Miranda Toledano - Ernst & Young, Israel

1. February 2001 From Business Plans to BusinessFinancing Miranda Toledano-Ernst & Young, Israel

2. Bio-Sector Climate in Israel • Lack of well-defined or central bio-infrastructure • Biotech start-ups require international partnering & IR strategies from the outset • The trade-off: • viable implementation of global strategy for success • dealing with local issues of the biotech start-up • Balancing act Tech Expertise (Strong IP) Winner Strategy Financing

3. Early Stage Decision Making • Joining the incubator (implications for the future) • Leaving the incubator in a sound position • Retaining IP from academia • Dictating flow of technology development • Recruiting and retaining key employees, management and SAB • Selecting Application-driven models that have clear and defined market potential • Impressing the investor with viable business model

4. The Industry is Flying High? • In 2000, Biotech was ranked as 4th highest grossing IPO sector • Financial Upsurge follows in Israel • Israeli VC backed investment doubled itself almost every quarter of 2000 • Total: $200 Million • =3 fold increase over 1999

5. Internal Drivers: Communicating Success • Entrepreneur’s talent + Availability of funding • Universal Theme for Biotech start-ups • technological know-how is there • ability to position tech in commercial setting is not • Key Success Factor: the company that can communicate and execute its potential to be a viable investment and a profitable business • This takes strategic planning • identifying critical junctions to arrive at desired outcome • articulation of tasks by management

6. Business Plans can Help • Simple tool of communication between start-up and investors • Contribution: exchange of ideas, information, and brainstorming that lead to the launch of a new venture • A concise explanation of why we are creating a new business and what is its value proposition to the biotech sector: • technological evaluation of current state of market • logical flow of critical R&D milestones • early stage identification of potential partnering opportunities • Goal: Translate mission into “revolutionary concept” that will achieve financing goals

7. Preparing for Fundraising • Recognize which stage your company is in:

8. Early R&D Stage: Monitoring Risk and Delivering Value • All business involves risk but not all risk is equal • Earlier stage financing partners absorb greatest risk • they are impacted by current and subsequent stages of risk • they deserve greater opportunity for upside return! • How to achieve successful seed/first round: • understand when to raise how much cash from whom • developing rational financing/business plan that: • Reduces risk • Minimizes equity dilution • Increases opportunity for success

9. Experienced Management IP Protection Balanced Business Model World Class Science Market Focus INVESTOR RETURNS Communication Technology Portfolio Funder Support Innovation and Research Team Building Overcoming Business Risks

10. Biotechnology – Measures that Matter Technology/Quality of Science Is the Company’s tech innovative? IPR portfolio strength, depth, sustainability Differentiation, bio e-strategy, IT. Alignment to emerging a standards and technological trends. KNOW YOUR PEERS. Competitive Advantage Development potential, management of portfolio Products, Services Have you budgeted enough to lead to sustainability? Funding Strength and range of collaborations, impact of pharma consolidation on partnering possibilities; understanding potential partners to optimize alignment Alliances Risk management, internal info flow and monitoring, external newsflow Governance Experience, motivation, succession Management

11. Budgeting... • Natural tendency for biotech start-up is to ask for as little as possible at stages where investors demand a relatively large equity position • Remember though: • underestimating funding requirements to avoid dilution could mean: • Running out of Cash • Reentering IR climate too soon (or during a market downturn) • Ultimately, slowing down R&D program

12. Modeling the Business • Design a modular approach to establish credibility and focus (Like Rome, most successful biotech companies were not built in day!) • All biotech start-ups must have a clear mission and identity • Non-core competencies needs can be outsourced • Create realistic and achievable short-term goals to increase share-holder value: • first concentrate on “R & D” stage but always remember your market positioning. Stay FLEXIBLE

13. Short & Long Term Survival Through Strategic Alliances (SA) • SA are the fastest and most efficient way to do business in biotech & constitute an increasingly important source of funding, they: • enable partners to gain non-core competency products and services • help develop core competency or hedge industry standard • validate the biotech start-ups know-how in the commercial setting • Knowledge management and strategy are key • IP protection comes first • But, Biotech business models must recognize external communication obligation

14. Discovery Development Manufacturing Supply Chain Sales and Marketing The Historical Context no Longer Applies • With few exceptions, the model is not a viable aspiration • Genentech and Amgen are mostly exceptions to the rule • Difficulties include: • excessive financial demands in advance of revenue • a crucial shortage of management skills • no direct access to customers • the effect, globally, was to kill biotech ambition and diminish VC funding

15. SA Need to Move with Increasing Demands of Sector Healthcare Providers & Governments Investors Pharmaceutical Companies • demand for growth • new products • lower cost • public expectations • patent expiry • need new products • consolidation • cash rich STRATEGIC ALLIANCES • provide innovation • need cash Biotechnology Companies

16. New Dynamics of SA • Basic premise of biotech is to streamline process of discovering promising drugs and to develop them into marketable therapies • Constructive relationships with “Big Pharma” and “Big Biotech” must happen, even earlier on in the game • Need to Show: • How can “big pharma” decrease true cost of innovation • How does “big pharma” or investor understand that environment will provide opportunity to achieve financial return • Interrelation of multiple technologies will drive Israeli biotech industry forward (2 models)

17. 45% 40% Zeneca 35% Warner Lambert 30% BMS Bayer GlaxoWellcome Eli Lilly % Sales from Products Launched 1994-2000E RPR Novartis 25% Abbott SB HMR Merck Roche 20% P&U Pfizer Sanofi Schering-Plough 15% Synthelabo AHP 10% Astra 5% 0% 10% 20% 30% 40% 50% 60% % Sales Vulnerable to Patent Loss, 1998-2002 Bio-Therapeutics Converge with Targeted Delivery Platforms • The opportunities are clear • Patent expiry takes a large toll on “big pharma” • Growth opportunities from new markets & technologies (functional proteins, nutraceuticals) • $26 Billion spent in 2000 to license enough leads and technologies

18. Israeli Bio-Delivery Model • Develop horizontal pipelines that ensure short and long term growth • Delivery platform as short term partnering objective • Significantly less R&D time • Aims to derive initial top-line growth • Establish investor confidence & increase valuation • Demonstrate value creation & validate technology • Serve your partners’ immediate needs • Therapeutic development as mid or long term partnering objective • Mid-Term: After Phase I/IIa (Safety & Dosage) • Long-Term: After Phase II (Efficacy and Side Effects)

19. Partnering Strategy

20. Model Companies • Lavsys Biotherapy Ltd. • Intracellular macromolecule delivery platform for functional proteins ($4.5 billion market) • Lead drug development for prostate and breast cancer • J.P.M.E.D. Ltd. • Taste-Masking Protein granulates to develop functional foods for the elderly • DNA protection factor based on Sub-Micron Oil-in-Glycerin Gel for intra-dermal delivery of Genistein and other herbal extracts to the skin • BioSight Ltd. • Designs a pipeline of proprietary vectors used to target and release prodrugs directly to the sight of malignant tissues and cancer cells (chemotherapy) • Proprietary protein targets • Coraltis Ltd. • Pulsatile delivery system to decrease dosage of nutraceuticals and drugs ($10 billion market) • Novel formulations for Cyclosporin A and Indomethacin

21. IT Converges with Drug Discovery, Development and Disease Management • Pharma Drivers • Looming NCE gap that makes it increasingly difficult to sustain current high rates of growth • Objective to ensure that 30% of all drugs launched achieve blockbuster status with sales of over $1 Billion • To need to compress R&D cycle from 12 to 7 years or less • Optimization of treatments to enable individualized care regimes • Disease Management Drivers • Move towards early diagnosis of disease and monitoring disease progression • Cost-containment to manage pharmacoeconomics of healthcare • Decreases in human error & increasing “served population”

22. Model Companies • Optimata Ltd. • In silico tools for optimized cancer drug development for “Big Pharma” • In silico tools for optimized individual treatment regimes for the clinical market • Ardia Ltd. • Expert system to aid pathologist in analysis of biopsy tissue (subscription + pay-per-use revenue models) • WideMed Ltd. • Internet Monitoring and Mining of Medical Data Platform to provide integrated telemedicine approach to sleep apnea market

23. Change your “Time to Market” • Investors often equate exit with “IPO” or “M&A” • We Challenge a new model for Israeli Biotech: • Creation of SA for peripheral value added activities to generate short term top-line growth. • This is a winning exit strategy but requires: • strong correlation of the Company’s R&D and business milestone implementation • continual awareness of market dynamics to assess partnering opportunities that will maximize short term cash-inflows • Strong acknowledgment of the power of external communication to attract potential partners • Investment into exposure to multinationals at the right time

24. Technology transfer of early stage findings to generate returns for mission critical development goals will alter the investment community’s perception of biotech in Israel