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Biotech 2008 A 20/20 Vision to 2020
G. Steven Burrill Chief Executive Officer,
Burrill Company The Burrill Indiana Life
Sciences Meeting October 21, 2008
2
What really happened since we were here last year?

• World financial crisis unprecedented (and not
  over yet)
• Wall Street totally restructured
• Economic dislocation in the world (well beyond
  the US) will be pervasive and long term
• Healthcare systems around the world reforming
  too expensive to treat everyone with all the new
  technology
• Regulatory agencies increasingly risk-averse
• Reimbursement/payment undergoing change

3
2007 vs. 2008
4
My 2007 book was about a global transformation
5
a global transformation
6
but now.A 20/20 Vision to 2020 (just a dozen
years away)

• What will the healthcare delivery system look
  like in 2020?
• In the U.S.?
• In the world?
• What will the marketplace include?
• Products
• Technology
• Where is the biotech revolution taking us?

7
A 20/20 Vision to 2020

• So..Where will we go for healthcare in 2020?
• Sickness?
• Wellness?

8
A 20/20 Vision to 2020
9
Healthcare will be on the sickness side

• Centrally Delivered
• other consumer distribution centers
• Genetic Screening
• Pharmacy Distribution
• Doc-in-the-Box, staffed with nurse
  practitioners
• Specialized Delivery
• Comprehensive cancer / cardiovascular centers
• Heart Transplants R Us (surgery centers)
• Complex diseases
• Home Diagnostics/Monitoring systems
• Drop blood onto your Blackberry or iPod,
  telecommunicated to central labs, real-time Dx/Px
• Home monitoring

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Telemedicine and remote monitoring for chronic
disease care Self Care model
We will see an immediate impact improving the
quality of life of congestive heart failure
patients by reducing hospital readmissions This
way a patient is never far away from health
care. Terianne Cerep, Mgr Home Health
Mercy Hospital, Scranton PA

• Monitoring key health indicators for congestive
  heart failure patients
• Data transmitted to secure website monitored by
  nursing staff, patients relatives

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Mobile and Home Health Monitoring

• Chronic disease diabetes, congestive heart
  failure, etc. accounts for 75 of medical costs
  in the US
• Disease management can substantially improve
  patient outcomes and lower cost
• Medical devices and telecommunications
  technologies are converging to develop monitoring
  and control systems for patients with chronic
  disease
• Aging, remote monitoring

12
Moores law Cost Per Base
13
And where is technology taking us?

• Moores Law
• ID of genetic markers/links for most disease
  (algorithms of biomarkers)
• Note from a value standpoint- Genes R Us
  model failed quickly individual biomarker
  valve also likely to decline rapidly
• Genetic screening becomes normal
• Understanding of biochemical mechanisms of most
  diseases
• Therefore personalization (customization) of
  healthcare

14
Longer Term Risk Assessment (prediction) Driving
to Prevention

• Genome wide association studies not just BRAC 12
• Navigenics
• DeCode
• 23andMe
• Shorter term, high accuracy risk
  assessment/clinical support tools
• Proventys
• Labcorp
• Quest
• Roche
• Genomic Health
• XDx
• CardioDx

15
Genetic Association Information Network
The GAIN project was launched in 2006 by the
Foundation for the NIH and its partners, to
pursue a series of Genome-Wide Association
Studies (GWAS) designed to identify specific
points of DNA variation associated with the
occurrence of a particular common disease.

• Partners
• NIH
• Pfizer
• Affymetrix
• Perlegen Sciences
• Abbott
• The Broad Institute

• Objectives
• Develop genetic markers associated with disease
• Roughly 18,000 samples (patients)
• 300-500K SNPs per sample
• Open database at NCBI (dbGaP)

• Disease Areas
• Schizophrenia
• Bipoloar Disorder
• Major Depression
• Ischemic Stroke
• ADHD
• Psoriasis
• Diabetic Nephropathy
• Parkinsons Disease
• Age-Related Eye Disease

16
The Biomarkers Consortium

• A public-private partnership to accelerate the
  development and validation of biomarkers
  important.
• Consortium members include
• CMS, FDA, NIH
• Numerous commercial partners, including Pfizer,
  Merck, AstraZeneca, Eli Lilly, Novartis, et al.
• Numerous non-profit partners, including American
  Cancer Society, ASCO, PhRMA, BIO, Academy of
  Molecular Imaging, et al.
• First selected project validation of FDG-PET for
  lung and lymphoma cancers.
• Results expected to demonstrate accelerated drug
  approval cycles based on use of FDG-PET as a
  surrogate endpoint in trials
• "One of our most pressing goals under the
  FDA's Critical Path Initiative is to improve
  developmental science and technology to deliver
  better diagnostics and more personalized
  treatments to patients more quickly and
  ultimately improve Outcomes. We believe the
  identification and use of biomarkers in drug
  development can have a catalytic impact on this
  mission."
• - Andrew C. von Eschenbach, M.D., FDA
  Commissioner

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The Biomarkers Consortium Government Partners
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The Biomarkers Consortium Industry Partners
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The Biomarkers Consortium Non-Profit Partners
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Healthcare will be digitized

• Smart cards with electronic health records
  sequenced DNA
• Consumer driven personal health planning
• PHR
• Microsoft -HealthVault
• Google Health
• WebMD
• Revolution Health
• Europe / Asia may be faster, more integrated than
  US

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Tracking Feedback

• Nike/Apple iPod Nano and online
  workouts/equipment/fitness linked
• Tools to monitor medication regiments to drive
  compliance
• Tools to measure
• Activity
• Sleep
• Food consumption

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Incentive Programs

• Stickk.com paying people to lose weight
• FitNet
• Gogetter
• Virgin
• Lifespring
• Insurer rewards
• Employer driven incentives

23
Rapid Secure Communication with Doctors

• Relay health (McKesson)
• Minute clinic
• FitNet

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Patient-centric healthcare closer than we think?

• Founded in 2000
• Walk-in health care clinics, no appointment
  needed
• Located in 20 states, 200 centers
• Staffed by nurse-practitioners
• Location in popular retail stores Target, CVS
• 350,000 visits, 99 Patient satisfaction

Were delighted with the continued expansion of
MinuteClinic and with the enthusiastic response
of health care consumers. Were bringing
innovation and change to the marketplace and
consumers Michael Howe, CEO
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Ecosystems Based on Convergence
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Nano/Bio/Regenerative Medicine

• Nano devices in blood vessels roaming under own
  power to diagnose and fix problems
• Nanoparticals
• Removing bacteria from food
• Adding nutrients
• Aids in packaging/retaining freshness
• Artificial Organs/Regenerative Medicine
• Heart, lungs, pancreas, liver, kidney, blood,
  eyes, ears, legs, hands, etc.
• Advanced Prosthetics
• Arms, legs, hands- all with biological/
  technological / psychological interaction sensors

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Healthcare Delivery in 2020 Closer to Patient
Primary CareComplex diagnostics
treatmentsMinor surgical proceduresBasic
diagnostics prescribing by nurse
practitionersLife checks
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Do Patients Want to See Someone Other Than a
Physician
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So, What are the Consequences for us of this
Consumer Digital Healthcare World?

• Low margin ethical drugs will predominate
• China/India/other low cost manufacturing sites
  will have an edge
• Theranostics Rx tied to Dx
• Worldwide pricing/parallel pricing direct
  importation from lowest priced country
• Pro-generics environment
• Patents devalued increasing competition in
  marketplace
• Big pharma will become product distributors/diseas
  e managers more value across the entire disease
  care spectrum, but more specialized

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2020 Globalization / Changing the environment too

• Markets - demand increases in Asia developing
  world
• RD migrates to Asia
• Regulations International agencies collaborate
• Information healthcare payors share data on
  performance (clinical financial)
• Diseases know no boundaries
• Every company is global from day one!

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Start-ups Globalness Begins Day 1

• Science/technology
• Intellectual property/patents/FTO
• People
• Communications
• Competition
• Capital
• Marketsdiseases know no borders
• Even the smallest company is a global player
  from Day One

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Industry Dilemmas

• 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 in some countries

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Healthcare Costs Have Been Rising -For a Long Time
Drug Spending (B)
34
Prescription Drug Costs as Percentage of
Healthcare
35
US Healthcare Costs
Administration 35
Personnel costs 35
Procedures 18
Drugs 12
In vitro diagnostics 0.01

Diagnostic tests influence 85 of clinical actions
Source George Poste
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The Costs of Non-Compliance with Rx Regimens

• 177 billion projected cost
• 20 million workdays/year lost (IHPM)
• 40 of nursing home admissions
• projected 45-75 non-compliance (WHO)
• 50-60 depressed patients (IHPM)
• 50 chronic care Rx (WHO)

Source George Poste
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Healthcare Costs are Unevenly Distributed

• 0.5 patients consume 25 of healthcare budget
• 1 consume 35
• 5 consume 60
• 10 consume 70
• 50 consume 3
• 75 of cost is for patients with chronic diseases
• Source G. Halvorson/George Poste

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Market Distortions and Perverse Incentives in
Modern Healthcare Delivery

• Focus on late-stage detection and intervention
• High cost
• Low reversibility
• Multiple reimbursements for fragmented (siloed)
  care versus integrated management of patient
  needs
• Medical professionals paid for illness versus
  wellness
• Inadequate social and economic incentives for
  wellness
• Inadequate medical training/understanding of
  genetics/genomics/proteomics

Source George Poste / Burrill Company
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The Strategic Future of Healthcare

• Economic Unsustainability

Reform and Rational Care
or
Confronting the Imbalance Between Infinite Demand
and Finite Resources
Source George Poste
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Re-Inventing the Biopharmaceutical Industry

• Changing the industry versus changing with the
  industry
• Escaping the myopia of current markets and
  investor horizons
• Organizational re-structuring and process
  re-engineering are insufficient for survival
• Creation of unimagined products, services and
  businesses
• Integration of Dx, Rx and Ix

Where is the white space? How do we create new
companies in a new and different competitive
environment?
Source George Poste/Burrill Company
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The Three Forces Shaping the Evolution of
Healthcare
Demonstrating Value
Source George Poste
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Aligning Incentives

• Changing the value proposition in healthcare
• From cost to value
• From fragmented interventions to integrated care
• From late intervention in chronic disease to
  prediction, prevention and earlier detection and
  intervention
• From empirical Rx to rational Rx targeted to the
  underlying causal molecular pathologies
• Escalating importance of Dx/PDx in the healthcare
  value chain
• Reversing the profitability of Rx/Dx

Source George Poste/Burrill Company
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The Evolution of Molecular Medicine and
Information-Based MedicineThe Foundation for
Rational Care and Personalized Medicine
Drug
New competencies in molecular medicine and
biomedical informatics
Real-time information for optimum decision-making
Molecular diagnostics
Drug
Disease management protocols, patient information
Package insert
Genetic profiling
Rx 2008
Medicine 2020
Source George Poste
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Disease Subtyping Next-Generation Molecular
Diagnostics (MDx) and A New Molecular Taxonomy
of Disease

• Dx Platforms
• Massive parallelism
• Miniaturization
• Automation
• Rapid
• POC

RIGHT Rx forRIGHT DISEASE SUBTYPE
B1 skin, B2, melanocytes, B3, melanoma, B4 and 5
metastatic melanoma From C. Haqq et al. (2005)
102, 6092
Source George Poste
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Physician Adoption of the New Diagnostics

• Demonstrated clinical value and better patient
  outcomes
• Solid scientific basis
• Ease of use, simple to understand
• Just another test
• Fits into the clinical workflow
• Enables early diagnosis and prediction
• Well-received by patients
• Low capital outlay
• Reimbursable

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Diagnostics vs DJIA and NASDAQ (1 year)
Source Burrill Company
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Diagnostics vs DJIA and NASDAQ (5 years)
Source Burrill Company
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The Changing Focus of Healthcare
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Confluence of Technology, Tools, and Knowledge
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140 Years of Drug Discovery Technology
1st generation
2nd generation
3rd generation
genomics
/
proteomics
cell pharmacology/
molecular biology
drugs against
natural products
targets identified
genetic engineering
and derivatives
from disease genes
receptors
chronic
degenerative
serendipity
disease associated
enzyme
with ageing,
Biotech drugs
inflammation,
cancer
New Therapeutic Cycles
lipid
lowerers
ACE-inhibitors
Source CMS, Lehman Brothers research
H2-antagonists
beta
blockers
NSAIDS
psychotropics
penicillins
sulphonamides
aspirin
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Innovation Gap Getting Wider
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The Cost of Developing a New Drug has Greatly
Increased
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Reasons for Clinical Attrition 1991-2000
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• How often are your discoveries accidental?
  -almost always
• -Kevin Sharer CEO of Amgen

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• Big and innovation are not two words we
  usually put together.
• -Kevin Sharer CEO of Amgen

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A Systems Biology Approach Follow the Pathways
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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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RD Process of the Future
A Biotech / Pharma Company will only develop a
molecule when it is confident that the mechanism
of action works
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Pharmacogenomics and Biomarkers in Drug
Development
Drug Safety and Contraindications

• Differentiating pharmacokinetics and metabolism
• Determining personalized dosage

• Demonstration of efficacy for targeted
  populations
• Prospective hypothesis (e.g., EGFR receptor
  targeted drugs)
• Retrospective analysis (e.g., tamoxifen)

• Biomarkers as surrogate endpoints for trials
• Accelerating clinical development
• Enabling adaptive trials

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Safer, More Effective Drugs
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Pharma RD Outsourcing Accelerating

• Cost savings in FTEs, facilities and programs
  continue to drive research (and increasingly
  development) outsourcing to China and India
• Dr. Reddys Aurigene Discovery Technologies Ltd.
  Division (India)
• Discovery and lead optimization for Forest
  Laboratories for small molecule candidates in
  obesity/metabolic disorders lead generation and
  optimization for Merck Serono for small molecules
  to treat autoimmune diseases
• Nicholas Piramal (India)
• Discovery collaboration against two cancer
  targets for Merck
• Ranbaxy Laboratories Ltd (India)
• Ranbaxy to undertake lead optimization, selection
  and clinical trials through PoC in multi-year
  collaboration with GSK
• With Ranbaxy purchase by Daiichi Sankyo,
  collaborations will move to other players
• Hutchison Medipharma (China)
• Research collaboration in inflammatory disease
  and cancer with Eli Lilly

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FDA Approves Updated Warfarin Prescribing
Today's approved labeling change is one step in
our commitment to personalized medicine. By using
modern science to get the right drug in the right
dose for the right patient, FDA will further
enhance the safety and effectiveness of the
medicines Americans depend on," said Commissioner
of Food and Drugs Andrew C. von Eschenbach, M.D.

• 2M patients in US start taking warfarin
  (coumadin) each year
• Complications due to mis-dosing cost an estimated
  1.2B per year it is the second most common
  pharmaceutical emergency room adverse event
• Two gene variants CYP2C9 and VKORC1 are
  biomarkers for warfarin metabolism, affecting
  about 30 of patients taking the drug
• Genelex, Clinical Data among those offering the
  test

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Selected Targeted Treatments

• 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
• Personalized cancer vaccines (Problematic
  Development)
• Favrille FavId for non-Hodgkin's lymphoma
• Genitope MyVax for non-Hodgkin's lymphoma

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Amgen -Kevin Sharer (CEO)

• How do you decide the areas of science most
  promising?
• How much do we understand the biology?
• What is our IP position how do we defend it?
• Do we have human safety efficacy data that
  looks promising?
• Competitively, where are we in the queue?
• Will there be markets, will there be people to
  pay for it?
• Conclusion -big decision is when you push the
  button to go from PH II proof of concept studies
  to PH III efficacy studies .now we are starting
  to make hundreds of millions of dollars of
  investments

65
Burrill Personalized Medicine Index vs. DJIA
NASDAQ (1 year)
66
Personalized Medicine shows growth for infectious
disease testing
67
Global Market for Molecular Diagnostics
68
Drug effectiveness varies from patient to patient
69
Americans have strong attitudes toward genetic
testing
70
Health not Sickness

• The World Health Organization defines health as
  A state
• of complete physical, mental and social
  well-being and not
• merely the absence of disease or infirmity

71
The Obesity Epidemic
70
60
50
40
30
20
10
Overweight
0
Obese
1960-
1976-
1999-
2003-
1962
1980
2000
2004
Overweight and obese in adults 20-74 years old
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The Case for Wellness

• 30-60 of health plan claims are related to
  health risks that are modifiable by nutrition,
  exercise, stress reduction, etc.
• Well-managed employer health and productivity
  management programs return 6-15 for every dollar
  spent
• Cost of smoking healthcare cost of smoking over
  a lifetime 220K per person 40 in healthcare
  cost per pack of cigarettes smoked!
• 67 of the US population is overweight or obese,
  and 12 of healthcare costs are obesity-related
• Source Wellness Councils of America

73
Health and Wellness advances 2007-2008

• Global functional foods market expected to be
  167B by 2010, growing 14 annually
• Global nutraceuticals market 228B in 2007
  unreimbursed!
• Weight loss and weight management a huge, poorly
  served market with opportunity for drug, device,
  food/nutrition companies
• Employer-sponsored wellness programs on the rise
  so are legal issues around discrimination!
• 86 of employers in North America offer employee
  wellness plans only 25 in Europe, 21 in Asia
• Where theres smokeyoure fired! Employers
  aggressive stance on unhealthy behaviors under
  legal scrutiny

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Wellness Changes Become Evident

• School meals obesity and health education/PE
• Organic and health food markets growing rapidly
• Nutrition labeling
• High fructose corn syrup/trans-fats destined to
  be regulated
• Customized food to treat specialized medical
  conditions
• Employee incentive programs/cost reduction tied
  to fitness programs
• but, mixed gains on alcohol reduction/drug
  use/improved sexual health/reduced nicotine
  consumption

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10 Key Trends for 2008 in Food, Nutrition and
Health

• Digestive Health - a wellness issue and the
  biggest opportunity
• Fruit and superfruit - the future of food and
  health
• The marketing power of "naturally healthy"
• Beauty foods - the newest niche
• Weight management more about maintaining than
  losing
• Mood food feels its way
• A tipping point for the premiumisation of health
• Healthy snacking for the "me" generation
• Kid's nutrition - connecting to multiple trends
  is crucial
• Are antioxidants the new probiotics?

Source 10 Key Trends in Food, Nutrition Health
2008,by Julian Mellentin, New Nutrition Business
76
Food Industry Response to Nutritional Needs
77
Nutraceuticals vs. DJIA NASDAQ (1 year)
Source Burrill Company
78
Nutraceuticals vs. DJIA NASDAQ (5 years)
Source Burrill Company
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Traditional Medical Value Chain is changing !!
Universities Government Labs
Pharma Biotech Diagnostics Devices
Physicians Hospitals Pharmacy Other Caregivers
Personalized Wellness Coach, Fitness, Diet
Consumer Directed Payment Plans
Rich Health Information via Internet
Patient- Centered Care
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Healthcare Changes to Wellness (vs. sickness)

• Healthcare moves from one size fits all to the
  three/four Ps
• Personalization
• Prediction
• Prevention / disease preemption
• Patient Responsibility
• Increased life span (80s are new 60s 100s are
  new 80s)
• Health maintenance
• Fitness
• Eat for life

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and so, healthcare cost increases are on
everyones agenda

• Politicians/Congress/White House/Govt Leaders
• Payors/Reimbursors/Insurers
• Physicians/Providers
• Patients/Consumers
• and patients are empowered, have economic costs,
  and really want to stay well!

82
Current Healthcare System
Prescribers (Doctors)
Providers (Hospitals)
PatientsUsers
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Reimbursement

• Who is the payor?
• Government?
• Employers?
• Patients?
• Studies in comparative effectiveness who will
  pay for this?
• Evidentiary framework should not be left to
  payors (CMS/HHS/Kaiser/Aetna, etc.)
  Pharmaco-economic benefit tests?

84
Efficacy

• Drug is 30 effective
• vs.
• Drug effective for 30 of the market

85
Worldwide Global Pharmaceutical Sales
86
Global Pharmaceutical Sales in 2007
Audited Market 2007 Sales Sales Growth (const US) Growth (const US)
Audited Market 2007 USbn Mkt Shr 2007 CAGR 6-Feb
Worldwide 663.50 100 6.1 7.8
North America 304.5 45.9 4.2 8.7
Europe 206.2 31.1 6.7 6.6
Asia 62.2 9.4 13.1 11.3
Japan 58.5 8.8 4.2 2.8
Latin America 32 4.8 12 13.4
10 Key Markets 529.5 79.8 5.1 7.4
All information is current as of Feb 26,
2008.Excludes unaudited markets, and Russia,
Ukraine and Belarus audited data. Sales cover
direct and indirect pharmaceutical channel
purchases in U.S. dollars from pharmaceutical
wholesalers and manufacturers. The figures above
include prescription and certain over-the-counter
data and represent manufacturer prices. Totals
may not add due to rounding. Source IMS Health
87
Number of Products Approved 19822007
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
88
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
89
Products in Phase III by Disease / Target Area
Source BioCentury
90
Big New Markets

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

91
Generics Why is it Booming?

• Major blockbusters coming off patent
• Scale/globalization is key
• Emerging markets growing
• Fewer NCE approvals
• Little growth in primary care markets

92
Some of the Best Selling Drugs are Losing Patent
Protection
Expiry Drug Name Company Estimated US sales peak in billions
2008 Risperdal Fosamax Johnson Johnson Merck 2.5 2.0
2009 Prevacid Topamax Abbot/Takeda Johnson Johnson 3.2 2.1
2010 Lipitor Effexor/XR Pfizer Wyeth 8.7 2.7
2011 Plavix Actos Zyprexa Bristol Myers/Sanofil Lilly/Takeda/Waston Lilly 5.0 4.4 2.6
2012 Seroquel Singulair/AR AstraZeneca Merck 4.1 3.4
93
Projected Revenue Losses from Patent Expiry
(billions)
Source Sanford C. Bernstein Co.
94
How the Industry has Changed

• FDA being more risk averse
• NCE approvals in 2007 down 40 over 2006
• Approvable letters on the rise (requiring further
  studies)
• Marketed products receiving label restrictions
• Pharmacovigilence is big driver today
• New FDA guidelines
• Phase III trials now require 2500 subjects US
  (1500 Intl)
• Stalling diabetes startups for Type 2 diabetes

95
.but we are not without major issues

• Off-label promotions
• Follow-on biologics (biosimliars/generic
  biopharmaceuticals)
• Drug recalls
• QC Heparin
• Modernizing clinical trials
• Duke/FDA (Rob Califf)
• Patent reform
• Co-pays going up/Congressional inquiry
• Polypill, especially for developing world
• Financing innovation

96
On the Regulatory/Patent/Policy FrontGovts are
our Partners!

• 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
• Passing of Genetic Information Non-Discrimination
  Act (GINA)

97
Major Government Initiatives in Biotechnology

• Canada
• EU Scandinavia, Germany, UK, Spain, Italy,
  Switzerland
• Eastern Europe
• China
• India
• Japan
• Korea
• Malaysia
• Singapore
• UAE (Dubai/Abu Dhabi), Bahrain and Kuwait
• Israel
• Latin America (esp. Chile/Brazil/Argentina)
• Australia/New Zealand

98
Biotech and Healthcare are Global Businesses
UK/EUROPE
CANADA
ISRAEL
USA
JAPAN
MIDDLE EAST
CHINA
ASEAN
INDIA
LATIN AMERICA
AUS/NZ
99
World Market for Health and Wellness is Expanding

• China and India have large populations, growing
  wealth and middle class and increased demand for
  high quality healthcare
• Additional growth markets Middle East, Latin
  America, South Africa, Russia, Eastern Europe
• Burden of disease is changing in developed and
  developing countries chronic diseases
  (cardiovascular, diabetes, cancer, CNS et al.) on
  the rise everywhere
• Aging populations around the world
• National healthcare and private payor/employer
  models are converging and all facing issues of
  affordability, quality and equal access
• Consumers becoming an important factor in the
  healthcare equation

100
Medical Tourism on the Rise

• Market for medical tourism in 2007 about 50B,
  expected to grow to over 100B by 2012
• Originally cosmetic/elective procedures, now
  CABG, heart valve replacement, orthopedic
  including hip/knee replacement, cancer,
  transplant, etc.
• Last year 500,000 Americans traveled overseas for
  surgery
• Cost including travel 2-3x lower than in US
• Patient financing programs becoming available,
  some insurers providing incentives
• Magazines, associations, conferences

101
Medical Tourism Growth Drivers

• 40 of consumers say they would travel outside
  the country for medical treatment, if the quality
  was comparable and the cost was cut in half.
• - Deloitte
• Medical Tourism 2008 Survey of Health Care
• Foreign health care providers often have
  physicians with
• internationally respected credentials
• - National center for Policy Analysis
• Medical Tourism Offers Hope To Control Health
  Care Cost
• As always there are challenges, but from
  humanity's standpoint
• (medical tourism) is something we ought to
  celebrate."
• - Harvard Business School
• The Rise of Medical Tourism

Source Health Travel Guides
102
Medical Tourism Growth Drivers

• India
• Govt investing 3.6 Billion in medical tourism
  infrastructure.
• McKinsey estimates Indian medical tourism at
  2.3B by 2012.
• Mexico
• StarMedica hospital groups built 7 hospitals in
  last 5 years
• AmeriMed opening 10 new hospitals by 2012
• Grupo Angeles (largest private hospital group in
  Mexico) spending 700 million to build 15
  hospitals in the next 3 years
• Singapore
• More internationally accredited facilities than
  any other country.
• Thailand
• One Bangkok hospital (Bumrungrad) served over
  500,000 health travelers last year.
• Costa Rica
• One in five visitors is a medical tourist

Source Health Travel Guides
103
China

• Rapid growth of pharmaceutical sales in China
• Over 70B in 2007, growing about 20
• China will be one of worlds largest pharma
  markets within 10 years
• Biotech 5-Year Plan focus areas
• Vaccine
• Diagnostic
• Innovative drugs
• Modern TCM
• Bioengineering and biologic manufacturing
• Agbio/Biofuel/Industrial biotech
• Strong science infrastructure

104
China, continued

• Regulatory and IP Protection making some progress
• Dealing with corruption
• But still many safety and quality issues
  heparin, pet food, lead in products
• IPOs had a breakout year
• 3SBio, Simcere, WuXi, Fosun, Tongjitang, China
  Napstar Chain Drugstore
• MA Activity
• Chinese companies out shopping for (global)
  acquisitions e.g., WuXi/Apptec

105
China, continued

• Looking ahead
• China will move up the value chain, becoming more
  fully integrated and developing innovative
  pharmaceuticals
• Partnering opportunities with multinational firms
  will abound
• CRO services will become increasingly
  competitive, with consolidation occuring
• Rapid growth of China market will promoted
  branded generics and strong local pharma sales
  and marketing companies, especially outside major
  metropolitan areas (Beijing/Shanghai)
• China will develop FDA-compliant generics and
  biologics manufacturers to gain access to the
  global market
• More domestic and Hong Kong listings of China
  life sciences companies as Chinas capital market
  matures

106
India

• Indian economy continues to experience rapid
  growth
• Rising middle class, growth in consumer spending
  and healthcare spending
• More than 280 biotech companies, growing more
  than 35 per year for the past 4 years, a 2B
  market in annual revenue
• Key Exports Vaccines, CRAMS services, generics
• India has highest number of FDA-approved
  manufacturing plants
• Leading the way in biosimilars
• Moving from cost-savings to market expansion to
  innovation
• Healthcare projected to grow at 15 CAGR , to a
  350B market in 2022
• New disease burdens diabetes, cardiovascular,
  cancer
• Medical device opportunities in imaging,
  diagnostic and surgical devices to treat these
  disease areas
• Retail healthcare growing pharmacy chains, OTC
  medicines, health and wellness (functional foods,
  supplements, traditional medicines)

107
India, continued

• Ready access to growth capital
• MA for global reach and access to world markets,
  including developing world
• High liquidity and increased investment caps
  resulted in significant foreign direct investment
• Access to early stage venture capital very
  limited
• National strategy for biotech
• 1.6B in support pledged from government over 5
  years
• Increases in research budgets for life sciences
• Improved IP protection, walking the line between
  protecting corporate investments and access to
  medicines

108
US RD dominance dwindles

• US citations 205,000
• Non-US citations 250,000

China, South Korea, India growth outpacing others
Source NSF/Thompson Scientific
109
Europe

• Strong first half 2007, lackluster second half
• US sub-prime issues affect European market
  confidence
• Three Biotech 100M IPOs Addex (Switzerland),
  Ablynx (Belgium) and Pronova Biopharma (Norway)
• Continued harmonization in regulatory environment
  between EMEA and US FDA orphan drug regs,
  advanced therapies (e.g., gene therapy, stem
  cells, tissue engineering)
• Patients increasingly unhappy with denial of care
  and waiting times in national health services
• Denmark-Sweden Medicon Valley strong
  healthcare, biopharma cluster

110
Summary An increasingly borderless world.

• Global healthcare systems under intense pressure
  will undergo transformational change in the next
  10 years
• New business models emerging in all sectors from
  biopharmaceutical discovery, development and
  manufacturing to healthcare delivery to retail
  consumer healthcare solutions
• Aging populations, growing demand for quality
  healthcare in emerging growth countries will mean
  continued high demand
• Consumers around the world playing an increasing
  role in healthcare decision-making
• Enormous opportunities to bring business value in
  this changing world, leveraging global capital,
  talent and markets

111
Agbio Increases Crop Productivity and Improves
Quality

• Cuts pesticide use
• Decreases carbon emissions
• Lessens tillage/land erosion
• Increases drought tolerance
• Increases nitrogen efficiency
• Improves Nutritional Attributions

112
The Demands for Agriculture Stay the Same
More food on less land with half the water.
Source 1999-United Nations
113
Market Overview Agriculture
114
Global Area of Biotech Crops 1996 to 2005 By Crop
115
AgBio vs. DJIA NASDAQ (1 years)
Source Burrill Company
116
AgBio vs. DJIA NASDAQ (5 year)
Source Burrill Company
117
What We Can Learn 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
• Advance opportunities where appropriate

118
Industrial/Bio-fuels/Bio-energy

• Less reliance on fossil fuel, more reliance on
  renewable sources
• Grain ethanol is a transition product,
  cellulosic bio-fuels will be the norm provided
  transformation costs are reduced
• Synthetic biology - genetically engineered
  organisms to produce agricultural commodities,
  waste management, factories of pharmaceuticals,
  etc.

119
2005 Was The Tipping Point For Industrial
Biotechnology

• Perfect Storm
• Energy security
• Global Warming
• Economics
• Political Will
• Market Pull
• Ready Technology

Biofuels Sustainability
2008
119
120
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

121
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
• 16 cellulosic ethanol plants under construction
• Price of feed grains
• 2 historically, topped 6.00 (corn)
• 20 of corn crop today, 50 in two years !
• 13 of soybeans going to biodiesel
• The focus has been on biofuels Ethanol
• A new biofuels debate has emerged GHG emissions,
  grain shortages

122
World Ethanol Production
Source ZERO
123
Projected Feedstock Available for Biofuels
Source Oak Ridge National Laboratory
124
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

125
Storm Clouds

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

126
Social, Economic and Environmental Issues
Dominate 2008

• US recession
• How long how deep?
• Fewer IPOs, Fewer Acquisitions
• What will big oil do ?
• Food crops for fuel
• 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

127
Opportunities in BioEnergy

• From an investor stand point Grain 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

128
So lets look at where we are and what happened
during the last year...
129
Burrill Select vs. DJIA NASDAQ (1 year)
Source Burrill Company
130
Large, Mid, Small Cap (1 year )
Source Burrill Company
131
Key Industry Stats Biotech 2008
USA Europe Asia/Pacific Canada Total
Sales / Rev. 89B 12B 3.5B 1.5B 106B
AnnualRD 23B 4B 0.4B 0.8B 28B
Number ofCompanies 1,450 1,600 740 450 4300
Number ofEmployees 131,000 60,000 13,000 7000 201,000
Number ofPublic Co.s 370 160 140 75 745
Market Cap 455B 30B 50B 12B 547B
132
Pharma vs. Biotech Industry Market Cap (B)
Company 10/10/2008 12/31/2007 10/10/2007
Pfizer 124 155 169
Johnson Johnson 194 191 190
Merck 67 127 112
Eli Lilly 50 60 65
Bristol-Myers Squibb 41 53 57
Pfizer/Merck 201 282 281
Total US Biotech 465 455 482
Industry 2.3x 1.6x 1.7x
133
US Biotech Market Cap 2007 2008
134
.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-Oct 2008)
Source Capital IQ, Windhover, Burrill Analysis
135
Top Five US Pharma vs. Total Biotech Market Cap
(1 year)
136
Significant Mergers and Acquisitions in the Last
Year
Pharma/Specialty
Shionogi/Sciele 11 billion
Novartis/Alcon 10.4 billion
Boehringer/Actimis 515 million
Teva/CoGenesys 400 million
Pharma/Biotech
Roche/Genentech 44 billion On the table
Takeda/Millennium 8.2 billion
Eli Lilly/ImClone 6.2 billion
Eisai/MGI Pharma 3.5 billion
Pfizer/Encysive 195 million
GSK/Sirtris 720 million
GSK/Reliant 1.65 billion
Biotech/Biotech
Invitrogen/Applied Biosystems 6.7 billion
ViroPharma/Lev Pharma 618 million
Celgene/Pharmion 2.7 billion
Galderma/CollaGenex 420 million
Inverness/BBI 100 million
Inverness/Paradigm 230 million
Diagnostics
Roche/Ventana 3.4 billion
Hologic/Third Wave 580 million
Medtech
Kinetic Concepts/ LifeCell 1.7 billion
Fresenius/APP Pharma 3.7 billion
CSL/Talecris 3.1 billion
Getinge AB/Datascope 841 million
137
Cross-border MA picks up
138
Significant Partnerings in the Last Year
Pharma/Biotech
Takeda/Amgen 1.78 billion
Takeda/Anylam 1 billion
GKS/Synta 965 million
GKS/Valeant 820 million
Astellas/CoMentis 760 million
GSK/Tolerx 750 million
BMS/PDL Pharma 710 million
Pfizer/Medivation 725 million
Biotech/Biotech
Genzyme/Isis Pharma 1.1 billion
Celgene/Array 1.04 billion
Nycomed/Immunomedics 620 million
Celgene/Acceleron 560 million
Genzyme/PTC Theraputics 437 million
139
US Biotech Financings (M) 1 year
  Q4 2007 Q1 2008 Q2 2008 Q3 2008 October 07-08 October 06-07
Public
IPO 371 6 0 0 377 2,020
Follow-ons 3,128 701 312 693 4,834 5,917
PIPEs 357 370 203 308 1,238 1,671
Debt 60 1,622 360 408 3,440 8,426
Private
VC 963 837 1,007 1085 3,892 4,532
Other 171 20 226 20 437 562
 
Subtotal 5,050 3,556 2,108 2,514 14,218 23,128
 
Partnering 7,012 3,091 4,141 2,962 17,212 23,686
 
Total 12,062 6,647 6,249 5,476 31,430 46,814
140
US Biotech Financings (M) 2003-2008
  2003 2004 2005 2006 2007 08 to date
Public
IPO 456 1,701 819 920 2,041 6
Follow-ons 3,536 3,388 4,194 5,766 6,311 1,706
PIPEs 2,051 2,417 2,376 2,027 1,818 881
Debt 7,170 8,418 5,565 13,978 6,569 3,380
Private
VC 2,841 3,733 3,518 4,236 4,445 2,929
Other 294 269 1,114 425 611 266
 
Subtotal 16,348 19,927 17,586 27,352 21,975 9,168
 
Partnering 8,933 10,933 17,268 19,796 23,365 10,200
 
Total 25,281 30,860 34,854 47,148 45,340 19,368
141
Capital Raised 1980-3Q 2008
142
Biotechs Five cycles Length of Rallies/Droughts
in Months

143
IPOs Not What They Used To Be
144
IPOs Not What They Used to Be
Number of IPOs Positive sinceIPO Negativesince IPO Acquired or delisted Amount Raised( Million) Average D change Since IPO
2003 7 0 3 4 438 (95)
2004 29 4 16 9 1,628 (32)
2005 17 2 10 5 819 (48)
2006 19 4 12 3 920 (35)
2007 2008 28 1 2 0 25 1 1 0 2,041 6 (49) (52)
Total 101 12 67 22 5,852 (52)
Includes over-allotments As of 10/10/08
Source Burrill Company
145
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

146
Financing Circa 2008

• Development stage (B/C/D rounds) available but
  expensive
• Equipment/facility financing (even IP)
• IPOs fewer and later stage operating companies
  with revenues/profits
• More PIPEs
• Reverse mergers into public companies
• SPACs
• Equity lines of credit
• Shelf registration/registered direct

147
Wall Streets ImplosionWhat does it mean to us?

• Its a sea change, not a temporary blip
• Weve had 30-40 years of relatively easy access
  to relatively cheap capital
• That game is OVER! Capital markets permanently
  restructured
• Access to capital
• More difficult to find (IB resources for
  micro-cap stocks decreased)
• More expensive
• Buyside interest/resources reduced (Hedge funds
  gone)
• VC/private investors (deep pockets/short arms)
  business is challenging no IPOs for exits
• Big Pharma not as eager (things will be cheaper
  if they wait)
• But, there is an alternative view

148
Alternative view of Capital Markets

• This too will pass
• Markets reconstruct, reorganize, interest returns
• New group of boutique investment banking firms
  emerge (like the old 4 horsemen HQ, Robbie
  Stephens, Alex Brown, Montgomery)
• Genentech/ImClone put big back into buy side,
  money redeployed
• Capital market efficiency Returns improve,
  drawing more capital back into markets

149
How Does All This Impact Entrepreneurial
Start-ups in 2008

• VC Angels are hesitant to invest
• Business models are changing
• More financing of projects
• Higher bar for regulatory approval
• Reimbursement compression
• Globality essential
• Capital efficiency required
• BUT
• Rate of start-ups around the world are
  increasing (go figure)

150
The old models are not working what is ahead?

• Continued rapid pace of innovation in medicine
  (stem cells, engineered materials, bio-nano,
  etc.)
• Development of personalized medicine and targeted
  therapies
• Consumers gain power and medicine becomes
  patient centric
• Increased focus on wellness, not sickness
• Globalization
• New business models emerge
• Virtual integration of pharma/biotech/service
  providers (VIPCO not FIPCO)

151
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
152
Virtual Pharma New Organizational Models for
Leverage of Open-Source Services

• PharmaCommons integration of rapidly expanding
  open-source datasets
• Discovery, toxicology, clinical trials
• Network of web-based turn-key contract services
• China/India/other low cost (RD, clinical
  development and manufacturing) sites will
  dominate
• New role of BigPharma as integrator to generate
  value across the entire disease episode spectrum
• Wellness to terminal care

Source George Poste/Burrill Company
153
So the predictions for 2008/2009
154
The Predictions for Biotech in 2008/2009(regardle
ss of who wins the US election)

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

155
The Predictions for Biotech in 2008/2009(continue
d)

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

156
The Predictions for Biotech in 2008/2009
(continued)

• Both big Pharma and big Biotech will be competing
  for companies with advanced product pipelines
• Capital Markets
• 4Q08 very difficult financing environment
  worldwide
• 2009 25 billion will be raised by the US
  biotechs (half of 08)
• Europe will lag US, few IPOs and difficult VC
  financings
• China, India, other economies continue to finance
  biotech Cos
• Companies arbitrage value differences globally

157
So
Go for it
158
Biotech 2008 A 20/20 Vision to 2020
G. Steven Burrill Chief Executive Officer,
Burrill Company The Burrill Indiana Life
Sciences Meeting October 21, 2008