The Four Ps of Biotech Keys to Creating Sustainable Value

1
The Four Ps of Biotech Keys to Creating
Sustainable Value

• Barry Greene, Chief Operating OfficerAlnylam
  Pharmaceuticals
• Cambridge, MA

2
Todays Objectives

• Discuss key success factors and pitfalls of the
  biopharmaceutical industry
• Share specific learnings/cases from Alnylams
  evolution to date
• Engage in dialogue to address specific questions
  and concerns of the group this is your time!

3
HUGE Potential

• Sometimes people ask me what field I'd be in if
  not computers. I think I'd be working in
  biotechnology.
• I expect to see breathtaking advances in medicine
  over the next two decades, and biotechnology
  researchers and companies will be at the center
  of that progress.

Bill Gates New York Times, June 18, 1996
4
But Lots of Pitfalls to Avoid
Hype

• Slew of past product disappointments
• Valuations dropping to well below cash for many
  biotech companies
• Biotechnology industry lost a combined 6.4
  billion in 2004
• Many companies alive today because of irrational
  exuberance, not productivity

Overpending
Lack of Focus
5
Life After the BubbleFlat Growth or Modest
Decline

• Overall market unease reflected in performance
• Biotech consistently underperformed NASDAQ
  composite
• Many biotech stocks suffered more than a 40 drop
  in 2002
• By end of 2002, market capitalization for the
  biotech industry was down to 224B, off 54 from
  its Q1 2000 peak of 490B

Sources Satomi Degami, Research Manager,
Recombinant Capital Jennifer Van Brunt, Editor,
Signals, www.biotech.about.com Biotech 2003
Annual Biotechnology Industry Report, Burrill
Co. 2003.
6
Now on an Upswing.

• Slow but steady surge in market cap beginning in
  Q203
• June 2002 220BN
• June 2005 400BN (Burrill Co.)
• Industry raised a total of 17B from investors in
  2004the highest total since 2000
• Biotech IPOs on the rise with gt45 biotech IPOs
  since the fourth quarter of 2003 through August
  2005.

Sources Ernst Young, Global Biotechnology
Report 2004 Biotech 2003 Annual
Biotechnology Industry Report, Burrill Co.
2003 Biotech 2005 Annual Biotechnology
Industry Report, Burrill Co. 2005 San Jose
Business Journal, Troy May, 6/11/04, USAToday,
Paul Elias, 6/1/05
7
Biotech at a GlanceProducts to the Rescue

• 370 biotech drugs currently in clinical trials
  or pending FDA approval
• 20 new biotech drugs approved in 2004 25 new
  biotech products approved in 2003, a 25 increase
  from 2002
• 230 biotech drugs on market, generating 54.6B in
  revenue 2004 (up 17)
• 13 marketed biotech drugs have achieved
  blockbuster status (sales gt1B/yr)
• Industry expected to become profitable by 2008
  for the first time in its 30-year history
• Is it time for innovation again???

Sources Ernst Young, Global Biotechnology
Report 2004 Biotech 2003 Annual
Biotechnology Industry Report, Burrill Co.
2003 San Jose Business Journal, Troy May,
6/11/04 USAToday, Paul Elias, 6/1/05
8
Alnylam

• Vision
• Harnessing a Revolution in Biology for Human
  HealthTM
• Mission
• Build a leading product company founded on RNAi

9
RNA Interference (RNAi)

• Major scientific breakthrough
• Discovery that happens every decade or so
• Science Top 10 discovery in 2002 2003
• Fortune Top 10 technology for 2005
• Transforming technology
• Revolutionizing biology in post-genomic era
• Increasingly validated as potential new class of
  therapeutics
• Alnylam-Novartis gt700M alliance

10
Alnylam Overview

• Leader in RNAi therapeutics
• Harnessing a naturally occurring biological
  process
• Strong product focus
• Rapidly developing pipeline
• Industry-leading collaborations
• 2 distinct collaborations with Merck
• Drug-device collaboration with Medtronic
• Newly announced collaboration with Novartis

• Outstanding capabilities
• Strong and experienced team
• Currently 85 employees
• Key founders
• Sharp, Tuschl, Schimmel, Zamore, Bartel
• Leading IP
• Fundamental IP on siRNAs
• Chemistry (Isis, etc.)
• Well-capitalized
• Raised gt100M to date
• 2004 IPO, NASDAQ ALNY

11
The Four Ps of BiotechTodays Focus

• Critical elements that impact a biotech companys
  success
• Stepping stones in the evolution of a biotech
  company
• Need to get them all right
• Lets take a closer look at these success factors
  and pitfalls to avoid

12
People
People
Patents
Products
Partnerships

• It all starts with solid scientific founders
• Successful biotechs all begin with a set of
  people with a strong foundation in the science
• They bring with them an ability to recruit other
  key talent
• At the right times and in the right places
  (leadership, Board members, scientists)
• Avoid the trap of growing too big, too quickly
• The organization then begins to evolve
• Lifecycle of a start up requires different skills
  at different stages (timing and pacing this ramp
  is critical)
• Focus, commitment, and passion of employees and
  founders are fundamental success factors

13
PeopleLeadership Focus

• Leadership Evolution
• Lifecycle of a start up requires different
  leadership skills and styles to take the
  organization through its different growth stages
• Key Question -- Is the scientific founder the
  appropriate CEO?

Some are able to stay and make the leap e.g.,
Art Levinson (Genentech)
While others are not and stay for too long
common trap
14
Alnylams People

• Strength of Founders
• Recruited Alnylams senior leadership
• Board Members are critical asset
• Growth is closely managed manage a multi-site
  model
• Strong and experienced team
• Great companies start with great people

15
Patents

• People create great ideas! Leading to Patents.
• Patents are critical for a number of reasons
• Impacts your freedom to operate when products
  come out downstream
• Impacts your ability to strike deals -- need a
  dominant position in the market to do the BIG
  deals
• Increases the barriers to entry
• Different strategies to consider
• How much do you want to lock up the landscape?
• How much are you willing to litigate to defend it
  once you have?
• The level of patent protection has varied across
  different industry advances

16
Patents
Different Strategies at Play
17
PartnershipsStrong science IP estate enables
deals

• Partnerships and collaborations are the lifeline
  for biotechnology (and pharma), providing
• Credibility
• Capability
• Funding
• Increasingly important strategy for growth
• 2000 Top companies earned 18 of their revenue
  from strategic alliances
• 2005 gt30 of revenue at these same companies
  coming from alliances
• Deal can take on many different flavors
• short-term cash flow (survival!)
• long-term pay off (downstream value)
• Early stage/late stage
• Note - deals are migrating to earlier in the
  process

18
Track Record of Execution

• Major alliances
• IP consolidation
• partnerships
• Research reagent/
• service licenses
• Foundations

2003
2004
2005 to date
19
Broad Alliance Pros and Cons

• Pros
• Simplicity of dealing with single strong partner
• Opportunity for stronger focus on key scientific
  and technology issues
• Without distraction of landing next partnership
• Substantial funding and resources
• Makes relationship a key priority for both
  partner and Alnylam
• Cons
• Many eggs in one basket and fear that it could
  be all eggs!
• Need for effective and sustained alliance
  management

20
Now comes the hard part!
The rate-limiting step is not making the deal
the biggest challenge is making the alliance
work.
--Sidney Taurel, President CEO of Eli Lilly and
Co.

• As many as 60-70 of alliances fail completely or
  significantly underperform!
• 50 of alliances between large and small
  companies in technology-intensive industries
  survive only 4 years

Source High-Performing Strategic Alliances in
the Pharmaceutical, Biotechnology and Medical
Device and Diagnostic Industries,
PriceWaterhouseCoopers, August 1999, p.24.
Strategic Alliances As Social Facts Strategy,
Biotechnology, and Intellectual History, M. De
Rond, 2003 Mergers, Acquisitions Alliances,
Andersen Consulting.
21
Why Most Partnering Situations FailMismanagement
of the Relationship
Primary Cause of Alliance Failure among
Companies that Have Been Involved in gt20
Alliances
Poor strategy business planning
Poor or damaged relationships betweenfirms
30
64
6
Bad legal financial terms conditions
Source Realizing the Value of Partnerships
What to do After the Deal is Signed. Vantage
Partners, March 2004.
22
Alliance Best Practice FrameworkHow Do We
Ensure Success Basic But Critical!
Source Siena Partners LLC, based on interviews,
alliance literature, case studies, and project
experience.
23
Transition to Products

• Alliances/partnerships are critical.
• Transition from a discovery focus
• To product company
• Require different skill sets as you move from
  managing research to developing products

24
Transition to a Product Companyrequires a
different focus and skills
From Research
To Products

• Innovation
• Discovery
• Scientists
• Ad Hoc/Open Exploration
• Research Emphasis

• Operationalization
• Execution
• Program Management
• Project Teams
• Tools and Processes
• Integration with Partner
• Commercial Focus

25
Linking the Recommendations
Strategic

• Improve information distribution
• Enhance long-term commitment
• Link science with business

Political
Cultural
Source Summary slide MIT project, Amanda
Taplett, Doug Lopes, Kirk Hourdajian, Naoto
Kanehira, Rena Denoncourt, Shishir Tyagi
26
Making the Transition

• Genentech market cap now exceeds that of Merck!
• Amgen
• Biogen Idec
• Gilead
• Cephalon
• MedImmune

• All began with a solid foundation in the science
• Visionary leadership balanced with operational
  focus
• Benefited early on from and now are striking
  their own partnerships and alliances
• Able to bring valuable products to the market

27
Wrap Up

• Covered a lot of ground today
• Key takeaways
• Top PEOPLE, with talent matched to evolving needs
• Strong PATENT estate to attract the deals
• Leading PARTNERSHIPS managed for value
• All in ultimate service of translating science
  into breakthrough PRODUCTS!
• Thanks for your time and attention!