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  1. MassBio State of the Industry Biotechnology 2012: The New Normal? March 8, 2012

  2. Biotechnology 2012: The New Normal? BTK Performance (Jan 2000 – pres.) The BTK has more than doubled since September 2008. AMEX Biotechnology Index

  3. Biotechnology 2012: The New Normal? NBI Performance (Jan 2001 – pres.) The NBI is at its all-time high. Nasdaq Biotechnology Index

  4. Biotechnology 2012: The New Normal? Index Performance (Jan 2008 – pres.) Over the past 12+ months, the biotech sector has outperformed both the technology sector and the broader market. Performance (1/1/11 – pres.) NBI Nasdaq S&P 500 28.6% 8.0% 4.4%

  5. Biotechnology 2012: The New Normal? Recent Headlines Despite the sector’s performance, indications of troubled times abound. “Biotech IPO Forecast for 2012 Expected to Remain Chilly” - GEN (Jan 2012) “Ambit Withdraws IPO, Cites Market Conditions” - Xconomy (June 2011) “Prospect Venture Dumps Latest Fund, Won’t Make New Biotech Bets” - Fierce Biotech (Oct 2011) “Biotech funding hits four-year high as startups suffer” - Bloomberg (Jan 2012)

  6. Biotechnology 2012: The New Normal? Pharma Industry Perspectives

  7. Industry Specific Dynamics Potential Generic Launches: 2012-2016 The $75 billion in US revenue at risk over the next 5 years represents 30% of the industry’s 2011 US revenue. $21.2 b $17.8 b $15.0 b billions of dollars $11.4 b $10.1 b Source: Company reports, Cowen & Co

  8. Pharma R&D Expenditures 1999 - 2010 Industry productivity continues to decline. $3,000 $ $2,500 $2.000 R&D cost per NME ($mm) total R&D expenditure s (b$) $1,500 $1.000 $500 $0 Source: PhRMA, Ernst & Young

  9. Pharma R&D Expenditures 1989 – 2010E (by function) $29.2 B $32.4 B $36.1 B $37.0 B $38.7 B $42.0 B $43.8 B $46.2 B $49.6 B $47.2 B $46.4 B $49.4 B • Regulatory/ other • Post-approval studies • Ph I – III clinicals Percent of total R&D expenditures • Pre/non clinical Pre/non clinical %: 24.3% 25.2% 51.0% 44.0% 39.0% 32.0% 32.5% 31.9% 25.9% 25.7% 27.2% 27.3% 27.0% Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. Source: PhRMA,

  10. Pharmaceutical Innovation Relative New Therapeutic Contributions (1997 – 2011) 31 36 35 35 43 49 40 43 38 33 31 41 45 21 39 Percent of annual new drug approval Bio/Specialty Pharma: Large Pharma: 66.7% 33.3% 74.4% 25.6% 74.2% 25.8% 58.3% 41.7% 60.0% 40.0% 80.0% 20.0% 76.7% 23.3% 84.4% 15.6% 40.8% 59.2% 70.7% 29.3% 42.5% 57.5% 51.2% 48.8% 57.9% 42.1% 39.4% 60.6% 48.4% 51.6% Large Pharma Bio/specialty pharma Source: PhRMA, BIO, FDA

  11. Industry Specific Dynamics Acquisition Activity: Pharmaceutical Industry Target Acquiror Purchase Price • Genentech • Roche • $47.0 billion • Genzyme • Sanofi Aventis • $20.1 billion • MillieniumPharma • Takeda • $8.7 billion • Imclone Systems • Eli Lilly • $6.5 billion • OSI Pharma • AstellasPharma • $4.0 billion • King Pharma • Pfizer • $3.6 billion • Inhibitex • Bristol-Myers Squibb • $2.5 billion • Crucell • Johnson & Johnson • $2.3 billion • Medarex • Bristol-Myers Squibb • $2.1 billion • Cougar Biotech • Johnson & Johnson • $2.1 billion

  12. Merger & Acquisition Activity Life Science Sector (Q4 2007 – Q4 2011) Acquisition activity in the life science sector remains robust. 70 68 67 63 63 61 60 57 57 55 53 50 42 40 40 40 Number of announced transactions 29 Source: Johnston Blakely & Co. research

  13. Pharmaceutical Innovation Escalating Risk Profiles Clinical Risk Reimbursement Development Costs Reimbursement Risk Regulatory Risk • significant drop in post Vioxx approvals • increasing approval times • outcomes-based pricing • comparative effectiveness

  14. Regulatory Challenges New Drug Approvals (1996 – 2010) Median approvals BLA NMEs Pre-Vioxx Post-Vioxx number of annual approvals Note: Figures based on CDER approvals only. Source: Ernst & Young, FDA

  15. Reimbursement Challenges Case Study: Dendreon • Provenge sales guidance withdrawn • reimbursement concerns • inability to identify eligible patients price per share

  16. Biotechnology 2012: The New Normal? Capital Markets Perspectives

  17. Biotechnology Equity Financings (2000 – 2011) $ follow-on IPO $10.5 $10.4 venture $9.4 $9.2 $8.5 $8.0 $7.9 $6.1 $6.2 (dollars in billions) $4.3 $3.5 Source: Ernst & Young, BioCentury, BioWorld, VentureSource, Burrill & Co

  18. Capital Market Review Venture Investment: Biotechnology (2000 – 2011) Measured in constant dollar terms, venture investment in biotechnology has remained relatively consistent for more than a decade. $6.2b $5.2b $5.0b $5.0b $4.8b $4.7b $4.6 billion $4.4b $4.3b $4.1b $4.0b $3.9b $3.9b (dollars in millions) Note: Dollar amounts adjusted to reflect 2011 dollar Source: Thomson Reuters; PwC Moneyytree

  19. Venture Investment: Biotechnology First Round Investment (2000 – 2011) The percentage of dollars invested in initial venture rounds has remained in the 15% and 20% range. 17.2% average (percent of total venture investments) • Invested capital ($mm) $716 $631 $662 $393 $675 $578 $938 $1,034 $890 $498 $534 $842 Source: Thomson Reuters; PwC Moneytree

  20. Capital Market Review Venture Investment: Biotechnology (2000 – 2011) Based on number of completed transactions, there has been a trend towards later-stage investments. • Total # of financings 488 446 358 334 319 355 395 397 472 510 512 440 • 1st round financings (percent of total) • other venture rounds • Percent first round financings 24.8% 22.0% 34.6% 32.3% 34.2% 25.6% 27.3% 29.7% 29.7% 27.6% 27.3% 19.1% Source: Thomson Reuters; PwC Moneytree

  21. 1st Round Venture Investment: Biotechnology Average Financing Size (2000 – 2011) In constant dollar terms, the size of first-round financings has been fairly consistent. $ $6.8 million average (millions of dollars) Note: Dollar amounts adjusted to reflect 2011 dollar Source: Thomson Reuters; PwC Moneytree

  22. Venture Investment: Biotechnology Net Cash Flows (2005 – 2011) More recently, venture realizations have outpaced dollars invested. $0.3b $1.1b Venture Exits (dollars in millions) Venture Investments ($3.8b) ($4.5b) ($5.8b) ($4.6b) ($3.7b) 2005 2006 2007 2008 2009 2010 2011 Note: Venture exit totals include dollars from IPO and disclosed M&A activity. Source: Thomson Reuters; NVCA

  23. Venture Investment: Biotechnology IPO Profile Holding times for venture investments continue to lengthen. 12.0 10.5 9.0 7.5 Median age at IPO Number of IPO’s 6.0 4.5 3.0 1.5 Source: Ernest & Young, BioCentury, BioWorld, Venture Source

  24. Capital Market Perspectives Annual IPO Activity: 2000 – 2011 IPO activity in the life science sector remains weak. 400 All Industries 293 300 Life Science 234 210 196 195 Number of issues 200 139 116 80 100 74 72 69 63 44 31 31 27 24 11 17 7 7 13 4 3 2000 2006 2007 2008 2001 2002 2003 2004 2005 2009 2010 2011 • % life science issues • 23.5% • 14.9% • 9.7% • 8.8% • 18.8% • 12.2% • 13.8% • 16.6% • 9.7% • 6.3% • 12.2% • 11.2% Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co

  25. Capital Market Perspectives Biopharma IPO Activity 53 8 100.0% NDA filed Phase III NDA filed/approved 37.7% 80.0% Phase II Phase I 60.0% 100.0% Percent of total IPOs 40.0% Phase III Preclinical 20.0% Phase II 0.0% 2000 2011 • % of total life science IPOs • 76.8% • 61.5% Development stage of lead compound Note: Includes biopharmaceutical and related issues only. Source: SEC filings

  26. IPO Performance: Biotechnology Pricing vs. Expected Range: 2011 Issues New issues continued to price below the expected per share range. X X X Price Per Share X X X X X expected range IPO pricing Source: SEC filings X

  27. IPO Performance: Biotechnology 2011 IPOs: Insider Participation To succeed, many new issues required meaningful insider support. 6 mm 5 mm 5 .8 mm 8 mm 5.8 mm 5.5 mm 6.2 mm 10 mm % insider participation Source: SEC filings

  28. IPO Performance: Biotechnology 2010 – 2011 Issues Class of 2011 Class of 2010 Per Share Performance Post IPO • Aggregate return 17.4 % (19.0 %) Note: Aggregate return represents collective return from one share of each new issue.

  29. Biotechnology 2012: The New Normal? The New Normal?

  30. The New Normal? Traditional Investment Model • traditional investment model Pre clinical Candidate Clinical Development Marketed Product N D A I N D Discovery Development Phase I Phase II Phase III Approval Venture funding Go public Follow on offerings Private Institutional Investors Public Markets

  31. The New Normal? Sector Influences • Transitioning from revolutionary advances to evolutionary advances • sign of continuing maturation of the industry • M&A activity blurs of sector boundaries • Less public market enthusiasm for hope/hype. • increasing attention on products and profits • Primary interest of big pharma is ability to leverage downstream capabilities. • biopharma sector continued to be viewed as outsourced R&D function. • resource allocation (of necessity) skewed towards later stage candidates. • Venture investors required to adjust their investment horizon – and their exit strategy - accordingly.

  32. The New Normal? Shifting Investment Dynamics • traditional investment model Private Institutional Investors Public Markets Venture funding Go public Follow on offerings N D A I N D Discovery Development Phase I Phase II Phase III Approval Pre clinical Candidate Clinical Development Market Venture funding Acquisition/ go public ? Private Institutional Investors The Financial Abyss • current investment model

  33. MassBio State of the Industry Biotechnology 2012: The New Normal? Benjamin Conway 978-526-4014 617-834-8482 ben@johnstonblakely.com March 8, 2012