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Dr. Peter Reinisch, Partner Global Life Science Ventures

Outlook and Trends for Biotech Companies in Europe Sachs Associates 6 th Annual Biotech in Europe Investor Forum October 4 , 200 6. Dr. Peter Reinisch, Partner Global Life Science Ventures. www.glsv-vc.com. The biotech industry is transforming healthcare.

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Dr. Peter Reinisch, Partner Global Life Science Ventures

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  1. Outlook and Trends for Biotech Companies in EuropeSachs Associates 6th Annual Biotech in Europe Investor ForumOctober 4, 2006 Dr. Peter Reinisch, Partner Global Life Science Ventures www.glsv-vc.com

  2. The biotech industry is transforming healthcare • A steadily increasing % of new drugs are based on biotechnology • Already 4 out of 5 therapies in development are based on biotechnology • Big pharma is replenishing its pipelines with innovative new biotech products, via M&As as well as in-licensing collaborations, with deals increasingly early stage • Recent success of monoclonal antibodies has confirmed the blockbuster potential of biotechnology (Herceptin, Avastin, etc.)

  3. The biotech industry is transforming healthcare • Large potential for value generation: $60 billion in global sales last year* • Huge unmet medical needs represent vast market opportunities • Higher success rates for biologics than for small molecules • Understanding diseases on a molecular level gives rise to novel therapeutic approaches • Pharmacogenomics and personalised medicine will dramatically change how patients are treated *Source: Ernst & Young

  4. Chronic diseases should reach a total market size of more than USD 200 billion in 2007 USD billion Source: SG Cowen/ Bank of America estimates

  5. European biotech has lagged behind, but there are now strong reasons for optimism • In 2005, €3.2 billion were raised by European biotech companies* • Revenues up (+7% in 2005), increased expenditures on R&D (+15% in 2005)* • Strong interest of pharma in collaborations/acquisitions to strengthen pipelines. Although acquisitions lead to a drop on paper in the number of successful biotech companies, they are a strong boost for investment in the sector. Examples: • Chiron -> Novartis • Rinat -> Pfizer • CAT -> AstraZeneca • Serono -> Merck KGaA *Source: Ernst & Young

  6. European biotech has lagged behind, but there are now strong reasons for optimism • Good IPO performance, increasing momentum & confidence in the sector • IPO windows are likely to remain more stably open than in the past • Increasing number of European biotech companies with products in Phase III and on the market • Increasing number of European biotech companies have market caps above €500 m • The sector is approaching overall profitablity in the US; Europe will follow

  7. European life science companies have expanded their pipelines Source: Fortis Bank

  8. In 2005, Europe had more biotech IPOs than the US, raised more funds and showed better post-IPO performance

  9. GLSV 2nd Annual Biotech Investment Barometer • Following the interest in last year’s Barometer, GLSV has conducted a new survey of biotech executives, members of the investment community and others, to gauge their perception of the current investment climate and their expectations for the future • Survey conducted from 21-28 September 2006 • 11 multiple choice, 3 rankings, 1 open question • 186 reponses received • 54 biotech executives • 63 VC’s, 15 LP’s, 13 other investors, 12 analysts (= “investment community”) • 29 others • 88% were based in Europe

  10. GLSV 2nd Annual Biotech Investment Barometer How does your view today about the biotech sector compare with your view 12 months ago? 55% of respondents are more optimistic about the biotech sector than 12 months ago

  11. GLSV 2nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in Europe? 64% of respondents consider biotech stocks in Europe to be somewhat or very much undervalued

  12. GLSV 2nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in the US? Only 28% of respondents consider biotech stocks in the US to be somewhat or very much undervalued

  13. GLSV 2nd Annual Biotech Investment Barometer How do you predict biotech shares will perform compared to the stock market in the next year? 63% of respondents predict that biotech shares will strongly or moderately outperform the stock market in the next year

  14. GLSV 2nd Annual Biotech Investment Barometer Do you expect the IPO window to remain open more or less than 6 months? 67% expect >6 months in the US (62% of investors & analysts) 74% expect >6 months in Europe (69% of investors & analysts) Europe US

  15. GLSV 2nd Annual Biotech Investment Barometer What do you feel are the long-term perspectives for investment in the biotech sector? 86% of respondents view the long-term perspectives for investment in biotech as generally or highly favourable

  16. GLSV 2nd Annual Biotech Investment Barometer In Europe, how do you rate the current funding environment for early stage biotech companies? 72% of respondents rate the current funding environment in Europe as difficult or very difficult

  17. GLSV 2nd Annual Biotech Investment Barometer In the US, how do you rate the current funding environment for early stage biotech companies? Only 26% of respondents rate the current funding environment in the US as difficult or very difficult

  18. GLSV 2nd Annual Biotech Investment Barometer How do you currently see the future for the biotechnology sector in Europe? 76% of respondents see the future for biotech in Europe as fairly or highly positive

  19. GLSV 2nd Annual Biotech Investment Barometer How significant do you consider the growth of the biotechnology sector in Asia for the industry as a whole? 53% of investors & analysts, 69% of biotech executives consider the growth of biotech in Asia as fairly or highly significant

  20. GLSV 2nd Annual Biotech Investment Barometer What kind of biotech-related companies do you currently consider most attractive?(ranking 1-6; 1 = most attractive) After therapeutic products (60% in 1st place), vaccines and medtech are considered the most attractive areas

  21. GLSV 2nd Annual Biotech Investment Barometer Which elements do you think biotech start-ups are most often lacking when they look for funding?(ranking 1-7; 1 = most often lacking) 47% of all respondents consider an experienced management team to be the element most often lacking, followed by a solid business concept (46% ranked in top 2)

  22. GLSV 2nd Annual Biotech Investment Barometer What do you currently consider the greatest threats to the biotechnology sector?(ranking 1-5; 1 = most important) 41% of all respondents consider insufficient funding to be the greatest threat

  23. GLSV 2nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry? • Tax incentives/benefits for investment in early stage, and more generally for financial risk taking • Government early-stage financing • Allow state aid above €0.5 m ceiling • Government incentives for pension funds/insurance companies to invest in VC's • Fairer tax treatment of stock options • Focus on a few strong biotech clusters • Greater access to capital through pan-European funds • One combined stock exchange – a European Nasdaq

  24. GLSV 2nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry? • Clear rules not to dilute founders and management to the point where there is no real interest left to increase shareholder value. • More seasoned entrepreneurs, less fear (stigma) of failure • Support of university research, with longer incubation of technologies at universities before spin-out • Support of clinical research (which is getting marginalized in Europe) • Promotion of science and technology education • Publicity about the regained strength and positive restructuring of the sector, and the good investment opportunities

  25. GLSV 2nd Annual Biotech Investment Barometer Conclusions • Strong optimism, overwhelming majority views perspectives for investment as favourable. • Biotech stocks considered undervalued in Europe, not in US. • Biotech stocks expected to outperform market in next year. • IPO window expected to stay open more than 6 months. • Early-stage funding considered difficult in Europe, not in US. This is viewed as the single biggest threat to the sector. • Solutions to funding gap include government funding, tax incentives, pan-European access to capital, increased support for academic and clinical research. The European biotech sector continues to mature and offers excellent investment opportunities for discerning investors.

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