Industry Surveys

Biotechnology
Steven Silver, Biotechnology Analyst February 24, 2011

Current Environment ............................................................................................ 1 Industry Profile ...................................................................................................... 9 Industry Trends ................................................................................................... 10 How the Industry Operates ............................................................................... 18 Key Industry Ratios and Statistics................................................................... 26 How to Analyze a Biotechnology Company ................................................... 28 Glossary................................................................................................................ 33 Industry References........................................................................................... 36 Comparative Company Analysis ......................................................... Appendix
This issue updates the one dated August 19, 2010. The next update of this Survey is scheduled for August 2011.

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CURRENT ENVIRONMENT
Biotech stocks extend post-recession slide
In 2008, large-cap biotechnology companies thrived as the economy fell into recession, benefiting from stable patient demand and sustained pricing power, which resulted in robust operating cash flows that insulated them from needing to access tightened credit markets. While the broader market declined significantly, most biotech bellwethers saw their share prices rise, while those that experienced declines still fared far better than the overall market. Since 2009, however, the biotech industry has underperformed the broader market, despite the economy’s recovery and resumption of growth. Standard & Poor’s attributes this action to several factors, the most important being the continuing uncertainty over the impact of healthcare reform legislation. President Barack Obama had pushed for reform since he assumed office in early 2009, and it was finally enacted in March 2010. The industry has remained cautious on the legislation, despite its promise to add more than 30 million Americans to the ranks of the insured by 2014, while providing drugmakers with a favorable 12year exclusivity period before “biosimilar” drugs could enter the market. We also view the following as key near-term industry overhangs: the specter of slowing growth among large-cap biotech companies; increased regulatory risk, due to a more cautious US Food and Drug Administration (FDA); and concerns over mounting pressure on drug prices, after several European countries instituted austerity measures during 2010 in response to the sovereign debt crisis. The S&P Biotechnology index declined 2.9% in 2010, compared with a 14.2% advance for the S&P 1500 SuperComposite stock index. The S&P Biotechnology index declined 5.4% in 2009, versus a 24.3% rise for the S&P 1500. In 2008, the S&P Biotechnology index advanced 10.6%, while the S&P 1500 declined 38.2%.
BIOTECHNOLOGY STOCKS VS. THE S&P MIDCAP INDEX (Month-to-month % change)
40 30 20 1 0 0 (1 0) (20) (30) 2000

H01: BIOTECHNOLOGY STOCKS VS. THE S&P MIDCAP INDEX

2001

2002

2003

2004

2005

2006

2007

2008

2009

201 0

S&P Biotech Index
Source: Standard & Poor's.

S&P MidCap Index

During this tumultuous period, small-cap companies have been extremely volatile, with many experiencing share price declines deeper than those seen in the broader equity markets as the recession worsened; prices then lagged as the macro economy improved. This is largely attributable, we believe, to risk-averse investor sentiment and to fewer announced acquisitions of biotech companies as the large pharmaceutical industry integrated several 2009 mega-deals by shedding research and development (R&D) resources and establishing new alliances on terms that sought to balance the risks being assumed by the larger company. The recent moderating M&A activity has spurred many smaller biotechs to extend their cash positions by issuing new dilutive equity in the capital markets, given the improving financing environment from the recession lows.
INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 1

Despite the easing of merger and acquisition (M&A) activity in 2010 compared with 2009, Standard & Poor’s expects biotech companies to continue to attract interest from large-cap pharmaceutical companies (“Big Pharma”). We anticipate the latter completing their research organization realignment and looking to address the challenges of replacing revenues expected to be lost following a wave of key patent expirations in the coming years. However, we expect such activities to be selective, given the streamlined areas of focus that are likely to result from these realignment initiatives.

HEALTHCARE REFORM AND EUROPEAN DEBT CRISIS: NEAR-TERM HEADWINDS
In March 2010, the US Congress passed the Patient Protection and Affordable Care Act (PPACA), a sweeping healthcare reform bill aimed at expanding the number of US residents with healthcare insurance. There has been much debate over the issue, but reliable reports pegged the number of uninsured at as many as 50 million US citizens during 2010. This number was already a concern to the Obama Administration as it took office in early 2009 and embarked on its healthcare reform agenda, but the problem was compounded by rising unemployment and the loss of employer-based insurance for many during 2009 and 2010. By late 2010, however, the employment situation had begun showing signs of stabilization and some job creation. Over the long term, we see the legislation expanding the pool of insured Americans by more than 30 million in 2014, and boosting profit margins of drugmakers that have provided free drug supplies to patients in need. We also view favorably the terms granted to innovating drugmakers over the introduction of biosimilars (discussed in detail in the “Industry Trends” section of this Survey). However, we see the political and regulatory environment as weighing on the industry. Entering 2011, the newly Republican-led House of Representatives launched an attempt to repeal the legislation, which they view as excessively costly and unlikely to reduce the long-term healthcare cost trend. While we see potential for some polarizing features to be removed or reworked from the legislation, we expect it to remain largely intact. Bill funding costs affect some biotechs’ top-line results Since the bill’s passage, companies have begun to quantify the near-term costs associated with funding the bill, before the benefits take hold. Among these are higher Medicaid rebates, which increased to 23.1% from 15.2%, and an industry excise tax that started in January 2011. Drug companies will also contribute toward closing the Medicare coverage gap (the so-called donut hole), which will be gradually phased out. Among the biotech firms citing the largest exposure to the Medicaid population were Gilead Sciences Inc. and Amgen Inc., both of which reduced their 2010 and 2011 revenue projections by several hundred million dollars. Though these amounts are manageable compared with each company’s overall revenues, both companies have experienced pressure on their stock performance. We note that many other biotechs with more limited exposure have also come under pressure, which we attribute to investor concerns over longterm pricing scrutiny. Standard & Poor’s believes the long-term benefits of having more patients under coverage should at least offset the funding costs and drug price pressures. European debt crisis spurs curbs on drug spending Another major factor in the volatility of the global equity markets during 2010 was the fear over escalating sovereign debt in many countries across Europe. Several prominent countries, including Greece, Italy, and Germany, established austerity measures that included cutting drug prices by as much as 25%. In Greece, several drugmakers withdrew their products before a less onerous compromise was reached. While Europe accounts for a much smaller percentage of global drug sales than the US, Standard & Poor’s believes that the issue, while short term in nature, has heightened investor risk aversion across the industry.

DESPITE PROGRESS, FDA REMAINS A CAUSE OF INVESTOR SKEPTICISM
In recent years, the FDA struggled to fulfill its public mandate due to inadequate funding and staffing. A November 2007 study by a subcommittee of the Science Board, an independent advisory group, criticized the agency’s scientific deficiencies, insufficient personnel resources and information technology infrastructure, and reactive regulatory environment, among other concerns. In September 2007, the Prescription Drug User Fee Act (PDUFA) was reauthorized, which expanded the FDA’s powers to require drug companies to further study the safety of medicines and to mandate new label warnings when safety issues arise. However,
2 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

FDA officials stated that the agency was back on track in terms of meeting its goal of timely drug reviews in 90% of submissions. this was the second FDA approval delay in 2010 and was noteworthy in that the agency requested that an additional study be conducted on the drug’s impact on heart rates (an initial CRL issued in March 2010 had made no such request). even though biopharmaceutical companies were paying into the system in exchange for timely reviews. the FDA failed to approve InterMune Inc. but was removed from European markets in 2010. Margaret Hamburg. The move is a response to a 2005 Institute of Medicine drug safety report that suggested the agency formalize risk-benefit decision processes. The agency continued to miss target review deadlines. the FDA issued a complete response letter (CRL) for Bydureon. the FDA’s budget was increased significantly. and the level of risk management associated with a product.the FDA’s 2008 budget was $2. in contrast. President Obama has launched an Open Government Initiative that proposed 21 ways to improve the FDA’s disclosure practices. including giving the reasons behind its decision to approve or not approve a new drug application (such as safety concerns) that a company’s management might otherwise spin or understate. 2011 3 . despite a 12–1 vote against approval several months earlier by an FDA advisory panel that cited a modest survival benefit. in 2009 contributed to a renewed focus and improved credibility over prior agency leadership. among other side effects. Avandia remains on the market in the US. despite a 13–4 vote in favor of the drug’s efficacy. a rare respiratory disorder. The issue was complicated by the fact that the supporting study had met the specified criteria in an SPA. FDA faces scrutiny over drug safety oversight The FDA has faced intense scrutiny in recent years for its failure to monitor emerging safety concerns with such drugs as Vioxx. the company’s stock experienced significant volatility as these rulings were issued. despite a positive panel review and a clear unmet medical need for the drug. the need for a new treatment. a report by the US Government Accountability Office (GAO) claimed that the agency has yet to implement changes suggested in 2006 to help detect safety problems with drugs on the market. While we believe that the appointment of a new commissioner. and is likely to be approved there in early 2011. nearly three years after deferring the drug’s approval in May 2007. Esbriet earned a positive opinion from regulators in December 2010. similar to steps taken in Europe. As a result. The agency aggressively expanded its Center for Drug Evaluation and Research (CDER). Vioxx was pulled from the market in 2004. just $105 million (5%) above 2007. the FDA cited a requirement for a second well-controlled study. In April 2010. Standard & Poor’s is encouraged by steps under consideration that could improve the agency’s transparency in disclosing its decision-making processes. While the issuance of a CRL is increasingly common for new drug applications. Most recently. By the end of 2009. including the current Byetta formulation. a diabetes drug. the FDA approved Dendreon Corp. clinical data of the benefits. and. we think the agency’s practices remain inconsistent. which reviews and approves new medications and monitors the safety of drugs already on the market. the FDA either ignored the advisory panel’s recommendations on a new drug application.’s prostate cancer drug. a pain medication. ranging from the seriousness of the condition addressed. In each case. suggesting INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. Provenge. and the media has portrayed investing in the sector as akin to casino gambling. (A CRL asks manufacturers to provide more information about the product under review before being granted approval. or failed to approve a drug that met the statistical criteria in a Special Protocol Assessment (SPA) negotiated with the agency. more recently. The May 2007 decision to defer approval drew widespread criticism from patient advocacy groups. a weekly-dose version of currently marketed Byetta for treatment of Type 2 diabetes. in October 2010. in March 2010. the FDA approved cancer drug Tarceva for use in front-line lung cancer maintenance. For example. In Europe.’s Esbriet for idiopathic pulmonary fibrosis. risks associated with its use. Subsequently. Avandia. The FDA is also designing a five-item grid framework to improve disclosure of new drug applications. In May 2010. given the lack of available treatments for those with prostate cancer.) Bydureon has shown superior efficacy and weight loss benefits over many currently marketed diabetes treatments.1 billion. Such decisions have heightened the view of biotechnology companies as risky. Both drugs were linked to increased cardiac risks. The grid is intended to be used as a tool to better explain the FDA’s decisions. after reaching the market. In late 2009. Over the long term. In several high-profile cases. the drug now is not expected to reach the market before mid-2012. reaching roughly $4 billion in 2011.

Although we expect the FDA and the biopharma industry to get more comfortable with the REMS process as part of the initial application requirements. due to disappointing adoption of several approved drugs. fifth-year sales estimates for drugs approved in 2007 were reduced sharply. The report called for the equal sharing of authority between the new drugs division and the surveillance unit. 2011 INDUSTRY SURVEYS . APPROVALS 2007 (18).3 billion from an initial forecast of $7. down from 25 in 2009. the FDA required more REMS submissions than in any previous year. at the end of 2009. the biopharmaceutical industry continues to experience poor results 70 in relation to its consistently higher 60 Chart H09: DRUG investment in research and development DEVELOPMENT 50 (R&D). called new molecular entities (NMEs. rather than regulatory conservatism on its part. While the number of new drug approvals has fluctuated in recent years. drugs launched in the past five years accounted for less than 7% of industry sales in 2009. US Food & Drug Administration. Pharmaceutical Research and Manufacturers 40 APPROVALS of America (PhRMA) pegged at $65. which industry trade group COSTS VS. While this estimate marks an improvement over its 2009 outlook for drugs approved in 2008. with new safety testing demands likely to slow the advancement of the industry pipeline. Co. according to Medco’s Health Service’s 2010 Drug Trend Report. Standard & Poor’s expects the FDA to remain focused on drug safety. Burrill & consistent increases.4 billion. which hit a new post-1996 low of $4. According to CMR International’s Pharmaceutical R&D Factbook 2010. including more stringent testing of cardiovascular effects before a new drug is granted approval. the FDA approved 21 new drugs. In 2009. Over the long term. as a result of the agency’s new responsibilities. FDA New Drugs Director John Jenkins estimated this figure to be around 30% for most of the PDUFA era. the FDA has introduced guidelines for drugs used to lower cholesterol and blood sugar in patients diagnosed with diabetes. would be $7. the GAO reviewed the FDA’s process for approving drugs after data emerged showing a lack of efficacy or safety in drugs that reached the market based on surrogate endpoints. below the industry average of $9 billion between 1996 and 2009. In response. down from 8% in 4 BIOTECHNOLOGY / FEBRUARY 24. an industry intelligence provider.3 billion 30 in 2009. The decline marked a reversal of a steady but modest recovery from recent lows seen in DRUG DEVELOPMENT COSTS VS. without evidence of success on more meaningful outcome measures. NEW DRUG APPROVALS NOT KEEPING IN STEP WITH INCREASED BIOPHARMA R&D SPENDING In 2010. we anticipate changes to the clinical development process to streamline clinical trials and become more efficient. In its 2010 World Preview 2016 report. after years of Sources: Pharmaceutical Research and Manufacturers of America. roughly flat compared with the prior 20 year. In 2008. EvaluatePharma. In late 2009.. few of these drugs have represented novel treatments with the potential to change prevailing treatment paradigms.that most of its decision-making power lies with the scientists who approve new drugs rather than with those who monitor the side effects. In our view. as well as an increased prevalence of drug risk evaluation and mitigation strategy (REMS) programs. 98 approved drugs had REMS programs in place. $) New drug approvals growth to slow significantly. Due in part to significant R&D expense 1 0 cuts announced during 2010 throughout the 0 industry (discussed later in this section). The study determined that cholesterol drug Vytorin did not statistically significantly reduce cardiovascular risk despite its ability to lower cholesterol. estimated that the expected commercial impact of new drugs approved by the FDA in 2009. A notable trend has been the low rate at which new drug applications have been approved on the first review cycle. The topic of declining R&D productivity has moved to the forefront of industry concerns. 2004 2005 2006 2007 2008 2009 Standard & Poor’s expects future R&D R&D expenditures (Bil.7 billion.5 billion. to $5. like overall survival. a category that excludes new indications for existing products). The agency has attributed this trend to drugmakers’ hastily prepared applications. based on projected fifth-year sales.

It also underscores the need for changes to the current regulatory process. Among these catalysts are several novel drugs nearing commercialization after several years of mostly niche drug approvals. with Vertex entitled to sales royalties. the number of Phase III failures doubled between 2007–09 over 2004–06. In 2009. Although there are several marketed treatments for Hepatitis C. In late 2010. In the past.. Particularly troubling is the number of candidates that advanced to Phase III study. to treat lupus. estimated that 75 cents of every dollar spent on R&D went towards funding failure. Vertex Pharmaceuticals Inc. the FDA delayed its approval decision from December 2010 to March 2011. In November 2010. While Genzyme has traded at a premium to its peer group on this metric. Standard & Poor’s anticipates approval on this date and a drug launch around the middle of 2011. On a price/earnings-to-growth (PEG) basis.. boosted by several emerging positive catalysts that we expect will renew investor interest. we note that its valuation has been supported by the prospect of the company being acquired by suitor Sanofi-Aventis SA (discussed later in this section).. executives at US pharmaceutical concern Merck & Co. a US biotechnology firm. autoimmune inflammatory disease that afflicts around five million people worldwide in some form. Johnson & Johnson Inc’s Tibotec unit owns the European rights to the drug.. in our view. Leaders of industry and global regulatory bodies have noticed this issue. Genzyme Corp. outgoing European Medicines Agency chief Thomas Lonngren cited the waste of R&D efforts in criticizing the limited benefit and modest number of patients helped by many new drugs. will weigh on 2010 figures as well.0X our 2011 expected earnings. a chronic.5X current year earnings expectations. we continue to anticipate renewed investor interest in the biotech sector in 2011. A new therapy for lupus has not been approved in more than 50 years. Celgene Corp. In late-stage studies. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. as well as to defer decisions on several other promising drugs into 2011. Biogen Idec Inc. the core group of profitable. according to the National Lupus Foundation. profitable and growing biotech companies typically warranted a PEG range between 1. established biotech companies—Amgen Inc. While we expect valuations to remain narrower than past levels. and GlaxoSmithKline plc. it was granted Priority Review and an FDA action date in late May 2011.  Telaprevir. 2011 5 . for chronic Hepatitis C. Telaprevir produced significantly higher cure rates than current therapies in half the treatment duration. cure rates are below 50%. This trend has sparked discussion over possible changes to the current clinical and regulatory climate that would accelerate the clinical development timeline and help drugmakers to fail faster in order to become more efficient in their R&D investments. driven by several promising new drugs that we view as poised to garner FDA approval during the year. POSITIVE CATALYSTS POSITION SECTOR FOR REBOUND Standard & Poor’s believes that biotech company valuations have been compressing in recent years compared with historical premiums. This drug is being developed by Human Genome Sciences Inc. which has seen its focus shift towards safety and increased testing prior to approval. According to CMR International. Another key drug is Telaprevir. completed its FDA new drug application. a UK-based pharmaceutical concern. The drug is also under regulatory review in Europe. Novel drugs nearing the market Despite the overhangs presented by the FDA and declining R&D productivity. Although the drug’s benefits are considered to be somewhat modest.  Benlysta. Standard & Poor’s expects that the FDA’s failure to approve Bydureon in 2010. Inc.. a prevalent disease marked by liver inflammation. We attribute this trend to a view among investors that biotech is a maturing industry and thus is poised for slower growth in the future. an FDA advisory panel voted 13–2 in favor of approval in November 2009. side effects lead many patients to discontinue therapy or wait for new treatments.. only to fail in what is the largest and most costly stage of clinical development.3X and 1. we believe that the sector still holds aboveaverage growth prospects compared with the broader market over the next several years. in January 2011.. Cephalon Inc. its approval would mark a major advance in the treatment paradigm. with significant relapse rates. which owns the US rights.—were recently trading at valuations around an average PEG of 1. though there have been numerous failed drug candidates. and Gilead Sciences Inc.2008. With limited time to incorporate the panel’s labeling advice.

Pfizer announced plans to eliminate 100 development programs and 19. acquiring entire organizations has been viewed as a less desirable option for pharmaceutical companies.000 employees during 2010. Chart H03: WORLDWIDE In October 2009. Sanofi responded with a hostile bid. Pfizer Inc. pharmaceutical companies face a challenging decade due to the threat of generic competition upon expiration of key patents: $267 billion in worldwide sales are at risk from patent expirations between 2011 and 2016.. According to consulting firm Challenger. Merck plans to let go 15. while reducing the size of their research organizations and the number of therapeutic areas of focus. and Novartis AG—have remained active in drug licensing.000 employees and cut $3 billion in costs. the three acquiring companies were among the pharmaceutical companies with the largest cash positions in early 2009. As of mid-February 2011. Of note. Gray & Christmas. According to market analyst EvaluatePharma. given the challenges of integrating an acquired company and an increasing reluctance to assume greater clinical risk. Roche Holding AG 0 201 1 201 2 201 3 201 4 201 5 201 6 completed its acquisition of the remaining shares of Genentech Inc. Lastly. In recent years. although the potential value of these deals was $27.300 jobs to be cut for $2. partnering deals have gained in prevalence as pharmaceutical companies have externalized more R&D projects to broaden their pipelines. down from the prior year’s $29. which is in late-stage study for multiple sclerosis.5 billion. In 2009.3 billion. 40 PHARMA SALES AT RISK FROM PATENT EXPIRATIONS 6 BIOTECHNOLOGY / FEBRUARY 24. 0 transaction. in July 2010. Companies involved in the large 2009 deals discussed above have been active in this regard. Merck & Co. in a deal valued at 20 33 33 around $68 billion. several large deals 60 dominated the M&A landscape and had a ripple effect on the entire biopharmaceutical 50 industry. Inc. AstraZeneca plc. attempting to bridge the gap. up from 115 in 2008. Most of the other companies with large cash positions—such as Bristol-Myers Squibb Inc. Standard & Poor’s sees a favorable long-term environment for mergers and acquisitions of biotechnology companies. US-based biotech companies entered into 132 partner deals in 2009. but have publically stated an affinity for modest deals rather than “mega-merger” transactions. Industry R&D pipeline dust settling In our view. which has acquired many smaller biotechs in the past.4 billion in cost reductions. which largely centered around their differences in the perceived value of Genzyme’s key pipeline candidate Lemtrada (alemtuzumab). Sanofi-Aventis SA.6 billion.M&A SLOWS AS PHARMA DIGESTS MEGA-MERGERS OF 2009 Although M&A activity was more modest in 2010 compared with 2009. for approximately $18. Standard & Poor’s attributes this trend to a shift among Big Pharma towards more selectively filling pipeline gaps. merged with Schering1 0 Plough Corp. Given these looming losses. pharmaceutical companies laid off more than 50. Sanofi-Aventis launched an effort to acquire Genzyme Corp. In November 2009. GlaxoSmithKline plc. opening a cash tender offer to Genzyme shareholders that attracted little interest. 2011 INDUSTRY SURVEYS . Earlier in 2009. Genzyme’s board rejected the bid as inadequate. However. the parties continued to negotiate. according to market intelligence provider Frost & Sullivan. 30 acquired pharmaceutical concern Wyeth 52 51 50 48 Pharmaceuticals Inc.000 employees to save $3 billion in R&D expenses. WORLDWIDE PHARMA SALES AT RISK Big Pharma in recent years has been acquiring FROM PATENT EXPIRATIONS new assets to attempt to replace those (In billions of dollars) revenues. in a $47 billion Source: EvaluatePharma's May 201 forecast report. integrating their mergers and cutting headcount significantly.. According to consulting firm Ernst & Young LLP. in a $41 billion transaction. and Roche announced a restructuring that included 6.

licensed rights were returned to the originating company. While we expect partnering to continue at a high rate. A by-product of this consolidation has been the formation of new entities to absorb abandoned programs and clinical assets. former ImClone Systems CEO Sam Waksal launched a new biotech company. including the euro. a division of the US † Merck Intercell 86 Pre-clinical Vaccines Department of Health and Human † Involved in a 2009 mega-merger transaction. the two sides were discussing the inclusion of a contingent value right (CVR) in acquisition talks. a recent effort in the † Schering Plough Anacor 555 Phase II Fungal infections pharmaceutical industry. differing opinions over the commercial prospects of Genzyme’s alemtuzumab for multiple sclerosis have been a major stumbling block. voted in late 2010 SARM-Selective androgen receptor modulators. in doing so. However. Similarly. RNAi-Ribonucleic acid interference. called the † Roche Intermune 530 Pre-clinical Hepatitis C CSTA Pharmaceutical Assets Portal. DEAL DRUG Kadmon’s initial focus is on PHARMACEUTICAL BIOTECH VALUE DEVELOPMENT Chart B08: TOP 10 COMPANY COMPANY (MIL. more than half involved the companies involved in the three large mergers of 2009. during 2010. many programs previously partnered with smaller biotech companies were terminated and their losses written off by the larger pharma company. Sanofi-Aventis and Genzyme have been discussing a potential acquisition transaction. more partnering deals are taking on option-based structures. In PARTNERSHIP Novartis AlnylamTERMINATIONSDiscovery 700 RNAi therapeutics addition. With this initiative. † Merck GTx 507 Phase II SARMs/sarcopenia has been established for academic † Schering Plough AVEO 490 Pre-clinical Cancer researchers to develop drugs based Merck Serono Lpath 473 Phase I Cancer on compounds previously shelved at † Pfizer Celldex 440 Phase II Vaccines the clinical stage. as discussed earlier in this section. However. M&A deals seek to share clinical risk As mentioned earlier. Among the top 10 deal terminations in 2010. the market downturn and decline in R&D productivity have resulted in their increasing use as a tool to share risk among the parties in acquisition talks. the board Cilag AG Basiliea 300 Phase III Ceftobiprole of the National Institutes of Health KOS Pharma SkyePharma 165 Phase III Asthma (NIH). National Center for Advancing Translational Sciences. aimed at acquiring discontinued and unwanted assets. which intends to work with drug companies to identify abandoned compounds that may work in other diseases. Of note. We INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. which could facilitate an agreement while providing Genzyme’s shareholders with additional benefits should alemtuzumab exceed certain commercial thresholds. In most cases. we anticipate competition increasing as the Big Pharma industry nears its patent cliff. CVRs were used in Celgene Corp’s 2010 acquisition of Abraxis Biosciences and Endo Pharmaceuticals’ 2009 acquisition of Indevus Pharmaceuticals Inc. according to Deloitte Recap. 2011 7 . to approve the creation of the Source: Deloitte Recap. As of mid-February 2011. despite the high risks. whereby a company licenses an option on a program or company acquisition that is exercisable following a de-risking event. Foreign acquirers Another recent trend has been an increase in the number of foreign companies acquiring and partnering with US-based companies. such as a key clinical study data report. the NIH also hopes to help boost declining R&D productivity. which made cheaper US dollar–based deals attractive to foreign companies.However. Kadmon TOP 10 PARTNERSHIP TERMINATIONS—2010 Partners. In recent years prior to 2010. Most of these smaller companies will need to re-partner their respective programs in order for them to advance. given their limited operating resources and the burden of funding large late-stage studies. The use of CVRs has been dormant for many years in the biopharma industry as buyers have been aggressive in paying for desired targets. $) STAGE SUBJECT Hepatitis C compounds. Lastly. which should foster a shift toward more acquisitions of growth-oriented biotechnology companies with revenues to replace those lost from patent expirations. the US dollar’s value had declined versus many international currencies. Services (HHS). with the latter losing any previously negotiated milestone and royalty rights.

Key recent deals include Dainippon Sumitomo’s $2. for $4. the dollar’s value firmed against the franc over the remainder of 2008 and into 2009. (completed in October 2009) and Astellas Pharma Inc.’s acquisition of US biotech OSI Pharmaceuticals Inc.6 billion purchase of US-based Sepracor Inc.  8 BIOTECHNOLOGY / FEBRUARY 24.believe that the favorable foreign exchange environment contributed to the timing of Roche Holding’s initial bid to acquire Genentech in mid-2008. according to Ernst & Young.8 billion acquisition of US-based Millennium Pharmaceuticals Inc. In 2009. which led to Roche raising its bid in order to complete the transaction. there were 15 outbound Japanese pharmaceutical mergers in 2008 for a total of $17 billion. While the pace of such deals has slowed somewhat as the global M&A market has eased. seven of the nine largest alliances with US biotech companies featured European-based pharmaceutical companies. as Roche sought to capitalize on a strong Swiss franc versus the US dollar. However. Also notable is an increase in M&A activity among Japan-based companies. Japanese companies have increasingly sought growth abroad due to an unfavorable domestic regulatory environment and significant patent expirations in the coming years. led by Takeda’s $8. 2011 INDUSTRY SURVEYS . several other sizable deals in which a Japanese company acquired a USbased company to establish a US presence have been completed.5 billion (June 2010). According to data provider Dealogic.

In its World Preview 2016 report.5 Further highlighting the growth of biologics across the healthcare industry. EvaluatePharma also forecasted that eight of the top 10 drugs in 2016 would be biotech in origin. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24.2 8. CONSOLIDATION AT THE “DNA” OF THE INDUSTRY According to the Biotechnology Industry Organization (BIO). (November 2008).8 4. in 2002.1 BIOTECHNOLOGY 7.4 5. being the lone exception. according to the latest available data from the Pharmaceutical Research and Manufacturers of America (PhRMA). by Novartis AG (in April 2006). 2011 9 . each on the top 10 list when they merged to become Biogen Idec Inc. by AstraZeneca PLC (June 2007). and Biogen Idec Inc. down by a quarter since late 2007. an industry trade group. B07: TOP 10 SALES (BIL. along with its ties to Big Pharma The US biotechnology industry underwent a major shift in 2009: Genentech Inc. from 418 to 633. which we expect will DRUG SALES FROM BIOTECHNOLOGY—2016 continue. As of mid-February 2011. and the purchase of Chiron Corp. recent deals include the purchase of ImClone Systems Inc.8 13. by Eli Lilly & Co.6 DRUG SALES 8. acquired Immunex Corp.8 4.5 9. $) CAGR (%) COMPANIES IN 2009 F2016 2009-F16 GLOBAL 21. (Ranked by forecast 2016 global sales) Company Roche Amgen Novo Nordisk Pfizer (Wyeth) Sanofi-Aventis Abbott Labs Merck GlaxoSmithKline Johnson & Johnson Novartis F-Forecast. the number of biotech drugs in clinical development increased by 51% between 2006 and 2008.5 6..INDUSTRY PROFILE Biotech’s presence grows.5 6.6 3. Additionally. Most of the industry’s market capitalization and a majority of its revenues and profits are becoming increasingly concentrated in a small number of large-cap drug developers.2 9. Besides the Roche-Genentech transaction.7 5.1 7. up from 15% in 2000 and 31% in 2009.9 PRESCRIPTION 32. the purchase of MedImmune Inc. French pharmaceutical company Sanofi-Aventis was engaged in talks to acquire US biotech Genzyme Corp. as evidenced by the merger between Biogen Inc. Roche Holding (parent company of Hoffmann-La Roche Ltd. there were 294 biotechnology-related companies publicly traded in the US as of mid-2010.6 11.9 13. While M&A activity was more modest in 2010. which accounted for roughly 20% of the industry’s revenues. The list of the top revenue-generating US biotech companies has undergone significant change due to M&A activity..0 11.1 5.. we believe that such deals are blurring the line of distinction between the pharmaceutical and biotech industries. led by Roche’s Avastin (via its acquisition of Genentech). Genzyme Corp. We believe this forecast reflects TOP 10 COMPANIES IN GLOBAL PRESCRIPTION robust M&A activity in recent years. and Idec Pharmaceuticals.6 2. in 2003.2 10. Amgen Inc.9 7. including the top four. Source: EvaluatePharma.. with Amgen Inc. Before its acquisition by Roche in April 2009. EvaluatePharma projects that biotech drugs will account for nearly 50% of the top 100 drugs in 2016.). Standard & Poor’s estimates that this number represents close to one-third of the overall industry pipeline. Lastly. Celgene Inc. but had allowed the latter to operate independently. Genentech was the world’s largest biotechnology company in terms of market capitalization at the time of its acquisition by its majority shareholder. which had owned 56% of Genentech. The organization stated that a hundred companies either were bought or went out of business during that time. such as Amgen Inc.7 6. healthcare intelligence provider EvaluatePharma forecasted that nine of the top 10 companies in projected worldwide prescription drug sales from biotechnology in 2016 would be large pharmaceutical companies.9 5.. was acquired by Roche Holding AG.2 8.9 2. as discussed earlier in this Survey. an industry trade group.7 FROM 17. Large biotech companies also play a role in sector consolidation.7 6. Gilead Sciences Inc.7 14. Genentech was among the leaders of this group.

In late 2007.  Roche/Genentech. we believe there are several other key trends facing the biotechnology industry. big pharmaceutical companies (Big Pharma) shunned biotechnology because of its lack of a track record and predictability.)  Pfizer/Wyeth. shifting from a prior focus on developing drugs with “blockbuster” potential to serve large patient groups. However. Standard & Poor’s believes the presence of strong biologics pipelines contributed to each of these deals. the share of orphan drugs (typically discovered by smaller biotechnology companies and licensed to larger pharma concerns) approved in the US was 56% in 2006–08. whose peak sales have surpassed $1 billion treating the rare enzyme disorder Gaucher’s disease. expecting that it will provide a wealth of new products to drive future growth. a rapidly changing regulatory environment hastened by significantly higher drug prices as well as scientific advances. GlaxoSmithKline plc introduced a plan to expand external partnerships and to reduce the number of experiments it devotes to drug development. According to EvaluatePharma. and Roche’s long-term pipeline was viewed as heavily reliant on drugs discovered by Genentech. the company will lose exclusivity for its cholesterol-lowering drug Lipitor. BIOTECH AND BIG PHARMA CONVERGING In the 1980s and through much of the 1990s.. with small groups developing drug candidates before turning them over to larger more focused business units.  Pfizer. and had been experiencing strong sales growth due to a license to market Genentech’s stable of biotech-derived drugs outside the US. Pfizer launched a biotherapeutics and bio-innovation center to serve as an incubator and collaborator for early-stage research. According to healthcare intelligence provider EvaluatePharma. Big Pharma is now embracing the technology. Among the pharmaceutical companies most affected by patent expirations is Pfizer Inc. which was in line with industry peers. which accounts for roughly 25% of its sales.  GlaxoSmithKline. In acquiring Wyeth Pharmaceuticals Inc. According to the Tufts Center for the Study of Drug Development. see the heading “M&A slows as pharma digests mega-mergers of 2009” in the “Current Environment” section of this Survey. Its units were designed to be more flexible. In addition.INDUSTRY TRENDS In addition to the developments discussed earlier in the “Current Environment” section of this Survey. Big Pharma retools with biotech-like R&D platforms and pipelines In recent years. In late 2011. It divided its R&D operations into smaller groups of scientists that would apply for funding to a central investment board. Among these are the convergence of the traditional pharmaceutical model with that of the biotechnological.’s clinical pipeline had 21% exposure to biologics. at 42%. due to upcoming patent expirations for key pharmaceutical products. in our view. In June 2010. and a rapidly changing competitive landscape among key diseases and treatments. moving toward 10 BIOTECHNOLOGY / FEBRUARY 24. up from 35% during the comparable period last decade. this agreement was set to expire in 2015. However.  Merck/Schering-Plough. and in-licensed rights to a drug to challenge Genzyme’s Cerezyme. (For more details. many leading pharmaceuticals companies have bolstered their exposure to biotech drugs and technologies focusing on rare diseases. many pharmaceutical leaders have established new R&D platforms to better replicate the innovative and entrepreneurial structures more prevalent among biotech companies. Biotech plays a central role in recent Big Pharma consolidations The year 2009 was marked by three major M&A transactions that consolidated the industry. 2011 INDUSTRY SURVEYS . Some of these projects are discussed below. Schering-Plough Corp. In 2007. based on its projection of 2012 sales. Wyeth had the most exposure to biologics in its pipeline. Pfizer gained one of the largest biotech pipelines among traditional large pharmaceutical companies. Roche Holding AG was already the majority owner of Genentech Inc. This is crucial for Big Pharma. We discuss several of these issues in the following sections. Pfizer established a rare disease unit.

SHARE BUYBACKS SUGGEST BIOTECH MATURATION: NEXT STOP. largecap biotech companies are increasingly facing the question of whether they would institute a dividend policy to return excess cash to shareholders. have launched or expanded biosimilar 2014 units in anticipation of such a pathway. which has enabled BRAND NAME COMPANY INDICATION (BIL. a development that we see further blurring the lines between Big Pharma and large biotech. rheumatoid 6. Sources: EvaluatePharma.36 5. companies such as Merck & enhancement Co. Rebif Pfizer/Merck Serono Multiple sclerosis 2.47 Enbrel Amgen/Pfizer NOTABLE BIOTECH patents have expired. Merck has launched a unit. citing the cost of developing complex medicines. The exclusivity period granted to originator drugs has been a contentious issue.93 2.62 White blood cell enhancement Roche/Biogen IDEC Rheumatoid arthritis.86 2.96 PPACA included formal FDA authorization Johnson enhancement to establish a regulatory pathway for the Humalog Eli Lilly Type 1 diabetes 1. the PPACA granted a 12year exclusivity period. as biotech companies opted to reinvest profits in their clinical pipelines or to acquire new technologies to maintain the robust pipelines that growth investors demanded. and claiming that any less time would stifle innovation for new medicines and research on new uses for currently marketed ones. biotech-like units called Centres of Excellence for Drug Discovery. BIOSIMILARS POISED TO INTRODUCE LONG-TERM COMPETITION FOR BIOTECH DRUGS The pharmaceutical industry has faced competition from generic drugs since the approval of the HatchWaxman Act in 1984. 2011 . the company established a rare disease unit as well.57 3. and planned to at least maintain that pace over the coming years. The biosimilar issue has (Wyeth)US PATENT arthritis DRUG been a critical issue for the biotechnology 2013 EXPIRATIONS Genzyme Gaucher's disease 0. Pfizer Inc. In Neupogen Amgen White blood cell 1. In February 2010.92 Ltd. While the industry has resisted the idea to date. the NOTABLE BIOTECH DRUG US PATENT EXPIRATIONS biotech industry has not had a formal 2009 regulatory pathway for the approval of GLOBAL biosimilar drugs (also referred to as follow-on SALES biologics or biogenerics).57 5. Until recently.  Merck. which have grown significantly.34 *2009 sales impacted by plant outage. However.. such strategies were more typically used by traditional pharmaceutical companies. The industry lobbied for 12–14 years.79* industry for several years and the 2010 Cerezyme Epogen/Procrit Amgen/Johnson & Red blood cell 4. large-cap biotech companies have expanded their share repurchase programs as a means to boost earnings and deploy excess cash flows.74 4. the company stated that it had averaged 50 biotech deals a year since 2003. Aranesp Amgen Teva Amgen Copaxone 2015 Neulasta Rituxan 2016 Humira 2019 Avastin Herceptin 2020 Lucentis Red blood cell enhancement Multiple sclerosis 2. In 2009. Congressional and White House leaders sought a period of five to seven years. Standard & Poor’s believes that slowing growth is likely to lead to such programs. and Teva Pharmaceuticals. $) several first-generation biotech drugs to be 2012 Table B06: sold without competition long after their Psoriasis.29 recent years. blood cancer Abbott Labs Roche Roche Roche/Novartis Rheumatoid arthritis Oncology Oncology Wet adult macular degeneration 5. DIVIDENDS? In recent years. aimed at developing novel biotech therapies as well as biogenerics.more entrepreneurial. with the impact of new stock buyback announcements moderating. In 2009. Despite a Federal Trade Commission (FTC) report stating that a period of 12 to 14 years would be excessive. Groups representing generic drugmakers have since continued to 11 INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. company reports. In addition to its merger with Schering-Plough in 2009. In contrast..14 Remicade Johnson & Johnson Rheumatoid arthritis 5. Merck Bioventures.96 approval and marketing of biosimilars.

In addition. a copy of Amgen’s blockbuster anemia drug Aranesp. which was published in April 2010. an increasing number of pharma and biotech companies have stated intentions to compete in the biosimilar arena. as the drugs tended to address seriously ill patients with few alternative treatment options and making any efforts to restrict access to them controversial. opinions differ on the issue’s likely impact. according to the Centers for Medicare & Medicaid Services (CMS). we do not expect any downward pricing pressure to push prices as low as the 80%–90% discount seen among generic versions of traditional chemical-based pharmaceuticals. as biologics are typically far more complex to produce than chemical-based small molecule drugs. these costs are likely to limit the price discounts of the biosimilar version.seek a shortening of the period. as sizable development and manufacturing costs are likely to deter entrants to many markets. cited an assessment by the Congressional Budget Office (CBO) that federal government spending could be reduced by $7 billion over the next 10 years—a very modest amount in the context of a $2.7%. Although much money is at stake. a pharmacy benefits management (PBM) firm.. far outpacing the traditional drug category’s 1. In Europe. and would significantly raise development costs. an increase from 12. calls for a consistent. A mid-2009 study by Medco Health Solutions Inc. global agreement have increased. Standard & Poor’s believes that such debates have the potential to undermine the spirit of the legislation by raising barriers to entry for biosimilar developers. entering 2011. Since then. as well as scrutiny over the definition of the exclusivity period itself. when the European Medicines Agency issued the world’s first guidelines for regulatory pathways for selected groups of biologics. Another key issue yet to be fully determined is the criteria required to prove similarity. and launched the product in Germany at a 20% discount to the branded drug. SOARING DRUG COSTS PROMPT EXPANSION OF NEW TREATMENT PROGRAMS Concerns about rising health expenses are not new. given their view that copies of such complex molecules could never be identical to the originals. Additional US Senate debate over the exclusivity period emerged in early 2011. Interestingly. as have generic versions of Amgen’s erythropoietin (EPO) drugs. even though prescription drug prices represent just 10% of healthcare expenditures. which could further delay the approval process for biosimilar drugs should such groups be prohibited from filing for regulatory approval until the exclusivity period expires. payers have generally avoided restrictions on biologics. a division of the US Department of Health and Human Services. the number of biologics and the rise in their expenses are growing rapidly. estimated that specialty drugs accounted for 14. projected that biologics with approximately $32 billion in sales may go off patent by the end of 2015.5 trillion healthcare system. (a subsidiary of Novartis AG) received European marketing authorization for Omnitrope. a pharmacy benefits manager. a regulatory pathway has been in place since March 2006. However. In our view. in its 2009 Drug Trend Report. Still. the specialty category’s trend (the percentage change in plan spending from one year to the next) grew by 14. which carry similar price concessions. Those favoring generics say these trials would be burdensome. Until recently. fueling further uncertainty. However.. 2011 INDUSTRY SURVEYS . Branded drugmakers contend that the exclusivity period should cover both marketing and data exclusivity. its copy of human growth hormone. Of note. The 2010 edition of Drug Trend Report. 12 BIOTECHNOLOGY / FEBRUARY 24. The issues raised questioned whether the law would allow for small adjustments to drug dosing and/or formulations to entitle drugmakers to a new 12-year exclusivity period. Standard & Poor’s agrees with the FTC’s assessment that branded drugmakers are likely to retain significant market share upon the introduction of alternatives. Omnitrope’s sales have been modest to date. Sandoz Ltd.8% in 2008. With several other countries making progress on defining their biosimilar regulatory frameworks.8% increase. Standard & Poor’s believes that such demands are likely to represent high barriers to entry and deter competition.2% of all pharmacy spending during 2009. which the FTC estimated to be between 10%–30%.. Biotechnology industry executives are eager for stringent clinical trials (which are not required for traditional pharmaceutical generics). Express Scripts Inc. Merck decided in May 2010 to cancel development of its first planned biosimilar. a pharmacy benefits manager. which we believe would promote competition and drive prices lower. published by Medco Health Solutions Inc. citing extensive safety testing demands that it said would be required to secure approval.

According to financial advisory and consulting firm PricewaterhouseCoopers LLC (PwC). with corollary concerns over whether they can coexist. Overall. Such arrangements are becoming more common in countries outside the US. expansion of personalized medicine should lower R&D costs by reducing the length of biotech development timelines and enabling identification of promising targets earlier in the process. Standard & Poor’s expects the migration toward personalized medicine to take time as drugs developed using such information advance through the clinical process. data sharing.Medco cited multiple sclerosis. cancer drug spending could soon be the top category for specialty drugs. and oncology as the main drivers influencing the specialty trend. these scientific advances have not yet made much of a commercial impact as only about 10% of US market–approved drug labels include information related to a patient’s genetic profile. Over time. and possibly restrict how drugs are prescribed or reimbursed. According to IMS Health Inc. the Tufts Center for the Study of Drug Development estimated in late 2010 that 50% of trials now collect DNA from participants to help find biomarkers that correlate to a drug’s effectiveness. comparative effectiveness studies will need to adequately reflect outcomes from particular patient groups that might receive maximum benefit from certain treatments. Projects aimed at mapping the human genome have contributed to advances in the use of genetic biomarkers to better determine patient response. Increasingly. an endeavor that had received only modest funding in the past. drug prices rose by more than 9% in 2009. the heads of the US Food and Drug Administration (FDA) and the National Institutes of Health (NIH). devices. Examples of this may include flexible pricing models. So far. rather than narrowly defining the criteria used to determine a treatment’s effectiveness. President Obama announced a $5 billion plan to fund medical and scientific research that included $1 billion for research into the genetic causes of cancer and potential targeted treatments. and other products and services—was $232 billion in 2009. companion diagnostics are being developed and used to determine the genetic makeup of patients that may benefit from such personalized treatments. However. The first paradigm is personalized medicine. pledged to invest in the science needed to advance the co-development and approval of paired diagnostics and therapeutics. the market—which includes drugs. and make the information freely available to researchers. rheumatoid arthritis. sequence the genes. Drug companies may also enter into pay-for-performance arrangements. which refers to the development and administration of treatments (based on the presence of genetic biomarkers or mutations) to patients who might best respond to an individually tailored treatment. Standard & Poor’s believes that new approaches to drug pricing will emerge in the coming years to ensure that the cost of drugs reflects the value they provide to patients. according to PBM firm Express Scripts Inc. absent from this funding was a framework on how to apply the data INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24.1 billion for comparative effectiveness studies on currently marketed products. Comparative effectiveness: how will findings be used? Included in President Obama’s $787 billion stimulus package passed in February 2009 was $1. The personalized medicine market is gaining momentum. However. where a drug’s price could be raised or lowered after reaching the market should new evidence emerge or a new indication be developed.000 grant awards and include a project to collect tissue samples from people with various types of cancer. Advancement of personalized medicine The premise of personalized medicine is that developing medicines that are closely matched to a patient’s genetic profile is likely to improve the benefits to the patient and minimize adverse reactions. Of particular concern was the rising cost of cancer treatments. to determine the most efficacious and cost-effective therapies. such as survival across various therapies. In June 2010. reaching $80 billion by 2012. In September 2009. IMPACT OF PERSONALIZED MEDICINE AND COMPARATIVE EFFECTIVENESS STUDIES Recent healthcare trends have promoted a shift toward the expanded use of two treatment paradigms. in which they would reimburse regulators for drugs that are found not to induce a meaningful patient response. Standard & Poor’s believes that in order to successfully advance both approaches. forecasts. storage. The second— comparative effectiveness studies—seeks to compare outcomes. and expected to grow 11% annually to $452 billion by 2015. The National Institutes of Health (NIH) would disburse most of these funds through approximately 12. 2011 13 .

In the following section. based on price. we expect such reviews to attempt to balance the fact that many drugs perform differently in patient sub-groups based on unique genetic criteria. and a 1. and do not die when they should.6% decline in cancer deaths between 2001 and 2006. Still./Bristol Myers Squibb Co. About 12 million new cases of cancer were diagnosed worldwide in 2007. The research is expected to draw from sources such as electronic health records. according to the American Cancer Society (ACS). and healthcare claims to derive real-world outcome perspectives rather than relying solely on randomized clinical studies. it has been speculated that higher-priced drugs could face a loss of reimbursement at the hands of older. 2011 INDUSTRY SURVEYS . and biotechnology companies are at the forefront of many of the ongoing changes. based on a quality-adjusted life-year yardstick. Critics have suggested that such results may lead to unfavorable reimbursement decisions for a drug that is deemed less effective based on research that could be interpreted differently among physicians. We believe that many countries are likely to explore similar forms of health-technology assessments to curb the widespread use of high-priced medicines that offer only modest benefits. Cancer Cancer occurs when cells continue to grow and divide. and has admitted that the initiative would be a work in progress and likely to face a “bumpy road.6 million deaths from the disease. several marketed drugs have been approved for use while merely delaying tumor progression and not extending life at all. registries. Congress has denied its intention to use comparative effectiveness studies to promote such outcomes. the Centers for Medicare & Medicaid Services (CMS). infectious diseases. and diabetes.generated by such studies. in most leading cancers. 14 BIOTECHNOLOGY / FEBRUARY 24. either for lack of efficacy or for being too expensive versus other available options. attributable largely to increased risk reduction and screening efforts. as its National Institute for Health and Clinical Excellence (NICE) has recommended that its National Health Service not pay for several cancer drugs. The agency has stated it is determined to pay only when the price for innovation is in proportion to what it delivers. However. We describe key trends in cancer therapies below. In addition. we review biotech advances in these areas. cheaper drugs. the FDA. cancer remains the largest contributor to the overall biotech industry pipeline with 254 candidates.. respectively) are approved for several cancers. According to the Pharmaceutical Research and Manufacturers of America’s (PhRMA) 2008 Medicines in Development Report. despite extending life only for a matter of months. particularly in cancer research. Standard & Poor’s believes that comparative effectiveness studies are likely to have a profound impact on drug prices over the long term. and Roche. and their effectiveness should be examined through a personalized medicine viewpoint. with 7. The UK has led this shift. and the pharmaceutical industry were all excluded from appointment to both the Board of Governors of the Patient-Centered Outcomes Research Institute (such appointments were announced in September 2010) and the Institute’s methodology committee (in January 2011). A December 2009 report from the National Cancer Institute (NCI) cited positive trends of approximately 1% fewer diagnoses of cancer between 1999 and 2006. and expect the debate to continue for many years as data from these comparative effectiveness studies are rolled out. A December 2008 report by the World Health Organization forecast that cancer was closing in on heart disease as the world’s leading killer.” Standard & Poor’s believes that the initiative faces significant challenges and notes an absence of representation from key constituencies in crafting the process. progress has been incremental while drug and related medical costs have risen significantly. Leading cancer drugs such as Erbitux and Avastin (marketed by Eli Lilly & Co. For example. 57% more than drugs for infectious diseases (162). autoimmune disorders. We note the considerable ethical debate over placing a monetary value on a life. DISEASE TRENDS Biotechnology is driving innovation and growth in oncology. an increase of 27% over 2010. despite an explosion in pricing. and that these costs could reach $207 billion if current trends continue. Cancer treatment is currently one of the most dynamic therapeutic categories in the pharmaceutical sector. where progress has been incremental and modest. An analysis made by the National Institutes of Health in early 2011 projected medical expenditures for cancer in the year 2020 of at least $158 billion. Cancer cells damage nearby tissue and can spread to different parts of the body. Similarly.

including for use with other biologics and/or chemotherapies. and payers. Cancer/related Infectious diseases Autoimmune disorders H10: 59 1 62 254 BIOTECHNOLOGY HIV/AIDS/related 34 IN DEVELOPMENT. and others—that have been approved for use. cheaper chronic treatments for HIV and AIDS patients. Patients with normal. As a result. new HIV INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. According to the United Nations. or hospitals. 2011 15 . As treatments are increasingly tailored to specific genetic subgroups. fueled by global concerns about potential epidemics and the rising number of hard-to-treat hospital infections. several promising treatments are nearing commercialization. manufacturers will have increasing motivation to develop oral formulations for biologics. likely to be used in combination with other approved oncology drugs. nearly all new oncology drugs are being tested in a variety of settings. Gleevec. with the potential to result in smaller and accelerated clinical trials. the FDA. non-mutated KRAS account for an estimated 60% of colorectal cancer patients and have been shown to respond well to Amgen’s Vectibix and Eli Lilly’s/Bristol Myers Squibb’s Erbitux. According to figures released in late 2010. with the increase attributable to longer survival as a result of anti-retroviral therapy. has received widespread attention in recent years. BY Cardiovascular disease 25 THERAPEUTIC Blood disorders 20 CATEGORY Diabetes/related 1 9 1 9 1 8 1 5 1 1 1 0 8 5 35 Skin disorders Neurologic disorders Digestive disorders Genetic disorders Transplantation Eye conditions Growth disorders Other MEDICINES Respiratory disorders 27 This is a technical distinction. as oral cancer medications are often less expensive than intravenously administered biologics.2 million. more easily absorbed into the body than older BY THERAPEUTIC CATEGORY oncology drugs made up of large proteins that 0 50 1 00 1 50 200 250 300 are not easily absorbed. which can be BIOTECHNOLOGY MEDICINES IN DEVELOPMENT. rather than the more complex.8 million at the end of 2008. After years without a new alternative for chronic Hepatitis C. therefore. Traditional cancer medications were given intravenously. up from 32. new antibiotics to treat drug-resistant infections (a growing problem).  More oncology drugs are being administered orally. This field covers a broad range of research on diseasepreventing vaccines. To date. in doctors’ offices. Thus. Express Scripts estimates that one-fourth of investigational cancer drugs are taken orally. As reimbursement for biologics comes under pressure. but also on their potential for use in other areas and with other drugs. and better. as scientists realize the importance of a multifaceted approach in treating cancer. they can be reimbursed based on traditional pharmacy benefits. New oncology drugs. patients. the National Comprehensive Cancer Network (NCCN) and the American Society of Clinical Oncologists (ASCO) all have revised prescribing guidelines for use of these drugs to reflect the findings.  HIV/AIDS. Avastin. for multiple indications. but it has important implications for doctors. They consist of small molecules. Oral medications are easier to distribute and administer than most biologics.  Combination therapies are standard. a gene that plays a role in cell growth regulation. Infectious diseases Infectious disease is an area of recent interest. the number of people infected with HIV worldwide at the end of 2009 was 33. The FDA has also encouraged companies to develop combinations in order to boost effectiveness and drive major advances in treatment paradigms. higher-priced specialty pharmacy benefits. Most of the oncology drugs in development are Source: Pharmaceutical Research and Manufacturers of America. clinics. drugs will be prescribed for those for whom they are most likely to be effective. have to be judged not only on the initial indication for which they are approved. There have been several early examples of therapies targeted for specific genetic subtypes of cancer—Herceptin. Biomarkers are personalizing cancer treatment. promising consideration for such combinations before each medicine is evaluated on its own. Erbitux. However. KRAS.

cost the US healthcare system up to $34 billion per year. there were 395 new medicines and vaccines in clinical studies. and 170 million worldwide. according to the US Centers for Disease Control and Prevention (CDC). Biologics treating RA and these other disorders generated sales of more than $25 billion in 2008. deformity. 16 BIOTECHNOLOGY / FEBRUARY 24.  Hepatitis C. a pharmaceutical industry research advisory firm. according to the Hepatitis Foundation International. In October 2007. estimated in mid-2009 that the Hepatitis C treatment market would expand from $2 billion in 2008 to nearly $8 billion in 2013. according to the CDC. pipeline advancement is emerging in new treatments for Hepatitis C. the CDC stated that MRSA was approaching epidemic levels in some parts of the country. In June 2010. According to the Infectious Disease Society. The US represents a fraction of the global HIV epidemic.  Drug-resistant infections. the World Health Organization updated treatment guidelines.1 million people infected. a protease inhibitor. and. driven by the introduction of new drugs to the market. ultimately. which contribute to inflammation. another area of unmet medical need. and Pfizer’s Dalbavancin. which causes swelling that can result in pain. is currently under FDA review and could receive FDA approval around mid-2011. Drugs approved for treating RA are also used for other inflammatory conditions such as psoriatic arthritis. In July 2009. produced by Theravance Inc. Several other potential treatments in late-stage study are Johnson & Johnson’s Zeftera (ceftobiprole). calling for earlier treatment of HIV. while UN-backed programs are helping to get new patients on therapy. RA is mainly characterized by inflammation of the lining (synovium) of the joints.5 million patients who require HIV therapy.3 million Americans according to the Arthritis Foundation. one of the most common hospital-acquired antibiotic-resistant bacteria. Vertex Pharmaceuticals Inc. An increasing number of earlier-stage compounds. according to market intelligence provider EvaluatePharma. 2011 INDUSTRY SURVEYS .infections and AIDS-related deaths may have stabilized and started to decline in many regions. After years of dormancy and no new therapies. As discussed in more detail in the “Current Environment” section of this Survey. and Japan’s Astellas Pharma Inc. Primary treatments include nonsteroidal anti-inflammatory drugs (NSAIDs) and disease-modifying drugs called DMARDs. Rheumatoid arthritis (RA) is one of the most common and serious forms of arthritis. MRSA accounts for some 19. which has infected an estimated 5. Competing products include Merck’s boceprevir. although the disease remains widely under-diagnosed. Despite this need for novel therapies.3 million people in the US. we note that the FDA has challenged many recent new applications for drugs aiming to combat infections. Biologics are typically used in combination with DMARDs to modify the immune system by inhibiting proteins called cytokines. US lawmakers urged Congress to pass legislation to boost the detection of hepatitis after an Institute of Medicine (IOM) report highlighted deficiencies with the US government’s response to the epidemic. in September 2009. Still. slightly more than two-thirds of people with HIV globally are not receiving treatment. After several delays. which it estimated could add three million to five million patients to the estimated 9. and Johnson & Johnson are among the leaders in developing new treatments: their Telaprevir drug. with more than 1. and psoriasis. particularly methotrexate. In late 2009. though with a restrictive warning label. Rheumatoid arthritis is most common in women and onset typically occurs between the ages of 40 and 60. The FDA has also delayed the drug’s approval for treating nosocomial (or hospital-acquired) pneumonia. which is also under FDA review. “superbugs” like methicillinresistant staphylococcus aureus (MRSA). including next-generation compounds that seek to reduce or eliminate the use of Interferon or Ribavirin as components of standard treatment regimens. Crohn’s disease. are in early-tomid-stage development.. a panel assembled by the Institute of Medicine released a list of 100 health topics that it stated should get the highest priority in comparative effectiveness studies. and were included in the first quartile of the panel’s list.000 new infections each year. According to a 2010 report from the Pharmaceutical Research and Manufacturers of America (PhRMA). before declining due to improved effectiveness of these treatments.000 deaths and 94. Autoimmune diseases  Rheumatoid arthritis. affecting 1. the FDA approved Vibativ. and 56. Decision Resources.000 life-threatening illnesses each year in the US. throbbing.

2011 17 . the unmet medical need. another 57 million have pre-diabetes. Merck Serono’s Cladribine. In early 2010. but later placed the study on clinical hold to review safety data over cysts seen in pre-clinical study. the FDA has expressed concern about the potential for health-related issues emerging from stem cell–based treatments. six of which are administered either by injection or IV infusion. was approved in September 2010 and launched before the end of the year. Multiple sclerosis (or MS) is a chronic. the category saw a 40% rise in spending in 2009. There are currently seven approved disease-modifying treatments.8 billion market in the next five years. Opening up research to INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. while a November 2008 published study commissioned by Novo Nordisk A/S pegged the figure at $217. then-President Bush limited use of embryonic stem cells in scientific research. or FTY720). In 2009. A second agent. The ADA has also forecasted the total cost of treating diabetes to be $174 billion in 2007. These cells can be used to repair tissues and grow organs. a federal judge issued a temporary injunction barring the federal government from funding research involving the destruction of human embryos. enabling NIH research to continue in the interim. spinal cord. characterized by rising blood glucose levels. they are also highly controversial because to date. according to Frost & Sullivan. of which 29% was due to rising costs and 11% due to higher utilization. However. Diabetes Diabetes is becoming more prevalent. medical expenditures accounted for one in eight federal healthcare dollars. Gilenya (Fingolimod. starting a stem cell line has required the destruction of a human embryo and/or therapeutic cloning. Multiple sclerosis. the National Institutes of Health (NIH) predicted that stem cells could be used to research genetic diseases and develop therapies and cures. we view the competitive landscape to commercialize next-generation diabetes projects as intense and subject to regulatory scrutiny and delays. A temporary stay was issued shortly thereafter. including $116 billion in excess medical expenditures and $58 billion in reduced national productivity. Although embryonic stem cells are particularly useful because they can transform into any kind of cell in the body. a policy research firm. We expect this trend to increase clinical trial patient sizes and further slow the drug pipeline. not just for stem cell replacement. In fact. according to Nature Biotechnology magazine. and optic nerves.000 people with multiple sclerosis in the US and more than 2.’s application to advance a therapy for spinal cord injuries into clinical trials in early 2009. The first orally dosed drug. or 8% of the population. and safety concerns over current treatments. for potential treatment for Pelizaeus-Merzbacher disease. Standard & Poor’s believes there is ample room for growth in the diabetes treatment area. MS therapies have expanded significantly in both price and use in recent years. According to the National Multiple Sclerosis Society. The introduction of new drugs to the market has the potential to possibly double the current $8.5 million people worldwide. The American Diabetes Association (ADA) estimates the number of people in the US with diabetes as near 24 million. raising one’s risk of developing diabetes. The agency approved Geron Corp. a fatal brain disorder in children. In 2001. largely as a result of poor nutrition and a lack of physical activity. in September 2010. given the new guidelines requiring manufacturers to evaluate cardiovascular risks before being granted approval. often disabling. Promising technologies  Stem cells. including new cancers or harmful immune system responses. President Obama lifted the ban on their use as one of his first official actions upon taking office. The CDC estimates that the prevalence of diabetes has doubled in the past 15 years. given the size of the market. pharmaceutical trade group PhRMA cited 235 new medicines in development to treat diabetes in a mid-2010 report. disease that attacks the central nervous system (CNS)—the brain. The agency has also authorized clinical trials by StemCells Inc. In addition to ethical considerations. However. In 2005. according to Mathematica Policy Research. there are approximately 400. marketed by Novartis AG. According to Express Scripts. That study treated its first patient in February 2010. According to the American Association of Clinical Endocrinologists.5 billion. was issued a “refuse to file” letter from the FDA in December 2009 and the company re-filed in early 2010. but only 18 million have been diagnosed.

 RNA interference (RNAi). in 1967. such interest appears to be waning.. which advanced its internal pipeline and reported major drug delivery advances during 2010. food supplies. Then. or the environment. and other fermented products. which focuses on short strands of naturally-produced RNA that act as switches to regulate protein production. RNAi is spawning a new area of study called micro-RNA (MiRNA). to block the production of disease-causing proteins before they are made. HOW THE INDUSTRY OPERATES Biotechnology refers to the application of biological and biochemical science to large-scale production of products to modify human health. Decades before the advent of genetic engineering. Although a commercialized therapy based on stem cell research remains years away. however. Massachusetts. such as cheese. have made considerable progress in advancing stem cell research that could potentially not require embryonic destruction. despite initial investments of more than $300 million. led by Arthur Kornberg. Roche shuttered RNAi research as part of a corporate-wide restructuring. and Novartis declined a platform license option. In 1953. In addition. scientists at the Whitehead Institute for Biomedical Research in Cambridge.more stem cell lines has provided cells containing gene mutations that can be reviewed and lead to new therapies. COMMERCIAL MILESTONES In the early 1980s. scientists have learned how to manipulate organisms at the genetic level and reproduce those changes in massive quantities. fungi. However. This would afford the opportunity to improve disease control and intervention. and is a natural pathway to control gene expression. and other living organisms have long been used to stimulate chemical reactions needed to process certain foods and beverages.  MicroRNA. In April 2003. the International Human Genome Sequencing Consortium. or silencing RNA) for every gene/mRNA. Both deals involved Alnylam Pharmaceuticals. facilitating the creation of new medical products. Many of biotechnology’s basic principles are thousands of years old. scientists produced medicines made from living organisms on a large scale—such as penicillin in the 1940s. giving them the potential to identify thousands of biological targets against which new drugs can be developed. 2011 INDUSTRY SURVEYS . 18 BIOTECHNOLOGY / FEBRUARY 24. Current advances in biotechnology are indebted to groundbreaking research in genetics and molecular biology conducted since the mid-twentieth century. This base of knowledge is enabling medical researchers to run extensive screens of human proteins. RNAi seeks to design siRNAs (small interfering. Since the 1970s. which has entered into global alliances with GlaxoSmithKline and Sanofi-Aventis. which recently initiated a clinical study on the first treatment in this class for Hepatitis C. wine. a team of US researchers. This important ruling enabled US biotech firms to invest in costly research projects. and Santaris Inc. Watson and Francis Crick first described the structure of deoxyribonucleic acid (DNA)—the molecule that carries the genetic code for virtually all forms of life. and may enable treatments more advanced than RNAi. Bacteria. despite significant initial interest and investment from leading pharmaceutical companies. Early leaders in this field are Regulus Therapeutics LLC (a joint venture between Alnylam and Isis Pharmaceuticals). synthesized biologically active DNA in a test tube. beer. the US Supreme Court recognized patent rights on genetically altered life forms. we expect the issue to remain controversial. In 2010. completed the sequencing of the human genome. RNAi was the subject of research by the winners of the 2006 Nobel Prize for Medicine and seems to have tremendous potential for the treatment of cancer and infectious diseases. James D. Unlike traditional small molecule medicines that target only certain classes of protein. This important new technology involves switching particular genes on or off. knowing that patents would protect their discoveries and ultimately sustain financial incentives. and focus on disease prevention rather than a standard symptom treatment model. an international group of scientific centers.

6 (3. such as tumor necrosis factor (TNF). 2. Genzyme Corp. which trigger inflammation and respond to infections. has been a leader in this class. often used for treatment of inflammatory disorders such as rheumatoid arthritis and psoriasis.469 5. The drug is being explored for additional cancer uses. which treats inflammatory conditions such as rheumatoid arthritis and psoriasis.To date. 9.302 5. 6. Key cytokine classes include interleukins.1 (15. Johnson & Johnson’s Orthoclone. a widely anticipated monoclonal antibody. TOP 10 BIOTECHNOLOGY DRUGS (Ranked by 2009 global sales) PRODUCT COMPANY INDICATED USE SALES (MIL.590 49.620 4.7 19. which are catalysts for complex biological processes. however. fusion proteins. 10. R&D spending declined in 2009. Hormones are chemical messengers that travel through the blood stream to other parts of the body to maintain chemical balance. Today. 1. and Medco forecasts growth to $115 billion by 2015. $) 2008 2009 % CHG. Growth factor stimulants are proteins that can induce tissue development by affecting genetic switches in cells. human growth hormones. Fusion proteins are proteins created through the joining of two or more genes originally coded for separate proteins. In 2010.318 3. monoclonal antibodies represented 35% of the total US biologics market through 2008. the US FDA approved the first monoclonal antibody (MAb).862 3.199 6. Enbrel Amgen/Pfizer/Takeda Rheumatoid arthritis/psoriatic arthritis Remicade J&J/Merck Rheumatoid arthritis/Crohn's disease Table B02: TOP 10 Avastin RocheBIOTECHNOLOGY Oncology Rituxan Roche/Biogen IDEC B-cell non-Hodgkin's lymphoma/rheumatoid arthritis DRUGS Humira Abbott Labs Rheumatoid and other forms of arthritis Epogen/Procrit Amgen/J&J Red blood cell enhancement Herceptin Roche Oncology Lantus Sanofi-Aventis Diabetes Neulasta Amgen Restoration of white blood cells Aranesp Amgen Red blood cell enhancement Total. denosumab. 7.3 1.744 5. therapeutic enzymes seek to replace naturally occurring enzymes. cytokines. and thyroid stimulating hormones.2 2. and is expected to reach blockbuster status and renew the growth prospects for its marketer. 6.4 11. top 10 Source: EvaluatePharma.7 Other leading groups of biologic drugs are growth factors. 3.293 3. 2011 19 .5 22. and cell signal molecules.566 5. Key drugs in this group are insulin. received FDA approval for postmenopausal osteoporosis (marketed as Prolia) and for delaying cancer-related skeletal events (as XGeva). SPENDING ON R&D In the biotechnology industry. Leading MAbs include Johnson & Johnson’s Remicade for inflammatory conditions and Roche’s Avastin for cancer. where formulations are used in treating rare disorders with few affected patients and usually sell at premium prices. 5.930 46. Notable examples include Amgen’s Epogen/Aranesp. which stimulate red blood cell production. 8. Lastly. for the treatment of transplant rejections.2) 6. and Neulasta/Neupogen. Key classes of biotech drugs In 1986.725 4.9) 3. and are prevalent in treating multiple sclerosis and hepatitis C. the consulting firm. lymphokines.540 5.481 5.818 5. and interferons. Amgen Inc. and therapeutic enzymes.712 4. Cytokines are small proteins released by cells that have a specific effect on cell interactions. The leading biologic is this class is Amgen’s Enbrel. with another 633 in development.922 4.964 4. hormones. US public biotechnology company spending on R&D decreased INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. with most focused on cancer and inflammatory diseases. 4. according to Medco Health Service’s 2010 Drug Trend Report. which stimulate white blood cell production. These drugs generated more than $76 billion in worldwide sales in 2008 (latest available).355 3.457 2. After years of growth. based on recent growth trends for the category.2 19. We estimate more than 200 MAbs in clinical development at the end of 2010. According to Ernst & Young LLP. investment in research and development (R&D) is crucial to building a longterm sustainable organization. According to Nature Biotechnology magazine. over 100 recombinant protein-based drugs have been approved.600 4. MAbs are the key growth driver for the industry.163 4.

3 1. Given the need to fund R&D. 20 BIOTECHNOLOGY / FEBRUARY 24. called “angels. ranked by 2009 R&D expenditures) R&D R&D AS % ----.1 393. New biotech entities are usually funded through seed money from private wealthy investors or small groups of investors.by 13% in 2009 from 2008 levels. According to the Biotechnology Industry Organization (BIO).4 19.097 1. the financing environment has been challenging as financial markets continue to recover from the significant disruption caused by the global recession. as smaller firms typically lack the commercial and manufacturing infrastructure to launch a new drug internally. compared with only 37% in 2008. an improvement over 45% seen at the end of 2008. Until recently. one of the most important issues facing young biotechnology companies is access to capital.283 17. The larger company may provide up-front fees. The importance of partnerships Once a small firm has a promising investigational candidate.1 28.8 105.5) 15.3 13.0 4.605 Celgene 2. it often chooses to team up with a major pharmaceutical or biotech company. However. as innovation is a key differentiator for biotechs and a factor in their LEADING US BIOTECH COMPANIES RESEARCH & DEVELOPMENT EXPENDITURES valuations.4 (1.0 (41.8 13.4 119. 2011 INDUSTRY SURVEYS . royalties.9) 19.308 865 (33. In addition.677 2.516 2.8 (9.EXPENDITURES ----.2) 2.9) 4.4 20. a quarter of publicly traded US biotech companies had less than one year of operating capital as of mid-2010. mirroring the economic conditions brought about by the global recession.975 Vertex Pharmaceuticals 360 401 11.7 28. excluding the removal of Genentech Inc.9) 59.2 29. companies rarely faced difficulty in raising capital. In 2010. We believe that funding is likely to remain selective. their average market performance through the end of 2010 was 13% below their average offering price.1 154. 14. 2008 2009 COMPANY COMPANIES RESEARCH & Amgen 3. from industry figures due to its 2009 acquisition by Roche.238 Cephalon 404 442 9. However.--------.030 2.. the partner often provides needed production facilities and sales organizations for new products.3 5. Venture capitalists raise money from wealthy private individuals or institutional investors and create funds that invest in emerging high technology companies (including biotech start-ups). R&D funding. and we see biotechnology remaining among the top industries for venture interest. Most biotech companies lose money and do not become sustained profitable companies. However.7 20.9 19. According to Ernst & Young. Standard & Poor’s expects this trend to continue as more biotech drugs reach the market.6 29.864 (5. and possibly co-promotion rights.336 Genzyme 1.REVENUES --------.003 DEVELOPMENT Biogen-Idec 1. Biotech R&D as a percentage of product sales has traditionally been very high.OF REVENUES B03: 2009 % CHG. 64% of companies reported R&D reductions.098 EXPENDITURES Gilead Sciences 733 940 28. due to equity market volatility.3 176 Regeneron Pharmaceuticals 278 399 43. 17 biotech companies completed IPOs.8 31.377 7.4 Access to capital crucial Companies in the biotech industry range in size from small startups to multibilliondollar firms. (In millions of dollars.192 102 379 152 758 (2.4 238 Exelixis 257 235 (8. The recession significantly hurt smaller companies.642 4. according to Burrill & Co. the pace of announced restructurings slowed and more companies were able to secure financing to extend their cash runway.671 795 (70.2 26.7 24. Venture financing has been volatile in recent years. but has shown signs of decline as industry revenues have grown.” and by venture capitalists. but available to promising companies.4 34. as many faced limited financing options and were forced to scale back R&D projects and to shelve potentially promising programs due to a lack of resources.9) 840 Source: Standard & Poor's Compustat.011 4. We note the potential for negative sentiment from investors should levels of research investment drop precipitously. such as an initial public offering.7) 20. an improvement over the three completed offerings in 2009.4) 6.8) 118 Amylin Pharmaceuticals Inc.6 218.4 116. 2008 LEADING US BIOTECH 2008 2009 % CHG. usually with an exit strategy.5 205. as the markets stabilized from their March 2009 lows. 293 185 (36. an industry trade group. Typically.6 11. Standard & Poor’s believes that 2008 represented the trough for venture investing. Standard & Poor’s looks for a cash balance that could see a biotech firm through at least two years of operations as a benchmark of staying power. as the sector emerged from the recession during the second half of 2009. milestone payments. in mind.

and that drug labels give an accurate list of ingredients. In the biotech industry. usually a leading pharmaceutical company. Still. rather than patenting the natural discovery itself. A “use” patent lets the holder manufacture and market the compound for a specific therapeutic purpose.Many approved biotech products were developed with a collaborative partner. WTO regulations contain an exception known as compulsory licensing. INDUSTRY REGULATION Congress passed the first federal law regulating the drug industry in 1906. competitors are prohibited from commercial use of that discovery.’s core HIV compound Tenofovir to be of public interest. Developing nations have become increasingly aggressive in fighting Western brand-name drug patents due to high prices. signaling the country’s interest in avoiding the drug’s patent and plan to issue a compulsory license. Recently. the Brazilian government declared Gilead Science Inc. and prospects for pipeline advancement. This practice has drawn criticism from multiple groups on the basis of impeding scientific progress. many nations that had been lax about protecting patents are changing their laissez-faire approach. In March 2010. generally provides the company with the best protection. but we note that most drugs in development are not directly affected given their manipulation of DNA to form a patentable invention. the ability to obtain and enforce patent protection varies by country and US pharmaceutical companies have been leery of doing business in countries that fail to recognize international patents. The biotech industry has defended these rights as protecting innovation and helping to recoup R&D investments. the US Patent and Trademark Office has granted exclusive patent rights for gene sequences isolated from human chromosomes. Although US patent law states that what occurs in nature cannot be patented. breadth of research capabilities. in 1937. as larger firms gain first-hand insights into a smaller company’s management. it required that drugs meet official standards of strength and purity. The issue of patents has become increasingly complex as advances in understanding the human genome have been made. When a company obtains a patent for a new process or product. The number of such agreements has risen steadily in recent years. The court ruled that patents that had given Myriad a monopoly on its predictive cancer test based on those sequences were improperly granted as the genes are directed to a law of nature. a US district court invalidated several patents granted to Myriad Genetics Inc. Known as the Pure Food and Drug Act. Patents make it happen Patents are among the most important benchmarks of progress in developing new biotechnology products. significant restructuring within the pharmaceutical industry has led to the dissolution of many pharma–small biotech partner deals and the need among biotech companies to seek new transactions in order to advance their clinical assets. up to 20% of human genes have been granted patents. These groups have argued that companies should be able to patent proprietary drugs and tests derived from knowledge gained from gene sequencing. Among the different types of patents. poor populations do not have the money to pay for life-saving. more than 100 people died after taking elixir sulfanilamide INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. preventing competitors from using the drug in the same way. 2011 21 . WTO regulations include the recognition of pharmaceutical patents. acquisitions have occurred between firms that had been development partners. Since the World Trade Organization (WTO)—the international body that focuses on the rules of trade between nations—established a multilateral trading system on January 1. According to the American Civil Liberties Union (ACLU). These alliances are perceived as validation of the smaller firms’ prospects. However. which extend for 20 years from the application date. 1995. which describes the product’s chemical or biological nature. typically over concerns that their huge. However. as noted earlier in this Survey. In many cases. that covered two gene sequences responsible for hereditary cases of breast and ovarian cancer. as “Big Pharma” and the major biotechs have realized the scientific and economic benefits of partnerships with smaller biotech firms. patents are critical to raising the capital for R&D. brand-name medications. Standard & Poor’s expects protracted legal debate over the issue. which allows a country to break patents in a national emergency and make copies of an important drug. In October 2010. the US Department of Justice opined that unmodified human DNA should not be eligible for patent. a “composition of matter” patent. A “process” patent describes the manufacturing process of a product.

5 years) for traditional medicines. While it is common to focus on a drug company’s clinical development pipeline. while reversing the trend of rising costs.7 months (or 8.1 years). This calamity led to the passage of the Food. are developed to determine the activity that potential treatments have on the target. The law was strengthened in 1962. to verify the target’s significance. would save 25% to 48% of R&D expenses for each new biopharmaceutical drug approved by the FDA and would reduce development time significantly. Once a prospective disease target is uncovered. accurate.3 months (7.3 billion. rather than continuing the recent trend of lengthy programs that show modest and incremental gains over existing treatments.2 billion in an earlier 2006 study. following an outbreak in Europe of severe birth defects caused by thalidomide. These trends have given rise to attempts to uncover new ways to accelerate the development timeline. fast. New products take 97. about 8% longer than the 90. and its possible side effects. this legislation required that drug manufacturing facilities be subject to FDA approval and periodic inspection. In July 2010.  Assay development.  Target identification. In addition. industry insiders know that many of the hurdles encountered during drug development occur before the compound enters the clinic. which resulted in legislation requiring manufacturers to demonstrate both the safety and efficacy of new drugs before receiving approval for commercial sale in the United States. how it should be administered. the director of the FDA’s Office of Oncology urged companies to design small pivotal. Drug. its role in the disease must be determined.  Target validation. The effort to discover and develop new therapeutics generally consists of several distinct steps: early discovery and preclinical development. 2011 INDUSTRY SURVEYS . which is used in automotive antifreeze). and Cosmetic Act of 1938. An economic study sponsored by the National Institute of Standards and Technology suggests that an improvement in the R&D technology infrastructure. The FDA was created to oversee the law’s enforcement. Such advances will be crucial to reverse these alarming trends. the Tufts Center for the Study of Drug Development (CSDD). The ultimate goal in this step is to find and isolate potential areas for therapeutic intervention. and regulatory filing and review. and protein pathway studies. A 2009 study by Frost & Sullivan placed the average at 12years.(a sulfa drug mixed with diethylene glycol. on average. In December 2010. It also required that a drug’s label state its contents. Thalidomide’s near-entry to the US market created a clamor for tighter drug regulation. Assays. Frost & Sullivan estimated in a 2009 industry report that the R&D development expense to launch a new molecular entity could rise to $2 billion by 2015 and $2. tissue distribution analysis. or chemical tests. placed the average cost to develop a new biologic at $1. preclinical work consumes nearly half of the R&D expenditures per biologic. Early discovery and preclinical development According to the Tufts CSDD. In its 2006 analysis. please see the “Current Environment” section of this Survey. 22 BIOTECHNOLOGY / FEBRUARY 24. which required that drugmakers submit evidence of a product’s safety. up from $1. a drug development screen should be cost effective. clinical trials. to get through the clinical development and regulatory process. randomized trials powered to show a large cancer survival effect earlier in the process.) THE DRUG DEVELOPMENT PROCESS The biopharmaceutical approval process is both costly and lengthy. Researchers use various methods. Mayo Clinic researchers launched a new cooperative model aimed at streamlining data collection and clinical trial management in hopes of accelerating the development timeline. As of early 2011. Key steps in the process of developing biological drugs are detailed below. a nonprofit academic research group. Ideally. Genes are identified that are thought to be responsible for causing a particular disease. the Tufts CSDD concluded that the process spanning preclinical development to marketing approval can take between 10 and 15 years. (For further discussion of issues facing the FDA. such as differential gene expression. split between preclinical development (four years) and clinical/regulatory (eight years).5 billion by 2020. led by the standardization of data collection and quality control for post-market surveillance.

which is a formal request for permission to begin human clinical testing. which is submitted to the FDA for review.  Screening. measuring the potency and assessing the selectivity of hits from the primary screen. 2011 23 . Drugs that pass these hurdles then undergo Phase III. Thus. in which the most complex and rigorous tests are performed on still larger groups of ill patients to verify the drug’s safety. the company compiles it into a biologics license application (BLA) or a new drug application (NDA). Of those. These preclinical tests are done on animals to examine the compound’s absorption. Leads undergo years of FDA-mandated testing. and generally includes a larger patient population and a lengthier test period than Phase I. production. to demonstrate safety and efficacy. The FDA estimates that. Through rescreening. Clinical trials: putting candidates to the test The US drug approval system is one of the world’s most stringent. researchers zero in on candidates with the best chance of safety and therapeutic efficacy. it will be used instead of the placebo. vaccines. double blind tests with placebo control to remove any chance for bias. however. The application contains results of the preclinical and clinical research and includes details of the product’s formula. Regulatory filing and review The FDA’s Center for Drug Evaluation and Research is responsible for reviewing therapeutic biological products and chemical-based drugs. This process. Phase III trials (and often those of Phase II as well) employ randomized. The Center for Biologics Evaluation and Research reviews blood products. and intended use. During Phase I. tests with a library of chemical compounds are conducted in an attempt to modulate a validated target. can include up to 10 or more iterations on previously optimized groups of compounds. This helps the drug developer to identify the most promising drug candidates in terms of their pharmacological characteristics. Once the assay is ready for use. known as lead optimization. and excretion. Usually. The clinical testing period in humans usually consists of three phases. Researchers look for a predefined minimum level of activity against the target to advance the compound to secondary screening. These molecules may demonstrate some activity. and optimum dosage regimens. if there is already an approved drug for the indication.  Lead optimization. an average of 13 or 14 will successfully complete Phase I. If the data is positive. only 5% to 10% of all drugs entering clinical trials are ultimately approved for marketing. If this initial test appears successful. and amenable to automation. distribution. metabolism.  Preclinical studies. This means that one group of patients is given the drug and another is given an inert substance. quantitative. A sponsoring drug company must submit the results of preclinical testing to the FDA as part of an investigational new drug application (INDA). about nine will finish Phase II. which is necessary before human clinical trials can be initiated. the drug is administered to a relatively small number of healthy people in order to test its safety in small doses. the dosage is slowly increased to determine its safety at higher levels. labeling. Some screens can be reused for other drug development studies. effectiveness. while many others must be tailored for the specific target and set of therapeutic compounds that will be tested. Physicians closely monitor patients to determine efficacy and identify adverse reactions. company scientists analyze the data. of every 20 drugs entering clinical testing. The preclinical studies must prove a compound’s safety in terms of potential carcinogenicity and other toxic consequences and assess preliminary effectiveness of a compound. which aims to confirm the activity. Biotechnology medications undergo the same lengthy testing process as any other pharmaceutical product. After the development work is complete.easy to perform. Neither the patients nor their doctors are aware of which patients are actually receiving the drug being tested. Prospective compounds that exhibit the greatest activity with the least chance of toxicity are called leads. but they need to be modified to improve their effectiveness and reduce their potential side effects. During Phase II. but only one or two are likely to survive the rigorous Phase III trials. and tissue-based products. the drug is given to patients suffering from the disease or a condition that the drug is intended to treat. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. This round of tests is designed to evaluate the drug’s effectiveness and safety.

Added approvals can greatly expand the market size and commercial potential of a biologic. Cancer research has been particularly challenged by trial enrollment concerns. As more drugs are on the market for a given indication. a hope is that increased use of genetic factors that can help to determine which patients would likely benefit from a new treatment. new drugs face larger and more expensive studies to reach statistically significant results. according to PhRMA. but poor enrollment has maintained the trend of new drugs being tested initially only for the sickest patients. contraindications. user fees have grown significantly as a percentage of the agency’s review budget. The FDA has urged sponsors to study cancer drugs at earlier stages of disease progression. fear of trying an experimental therapy over an existing standard of care. the number of drugs under development has risen significantly: between 2003 and 2008. the FDA passed the first Prescription Drug User Fee Act (PDUFA). this in turn could potentially improve trial design and patient enrollment. a National Cancer Institute (NCI) study showed that between 2000 and 2007.000 pages. Such studies are becoming more common. The PDUFA. Increasingly. CenterWatch estimated that 81% of new drug candidates experience delays of up to six months because of patient enrollment challenges. According to tax and advisory firm PriceWaterhouseCoopers (PwC). where any benefits would only delay disease progression. but doesn’t speed up. As discussed earlier in this Survey. because side effects or other unexpected developments sometimes become known only after the drug is widely used. indications. the FDA determines the drug’s official labeling. sometimes exceeding 100. including a detailed description of the drug and its composition.3 million people participate in a total of approximately 80. In 2009. Since the initial act. PDUFA provides funding for. including 60% in Phase III study. a late 2010 survey conducted by PwC found that nearly half of the industry participants do not feel that user fees have accelerated the review process and were unclear of the purpose of the user fees. The process of studying new drugs at earlier stages has slowed the industry pipeline further. the approval process In 1992. and side effects. demands to show efficacy and safety over existing treatments have been growing. Often. however. the longest and costliest stage. The FDA may require additional post-market studies (Phase IV) For some medicines in order to evaluate long-term effects. the manufacturer submits supplemental applications requesting approval to use the drug for additional indications. the number of drugs under development increased 35% to 2. According to the American Society of Clinical Oncologists (ASCO). While drugmakers pay for standard applications (10 months) and extra for priority reviews (6 months).700. the FDA continues to monitor the drug. 2011 INDUSTRY SURVEYS . fewer than 5% of adults diagnosed with cancer will take part in a clinical trial. after marketing has begun. drugmakers are struggling to recruit a sufficient number of patients to participate in clinical studies. According to the American Cancer Society. Following approval. with lack of patient awareness. 40% of cancer trials did not achieve minimum accrual goals. 24 BIOTECHNOLOGY / FEBRUARY 24. the FDA has been inconsistent in its timeliness and in the consistency of approving new drugs. is set to expire in 2012. usually only modestly. which has to be reauthorized every five years.BLAs and NDAs are typically voluminous documents. First. For their initial applications of a new drug. Shortage of clinical trial candidates slows industry pipeline More than 2. user fees in fiscal 2008 accounted for nearly half of the agency’s overall budget and two-thirds of human drug review costs.000 clinical trials every year in the US. which allowed the agency to collect fees from the biopharma industry to fund the review of drug applications. Over the long term. A July 2008 analysis by the Tufts CSDD found that 75% of new drugs approved in the US and Europe between 1998 and 2008 had post-marketing study commitments attached to them. according to clinical trial listing service CenterWatch. Once an NDA or BLA is approved. Standard & Poor’s attributes this situation to several factors. This information is included in a drug’s package insert. manufacturers tend to seek narrow indications affecting well-defined sets of patients. and a lack of oncologist incentives to enroll their patients in a study most often cited as factors contributing to the trend. Second.

In December 2010. In June 2010. the exemption from cost pressures is eroding. rather than economic cycles. Past efforts that offered priority review vouchers were met with little response. as demand for medicine in the United States is tied to the population’s health. and other diseases. Another mechanism available is an accelerated approval pathway.Expedited processes for life-and-death treatments The FDA can allow for experimental drugs to be made available to seriously ill patients through its investigational new drug (IND) treatment policy. Roche appealed the FDA’s decision. In addition. in which a drug can be approved on clinical data that suggests that a drug has a meaningful benefit. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. PRICING CONSIDERATIONS To date. However. The agency has been called upon to accelerate development timelines for conditions of serious unmet needs as well as to raise the exclusivity period to ten years. tax breaks. the FDA sought to revoke accelerated approval status granted to Roche (via its acquisition of Genentech) in 2008 for advanced breast cancer. and manufacturers usually have wide discretion in pricing them. the size of the target market(s). In its attempts to promote research in orphan diseases. more than 2.000 drugs and biologics have been designated as orphan drugs. according to Tufts. the price of competing therapeutics. a lack of alternative therapies for some conditions may leave doctors little choice in making prescription decisions.000 rare conditions that have been identified by the National Institutes of Health. An estimated 25 million Americans have one of the 6. Orphan drugs Enacted in 1983. more than 30 drugs have been granted IND treatment status. having a significant effect on speeding access to drugs that treat AIDS. According to the FDA’s website. late-stage studies ultimately showed a more modest average PFS benefit. and approximately 350 have been approved. drugs targeting life-threatening diseases that are not effectively treated by existing drugs can receive “fast-track” or expedited review by the FDA. provided that Phase I trials for the drug have been successfully completed. from the current seven.000 individuals by providing research grants. potentially fatal diseases. However. while exposing patients to side-effect risks that the FDA determined outweighed the benefit. Since 1997. the US biopharmaceutical industry has been relatively unaffected by changes in general economic activity. 2011 25 . and seven years of exclusive marketing rights to manufacturers of drugs aimed at patient markets that would otherwise be too small to justify commercial development. This provision lets manufacturers sell drugs (on a costrecovery basis). patient advocate groups have pushed for additional policies that allow greater flexibility in how the agency reviews these drugs. and costs incurred in development. and the biotechnology field grows increasingly competitive. with the promise of confirmatory data to support a full approval designation. Many factors go into the pricing decision. New biopharmaceuticals are typically very lucrative. breast cancer. Despite these efforts. the agency has struggled to entice drugmakers to research many neglected diseases. including the relative efficacy of a given drug versus its rivals. accounting for 20% of all investigational compounds in clinical development worldwide during that period. Cancer drugs accounted for 40% of all fasttrack designations between 1998 and 2005. the FDA has granted orphan-drug status to 425 experimental drugs between 2006 and 2008. as pharmaceutical costs rise. the cost–benefit equation for these drugs has been supported by the high value that society places on human life. up from 208 between 2000 and 2002. Between 1998 and 2005. However. Since this policy was enacted in 1987. according to the Tufts CSDD. Because biotech drugs tend to be used for hard-to-treat. In January 2011. the Orphan Drug Act was designed to encourage companies to develop drugs to treat rare diseases afflicting fewer than 200. the FDA published a list of 235 currently approved treatments that it believed could have benefits for other disorders in hopes of promoting new study programs. the FDA granted nearly 500 fast-track designations. The approval was based on mid-stage studies that showed a progression-free survival benefit. new biotech products come to market. to match levels set in Europe. leukemia.

*Estimated cost for a typical adult patient.2 billion. The Centers for Medicare & Medicaid Services (CMS) a division of HHS. a rare ANNUAL DRUG INDICATION COST* ($) COMPANY blood disorder. the cost of a year’s Soliris PNH disease 409. About 40% of the NIH’s budget supports basic research. For most money-losing operations. breakthrough therapies for lifethreatening conditions are usually priced exceptionally high. launched Soliris for the MOST EXPENSIVE BIOTECH DRUGS treatment of paroxysmal nocturnal hemoglobinuria (PNH). Furthermore. have been approved by the European Medicines Agency (EMEA) but have not been made available because they have been deemed as not costeffective by local governments. The NIH.000.000 Genzyme make up slightly more than oneTable B10: MOST Regeneron Arcalyst Cryopyrin-associated periodic 250. According to Ernst & Young. R&D expense typically far outpaces revenues. particularly cancer drugs. profitable biotechs is approximately 15%–25% of revenues. the NIH has projected continuing declines in the percentage of grants accepted. With new drugs representing the lifeblood of the biotechnology industry. and 20% is for high-risk projects. We believe that an appropriate barometer when analyzing the more mature.000 Genzyme Aldurazyme Hurler syndrome 200. the division uses a peer review system to select the most qualified proposals for funding. changes in this industrywide statistic can have an important impact on future trends in sales and earnings.000 third of specialty drugs. KEY INDUSTRY RATIOS AND STATISTICS  R&D as a percentage of sales. PNH-Paroxysmal nocturnal hemoglobinuria. Moreover.000 71.000 Shire Pharmaceuticals $400.000 research and training applications per year. The NIH receives approximately 50. research and development (R&D) expenditures as a percentage of total revenues were 30% for publicly held biotech companies in 2009. For example. The data have a full-year lag 26 BIOTECHNOLOGY / FEBRUARY 24. down from 38% in 2008.Although most drugs are priced near other established drugs in their class.000 BioMarin Pharmaceuticals Express Scripts analysis noted that Cinryze Hereditary angioedema 350. A growing number of drugs. Dosage may vary based on a patients' Europe has taken a leading position on judging a drug’s cost effectiveness. The budget is usually disclosed in the early part of the year as part of the president’s total proposed federal budget for the fiscal year beginning October 1.000 ViroPharma drugs with orphan indications Myozyme Pompe disease 300. As a result. This ratio should decline as the industry matures and more products are commercialized. From these applications. At present.   National healthcare expenditures. The UK’s National Institute for Health and Clinical Excellence (NICE) has led the way. plays a vital role in drug discovery by funding basic research on the fundamental mechanisms of disease.3% of specialty drug spending.  Annual budget of the National Institutes of Health (NIH). the NIH was funded $31. For 2010. Source: Forbes. leading to ratios more comparable to those of the pharmaceutical industry. which represents an increase of approximately 2% over 2009. but EXPENSIVE syndromes (CAPS) contribute a disproportionate BIOTECH DRUGS Genzyme Fabrazyme Fabry disease 200. a division of the US Department of Health and Human Services (HHS). which has fallen to approximately 20%. a 2008 Naglazyme Maroteaux-Lamy syndrome 365. which is closer to 4%. releases annual estimates of all healthcare spending in the United States. in 2007. 2011 INDUSTRY SURVEYS . The first and largest NIH institute is the National Cancer Institute. 40% is for transitional research. weight and other factors. from a peak of 32% in 2001.000 Genzyme/BioMarin Pharma costing more than twice as much as non-orphan drugs. established in 1937. the NIH says that this figure is below the pace of inflation for biomedical research. Such rulings can be made in each European Union (EU) member country because the EU’s regulatory system is not harmonized.500 Alexion Pharmaceuticals treatment with Soliris is more than Elaprase Hunter syndrome 375. Cerezyme Gaucher disease 200. the biotech industry devotes a higher percentage of its sales to R&D than any other major US industry. Alexion Pharmaceuticals Inc.

Spending changes in specific illness segments can have an important bearing on pharmaceutical sales and demand for biotechnology products. Standard & Poor’s was projecting that the yield on the three-month Treasury bill (a proxy for short-term interest rates) would average 0.25%. 2006. up from 2010’s 0. the federal funds rate was at 5.7% growth in 2011. as margins are higher in the private sector than they are in government-financed sales (such as Medicaid and Medicare). For 2012–19. while their operating expenditures may not decrease.2% for 2010 and 2.2% annually due to the PPACA. and disabled.5 trillion in 2009. and investment of idle cash. which often are given by infusions or injections. Medicaid is a health benefits program for low-income US residents who are aged. it has not covered the cost of drugs dispensed through retail pharmacies. up from 3. beginning in 2014. 2011 27 . clinics. United States also provides figures on rates of change in total healthcare spending by segment. lower interest rates can significantly reduce interest income. before settling in the low 80–million range at the end of the decade. and several million Medicaid recipients were moved to Medicare Part D for their drug coverage. it did reimburse for drugs administered in hospitals. As of January 1. The former figure was raised and the latter lowered from prior forecasts due to changes to the Sustainable Growth Rate (SGR) system during 2010.  Interest rates. enrollment in these programs are expected to increase by more than 40% over projected 2010 levels to 85 million persons in 2014. Commensurate spending on these program expansions is expected to rise by 34% in 2014 and then remain largely flat over the balance of the decade. such as hospital care. In September 2007. United States.  Medicare and Medicaid spending. as those rates affect management decisions on new capital expansion projects. Changes in funding sources are important to recognize. CMS projected lower Medicare spending by 6.2% for full-year 2011. While lower interest rates make debt financing more attractive. Changes in spending and in reimbursement rates in these important government healthcare entitlement programs can have a significant impact on biotechnology business. The average yield on 10-year notes (a proxy for long-term interest rates) was projected to be 3. Federal and state governments jointly fund the program. as well as for disabled persons.1%.and are structured according to type of expenditure. Historically. Health. which constitute the bulk of drugs sold in the United States. or doctors’ offices—a benefit directed disproportionately at biotechnology products. In addition.2% in 2010. or for members of families with dependent children. Like most corporations. and drugs and other medical nondurables.6% of US gross domestic product (GDP). For biotech firms that have substantial cash balances. CMS has projected that costs would account for 19. raised slightly from its prior projections as a result of the March 2010 Patient Protection and Affordable Care Act (PPACA). physician care. As such. High interest rates increase the cost of borrowing and tend to make acquisitions financed by debt less attractive. challenging credit conditions across the global economy dim the prospects of smaller companies qualifying for debt financing. increases in the rate at which future earnings are valued tend to push down biotechnology valuations. CMS projected Medicare spending growth of 5.8% in 2011. Medicare is a federally funded national health insurance program for people aged 65 and older. biotechnology companies closely monitor changes in interest rates. blind. up from 16. although each state sets eligibility standards. those eligible for Medicare received their prescription drug benefits through Medicare. Further. representing 17. The 2010 Patient Protection and Affordable Care Act also promised to expand Medicaid and Children’s Healthcare Insurance Program (CHIP) eligibility.6% in 2008. However. As of September 2010. Medicaid has traditionally covered the cost of pharmaceuticals for members. includes detailed information on the sources and the amount of funds for each segment. however. Health. Proportional changes in pharmaceutical spending can be measured against other healthcare sectors to determine the industry’s relative growth. acquisitions. The CMS estimates that national health expenditures rose to $2. when the Federal INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. As of January 2011.6% of the national economy by 2019 and increase annually by an average of 6.3%. The CMS’s annual report.

and new product potential. as progress toward a regulatory pathway for generic biotech drugs takes shape. like that of any company.Reserve began cutting rates in order to spur a slowing US economy. rates were lowered to an unprecedented fed funds target range of 0. A company’s intrinsic value should be primarily a function of the prospective earnings to be gained from approved products and investigational compounds in development. 2011 INDUSTRY SURVEYS . so this step may rely heavily on qualitative judgments about management skill. since market cap can be artificially inflated or deflated in times when equities are priced irrationally. meanwhile. Patents provide protection Do patents adequately protect the firm’s products? In assessing a biotech company’s product portfolio. preferably targeting diseases with large patient populations for which there is still a need for breakthrough medications. The Federal Reserve has reiterated that the central bank is prepared for a protracted period of low interest rates. can lead to financial trouble. As the recession worsened throughout 2008. many biotech firms do not have commercial track records. and the possibility of recurring dilutive financing.25%. be wary of companies with limited resources that may strain their operating capabilities by trying to develop too many marginal (referred to as “me-too” products) products in disease areas that are already well served. RESEARCHING THE BUSINESS The first step in the analysis is to examine the company’s business strategy. as well as the probability of successfully developing pipeline candidates. Current patents. without adequate profit potential from other products or pipeline candidates. the loss of market exclusivity on key products. it is imperative to determine when the patents on its proprietary drugs and compounds expire. HOW TO ANALYZE A BIOTECHNOLOGY COMPANY The analysis of a biotechnology firm. Thus. Patents also protect companies by preventing potential competitors from entering certain markets. Furthermore. The issue of patent protection is poised to become a larger issue in the coming years. Although this tends to be more of a problem for pharmaceutical companies than for biotech firms. As a general rule. Standard & Poor’s believes that companies with technologies that are scientifically sound and patentable—with the potential to spawn novel product candidates and applications—offer better risk/reward profiles than those that pin their hopes on candidates that may not provide product differentiation. which could result in a low likelihood of success or limited market potential.0%–0. Products and pipeline are key What are the company’s key products and features of the company’s technology platform? A biotech firm’s product portfolio and research pipeline are essential to its success. where they remained through the end of 2010. technology. can lead to royalties if a company decides to license its technology to other firms. In contrast to companies in more mature industries. analysts sometimes have to rely more heavily on qualitative rather than quantitative methods of valuation. core competencies. making it more difficult to rely on traditional valuation measures. includes a thorough study of both business strategy and financial health. Many biotech companies are still in a developmental phase. 28 BIOTECHNOLOGY / FEBRUARY 24. biotech companies tend to have varying degrees of premiums incorporated into their share prices based on prospects for acquisition by a larger entity. In general. particularly while signs of inflation remain absent. Look for companies with a number of promising product candidates in later stages of clinical development. and market position. At the same time. Standard & Poor’s does not believe that market capitalization is an overly useful variable for measuring the success or prospects of a biotech entity.

particularly as drug safety comes under greater scrutiny. a biotech company should employ top executives who have helped develop and commercialize pharmaceutical products at large drug companies and successful biotech firms. Careful attention should be given to the terms of the deal. so it is crucial for a firm to be led by insightful and quick-thinking individuals who can adapt to volatile circumstances. Generally. success rates—in terms of developing lucrative new drugs and therapeutics—can differ markedly. Co-promotion rights are usually preferable to royalties. It is important that biotech firms choose corporate partners that are committed to seeing the product to commercialization. a key factor in future success will be the biotech industry’s ability to develop cost-effective new drugs that constitute therapeutic breakthroughs. milestone payments for achieving R&D benchmarks. as they tend to indicate the value the bigger partner places on the biotech company’s technology. It is important that the people running the company thoroughly understand and appreciate how expensive the drug development process is. Management should be credible in terms of historically meeting publicly stated goals and key development milestones. with most development-stage biotechs often spending well over 100%. Look for a track record demonstrating the ability to reach milestones. while up-front payments are generally more desirable than those tied to future R&D benchmarks. and who have established track records of allocating the company’s funds to projects offering the highest returns on investment. and royalties on sales. a significant discovery made by a small biotechnology or biopharmaceutical company may go nowhere unless the firm can find a larger partner to fund clinical trials and help commercialize the product. Such relationships can be a valuable resource for a company in its quest for new drugs. From the junior partner’s perspective. a good deal typically includes a sizable up-front fee from the bigger firm. such as vaccines. R&D funding for product development. although the smaller firm may be constrained by limited resources. 2011 29 . We like management teams that have operating experience. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. in a healthcare market dominated by managed care. Furthermore. better-funded firms tend to have the advantage of being able to afford to hire top scientists and to conduct the larger. Ideally. and may include equity. such as the federal government’s National Institutes of Health (NIH). which is increasingly important as many large pharma companies consolidate and streamline their areas of focus. Be wary of a company that consistently misses its own targets. co-promotion rights. Management strength Does the firm have experienced management? The quality and experience of a company’s management and scientific teams are very important in determining long-term success. However. The bigger. Companies with connections to the NIH often gain rights to medications or drug targets discovered by the NIH (usually in conjunction with a leading university). drugs for chronic illnesses (such as asthma and rheumatoid arthritis) that have large patient populations can provide a higher return on R&D expenditures than can one-time treatments. more costly clinical trials often required to develop new drugs. Look for companies developing drugs for illnesses that are not adequately served by current treatments. New products that provide similar results to existing therapies are unlikely to achieve great commercial success. and that have research experience and established sales infrastructure within a targeted market. The industry changes rapidly.Assessing R&D Have the company’s past research and development (R&D) efforts been productive? Most leading biotech companies spend between 15%–20% of operating revenues on R&D. Making the most of alliances Has the firm entered into any promising collaborations or partnerships? Because of the extraordinarily high costs of drug development. Many biotech companies maintain both formal and informal relationships with scientists at leading medical colleges or other organizations.

or some combination of these? Is the company gaining market share. Conversely. Regulatory compliance How effectively does the company work with the US Food and Drug Administration (FDA)? Because all drugs sold in the United States must first be cleared by this agency.and long-term trends in sales or revenues. earnings. Key elements of the income statement The income statement is central to any analysis. Size and experience can help. However. and return on equity. Because most biotech companies (about 90%) are in the developmental stages and have little to no product sale revenues. costs and expenses.  Sales. profitable biotech companies tends to resemble that of a traditional pharmaceutical firm. or just riding market growth or price hikes? 30 BIOTECHNOLOGY / FEBRUARY 24. When possible. It also gives the firm the ability to carry product development ahead on its own if necessary. and on whether the company has the resources to fully develop those products. traditional analytical techniques are of limited value. The farther along a product is in the development process. An ample cash balance will let the firm operate from a position of strength when negotiating collaborative arrangements. because many biotech companies experience extremely rapid growth following the commercialization of a new drug. acquisitions. examine the short. any one-time or nonrecurring gains from asset sales. Key metrics include revenues. margins. sales in the current period should show increases from the corresponding period in the prior year (year-over-year growth). The biotech sector goes through periods when public equity markets are not particularly receptive to funding risky ventures. can prove to be invaluable. Ideally. in an effort to prevent delays and negative surprises in the later stages. as it shows a company’s operating results over a stated period of time. increases from the immediately preceding quarter. consider how growth has been achieved. Managers hired from successful biotech or pharmaceutical firms with proven drug development experience. The larger biotech firms are usually adept at working with the agency. R&D as a percentage of sales. and/or an alliance with a strong corporate partner. Starting at the top of the income statement. while many smaller or newer firms are less proficient and often encounter major snags in obtaining approval for their products. growth in earnings per share and sales. individual company statistics should be compared with those of rival companies and the industry average. We like to see enough cash on the balance sheet to cover operating expenses for at least two years. it is critical that a firm is able to work closely with the FDA and satisfy the regulatory authority’s drug approval requirements. Such a position can safeguard a firm from becoming desperate for funding and thus being forced to accept sub-optimal value on its assets. Growth rates should be compared with those of direct competitors whenever possible. companies are involving the FDA in trial design and protocol throughout the clinical process. Increasingly. and it is important for a company to have sufficient resources to see it through such times. the greater the potential future profits the firm should be able to retain in any negotiated deal. a pertinent interim measure for relatively new products is sequential sales growth—that is. or it may be forced to curtail its R&D efforts. analysts tend to focus on the future earnings potential of products in development. Having sufficient cash on hand is important because access to financing tends to change over time. ANALYZING FINANCIAL STATEMENTS The usefulness of looking at a biotechnology company’s financial statements depends largely on whether the firm has any earnings history. 2011 INDUSTRY SURVEYS . price increases. Also. Has it been generated by unit volume gains. a financial analysis of one of the larger.Financial resources Is the company well financed? A biotech firm must have adequate funding for its development programs. For these companies.

Net profit margin equals net income as a percentage of total sales. A simplified definition of cash flow is net income (excluding special items) plus depreciation and amortization. the rest of the industry remains largely unprofitable. This is the percentage of sales remaining after subtracting all ongoing operating costs. For developmental-stage companies that have not yet produced commercial products. Royalty costs and costs related to product copromotion may be included in SG&A or another line item.  Product profit margin.  Operating profit margin. Management often does not detail such ongoing costs. less capital expenditures. Companies incur substantial costs during a drug’s R&D phase. 2011 31 . R&D. Net earnings are the bottom-line return on a company’s business. For top-tier firms. R&D spending is unusually high for the biotechnology industry in general. Calculated as net earnings as a percentage of average or ending shareholder’s equity. It reflects a company’s additions and subtractions for nonoperating income and expense items (typically interest income and interest expense). due to the complexity of manufacturing biologic drugs. since a high level of outstanding options could dilute earnings per share (EPS) if these options are eventually exercised. Gross margins generally will be lower for biotech firms than for large pharmaceutical companies. In some instances. R&D expenditures per employee.  Return on equity (ROE). expenses (such as the cost of goods sold. Investors should be aware of options grants. Sufficient investment in R&D is critical to the success of any biotechnology company. labor. These costs also should be factored in. This figure—net EPS of outstanding common stock—is important for the more established biotech firms that have achieved profitability.  Earnings per share. This ratio (net income divided by average or ending total assets) measures the return on all assets under management’s care. Projecting this figure over many years is useful for performing discounted cash flow analysis of a firm. a large portion of revenues flows to the bottom line. or R&D as a percentage of market capitalization. and overhead) tend to be very high. which will restrict net earnings and earnings growth in certain years. as well as taxes. Companies were required to expense this item on the income statement beginning in 2006. most analysts look at ratios such as R&D as a percentage of sales. This figure may vary widely because of the costs of co-promotion and royalty arrangements that often are embedded in certain expense line items. Investors should compare royalty obligations and the financial structure of collaborative arrangements between firms in order to assess the potential profitability of a drug.  Selling. once those costs have been covered. Standard & Poor’s uses the percentage of sales remaining after subtracting the cost of goods sold (COGS) and SG&A to ascertain the maximum obtainable profitability per drug. Investors should be aware of a firm’s tax rate going forward since many biotech firms will face rising tax rates as they become profitable.  Tax rate. net profit margins are usually in the range of 15% to 30%. there are also costs involved for post-marketing clinical trials to support approved products. general. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. and administrative (SG&A) expenses. In the biotechnology industry. This cash could have otherwise been used for product promotion. This is the percentage of revenues left after deducting cost of goods sold. ROE measures the return earned on shareholders’ capital.  Option expense. A significant number of options outstanding could also divert company cash to repurchasing shares in order to neutralize the dilutive effect of options. drug development. however.  Cash flow.  Return on assets (ROA). or dividends (assuming that profitable biotech firms eventually pay dividends). When comparing companies. Investors target growth and expect companies with profitable ongoing operations to meet or exceed EPS expectations.  Gross profit margin. R&D typically exceeds revenues by a wide margin. R&D.  Net profit margin.

and without near-term commercial prospects. Subtracting outstanding debt from cash balances provides a more stringent measure of a company’s actual financial strength. Determining a net present value of these assets and dividing the totals by the number of company shares can provide an estimate of a company’s stock price value. Given that most biotech companies have relatively large cash positions and low debt (they often rely on equity financings). The majority of publicly traded biotech companies remain at the development stage. if any. For biotechnology companies. we like to see at least two years’ worth of cash on hand to fund operations at the current “burn rate”—the rate at which cash is being consumed by R&D and other expenditures.  Long-term debt to capital. Analysts look at a company’s level of cash and marketable securities to assess short-term liquidity. An appropriate debt load depends largely on a company’s product lines and projected new product streams. since a number of biotech firms issue convertible notes. 2011 INDUSTRY SURVEYS . which puts the P/E ratio in the context of a company’s growth prospects rather than on an absolute basis. EQUITY VALUATION Standard & Poor’s believes that there are several relevant valuation methods for valuing biotech companies. Any meaningful degradation in the current ratio from previous reporting periods may signal a liquidity problem. biotech current ratios tend to be higher than those of other industries. This ratio is calculated by dividing long-term debt by total capital (the sum of long-term debt and stockholders’ equity). Standard & Poor’s believes it is appropriate in these cases to analyze the revenue potential for the company’s pipeline drivers and to discount their expected cash flows back to the present year at a discount rate commensurate with the risks.  Inventory. and discounting that total back to the present year at a rate that reflects the risks of the company reaching that target valuation is a widely used technique.  Current ratio. it shows the percentage of total capital that long-term debt represents. Most have not tapped the debt markets much because of their lack of cash flow to service interest payments. since current assets are readily available to be converted into cash. Simply put. dividing the P/E ratio by a company’s long-term growth rate yields a P/E-to-earnings growth (or PEG) ratio.  32 BIOTECHNOLOGY / FEBRUARY 24. A relatively low percentage indicates that the company may be less burdened than its peers in terms of debt service. Inventory as a percentage of product sales should be analyzed over time. Taking this metric a step further. Another reliable check on liquidity is the ratio of current assets to current liabilities. This ratio is generally greater than 2. Assigning that estimate with a target P/E multiple to reflect its growth prospects. For companies that are not profitable. which typically reflect the stage of development. but for which profitability is anticipated within a few years. most balance sheet analysis focuses on liquidity. Valuing these companies can be more difficult.Using the balance sheet to assess liquidity The balance sheet is a snapshot of a company’s financial condition at a specific moment in time. The proper level of cash and cash equivalents varies from company to company. For development-stage biotech companies with no earnings.  Cash. A higher-than-average current ratio indicates financial strength. Investors also must consider the amount of convertible debt outstanding. so it should be examined to determine a company’s financial health. Any sudden change in the company’s attitude toward taking on debt should be thoroughly investigated. a price-to-earnings (P/E) ratio is widely used to compare a company’s valuation versus its peers. Debt leverage varies significantly among biotechnology companies. The current ratio measures a company’s ability to pay its bills.0 for many biotech firms. A rising figure can be a warning sign. indicating that sales are falling short of expectations. it is not uncommon for a future period’s P/E estimate to be used to value that company. For the few profitable and still independent companies.

antigens. or detect genetic abnormalities known as mutations. Antigen—Any substance that induces a body’s immune response. The application must contain clinical evidence of the compound’s safety and efficacy. such as multiple sclerosis. Colony-stimulating factors—Proteins responsible for controlling the production of white blood cells. A biosimilar has similar activity and is structurally nearly identical to the biologic that it copies. Autoimmune disease—A condition. stored. Clotting factors—Proteins involved in the normal clotting of blood. serums. and plasmas are examples of biologics. representing a major therapeutic advance. There are 22 known. however. The chips are etched with genetic or proteomic information and used by researchers to analyze DNA sequences.GLOSSARY Agonist—A drug that promotes certain kinds of cellular activity by binding to a cell’s receptor. Amino acids—These molecules are the building blocks of protein. Assay—A test that measures a biological response. Vaccines. Biosimilar/biogeneric—A generic copy of a biological molecule. naturally occurring amino acids. Chemotherapy drugs—Cytotoxic drugs used to treat cancers. a biosimilar is not truly identical and therefore will require a different regulatory process than pharmaceutical generics. Chromosomes—Microscopic. biologics are medicinal preparations made from living organisms or their byproducts. Biologics license application (BLA)—The formal filing that drugmakers submit to the US Food and Drug Administration (FDA) for approval to market new biologics-based drugs. Antibody—A protein produced by certain types of white blood cells to deactivate foreign proteins. Clinical trials—Tests. ascertain gene or protein expression. Bioinformatics—A system whereby biological information is collected. where the body produces antibodies against its own tissues. and analyzed via computers and related electronic media. developed using modern biotechnology techniques. Biologics—Also known as biologic drugs. in which experimental drugs are administered to humans to determine their safety and efficacy before being submitted for regulatory marketing approval. Bioavailability—The percentage of a drug’s active ingredient that reaches a patient’s bloodstream and body tissues. typically consisting of three stages. Antagonist—A drug that prevents certain types of cellular reactions by blocking other substances from binding to a cell’s receptor. Breakthrough drug—A compound with a mechanism of action significantly different from that of existing drugs. These include: nine essential amino acids that cannot be synthesized by the human body and must be obtained through dietary intake. and 13 nonessential amino acids that can be manufactured by the body. Unlike generic chemical-based drugs. Biochip/microarray—A miniaturized technology that can be used to run hundreds of tests simultaneously. accessed. INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. threadlike components in the nucleus of a cell that carry hereditary information in the form of genes. 2011 33 .

guanine. Monoclonal antibodies—Large protein molecules produced by white blood cells. Genome—The total complement of genetic material in a cell. Growth factors—Proteins responsible for regulating cell proliferation. Investigational new drug (IND)—Regulatory classification of an experimental new compound that has successfully completed animal studies and has been approved by the FDA to proceed to human trials. genes are chromosomal segments that direct the syntheses of proteins and conduct other molecular regulatory functions. The US government provides special incentives to encourage development of such drugs. comprising the entire chromosomal set found in each nucleus of a given species. or tiers. The application must contain clinical evidence of the compound’s safety and efficacy. identifying their nucleic acid structures. New drug application (NDA)—The formal filing that drugmakers submit to the FDA for approval to market new chemicalbased drugs. and various growth factors. and thymine) and a sugar-phosphate frame arranged in two connected strands forming a double helix. Gene sequencing—A scientific technique whereby DNA strands are decoded in order to quantify the exact order of DNA’s four nucleotides (A. Formulary—A list of recommended medicines and dosages that health insurers are willing to cover. Immunomodulator—A drug that attempts to modify the immune system. and T). Increasingly. The DNA molecule consists of four nucleotide bases (adenine. NAT is faster and more accurate than more traditional screens and is being used to test blood supplies for HIV and hepatitis infection. Genomics—The study of genes and their functions. G. function. which seek out and destroy harmful foreign substances. Macrophage—A type of white blood cell that aids in the destruction of unwanted substances. Orphan drug—A drug designed to treat a rare disease afflicting a relatively small patient population (currently fewer than 200. which are defined by the extent to which payers want to encourage members to use those drugs over alternatives. Gene—The basic determinant of heredity. cytosine. Deoxyribonucleic acid (DNA)—The basic molecule that contains genetic information for most living systems. Human growth hormone (HGH)—Pituitary hormone that stimulates the growth of long bones in prepubertal children. Cytokines—A family of proteins.Combination therapy—The use of two or more drugs that together have greater therapeutic power in treating illness and diseases than either used alone. the drugs on formularies are grouped in categories. Gene therapy—The introduction of specific genes into a patient’s body to replace defective ones or to suppress the action of a harmful one. Nucleic acid testing (NAT)—A method of biological screening and diagnostic testing that entails amplifying DNA and RNA to identify diseases and infections. This method allows scientists to analyze the sequence of strands and identify specific genes embedded in DNA. Enzyme—Protein that controls chemical reactions in the body. 2011 INDUSTRY SURVEYS . and differentiation. such as bacteria or dead cells. including mapping genes within the genome. including interferons. that bind to cellular receptors and are involved in the regulation of cell function. interleukins.000 cases). and investigating their functions. C. 34 BIOTECHNOLOGY / FEBRUARY 24.

Pharmacokinetics—Analysis of a drug’s absorption and distribution in the body. Recombinant DNA technology—The process of creating new DNA by combining components of DNA from different organisms. RNAi is a method that can be used to prevent RNA from delivering its messages—in effect. silencing the gene and blocking production of the protein. with the knowledge of genes.  INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24. or RNA. its chemical changes in the body. 2011 35 . rather than the standard 10 months. plays an important role in protein production by carrying instructions from a cell’s genes (DNA) to its protein-making apparatus. proteins. such as matching a DNA sample with a particular person or detecting infections. Single nucleotide polymorphism (SNP)—A variation in the sequence of a gene due to a change in a single nucleotide. Proteomics—The study of encoded proteins and their function. PCR is used in a variety of genetic analysis settings. such as biochemistry.Pharmacogenomics—The study of how an individual’s genetic composition affects the response to drugs. Polymerase chain reaction (PCR)—A scientific technique that uses special reagents and polymerase enzymes to amplify a specific fragment of DNA into larger quantities. Usually. the new DNA is then incorporated into therapeutic substances. and single nucleotide polymorphisms. It combines traditional pharmaceutical sciences. Tumor necrosis factors (TNF)—Rare proteins of the immune system that appear to destroy some kinds of tumor cells without affecting healthy cells. Recombinant soluble receptors—Synthetic versions of proteins manufactured using recombinant DNA technology and designed to block unwanted binding of cytokines to their cellular receptors. with an emphasis on the role that proteins may play in the development of disease. Proteome—The set of all proteins expressed by a genome. and how it is stored and eliminated from the body. Scientists believe RNAi may have tremendous potential for the development of new therapies. Treatment IND—An FDA program that allows experimental drugs treating life-threatening illnesses to be made commercially available to very sick patients before the drugs obtain formal FDA approval. Priority review—An investigational drug receiving this status from the FDA will be reviewed by the agency within six months of its BLA or NDA submission. Ribosome nucleic acid interference (RNAi)—Ribosomal nucleic acid.

interpretation.org Professional association of clinical oncologists with up-todate information on cancer therapies and reimbursement.com Weekly newsletter. broad coverage of biotech news and analysis of industry trends. publishes industry statistics and information. 2011 INDUSTRY SURVEYS . specialty pharmacy and biotechnology products. The Journal of the American Medical Association http://www. Nature Biotechnology http://www. IN VIVO: The Business & Medicine Report The RPM Report: Regulation.com Semimonthly. 36 BIOTECHNOLOGY / FEBRUARY 24.mediaroom.ey. Drug Trend Report http://medco. including advancements in traditional. professional medical journal containing detailed scientific articles on medical treatments and health issues. opinions. The Biotechnology Industry Organization (BIO) http://www. http://www. an annual survey of the managed care industry’s utilization of prescription drugs.com Monthly trade magazines. and commentary on biotech news and developments.windhover.com/research/studies/ drugtrendreport Published in early 2010.nature. The second covers regulatory and political trends.com/product.com/nbt Monthly. 18th Ed. Pharmaceutical Research and Manufacturers of America (PhRMA) http://www. covers scientific and business news.INDUSTRY REFERENCES PERIODICALS Beyond Borders: Global Biotechnology Report 2010 http://www. pharmaceuticals).com Monthly.org Weekly. publishes industry statistics and information.phrma.genengnews. publishes medical research papers on a wide range of topics.cfm/481/215 Comprehensive medical word reference. with information broken down by regions of the world. BioCentury: The Bernstein Report on BioBusiness http://www. The 2010 edition analyzes developments in 2009.com/pubs Detailed information on various diseases and medical conditions. and issues of importance to the industry. academic institutions. Genetic Engineering & Biotechnology News http://www. Express Scripts: 2009 Drug Trend Report http://www. analysis.com Annual report on the global biotechnology industry. including a section on specialty pharmacy and biotechnology products. medical devices.biocentury.bio. New England Journal of Medicine http://www.com Weekly.stedmans.asco. 28th Ed. TRADE ASSOCIATIONS American Society of Clinical Oncology (ASCO) http://www. as well as therapeutics used to treat them.com Published by Medco Media Center. Stedman’s Medical Dictionary.the-scientist.nejm.jama.expressscripts.org Represents biotech companies. and state biotech centers in legislative and regulatory affairs. as well as commentary from industry experts and physicians. encompasses biotech news and trends.org Represents prescription drug firms in legislative and regulatory affairs. Market Access http://www. The first covers pertinent issues in the healthcare industry (biotech. BOOKS The Merck Manual of Diagnosis and Therapy. Policy. and research articles. with a focus on company-specific stories. http://www. an annual survey of the managed care industry’s utilization of prescription drugs.merck. The Scientist http://www.

part of the Centers for Disease Control and Prevention (CDC). hospitals. and utilization INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24.gov A centralized database operated by the National Institutes of Health. pharmaceutical. The Pink Sheet http://www.com Site that provides daily stories on industrywide. National Center for Health Statistics (NCHS) http://www.com Market research firm providing prescription and sales information on pharmaceutical and biotechnology medications. which is a vast source of information on cancer treatments and research trends—can be accessed through the NIH main website. Health News Daily http://www.clinicaltrials. European Medicines Agency (EMEA) http://www.com/index. and policymakers improve the quality and efficiency of pharmaceutical development.healthnewsdaily.com A centralized bioscience-specific “hub” site providing upto-the-minute biotechnology and pharmaceutical developments.europa. and research institutions in the United States and abroad. regulatory. trade and regulatory coverage of the pharmaceutical and biotech industries. review. It conducts research in its own laboratories and supports research by scientists in universities.GOVERNMENT AGENCIES Centers for Medicare & Medicaid Services (CMS) http://cms. Signals: The Online Magazine of Biotechnology Industry Analysis http://www. Decision News Media SAS http://www.emea.html Weekly newsletter. OTHER SOURCES IMS Health Inc.’s online magazine covering biotech industry trends. medical schools. ClinicalTrials. and company-specific news.biospace.inpharmatechnologist. listing information on thousands of public and private clinical drug trials. CMS also regulates laboratory testing and oversees the certification of nursing homes and continuing care providers. Tufts Center for the Study of Drug Development http://csdd.gov/nchs The US government’s principal vital and health statistics agency.gov http://www.signalsmag. regulators.edu A nonprofit academic research group (affiliated with Tufts University) that provides strategic information to help drug developers. http://www. National Institutes of Health (NIH) http://www.drugresearcher.nih.com http://www.cdc. 2011 37 .gov Part of HHS.eu Regulatory body responsible for approvals and oversight of medications in the European Union. completed or ongoing.com http://www.imshealth.gov Federal agency charged with supervising the US food.fda.elsevierbi. as well as links to other sources of biotech information. All of its 27 institutes—including the National Cancer Institute. the NIH is the primary federal medical research agency.tufts. in the United States.com Recombinant Capital Inc.com Breaking news on drug research and development. and biotechnology industries. Food and Drug Administration (FDA) http://www. part of the Department of Health and Human Services.hhs.gov This division of the United States Department of Health and Human Services (HHS) administers the Medicare program and works with the states to administer Medicaid and the State Children’s Health Insurance Program (SCHIP). ONLINE RESOURCES Biospace.

364 3.6 216.3 2.2 1.6 11.2) (41.746.318 2007 442 49 2.5 175.7 140.2 16.0 1.2 1.015.9 2.7 918.0) 2009 438 136 3.003 362 17 48.343.F 115.9) 12.5 174.187.3 1-Yr.290 Index Basis (1999 = 100) 2008 449 76 3.1 377.Some or all data are not available.4 355.8 551.COMPARATIVE COMPANY ANALYSIS — BIOTECHNOLOGY Operating Revenues Million $ Ticker Company Yr.850 150 218 113 412 223 153 182 8 ** NM 49 1.2 6.5 D.2 A 234.0 D 1.6 A 1.4 A 169.0) (22.973.0 5.1 4.771.9 3.1 (6.2 455.250.827.7 63.1 178.6 1.471.683.9 59.5 A 279.254 NA 430 1.0 52.6 2.9 510.274 3.1 18.4 A 249.974.201.0 9.0 172.5 NM NA 21.1 A 234.3) 469.4 A.881 10.3 A 562.937.2 D 841.416.5 A 1.2 15.413 184 59 36.688 5.335.1 761.2 379.787.1 30.4) 7.6 F 1.0 15.5 2.0 371.620.5 NA 88.192.6 3.7 A 1.211.8 352.104.Includes sale of leased depts.007.7 25.109.4 A 1.6 A 1.3 464.6 102.4 ELN ELAN CORP PLC -ADR DEC 820.1 96.8 86.9 A.1 43.2 87.8 117.503 5.5 327.1 135.3 142.2 F 1.Data exclude discontinued operations.586 318 380 62 215 95 512 151 162 98 203 214 1.5 25.C 2.3 8.1 A 259.750.3 39.552 192 109 26.4 238.372 185 334 142 519 283 425 224 1.1 (28.8 47.181.6 3.Includes other (nonoperating) income.0 A.3 185.9 48.4 1.633.802 162 358 133 468 290 409 213 2.0 A 72.8 NA 0.4 (2.8 2.7 2.4 A.9 16.Includes excise taxes.5 A 4. **Not calculated.4 2004 10.C 1.8 C 194.237.7 27.381 394 383 65 266 52 561 197 189 119 231 486 1.4 217.7 202.028.247. §Company included in the S&P SmallCap 600.8 13.403 1.3 F 73.0 113. data for base year or end year not available.0 54.0 A 3.6 D 1.0 13.962.1 A 252.0 1.3 2005 12.0 29.4 A 345.7 F 0.774.037.5 D 1.3 1.784.0 A 6.1 2006 14.262.6 A 93.101 ** 725 3.772.7 346.9 157.0 25.9 ENZN ENZON PHARMACEUTICALS INC DEC 184. C .9) 49.504 ** 600 2.246.791 4.1) 2.0 14.0 1.876 168 263 131 468 246 394 209 384 ** NM 51 1.9) (12.498.331.6 182.8 (2.5 A 658.5 80.430 3.6 A 1.3 A 829.8 ALNY ALNYLAM PHARMACEUTICALS INC DEC 100.0 1.9 1.9 A 1.1 A 291.414.215 4.6 130.9 (1.5 AMLN AMYLIN PHARMACEUTICALS INC DEC 758.211.065.0 10.3 A 1.049 2.1) (51.268.F 159.6 15.4 86.C 1.206.734.430.0 8.8 1.564 347 331 69 321 52 613 220 218 176 311 579 2.340.3 19.1 A 1.171.3 4.8 (14.2 68.9 66.745 691 4 64.3 (0. B .7) 7.0 169.3 1.515.461.1 (6.2 24.5 A 671.4 A 68.4 (10.3 34.7 2.8 250.6 294.6 96.2 42.0) (9.7 90.1) LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNA TIONA L INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNA TIONA L CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC A A A.1 302.0 A.687.4 258.1 16.7 45.200 3.263.0 89.6 41.473.4 1.546.2 4.8 101.2 1.754 139 193 108 343 197 107 164 6 NA NM 42 1.9 1.5 9.9 367.9 5.6 31.411 171 621 2006 427 36 2.6 109. ‡S&P 1500 index group.0 D 1.405.813.7 D 166.8 2008 15.324.6 52.This year's data reflect an acquisition or merger.6 377.3 102.9 497. 15.6 13.9 199. (2.9 1.946 5.8 A 1.2 F 281.8 A.5 10.9 8.422.0 7.1 82.5 320.631.6 118.2 (6.5) 20.230.6 1.9 A 98.3 43.5 A 1.8 (6.613 428 367 60 230 95 483 170 168 90 202 319 1.4 29.550.9 A 1. D . 6. E .2 3.5 77.158. H .198.6 A 385.This year's data reflect an accounting change.9) NM 38.6 48.0) 12.5 4.1 A 270.3 1.6 1999 3.202.812.3 52.F 219.406.5 2. CAGR-Compound annual growth rate.7) 26.3 42.9 A 1.181.501 ** 711 4.5 NM 47.6 5-Yr.F 210.7 766.5 3.2 4.4 35.8 4.3) 14.5 (1.9 327.1 34.0 516.4 215.9 257.026.4 11.6 6.0 1.062 ** NM 81 1.1 4.099 4 84.8 13.9 A 44. due to a fiscal year change.828 202 338 54 325 49 548 237 223 202 219 471 4.677.0 NM 85. F .1 5.5 D.5 (2.6 9.280.8 56.538 4.4 NA 635.629 1.9 760.5 D.6 1. A .9) 18.163.9 781.2 44.5 1.4 47.139. BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .5 426.793.1 F 1.2 2.5 A 481.3 7.0 16.7 (18.9 A 120.5) 9.122.149 5.473.9) 31.9 3.472 8.498.6 A 5.4) 78.F 1.5 D 35.377.0 16.404.497 197 1.3 5.5 2.898 3. []Company included in the S&P 500.1 A 1.973.0) (29.3 4.280.5 1.4 10. #Of the following calendar year.698 2.7) (4.569.9 1.0 A 1.0 306.5 223.575.6 A 2007 14.003.0 898.F 1.090.8 19.5 (12.5 (9.3 1.1 678.605.411 105 451 2005 372 285 2.0 1.0 14.6 26.6 D 2.2 5.791.6 178. G .382 ** NM 76 1.0 D.8) (6.6 HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN 275.5 536.5 348.158 5.1 31.0 Note: Data as originally reported.0 26.0 549.0 50.056.3 161.8 196.0) (5.3 3.2 7.420. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC 2009 14.C D † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP 264.4 333.6 4.764.This year's data reflect a major merger resulting in the formation of a new company.594.011.0 10.C 443.5 39.7 D 1.638 ** 502 1.0 F 369.2 1.9 3.281.8 114.1 49.7 3.4 A 50.8 D.053 2.3 5.2 D 704.2 13.4) 12.6 1.8 125.710 10.5 23.0 A 1.124 1.8 A 133.1 (3.7 11.6 433.5) (9.4 373.642.7 152.7 A 568.2 A 1.4 7.C 1.9 C 160.8 1.5 A 7.8) 2.482.481.3 2.1 7.6 4.3 OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 386.3 2.728.5 1.097.0 6.6 184.363.7 326.396 8.5 (3.230.4 185.5 A 1. †Company included in the S&P MidCap 400.5 A A D D BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC CAGR (%) 10-Yr.1 83.263 78 326 27.0 A 1.058.8 41.0 455.2 840.4 8.9 1.023.4 18.

9) 83.0) 14.4 (191.169 359 252 327 485 632 NM 264 NM ** NM (48) NM NM NM Index Basis (1999 = 100) 2008 383 NM 1.0 41. BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .Net Income Million $ Ticker Company Yr.2 175.8 (16.9) 693.6 (67.0 (53.2 (89.6) (49.3 8.363.3) 4.0 65.0 93.7 322.2 NM NA NM NM NM NM NM BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC CAGR (%) 5-Yr.9 218.1 776.1 37.8 NM NM NM NM NM NM 61.9) (39.7 (35.9 41.8 (0.3 790.2) 29.0 13.3 18.2) 66.7 HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN 5.6 10.2) 20.9 NM 7.6) (218.7 (14.1 (92.533.7) 1.437.6 31.5) 33.9) 47.9 15.2) 47.8) (58.9) (40.3 7. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC 2009 4.4 (6.7 12.6 988.1 17.7) (244.2 226.0 119.0 11.9) 89.0 29.6 175.7 6.7 (15.1 20.6 14.0 (53.6 31.1 (262.6 28. []Company included in the S&P 500.1 2.0) 144.7 71.9) (307.8) (17.4) 6.5 NM NM NM NA 9.0) 157.5) (25.9 (103.8) (23.6) 10.7 63.6 45.3 7.0 (13.605.2 37.1 22.3 2.0 35.096.3 32.011.635.2) (2.4 12.5 118. **Not calculated.8 (73.4 6.9) 15.7 421.3 (13.5 169.0 13.9) (408.7 NM NM NM 16.950.5 5.955 371 239 472 566 511 NM 219 NM ** NM (198) NM NM NM 2006 269 NM 495 NM NM NM ** (9) NM NM NM (11) NM NM NM 281 881 (3) 731 316 125 (240) 157 110 (2.2 (242.0 (207.1) 13.9) NM NM 4.5) 74.6 17.2) 19.3 156.6 349.0 (50.3 (6.4 (166.1) 970.5 66.8 141.3) 12.8 2007 3.6) 1999 1.6) 5.6 (13.3 92.4 NM 36.1 422.9 (33.3 7.1 7.8 97.2) 213.2 851.7 136.8) 508.0 144.4) (40.1 52.6 88.1 105.7 (175.2 NM NM 22.8 20.9 NM 54.1) (32.6 0.5 33.7 NM 23.0 (105.3 (1.1 NM (10.4 NM NM NM NM NM 184.3 (95.2 (21.5 37.2) (42.7 140.2) (23.2 (1.2) (368.8) (459.815 NM NM NM ** 238 NM NM NM (600) NM NM NM 135 764 21 (3.9 52.0 89.6 268.6 (110.6) 122.5 23.7 15.5) 142.9) (206.3 133.7 69.9 (391.0 36.3) 15.9) 0.7) (157.4 30.9 (35.4 85.9) 783.7 10.3) ENZN ENZON PHARMACEUTICALS INC DEC 0.2) (38.0 (4. data for base year or end year not available.4 6.4) (35.5 813.3) 1.1) 7.2 144. §Company included in the S&P SmallCap 600.3 Note: Data as originally reported.0 (108.7) 222.7 132.190.5 3.1) 512.6 172. 14.0 66.9) (31.8) (1.7 31.4) 22.981 226 (225) 235 455 397 NM 165 NM NA NM 151 NM NM NM LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNATIONAL INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNATIONAL CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 295.1) 50.3) 15.9) (13.248 NM NM NM ** 239 NM NM NM (655) NM NM NM (6) 1.2 1. #Of the following calendar year.8 163.5) (34.8 52.8 441.3) (48.6 (14.6 (12.1) (665.0 (203.7) (83.2) 125.5) 11.3) 196.8) NA 176. 9.3 (251.479 NM NM NM ** 271 NM NM NM (355) NM NM NM 125 793 (35) 920 384 159 (204) 289 242 1.8 64.8) (76.7 130.9 (66.5) (211.9) 19.0) 2006 2.0) 10-Yr.3 178.3 2008 4.1 (74.9 (522.166.0 (47.9 55.8) (90.4 (2. 15.4 111.6 9.4 28.1 (26.4 10.0 15.4 166.1 187.196.5) 160.2 NM 10. CAGR-Compound annual growth rate.615.2) (26.3 222.3 (25.0 77.3) (85.7) 48. †Company included in the S&P MidCap 400.1 779.2) (1.8 40.7 73.4) (35.866) 328 151 417 542 440 NM 182 NM ** NM (122) NM NM NM 2005 335 NM 372 NM NM NM NA 250 NM NM NM 43 NM NM NM 28 662 (290) 829 261 160 46 291 138 1.5 449.2) (315.0 NM (18.5 131.5 103.2) 382.2 14.5 (23.9 480.3) ELN ELAN CORP PLC -ADR DEC (162.2 ALNY ALNYLAM PHARMACEUTICALS INC DEC (47.3 42.8 98.6 126.3 98.7 (82.0 (36.0 108.5) (14.8 28.8) (42.0) (23.050) 429 185 (164) 474 380 450 422 414 445 649 622 NM 264 NM ** NM (10) NM NM NM 2007 289 NM 1.2 9.9 45.0 103.8 (10.9 NM 4.7 48.5 6.8 2009 420 NM 2.5) 157.0) 2004 2.0 NM (57.5) NM NM 1-Yr.4 (17.8 (4.3 323.0 (7.3 (1.5 7.5) (41.7) 8.3 31.6 NM NM NM NM (30.5 (642.2) (10.4) 43.7 3.2) 2005 3.9) (42.4 224.5 (191.8 23.3 202.4) NA (30.1 45. ‡S&P 1500 index group.7 38.5 86.4 47.6 39.6) (239.6) 335.0 202.9) 25.674.7 342.1 NM NM NM NM NM NM NM NM 28.4) 638.8 108.9 16.0) (31.7) 25.4) 65.3 NM 107.2 145.6 79.1 198.234 27 650 384 195 (362) 202 197 2.7) 21.6) AMLN AMYLIN PHARMACEUTICALS INC DEC (186.2 (131.1 15.6 638.

3 33.2 3.9 NM NM 5.9 28.0 5.2 0.4 10.8 5.1 17.6 2.1 NM NM 30.6 13.2 8.4 2.2 14.4 21.4 17.2 29. ‡S&P 1500 index group.6 17.6 16.9 8.1 16.4 NM 9.5 12.3 NM 9.1 40.1 23.1 7.7 NM 2006 9.3 2.3 17.4 NM NM 38.3 24.8 NM 23.5 NM 24.1 NM NM NM 1.2 9.3 5.2 4.5 NM NM 46.4 8.4 21.0 31.3 5.4 16.0 1.0 NM NM NM NM NA 122.6 10.9 12.5 4.8 NM 2005 18.0 NM 18.4 9.4 NM NM 3.6 NM 7.0 4.9 4.8 10.9 9.6 0.7 8.8 NM 4.0 6.5 3.6 9.5 6.2 NM NM NM NM NM NM 4.3 14.1 22.1 NM 9.9 NM LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNATIONAL INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNATIONAL CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC NM NM 8.1 NM NM NM Note: Data as originally reported.7 10.1 7.7 NM NM NM NM 2007 21.4 9.0 16.2 NM 28.2 6.4 17.5 12.3 12.9 40.4 NM 16.9 NM NM 12.6 2.1 9.9 56.4 HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN 2.9 NM 13.3 20.8 4.5 NM NM NM NA NA NM NM NM NM NM NM 29. []Company included in the S&P 500.3 NM 14.4 9.4 NM 8. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC 2009 31.5 15.5 NM 5.6 5.2 32.5 17.5 NM 37.1 2. BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .2 NM 5.4 NM 20.7 NM NM NM 0.6 NM NM 3.5 12.7 29.3 NM 2005 29.8 7.8 4.2 13.9 39.5 28.5 11.0 68.1 NM NM NM 46.3 NM 20.2 NM NM NM NM NM 11.0 3.7 18.6 3.0 15.2 18.1 NM NM 2.4 7.6 NM 1.6 6.8 5.4 NM Return on Equity (%) 2008 21.1 6.9 NM 2.7 2.3 42.5 2.1 19.0 7.1 5.2 4.8 6.1 37.0 † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 76.0 14.1 3.2 NM 11.4 9.7 NM NM NM NM 2007 17.1 NM 11.5 4.5 26.5 12.2 2.0 NM NM NM NM 20.5 11.8 NM NM NM NM NM 14.2 31.8 2.1 9.7 19.3 18.1 19.6 27.0 5.1 NM 16.5 3.9 NM 13.6 14.7 51.7 37.3 NM 2.3 NM NM NM NM 44.0 NM NM NM NM NM 18.6 NM 12.5 24.7 13.3 19.7 12. #Of the following calendar year.3 NM 9.3 10.3 8.3 NM 2008 28.0 NM 7.3 14.8 4.3 14.1 NM 6.8 9.3 17.7 11.6 42.3 11.8 18.1 NM 11.6 6.8 16.5 6.4 2.3 7.9 6.0 10.6 4.5 10.3 ALNY ALNYLAM PHARMACEUTICALS INC DEC NM AMLN AMYLIN PHARMACEUTICALS INC DEC NM ELN ELAN CORP PLC -ADR DEC NM ENZN ENZON PHARMACEUTICALS INC DEC 0.1 8.5 2.6 13.4 1.2 8.8 NM 15.9 17.2 6.6 5.4 17.4 NM 14.4 15.6 10.8 NM 9.4 NM 12.0 1.2 NM 10.5 13.6 50.3 5.6 NM 12.5 56.1 22.9 5.3 1.3 5.3 6.1 7.5 NM 7.2 3.1 NM 2009 21.8 NM 6.7 NM NM NM NM NM NM 11.8 13. §Company included in the S&P SmallCap 600.5 24.4 37.2 NM 2005 12.6 38.7 NM 3.3 NM 4.5 NM 22.4 11.1 14.8 61.9 3.7 9.9 9.8 NM 15.9 4.5 12.2 20.3 3.6 36.1 NM 23.3 11.3 9.0 NM NM 3.3 6.6 11.5 11.1 52.5 31.1 NM NM NM NM 2007 9.2 3.7 NM 8.7 8.0 7.2 9.8 NM NM 5.0 9.2 5.9 NM 2006 15.0 NM 19.3 NM 7.3 5.7 4.9 3.1 16.4 10.4 20.0 5.0 NM NM NM 63.3 39.6 11.1 NM 2009 12.9 2.5 21.8 1.4 21.5 NM 15.4 NM 11.Return on Revenues (%) Ticker Company Yr.6 3.4 NM 11.0 NM 6.4 NM 2006 20.4 NM NM 18.2 9.6 6.5 NM NM 19.9 82.8 27.4 7.7 12.4 6.8 6.9 18.9 8.1 7.5 3.9 10.4 NM 69.8 14.6 11.5 26.4 7.7 4.3 NM 9.5 4.6 NM 19. †Company included in the S&P MidCap 400.6 38.9 6.8 8.4 2.0 7.0 NM BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC Return on Assets (%) 2008 11.8 NM 4.9 22.7 27.8 NM 2.1 27.5 NM NM 2.7 15.3 10.8 7.7 6.1 7.2 NM 11.4 NM NM 9.4 6.1 7.7 NM 9.3 NM NM 7.0 NM NM NA NM NA 12.1 4.5 6.4 NM 2.2 10.7 18.7 15.6 NM 6.0 5.2 37.1 41.2 10.7 12.6 3.5 NM NM NM NM NM 119.4 NM 9.1 3.9 21.5 19.9 17.8 11.9 12.0 NM 3.3 12.3 15.4 NM NM 6.0 18.8 10.0 18.8 10.0 NM 17.2 NM 10.0 NM NM 12.2 11.1 4.9 8.1 14.

0 NM 66.2 0.7 5.0 638.8 71.2 47.5 2.5 1.3 0.4 0.0 73.0 0.6 128.5 82.0 229.8 11.4 0.6 0.0 116.0 0.7 28.8 24.0 15.7 23.8 BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC Debt / Capital Ratio (%) 2008 30.0 0.9 1.8 3.7 1.0 97.5 2.1 8.5 146.4 8.7 159.6 29.0 350.7 2.3 78.5 37.1 7.2 0.3 0.7 0.6 2007 33.0 12.0 1.4 0.9 0.2 4.0 19.8 28.1 5.3 8.0 3.1 2.4 134.8 1.7 26.3 2.3 35.0 54.0 4.7 0.0 0.5 2.9 89.6 4.0 1.0 51.1 23.0 0.0 14.0 4.6 2.9 66.6 2.0 0.4 0.5 44.5 11.3 4.5 138.9 9.9 6.4 ALNY ALNYLAM PHARMACEUTICALS INC DEC 2.6 102.7 2.5 NM 0.0 0.7 0.2 6.4 5.5 0.1 0.1 2.9 7.1 34.0 9.3 34.2 0.0 0.2 17.4 1.8 1.0 0.5 5.3 9.9 1.1 36.8 3.4 90.2 63.3 37.9 2.1 NM 11.0 61.1 5.2 2.3 2.3 75.4 2.4 10.0 54.7 14.0 0.0 18.3 62.6 38.8 2.8 50.7 4.9 3.1 11.5 42.0 0.2 0.7 6.3 116.6 0.4 40. †Company included in the S&P MidCap 400.0 37.0 58.5 1.0 132.7 579.1 3.0 52.9 37.3 0.6 75.1 4.6 0.2 48.9 146.0 0.5 45.3 1.1 1.4 41.0 0.1 1.7 4.0 10.6 1.0 0.6 0.7 5.2 73.3 1.8 2009 31.0 96.5 14.0 68.9 0.8 29.9 15.7 0.5 8.5 2.0 10.8 47.5 3.0 9.8 2.5 3.6 5.9 9.7 188.0 70.4 2.0 21.8 85.0 116.4 3.8 15.1 1.1 42.1 4.6 0.2 55.8 32.5 2.5 194.5 1.4 1.0 71. #Of the following calendar year.4 116.0 0.5 4.2 40.7 2.5 170.0 3.8 43.4 9.4 86.0 166.0 0.9 8.3 1.5 56.0 0.8 7.5 46.5 12.0 2006 27.3 4.4 8.8 35.4 3.1 4.9 0.0 32.5 ELN ELAN CORP PLC -ADR DEC 4.0 8.9 208.0 6.3 64.0 0.1 3.0 86.7 30.6 14.0 0.4 66.1 99.9 71.2 2.5 1.2 2.5 4.8 8.9 Debt as a % of Net Working Capital 2008 88.0 0.0 28.2 0.5 1.4 2.1 0.0 0.8 103.8 88.8 39.9 16.0 291.0 0.6 0.0 0.8 0.3 1.7 1.6 90.9 0.2 8.9 169.2 35.0 0.0 0.0 0.4 4.9 2.3 3.0 58.1 32.0 60.2 LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNATIONAL INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNATIONAL CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC 5.3 32.5 2.8 2005 15.5 2006 1.7 1.9 9.9 1.9 1.2 0.2 3.0 0.1 1.1 0.5 2.9 11.8 1.7 2.6 82.7 AMLN AMYLIN PHARMACEUTICALS INC DEC 2.6 0.0 0.9 4.0 2007 2.5 1.3 2.3 12.6 37.0 74.8 0.8 3.4 7.0 36.8 180.6 3.3 144.2 2007 133.7 34.3 101.8 75.4 0.0 Note: Data as originally reported.0 65.9 2.3 65.5 0.5 2.1 8.0 0.0 0.3 12.2 0.9 3.7 5.0 58.4 NM 115.2 0.0 41.3 1.1 0.0 89.6 0.5 1.0 2009 70.0 3.6 0.0 0.6 1.9 3.6 260.9 2.0 10.5 3.9 158.5 ENZN ENZON PHARMACEUTICALS INC DEC 5.5 11.5 2.6 2008 3.3 134.0 28.1 83.1 2.2 181.2 49.1 0.4 0.8 1.0 6.0 17.4 0.0 4.0 0.6 3.0 85.0 63.8 8.6 18.0 0.0 0.2 2.4 128.5 5.0 0.5 45.5 77.7 1.6 51.8 0.0 0.0 0.8 0.2 38.1 2005 2.0 120.3 6.7 1.5 156.0 0.9 0.0 118.0 10.8 HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN 4.8 † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 4.1 0.3 0.3 2.2 9.8 0.8 14.8 3.3 0. []Company included in the S&P 500.0 39.0 0.0 0.0 0.9 250.6 2.0 0.6 8.8 0.2 174.0 395.6 1.4 53.3 0.5 0.7 58.9 48.6 20.6 57.0 0.0 0.4 2.5 15.3 177.8 246.6 3.0 3.1 0.0 0.6 5.5 12.0 0.8 NM 166.3 3.3 56.0 3.7 4.2 84.1 226.9 23.3 1.3 0.6 2.4 10.0 13.6 2.7 36.0 72.3 2.6 5.2 1.6 1.2 2.0 0.8 3.0 0.1 0.4 1.7 0.6 1.3 121.0 0.5 61.0 2006 152.8 60.9 NM 102.0 0.6 1.4 161.0 36.0 43.2 114. BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .1 333.4 3.6 3.4 1.Current Ratio Ticker Company Yr.4 NM 0.4 36.0 71.4 64.2 37.8 4.5 5.2 3.9 144.6 0.7 2.5 4.1 1.7 1. §Company included in the S&P SmallCap 600.2 5.1 0.4 161.4 44.4 74.8 8.3 1.0 24.3 2.3 460.1 2.8 0.0 24.4 1.6 20.0 0.5 7.8 25.4 3.2 0.7 5.8 136.3 7.2 0.0 90.2 6.7 19.8 2.2 112.4 163.3 4.0 245.4 1.5 0.8 0.7 12.8 2005 70.0 61.0 0.7 4.0 34.8 42.1 51.0 15.6 0.4 46.0 1.2 3.7 6.2 0.8 0.0 241.0 2.8 3.2 2. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC 2009 4.3 0.0 0.1 52.9 209.0 0.6 2.9 128.0 0.9 46.0 12.1 63.4 48.7 86.7 1.6 9. ‡S&P 1500 index group.6 2.

0 0.64 NM .22 28 .0 0.3 1.10 29 .0 - 0.0 0.0 0.0 0.0 0.53.0 0.69 NM .0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 NM .0 0.24 23 .0 0.0 Dividend Yield (High-Low.NM 22 .0 0.10 NM .0 0.NM 48 .0 0.0 0.22 17 .0 0.0 0.5 0.0 0.14 NM .0 0.Price / Earnings Ratio (High-Low) Ticker Company Yr.0 0.0 0.0 0.17 10 38 53 26 35 NM NM NM NM 5 7 37 16 20 NM NM NM NM 2007 27 .6 0.0 0.0 0.NM NM .0 0.0 0.NM 79 .0 2.0 0.0 2007 0.0 0.0 0.4 0.19 30 .NM 35 .7 0.0 0. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC 2009 14 .4 0.74 NM .NM NM ELN ELAN CORP PLC -ADR DEC NM .0 0.0 0.0 0.9 0.NM 28 .10 NM .NM NM .0 0.0 NA 0.0 0.0 0.0 0.2 0.0 0.16 NM .0 0.0 1.0 0.0 0. %) 2008 0.0 0.0 0.0 0.0 0.12 35 .NM 16 .0 0.0 0.NM NM .0 0.0 0.0 0.0 0.NM NM .0 0.21 35 . ‡S&P 1500 index group.NM 25 .0 0.0 0.0 0.9 0.0 2006 0.0 0.0 0.0 0.0 0.20 40 .63 NM .0 0.3 0.18 NM .0 0.0 1.0 0.0 0.0 0.0 0.0 0.0.0 0.15 NM .0 0.0 0.0 0.0 0.0 0.0 0.0 0.NM NM .0 0.0 0.NM NM .0 0.NM 20 8 33 .0 0.0 0.0 0.0 0.0 0.0 0.NM NM .0 0.0 0.NM 25 .0 0.21 37 .35 69 .0 0.0 0.0 0.NM 30 22 42 28 31 20 6 32 18 20 2006 32 .0 0.0 0.NM NM .0 0.13 NM .0 0.0 190.0 0.0 0.0 0.0 0.7 0.0 0.0 0.18 NM .6 2.0 0.0 0.0 0.NM NM .0 0.0 2005 0.0 0.0 0.0 0.0 0.0 0.NM 21 . BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .0 0.0 0.0 0.0 0.0 0.0.20 25 8 65 21 24 26 25 25 24 19 28 9 11 14 15 16 15 9 NM .NM 29 .0 0.0 0.0 1.0 0. §Company included in the S&P SmallCap 600.0 0.0 0.26 NM .0 0.NM NM HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN NM 32 11 15 57 NM NM NM NM NM NM NM NM 5- NM NM NM NM 3 NM NM NM NM 19 - NM NM NM NM 13 NM NM NM 24 NM - NM NM NM 2 NM 0 NM NM NM 0 0 0 0 NM NM NM NM NM 0 NM NM NM NM 0 NM NM NM NM NM NM 0 NM NM NM NM NM 0 NM NM NM 0.0 0.0 0.0 0.22 25 .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.18 33 .NM BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC Dividend Payout Ratio (%) 2009 0 NM 0 0 0 0 0 0 0 0 NM NM 0 NM 2008 0 NM 0 NM 0 0 0 0 0 0 NM NM NM NM 2007 0 NM 0 0 NM 0 0 0 0 0 NM NM 0 NM 2006 0 NM 0 0 0 NM 0 NM NM 0 NM NM 0 NM 2005 0 NM 0 0 NM NM NA 0 0 0 NM 0 0 NM 2009 0.0 0.NM 84 .0.18 41 8 NM .15 NM .0 0.0 0.0 0.0 0.0 0.0 0.0 0.36 NM .0 0.0 0.0 0.32 NM .0 0. #Of the following calendar year.0 0.0 0.0 0.0 0.0 - 0.0 0.NM 26 .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.12 24 .0 0.0 0.0 0.0 0.69 22 .0 - 0.0 0.19 NM .0 0.0 0.NM LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNATIONAL INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNATIONAL CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC NM .70 NM .0 0.0 0.2 1.0 0.NM 2005 29 .0 0.32 32 .0 0.0 0.NM 54 .0 .19 NM .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0. †Company included in the S&P MidCap 400.0 0.0 0.16 NM .0 0.0 0.0 0.0 0.NM NM .NM 12 8 22 .0 .0 0.0 0.43 NM .0 0.6 0.0 0.35 29 .0 0.0 0.0 1.14 NM .0 0.0 0.20 28 .0 0.0 0.0 0.25 NM .0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.33 NM .0 0.0 0.0 0.21 NM .NM NM .0 0.0 0.0 0.0 † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 14 9 NM ALNY ALNYLAM PHARMACEUTICALS INC DEC NM .0 0.0 0.0 - 0.0 0.NM NM AMLN AMYLIN PHARMACEUTICALS INC DEC NM .0 0.32 37 9 35 .22 NM .0 0.0 0.0 0.9 1.0 0.0 0.0 0.0 0.0 0.0 0.6 .NM 67 .0 0.0 0.0 0.0 0.17 36 26 29 20 19 19 NM NM 0 0 0 0 0 NM 0 0 0 0 0 35 48 27 0 0 NM 0 0 0 NM 0 0 NM 0 0 0 0 0 26 27 0 0 0 0 0 0 NM 0 0 0 NM 0 0 0 0 0 25 14 0 0 0 NM 0 0 NM 0 0 0 NM 0 0 NM 0 0 29 8 0 0 0 0 0 0 NM 0 0 0 0 0 0 0 0 NM 55 46 0 0 0 0.0 0.3 0.0 0.51 NM .0 0.0 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.17 NM . []Company included in the S&P 500.0 0.0 .0 0.0 0.1 0.NM 28 .0 0.0 - 0.0 0.0 - 0.1 0.0.0 0.0 0.0 0.0 0.19 33 .0 0.0 0.0 0.0 0.0 0.NM 19 .0 0.0 0.0 0.0 0.0 0.6 0.0 0.0 0.0 1.0 0.0 0.2 2.0 0.0 0.0 0.0 0.10 20 4 24 .0 - 0.0 0.NM NM .0 0.NM 41 .0 0.0 0.0 0.0 0.0 0.15 NM .0 - 0.0 0.0 2.0 0.6 3.19 28 .0 0.0 0.0 0.0 0.11 18 26 47 18 26 10 9 30 14 13 2008 17 .7 0.0 0.0 0.0 0.0 0.0 0.NM NA .0 0.NM 42 .NM 39 .0 0.0 0.0 0.NM 15 .NM 32 .23 NM .0 0.0 0.0 0.0 0.0 0.14 42 .0 NA 0.0 0.0 0.0 0.0 0.NM NM .NM NM .NM NM .0 0.0 .0 0.0 0.7 0.4 0.0 0.14 21 .NM Note: Data as originally reported.0 0.NM NM ENZN ENZON PHARMACEUTICALS INC DEC NM .NM NM .0 0.0 0.0 0.12 NM .0 0.9 0.0 0.0 0.NM 38 8 26 8 NM 19 31 28 31 31 27 25 63 10 5 12 13 22 11 10 NM .0 0.0 0.0 0.0 0.0 0.NM 47 .23 36 25 38 27 31 33 34 31 20 16 20 19 22 25 24 18 NM .0 0.2 1.0 0.0 NM .17 31 .22 32 55 24 24 35 17 58 .0 0.0 0.NA 45 .0 0.0 0.0 0.0 - 0.47 NM .0 0.0 0.0 0.

The accuracy and completeness of information obtained from third-party sources.95) (1.52 8.52 54.79) 3.96) 1.33) 0.33 3.26) 2.95 37.24 12.22 1.67 .40 47.55) 8.26 2.37 1.07) 1.37 45.84 26.86 2.78 14.85 52.95 40.57 2.02 0.08 83.24 31.05 30.27 3.47 12.45.89 4.60 (1.83 (5.34 51.36 42.39 4.89 (1.09 40.44 84.54 19.20 10. #Of the following calendar year.65 16.51 6.87 .96 11.38 47.31 81.88 21.61 15.02 1.60 (2.16) 4.98 (4.47) 2.95 49.03) 10.27 5.95) (0.64 - 17.29 8.94 36.64 26.96 (4.81) 0.31 29.25 24.98 18.08 33.36 12.12 .32 0.50 26.78) (0.55 11.16 9.39 1.38 63.06 3.33 16.48 23.33 81.88 17.87 0.50 4.00 115.70 0.92 (0.04 44.86 4.70 1.76 6.42 2.23 1.29) 0.09 73.99 16.96 36.33) 1.85 2.78) (0.36) (0.06 59.65) 7.70 2.55 5.11 12.99 31.14 72.47 5.92 8.72 12.21 31.10 18.10 36.53 (1.97 106.32 (0.02 81.10) (0.97 12.70 6.30 44.00 37.22) 0.98 12.62 3. []Company included in the S&P 500.23 9.90 10.46 1.51 (1.71) 2008 3.73 .37 (0.99 69.85 38.89 0.03 32.91 2.70 6.68 66.25 0.25 4.85 2.01 29.52) (1.61 35.20.35 41.35 5.64) AMLN AMYLIN PHARMACEUTICALS INC DEC (1.00 5.02 (0.55 .08 4.94 51.31 5.49 (0.13 10.16 2.81 9.45 22.56 (7.42) 1.06) (1.28 22.28 7.59 (2.53 69.75 37.93 5.40 58.28) (0.54 41.84 2.83) (0.17 41.24 7.94 - 9.73 1. The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s.24 1.39 4.09) (1.36 2.01) 0.00 32.17 0.62 15.78) (0.60 25. §Company included in the S&P SmallCap 600.15 47.85 (0.37 4.00 90.10 2.60 6.20 2.12 30.75 36.80 1.61 LIFE SCIENCES TOOLS & SERVICES‡ AFFX § AFFYMETRIX INC A [] AGILENT TECHNOLOGIES INC BIO † BIO-RAD LABORATORIES INC CBM § CAMBREX CORP CRL † CHARLES RIVER LABS INTL INC CVD DNEX ENZ ERES KNDL LIFE MTD PRXL PKI PPDI TECH TMO WAT † § § § § [] † § [] † COVANCE INC DIONEX CORP ENZO BIOCHEM INC ERESEARCHTECHNOLOGY INC KENDLE INTERNATIONAL INC LIFE TECHNOLOGIES CORP METTLER-TOLEDO INTL INC PAREXEL INTERNATIONAL CORP PERKINELMER INC PHARMACEUTICAL PROD DEV INC DEC OCT DEC DEC DEC DEC JUN JUL DEC DEC DEC DEC JUN DEC DEC JUN DEC DEC (0.76 14.27 5.83 10.65 32.38 1.76 2.36 3.78 12.35 2.40.06) HGSI MYGN HUMAN GENOME SCIENCES INC MYRIAD GENETICS INC DEC JUN 0.54 (1.40 83.44 .34 1.45) (0.49) 0.32 35.96 0.48 0.53) (10.67 (3.15 15.02) (3.56 24.19.66 3.14 (1.60 48.48 8.71 13.94 2.59) (1.12 0.00 0.67 (0.11 38.18) 2.88 0.36 1.57 2.22 (0.65 2.25) 5.70 4.90 47.21 45.53 (0.07 3.95 1.18 (2.95 74.27) (2.59 - 17.11 66.45 9.09) 5.20 16.28 31.56 15.97 45.50 68.84) 2005 2.33 (2.92 26.79 1.23 0.94) 0.40.99 2.04 15.47 (1.97 4.68 7.43 70.04) 2.95 77.48 3.04 2006 3.74 24.09 - 1.01 6.09 52.01) (0.55) (0.63 39.91 3.42 115.75 0.92 62.14 17.70 5.39 (0. End DEC DEC DEC DEC DEC DEC DEC DEC DEC OCT DEC DEC DEC DEC 2009 4.59 88.38 55.06 19.52 3.59 84.75 76.77 81.50 2005 86.81 0.75 54.35 8.20 55.98) 3.51) 0.66 52.94) (3.61 6.58 17.07 1.50 26.38 1.76) 3.38 4.10 .19 6. ‡S&P 1500 index group. J-This amount includes intangibles that cannot be identified.59 6.87 35.17 60.08 2.21 5.82 28.75 16.22 - 24.67 15.10 1.20.33 1.09 6.00 22.40) 8.26 11.59 2.49 (1.99 8.79 2.02 .92 31.13 3.68) 0.44 6.39 18.08 4.19 (3.88) 0.49 1.34 24.14) (0.27 1.50 51.53 J 2.71) 0.34 35.67 .09 0.19 99.73) (16.20 0.60 16.22 24.52 26.60 8.63 0.36 29.60 (1.77 12.20) 3.58 11.31 39.00 62.57 2. †Company included in the S&P MidCap 400.11 5.00 23.03 2.40 7.87 53.42 46.33.35 54.08 - 30.86 24.57 .58 119.48 (10.23.16 2.05) 1.08 (1.69 4.64 1.51 1.33) 2.54 27.63 7.83 40.37 6.29 2.05) (1.92 (1.58 2.23 26.17 68.07 58.69 1.93 14.79 24.90 52.43 0.49 4.40 4.36 3.11 1.83 (0.72 60.42 9.82 9.50 13.60 57.28 1.71 3.28 13.45 14.92 33.29 12.28 30.78 (0.28 10.80 7.70 63.14 9.52) 4.90 31.16 1.71 14.82 7.45 6.18 1.54 .06) (1.68 0.49) 1.12 2. Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s.03) 1.27 4.47 NA 77.21) (1.03 0.83 22.90 .34 51.60 4.01 7.35 16.92 10.35 24.17.70 20.82 1.55 10.38 37.86 41.63 16.69 1.32) (2.29 1.82) 3.62 2.50 51.53) 1.83 (1.19 2.35.80 2006 81.20 5.68 3.32) (0.76 60.85 (1.94 2008 66.84 (7.96 19.03 0.46) 3.58 23.00 109.24 20.64 13.50 3.25 .51 2.45 7.39 80.95 49.86 26.06 37.37 (4.73 0.85 12.44 56.09 7.58 1.88 6.46.50 53.00 28.24 2.19 4.55 45.30 1.44 0.58 2007 3.61 4.95 1.74 46.76 2008 5.42) (1.68 7.35 53.89 0.34 58.28) BIOTECHNOLOGY‡ AMGN [] AMGEN INC ARQL § ARQULE INC BIIB [] BIOGEN IDEC INC CELG [] CELGENE CORP CEPH [] CEPHALON INC CBST EBS GENZ GILD MATK REGN SVNT UTHR VRTX § § [] [] § § § † † CUBIST PHARMACEUTICALS INC EMERGENT BIOSOLUTIONS INC GENZYME CORP GILEAD SCIENCES INC MARTEK BIOSCIENCES CORP REGENERON PHARMACEUT SAVIENT PHARMACEUTICALS INC UNITED THERAPEUTICS CORP VERTEX PHARMACEUTICALS INC Tangible Book Value per Share ($) 2009 8.76 44.07 15.28 0.99 0.22 40.97 (0.69 9.73 3.25 39.60 3.00 43.59 77.73 0.22 42.85 2.43 ALNY ALNYLAM PHARMACEUTICALS INC DEC (1.35 37.15 J 0.61 4.93 10.Earnings per Share ($) Ticker Company Yr.01 2005 5.47 (3.82 0.93 57.81 3.53 Note: Data as originally reported.46 51.87 29.77 100.98 8.84 24.29 4.02 51.12 82.21 3.95 1.30) ELN ELAN CORP PLC -ADR DEC (0.84 - 2.74 26.92 15.72 75.26 64.44 11.43 4.60) 0.34 49.39 28.75 75.79 0.27) 2007 2.58 23.38 29.47 42.37 5.81 17.76 9.18 2.78) 4.00 - Share Price (High-Low.07) ENZN ENZON PHARMACEUTICALS INC DEC 0.39 82.62 53.00 39.73 3.10.33 (3.42) 2.70 7.34 25.19 .37 (3.35) (0.88 3.59) (0.70 2.00 49.73 19.15 10.77 3.33.34 27.54 0.90 18.31 7.97 57.14 58.92 J 1.83 25.86 15.56 60.16 1.10 3.24 8. $) 2007 39.98 8.81 5.96 57.92 23.50 0.50 25.10 (0.49 43.16 1.03) 2006 2.62 2.18) (2.12 54.96) (1.87 2.26 6.16 1.16 29.36 15.09) 3.60 22.89 0.75 13.02 1.08 4.00 15.71) (0.91 1.35 25.91 35.26 66.88) (4.09 .73 48.62 9.76 61.53 - 20.03 17.84 76.46 0.95 36.55 48.19 23.32.23 (2.16.70 4.00 19.96 2.82 5.31 3.02 2.78 9.36 11.49 7.38 30.27 (7.25 70.42 (2.85 11.31 0.94 59.38) 0.16 6.57 44. and the opinions based on such information.10 26.14 1.94 1.20 J 49.37 37.95 11.82 2.00 21.29) 0.02 14.93 0.30 9.76 3.21 2009 64.04 1.63) 0.09 (1.54 84.46 2.85) (1.11 (2.27 29.25 28.92 2.38) (0.57 14.30.97 16.20 17.86 19.50 8.02 27.00 30.94) 0.71 57.35 9.15 1.97 15.29 35.50 56.16) 2.03 - 9.91 4.92 1.64 NA 55.72 17.13 1.74 0.52 4.99 † TECHNE CORP [] THERMO FISHER SCIENTIFIC INC [] WATERS CORP OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS ALXN ALEXION PHARMACEUTICALS INC DEC 3.12.55 9.46 (1.95 10.57 6.85 (0.43 7.18 1.18 12.17 40. In this regard.49 (1.50 27.50 10.04 1.86) 3.80 .39 19.80 23.99 3.09 29.55 13.61 (1.11 11.45 27.56 33.62 41.38 2.62 21. BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies .55 4.71 45.82 13.99 (1.42 58. are not guaranteed.21) 7.43 42.87 1.08) (1.14 3.79 5.91) (0.76 J 1.74 1.75 53.50 7.92 31.79 1.00 73.83 30.82 14.47 18.02 10.19 4.06 31.99 7.78 2.37 .52 62.58 (0.91 1.69 7.71 30.38 16.43) (2.