Outlook and Trends for Biotech Companies in Europe

Outlook and Trends for Biotech Companies in Europe Sachs Associates 6 th Annual Biotech in Europe Investor Forum October 4, 2006 Dr. Peter Reinisch, Partner Global Life Science Ventures www. glsv-vc. com October 4, 2006

The biotech industry is transforming healthcare Ø A steadily increasing % of new drugs are based on biotechnology Ø Already 4 out of 5 therapies in development are based on biotechnology Ø Big pharma is replenishing its pipelines with innovative new biotech products, via M&As as well as in-licensing collaborations, with deals increasingly early stage Ø Recent success of monoclonal antibodies has confirmed the blockbuster potential of biotechnology (Herceptin, Avastin, etc. ) October 4, 2006 2

The biotech industry is transforming healthcare Ø Large potential for value generation: $60 billion in global sales last year* Ø Huge unmet medical needs represent vast market opportunities Ø Higher success rates for biologics than for small molecules Ø Understanding diseases on a molecular level gives rise to novel therapeutic approaches Ø Pharmacogenomics and personalised medicine will dramatically change how patients are treated *Source: Ernst & Young October 4, 2006 3

Chronic diseases should reach a total market size of more than USD 200 billion in 2007 USD billion Source: SG Cowen/ Bank of America estimates October 4, 2006 4

European biotech has lagged behind, but there are now strong reasons for optimism Ø In 2005, € 3. 2 billion were raised by European biotech companies * Ø Revenues up (+7% in 2005), increased expenditures on R&D (+15% in 2005)* Ø Strong interest of pharma in collaborations/acquisitions to strengthen pipelines. Although acquisitions lead to a drop on paper in the number of successful biotech companies, they are a strong boost for investment in the sector. Examples: Ø Chiron -> Novartis Ø Rinat -> Pfizer Ø CAT -> Astra. Zeneca Ø Serono -> Merck KGa. A *Source: Ernst & Young October 4, 2006 5

European biotech has lagged behind, but there are now strong reasons for optimism Ø Good IPO performance, increasing momentum & confidence in the sector Ø IPO windows are likely to remain more stably open than in the past Ø Increasing number of European biotech companies with products in Phase III and on the market Ø Increasing number of European biotech companies have market caps above € 500 m Ø The sector is approaching overall profitablity in the US; Europe will follow October 4, 2006 6

European life science companies have expanded their pipelines Source: Fortis Bank October 4, 2006 7

In 2005, Europe had more biotech IPOs than the US, raised more funds and showed better post-IPO performance October 4, 2006 8

GLSV 2 nd Annual Biotech Investment Barometer Ø Following the interest in last year’s Barometer, GLSV has conducted a new survey of biotech executives, members of the investment community and others, to gauge their perception of the current investment climate and their expectations for the future Ø Survey conducted from 21 -28 September 2006 Ø 11 multiple choice, 3 rankings, 1 open question Ø 186 reponses received Ø 54 biotech executives Ø 63 VC’s, 15 LP’s, 13 other investors, 12 analysts (= “investment community”) Ø 29 others Ø 88% were based in Europe October 4, 2006 9

GLSV 2 nd Annual Biotech Investment Barometer How does your view today about the biotech sector compare with your view 12 months ago? 55% of respondents are more optimistic about the biotech sector than 12 months ago October 4, 2006 10

GLSV 2 nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in Europe? 64% of respondents consider biotech stocks in Europe to be somewhat or very much undervalued October 4, 2006 11

GLSV 2 nd Annual Biotech Investment Barometer What is your opinion about current biotech stock valuations in the US? Only 28% of respondents consider biotech stocks in the US to be somewhat or very much undervalued October 4, 2006 12

GLSV 2 nd Annual Biotech Investment Barometer How do you predict biotech shares will perform compared to the stock market in the next year? 63% of respondents predict that biotech shares will strongly or moderately outperform the stock market in the next year October 4, 2006 13

GLSV 2 nd Annual Biotech Investment Barometer Do you expect the IPO window to remain open more or less than 6 months? 74% expect >6 months in Europe (69% of investors & analysts) Europe October 4, 2006 67% expect >6 months in the US (62% of investors & analysts) US 14

GLSV 2 nd Annual Biotech Investment Barometer What do you feel are the long-term perspectives for investment in the biotech sector? 86% of respondents view the long-term perspectives for investment in biotech as generally or highly favourable October 4, 2006 15

GLSV 2 nd Annual Biotech Investment Barometer In Europe, how do you rate the current funding environment for early stage biotech companies? 72% of respondents rate the current funding environment in Europe as difficult or very difficult October 4, 2006 16

GLSV 2 nd Annual Biotech Investment Barometer In the US, how do you rate the current funding environment for early stage biotech companies? Only 26% of respondents rate the current funding environment in the US as difficult or very difficult October 4, 2006 17

GLSV 2 nd Annual Biotech Investment Barometer How do you currently see the future for the biotechnology sector in Europe? 76% of respondents see the future for biotech in Europe as fairly or highly positive October 4, 2006 18

GLSV 2 nd Annual Biotech Investment Barometer How significant do you consider the growth of the biotechnology sector in Asia for the industry as a whole? 53% of investors & analysts, 69% of biotech executives consider the growth of biotech in Asia as fairly or highly significant October 4, 2006 19

GLSV 2 nd Annual Biotech Investment Barometer What kind of biotech-related companies do you currently consider most attractive? (ranking 1 -6; 1 = most attractive) After therapeutic products (60% in 1 st place), vaccines and medtech are considered the most attractive areas October 4, 2006 20

GLSV 2 nd Annual Biotech Investment Barometer Which elements do you think biotech start-ups are most often lacking when they look for funding? (ranking 1 -7; 1 = most often lacking) 47% of all respondents consider an experienced management team to be the element most often lacking, followed by a solid business concept (46% ranked in top 2) October 4, 2006 21

GLSV 2 nd Annual Biotech Investment Barometer What do you currently consider the greatest threats to the biotechnology sector? (ranking 1 -5; 1 = most important) 41% of all respondents consider insufficient funding to be the greatest threat October 4, 2006 22

GLSV 2 nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry? · Tax incentives/benefits for investment in early stage, and more generally for financial risk taking · Government early-stage financing · Allow state aid above € 0. 5 m ceiling · Government incentives for pension funds/insurance companies to invest in VC's · Fairer tax treatment of stock options · Focus on a few strong biotech clusters · Greater access to capital through pan-European funds · One combined stock exchange – a European Nasdaq October 4, 2006 23

GLSV 2 nd Annual Biotech Investment Barometer What political measures or incentives could improve the prospects for financing, growth and profitability of the European biotechnology industry? · Clear rules not to dilute founders and management to the point where there is no real interest left to increase shareholder value. · More seasoned entrepreneurs, less fear (stigma) of failure · Support of university research, with longer incubation of technologies at universities before spin-out · Support of clinical research (which is getting marginalized in Europe) · Promotion of science and technology education · Publicity about the regained strength and positive restructuring of the sector, and the good investment opportunities October 4, 2006 24

GLSV 2 nd Annual Biotech Investment Barometer Conclusions · Strong optimism, overwhelming majority views perspectives for investment as favourable. · Biotech stocks considered undervalued in Europe, not in US. · Biotech stocks expected to outperform market in next year. · IPO window expected to stay open more than 6 months. · Early-stage funding considered difficult in Europe, not in US. This is viewed as the single biggest threat to the sector. · Solutions to funding gap include government funding, tax incentives, pan -European access to capital, increased support for academic and clinical research. The European biotech sector continues to mature and offers excellent investment opportunities for discerning investors. October 4, 2006 25