BIOMEDevice Conference, 2009 Boston, Ma Evolution in the making: emergence of new life science business models.

Fitness landscape and selection pressure Fitness landscape - current conditions under which a species thrives, having been best “outfitted” for survival in the environment Selection pressure – imposition of new conditions on a species within an ecosystem  Forces those species with attributes best suited to survive under new conditions

Global fitness landscape Specialty and emerging clusters are becoming increasingly attractive as pharma and biotech companies strive to reduce costs and increase flexibility Established “Specialty Clusters” Cluster Size Large Emerging Cluster Capability Small World-class SF MA SD Singapore India China United Kingdom Ireland Switzerland Philadelphia RTP Canada Madison DC / Baltimore Integrated Clusters Emerging Clusters Leading Integrated Clusters Lagging Integrated Clusters

Current fitness landscape in Massachusetts Source: Deloitte research, MBC website and business plan Key Facts About MA Biotech Cluster 240 biotech / pharma companies – mix of both start-up and veteran companies Big pharma has a substantial presence, 8 of the largest 11 have operations in the state 450+ medical device companies Top 5 funded research hospitals in the country 16 Academic Medical Centers World-class expertise in medical research and clinical translation 2nd in NIH funding (lower than CA) but highest NIH funding per capita 1st in the number of life science patents per capita awarded to MA institutions (2001- 2005) – 3X national average 30 major VCs actively focusing on the industry 20,000 + employed in the Biotech sector 10+ industry associations serve the Massachusetts biotech industry Focusing on variety of issues (distribution of funds, advocacy etc) High public policy awareness of the biotechnology industry Number of legislative acts – Life Sciences Initiative; Life Sciences Talent Initiative (LSTI) and BioTeach; BioReady Communities Campaign MA’s education system produces the steady stream of skilled workers 13 local colleges granting life-science doctorate degrees, three are ranked in the national top 20

240 biotech / pharma companies – mix of both start-up and veteran companies

Big pharma has a substantial presence, 8 of the largest 11 have operations in the state

450+ medical device companies

Top 5 funded research hospitals in the country

16 Academic Medical Centers

World-class expertise in medical research and clinical translation

2nd in NIH funding (lower than CA) but highest NIH funding per capita

1st in the number of life science patents per capita awarded to MA institutions (2001- 2005) – 3X national average

30 major VCs actively focusing on the industry

20,000 + employed in the Biotech sector

10+ industry associations serve the Massachusetts biotech industry

Focusing on variety of issues (distribution of funds, advocacy etc)

High public policy awareness of the biotechnology industry

Number of legislative acts – Life Sciences Initiative; Life Sciences Talent Initiative (LSTI) and BioTeach; BioReady Communities Campaign

MA’s education system produces the steady stream of skilled workers

13 local colleges granting life-science doctorate degrees, three are ranked in the national top 20

Since 1999, 253 recorded rounds of VC financing raising $5.32 billion 135 companies have raised VC Funding since 1999 38 companies completed IPO, Reverse Merger, or Trade Sale Seven companies liquidated or closed 90 Current Active MA Private Companies Fitness landscape in Massachusetts 1/2 - 2/3 will be looking to raise their next round of financing in 2009 Private Companies ~83 public companies - Market cap of ~$80 billion 46 companies have market cap <$100 million 63 companies have market cap <$1 billion Genzyme has the largest cap ~$17.5 billion Public Companies Almost fifty percent of companies risk running out of cash by the end of 2009 Source: Deloitte Recap LLC, 2008 data through 2Q08 <2006 2006 2007 2008 Total: 90 Private Companies

Since 1999, 253 recorded rounds of VC financing raising $5.32 billion

135 companies have raised VC Funding since 1999

38 companies completed IPO, Reverse Merger, or Trade Sale

Seven companies liquidated or closed

90 Current Active MA Private Companies

1/2 - 2/3 will be looking to raise their next round of financing in 2009

~83 public companies - Market cap of ~$80 billion

46 companies have market cap <$100 million

63 companies have market cap <$1 billion

Genzyme has the largest cap ~$17.5 billion

Almost fifty percent of companies risk running out of cash by the end of 2009

Selection pressures-changing conditions Policy Financing Market Uncertainty Innovation Commercialization

Fitness landscape changes Creative destruction … Three hidden deep structural problems emerge: a dysfunctional technology investment-banking ecosystem; diminishing support from institutional investors for VC-backed enterprises; an increasingly onerous and counterproductive regulatory environment. None of which enable one to cross the Valley of Death Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ; Basic Research Clinic Innovator

Creative destruction …

Three hidden deep structural problems emerge:

a dysfunctional technology investment-banking ecosystem;

diminishing support from institutional investors for VC-backed enterprises;

an increasingly onerous and counterproductive regulatory environment.

None of which enable one to cross the Valley of Death

Going the way of the dinosaur Creative destruction technology investment banking ecosystem Source: Adam Grosser, Foundation Capital, Venture Capital Dispatch, WSJ Counterproductive measures hampering VC community Regulate VCs as if they are hedge funds Quashing incentive to build companies Skewed expectations of demand-side investors Impatient with small growing companies Shift in focus to unfavorable current EBITDA multiples rather than long term predictors of success market size growth rate technology and management experience. Demise of sell-side investment banks that supported VC backed IPOs

Creative destruction technology investment banking ecosystem

Counterproductive measures hampering VC community

Regulate VCs as if they are hedge funds

Quashing incentive to build companies

Skewed expectations of demand-side investors

Impatient with small growing companies

Shift in focus to unfavorable current EBITDA multiples rather than long term predictors of success

market size

growth rate

technology

and management experience.

Demise of sell-side investment banks that supported VC backed IPOs

On the biotech side- what does the environment look like

On the biotech side- what does the environment look like

On the device side- what does the environment look like

Selection pressures-changing conditions Policy Financing Market Uncertainty Economic Crisis Lack of available credit VC funding for mid-rounds unavailable Non-existent IPOs NIH funding Innovation Commercialization

Economic Crisis

Lack of available credit

VC funding for mid-rounds unavailable

Non-existent IPOs

Selective policy pressures Health care reform Pharma companies are the “bad guys” Drug pricing as a function of near universal healthcare Government becomes the biggest purchaser and gains huge leverage over pharma, biotechnology, and medical device companies prescription drugs represent 20% of the therapeutic market  drive innovation and new medicines via the R&D process generics and “me-too”(the other 80%) don’t contribute to innovation Gift and sales ban Follow-on biologicals Drug Importation Comparative Effectiveness Onerous FDA requirements increases the burn rate of biotechnology companies Patent Reform Creates downward pressure on innovation attenuates pipeline for life saving medicines

Health care reform

Pharma companies are the “bad guys”

Drug pricing as a function of near universal healthcare

Government becomes the biggest purchaser and gains huge leverage over pharma, biotechnology, and medical device companies

prescription drugs represent 20% of the therapeutic market  drive innovation and new medicines via the R&D process

generics and “me-too”(the other 80%) don’t contribute to innovation

Gift and sales ban

Follow-on biologicals

Drug Importation

Comparative Effectiveness

Onerous FDA requirements increases the burn rate of biotechnology companies

Patent Reform

Selection pressures-changing conditions Policy Financing Market Uncertainty Health care reform Comparitive Effectiveness Drug pricing Universal healthcare FDA Reform Follow on biologics Drug importation Patent Reform Economic Crisis Lack of available credit VC funding for mid-rounds unavailable Non-existent IPOs NIH funding Innovation Commercialization

Health care reform

Comparitive Effectiveness

Drug pricing

Universal healthcare

FDA Reform

Follow on biologics

Drug importation

Patent Reform

Economic Crisis

Lack of available credit

VC funding for mid-rounds unavailable

Non-existent IPOs

Better adapted business models are needed Moving from shareholders to stakeholders Identify stakeholders necessary to the success of a business Providers Payors Disease foundations Academic endowments/academic innovation Regulatory agencies VC/Industrial innovation models Assess how all participants in the healthcare value chain could support and provide value for business New models for R&D Open Innovation to get to scientific proof of concept Social networking and information exchange Academic alignment with Industry requirements

Moving from shareholders to stakeholders

Identify stakeholders necessary to the success of a business

Providers

Payors

Disease foundations

Academic endowments/academic innovation

Regulatory agencies

VC/Industrial innovation models

Assess how all participants in the healthcare value chain could support and provide value for business

New models for R&D

Open Innovation to get to scientific proof of concept

Social networking and information exchange

Academic alignment with Industry requirements

Integrate stakeholders and shareholders to sustain life science companies

Swimming to the next island of financing…