Building on Momentum The Forum VIEW on Biotech April 2006 In 2005, biotech companies maintained the momentum that began in 2004, fueled by revenue from marketed biotech drugs ? more than $33 billion in sales. In 2005, Amgen retained its spot as the top bio force with four of the top-selling drugs on the market; Amgen?s total revenue in 2005 was $12.43 billion. Genentech, with total 2005 revenue of $6.63 billion, is another biopharma powerhouse. Serono, Biogen Idec, Genzyme, Gilead, and MedImmune are also in the billion-dollar club. Even as the industry continues to capitalize on its momentum, biogenerics could potentially stem the tide. According to a study by Kalorama Information, biogenerics are expected to have sales of $6.6 billion by 2010. The U.S. biotech industry raised more than $17 billion through financings and $15 billion in partnering capital in 2005, according to Burrill & Co. Additionally, R&D investments in new medicines by the biopharmaceutical industry accounted for more than $51 billion in 2005, according to Burrill. Predictions for Biotech through 2006 ? Biotech stocks in 2006 will continue to outperform NASDAQ, DJA, and the pharma indices although biotech?s performance will be out of its direct control and in the hands of the macro-markets (impacted by the price of oil, inflation, the war in Iraq, rising interest rates, and corporate earnings in the nonbiotech sector). ? There will be a reasonably robust public equity IPO market ? with 30-plus IPOs in the United States in 2006 and an even larger number internationally. ? The industry will raise more than $35 billion in 2006, with about $25 billion from the public-equity markets and $10 billion in partnering. ? More pricing pressure will come from managed care, CMS, and various country health ministries. ? The trend toward M&A will continue with substantially more deals than in 2005, especially among the larger companies. ? Similarly, there will be more and larger partnering deals with an emphasis on discovery-stage deals. ? Drug-safety issues will be high on the agenda and approvals will be tougher to obtain. ? The trend toward personalized medicine will accelerate. ? There will be scientific and political progress in stem cells. Source: Burrill & Co.. South San Francisco, Calif. For more information, visit burrillandco.com. Biotech Trends From political and ethical issues, to funding, reimbursement, and IP trends, to stem cells, experts interviewed for this Forum discuss the ever-changing field of biotech. Mehta. The most controversial issue in biotech today is bioethics, whether related to embryonic stem-cell research or clinical trials. An open and logical discussion of research and society is needed that satisfies all humanity. There probably will never be a consensus on the issues, but a majority of solutions should be better for everyone involved. Saraph. Ethics and intellectual properties are the two issues of controversy facing biotech. With growing success in globalization and commercialization, the IP landscape is becoming more complex. Cultural norms on ethics are furthering the complications. For example, stem-cell research is ethical in Asian countries, while it is deemed a moral dilemma in European and American societies. In my view, these are the teething issues of a growing industry and will settle down during the next five to 10 years. Though I do not see a complete solution to these issues, I believe there will be a rise in infrastructure to address some of them, such as IP. I envision international norms and guidelines on IP for the biotech industry, such as the Internet Protocol Standards and ICH. As a precursor, I also envision the rise of a global body of biotech firms, regulators, and patient groups that will try to create common ground. Also to track the complex IP landscape, there will emerge software solutions that would allow easy searches of primary and secondary IPs along with links to published knowledge. From a valuation point of view, we might also see the investment banking community take the lead in assessing the IP landscape to provide deal pointers and royalty-share estimates. Shawver. One very challenging issue is the high cost of drug development coupled with the low enthusiasm for early-stage investment by either venture capitalist or pharmaceutical companies. It is definitely the era of ?do more with less.? Many biotech companies have taken the approach to use lower-cost resources, such as chemistry FTEs in India and China rather than to build discovery infrastructure in the United States. I expect that more early-development dollars may also migrate toward countries where the development costs are lower. Abrahams. A new reimbursement policy that recognizes personalized medicine is a key issue. Also, genetic privacy is a great concern. These issues can be resolved through education, which is why the Personalized Medicine Coalition exists. Cunningham. When referring to controversial issues most likely to spark uninformed public debate, then stem-cell research wins hands down. If by controversial we are referring to what is most likely to impact the field moving forward, I believe the primary issue is unrealistic expectations. Biotech in general, and certainly RNAi/gene therapy, is not unlike the commercial evolution of the Internet. It?s not that it?s been oversold, it?s been overbought. No one overestimated the impact of the Internet on the global society, let alone the global economy. Likewise, I believe that respected voices in biotech have not overstated the impact of ?biotechnology? on the future of medicine, life-sciences research, bioremediation, defense, and so on. But the markets largely dictate the pace and tenor of early-stage biotechs, and shareholder expectations have a major impact on the focus of the company. In general, for biotech companies ? or rather, small pharmas, since by definition biotechs are pharma companies that don?t make money ? the market is certainly influential. If one adds public opinion into the mix, then there is the expectation of immediate, life-saving cures ? completely ignoring the fact that there is no one ?biotech? approach ? every approach is different, with its own set of hurdles. The earlier the development of the technology, the more hurdles lie ahead; high-risk/high-reward is a concept understood by most investors, but by far fewer in the general public. I don?t think it is fully resolvable, as some of the pressure it creates is what keeps the industry moving so fast ? and burns out so many biotech entrepreneurs. What I do think is important, is that every CEO takes personal responsibility to speak with integrity. Spin is one thing, but the underlying facts need to be clearly and appropriately conveyed. Short-Term Predictions for Biotech What can be expected through 2007? There isn?t one common theme stemming from the insights from this month?s Forum experts, which demonstrates that there are more issues than the industry has capacity. The logical conclusion is that the biotech industry has a great deal of room for growth and there are more than enough challenges to tackle and opportunities to pursue. After 30 years, biotech is still a young and evolving industry. Hewett. Avian flu will reach North America during 2006. This flu represents a major threat to the poultry industry, the vaccine industry, as well as human health from multiple directions. The biotech industry will dive in and take the challenge to mitigate risks from avian flu. By 2007, the avian flu will have mutated further to become a more serious human public-health issue. Abrahams. Our mission is not to predict the future, but to prepare for it. Right now we?re in a one-size-fits-all model ? for drugs and therapies. We believe personalized medicine represents a better model. Discovering the genetic predispositions of patients will help us treat them better than we do now. Most drugs don?t work for many in the population for which they are prescribed. Hypertension drugs ? 10% to 30% ? don?t work for any given patient; 15% to 25% of heart failure drugs don?t work; 20% to 50% of antidepressants don?t work; 30% to 70% of cholesterol drugs don?t work; 40% to 70% of asthma drugs don?t work. There are 2 million adverse events in hospitals due to drugs, including 100,000 deaths. Tune. Thinning pipelines, the growth of biologics, nearing patent expirations, and more life-cycle management needs will drive increased emphasis on drug-delivery technologies to address the unique delivery challenges biologics present. The approval of Exubera will continue to energize activity around pulmonary delivery, opening the door for other large molecule and systemic delivery through alternate routes. Reformulation of drugs with established clinical profiles, such as insulin, provides an attractive, risk-reduction strategy versus NMEs. Drug-delivery technology also may be applied to address pending patent expiration by producing novel drugs with improved efficacy or solubility that may translate into improved convenience for patients. Finally, biotechnology companies are focusing their efforts on improving drugs earlier, for example initiating second- and third-generation products before the launch of the first product. Crowded drug classes are driving people to think of this ?rolling? life-cycle management. Mehta. If smaller biotechnology companies want to become more competitive and to some extent survive, they will need to partner globally with compatible companies to reduce costs and conduct complementary development work. Working with larger companies may provide relief in terms of burn rate. Outsourcing and better project management with international biotech companies will be a definite trend. Companies, however, will have to be careful about this approach with regard to IP and project management issues. Domain expertise in the area will be critical for this strategy to be successful. Shawver. In spite of progress, there remains large unmet medical needs in a number of disease areas and there are opportunities for real improvements. For example, in spite of the large number of drugs for the treatment of Type 2 diabetes, patients are underserved because of the difficulty in controlling the disease. Cunningham. I?m partial to RNAi, so I do envision enormous opportunities stemming from RNAi used in the development of traditional small-molecule drugs, as well as the evolution of therapeutic antibodies, and as therapeutics in and of themselves. Saraph. During 2006 and 2007, risk-based compliance will drive many IT improvements in biotech operations that may result in reduction of paper documentation and improved process robustness through in-line measurement technologies. As more new drugs enter clinical trials, clinical-trial management will emerge as a key growth area. For rare diseases ? orphan drug candidates ? there might be competition to recruit patients in clinical studies and for some indications, there might actually be a shortage of patients. The health intermediaries might gain further control on drug pricing. An increase in Indian-based investment into biotechnology may start in 2006 and 2007, whereby the traditional diverse Indian conglomerates might start buying small and midsized biotechnology companies in Europe and the United States. Funding Opportunities The good news: there is money available to fund biotechnology ventures. The data show that funds primarily are coming from VCs and partnering agreements. The bad news: biotech companies are not getting the attention from the public markets yet, but that may change as more successful drugs are approved by the FDA. Experts interviewed for this Forum remain fairly optimistic regarding funding availability for biotech companies. Tune. Most reports claim strong support for funding, with the exception of pursuing an IPO, a biotech or drug delivery/technology company that has become a critical part of the pharma industry. The numbers show that 2005 was another exceptional year for funding, with $35 billion in financing and partnering. The amount of venture-capital money invested in biotech increased and the partnering environment continued to improve. In 2005, there was also increased consolidation ? pharmaceutical and biotechnology company mergers as well as biotech and biotech company mergers. This was fueled by incentives from the Bush Administration to repatriate profits from abroad and the lack of promising products in the pipelines of big pharmaceutical companies. Notably, many of these acquisitions happened following an initial investment or partnering relationship moving forward a successful pipeline. We expect this trend to continue because of pharma?s belief in the productivity of biotech?s environment. This also may lead to increased interest and value for earlier-stage deals. In the drug-delivery technology area, many established companies that started to develop their own pipelines are succeeding ? both in getting value through out-licensing products in the pipelines or developing their own commercial capabilities and going the specialty pharmaceutical route if they mean to become an independent company. Shawver. If a company demonstrates that it will be able to hit a clinical-development milestone with an investment, the dollars will be available. I believe that valuation will continue to be an issue as long as the public markets remain difficult. Saraph. In the overall world economy, there are few sectors as promising as biotech. The capital is available for investment in the right opportunities. But investors are asking tough questions in an uncertain world. The relationship between investment size, success rate, and time to realize the returns is quite different in biotech compared with other industries. The investors are learning, for example, that just because Phase I results look promising, there is no guarantee of successful and sustained commercialization. The industry needs to educate investors on these factors, and it also needs to learn the ropes of financial valuation and investment flows to successfully put forth the case for investment in their drugs. Better valuation methodology also will emerge out of increased VC activity. Broderick. In 2005, there was $21.7 billion invested by venture capitalists in all industries. Of that amount, $6 billion was invested in biotech and medical-device industries, which is slightly higher than the $5.8 billion invested in 2004. I would expect the amounts invested to remain essentially flat for the remainder of 2006 and 2007. Mehta. Biotechnology funding will continue to fluctuate. VC funding in biotech has always been cyclic and will continue to stay that way unless there is a shift in the current criteria for funding by VCs. The overemphasis on products ? where typical success rates are less than 10% and projected revenue more than 10 years away ? as criteria for funding allows variability in returns on investment. Unless there is a shift in funding innovative technologies that will shorten the development time and success rate of target molecules that results in quality by design medicines, it will be difficult to sustain attractive and sustainable investment propositions for VCs in biotech. Hewett. Since we are a public company we tend to focus on the availability of capital from the public markets. For companies with revenue and products, capital will be available on competitive terms. But for preproduct companies, the markets are not as available, and if available, the funding is much more expensive, for example lower pricing or sometimes requiring warrant coverage. Keys to Collaboration If ever there was a symbiotic climate, it?s now for the biotechnology industry. Smaller companies have more opportunities to collaborate with established biopharma companies to develop products. Larger biotech companies can remain lean, yet still cash in on breakthrough products. Emerging companies can leverage the experience and firepower of their large partners, giving them greater opportunities for their work to play out as far as it can. According to experts in the field, collaboration is still risky, but the risk is leveraged to the benefit of all parties. Mehta. There is, and will continue to be a definite shift in the structure of collaboration agreements. The IP strategy of small biotech companies will be important, especially given the bigger companies have a free hand in terms of use of IP for research purposes. This will result in higher upfront payments and negotiated IP rights provisions for smaller companies. The upfront, milestone and royalty payments will become more complicated. Broderick. Some of the cost-cutting efforts by big pharma will have an impact on strategic partnerships, both in terms of absolute number, and price paid by big pharma for those strategic partnerships. Conversely, strategic partnering with the big biotechs should continue at the same levels in 2005. There may be some opportunities for big pharma to spinout certain programs that could make for some interesting venture-capital investments. Hewett. The pressure on large companies to report increases in revenue and earnings provides smaller companies with greater opportunities to take ownership positions in smaller, but interesting products via out-licensing in IP and technologies owned by big pharmaceutical companies. They can retain some rights, but transfer much of the development cost and risk to alternative funding sources, such as venture-capital-backed companies. We are less sanguine about upfront payments. We think that the big pharmaceutical companies would rather share profits downstream to a greater extent than bear more of the upfront risks via milestone payments or backload the milestone payments toward FDA-product approval milestones that guarantee a product launch at least. Saraph. Codevelopment deals will increase in the future with small biotechs trying to go for a bigger piece of the pie ? along with a bigger appetite for risk. Upfront payments will vary by indication and results at the particular development stage. Milestone payments might reduce a little either in favor of higher upfront payments or in favor of royalty/codevelopment options. The royalties will continue to be tiered, but with greater emphasis on personalized medicine, peak sales might not be more than $500 million in the future, and, as such, base case royalties would be negotiated more than the higher tiers. Also, given the rise of CMO and CRO activity, the deals would involve multiple parties rather than the traditional two-party structure. shawver. There could be downward pressure on upfront payments for products that are early stage, that is before Phase II. Pharma companies prefer to have the biotech company share the risk and provide milestone payments in lieu of upfront payments. Growth in M&A Based on our experts? responses, M&A continues to be the most plausible, inevitable approach for a small biotech company with a promising product. While an IPO or additional institutional funding are attractive to business owners and shareholders who want a big payout, acquisitions offer considerable advantages to the long-term success of a new product. Mehta. Unlike the popular perception, M&A always has been a more prominent exit route for most biotech companies. Even though the IPO route seems more attractive, M&A will always be the dominant exit channel for biotech companies for the foreseeable future. Cunningham. Although investment in early-stage biotech has begun to ramp up again, I don?t think one can ever rule out M&A. Certainly if a NASDAQ listing is the goal, critical mass is essential. Of the four pillars of biotech ? science, IP, management, and cash ? the importance of the last cannot be overestimated. A company can be brilliant on the other three, but if it doesn?t have enough money to drive around the block a few times when it hits those inevitable hurdles, it will never be able to deliver on the technology, no matter how good it is. A CEO?s primary responsibility is to the shareholders. If the company used primarily VC money to get started, it is going to be looking at shorter term exit events, because that?s the nature of venture capital. But if a company has largely institutional investors behind it, the exit horizons are longer and a CEO can spend as much time building value as increasing the share price. In either case, strategically speaking, CEOs need to focus internally on developing the science and strengthening their IP positions and focus externally on strategic alliances/deals with pharma and on fundraising. All the while, they need to remain flexible to either enter or change markets, or merge/acquire if the opportunities present themselves. And, of course, take the money. It?s far easier to raise money when the company doesn?t need it. Saraph. The M&A arena will continue to grow with big pharma using biotech to improve its pipelines. An IPO exit strategy, though attractive in the short run for small biotechs, might not be the preferred route unless there are clear limitations to extending drug usage to other indications or to the market reach. To create value for shareholders, CEOs may want to focus more on preplanning the acquisition?s after-effects, such as organizational practices, project management methodologies, and quality/regulatory policies. In my view, these can bring a great looking financial deal to its knees within a year or two of an acquisition. Tune. Much of the recent surge in pharmaceutical company acquisitions of biotech companies has been driven by decreases in repatriation taxation by the Bush Administration and the need for pharma to fill its pipeline. At this time, an acquisition appears to be a much better path than expectation for an IPO exit. Several recent biotech IPOs were priced below initial expectations. The macro environment has not been supportive; not only is the risk increasing, but values for the acquisitions are increasing. Larger pharma needs the products/pipeline so that they can continue to take the lower-risk route. The challenges that are pushing the pharma industry in this direction are not likely to change in the short term. Broderick. The growth in the number of mergers and acquisitions will continue, primarily because both biotech and pharma companies have strong appetites for adding to their pipelines. It is our philosophy that CEOs should not alter their strategy to position for an acquisition as opposed to an IPO. We believe that a CEO should always operate the company in accordance to best practices and to focus on building shareholder value. If the CEO does both of these successfully, the exit will take care of itself. Kirschner. I believe the likely strategy for most companies should be acquisition or joint venture, unless they have a unique platform technology with multiple products. The key then becomes having one main product, with research under way on many of the others to indicate that they are viable candidates and can be valued from how well the first product did. Hewett. M&A is often the last funding opportunity for a biotech company, but in this context it is viewed as a comparative success strategy to an IPO exit. Both exit channels should be viewed as equally attractive for the owners of the business and the shareholders, and should be explored in depth. In the end, market conditions and price dictate the choice. Biotech Breakthroughs Are some diseases and conditions more likely than others to benefit from biotech breakthroughs? Our experts seem to agree that the therapeutic category of oncology will be the biggest winner, though many other areas will experience marked benefits as the biotech industry progresses. Tune. The long-term investment in cancer research is yielding increasingly effective therapies, and some of the efficacy is remarkable whether it is a new biologic on its own or adjunctive with chemotherapy. Also, anti-infectives are very hot right now. If you look at the concentration of drugs in the pipeline, it confirms this. Cunningham. There have been such huge strides made against cancers. With the advancement of gene therapies and therapeutic antibodies, I would certainly hope to see cancer becoming a manageable disease state. If delivery of macromolecules, such as oligonucleotides is advanced, there are any number of genetic-based diseases ? diabetes, obesity, neurodegenerative disorders, infectious diseases ? that stand a good chance of being cured over the next couple of decades. Kirschner. The breakthroughs will be in the neurological diseases. Many of these diseases share the same ?final? pathway and the issue will be the delivery system of the drug. The ability to transport moieties through the blood-brain barrier will be the key. Hewett. Cancer, cardiovascular disease, and infectious diseases are the areas where I believe the breakthroughs will come. In cancer, the ability to assess response to therapy is improving, the ability to assess risk of recurrence is appearing, and therapies that target the pathways of cancer are emerging. The limitations of current antibiotics and the threat of avian flu will drive advances in anti-infectives that will further protect human health. Broderick. I have been reading a lot of business plans focused on the application of biologics to treat depression and dementia, and I would expect that we would see some progress in treating those two disease categories within the next decade or so. Using biologics to treat orphan drug populations is an important area to watch as well. Small is Big ? The Power of Nanotechnology From delivering medicine through nanotubes to fighting diseases with machines the size of molecules, nanotechnology is big business. Its applications are nearly limitless, and the promises of better care for patients are inevitable. The biotech industry has yet to even scratch the surface of what this technology is capable of accomplishing. On this, experts can all agree. Broderick. I see nanotechnology impacting everything from how drugs or biologics are delivered to a patient to combination therapies, where a biologic is coupled with a device to provide treatment. One such example is using nanoscale particles to create scaffolds in which neurons can grow and prosper to be used potentially as therapies for spinal-cord injuries. Tune. The ability to apply nanotechnology is key to being able to deliver drugs directly into a tumor. In the case of intravenous delivery, nano-sized particles are able to avoid clearance and circulate longer, something that is particularly important in both therapeutic and diagnostic applications. Injections of nano-sized particles directly into a tumor have a better chance of dispersing from the injection site into more of the tumor mass. In drug delivery, size matters and micro and nano particles each have specific applications to which they are best suited based on their size. Saraph. There is a whole new field of nanobiotechnology that has emerged recently. Though most of the technological breakthroughs are still on paper, one critical technology that can accrue to biotech is the concept of lab-on-chip. This technology will reduce manufacturing cycle times, eliminate release uncertainty for the most part, provide faster supply chains, and bring the concept of quality control and assurance to new levels. The technology fits well with the FDA?s focus on risk-based compliance and, most importantly, there are products based on this technology that are on the threshold of commercialization. Mehta. Nanotechnology promises to increase the pace of biopharmaceutical development by playing a key role in all of the steps of the drug-development life cycle ? from discovery to patient care. These technologies will be crucial for product characterization, biomarkers for disease, rapid detection, manufacturing technologies, formulation, and drug delivery. PharmaLinx LLC, publisher of the VIEW, welcomes comments about this article. E-mail us at [email protected]. Joel Tune Baxter Healthcare Corp. Thinning pipelines, the growth of biologics, nearing patent expirations, and more life-cycle management needs will drive increased emphasis on drug-delivery technologies to address the unique delivery challenges biologics present. Thought Leaders Edward Abrahams, Ph.D. Executive Director, the Personalized Medicine Coalition (PMC), Washington, D.C.; PMC is an independent, nonprofit group that represents a cross section of interested groups and works to advance the understanding and adoption of personalized medicine for the ultimate benefit of patients. For more information, visit personalizedmedicinecoalition.org. Dan Broderick. Managing Director, Mason Wells Venture Funds, Milwaukee, Wisc.; Mason Wells is a middle-market private equity investor serving Midwest entrepreneurs who need capital to start a business, acquire a business or to support growth publishes. For more information, visit masonwells.com. Sara Cunningham. CEO and Executive Director, Benitec Ltd., Mountain View, Calif.; Benitec is an international biotechnology company focused on developing therapeutics to treat serious diseases using its proprietary RNAi technology. For more information, visit benitec.com. Byron D. Hewett. President and CEO, Immunicon Corp., Huntingdon Valley, Pa.; Immunicon develops and commercializes cell- and molecular-based diagnostic and research products for rare cell analysis, with an initial focus on cancer. For more information, visit immunicon.com.Ronald L. Kirschner, M.D. President, Heartland Angels Inc., Skokie, Ill.; Heartland Angels is a private equity network that brings together accredited investors with early-stage, start-up companies and real estate opportunities looking for equity and debt investments. For more information, visit heartlandangels.com. Arkesh Mehta, Ph.D. Chairman and CEO, Avanti Therapeutics, Baltimore; Avanti Therapeutics is committed to making a difference in people?s lives by developing breakthrough treatments for diseases with high disease burden. For more information, visit at-gc.com. Prasad Saraph. Project Manager, Global Supply Chain, Hematology/Cardiology Business, Bayer Pharmaceuticals, Berkeley, Calif.; Bayer Pharmaceuticals is a division of Bayer HealthCare LLC, whose goals is to prevent, diagnose, alleviate, and cure diseases. For more information, visit bayerbiologicals.com. Laura Shawver, Ph.D. President and CEO, Phenomix Corp., San Diego; Phenomix is a drug-discovery and development company building a therapeutic portfolio for treatment of immune disease and metabolic syndrome. For more information, visit phenomixcorp.com.Joel A. Tune. VP, General Manager, BioPharma Solutions, Baxter Healthcare Corp., Deerfield, Ill.; Baxter through its BioPharma Solutions business, provides technologies and services to pharma customers to accelerate and differentiate their molecule through the development life cycle. For more information, visit baxterbiopharmasolutions.com. In spite of progress, there remains large unmet medical need in a number of disease areas and there are opportunities for real improvements. Dr. Laura Shawver Phenomix Corp. Geographic Excellence PharmaVOICE asked executives representing various biotech clusters around the world to discuss the biggest challenges facing economic development centers, in general, and for their region/cluster in particular. We also asked these experts to identify the biggest single event/success for their region/cluster in 2005. And lastly, we asked them to name the top three goals for their region/cluster for 2006. Alabama We cannot seem to keep up with the need for capital in our area. Bioscience companies require patient investors who understand the bio arena. We need more capital for early- and mid-stage funding from investors who understand what it takes to be successful in bio related businesses. The biggest single event for us was the announcement of BioCryst?s potential $560 million deal with Roche followed by the announcement of the Hudson Alpha Institute for Biotechnology that was funded with $130 million of public and private funds. Emageon also launched its IPO last February and raised $70 million. Our top three goals are: approval for the investment tax credit legislation currently being considered by the Alabama legislature; attracting a major biotech/pharmaceutical company to locate some phase of its operation in Alabama; and raising awareness locally and nationally of the fact that Alabama is a developing hot spot for the bioscience industry. Arizona Funding, both private and public is the biggest challenge. That?s probably the case in most regions, and is particularly true in Arizona. We?re relatively new to the biosciences, so we don?t have the funding foundation that leading bioscience states enjoy. We?re making measurable gains in biotech/pharma venture capital, and the public sector has been increasingly supportive. But without a critical mass of large, established firms, Arizona needs to do more to support and nourish early-stage firms. Arizona made outstanding progress this past year and perhaps the single development that may ultimately have the greatest impact is the creation of the Critical Path Institute (C-Path) in Tucson. This unique research institute, under the guidance of Raymond L. Woosley, M.D., Ph.D., president and CEO, is attempting to revamp the U.S. drug-development system to create safer, more affordable prescription drugs that get to market significantly faster. It has the full support of the FDA. Not only does C-Path have the potential to effect profound change at the national level, it adds a powerful asset to Arizona?s growing biosciences and pharmaceutical industries, one that is already creating a strong ripple effect throughout the state. In 2006, our top goals are to establish substantial public/private funds to attract world-class talent in the biosciences and technology; pass an expanded tax credit to provide greater incentive for local firms to use and develop technology from Arizona universities; and continue to increase the federal research dollars, firms, and jobs coming into the Arizona bioscience industry. California ? Sacramento The biggest challenge facing existing life-science centers of activity is the retention of future expansion opportunities. Existing major clusters of research activity have been extremely successful in fostering talent, investment capital, public support, and in turn, innovation. As we look around the country, however, the same set of characteristics that supports a strong research environment may not be the same set that support manufacturing, marketing, and in the long run, cost management, in addition to research. In part, this scenario describes both challenges and opportunities in Northern California, a life-sciences industry cluster that nearly doubles the next largest cluster in the nation. This is both a challenge and a major opportunity for the Sacramento region, roughly 70 miles northeast of San Francisco. As Sacramento becomes a research force in its own right, anchored by UC Davis (ranked 12th in the nation for its $500 million in research funding last year), it is poised to capitalize on much of the wave of growth emerging from Bay Area life-science firms as devices and drugs are approved for use. While Sacramento has a strong research infrastructure, it is also one of the few metro areas in the state where manufacturing employment continues on an upward trajectory. The long-term challenge will be to make sure California and the nation remain competitive in highly skilled manufacturing. One of our most successful efforts during 2005 was the competition to host the California Institute for Regenerative Medicine (CIRM), created by Proposition 71, a state bond measure to create $3 billion in stem-cell research funding over the next 10 years. The initial process only targeted San Diego and San Francisco, but with the support of a prominent developer, the city of Sacramento was able to offer 10 years of free rent in a Class A building just blocks from the Capitol. This set the bar for the competition, and all other cities had to match and exceed this offer. Every major metropolitan area in the state submitted sites, some multiple sites, and most offered in excess of $8 million in incentives. After the technical evaluation of sites was concluded, the three top contenders were Sacramento, San Diego, and San Francisco, with Sacramento ranking second behind San Francisco. While the final decision went to San Francisco, as many had predicted, it was one of the most successful ?losses? the region has ever experienced. It was a demonstration of the extraordinary cooperation that exists in a region of 29 jurisdictions, and an opportunity to showcase UC Davis, the M.I.N.D. Institute, the Center for Biophotonics Science and Technology (CBST), a National Cancer Institute, as well as the 111 life-sciences firms that exist in the immediate area. Our goals for the upcoming year include successfully completing several expansions in the life sciences within our region, and increasing our visibility in the life-sciences industry both nationally and internationally. Our most significant goal in the coming year is to increase the level of communication and cooperation throughout Northern California to demonstrate that we truly have it all, from a strong and talented workforce, ready-to-go real estate and infrastructure, incentives for growth, and most importantly, a magnificent quality of life. Northern California?s biotech organization, BayBio is working diligently to spread this message and to foster growth within the northern part of the state. California ? San Diego Right now, biotech and the life sciences have been identified by economic development groups the world over as a very desirable target business to try to attract to their regions. It seems as though half of the exhibitor space at BIO these days is taken up by different regions trying to attract new companies to their region. Life-sciences companies need to be in established clusters because of their infrastructure and support requirements, covering everything from lab design and architecture to waste management to intellectual property law. These needs make it hard to compete with established clusters such as San Diego, where those skills and extensive experience are just down the street. That?s why BIOCOM and the life-sciences community in San Diego have focused efforts on taking the next step to attract more investors to the region, which we believe will translate to more therapeutics in development and life-sciences companies in the region. Biotech companies need three things to thrive: talent, technology, and money. With more than a dozen research institutions, 500 life-sciences companies and more than 39,000 employees in our region, San Diego is well-represented in terms of talent and technology, but we want to bulk up our investment pool. We have an active capital-development initiative that has been working to show venture capitalists, strategic investors, and the financial community that San Diego has the working research institutions and life-science companies to bring innovative new therapeutics to market. Undoubtedly, Amylin Pharmaceuticals? back-to-back approvals of two new first-in-class therapeutics for diabetes, an underserved market, are significant for the community. Also, Genentech?s purchase of a biologics manufacturing facility in Oceanside made San Diego the only life-sciences community in the world that can boast the presence of the three biggest biotech companies in the world; Amgen has its venture arm here, and Biogen Idec centers its oncology work here. Our workforce and education group is building a new Website that will be an information clearinghouse for all scientific and academic educational opportunities in the region. We?re also working with the San Diego Workforce Partnership on an internship-training program that helps high school and college students prepare for biotech internships at member companies. As far as technology, we want to continue to be sure that our major academic institutions, such as Scripps, Salk, Burnham and UCSD all have the type of technology-transfer programs in place that will encourage the formation of new companies. In a similar vein, we want to continue to see partnerships developed between big pharma and life-sciences companies. Whether it is a preclinical research deal or a late-stage product partnership, biotech companies often need a big pharma or big biotech partner to support development progress. That folds nicely into our third goal, which is to build on our Capital Development initiative. We want to be certain that venture capitalists not in San Diego know that they need to be here to be a part of our success. We want to continue to make it very easy for them to be a part of our region. Illinois The biggest challenge is sorting through the myriad opportunities that present themselves. It is impossible to do every good thing that?s available to do. This problem is particularly acute in Illinois, which is one of only two states with sizable employment in bioscience basic research and testing, agriculture and ag-related applications, pharmaceuticals, and medical devices. The state has substantial strength in industrial and environmental applications as well. When it comes to biotechnology, it?s all here; this is where folks put science to work in real applications. The region had two huge successes. Three multibillion-dollar medical life-sciences firms decided to make the Chicago area their headquarters: Astellas Pharmaceuticals, Hospira, and Takeda Pharmaceuticals North America. (Takeda and Astellas are the No. 1 and No. 2 bio-pharma companies in Japan.) Second, Forest City Enterprises, the real estate development firm that built the remarkably successful tech park adjacent to MIT in Cambridge, Mass., established the Illinois Science + Technology Park in Skokie, just north of Chicago. The park features state-of-the-art wet labs and a GMP-approved formulation facility and avarium, with lots of green space and room to expand. There are two basic goals for 2006. Chicago, and Illinois in general, is hosting the Olympics of Biotech, the giant BIO International Conference, and we anticipate making the show the best ever. Secondly, deploying the cross-sector partnership we have developed to support the show to continue to support our work on an ongoing basis. We have developed consensus across the state and the major sectors ? research/academic, public, and private ? on exactly what needs to be done to establish this region as a top life-sciences center for decades to come. So we plan to take the apparatus we used to make BIO 2006 a success and turn it into a small set of working groups that will attack these priorities going forward. Maryland In my opinion, the biggest challenge for the development of bioscience companies today, and those in Maryland are no exception, continues to be the availability of early-stage capital. There is a large amount of venture-capital money available for investment, but most of it is chasing deals with companies that already have a significant amount of clinical data on a new drug in development. These companies certainly need large amounts of capital, and it makes sense from the investor perspective to focus on those areas where the risk of the investment has been reduced somewhat though it remains substantial. But where does this leave the company whose science may be extraordinary, and whose management team is qualified and experienced, but which doesn?t yet have the funds to get the Phase I and II clinical data that seem to have become the threshold for attracting serious investment? These companies, if they can get funding at all, often are forced to accept draconian deal terms that weigh heavily in favor of the newer investors, at the expense of those who took an even greater risk when the company was just getting off the ground. Yes, it?s the marketplace at work, but the challenge is to find a way to nudge that market toward a place that more strongly encourages the success of good products and good managers in an industry with unique timelines, capital requirements, and regulatory issues. The biggest success in our region last year was the inaugural Mid-Atlantic Bio Conference. This new model, combining a regional industry meeting with an investor component, brought more than 600 attendees to the Reagan Center in Washington, D.C., in October 2005. Jointly hosted by MdBio, Virginia Biotechnology Association, Mid-Atlantic Venture Association, and Tech Council of Maryland, this conference brought the Maryland and Virginia bioscience communities together as never before in a spirit of regional unity. All the host organizations anticipate that 2006 Mid-Atlantic Bio, scheduled for October 10-11 at the same location, will far surpass the success of the first conference. My primary goal for 2006 is to play my part to successfully implement the recently announced merger of MdBio and the Tech Council of Maryland (TCM), taking advantage of this unique organizational structure to build MdBio into one of the premier state bioscience associations in the country within the context of the TCM, which will allow seamless integration with other technology-based industries on issues and programs of interest to both. Nebraska It is a challenge to identify the elements necessary to develop and grow an economic development center. Once the necessary elements are identified, it is a challenge to nurture each, while recognizing each element is interdependent from each other. Consider a three-legged stool. Each of the legs represents one of the necessary elements. Yet, without the all of the legs/elements present, the stool will not stand. The first leg is research; either in the academic arena or from private-sector entrepreneurs. Nebraska has an enormous amount of quality research activity occurring, with the university supporting those efforts. And, through the Nebraska Advantage Act, the state provides a tax credit for R&D activities. The second leg is funding. The challenge is not necessarily in determining whether there is available capital, but rather how to access that capital and attract investors to bioscience investment opportunities. The third leg is managers ? or human resources. Managers are needed for the start-up/emerging projects and to manage the projects as they are funded and go on line. Such projects require managers with entrepreneurial experience and/or entrepreneurial skill knowledge. The challenge lies in identifying managers with the skills and matching them to the projects. In 2005, Nebraska?s bioscience industries and research institutions formed the Bio Nebraska Life Sciences Association, a strategic planning and promotional organization to coordinate efforts to expand the life-sciences industry in the state. Bio Nebraska, a nonprofit organization, seeks to facilitate the collaboration of academia, government, and industry to encourage the promotion of research, development, and commercialization of life sciences in the state. In addition, the Nebraska Legislature passed a bill beneficial to R&D activities beginning Jan. 1, 2006. The Nebraska Advantage Act improves the state?s tax climate and rewards those businesses that invest in Nebraska and hire Nebraska?s quality workforce. The most notable benefit of the Act is R&D refundable tax credits equal to 3% of research and development expenditures. The members of the Bio Nebraska Life Sciences Association identified three priority issues on which they would like the association?s program of work to focus. The issues are: collaboration, infrastructure and industry support, and capital development. New Jersey The developmental history of the biotechnology industry has clearly shown that the long-term success for any center depends in large part on the depth and breadth of the infrastructure that supports it. A successful cluster needs enabling and supportive government programs, creative and diverse research/academic centers, access to funding, a skilled labor pool, and a variety of technically advanced service providers. The biotechnology industry in New Jersey began to recognize the value of thinking and acting as a cluster a little more than 10 years ago, and since that time we have witnessed a period of tremendous growth. Now that we are communicating as a cluster, we believe the potential for future growth is without limit. Our challenge, our goal, is to continue to build on the successful infrastructure already in place, encourage greater participation by our current member companies, attract new companies to the cluster, and work with the State of New Jersey to broaden our communication efforts beyond the state?s borders. The BIO 2005 annual convention, which was held in our region and which New Jersey cosponsored along with our neighboring states, was a significant milestone for the growing number of companies located in the New Jersey and the surrounding region. This was the largest in BIO?s history ? in terms of attendance, exhibits, media coverage, and so on. We demonstrated the strength of the region and at the same time, brought the region together to work for a common purpose like never before. I think the benefits arising from BIO 2005 will be evident for years to come. The second milestone in 2005 occurred in December when Celgene received approval from the FDA to market Revlimid for the treatment of patients with transfusion-dependent anemia. This approval coupled with the company?s previous approval for Thalomid, positioned Celgene as the world?s fifth largest biotechnology company. Earlier in 2005, Celgene had recommitted to New Jersey as its home when it purchased and moved into its new offices in Summit. Our goals here in the cluster remain close to the original mission that empowered the Biotechnology Council of New Jersey. The cluster will continue to undertake those activities that will sustain and enhance the growth of our companies. We believe we have an excellent infrastructure in place, but there is always room for improvement. Therefore, in 2006 we intend to concentrate even more on improving those elements that help our member companies grow and succeed. Finally, we look forward to working with our new governor and his administration on a more concerted effort to attract new companies since a strong cluster greatly increases the potential for success of its individual members. New York ? Hudson Valley Low-cost offshore labor continues to exert pressure on the U.S. pharmaceutical industry. The Hudson Valley, however, has nine major pharmaceutical companies, including Novartis, Wyeth, and Bayer HealthCare in the region and our location is at the very heart of one of the world?s strongest biopharmaceutical clusters. That translates into a workforce that is competitive in the world market because it already has the high level of education and skills necessary for pharmaceutical R&D and manufacturing. In terms of biotechnology, intense competition for funding is probably the biggest challenge facing the industry in general, as well as the 30-plus companies in our burgeoning cluster. New York State consistently ranks No. 2 in venture-capital funding, and the state recently passed new legislation that offers a refundable R&D tax credit. This will be particularly beneficial for biotech companies that typically do not turn a profit in their early years. Novartis and BayerHealthCare are both undergoing major expansions, which will create at least 100 new jobs each in the Hudson Valley. Novartis is investing more than $15 million in its Suffern, N.Y., manufacturing plant to produce a new malaria vaccine for the World Health Organization. Meanwhile, Bayer HealthCare is relocating its Diabetes Care Division from Elkhart, Ind., to Tarrytown, N.Y., where Bayer Diagnostics already employs 750 people. Bayer was the first to take advantage of New York State?s new designation as a ?Regionally Significant Manufacturer? so it could receive significant tax benefits from the state?s Empire Zones program. One of our top priorities is to move a biopharmaceutical or other life-sciences company into Ardsley Park, a science and technology center that is located 30 minutes north of Manhattan and has just come on the real-estate market. The 43-acre complex has a 390,000-square-foot state-of-the-art laboratory, pilot plant, and office space. North Carolina The biggest challenge confronting North Carolina?s biotechnology industry is retaining, expanding, and attracting dynamic growth companies in the face of hungry global competition. Though Ernst & Young?s 2005 survey of the industry shows North Carolina ranks No. 3 in the United States in the number of biotechnology companies, behind only California and Massachusetts, we can?t rest on our laurels. We have the nation?s lowest cost of doing business, according to the 2005 Milken Institute Cost of Doing Business Index. Also, for the fourth time in the last five years, Site Selection magazine in 2005 named North Carolina as the state with the best business climate. We have to continue to build our value proposition ? world-class research, testing, and manufacturing capabilities at low cost with a high quality of life. Having a highly trained workforce is critical to that. The state has invested $60 million, plus $12 million in initial operating costs, in a national, unique program to train up to 3,000 workers a year for jobs in biomanufacturing and pharmaceutical manufacturing. This and other workforce-training programs continue to attract companies. GlaxoSmithKline is embarking on a $92 million expansion of its pharmaceutical manufacturing plant in North Carolina, creating 200 new jobs; Arysta LifeScience is relocating to North Carolina from San Francisco, bringing 65 jobs; and Merck & Co. is building a $300 million vaccine-manufacturing plant in North Carolina that will employ 200 people. More recently, the August C. Stiefel Research Institute, a wholly owned subsidiary of Stiefel Laboratories of Coral Gables, Fla., announced it will relocate its R&D facilities to North Carolina, creating 200 jobs and bringing investment of more than $50 million. And Corneal Science Corp. is relocating its Vision Pharmaceuticals manufacturing facility in Mitchell, S.D., to North Carolina. Even as the North Carolina Biotechnology Center opened its third and fourth regional offices in 2005, aimed at developing biotechnology in all parts of the state, construction was begun on a $1 billion, 350-acre North Carolina Research Campus in Kannapolis, near Charlotte, on the site of a defunct textile plant. The campus, announced in September 2005 by Dole Food Co. Owner David Murdock, is envisioned as a major national center for research and business in nutrition, agriculture, health, and biotechnology. Early this year the North Carolina Biotechnology Center will open its fifth regional office to serve Greater Charlotte. That will enable us to more fully unleash our strategic plan to strengthen biotechnology across the state, leveraging the unique assets of each region. The Biotechnology Center will continue to nurture highly skilled workers while protecting their nest ? an environment that hatches and grows biotechnology companies to employ them. According to a 2004 Milken Institute report, North Carolina is projected to lead the nation in percentage growth of new biopharmaceutical jobs by 2014. Our challenge is to prepare a workforce for these jobs, particularly biomanufacturing jobs. We will continue our partnership with the state?s community college and university systems and biomanufacturing companies to prepare a workforce, which is critical to attracting, retaining and expanding companies. And the Biotechnology Center plans to encourage the attraction, start up, and growth of young bioscience companies throughout the state with targeted assistance. Ohio Differentiating, and marketing that differentiation are the biggest challenges. Centers must rise above the noise of every other state and quite a few foreign countries competing for bioscience development. The key for any cluster is to articulate its assets and how it can accelerate a company?s product or service to market. The ultimate challenge is to understand, differentiate, and then articulate the value proposition. For example, we believe Ohio is the best location in the world to grow a cardiovascular device or pharma company because of an existing cardiovascular asset base that is second to none in the world. The challenge is getting the word out. In late December 2005, San Diego-based Amylin Pharmaceuticals chose West Chester, Ohio, for construction of its first production facility. The 150,000-square-foot space and 26 acres of land will be converted for the eventual commercial manufacturing of a long-acting release formulation of exenatide, a product candidate in development for the treatment of Type 2 diabetes. Ohio was in competition with Kentucky, North Carolina, Massachusetts, and California for the project. Amylin officials cited several reasons for coming to Ohio: a business climate improved by recent tax reforms; proximity to product development partner Alkermes? Wilmington, Ohio, operations; and collaboration and assistance from the State of Ohio, Butler County, and Omeris, Ohio?s bioscience membership and development organization. We expect several more announcements like this in the next 12 months to 18 months. In 2006, our goals are to establish responsive incentive and location packages for bioscience-related companies of all sizes; continue to improve on and leverage Ohio?s blossoming statewide industry/academic partnerships; and, as always, encourage new company creation and equity investments in Ohio. Vermont Governor Jim Douglas has made affordability a priority for his administration, including reducing the tax and regulatory burdens on businesses and introducing the Vermont Promise Scholarship program to make higher education more affordable for Vermonters and encourage them to stay in state after graduating. Vermont?s biotechnology industry is receiving marketing support thanks to a three-state collaborative effort with the New Hampshire Biotechnology Council and the Teague Biotechnology Center of Maine. In 2005, a major accomplishment was the opening of the Vermont Center for Emerging Technologies, a University of Vermont-led technology based incubator project. It is designed to assist the numerous small emerging technology firms in the state by providing technical assistance and networking opportunities and research and development support. The center has five resident clients and one affiliate with more on the way and is planning to expand its space. In 2006, our goals include the development of an association in partnership with the Vermont Center for Emerging Technologies to support the biotech and health-sciences industries, including an April 21, 2006, conference to promote this initiative; building on the $90 million in biomedical research performed at the University of Vermont?s College of Medicine; and continuing to network through the Biotechnology Industry Organization?s annual international convention. Wisconsin Our biggest challenge as an economic development agency is to spread the word about Wisconsin?s biotechnology base so that we can help attract both venture capital and strategic business and research partnerships for our state. Wisconsin has a strong and growing biotechnology cluster comprising 338 companies employing more than 22,000 workers and generating annual revenue of more than $6 billion. Annualized revenue growth for this cluster is 16%. Our bioscience research base offers many opportunities to commercialize new technologies. It is clustered around technologies that have the potential to save and improve lives, to clean our water and land, to more efficiently feed the world, and to produce profitable goods and services. Wisconsin is third among all states in total federal research spending on bioscience and on the cutting edge of developments in regenerative medicine, personalized medicine, bioinformatics, proteomics and medical devices. Top-flight research institutions include the UW-Madison, Medical College of Wisconsin, and Marshfield Clinic. During his term in office, Gov. Jim Doyle made development of the state?s biotechnology cluster a top priority. His ?Grow Wisconsin? plan recognized the need to increase venture and angel investor investments in early-stage biotech companies, help these companies access federal grants and a variety of technical assistance programs, and to provide custom-tailored support for start-up businesses with high-growth potential. In 2004, he signed legislation providing, over 10 years, a total of $35 million in early-stage seed fund tax credits; $30 million in angel network tax credits; and $26 million in technology commercialization grants and loans and support. The legislation also established the Wisconsin Entrepreneurs? Network (WEN), with four regional centers and 50 intake centers across the state, to coordinate and deliver services to entrepreneurs. In 2005, these new programs came on line. The Department of Commerce qualified 44 technology businesses for investment by angel and early-stage funds. Angel investors used up the entire first-year allocation of tax credits ($3 million), indicating their strong interest in investing in the qualified businesses. Commerce certified its first five early-stage seed funds eligible for earning tax credits by investing in qualified businesses. It also awarded 50 technology commercialization grants and loans totaling $3.5 million, leveraging $39.3 million. In its first six months of operation, WEN served 7,000 entrepreneurs and would-be entrepreneurs. Our first goal is to capitalize on Wisconsin?s leadership in stem-cell research and development. Governor Doyle is committed to capturing Wisconsin?s once-in-a-generation opportunity to develop life-saving therapeutics and create high-wage jobs by leading the nation in stem-cell research and commercialization. The market for stem-cell products is small, but growing. Expert predictions vary widely but suggest that the market could reach as much as $10 billion by 2015. It was a UW-Madison Scientist, Dr. James Thomson, whose ability to grow stem cells without differentiation in a laboratory culture opened the door to applications for human stem-cell research. Governor Doyle is committed to using the power of his office to advance and defend our leadership in developing life-saving stem-cell technologies and jobs. Our second goal is to market Wisconsin as a biotechnology leader so that we can encourage more investment in our state?s companies from around the nation and around the world. Our third goal is to facilitate partnerships between Wisconsin biotechnology firms and major international and national pharmaceutical companies. We will continue our efforts to recruit pharmaceutical companies and to interest them in strategic partnerships with Wisconsin firms. Outside the United States ? Scotland Scotland, like most developed nations and regions of the world, is transitioning from low-value added economic activities to higher value. So low-cost manufacturing is disappearing in favor of higher value, knowledge-rich activities. That transition is a challenge. That is not to say that manufacturing no longer exists in Scotland. On the contrary, the manufacturing that exists is of a higher order. In a relative sense, Scotland remains cost competitive within Europe but doesn?t attempt to compete with the lowest-cost nations, such as India and China. The life-sciences industry is playing a significant part in the transition to higher-value activity. Today Scotland is home to one of the most sizeable life-sciences clusters in Europe and hosts a significant multinational presence in research and development. These companies are supported by a globally recognized research base, industrial technology, and University base all with well-developed networks and links to industry. Scotland has a powerful life-science research and technology base, which includes more than 500 organizations and more than 26,000 employees. The number of core life-sciences companies has doubled in the past four years to 100. Scotland?s primary focus is on human healthcare, with 71% of the core life-sciences organizations being involved in this aspect. Areas of key clinical and academic expertise include: cardiovascular, central nervous system, diabetes, and oncology. Scottish Development International?s goals continue to be to support Scottish companies to make progress in international markets and to support international companies to envision Scotland as a country to do business in and with. Specifically this should see us aim to: support the creation of new, high-value jobs from inward investment by non-Scottish based companies; support Scottish companies to increase their value through successfully operating in international markets; and support Scottish and overseas companies strike partnerships and licensing deals to mutual benefit. order. In a relative sense, Scotland remains cost competitive within Europe but doesn?t attempt to compete with the lowest-cost nations, such as India and China. The life-sciences industry is playing a significant part in the transition to higher-value activity. Today Scotland is home to one of the most sizeable life-sciences clusters in Europe and hosts a significant multinational presence in research and development. These companies are supported by a globally recognized research base, industrial technology, and University base all with well-developed networks and links to industy Some of the cost-cutting efforts by big pharma will have an impact on strategic partnerships, both in terms of absolute number and price paid by the big pharma for those strategic partnerships. Dan Broderick Mason Wells Venture Funds Biotech M&A Highlights 2005 Acquirer Acquired Value $ in Millions Novartis Chiron $5,100 Allergan Inamed $3,200 Amgen Abgenex $2,200 Pfizer Vicuron $1,900 Shire TKT $1,600 GlaxoSmithKline ID Biomedical $1,400 OSI Eyetech $900 Genzyme BoneCare $719 Crucell Berna Biotech $448 Cephalon Zeneus Pharma $360 Source: Burrill & Co., South San Francisco, Calif. For more information, visit burrillandco.com. I believe the likely strategy for most companies should be acquisition or joint venture, unless they have a unique platform technology with multiple products. Dr. Ronald Kirschner Heartland Angels Inc. PharmaVOICE 2006 View on Biotech Survey Market Factors We asked biotech professionals to rank five markets on how likely they will benefit from biotech-related advances in the next 10 years. A rank of 1.00 is the highest score possible for the aggregate (i.e., ranked No. 1 by all respondents). Market Average Rank Healthcare/Pharmaceuticals 1.22 Food & Agriculture 2.51 Environmental/Industrial 3.29 Chemicals 3.88 Energy 4.10 Business Strategies What?s the most likely next step for an emerging biotech company? 59.6% Acquisition by a larger company 19.3% Merger with another company 12.3% IPO 8.0% Other New drugs and vaccines will be the key role for biotechnology near-term Over the next 25 years? Market Average Rank New Drugs 2.41 Regenerative Medicine 2.59 Vaccines 3.07 Disease Prevention 3.38 Bioterrorism/biodefense 4.61 Nutrition 4.95 Red State ? Blue State How does the current political factions and judicial composition impact accelerating stem-cell research through 2008? Moderately difficult (cost more time and money than necessary) 45.6% Slightly more difficult 33.3% Severely limits breakthrough research 10.5% No opinion 7.0% No effect 3.5% Home Rules Of our respondents, 53.5% believe their state governments are doing a great job in terms of providing funding and incentives for biotech companies. Only 12.5% of respondents believe the federal government is doing a great job in terms of providing funding and incentives for biotech companies. Careers in Biotech It?s a great time for job seekers: 71.5% responded that the biotech job market is stronger than most industries. They also believed it isn?t any harder than average to find good talent for biotech companies. This could shift as the biotech space heats up once again. New drugs and vaccines will be the key role for biotechnology near-term Over the next 25 years? Market Average Rank New Drugs 2.41 Regenerative Medicine 2.59 Vaccines 3.07 Disease Prevention 3.38 Bioterrorism/biodefense 4.61 Nutrition 4.95 The Future Respondents ranked the six areas where biotech will make the biggest contribution to human health over the next 10 years. Market Average Rank New Drugs 1.82 Vaccines 2.46 Regenerative Medicine 3.32 Bioterrorism/biodefense 4.14 Disease Prevention 4.16 Nutrition 5.19 Breakthrough Biotech Products Approved in 2005 Biotech companies succeeded in introducing novel therapies for patients suffering from some of the most devastating and deadly diseases in 2005. The U.S. Food and Drug Administration (FDA) approved 38 new biotech and biotech-related products, expanded labels, and other therapies in 2005. Diabetes and cancer are two areas receiving a great deal of attention. Approved therapies include Novo Nordisk?s Levemir, for treatment of diabetes mellitus, and Onyx?s and Bayer?s Nevaxar, for advanced renal cell carcinoma. The FDA approved seven recombinant biologics in 2005, numerous first-in-class products, and several orphan drugs. Representing a step toward the promise of personalized medicine, in 2005 the FDA approved the first drug based on its performance in a specific race. NitroMed?s BiDil, approved in June 2005, is a heart failure treatment for African Americans. Some orphan drugs approved were: BioMarin?s Naglazyme, an enzyme replacement therapy for mucopolysaccharidosis Type VI; Tercica Inc.?s Increlex, a long-term treatment for growth failure in children with severe primary IGF-1 deficiency; and Insmed?s iPlex, a treatment for growth failure in children with severe primary IGF-1 deficiency or with growth hormone gene deletion. Amylin Pharmaceuticals received FDA approval on two first-in-class drugs in 2005. Both are diabetes drugs, Byetta is a first-in-class incretin mimetics, while Symlin is a pramlintide acetate used in conjunction with insulin to treat Type I and II diabetes in patients who have failed to achieve desired glucose control. American Pharmaceutical Partners Inc. also received approval on first-in-class product Abraxane for the treatment of breast cancer after failure of combination therapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Fortical, a nasal spray developed by Unigene Laboratories Inc., was approved to treat postmenopausal osteoporosis in women with low-bone mass. For a larger population, GlaxoSmithKline Biologicals won approval of the influenza virus vaccine Fluarix for active immunization of adults 18 years of age and older against influenza disease caused by influenza virus types A and B. And Aventis Pasteur Inc. received approval for Menactra, an immunization for meningitis. New Products FDA Product Company Indication Approval Date Abraxane (paclitaxel, first in class protein bound particle) American Pharmaceutical Breast cancer after failure of combination therapy for metastatic Partners Inc. disease or relapse within six months of adjuvant chemotherapy Jan. 2005 Adacel (Tetanus Toxoid, Reduced Diphtheria Toxoid and Aventis Pasteur Ltd. Booster immunization against tetanus, diphtheria and pertussis as Acellular Pertussis Vaccine, Absorbed) a single dose in individuals 11 through 64 years of age June 2005 Arranon (nelarabine injection) GlaxoSmithKline The treatment of patients with T-cell acute lymphoblastic leukemia (T-ALL) and T-cell lymphoblastic lymphoma (T-LBL) whose disease has not responded to or has relapsed following treatment with at least two chemotherapy regimens Oct. 2005 BiDil (isosorbide dinitrate and hydralazine) NitroMed Inc. For heart failure in self-identified black patients June 2005 Boostrix (Tetanus Toxoid, Reduced Diphtheria Toxoid, GlaxoSmithKline Booster immunization against tetanus, diphtheria and pertussis as a Reduced Diphtheria Toxoid and Acellular Pertussis single dose in adolescents 10-18 years of age Vaccine, Absorbed) May 2005 Byetta (exenatide injection, first in class incretin mimetics) Amylin Pharmaceuticals Type II diabetes April 2005 CNJ-016, Vaccinia Globulin Intravenous (purified antibody Cangene Corp. Treatment and/or modification of the following conditions, which are for specific vaccinia) complications resulting from smallpox vaccination: eczema vaccinatum, progressive vaccinia; severe generalized vaccinia; vaccinia infections in individuals who have skin conditions such as burns, impetigo, varicella-zoster, or poison ivy; or in individuals who have eczematous skin lesions because of either the activity or extensiveness of such lesions; aberrant infections induced by vaccinia virus that include its accidental implantation in eyes (except in cases of isolated keratitis), mouth or other areas where vaccinia infection would constitute a special hazard May 2005 Exjade (deferasirox, once-daily oral iron chelator) Novartis AG Chronic overload due to blood transfusions in adult and children age 2 or older Nov. 2005 Fluarix (influenza virus vaccine) GlaxoSmithKline Biologicals For active immunization of adults 18 years and older against influenza disease caused by influenza virus types A and B Aug. 2005 FDA Product Company Indication Approval Date Fortical Nasal Spray (calcitonin salmon) Unigene Laboratories Inc. Postmenopausal osteoporosis in women with low bone mass Aug. 2005 Gammagard (Immune Globulin Intravenous Baxter HealthCare Corp. Primary immune deficiency (Human) Solution) April 2005 Hylenex (recombinant human hyaluronidase) Halozyme Therapeutics Inc. Increase the absorption and dispersion of other injected drugs Dec. 2005 Increlex (mecasermin) Tercica Inc. Long-term treatment for growth failure in children with severe primary IGF-1 deficiency Aug. 2005 Iplex (mecasermin rinfabate [rDNA origin]) Insmed Inc. Treatment of growth failure in children with severe primary IGF-1 deficiency (primary IGF) or with growth hormone (GH) gene deletion who have developed neutralizing antibodies to GH Dec. 2005 Levemir (insulin detemir [rDNA origin] injection) Novo Nordisk Treatment of diabetes mellitus (Type I and Type II) June 2005 Menactra (Meningococcal Polysaccharide Aventis Pasteur Inc. For active immunization of adolescents and adults 11 to 55 years (Serogroups A, C, Y and W-135) Diphtheria Toxoid of age for the prevention of invasive meningococcal disease caused Conjugate Vaccine) by Neisseria meningitidis serogroups A, C, Y and W-135 Jan. 2005 Naglazyme (galsulfase) BioMarin Pharmaceuticals Enzyme replacement therapy for mucopolysaccharidosis VI (MPS VI) May 2005 Nexavar (sorafenib, tablets) Onyx Pharmaceuticals Inc. Advanced renal cell carcinoma and Bayer harmaceuticals Inc. Dec. 2005 Orencia (abatacept, fully human soluble fusion protein) Bristol-Myers Squibb Co. Reducing signs and symptoms of rheumatoid arthritis Dec. 2005 ProQuad (Measles, Mumps, Rubella and Varicella Merck & Co. Measles, mumps, rubella, and varicella in children 12 months to 12 years Virus Vaccine Live) Sept. 2005 Revlimid (lenalidomide) Celgene Corp. For the treatment of patients with transfusion-dependent anemia due to low- or intermediate-1-risk myelodysplastic syndromes (MDS) associated with deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities Dec. 2005 Symlin (pramlintide acetate injection) Amylin Pharmaceuticals Inc. Used in conjunction with insulin at mealtime to treat Type I and Type II diabetes in patients who have failed to achieve desired glucose control despite optimal insulin therapy March 2005 Tygacil (tigecycline injection) Wyeth Treatment of complicated skin-structure infections and complicated intra-abdominal infections Dec. 2005 VIGIV, Vaccinia Immune Globulin Intravenous DynPort Vaccine For the treatment and modifications of aberrant infections induced (intravenous immune globulin) by vaccinia virus that include its accidental implantation in eyes (except in cases of isolated keratitis), mouth, or other areas where vaccinia infection would constitute a special hazard; eczema vaccinatum; progressive vaccinia; severe generalized vaccinia, and vaccinia infections in individuals who have skin conditions such as burns, impetigo, varicella-zoster, or poison ivy; or in individuals who have eczematous skin lesions because of either the activity or extensiveness of such lesions. Feb. 2005 One on One with Jim Greenwood In an exclusive interview with PharmaVOICE?s VIEW Managing Editor Daniel Limbach, Jim Greenwood, President and CEO of the Biotechnology Industry Organization (BIO), discusses the state of biotechnology. Limbach. You stated at the recent BIO CEO & Investor Conference that ?for biotechnology companies and investors, the sky is the limit with opportunities abounding in genomics, personalized medicine, diagnostics, biomarkers, cell therapies, and vaccines.? What areas in particular do you envision having the greatest potential and why? Greenwood. We?re obviously moving faster and faster into an era of personalized medicine. In its Critical Path Initiative (released March 17), the FDA took a significant step in transforming the vision of personalized medicine into a reality by identifying safety and efficacy biomarkers for clinical development. Biotechnology companies are modernizing product development to enable better healthcare through personalized medicine, which will produce safer products, save money and ultimately open access to products. Just think about it, one day your doctor will be able to prescribe the right drug, at the right time, at the right dose ? based on your genetics. Limbach. You also stated that the ?biotech industry has reached a level of maturity during the past few years that is paying off in terms of stability; and stability leads to greater incentives for investment and partnering activities to fuel a steady stream of new and unique therapies.? To what do you attribute this stability? Greenwood. This is an industry that for most of BIO?s years has been coming of age. BIO?s primary service to companies was helping with capital formation, such as investor meetings, partnering meetings, and conferences. Now more companies have succeeded in having their products approved by the FDA and available to the marketplace. There are now 12 biotech companies with revenue in excess of $500 million a year. More companies have a stable revenue base, which enables them to pursue more research and development, and in some cases to partner with smaller biotech companies. I think stability in financing comes from the number of biotech products that are now being marketed. Each success breeds more confidence. There was a biotech bubble that followed the completion of the human genome project, similar to the dot-com bubble. While investors have become more skeptical in recent years, we are witnessing some pretty good signals: $20 billion invested in 2005 following $20 billion in 2004. At the same time, a record number of investors are attending our conferences. All of these factors indicate to me that the market?s feeling pretty bullish about our companies. Limbach. What are some of the best incentives for investment and partnering? Greenwood. The likelihood that products are going to be approved in a timely fashion by the FDA. The fact that they will be novel enough to not be just an incremental improvement, but a new treatment that will be widely used. I think investors are seeing success story after success story, and they want to get in on the action. Limbach. Since assuming the role of BIO President and CEO, what has been your biggest challenge? Greenwood. The first challenge was internal. We had to build a team. When the board hired me it wanted to build a world-class advocacy organization, and so I?ve done that. We?ve brought in people such as Scott Whittaker as our chief operating officer who was the chief of staff to Secretary of Health and Human Services Tommy Thompson. We brought in Amit Sachdev, who was deputy commissioner of policy at the FDA. We also have brought in other staff members with whom I had worked on Capitol Hill to build a first-rate advocacy team. In terms of policy issues, my earliest concern was that in the wake of Vioxx, members of Congress would rush in to build redundant bureaucracy inside or outside the FDA, which would reverse a lot of the progress we have made in recent years in trying to speed up approvals. Fortunately, we were able to persuade enough members of Congress that we didn?t need that kind of legislation. There is still a conservatism at the FDA that concerns us. One of the things I need to do is to go back to Capitol Hill to work with members of Congress to help them understand that there are better ways to improve safety than just building more bureaucracy and slowing down approvals. Limbach. What have been some of your major accomplishments to date? And what goals have you set for the future? Greenwood. Getting the pandemic flu bill passed in December was a huge success. We worked hard on the behalf of our vaccine companies to make sure that we had the $3.7 billion appropriated, and that the bill contained liability provisions so that the companies felt legally secure going forward and making these products. For the future, one of the things that we?re going to work hard on is Small Business Innovation Research (SBIR) grants. That program requires that 2% of the funds distributed by the NIH go to small companies. The NIH has been very helpful in advancing innovations in biotech startups. A relatively recent administrative decision from the Small Business Administration interpreted the act to disqualify small companies that are more than 50% owned by venture-capital investors. The law states that more than half of the ownership of a company must be by individuals of American citizenship. Congress did that to emphasize that these grants are to help American companies, not foreign companies. But the SBA administrative law judge interpreted individuals to exclude venture-capital funds, so companies that have more money coming from venture capitalists have been excluded from these grants. We want to change that statute to clarify that these companies do qualify, as Congress intended. Limbach. How is BIO coordinating efforts and cooperating with biotechnology organizations around the world, for example, BIO Japan? Greenwood. I have met with my counterparts in Europe and Japan. We have a long way to go. It?s on my to-do list to strengthen our ability to function internationally. The interest in working together is mutual. The European and Japanese associations clearly want closer alignment. Policies made by international organizations affect us all in terms of cost and distribution and so forth. There?s great interest in acting collectively, but it?s tricky to build the structure and have the support staff to do that. Jim Greenwood

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