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CED: Entrepreneur Workshop

The Biotech Industry—Building Value

February 15, 2012




                                                     Copyright © 2012. All Rights Reserved.
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                    -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 with
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Information in this report has been obtained from a variety of third-party sources and, as such, all
statements, facts, information, analyses, interpretations, and opinions contained in the report are
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Campbell makes no guarantee, warranty, or assurances concerning the future financial return of an
existing or proposed product or service.




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                                                 -2-                                  Confidential Property of Campbell Alliance Group, Inc.
Introduction
Panel Members



      Panelist                      Title                                      Company

Ken Eheman                         Partner                               Wyrick Robbins


Kinney Horn       Associate Director in Business Development                  Genentech


Ajay Rai          Director, Business Development and M&A                     Biogen Idec


Steve E. Hall                  Venture Partner                             Lilly Ventures


Bob Schotzinger               President and CEO                                   Viamet



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                                      -3-                      Confidential Property of Campbell Alliance Group, Inc.
Corporate Value Study
Introduction 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.

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Corporate Value Study
Companies Considered in the Study
The 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 Companies



Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012).

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Corporate Value Study
Market Valuation by Region
We 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 the
Southeast.
                                   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                 Southeast




Sources: 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).

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Corporate Value Study
Companies Within the Southeast
The 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                                                 $53


Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012).

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Corporate Value Study
Business Models Strategic Choices
We 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

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                                                  -8-                         Confidential Property of Campbell Alliance Group, Inc.
Corporate Value Study
Average Market Value
For today’s discussion, we turn our attention to ask how licensing strategies are reflected in the
market 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?

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                                                     -9-                        Confidential Property of Campbell Alliance Group, Inc.
Corporate Value Study
Average Market Value (Continued)
Even within models, there is a wide spread in valuations. In today’s discussion, we will explore factors
that 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).

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Corporate Value Study
Events Driving Value
Among these companies, there is seldom a slow steady growth in value—instead, key events trigger
step 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 Developer
Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012).                                                    Includes companies in US (NW, SW, NE, SE)

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Corporate Value Study
Pathways to Billion-Dollar Valuations
It 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)

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VC Funding and “Value Requirements”
Public Company Performance
Public 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 Index

Sources: Campbell Alliance Corporate Value Study; Yahoo Finance (Data as of Jan. 2012).

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VC Funding and “Value Requirements”
VC Investment
Cumulative 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).

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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 $                                      Share
Source: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment).

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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 $                                    Share
Source: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment).

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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                                        Share
Source: National Venture Capital Associate. All biotech (definition excludes healthcare services and medical devices/equipment).

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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
                                                  Women's Health                                                       Dermatology
                                                      ID (all)                                                        Women's 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 analysis
Note: 2008-2010 deals included if a lead asset could be identified in these categories and the upfront payment was at least $10 million.

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VC Funding and “Value Requirements”
Future Requirements for Value
… we do see an increased trend towards prioritizing mechanisms (rather than just disease states
alone) … 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.

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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 for
entrepreneurs:
                    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


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Building Value (Entrepreneur Workshop), presented by Gautham Aggarwal

  • 1. CED: Entrepreneur Workshop The Biotech Industry—Building Value February 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.
  • 2. Copyright 2012 Campbell Alliance Group, Inc. All Rights Reserved. Reproduction, distribution, and use of this report are subject to the terms of your agreement with Campbell Alliance Group, Inc. (“Campbell”). The report may not be copied or used without the express written consent of the owner. The trademarks identified herein are the registered trademarks of their owners. Campbell does not, through this report or otherwise, give legal, regulatory, or investment advice or recommend or advocate the purchase or sale of any security or investment, and it assumes that the Client 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, all statements, facts, information, analyses, interpretations, and opinions contained in the report are provided “As Is” and are made without representation or warranty of any kind by Campbell or its affiliates, 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 an existing or proposed product or service. Copyright © 2012. All Rights Reserved. -2- Confidential Property of Campbell Alliance Group, Inc.
  • 3. Introduction Panel Members Panelist Title Company Ken Eheman Partner Wyrick Robbins Kinney Horn Associate Director in Business Development Genentech Ajay Rai Director, Business Development and M&A Biogen Idec Steve E. Hall Venture Partner Lilly Ventures Bob Schotzinger President and CEO Viamet Copyright © 2012. All Rights Reserved. -3- Confidential Property of Campbell Alliance Group, Inc.
  • 4. Corporate Value Study Introduction 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.
  • 5. Corporate Value Study Companies Considered in the Study The 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 Companies Sources: 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.
  • 6. Corporate Value Study Market Valuation by Region We 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 the Southeast. 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 Southeast Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Note: Excludes public companies with less than $50M market capitalization and biotechs in NJ, PA, Midwest, and NY (being processed). Copyright © 2012. All Rights Reserved. -6- Confidential Property of Campbell Alliance Group, Inc.
  • 7. Corporate Value Study Companies Within the Southeast The 24 companies assessed within the Southeast are detailed below: Company Market Cap ($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 $53 Sources: 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.
  • 8. Corporate Value Study Business Models Strategic Choices We 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.
  • 9. Corporate Value Study Average Market Value For today’s discussion, we turn our attention to ask how licensing strategies are reflected in the market 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.
  • 10. Corporate Value Study Average Market Value (Continued) Even within models, there is a wide spread in valuations. In today’s discussion, we will explore factors that 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.
  • 11. Corporate Value Study Events Driving Value Among these companies, there is seldom a slow steady growth in value—instead, key events trigger step 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 Developer 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. -11- Confidential Property of Campbell Alliance Group, Inc.
  • 12. Corporate Value Study Pathways to Billion-Dollar Valuations It 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 $- Independent Regional Global Multiple Independent Partner Commercial Model Partner Partner Partners First Application Developer Post POC Developer Commercial Sources: Campbell Alliance Corporate Value Study; Evaluate Pharma (Data as of early Jan. 2012). Includes companies in US (NW, SW, NE, SE) Copyright © 2012. All Rights Reserved. -12- Confidential Property of Campbell Alliance Group, Inc.
  • 13. VC Funding and “Value Requirements” Public Company Performance Public biotech performance, benchmarked to the S&P 500, has been sub-par. Pharmaceutical Index and S&P 500 Performance Comparison 160 144 140 120 120 100 Index 80 60 40 20 0 NYSE Pharma Index S&P 500 Index Sources: Campbell Alliance Corporate Value Study; Yahoo Finance (Data as of Jan. 2012). Copyright © 2012. All Rights Reserved. -13- Confidential Property of Campbell Alliance Group, Inc.
  • 14. VC Funding and “Value Requirements” VC Investment Cumulative VC investment within biotech has remained essentially flat over the last decade. Biotech Venture Capital Investment 6,000 5,000 4,000 Total Spend ($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.
  • 15. 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 $ Share Source: 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.
  • 16. 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 $ Share Source: 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.
  • 17. 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 Share Source: 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.
  • 18. 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 Women's Health Dermatology ID (all) Women's 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 analysis Note: 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.
  • 19. VC Funding and “Value Requirements” Future Requirements for Value … we do see an increased trend towards prioritizing mechanisms (rather than just disease states alone) … 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.
  • 20. 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 for entrepreneurs: 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.