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HEALTHCARE GROUP

HEALTHCARE GROUP. January 17, 2003 Nelson Campbell. FBR. Healthcare Investment Banking. Refinancing Driving Consumer Spending in 2001 and 2002. Key Trends: Interest rates had allowed consumers to extract record amounts of equity via cash-out refinancing.

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HEALTHCARE GROUP

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  1. HEALTHCARE GROUP January 17, 2003 Nelson Campbell FBR Healthcare Investment Banking

  2. Refinancing Driving Consumer Spending in 2001 and 2002 • Key Trends: • Interest rates had allowed consumers to extract record amounts of equity via cash-out refinancing. • Increase in available cash drove consumer spending despite 6% unemployment. In 2002, the U.S. economy grew 3%, broadly in line with its long-term trend

  3. The Case for a Capital Spending Recovery in 2003 • Outside of telecom, fears of a broad-based capital stock overhang are overstated. • In 2002, the value of capital stock registered its first annual decline in the post WWII era. • Return on capital is historically high relative to the real cost of capital. • Cash flow growth has recovered while capital spending has not. Source: The Bank Credit Analyst

  4. Looking Forward • The economy will not slide back into recession • Corporate profits will increase • Monetary and fiscal policy will remain very stimulative (the Federal Reserve will not raise interest rates any time soon).

  5. Most of the Pieces are in Place for a Classic Cyclical Bull Market • Liquidity is explosive • Many measures of sentiment have reached depressed levels • Many indicators suggest the economy and corporate earnings are set to recover in the next six months • Stocks led economic rebounds by an average of 4.5 months during the past eight market cycles

  6. The State of The Public Market • Key Trends: • The NASDAQ Composite is down 71.3% since its peak, and down 34.0% since 1/1/99 • The NASDAQ Biotech Index is down 67.3% since its peak, but up 18.2% since 1/1/99 Selected Market Indices 18.2% -4.3% -24.5% -34.0% Source: Bloomberg As of: 1/10/03

  7. Small Cap vs. Large Cap Biotech Stocks • Key Trends: • When the capital markets are weak, investors prefer large cap biotech stocks to small and middle market biotech firms. • The NASDAQ Biotech Index was down 0.6% in 2001, but was down 45% in 2002 and reached its lowest level since 1999 Source: Bloomberg

  8. Recent Drug Failures GenVec - BioBypass, Phase II, Missed Primary Endpoint in peripheral arterial disease Cook/Guidant - Missed Primary Endpoint in restenosis Icos Corp. - Pafase, Phase III, Failed to Show Benefit in severe sepsis Eli Lilly - Ruboxistaurin, PhaseII/III, Missed Primary Endpoint for diabetic retinopathy ConjuChem - CJC-1008, Phase II, Missed Primary Endpoint Transkaryotic Therapies - Replagal, Phase III, Missed Primary Endpoint in renal function Neurogen - NGB97-1, Failed to Show Therapeutic Effect in Treatment of Alzheimer’s disease Alexion Pharmaceuticals - Eculizumab, Phase II Missed Primary Endpoint of proteinura reduction Endo Pharmaceuticals - MorphiDex, Phase III, Missed Primary Endpoint Immune Network - Dapsone, Phase II data Not Significant Schering AG - Estradiol, Non-Approvable Letter Transkaryotic Therapies - Replagal, FDA Meeting Delayed IntraBiotics Pharmaceuticals - Iseganan, Missed Primary Endpoint for oral mucositis during chemotherapy Genmab A/S - HuMax-CD4, Missed Primary Endpoint for rheumatoid arthritis Incara Pharmaceuticals - Deligoparin, Phase II/III trial Missed Primary Endpoint Date Order - Most Recent First 9/02 to Present Source: BioCentury, company reports

  9. Tapping the Public Market: Biotech IPOs • Key Trends: • The spike in financing in 2000 was an anomaly • In 2000, there were 53 biotechnology IPOs which raised $4.2 billion • In 2001, there were 5 biotechnology IPOs which raised $304 million • In 2002, there were 4 biotechnology IPO which raised $592 million Biotech IPOs and the Amount Raised Source: CommScan EquiDesk

  10. Tapping the Public Market: Biotech Secondaries Biotech Secondaries and the Amount Raised • Key Trends: • In 2000, there were 57 biotechnology secondary offerings which raised $16.4 billion • In 2001, there were 29 biotechnology secondary offerings which have raised $2.93 billion • In 2002, there were 11 biotechnology secondary offerings which raised $544.3 million Source: CommScan EquiDesk

  11. U.S. Venture Capital - Biotechnology Investments vs. Total Domestic investments only Source: PWC Money Tree

  12. Financing Summary Biotechnology and Specialty Pharmaceutical Investments

  13. Recent Mergers and Acquisitions in the Biotech Field Acquirer/TargetAnnouncement DateValue Chiron/Matrix Pharmaceutical 1/7/02 $61MM deCODE genetics/MediChem Life Sciences 1/8/02 $83.6MM Collateral Therapeutics/Schering AG 3/20/02 $140.9MM Tibotec-Virco NV/Johnson & Johnson 3/22/02 $320MM Ethypharm/Biovail 4/1/02 $127.8MM Rhein Biotech/Berna Biotech 5/1/02 $225MM Pharmacia/Pfizer 7/15/02 $60 Billion Genset/Serono 7/16/02 $107MM Visible Genetics/Bayer AG 7/23/02 $61.4MM Variagenics/Hyseq 11/11/02 $55.9MM Synaptic/H. Lundbeck 11/21/02 $121MM Triangle/Gilead 12/4/02 $464MM Zentaris/Aeterna 1/1/03 $51.7MM Source: MergerStat

  14. Growth in New Drug Approvals • Key Trends: • There are currently more than 130 biotechnology drug products and vaccines on the market. • There are more than 350 biotechnology drug products and vaccines, targeting more than 200 diseases, in clinical trials. • 30% of biotech companies have less than 1 year of cash and equivalents. • 22% of biotech companies are trading below cash (i.e., their market caps are below the cash on their balance sheets) • The growth in drug approvals from the biotechnology industry points to strong fundamentals. Source: Biotechnology Industry Organization

  15. Growth in Biotechnology Sales and Revenues • Key Trends: • With the growth in drug approvals comes increased drug sales and increased leverage in collaboration negotiations Source: Ernst & Young Annual Biotechnology Industry Reports, Biotechnology Industry Organization

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