Building Value (Entrepreneur Workshop), presented by Gautham Aggarwal

CED: Entrepreneur WorkshopThe Biotech Industry—Building ValueFebruary 15, 2012 Copyright © 2012. All Rights Reserved. Copyright ©2012. All Rights Reserved. -1- Confidential Property of Campbell Alliance Group, Inc. Confidential Property of Campbell Alliance Group, Inc.

Copyright 2012 Campbell Alliance Group, Inc. All Rights Reserved.Reproduction, distribution, and use of this report are subject to the terms of your agreement withCampbell Alliance Group, Inc. (“Campbell”). The report may not be copied or used without the expresswritten consent of the owner. The trademarks identified herein are the registered trademarks of theirowners.Campbell does not, through this report or otherwise, give legal, regulatory, or investment advice orrecommend or advocate the purchase or sale of any security or investment, and it assumes that theClient will obtain legal and/or regulatory advice as it deems appropriate.Information in this report has been obtained from a variety of third-party sources and, as such, allstatements, facts, information, analyses, interpretations, and opinions contained in the report areprovided “As Is” and are made without representation or warranty of any kind by Campbell or itsaffiliates, officers, employees, contractors, or business partners as to accuracy, completeness,usefulness, merchantability, fitness for a particular purpose, or otherwise.Campbell makes no guarantee, warranty, or assurances concerning the future financial return of anexisting or proposed product or service. Copyright © 2012. All Rights Reserved. -2- Confidential Property of Campbell Alliance Group, Inc.

IntroductionPanel Members Panelist Title CompanyKen Eheman Partner Wyrick RobbinsKinney Horn Associate Director in Business Development GenentechAjay Rai Director, Business Development and M&A Biogen IdecSteve E. Hall Venture Partner Lilly VenturesBob Schotzinger President and CEO Viamet Copyright © 2012. All Rights Reserved. -3- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyIntroduction to Campbell Alliance Corporate Value Study Campbell Alliance Corporate Value Study VC Funding and “Value Requirements”  Study designed to identify drivers of  Overview of the level of VC funding in value changes for biotech companies biotech  Key issues addressed include:  Discussion of VC funding trending for  How do market values vary for different start-ups and within the Southeast biotech business models? region  What is the range in valuation for companies with similar business models?  Large pharma requirements for value  How do important clinical and licensing  Innovation in deal structuring events affect valuation?  What drives the value of the biotech industry in different regions? Our initial conversation will focus on value drivers for public biotech, but we will attempt to draw linkages to private biotech and the general value drivers for pharmaceutical companies. Copyright © 2012. All Rights Reserved. -4- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyCompanies Considered in the StudyThe value study focuses on emerging companies. Cumulative Market Value $1,200 $67B $1,000 $133B $797B $800 Public companies with Market market value between Value ($B) Public companies with $50M and $2B $600 market value between $2B and $28B $400 $200 $0 10 Largest Next 18 Next 186 US-Based US-Based US-Based Pharmaceutical Pharmaceutical and Pharmaceutical and Companies Biotech Companies Biotech CompaniesSources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Copyright © 2012. All Rights Reserved. -5- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyMarket Valuation by RegionWe focused our study on public biotech companies (capitalization between $50 million and $2 billion).There were 24 relevant public biotechs, with a cumulative capitalization of $6 billion within theSoutheast. Number of Companies Market Value 50 $25 45 45 $21.2B 40 38 $20 Number of Companies Market Valuation ($B) 35 30 $15 24 25 $10.3B 20 $10 15 $5.9B 10 $5 5 0 $0 Northwest Southwest Southeast Northwest Southwest SoutheastSources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012).Note: Excludes public companies with less than $50M market capitalization and biotechs in NJ, PA, Midwest, and NY (being processed). Copyright © 2012. All Rights Reserved. -6- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyCompanies Within the SoutheastThe 24 companies assessed within the Southeast are detailed below: Company Market Cap ($M) Company Market Cap ($M) HGS $1,395 Pozen $121 Inhibitex $741 Cumberland $115 Micromet $678 BioCryst $109 Emergent $610 Provectus $99 Chelsea $332 Nabi $80 GTx $212 Tranzyme $73 Targacept $188 PharmAthene $67 Sucampo $181 BioMimetic $67 Osiris $163 CEL-SCI $67 Novavax $159 Celsion $59 Cornerstone $141 Cytomedix $59 Vanda $128 Biovest $53Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Copyright © 2012. All Rights Reserved. -7- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyBusiness Models Strategic ChoicesWe will now review the influence of partnering models and operating models on value creation. Concept/Pipeline First Application Post POC Developer Commercializer Refiner Developer Independent Independent Single Region Partner Partner Regional Partner Multi-Region Model Global Partner Multi-Partner FIPCO Model Operating Outsource Model Model Co-Pro Model Copyright © 2012. All Rights Reserved. -8- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyAverage Market ValueFor today’s discussion, we turn our attention to ask how licensing strategies are reflected in themarket values of pre-commercial companies. Average Market Value First Application Concept/Pipeline Post POC Developer Commercializer Developer Refiner (n=55) (n=28) (n=20) $145M $295M $605M How have licensing decisions affected the value of these companies? Copyright © 2012. All Rights Reserved. -9- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyAverage Market Value (Continued)Even within models, there is a wide spread in valuations. In today’s discussion, we will explore factorsthat distinguish the winners. Distribution Across First Product Technology Models $1,800 $1,600 Company Market Cap ($M) $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Independent Regional Global Multiple Independent Partner Model Partner Partner Partners First Application Developer Post POC Developer $154M $189M $230M $130M $338M $545M (n=17) (n=3) (n=24) (n=8) (n=14) (n=9) Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Copyright © 2012. All Rights Reserved. -10- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyEvents Driving ValueAmong these companies, there is seldom a slow steady growth in value—instead, key events triggerstep changes in market value. Examples of Recent Event Based Step Changes in Value $1,800 Company Market Cap ($M, as of Jan. 5, 2012) Idenix adds $0.5B following P2. $1,600 (January 9/10, 2012) Medivation $1,400 $1,200 BMS buys Inhibitex. Amgen buys Micromet. (January 7, 2012) $1,000 (January 26, 2012) $800 Inhibitex Idenix $600 Micromet Threshold gains $80M (Serono). Sangamo gains $40M (Shire). (February 3, 2012) $400 (February 1, 2012) $200 $- Independent Regional Global Multiple Independent Partner Model Partner Partner Partners First Application Developer Post POC DeveloperSources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Includes companies in US (NW, SW, NE, SE) Copyright © 2012. All Rights Reserved. -11- Confidential Property of Campbell Alliance Group, Inc.

Corporate Value StudyPathways to Billion-Dollar ValuationsIt remains difficult to reach a $1 billion valuation without forward integrating to a commercial model. Distribution Across First Product Technology Models $2,000 Company Market Cap ($M, as of Jan. 5, 2012) Theravance Sea. Gen. $1,800 Jazz $1,600 Amylin $1,400 $1,200 $1,000 Vivus Intermune $800 Spectrum $600 Emergent Optimer $400 MAP Chelsea Cadence Mannkind $200 $- Independent Regional Global Multiple Independent Partner Commercial Model Partner Partner Partners First Application Developer Post POC Developer Commercial Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Includes companies in US (NW, SW, NE, SE) Copyright © 2012. All Rights Reserved. -12- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”Public Company PerformancePublic biotech performance, benchmarked to the S&P 500, has been sub-par. Pharmaceutical Index and S&P 500 Performance Comparison 160 144 140 120 120 100 Index 80 60 40 20 0 NYSE Pharma Index S&P 500 IndexSources: Campbell Alliance Corporate Value Study; Yahoo Finance (Data as of Jan. 2012). Copyright © 2012. All Rights Reserved. -13- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”VC InvestmentCumulative VC investment within biotech has remained essentially flat over the last decade. Biotech Venture Capital Investment 6,000 5,000 4,000 Total Spend ($M) 3,000 2,000 1,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Later-Stage $ Expansion $ Early-Stage $ Start-Up $Source: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment). Copyright © 2012. All Rights Reserved. -14- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”VC Investment (Start-Up/Seed Only)VC investment in start-up biotechs surged in 2006 but is now stagnating… Start-Up Venture Capital Investment 800 50% 700 40% 600 Share of Total Spend Total Spend ($M) 500 30% 400 20% 300 200 10% 100 345 510 609 761 558 369 67 75 58 61 74 86 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Start-Up $ ShareSource: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment). Copyright © 2012. All Rights Reserved. -15- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”VC Investment (Early-Stage Only)…on the other hand, early-stage biotech investments are growing significantly. Early Stage Venture Capital Investment 2,500 50% 2,000 40% Share of Total Spend Total Spend ($M) 1,500 30% 1,000 20% 500 10% 1,543 1,585 2,056 1,321 1,405 732 825 667 532 773 784 796 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Early-Stage $ ShareSource: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment). Copyright © 2012. All Rights Reserved. -16- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”VC Investment (Southeast)Investment within the Southeast moderated …. but saw an uptick in 2011. South-East Venture Capital Investment 600 50% 500 40% Share of Total Spend 400 Total Spend ($M) 30% 300 20% 200 10% 100 375 329 503 311 494 348 459 480 438 279 281 374 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Spend ShareSource: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment). Copyright © 2012. All Rights Reserved. -17- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”Future Requirements for Value (Therapeutic Area)Future areas of therapeutic focus are anticipated to align with deals over the last ~3 years …. Areas of Recent Deal Activity and Future Interest 100% Vaccines Vaccines GI GI 90% Dermatology Womens Health Dermatology ID (all) Womens Health 80% ID Antiviral Respiratory ID Antibiotic Share of Responses 70% Pain Respiratory 60% Metabolic Pain Cardiovascular Metabolic 50% Immunology Cardiovascular 40% Immunology 30% CNS CNS 20% 10% Oncology Oncology 0% 2008-2010 Deals (n=178) 2011 Dealmakers Intentions (n=124)Sources: Campbell Alliance Dealmakers’ Intentions Survey 2011; Elsevier Strategic Insights database; Campbell Alliance analysisNote: 2008-2010 deals included if a lead asset could be identified in these categories and the upfront payment was at least $10 million. Copyright © 2012. All Rights Reserved. -18- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”Future Requirements for Value… we do see an increased trend towards prioritizing mechanisms (rather than just disease statesalone) … but the overwhelming perspective is to focus on “areas of unmet need”. Large Company Priorities Questions Testing Priorities Level of Agreement 100%  Disease State: My organization has identified 90% particular disease states that are high 80% priorities for in-licensing. 70% 60%  Mechanism: My organization has identified 50% particular mechanisms of action or targets 40% that are high priorities for in-licensing. 30% 20% 10% 0% Disease State Mechanism Completely Mostly Somewhat Other Responses from (n=38 to 42) individuals who work for companies with revenue greater than $1 billion. The individuals reported their roles as exclusively in- licensing, mostly in-licensing, or equally in- and out- licensing.Source: Campbell Alliance Dealmakers’ Intentions Survey 2011. Copyright © 2012. All Rights Reserved. -19- Confidential Property of Campbell Alliance Group, Inc.

VC Funding and “Value Requirements”Future Requirements for Value (Innovation in Structuring Deals)Finally, we observe a range of innovative structures and deal-making approaches that are interesting to consider forentrepreneurs: Option to License Contingent Value Rights and/or Acquire (Structured Deals) Sanofi & Warp Drive Bio:  Product-level commercial milestones have been the  Call option: sanofi has non-exclusive option to acquire norm but are now also being employed for acquisitions Warp Drive  Genzyme & sanofi-aventis:  Put option: Warp Drive can force sale (pre-defined terms)  Heated negotiations resulted in $74/share acquisition and $14/share in CVR  CVR tied to production clean-up ($1), MS drug approval ($1), and sales-milestones on MS drug ($12)  Forest & Clinical Data:  $30/share acquisition and $6/share in CVR  CVR tied to cumulative commercial milestones for Viibryd Company Structures Packaging of products into separate operating companies  Nimbus: LLC structure retains drug discovery with separate C-corp subsidiaries that focus on development  Karo-Bio Copyright © 2012. All Rights Reserved. -20- Confidential Property of Campbell Alliance Group, Inc.

Building Value (Entrepreneur Workshop), presented by Gautham Aggarwal

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Building Value (Entrepreneur Workshop), presented by Gautham Aggarwal — Presentation Transcript