1. Biopharmaceuticals Finance & Investment Club Healthcare Sector Fall 2014 Senior Analyst: Roman Trenka Junior Analysts: Connor Astwood, Ardian Idrizi, Andrew Liang, Hannah Gordon, Shan Qin, Ethan Zhou, Leon Stempert, Rhea Colaso

2. Industry Definition Portola Pharmaceuticals (NASDAQ: PTLA) Halozyme Therapeutics (NASDAQ: HALO) Ligand Pharmaceuticals (NASDAQ: LGND) Anacor Therapeutics (NASDAQ: ANAC)  Companies primarily engaged in the research, development, manufacturing and/or marketing of products based on genetic analysis and genetic engineering. Includes companies specializing in protein- based therapeutics to treat human diseases. Excludes companies manufacturing products using biotechnology but without a health care application. Nektar Therapeutics (NASDAQ: NKTR) INSYS Therapeutics (NASDAQ: INSY) PCT Therapeutics (NASDAQ: PTCT)

3. Biopharmaceuticals Sector Breakdown/Revenues Healthcare 61,122B 100% Biotechnology 10,076B 16.5% Medical Biotechnology 6,372.1B 10.4% Biopharmaceutic als 5,682.4B 9.2% Small-Cap Biopharmaceutic als 543.6.9% Industry Breakdown by Market Cap $ Breakdown by 2013 Revenue ($M)

4. Industry Information / Projections CompanyMarket Cap ($) PTLA1.37B LGND 1.05B HALO 1.08B ANAC 1.43B PTCT 1.52B INSY1.29B NKTR 2.1B Revenue ($B) 98.5 Annual Growth5.5% Exports ($B) Businesses 1,913 Revenue ($M) 167,800 Annual Growth9.1% Exports ($B) 9.5 Businesses 1,832 7.7 Expected Values For 2014 Projected Values By 2019

5. Business Model Pre-Clinical Research & Development Phase Company researches potential new compounds to treat targeted diseases. Once compound has been identified and refined it is tested in animals and living tissue. Application for FDA Approval Phase I Approx. 1 year Treatment tested on <100 humans to assess reactions & tolerance. Phase II Approx. 2 years Test to see short-term effects and if drug actually works. Phase III Approx. 3 years Large scale study of the effectiveness and side effects of the drug in a larger population. FDA Approval Commercial launch / revenue realization Royalties Income from licenses to use the company's technology or sell its products in overseas markets. Contracts Income from joint ventures or contracts made with other companies to undertake part of the development of a new product. Product Sales Revenue from selling treatment to Hospitals / health insurance providers and wholesalers.

6. Increased M&A Activity and Big Pharma Presence Increasing Biotech Drug Prevalence Rising Research & Development Costs

7.  86% of firms reported losses in 2013. Average losses were $65 million.  Research and development (R&D): 21% of revenue for average firm.  Average R&D grew at a CAGR of 8.5%, expenditures reached $56.5 million in 2013.  Average internal rates of return (IRR) of treatment research fell to around 4.8% in 2013 from 10.5% in 2010. Despite revenue growth overall, rising R&D costs will cut into short- term profit margins for Biotech. Smaller firms will suffer most, due to weaker revenue streams.

8. Increased M&A Activity and Big Pharma Presence Increasing Biotech Drug Prevalence Rising Research & Development Costs

9. Increasing Biotech Drug Prevalence  Biotech drugs are forecasted to account for 52% of the top 100 drugs in 2020, up from 45% in 2013 and 39% in 2006.  Biotech drugs accounted for 7% of revenues among the top 10 selling treatments in 2001, but up to 71% in 2013.  Over the same period, biologics in clinical studies rose 155%, with Big Pharma companies involved in about 40% of all biotech products in development in 2013. The Industry is witnessing robust revenue growth, driven by mass- market use of drugs offered by major players.  Revenue has grown an annualized 5.5% to $98.5 billion from 09-14. It is expected to grow at a CAGR of 9.1% to $152.4 billion in 2019.

10. Increased M&A Activity and Big Pharma Presence Increasing Biotech Drug Prevalence Rising Research & Development Costs

11. Increased M&A Activity and Big Pharma Presence  Global biopharmaceutical companies are at risk of losing more than $259 billion in revenues due to patent expirations between 2014 and 2020.  Due to these projected losses, large pharmaceutical companies are expected to concentrate on developing drugs for smaller, more targeted patient populations.  This makes smaller companies with pipelines focused on rare diseases more attractive.

12. Increased M&A Activity and Big Pharma Presence Cont.  Only 8 of the 27 new drug approvals in 2013 were secured by the originating company.  Over 50 Pharmaceutical drugs patents will expire between 2014-2015 alone.  As they prepare to face the upcoming patent cliff of 2015, larger firms have been engaging in M&As to broaden their product lines in order to replace revenue lost to patent expiration.  In the five years to 2019, the number of industry operators is expected to remain nearly flat, declining by just 0.9% per year on average to 1,832. Big Pharma and established Biotech companies will increasingly turn to M&A as a means of maintaining and improving their product pipeline.

13. Risks Biosimilars cut into existing market Unlike generic chemical-based drugs, biopharmaceutical generics (biosimilars) are not truly identical and therefore will require a different regulatory process than pharmaceutical generics. Once biosimilar legislation is established the biotechnology will be subject to many of the patent restrictions currently detracting from profitability in Big Pharma. Tougher regulatory environment The US Food and Drug Administration is becoming more reluctant to grant initial approval for new drugs in the face of numerous recalls and growing safety concerns among the public. Governments in virtually all of the developed countries are pushing cost- cutting measures, including increased use of generic medications, mandatory price cuts for brand-name drugs and elimination of rebates. Revenue Volatility The Biotechnology industry, still in the growth stage of its economic life cycle, has a moderate level of revenue volatility. The industry is similarly vulnerable to changes in investor sentiment; many firms are reliant on shareholders and venture capital.

14. Index Analysis

15. Industry Overview Positive Overall rating for biopharmaceuticals: Research & Development costs are currently increasing, but will not prevent growth in the current industry environment and will also lead to greater long-term returns. Industry revenue is expected to grow at a CAGR of 9%, primarily concentrated in the hands of well established, larger corporations. Upcoming patent expirations will force large Pharmaceutical firms to acquire new specialized products through M&A.

16. Investment Strategies Two possible investment alternatives: Invest in Small-Cap Invest in specialized, small-cap stocks. A corporate acquisition usually comes with a generous premium paid to shareholders. Successfully released treatments cause stock price to skyrocket. This strategy involves much more risk, as there is no guarantee that the company will be acquired or profitable in it’s own right. Invest in Large-Cap Invest in well-established, large-cap stocks. These stocks are virtually guaranteed to be stable and are highly likely to experience growth in the coming years. As the industry consolidates, profit will increasingly amass for larger players on the industry. This strategy involves less risk, but there is still the possibility of new acquisitions / products backfiring and causing losses, at least in the long- term.

17. End Thank you for listening. 1.Industry Descriptio nIndustry Descriptio n 2.Sector Breakdow nSector Breakdow n 3.Business ModelBusiness Model 4.Trend 1: Rising R&D CostsTrend 1: Rising R&D Costs 5.Trend 2: Increasing Biotech Drug PrevalenceTrend 2: Increasing Biotech Drug Prevalence 6.Trend 3: Increased M&A ActivityTrend 3: Increased M&A Activity 7.RisksRisks 8.IndexesIndexes 9.Overview/ Recomme ndationOverview/ Recomme ndation 10.Investmen t StrategiesInvestmen t Strategies