.5%12.9%33.3%21.7% Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, Source: Johnston Blakely & Co %0.00%

Copyright © 2009 All Rights Reserved Life Science IPO Performance Sector Performance (2000 to 2010) Number of issues Total IPOs IPOs currently above IPO PPS Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, Source: Johnston Blakely & Co % life science issues above IPO PPS 30.3%27.8%22.2%25.0%21.3%

Copyright © 2009 All Rights Reserved Life Science IPO Performance Aggregate Performance (2000 to 2010) Percent of Aggregate Value $1,958 (23.0%) Note:Represents value of one common share in 238 life science IPOs from 2000 through Sept 22, Stock transactions involving mergers of equals or reverse mergers calculated using current share prices. Current share price as of Sept 22, Cumulative value of one share/IPO $2,542 (7.7%) $2,495$2,690

Copyright © 2009 All Rights Reserved percent of total Capital Market Influences Financial Resources: Months Cash-on-Hand > 12 mos cash < 12 mos cash < 6 mos cash Note: US public biotechnology companies only Source: BIO, Factset, JBCo estimates

Copyright © 2009 All Rights Reserved Life Science IPO Calendar IPO Queue: September 2010 Anacor Zogenix Endocyte Pac Bioscience Cutanea Aegerion Horizon Complete Genomics Ventrus Ikaria BG Medicine Rules based Medicine Aldagen IASO Pharma $1.48 billion IPO Candidate dollars in millions Amyris Aurora Diagnostic Note: Represents companies with current S-1 registrations filings Source: Hoover’s, BioCentury $

Copyright © 2009 All Rights Reserved Number of announced transactions Source: Johnston Blakely & Co. research Merger & Acquisition Activity Life Science Sector (Q – Q2 2010)

Copyright © 2009 All Rights Reserved Capital Market Influences Sector Consolidation: Biotechnology Source: BIO, Factset liquidation events acquisitions (25.1%)

Copyright © 2009 All Rights Reserved dollars in millions 241 # of announced financings $2.6 B Source:NVCA Life Science Venture Financings Quarterly Funding Activity (2007 to Q2 2010) $2.2 B $1.9 B $2.4 B $2.3 B $1.9 B $2.2 B $1.6 B $1.0 B (61.8%) $1.5 B $1.7 B $1.3 B $2.1 B (19.2%)

Copyright © 2009 All Rights Reserved Capital Market Influences Summary Conclusions  Financial markets have stepped back from the abyss, but financial position remains fragile.  Public markets interest in new issues intermittent – and only at “can’t lose” prices.  Cash squeeze has lessened but due more to a contraction of operations than to new capital infusion.  M&A activity continues to gain momentum yet activity may reach a plateau.  More recently, venture financings have displayed some signs of renewed strength – enthusiasm for the industry’s future?

Copyright © 2009 All Rights Reserved Pharmaceutical Industry Perspectives Biotechnology 2009

Copyright © 2009 All Rights Reserved Pre/non clinical %: 51.0%44.0%39.0%32.0%25.9%25.7%27.2% Percent of total R&D expenditures Pharma R&D Expenditures (by function) Pre/non clinical Ph I – III clinicals Post-approval studies Regulatory/other Source: PhRMA, Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. 32.5%31.9%27.3%27.0%

Copyright © 2009 All Rights Reserved Pre/non clinical: $12.9b$12.6b$11.5b$10.9b$11.3b$12.6b$12.0b$12.4b Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. Figures in 2009 dollars. Source: PhRMA $29.2b $32.4b $36.1b $42.0b $43.8b $46.2b $37.0 $38.7b Total R&D expenditures ($B) CAGR 4.6% (0.4%) Pharma R&D Expenditures Growth Rate Pre/non clinical R&D Clinical/regulatory R&D $49.6b $13.5b $47.2b $45.8b $12.7b$12.4b

Copyright © 2009 All Rights Reserved Bio/Pharma R&D Expenditures R&D Spending: Non-PhRMA PhRMA Aggregate R&D expenditures ($B) CAGR 10.0% 1.7% Note: Figures in 2009 dollars Source: PhRMA, BIO, Burrill & Co $54.1 b $56.9 b $59.7 b $65.4 b $63.5 b $65.3 b 3.8%

Copyright © 2009 All Rights Reserved Bio/Pharma R&D Expenditures Distribution of R&D Spending: $54.1 b$56.9 b$59.7 b $65.4 b$63.5 b$65.3 b Percent of Aggregate R&D Spending Non-PhRMA PhRMA Note: Figures in 2009 dollars Source: PhRMA, BIO, Burrill & Co Non-PhRMA R&D Spending $12.1 b$13.1 b$13.5 b $15.8 b$16.2 b$19.5 b

Pharmaceutical Innovation Relative New Therapeutic Contributions (1997 – 2009) Percent of annual new drug approval Bio/Specialty Pharma: Large Pharma: 66.7% 33.3% 74.4% 25.6% 40.8% 59.2% 42.5% 57.5% 51.2% 48.8% 57.9% 42.1% 39.4% 60.6% 48.4% 51.6% 70.7% 29.3% 84.4% 15.6% Source: PhRMA, BIO, FDA Large PharmaBio/specialty pharma 23 Copyright © 2008 All Rights Reserved % 20.0% 76.7% 23.3% 60.0% 40.0%

Copyright © 2009 All Rights Reserved (22.0%) percent of initial index value Note:Big Pharma Index calculated as average of aggregate share price changes. Share prices adjusted to reflect dividends and splits Includes companies with securities trading on the NYSE. Source:Yahoo! Finance; Johnston Blakely & Co. research Comparative Sector Performance Large Pharma vs. Biopharma (Oct 2000 to Oct 2010) 71.6% AMEX Pharmaceutical Index AMEX Biotechnology Index Nasdaq Biotechnology Index (13.7%)

Copyright © 2009 All Rights Reserved Bio/Pharmaceutical Sector Performance Composition of Indices AMEX Pharmaceutical Index AMEX Biotechnology Index NASDAQ Biotechnology Index −index constructed using 15 large pharmaceutical companies −calculated using capitalization-weighted methodology −large biopharma acquisitions may likely blur industry distinction in future −index includes 18 companies −market capitalizations of component companies generally exceed $1 billion. −each company in index given equal-dollar weighting −rebalanced quarterly −index comprised of 120 NASDAQ-listed companies −companies must have market cap of $200 million or more −calculation based on modified capitalization-weighted methodology −rebalanced semi-annually

Copyright © 2009 All Rights Reserved Pharmaceutical Industry Dynamics Performance of Indices: Implications  Financial markets clearly continue to place premium on innovation − likely evidenced by the BTK outperforming Big Pharma  In current market environment financing risk has increased substantially, particularly for earlier-stage companies. − negative returns of NBI perhaps indicative of this change in investor sentiment.  Increasingly appears that investor focus on financing risk beginning to outweigh the premium afforded innovation. − market skepticism that innovation will be rewarded. − macro themes may be overshadowing sector-specific events. Where lies the future of innovation?

Copyright © 2009 All Rights Reserved The Financing Divide Biotechnology 2010

Copyright © 2009 All Rights Reserved The Financing Divide Traditional Investment Model INDIND NDANDA Discovery DevelopmentPhase IPhase IIPhase IIIApproval Pre clinical CandidateClinical DevelopmentMarketed Product Go publicVenture funding traditional investment model Follow on offerings Private Institutional InvestorsPublic Markets

Copyright © 2009 All Rights Reserved The Financing Divide Sector Influences  Transitioning from revolutionary advances to evolutionary advances − sign of continuing maturation of the industry − M&A activity blurs of sector boundaries  Less public market enthusiasm for hope/hype. − increasing attention on products and profits  Primary interest of big pharma is ability to leverage downstream capabilities. − biopharma sector continued to be viewed as outsourced R&D function. − resource allocation (of necessity) skewed towards later stage candidates  Venture investors required to adjust their investment horizon accordingly.

Copyright © 2009 All Rights Reserved The Financing Divide Shifting Investment Dynamics INDIND NDANDA Discovery DevelopmentPhase IPhase IIPhase IIIApproval Pre clinical CandidateClinical DevelopmentMarket Go publicVenture funding traditional investment model Go public Venture funding current investment model Follow on offerings Private Institutional InvestorsPublic Markets Private Institutional Investors The Financial Abyss ?

Copyright © 2009 All Rights Reserved Biotechnology 2010 Bridging the Financing Divide Are new champions of early-stage innovation likely to emerge? How have early-stage companies responded to these changes? What has been the response of the pharmaceutical industry? What do these changes imply for the industry’s future?

Copyright © 2009 All Rights Reserved Biotechnology 2010 Final Thoughts Quote of the Day: “Too many people miss the silver lining because they are expecting gold.”

Copyright © 2009 All Rights Reserved Biotechnology 2010 Bridging the Financing Divide Benjamin Conway MBC Finance Committee Presentation