Biotechnology 2009 The Current State of the Industry and its Implications June 19 th, 2009 MBC Finance Committee Presentation

Copyright © 2009 All Rights Reserved Capital Market Influences Biotechnology 2009

Copyright © 2009 All Rights Reserved NBI BTK DJIA Nasdaq Capital Market Influences Select Market Indices (Jan 2007 to present) (14.0%) (15.2%) (25.8%) (30.9%) Note: Indices values as of June 1, 2009 Source: Yahoo! Finance; CANACCORD Adams 10-month lag: NASDAQ vs. BTK/NBI (46.9%) NBI <$100 MM

Copyright © 2009 All Rights Reserved Number of issues % life science issues 4.7% 23.5% 14.9%9.7%8.8% All Industries Life Science Capital Market Influences Annual IPO Activity: 1999 – Present % Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co % % % % %

Copyright © 2009 All Rights Reserved Capital Market Influences 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 Approved Product 48.4% 15

Copyright © 2009 All Rights Reserved Number of issues IPO Performance Life Science IPOs (2000 to 2008) Total Life Science IPOs Issues currently above IPO PPS % life science issues above IPO PPS 54.5%28.6% 31.8%29.2%18.5%16.1%33.3%17.4% Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices. Source: Johnston Blakely & Co

Copyright © 2009 All Rights Reserved Life Science IPO Performance Sector Performance (2000 to 2008) 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. Source: Johnston Blakely & Co % life science issues above IPO PPS 28.1%35.3%22.2%33.3%20.8%

Copyright © 2009 All Rights Reserved Life Science IPO Performance Aggregate Performance (2000 to 2009) Percent of Aggregate Value $2,000 (23.9%) Note:Represents value of one common share in 223 life science IPOs from 2000 through Stock transactions involving mergers of equals or reverse mergers calculated using current share prices. Current share price as of February 23, Source:Johnston Blakely & Co Cumulative value of one share/IPO $2,630

Copyright © 2009 All Rights Reserved $1,076 $515 $1,001 $217 dollars in millions Public Equity Financings Biotechnology (2008 – Q1 2009) Note: Represents dollars raised through IPO, follow-on and PIPE financings. Source: Burrill & Co., CANACCORD Adams $821 Vertex Pharmaceuticals All other issues (15 offerings)

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 present) $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%)

Copyright © 2009 All Rights Reserved percent of total Capital Market Influences Financial Resources > 12 mos cash < 12 mos cash < 6 mos cash ~800 Source: Nature Biotechnology, BIO Number of Companies

Copyright © 2009 All Rights Reserved Capital Market Influences Summary Conclusions  Unprecedented financial challenges confronting the industry may be protracted with no near-term resolution.  The key premise that the only financing uncertainty was clearing price is now likely a thing of the past.  Capital allocated for high beta investments likely to be significantly reduced.  Complete lack of capital for many companies may result in a fundamental shift in how industry conducts business.

Copyright © 2009 All Rights Reserved Pharmaceutical Industry Dynamics Biotechnology 2009

Copyright © 2009 All Rights Reserved Pharmaceutical Sector Performance Large Pharma Company Index (1990 – 1998) Note:Index calculated as aggregate of company share prices. Share prices adjusted to reflect dividends and splits Includes companies with securities trading on the NYSE. Data for AZ and NVS not available for period. Source:Yahoo! Finance; Johnston Blakely & Co. research Company Index Abbott Bristol-Myers Squibb Eli Lilly Glaxo SmithKline Johnson & Johnson Merck Pfizer Schering Plough Wyeth percent of initial index value Aggregate Index Price Dec 31, 1990 Aggregate Index Price Dec 31, %

Copyright © 2009 All Rights Reserved (14.4%) Pharmaceutical Sector Performance Large Pharma Company Index (1998 – present) percent of initial index value Note:Index calculated as aggregate of company share prices. Share prices adjusted to reflect dividends and splits Includes companies with securities trading on the NYSE. Source:Yahoo! Finance; Johnston Blakely & Co. research Company Index Abbott Astra Zeneca Bristol-Myers Squibb Eli Lilly Glaxo SmithKline Johnson & Johnson Merck Novartis Pfizer Schering Plough Wyeth Aggregate Index Price Dec 31, 1998 Aggregate Index Price Sept 30, Aggregate Index Price June 15, 2009 (25.0%)

Copyright © 2009 All Rights Reserved Dec 31, 1998Sept 30, 2008 BTK Index (25.0%) % percent of initial index value Large Pharma IndexBiopharma Index Note:Index calculated as aggregate of company share prices. 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 Jun 15, 2009 Aggregate Index Price Dec 31, 1998Sept 30, 2008Jun 15, 2009

Copyright © 2009 All Rights Reserved Recognition of declining productivity and impending patent expirations. Reallocation of resources towards more downstream activities. ­ strategic disaggregation of the pharmaceutical value chain Leverage discovery activities through interactions with the biotech sector. Emergence of new discovery technologies combine with promise of new genomics frontier. R&D Productivity Historical Trends In the 90’s. the pharmaceutical industry moved aggressively to formalize relationships with the biotech sector.

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%

Copyright © 2009 All Rights Reserved Pre/non clinical: $12.0b$11.8b$10.7b$10.1b$10.5b$11.7b$11.2b$11.5b Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. Figures in 2006 dollars. Source: PhRMA $27.2b $30.2b $33.6b $39.1b $40.8b $43.0b $34.4b $36.1b Total R&D expenditures ($B) CAGR 7.0% 0.8% Pharma R&D Expenditures Growth Rate Pre/non clinical R&D Clinical/regulatory R&D $46.7b $12.8b

Pharmaceutical Innovation Relative New Therapeutic Contributions (1997 – 2006) 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 Large PharmaBio/specialty pharma 20 Copyright © 2008 All Rights Reserved

Copyright © 2009 All Rights Reserved Pharmaceutical Innovation Strategic Implications Big pharma’s R&D strategy of “buy vs. make” appears misguided. Data suggests that sustainable competitive advantage and value creation resides in product innovation. -discovery & early-stage development a defining core competence -economics rewards the originator of innovation Ability to create defensible barriers based on downstream competencies likely transient. - information technology has eliminated information asymmetries -fundamental shift in economics Disaggregation of value chain in the pharma industry likely of limited strategic value. ­ outsource discovery/develop/mfg; focus on regulatory/sales & mktg - contrasts with experience in other industries - alternate strategies to focus resources likely more productive (disease focus)

Copyright © 2009 All Rights Reserved Significant uncertainty remains regarding the value pharmaceutical companies will ultimately derive from product-driven acquisitions. Product portfolios of targets often quite limited. - acquired drug candidates often still face regulatory & market risk. Duplication of downstream competencies. - acquiror capabilities likely deeper -incremental value to acquiror limited Cultural integration issues often present daunting barrier. - much of the value resides in human capital May provide short-term top-line benefit. - accelerate revenue growth Pharmaceutical M&A Activity Large Biotech Acquisitions: Implications For biopharma companies with approved products, it remains a seller’s market.

Copyright © 2009 All Rights Reserved Pharmaceutical M&A Activity Acquisition Profile (2005 – 2008) Source: Johnston Blakely & Co research Note: includes acquisition by U.S. big pharma co’s only 43 transactions Percent of total transaction volume Product-oriented acquisitions ­late-stage clinicals ­marketed products Technology-oriented acquisitions ­early clinical development ­preclinical stage

Copyright © 2009 All Rights Reserved Pharmaceutical M&A Activity “Embedded Option” Acquisitions  Deal structures implicitly or explicitly capturing inherent option value -options deals proliferating -Novartis investment in Proteon Therapeutics’ $38 mm Series B providing Novartis exclusive option to acquire company.  Condition of capital markets driving this strategy.  Venture investors often required to accept it. Current trends suggest that the pharma industry will increase its focus on lower cost bets – but pursue many more of them.

Copyright © 2009 All Rights Reserved Pharmaceutical Industry Dynamics Summary Conclusions Interest in early-stage technology-oriented companies primarily resides with large pharma. -significant shift in public market interest towards much more mature companies Over the past few years, private company M&A exits have yielded higher returns than IPOs. -emerging as a critical influence behind new company formation Large pharma offering significant premiums for select smaller biopharma companies. -Memory Pharma acquisition by Roche (307% premium) -Genelabs acquisition by GSK (465% premium) Consolidation pressures likely to drive significant uptick in merger activity within the sector.

Copyright © 2009 All Rights Reserved Strategic Implications Biotechnology 2009

Copyright © 2009 All Rights Reserved Biotechnology 2009 Strategic Implications Financial Resources Significant Limited Technology Position Significant Limited Depth of financial resources is rapidly emerging as the defining strategic variable today.

Copyright © 2009 All Rights Reserved Financial Resources Significant Limited Technology Position Significant Limited Net acquiror Selective acquisitions Strengthen current franchise Net acquiror Reposition franchise Continued sustainability Merger to enable resource consolidation Proactive strategy to sell Salvage value Current environment requires implementation of actions to avoid slipping into lower right quadrant. Biotechnology 2009 Strategic Implications

Copyright © 2009 All Rights Reserved Financial Resources Significant Limited Technology Position Significant Limited Net acquiror Selective acquisitions Strengthen current franchise Net acquiror Reposition franchise Continued sustainability Merger to enable resource consolidation Proactive strategy to sell Salvage value Majority of Companies Majority of companies have a very limited time window… Meta Stable/Short half life Biotechnology 2009 Strategic Implications

Copyright © 2009 All Rights Reserved Biotechnology 2009 The Current State of the Industry and its Implications Benjamin Conway MBC Finance Committee Presentation