New York Pharma Forum NIF Ventures JUNE 23, 2005 Goro Takeda New - - PowerPoint PPT Presentation

New York Pharma Forum NIF Ventures

JUNE 23, 2005 Goro Takeda

CONFIDENTIAL

NIFVENTURES

CONFIDENTIAL

New York Pharma Forum – June 23, 2005

NIF Ventures At a Glance

Global VC Firm with Over 20 Years of Operational History

 Founded in 1982  $1.4B under management  Offices in Tokyo, Palo Alto, Taipei, & Shanghai  Active in life sciences, IT, and business services

Financing Life Science Innovations

 8 dedicated LS investment professionals  91 investments since 1987, 24 exits via IPO or M&A

Venture Investor with Strong Track Record

 Largest local Biotech IPO market share: recent IPO’s include Transgenic

(02), Medibic (03), LTT Biiopharma &TakaraBio (04), Medicinova & Effector Cell (05)

 Maturing US/European portfolio: Cyclacel, AlgoRx & Prestwick have filed

S-1 (TolerRx withdrawn)

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

NIF Life Science Portfolio

Current active portfolio comprises 47 in Japan, 11 in US and 7 in Europe

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Creating Productive Relationship with Pharma

 Continued dialog with 20+ Pharma BD groups  Sponsoring business development events

• “Atlas-NIF-Itochu Conference” in April 2005
• 40 US/European Biotech presented
• 200 BD executives from 70 Japanese

Pharma/Biotech attended

• 150 one-on-one meetings arranged

 Japanese Pharma actively out-licensing to US Biotech  Molecules having failed in certain indications, which may be developed in others, i.e., repositioning  Individual assets: non-core therapeutic area products, under-promoted products  Fully operational units/divisions  Special purpose R&D vehicles  Make a lot of economic sense, at least in theory… Out-licensing De-prioritized Assets Corporate Spin-outs Sourcing In-licensing Opportunities

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Recently Announced Out-licensing Deals Between Japanese Pharma and Biotech

Licensor Licensee Compound Date

Shionogi Peninsula Doripenem 5/28/03 Takeda Peninsula TAK-599 10/1/03 Kyowa Hakko Novacardia KW-3902 10/9/03 Dainippon Sunesis SPC-595 10/16/03 Sankyo Cyclacel SC-682 12/8/03 Mitsubishi Dynogen MCI-225 12/22/03 Otsuka Vela VPI-013 4/2/04 Fujisawa Gloucester FK-228 4/16/04 Nippon Shinyaku Optimer Prulifloxacin 6/29/04 Daiichi-Suntory Replidyne Faropenem Daloxate 8/17/04 Mitsubishi Dynogen Pumosetrag 11/4/04 Mitsubishi Perlegen Sciences MCC-555 4/12/05

Source: NIF Ventures

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Current State of Japanese Biotech - Promises

Drastic Changes in Corporate Mentality Conglomerates/cross-shareholdings unwinding Emergence of more vocal, foreign institutional shareholders increase market pressure - 7 of top 10 Pharma have >30% foreign shareholders Large Pharma finally consolidating and divesting non-core assets Favorable IPO Environment Large Market & Solid Core Competencies/ Leverageable Business Fastest aging population; $66.4 billion Rx market (2003) Global blockbuster drugs discovered in Japan (Pravacol, Precid, Aricept) Academia has increasing interests in start-ups; TLO’s becoming more professional and actively involved Highly fragmented businesses, creating significant spin-out

• pportunities once consolidate (approx. 500 companies)

490 IPO’s from 1/01 – 12/04 in JASDAQ/Mothers/Hercules compared to 443 in NASDAQ, 463 in AIM Total offerings $13.2 billion in 2004, up 220% from $6 billing in 2003 Steady demand for Biotech IPO’s - no “Window Closing” Lower maturity hurdles for IPO access; IPO market still rewarding early stage companies with favorable valuations

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Biotech Stock Performance Post IPO

Source: Lehman Brothers

12 companies out of 15 Biotech IPO’s trading below their IPO prices… …Current Biotech stock performance highlights fundamental issues for Japanese Biotech industry.

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Current State of Japanese Biotech - Challenges

Small Research Coverage Universe Banks would not support dedicated Biotech analysts unless there is a meaningful number of product-based companies Without Biotech analysts institutional investors are reluctant to take significant position in Biotech papers Concentration in Retail Investors Platform Technology Dominate Will platform companies be able to maintain sustainable growth? Will they be able to transform from platform to product-based company when they need? IPO Overpricing & High Volatility 12 companies out of 15 Biotech IPO’s have traded down - possibly

• verpriced

Valuation methodologies unclear Extremely high volatility post IPO; tend to overreact to announcements in newspapers and downward fiscal revisions Most public Biotech companies have >1000 shareholders!! Vs. 20 or so in US Less educated investors unable to appreciate Pharma R&D process Investment time horizon very short - based on earnings Lack of Managerial Talent Still significant stigma attached to “venture” or “Biotech” Lack of late stage companies that could attract experienced Pharma talents Where have the 1000 people gone who left as a result of Yamanouchi/Fujisawa merger?

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Concentration in Retail Investors

Source: Lehman Brothers

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New York Pharma Forum – June 23, 2005

Lessons Learned from US Experience – Not Yet!

Capital Intensity Corporate Spin-outs Product vs Platform M&A Market As Route To Exit  How do you sustain mid- to long-term growth?  History has taught that transforming from platform technology to product-based company is extremely difficult, require different skill sets  Will capital intensity be a norm; $20-30M pre-IPO in Japan vs $100M pre-IPO in US?  Given limited appetite from pension funds investing in technology focused VC funds, how will we match increased capital requirements?  A lot of successful examples in US and Europe: Actelion, Basilea, BioXell (Roche), Seattle Genetics (BMS), Biovitrum (Pharmacia), Affymax (GSK)  Will Japanese Pharma be open to spinning-out fully operational units/divisions or a portfolio of assets?  A robust US M&A market for early stage Biotech provides alternative route for exits to shareholders  Japanese Biotech too immature to be considered a credible acquisition candidate for Pharma

To catch up we need to capitalize on US experiences – successes and mistakes.

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NIFVENTURES

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New York Pharma Forum – June 23, 2005

Robust US Private M&A Market

• ANNC. DATE

5/12/05 4/19/05 3/9/05 2/24/05 2/7/05 1/20/05 9/28/04 9/1/04 9/1/04 2/23/04 TARGET/ ACQUIROR Cephalon/ Salmedix JNJ/ Penninsula JNJ/ Transform Pfizer/ Idun Takeda/ Syrrx Pfizer/ Angiosyn Exelixis/ X-Ceptor MGI/ Zycos MGI/ Aesgen Merck/ Aton BUSINESS DESCRIPTION Oncology/ Specialty Anti-infective/ Specialty Formulation/ Platform Apoptosis/ Platform SBDD/ Platform Angiogenesis/ Platform NHR/ Platform DNA/ Platform DDS/ Platform Oncology/ Platform TRANSACTION VALUE ($ in MM) $200 $258 $230 $285 $270 $527 $23 $50 $90 $75 Upfront $160 $245 $230 $285 $270 $15 $23 $50 $32 small upfront Contingent $40 Cerexa OS $512 $58 # OF COMPOUNDS Marketed Phase III 1 1 Phase II 3 1 1 1 1 1 Phase I 1 1 Preclinical 2 4 1 3 TOTAL VC$ $143 $93 $60 $156 $135 $1.75 $25 $54 $22 $49 LAST POST $105 $105 NA $71 $228 $4 $30 $33 $36 $52

Selected M&A Transactions for Development Stage Private Biotech

Source: Lazard

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Venture Capital Funding of Biotechnology in the U.S. and Japan

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Arthur Klausner

Venture Partner

• A. M. Pappas & Associates

June 23, 2005

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Overview of

• A. M. Pappas & Associates
• Life Sciences Venture Capital

– Biopharmaceuticals, Medical Technology

• $200MM Under Management

– Currently raising Pappas Ventures III ($150MM)

• U.S. Geographic Focus

– West Coast, Northeast, Underserved Regions

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Annual VC Investment into U.S. Biopharm Companies (by stage)

Source: VentureSource

Seed Round First Round Second Round Later Stage

5600 4200 2800 1400 1998 1999 2000 2001 2002 2003 2004 2005 (Q1)

$MMs

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Biopharmaceuticals

Discovery-Based Companies

“Biotech” “Specialty Pharma”

Clinical Stage Companies Sales & Marketing Companies

2000 IPOs

62% 38%

2004 IPOs

8% 92%

Source: Kaufman & Co.

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Number of Bioventure Companies in Japan

108 126 149 169 209 255 316 383 440 464 100 200 300 400 500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Change in Number of Japanese Bioventures 8 9 6 6 17 12 18 23 20 40 46 61 67 57 24 50 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(Source Japan Bioindustry Association)

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Company Date of IPO

Intec Web and Genome Informatics December 2000 Precision System Science February 2001 Anges MG September 2002 Transgenic December 2002 Medibic September 2003 Medinet October 2003 Oncotherapy Science December 2003 Soiken December 2003 DNA Chip Institute March 2004 Sosei July 2004

Only 10 Public Bioventures in Japan (at 9/04)

Source: Hiroshi Nakamura, Keio University Business School

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“Asset” Flow Between the U.S. and Japan

• Japanese VCs Invest in U.S. Biopharma

Companies (but not the reverse)

• U.S. Biopharmas Out-License Japanese

Marketing Rights to Japanese Pharma Companies

• New U.S. Companies Being Formed Around

Japanese Product Assets

– Peninsula Pharmaceuticals example

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Peninsula Pharmaceuticals

• Clinical-Stage (niche) Antibiotic from Shionogi

+

• Preclinical-Stage (potential blockbuster)

Antibiotic from Takeda

+

• Focused U.S. / European Development Team

=

• Filed for IPO / Bought out by Johnson &

Johnson

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How Does A. M. Pappas & Associates “Cover” Japan?

• “Annual” Visits and Outreach Program

– Informal network of contacts

• Selected Japan-Based Limited Partners

– Nikko Capital, ITX

• Strategic Relationship with Takeda Research

Investment, Inc.

Value Creation through Private Equity

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Value Creation through Private Equity

The contents of this document are based on materials available at the time of its compilation and no guarantee can be made as to the continued accuracy and reliability of the material. The contents may be changed without advance notification. This document contains forward-looking statements regarding results and projections. However, risks and uncertainties including changes to economic circumstances may cause results and projections to differ materially from those presented in the document. The information in this document is for presentational purposes only and is not an inducement to invest in securities issued by JAFCO

New York Pharma Forum June 23rd 2005

Kenji Harada Life Science Investment Dept. JAFCO CO., Ltd.

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JAFCO Investment (Asia Pacific) Ltd JAFCO America Ventures, Inc.

JAFCO at a Glance

• Established in April 1973
• Invested in 2,912 companies (The largest VC in Japan)
• Covers all investment stages in the PE sector
• $3.2 billion under management
• 734 IPOs (586 in Japan, 148 overseas)
• Domestic offices

One head quarter in Tokyo, 4 branches Two subsidiaries

• Overseas offices

Palo Alto, San Diego(Life Science), Singapore, Hong Kong, Beijing, Taiwan, Seoul

as of Mar. 2004

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JAFCO’s Full Line Investment

high

seed early middle later IPO

Buy out

Venture Investment

Capital Development

stages value

Incubation Investment

Total 141 investors

14 investors 93 investors 15 investors 19 investors

As of April ‘05

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Overseas investment in Life Science Sector

Medical Device 17% Diagnosis 6% Agribio 1%

Platform techs 18%

Biopharmaceuticals 58%

58% 58%

Vintage Yr. 1990－94 20 Exits out of 24 Investments IRR: 15% 1995－99 14 Exits out of 25 Investments IRR: 28%

US and Europe

Early 1990s Late 1990s 2000 ～ Platform technology Biopharmaceutical

Sepracor CombiChem Dynavax Technologies Cephalon Aurora Biosciences Targacept ISIS Pharmaceuticals Kinetix Pharmaceuticals Hypnion Ribozyme Genset Medicinova PPL Therapeutics Oxford GlycoSciences Predix Pharmaceuticals

• JAFCO has begun overseas biotech investment

since 1985 72 investments to date, 32 made IPO, 15 M&A as exits.

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Domestic Investment in Life Science Sector

as of Mar. 2004

• Life Science Division newly formed in April 2001

8 dedicated investment professionals cover investments in both the US and Japan

• Accelerated to make investments in Japan

More then 50 investments (13 investments in FY2003, 25 investments in FY2004) 3 of 13 (FY2003) made IPO in 2004, Sosei, LTT Biopharma and TakaraBio

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JAFCO Bio Conference

11 Nov.2003 We had 11 US biotech companies as presenters. 29 Japanese major pharmaceutical companies attended. 16 Nov. 2004 We had 9 from US and 4 from Japan as presenters 24 Japanese major pharmaceutical companies attended

JAFCO holds Bio Conference every year to make business

• pportunities for both US and Japanese biotech companies

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Biotech Companies in Japan

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78 102 142 209 314 435 531 799 1099 200 400 600 800 1000 1200 96 97 98 99 2000 2001 2002 2003 Mar- 05

• No. of companies

Number of Academia

• riginated company is rising

Value Creation through Private Equity

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30 38.1% 11.0% 30.0% 11.3% 15.7% 8.9% 3.4% 3.2% 18.9%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Others Education Energy Environment Machines Materials IT(Hardware） IT(Software） Biotech

Some companies are double counted

Biotechs are predominant in Academia originated companies

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Expansion of Biotech Industry

Source: JBA 2004 100 150 200 250 300 350 400 450 500 2000 2001 2002 2003 2004

188 250 333 387 464

Number of biotech companies in Japan

Total number of biotech company is increasing. Many of them are academia oriented.

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Few of biotech companies have products in clinical phases

270 270 58% 58% 194 194 42% 42%

Drug discovery & Healthcare Others Ph 3 / NDA: 3 companies Ph 1 / Ph 2: 4 companies

Only 7 companies have product or product candidates.

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Amount raised in VC-round

（Sep. 2004）

US$19.0M ・ DNAvec

（Nov. 2004） JAFCO lead

US$20.8M ・ M's Science

（Feb. 2004）

US$23.7M ・ Y’s Therapeutics

（Jan. 2004） JAFCO lead

US$17.2M ・ Nano Carrier

（Aug. 2004） JAFCO co-lead

US$25.0M ・ Japan Tissue Engineering

（Jul. 2004） JAFCO co-lead

US$35.7M ・ BioOne The size of financing depends on their clinical stage.

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Biotech companies raised capital in Japan

Largest financing of private companies in 2004 Raising capitals with IPO

• Bio One

$35MM

• J-TEC

$25MM

• Y’s therapeutics $23MM
• M’s Science

$20MM

• DNAvec

$19MM

• OTS

03/12 $ 80MM

• Sosei

04/07 $112MM

• TAKARA bio

04/12 $ 80MM

• MediciNova

05/02 $120MM

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Analysis of listed biotech companies

JAPAN US Q1 2005 Average of amount raised IPO $41M IPO $39M Average of amount raised Secondary $29M Secondary $69M Average of market cap $311M $290M $489M N=16 N=5 N=17 Drug discovery Others Deficit Average of amount raised IPO $61M IPO $28M IPO$ 45M Average of market cap $305M $315M $303M N= 6 N=10 N= 5 16 Biotechnology/medical companies listed on the stock market in Japan

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Human resources are major issues for Biotech companies

What is necessary? 1.Research people? 2.Financing? 3.Marketing?

From questionnaires of METI Biotech companies are looking for human

• resources. Compared with other private

companies

Biotech All Research & Development 79% 67% Finance 52% 46% Manager 49% 43% Business & Sales 49% 47% Production & Manufacturing 37% 32% Patent 36% 29% Planning 34% 30% Marketing 28% 27% Others 11% 18%