Transcript 2004 - Beedie School of Business

David: BioTech Industry
BioTech
Dave: Amgen
Christine: Genentech
Karen: Protein Design Labs
2000 TV AD
2004 TV AD
Definition
Sector: HealthCare
Industry: Biotechnology & Drugs
Definition: engaged in the discovery, development, and
commercialization of biotechnology based drugs and
products (therapeutic proteins, recombinant DNA
vaccines, gene therapies, and devices).
BioTech Industry
BioTech Vs Pharma
Industry Positioning
Size
Amgen, Genentech
Protein Design Labs
Business
Function
The Market
Cancer
 about 1 in 3 lifetime risk; 38% of women and 43% of men
 23 million suffering worldwide.
 Estimated $280 billion spent on treatment drugs for cancer annually.
Diabetes
 16 million Americans with 10.3 million diagnosed and 8.1 million women
(NWHIC); 65 per 1000 - NHIS95; 8 million - perhaps 16 million if include
not-yet-diagnosed.
 165 million cases worldwide (2003)
 $150 billion in direct and indirect costs in America
Heart Disease
 25 million adults in the US
 Heart disease and stroke cost US almost $260 billion annually.
Blockbusters
Future Blockbusters
Recent BioTech Timeline
4000–2000 B.C.
Biotechnology first used to leaven bread and ferment beer, using yeast (Egypt).
1990

Chy-Max™, an artificially produced form of the chymosin enzyme for cheese-making, is introduced. It is the
first product of recombinant DNA technology in the U.S. food supply.

The first experimental gene therapy treatment is performed successfully on a 4-year-old girl suffering from
an immune disorder.
1993 FDA approves bovine somatotropin (BST) for increased milk production in dairy cows.
1994 First FDA approval for a whole food produced through biotechnology: FLAVRSAVR™ tomato.
1997 First animal cloned from an adult cell: a sheep named Dolly in Scotland.
1998 A rough draft of the human genome map is produced, showing the locations of more than 30,000 genes.
1999 Biotechnology-based biopesticide approved for sale in the United States.
2001 Chinese National Hybrid researchers report developing a "super rice" that could produce double the yield
of normal rice.
2002 The draft version of the complete map of the human genome is published.
2003

GloFish, the first biotech pet, hits the North American market. Specially bred to detect water pollutants, the
fish glows red under black light thanks to the addition of a natural fluorescence gene.

The U.K. approves its first commercial biotech crop in eight years. The crop is a biotech herbicide-resistant
corn used for cattle feed.

Japanese researchers develop a biotech coffee bean that is naturally decaffeinated.
2004 The FDA approves the first anti-angiogenic drug for cancer, Avastin (bevacizumab).
Industry Facts
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Biotechnology is responsible for hundreds of medical diagnostic tests that keep the blood supply
safe from the AIDS virus and detect other conditions early enough to be successfully treated. Home
pregnancy tests are also biotechnology diagnostic products.
Consumers already are enjoying biotechnology foods such as papaya, soybeans and corn.
Environmental biotechnology products make it possible to clean up hazardous waste more
efficiently.
Industrial biotechnology applications have led to cleaner processes that produce less waste and
use less energy and water in such industrial sectors as chemicals, pulp and paper, textiles, food,
energy, and metals and minerals.
DNA fingerprinting, a biotech process, has dramatically improved criminal investigation and
forensic medicine, as well as afforded significant advances in anthropology and wildlife management.
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.
Regulated: by the U.S. Food and Drug Administration (FDA), the Environmental Protection Agency
(EPA) and the Department of Agriculture (USDA).
There are more than 370 biotech drug products and vaccines currently in clinical trials
targeting more than 200 diseases, including various cancers, Alzheimer's disease, heart disease,
diabetes, multiple sclerosis, AIDS and arthritis.
Market Capitalization
The Trend
6 Key Investment Guidelines
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Product Pipeline
Look for companies with at least two drugs in clinical trials
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Collaborations
Collaborative agreements with various pharmaceutical companies for research or marketing and
link up with a corporate or academia partner => lower risk
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Management
Proven track record of taking a drug through the regulatory hurdles and/or to the marketplace

Cash
Company’s burning of cash in ongoing research and development or "burn rate" is a critical
measure of a company’s longevity
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Market
Aimed at markets for a new drug that is both large and under-serviced.
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Technology
Look to see if the research and development can do what it needs to do and supposedly solve a
medical problem or problems.
Drug Discovery Process
FDA
Food and Drug Administration
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
Tests on
 Isolated tissues
 Cell Cultures
 Animals
To see the potential effects on
humans
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The beginning of the
drug approval process

Company decides whether to
pursue human testing
The IND Filing
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Exemption from marketing application in order to transport
the drug
Before testing on humans can begin, the company must file
an Investigational New Drug (IND) application
FDA has 30 days to review the IND application
At this time patents are usually applied for, patents last
generally for 20 years
The goal of the IND application is to provide pre-clinical
data of sufficient quality to justify the testing of the drug in
humans
About 85% of all IND applications move on to begin clinical
trials
Patent
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Biotech inventions are subject to the same rules as all other
inventions

Generally last 20 years
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
Patent Granted
Total Biotechnology patents Granted Per Year
8000
7000
6000
5000
4000
3000
2000
1000
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Patent Exposure
Generics
Phase I
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Ranging from 1 to 3 years
Begins to analysis the drugs safety profile
How the drug is absorbed, metabolized and
excreted
Improves Chances of making it to market by 30%
Sample in this phase is small
(less than 100 patients)
Healthy volunteers => safety and dosage
Phase II
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Ranging about 2 years
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Consists of small, well-controlled
experiments to evaluate the drug's safety
and assess side effects
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Making it through phase two increase
your chances of being approves by 60%
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Sample size of 100 – 300 patients who
suffer from the disease
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This phase establishes the optimal
dosage of the drug
Phase III
Ranging between 3 and 4 years
 Verifies the drug is effective in its intended use
 Assessment of long term effects
 Continues to build the safety profile of the drug and record
possible side effects and adverse reactions resulting from longterm use
 Sample size of at least 1000 patients
 At this point the drug has a 70% chance of FDA approval.
Processing of the NDA New Drug Application
 This can take be done in as little as 6 month or as long as 2 years
 Drugs are subject to ongoing review, making sure no adverse side
effects appear from the drug.
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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
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The clinical trial process is costly as well as time-consuming
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$350 - $500 million to bring a drug through all phases of the
clinical trial process
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Consider companies that already have:
 one or more successful products on the market
 a large pipeline of candidate drugs
 plenty of cash to fund the development of their new drug
candidates
2004 Merger & Acquisition
Big BioTech
Industry Statistics
Valuation Ratios
P/E (ttm)
Financial Strength (mrq)
36.7
Quick Ratio
3.28
P/Sales (ttm)
8.8
Current Ratio
4.06
P/Book (mrq)
5.2
LT Debt/Equity
0.34
Total Debt/Equity
0.38
P/Cash Flow (mrq)
32.5
Profitability (ttm)
Mgt. Effectiveness (ttm)
Gross Margin %
67.8
Return on Investment %
2.9
Operating Margin %
16.5
Return on Assets %
1.45
Net Profit Margin %
21.1
Return on Equity %
7.76
Industry Financials
Year
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
Sales (in
billions)
28.4
24.3
21.4
19.3
16.1
14.5
13
10.8
9.3
7.7
7.0
R&D Expense
17.6
20.5
15.7
14.2
10.7
10.6
9.0
7.9
7.7
7.0
5.7
Net Loss
5.4
9.4
4.6
5.6
4.4
4.1
4.5
4.6
4.1
3.6
3.5
No. of Public
Companies
314
318
342
339
300
316
317
294
260
265
235
No. Of
Companies
1473
1466
1457
1379
127
3
131
1
1274
1287
130
8
1311
1272
Employees (in
thousands)
198
195
191
174
162
155
141
118
108
103
97
Industry Revenue
Cash
Total Financing
Financing Breakdown
Venture Capital
LOW
Porter’s Competitive Force
MID
LOW-MID
LOW
LOW-MID
Critical Challenges
Political & Legal:
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Product liability
Pressure from governments worldwide to contain drug prices.
Social:
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Ethical concerns over controversial aspects of its research.
The Future
Toward profitability by the end of the decade.
 rebounded in dramatic fashion in 2003 and 2004 from a stock market
decline
 moving new, first-in-class medicines through clinical trials and onto the
market.
 we predict the industry should achieve the first net income in its
30-year history in 2008.
From potential to performance.
 real products—life-saving medicines awaiting approval by the U.S.
Food and Drug Administration (FDA), or in late-stage clinical trials.
 The biotech industry has moved from technology-driven to
product-driven, from potential to performance. With a robust
pipeline of products, the industry is on track year-after-year to set new
standards of medical care and revenue growth.
 Biotech has achieved a critical mass of products. Companies are judged
by higher sales, first-in-class approvals, and ground-breaking successes
in Phase II and Phase III trials. Emerging technologies are valued for
their contributions in creating products in the near-term.
The Future
The future is bright.

biotech industry has reached a critical mass of products on the
market and in late-stage clinical trials, driving its performance to
a higher level of stability and predictability. Biotech is an industry
of fundamentally sound companies creating essential products for
improving the health and quality of life of everyone on the planet.
With its recent resurgence, the industry’s best days are still to
come.
It starts with a f lash of insight—
a potentially life-changing
discovery.
Business Profile
• Pioneers of the development of innovative products
based on advances in recombinant DNA and
molecular biology
• Human Therapeutics
• Oncology (supportive cancer care)
• Inflammation (rheumatoid arthritis)
• Hematology & nephrology (anemia, kidneys)
• Neurology (brain, nervous system)
• Metabolic Disorders (autoimmune diseases, viruses)
Mission Statement
Mission Statement: “At Amgen, our mission is to
serve patients. As a science-based, patientfocused organization, we will follow the science
wherever it may lead, to discover and develop
innovative therapies to treat grievous illness.”
Organizational Values
Be Science Based
Compete Intensely and Win
Work in Teams
Create Value for Patients, Staff and Stockholders
Trust and Respect Each Other
Ensure Quality
Collaborate, Communicate and Be Accountable
Be Ethical
Company Strategy
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•
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Principal products marketed to clinics hospitals and pharmacies, big 4
products are also marketed outside the US. Outside the US products
marketed mostly to wholesalers or hospitals depending on distribution
practice in that country.
Research facilities in US, clinical development staff in Europe Canada
Australia and Japan
Also utilize R&D collaborations and licensed certain product and
technology rights to enhance R&D efforts
Manufacturing facilities in US Puerto Rico and Netherlands, also have
3rd party contract manufacturers.
Overall,a big time industry leader that focuses on research and utilizes
strategic alliances and acquisitions
Some Quick Facts
•
•
•
•
Headquarters: Thousand Oaks, California
Stock Information:
Nasdaq: AMGN
Number of Staff Members: Nearly 13,000 (as
of year-end 2003)
• Chairman and CEO: Kevin W. Sharer
History of Amgen
•
1980 - Company founded, financed by venture capitalists Bill Bowes, Frank
Johnson, Sam Wohlsteader, and Raymond Baddour
•
1983 - IPO of 2,350,000 shares @ $18
– erythroprotein first cloned- later becomes drug epogen
•
1987 - Co’s name changed to Amgen, becomes a Delaware corporation
•
1989 - Immunex clones TNF receptor, later patented and named
ENBREL®
Amgen receives first U.S. patent for recombinant G-CSF (NEUPOGEN®)
FDA approves EPOGEN® for the treatment of anemia in patients with endstage renal disease
EPOGEN® named "Product of the Year" by Fortune magazine
Amgen added to the NASDAQ 100 Index
History
•
1991 - FDA approves NEUPOGEN® to decrease the incidence of infection
associated with chemotherapy-induced neutropenia in patients with nonmyeloid cancers receiving myelosuppressive therapy
•
1996 - FDA approves EPOGEN® for reduction of allogeneic blood
transfusion in surgery patients
Amgen reaches sales of more than $2 billion
•
1998 - FDA approves ENBREL® to treat patients with rheumatoid arthritis
whose disease has failed to respond to prior disease-modifying
medicines
•
2000 - Kevin W. Sharer named Chief Executive Officer
Amgen acquires Kinetix Pharmaceuticals
History
•
2001 - FDA approves Kineret® to treat the signs and symptoms in patients
with moderately to severely active rheumatoid arthritis whose disease has
failed to respond to one or more disease-modifying medicines
Kevin W. Sharer becomes Chairman of the Board of Directors
•
FDA approves Aranesp® to treat anemia associated with chronic renal
failure, including patients on dialysis and not on dialysis
2002 - FDA approves ENBREL® to treat the signs and symptoms of active
arthritis in patients with psoriatic arthritis
FDA approves Neulasta® to decrease the incidence of infection in patients
with non-myeloid cancers receiving myelosuppressive chemotherapy
•
Amgen completes Immunex acquisition
2004 - FDA approves Sensipar® (cinacalcet HCl) for the treatment of
secondary hyperparathyroidism in chronic kidney disease patients on
dialysis and for the treatment of elevated calcium levels (hypercalcemia) in
patients with parathyroid carcinoma
Global Presence
Executives
Kevin Sharer
56, CEO, has been a director since 1992 chairman of board since 2000, was COO
and president from 92 to 2000, previously worked at MCI and GE – corporate
guy, not a doctor
Dr. Hassan Dayem
58, Senior VP and CIO since 2002, previously with Merck
Dennis M. Fenton
53, Became Executive VP in 2000, has been w/ Amgen since 1988 and has o
occupied various executive roles
Brian McNarnee
48, HR VP since 2001, previously with Dell Computer co
George Morrow
52, VP sales and marketing since 2001, previously with Glaxo
Richard Nanula
44, CFO since 2001 previously with broadband sports co.
Dr. Roger
Perlmutter
52, VP of R&D, previously held a senior position in R&D with Merck
David J. Scott
52, Senior VP General Counsel, since 2004, previously with Meditronic Inc.
Value Drivers
• Biologics are very hard to copy, this reduces
the success of generic firms that try to copy
Amgen’s products
• However, biogenerics have been popping up
in Asia and Europe and experts say that the
only reason they haven’t caught on in North
America is that there is a lack of approval
process
Value Drivers
• Extensive R&D efforts mean lots of products
in pipeline – lots of potential revenue
• Amgen’s products are used for common
medical problems (complications of
chemotherapy, anemia, CKD, etc..) and must
be administered regularly, this means they
have a large customer base that uses a lot of
their products
• Their patients also usually live relatively long
lives – Amgen’s products are for quality of life
rather than staying alive
Products
•
EPOGEN: is a drug that helps correct anemia in chronic kidney disease
patients on dialysis. It works just like the erythropoietin that healthy
kidneys make and signals bone marrow to make more red blood cells
•
NEUPOGEN: A low white blood cell count - also known as
"neutropenia" (new-tro-pee-nee-uh) - can put some patients at risk for
severe infections and interruptions in cancer treatment. Neupogen
treats this condition by aiding the body’s production of white blood cells
this prevents infections and enables chemotherapy patients to stick to
their chemotherapy schedules
•
NEULASTA: Effects similar to Neupogen, encourages the body’s
production of white blood cells and enables chemotherapy patients to
adhere to their regimen
Products
•
ARANESP: Used to treat anemia caused by chemotherapy or chronic
kidney disease (CKD) where patients would be on dialysis. It works by
increasing the number of red blood cells in the body, by stimulating red
blood cell production in the bone marrow. This gives patients more
energy, as people with low red blood cell counts often feel tired and
sluggish.
•
ENBREL: Used to treat various forms of arthritis and psoriasis. One of
what are known as “biologic medicines” it imitates the proteins that are
naturally produced in patients’ bodies and helps regulate the bodies’
TNF balance. TNF stands for tumor necrosis factor and is one of the
chemical messengers in the body that regulates the inflammatory
process. Basically people with arthritis or psoriasis have too much of
this protein and this causes their bodies’ immune system to mistakenly
attack healthy cells causing inflammation.
Pipeline Highlights
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•
•
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Kineret - also indicated for the treatment of rheumatoid arthritis,
was shown to relieve pain in a small pilot clinical study in the
treatment of osteoarthritis (OA). Amgen announced that it plans to
initiate a Phase 2 clinical study with Kineret in OA in 2004.
AMG 108 - an antibody that prevents joint deterioration in patients
with Osteoarthritis- Currently in Phase 1
AMG 714 - currently in Phase 2, this drug is used to treat
inflammatory and autoimmune disorders – anticipated as a
treatment for Rheumatoid arthritis
AMG 162 – Will be used as a therapy for restoring bone mass in
patients with bone loss
Threats
• Must obtain regulatory approval
• Face substantial competition, to discover, develop, acquire or
commercialize products before others.
• Dependent on third parties for a significant portion of supply and
fill and finish of many products.
• Side affects may be discovered prompting reduced sales, or relabeling of products to warn of new side-effects.
• Patents may run out – or be interpreted incorrectly
Growth
•
Amgen anticipates continued strong growth in product sales through
2005 as the company’s newest therapeutics gather momentum
•
The company indicated that has almost 40 development programs
•
They intend to expand their lines through approval of new products,
and the continued investment in new product development.
•
Amgen will continue to use significant amounts of cash for the
company’s capital expenditure requirements, as well as for its share
repurchase program.
•
Its strong cash flow will also be used to fund potential product
candidates in-licensing opportunities
Growth Figures
Product Sales and Growth
Geographic Sales Distribution
Product revenue breakdown
Sales by Product
Product Sales Breakdown
Enbrel
International
1%
Enbrel-US
17%
11
0%
NeupogenInternational
4%
10
0%
Epogen-US
27%
Neupogen-US
8%
Neulasta
International
3%
Neulasta-US
15%
AranespInternational
10%
Aranesp-US
15%
Cost Composition
(most recent quarter)
Cost of Sales
R&D
Write off of
acquired R&D
S, G&A
Financial Ratios
2004
P/B
3.97
P/E
34.47
Current Ratio
1.56
ROE
12.07
ROA
8.81
Profit Margin
22.4
EPS
1.86
Diluted EPS
1.81
D/E
0.26
2003
4.11
36.3
3.3
11.4
8.7
37
1.75
1.69
0.16
2002
3.33
-41
4.19
-7.6
-2.2
-25
-1.2
-1.2
0.25
2001
4.99
54.2
3.49
21.4
1.73
27.8
1.05
1.03
0.19
2000
4.53
52.2
3.51
21.1
2.1
36
1.07
1.05
0.2
Profit Margin – 5 Year Trend
Profit Margin - 5 Year Trend
50
40
30
20
10
Profit Margin
0
-10
-20
-30
2004
2003
2002
2001
2000
Current Ratio – 5 Year Trend
Current Ratio - 5 Year Trend
4.5
4
3.5
3
2.5
Current Ratio
2
1.5
1
0.5
0
2004
2003
2002
2001
2000
P/E Ratio – 5 Year Trend
P/E Ratio - 5 Year Trend
60
40
20
0
P/E
2004
-20
-40
-60
2003
2002
2001
2000
P/B Ratio – 5 Year Trend
P/B Ratio - 5 Year Trend
6
5
4
3
P/B
2
1
0
2004
2003
2002
Year
2001
2000
Common Stock Repurchase
Program
• As part of previous $5 billion stock repurchase
program :
• First Quarter 2004 – 10 million shares repurchased
@ $55.53
• Second Quarter 2004 – 18 million shares
repurchased @ $59.98
• Third Quarter 2004 – 24 million shares repurchased
@ $59.25
• New 5 billion stock repurchase program announced
• However, these stock repurchases didn’t coincide
much with downturns in the stock price
Shares Outstanding – 5 Year
Trend
1400
1300
1200
Basic
1100
Diluted
1000
900
800
2004
2003
2002
2001
2000
Stock Option Info
• Equity compensation for directors: 5000 stock
options each year
• 20000 share inaugural grant for new directors
• In January 2003 Amgen awarded each nonemployee director 16,000
• All employee stock options have an exercise
price equal to their market value at the date
of issue
• In 2004 Stock based pay was equal to 28% of
Net Income
Beneficially Owned Stocks
Executive Compensation
Awards and Recognition
• Barron's: Amgen was listed second in Barron's 2003 ranking
of the 500 largest U.S. and Canadian companies who have
performed best for investors.
• Amgen has been named by FORTUNE magazine as one of the
"100 Best Companies To Work For." For 2005, the sixth year
the company has been named to the list, Amgen ranked
number 33.
• Forbes magazine names Amgen “Company of the Year” and
Kevin Sharer “CEO of the Year”
• Fortune: Amgen ranked 246th on the Fortune 500 list in 2004
and 27th among California companies.
• Fortune: Top Performing Companies and Industries - in 2003,
Amgen ranked in the following categories:
#27 in Fastest Growing Companies - Growth in
Revenue (1 year)
#19 in Biggest Companies by Market Share
#9 Best Investments - Total Return to Shareholders
(
Financial Snapshot
Price March 15, 2005
Beta
52 Week Range: High - Low
Shares Outstanding
$58.61
0.647
$52.00-65.24
1.27B
Market Capitalization
76.17B
Book Value per Share
(most recent quarter)
$15.59
Institutional Ownership
68%
Insider Ownership
10%
AmGen-Industry Return
Comparison
5 Year Stock Price Activity
1 Year Stock Price Activity
5 Year Stock Price compared
to Biotech Index
1 Year Stock Price compared
to Biotech Index
Revenues vs. R&D
12000
10000
8000
R&D
6000
Revenues
4000
2000
0
2004
2003
2002
2001
2000
Free Cash Flow
CF from Operations
- Purchase of Property
Plant and Equipment
Free Cash flow
2004
$3,697
2003
2002
2001
$3,566.60 $2,248.80 $1,480.20
($1,336.00) ($1,356.80) ($658.50) ($441.80)
$2,361.00 $2,209.80 $1,590.30 $1,038.40
Important News
•
•
•
•
•
•
•
April 2004- FDA approves Enbrel for treatment of adult patients w/ chronic
psoriasis – weekly usage
September 2004- European Commision approves Aranesp for usage every
3 weeks for chemotherapy patients and patients with CKD
August 2004 – Acquired Tularik, a company engaged in drug discovery
related to cell signaling and the control of gene expression, for 1.5 billion
incurred a charge of 554 million for writing off in process R&D
FDA Approves Kepivance for Severe Oral Mucositis in Cancer Patients
Undergoing Bone Marrow Transplant; Pivotal Phase 3 Study Published in
This Week's New England Journal of Medicine
Approval from EU for drug Sensipar, this drug is also used to treat CKD for
people on dialysis and people with elevated calcium levels
February 2005- Amgen decides to halt phase 2 research into GDNF for
Parkinson’s Disease due to risk to patients
Phase 3 study on drug, Neulasta, shows first cycle administration
significantly lowers incidence of Neutropenia, fever and hospitalization
Pros and Cons
• Products difficult to
copy
• Very good cash flow
numbers
• Strong balance sheet
• Annual Revenue growth
• Large customer base
and volume of sales
• Ambitious stock
repurchase program
• No dividends
• Small capital gains
• Investors must have
faith that Amgen will
continue to grow
• Generics will eventually
pop up
• Current Earnings could
still be diminished if
new side effects
discovered
• Declining profit margin
Recommendation…..
• Hold
Genentech
IN BUSINESS FOR LIFE
Founders Research Center
Quick Facts
Genentech Inc is the world 2nd largest
biotechnology company
Headquarters: South San Francisco, California
Workforce: 7646 as of year-end 2004
Ticker Symbol: DNA
Traded on: New York Stock Exchange (NYSE)
Shares Outstanding: 1.5 B
History
1976 Robert Swanson and Dr. Herbert Boyer who pioneered
the recombinant DNA technology, founded
Genentech on April 7th.
Robert Swanson
(venture capitalist)
Dr. Herbert Boyer
(biochemist)
1980 Genentech went public and raised $35 million with an
offering that leapt from $35 a share to a high of $88 after
less than an hour on the market. The stocks traded on
NASDAQ under symbol GENE.
1988 Genentech stock begins trading on the NYSE under the
symbol GNE
History
1990 Genentech and Roche Holding Ltd. Of Basel, Switzerland
completed a $2.1 billion merger.
1999 Genentech returned to the NYSE with a public reoffering of 22M
shares by Roche, in what is considered the largest public offering
in the history of the U.S. health care industry. The stock closed the
first day of trading at $127, over 31 percent above the public offering
price of $97. This was also the first introduction of Genentech's new
NYSE trading symbol, DNA.
1999 Roche conducted a secondary offering of 20 M Genentech
shares on October 20. The shares were priced at $143.50 per
share, making it the largest secondary offering in U.S. history.
Business Profile
Genentech discovers, manufactures, and commercializes
biotherapeutics for significant unmet medial needs
A considerable number of the currently approved
biotechnology products originated form or are based on
Genentech science
It manufactures and commercializes multiple
biotechnology products directly in the U.S., and receives
royalties form companies that are licensed to market
products base on its technology
The Company's product development efforts, including
those of its collaborative partners, cover a range of
medical conditions.
Mission and Values
“Our mission is to be the leading biotechnology
company that discovers, develops,
manufactures and market human
pharmaceuticals for 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
The 5X5 goals that outlined in 1999 and hopes to achieve by the end of 2005:
1. 25 percent average annual non-GAAP EPS growth
EPS growth for 1999 through 2004 has been 29 percent.
2. 25 percent non GAAP net income as a percentage of operating revenues
For 2004, its non GAPP net income as a percentage of operating revenues was 19
percent. Given the success of Rituxan® (Rituximab) and the associated profit split,
this financial productivity goal remains a significant challenge that will be difficult to
meet.
3. 5 new products/indications approved
With the nine approvals of Nutropin Depot® [somatropin (rDNA origin) for injectable
suspension], TNKase™ (Tenecteplase), Cathflo Activase® (Alteplase), Nutropin AQ
Pen®, Xolair® (Omalizumab), RAPTIVA® (efalizumab), Avastin™ (bevacizumab),
Tarceva™ (erlotinib), and Cathflo Activase for catheter clearance in pediatric patients,
it has exceeded its 5X5 goal of five new products or indications approved by 2005.
4. 5 significant products in late-stage clinical trials
Its development pipeline has over 30 projects, with several projects in early stage
and a steady flow of projects advancing in the pipeline.
5. $500 million in new revenues from strategic alliances or acquisitions
It has entered into more than 50 significant agreements and in-licensing
arrangements since 1999, which position itself well for future growth prospects.
Executive Officers
• Arthur D. Levinson, Ph.D. (joined in 1980)
Chairman and Chief Executive Officer
• Susan Desmond-Hellmann, M.D., M.P.H. (joined in 1995)
President, Product Development
• Myrtle S. Potter. (joined in 2001)
Executive VP, Commercial Operations
• Stephen G. Juelsgaard, J.D. (joined 1985)
Executive VP
• David A. Ebersman, Ph.D. (joined in 1994)
Senior Vice President, Finance
• Richard H. Scheller, PhD (joined 2001)
Executive VP, Research
• Patrick Y.Yang, Ph.D. (joined 2003)
Senior VP, Product Operations
• Robert L. Garnick, Ph.D. (joined 1984)
Senior VP, Regulatory, Quality and Compliance
Products
Genentech concentrate much of its substantial scientific
resources and expertise in the following disease areas:
1. Oncology
cancer treatment
2. Immunology
immune disorder
3. Vascular Medicine
heart disease
4. Specialty
Biotherapeutics
other areas
Products
Oncology
Herceptin® Anti-HER2 antibody
For metastatic breast cancer in HER2 overexpressed tumors
Rituxan® Anti-CD20 antibody
For relapsed or refractory low-grade or follicular, CD20 positive, Bcell non-Hodgkin's lymphoma
Avastin™ Anti-VEGF antibody
For use in combination with intravenous 5-Fluorouracil-based
chemotherapy as a treatment for first-line metastatic colorectal
cancer
Tarceva™ 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
Immunology
RAPTIVA® Anti-CD11a antibody
For chronic moderate-to-severe plaque psoriasis in adults age 18 or
older
Xolair® For Subcutaneous Use Anti-IgE antibody
For moderate-to-severe persistent asthma in adults and adolescents
Products
Vascular Medicine
Activase®
A tissue-plasminogen activator
For acute myocardial infarction, acute ischemic stroke and acute
massive pulmonary embolism
Cathflo® Activase®
Thrombolytic agent
For the restoration of function to central venous access devices as
assessed by the ability to withdraw blood
TNKase™
Single-bolus thrombolytic agent
For the treatment of acute myocardial infarction (AMI)
Specialty Biotherapeutics
Nutropin®
Growth hormone
For GHD in children and adults; growth failure associated with
CRI prior to kidney transplantation; short stature associated with
Turner syndrome
Products
Nutropin AQ®
Liquid formulation growth hormone
For GHD in children and adults; growth failure associated with chronic
renal insufficiency (CRI) prior to kidney transplantation; short stature
associated with Turner syndrome
•
Nutropin AQ Pen® for use with Nutropin AQ Pen® Cartridge
Liquid formulation growth hormone
For GHD in children and adults; growth failure associated with chronic renal
insufficiency (CRI) prior to kidney transplantation; short stature associated
with Turner syndrome
• Pulmozyme®
Inhalation Solution
For management of cystic fibrosis (including patients under age 5)
Product Development Pipeline
AWAITING FDA ACTION
Nutropin&Nutropin AQ Idiopathic Short Stature
PHASE III
Avastin
Adjuvant Colorectal Cancer
Non-small Cell Lung Cancer
Rancreatic Cancer
Herceptin
Adjuvant Breast Cancer
Metastatic Breast Cancer in Combination with Taxotere**
Lucentis
Wet Age-related Macular Degeneration
Rituxan
Hematology/Oncology
Rontline Aggressive NHL**
Frontline Indolent NHL**
Indolent Maintenance NHL**
Relapsed Chronic Lymphocytic Leukemia
Rituxan
Immunology
Anca-assocaited Vasculti Mod-to-severe Rheumatoid Arthritis*
Lupus Nephritis*
Primary Progessive Multiple Sclerosis
Refractory Rheumatoid Arthritis Systemic Lupus Erythematosus*
Tarceva
Pancreatic Cancer
Xolair
Pediatric Asthma
*Preparing for Phase
Metastatic Breast Cancer
First-Line Ovarian Cancer*
Renal Cell Carcinoma
**Preparing for FDA Filing
Product Development Pipeline
PHASE II
Avastin
Refractory Ovarian Cancer*
Avastin + Tarceva
Non-small cell lung cancer
Renal Cell Carcinoma
Humanized Anti-CD20
Rheumatoid Arthritis
Omnitarg
Breast Cancer
Rituxan-Immunology
Relapsed Remitting Multiple Sclerosis
Topical VEGF
Diabetic Foot Ulcers*
Xolair
Peanut Allergy
Lung Cancer
Ovarian Cancer*
PRE-IND/ PHASE II
Anti-NGF
Acute and Chronic Pain
PRO2L/Trail
Cancer Therapy
BR3-FC
Rheumatoid Arthritis*
Tropical Hedgehog Antagonist
Basal Cell Carcinoma*
*Preparing for Phase
**Preparing for FDA Filing
Revenues Breakdown in
2004
14%
5%
$ In mils
Product sales
Royalities
81%
Contract
revenue
Total revenues
$ 3748.9
641.1
231.2
$ 4621.2
Product Sales
2004 Product Sales
Xolair
Herceptin
5.0%
RAPTIVA
1.5%
Tarceva
0.4%
12.9%
Rituxan
45.8%
Avastin
14.8%
Other
19.6%
Royalty Revenue
The significant licensed products, representing approximately 94% of
Genentech’s royalty revenues in 2004:
Revenue and R&D
R&D
$ in Millions
Total Operation Reveue
5000
4621.2
4500
4000
3300.2
3500
2587.3
3000
2500
2000
2044.1
1514.2
1500
1000
500
364.9
526.2
623.5
2001
2002
772
947.5
0
2000
2003
2004
Costs Breakdown in 2004
$ in Mils
4% $145.5
17%
$593.6
1% $37.1
Research and
development
27%
$947.5
Cost of sales
Marketing, general and
administrative expenses
Colletration Profit
Sharing
Recurring charges
related to redemption
32%
$1088.1
19%
$672.5
Special items: litigationrelated
Total Costs $ 3484.3 M
Income Statement
Analysis
Revenues: 4.62B (40%↑ )
Revenues Per Share: 4.282
Net Income: 784.82M (39.5%↑ )
Diluted EPS: 0.73 (37.7%↑ )
Balance Sheet Analysis
Total Cash: 1.67B
Total Cash Per Share: 1.59
Total Debt: 412.25M
Total Debt/Equity: 0.061
Current Ratio: 2.753
Book Value Per Share: 6.477
Cash Flow Statement
Analysis
Cashflow from operation: 1.20B
Capital Expenditures: 649.86M
Free Cashflow: 545.98M
Key Statistics
2004
2003
2002
2001
2000
P/B
7.09
3.76
1.59
2.42
3.77
P/E
74.88
81.08
217.80
185.79
--
Current Ratio
2.75
3.10
3.22
3.35
3.96
D/E
0.060
0.065
0
0.025
0.026
Profit Margin %
16.98
18.49
2.47
7.63
-0.10
ROE %
11.57
8.07
0.93
2.11
-1.13
Diluted EPS %
37.73
768.85
-56.43
297.18
87.49
FCF (in Mils)
545.98
914.98
264.87
267.28
80.85
Price to Book Value – 5
Year Trend
Price/Book Value
8
7
6
5
4
3
2
1
0
2000
2001
2002
2003
2004
Price/Book Value
Profit Margin – 5 Year
Trend
Profit Margin %
20
15
10
5
0
2000
2001
2002
2003
2004
-5
Profit Margin %
Current Ratio – 5 Year
Trend
4.5
Current Ratio
4
3.5
3
2.5
2
1.5
1
0.5
0
2000
2001
2002
2003
2004
Current Ratio
Earning per Shares – 5
Year Trend
EPS
0.8
0.7
EPS (Basic)
0.6
0.5
0.4
0.3
0.2
0.1
0
-0.1
2000
2001
2002
2003
2004
-0.071
0.143
0.061
0.53
0.73
-0.2
Cash – 5 Year Trend
Cash, Cash Equivalents
$ in Mils
450
400
350
300
250
200
150
100
50
0
2000
2001
2002
2003
2004
Cash
Shares Outstanding (in millions)
Shares Outstanding – 5
Year Trend
1200
1000
800
600
400
200
0
2000
2001
2002
2003
2004
Shares Outstanding
Stock Options
Shares Outstanding: 1.5 B
Stock Options
Below is the information regarding net income and earning per share has
been determined as if it had accounted for its employee stock options and
employee stock plan under the fair value method prescribed by FAS 123.
Financial Snapshots
Price (Mar 15)
52 week high $
52 week low $
Avg Daily Volume
Market Capitalization
Revenue (ttm)
Gross Margin (ttm)
Net Income (ttm)
EPS (ttm)
P/E (ttm)
Genetech
54.250
68.250
41.000
28,286,100
56.76B
4.62B
82.06%
784.82M
0.727
74.62
Industry
135.10M
16.27M
77.08%
-8.89M
-0.32
25.98
Recent News
On Mar 14, 2005 Genentech announced that the
preliminary Phase III clinical data had shown that
Avastin was able to significantly extend the lives of lung
cancer patients when used in combination with two
other leading chemotherapy drugs paclitaxel and
carboplantin.
Genentech exercised its option under an agreement
with Rinat to co-develop and commercialize RI 624 on a
worldwide basis.
On Jan 10, 2005, it announced today that it has been
named by FORTUNE magazine as one of the "100 Best
Companies To Work For" for the seventh consecutive
year. This year Genentech is number four on the list.
On Nov 19, 2004 (FDA) has approved, after priority
review, Tarceva(TM) (erlotinib) for the treatment of
patients with locally advanced or metastatic non-small
cell lung cancer (reached sales of $13 million for the
year since its launch, 13.3% of 2004 total product sales)
5 Years Stock Price
Activity
1 Year Stock Price Activity
Genetech vs. Nasdaq
Biotech over 5 years
Genetech vs. Nasdaq
Biotech over 1 year
Recommendation
PROS
Strong financial
performance
Performance above
industry’s average
Launched four
products in a 16month period, while
also growing all of the
products in its
portfolio in 2004
CONS
No dividends
Increased in
competition in certain
of its therapeutic markets
A loss market share in
in the thrombolytic and
growth hormone market
Recommendation
HOLD!!!
Protein Design Labs, Inc.
PDL Background
• Location: Fremont CA
• Workforce: 549 employees
– 157 in R&D, 126 in clinical
• NASDAQ symbol: PDLI
• Index member: S&P 400 MidCap
• New commercial-scale manufacturing plant slated for completion in
2007
• Protein Design Labs, Inc. is a leader in the development of
humanized monoclonal antibodies to treat various disease conditions
Key Executives
Max Link, Ph.D.
63
Chairman (joined in 1993)
Mark McDade, M.B.A.
48
Chief Executive Officer (joined in 2002)
$1.13M
Glen Y. Sato
44
Senior Vice President and Chief Financial Officer (joined in 1999)
Douglas O. Ebersole
48
$481K
Senior Vice President Legal and Licensing and Secretary (joined 1992)
Steven E. Benner, M.D.
44
$773K
Senior Vice President and Chief Medical Officer (joined in 1995)
Top Management
PDL Mission and Value
• Mission statement:
– to be a premier biotechnology company that creates, develops,
manufactures and markets humanized antibodies to alleviate
serious human diseases. Building on our core technologies, we will
discover a new generation of therapeutics.
• Value statement:
– our values define PDL - who we are and what we aspire to be. Our
values are our deeply held beliefs. They guide our behavior and
help us make decisions. They build the framework for our daily
interactions with one another, as coworkers and members of the
biotechnology community.
PDL Strategies
• To complete the transition from a company
dependent on technology licensing activities,
humanization services and royalties as the primary
source of revenues to a commercial enterprise that
markets innovative products to address serious
unmet medical needs.
• To initiate at least one pivotal clinical trial by 2005
• To launch their first proprietary drug product into
the North American market by the end of 2007
PDL Core Technology
• humanizing monoclonal
antibodies
• uses structural information
from promising mouse
antibodies to capture the
benefits of such antibodies
without their limitations.
• discovers and develops
humanized monoclonal
antibodies for the
treatment of disease,
particularly inflammatory
bowel disease and cancer.
PDL Products
Therapeutics:
• Autoimmune
• Inflammatory condition
• Asthma and cancer
Seven marketed drugs licensed under PDL:
Mylotarg®
PDL Product Pipeline
PreClinical
Nuvion®
(visilizumab/anti-CD3)
Zenapax®
(daclizumab/anti-CD25)
I
I / II
II
III
Marketed
Severe refractory ulcerative colitis
Prevention of renal allograft rejection following kidney transplantation
Moderate to severe persistent asthma
HuZAF™ (fontolizumab/
anti-gamma Interferon)
Moderate to severe Crohn’s disease
M200 (Anti-α5β1 integrin)
Solid tumors
F200
(Anti-α5β1 integrin Fab)
AMD
* Marketed as Zenapax® by Roche in kidney transplantation
**
*
Stock History
•
•
•
•
Last dividend: Sept 9, 2001
Last Stock Split: 2:1 Oct 10, 2001
Fiscal Year: Dec 31
6 Stock Option Plans
–
–
–
–
–
–
1991 Stock Option Plan
Outside Directors Stock Option Plan
1999 Nonstatutory Stock Option Plan
1999 Stock Option Plan
2002 Outside Directors Plan
1993 Employee Stock Purchase Plan
All stock options outstanding under our stock
option plans at December 31, 2003
Outstanding Shares
Balance Sheet Highlight
(in thousands except per
share data)
2004
2003
2002
2001
2000
Revenue
96,024
66,686
46,313
44,400
63,100
R&D
122,563
82,732
57,975
52,163
42,330
General & administrative
31,806
27,613
18,373
15,004
11,481
Acquired in-process R&D
-
85,993
-
-
-
Total costs and expenses
154,369
196,338
76,351
67,167
53,811
Operating Loss
(58,345)
(129,652)
(29,978)
(22,767)
(13,402)
Net Loss
(53,241)
(129,814)
(14,544)
2647
647
-0.56
-1.40
-0.16
0.03
0.01
Cash and Equip
397,080
341,800
287,700
120,300
421,500
Total Assets
713,732
742,030
717,818
729,900
705,000
Long-term debt
257,673
258,500
158,400
158,900
159,300
Total Liabilities
304,063
293,699
173,052
171,500
170,800
Free Cash Flow
(139,900)
(114,100)
(39,900)
(6,100)
3,500
95,510
93,720
89,179
88,499
87,153
Earning per share (diluted)
Outstanding Shares
Revenue Composition in 2004
13%
Royality
License & others
87%
Cost Composition in 2004
21%
R&D
General and
Administrative
79%
Cost Composition
Product Cost Breakdown in 2004
34%
21%
0%
1%
0%
28%
1%
4% 11%
Daclizumab
HuZAF
Nuvion
Anti-51 integrin
Anti-IL-4
Anti-IL-12
Remitogen
Zamyl
Other
Revenue and R&D
100000
80000
60000
40000
20000
0
1999
2000
2001
2002
2003
2004
Revenue 28140
36090
R&D
40409
42330
44400
52663
40373
57978
66686
82732
73195
92364
Key Financial Ratio
2004
2003
-15.3% -17.5%
ROA
-26.3% -29%
ROE
0.6
0.6
D/E
-1.40
Diluted EPS -1.19
Financial
1.7
1.7
Leverage
2002
2001
2000
-2.0%
0.4%
0.1%
-3%
0.4%
0.1%
0.3
0.3
0.3
-0.16
0.03
0.01
1.3
1.3
1.3
P/B
8
7
6
5
4
3
2
1
0
P/B
S&P 500
2000
2001
2002
2003
2004
3.54
7
5.2
5.8
1.39
4.3
3.75
4.6
3.21
4.2
Current Ratio
70
60
50
40
30
20
10
0
CR
2000
2001
2002
2003
2004
57.6
52.1
42
14.3
9.162
Profit Margin
0.5
0
-0.5
-1
-1.5
-2
-2.5
Profit Margin
2000
2001
2002
2003
2004
0.01
0.06
-0.31
-1.95
-1.28
Financial Snapshot
•
•
•
•
•
•
Current price: 17.24
52 week range: 13.79 – 27.58
Outstanding stock: 95.51 M
Beta: 1.12
Market Capitalization : 1.37B
No dividend
5 years Price Movement
1 years Price Movement
PDL Vs NasDaq Biotech Index
over 5 years
PDL Vs NasDaq Biotech Index
over 1 year
Recent News
• PDL has committed to provide ESP Pharma with
short term funding
• PDL will receive royalties on Tysabri because the
drug was developed using its patented technology
• announced that it has closed its previously
announced private placement under Rule 144A in
an aggregate principal amount of $250 million of
its convertible senior notes due 2012.
Recommendations
Pros
Cons
 PDL is a slow growing Poor financial
company.
performance
 May hit a homerun,
Underperform Biotech
yet not within this next
Index
couple years