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

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Presentation on theme: "Biotechnology M&A Conference October 4, 2006 Glen Y. Sato Cooley Godward Kronish LLP."— Presentation transcript:

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 (a)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 Source: R&D Directions 2003-2006; Lazard Analysis However Those That are Partnered Primarily End Up in the Hands of Pharma

12 Biotech: Increasingly Important Source of Pipeline/Products Source: R&D Directions, March 2003-2006, Lazard Analysis Top 100 Innovative Drugs under Development

13 Key Consolidation Drivers: Pharma-Biotech Rank Order of Importance, % of Respondents Selected as a Top 3 Choice Source: Lazard Survey, 2006 Preliminary Results Late Stage Early Stage Rank ’05’06 11 33 Strengthen or Acquire IP/Technology 44 Investors Seeking Exit NA5 Pharma’s Desire to Use Repatriated Earnings/Cash NA6 Increasing Cost/Risk of Gaining FDA Approval 2 2 Strengthen Pipeline Strengthen Pipeline

14 Key Consolidation Drivers: Intra-Biotech Source: Lazard Survey, 2006 Preliminary Results Rank Order of Importance, % of Respondents Selected as a Top 3 Choice ’05’06 11 Strengthen Pipeline 32 Financial Flexibility/Enhance Access to Cash 43 VC Investors Seeking Exit 24 Achieve Critical Mass 55 Forward Integration 66 Strengthen or Acquire IP/Technology Rank

15 Biotech M&A Source: Lazard Analysis

16 PreclinicalPhase IPhase IIPhase IIINDA / Marketed Product $527M (a) $210M$373M$667M$999M = 2005 Transactions Average Valuation M&A Transaction Values by Stage of Development (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 Buy Ally +Shared Risk of Approval +Payments Timed to Progress +Less Wall Street Downside with Failure –Impact of Periodic Milestone Payments –Shared Economics –Alliance Management Issues Ally vs. Buy Tradeoff +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 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

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