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Z-CUBE: THE NEXT GENERATION OF LIFE SCIENCES INVESTING. “ The link between venture capital and research: synergies and collaboration ” – INSME-UNIDO Rome, november 30, 2006. Claudio Semeraro – CEO Z-Cube srl. Drug industry R&D expenditures greatly outpacing US NCE approvals

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slide1

Z-CUBE: THE NEXT GENERATION OF LIFE SCIENCES INVESTING

“The link between venture capital and research: synergies and collaboration” – INSME-UNIDO Rome, november 30, 2006

Claudio Semeraro – CEO Z-Cube srl

background themes
Drug industry R&D expenditures greatly outpacing US NCE approvals

Number of New Biotech — Big Pharma Collaborations continuously increases

Biotech companies start to attract VC capitals at a more advanced development stage than before

Significant funding and expertise “gaps” exist for early-stage life science companies

Public capital market thresholds for liquidity in both North America and the EU continue to rise

Background Themes
  • These factors demand a unique approach to life sciences investing…
the primary problem failure to develop therapeutics addressing unmet needs
High candidate drug failure rate

<20% of drugs entering human testing get approved

a drug entering phase I in 2000 less likely to reach market than one entering Phase I in 1985

~50% of phase 3 studies fail due to lack of efficacy

The Primary Problem: failure to develop therapeutics addressing unmet needs

Source: FDA clinical productivity, ACPS Meeting, October 19, 2004Rosemberg A.

lengthening clinical times have increased total times for approval of new biological drugs
Lengthening Clinical Times Have Increased Total Times for Approval of New Biological Drugs

Tufts Outlook 2003

slide5

Current scenario: the pharma innovation gap

The increasing R&D costs and the reduced R&D efficiency increase challenges and opportunities for biotech companies

Source: Burrill & Co 2006

number of new biotech big pharma collaborations 1993 2005

517

502

425

450

411

384

373

400

350

300

229

228

224

250

180

200

165

150

117

100

69

50

0

2005

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: BioWorld Financial Watch, American Health Consultants, BioCentury, all biotech

Number of New Biotech — Big Pharma Collaborations 1993-2005
selected biotech partnering in the last 12 months
Biogen/Protein Design Labs $800M

Alnylam/Novartis $700M

Medarex/BMS $530M

Pfizer/Coley $505M

Shire/New River $500M

Plexxikon/Wyeth $372M

Nastech/Merck $341M

Avanir/Astra Zeneca $340M

Cilag/Basilea Pharma $308M

Pharmasset/Roche $300M

CancerVax/Serono $278M

Astex/AstraZeneca $275M

GSK/Theravance $252M

Sirna/Allergan $250M

GenMab/Serono $215M

Sucampo/Takeda $210M

Novartis/Avanir $210M

Selected Biotech Partnering in the Last 12 Months

Source: Burrill &Co, 2006, all biotech

selected biotech m a in the last 12 months
Medicis/Inamed $2.8B

Solvay/Fournier Pharma $2.1B

Pfizer/Vicuron $1.7B

Shire/TKT $1.6B

GSK/ID Biomedical $1.4B

Meda/Viatris $1.0B

OSI/Eyetech $0.9B

Genzyme/BoneCare $0.6B

Danisco/Genencor $0.6B

Pfizer/Angiosyn $0.5B

Protein Design Labs/ESP Pharma $0.5B

GSK/Corixa $0.4B

Selected Biotech M&A in the Last 12 Months

Source: Burrill &Co, 2006, all biotech

the vc gap

The VC gap…

The challenge of early stage financing

slide11

Total Biotech VC Funding

  • In spite of the increase in total biotech VC funding seed investments are down

Sources for R&D costs: Pharmaceutical R&D Spending: Pharmaceutical Research and Manufacturers of America, PhRNA Annual Membership Survey, 2003. NIH Budget: National Institutes of Health, Office of Budget, History of Congressional Appropriations, 1992-2003, www.nih.gov 2003

seed investments remain low
Seed investments remain low…

…attrition rate in early financing rounds is high with less than 50% of companies progressing to the following round. Attrition in later stages could be influenced by exits

Source: DataMonitor, 2006,only lifescience therapeutics

fewer deals at research stage
Fewer deals at research stage

Source: DataMonitor, 2006,only lifescience therapeutics

the equity gap

Tech.

Platform

Hits

Leads/Drug candidate

Preclinical/clinical development

Start-up and seed

Growth capital

Development capital

Mainstream VC

Tech Specialists

Equity gap

Regional VC

Angels

UCSF*

Grants and Matched Equity

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

* University Challenge Seed Funds

Source: Modified from European Biopharmaceutical Review, Spring 2006

Funding range £ x 000

The “equity gap”
the challenges
Biotech companies start attracting VC capitals at a more advanced development stage than before

Seed investments in early stage companies remain low

Early stage companies increasingly need industrial know-how to transform academic innovation into a winning industrial project

Increasing need of industrial management

Marketable, VC-grade Business Plan

Significant funding and expertise “gaps” exist for early-stage life science companies

The challenges
the vc perspective
Early stage investing is far from an exact science

Early-stage companies are often comprised of little more than an entrepreneur with an idea

Valuations at the “seed stage” are generally driven by factors that by their nature are subjective

These include:

appraisals of the CEO and management team

novelty of the value proposition

evaluation of intellectual property

expected time-to-market

expected path to profitability

estimated capital needs and burn rate

syndicate risk

The VC perspective
  • Source: Understanding Valuation: A Venture Investor’s Perspective
    • A. Dana Callow, Jr. Managing General Partner, Boston Millennia Partners
    • Michael Larsen, Senior Associate, Life Sciences
filling the gap
Venture-backed companies need:

greater degree of R & D and business development expertise than ever before

easier access to seed financing to progress at a stage attractive for VC capitals

Z-Cube brings both sets of skills with a pharma company level of competency

Filling the gap…
slide18

Z-Cube: the venture capital arm of Zambon Group

  • Focus: life sciences and biopharmaceuticals
  • Main therapeutic areas: respiratory, pain and inflammation, allergy and immunology, anti-infectives
  • Business activity
    • Corporate venture capital, investing mainly in early stage.
      • NewCos to be developed: ~12-15
    • Expert support
      • Strategic Advisory activities for NewCo formation and development
      • Strategic partnering for NewCo development
      • Leverage from pharma company expertise in different areas
  • Location: Bresso (Milan, Italy)
z cube srl an entreprenurial corporate incubator
Subsidiary of the Zambon Group focused on identifying and supporting pharma projects with potential to become a NewCo

Z-Cube provides skilled project coordinators, capital and an extensive network of experts and relationships to prepare a a validated and marketable business plan with maximum financing potential

Z-Cube adds value via the type and quality of R & D and business support provided

Z-Cube srl: An Entreprenurial Corporate Incubator
slide21

Z-Cube integrates competencies for NewCo success

  • Zambon Group SpA
  • Competitive Intelligence
  • Corporate Marketing
  • Intellectual Property
  • Finance
  • Scientific Advisory Board
  • D. Bellet
  • E. De Clercq
  • A. Lanzavecchia
  • C. Page
  • Z. Wiesenfeld-Halllin
  • Advisor
  • Business advisor (US)

Inpharzam

Medicinal Chemistry and Biology also devoted to service activities for Drug Optimization

Z-CUBE MANAGEMENT TEAM

slide22

Z-Cube: from Application to NewCo

Z-CUBE INCUBATION-DILIGENCE ROAD MAP

Max Time to NewCo (months)

0

12

1

3

Pre- screening

Business Plan

Screening

NewCo

yes

yes

Z-Cube Advisory Board

Project Coordinator Z-Cube and Zambon Group team

CDA

Investment partners: - Z-Cube - Financial investors

Application

Seed investment

TWO

THREE

ONE

realizing a project s potential

CAPITAL TO GET UNDERWAY

EXPERT SUPPORT

GROWTH CAPITAL AND RELATIONSHIP NETWORK

Realizing a Project’s Potential
the z cube process for start up companies
The Z-Cube Process for Start-up Companies

CAPITAL TO GET UNDERWAY

  • Z-CUBEwill fund selected projects with a preliminary investment to develop the Business Plan

EXPERT SUPPORT

  • Each project will be assigned aproject coordinatorandprofessional team from Z-Cube/Zambon. This will ensure the development of a validate and marketable business plan with maximum financing potential

GROWTH CAPITAL AND RELATIONSHIP NETWORK

  • Z-Cube designed to invest in and syndicate the early financing rounds for the NewCos
  • Z-Cube will support the NewCo with growth capital and its relationship network going forward.
slide25

Target for incubation start

The proponent:

  • Dynamic researchers/team of scientists with a track record of publications in peer reviewed journals
  • Strong enterpreneurial attitude and willingness to support a NewCo creation

OR

  • Company recently formed

The project:

  • Innovative projects with potential to become a new therapeutic for unmet medical needs with significant commercial potential
  • Active molecules identified (lead series) and supported by at least:
    • IP filed
    • In vitro/in vivo data in relevant models
slide26

Target for NewCo launch at the end of incubation

Company created/consolidated

Minimal staff on board or committed (at least CEO)

Business plan finalized and approved

IP secured

Lead project no more than 12-18 months from IND

Pipeline: more than a single product/project

Z-Cube designed to invest in and syndicate the early financing rounds for the NewCos with other VCs

The following characteristics are required:

track record
Executive Summary

About 1000 projects screened

8 projects selected for sponsorship (5 in Europe, 3 in U.S.)

3 companies launched and financed

Elagen Inc. (Boston, USA): HPV replication inhibitors

SuppreMol Gmbh (Munich, Germany): soluble Fc receptors

PharmEste Srl (Ferrara, Italy): TRPV1 antagonists

and others coming soon…

Track record
z cube adding value to create business opportunities
Experienced industrial team with on average 20 years expertise in all major therapeutic areas

First class competences in R&D, clinical developement, project management, strategic support for regulatory strategy and market positioning, business development

Leverage from Zambon Pharma key competences in intellectual property, legal, finance, strategic marketing

Leverage from DOIT research centre for technical assessments, drug optimization and library testing

Delivering of a marketable VC-grade Business Plan

Granting interim management and leading company staffing and financing

As lead investor, syndicating capitals from third party investors

Z-Cube: Adding value to create business opportunities
a unique approach and an efficacious response to the challenging scenario in life science investing

Filling the gap…

Tech.

Platform

Hits

Leads/Drug candidate

Preclinical/clinical development

Start-up and seed

Growth capital

Development capital

Mainstream VC

Z-Cube

Regional VC

Angels

UCSF *

Grants and Matched Equity

* University Challenge Seed Funds

4,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Source: Modified from European Biopharmaceutical Review, Spring 2006

Funding range £ x 000

A unique approach and an efficacious response to the challenging scenario in life science investing