Capitalizing on the Opportunities: Global Trends in the Biopharmaceutical Industry

1. Industry Regulators Suppliers Capitalizing on the Opportunities:Global Trends in the Biopharmaceutical Industry

2. Agenda • Biopharmaceutical Industry Trends • Regulatory Landscape • Convergence of Compliance & Technology

3. Biopharmaceutical Industry Trends

4. Industry Growth Drivers • Demographic changes • Number of Americans over 65 to double over next 50 years • Over 65 health care expenditures 4 times higher than those under 65 • Innovative medicines targeting life-style diseases • Cardiovascular agents, CNS products, Alimentary/metabolism products • New Drug Approval Outlook • Approved 25 new biotech and biotech-derived medicines in 2003 (67% increase over 2002), but momentum slowed in 2004 • Modest pipelines key concern for Mature Biotechs (17 non-partnered drug launches through 2009) • Rising Biotech Stars gathering momentum • 130 projected to reach sustained profitability 2005-2009 • 9 IPOs in 2003, jumped to 27 in 2004 • 20 new launches expected for 2005, momentum to carry through 2006+ • Emerging Markets seen as growth engine for healthcare demand worldwide (India, China, Brazil) • Medicare Drug benefit Plan should boost top line by 2% Biopharmaceutical Industry Trends

5. Industry Structural Changes • Increasing role of generic pharmaceuticals • Fueled by patent expirations worth $80 billion through 2010 • Increasing globalization • BioGenerics (follow-on proteins) on the horizon • Fueled by biologics patent expirations worth $18 billion through 2011 • Manufacturing issues dominate (bio-equiv., cost, expertise, economies of scale) • TGA approved first in 2004, Europe to follow, US lagging a couple of years • Getting harder to distinguish Big Pharma from Major Biotech • Industry consolidation • 45 deals in 2004 with total value in excess of $90b (highest deal rate since 2000) • Top 10 companies’ market share up from 28% in 1990 to 46% in 2002 • Structured-finance emerging as alternative for capital-hungry biotechs • Development company funded by private investors • Licensor has exclusive buy-back right at pre-determined price • Emphasis on outsourcing in manufacturing and R&D • Business development strategies becoming more open • Mergers & Acquisitions, In-licensing/Out-licensing, Co-development, Co-marketing Biopharmaceutical Industry Trends

6. Market Performance Worldwide Pharmaceutical Market by Sectors, through 2008 ($ Billions) Biopharmaceutical Industry Trends

7. Pharmaceutical Market Performance Worldwide Pharmaceutical Market by Sectors, 2000-2003 and 2008 ($ Billions) Source: BCC, Inc., IMS Health Biopharmaceutical Industry Trends

8. Among the Many Challenges… • Time & cost to bring new drugs to market • 1 out of every 20 drugs entering clinical testing will be approved for marketing • It takes 10-12 years (12-15 biopharm) to bring a new drug to market • Average cost to bring a new drug to market is $350-850 million • “A clear view is not necessarily a short distance” • Pricing controls / pressures • Competition intensifying (shorter exclusivity periods) • Increasing buying power of third-party payers (therapeutic substitution, OTC switches) • Increased health awareness by patients • Declining R&D productivity • Will need to triple rate of development of new chemical entities to maintain projected AAGR% • Modest pipelines key concern for Mature Biotechs (17 non-partnered drug launches through 2009) • Compliance with Stringent Regulatory Requirements • FDA and foreign equivalents (21 CFR Part 11, HIPAA, others) • Sarbanes Oxley • General Agreements on Tariffs & Trade (GATT) • Trade Related Intellectual Property Rights (TRIPS) • Is biopharmaceuticals manufacturing likely to be capacity constrained?? • Global Biotech contract manufacturers operating at or near full capacity to support the 120 current marketed products…270 additional compounds are in late stage pivotal trials • 1,450,000 tank liters of biotech production capacity scheduled to be online by 2006… 550,000 tank liters short of expected demand…but what if approval projections fall short? Biopharmaceutical Industry Trends

9. Others?? Regulatory Landscape

10. FDA Notable Actions & Events • Pharmaceutical cGMPs for the 21st Century • Bioterrorism Act • Title III: Protecting Safety & Security of Food & Drug Supply • 21 CFR Part 11 Scope and Application Guidance • Bar Code Label Requirements for Human Drugs and Blood • Strengthened commitment to international harmonization activities • EU Mutual Recognition Agreement effective June 20, 1997, Final Rule (21 CFR Part 26) effective December 7, 1998 • Confidentiality Agreement and Implementation Plan to facilitate regulatory cooperation between EU and FDA/DHHS for medicinal products for human use (finalized September 2004) • General Principles for EMEA-FDA Parallel Scientific Advice Meetings – Pilot Program (September 2004) • FDA final report on “Combating Counterfeit Drugs”, February 18, 2004 • FDA to create independent Drug Safety Oversight Board (DSB) • “Pharmacogenomic Data Submissions”,Final Guidance, March 22, 2005 • First laboratory test for genotyping approved by FDA Regulatory Landscape

11. Pharmaceutical cGMPs for the 21st Century • Principles • Risk-based orientation • Science-based policies and standards (incorporate up-to-date science, and encourage advances in technology) • Integrated quality systems orientation • International cooperation • Strong public health protection • Broad Actions • External review of existing cGMPs, and product review practices • Reassess and reevaluate current scientific approach to cGMPs and product review process • Emphasize risk-based control point analysis and facilitate latest innovations in pharmaceutical engineering Regulatory Landscape

12. Pharmaceutical cGMPs for the 21st Century • Immediate Steps • Encouraging innovation by allowing certain manufacturing process changes without prior FDA review/approval • Enhancing expertise in pharmaceutical technologies • Exploring better mechanisms for communicating deficiencies to industry • 21 CFR Part 11 lead shifted to CDER (Chaired by Joe Famulare) • Including product specialists in inspection teams • Centers to provide reviews of all Warning Letters • Developing a technical dispute resolution process • Emphasizing risk-based approach in work planning process • FDA is encouraging industries to adopt new technologies such as Process Analytical Technologies (PAT) to improve manufacturing efficiency and overall quality of the drug product Regulatory Landscape

13. 21 CFR Part 11 Guidance • Scope & Application Guidance • Withdrew preceding draft guidance and Compliance Policy Guide • Specific definition of records subject to Part 11 • Enforcement Discretion to be exercised for: • Audit Trails • E-copies of E-records • Record Retention • Validation • Effectively grandfathers systems in place prior to August 20, 1997 • Emphasis on decision based on documented risk assessment • 21 CFR Part 11 and preceding guidance subject to review, • Regulations are likely to be revised, but have not changed…YET! Regulatory Landscape

14. Bar Coding Regulations • Motivation • Medication errors are a huge problem • 770,000 patients injured or die annually • Cost to treat was $177.4 billion in 2002 • Bar coding to unit of use level ensures right patient gets the right drug at the right time • FDA estimates rule will prevent 500,000 adverse events and transfusion errors and save $93 billion in healthcare costs over next 20 years • Final Rule • “Bar Code Label for Human Drug Products and Blood”, 21 CFR Parts 201,606, and 610 • Finalized February 25, 2004 Regulatory Landscape

15. The Convergence ofCompliance & Technology

16. Existing and Emerging Technology • Process Analytical Technologies (PAT) • Systems for analysis and control of manufacturing processes based on timely measurements of critical quality parameters and performance attributes of raw and in-process materials and processes to assure acceptable end product quality at the completion of the process • Electronic Batch Record (EBR) • Manufacturing Execution System (MES) • Private Trading Exchanges for Manufacturing (PTX-M) • AMR predicted market would reach $35 billion by 2005, but… • Taggants & Related Detection Systems • Radiofrequency Identification applications (RFID) Compliance & Technology

17. Process Analytical Technologies • PAT Drivers • Cycle time reduction (some steps >50% reduction) • Close coupling of batch steps to produce semi-continuous operations • Improved utilization of production equipment (10x throughput increase) • Reduce processing errors • Reduce opportunities for product contamination • At/on/in-line measurements of performance attributes (variability) • Enable real-time control and decisions through control of Process Critical Control Points (PCCP) and setting of Process End Point (PEP) range…Closed Loop! • PAT Applications • Monitor incoming materials attributes to predict/adjust optimal processing parameters • Direct or inferential measurement of quality and performance • Sample Pharm/Biopharm Applications • Drug substance particle size monitoring (size, distribution…) • Tablet analysis to assess blend Uniformity • Automated release of PW/WFI water using on-line TOC Analysis • Fermentation Process End Point Determination Compliance & Technology

18. Electronic Batch Record • Collection of Information required for reporting to… • Quality Assurance • Contract Customers • FDA • Provides for… • Complete history of Batch • Identification of Material and Quality data of materials • Operator interactions • Electronic Signatures • Systems Data • Laboratory Information Management System • Automation • Historian • QA Reports • Quality due-diligence Information Source: Rockwell Automation Compliance & Technology

19. Manufacturing Execution Complete Electronic Data Acqisition MASTER BATCH DOCUMENT DISPENSE Weighing protocol Integrated dispensing system SCADa LIMS Equipment data Equipment EBR Online-documentation and electronic signatures Operators Alarming lists and sensor curves Historian Environment (e.g. sterile rooms) BATCH PROTOCOL ? Source: Rockwell Automation Compliance & Technology

20. Private Trading Exchange for Manufacturing (PTX-M) “An IT platform with business process management capabilities and a portal to make visible inventory, material, schedules, capacity, and orders across sites” (AMR MAS Report, February, 2002) • Integrates across business functions • Enterprise-level visibility to information, data, transactions across multiple sites with disparate systems and processes • Collaborative, manufacturing-oriented exchange • Provides a logical point of normalization to synchronize with ERP • Provides a foothold for applications, such as MES, PLM, multisite scheduling • Allows plant standardization to prioritize data standards at the site level (improved accuracy & visibility), rather than attempting to replace all software with a standard MES package • Production sites can implement systems that best suit their needs Compliance & Technology

21. MES & PTX-M Within the Technology Landscape MES MES Compliance & Technology

22. Taggants • Microscopic tracers used as unique identifiers for materials, components, finished products, shipping containers, etc. • Considered effective anti-counterfeiting method as compliment to other techniques (color shifting inks, holograms, chemical markers, RFID) • Most approaches involve engineered materials not found in nature, but some emerging techniques use DNA and specialized detectors (Integrated Nano-Technologies, Applied DNA Sciences) • Sample Applications • Blended with raw materials (bulk chemicals, excipients, tablet coatings, etc) • Manufactured directly into paper or synthetic substrate • Added to ink, over varnish, adhesives for labeling and packaging • Detection: UV light, magnetic thread reader, DNA detection, black light, color sequencing, others Compliance & Technology

23. Primary components of RFID • Electronic Product Code (EPC) • Unique serial number to be assigned at the pallet, case, and package level • Pedigree • Combination of EPC, transaction history, and related information • Radiofrequency Identification (RFID) Systems • Silicon tags containing EPC • Passive (passive communication, no on-tag power source) • Semi-passive (passive communication, on-tag power source) • Active (active communication, on-tag power source) • Tag readers (interrogators) • Application systems to allow users to ID and track each drug package and its associated data Compliance & Technology

24. Some RFID Challenges • Costs (tags, other hardware, systems integration, compliance • Development of standards and business rules • Environmental and material effects on performance • Addressing database management issues • Need to determine effect of RFID on product quality • Initial and ongoing cooperation between company, supply chain stakeholders, and government agencies • Thomas Ryan, VP, The Aberdeen Group predicts… • 3 billion tags and at least 1,000 systems among 300 companies by 2005 to comply with Wal-Mart and Dept. of defense mandates • 30 billion tags and 50,000 to 100,000 systems among 20,000 to 30,000 companies by 2006 Compliance & Technology

25. For More Information • Pharmaceutical cGMPs for the 21st Century: A Risk-Based Approach • http://www.fda.gov/cder/gmp/21stcenturysummary.htm • Process Analytical Technologies (PAT): http://www.fda.gov/cder/OPS/PAT.htm • Bar Coding Regulations: http://www.fda.gov/OHRMS/DOCKETS/98fr/04-4249.htm • RFID: FDA final report on “Combating Counterfeit Drugs” issued February 18, 2004 • 21 CFR Part 11 • 21 CFR Part 11, “Electronic Records; Electronic Signatures; Final Rule”, FDA, March 1997 • “Guidance for Industry: Part 11, Electronic Records; Electronic Signatures – Scope and Application”, CDER, February 2003 • Bioterrorism Act: http://www.fda.gov/oc/bioterrorism/bioact.html • Pharmacogenomic Data Submissions • http://www.fda.gov/bbs/topics/news/2005/NEW01167.html References

26. Thank You!Mark LesterMark@ConsilientCapital.com