1. The Public Biotechnology Markets in North America Presented by TD Securities Sidney Himmel June 19, 2002

2. 2 Biotechnology: Public Equity Markets North American markets are not strongly receptive to biotechnology stocks at the present time. Issues which are getting done are occurring in: –Well-sponsored companies with various products in the pipeline and with a solid management track record. –Companies with revenues and earnings. –Diagnostics companies with revenues.

3. 3 Biotechnology Market Overview Biotechnology Public Market Overview The Good….. The Bad….. And the Ugly.

4. 4 The NASDAQ Since 1996

5. 5 Public Investor Concerns Capital losses Factors: –Overvaluation? Are stocks too expensive? (Fed Model?) –Confidence in management: a question of trust (“Never do business with anyone you can’t trust” - J.P. Morgan). –Accounting Issues: Relates to valuation and management issues (Enron: Arthur Andersen). –Research Analysts: Can they be trusted? (Merrill Lynch settlement with the New York attorney general’s office). Why? –From 1996 to 2000, investors and issuers underwent a paradigm shift which was predictably not sustainable.

6. 6 Hysteresis Curve of the Markets

7. 7 Confidence in Management Sunday New York Times (June 9, 2002): “There may be only one type of job in which somebody can commit a felony and, after being fired as a result, still receives a severance package with many years of salary. The job is chief executive officer of a large corporation.” Enron: CEO leaves. Tyco: CEO leaves. Imclone: CEO leaves.

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9. 9 Accounting Issues Investors/analysts ignored write-downs and valuation adjustments –AOL-Time Warner: $54 billion charge. –Quest: expecting $30 billion charge. –Vivendi: $14 billion charge. –JDS Uniphase: $50 billion charge. Misleading revenues/expenses and off-balance sheet debt: –Enron –Elan –Microsoft –Xerox –Tyco –Computer Associates International –Adelphia Communications Rules are being applied more rigorously now. May affect private companies financed by venture capital as well.

10. 10 Research Analysts Enron analysts interviewed by Congress. Henry Blodget: Internet Analyst. –No. 1 ranked Internet analyst. –Amazon.com target = $400. –Merrill Lynch settles with New York state attorney general for $100 million. Investigations focusing on analysts and analyst compensation around the world. Compensation being decoupled from corporate finance around the world. Other investor lawsuits against brokerage houses are pending.

11. 11 Valuations Must consider: –Dividends –Earnings –Earnings Growth –Discounting of Dividends: Warren Buffett versus “You just don’t get it.” Means Standard deviations Risk aversion

12. 12 Valuation: The Fed Model 10-year note5.07% (A) Projected Earnings$52.00 (B) S&P estimate (B/A)1025 Actual 1027 Fairly Valued?

13. 13 Valuations

14. 14 A Historical Perspective on Valuations Average long-term S&P Earnings Growth 4.0 % Sources: ISI Group; Federal Reserve Bank; Princeton University Press.

15. 15 Earnings Model with Growth and Dividend Discount Model Valuations CONCLUSIONS: 1.Variability. 2.Valuations may well be sustainable, with anticipated share price growth, if growth assumptions are acceptable. * We used a 6% discount rate and assumed a 16x multiple in 5 years.

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17. 17 Fund Flows: Affect on Valuation 1.Euro versus U.S. dollar. 2.War on Terror. 3.European, Asian, and Middle East Funds Flows. 4.Free Trade: Steel Food Lumber

18. 18 Biotechnology Stock valuations depend on: 1. Market 2. Sector 3. Company Declining valuations decrease institutional investor interest due to market capitalization cut-offs. Worsening momentum decreases proclivity to invest in sector. But: YM Biosciences raised funds.

19. 19 Positive Independent View on the Market Harry Dent: Demographer and Market Technician. Pat McKeough: Successful investor - next big move should be up but be well-diversified. Value Line: Expects moderate economic growth over the next 12 to 18 months. Should underpin a rebound in corporate earnings. –Middle East, accounting, earnings warnings, so still proceed with caution.

20. 20 Most Recent Biotechnology Financings in Canada Biotechnology Public Market Overview

21. 21 Harry Dent’s Demographics-Based Market Projection

22. 22 Most Recent Biotechnology Financings in the U.S. Biotechnology Public Market Overview