G. Steven Burrill Chief Executive Officer, Burrill & Company The Burrill Indiana Life Sciences Meeting October 21, 2

1. Biotech 2008: A 20/20 Vision to 2020 G. Steven Burrill Chief Executive Officer, Burrill & Company The Burrill Indiana Life Sciences Meeting October 21, 2008

2. What really happened since we were here last year? • World financial crisis – unprecedented (and not over yet) • “Wall Street” totally restructured • Economic dislocation in the world (well beyond the US) will be pervasive and long term • Healthcare systems around the world reforming – too expensive to treat everyone with all the new technology • Regulatory agencies increasingly risk-averse • Reimbursement/payment undergoing change

3. 2007 vs. 2008

4. …From To… Chemistry Biochemistry 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 My 2007 book was about a global transformation…

5. …From To… 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 …a global transformation

6. but now….A 20/20 Vision to 2020 (just a dozen years away) What will the healthcare delivery system look like in 2020? • In the U.S.? • In the world? What will the “marketplace” include? • Products • Technology Where is the “biotech revolution” taking us?

7. A 20/20 Vision to 2020 So…..Where will we go for healthcare in 2020? • Sickness? • Wellness?

8. A 20/20 Vision to 2020

9. Healthcare will be……on the sickness side Centrally Delivered & other consumer distribution centers • Genetic Screening • Pharmacy Distribution • “Doc-in-the-Box”, staffed with nurse practitioners Specialized Delivery • Comprehensive cancer / cardiovascular centers • “Heart Transplants ‘R’ Us” (surgery centers) • Complex diseases Home Diagnostics/Monitoring systems: • Drop blood onto your Blackberry or iPod, telecommunicated to central labs, real-time Dx/Px • Home monitoring

10. Telemedicine and remote monitoring for chronic disease care: “Self Care” model “We will see an immediate impact improving the quality of life of congestive heart failure patients by reducing hospital readmissions… This way a patient is never far away from health care.” Terianne Cerep, Mgr Home Health Mercy Hospital, Scranton PA • Monitoring key health indicators for congestive heart failure patients • Data transmitted to secure website monitored by nursing staff, patient’s relatives

11. Mobile and Home Health Monitoring • Chronic disease – diabetes, congestive heart failure, etc. – accounts for 75% of medical costs in the US • Disease management can substantially improve patient outcomes and lower cost • Medical devices and telecommunications technologies are converging to develop monitoring and control systems for patients with chronic disease • Aging, remote monitoring

12. Moore’s law – Cost Per Base

13. And where is technology taking us? • Moore’s Law • ID of genetic markers/links for most disease (algorithms of biomarkers) • Note: from a value standpoint- “Genes ‘R’ Us” model failed quickly; individual biomarker “valve” also likely to decline rapidly • Genetic screening becomes normal • Understanding of biochemical mechanisms of most diseases Therefore:personalization (customization) of healthcare

14. Longer Term Risk Assessment (prediction) Driving to Prevention: • Genome wide association studies not just BRAC 1&2 • Navigenics • DeCode • 23andMe • Shorter term, high accuracy risk assessment/clinical support tools • Proventys • Labcorp • Quest • Roche • Genomic Health • XDx • CardioDx

15. Genetic Association Information Network The GAIN project was launched in 2006 by the Foundation for the NIH and its partners, to pursue a series of Genome-Wide Association Studies (GWAS) designed to identify specific points of DNA variation associated with the occurrence of a particular common disease. Objectives: • Develop genetic markers associated with disease • Roughly 18,000 samples (patients) • 300-500K SNPs per sample • Open database at NCBI (dbGaP) Partners: • NIH • Pfizer • Affymetrix • Perlegen Sciences • Abbott • The Broad Institute Disease Areas: • Schizophrenia • Bipoloar Disorder • Major Depression • Ischemic Stroke • ADHD • Psoriasis • Diabetic Nephropathy • Parkinsons Disease • Age-Related Eye Disease

16. The Biomarkers Consortium • A public-private partnership to accelerate the development and validation of biomarkers important. • Consortium members include: • CMS, FDA, NIH • Numerous commercial partners, including: Pfizer, Merck, AstraZeneca, Eli Lilly, Novartis, et al. • Numerous non-profit partners, including: American Cancer Society, ASCO, PhRMA, BIO, Academy of Molecular Imaging, et al. • First selected project validation of FDG-PET for lung and lymphoma cancers. • Results expected to demonstrate accelerated drug approval cycles based on use of FDG-PET as a surrogate endpoint in trials "One of our most pressing goals under the FDA's Critical Path Initiative is to improve developmental science and technology to deliver better diagnostics and more personalized treatments to patients more quickly and ultimately improve Outcomes. We believe the identification and use of biomarkers in drug development can have a catalytic impact on this mission." - Andrew C. von Eschenbach, M.D., FDA Commissioner

17. The Biomarkers Consortium – Government Partners

18. The Biomarkers Consortium – Industry Partners

19. The Biomarkers Consortium – Non-Profit Partners

20. Healthcare will be…digitized • Smart cards with electronic health records & sequenced DNA • Consumer driven personal health planning • PHR • Microsoft -HealthVault™ • Google Health • WebMD • Revolution Health • Europe / Asia may be faster, more integrated than US

21. Tracking & Feedback • Nike/Apple –iPod Nano and online workouts/equipment/fitness linked • Tools to monitor medication regiments to drive compliance • Tools to measure • Activity • Sleep • Food consumption

22. Incentive Programs • Stickk.com – paying people to lose weight • FitNet • Gogetter • Virgin • Lifespring • Insurer rewards • Employer driven incentives

23. Rapid Secure Communication with Doctors • Relay health (McKesson) • Minute clinic • FitNet

24. Patient-centric healthcare: closer than we think? • Founded in 2000 • Walk-in health care clinics, no appointment needed • Located in 20 states, 200 centers • Staffed by nurse-practitioners • Location in popular retail stores: Target, CVS • 350,000 visits, 99% Patient satisfaction “We’re delighted with the continued expansion of MinuteClinic and with the enthusiastic response of health care consumers. We’re bringing innovation and change to the marketplace and consumers…” Michael Howe, CEO

25. Ecosystems Based on Convergence

26. Nano/Bio/Regenerative Medicine • Nano devices in blood vessels “roaming under own power” to diagnose and fix problems • Nanoparticals: • Removing bacteria from food • Adding nutrients • Aids in packaging/retaining freshness Artificial Organs/Regenerative Medicine: • Heart, lungs, pancreas, liver, kidney, blood, eyes, ears, legs, hands, etc. Advanced Prosthetics: • Arms, legs, hands- all with biological/ technological / psychological interaction sensors

27. Secondary CareEmergency RoomIntensive CareMajor Surgery Primary CareComplex diagnostics & treatmentsMinor surgical proceduresBasic diagnostics & prescribing by nurse practitioners“Life checks” Patients Primary CareWeb based self-diagnosticsOTC drugs for chronic and non-chronic conditions“Wellness” services Healthcare Delivery in 2020 –Closer to Patient Primary CareComplex diagnostics & treatmentsMinor surgical proceduresBasic diagnostics & prescribing by nurse practitioners“Life checks”

28. Do Patients Want to See Someone Other Than a Physician

29. So, What are the Consequences for us of this Consumer Digital Healthcare World? • Low margin ethical drugs will predominate • China/India/other low cost manufacturing sites will have an edge • Theranostics – Rx tied to Dx • Worldwide pricing/parallel pricing – direct importation from lowest priced country • Pro-generics environment • Patents devalued – increasing competition in marketplace • Big pharma will become product distributors/disease managers – more value across the entire disease care spectrum, but more specialized

30. 2020 –Globalization / Changing the environment too • Markets - demand increases in Asia & developing world • R&D migrates to Asia • Regulations – International agencies collaborate • Information – healthcare payors share data on performance (clinical & financial) • Diseases know no boundaries • Every company is global from day one!

31. Start-up’s Globalness Begins Day 1 • Science/technology • Intellectual property/patents/FTO • People • Communications • Competition • Capital • Markets—diseases know no borders Even the smallest company is a global player from Day One

32. Industry Dilemmas… • 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 in some countries

33. Healthcare Costs Have Been Rising -For a Long Time Drug Spending ($B)

34. Prescription Drug Costs as Percentage of Healthcare

35. US Healthcare Costs Diagnostic tests influence 85% of clinical actions Source: George Poste

36. The Costs of Non-Compliance with Rx Regimens $177 billion projected cost 20 million workdays/year lost (IHPM) 40% of nursing home admissions projected 45-75% non-compliance (WHO) 50-60% depressed patients (IHPM) 50% chronic care Rx (WHO) Source: George Poste

37. Healthcare Costs are Unevenly Distributed 0.5% patients consume 25% of healthcare budget 1% consume 35% 5% consume 60% 10% consume 70% 50% consume 3% 75% of cost is for patients with chronic diseases Source: G. Halvorson/George Poste

38. Market Distortions and Perverse Incentives in Modern Healthcare Delivery Focus on late-stage detection and intervention High cost Low reversibility Multiple reimbursements for fragmented (siloed) care versus integrated management of patient needs Medical professionals paid for illness versus wellness Inadequate social and economic incentives for wellness Inadequate medical training/understanding of genetics/genomics/proteomics Source: George Poste / Burrill & Company

39. The Strategic Future of Healthcare Economic Unsustainability Reform and Rational Care or Confronting the Imbalance Between Infinite Demand and Finite Resources Source: George Poste

40. Re-Inventing the Biopharmaceutical Industry Changing the industry versus changing with the industry Escaping the myopia of current markets and investor horizons Organizational re-structuring and process re-engineering are insufficient for survival Creation of unimagined products, services and businesses Integration of Dx, Rx and Ix Where is the white space? How do we create new companies in a new and different competitive environment? Source: George Poste/Burrill & Company

41. molecular medicine and personalized medicine access, cost and quality of care proficient use of information (e.health) The Three Forces Shaping the Evolution of Healthcare Demonstrating Value Source: George Poste

42. Changing the value proposition in healthcare From cost to value From fragmented interventions to integrated care From late intervention in chronic disease to prediction, prevention and earlier detection and intervention From empirical Rx to rational Rx targeted to the underlying causal molecular pathologies Escalating importance of Dx/PDx in the healthcare value chain Reversing the profitability of Rx/Dx Aligning Incentives Source: George Poste/Burrill & Company

43. The Evolution of Molecular Medicine and Information-Based Medicine:The Foundation for Rational Care and Personalized Medicine Drug New competencies in molecular medicine and biomedical informatics Real-time information for optimum decision-making Molecular diagnostics Drug Disease management protocols, patient information Package insert Genetic profiling Rx 2008 Medicine 2020 Source: George Poste

44. Disease Subtyping: Next-Generation Molecular Diagnostics (MDx) and A New Molecular Taxonomy of Disease Dx Platforms • Massive parallelism • Miniaturization • Automation • Rapid • POC RIGHT Rx forRIGHT DISEASE SUBTYPE B1 skin, B2, melanocytes, B3, melanoma, B4 and 5 metastatic melanoma From: C. Haqq et al. (2005) 102, 6092 Source: George Poste

45. Physician Adoption of the ‘New Diagnostics’ • Demonstrated clinical value and better patient outcomes • Solid scientific basis • Ease of use, simple to understand • “Just another test” • Fits into the clinical workflow • Enables early diagnosis and prediction • Well-received by patients • Low capital outlay • Reimbursable

46. Diagnostics vs DJIA and NASDAQ (1 year) Source: Burrill & Company

47. Diagnostics vs DJIA and NASDAQ (5 years) Source: Burrill & Company

48. The Changing Focus of Healthcare

49. Confluence of Technology, Tools, and Knowledge

50. 1900 1950 1960 1980 1990 2000 2010 2020 2030 2040 1970 140 Years of Drug Discovery Technology 1st generation 2nd generation 3rd generation genomics / proteomics cell pharmacology/ molecular biology drugs against natural products targets identified genetic engineering and derivatives from disease genes receptors chronic degenerative serendipity disease associated enzyme with ageing, Biotech drugs inflammation, cancer New Therapeutic Cycles lowerers lipid ACE-inhibitors Source: CMS, Lehman Brothers research H2-antagonists beta blockers NSAIDS psychotropics penicillins sulphonamides aspirin