Biotechnology 2010: Bridging the Financing Divide - Slide 1

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Biotechnology 2010

Bridging the Financing Divide

October 15th , 2010

MBC Finance Committee Presentation

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Copyright © 2009 All Rights Reserved





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Biotechnology 2010Where We Were: Biotechnology 2009

Access to capital markets severely restricted – particularly for high beta investments

− Five quarters passed without a single life science IPO

− Significant shift in public market interest towards more mature companies

− Severe contraction in venture capital financing with committed capital down more than 60% from its 2007 peak

− Life science issues coming public in the first decade of the new millennium had not performed well - down 20% + in aggregate

Sustained interest in early-stage companies among large pharmaceutical companies.

− Industry had pursued strategy of discovery and preclinical development “outsourcing”

− Apparent recognition of premium markets were placing on innovation

− Consolidation pressures likely to drive increase in M&A activity

Where do we stand?














Capital Market Perspectives

Biotechnology 2010














NBI

DJIANasdaq

Capital Market PerspectivesSelect Market Indices (Jan 2007 to present)

Note: Indices values as of Sept 22, 2010Source: Yahoo! Finance; Capital IQ

1/2/

2008

1/31

/200

8

2/29

/200

8

3/29

/200

8

4/27

/200

8

5/26

/200

8

6/24

/200

8

7/23

/200

8

8/21

/200

8

9/19

/200

8

10/1

8/20

08

11/1

6/20

08

12/1

5/20

08

1/13

/200

9

2/11

/200

9

3/12

/200

9

4/10

/200

9

5/9/

2009

6/7/

2009

7/6/

2009

8/4/

2009

9/2/

2009

10/1

/200

9

10/3

0/20

09

11/2

8/20

09

12/2

7/20

09

1/25

/201

0

2/23

/201

0

3/24

/201

0

4/22

/201

0

5/21

/201

0

6/19

/201

0

7/18

/201

0

8/16

/201

0

9/14

/201

0 0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Ind

exe

d V

alu

es

Period Hi/Lo Delta

NBI

DJIA

Nasdaq

38%

54%

53%














2008 2009 2010 YTD$0

$2,500

$5,000

$7,500

$10,000

$12,500

$2.8 billion

PIPEs

dolla

rs in

mill

ions

Public Equity FinancingsBiotechnology (2008 – 2010 YTD)

Note: Represents dollars raised through IPO, follow-on and PIPE financings.Source: Burrill & Co., BioCentury, Canaccord Genuity

$8.3 billion

Follow on financings

IPOs

• IPO $ raised • $6 mm • $1.1 billion • $525 mm

$3.0 billion














Nu

mb

er

of

issu

es

• % life science issues• 23.5% • 14.9% • 9.7% • 8.8%

All Industries

Life Science

Capital Market PerspectivesAnnual IPO Activity: 2000 – Present

293

74 72 8069

11 7 7

234

44

• 18.8%

Note: 2010 figures as of Sept 22, 2010Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co

100

200

300

400

2000 2001 2002 2003 2004

196

• 12.2%

2005

24

195

27

• 13.8%

2006

210

• 16.6%

2007

31 31

2008

3

• 9.7% • 6.3% • 12.4%

89

11

2010*

4

2009

63














Capital Market PerspectivesBiopharma IPO Activity

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2000 2004

53 25

Preclinical

Phase I

Phase II

Phase III

NDA filed

37.7%

92.0%

Preclinical

Phase II

Phase III

NDA filed

Pe

rce

nt

of

tota

l IP

Os

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

NDA filed/approved

• 48.4%

15

100.0%

2009/10

Phase II

Phase III

• 73.3%

11

NDA filed/approved














Biotechnology IPOs (2009/10)IPO Pricing vs. Expected Range

Om

ero

s

Cu

mb

erla

nd

Ta

lecr

is

Iro

nw

oo

d

An

the

ra

AV

EO

Co

rme

dix

Te

ng

ion

Alim

era

Triu

s

Nu

pa

the

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

IPO

pric

e p

er

sha

re

Note: % change from expected range calculated using the midpoint of the expected range.Source: SEC filings

• % PPS priced below expected PPS

• 9.1% • 17.6% • 0.00% • 25.0% • 50.0% • 37.5% • 7.1% • 44.4% • 31.3% • 61.5% • 33.3%














2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*0

20

40

60

80

100

Nu

mb

er

of

issu

es

IPO PerformanceLife Science IPOs (2000 to 2010)

Total Life Science IPOs

Issues currently above IPO PPS

69

11

7 7

44

2427

31

3

• % life science issues above IPO PPS

• 63.6% • 14.3% • 28.6% • 31.1% • 29.2% • 18.5% • 12.9% • 33.3%• 21.7%

Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, 2010.Source: Johnston Blakely & Co

4

11

• 25.0% • 0.00%














0

30

60

90

120

150

Biopharma Medicaldevice

Diagnostic Discovery Other

Life Science IPO PerformanceSector Performance (2000 to 2010)

Num

ber

of

issu

es

3020

52

141

66

189

4

Total IPOs

IPOs currently above IPO PPS

Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, 2010.Source: Johnston Blakely & Co

• % life science issues above IPO PPS

• 30.3% • 27.8% • 22.2% • 25.0%• 21.3%














IPO Value Mar 2009 Value Sep 2010 Value0%

20%

40%

60%

80%

100%

Life Science IPO PerformanceAggregate Performance (2000 to 2010)

Per

cen

t of

Agg

rega

te V

alue

• $1,958

(23.0%)

Note: Represents value of one common share in 238 life science IPOs from 2000 through Sept 22, 2010. Stock transactions involving mergers of equals or reverse mergers calculated using current share prices. Current share price as of Sept 22, 2010.

• Cumulative value of one share/IPO

• $2,542

(7.7%)

• $2,495• $2,690














Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 100.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

perc

ent

of t

otal

Capital Market InfluencesFinancial Resources: Months Cash-on-Hand

> 12 mos cash

< 12 mos cash

< 6 mos cash

Note: US public biotechnology companies onlySource: BIO, Factset, JBCo estimates














Life Science IPO CalendarIPO Queue: September 2010

IPO Queue0

200

400

600

800

1,000

1,200

1,400

1,600

• Anacor

• Zogenix

• Endocyte

• Pac Bioscience

• Cutanea• Aegerion

• Horizon

• Complete Genomics

• Ventrus

• Ikaria

• BG Medicine

• Rules based Medicine

• Aldagen

• IASO Pharma

$1.48 billion IPO Candidate

dolla

rs in

mill

ions

• Amyris

• Aurora Diagnostic

Note: Represents companies with current S-1 registrations filingsSource: Hoover’s, BioCentury

$














Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 100

10

20

30

40

50

60

70

80

Nu

mb

er

of

anno

unce

d tr

an

sact

ion

s

Source: Johnston Blakely & Co. research

56

68

40

53

57

4240 40

57

50

70

29

Merger & Acquisition ActivityLife Science Sector (Q3 2007 – Q2 2010)














Capital Market InfluencesSector Consolidation: Biotechnology

Jan 2008 Jan 20100

100

200

300

400394

295

Source: BIO, Factset

liquidation events

acquisitions

(25.1%)














Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

dolla

rs in

mill

ions

• 241• # of announced financings

• 220 • 185• 207 • 133

$2.6 B

Source: NVCA

Life Science Venture FinancingsQuarterly Funding Activity (2007 to Q2 2010)

$2.2 B

$1.9 B

$2.4 B$2.3 B

$1.9 B

$2.2 B

$1.6 B

$1.0 B

• 198 • 175• 223 • 266

(61.8%)

$1.5 B $1.5 B

$1.7 B

$1.3 B

$2.1 B

(19.2%)

• 175• 160 • 160• 195 • 234














Capital Market InfluencesSummary Conclusions

Financial markets have stepped back from the abyss, but financial position

remains fragile.

Public markets interest in new issues intermittent – and only at “can’t lose”

prices.

Cash squeeze has lessened but due more to a contraction of operations than

to new capital infusion.

M&A activity continues to gain momentum yet activity may reach a

plateau.

More recently, venture financings have displayed some signs of renewed

strength – enthusiasm for the industry’s future?














Pharmaceutical Industry Perspectives

Biotechnology 2009














1989 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Pre/non clinical %: 51.0% 44.0% 39.0% 32.0% 25.9% 25.7% 27.2%

Pe

rce

nt

of

tota

l R&

D e

xpen

ditu

res

Pharma R&D Expenditures1989 - 2008 (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% 27.0%














1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

Pre/non clinical: $12.9b $12.6b $11.5b $10.9b $11.3b $12.6b$12.0b $12.4b

Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. Figures in 2009 dollars.Source: PhRMA

$29.2b

$32.4b

$36.1b

$42.0b$43.8b

$46.2b

$37.0$38.7b

Tota

l R&

D e

xpe

nd

iture

s ($

B)

CAGR

4.6%

(0.4%)

Pharma R&D ExpendituresGrowth Rate 1999 - 2009

Pre/non clinical R&D

Clinical/regulatory R&D

$49.6b

$13.5b

$47.2b$45.8b

$12.7b $12.4b














Bio/Pharma R&D ExpendituresR&D Spending: 2004 - 2009

2004 2005 2006 2007 2008 2009$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0Non-PhRMA

PhRMA

Ag

gre

ga

te R

&D

exp

en

ditu

res

($B

)

CAGR

10.0%

1.7%

Note: Figures in 2009 dollarsSource: PhRMA, BIO, Burrill & Co

$54.1 b$56.9 b

$59.7 b

$65.4 b$63.5 b

$65.3 b 3.8%














Bio/Pharma R&D ExpendituresDistribution of R&D Spending: 2004 - 2009

2004 2005 2006 2007 2008 200965.0%

70.0%

75.0%

80.0%

85.0%

$54.1 b $56.9 b $59.7 b $65.4 b $63.5 b $65.3 b

Pe

rce

nt

of A

gg

reg

ate

R&

D S

pe

nd

ing

Non-PhRMA

PhRMA

Note: Figures in 2009 dollarsSource: PhRMA, BIO, Burrill & Co

• Non-PhRMA R&D Spending $12.1 b $13.1 b $13.5 b $15.8 b $16.2 b $19.5 b



Pharmaceutical InnovationRelative New Therapeutic Contributions (1997 – 2009)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Per

cent

of a

nnua

l new

dru

g ap

prov

al

21 3949 40 43 38 33 31 41 45

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, FDALarge Pharma Bio/specialty pharma

23Copyright © 2008 All Rights Reserved











35 4335

80.0%20.0%

76.7%23.3%

60.0%40.0%
















Series1

-50%

-25%

0%

25%

50%

75%

100%

(22.0%)

perc

ent o

f ini

tial i

ndex

val

ue

Note: Big Pharma Index calculated as average of aggregate share price changes. Share prices adjusted to reflect dividends and splitsIncludes companies with securities trading on the NYSE.

Source: Yahoo! Finance; Johnston Blakely & Co. research

Comparative Sector PerformanceLarge Pharma vs. Biopharma (Oct 2000 to Oct 2010)

71.6%

AMEX Pharmaceutical

Index

AMEX Biotechnology

Index

Nasdaq Biotechnology

Index

(13.7%)














Bio/Pharmaceutical Sector PerformanceComposition of Indices

• AMEX Pharmaceutical Index

• AMEX Biotechnology Index

• NASDAQ Biotechnology Index

− index constructed using 15 large pharmaceutical companies

− calculated using capitalization-weighted methodology

− large biopharma acquisitions may likely blur industry distinction in future

− index includes 18 companies

− market capitalizations of component companies generally exceed $1 billion.

− each company in index given equal-dollar weighting

− rebalanced quarterly

− index comprised of 120 NASDAQ-listed companies

− companies must have market cap of $200 million or more

− calculation based on modified capitalization-weighted methodology

− rebalanced semi-annually














Pharmaceutical Industry Dynamics Performance of Indices: Implications

Financial markets clearly continue to place premium on innovation− likely evidenced by the BTK outperforming Big Pharma

In current market environment financing risk has increased substantially, particularly for earlier-stage companies.

− negative returns of NBI perhaps indicative of this change in investor sentiment.

Increasingly appears that investor focus on financing risk beginning to outweigh the premium afforded innovation.

− market skepticism that innovation will be rewarded.

− macro themes may be overshadowing sector-specific events.

Where lies the future of innovation?














The Financing Divide

Biotechnology 2010














The Financing DivideTraditional Investment Model

IND

NDA

Discovery Development Phase I Phase II Phase III Approval

Pre clinical Candidate Clinical Development Marketed Product

Go publicVenture funding

• traditional investment model

Follow on offerings

Private Institutional Investors Public Markets














The Financing DivideSector Influences

Transitioning from revolutionary advances to evolutionary advances− sign of continuing maturation of the industry

− M&A activity blurs of sector boundaries

Less public market enthusiasm for hope/hype.− increasing attention on products and profits

Primary interest of big pharma is ability to leverage downstream capabilities.

− biopharma sector continued to be viewed as outsourced R&D function.

− resource allocation (of necessity) skewed towards later stage candidates

Venture investors required to adjust their investment horizon accordingly.














The Financing DivideShifting Investment Dynamics

IND

NDA

Discovery Development Phase I Phase II Phase III Approval

Pre clinical Candidate Clinical Development Market


• traditional investment model


• current investment model

Follow on offerings

Private Institutional Investors Public Markets

Private Institutional InvestorsThe Financial Abyss?














Biotechnology 2010Bridging the Financing Divide

• Are new champions of early-stage innovation likely to emerge?

• How have early-stage companies responded to these changes?

• What has been the response of the pharmaceutical industry?

• What do these changes imply for the industry’s future?














Biotechnology 2010Final Thoughts

Quote of the Day:

“Too many people miss the silver lining because they are expecting gold.”


















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Biotechnology 2010

Bridging the Financing Divide

Benjamin Conway978-526-4014

[email protected]

MBC Finance Committee Presentation





Biotechnology 2010: Bridging the Financing Divide - Slide 1

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