Biogen Idec Acquisition ThesisNovember 30, 2007

Umesh Baheti (MBA)Jason Chen (MD)Akshay Dhiman (MBA)Huaping Tang (PhD)

Market Trends

• Pharma sector under rough weather – Lack of blockbuster drugs through internal R&D– Concerns surrounding drug safety and patents– Increased scrutiny by the FDA on new and existing products– FDA approvals to R&D dollars spent has declined

• ($64Bn,13 approved compared to $27Bn, 24 approved in 1998)1

– Increased competition from generics – Possibility of control on drug prices by new Administration could further erode industry

profits

• Pharma seeking new growth avenues– Increasing focus on niche areas – Alliances offer enhanced discovery capability through beefing up the pipeline and filling

strategic gaps

• Biotech valuation multiples higher than Pharma due to higher growth potential

• Pressure on management to improve shareholder returns– Increased shareholder activism

1 Source: Economist Oct -2007

Yale Pharmaceutical Case Competition, 2007

Pfizer under pressure!

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Dec-02 J un-03 Dec-03 J un-04 Dec-04 J un-05 Dec-05 J un-06 Dec-06 J un-07

SNY GSK NVSAZN ABT WYELLY MRK PFES&P 500 Index (̂ SPX) - Index Level

Source: Capital IQ as of 11/28/07

Source: Pfizer

1 Peer group includes Astra Zeneca, Merck, Novartis, Wyeth, El Lilly, Glaxo Smithkline, Abott Laboratories

• Pfizer’s lackluster financial performance– Pfizer’s stock has been the worst performer in its

peer group1 over the last 5 years

– Pfizer stock trading at a substantial discount to peer group1 – P/E of 10.8x (median P/E of 19.3x)

– High potential Exubera taken off market in 3Q ’07; write-off of $2.8Bn

– Lipitor under competitive pressure from generics (Lipitor 3Q ’07 revenues 5% lower than ’06)

– 80% decline in YTD ‘07 Zoloft revenue compared to ’06

– ~ $12Bn of revenue loss due to 5 patent expiration

• Low ROI from R&D– Increasing R&D costs (>$8Bn)

– Limited business development success across therapeutic categories and development stages

– No major blockbuster expected

Pfizer’s rationale for acquisition

Strategic • Diversify portfolio of therapeutic areas

• Improve presence in biologics

• Shore up product pipeline

• Access to biotech R&D capability

• Industry undergoing shift

Financial• Biogen is up for sale

• Opportunity to deploy surplus cash

• Sizeable market potential (350-500K patients

annually)

• Biogen’s pipeline complement’s Pfizer’s strategic

priority to enhance revenue both in the short and

the long term

Yale Pharmaceutical Case Competition, 2007

Acquisition Evaluation

Benefits• Access to Biogen’s pipeline

– Product Diversification

– Access to Avonex and BG-12

• Access to Biogen’s R&D resources

– Knowledge diffusion into Pfizer’s

existing R&D

• Access to niche and profitable MS

market

• Financial

– Higher valuation multiples due to

biotech slant

– Higher gross margins on biotech

• Synergies

– Technology

– Leverage Pfizer’s global sales and

distribution capability

Risks• Organizational

– Divert attention from internal rationalization

– Different R&D cultures and priorities; R&D

diseconomies of scale

• Limited cost synergies:

– Geographically diverse locations

• Transaction Uncertainty

– Complications due to CoC provisions

– Rituxan may not end up with Pfizer

• Risk of overpay due to higher valuation

• Liability

– Efficacy and safety of Tysabri

• Revenue Erosion

– Flagship product Avonex under threat from

generic substitution and competition

– Timeline may not match

Yale Pharmaceutical Case Competition, 2007

MS mechanism and treatments

Source: Kieseier BC et al. CNS drugs, 2007;21(6):483-502

Biogen Competitors

Approved drugs

•Avonex•Tysabri

•Rebif•Betaseron•Copaxone•Novantrone

Pipeline drugs (Ph III)

•Rituxan•BG-12 (Fumarate)

•Laquinimod (Active Biotech)•Campath•MBP8298•Fingolimod (Norvatis)•Minocycline (Tetracycline)•Mylinax•Progestin and Estradiol•Reimmune•Teriflunomide•Trimesta•Stem cells•T-Cell vaccination

Yale Pharmaceutical Case Competition, 2007

Comparison of existing MS drugs

Name Class Side EffectsUnique

CharacteristicsIndication Dose/Admin

AvonexIFNβ-1a (↓anti-inflammatory CK)

Injection-site disorders, flu-like symptoms, ↑liver enzymes, CNS (depression/

fatigue)

1st drug shown in RCT to ↓MS progression ↓exacerbations. Only Rx slow permanent MS disability

RMS 30mcg IM once/wk

Rebif IFNβ-1a (recombinant)

only IFN ready-to-use, pre-filled syringes, autoinjector (PRISM)

RMS 22-44mcg SC 3X/wk

Betaseron IFNβ-1b

1st drug shown effective in RCT Tx RRMS

RRMS 0.25mg SC every other day

Copaxone (glatiramer acetate)

Polypeptide immuno-modulator

“myelin decoy”

Injection-site disorders

Only non-steroidal, non-interferon MS therapy (↓SE), ØNAB

RRMS 20mg SC QD

NovantroneAnthracenedione

Immuno-modulator ↓T, B, γ

CardiotoxicHi potency SPMS,

PRMS, RRMS

12mg/m2 IV 3mo

Tysabri Monoclonal Ab PML in combo w/ other immunoRx

↓annual relapse rate 67% = 2X current Rx (AFFIRM)

RMS 3mg/kg IV once/1mo

Source: www.uptodateonline.com Yale Pharmaceutical Case Competition, 2007

Administration Oral Injection/Infusion

Names

BG-12, Laquinimod,Fingolimod, Mylinax, Teriflunomide, Micocycline, Progestin and Estradiol, Trimesta.

Rituxan, Campath, Reimmune

Mechanism/

Indication (all relapsing)

• All immunomodulators• Fingolimod (dual functions)• Micocycline (antibiotics) • Progestin, Estradiol, and Trimesta (Hormones) for women only

• Rituxan, Campath, (monoclonal antibodies)• Revimmune ("reboot" )

Efficacy

• BG-12(48%)• Laquinimod(40%)• Fingolimod(>50%)

• Rituxan(91%)• Campath(>80%)

Approved for treating other diseases

• Trimestra, Estradiol, Progestin, Micocycline

• Rituxan

Legend: Biogen drugs / Competitors’ drugs

Comparison of MS drugs in Phase III

Yale Pharmaceutical Case Competition, 2007

Valuation Assumptions

Sum of the parts analysis:– 3.0-4.0x multiple on ’10 expected revenues to value each drug (based on precedent biotech

acquisitions)

– Pipeline valuation: Values Ph III drugs @ $100M; Ph II/III @ $50M; Ph II @ $25M; Ph I @ $15M and Pre-clinical @ $5M

– Facilities Valuation: Values production facility in NC and Denmark @ $400M (based on precedent transactions)

Discounted Cash Flow (DCF) analysis:– Enterprise value calculated for Biogen’s worldwide operations

– 13% WACC (given)

– Terminal value calculated using 5-8% perpetuity growth rate

Trading Multiples:– TEV/EBITDA and TEV/Sales multiples used

– Peer group comprises of Abott Laboratories, Astra Zeneca, Glaxo SmithKline plc, Merck & Co. Inc., Novartis AG, Eli Lilly & Co., Sanofi-Aventis AG and Wyeth

Yale Pharmaceutical Case Competition, 2007

Valuation Summary

20 40 60 80 100 120

DCF

TEV/Sales

TEV/EBITDA

Sum of Parts

Share Price ($)

Implied Enterprise value ($ Bn)

14.7 – 28.3

20.3 – 30.2

9.4 – 34.9

18.8 – 27.8

1.5

2

2.5

3

2008 2009 2010

Fu

lly d

ilute

d E

PS

($)

Standalone Pro-forma (100% stock)

Pro-forma (50% stock - 50% cash) Pro-forma (100% cash)

• Offer price of $78/share (30% premium to pre Biogen seeking buyout)

• All cash offer likely to have adverse impact of Pfizer’s credit ratings

• Considering most likely scenario (50-50 case), merger becomes accretive in ’10

• Assumed $300MM annual synergies

1

1 Source: HSBC Equity research

Accretion – Dilution analysis

Yale Pharmaceutical Case Competition, 2007

Strategic alternatives & key considerations Criteria

Alternatives

Portfolio diversification

Enhance product pipeline

Biotech R&D expertise

Enhance valuation

Cost Incurred

Status-quo ✘ ✘ ✘ ✘ ✔ ✔

Acquire Biogen ✔ ✔ ✔ ✔ ✔ ✔ ? ✘✘✘

Acquire other biotech company

✔ ✔ ✔ ? ✘✘

License MS pipeline from Biogen

✔ ✔ ✔ ✔ ✘ ? ✘

Partner with Biotech

✔ ✔ ✔ ? ✔

Recommendation in rank order

• Acquisition makes strategic sense if price between $72 -$85

• Build expertise in biotech through partnerships

• Seek other acquisitions in the biotech spaceYale Pharmaceutical Case Competition, 2007

Appendix