BIOTECH STARTUPS Observations and Lessons a VCs PERSPECTIVE

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BIOTECH STARTUPSObservationsandLessonsa VCs
PERSPECTIVE

• BioE2EDecember 5, 2001

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Agenda

• Current Conditions in Biotechnology VC Activity
• Investing in Biotechnology
• Venture Capital Investment Strategy
• Case Studies
• A View from the Trenches

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Disbursements to Portfolio Companies
( Billions)
Source Venture Economics
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Venture Capital Healthcare Commitments
( Billions)
Source Venture Economics
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Disbursements By Industry Segment
2001 Venture Capital Disbursements By Sector

Source Venture Economics
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Why The Interest?

• Biotech Revenues up 17
• 60 Profitable Biotech Companies
• 120 Products Approved . . . many in pipeline
• Genomics and Post-genomics
• Pharma Pipelines are Bare
• Technology Breakthroughs
• Aging of the Population

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Biotech Revenues Increase(private and public)
Source Ernst Young
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FDA Biotech Approvals

• 125 products approved over 25 years
• Recent approvals
• 1998 32
• 1999 34
• 2000 38
• Strong pipeline 300 drugs in Phase III
• Dain Rausher Wessels Forecast
• 2001 53
• 2002 116
• 2003 135
• 2004 150
• 2005 153
• Total 607

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Business Fundamentals

• Large and attractive markets
• 350B annual pharmaceutical sales
• Tools sales in 2000 5.5B
• Product sales in 2000 18.1B
• Significant growth
• Huge unmet medical needs in major diseases
• Aging population
• Patients pull
• Attractive public valuations
• Amgen 63B (2 drugs)
• Genentech 29B
• Alza 12B (sold to JJ)
• Celera 14B
• Idec 10B (1 drug)
• Startups are where the action is

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A LOT TO BE EXCITED

• ABOUT
• BUT . . . . .

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2001 YTD Financial Markets

• Dow Jones -17
• NASDAQ -39
• SP 500 -20
• Russell 2000 -15
• NASDAQ Bio Index -29
• BEAR MARKET

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1995-2000 Venture-Backed IPOs
Total IPOs by Broad Industry Category
By Number of Companies
Life Sciences
Information Technology
Source Venture Economics
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Biotech is Cyclical
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What Appeals to Venture Capitalists?

• Vision . . . Unique Concept
• Large Markets . . . Big problems . . . Major
  market need
• People . . . Proven, experienced, talented,
  driven
• Outstanding Technology . . . IP position
• Financial model

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Case Studies

• From Textbook
• To
• Reality

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Athena Neuroscience

• Origin
• Founded to cure Alzheimers Disease based on
  research from Harvard
• Facts
• Founded Nov 86 Pre 500 K
• Post 1 M
• Raised 35 M prior to IPO
• IPO Nov 91 Pre 129 M
• Post 183 M
• Athena sold to Elan for 470 M in 1996
• Key Events
• Challenge proved immense, CEO hired who was
  impatient
• CEO conceived of early commercialization strategy
• Licensed neurology products which took off

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Athena Neuroscience

• Valuation

IPO
M
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Athena Neuroscience

• Why was it financed?
• Concept . . . Vision
• Huge market . . . Big Problem
• Some Technology / Some IP
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• No
• Success Due to EXECUTION

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Aviron

• Origin
• Airplane conversation with Sam Colella to Dr.
  Leighton Reid
• Think biglike cure the common cold!
• 30 days later Aviron was conceived to rational
  design of novel flu vaccines
• Facts
• Founded June 92 Pre 2.5 M
• Post 5.0 M
• Raised 39 M prior to IPO
• IPO Nov 96 Pre 74 M
• Post 89 M
• Key Events
• Licensed a technology that has become Flumist
• FDA approval

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Aviron

• Valuation

IPO
M
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Aviron

• Why was it financed?
• Concept . . . Vision
• Huge market . . . Big Problem
• Excellent Founder
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• Somewhat
• Licensed Flumist
• EXECUTION

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CV Therapeutics

• Origin
• Dr. Louis Lange, pioneer of molecular cardiology,
  approached IVP with novel cholesterol lowering
  mechanism
• We rejected one trick pony
• 3 months later Dr. Lange returned with the
  concept of a D company plus 2 other products
• Facts
• Founded Oct 92 Pre 5.2 M
• Post 11.4 M
• Raised 43 Mil prior to IPO
• IPO Nov 96 Pre 42 M
• Post 56 M
• Key Events
• Cholesterol lowering drug failed human trials!
• Product 2 and Product 3 are very promising

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CV Therapeutics

• Valuation

IPO
M
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CV Therapeutics

• Why was it financed?
• Concept . . . Vision
• Huge market
• Founder
• Product Concepts
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• Somewhat
• Licensing of Renolazine
• EXECUTION

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GenPharm

• Origin
• Leaders in the field of transgenic sciences
  merged to produce therapeutics in small
  animals (mice) and large animals (bovines)
• Facts
• Founded 98 Pre 400 K
• Post 1.2 M
• Raised 40 M privately
• Split into 2 companies
• ?Pharming BV IPO in Europe (July 98) (4/16
  market cap 122 M Euro)
• ?GenPharm Corporation sold to Medarex for 65
  M (1.4 B market cap)
• Key Events
• On the eve of IPO road show, GenPharm sued for
  patent infringement
• IPO abandoned, layoff ensured
• Pharming spinoff, lawsuit settled
• Genpharm sold to Medarex ? Human monoclonal
  antibodies take off

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GenPharm

• Valuation

M
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GenPharm

• Why was it financed?
• Concept . . . Vision
• People
• Technology / IP
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• No but who could have predicted a
  lawsuit

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Onyx Pharmaceuticals

• Origin
• 22 Chiron scientists, led by Dr. Frank McCormick,
  resigned en mass
• Found Onyx to discover small molecule drugs based
  on newly discovered molecular pathways
• This team attracted 10 of the top cancer
  researchers to their SAB (2 Nobel Prize winners)
• Facts
• Founded April 92 Pre 8.5 M
• Post 13.5 M
• Raised 44 M prior to IPO
• IPO April 96 Pre 101.5 M
• Post 131.6 M
• Key Events
• Dr. McCormick made a new discovery in 96 with
  greater potential than original platform
• Onyx has pioneered the use of genetically
  engineered therapeutic viruses
• Currently Onyx has 7 products in clinical trials
  (1st human trial in 1996)

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Onyx Pharmaceuticals

• Valuation

IPO
M
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Onyx Pharmaceuticals

• Why was it financed?
• Concept
• People
• Technology / IP
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• No
• and execution issues

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Symyx Technologies

• Origin
• Started by Pete Schultz and Alex Zaffaroni to
  pursue combichem for materials science
• Facts
• Founded April 96 Pre 7.9 M
• Post 20.8 M
• Raised 47 M prior to IPO
• IPO Nov 99 Valuation in 2000 .3 B
• Key Events
• 1st Deal Hoechst, Bayer, Dow
• Profitable in 2001

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Symyx Technologies

• Why was it financed?
• Concept
• People
• Did they have Business Plan?
• No
• Did it Succeed per Original Concept?
• Partially

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Tularik

• Origin
• David Goeddel, Genentechs top drug producer left
  (with the blessing of Genentech) to form Tularik.
  Brings several Genentech managers with him
• Hottest new biopharma started in 91
• Facts
• Founded Dec 91
• 1st majorVC Round June 92 Pre 20.5 M
• Post 28.5 M
• Raised 173 M prior to IPO
• IPO Nov 99 Pre 500 M
• Post 595 M
• Key Events
• Oct 96 Tularik raised 63 M, the largest
  private round in biotech history
• Dec 97 another private round (raised 55 M)
  gave the company a higher post-money valuation
  (335 M) than any post-money on a biotech IPO

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Tularik

• Valuation

IPO
M
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Tularik

• Why was it financed?
• People
• Did they have Business Plan?
• Yes
• Did it Succeed per Original Concept?
• Yes

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Case History Lessons

• VCs Do Adhere to their Guidelines
• A Business Plan Isnt Needed
• ELEVATOR SPEECH
• To be Successful MUST Execute

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What Appeals to Venture Capitalists?

• 90s
• Vision . . . Unique Concept
• Large Markets . . . Big problems . . . Major
  market need
• People . . . Proven, experienced, talented,
  driven
• Unique Technology . . . IP position
• Financial model
• How about New Millennium?

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The New Millennium (CASES)

• Company A
• Timely concept . . . Gifted founder . . . Goal
  ProductsNo business plan . . . Build Brick by
  Brick.
• Company B
• Appealing concept . . . Talented founders . . .
  Short-term revenues . . . No business plan, but a
  presentation.

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The New Millennium (CASES Cont.)

• Company C
• Raised 37 M in 1st round based on Vision and
  Founders
• Company D
• Specialty Pharma . . . 1st Round 100 M
• Company E
• Specialty Pharma . . . Concept Team

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The New Millennium

• VC Guidelines Still Apply with Modification
• Concept Only Deals Not Attractive
• Platforms must be Real Platforms
• Roadmap to Product, Revenues, Profits
• Teams are More Experienced

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Agenda

• A View From The Trenches

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Biotech Today and Tomorrow

• Segment is still young . . . 25 years old
• Technologies are (finally) proving their value
  (e.g., monoclonal antibodies)
• Biotech has plenty of exciting innovations in
  store
• Foundation built for substantial growth
• THE FUTURE IS BRIGHT!!!
• in 2nd or 3rd Inning

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Opportunities

• REAL PRODUCTS!
• REAL PROFITS!
• WAVES
• Structural Genomics
• Chemigenomics
• Nanotechnology/Microfluidics
• Post Genomics and the consumer
• Industrialization
• Information

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Perspective

• 16 year lesson

It takes patience! and Have Patience! and Patience
is rewarded!
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Passion

• Entrepreneurs
• Venture Capital
• Contributions
• The New Economy