2013 Life Sciences Investor Survey - A Global Consulting FirmJune 2013 3 The largest contingency of participants feels that current global economic conditions are increasing their

June 2013

THE FTI CONSULTING THIRD ANNUAL LIFE SCIENCES INVESTOR SURVEYExpectations for the Sector

Ed Harnaga Americas Head of Healthcare and Life SciencesStrategic Communications

Brian Ritchie Senior DirectorStrategic Communications

Jim Polson Senior DirectorStrategic Communications

Barbara RyanManaging DirectorStrategic Communications

June 2013

2

The FTI Consulting third annual Life Sciences Investor Survey, a study conducted by the Strategic

Communication practice, assessed U.S. and European investors’ outlook on the investment climate in life

sciences and, specifically, their expectations for the sector with regard to transactions, drug development

pipelines, subsector performance and geographic growth prospects. The survey addressed key industry

topics such as the research and development model, the patent cliff, and investor perceptions of the

biggest challenges and opportunities for life sciences companies in the coming year. The following charts

and discussion represent the most significant findings from the survey.

European OutlookU.S. Outlook

0%

5%

43%

0%

Extremely Negative

Negative

Neutral 52%Positive

Extremely Positive

0%

3%

43%

3%

Extremely Negative

Negative

Neutral 51%Positive

Extremely Positive

..............................................................................

Overall Investor Outlook

Extremely Negative0% 4% Negative 43% Neutral 52%Positive

1% Extremely Positive

Investors’ expectations for pharmaceutical company performance in 2013 can be characterized as neutral to positive. Compared with last year’s survey, European investors’ outlook remains consistent, while U.S. investors are demonstrating a more positive outlook (up from just 35 percent in 2012).

OVERVIEW OF SURVEY OBJECTIVES

INVESTOR OUTLOOK FOR PHARMACEUTICAL COMPANY PERFORMANCE IN 2013

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The largest contingency of participants feels that current global economic conditions are increasing their appetite for investing in healthcare, with more than a third of European investors noting that the current macroeconomic environment is causing them to invest less in pharma but more in other areas of healthcare.

Three out of four investors surveyed believe the pharma sector will have emerged from the patent cliff by no later than early 2014, a key expectation given the significant overhang the patent cliff has been for pharmaceutical companies.

Increasing my appetite for investing in healthcare

Decreasing my appetite for investing in healthcare

Investing less in pharma but more in other areas of healthcare

Investing more in pharma but less in other areas of healthcare

Other

OverallEuropeU.S.

19%18%

19%

10%

.......................................................................

.......................................................................

11%37%

17%

3%

16%25%

19%

7%

34% 32% 33%

IMPACT OF GLOBAL ECONOMIC CONDITIONS ON INVESTOR APPETITE FOR HEALTHCARE INVESTMENT

EXPECTATIONS AROUND TIMING OF COMPANIES’ EMERGENCE FROM THE PATENT CLIFF

Overall

Already Starting Mid-2013 Early 2014 Later

.........................

.........................

.........................

42% 18% 17% 23%

June 2013

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Both U.S. and European investors view global healthcare reform and pricing pressure as the issue that will have the most significant impact on the performance of life sciences companies in 2013. In terms of geographic disparities, U.S. investors see new drug launches as the next biggest issue impacting performance, whereas European investors view emerging markets growth as a more important area.

Global Healthcare Reform and Pricing Pressure

New Drug Launches

Emerging Markets Growth

M&A* Activity

Patent Losses

Cost-Cutting Initiatives

Euro Crisis

U.S.

43%

22%

10%

10%

10%

5%

0%

Global Healthcare Reform and Pricing Pressure

Emerging Markets Growth

Patent Losses

M&A Activity

New Drug Launches

Cost-Cutting Initiatives

Euro Crisis

Europe

43%

20%

11%

11%

9%

6%

0%

*Mergers and acquisitions

Note: Investors were asked to rank the above issues in order of significance, with 1 being the most significant. The above graphic represents the frequency with which each issue was ranked #1.

MOST CRITICAL ISSUES IMPACTING THE LIFE SCIENCES SECTOR IN 2013

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Investors expect biotech companies to deliver the greatest share price returns in 2013, followed by specialty pharma.

When asked to identify which geographies will deliver the greatest growth within the life sciences sector in 2013, investors demonstrated that China is the region that they are the most bullish on, followed by North America.

Note: Investors were asked to rank the top 3 growth regions; percentage shown represents investors’ first choice rankings.

*Return on Investment

China

46%

North America

23%

Southeast Asia

10%

Latin America

8% Brazil

6%

Russia/Eastern Europe

3%Europe

2% Japan

2%Middle East

0%Africa

0%

50%45%40%35%30%25%20%15%10%

5%0%

Total

Biotech Specialty Pharma

Medtech GenericPharma

HealthcareServices

Large / Mid Cap Pharma

First Choice Second Choice

39%

22% 22% 21%

13%17%

13% 11% 9% 8%4%

21%

GEOGRAPHIC GROWTH EXPECTATIONS FOR LIFE SCIENCES COMPANIES

HEALTHCARE SUBSECTOR ROI* EXPECTATIONS

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The largest contingency of investors expects R&D spend in 2013 to remain flat compared with 2012 levels.

A majority of all investors expect to see more M&A deals and licensing/partnerships/joint ventures in 2013 vs. 2012. Roughly half of all investors expect the number of IPOs, secondary fundraisings and divestments in 2013 to be flat vs. 2012 levels.

OverallEuropeU.S.

.............................................................................................................

M&A*

IPOs**

Secondary Fundraisings

Divestments

Licensing/Partnerships/Joint Ventures

............................................................................................................

74% 21% 5% 60% 31% 9% 69% 25% 6%

More LessSame More LessSame More LessSame

34% 50% 16% 48% 46% 6% 39% 49% 12%

39% 55% 6% 51% 43% 6% 43% 51% 6%

35% 55% 10% 43% 46% 11% 38% 52% 10%

66% 34% 0% 57% 40% 3% 63% 36% 1%

No ExpectationDecrease

Significantly Decrease Same Increase IncreaseSignificantly

....................................

....................................

....................................

....................................

....................................

4% 0% 24% 46% 26% 0%

*Mergers and Acquisitions**Initial Public Offerings

*Research and development

EXPECTATIONS AROUND LIFE SCIENCES TRANSACTION ACTIVITY IN 2013

EXPECTATIONS AROUND PHARMACEUTICAL COMPANY R&D* SPEND

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On average, 89% of U.S. and European investors believe there needs to be some level of change to R&D models in order to address current market dynamics. However, the call for changes to R&D models is more prominent in Europe. Included within investors’ suggested changes to R&D models are calls for 1) more partnerships, 2) less in-house research and more outsourcing, 3) increased focus on orphan diseases and 4) increased focus on new technologies (i.e., regenerative medicine).

A majority of investors would prefer to see pharmaceutical companies increase R&D spend in 2013. However, consistent with our findings from last year’s survey, these sentiments appear to be more pronounced in the United States (60 percent of U.S. investors called for an increase in R&D spend vs. just 40 percent in Europe).

PREFERENCES AROUND PHARMACEUTICAL COMPANY R&D* SPEND

VIEWS ON THE NEED FOR CHANGE TO CURRENT R&D* MODELS

No PreferenceDecrease

Significantly Decrease Same Increase IncreaseSignificantly

....................................

....................................

....................................

....................................

....................................

7% 1% 16% 23% 50% 3%

Little Change Moderate Change Some Change Significant Change......................................................................................

Overall

No Change

6%

3%

5%

6%

......................................................................................

......................................................................................

......................................................................................

39%

17%

27%

46%

23%

28%

U.S.

Europe

34% 25%31%5%5%

*Research and development

*Research and development

June 2013

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ADDRESSING HEALTHCARE REFORM AND PRICING PRESSURE

Our data indicate that healthcare reform and pricing pressure are viewed by investors globally as the most critical issues impacting the life sciences sector in 2013. For those companies likely to be impacted by healthcare reform and

pricing pressure, it is critical that they develop and communicate a clear and comprehensive strategy for how they intend to navigate these issues in 2013 and beyond.

Given investors’ relatively positive outlook for the sector, life sciences companies need to be proactive and aggressive in their

competition for capital. In order to drive valuation, companies need to make a concerted effort to differentiate their corporate

investment narrative by:

• Hosting unique investor events• Increasing management’s time on the road with quality investors • Establishing a strong presence at key industry investment conferences • Developing additional investor touchpoints ° CEO video ° CEO blog ° Flash Reports/newsletters to communicate key corporate initiatives

$

MANAGING EMERGING MARKETS EXPECTATIONS

Similar to many other sector-focused investors, life sciences investors are bullish on the growth prospects for China. However, recent returns from China have not been quite as robust as

initially expected, as many companies have experienced setbacks in this region. Life sciences companies need to carefully communicate the inherent risks of doing business in China and avoid overpromising while managing investor expectations. Additionally, those companies with a significant presence in

China, or those with plans to expand or initiate operations in this region, need to spell out how the company is positioned to succeed in this key emerging market, and explain what specific initiatives they have in place or are in development.

ENHANCING R&D COMMUNICATIONS

R&D strategy is unique to every life sciences company. Given the often conflicting views of investors and life sciences companies around research and development strategy and spend, it is essential that companies present compelling messaging to support

their R&D strategy within the context of overall capital allocation, including, where possible, an indication of return on investment on R&D investments and rationale for the scale of R&D expenditure vs. alternatives. Companies can accomplish this through a variety of communications channels, including:

• R&D events that feature presentations from R&D-related executives

• R&D Flash Reports that update investors on important pipeline milestones and data• Interactive pipeline section on corporate website to visually communicate drug candidate details• Video on corporate website to communicate specific pipeline key messages

THE CASE FOR COMMUNICATIONS

June 2013

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FTI Consulting is a global business advisory firm dedicated to helping companies navigate complex business issues. Our healthcare and life sciences teams bring together experienced professionals from across our service offerings, including corporate and financial communications, economic and financial consultancy, risk and regulation advisory, mergers and acquisitions, investigations and corporate tax.

As life sciences companies face an ever-increasing number of commercial and regulatory challenges, our dedicated sector advisors provide business-critical counsel to protect and enhance the value and reputation of client companies. Whether it is the patent cliff, the pressure on shareholder value or the drag on growth caused by price reductions, FTI Consulting professionals have the experience to develop a strategic response to engage multiple stakeholders, including those at the board level.

The depth of knowledge and understanding of the healthcare sector speaks for itself: FTI Consulting works with nine of the 10 leading global pharmaceutical companies. One of the leading global healthcare communications practices in the world today, we are ranked first in the Mergermarket Global League Tables of PR Advisors and have consistently ranked #1 in Europe for the last twelve years and in Asia Pacific by Mergermarket.*

FTI Consulting executed primary research among 97 life sciences-focused buy-side investors from the United States and Europe in December 2012 so as to provide a diverse and global perspective on the current state of the life sciences industry.

©2013 FTI Consulting, Inc. All rights reserved.

For more information and an online version of this article, visit ftijournal.com.

Ed HarnagaAmericas Head of Healthcare and Life SciencesStrategic [email protected]

Barbara RyanManaging DirectorStrategic [email protected]

Jim PolsonSenior DirectorStrategic Communications [email protected] Brian RitchieSenior DirectorStrategic [email protected]

The views expressed in this article are those of the authors and not necessarily those of FTI Consulting, Inc. or its other professionals.

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* Source: Mergermarket League Tables of Financial Public Relations advisors advising on announced transactions in Europe, ranked number one on volume of transactions for the past 12 years. Ranked equal first in global Mergers and Acquisitions by number of deals. Ranked #1 in Asia Pacific for 2012 and 2011.

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