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J ohnst on Bl akel y& Company
J ohnst on Bl akel y
& CompanyJ ohnst on Bl akel y
& CompanyJ ohnst on Bl akel y
& Company
J ohnst on Bl akel y
& Company, LLCJ ohnst on Bl akel y
& Company
J ohnst on Bl akel y
& CompanyJ ohnst on Bl akel y
& CompanyJ ohnst on Bl akel y
& Company
J ohnst on Bl akel y
& Company, LLC
Biotechnology 2010
Bridging the Financing Divide
October 15th , 2010
MBC Finance Committee Presentation
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J ohnst on Bl akel y& Company
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J ohnst on Bl akel y& Company, LLC
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Biotechnology 2010Where We Were: Biotechnology 2009
Access to capital markets severely restricted – particularly for high beta investments
− Five quarters passed without a single life science IPO
− Significant shift in public market interest towards more mature companies
− Severe contraction in venture capital financing with committed capital down more than 60% from its 2007 peak
− Life science issues coming public in the first decade of the new millennium had not performed well - down 20% + in aggregate
Sustained interest in early-stage companies among large pharmaceutical companies.
− Industry had pursued strategy of discovery and preclinical development “outsourcing”
− Apparent recognition of premium markets were placing on innovation
− Consolidation pressures likely to drive increase in M&A activity
Where do we stand?
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Capital Market Perspectives
Biotechnology 2010
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NBI
DJIANasdaq
Capital Market PerspectivesSelect Market Indices (Jan 2007 to present)
Note: Indices values as of Sept 22, 2010Source: Yahoo! Finance; Capital IQ
1/2/
2008
1/31
/200
8
2/29
/200
8
3/29
/200
8
4/27
/200
8
5/26
/200
8
6/24
/200
8
7/23
/200
8
8/21
/200
8
9/19
/200
8
10/1
8/20
08
11/1
6/20
08
12/1
5/20
08
1/13
/200
9
2/11
/200
9
3/12
/200
9
4/10
/200
9
5/9/
2009
6/7/
2009
7/6/
2009
8/4/
2009
9/2/
2009
10/1
/200
9
10/3
0/20
09
11/2
8/20
09
12/2
7/20
09
1/25
/201
0
2/23
/201
0
3/24
/201
0
4/22
/201
0
5/21
/201
0
6/19
/201
0
7/18
/201
0
8/16
/201
0
9/14
/201
0 0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
Ind
exe
d V
alu
es
Period Hi/Lo Delta
NBI
DJIA
Nasdaq
38%
54%
53%
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2008 2009 2010 YTD$0
$2,500
$5,000
$7,500
$10,000
$12,500
$2.8 billion
PIPEs
dolla
rs in
mill
ions
Public Equity FinancingsBiotechnology (2008 – 2010 YTD)
Note: Represents dollars raised through IPO, follow-on and PIPE financings.Source: Burrill & Co., BioCentury, Canaccord Genuity
$8.3 billion
Follow on financings
IPOs
• IPO $ raised • $6 mm • $1.1 billion • $525 mm
$3.0 billion
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Nu
mb
er
of
issu
es
• % life science issues• 23.5% • 14.9% • 9.7% • 8.8%
All Industries
Life Science
Capital Market PerspectivesAnnual IPO Activity: 2000 – Present
293
74 72 8069
11 7 7
234
44
• 18.8%
Note: 2010 figures as of Sept 22, 2010Source: IPOMonitor, Hoover’s IPO Central, Johnston Blakely & Co
100
200
300
400
2000 2001 2002 2003 2004
196
• 12.2%
2005
24
195
27
• 13.8%
2006
210
• 16.6%
2007
31 31
2008
3
• 9.7% • 6.3% • 12.4%
89
11
2010*
4
2009
63
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Capital Market PerspectivesBiopharma IPO Activity
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2000 2004
53 25
Preclinical
Phase I
Phase II
Phase III
NDA filed
37.7%
92.0%
Preclinical
Phase II
Phase III
NDA filed
Pe
rce
nt
of
tota
l IP
Os
Source: SEC filings
Note: Includes biopharmaceutical and related issues only. Lead compound in clinical development
• % of total life science IPOs
• 76.8% • 56.8%
100.0%
2007
Phase I
Phase II
Phase III
NDA filed/approved
• 48.4%
15
100.0%
2009/10
Phase II
Phase III
• 73.3%
11
NDA filed/approved
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Biotechnology IPOs (2009/10)IPO Pricing vs. Expected Range
Om
ero
s
Cu
mb
erla
nd
Ta
lecr
is
Iro
nw
oo
d
An
the
ra
AV
EO
Co
rme
dix
Te
ng
ion
Alim
era
Triu
s
Nu
pa
the
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
IPO
pric
e p
er
sha
re
Note: % change from expected range calculated using the midpoint of the expected range.Source: SEC filings
• % PPS priced below expected PPS
• 9.1% • 17.6% • 0.00% • 25.0% • 50.0% • 37.5% • 7.1% • 44.4% • 31.3% • 61.5% • 33.3%
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*0
20
40
60
80
100
Nu
mb
er
of
issu
es
IPO PerformanceLife Science IPOs (2000 to 2010)
Total Life Science IPOs
Issues currently above IPO PPS
69
11
7 7
44
2427
31
3
• % life science issues above IPO PPS
• 63.6% • 14.3% • 28.6% • 31.1% • 29.2% • 18.5% • 12.9% • 33.3%• 21.7%
Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, 2010.Source: Johnston Blakely & Co
4
11
• 25.0% • 0.00%
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0
30
60
90
120
150
Biopharma Medicaldevice
Diagnostic Discovery Other
Life Science IPO PerformanceSector Performance (2000 to 2010)
Num
ber
of
issu
es
3020
52
141
66
189
4
Total IPOs
IPOs currently above IPO PPS
Note: Stock transactions involving mergers of equals or reverse mergers calculated using current share prices; PPS as of Sept 22, 2010.Source: Johnston Blakely & Co
• % life science issues above IPO PPS
• 30.3% • 27.8% • 22.2% • 25.0%• 21.3%
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IPO Value Mar 2009 Value Sep 2010 Value0%
20%
40%
60%
80%
100%
Life Science IPO PerformanceAggregate Performance (2000 to 2010)
Per
cen
t of
Agg
rega
te V
alue
• $1,958
(23.0%)
Note: Represents value of one common share in 238 life science IPOs from 2000 through Sept 22, 2010. Stock transactions involving mergers of equals or reverse mergers calculated using current share prices. Current share price as of Sept 22, 2010.
• Cumulative value of one share/IPO
• $2,542
(7.7%)
• $2,495• $2,690
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Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 100.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
perc
ent
of t
otal
Capital Market InfluencesFinancial Resources: Months Cash-on-Hand
> 12 mos cash
< 12 mos cash
< 6 mos cash
Note: US public biotechnology companies onlySource: BIO, Factset, JBCo estimates
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Life Science IPO CalendarIPO Queue: September 2010
IPO Queue0
200
400
600
800
1,000
1,200
1,400
1,600
• Anacor
• Zogenix
• Endocyte
• Pac Bioscience
• Cutanea• Aegerion
• Horizon
• Complete Genomics
• Ventrus
• Ikaria
• BG Medicine
• Rules based Medicine
• Aldagen
• IASO Pharma
$1.48 billion IPO Candidate
dolla
rs in
mill
ions
• Amyris
• Aurora Diagnostic
Note: Represents companies with current S-1 registrations filingsSource: Hoover’s, BioCentury
$
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Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 100
10
20
30
40
50
60
70
80
Nu
mb
er
of
anno
unce
d tr
an
sact
ion
s
Source: Johnston Blakely & Co. research
56
68
40
53
57
4240 40
57
50
70
29
Merger & Acquisition ActivityLife Science Sector (Q3 2007 – Q2 2010)
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Capital Market InfluencesSector Consolidation: Biotechnology
Jan 2008 Jan 20100
100
200
300
400394
295
Source: BIO, Factset
liquidation events
acquisitions
(25.1%)
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Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
dolla
rs in
mill
ions
• 241• # of announced financings
• 220 • 185• 207 • 133
$2.6 B
Source: NVCA
Life Science Venture FinancingsQuarterly Funding Activity (2007 to Q2 2010)
$2.2 B
$1.9 B
$2.4 B$2.3 B
$1.9 B
$2.2 B
$1.6 B
$1.0 B
• 198 • 175• 223 • 266
(61.8%)
$1.5 B $1.5 B
$1.7 B
$1.3 B
$2.1 B
(19.2%)
• 175• 160 • 160• 195 • 234
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Capital Market InfluencesSummary Conclusions
Financial markets have stepped back from the abyss, but financial position
remains fragile.
Public markets interest in new issues intermittent – and only at “can’t lose”
prices.
Cash squeeze has lessened but due more to a contraction of operations than
to new capital infusion.
M&A activity continues to gain momentum yet activity may reach a
plateau.
More recently, venture financings have displayed some signs of renewed
strength – enthusiasm for the industry’s future?
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Pharmaceutical Industry Perspectives
Biotechnology 2009
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1989 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Pre/non clinical %: 51.0% 44.0% 39.0% 32.0% 25.9% 25.7% 27.2%
Pe
rce
nt
of
tota
l R&
D e
xpen
ditu
res
Pharma R&D Expenditures1989 - 2008 (by function)
• Pre/non clinical
• Ph I – III clinicals
• Post-approval studies
• Regulatory/other
Source: PhRMA,Note: Pre/non-clinical category includes process development, QC and formulation related expenditures.
32.5% 31.9% 27.3% 27.0%
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
Pre/non clinical: $12.9b $12.6b $11.5b $10.9b $11.3b $12.6b$12.0b $12.4b
Note: Pre/non-clinical category includes process development, QC and formulation related expenditures. Figures in 2009 dollars.Source: PhRMA
$29.2b
$32.4b
$36.1b
$42.0b$43.8b
$46.2b
$37.0$38.7b
Tota
l R&
D e
xpe
nd
iture
s ($
B)
CAGR
4.6%
(0.4%)
Pharma R&D ExpendituresGrowth Rate 1999 - 2009
Pre/non clinical R&D
Clinical/regulatory R&D
$49.6b
$13.5b
$47.2b$45.8b
$12.7b $12.4b
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Bio/Pharma R&D ExpendituresR&D Spending: 2004 - 2009
2004 2005 2006 2007 2008 2009$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0Non-PhRMA
PhRMA
Ag
gre
ga
te R
&D
exp
en
ditu
res
($B
)
CAGR
10.0%
1.7%
Note: Figures in 2009 dollarsSource: PhRMA, BIO, Burrill & Co
$54.1 b$56.9 b
$59.7 b
$65.4 b$63.5 b
$65.3 b 3.8%
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Bio/Pharma R&D ExpendituresDistribution of R&D Spending: 2004 - 2009
2004 2005 2006 2007 2008 200965.0%
70.0%
75.0%
80.0%
85.0%
$54.1 b $56.9 b $59.7 b $65.4 b $63.5 b $65.3 b
Pe
rce
nt
of A
gg
reg
ate
R&
D S
pe
nd
ing
Non-PhRMA
PhRMA
Note: Figures in 2009 dollarsSource: PhRMA, BIO, Burrill & Co
• Non-PhRMA R&D Spending $12.1 b $13.1 b $13.5 b $15.8 b $16.2 b $19.5 b
Pharmaceutical InnovationRelative New Therapeutic Contributions (1997 – 2009)
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Per
cent
of a
nnua
l new
dru
g ap
prov
al
21 3949 40 43 38 33 31 41 45
Bio/Specialty Pharma:Large Pharma:
66.7%33.3%
74.4%25.6%
40.8%59.2%
42.5%57.5%
51.2%48.8%
57.9%42.1%
39.4%60.6%
48.4%51.6%
70.7%29.3%
84.4%15.6%
Source: PhRMA, BIO, FDALarge Pharma Bio/specialty pharma
23Copyright © 2008 All Rights Reserved
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35 4335
80.0%20.0%
76.7%23.3%
60.0%40.0%
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Series1
-50%
-25%
0%
25%
50%
75%
100%
(22.0%)
perc
ent o
f ini
tial i
ndex
val
ue
Note: Big Pharma Index calculated as average of aggregate share price changes. Share prices adjusted to reflect dividends and splitsIncludes companies with securities trading on the NYSE.
Source: Yahoo! Finance; Johnston Blakely & Co. research
Comparative Sector PerformanceLarge Pharma vs. Biopharma (Oct 2000 to Oct 2010)
71.6%
AMEX Pharmaceutical
Index
AMEX Biotechnology
Index
Nasdaq Biotechnology
Index
(13.7%)
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Bio/Pharmaceutical Sector PerformanceComposition of Indices
• AMEX Pharmaceutical Index
• AMEX Biotechnology Index
• NASDAQ Biotechnology Index
− index constructed using 15 large pharmaceutical companies
− calculated using capitalization-weighted methodology
− large biopharma acquisitions may likely blur industry distinction in future
− index includes 18 companies
− market capitalizations of component companies generally exceed $1 billion.
− each company in index given equal-dollar weighting
− rebalanced quarterly
− index comprised of 120 NASDAQ-listed companies
− companies must have market cap of $200 million or more
− calculation based on modified capitalization-weighted methodology
− rebalanced semi-annually
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Pharmaceutical Industry Dynamics Performance of Indices: Implications
Financial markets clearly continue to place premium on innovation− likely evidenced by the BTK outperforming Big Pharma
In current market environment financing risk has increased substantially, particularly for earlier-stage companies.
− negative returns of NBI perhaps indicative of this change in investor sentiment.
Increasingly appears that investor focus on financing risk beginning to outweigh the premium afforded innovation.
− market skepticism that innovation will be rewarded.
− macro themes may be overshadowing sector-specific events.
Where lies the future of innovation?
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The Financing Divide
Biotechnology 2010
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The Financing DivideTraditional Investment Model
IND
NDA
Discovery Development Phase I Phase II Phase III Approval
Pre clinical Candidate Clinical Development Marketed Product
Go publicVenture funding
• traditional investment model
Follow on offerings
Private Institutional Investors Public Markets
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The Financing DivideSector Influences
Transitioning from revolutionary advances to evolutionary advances− sign of continuing maturation of the industry
− M&A activity blurs of sector boundaries
Less public market enthusiasm for hope/hype.− increasing attention on products and profits
Primary interest of big pharma is ability to leverage downstream capabilities.
− biopharma sector continued to be viewed as outsourced R&D function.
− resource allocation (of necessity) skewed towards later stage candidates
Venture investors required to adjust their investment horizon accordingly.
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The Financing DivideShifting Investment Dynamics
IND
NDA
Discovery Development Phase I Phase II Phase III Approval
Pre clinical Candidate Clinical Development Market
Go publicVenture funding
• traditional investment model
Go publicVenture funding
• current investment model
Follow on offerings
Private Institutional Investors Public Markets
Private Institutional InvestorsThe Financial Abyss?
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Biotechnology 2010Bridging the Financing Divide
• Are new champions of early-stage innovation likely to emerge?
• How have early-stage companies responded to these changes?
• What has been the response of the pharmaceutical industry?
• What do these changes imply for the industry’s future?
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Biotechnology 2010Final Thoughts
Quote of the Day:
“Too many people miss the silver lining because they are expecting gold.”
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Biotechnology 2010
Bridging the Financing Divide
Benjamin Conway978-526-4014
ben@johnstonblakely.com
MBC Finance Committee Presentation
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