A REVIEW OF PARTNERING IN Q3 2005[2]

BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A Quarterly Vol.3, Issue 4 October 1, 2005 Merchant Banking Newsletter A REVIEW OF PARTNERING IN Q3 2005 As we kick off the Burrill & Company and Kleiner Perkins Biotech Meeting for CEO’s, we considered now an appropriate time to summarize some of the key deals in Q3 2005 and the key trends in deal making CEO’s should be aware of. Given the strategic issues facing big pharma and the growing safety concerns of the FDA prompted by events such as Viox, the partnership environment faces many challenges. Big pharma continues its aggressive search for new products from biotech however, the essential internal “champions” for the deal face high risk, near term stakes for clinical products—as large upfront payments can soon be followed by clinical or regulatory issues. BMS and Corgentech illustrates the phenomena and the recent intent to merge with AlgoRx highlights a potential escape route that other peer companies will closely watch. As we move into the last quarter of 2005, we see a number of critical trends in deal making: • Increased M&A activity from generic and Japanese industry consolidation to greater appetite for private companies by big pharma e.g. Roche-GlycArt, Pfizer-Bioren • Increased use of reverse-mergers as an “exit” for private companies close to an IPO e.g. EpiCept and interest in Special Acquisition Vehicles as a way to access the public markets • Continued examples of big pharma looking earlier (well before phase II) for licensing deals and paying very large sums for programs in the lead against “hot” targets or with unique mechanisms • Continued acquisitions by a select group of “tool-kit/service” providers e.g. Invitrogen with some emerging flexibility to acquire technologies with great potential rather than solely real businesses with established revenue lines For CEO’s these trends raise a number of strategic questions. Examples include: • If my exit is increasingly M&A or other non standard ways to access public capital than an IPO, how and when do I pursue a transaction and should I build the business any differently? • As big pharma’s partnering and “outreach” activities move earlier in the value chain, should I still manage the company, its finances and its capabilities in development to deliver “proof of concept data” before partnering? • How can platform or discovery stage companies capture the essential attention of senior level Research decision makers in big pharma given the number of competing requests, tighter budgets and the growing need to run successful “pilots” before really collaborating? Burrill Partnering Newsletter Third Quarter 2005 ........................................................................................................................................ SELECTED ALLIANCES IN THE THIRD QUARTER OF 2005 EST. VALUE ($M) LICENSEE LICENSOR PRODUCT(S) THERAPEUTIC AREA(S) OR INDICATION PHASE OF DEVELOPMENT Biogen Idec AstraZeneca AstraZeneca Allergan GSK Xanodyne Barr Schering Plough P&G Pharma Takeda Schering Plough Lundbeck Novartis Serono Biovitrum Purdue Novartis Novartis TAP Esprit Pharma PDL Avanir Astex Sirna Adherex aaiPharma Organon/ Savient Centocor Curis PPD Millennium Paion Immusol Genmab Santhera Labopharm Alnylam NexMed Ilyang Depomed Volociximab, fontolizumab and daclizumab Reverse cholesterol enhancers Protein kinase B inhibitors Sirna-027 Adherex gets eniluracil and GSK gets option to Exherin Various pain products and clinical candidates Mircette CNTO148 Hedgehog agonist Dipeptidyl peptidase IV inhibitors Integrillin desmoteplase Validated drug targets HuMax-CD4 Dipeptidyl peptidase IV inhibitors Tramadol RNAi-based therapeutics NM10060 Ilaprazole Proquin – extended release ciprofloxacin Cancer and immunology Cardiovascular Cancer Age-related macular degeneration Cancer CNS/Pain Oral contraceptive Rheumatoid arthritis Baldness Type II Diabetes Cardiovascular Stroke Undisclosed Cancer Metabolic Diseases CNS/Pain Various - undisclosed Antifungal Gastrointestinal – acid reflux Urinary tract infections All Phase II Preclinical Preclinical Phase I Both are Phase II Clinic and Marketed Marketed Phase II Preclinical Clinical stage Marketed Phase III Discovery Phase III Preclinical Phase III Discovery Phase I Phase I Approved $700 $340 $275 $250 $220 $209 $156 $125 $100 $100 $85 $78 $78 $70 $67 $60 $57 $51 $50 $50 Source: Burrill & Company ........................................................................................................................................ BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A Burrill Partnering Newsletter Third Quarter 2005 A REVIEW OF M&A IN Q3 2005 ........................................................................................................................................ SELECTED M&A IN Q3 2005 ESTIMATED VALUE ($M) ACQUIRER ACQUIREE DESCRIPTION Teva GSK Meda OSI Bausch & Lomb Ivax ID Biomedical Viatris Eyetech Sino Moves Teva into respirat ory therapeutics and eliminates a major generic competitor. Helps GSK become a global flu vaccine manufacturer. Combines Viatris’ marketing focus on major European markets with Meda’s primary focus on Nordic countries. Adds Macugen for macular degeneration and gets OSI into the ophthalmic area. B&L acquired a 55% controlling interest in Shandong Chia Tai Freda, one of China’s largest ophthalmic companies. Apparently, only the second acquisition of a UK company by a Japanese company in the last 10 years. GlycArt’s glycosylation technology will be used by Roche to increase the target-killing potency of therapeutic antibody candidates. Guilford’s acute care and cancer products and candidates are complementary to MGI’s products. The deal expands Invitrogen’s offerings in the protein, antibody and assays space. The reverse merger combines Corgentech’s cash and listing with AlgoRx’s pipeline. The combination will leverage Fisher’s distribution network to distribute Cellomics’ High Content Screening and Analysis solutions the academic, biotech and pharmaceutical accounts. The reverse merger combines Maxim’s Phase III candidate Ceplene for oncology with EpiCept’s late-stage pain-focused pipeline. Pfizer adds Bioren’s technology for optimizing antibodies. $8,400 $1,400 $926 $892 $200 Sosei Arakis $186 Roche GlycArt $182 MGI Pharma Invitrogen AlgoRx Guilford BioSource Corgentech $174 $123 $71 Fisher Scientific Cellomics $49 EpiCept Pfizer Maxim Bioren $37 Undisclosed Source: Burrill & Company ........................................................................................................................................ BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A Burrill Partnering Newsletter Third Quarter 2005 BURRILL’S BITS Burrill’s Merchant Banking Group continues to grow… We are proud to announce that in August we hired Hal Gerber, M.D. as a Managing Director to head our M&A group. Hal has over 20 years experience in the healthcare industry and advisory experience with a broad range of companies including biotechnology, pharmaceutical, medical device and healthcare services companies. Prior to joining Burrill & Company, Dr. Gerber was Managing Director and Head of Pharmaceutical and Biotechnology Investment Banking for Wells Fargo Securities, where his responsibilities included mergers & acquisitions, public offerings, private placements, and strategic advisory work. Prior to joining the predecessor of Wells Fargo Securities in May 2000, Dr. Gerber was Executive Director and Head of Life Sciences Investment Banking for Rabobank International in San Francisco. Previously, he headed the bank's life sciences and healthcare activities in the United Kingdom, France, Spain and Italy and was based in London. Dr. Gerber was a member of the Bank's Strategic Advisory Board, certified by the UK Securities and Futures Authority, and a member of the Board of Directors of the Golden Helix Healthcare Award. Dr. Gerber is currently a member of the National Board of Directors for the American Liver Foundation. Dr. Gerber received his undergraduate degree in Philosophy from the University of Pennsylvania, where he graduated Phi Beta Kappa and summa cum laude, and his Doctorate in Medicine from the University of Pennsylvania School of Medicine, where he was awarded membership in Alpha Omega Alpha. Dr. Gerber did research at the National Institutes of Health. He was Chairman and CEO and Founder of a medical diagnostic company which he later sold and is now part of Quest Diagnostics. He completed an advanced certification in Internal Medicine at the University of California San Francisco, and is Board Certified in Internal Medicine. ABOUT BURRILL & COMPANY Founded in 1994, Burrill & Company is a 50-person, San Francisco-based global leader in Life Sciences Venture Capital, Life Sciences Merchant Banking and Life Sciences Media. The Company was a logical extension of G. Steven Burrill’s over-36-year involvement in the growth and prosperity of the biotechnology industry. Mr. Burrill’s respected reputation has positioned the firm as a prominent and preeminent venture capital firm and an industry “icon” in the life sciences. Burrill is a leading facilitator of partnerships, alliances and mergers, all of which foster robust deal flow. Lending further support to the Burrill deal flow are the scientific and business networks of Burrill’s investment team, the nearly 40-person Advisory Boards, the strategic and financial network of its limited partners, and the close relationships developed with numerous life sciences companies and management as a result of Burrill’s reputation and the firm’s partnering, alliance and merger work. Venture Capital The Burrill family of venture capital funds, with over $500 million under management, includes the Burrill Life Sciences Capital Fund, the Burrill Biotechnology Capital Fund, the Burrill Agbio Capital Fund and its successor-the Burrill Agbio Capital Fund II, and the Burrill Nutraceuticals Capital Fund. The Burrill Life Sciences Capital Fund III, a $300-$500 million fund expects to become operational in 2005. BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A Burrill Partnering Newsletter Third Quarter 2005 Merchant Banking Burrill & Company assists life science companies to identify, negotiate and close strategic partnerships and merger and acquisition transactions providing access to resources, technologies or collaborations essential for executing company business plans. We have completed more than 28 strategic partnerships with a value in excess of $1.5 billion. Service lines include: • Strategic Partnering From early-stage research, to product development and commercialization • Merger & Acquisitions Transactions across life sciences • Spin-Outs and Divestitures To create a new company or build value in an established entity • Financing Advisory and private placement • Advisory Services Defining the role of transactions in achieving strategic objectives Life Sciences Media Burrill & Company’s Life Sciences Media Group is involved in the organization and hosting of life sciences conferences worldwide and the publication of a wide range of industry reports and newsletters. The flagship is Burrill’s annual book on the “State of the Industry,” which has been an important part of the biotech industry’s view of itself over the past 19 years. Biotech 2005—Life Sciences: A Move Towards Predictability is the latest in the nearly 20-year series. This 652-page book offers a perspective on where the industry has been and where it is headed. The Media Group’s monthly and quarterly reports and publications and its Datacenter provide an online resource for the latest insight, intelligence and information regarding the biotech industry. Our Industry Events Burrill & Company hosts and sponsors the annual industryv events below (for additional information about any of these meetings, please contact our Conference Manager, Thea Shwartz directly at (415) 591-5408, or email tshwartz@b-c.com. 2005 Events • The Biotech Meeting at Laguna Niguel (October) • The Burrill and BIO Personalized Medicine Meeting (October) • The Midwest Life Sciences Meeting (November) • The Indiana Life Sciences Forum (November) 2006 Events • China Partnering Forums (January) • CEO Partnering Summit (February) • The Stem Cell Meeting (March) • Life Sciences Ventures Conference (April) • India Life Sciences Partnering Meeting (April) • The China Life Sciences Meeting (April) • The Japan Biotech Meeting (September) • The Biotech Meeting at Laguna Niguel (October) • The Personalized Medicine Meeting (October) • The Midwest Life Sciences Meeting (November) • The Indiana Life Sciences Forum (November) • The Health & Wellness Meeting (November) BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A Burrill Partnering Newsletter Third Quarter 2005 PRINCIPAL CONTACTS Michael K. Ullman, Managing Director mikeu@b-c.com (415) 591-5413 Hal Gerber, M.D., Managing Director, Head of M&A hgerber@b-c.com (415) 591-5454 Benjamin P. Chen, Director & CSO ben@b-c.com (415) 591-5441 G. Steven Burrill, Chief Executive Officer steve@b-c.com (415) 591-5404 James D. Watson, Managing Director, Head of Merchant Banking jwatson@b-c.com (415) 591-5430 Mark T. Blumling, Director mblumling@b-c.com (415) 591-5491 Jonathan J. Wang, General Manager, Greater China jwang@b-c.com (415) 591-5427 Stephen M. Kujawa, Director skujawa@b-c.com (415) 591-5407 BURRILL & COMPANY One Embarcadero Center, Suite 2700 San Francisco, CA 94111-3776 PHONE: (415) 591-5400 FAX: (415) 591-5401 E-MAIL: burrill@b-c.com WEB: www.burrillandco.com NOTE FROM THE EDITOR: We are pleased to announce that the Burrill Merchant Banking Newsletter will become a subscription-based quarterly newsletter— The Burrill Partnering and M&A Newsletter—as from January 2006. It becomes part of a stable of publications published by the Burrill Media Group. BURRILL & COMPANY L I F E S C I E N C E S : V E N T U R E C A P I TA L , M E R C H A N T B A N K I N G , M E D I A