Biotech: A Changing Prescription

1. Biotech 2006 Life Sciences: A Changing Prescription BIO 2006 April 10th 2006 G. Steven Burrill, CEO Burrill & Company

2. Burrill & Company Exclusive focus on life sciences—human healthcare (Rx and Dx), nutraceuticals/wellness, agbio, industrial, enabling technologies • Venture Capital Group • Venture Capital—investing across the entire spectrum of the life sciences/biotechnology . . . over $625 million for investment, raising $300-500 million for BLSCF III • Merchant Banking Practice • Strategic Partnering including licensing, research and other collaborations • Strategic Advisory Services including new company formation • Merger & Acquisitions across life sciences • Spin-outs ranging from products, to research divisions to disease area franchises • Media • Conferences • Publications • Headcount: 50+ professionals and staff • Location: San Francisco

3. Burrill Venture Capital Funds Under Management ($ millions) • Burrill Life Sciences Capital Fund III (2005) $300-500 • Funds Under Management: • BLSCF III (First Close) $110 • Burrill Life Sciences Capital Fund II (2002/2003)* $211 • Burrill Life Sciences Capital Fund I $302 • Burrill Biotechnology Capital Fund (1999)* $140 • Burrill Agbio Capital Funds I & II (1998/2001)* $101 • Burrill Nutraceuticals Capital Fund (2000)* $61 • Total Under Management at 12/31/05 $623 *Including substantially invested reserves/commitments for subsequent financings in existing portfolio companies

4. M&A Transactions • Transactions across Life Sciences • Purdue/Safeguard • Operon/Quiagen • ViroPharma/Schering Plough Financing • Create a new Company or into an established Entity • RJR/Targacept • Baxter/VimRX • Lilly/Ipsen • Danisco/Genencor • Advisory/Private Placement • SangStat • Immune Response Advisory Services • Strategic Transaction Advice • Sugen/Pharmacia • Acrux/Vivus Merchant Banking Group Services Strategic Development • Early Stage Research to Product Development & Commercialization • P&G/Taigen • Wyeth • ViroPharma/Schering Plough Spin-Outs & Divestitures Potential Scope of Merchant Banking Group Client Relationship

5. Burrill Created/Hosted Industry Events For inquires, contact Thea Schwartz at (415) 591-5477 or tschwartz@b-c.com

6. Publishing • The 2006 Biotech Industry Book • Life Science Indices (monthly) • Personalized Medicine • Stem Cells • Monthly & Quarterly Newsletters – China, India, Canada, Strategic Partnering/M&A • Burrill Website – Online resource for keeping up-to-date information about the biotech industry Burrill & Company is the “go to” firm for industry insight

7. Industry Reports The seminal industry report for the last 20 years To order most recent book visit www.burrillandco.com

8. This presentation is available for download from our website www.burrillandco.com

9. Visit us at BIO Booth #2300 …and purchase our book!

10. So what’s happened in these 20 years?(By the way…Biotech started over 10-15 years earlier…late ’60s/early ’70s… so it’s a 35 year old industry now!)

11. 1986/Then Title: At the Crossroads Industry size: 700 Companies 150 public Market Cap: $15B Top 5 Companies Genentech Cetus ALZA ABI Centecor 2006/Now Title: A Changing Prescription Industry size: 5000+ companies 500 public Market Cap: $500B (US only) Top 5 US Companies Genentech Amgen Gilead Genzyme Biogen We’re Evolving…

12. Themes in ’86 book …At The Crossroads • Science being converted to business • Products coming to market place • Are product liability, regulatory reform, patent court behavior insurmountable barriers? • Partner or vertically integrate? • Acquisitions by pharma desirable? • How will the industry evolve?

13. Themes in ’06 book …A Changing Prescription • From blockbusters…to niche markets • From genomics, proteomics, and systems biology to personalized, predictive and preventative medicine (3 P’s) • From small molecule drugs to MAbs/proteins/stem cells • From reimbursement to payer issues where CMS becomes the dominant player • From a healthcare dominated industry to agbio being real and industrial biotech hot • From a challenging IPO market to M&A • From the U.S. to “Chindia”, Europe and a global industry

14. 1986/Then 2006/Now …A Changing Prescription (the future will be real different.) 5000+ companies…it’s a worldwide growing “industry” Amgen/Genentech will continue as leaders, yet new ones have emerged (Gilead, Serono, Biogen Idec). It has happened, even more than anticipated, and is becoming increasingly important. Conclusions 1986/Then • A time for confidence, not questioning. • Biotech companies will survive and prosper as a unique group, not just subsumed into the pharma industry. • Some of the companies leading today (‘86) will remain industry leaders in the decades ahead. • The industry will become major contributors to the well being and the economy.

15. So what are today’s take home messages? • The time is now for life sciences • Confluence of technologies is changing biotech and the healthcare world • Personalized, predictive and preventative medicine is changing healthcare • Payor/reimbursement world is changing with Medicare’s power (single payors dominate) • Market opportunities are different today (pandemic diseases, memory, obesity, aging, and wellness) • Wellness is a huge growth market • AgBio is back, animal genomics is ready • Industrial biotech’s time has arrived • Chindia is hot • Capital markets worldwide are robust, but expensive

16. Industry Overview • Industry is 30+ years old, generating over $85 billion in revenues • 5000 companies worldwide, 600 public companies • Life sciences has a strong performance record, even in difficult economic and political times; outperformed Dow and NASDAQ • Over 100 products on the market (many > $1 billion drugs); 350 biotech drugs are in late stage clinical trials (strong pipeline) • Agbio products are now grown on 200 million acres world wide and growing at 20% per year; over 1 billion acres have been planted • Patents protect product/technology exclusivity, rewarding innovation and limiting competition • Broad applications in healthcare (cure & provention), food and agriculture, industrial (chemicals, fuels & materials)

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

18. USA Europe Asia/Pacific Canada Sales / Revenue $72B $12B $3B $2B Annual R&D $19B $5B .3B $0.6B # of Companies 1,500+ 1,600+ 700+ 470 # of Employees 146,100 68,000 12,000 7,440 # of Public Cos. 363 120 ≈ 140 81 Market Capitalization $491B $26B $15B $14B Key Industry Stats Biotech 2006 Source: Burrill & Company, Ernst & Young

19. Company 12/31/05 12/31/04 12/31/03 9/30/02 12/31/01 12/31/00 12/31/99 3/31/06 Pfizer 199 280 192 251 290 124 183 172 J&J 184 154 112 181 146 129 174 Merck 69 69 103 165 133 216 153 75 Eli Lilly 65 65 77 50 88 105 75 61 BMS 48 46 47 58 65 112 145 125 Pfizer/Merck 241 268 383 357 384 506 277 258 Total US Biotech 494 491 399 342 213 366 425 Industry 2.0x 1.5x 0.9x 0.6x 1.0x 0.8x 1.1x Pharma vs. Biotech Industry Market Cap ($B) 186 312 1.9x

20. Burrill Select, Amgen, Genentech vs. Pfizer, Merck 1/1/04–3/31/05 Performance Last 12 Months

21. Historical Biotech Market Cap 2000–2006 BIO ’05 to BIO ‘06 + 23%

22. 2004 vs. 2006 (in billions) 700 $608 600 $458 500 400 300 200 100 0 2004 3-31-2006 U.S. Pharma Market Cap (top 5 companies) -25% Includes: BMY, LLY, MRK, PFE, SGP, WYE Source: FBR, Burrill & Company

23. Top 5 US Pharma vs. Biotech Market Cap

24. Biotech R&D Spending has Outpaced Pharma as a Function of Market Cap Cowen Top 100 Biotech Top 10 Pharma

25. …so that’s the baselineNow, what’s really happening…

26. Today’s medicine challenge: One size doesn’t fit all

27. Pharmacogenomics shapes the healthcare business in 2000+

28. 140 Years of Drug Discovery Technology

29. Confluence of Technology/Tools/Knowledge

30. Innovation Gap Getting Wider

31. Drug Development Costs Escalate Costs are becoming prohibitive Source: Windhover’s In Vivo. The Business & Medicine Report. Bain drug economics model, 2003

32. A systems biology approach- follow the pathways

33. Analyzing The Molecular Profiles (Biosignatures) of Body Functions in Health and Disease The Molecular Basis of Biological Processes The Molecular Heterogeneity of Disease Individual Genetic Variation Alterations in Disease Disease Subtypes Pharmaco- genetics Disease Predisposition New Targets for Dx, Rx, Vx Right Rx for Disease New Targets for Dx, Rx, Vx PDx PRx

34. MDx is at the Center of the New Dx World

35. Selected Targeted Treatments • Personalized cancer vaccines • Favrille – FavId for non-Hodgkin's lymphoma • Genitope – MyVax for non-Hodgkin's lymphoma • Gleevec (Novartis) - pH+ CML kinase inhibitor • Iressa (AstraZeneca) – EGFR tyrosine kinase inhibitor • Tarceva (Genentech/OSI) – HER1/EGFR inhibitor • Erbitux (ImClone/BMS) – HER1/EGFR inhibitor • Avastin (Genentech) – VEGF/VEGFR inhibitor • Herceptin (Genentech) – HER2 inhibitor • BilDil (NitroMed) - heart failure in African American patients Other “Semi Targeted” Treatments (approved or late stage trials) • Nexavar (Bayer/Onyx) – multikinase inhibitor • Tykerb (GSK) - ErbB-2/EGFR inhibitor • Enzastaurin (Lilly) - PKC-Beta, AKT/P13 inhibitor

36. Obesity Related Diseases • Diabetes – Costs $98 billion • 90% of Type II diabetics are obese • 70% of those at risk are obese • Heart Disease – Costs $8.8 billion • Stroke • Hypertension - $4.1 billion • Doubles incidence of hypertension • Gall bladder disease – $3.4 Billion • Osteoarthritis - $21 billion • Sleep apnea – more prevalent then diabetes ! • Some forms of cancer

37. Aging . . . Is it a disease? • About 1.4 million Americans are in their 90s, and another 64,000 are 100 years old or older • Baby boomers represent 30% of the total US population • Per person, seniors consume about five times the drugs of their working-age counterparts By 2030, 20% of US population will be over 65 years of age

38. Medicines in Development for Older Americans* *some medicines are listed in more than one category

39. Chronic Disease • 125 million Americans have 1 or more chronic conditions (e.g. congestive heart failure, diabetes) • Chronic diseases account for 75% of all health care expenditures • Current costs for chronic diseases is approaching $1 trillion • These expenditures are not delivering what is possible

40. Predictive/Preventative (Wellness) Personalized Medicine Stratifying into risk categoriesDiabetes type 1: What’s becoming possible?

41. What is Driving Personalized Medicine? • Convergence in technology…scientific advances and new technology • Patient care and rising consumerism • Payors (of all types) have economic incentiveGovernment health policy an global spending (e.g.: CMS)

42. This Confluence of Healthcare Technology is bringing us… • Targeted therapies (mutation specific), personalized medicine • Drug/device combinations (drug eluding stents) • Molecular diagnostics/Algorithm based diagnostics • Non-invasiveness • Non-hospital based with constant monitoring… • Increased predictions and prevention

43. …that’s changing the healthcare economy • Better outcomes/patients living longer • Costs going up/more patients treatable… • …But, US system leaves 25-45m uninsured/underinsured • Consumer healthcare is here to stay (copays ), individuals empowered and informed

44. Healthcare costs have been raising for a long time

45. US Healthcare Expenditures vs. Drug Costs Source: US National Health Statistics

46. Healthcare costs are growing much faster than productivity (revenue per employee) CAGR=3% GM Cannot Compete Healthcare costs per car are $1700 more then Toyota CAGR=10% Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

47. …So, healthcare cost increases are on everyone’s agenda- • Politicians/Congress/White House • Payors/Reimbursors/Insurers • Physicians/Providers • Patients/Consumers …and patients are empowered, have economic costs, and really want to stay well!

48. CMS Becomes Dominate Customer(40% of market in 2008) 2002 Rx Payment Sources (bil) 2008 Projected (bil) Total = $260 Total = $162.4 Source: 2002 data: Health Affairs Volume 23, Number 1; January 2004. 2008 data: Tag & Associates estimate.

49. . . . and what’s happening to big pharma? Putting Biotech into Context

50. Worldwide Global Pharmaceutical Sales