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Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
Innovation series   partnering & valuing oncology assets - may 2012
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Innovation series partnering & valuing oncology assets - may 2012

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  • 1. Valuing Oncology Assets:Strategies in an evolving clinical andcommercial landscapeMay 23, 2012
  • 2. Many Thanks to the Event Organizers and Sponsors! Adam Bristol (Aquilo Partners) Zeenat Petrawala (Medivo) Mike Iacoviello (Capgemini Consulting) Thomas Celerier (Capgemini Consulting) Carol Koch (Capgemini Consulting) Brittany Howe (Capgemini Consulting) German American Chamber of Commerce Team Copyright © 2012 Capgemini Consulting. All rights reserved. 2
  • 3. Copyright © 2012 Capgemini Consulting. All rights reserved. 3
  • 4. Agenda Introduction Keynote speakers: – Peter Radovich: Sr. Director, Onyx Pharmaceuticals – Dave Raksin: Director, Inverness Advisors – Kevin Sin: Director, Oncology Business Development, Genentech – Mark Charest: Vice President, New Leaf Ventures Partners Panel Discussion / Q&A Wrap-up Copyright © 2012 Capgemini Consulting. All rights reserved. 4
  • 5. Analysts predict that oncology will be the largest therapeutic area, in terms ofworldwide revenue, by 2016 % of Total Biopharma Sales and Anticipated Growth % from 2011 – 2106 by Therapeutic Area 25% +18% +2% -27% 20% +6% 2016 15% +27% 2011 -47% +36% 10% -1% 5% +9% 0% Source: “Therapeutic Categories Outlook”, Cowen and Company, February 2012 Oncology drugs are estimated to represent close to 20% of the total $678bn worldwide pharmaceutical market in 2016 Copyright © 2012 Capgemini Consulting. All rights reserved. 5
  • 6. Breast, Lung and Colorectal cancers dominate in terms of prevalence and global market potential… $40,000 Global Market Potential and New Patients by Tumor Type 800,000 $35,000 700,000 # of New Patients per Year $30,000 600,000 Global Market Potential ($M) $25,000 500,000 $20,000 400,000 $15,000 300,000 $10,000 200,000 $5,000 100,000 $- - Global Market Potential New Patients NHL: Non-Hodgkins Lymphoma; CTCL: Cutaneous T-Cell Lymphoma; GBM: Glioblastoma Multiforme; CLL: Chronic Lymphocytic Leukemia …However niche indications are becoming increasingly crowded and drive more competition per patient than is seen in tumors that affect larger patient populationsSource: “Oncology Market” JP Morgan, June 2008; “Pharm Exec 50” Pharmexec.com, May 2010 Copyright © 2012 Capgemini Consulting. All rights reserved. 6
  • 7. MAbs / Targeted Therapies dominate the oncology market, as they offer validated MOAs in a TA where probability of success is lower than average… Global Oncology Market by Therapy Type Number of Cancer mAb partnering deals 80 2007-2012* (Q1) 1% 1% 602011 Mabs/Targeted 40 23% Therapies 44% 20 Chemotherapeutics 0 31% 2007 2008 2009 2010 2011 2012* Source: Current Partnering, Cancer mAb Partnering Terms and Agreements, April 2012 Blood Cell Factors Cancer mAb partnering deals by dvpt stage 0% 0% Chemopreventatives Discovery2016E Preclinical 16% 80% Phase I Other Therapies Phase II Phase III 27% 57% Regulatory Marketed Formulation Source: Total revenue, “Therapeutic Categories Outlook”, Cowen and Company, Feb 2012 0 50 100 150 200 Source: Current Partnering, Cancer mAb Partnering Terms and Agreements, April 2012 …driving steady number of partnering deals over the past few years (over 330 deals since 2007) Copyright © 2012 Capgemini Consulting. All rights reserved. 7
  • 8. Major trends will re-shape the oncology market and potentially impact assetvaluation and Partnering decisions Drivers Drivers Barriers Population Demographics  Decreasing R&D productivity Healthcare Reform  Healthcare Reform – Affordable Care Act / Individual mandate – Biosimilars Oncolytics Business Model – Comparative Effectiveness Research – Price premium associated to high cost of burden  Increased pressure on reimbursement and – Typical DOT between 4 to 12 months utilization management for oncolytics Innovation:  Providers – Targeted therapies – Pressure on oncology community business and margins, leading to consolidation – Companion Dx – Shift of Site of Care – Antibody-Drug Conjugates – Decreased Providers access – Administration (e.g. nanotechnologies)  Access to capital – Therapeutic Vaccines – Broken VC model Emerging Market Growth – Better IRR and lower capital intensity in other sectors Copyright © 2012 Capgemini Consulting. All rights reserved. 8
  • 9. Valuing Oncology Assets:Strategies in an evolving clinical and commercial landscape What Partnering Strategy? How to Execute? What areas of oncology have the greatest  Where is the “smart money” in the current unmet needs today? oncology environment? Which players (big or small) currently possess  What are some the “best-in-breed” techniques the most potential in fulfilling those needs? used to value an early stage product / company? What novel technologies present significant  What factors are considered when determining opportunities? whether to in-license, JV, or acquire? What trends are shaping the market and  What are the innovative partnering approaches? partnering in oncology? Their Perspective Copyright © 2012 Capgemini Consulting. All rights reserved. 9
  • 10. Benoit BerthouxHead of LS West CoastPracticeSan Francisco, CAMob.: +1 415 200 9859Benoit.Berthoux@capgemini.com Copyright © 2012 Capgemini Consulting. All rights reserved. 10
  • 11. Oncology CommercializationPeter RadovichSenior Director, Global Product StrategyCarfilzomib Product Development Team Lead May 23, 2012
  • 12. DISCLAIMER Slides, comments and opinions expressed in this presentation are my own and do not representthe views of my employer, Onyx Pharmaceuticals. 12
  • 13. What has made the Oncology market interesting for drug development and commercialization? • Nearly all metastatic solid tumors are uniformly fatal and High unmet many opportunities to improve outcomes in earlier stages needs • Significant unmet needs remain in many hematologic malignancies, despite progressReceptive to • Key actors in market generally have been receptive to innovation (providers, patients, payers, regulators) Innovation • Limited & concentrated provider universe Favorable • Historically favorable pricing, reimbursement & access Dynamics environment
  • 14. Global Oncology Market Continues to Grow $35B Today and ~$100+B by 2020 Global Oncology Annual Sales & Sales Growth 70 45 40 60 35 50 30 SALES US$BN 40 25 % GROWTH 30 20 15 20 10 10 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Global oncology Global oncology growth Europe oncology growth Global pharma growth Japan oncology growth US oncology growthSource: IMS Health, MIDAS, MAT Mar 2010.*Oncology includes both solid & heme tumors and is defined by IMS as L1 (cytotoxics & targeted cytotoxics) and L2 (hormonals). 1
  • 15. Developed Countries Have Generally Accepted “US Price” Levels for Innovative Products 15
  • 16. Oncology Blockbusters: Top 10 Company Brand Roche Avastin 6.2 Roche Rituxan 6.1 Roche Herceptin 5.2 Novartis Gleevec 4.3 Sanofi Taxotere 2.8 Celgene Revlimid 2.5 Lilly Alimta 2.2 BMS Erbitux 1.8 Takeda Velcade 1.7 AZ Arimidex * 1.5 Global Sales 2010 (in billions) In 2010, approximately 40% of Global Sales for the Top 10 came from USSource: IMS Health 16
  • 17. Successful Oncology Launches in 2011 Success Factors Uniform: •Strong value proposition • High unmet need • First in class Others: •Small patient population • “Personalized” medicine • Companion diagnostic 17Source: Kantar Health “The Most Promising Technologies for Unmet Needs in Oncology”
  • 18. What Lies in the Road Ahead??• Challenging global market access environment leading to increased pressure from payers – Healthcare spend trajectory unsustainable – Oncology becoming chronic; escalating cost burden – Increasing complexity in price negotiations, risk sharing, HTA’s, cost effectiveness, etc. (EU, AP, ROW) – Regional heterogeneity – Increasing financial burden on patients (US)• Provider, patient & payer desire for stronger value proposition & differentiation – E.g., increase in H2H trials in oncology• Impact of generics and biosimilars• Increasing role of the patient; aided by PR, digital & social media, advocacy• Emergence of emerging markets
  • 19. Partnerships: Medivaiton / Astellas (Ph3) 19
  • 20. Partnerships: Incyte / Novartis (Ph3) 20
  • 21. Partnerships: Seattle Genetics / Takeda (Ph2) 21
  • 22. Partnerships: Pharmacyclics / J&J• Development and commercialization of PCI-32765 globally in hematologicmalignancies• $150M upfront; up to $825M in additional development and regulatorymilestones• Each company leads on specific indications outlined in development plan• Development cost sharing: 40% PCYC / 60% J&J• Both Pharmacyclics and J&J book revenue and co-commercialize PCI-32765. • In the US, Pharmacyclics will book sales and take a lead role in US commercial strategy development and both Pharmacyclics and Janssen will share in commercialization activities. • Outside the United States, Janssen will book sales and lead and perform commercialization activities. • Profits and losses from the commercialization activities will be equally split on a worldwide basis. 22
  • 23. Dx Transaction Landscape and Valuation OverviewDave Raksin – Inverness AdvisorsCapgemini Consulting Oncology DiscussionMay 23, 2012Inverness Advisors is a division of KEMA Partners LLC. Inverness Advisors conducts all securities business through KEMA Partners LLC, a FINRA member and SEC-registered broker-dealer.
  • 24. Oncology Largely Reflects Overall Dx Deal Trends Agilent-Dako a sign oncology Dx M&A picking up again? ($2.2B, 6.6x/21.1x Rev./EBITDA) – Significant oncology Dx activity late ’10/early ’11, other areas picked up in ‘11 – Q1’12 I NV E R N E S S A DV I S O R S Significant gap between strategic and public financial market valuations – Dx M&A avg. 35% premium last 18 months, even at moderate 3.6x rev./17.9x EBITDA Revenue companies dominate: at least 24 of 30 >$15M value Dx deals we tracked – Median $103M revenue. At least 16 of 30 EBITDA positive as well – Scarcity value on companies with meaningful revenue and earnings (not priced into publics?) Expanding buyer universe could drive more activity and push Dx valuations upward – Led by Labs, Dx instrumentation, life sciences tools moving into clinical & private equity • Larger acquirers good access to capital (e.g. LabCorp $560M, LifeTech $750M credit) • Smaller consolidators some access (e.g. Transgenomic $22M PIPE, Sequenom $62M FO) – Asian acquisitions in U.S. a notable recent trend: e.g. FUJIFILM-SonoSite, Samsung-Nexus Pharma/biotech without Dx businesses still opting for partnership over M&A…for now – e.g. Takeda-Metabolon, BMS-Meso, GSK-Epistem, Amgen-Dako companion Dx deals – GE Healthcare very active and Siemens entering companion Dx – Strategics also taking advantage of weakened VC market; no IPO window for Dx • Stepping in alongside stronger remaining financial VCs – e.g. Aviir ($30M, Merck GHI), Auxogyn ($20M Merck Serono), Pronota ($5M, JJDC), Enterome ($7M Lundbeck), BioCartis ($98M J&J, Debio, Philips), Curetis ($16M Roche)Data source: Capital IQ, Thomson Reuters and Company websites
  • 25. Oncology a Significant Component of Recent Dx M&A: Strong Premiums, Even at Moderate Multiples ($M, except per share data) Date Implied Value Stock Premium LTM Enterprise Value Announced Target/Issuer Buyers/Investors Equity Enterprise 1 Month 1 Week 1 Day Revenue EBITDA Revenue EBITDA Target Main Focus 05/17/12 Dako A/S Agilent Technologies $2,200.0 $2,200.0 - - - $330.9 $104.5 6.6x 21.1x Cancer 04/30/12 Gen-Probe Hologic 3,757.9 3,868.8 24.6% 22.1% 20.4% 586.6 183.5 6.6x 21.1x Blood diseases/transplant I NV E R N E S S A DV I S O R S 04/23/12 CareFusion NeuroDx Natus Medical 58.0 58.0 - - - 96.7 - 0.6x N.A. Critical care 02/13/12 SeraCare Life Sciences Linden LLC 80.8 62.6 30.7% 23.8% 11.7% 44.4 4.7 1.4x 13.4x Research Dx 12/15/11 SonoSite FUJIFILM Holdings 755.8 855.9 27.8% 26.9% 29.2% 308.8 37.1 2.8x 23.0x POC ultrasound 10/18/11 Reichert Tech. (from BPO Ametek 150.0 150.0 - - - 55.6 - 2.7x N.A. Eye care devices 10/13/11 Claros Dx Opko Health 25.0 49.1 - - - 0.0 (4.1) N.M. N.M. POC urology immunoassay 10/05/11 Quanta-Life Bio-Rad 162.0 162.0 - - - - - N.A. N.A. Digital PCR 07/26/11 Orasure DNA Genotek 53.0 53.0 - - - 14.0 - 3.8x N.A. DNA and RNA collection 07/19/11 mtm laboratories AG Roche Holding 184.3 269.4 - - - - - N.A. N.A. Cervical cancer 07/19/11 Argene SA BioMérieux 53.2 60.3 - - - 14.2 - 4.2x N.A. Autoimmune 07/06/11 Axis-Shield plc Alere 354.0 369.0 40.8% 47.3% 40.3% 162.4 20.8 2.3x 17.7x Diabetes, vitamin, RA 07/02/11 Immucor Inc. TPG Capital 1,902.2 1,653.2 34.7% 34.6% 30.2% 331.5 149.1 5.0x 11.1x Blood transfusion 06/21/11 EraGen Biosciences Luminex 34.0 34.0 - - - 8.0 - 4.3x N.A. PCR in infectious disease 06/15/11 Ipsogen SA Qiagen NV 92.6 86.0 69.7% 72.5% 70.9% 11.9 (4.3) 7.2x N.M. Cancer 05/23/11 Stanbio Laboratory EKF Dx 19.3 25.3 - - - 16.4 3.1 1.5x 8.3x Clinical chemistry devices 05/19/11 Phadia (Cinven PE) Thermo Fisher 3,512.0 3,512.0 - - - 520.0 212.8 6.8x 16.5x Allergy and autoimmune 04/27/11 Rules-Based Medicine Myriad Genetics 80.0 80.0 - - - - - N.A. N.A. Protein chip, CNS 04/06/11 Orchid-Cellmark LabCorp. 85.4 66.7 39.3% 40.7% 36.6% 66.0 1.5 1.0x 44.0x Forensic and family DNA 04/03/11 Cellestis Ltd. Qiagen NV 354.4 331.3 40.9% 37.4% 29.1% 45.8 12.4 7.2x 26.8x Infectious diseases 03/17/11 Celera Corporation Quest Dx 657.2 330.4 23.5% 27.0% 27.6% 128.2 (21.1) 2.6x N.M. Cancer, cardio, infectious 03/15/11 PVT Lab Systems Roche 119.0 90.8 - - - - - N.A. N.A. IVD automation 02/24/11 Athena Dx(Thermo Unit) Quest Dx 740.0 740.0 - - - 110.0 - 6.7x N.A. CNS 02/01/11 Accuri Cytometers Becton Dickinson 205.0 205.0 - - - - - N.A. N.A. Flow cytometry 01/24/11 Genoptix Novartis 442.3 310.9 28.0% 23.0% 26.5% 196.9 47.0 1.6x 6.6x Blood cancers 11/18/10 Genzyme Dx Sekisui Medical 265.0 265.0 - - - 167.0 - 1.6x N.A. Diagnostic intermediaries 11/04/10 ITC Nexus Dx 55.0 55.0 - - - - - N.A. N.A. POC Hemostasis 10/30/10 Standard Dx Alere 276.4 241.4 - - - 76.2 42.9 3.2x 5.6x Korea and India dist. 10/22/10 Clarient GE Healthcare 455.0 585.1 45.8% 39.3% 33.7% 110.1 6.6 5.3x N.M. Cancer 09/13/10 Genzyme Genetic LabCorp. 925.0 925.0 - - - 371.0 - 2.5x N.A. Fetal and oncology Average 36.9% 35.9% 32.4% $157.2 $50.6 3.6x 17.9x Median 34.7% 34.6% 29.2% $103.3 $12.4 3.0x 17.1x Earn-out structure disclosed in 5 of 30 deals; pre-commercial/earlier-stage deal risk sharing  mtm-Roche ($180M/$85M), Claros-Opko ($30M/$19M), QuantaLife-BioRad ($162M/undisc.), Argene-BioMerieux ($53M/$7M), PVT-Roche ($91M/$28M)  More common in Rx: 50%+ in comparable-sized deals Oncology deals: large acquirors & strategic rationale cited at least as important as revenue/earnings
  • 26. Public Dx Specialty Comparables ($M, except per share data) Enterprise Value Price % of 52 Equity Enterprise Revenue EBITDA P/E PEG LT Growth % Price Gain % EV Gain Covering I NV E R N E S S A DV I S O R S Company 05/22/12 Wk High Value Value 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E Rate Since IPO Since IPO Analysts Quest Diagnostics (DGX) $57.45 92% $9,114.4 $12,888.6 1.7x 1.6x 7.8x 7.4x 12.5x 11.4x 1.2x 1.1x 10.7% 14 LabCorp (LH) 85.11 84% 8,238.6 10,230.1 1.8x 1.7x 7.6x 7.2x 12.3x 11.3x 1.0x 1.0x 11.8% 19 Myriad Genetics (MYGN) 25.78 95% 2,187.8 1,850.5 3.5x 3.2x 9.4x 8.1x 18.6x 16.2x 1.8x 1.6x 10.1% 15 VCA Antech (WOOF) 21.07 81% 1,843.6 2,427.7 1.4x 1.3x 8.1x 7.3x 14.5x 12.9x 1.2x 1.1x 12.2% 10 Genomic Health (GHDX) 32.98 94% 991.1 889.3 3.7x 3.3x N.M. N.M. N.M. N.M. N.A. N.A. 37.0% 174.8% 283.3% 13 Exact Sciences (EXAS) 10.27 91% 586.8 504.3 N.M. N.M. N.M. N.M. N.M. N.M. N.A. N.A. 23.3% -26.6% 145.3% 13 Bio-Reference (BRLI) 20.29 78% 563.6 575.4 0.8x 0.7x 6.1x 5.0x 13.6x 11.2x 0.8x 0.7x 17.3% 5 Sequenom (SQNM) 4.38 50% 501.7 399.2 4.6x 2.5x N.M. N.M. N.M. N.M. N.A. N.A. 27.5% -83.2% -12.8% 10 MEDTOX Scientific (MTOX) 19.89 88% 178.4 171.4 1.4x 1.3x 9.8x 8.2x 25.4x 20.4x 1.3x 1.0x 20.0% 2 Neogenomics(NGNM.OB) 1.65 90% 74.0 74.3 1.2x 1.0x 17.8x 16.2x 55.0x 15.7x 0.6x 0.2x 86.0% 2 Response Genetics (RGDX) 1.50 49% 37.2 31.5 1.6x N.A. N.A. N.A. N.M. N.M. N.A. N.A. N.A. -78.6% -36.9% 1 Vermillion (VRML) 1.82 32% 27.2 14.3 5.0x 2.2x N.M. N.M. N.M. N.M. N.A. N.A. N.A. 3 Mean 77% 2.4x 1.9x 9.5x 8.5x 21.7x 14.2x 1.1x 0.9x 25.6% 9 Median 86% 1.7x 1.7x 8.1x 7.4x 14.5x 12.9x 1.2x 1.0x 18.6% 10 MID-CAP BIOTECH Mean 76% 8.9x 6.6x 12.2x 10.5x 27.8x 33.2x 0.8x 0.7x 38.0% 14 Median 91% 8.5x 6.9x 12.2x 10.5x 22.0x 36.8x 0.3x 0.9x 36.3% 15Comments: Financial valuations on average lag strategic (M&A) valuations On PEG basis, Dx actually slightly richer than comparable Rx (Mid-Cap biotech)  Growth numbers may be more reliable than Rx which still have many binary events priced in Premium multiples to peers for “critical mass” revenue companies, e.g. Genomic Health & Myriad  Sequenom in hot area, relatively rich valuation despite travails  Big labs need higher margin products and growth, trade at low multiples Very large gap in research coverage between ~$500M market cap. companies and smaller  Wider gap than in Rx; Smaller names tend to “pop” on good news. Strategics interested earlier. Dx IPO companies from the last two windows have not fared well from group, with exception of Genomic Health (much higher than expected dilution in tough markets and product setbacks)
  • 27. Investors Will Take a Wait and See Approach Post-IPO For Dx Companies Until Revenue Trajectory Clearer I NV E R N E S S A DV I S O R S($M, exceptper share Current/ Current/ Current/ Current/data) Year 1 Year 5 at Sale Year 1 Year 5 at Sale Year 1 Year 5 at Sale Year 1 Year 5 at SaleMarket Cap. $ 113.8 $ 267.8 $ 1,489.5 $ 222.6 $ 426.4 $ 2,430.0 $ 234.4 $ 592.0 $ 991.1 $ 180.3 $ 151.1 $ 155.0Growth 135.3% 456.2% 91.6% 469.9% 152.6% 67.4% -16.2% 2.6%Share Price $ 8.88 $ 18.37 $ 97.27 $ 8.44 $ 10.15 $ 37.05 $ 9.58 $ 20.69 $ 32.98 $ 54.75 $ 16.80 $ 4.55Growth 106.9% 429.5% 20.3% 265.0% 116.0% 59.4% -69.3% -72.9%Revenue $ 2.9 $ 28.2 $ 309.0 $ 7.1 $ 53.0 $ 294.7 $ 5.2 $ 146.6 $ 240.3 $ 7.5 $ 36.8 $ 61.7Growth 872.4% 995.7% 646.5% 455.9% 2719.2% 63.9% 390.7% 67.7%
  • 28. Inverness Active as Advisor in Capital Raising and Strategic Advisory in Dx/MedTech, as Well as Rx Completed Transactions On-going Transactions  Up to $30MM capital raise  $10MM capital raise I NV E R N E S S A DV I S O R S  Led by Merck Global Health Innovation Fund  Fund comprehensive POC diagnostic launch in China and U.S.  Strategic investment by Smith & Nephew  Sell-side M&A  Includes co-marketing rights for lead product  System for real-time , ultra sensitive rapid pathogen detection  Public company asset sale  $20MM capital / strategic process  Fairness opinion  Preclinical Parkinson’s therapeutic  ~$30MM transaction value  Expedited timetable – engagement in October 2010 and signed definitive agreement in January 2011  Therapeutic asset sale  $15MM capital raise  Cross-border  Phase IIb onychomycosis therapeutic  Merger with ITC  $20MM capital / strategic process  Private equity buyout funded by Warburg Pincus  Phase II pain therapeutic  ~$55MM transaction valueSale of Therapeutic  Leading health care venture capital firm sale to a  Partnering antibody platform andRoyalty hedge fund Huntington’s Disease drug candidate Note: Technology banking group, additionally, has two completed financings & one M&A in past 12 months.28
  • 29. Valuing Oncology Assets A view from Sand Hill Road Mark G. Charest, PhD Vice President New Leaf Venture Partners
  • 30. What Influences a Venture Investor’s Returnon Investment? It’s Just Math…. Investment Valuation Exit Valuation Money Required Probability Required Return of Success (Dilution) Valuation primarily function of:  This is the valuation that a company gets 1. Potential exit valuation once it’s “through the gate” and can be 2. A “required return” which is related to the “probability acquired of success” – Strategic Reasons for a Deal (Most Important) 3. Expected cash needed to reach an “exit” – Precedent Transactions 4. Type of exit (IPO or M&A) – Discounted Cash Flows / Fundamental Value Fundamental valuation also plays an – Comparable Company Analysis important role – Viewpoints of Wall Street Return To Investors (Expressed as IRR or Cash-on-Cash Return) CONFIDENTIAL Slide 30
  • 31. Compared to Some Therapeutic Areas, Cash toReach an Exit Is Low for Cancer Companies Acquirers willing to buy cancer drugs at earlier stages in development, and as a result often require less capital to reach an exit Companies focused on cancer can obtain much more data from early development work than companies focused on other therapeutic areas ‒ Phase I in patients – especially useful if Phase I is in a selected/sensitive population ‒ Clinical endpoints such as tumor shrinkage make it relatively easier to prove efficacy at an earlier stage than longer term survival-type of endpoints ‒ Biomarkers are more relevant, which can provide useful data on whether a drug is or is not working or which patient population is the most relevant ‒ Targeted therapies have a greater chance of success in development because they are going after validated mechanisms of action Generally, less patients needed to show drug effect (so less cash is required to generate the data) Acquirer interest due to high unmet need generally within oncology CONFIDENTIAL Slide 31
  • 32. Probability of Success: In The Drug DevelopmentCasino, Some Games Have Better Odds… Overall Probability of Success at Phase II and Phase III Moving from 63% 60% 61% Phase II to 55% 55% Phase III may be less 46% meaningfulProbability of 41% 36% 34% Success 30% 32% 28% 29% 24% Across TAs Infectious Diseases Endocrine Autoimmune Respiratory Neurology Cardiovascular Oncology Phase II Phase III Overall Total Success Rates Head & Neck 19% RCC 15% Ovarian Cancer 8%Probabilities Multiple Myeloma 7% of Success Breast Cancer 7% within CLL 6% HCC 6% Oncology Prostate Cancer 4% MDS 3% Colorectal Cancer 3% NSCLC 2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Source: Overall Success Rates – BioMedTracker. CONFIDENTIAL Slide 32
  • 33. Targeted therapies have a greater chance ofsuccess in development Phase transition probability of oncology drugs (1995-2007) Kinase inhibitors 80% Phase 1-2 # of drugs that have to All drugs 77% enter Phase 1 to get one new drug approved 69% Phase 2-3 44% 5.5 for oncology overall vs. 2.1 for kinase inhibitors Phase 3- 85%Registration 52% 0% 25% 50% 75% 100%Sample size. All drugs, n=974; Kinase inhibitors, n=137;Source: Nature Reviews Drug Discovery CONFIDENTIAL Slide 33
  • 34. Rewards are High for Drug R&D Products That CanFinish the Marathon (Get Sold) ConsiderationAnnounce Target Acquiror Company Focus Stage Upfront Milestones TotalPreclinical, Phase 1, and Phase 2 Oncology M&A1/26/2012 Avila Therapeutics Celgene Corporation AVL-292 - A Btk inhibitor for oncology Phase I $350 $575 $9251/26/2012 Micromet Amgen Inc. Blinatumomab - drug for leukemia / NHL Phase I $1,116 $0 $1,11612/20/2011 Intellikine, Inc. Takeda America INK128 - TORC1/2 inhibitor, PI3K selective inhibitor Phase I $190 $120 $3103/20/2011 Gemin X Pharma Cephalon Inc. GX15-070 to reinitiate apoptosis; GMX1777 Phase II $225 $300 $52512/19/2010 Arresto Biosciences, Inc. Gilead Sciences Inc. AB0024 - Solid Tumors and Idiopathic Fibrosis Phase I $225 Undisclosed $2258/17/2010 Trubion Pharmaceuticals Emergent BioSolutions SCORPION technology, B-cell cancer, autoimmune Phase I $97 $39 $1366/23/2010 CGI Pharmaceuticals, Inc. Gilead Sciences Small molecule kinase inhibitors Pre-clinical $120 $0 $1206/30/2010 TargeGen, Inc. Sanofi-Aventis JAK2 Inhibitor for lymphona, leukemia, myelofibrosis Phase II $75 $485 $5602/4/2010 LEAD Therapeutics, Inc. BioMarin Pharma LT-673 in oncology (also has MRSA product) Pre-clinical $29 $68 $97Mean $270 -- $446Median $190 -- $310Phase 3 Oncology M&A3/29/2011 Chemgenex Pharma Cephalon Inc. Chronic myelogenous leukemia Phase III $154 $0 $1542/28/2011 Plexxikon, Inc. Daiichi Sankyo Oncogenic BRAF mutant melanoma / solid tumors Phase III $805 $130 $9352/21/2011 Calistoga Pharma Gilead Sciences PI3K target - hematological cancers / autoimmune Phase III $375 $225 $6001/24/2011 BioVex, Inc. Amgen Inc. Virus engineered to kill cancer - melanoma $ head & neck Phase III $425 $575 $1,000Mean $440 -- $672Median $400 -- $768 CONFIDENTIAL Slide 34
  • 35. Appendix / Additional Slides Created
  • 36. Current Reality in R&D and Venture Funding of DrugDevelopment: Things Are Difficult The current situation for funding drug discovery and development is challenging Venture dollars invested are declining and pharma is cutting earlier stage R&D programs, due to several factors: – Poor productivity of the pharma R&D – Weak returns for many life science VCs – Macro factors: less capital for PE/VC Other sources of funding gaining prominence now – grants, foundations, etcTotal Industry R&D Spending in the U.S. ($B) VC Dollars Invested Into Biopharma & Devices Declining ($ in billions)$70 $66 $67 PhRMA Members $63 $64 $6.3 Biopharmaceuticals$60 $56 Medical Devices $52 $4.8 $48 $4.3$50 $3.9 $3.6 Declining $3.0 $3.4$40 in 2011 $2.4 $49 and 2012 $48 $47 $46 $43$30 $37 $40$20 2004 2005 2006 2007 2008 2009 2010E 2007 2008 2009 2010 Source: Venturesource, PhRMA. CONFIDENTIAL Slide 36

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