Pharma/BIOTECH industry overview Iain Jeromson 18/11/13

Introduction Pharmaceutical companies develop drugs to treat diseases through their R&D department (also acquire compounds from biotechnology companies), sector is very active in acquisitions It can take 12 years from compound discovery to first sale

Main players Top 10 pharma companies by revenue (2012) GSK and AZ are FTSE 100 constituants Popular with pension funds

Biotech vs Pharma Biotech companies are often smaller And younger Research driven- rarely sell anything Have used the advancements in genetics to spur on innovation- biotech didn’t exist before the 80s- pharma is over 100 years old Biotech use genetic manipulation of microorgansims to make highly complex biologic compounds such as antibodies and proteins

Drug development Drug development is a risky business And a costly one, >$1bn to bring a drug to market

Patents New chemical entities are patented by pharmaceutical companies A granted patent allows exclusive rights to manufacture and sell the drug for 20 years After 20 years generic forms of the drug may be manufactured by third parties, this leaves a window of less than 8 years for a pharma company to capitalise with sales and “repay the debt of R&D” After this 20 year window a so called patent cliff is reached where sales of the branded original dramatically, usually by 90%

Industry trends A move towards biologic drugs, and away from traditional small molecules Major restructuring of large multinational pharma companies due to weak drug pipelines, see GSK and Pfizer Many biotech IPOs recently-

Industry performance http://finance.yahoo.com/echarts?s=^NBI+Interactive#symbol=^nbi;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Opportunities for the industry Strengthening scientific base Increasing demand for medication Removal of barriers for free trade

Challenges for the industry Tighter regulation Annual approval of new drugs has flatlined Rising healthcare costs due to aging population

Biotech funds 2 of the heavyweights in the biotecch sector are… RA Capital- 44% annual returns since 2004 http://www.j3sg.com/Reports/Stock-Insider/Generate-Institution-Portfolio.php?institutionid=4698&DV=yes Baker Bros Advisors LLC- http://www.nasdaq.com/quotes/institutional-portfolio/ra-capital-management-llc-693222

Both have a position in my company of choice…

Acadia Pharmaceuticals NASDAQ:ACAD “Acadia Pharmaceuticals is a biopharmaceutical company focused on innovative treatments that address unmet medical needs in neurological and related central nervous system disorders. Acadia Pharmaceuticals has been one of the best performing stocks across all industries, having generated a return of more than 300% year-to-date.  The company is a perfect example of why following the smart money is typically a smart move for investors. The Baker Brothers, one of the best performing biotech hedge funds in the world, took an early position in Acadia Pharmaceuticals and have seen its holdings in the company soar to a value of approximately $550 million.” Tom Meyer http://wallstcheatsheet.com/stocks/2-biotech-stocks-with-strong-buyout-potential.html/2/

Info Current price per share $23.29 Primavastin will potentially be a blockbuster drug (>$1bn in sales per year) Developing drugs to treat conditions such as Alzeimers

Recent news Very positive phase III data for their lead candidate- due for phase 4 middle of next year 20/05/2013- added to NASDAQ biotech index 07/01/2013- added to the Russel 2000 index

Analyst opinions http://www.marketwatch.com/investing/stock/acad/analystestimates

Pipeline http://www.acadia-pharm.com/pipeline/

Future Approval for Primavastin estimated for mid 2014 Very likely buyout target

Risks vs Strengths Risks Strengths Clinical trials for primavanserin Need for capital Late stage, good data, also presented for multiple indications Just received funding (from listing on NASDAQ)

Conclusion Arcadia Pharmaceuticals presents a great opportunity to invest in a biotech company Strong buyout potential Analysts are bullish Recent investment Strong clinical data

Acadia Pharmaceuticals