1 Purdue Discovery Lecture Series Biotech 2007: A Global Transformation G. Steven Burrill, CEO Burrill & Company West Lafayette, IN, November 8, 2007.

1

Purdue Discovery Lecture Series

Biotech 2007: A Global Transformation

G. Steven Burrill, CEOBurrill & Company

West Lafayette, IN, November 8, 2007

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Burrill & Company

Exclusive focus on Life Sciences

Human Healthcare (Rx and Dx)

Nutraceuticals/Wellness

Agbio

Industrial

Biofuels/ Bioenergy

Enabling Technologies

3

Venture Capital Group Venture Capital—investing across the entire spectrum of the life

sciences/biotechnology . . . over $900 million under management

Merchant Banking Practice (Burrill LLC) Strategic Partnering including licensing, research and other collaborations

Strategic Advisory Services including new company formation

Merger & Acquisitions across life sciences

Spin-outs ranging from products, to research divisions to disease area franchises

Media Conferences

Publications

Headcount: 50+ professionals and staff

Burrill & Company

4

Burrill & Company U.S. & International Locations

San Francisco (HQ)New York

Indianapolis

Portland

Shanghai

Kuala Lumpur

Mumbai

Dubai

London

Tokyo

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Burrill & Company U.S. & International Locations

San Francisco (HQ)San Francisco (HQ)New YorkIndianapolisPortland

United States

Shanghai

China

Tokyo

Japan

Mumbai

India

London

United Kingdom

Kuala Lumpur

Malaysia

Dubai

UAE

6

Burrill Life Sciences Capital Fund III (2006) $283

Burrill Life Sciences Capital Fund II (2003)(1) $211

Burrill Life Sciences Capital Fund I(1)

Burrill Biotechnology Capital Fund (1999)(1) $140

Burrill Agbio Capital Funds I & II (1998(1)/2001)(1) $ 80

Burrill Nutraceuticals Capital Fund (2000)(1) $ 57$277

Malaysian Life Sciences Capital Fund (a JV Fund) $150

Burrill AgBio II Annex* (a side-car fund to the MLSCF) $ 25

Total Funds Under Management at 10/31/07$946

(1) Fully invested, including reserves/commitments for subsequent financings in existing portfolio companies

Burrill Venture Capital Funds Under Management ($ millions)

7

Burrill Merchant Banking Services (Burrill LLC)

Potential Scope of Potential Scope of

Burrill LLCBurrill LLC

Client RelationshipClient Relationship

Transactions Across Life Sciences for Public and Private Clients

Sell-sideBuy-SideDivestituresReverse mergers

M&A Transactions

Early Stage Research to Product Development and Commercialization

Out-license, co-development, co-promotionPreclinical through marketed productsRepresenting pharma and biotech

Strategic Partnering

Create a New Company or Merge into an Established Entity

Newco financings for pharma and biotech

Spin-Outs

Private PlacementsPIPE financingLate-stage venture financingM&A financing

Financing

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To order most recent book or complete sets, visit:

www.burrillandco.com

G. Steven Burrill’s Annual Book

Our 21st annual book is out now…

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The Burrill & Company’s monthly and quarterly bio-intelligence reports and publications:

The Burrill Greater China Life Sciences Biointelligence Report

The Burrill Japan Life Sciences Biointelligence Report

The Burrill India Life Sciences Biointelligence Report

The Burrill European Life Sciences Biointelligence Report

The Burrill Canadian Biotech News

The Burrill Biotechnology Biointelligence Report

The Burrill M&A/Partnering Biointelligence Report

The Burrill Personalized Medicine Biointelligence Report

The Burrill Stem Cell & Regenerative Medicine Biointelligence Report

Burrill Biointelligence Reports

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Mr. William Patrick

Editor in Chief

A six-times per year publication. For information, see our website

www.burrillandco.comand

www.tjols.com

The Journal of Life Sciences

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The Journal of Life Sciences on the web Weekly Brief and Weekly Brief, California Edition

To request the free weekly e-mail editions:

[email protected]

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For inquires, contact Thea Schwartz at (415) 591-5477 or [email protected]

Burrill Created/Hosted Industry Events

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Biotech Is Transforming The Globe…

…and being transformed by it

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Webster: trans·for·ma·tion    Pronunciation: "tran(t)s-f&r-'mA-sh&n”, -Function: noun

1. The act or process of transforming somebody or something

Webster: trans.form1a: To change in composition or structure

Transformation

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Chemistry Biochemistry

A Global Transformation…

To…To………FromFrom

One Size fits all drugs Personalized medicine

Aging (just happens) Aging is optional / controllable

Therapeutics/diagnostics/devices “Theranostics”

Treating sickness Preventing Sickness

Food for survival Food for health

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A Global Transformation…

To…To………FromFrom

Fossil fuels Alternative fuels (biomass conversion)

Unavailable local capital Global arbitrage

Fully integrated business model (FIPCO) Virtually Integrated business model (VIPCO)

Local companies Global companies

US centric biotech industry Global industry

Changing the healthcare environment Transforming the world

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Circa 1953 – Watson and Crick

Circa 1973 – Inception of biotech

ALZA (`68) Cetus (`71) Amgen (`80),

Genentech (`76 ) Biogen (`78),

Centocor (`79) Hybritech (`78)

Circa 1993 - Meaningful biotech revenue

Circa 2007 – Transforming the world

Life Sciences – Biotech: A Short History …

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Understand the pieces

Hardware of Life (20th Century) genes/proteins

Software of Life (21st Century) – systems/network

“Biomarkers ‘r us” (Note: “genes ‘r us” biz model failed)

Cost per bit of biological info rapidly decreasing (Moore’s law)

Era of Unprecedented Advances in Medical Research

The consequences are staggering …The consequences are staggering …

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Moore’s law – Cost Per Base

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Challenges/Opportunities in Improvement of Care

And we see its implications:

Evidence based medicine

Advances in health information (Web MD)

Personalized, predictive, preventative medicine - (3 P’s)

Electronic Health Records (EHR)

BUT …

Delivery system so flawed can’t bring healthcare “advances” to market place

Government increasingly the payor (Medicare/other government healthcare systems)

21

Current Healthcare System in “Silos”

Insurers

Employers (Providing $)

Providers/ Managed Care

Doctors/Nurses/Hospitals

Suppliers

Pharma Companies

Diagnostic Companies

Medical Device Companies

Medical Innovators

22

Integration is Essential BUT where is it happening?

……Therefore integration within the healthcare system is Therefore integration within the healthcare system is essential if benefits of new technologies are to be realizedessential if benefits of new technologies are to be realized

Kaiser Permanente (California)

Intermountain Health (Utah)

Analogy (Clayton Christiansen/ Harvard)

Color TVs invented by RCA but no sales since nobody would broadcast in color

RCA then bought NBC, then integration happened

23

HHS Secretary Michael Leavitt

“Combining gene based medical care with health information technology could transform healthcare…”

“Personalized healthcare will combine basic scientific breakthrough of the human genome with computer-age ability to exchange and memorize data”

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Not only integration, but a greater need for international collaboration

Pandemic diseases

Regulatory harmonization

Approvals

Patents

Drug/ Food Safety

Diseases know no borders

It’s a global economy

25

Entering a Period of Co-opetition (Cooperation / Competition)

Strategic Partnering

Co-development

Co-branding

Co-promotion

Co-marketing

Country to country

Public/private

Big/small

Within industry/outside industry (IT/biotech)

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Let’s look at where we Let’s look at where we are…are…

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Key Industry Stats – Biotech 2007

$597B$44B$45B$26B$482BMarket Cap

>70084140120363# of Public Cos.

233,6007,44012,00068,000146,100# of Employees

4300+400700+1,600+1,500+# of Companies

$25B$0.6B$0.3B$5B$19BAnnual R&D

$89B$2B$3B$12B$72BSales/Rev.

TotalCanadaAsia/Pacific

EuropeUSA

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Company 10/31/07 12/31/06 12/31/05 12/31/04 12/31/03

Pfizer 170 187 172 199 280

Johnson & Johnson 189 180 186 184 154

Merck 126 82 69 69 103

Eli Lilly 61 62 65 65 77

Bristol-Myers Squibb 59 50 46 47 58

Pfizer/Merck 296 269 241 268 383

Total US Biotech 499 496 491 399 342

Industry 1.7x 1.8x 2.0x 1.5x 0.9x

Pharma vs. Biotech Industry Market Cap ($B)

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Top ten Biotech Companies by Market Cap

POSITIONBIOTECH1986

BIOTECH1991

BIOTECH1996

BIOTECH2001

BIOTECH2006

BIOTECH2007

1 Genentech Amgen Amgen Amgen Genentech Genentech

2 Cetus Genentech Genentech Genentech Amgen Amgen

3 ALZA ALZA Chiron ElanGileadSciences

GileadSciences

4AppliedBiosystems

Centocor ALZA Shire Celgene Celgene

5 Centocor Chiron Biogen ALZA Biogen Idec Biogen Idec

6 Amgen Genzyme Genzyme Biogen Genzyme Genzyme

7 Nova CetusGeneticsInstitute

Chiron Serono (ADR) Shire (ADR)

8 Chiron Synergen Centocor Immunex Shire (ADR)QuestDiagnostics

9GeneticsInstitute

GeneticsInstitute

IDEXX MedImmuneQuestDiagnostics

Elan

10 BiogenDiagnosticProducts

Immunex Millennium MedImmuneApplied Biosystems

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Historical Biotech Market Cap 1997–2007

$109

$149

$312

$441

$382

$224

$341

$400

$490 $489 $499

$0

$100

$200

$300

$400

$500

1997 1999 2001 2003 2005 a/o10/31/07

Source: Burrill & Company

($ b

illi

on

)

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$0

$100

$200

$300

$400

$500

$600

$700

$800

2000 2001 2002 2003 2004 2005 2006 2007

To

tal

Ma

rke

t C

ap

($

bil

lio

n)

Top US Pharma*

Total Biotech Mkt Cap

Top 5 US Pharma vs. Biotech Market Cap

* Pfizer, Merck, Lilly, Wyeth and Schering Plough

As of October 31, 2007

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007

To

tal

Ma

rke

t C

ap

($

bil

lio

n)

Top Five US Pharma*

Total Biotech

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US Biotech Industry Fundraising3Q06 to 3Q07

Q4 06 Q1 07 Q2 07 Q3 07 Total

IPO 350$ 527$ 900$ 243$ 2,020$

Follow-on 2,734$ 1,055$ 1,675$ 453$ 5,917$

PIPEs 210$ 370$ 576$ 515$ 1,671$

Debt 1,737$ 862$ 5,387$ 440$ 8,426$

VC 1,050$ 1,401$ 1,130$ 951$ 4,532$

Other 122$ 267$ 98$ 75$ 562$

Sub-Total $6,203 $4,482 $9,766 $2,677 23,128$

Partnering 7,333$ 4,915$ 3,783$ 7,655$ 23,686$

Total $13,536 $9,397 $13,549 $10,332 $46,814

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……and look at what and look at what happened during the last happened during the last year...year...

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So, what really happened during the last year ?

Stem cell science continues delivering breakthroughs

Technology/platform companies rebounded

BioFuels are BOOMING…

Industrial biotech is finally happening

Ag/animal health show progress

acreage is up

but “organics” and “natural’ are hot

35

So, what really happened last year?

Increased interest in “wellness” not just sickness

Personalized medicine makes real progress

FDA recommends genetic tests for the first time

Regulatory concerns:

IVD/MIA “approvals”

FDA Critical Path

Theranostics

Biogenerics/biosimiliars/follow-on biologics

Big pharma buys into the biotech pipeline

36

So, what really happened during the last year ?

Reimbursement dynamics continue to dominate, especially in the US

Regulatory scandals in China a setback

However, India, Malaysia, Korea, and rest of Asia continue to make progress

Industry raises almost $50B in capital

The last year has been a good year for M&As and partnerships driven by:

Big pharma’s continual quest to improve pipeline

Biotech’s own expansion as consolidation heats up

37

TransformatiTransformation:on:Sickness to wellnessSickness to wellness

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Healthcare Industry Dilemma…

Rising Healthcare Costs

Loss of Patent Protection for Blockbuster Drugs

Need for Innovation; build vs. buy

Reimbursement/Payment system changes – Medicare Part D

Compulsory Licensing

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Healthcare Costs Have Been Rising -For a Long Time

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Health expenditure as a percentage of GDP is increasing rapidly in the OECD countries

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US

% G

DP

Source: PricewaterhouseCoopers Health Research Institute

2006

2018

2019

2020

9

11

13

15

17

19

21

OECD ex-US

41

Health-Care Costs as a Percent of GDP

7.2%9.1%

12.4%13.8%

16.2%

18.7%

22.0%

'70 '80 '90 '00 '05 '10 '15

$ Billions

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, Safeway analysis

$75 $255 $717 $1,359 $2,016 $2,992 $4,437

42

16%

11%

10% 10%

9%

8% 8%

0%

5%

10%

15%

20%

U.S. Germany Canada France Sweden Japan U.K.

The US spends more than anybodyHealth Care Spending as a % of GDP

+56%

10%

16%

Source: Organization for Economic Cooperation and Development (OECD)

% ofGDP

43

Prescription Drug Costs as Percentage of Healthcare

44

Estimate of overall US healthcare spendingon prescription drugs (by general public)

45

4.00

1.90

4.30

1.10

6.70

3.50

6.10

1.40

6.20

0.70

5.10

-1.60

8.40

-0.10

5.80

1.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan'00-Jan'01

Jan'01-Jan'02

Jan'02-Jan'03

Jan'03-Jan'04

Jan'04-Jan'05

Jan'05-Jan'06

Jan'06-Jan'07

AvgJan'00-Jan'07

Brand Generic

4.00

1.90

4.30

1.10

6.70

3.50

6.10

1.40

6.20

0.70

5.10

-1.60

8.40

-0.10

5.80

1.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan'00-Jan'01

Jan'01-Jan'02

Jan'02-Jan'03

Jan'03-Jan'04

Jan'04-Jan'05

Jan'05-Jan'06

Jan'06-Jan'07

AvgJan'00-Jan'07

Brand Generic

Annual Change in Usual and Customary Drug PricesP

erce

nta

ge

Ch

ang

e

Source: US Government Accountability Office

46

Today’s medicine challenge: One size doesn’t fit all

~30% of patients do not benefit from medicines1

(100,000 deaths and 2.2 million nonfatal events from ADR in the US in 1994)

1JAMA 1998, 279: 1200

Source: Bayer HealthCare Diagnostics and Burrill & Company

Medicines are not Differentiated

Patients are Different

47

Pharmacogenomics Shapes the Healthcare Business in 2000+

48

140 Years of Drug Discovery Technology

penicillinssulphonamidesaspirin

psychotropics

NSAIDS

H2-antagonistsbeta blockers

lipid lowerersACE-inhibitors

Biotech drugs

chronicdegenerativedisease associatedwith ageing,inflammation,cancer

drugs againsttargets identifiedfrom disease genes

1900 20301950 1960 1970 1980 1990 2000 2010 2020 2040

New

Th

erap

euti

c C

ycle

s

1st generation 2nd generation 3rd generation

natural productsand derivatives

serendipity

receptors

enzyme

genetic engineering

cell pharmacology/molecular biology

genomics/ proteomics

So

urc

e:

CM

S,

Le

hm

an

Bro

the

rs r

ese

arc

h

49

Confluence of Technology, Tools, and Knowledge

50

Nanomedicine Patents and Publications on the Rise

51

A Systems Biology Approach – Follow the Pathways

52

The Molecular Basis of

Biological Processes

Alterations in Disease

New Targets for Dx, Rx, Vx

The Molecular Heterogeneity of

Disease

Disease Subtypes

Right Rx forDisease

Individual Genetic Variation

Pharmaco-genetics

New Targets for Dx, Rx, Vx

DiseasePredisposition

PDxPRx

Analyzing the Molecular Profiles (Biosignatures) of Body Functions in Health and Disease

53

Innovation Gap Getting Wider

54

This Confluence of Healthcare Technology is bringing us…

Targeted therapies (mutation specific), personalized medicine

Drug/device combinations (drug eluding stents)

Molecular diagnostics/Algorithm based diagnostics

Non-invasiveness

Non-hospital based with constant monitoring…

Increased predictions and prevention

55

…that’s changing the healthcare economy

Better outcomes/patients living longer

Costs going up/more patients treatable…

…But, US system leaves 25-45m uninsured/underinsured

Consumer healthcare is here to stay (copays ), individuals empowered and informed

56

Safer, More Effective Drugs

57

International :Where is Stem Cell Research Happening

58

Stem Cells linger in scientific & business cloudy environment

Advanced Cell Therapeutics creates embryonic stem cells without destroying embryo

US political football with limited federal funding

• Alternative development strategies, some research moves off-shore (Asia, UK)

Increased State funding initiatives

• CIRM gets State of California support for bond anticipation notes, initiates grants

• Other state initiatives- Missouri/Maryland/Wisconsin/NY/Mass all make progress

What’s happening in Stem Cells?

“This mouse offers proof that researchers can create embryonic stem cells without using an egg. It grew from an embryo containing cells that had been reprogrammed to an embryonic state.”

Source: Whitehead Institute for Biomedical Research

59

Some Stem Cell – Advances 2007

Human nerve stem cells transplanted into rats' damaged spinal cords have survived

Found: Stem Cells Responsible for Pancreatic Cancer

Mother's Stem Cells Passed to Baby—Suggests Possible Way to Treat Diabetes

Stem Cell Lines Generated from Amniotic Fluid

Multipotent Adult Progenitor Cells (MAPCs) Regenerate Blood in Mice

Treatments for Alzheimer’s and Multiple Sclerosis

Regeneration and repair of periphery nerves

Repair damaged heart muscle and improve cardiac function

Stem-cell transplantation for refractory or relapsing lymphomas

60

Stem Cell – Tourism

China Proving successful with spinal cord injuries

Mexico Live cell injections

Holland Repair to optic nerve, Anti-aging stem-cell injections composed of umbilical cord blood

Russia Anti-aging injections of stem cells from aborted fetuses into thighs, buttocks and stomach

Thailand Inherited blood disorders, and cancers of the blood, like leukemia and lymphoma

Dom Rep Fetal stem-cell injections

61

Who Is Financing Stem Companies?

Federal Government Specific stem cell types (Bush administration) Switch to all stem types? (Democratic administration 2008?)

State Government (All stem cell types?) California (CIRM), Mass, NJ, Wisconsin, others

Disease Advocacy Groups Parkinson's JDRF Cancer

Philanthropists Bloomberg donation to John Hopkins Gates Foundation Others

Celebrity Charitable Organizations Michael J. Fox Foundation Reeve Foundation

Private Equity Investors (principally VCs)Public Equity Investors Foreign Governments BRIC, (Brazil, Russia, India & China) UK, Singapore, Korea & Sweden

62

TransformatiTransformation:on:New Diseases / New New Diseases / New MarketsMarkets

63

Worldwide Global Pharmaceutical Sales

64

“Big Four” Chronic Conditions Dominate Health-Care Costs

Cardio-vascularDiesease

Cancer Diabetes Over-weight& Obesity

OtherChronic

All Other TotalHealthcare

cost

$ Billions

Source: CDC, US Dept of Health & Human Services

$653 $396 $226 $209 $190 $342 $2,016

33%

20%

11%

10%9%

17%100%

Cost Distribution by Disease State - 2005

74% of Total Costs

65

Efforts Against Heart Disease, Not So For Cancer

66

Big “new” markets

Obesity/diabetes/metabolic disease

Alzheimer's/memory

Anti-aging

Anti infectives (antibiotic resistance)

Wellness (preventative/predictive cure)

67

Projected Alzheimer’s Disease Prevalence, 2000 to 2100

68

Aging . . . Is it a disease?

By 2030, 20% of US population will be By 2030, 20% of US population will be over 65 years of age…over 65 years of age…

About 1.4 million Americans are in their 90s, and another 64,000 are 100 years old or older

Baby boomers represent 30% of the total US population

Per person, seniors consume about five times the drugs of their working-age counterparts

69

Medicines in Development for Older Americans*

* Some medicines are listed in more than one category

DISEASE

Alzheimer's Diseasse/Dementia

27

Bladder/Kidney 9

Depression 19

Diabetes 48

Epilepsy 7

Eye Disorders 23

GI Disorders 23

Lung/Respiratory 52

Musculoskeletal 6

Osteoarthritis 11

PRODUCTS INDEVELOPMENT

DISEASE

Osteoporosis 20

Pain 41

Parkinson's Disease 17

Prostate 6

Rhumatoid Arthritis 38

Sepsis 3

Sexual Dysfunction 15

Skin Conditions 14

Sleep Disorders 11

Other 17

PRODUCTS INDEVELOPMENT

70

Chronic Disease

125 million Americans have 1 or more chronic conditions (e.g. congestive heart failure, diabetes)

Chronic diseases account for 75% of all health care expenditures

Current costs for chronic diseases is approaching $1 trillion

These expenditures are not delivering what is possible

71

Stratifying Into Risk Categories Diabetes Type 2: What’s Becoming Possible?

72

MDx is at the Center of the New Dx World

73

Diagnostic Innovation Makes Impact on Cancer Therapy

74

In Vitro Diagnostics, By Application

75

Worldwide In Vitro Diagnostics Market

76

Genomic Health on a Tear

Source: Burrill & Company

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Jan-0

6

Feb-0

6

Mar

-06

Apr-0

6

May

-06

Jun-

06

Jul-0

6

Aug-0

6

Sep-0

6

Oct-0

6

Nov-0

6

Dec-0

6

Jan-0

7

Feb-0

7

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-0

7

77

“Genomic Health’s vision is to enhance the lives of patients with cancer by applying genomics to individualize treatment decisions.”

Launched 2000

Product OncotypeDx, a genomic-based test that looks at known expression biomarkers in the tumor tissue and predicts the likelihood of cancer recurrence for women with ER-positive, node-negative breast cancer

The test is used by a woman and her doctor to determine necessary and appropriate follow-up treatment, including chemotherapy for each patient

Molecular Diagnostics and Personalized Medicine

78

TransformatiTransformation:on:Governments are our Governments are our Partners …and are Partners …and are increasingly involvedincreasingly involved

79

On The Regulatory/Patent/Policy Front…

Patent reform (PTO proposals to restrict claims examined in a single application and limit continuation applications)

FDA resources – PDUFA authorization follow-on biologics (biogenerics)

drug safety

theranostics

food safety (pet food)

Biofuels – renewable and alternative energy sources through use of biotechnology

Medicare Prescription Drug Price Negotiation Act – Non-interference (proposal to require Medicare interference)

Sarbanes Oxley compliance – reducing the burden on small companies

SBIR eligibility

Agbio/ GMO’s

Stem cell research – federal funding

80

Looking Forward, Patent Exposure is Set to Increase Significantly

81

Big pharma revenue off patent in the next four years

Company Share of Revenues (%)

AstraZeneca 38*

BMS 30

GSK 23

Eli Lilly 22

Merck 22

Novartis 14

Pfizer 41

Sanofi-aventis 34

Average: 28

Source: AXA FramlingtonNotes: *Value of products losing patent protection as a percentage of total company sales over next five years

82

Biogeneric Status of Biotech Drugs

83

Manufacturer Reported Serious Adverse Events Per Fiscal Year

84

Pulled from the MarketDateApproved

Drug Name Use Risks

Date Withdrawn

2004

2001

Tysabri

Bextra

Multiple Sclerosis

Pain reliever

Rare, frequently fatal demyleinating disease of CNS

Heart attack/stroke; fatal skin reactions2005

2005

1999 Vioxx Pain reliever Heart attack/stroke 2004

1997 Baycol Cholesterol Severe damage to muscle, that is sometimes fatal

2001

1999 Raplon Anesthesia An inability to breathe normally 2001

1993 Propulsid Heartburn Fatal heart rhythm abnormalities 2000

1997 Rezulin Type 2 diabetes Severe liver toxicity 2000

1988 Hismanal Antihistamine Fatal heart rhythm abnormalities 1999

1997 Raxar Antibiotic Fatal heart rhythm abnormalities 1999

1997 Posicor High blood pressure Dangerous interactions with other drugs 1998

1997 Duract Pain reliever Severe liver damage 1998

1985 Seldane Antihistamine Fatal heart rhythm abnormalities 1998

1973 Pondimin Obesity Heart valve abnormalities 1997

1996 Redux Obesity Heart valve abnormalities 1997

Blockbuster drugs pulled from the

Blockbuster drugs pulled from the

market gave investors concern

market gave investors concern

85

FDA Funding Lagging

86

An Eroding Appropriations Base

87

Review Times Have Leveled

88

The Cost of Developing a New Drug Has Greatly Increased

89

Critical Path - Accomplishments

Better evaluation tools (Biomarkers and disease models)

Streamlining clinical trials

Harnessing bioinformatics

Moving manufacturing into the 21st century

Products to address urgent public health needs

At-risk population

90

Major Government Initiatives in Biotechnology

EU/Eastern Europe/Scandinavia

China

India

Japan

Malaysia

Singapore

UAE/Dubai and Kuwait

Israel

Various Latin American Countries (esp. Chile/Brazil)

Australia/New Zealand

91

0

5

10

15

20

25

30

35

40

45

19821983198419851986 19871988198919901991 1992199319941995 19961997199819992000 20012002200320042005

New Indications

Biotech Drugs

2006

Number of Products Approved — 1980–2006

92

Biotechnology Drugs in Clinical Development

93

TransformatiTransformation:on:Fossil Fuels to BiofuelsFossil Fuels to Biofuels

94

Global Area of Biotech Crops, 1996 to 2006

95

Global Area of Biotech Crops 1996 to 2006 by Trait

96

Global Area of Biotech Crops 1996 to 2006 By Crop

97

Burrill Agbio Index 2002 to 2007

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

Dec-0

1

Mar

-02

Jun-

02

Sep-0

2

Dec-0

2

Mar

-03

Jun-

03

Sep-0

3

Dec-0

3

Mar

-04

Jun-

04

Sep-0

4

Dec-0

4

Mar

-05

Jun-

05

Sep-0

5

Dec-0

5

Mar

-06

Jun-

06

Sep-0

6

Dec-0

6

Mar

-07

Jun-

07

Sep-0

7

Burrill AgBio

DJIA

NASDAQ

98

Designing Crops to Harvest Fuel

Europe has a policy for setting Europe has a policy for setting aside 3% to 14% surplus farmland aside 3% to 14% surplus farmland for cultivation of biofuel- cropsfor cultivation of biofuel- crops

99

2005 State of the Union

“Cellulosic Ethanol”

100

Cost of crude oil escalated dramatically !

Many of the Drivers Aligned

Don’t underestimate the

Don’t underestimate the

Nat. Corn Growers Assoc.

Nat. Corn Growers Assoc.

101

Loss of Energy Security

Geopolitical unrest wherever oil is produced

Extreme weather demonstrated the vulnerability of the US supply

102

Green Become Politically and Economically Correct

Global Climate Change gained momentum

Critically important market pull has developed

WalMart “Sustainability 360”

Government purchase policies

103

The Perfect Storm

AcceleratedBiobasedEconomy

EnablingPolicy

Economic PressureMarket Pull

Ready technologies

104

What has happened since?

Ethanol plant construction exploded (All corn based) Now have 113 in operation, 77 under construction Production at 5 billion gallons, potential for 12B

Price of feed grains $2 historically, topped $4.20 today 20% of corn crop today, 50% in two years ! 13% of soybeans going to biodiesel

Investments $2.9 B in Cleantech up 78% $2.1 B energy related, up 74%

105

Corn Used in Ethanol Production

106

World Ethanol Production

107

Biofuel Yields of Selected Ethanol and Biodiesel Feedstock

108

Annual Biomass Resource Potential From Forest and Agricultural Resources

109

Implications

Unprecedented energizing of rural America

Price of corn

Feed costs: poultry, beef, and swine

Sales of pickup trucks, farm equipment and new kitchens

Land values

Food costs: Meat, HFCS

Price of oil declining

Little effect up to 10% of fuel use or 15 billion gallons.

110

US Ethanol Potential Demand Outstrips Capacity

111

The technology is ready for prime time in The technology is ready for prime time in commercially relevant timelinescommercially relevant timelines

The $1 Trillion chemical industry is expected to grow by $500 billion in ten years – 50% from

Biotechnology

It’s Not Just About Energy

112

Non-biofuel products in the market

Plastics – NatureWorks, Serona, Metabolix

Enzymes – Detergents, bioprocessing

Specialty chemicals -

Biomaterials - emerging

113

TransformatiTransformation:on:Local Companies to Local Companies to Global CompaniesGlobal Companies

114

Biotech’s Globalness Begins Day 1

Science/technology

Intellectual property/patents/FTO

People

Communications

Competition

Capital

Markets—diseases know no borders

Even the smallest biotech is a global player from Day One

115

BIG PHARMA/PHARMABIG PHARMA/PHARMA

Bayer AG/Schering AG$ 19.9 billion

Merck KGaA/Serono$ 12.9 billion

UCB/Schwartz Pharma$ 5.4 billion

BIG PHARMA/BIOTECHBIG PHARMA/BIOTECH

Abbot/Kos$ 3.7 billion

Eli Lilly/Icos$ 2.1 billion

BIOTECH/BIOTECHBIOTECH/BIOTECH

Gilead/Myogen$ 2.5 billion

Genentech/Tanox$ 900 million

Genzyme/AnorMED$ 560 million

Illumina/Solexa$ 500 million

Mergers/ Acquisitions & Partnering

Astra Zeneca/

MedImmune$ 15 billion

116

Industry M&A Activity: Total Number of Deals by Total Deal Value

117

Big Pharma Alliances in 2006

118

Industry M&A Activity: Total Deal Number and Average Deal Value

119

Alliance Involving Regional Companies: China, India, Middle East

120

M&A / Partnering

Big Pharma continues to add products/key technologies.

European pharmas continue to consolidate.

Large biotech also increasingly active in the M&A space (2006 biotech’s first hostile takeover).

There has been a decrease in sub-$50 million-valued deals, with steady increase in $100 million to $500 million deals.

Indian generics companies are expanding into Europe.

Acquisitions in the diagnostics space muted.

M&A “premiums” over IPO values.

121

Time

Commodity/

“Copies”

Proprietary/

Innovation

Low Margin

High Margin

We are here

Technology TransferCo-development

Proprietary Pipeline

Services and Commodity

based businesses

China Biopharmaceutical Roadmap

122

Sources: *IMS Global Health

China Life Sciences Strengths

Low costs in drug R&D and manufacturing

High growth potential in domestic market driven by aging population and improved personal income

Large researcher talent pool with technology and industry knowledge and skills

Strong central and local government support, with favorable tax policies and grants

Special strengths: Gene therapy, stem cell research, Traditional Chinese Medicine (TCM), chemistry services

123

Indian Patents & Publications

0

50

100

150

200

250

300

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Year

Publications

Patents

-Nature Magazine

India – Innovation is Increasing

State of Innovation:

Innovation historically has been in process improvement

However, there are a growing number of patents and publications from government and academic labs

124

Selected FDA Approved Plants Outside the U.S.

Source: Businessworld

0 10 20 30 40 50 60 70

Israel

Hungary

Taiwan

China

Spain

Italy

India 61

60

25

22

9

5

7

125

Malaysia is a player too…

Converting palm oil industry from food to energy

Investing in innovation through venture capital

Building the science base through collaboration with UCSF/QB3

Adding an accelerator strategy through global acquisition

Largest contingent represented at BIO ‘07

126

TransformatiTransformation:on:Local Financial Markets Local Financial Markets to to Global ArbitrageGlobal Arbitrage

127

US Biotech Industry Financings 2002-2007

2002 2003 2004 2005 2006 '07 to-date

IPO 445$ 456$ 1,701$ 819$ 920$ 1,670$

Follow-on 979 3,536$ 3,388$ 4,194$ 5,766$ 3,183$

PIPEs 1,007 2,051$ 2,417$ 2,376$ 2,027$ 1,461$

Debt 5,251 7,170$ 8,418$ 5,565$ 13,978$ 6,689$

VC 2,688$ 2,841$ 3,733$ 3,518$ 4,236$ 3,482$

Other 178$ 294$ 269$ 1,114$ 425$ 440$

Sub-Total $10,548 $16,348 19,927$ 17,586$ 27,352$ 16,925$

Partnering 7,496 8,933$ 10,933$ 17,268$ 19,796$ 18,153$

Total $18,044 $25,281 $30,860 $34,854 $47,148 $35,078

Source: Burrill & Company

128

Capital Raised 1980-2007

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Financings Partnering

129

Droughts

Rallies

0

10

20

30

40

50

60

1983 1986 1991 1995 2000 2003

Biotech’s Five Cycles Length of Rallies/Droughts in Months

0

10

20

30

40

50

60

1983 1986 1991 1995 2000 2003

Rallies

Droughts

130

Burrill Large Cap Index vs. NASDAQ, DOW

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Sep-0

6

Oct-06

Nov-0

6

Dec-0

6

Jan-

07

Feb-0

7

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-0

7

Burrill Large Cap

DJIA

NASDAQ

131

Small, Mid-Cap vs. NASDAQ, DOW

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Sep-0

6

Oct-06

Nov-0

6

Dec-0

6

Jan-

07

Feb-0

7

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-0

7

Sep-0

7

Burrill Mid Cap

DJIA

NASDAQ

Burill Small Cap

132

Billion-Dollar Club

112

90

60

36

58

162

66

46

19

36

82

85

68

32

48

92

100

70

47

51

104

104

54

46

55

91

101

65

44

59

91

103

66

45

60

0

100

200

300

400

500

'01 '02 '03 '04 '05 '06 '07

>1B500-1B250-500100-250<100

133

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 '07 To-Date

Nu

mb

er

of

IPO

s

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Amt Raised ($ Million) Number of IPOs

$1,628

$819 $920

$2,686

$438

29

19

7

17

27

0

5

10

15

20

25

30

35

2003 2004 2005 2006 1H07

Nu

mb

er

of

IPO

s

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

Am

ou

nt

Ra

ise

d (

$ M

illio

n)

IPOs – Not What They Used to Be!

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 '07 To-Date

Nu

mb

er

of

IPO

s

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Amt Raised ($ Million) Number of IPOs

134

Company Amount Raised ($M)% Change

Issue to 9/28/07Market Cap

($M)Trubion 59.80 -6.69% 215.43Cadence 62.10 55.56% 407.54Achillion 59.50 -43.83% 100.78Catalyst 20.10 -46.67% 40.10Emergent 62.50 -28.96% 264.00Affymax 106.40 8.24% 402.92Rosetta Genomics 26.3 -0.71% 82.43Oculus Innovatis Sciences 24.2 -6.25% 89.103SBIO 123.2 -9.81% 313.56Optimer 49 18.71% 192.29Synta 50 -34.00% 223.28Molecular Insight 70 -51.50% 168.39Xtent 75.2 -46.88% 206.90Tongjitang CH MD 98.7 4.50% 349.24Orixegen Therapeutics 84 10.08% 355.48Pharmasset 45 35.11% 256.21Simcere 227 9.86% 959.46Amicus 75 11.40% 372.30NeurogesX 44 -20.91% 116.84Eurand 112 0.94% 708.34Biodel 75 13.60% 343.53Helicos BioSciences 48.6 -3.33% 182.00Sirtris 69 55.98% 490.20Response Genetics 24.5 -37.86% 44.54Jazz 108 -37.78% 274.96ImaRx Therapeutics 15 -32.00% 34.00Sucampo 43.1 -6.52% 454.24WuXi Pharma Tech 185 101.43% 697.67

Avg: 72.94 -3% 298.06

Life Science Financing OverviewSept ’06 to Sept ‘07 IPOs

Total IPOs = 28Avg Amt Raised: $72.94MAvg % Change a/o 9/28/07: -3%Avg Market Cap: $298M

135

Finance and Capital Markets

The global financial markets have created additional opportunities for companies to look outside their borders for financing

Europeans on NASDAQ/NYSE

Chinese on NYSE

Americans on AIM/Euronext/SWX

Other markets are available Mothers (Tokyo) DFX (Dubai) Hong Kong

136

TransformatiTransformation:on:FIPCO’s to VIPCO’sFIPCO’s to VIPCO’s

137

FIPCO (Fully Integrated Pharma Co.)

ResearchTechnology

Manufacturing

Clinical &Regulatory

Sales &Distribution

CSO

CMO

CROs

Partnerships

Academia, Scientific, Institutions

R&D

Preclinical Support

Clinical Development

Manufacturing

Sales & Distribution

Preclinical CRO

VIPCO (Virtually Integrated Pharma Co.)

Changing Business Models

138

So the predictions for So the predictions for 2008…2008…

139

The Predictions for Biotech in 2008

Heated debate on healthcare - campaign trail for the 2008 presidential election

Sales of products will continue to increase, but reimbursement becomes more challenging

Despite stricter regulatory oversight, more products to the marketplace

Regulators

Raising the bar for innovation, theranostics

Pharmacovigilence is the name of the game

Drug safety will continue to be a major issue

140

The Predictions for Biotech in 2008 (continued)

Congress aiming to add power to Medicare to negotiate what it pays for drugs

Congress may reduce the capital gains differential (bad for the capital raising side of the industry)

Both big Pharma and big Biotech will be competing for companies with advanced product pipelines

We will see US biotechs accessing capital overseas…international companies accessing capital in non-local markets

141

Biofuels boom

Ag/Animal Health continue to progress

“Capital Markets” more robust than 2006/2007 in the US

~35 IPO’s (Laguna ’07 to Laguna ’08)

2008 $50+ billion will be raised by the US biotechs

MKT Cap will reach an all time high of $600B

Of the 60 IPO’s completed by 2006, most all trading above offer price by end of 2007

The Predictions for Biotech in 2008 (continued)

142

Biotech’s globality increases with US dominance continuing to decrease

US research engine faces challenging times

Non-health care aspects of biotech also becoming less dominant as industrial, biofuels, ag increase in importance

Clusters are redefined away from geography to virtual clusters (diseases, markets, unique industry segments)

Business models continue to evolve

The Predictions for Biotech in 2008 (continued)

143

The Future of Life The Future of Life Sciences:Sciences:

144

What does our world look like 15 years from now?

Drug discovery in silico / adaptive trials in market place

Personalized health record (including genotype) on smart card / walk-in clinics and consumerization of healthcare

Wellness care – pre-symptomatic Dx and preventive medicine

Products are combination of Dx/delivery/device/Rx

Spare parts – regenerative medicine

Governments are big customers

Business models change

Today’s pharmas are tomorrow’s “distributors” (outsource innovation/ development/manufacturing)

Biotech’s virtually integrated

“Biotechs” dominates innovation / pharmas are distributors

145

Purdue Discovery Lecture Series

Biotech 2007: A Global Transformation

G. Steven Burrill, CEOBurrill & Company

West Lafayette, IN, November 8, 2007