1. Biotechnology M&A Conference October 4, 2006
Glen Y. Sato Cooley Godward Kronish LLP

2. FIRM OVERVIEW
Cooley Godward is a premier national law firm that excels in high-stakes, complex business and litigation matters. We represent public and private companies of all sizes, across a broad industry spectrum with a special focus in the technology and life sciences areas. Our clients include both high growth and mature companies as well as entrepreneurs, venture capitalists and financial institutions.
Deep substantive expertise across a range of legal specialties.
Deep industry verticals in Life Sciences and Information Technology.
Represent many of the largest and most sophisticated information technology and life sciences companies in the world, including Adobe Systems, Amylin, Applied Materials, eBay, Gilead, Gen-Probe, NVIDIA, Qualcomm and Synopsys.
Offices in Palo Alto; San Diego; San Francisco; Broomfield, Colorado; Reston, Virginia; New York; and Washington, D.C.
Client-oriented, team-based approach.

3. Glen Y. Sato
Partner in the Life Sciences and Public Securities practice groups
PDL-Affymax, ChemoCentryx and BiogenIdec recent deals
Prior to joining Cooley, served for more than five years as CFO for two publicly traded companies with diverse business development, legal, financial, operational and strategic planning responsibilities
Practice focused on corporate transactions, SEC reporting and compliance, disclosure issues, intellectual property licensing, general corporate counseling, insider trading compliance and working with Boards of Directors and audit committees on various risk and accounting related matters

4. Life Sciences Global Senior Team

5. Uniquely Provide World-Class Advice to both Innovators and Leaders

6. Overview – Background for Transactions
Attractive assets are driving deals
High level of activity
Phase II and later assets most attractive
Large Biotech competing with Pharma
Biotechs are “more realistic” about funding requirements and capabilities required to be FIPCOs
Tight capital markets
More mature management teams
Time is of the essence

7. Overview – Background for Transactions (cont’d)
Pharma and large Biotech are leading the way
Aggressive, competitive views in accessing assets
Phase II Deals are all over the map
Situational approach
“Auction” is always best
VC’s see M&A as a viable alternative to IPO’s
Parallel tracking
Alternative financing choices
Structured finance products
Equity lines, project financing deals

8. Recent IPOs = Exit for Investors
’03–’05 IPO Class: 44 Companies
27 companies have completed secondary offerings

9. Recent IPOs = Exit for Investors
LTM Class: 19 Companies
(a) 6 companies have completed secondary offerings

10. What are Biotechs Looking For?
Cash, cash and more cash
Complementary capabilities
Retained commercial rights
Significant downstream control
Booking sales
“Try it on for size” deals

11. Biotech vs. Pharma Innovation Trends
Most Innovative Drugs in Development Predominantly Come From Biotech Rather than Pharma
Biotechs are Partnering Fewer of These Innovations to Pharma
However Those That are Partnered Primarily End Up in the Hands of Pharma
Source: R&D Directions ; Lazard Analysis

12. Biotech: Increasingly Important Source of Pipeline/Products
Top 100 Innovative Drugs under Development
Source: R&D Directions, March , Lazard Analysis

13. Key Consolidation Drivers: Pharma-Biotech
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
Rank
’05
’06 1
Late Stage
Early Stage
Strengthen Pipeline 3
Strengthen or Acquire IP/Technology 4
Investors Seeking Exit NA 5
Pharma’s Desire to Use Repatriated Earnings/Cash 6
Increasing Cost/Risk of Gaining FDA Approval
Source: Lazard Survey, 2006 Preliminary Results

14. Key Consolidation Drivers: Intra-Biotech
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
Rank
’05
’06 1
Strengthen Pipeline 3 2
Financial Flexibility/Enhance Access to Cash 4
VC Investors Seeking Exit
Achieve Critical Mass 5
Forward Integration 6
Strengthen or Acquire IP/Technology
Source: Lazard Survey, 2006 Preliminary Results

15. Biotech M&A
Source: Lazard Analysis

16. M&A Transaction Values by Stage of Development
= 2005 Transactions
Preclinical Phase I Phase II Phase III NDA / Marketed Product
$527M (a)
$210M
$373M
$667M
$999M
Average Valuation
(a) Pfizer/Angiosyn transaction was primarily comprised of milestone payments and compared more to a licensing deal than an acquisition.

17. Characterization of Recent Pharma-Biotech Transactions
Biotech Acquisitions Over $50 million last 24 months(a) ($ in billions)
Source: Lazard Analysis
(a) 9/2004–8/2006

18. Characterization of Recent Intra-Biotech Transactions
Biotech Acquisitions Over $50 million last 24 months(a)
($ in billions)
Source: Lazard Analysis
(a) 9/2004–8/2006

19. Structured Acquisitions
Ally vs. Buy Tradeoff
+ Shared Risk of Approval
+ Payments Timed to Progress
+ Less Wall Street Downside with Failure
– Impact of Periodic Milestone Payments
– Shared Economics
– Alliance Management Issues
+ Purchase Accounting Treatment
+ Current Valuations
+ 100% of Economics
+ Control Over Clinical Trials and IP
– Assume Risk of Approval Up Front
– Retention of Key Employees/R&D
Ally
Buy
Relevant for Private Companies
Provide Upfront Cash on Cash Return for Investors
Real Visibility on Earn-out/Back-end Payments
Align Interests/Motivations of Both Acquiror and Management
Structured Acquisitions

20. What are Collaborators Interested In?
Advanced ( Phase II) products
Complementary assets
Therapeutic area match
Filling pipelines
Locking up interesting technologies or assets
“Earn outs”

21. Industry Metrics for Collaborations
According to Recap, Phase II Pharma deals continue to increase in payment size, from 2003 – mid-year 2006:
Upfront: median $19M, mean $32M
R&D Funding: median and mean: $26M
Milestones: median, $187M, mean $244M
Equity: median, $18M, mean $30M

22. Examples of Structured Deals/ / / / /
Source: WallsStreet Research.

23. Recent Representative Examples
Larger deals
Fibrogen-Astellas; Affymax-Takeda; and ChemoCentryx-GSK
Phase II assets
“Extraordinary” Bio$ deals
Background
Each of the deals was an auction scenario
Fibrogen and Affymax were for superior EPO
Each involved existing collaborators

24. Recent Representative Examples
Fibrogen-Astellas--$2+Billion Deal
Anemia treatments (hypoxia-inducible factor and prolylhydroxylase)
Europe, CIS, Middle East and South Africa
Licensing fee $300M; equity $50M
Development milestones $465M
Fibrogen keeps No. Am. Rights
Shared development costs ROW; Fibrogen No. Am.
Built on existing Japan deal

25. Recent Representative Examples
Affymax-Takeda--$535M Deal
Hematide and back-ups
Upfront fee $105M
Milestones, $280M development; $150M commercial and ROW
50:50 co-promotion in U.S.
Takeda bears first $50M of development expenses and 70% of U.S. development costs
Affymax manufactures; holds NDA
In U.S., Affymax leads anemia; Takeda leads oncology
Takeda responsible for ROW
Built on existing Japan deal

26. Recent Representative Examples
ChemoCentryx --$1.5+B Deal
4 targets, 6 worldwide exclusive product options; lead chemokine in Phase II
Upfront payments $63.5M (fee and equity)
Milestones all products $1.5+B
Royalties to ChemoCentryx
Co-promotion rights in certain indications
GSK leads development, holds regulatory filings after existing studies

27. Final Thoughts
Understand the market and who is really a potential collaborator/buyer
Do your homework-- understand the partners and have a strategy and goals
Control and be thoughtful about the process, particularly timing
Be willing to walk away or choose a different path