Burrill

1
Biotech 2008 A Global Transformation
G. Steven Burrill Chief Executive Officer Burrill
Company
Wisconsin Life Sciences Transformation World
Perspectives Wisconsins Advantage Madison,
WI, February 21, 2008
Last Updated November 6, 2009
2
Burrill Company

• Exclusive focus on Life Sciences
• Human Healthcare (Rx and Dx)
• Nutraceuticals/Wellness
• Agbio
• Industrial
• Biofuels/ Bioenergy
• Enabling Technologies

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Burrill Company exclusively focused on life
sciences

• Private Equity / Venture Capital Group
• Investing across the entire spectrum of the life
  sciences/biotechnology 950 million under
  management
• Merchant Banking (Burrill LLC)
• 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
• Publications (biotech book, newsletters, special
  purpose publications stem cells, personalized
  medicine, aging etc., The Journal of Life
  Sciences, web-based intelligence reports)
• Conferences
• Headcount 60 professionals and staff

4
Burrill Company U.S. International Locations
5
Burrill Funds Under Management -( millions)

• Burrill Life Sciences Capital Fund III
  (2006) 283
• Burrill Life Sciences Capital Fund II (2003)(1)
  211
• Burrill Life Sciences Capital Fund I(1)
• Burrill Biotechnology Capital Fund (1999)(1) 140
• Burrill Agbio I Annex Agbio II Capital Funds
  (1998(1)/2001)(1) 82
• Burrill Nutraceuticals Capital Fund (2000)(1)
  61 283
• Malaysian Life Sciences Capital Fund (a JV
  Fund) 150
• Burrill AgBio II Annex (a side-car fund to the
  MLSCF) 20
• Total Funds Under Management at 12/31/07 947

• Fully invested, including reserves/commitments
  for subsequent financings in existing portfolio
  companies

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Strategic Investors in Burrill Company Funds
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Burrill Merchant Banking Services (Burrill LLC)
Potential Scope of Burrill LLC Client
Relationship
8
Burrill Created/Hosted Industry Events

For inquires, contact Britt Fenton-Olsen at (415)
591-5475 or bfenton-olsen_at_b-c.com
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G. Steven Burrills Annual Book

• Our 22nd annual book will be out February 2008

To order most recent book or complete sets,
visit www.burrillandco.com
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Burrill Biointelligence Group Reports

• The Burrill Companys Special Reports
• The Burrill Personalized Medicine Biointelligence
  Report
• The Burrill Stem Cell Biointelligence Report
• The Burrill Aging Biointelligence Report
• The Burrill China Biointelligence Report
• The Burrill India Biointelligence Report
• The Burrill Medias quarterly/monthly
  bio-intelligence report
• The Burrill Canadian biotech News Monthly
• MA/Partnering
• Stem Cells
• Personalized Medicine

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The Journal of Life Sciences
Mr. William Patrick Editor in Chief
A six-times per year publication. For
information, see our website
www.burrillandco.com and www.tjols.com
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The Journal of Life Sciences on the web Weekly
Brief and Weekly Brief, California Edition
To request the free weekly e-mail editions
weeklybrief_at_tjols.com
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Themes in 88 book

• Into The Marketplace
• 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?

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Biotech is Transforming the Globe
and being transformed by it
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Transformation

• Webster transformation    Pronunciation
  "tran(t)s-fr-'mA-shn, -Function noun
• The act or process of transforming somebody or
  something
• Webster trans.form
• 1a To change in composition or structure

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A Global Transformation
To
From
Chemistry
Biochemistry
On Size fits all drugs
Personalized medicine
Aging (just happens)
Aging is optional / controllable
Therapeutics/diagnostics/devices
Theranostics
Treating sickness
Preventing Sickness
Food for survival
Food for health
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A Global Transformation
To
From
Fossil fuels
Alternative fuels (biomass conversion)
Unavailable local capital
Global arbitrage
Fully integrated business model (FIPCO)
Virtually Integrated business model (VIPCO)
Local companies
Global companies
US centric biotech industry
Global industry
Changing the healthcare environment
Transforming the world
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Life Sciences Biotech A Short History

• Circa 1953 Watson and Crick
• Circa 1973 Inception of biotech
• ALZA (68) Cetus (71) Amgen (80),
• Genentech (76 ) Biogen (78),
• Centocor (79) Hybritech (78)
• Circa 1993 - Meaningful biotech revenue
• Circa 2008 Transforming the world

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Era of Unprecedented Advances in Medical Research

• Understand the pieces
• Hardware of Life (20th Century) genes/proteins
• Software of Life (21st Century) systems/network
  
• Biomarkers r us (Note genes r us biz model
  failed)
• Cost per bit of biological info rapidly
  decreasing (Moores law)
• The consequences are staggering

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Moores law Cost Per Base
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Challenges/Opportunities in Improvement of Care

• And we see its implications
• Evidence based medicine
• Advances in health information (Web MD)
• Personalized, predictive, preventative medicine -
  (3 Ps)
• Electronic Health Records (EHR)
• BUT
• Delivery system so flawed cant bring healthcare
  advances to market place
• Government increasingly the payor (Medicare/other
  government healthcare systems)

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Also Era of Macro Issues

• Climate change
• Energy needs/alternative fuels
• Poverty
• Security/terrorism
• Philosophical - ideological conflict (religious
  conflict)

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yet we are the envy of the world

• FDA
• NIH
• CDC
• DOD/DARPA/SARPA
• USDA
• DOE Energy Alternatives

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Total US Spend for Biotech/Pharma Research

• NIH 29B
• Pharma 43B
• Biotech 30B
• TOTAL 100B

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Current Healthcare System in Silos

• Insurers
• Employers (Providing )
• Providers/ Managed Care
• Doctors/Nurses/Hospitals
• Suppliers
• Pharma Companies
• Diagnostic Companies
• Medical Device Companies
• Medical Innovators

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Integration Is Essential BUT Where Is It
Happening?

• Kaiser Permanente (California)
• Intermountain Health (Utah)
• Analogy (Clayton Christiansen/ Harvard)
• Color TVs invented by RCA but no sales since
  nobody would broadcast in color
• RCA then bought NBC, then integration happened

Therefore integration within the healthcare
system is essential if benefits of new
technologies are to be realized
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HHS Secretary Michael Leavitt

• Combining gene based medical care with health
  information technology could transform
  healthcare
• Personalized healthcare will combine basic
  scientific breakthrough of the human genome with
  computer-age ability to exchange and memorize
  data

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Not only integration, but a greater need for
international collaboration

• Pandemic diseases
• Regulatory harmonization
• Approvals
• Patents
• Drug/ Food Safety
• Diseases know no borders
• Its a global economy

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Entering a Period of Co-opetition (Cooperation/
Competition)

• Strategic Partnering
• Co-development
• Co-branding
• Co-promotion
• Co-marketing
• Country to country
• Public/private
• Big/small
• Within industry/outside industry (IT/biotech)

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Life Science Investment Thesis To create and
capture value across the spectrum of the
life-sciences industries
FEED THE WORLD
HEAL THE WORLD
K
Agriculture
Human Health Care
Traits
Diagnostics
Tools
Therapeutics
Services
Sustain Nourish the world
Wellness Enhancers
Food ingredients
Seeds
Medical devices
Bio Processing
Bio Fuels
Biomaterials
Building sustainable businesses
Addressing major market needs
Biopharmaceuticals
FUEL THE WORLD
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So lets look at where we are and what happened
during the last year...
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Key Industry Stats Biotech 2008
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Pharma vs. Biotech Industry Market Cap (B)
Company
12/31/07
12/31/06
12/31/05
12/31/04
12/31/03
12/31/02
12/31/01
12/31/00
Pfizer
155
187
172
199
280
192
251
290
Johnson Johnson
191
180
186
184
154
112
181
146
Merck
127
82
69
69
103
165
133
216
Eli Lilly
60
62
65
65
77
50
88
105
Bristol-Myers Squibb
53
50
46
47
58
65
112
145
Pfizer/Merck
282
269
241
268
383
357
384
506
Total US Biotech
455
496
491
399
342
213
366
425
Industry
1.6x
1.8x
2.0x
1.5x
0.9x
0.6x
1.0x
0.8x
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Top ten Biotech Companies by Market Cap
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Historical Biotech Market Cap 19972006
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.And these small Life Science companies are
becoming increasingly important as a source of
value creation and innovation in the healthcare
sector
Top Five US Pharma vs. Total Biotech Market Cap
Market Value of selected Big Pharma acquisitions
of public Biotechs (2005-2007)
Source Capital IQ, Windhover, Burrill Analysis
37
So, what really happened during the last year ?

• Stem cells politically hot and the science is
  delivering
• Technology/platform companies rebounded
• BioFuels are BOOMING
• Industrial biotech is finally happening
• Ag/animal health show progress
• acreage is up
• but organics and natural are hot

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So, what really happened during the last year ?

• Increased interest in wellness not just
  sickness
• Personalized medicine makes real progress
• Regulatory concerns
• IVD/MIA approvals
• FDA Critical Path
• Theranostics
• Biogenerics/biosimiliars/follow-on biologics
• Big pharma buys into the biotech pipeline

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So, what really happened during the last year ?

• Reimbursement dynamics continue to dominate,
  especially in the US
• India/China make real progress (Malaysia, Korea,
  others do too)
• Industry raises 45b in capital in US alone
• The last year has been a good year, not a great
  one

My projections for 2008 will followat the end
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Transformation Sickness to Wellness
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Healthcare Industry Dilemma

• Rising Healthcare Costs
• Loss of Patent Protection for Blockbuster Drugs
• Need for Innovation build vs. buy
• Reimbursement/Payment system changes Medicare
  Part D
• Compulsory Licensing

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Healthcare Costs Have Been Rising -For a Long
Time
43
Prescription Drug Costs as Percentage of
Healthcare
44
Estimate of Overall US Healthcare Spending on
Prescription Drugs (by general public)
45
Worldwide Global Pharmaceutical Sales
46
by the way, the Global Nutraceuticals Industry
is 228 Billion in 2006
(millions)
Source Nutrition Business Journal May/June 2007
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Todays Medicine Challenge One Size Doesnt Fit
All
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Pharmacogenomics Shapes the Healthcare Business
in 2000
49
140 Years of Drug Discovery Technology
Source CMS, Lehman Brothers research
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Confluence of Technology, Tools, and Knowledge
51
A Systems Biology Approach Follow the Pathways
52
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
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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

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Innovation Gap Getting Wider
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Safer, More Effective Drugs
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Big New Markets

• Obesity/diabetes/metabolic disease
• Alzheimer's/memory
• Anti-aging
• Anti infectives (antibiotic resistance)
• Wellness (preventative/predictive cure)

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Projected Alzheimers Disease Prevalence, 2000
to 2100
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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
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Medicines in Development for Older Americans
Some medicines are listed in more than one
category
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Chronic Disease

• 125 million Americans have one 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

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Stratifying Into Risk Categories Diabetes Type
2 Whats Becoming Possible?
62
Products in WW Development 2007 III and
Registration
571 Total
388 Risk-Adjusted to Approval
248 Total
208 Risk-Adjusted to Approval
Source BioCentury Publications
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Products in Phase III by Disease / Target Area
Source BioCentury
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Number of Products Approved 19822006
45
New Indications
40
35
Biotech Drugs
30
25
20
15
10
5
0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
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Biotechnology Drugs in Clinical Development
66
MDx is at the Center of the New Dx World
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Diagnostic Innovation Makes Impact on Cancer
Therapy
68
In Vitro Diagnostics, By Application
69
Looking Forward, Patent Exposure is Set to
Increase Significantly
70
Biogeneric Status of Biotech Drugs
71
Adverse Event Reports 1990-2006
(thousands)
Source CDER OSE report 10/5/07 AERS database
(includes all US marketed drug and biologic
products)
72
Pulled from the Market
Blockbuster drugs pulled from the market gave
investors concern
73
On the Regulatory/Patent/Policy Front

• Patent reform (PTO proposals to restrict claims
  examined in a single application and limit
  continuation applications)
• FDA resources PDUFA IV authorization
• follow-on biologics (biogenerics)
• drug safety
• theranostics
• food safety (pet food)
• Biofuels renewable and alternative energy
  sources through use of biotechnology
• Medicare Prescription Drug Price Negotiation Act
  Non-interference (proposal to require Medicare
  interference)
• Sarbanes Oxley compliance reducing the burden
  on small companies
• SBIR eligibility
• Agbio/ GMOs
• Stem cell research federal funding

74
The Cost of Developing a New Drug has Greatly
Increased
75
CMS Becomes Dominant Customer (40 of Market in
2008)
Total 260
Total 162.4
Source
2002 data Health Affairs Volume 23, Number 1
January 2004. 2008 data Tag Associates
estimate
76
Medicare Heads Towards Bankruptcy
77
Major Government Initiatives in Biotechnology

• EU/Eastern Europe/Scandinavia
• China
• India
• Japan
• Malaysia
• Singapore
• UAE/Dubai and Kuwait
• Israel
• Various Latin American Countries (esp.
  Chile/Brazil)
• Australia/New Zealand

78
Healthcare Costs are Growing Much Faster Than
Productivity (Revenue Per Employee)
CAGR3
GM Cannot Compete Healthcare costs per car are
1700 more then Toyota
CAGR10
Source Hewitt Health Value Initiative United
States Census Bureau of Labor Statistics (2002
Productivity estimated based on first 3 Quarters)
79
so, healthcare cost increases are on everyones
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!

80
Significant Mergers Acquisitions 2007
PHARMA/PHARMA
PHARMA/BIOTECH
BIOTECH/BIOTECH
Schering-Plough/Organon 14.4 billion
AstraZeneca/MedImmune 15.6 billion
Celgene/Pharmion 2.7 billion
Eisai/MGI Pharma 3.5 billion
Siemens/Dade Behring 7.1 billion
Qiagen NV/Digene 1.5 billion
GSK/Reliant 2.7 billion
Mylan/Merck Generics 6.6 billion
Amgen/Illypsa 420 million
Hologic/Cytyc 5.9 billion
Shire/New River 2.5 billion
Genzyme/Bioenvision 308 million
81
MA 2007 - Total
82
MA
83
Partnering Big Pharma
84
Partnering - Upfronts
85
Wellness Its Time Has Come

• Rising healthcare costs are impacting individuals
• Rising incidence of chronic disease
• Recognition of the importance of genetic
  variation
• Scientific knowledge base for
• Personalization
• Cost effective technologies
• Financial markets beginning to recognize
  opportunity

86
The Demands for Agriculture Stay the Same
More food on less land with half the water.
Source 1999-United Nations
87
Market Overview Agriculture
88
Global Area of Biotech Crops 1996 to 2005 By Crop
89
2005 Was The Tipping Point For Industrial
Biotechnology

• Perfect Storm
• Energy security
• Global Warming
• Economics
• Political Will
• Market pull
• Ready technology

Biofuels Sustainability
2008
89
90
Exciting Time Since

• VC investments increased dramatically
• Oil companies invested in technology and
  infrastructure
• Supportive legislation
• Frenzy to access technology
• Frothy Pre-money Valuations
• No success stories

91
What Has Happened Since?

• Ethanol plant construction exploded (All corn
  based)
• Now have 113 in operation, 77 under construction
• Production at 6 billion gallons, potential for
  12B
• Price of feed grains
• 2 historically, topped 5.00
• 20 of corn crop today, 50 in two years !
• 13 of soybeans going to biodiesel
• The focus has been on biofuels - Ethanol

92
Implications

• Unprecedented energizing of rural America
• Price of corn
• Feed costs poultry, beef, and swine
• Sales of pickup trucks, farm equipment and new
  kitchens
• Land values
• Food costs Meat, HFCS

93
Energy Bill Farm Bill
Key Future Drivers!

• The Energy Independence and Security Act of 2007
• By 2022
• Renewable Fuel (20 reduction in GHG) 36 B
  gallons
• Advanced biofuels (other than corn starch with
  50 life cycle reduction in GHG 21 B
  gallons
• Cellulosic Biofuel (gt60 reduction in GHG) 16 B
  gallons
• 2008 Farm Bill Energy Title (In Conference)
• Tax incentives
• Funding for development and demonstration

94
2007 Great Year But with Storm Clouds Forming

• Perfect Storm
• Energy security
• Global Warming
• Economics
• Political Will
• Market pull
• Ready technology

• Second Perfect Storm
• Social
• Economic
• Environmental

95
Storm Clouds

• Commodity prices drive up food prices
• Acreage Swap between Corn and Soybeans
• The linkage Corn Soybeans Palm Oil
• Exaggerated by imminent US lead recession
• Economic discontinuities caused by speed of
  adoption

96
Social, Economic and Environmental Issues will
Dominate 2008

• US recession
• How long how deep?
• Fewer IPOs, Fewer Acquisitions
• What will big oil do ?
• Access to project financing
• Funding of small technology companies
• 5M, 20M, 100 M
• Will we get the project financing needed given
  the economic and political uncertainty
• IPOs early in year critical several good ones
  ready to file, some even have revenues!
• Uncertainty a big risk

97
Opportunities

• From an investor stand point Ethanol is dead
• Cellulosic sourcing of sugars will be hot
• Increasing interest in alternative fuels
• Butanols
• Alkanes
• Lots of opportunities outside biofuels
• Bioplastics / Biomaterials
• APIs
• Specialty chemicals

98
Some Learnings From Agbio

• Be proactive, get ahead of the issues
• Engage all parties, respect their issues (they
  may be right)
• Do not be defensive
• Find common ground
• Energy security, sustainability, reduced
  environmental foot print
• It is not about the science it is about the
  political, social, economic and environmental
  issues

99
Capital Raised 1980-2007
100
Biotechs FFive cycles Length of
Rallies/Droughts in Months

101
Small, Mid-Cap vs. NASDAQ, DOW
102
Billion-Dollar Club
103
IPOs Not What They Used To Be
104
IPOs Not What They Used to Be
Includes over-allotments As of 12/31/07
Source Burrill Company
105
2007 Life Science Financing Overview

• Initial Public Offerings
• 27 offerings with proceeds of at least 20.0m
• 2b total proceeds raised
• 70m average deal size
• 162.3m median pre-money valuation
• The share price of issuing companies increased 2
  on average 5 days post pricing
• The share price since time of offering has
  increased 2 on average

106
Finance and Capital Markets
The global financial markets have created
additional opportunities for companies to look
outside their borders for financing

• Europeans on NASDAQ/NYSE
• Chinese on NYSE
• Americans on AIM/Euronext/SWX
• Other markets are available
• Mothers (Tokyo)
• DFX (Dubai)
• Hong Kong

107
Transformation FIPCOs to VIPCOs
108
Changing Business Models
FIPCO (Fully Integrated Pharma Co.)
VIPCO (Virtually Integrated Pharma Co.)
Partnerships
Sales Distribution
CSO
Manufacturing
CMO
Clinical Development
CROs
Preclinical Support
Preclinical CRO
RD
Academia, Scientific, Institutions
109
So What Does Big Pharma Do Better Than Anyone
Else?

• Discovery?
• Development?
• Manufacturing?
• Distribution?
• Disease Management?
• What is the Answer?

110
Financing Biotech Companies the Old Way Doesnt
Work

• Difficult financing at early stages
• Successive venture rounds at increasing value is
  challengingpublic equity values have compressed
  the whole equation
• Time and cost of development has been increasing
  and risk/return has been decreasing
• Therefore, a new model must emerge

111
How Does All This Impact Entrepreneurial
Start-ups in 2008

• VC Angels are hesitant to invest
• Business models are changing
• More financing of projects
• Selective platforms are coming back
• Higher bar for regulatory approval
• Reimbursement compression
• Capital efficiency required
• BUT
• Rate of start-ups are increasing (go figure)

112
So the predictions for 2008
113
The Predictions for Biotech in 2008

• Sales of products will continue to increase, but
  reimbursement becomes more challenging
• Despite stricter regulatory oversight, more
  products to the marketplace
• Regulators
• Raising the bar for innovation, theranostics
• Pharmacovigilence is the name of the game
• Drug safety will continue to be a major issue
• Congress aiming to add power to Medicare to
  negotiate what it pays for drugs
• Congress may reduce the capital gains
  differential (bad for the capital raising side of
  the industry)

114
The Predictions for Biotech in 2008 (continued)

• Biofuels boom
• Ag/Animal Health continue to progress
• Biotechs globality increases with US dominance
  continuing to decrease
• US research engine faces challenging times
• Non-health care aspects of biotech also becoming
  less dominant as industrial, biofuels, ag
  increase in importance
• Clusters are redefined away from geography to
  virtual clusters (diseases, markets, unique
  industry segments)
• Business models continue to evolve

115
The Predictions for Biotech in 2008 (continued)

• Both big Pharma and big Biotech will be competing
  for companies with advanced product pipelines
• We will see US biotechs accessing capital
  overseasinternational companies accessing
  capital in non-local markets
• Capital Markets worse than 2007, but
• 30 IPOs in 2008 (mostly 2H 08)
• 2008 50 billion will be raised by the US
  biotechs
• MKT Cap will reach 500B
• Of the 60 IPOs completed by 2006, most all
  trading above offer price by end of 2008

116
Its going to be a tough, competitive year with
biotech companies transforming the world and
being transformed by it!
117
Biotech 2008 A Global Transformation
G. Steven Burrill Chief Executive Officer Burrill
Company
Wisconsin Life Sciences Transformation World
Perspectives Wisconsins Advantage Madison,
WI, February 21, 2008
Last Updated November 6, 2009