Baltimore Workforce Investment Board Presentation On Growth Industries

1. Baltimore Workforce Investment Board Presentation On Growth Industries 11 March 2005

2. AGENDA • Economic Alliance background • Business Development strategy • Sector Specific strategy (Baltimore City) • Life Sciences • Healthcare Services

3. Mission ECONOMIC ALLIANCE OF GREATER BALTIMORE BACKGROUND • Sole public/private partnership bringing together business, government and educational institutions to attract new employers and investment into the Greater Baltimore region for over 10 years • Markets the Greater Baltimore Region and accelerates investment through targeted business development marketing initiatives There was no one group integrating assets and resources for the Greater Baltimore region maximize economic development efforts

4. ’Deal Making’ • New Approach • ‘Order Taking’ • Traditional Approach • Site selection • Public sector incentives • Strategic analysis • Deal structure • Real estate developers/ site consultants • Corporate partners (e.g., Pharma / Biotech) • Research institutions (UMB, UMBC, JHU) • Venture capital/ Private equity firms • CEOs & Sr. Mgmt team looking for growth opportunities in revenue, profits, or market share • Site-consultants looking for available ‘lowest’ cost option • ‘Deal Making’ approach shifts dialogue from real estate focus to the business opportunity • New business model applies an investment banking approach to traditional economic development • Old focus does not play to the strengths of key assets (R&D v Cost) • Does not leverage public incentives optimally ‘DEAL MAKING’ v ‘ORDER TAKING’ • Major • responsibilities • Partners • Partner focus

5. Academic research • institutions • Johns Hopkins • University of Maryland • UMBC • Proximity to • key assets • NSA • NIH • APL • FDA • CMS • Capitol Hill • Wall Street • Workforce • PhDs / MDs • Engineers • Scientists • Nurses • Financial Professionals • Transportation • infrastructure • Port of Baltimore • BWI • Rail • Highways GREATER BALTIMORE’S STRATEGIC ADVANTAGES • Sectors of Strength • Life Sciences • IT / Defense • Healthcare Services • Financial Services • Logistics

6. THREE COMPONENTS FOR NEW APPROACH Industry specialization Attract staff with industry related competencies & knowledge Strategic analysis Formulate business case addressing regional assets & company needs Deal Structure Work with high level decision makers to ensure deal execution

7. AGENDA • Economic Alliance background • Business Development strategy • Sector Specific strategy (Baltimore City) • Life Sciences • Healthcare Services

8. GOAL: IDENTIFY AND PRIORITIZE HIGH YIELD OPPORTUNITIES IN FINANCIAL AND HEALTH SERVICES, LIFE SCIENCES, AND HOMELAND SECURITY SECTORS • Low cost of doing business • Academic Institutions • Access to New York City and Washington, DC • Collaboration with cutting edge research • Workforce educated and trained in high-knowledge fields • Strong tradition of sector specialized personnel training • Concentration of eminent research institutions such as JHU and the NIH • Multiple secure installations such as Ft. Meade • Affordable executive and non-executive quality of life • Specific Assets • Company Needs • Regional Offerings • Well educated workforce • Low cost of doing business • Tax incentives • Proactive investment community • Easy access to New York City and Washington, DC

9. METHODOLOGY FOR SHORT LISTING TARGET COMPANIES • Defining target sub-markets • Life Sciences, IT / Defense, Financial Services • Identify opportunities • Frame business Case • Relationship Building • Description • Identify sub-markets where Baltimore maintains a competitive advantage • Identify and segment major public companies by • Cash/Cash flow • Organizational structure • Current sites • Assess ‘best fit’ opportunities based on: • Ability to invest • Company Size • Propensity towards Baltimore • Inventory regional assets • Academia • Private sector companies in industry • Federal institutions • Build business case by leveraging synergies between partner needs and competencies • Determine key decision makers target & accessibility by local contacts • CEO, COO, CFO • Heads of BD, Operations, R&D • Determine conferences/ venues to reach

10. AGENDA • Economic Alliance background • Business Development strategy • Sector Specific strategy (Baltimore City) • Life Sciences • Healthcare Services

11. Pharmaceutical industry forced to rethink business model • Shrinking discovery pipeline • Prohibitive cost of drug development • Public pressure to reduce drug prices threaten R&D budgets • Research institutions need to build up their ability to develop drugs • Traditionally focused on discovery and not development • Essential to partner with private sector for development competencies • Interstate war on “talent” & capital • Loss of “old” economy jobs to lower cost markets • Many states focusing on life sciences due to high growth potential • Building bioparks • Hefty incentives CASE STUDY: THE LIFE SCIENCES STRATEGY The Greater Baltimore region is at the convergence of defining trends in the Life Sciences industry • Greater Baltimore Region • Positioned competitivelydue to critical mass of discovery to attract private sector investment

12. Key issues • Sustainability dependent on public funding Technology transfer infrastructure • Lack of incentives for researchers to patent & spin out technology • IP/legal competencies not well developed regionally • Bioprocess engineering, drug development & management labor pool not sufficient to meet demand Workforce Early stage/ risk capital • Local funding has been lacking historically Private sector translational / development partner* • No major top 15 drug development partner invested heavily in region ALTHOUGH BALTIMORE IS A DISCOVERY LEADER, IT LAGS BEHIND IN IMPORTANT DRIVERS OF DRUG DEVELOPMENT • High • Low Boston/ Cambridge • Greater Baltimore Driver SF/ Bay area • Philadelphia Discovery pipeline

13. Development (Clinical trials) • Large scale manufacturing • Discovery • Pre-clinical • Phase I • Phase IIa • Phase IIb • Phase III MAXIMIZE VALUE OF DISCOVERY THROUGH CO-LOCATED DEVELOPMENT & MANUFACTURING • Drug • development value chain • Current approach Local function Non-regional functions • Result • Out-licensed to partner due to lack of development abilities primarily outside of region • Current tech transfer focus on near term licensing revenue vs. long term value creation Minimal return to region & institution due to ‘cherry-picking’ licensing strategy • New approach Local function • Retain discovery-development regionally • Translational development facilities/partners • Clinical research organizations • Attract manufacturing facilities to co-locate alongside R&D facilities • Refocus tech transfer on long term tech development goals Maximize return to region and institution by bundling assets & attracting partners across value chain • Result

14. High SUBMARKET ATTRACTIVENESS DRIVEN BY FINANCIAL RESOURCES AND CULTURE • Low Pros Cons • Attractiveness Pharmaceutical • Large R&D budgets and proportion dedicated to R&D • Broad focus across many therapeutic areas (TAs) • Seeking sources of NCEs to fill pipelines • Several players have a culture of pure L&A and M&A vs. alliances • Discovery stage deals too high risk for some shops Biotechnology • Large proportion of budget allocated to R&D • Culture of alliances with academia • “More nimble” • Lower cash flows due to fewer products on the market • Narrowly focused R&D in few TAs • Smaller R&D budgets Medical Device & Equipment • Shorter product development cycle forces need to innovate (more nimble) • Engineering and biomedical focused innovation requires cross-disciplinary approach • Strong culture of pure L&A and M&A vs. alliances • Smaller R&D budgets and smaller proportion of budget allocated to R&D

15. 5 Tier 2 Tier 1 4 Novartis Merck, Pfizer AVE Lilly JNJ, Roche, BI Wyeth GSK, AZN 3 BMS NVO, Forest Labs SGP Bayer Abbott 2 Teva Tier 3 1 Indian Average 0 0 2 4 6 8 10 12 Propensity to be in Baltimore POTENTIAL BEST FIT PHARMA COMPANIES Ability To Invest • Cash/ cash flow • R&D spending / revenues (%) • Level of decentralization • Number and location of R&D sites

16. MOST ATTRACTIVE PHARMACEUTICAL TARGETS Baltimore value proposition Companies Differentiators • Roche • Eli Lilly • Boehringer Ingelheim • High R&D spending • Minimal presence in the mid-Atlantic • Tier 1 • Rich R&D assets • Fits in academic alliance strategy • Educated workforce • Leading clinical resources • Novartis • Merck • Pfizer • Aventis-Sanofi • High R&D spending • Medium presence in the mid-Atlantic • Tier 2 • Teva (Israel) • Indian generics • Dr. Reddy’s • Cipla • Ranbaxy • Lupin • Little to no R&D presence in the U.S. but strong willingness to grow presence • Requirement of market to expand more aggressively into branded Rx; need discovery alliances in near term • US R&D base • Capacity to expand • Strong Indian community and culture in region • Provides legitimacy with U.S. shareholders and FDA • Tier 3

17. AGENDA • Economic Alliance background • Business Development strategy • Sector Specific strategy (Baltimore City) • Life Sciences • Healthcare Services

18. HEALTH CARE: HIGH COSTS, AND STILL RISINGMEDICARE AND MEDICAID ARE SUFFERING FROM THE WOES OF THE INDUSTRY • Medicare and Medicaid are projected to rise at average annual rates of 9.0% and 7.8% respectively through 2015 Source: Congressional Budget Office (CBO) • For the entire 2000-2003 period, Medicaid spending increases were largely driven by enrollment growth, much of which was attributable to the economic downturn • Source: Health Affairs, Jan. 26, 2005

19. Medicare 42 million Dual Eligible 6 million 43 million Medicaid CMS TAKES THE ROLE OF ADMINISTERING MEDICAID AND GUIDES THE STATE BY STATE POLICY FOR MEDICARE The Centers for Medicare and Medicaid Services (CMS) spends 20%of the Federal Government’s dollars – about $519 billion in FY 2005 Including State spending, these programs spend about 45% of the Nation’s health care dollars. 83 Million Beneficiaries Covered by CMS

20. Proximity to CMS will become increasingly important for health service companies MEDICARE PRESCRIPTION DRUG IMPROVEMENT AND MODERNIZATION ACT OF 2004 (MMA) MARKS THE BIGGEST CHANGES TO MEDICARE SINCE ITS INCEPTION 40 YEARS AGO • Government is taking on an increasingly important role in health care spending: • Government will account for nearly half of all the nation's health care spending by 2014 (compared to 25% of all health spending in the US when Medicare / Medicaid were created in 1965) • Medicare, which now accounts for 2% of spending on prescription drugs, will account for 28% next year Implication : MMA HAS INCREASED GOVERNMENT’S IMPORTANCE – NOT ONLY AS A REGULATOR, BUT AS A CUSTOMER

21. American Healthways • Opened location in Columbia in 2003, has just announced expansion of the Columbia operations by 200 nurses after winning a share of the CCIP contract from CMS. XL Health • Founded in Baltimore City, has received $64 million dollars from investment bank Goldman Sachs. XL Health also won a share of the CCIP contract. Calvert Health Partners • Recently founded in Baltimore, is relying on the innovative policies coming out of CMS to form a base for a new kind of healthcare parent company. Pinnacle Care International • Founded and headquartered in Baltimore, was featured in the Wall Street Journal in an article describing their new concierge model of healthcare. THE CMS LOCATION IN BALTIMORE COUNTY IS NOW A CENTER FOR HEALTHCARE POLICY INNOVATION Proximity to CMS drives Greater Baltimore as a prime location choice for healthcare companies.