Transcript Biotechnology

Biotechnology
What is Biotechnology?
bio—the use of biological processes; and technology—to
solve problems or make useful products.
Biotech in 21st century -- Using modern
technology such as genetics, molecular biology
to understand biological phenomenon in a new
level of precision (at the cellular and molecular
level), and solve problems or create product
around that understanding
Three major areas of Biotech
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Medical biotechnology (Red biotechnology) Some
examples are the designing of organisms to produce
antibiotics, and the engineering of genetic cures to diseases
through genomic manipulation.
Industrial biotechnology (White biotechnology) An
example is the designing of an organism to produce a useful
chemical.
Agricultural biotechnology (Green biotechnology) An
example is the designing of an organism to grow under
specific environmental conditions or in the presence (or
absence) of certain agricultural chemicals.
“Financial Definition” of Biotech
Companies in any of the three areas are
technically biotech. Yet, for professional
investors, “Biotech” is a buzz word that
mainly associates with medical care sector
(usually smaller) companies that uses new
technologies.
Industry at a glance
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There are 1,473 biotechnology companies in the United
States, of which 314 are publicly held.
Market capitalization: $311 billion as of mid-March 2004.
Revenues: increasing from $8 billion in 1992 to $39.2
billion in 2003.
Employed: 198,300 people as of Dec. 31, 2003.
R & D: spent $17.9 billion on research and development in
2003.
The top eight biotech companies spent an average of
$104,000 per employee on R&D in 2003.
2003 Pharmaceutical Sales by
Region
World Audited
Market
2003 Sales
($ billion)
% of Global
sales ($)
% Growth
(constant $)
North America
229.5
49%
11%
European Union
115.4
25%
8%
Rest of Europe
14.3
3%
14%
Japan
52.4
11%
3%
Asia, Africa and
Australasia
37.3
8%
12%
Latin America
17.4
4%
6%
$466.3
100%
9%
TOTAL
U.S. Government
- Regulatory Body (FDA)
- Public Health Care Programs
- Medicare
- Medicaid
Position of US Biotech
U.S. Health Care
Industry
Monitor
and
Regulate
For Profit
Health Benefit
Providers
Product
Organizations
Not-for-Profit
Health Benefit
Providers
Service
Organizations
-Hospital
management
-Long term care
-Etc.
Biotech
Pharmaceutical
Companies
Others
Typical Value Chain of a
Pharmaceutical Product using
Biotechnology
Discovery of
Marketing of
the Product
the Product
Typical Biotech vs.
Pharmaceuticals Companies
Biotech
Pharmaceuticals
Cap Size
Small
Big
Balance Sheet
/Cash Flow
Cost
Burn Cash ( - )
Strong Cash inflow
R&D
R&D, Manufacturing.
Marketing
Financing
Almost all Equity
Debt & Equity mixed
Net Income
Negative
Positive
Pipeline
Strong
Moderate/Weak
Dividend
None
Moderate - Strong
Investment Risk
Very High
Moderate
Market
Arthritis
 46 million adults (non-institutionalized) in the U.S. (2003)
 21% of adults (non-institutionalized) in the U.S. (2003)
Cancer
 23 million suffering worldwide. Estimated of 1.37 million people in the US will be diagnosed
with cancer in 2005
 about 1 in 3 lifetime risk; 38% of women and 43% of men
 The average cost of cancer treatment is well over $100,000 per person.
 Estimated $280 billion spent on treatment drugs for cancer annually. More than $100 Billions
in US
Diabetes
 Estimated 18.2 million people in the United States, or 6.3% of the population (2005)
 165 million cases worldwide (2003)
 $132 billion spent in direct and indirect costs in America (2002)
Heart Disease
 25 million adults in the US
 Heart disease and stroke cost US around $214 billion annually. ($115 billion direct) (2002)
Porter’s Competitive Force
Political & Legal Forces
• FDA
External Force
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New Entrants
LOW
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LOW-MID
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Power of Suppliers
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LOW
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Direct: Big Pharma
End-user: Patients
Substitutes
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MID-HIGH
Biotech equipment firms
Power of Buyers
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Barriers: Technology, Risk,
Fixed Cost
Non-biotech Drugs, Generic
(future)
Rivalry
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Competition mainly on
function/quality instead of
price
US Regulatory Body - FDA
Food and Drug Administration
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Sets health and safety standards
Drugs, food , medical devices, cosmetics products,
and biologics
Also monitor for proper production standards
Ensure labeling is truthful and informative.
Pre Clinical Tests
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The beginning of the drug approval process
To see the potential effects on humans, tests are performed on:
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Isolated tissues
Cell Cultures
Animals
Company decides whether to put the drug into the human
testing process, based on the marketability of the product,
their financial situation etc.
On average, only one compound in a thousand will actually
make it to human testing
The IND Filing
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The goal : provide pre-clinical data of sufficient quality to
justify the testing of the drug in humans
FDA has 30 days to review the IND application
Must be filed annually until the completion of clinical
testing
At this time patents are usually applied for, patents last
generally for 20 years
About 85% of all IND applications move on to begin
clinical trials
If succeed, 20% chance of the product making it to the
market
Phase I
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Duration: 1 to 3 years
Sample size: less than 100 patients
Test on: Healthy volunteers
If passed this Phase, chances of the product
reaching to the market will be: ~30%
Begins to analysis and develop the drugs safety
profile
How the drug is absorbed, metabolized and excreted
Phase II
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Duration: ~2 years
Sample size: 100 – 300 patients
Test on: volunteers who suffer from the
disease
If passed this Phase, chances of the product reaching
to the market will be: ~60%
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To evaluate the drug's safety and assess side effects

Establishes the optimal dosage of the drug
Phase III
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Duration: 3-4 years
Sample size: >1000 patients
Test on: volunteers who suffer from the disease
If passed this phase, chances of the product reaching to the
market will be: ~70%
Verifies the drug’s effectiveness in its intended use
Assessment of long term effects
NDA Filing
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Upon desirable result from Phase III, New Drug Application
(NDA) will be summit
NDA contains data supporting the efficacy and safety of the
drug
Approval can take 2 month to several years, but average is
around 18 to 24 months
Drugs are subject to ongoing review, making sure no adverse
side effects appear from the drug.
After FDA’s approval, the drug can be marketed and distributed
Patent

Biotech inventions are subject to the same rules as all other inventions

Generally last 20 years
Since most companies file for patent during pre-clinical trail. Usually the patent is
only good for another 10 years or so after it gained FDA approval
What can be patented
 Product
 Method
 Use
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Examples
 DNA and RNA sequences
 Proteins, enzymes, antibiotics
 Antibodies, antigens
 Micro-organisms, cell lines, hybrids
Phase IV
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Observational studies in an ongoing
evaluation of the drug's safety during routine
use
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Monitor any usage of the drug for conditions
other than the approved medical indication
Review & Approvals
Key Points about the Clinical Process
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To bring a drug through all phases of the clinical trial process,
it costs around:
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$350 - $500 millions
10-15 years
Key factors that determine the quality of a company's pipeline:
 one or more successful products on the market
 a large pipeline of candidate drugs with some in late-stage
 enough cash to fund the development of their new drug
candidates
Review & Approvals
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108 biotechnology medicines already approved
and available to patients
324 biotechnology medicines in development
either in human clinical trials or under review by the
FDA
 for nearly 150 diseases
 154 medicines for cancer, 43 for infectious diseases,
26 for autoimmune diseases and 17 for AIDS/HIV
and related conditions
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Biotech in the Stock Market
TECH BOOM
AMEX BIOTECH INDEX
vs. S&P 500 vs. NASDAQ
5 YEARS AMEX BIOTECH INDEX
vs. S&P 500 vs. NASDAQ
-S&P 500
-AMEX
Biotech
-NASDAQ
Tech Bust
Industry Financials
U.S. Biotech Industry Statistics: 1994–2004*
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
Sales*
33.3
28.4
24.3
21.4
19.3
16.1
14.5
13
10.8
9.3
7.7
Revenues
46.0
39.2
29.6
29.6
26.7
22.3
20.2
17.4
14.6
12.7
11.2
R&D
Expense
19.8
17.9
20.5
15.7
14.2
10.7
10.6
9.0
7.9
7.7
7.0
$0.59
$0.63
$0.84
$0.73
$0.74
$0.66
$0.73
$0.69
$0.73
$0.83
$0.91
6.4
5.4
9.4
4.6
5.6
4.4
4.1
4.5
4.6
4.1
3.6
No. of
Public
Companies
330
314
318
342
339
300
316
317
294
260
265
No. of
Companies
1,444
1,473
1,466
1,457
1,379
1,273
1,311
1,274
1,287
1,308
1,311
Employees
187,5
00
177,0
00
194,6
00
191,0
00
174,0
00
162,0
00
155,0
00
141,0
00
118,0
00
108,0
00
103,0
00
Year
R&D/
$ Sales
Net Loss
*Amounts are U.S. dollars in billions.
Sources: Ernst & Young LLP, annual biotechnology industry reports, 19932005.
Financial data based primarily on fiscal-year financial statements of publicly traded companies.
Industry Financials
Biotech Industry Net Loss / $ Sales
$0. 50
$0. 45
$0. 43
$0. 47
$0. 39
$0. 44
$0. 35
$0. 40
$0. 35
$0. 29
$0. 30
$0. 25
$0. 28
$0. 21
$0. 27
$0. 20
$0. 19
Towards Breakeven
($0 loss/$ Sales)
$0. 19
$0. 15
$0. 10
$0. 05
$-
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Industry Ratios
Market
Cap
P/E
ROE
%
Long-term
Net Profit P/B
Debt/Equity Margin%
(mrg)
P/FCF
(mrg)
From Yahoo Finance Nov 10, 2005
Sector:
Health Care
Industry: Biotech
2208.2B 21.91
14.43
0.01
9.93
11.05
457.4
326.6B
(-)
1.7
0.00
2.80
11.33
3035.
6
Amgen Inc.
Genetech Inc.
99.0B
28.90
17.55
0.19
30.66
4.82
N/A
98.5B
87.85
15.61
0.27
20.52
12.82
52.11
Gilead Sciences
Inc.
Biogen Idec Inc.
Medlmmune Inc.
23.5B
37.87
32.02
0.00
36.32
8.97
N/A
19.2B
107.52
4.29
0.00
36.33
3.86
N/A
14.5B
111.02
1.98
0.01
4.56
2.11
220.3
1
Cash
Total Financing
Key Issues Concerning
the Future of the Industry
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Generic Competition
Changing Social & Legal Environment
Blockbuster Model vs. Personalized
Health Care
Biotech and Big Pharmas: New
Collaborative Dynamics
Generic competition
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Currently no bio-generic in the US market
Technological difficulties
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Biotech companies argues: Biotech drugs are not
defined by molecular make up but the production
process
Difficult but possible (they exist in China & Latin
America, up and coming in Europe)
Regulatory difficulties
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1.
2.
No clear regulatory guidelines to permit the
production of generic biologics in the US Two
challenges
How to prove that a generic biologic is chemically and
therapeutically equivalent to the original?
Who is the proper authority regarding the biogenerics?
–
The law that is written to regulate generic drugs does
not include bio-generic
Generic competition
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Bio-generics are very
likely to come in the
future
BUT they most likely will
face stricter pre-approval
testing requirements than
chemically based generics
More costly to produce
and therefore less price
difference between
original & generic
Changing Social & Legal
Environment
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Pressure from the public and governments
worldwide to contain drug prices
In Sept 2004, Merck’s Blockbuster, Vioxx, was pulled
off the market
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Studies found the drug to increase the risk of heart attacks
and strokes if used longer than 18 months
Pfizer's Bextra, which is in the same drug class (Cox-2
inhibitors) was also dropped out later
So far, ~4,000 lawsuits has filed against Merck on Vioxx
Investors panicked over closer scrutiny and tighter
regulation towards the pharmaceutical and biotech
industry
Social & Legal Environment:
Drug Safety Issues
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The Downside
 Cash burning biotech are vulnerable to higher testing cost
and delay in the approval process
The Upside
 Biotech generally focus on life-threatening disease, where
side-effects are more tolerable
 New Technology can evaluate safety earlier in the
development process and even prior to clinical trials
 E.g. Pharmacogenomics
 Higher safety standard will benefit the industry in the long
run
Blockbuster Model vs
Personalized Health Care
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The Blockbuster model
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Blockbuster - A medicine with sales over $1billion
The model:
 Find treatments for disease with the biggest market
 Pool resources on breeding the few potential blockbuster
Pros:
 Hitting ‘the Jackpot’
Cons
 Attract competition
 Relay heavily on blockbuster
Blockbuster Model vs
Personalized Health Care
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The Future: Personalized Health Care
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Individualized Drugs Using New Diagnostic Equipment
Business Model
 Lots of small but high-margin markets
Pros
 Lower safety risk
 Less exposure to competition
 Relatively shorter approval time and
lower research cost due to smaller scale
of tests are needed
 Diversified Risk
Cons
 Less overall margin
Biotech and Big Pharmas:
New Collaborative Dynamics
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Traditionally big pharmas are often in a stronger position when
negotiating licences from biotech to market their drugs.
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Yet, big pharmas’ pipeline are getting weaker due to their focus
on developing and marketing in recent years
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Of the drugs approved in 2004, more originated in biotech labs than in
the labs of big pharma.
Biotech pharmaceuticals accounted for over $42.1 billion in 2004
worldwide sales
Biotech drugs account for 25% of the total active pipeline
Of the 305 biotech projects of the top 10 pharmas, 63 % were inlicensed.
Biotech and Big Pharmas: New
Collaborative Dynamics
2004 Merger & Acquisition
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On the other hand,
biotechs are growing
bigger and the industry
is consolidating
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As a result, Big Pharms now:
1.
2.
3.
Seeks more partnerships with biotechnology companies
Willing assume risk and enter partnerships at earlier
stages in the drug development process
Pays more to acquire biotech pipelines
The Future
Industry Maturing - From potential to performance
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Managements are becoming more skilled in the
business instead merely focusing on the technology
More consolidation
Big pharma’s weak pipeline gives biotechs more
bargaining power
The days of investing merely on ideas/stories are gone,
investors now look for companies with real profitable
products with growth potential
The Future
From Potential to Profitability
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Industry is estimated to achieve the first net income in its 30year history in 2008.
Future Challenges and Opportunities
 Bio-generic (especially in the international market)
 Tightening regulation and public concerns
 Shifting from blockbuster driven to the personalized health care
model
The Biotech Stock Picking System
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Successful Product(s)
Solvency
Quantity of Pipeline
Quality of Pipeline
Management
Collaborations
R&D
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Successful Product(s)
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2.
Worth Looking into
Makes an okay
biotech to a good
one
Best to have one or more established drug already generating
cash for the business
Solvency
1.
Strong Sell if neither
MUST have enough cash to “burn” for its R&D until it gets a drug into
the market that can generate sufficient income to sustain the business
(look at burn rate)
If not, it MUST have a SECURED source of financing (e.g.
collaboration with a big pharma)
The Biotech Stock Picking System
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Quantity of Pipeline
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Quality of Pipeline
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Proven track record of taking a drug through the regulatory hurdles and/or to the
marketplace
A good mix of executives specialized in technology and business
Collaborations
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Drugs in pipeline should be 1)Diversified and 2)Aimed at markets that is both large and
under-serviced.
Management
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Plenty of drugs in the pipeline with at least two ore more in later clinical trials (Phase 2
or 3)
1) Marketing and Developing partnership pharmaceutical companies
2) Research collaboration with corporate or academia partner (e.g. University)
Research & Development
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Growing R&D spending and growing or sustaining R&D/$ Sales
Inspired science.
Defining moments.
Amgen Inc. (AMGN)
• “Applied Molecular Genetics Inc”
• Specializes in molecular and cellular biology
• Produces and markets therapeutic products for
the treatment of nephrology, cancer,
inflammatory diseases, metabolic and
neurodegenerative disorders
• 1st : sales
• 2nd: market capitalization ($99b)
History
Initial Public Offering
1983
1980
Established
sales surpass $1b
1992
1989
FDA approves EPOGEN®
Now
Sales surpass $10.5b
Five Blockbusters
CEO Of The Year -- Medicine Man
Kevin Sharer
In terms of innovation and commercialization, Amgen and
his [Sharer's] leadership clearly are a model."
Leadership Team
Hassan Dayem, Ph.D
Senior vice president and chief information officer since 2002; Vice president, Information Servicesand
chief information officer at Merck & Co., Inc. from 1997 to 1998.
Dennis M. Fenton, Ph.D.
Executive vice president from 2000. Joined Amgen since 1988.
Brian McNamee
Senior vice preside, Human Resources from 2001. Vice president of Human Resources at Dell
Computer Crop from 1999 to 2001. Various human resources positions since 1988.
George Marrow
Executive vice president of Worldwide Sales and Marketing since 2001 and became executive vice
president, Global Commercial Operations in April 2003. Various management positions since 1993.
Richard Nanula
Executive vice president and chief financial officer since 2001. Various management positions since
1986.
Roger M. Perlmutter, M.D., Ph.D.
Executive vice president of Research and Development since 2001. Executive vice president, Worldwide
Basic Research and Preclinical Development of Merck Research Laboratories.
David J. Scott
Senior Vice president, general counsel and secretary since March 2004. Senior vice present and general
counsel of Medtronic, Inc from 1999 to 2004.
Stock Price - AMGN
•
•
•
•
•
Stock price: $79.89 (as of Nov7, 2005)
# of outstanding shares: 1,234 millions
Exchange: NASDAQ
Volume: 7,518,000
Zero Dividend Policy
• Headquarters: California
• Staff employed: more than 14,000
• Mission: To serve patients
Successful products
on the market
Blockbusters
Strategy: often target medical problems that haven't received much
attention from the pharmaceutical industry
EPOGEN®
Aranesp®
NEUPOGEN®
Neulasta®
ENBREL®
Stimulate the production of red blood cells to treat
anemia
Selectively stimulate the production of neutrophils,
one type of white blood cell that helps the body
fight infections
Blocks the biologic activity of tumor necrosis factor
(TNF) by competitively inhibiting TNF, a substance
induced in response to inflammatory and
immunological responses, such as rheumatoid
arthristis and psoriasis
billions
Revenue Composition
12
10
8
6
4
2
0
2000
EPOGEN
NEUPOGEN
2001
2002
Aranesp
ENBERL
2003
2004
Neulasta
Others
Sales Breakdown (as at Sep 2005)
Others- 2%
Enbrel-21%
EPOGEN-21%
NEUOGEN-10%
Neulasta-19%
Aranesp-27%
Solid: US
Dot pattern: international
International Sales
12000
10000
8000
6000
4000
2000
0
2000
2001
US
2002
2003
International
2004
A deep product pipeline
with late-stage candidates
Other Principle Products
• Kineret
• Kepivance™
• Sensipar®
rheumatoid arthritis
chronic kidney disease
mouth sores bought
Potential Candidates
• Panitumumab
• AMG 162
colorectal cancer ($1 billon market)
osteoporosis (bone loss) and possibly also bone cancer
2002
1991
2002
2004
1998
1999
2003
2002
2004
2001
2004
2001
1989
Positive Developments
• July 4 FILLING UP AMGEN'S PIPELINE
• encouraging early data on osteoporosis and cancer drugs
• 10 more are ready for human testing
• predicts Amgen will apply for FDA approval for four
products in the next five years.
• Amgen also periodically seeks government approval to use an
existing product to treat additional maladies.
Negative Developments
• Lack of expertise in small molecule and
immunotherapeutics development
• Heavy reliance on Aranesp and Enbrel Marketing
Financial Analysis
2005 results
• First Quarter 2005 GAAP Earnings Per Share of 67 Cents
• Total Product Sales Increased 24 Percent
• 2005 Guidance Increased for Total Revenue and Adjusted EPS from
the previous range of $2.70 to $2.85 to a range of $2.80 to $2.90
• Second Quarter 2005 GAAP Earnings Per Share Increased 44
percent to 82 Cents
• 2005 Revenue Growth Guidance Raised to Mid-to-High Teens
• 2005 Adjusted Earnings Per Share Guidance Increased to a Range
of $3.10 to $3.20, a Growth Rate of 29 to 33 Percent
• Third Quarter 2005 GAAP Earnings Per Share slipped to 77 cents
• Product Sales Growth of 19 Percent Driven by Sales of Aranesp,
Neulasta and Enbrel
Income Statement
Year 2004
As a % revenue /
operating expense
YOY growth
5-year growth
Product Sales
95%
27%
228%
Cost of Sales
24%
29%
331%
R&D
28%
23%
146%
S,G&A
35%
31%
291%
Income
22%
4.6%
115%
• Write-off of acquired in-process R&D
• Amortization of acquired intangible assets
• Diluted EPS: 2.26 (Sept 2005)
• ROE: 17.55% (Sept 2005)
Since
2002
Income Statement
Hundreds
*Sudden drop in 2002 was due to write off acquired IPR&D of Tularik and Immunex
200
150
2
8%
9%
47%
51%
26%
100
1
50
0.5
0
-50
1.5
0
2000
2001
2002
2003
2004
-0.5
-100
-1
-150
-1.5
EBIDTA
Gross Profit
Sales
EPS
Cost Structure
8000
7000
6000
5000
4000
3000
2000
1000
0
2000
R&D
2001
2002
Cost of Sales
2003
S,G&A
2004
Write off
Balance Sheet
• Cash/share = 5,551/1,234 =$4.5
• Intangible assets: 4,802 (Dec 2002)
• Goodwill: 9,871(Dec 2002)
– acquisition of Immunex
– >Total assets increases 279%
• D/E: 20% (Sept 2005)
Cash flow Statement
• Growth in operating is mainly contributed from growth in
products sales
• Heavy write off of acquired in-process research and
amortization
• Most of the investing is on manufacturing expansion
• Repurchase of CS and issuance of debt
• Free CF: 3,697-1,336=2,361 millions
Cash Flow Statement
5000
4000
3000
2000
1000
0
-1000
-2000
-3000
-4000
-5000
-6000
2000
2001
2002
2003
2004
Operating
Investing
Financing
Free CF
R&D Productivity
Product Candidates
1) Internal research
2) Acquisitions (Tularik & Immunex)
3) Licensing from and collaborations with 3rd parties
1) Internal Research - Rich Pipeline
• Invest at least 20% of product sales in R&D each year
since 1994
• 40 compounds undergoing preclinical or patient trials
2) Acquisitions
• Acquisitions have contributed to Amgen's
growth history.
•
•
•
•
1994
2000
2002
2004
Synergen Inc
Kinetix Pharmaceuticals Inc
Immunex Corporation
Tularik Inc
Collaborations
• More than 100 active collaborations
Amgen Ventures
• offer early stage companies access to Amgen's extensive
capabilities while providing Amgen with insight into external
research innovations
• pave the way for future collaborations
Joint Venture
• 50-50 joint venture with Kirin (KA)
Licensing
• Johnson & Johnson – PROCRIT
Co-promotion
• Wyeth – ENBREL
• outside US – Aranesp, Neulasta, NEUPOGEN, ENBREL
Current patents &
patent applications
Patent Expiry
• Epogen
• Neupogen
• Epogen
• Neupogen
2004
2006
 Aranesp
 Neulasta
Next
generations!
Other Issues
Stock Option Expense
Effect on EPS: -6%
5 year: AMGN vs. AMEX Biotechnology
News
• 2000-2001. Slow in moving the product pipeline; no
significant innovation
• Late 2001. Introduction of Aranesp (blockbuster)
• 2002. Acquisition of one of the top tier in biotech :Immunex (expanded pipeline: Enbrel and Kineret)
• 2003-2004. Patent expiration in one of the blockbuster:
Epogen
1 year
NEWS
• April: reduced uncertainty about proposed changes in
certain Medicare reimbursement policies
• 16% Rise in July: Amgen's submission to the magazine's
Editorial Advisory and Securities Review Committee
• 7% Rise Recently: successful cancer treat test
(Panitumumab)
Capital
Expansion
Manufacturing
• Global leader in biotech manufacturing
• Producing more than 1/3 of the world’s output of nonvaccine and non-insulin protein therapeutics
Investing in Future Growth…
plans to invest billions of dollars in capital projects to
expand its capabilities
• Colorando
• Puerto Rico
• Rhode Island
Marketing Strategy
• Retention of marking rights to products in
development i.e. Epogen and Neupogen
Customer & Market
• Top 3 wholesalers
– AmerisourceBergen Corp (32%)
– Mckesson Corporation (15%)
– Cardinal Distribution (15%)
• Direct sales to health care providers in US, Europe,
Canada and Australia:
– Clinics
– Hospitals
– Pharmacies
Reliance on Supply
• Limits on supply for ENBREL®
• Certain of raw materials, medical devices and
components are single-sourced from third parties
Recognitions
• 1st in Pharmaceutical Executive Industry Audit
• 2nd in Science’s 2005 Top Biotech and Pharma
Employers Survey
The Biotech Stock Picking System
– Successful Product(s)
– Solvency
– Quantity of Pipeline
– Quality of Pipeline
– Management
– Collaborations
– R&D
Recommendation
BUY!
(long-term investment)
Genentech
In Business for Life
Company Background





Stock Price: US $93.98 (on Nov. 09, 2005)
Ticker Symbol: DNA – N
Workforce: 8300 employees
Location: South San Francisco
Outstanding Shares: 1,056,450,000
5-yr Stock Price Aty
1-yr Stock Price Aty
Company History


World’s 2nd largest biotechnology company
1976, Genentech was founded in 1976 by venture capitalist
Robert A. Swanson and biochemist Dr. Herbert W. Boyer.
Robert Swanson
Dr. Herbert Boyer
History

1980, went public.
–

Successfully raised $35 million for Genentech.
1990, Acquired by Roche Holding (Switzerland)
- a $2.1 billion merger.

1999, Roche reissued Genentech shares
– Genentech (ticker symbol DNA) returned to the NYSE
– Started at $97 and closed at $127.
–
The largest public offering in the history of the US health
care industry
Top Executives
CEO
Executive Officers







Arthur D. Levinson, Ph.D. (joined in 1980)
Chairman and Chief Executive Officer
Ian T. Clark (joined in January 2003 )
Senior VP, Commercial Operations
Bachelor of Science degree in bilogoical sciences department
Susan Desmond-Hellmann, M.D., M.P.H. (joined in 1995)
President, Product Development
David A. Ebersman, (joined in 1994)
Senior Vice President, CFO
Bachelor of Arts in Economics and International Relations.
Stephen G. Juelsgaard, D.V.M., J.D. (joined 1985)
Executive VP, General Counsel and Secretary
(doctorate veterinary medicine, master of Science degree and Law degree )
Richard H. Scheller, PhD (joined 2001)
Executive VP, Research
Patrick Y.Yang, Ph.D. (joined 2003)
Senior VP, Product Operations
Mission and Values
“ Our mission is to be the leading biotechnology company,
using human genetic information to discover, develop,
manufacture, and commercialize bio-therapeutics that
address significant unmet medical needs.
We commit ourselves to high standards of integrity in
contributing to the best interests of patients, the medical
profession, our employees and our communities, and to
seeking significant returns to our stockholders, based on
the continual pursuit of scientific and operational
excellence.”
Growth Strategy
outlined for 1999 to 2005
The 5X5 goals that outlined in 1999 and hopes to achieve by the
end of 2005:
1. 25 % average annual non-GAAP EPS growth
2. 25 % non GAAP net income as a percentage of
operating revenues
3. 5 new products/indications approved
4. 5 significant products in late-stage clinical trials
5. $500 million in new revenues from strategic
alliances or acquisitions
Major Stakeholder- Roche



At Dec 31, 2004, Roche’s ownership % was 56.1%
At Sept 30, 2005, Roche’s ownership % was 55.5%
Affiliation agreement shows:
–
–
upon Roche's request, DNA will repurchase share of the
common stock to increase Roche's ownership to the Min %,
55.7%
Roche has a continuing option to buy stock from DNA at
prevailing mkt prices to maintain its % owner interests.
Products
1. Oncology
cancer treatment
2. Immunology
immune disorder
3. Vascular Medicine
heart disease
4. Specialty
Biotherapeutics
other areas
Product Approval Timeline
Revenue Composition
Avasitin –
14.80%
Herceptin –
12.88%
Growth
Hormone 9.44%
Thrombolytic 5.33% Xolair -5.%
Pulmozyme – 4.8%
Rituxan –
45.64%
In 2004, Genetech:







Entered into 3 partnerships
Received 2 product approvals
Launched 2 breakthrough oncology products :
Avastin + Tarceva
Saw promising results in numerous clinical trials
Add 13 new projects to it development pipeline
Delivered substantial growth
Continued to receive recognition as the best
place to work in 2004
Development Pipeline
Information updated November 2005
Awaiting FDA Action
Rituxan®
Hematology/Oncology
Frontline intermediate grade or aggressive
NHL
Rituxan® Immunology
Refractory rheumatoid arthritis
Development Pipeline
FDA Filing Preparation
Avastin®
Metastatic breast cancer
Non-small cell lung cancer
Second line colorectal cancer
Herceptin®
Adjuvant breast cancer
Metastatic breast cancer in
combination
with Taxotere
Development Pipeline
PHASE III
Avastin
Refractory Ovarian Cancer*
Xolair
Pediatric Asthma
Lucentis
Wet age-related macular degeneration
Rituxan®
Hematology/Oncology
Relapsed chronic lymphocytic leukemia
Rituxan-Immunology
ANCA-associated vasculitis
Lupus nephritis*
Moderate-to-severe rheumatoid arthritis*
Primary progressive multiple sclerosis
Systemic lupus erythematosus
Tarceva®
Adjuvant non-small cell lung cancer*
Tarceva® +/- Avastin®
Second line non-small cell lung cancer
Development Pipeline
PHASE II
2nd Generation AntiCD20
Rheumatoid arthritis
Apo2L/TRAIL
Cancer therapy*
Avastin® +/- Tarceva®
Non-small cell lung cancer
Omnitarg™
Ovarian cancer
Raptiva®
Adult atopic dermatitis*
Rituxan® Immunology
Relapsed remitting multiple sclerosis
Topical VEGF
Diabetic foot ulcers*
Xolair®
Peanut allergy
Development Pipeline
PHASE I
Anti-NGF
Acute and Chronic Pain
BR3-FC
Rheumatoid Arthritis*
Tropical Hedgehog
Antagonist
Basal Cell Carcinoma*
Important Products Introduction





Avastin - New
Tarceva - New
Rituxan – 15% sales increase
Herceptin – 13.6%
Activase, TNKase, and Cathflo Activase – 8%
Avastin – Oncology



Avastin
Anti-VEGF antibody
For use in combination with intravenous 5Fluorouracil-based chemotherapy as a treatment for
first-line metastatic colorectal cancer
In 2004, Avastin launch was the most successful
oncology therapeutic in US. The total sales of the 1st
10 month in US was 545 M, which exceeded the full
year sales of any other product in the therapeutic area
by about 175 M.
In the 1st half 2005 sales of Avastin where 464 M
compared with 171 million in first half 2004.
Tarceva – Oncology



approved Nov. 18, 2004
Small molecule HER1/EGFR inhibitor
For use as an oral tablet for the treatment of patients
with locally advanced or metastatic non-small cell
lung cancer after failure of at least one prior
chemotherapy regimen
The only drug in epidermal growth factor receptor
class to demonstrate an increase in survival I
advanced non-small cell lung cancer patients in a
phase Ii clinical trial
Rituxan – Oncology





Anti-CD20 antibody
approved for the treatment of patient with relapsed
or refractory low-grade or follicular, CD20 positive, Bcell non-Hodgkin's lymphoma
One of Genentech top-selling drugs in 2004
In 2004, Sales of 1.71 B, 14.9% increase
In first half of 2005, 890.8 M, 18.5 % increase
compare with first half of 2004
Marketed in US by Genentech and Biogen Idee
by Zenyaku in Japan
Herceptin
Anti-HER2 antibody
For metastatic breast cancer in HER2 over
expressed tumors
No. 3 best-selling drug to the company
In 2004, sales of 484 M, a 13.6% increase
In the first half of 2005, sales of 291.1M, a 25.9%
increase
Marketed by Genentech in US, and Roche in the rest
of the world
3 Vascular Drugs



Activase, TNKase, and Cathflo Activase
In 2004, total net sales of 200M, an increase
of 8% compared with 2003
in the first half of 2005, sales of the 3 drugs
were 106.9M, up 9.3% increase
Activase


In 2004, approved for treating heart attacks,
acute ischemie stroke and massive
pulmonary embolism
The 1st drug to be indicated for the mngt of
stroke
Cathflo Activase®
TNKase™

Cathflo Activase
Thrombolytic agent
For the restoration of function to central venous
access devices as assessed by the ability to
withdraw blood
 On Jan 4, 2005, approved by FDA for catheter
clearance in pediatric patients

TNKase
Single-bolus thrombolytic agent
For the treatment of acute myocardial infarction (AMI)
Licensed Products




receive royalty revenue under license
agreements
based on technology developed by us or on
intellectual property to which Genentech has
rights.
products are sometimes sold under different
trademarks or trade names.
Significant licensed products, representing
94% of our royalty revenues in 2004
Licensed Products
Sales Revenue Composition
Avasitin –
14.80%
Herceptin –
12.88%
Growth
Hormone 9.44%
Thrombolytic 5.33% Xolair -5.%
Pulmozyme – 4.8%
Rituxan –
45.64%
Product Sales
Each Product Revenue Growth
Each Product Revenue Growth
Each Product Revenue Growth
General Growth
Royalties income



In 2003, increase 37% to 500.9M
In 2004, Increase 28% to 641.1 M
Reasons:
–
–
Due to higher 3rd Party sales by various
licensees, mainly Roche (Rituxa + Herceptin)
Increase of ex rate of Euro dollars
Contract Revenue



In 2003, increased 226% to 177.9M
In 2004, increased to 30% to 231.2M
Reason:
–
–
–
–
–
Driven from the collaborators for $$ earned on development
efforts related to
Lucentis,
Rituxan Immunology
Commercialization of Terceva
New drug, Avastin
Research and Development



In 2003, R+D expense increased 16% to 722M
In 2004, it increased 31%,
In 2004, it’s a % of operating revenue was 21%
Balance Sheet
2004
2003
Net mkt Value of Asset –
increase
9403.4M
8736.2M
Price/Book Value
Increase
11.23
7.09
Income Statement
2004
2003
1.Sales Revenue Increase = 43 %
3.75B
2.8B
Free Cash flow Increase
546 M
915 M
Net Earning – increase
784.8 M
610.2 M
Cash Flow Statement
2004
2003
Operating CF
(increase)
1195.8 M
1236.9 M
Financing CF
(decrease)
-846.3 M
325.5 M
Investing CF
(increase)
-451.6M
-1398.4 M
Key Ratios
2004
2003
2002
2001
2000
P/B
11.23
3.76
1.59
2.42
3.77
P/E
88.92
81.08
217.80
185.79
--
Current Ratio
3.447
3.10
3.22
3.35
3.96
Net Profit Margin
%
22.0
18.49
2.47
7.63
-0.10
ROE %
12.8
8.07
0.93
2.11
-1.13
Price/Book Value – 5yrs Trend
12
11.23
10
8
6
4
P/B
3.77
3.76
2.42
2
1.59
0
2000
2001
2002
2003
2004
Price/ Equity Ratio – 5yrs Trend
250
217.8
200
185.7
150
P/E ratio
100
81.08 88.92
50
0
2000
2001
2002
2003
2004
Current Ratio – 5yrs Trend
3.96
3.25 3.22 3.1
3.47
20
04
20
03
20
02
Current Ratio
20
01
20
00
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Net Profit Margin % - 5 yrs trend
25
22
20
18.49
15
10
Net Profit
Margin %
7.63
5
2.47
0
-0.1
2000 2001
-5
2002
2003
2004
ROE % trend
14
12.8
12
10
8.07
8
6
4
2
2.11
0
-1.13 2001
-22000
0.93
2002
2003
2004
2005 Q1 – Q3








Product Sales
R+D Expenses
Operation Costs
Liquidity + Capital Resources
CF Statement
New Projects
Recent News
Stock Price information
In 2005, Product Sales
In 2005, Operation Cost
In 2005, R+D Expense
In 2005, Liquidity + Capital Resources
Cash Flow Statement
New Projects


In 2004, addition of 13 projects to the
pipeline
6 of which are new molecular entities:
–
–
–
–
–
Anti-NGF for acute and chronic pain,
BRS-Fc for rheumatoid arthrities
A tropical Hedgehog antagonist for basal cell
carcinoma
A tropical vascular endothelial growth factor for
diabetic foot ulcers
Two other undisclosed molecular entities
Recent News


In November 2005, the FDA approved Tarceva®
(erlotinib) in combination with gemcitabine
chemotherapy for the treatment of advanced
pancreatic cancer in patients who have not
received previous chemotherapy.
Tarceva is the first drug in a Phase III trial to have
shown a significant improvement in overall survival
when added to gemcitabine chemotherapy as initial
treatment for pancreatic cancer.
Recent News


On November 7, 2005, Genentech
announced that preliminary data from a
Phase III trial showed Lucentis™
(ranibizumab) is the first investigational
therapy to demonstrate clinical benefit over
photodynamic therapy in a head-to-head
study of patients with wet age-related
macular degeneration.
Beat the QLT down (a Canadian based
BioTech firm )
Recent Stock Price
Nov 9, 2005, DNA stock price:
94.88 USD
The Biotech Stock Picking System







Successful Product(s)
Solvency
Quantity of Pipeline
Quality of Pipeline
Management
Collaborations
R&D
Recommendation
Hold !
Celgene
The Top Management Team
John W. Jackson
Chairman and Chief Executive Officer
Has been Chairman of the Board and Chief Executive Officer since
January 1996 and a member of the Executive Committee of the Board
of Directors.
Sol J. Barer
President and Chief Operating Officer
Has been the President since October 1993 and the Chief Operating
Officer and one of the directors since March 1994 and a member of
the Executive Committee of the Board of Directors.
Robert J. Hugin
Chief Financial Officer
Has been the Senior Vice President and Chief Financial Officer
since June 1999 and was elected to serve as a director in
December 2001.
ABOUT THE COMPANY
• Initially a unit of the Celanese Corporation in 1980.
• spun off as an independent biopharmaceutical company
in 1986.
Very Convenient
• Specializes in the discovery, development, and
commercialization of orally administered drugs for
the treatment of cancer and inflammatory diseases
via gene regulation.
• Have two main subsidiaries,
1.Signal Pharmaceuticals (formed in 2000)
2.Celgro.
Snapshot
•
•
•
•
•
Stock price: $58.28 (as of Nov10, 2005)
# of outstanding shares: 167.9 Million
Dividend: always 0
Market Capitalization: 9.78 Billion
Earning Per Share: $ 0.51
ABOUT THE COMPANY
Major Products in the Market
• THALOMID
approved by FDA in July of 1998.
• Ritalin® family & FOCALIN series
FOCALIN approved by FDA in November 2001.
FOCALIN XR (extended-release capsules)
approved on May 27, 2005
• ALKERAN
in-licensed from GlaxoSmithKline for
distribution in the US in March 2003 to
distribute, promote, and sell ALKERAN.
These are the current major Revnue Drivers
THALOMID®
No.1 Revenue Driver
What does it do?
•
Initially approved as the treatment of moderate to severe Erythema
Nordosom Leprosum (ENL) and maintenance therapy for prevention and
suppression of the disease.
•
Its function has been expanded to treat various types of cancers.
•
Also it is under development as a potential treatment for various
serious chronic illnesses, such as:
In 2003 the National Comprehensive Cancer Network guidelines
recommended the combination of THALOMID and dexamethasone as the
first-line standard of care for newly-diagnosed myeloma patients.
On October 22, 2004, Celgene received an approvable letter from the
FDA relating to its THALOMID® multiple myeloma (or MM) supplemental
new drug application, or sNDA.
S.T.E.P.S.®
- Celgene's Innovative Restricted Distribution Program
What is it?
•
S.T.E.P.S.® stands for System for Thalidomide Education and
Prescribing Safety.
•
Since its inception, nearly 115,000 individuals have taken
advantage of Celgene’s S.T.E.P.S.® program.
•
A blueprint for pharmaceutical products that offer life-saving
or other important therapeutic benefits but have potentially
problematic side effects.
•
THALOMID(R) is the first drug approved under a special
"Restricted Distribution for Safety" regulation.
•
The system is included as part of the THALOMID prescribing
information and was developed to prevent fetal exposure to
THALOMID.
•
S.T.E.P.S. intellectual property estate includes five U.S.
patents expiring between the years 2018 and 2020
Prescription for THALOMID must go through the S.T.E.P.S.—Mandatory
RETALIN® family & FOCALIN series
No.2 Revenue Driver
What does it do?
FOCALIN
• a refined form of Ritalin that offers tolerability and
dosing advantages over the parent drug.
• For the treatment of attention deficit disorder and
attention deficit hyperactivity disorder (ADHD) in
children and adolescents.
FOCALIN XR
• is long-acting version of FOCALIN and is for the
treatment of Attention-Deficit/Hyperactivity Disorder
(ADHD) in adults, adolescents, and children.
ADHD is one of the most common psychiatric disorders of
childhood and is estimated to affect five to seven
percent of children and approximately four percent of
the adult population in the U.S.
ALKERAN
No.3 Revenue Driver
What does it do?
A therapy for the palliative treatment of
• multiple myeloma
(Since the therapy was first introduced in 1962, ALKERAN
has remained a standard treatment for the management of
MM.)
• non-resectable epithelial carcinoma of the ovary.
In the 2004 American Society of Hematology meeting,
clinical trial data was presented. In combination with
other anti-cancer therapeutics, including THALOMID(R)
(the #1 revenue driver), ALKERAN(R) was a key component
of several investigational MM studies which reported
positive results.
REVLIMID
The
Potential Product
Recent News
WASHINGTON, Sept 14, 2005 /PRNewswire-FirstCall via
COMTEX News Network/ -- Celgene Corporation
announced that the Oncologic Drugs Advisory
Committee (ODAC) of the U.S. Food and Drug
Administration (FDA) recommended full approval of
REVLIMID for the treatment of patients with
transfusion- dependent anemia due to low- or
intermediate-1-risk myelodysplastic syndromes (MDS)
associated with a deletion 5q cytogenetic
abnormality with or without additional cytogenetic
abnormalities.
REVLIMID
A current cost driver but a Potential Revenue Driver
What does it do?
• A leading IMiD IMMUNOMODULATORY DRUGS (in clinical
trials)
• A potential treatment for myelodysplastic syndromes (MDS)
and multiple myeloma
affect approximately 300,000 and 200,000 people worldwide,
respectively.
• It offers “Transforming Potential” in Hematological
Cancers.
• It is being evaluated in more than 30 blood cancers and
solid tumors.
• Taken orally as capsules very convenient
ABOUT THE COMPANY
Other Current Researches
•
•
•
•
•
•
•
Other IMiDs® : ACTIMID™, (CC-11006)
PDE4 & TNF-alpha Inhibitors
Benzopyrans
Kinases Inhibitors
Tubulin Inhibitors
Ligase Modulators
Stem cells Programs
These are the current major Cost Drivers
The Product Pipeline
The core programs:
• ACTIMID™
• (CC-11006)
• PDE4 & TNF-alpha
Inhibitors
Other investigational
compounds:
• Benzopyrans
• Kinases Inhibitors
• Tubulin Inhibitors
• Ligase Modulators
• placental
• cord blood derived
stem cell programs
ABOUT THE COMPANY
• The company has been running negative since its
“independence” in 1986, until 2003.
For the fiscal year ended December 2003 the Celgene
Corporation achieved revenues totaling $271.5 million,
an increase of 100% on 2002 revenues which totaled
$135.7 million
•
Currently Celgene is a profitable fast growing company.
The fuel for Celgene’s fast growth comes from its
current products in the market.
Company Performance Overview
—Income Statement
(2000~2004)
In Millions
2000
2001
2002
2003
2004
Sales
84.2
114.2
135.7
271.5
377.5
Gross Operating Profit
79.6
105.7
123.9
233.2
332.1
EBIDTA
-23.0
-20.0
-30.7
8.2
57.0
Net Income
-16.3
-1.9
-100.0
13.6
52.8
Diluted EPS
-0.13
-0.02
-0.66
0.08
0.31
Revenue Composition
—the Major Revenue Drivers
THALOMID
90.00%
80.00%
FOCALIN
70.00%
60.00%
ALKERAN
50.00%
40.00%
other
30.00%
20.00%
collaborative ageements
and other revenue
10.00%
0.00%
2004
2003
2002
Royalty revenue (from
FOCALIN)
Revenue Composition
—the Major Revenue Drivers
% of Total Revenue
2004
2003
2002
THALOMID
81.74%
82.40%
87.71%
FOCALIN
1.11%
0.88%
2.84%
ALKERAN
4.49%
6.57%
--
Other
0.23%
0.21%
--
Total net
product sales
87.57%
90.05%
Collaborative
agreements
and other
Revenue
5.30%
Royalty
revenue
7.13%
90.55%
5.59%
5.98%
4.36%
3.47%
•About 90% of the total revenue came from product sales,
almost all of which came from the sales of the three current
drugs in the market.
•Other sales accounted for <0.25 %
THALOMID®
No.1 Revenue Driver
2002
2003
2004
$ 119,060 thousand
$ 223,686 thousand
$ 308,577 thousand
87.71%
82.40%
81.74%
•
2002--2003: net sales were higher in 2003, as compared to 2002,
due to the combination of price increases and oncologists’
expanded use of the product as a treatment for various types
of cancers, especially first-line use in MM. Net sales in 2003
also benefited from the market introduction, during the first
half of the year, of two new higher-strength formulations,
which had higher per unit sales prices.
•
2003-2004: net sales were higher in 2004, as compared to 2003,
primarily due to a combination of price increases implemented
in the second half of 2003 and in the first nine months of
2004 and increased number of prescriptions. The total number
of prescriptions increased approximately 9.4% from the prior
year period.
THALOMID®
No.1 Revenue Driver
Significant Event
1. In October 2004 Celgene acquired all of the
outstanding shares of Penn T Limited, a worldwide supplier
of THALOMID®.
•
Through manufacturing contracts acquired in this acquisition,
the company is now able to have total control over the
manufacturing of THALOMID® worldwide.
•
It also increased Celgene’s participation in the potential sales
growth of THALOMID® in key international markets.
THALOMID®
No.1 Revenue Driver
Significant Event
2. In December 2004 it revised the Pharmion product
supply agreement acquired in the Penn T
acquisition.
Under the modified agreement, Pharmion paid Celegene
• A one-time payment of $77.0 million in return for a
reduction in their total product supply purchase price
from 28.0 percent of Pharmion’s thalidomide net sales,
including cost of goods to 15.5 percent of net sales.
• An additional $8.0 million over the next three years to
extend the two companies’ existing thalidomide research
and development efforts.
• A one-time payment of $3.0 million for granting Pharmion
license rights to develop and market thalidomide in
three additional Asian territories (Hong Kong, Korea and
Taiwan), as well as for eliminating termination rights
held by Celgene tied to the regulatory approval of
thalidomide in Europe in November 2006.
S.T.E.P.S.®
- Celgene's Innovative Restricted Distribution Program
• In 2004, $0.5M from S.T.E.P.S. use licensing fees.
In November 2004, Celgene granted a non-exclusive license to the
four companies who manufacture and distribute (sell)
isotrentinoin (Accutane(R) for the rights to Celgene's patent
portfolio (the S.T.E.P.S. System) directed to methods for safely
delivering the product to potentially high-risk patient
populations.
This will bring more income in the coming years.
THALOMID®
No.1 Revenue Driver
Near Future Outlook
Opportunity:
(having the total control over the supply of
THALOMID)
• Lower cost of production through economy of scale and
less cost paid to the intermediaries.
• Greater potential future income from both the company’s
own sales and from sales by others in the international
market, and from license fees from the STEPS system.
Threat:
• Depend too much on this one drug.
• Near-Term Competition With THALOMID®:
 reduce THALOMID® sales.
RETALIN® family & FOCALIN series
No.2 Revenue Driver
In April 2000, Celgene granted Novartis Pharma AG an
exclusive license (excluding Canada) for the
development and marketing of FOCALIN(R) and long
acting drug formulations in return for substantial
milestone payments and royalties on FOCALIN(R) and
the entire RITALIN(R) family of drugs.
In 2002, Novartis launched FOCALIN(R) and RITALIN(R)
LA, the long-acting version of RITALIN(R), in the
United States, following regulatory approval.
RETALIN® family & FOCALIN series
No.2 Revenue Driver
Product Sales
Royalty Revenue
2002
2003
2004
$ 3861 thousand
$ 2383 thousand
$ 4177 thousand
2.84%
0.88%
1.11%
$ 4710 thousand
$ 11848 thousand
$ 26919 thousand
3.47%
4.36%
7.13%
•
2002—2003: The sales dropped by 38.3% due to the timing of shipments to
Novartis for their commercial distribution.
•
2003—2004: FOCALIN® net sales increased by 75.3% in 2004,due to better
timing of shipments to Novartis for their commercial distribution.
•
Revenue from the royalty has increased in both 2003 and 2004.
2002—2003: by 151.5%
2003—2004: by 127.2%.
The increases were due to increases in the royalty rate on both RITALIN®
and RITALIN® LA as well as increases in RITALIN® LA sales by Novartis.
RETALIN® family & FOCALIN series
No.2 Revenue Driver
Celgene has been able to maximize the full potential of
this unique asset.
A steady stream of income from:
• royalties on sales of the entire Ritalin family of drugs,
• a portion of the revenue from product sales of FOCALIN.
Retained the exclusive commercial rights to FOCALIN(R)
and FOCALIN(R) XR for oncology-related disorders.
Eg. chronic fatigue associated with chemotherapy.
RETALIN® family & FOCALIN series
No.2 Revenue Driver
Important news
• The company recently completed a double-blinded
randomized placebo-controlled clinical trial evaluating
FOCALIN's potential in the treatment of cancer fatigue
associated with chemotherapy
A huge potential market
• It is evaluating potential clinical and regulatory
development strategies for this indication.
ALKERAN
No.3 Revenue Driver
2002
2003
2004
--
$ 17827 thousand
$ 16956 thousand
--
6.57%
4.49%
Because the supply and distribution agreement with GSK
was executed in March 2003, therefore sales for this
product are reflected only in the 2003 period.
• 2003—2004: net sales dropped by 4.9%, due to supply
disruptions earlier in the year  inconsistent supplies
of ALKERAN® IV  inconsistent end-market buying
patterns.
ALKERAN
No.3 Revenue Driver
A strategically valuable agreement
• provides Celgene with an approved oncology product
that complements its THALOMID and REVLIMID(the
potential revenue driver).
Overall, a stable revenue driver...
REVLIMID
Potential Revenue Driver
Near Future Outlook
REVLIMID could have a positive effect on the lives of
tens of thousands of patients around the world and on
the company itself.
Definitely a great potential revenue driver.
Cost Structure
—Major Cost Components as % of total expenses
50.00%
45.00%
40.00%
35.00%
30.00%
COG
R&D
S,G and A
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2004
2003
2002
R&D expenditure accounts for most of the total cost,
followed by S,G and A and then COG.
Cost Structure
—Major Cost Components
% of Total Expenses
COG
R&D
S,G and A
2004
2003
2002
17.8%
19.3%
8.3%
48.0%
44.8%
33.9%
34.1%
35.9%
26.4%
Major Cost Component
R&D
R&D spending has been increasing in each of the past years.
Major Cost Component
R&D
2002
2003
2004
R&D
$ 84.9 M
$ 122.7 M
$ 160.9 M
% of Total Revenue
62.6%
45.2%
42.6%
Increase from Prior Year
+ 17.3 M (25.5%)
+ 37.8 M (44.5%)
+ 38.2 M (31.1%)
• 2002~2003: the increase was primarily due to the
initiation of several large studies related to THALOMID®
and REVLIMID® clinical programs in the second half of
2002.
• 2003~2004: the increase was primarily due to increased
spending in various late-stage regulatory programs.
These included Phase II regulatory programs for
REVLIMID® in MDS and MM, as well as ongoing REVLIMID®
Phase III SPA trials in MM.
Major Cost Component
R&D Break Down
2002
2003
2004
Major Human Phamaceutical
clinical Programs
$ 27.4 M
$ 52.8 M
$ 78.3 M
Other Human Phamaceutical
clinical Programs
$ 22.2 M
$ 29.2 M
$ 33.4 M
biopharmaceutical discovery
and development programs
$ 32.3 M
$ 33.7 M
$ 40.6 M
placental stem cell and
biomaterials programs
$ 3.0 M
$ 7.0 M
$ 8.6 M
Total
$ 84.9 M
$ 122.7 M
$ 160.9 M
Major R&D Cost Drivers
To support multiple core programs:
• THALOMID®,
• REVLIMID®,
• ACTIMIDTM,
• CC-11006,
• PDE4/TNF-alpha inhibitors
To investigate other compounds, such as:
• kinase inhibitors,
• benzopyrans,
• ligase inhibitors
• tubulin inhibitors,
• placental
• cord blood derived stem cell programs.
Major Cost Component
R&D
Near Future Outlook
At current stage, it’s still quite uncertain about which
of these compounds will turn from a cost driver to
become a revenue driver.
One thing that is certain is that R&D spending will keep
accelerating into the near future years.
Major Cost Component
COG
2002
2003
2004
COG
$ 20.87 M
$ 52.95 M
$ 59.72 M
% of Net Product Sales
18.1%
21.7%
17.0%
Increase from Prior Year
+ 1.9 M (9.9%)
+ 32.1 M (153.7%)
+ 6.8 M (12.8%)
2002~2003:
•Big increase, primarily due to significant growth in THALOMID®
sales volumes, higher royalties on THALOMID® product sales.
•COG also increased as a % of net product sales.
2003~2004:
•Smaller increase primarily as a result of higher royalties on
THALOMID®, partially offset by lower ALKERAN® sales.
Major Cost Component
COG
• Overall, the COG occupies less than 22% of the net
product sales.
• It is possible to further lower its cost of production
for THALOMID through the economy of scale (since it
controls the worldwide supply now)
• The introduction of the REVLIMID will certainly increase
the COG, but also the revenue.
Major Cost Component
S,G and A
2002
2003
2004
S, G and A
$ 66.17 M
$ 98.47 M
$ 114.20 M
% of Total Revenue
48.7%
36.3%
30.3%
Increase from Prior Year
+ 13.6 M (25.9%)
+ 32.3 M (48.8%)
+ 15.7 M (16.0%)
2002~2003:
The significant increase in employees largely explains the
jump in S,G and A expenses.
Major Cost Component S,G and A
2002~2003 continuous:
S, G and A expenses increased primarily due to
• first-time expenses of approximately $10.1 million
related to the Stem Cell Therapies segment following the
December 2002 acquisition of Anthrogenesis Corp.
• an increase of approximately $12.0 million in commercial
expenses related to the expansion of the sales and
marketing organization and an increase in customer
service staff
• an increase of approximately $10.0 million in general
administrative and medical affairs expenses.
Major Cost Component S,G and A
2003~2004:
S, G and A expenses increased by $15.7 million, as a
result of an increase of
• approximately $12.0 million in general administrative
and medical affairs expenses primarily due to higher
headcount-related expenses; and
• an increase of approximately $3.6 million in sales force
expenses primarily due to the creation of a sales
operations group.
Major Cost Component S,G and A
• On a decreasing trend as a % of total
revenue
A Good Sign…
Company Performance Overview
—Balance Sheet
(2000~2004)
In Millions
2000
2001
2002
2003
2004
Cash and Equivalents
161.4
47.1
85.5
267.5
135.2
Cash Per Share
1.09
0.31
0.53
1.65
0.82
Intangibles
0.0
0.0
6.0
6.2
150.2
Total Assets
346.7
354.0
327.3
791.3
1107.3
Long Term Debt
12.3
11.0
0.0
400.0
400.0
Total Liabilities
51.2
43.6
50.6
481.3
629.8
# of Outstanding Shares
148.0
151.2
160.4
162.8
165.1
Total Equity
295.5
310.4
276.7
310.1
477.4
D/E
0.17
0.14
0.18
1.55
1.32
Consists of only common shares
Arrange 400M convertible notes (due in five years) in 2003. The
notes can be converted to 16,511,840 shares anytime. In
substance, these are equities.
500.0
400.0
Company Performance Overview
—Cash Flow Statement
(2000~2004)
Increase due to the issuance
of the convertible notes
Growth due to significant
increase in products sales
300.0
200.0
Operating
Investing
Financing
Free CF
100.0
0.0
2,000
-100.0
-200.0
-300.0
2,001
2,002
2,003
2,004
2005 RESULTS
Company Performance Overview 2005
(Up to September 30)
Nine-Month Period Ended September 30
2005
2004
% Change
THALOMID
$ 281,972
$ 222,498
26.7 %
Focalin
3,129
3,698
(15.4%)
ALKERAN
30,803
12,025
156.2%
Other
1,024
712
43.8%
Total net product sales
316,928
238,933
32.6%
Collaborative agreements
and other revenue
35,829
15,420
132.4%
Royalty revenue
34,846
17,741
96.4%
Total revenue
$ 387,603
$ 272,094
42.5%
R&D
138,413
116,520
18.8%
COG
53,999
43,655
23.7%
S, G and A
126,114
79,408
58.8%
Net Income
59,728
30,517
95.7%
Net product sales:
Company Performance Overview 2005
--Key Ratios
Company
Amex Biotech
S&P 500
Current P/E Ratio
116.0
20.2
18.1
Price/Sales Ratio
21.36
3.39
1.44
Price/Book Value
17.72
4.42
2.79
Price/Cash Flow Ratio
92.50
15.00
11.80
Return On Equity
16.2
21.9
15.8
Return On Assets
7.9
10.9
2.8
Return On Capital
9.5
17.8
7.6
• These ratios are based on latest 12 months' results
The Biotech Stock Picking System
– Successful Product(s)
– Solvency
– Quantity of Pipeline
– Quality of Pipeline
– Management
– Collaborations
– R&D
Recommendation
1. Very high risk
2. High growth potential
BUY