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HEALTHCARE GROUP
January 17, 2003
Nelson Campbell
Corporate Presentation
May 3, 2001
Page 1
FBR
Healthcare Investment Banking
Internal Use Only — Not For Redistribution
Refinancing Driving Consumer Spending
in 2001 and 2002
Total Single Family Mortgage Originations
Single Family
Originations
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002*
$446
$453
$458
$562
$894
$1,020
$769
$640
$785
$859
$1,512
$1,306
$1,047
$2,067
$2,182
Refinance
Share
21%
24%
26%
45%
51%
58%
27%
22%
30%
31%
52%
33%
21%
57%
58%
Refinance
Cash-Out %
Cash-Out
Originations of Refinances Originations
$94
$109
$119
$253
$456
$592
$208
$141
$236
$266
$786
$431
$220
$1,178
$1,266
82%
86%
86%
62%
47%
34%
47%
50%
54%
59%
48%
59%
79%
52%
50%
Source: Freddie Mac, HUD
Figures in billions of dollars
Biotechnology Group
January 17, 2003
Page 2
B I L L I N G S
• Interest rates had allowed
consumers to extract record
amounts of equity via cash-out
refinancing.
• Increase in available cash
drove consumer spending
despite 6% unemployment.
In 2002, the U.S. economy grew 3%,
broadly in line with its long-term trend
* Freddie Mac Forecast
F R I E D M A N
$77
$93
$102
$157
$214
$201
$98
$70
$127
$157
$377
$256
$174
$612
$633
Key Trends:
R A M S E Y
The Case for a Capital Spending
Recovery in 2003
10
Nonfinancial Corporate Sector Equipment and Software Capital Stock
6
4
2
0
1995
1996
1997
1998
1999
2000
2001
2002
-2
Annual % Change
-4
• Return on capital is historically high relative
to the real cost of capital.
• Cash flow growth has recovered while
capital spending has not.
15
8
10
7
5
0
1995
-5
1996
1997
1998
1999
2000
2001
2002
Nonfinancial Corporate Sector Fixed Investment
Annual % Change
Annual % Change
8
• Outside of telecom, fears of a broad-based
capital stock overhang are overstated.
• In 2002, the value of capital stock registered
its first annual decline in the post WWII era.
6
Average Return on Capital
5
Weighted Average Real Cost of Capital
4
Nonfinancial Corporate Sector Cash Flow
-10
3
1995
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 3
B I L L I N G S
R A M S E Y
1996
1997
1998
1999
2000
2001
2002
Source: The Bank Credit Analyst
Looking Forward
• The economy will not slide back into recession
• Corporate profits will increase
• Monetary and fiscal policy will remain very
stimulative (the Federal Reserve will not raise
interest rates any time soon).
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 4
B I L L I N G S
R A M S E Y
Most of the Pieces are in Place for a Classic
Cyclical Bull Market
• Liquidity is explosive
• Many measures of sentiment have reached
depressed levels
• Many indicators suggest the economy and
corporate earnings are set to recover in the next
six months
• Stocks led economic rebounds by an average of
4.5 months during the past eight market cycles
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 5
B I L L I N G S
R A M S E Y
The State of The Public Market
Key Trends:
Selected Market Indices
• The NASDAQ Composite
is down 71.3% since its
peak, and down 34.0%
since 1/1/99
300%
250%
Percentage Change
200%
• The NASDAQ Biotech
Index is down 67.3% since
its peak, but up 18.2%
since 1/1/99
150%
100%
50%
18.2%
-4.3%
-24.5%
-34.0%
0%
-50%
NASDAQ Composite
S&P 500
NASDAQ Biotech Index
Source: Bloomberg
As of: 1/10/03
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 6
B I L L I N G S
R A M S E Y
Dow Jones Industrial Average
1/1/2003
11/1/2002
9/1/2002
7/1/2002
5/1/2002
3/1/2002
1/1/2002
11/1/2001
9/1/2001
7/1/2001
5/1/2001
3/1/2001
1/1/2001
11/1/2000
9/1/2000
7/1/2000
5/1/2000
3/1/2000
1/1/2000
11/1/1999
9/1/1999
7/1/1999
5/1/1999
3/1/1999
1/1/1999
-100%
Small Cap vs. Large Cap Biotech Stocks
400
Key Trends:
350
• When the capital markets are
weak, investors prefer large
cap biotech stocks to small
and middle market biotech
firms.
300
250
200
• The NASDAQ Biotech Index
was down 0.6% in 2001, but
was down 45% in 2002 and
reached its lowest level since
1999
150
100
S&P 500 Biotech
Biotechnology Group
January 17, 2003
Page 7
B I L L I N G S
R A M S E Y
1/3/2003
10/18/2002
8/2/2002
5/17/2002
3/1/2002
12/14/2001
S&P Small Cap Biotech
Source: Bloomberg
F R I E D M A N
9/28/2001
7/13/2001
4/27/2001
2/9/2001
11/24/2000
9/8/2000
6/23/2000
4/7/2000
1/21/2000
11/5/1999
8/20/1999
6/4/1999
3/19/1999
12/31/1999
50
Recent Drug Failures
GenVec - BioBypass, Phase II, Missed Primary Endpoint in peripheral arterial disease
Cook/Guidant - Missed Primary Endpoint in restenosis
Icos Corp. - Pafase, Phase III, Failed to Show Benefit in severe sepsis
Eli Lilly - Ruboxistaurin, PhaseII/III, Missed Primary Endpoint for diabetic retinopathy
ConjuChem - CJC-1008, Phase II, Missed Primary Endpoint
Transkaryotic Therapies - Replagal, Phase III, Missed Primary Endpoint in renal function
Neurogen - NGB97-1, Failed to Show Therapeutic Effect in Treatment of Alzheimer’s disease
Alexion Pharmaceuticals - Eculizumab, Phase II Missed Primary Endpoint of proteinura reduction
Endo Pharmaceuticals - MorphiDex, Phase III, Missed Primary Endpoint
Immune Network - Dapsone, Phase II data Not Significant
Schering AG - Estradiol, Non-Approvable Letter
Transkaryotic Therapies - Replagal, FDA Meeting Delayed
IntraBiotics Pharmaceuticals - Iseganan, Missed Primary Endpoint for oral mucositis during chemotherapy
Genmab A/S - HuMax-CD4, Missed Primary Endpoint for rheumatoid arthritis
Incara Pharmaceuticals - Deligoparin, Phase II/III trial Missed Primary Endpoint
Date Order - Most Recent First
F R I E D M A N B I L L I N G S
Biotechnology Group
January 17, 2003
Page 8
R A M S E Y
9/02 to Present
Source: BioCentury, company reports
Tapping the Public Market: Biotech IPOs
Key Trends:
Biotech IPOs and the Amount Raised
$350
• The spike in financing in 2000
was an anomaly
3
• In 2000, there were 53
biotechnology IPOs which
raised $4.2 billion
$300
2
# of IPOs
$ mm
$250
$200
$150
1
$100
$50
$0
Amount Raised
# of IPOs
Source: CommScan EquiDesk
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 9
B I L L I N G S
R A M S E Y
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Dec-01
Nov-01
Oct-01
Sep-01
Aug-01
Jul-01
Jun-01
May-01
Apr-01
Mar-01
Feb-01
Jan-01
0
• In 2001, there were 5
biotechnology IPOs which
raised $304 million
• In 2002, there were 4
biotechnology IPO which
raised $592 million
Tapping the Public Market: Biotech Secondaries
Biotech Secondaries and the Amount Raised
Key Trends:
$700
8
$600
7
5
$400
4
$300
3
$200
2
Amount Raised
# of Issues
Source: CommScan EquiDesk
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 10
B I L L I N G S
R A M S E Y
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jul-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Jan-02
Dec-01
Nov-01
Oct-01
Sep-01
Aug-01
Jul-01
Jun-01
May-01
Apr-01
0
Mar-01
$0
Feb-01
1
Jan-01
$100
# of Issues
6
$500
$ mm
• In 2000, there were 57
biotechnology secondary
offerings which raised $16.4
billion
• In 2001, there were 29
biotechnology secondary
offerings which have raised
$2.93 billion
• In 2002, there were 11
biotechnology secondary
offerings which raised $544.3
million
U.S. Venture Capital - Biotechnology
Investments vs. Total
$120.00
$107.31
($'s - Billions)
$100.00
$80.00
$55.54
$60.00
$41.94
$40.00
$20.00
$-
$16.36
$11.69
$7.72
$0.85
1995
$1.25
1996
$21.63
$2.14
1997
$1.56
1998
All Industries
Domestic investments only
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 11
$16.92
$2.22
1999
$4.30
2000
$3.24
2001
$2.27
Q1-3
2002
Biotechnology
Source: PWC Money Tree
B I L L I N G S
R A M S E Y
Financing Summary
Biotechnology and Specialty Pharmaceutical Investments
2001
2002
Q1-Q3
2001
Q1-Q3
2002
Public
IPOs
Secondaries
$304
$2,932
$592
$544
$225
$1,691
$592
$459
Private
Venture Capital
PIPEs
$3,439
$7,222
n/a
n/a
$2,149
$4,461
$2,272
$5,499
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 12
B I L L I N G S
R A M S E Y
Recent Mergers and Acquisitions in the Biotech Field
Acquirer/Target
Announcement Date
Value
Chiron/Matrix Pharmaceutical
1/7/02
$61MM
deCODE genetics/MediChem Life Sciences
1/8/02
$83.6MM
Collateral Therapeutics/Schering AG
3/20/02
$140.9MM
Tibotec-Virco NV/Johnson & Johnson
3/22/02
$320MM
Ethypharm/Biovail
4/1/02
$127.8MM
Rhein Biotech/Berna Biotech
5/1/02
$225MM
Pharmacia/Pfizer
7/15/02
$60 Billion
Genset/Serono
7/16/02
$107MM
Visible Genetics/Bayer AG
7/23/02
$61.4MM
Variagenics/Hyseq
11/11/02
$55.9MM
Synaptic/H. Lundbeck
11/21/02
$121MM
Triangle/Gilead
12/4/02
$464MM
Zentaris/Aeterna
1/1/03
$51.7MM
Source: MergerStat
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 13
B I L L I N G S
R A M S E Y
Growth in New Drug Approvals
Key Trends:
New Biotech Drug and Vaccine Approvals
• There are currently more than
130 biotechnology drug
products and vaccines on the
market.
40
35
30
• There are more than 350
biotechnology drug products
and vaccines, targeting more
than 200 diseases, in clinical
trials.
25
20
15
10
5
New Biotech Drug and Vaccine Approvals
Source: Biotechnology Industry Organization
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 14
B I L L I N G S
R A M S E Y
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
0
• 30% of biotech companies
have less than 1 year of cash
and equivalents.
• 22% of biotech companies are
trading below cash (i.e., their
market caps are below the
cash on their balance sheets)
• The growth in drug approvals
from the biotechnology
industry points to strong
fundamentals.
Growth in Biotechnology Sales and Revenues
Biotechnology Industry Annual Product Sales and Total
Revenues
Key Trends:
30
$25.0
$ - Billions
25
$20.2
20
15
10
$17.4
$11.2
$7.7
$14.6
$13.0
$12.7
$10.8
$9.3
$14.5
$22.3
$16.1
$18.1
5
0
1995
1996
1997
1998
Product Sales
1999
Total Revenue
Source: Ernst & Young Annual Biotechnology Industry Reports,
Biotechnology Industry Organization
F R I E D M A N
Biotechnology Group
January 17, 2003
Page 15
B I L L I N G S
R A M S E Y
2000
2001
• With the growth in drug
approvals comes increased
drug sales and increased
leverage in collaboration
negotiations