Bio 0211

Industry Surveys
Biotechnology
Steven Silver, Biotechnology Analyst
February 24, 2011
Current Environment ............................................................................................ 1
Industry Profile ...................................................................................................... 9
Industry Trends ................................................................................................... 10
How the Industry Operates ............................................................................... 18
Key Industry Ratios and Statistics................................................................... 26
How to Analyze a Biotechnology Company ................................................... 28
Glossary................................................................................................................ 33
Industry References........................................................................................... 36
CONTACTS: Comparative Company Analysis ......................................................... Appendix

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CURRENT ENVIRONMENT
Biotech stocks extend post-recession slide

In 2008, large-cap biotechnology companies thrived as the economy fell into recession, benefiting from
stable patient demand and sustained pricing power, which resulted in robust operating cash flows that
insulated them from needing to access tightened credit markets. While the broader market declined
significantly, most biotech bellwethers saw their share prices rise, while those that experienced declines still
fared far better than the overall market.
Since 2009, however, the biotech industry has underperformed the broader market, despite the economy’s
recovery and resumption of growth. Standard & Poor’s attributes this action to several factors, the most
important being the continuing uncertainty over the impact of healthcare reform legislation. President
Barack Obama had pushed for reform since he assumed office in early 2009, and it was finally enacted in
March 2010. The industry has remained cautious on the legislation, despite its promise to add more than 30
million Americans to the ranks of the insured by 2014, while providing drugmakers with a favorable 12-
year exclusivity period before “biosimilar” drugs could enter the market. We also view the following as key
near-term industry overhangs: the specter of slowing growth among large-cap biotech companies; increased
regulatory risk, due to a more cautious US Food and Drug Administration (FDA); and concerns over
mounting pressure on drug prices, after several European countries instituted austerity measures during
2010 in response to the sovereign debt crisis.
The S&P Biotechnology index declined 2.9% in 2010, compared with a 14.2% advance for the S&P 1500
SuperComposite stock index. The S&P Biotechnology index declined 5.4% in 2009, versus a 24.3% rise for the
S&P 1500. In 2008, the S&P Biotechnology index advanced 10.6%, while the S&P 1500 declined 38.2%.
BIOTECHNOLOGY STOCKS VS. THE S&P MIDCAP INDEX

(Month-to-month % change)
40
30
H01: BIOTECHNOLOGY
20 STOCKS VS. THE S&P
MIDCAP INDEX
10
(10)
(20)
(30)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
S&P Biotech Index S&P MidCap Index

Source: Standard & Poor's.
During this tumultuous period, small-cap companies have been extremely volatile, with many experiencing
share price declines deeper than those seen in the broader equity markets as the recession worsened; prices
then lagged as the macro economy improved. This is largely attributable, we believe, to risk-averse investor
sentiment and to fewer announced acquisitions of biotech companies as the large pharmaceutical industry
integrated several 2009 mega-deals by shedding research and development (R&D) resources and establishing
new alliances on terms that sought to balance the risks being assumed by the larger company. The recent
moderating M&A activity has spurred many smaller biotechs to extend their cash positions by issuing new
dilutive equity in the capital markets, given the improving financing environment from the recession lows.
INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 1

Despite the easing of merger and acquisition (M&A) activity in 2010 compared with 2009, Standard &
Poor’s expects biotech companies to continue to attract interest from large-cap pharmaceutical companies
(“Big Pharma”). We anticipate the latter completing their research organization realignment and looking to
address the challenges of replacing revenues expected to be lost following a wave of key patent expirations
in the coming years. However, we expect such activities to be selective, given the streamlined areas of focus
that are likely to result from these realignment initiatives.
HEALTHCARE REFORM AND EUROPEAN DEBT CRISIS: NEAR-TERM HEADWINDS
In March 2010, the US Congress passed the Patient Protection and Affordable Care Act (PPACA), a
sweeping healthcare reform bill aimed at expanding the number of US residents with healthcare insurance.
There has been much debate over the issue, but reliable reports pegged the number of uninsured at as many
as 50 million US citizens during 2010. This number was already a concern to the Obama Administration as
it took office in early 2009 and embarked on its healthcare reform agenda, but the problem was compounded
by rising unemployment and the loss of employer-based insurance for many during 2009 and 2010. By late
2010, however, the employment situation had begun showing signs of stabilization and some job creation.
Over the long term, we see the legislation expanding the pool of insured Americans by more than 30 million
in 2014, and boosting profit margins of drugmakers that have provided free drug supplies to patients in
need. We also view favorably the terms granted to innovating drugmakers over the introduction of
biosimilars (discussed in detail in the “Industry Trends” section of this Survey). However, we see the
political and regulatory environment as weighing on the industry. Entering 2011, the newly Republican-led
House of Representatives launched an attempt to repeal the legislation, which they view as excessively
costly and unlikely to reduce the long-term healthcare cost trend. While we see potential for some polarizing
features to be removed or reworked from the legislation, we expect it to remain largely intact.
Bill funding costs affect some biotechs’ top-line results

Since the bill’s passage, companies have begun to quantify the near-term costs associated with funding the
bill, before the benefits take hold. Among these are higher Medicaid rebates, which increased to 23.1%
from 15.2%, and an industry excise tax that started in January 2011. Drug companies will also contribute
toward closing the Medicare coverage gap (the so-called donut hole), which will be gradually phased out.
Among the biotech firms citing the largest exposure to the Medicaid population were Gilead Sciences Inc.
and Amgen Inc., both of which reduced their 2010 and 2011 revenue projections by several hundred million
dollars. Though these amounts are manageable compared with each company’s overall revenues, both
companies have experienced pressure on their stock performance. We note that many other biotechs with
more limited exposure have also come under pressure, which we attribute to investor concerns over long-
term pricing scrutiny. Standard & Poor’s believes the long-term benefits of having more patients under
coverage should at least offset the funding costs and drug price pressures.
European debt crisis spurs curbs on drug spending

Another major factor in the volatility of the global equity markets during 2010 was the fear over escalating
sovereign debt in many countries across Europe. Several prominent countries, including Greece, Italy, and
Germany, established austerity measures that included cutting drug prices by as much as 25%. In Greece,
several drugmakers withdrew their products before a less onerous compromise was reached. While Europe
accounts for a much smaller percentage of global drug sales than the US, Standard & Poor’s believes that
the issue, while short term in nature, has heightened investor risk aversion across the industry.
DESPITE PROGRESS, FDA REMAINS A CAUSE OF INVESTOR SKEPTICISM
In recent years, the FDA struggled to fulfill its public mandate due to inadequate funding and staffing. A
November 2007 study by a subcommittee of the Science Board, an independent advisory group, criticized the
agency’s scientific deficiencies, insufficient personnel resources and information technology infrastructure,
and reactive regulatory environment, among other concerns. In September 2007, the Prescription Drug User
Fee Act (PDUFA) was reauthorized, which expanded the FDA’s powers to require drug companies to
further study the safety of medicines and to mandate new label warnings when safety issues arise. However,
2 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

the FDA’s 2008 budget was $2.1 billion, just $105 million (5%) above 2007. The agency continued to miss
target review deadlines, even though biopharmaceutical companies were paying into the system in exchange
for timely reviews.
Subsequently, the FDA’s budget was increased significantly, reaching roughly $4 billion in 2011. The agency
aggressively expanded its Center for Drug Evaluation and Research (CDER), which reviews and approves
new medications and monitors the safety of drugs already on the market. By the end of 2009, FDA officials
stated that the agency was back on track in terms of meeting its goal of timely drug reviews in 90% of
submissions. While we believe that the appointment of a new commissioner, Margaret Hamburg, in 2009
contributed to a renewed focus and improved credibility over prior agency leadership, we think the agency’s
practices remain inconsistent. In several high-profile cases, the FDA either ignored the advisory panel’s
recommendations on a new drug application, or failed to approve a drug that met the statistical criteria in a
Special Protocol Assessment (SPA) negotiated with the agency. In each case, the company’s stock experienced
significant volatility as these rulings were issued. Such decisions have heightened the view of biotechnology
companies as risky, and the media has portrayed investing in the sector as akin to casino gambling.
For example, in March 2010, the FDA approved cancer drug Tarceva for use in front-line lung cancer
maintenance, despite a 12–1 vote against approval several months earlier by an FDA advisory panel that
cited a modest survival benefit. The issue was complicated by the fact that the supporting study had met the
specified criteria in an SPA. In May 2010, the FDA failed to approve InterMune Inc.’s Esbriet for idiopathic
pulmonary fibrosis, a rare respiratory disorder, despite a positive panel review and a clear unmet medical
need for the drug; the FDA cited a requirement for a second well-controlled study. In Europe, in contrast,
Esbriet earned a positive opinion from regulators in December 2010, and is likely to be approved there in
early 2011. In April 2010, the FDA approved Dendreon Corp.’s prostate cancer drug, Provenge, nearly
three years after deferring the drug’s approval in May 2007, despite a 13–4 vote in favor of the drug’s
efficacy. The May 2007 decision to defer approval drew widespread criticism from patient advocacy groups,
given the lack of available treatments for those with prostate cancer.
Most recently, in October 2010, the FDA issued a complete response letter (CRL) for Bydureon, a weekly-dose
version of currently marketed Byetta for treatment of Type 2 diabetes. (A CRL asks manufacturers to provide
more information about the product under review before being granted approval.) Bydureon has shown
superior efficacy and weight loss benefits over many currently marketed diabetes treatments, including the
current Byetta formulation. While the issuance of a CRL is increasingly common for new drug applications,
this was the second FDA approval delay in 2010 and was noteworthy in that the agency requested that an
additional study be conducted on the drug’s impact on heart rates (an initial CRL issued in March 2010 had
made no such request). As a result, the drug now is not expected to reach the market before mid-2012.
Over the long term, Standard & Poor’s is encouraged by steps under consideration that could improve the
agency’s transparency in disclosing its decision-making processes. President Obama has launched an Open
Government Initiative that proposed 21 ways to improve the FDA’s disclosure practices, including giving
the reasons behind its decision to approve or not approve a new drug application (such as safety concerns)
that a company’s management might otherwise spin or understate. The FDA is also designing a five-item
grid framework to improve disclosure of new drug applications. The move is a response to a 2005 Institute
of Medicine drug safety report that suggested the agency formalize risk-benefit decision processes, similar to
steps taken in Europe. The grid is intended to be used as a tool to better explain the FDA’s decisions, ranging
from the seriousness of the condition addressed, the need for a new treatment, clinical data of the benefits,
risks associated with its use, and the level of risk management associated with a product.
FDA faces scrutiny over drug safety oversight

The FDA has faced intense scrutiny in recent years for its failure to monitor emerging safety concerns with
such drugs as Vioxx, a pain medication, and, more recently, Avandia, a diabetes drug. Both drugs were linked
to increased cardiac risks, among other side effects, after reaching the market. Vioxx was pulled from the
market in 2004. Avandia remains on the market in the US, but was removed from European markets in 2010.
In late 2009, a report by the US Government Accountability Office (GAO) claimed that the agency has yet
to implement changes suggested in 2006 to help detect safety problems with drugs on the market, suggesting
that most of its decision-making power lies with the scientists who approve new drugs rather than with
those who monitor the side effects. The report called for the equal sharing of authority between the new
drugs division and the surveillance unit.
In 2008, the GAO reviewed the FDA’s process for approving drugs after data emerged showing a lack of
efficacy or safety in drugs that reached the market based on surrogate endpoints, without evidence of success
on more meaningful outcome measures, like overall survival. The study determined that cholesterol drug
Vytorin did not statistically significantly reduce cardiovascular risk despite its ability to lower cholesterol. In
response, the FDA has introduced guidelines for drugs used to lower cholesterol and blood sugar in patients
diagnosed with diabetes, including more stringent testing of cardiovascular effects before a new drug is
granted approval.
A notable trend has been the low rate at which new drug applications have been approved on the first review
cycle. In late 2009, FDA New Drugs Director John Jenkins estimated this figure to be around 30% for most of
the PDUFA era. The agency has attributed this trend to drugmakers’ hastily prepared applications, rather than
regulatory conservatism on its part, as well as an increased prevalence of drug risk evaluation and mitigation
strategy (REMS) programs, as a result of the agency’s new responsibilities. In 2009, the FDA required more
REMS submissions than in any previous year; at the end of 2009, 98 approved drugs had REMS programs in
place, according to Medco’s Health Service’s 2010 Drug Trend Report. Although we expect the FDA and the
biopharma industry to get more comfortable with the REMS process as part of the initial application
requirements, Standard & Poor’s expects the FDA to remain focused on drug safety, with new safety testing
demands likely to slow the advancement of the industry pipeline. Over the long term, we anticipate changes
to the clinical development process to streamline clinical trials and become more efficient.
NEW DRUG APPROVALS NOT KEEPING IN STEP WITH INCREASED BIOPHARMA R&D SPENDING
In 2010, the FDA approved 21 new drugs, called new molecular entities (NMEs, a category that excludes
new indications for existing products), down from 25 in 2009. The decline marked a reversal of a steady
but modest recovery from recent lows seen in
DRUG DEVELOPMENT COSTS VS. APPROVALS 2007 (18). In our view, the biopharmaceutical
70
industry continues to experience poor results
in relation to its consistently higher
60 Chart H09: DRUG investment in research and development
50 DEVELOPMENT (R&D), which industry trade group
40 COSTS VS. Pharmaceutical Research and Manufacturers
APPROVALS of America (PhRMA) pegged at $65.3 billion
30
in 2009, roughly flat compared with the prior
20
year. Due in part to significant R&D expense
10 cuts announced during 2010 throughout the
0 industry (discussed later in this section),
2004 2005 2006 2007 2008 2009 Standard & Poor’s expects future R&D
R&D expenditures (Bil. $) New drug approvals growth to slow significantly, after years of
Sources: Pharmaceutical Research and Manufacturers of America; Burrill & consistent increases.
Co.; US Food & Drug Administration.
The topic of declining R&D productivity has

moved to the forefront of industry concerns. While the number of new drug approvals has fluctuated in
recent years, few of these drugs have represented novel treatments with the potential to change prevailing
treatment paradigms. In its 2010 World Preview 2016 report, EvaluatePharma, an industry intelligence
provider, estimated that the expected commercial impact of new drugs approved by the FDA in 2009, based
on projected fifth-year sales, would be $7.4 billion, below the industry average of $9 billion between 1996
and 2009. While this estimate marks an improvement over its 2009 outlook for drugs approved in 2008,
which hit a new post-1996 low of $4.5 billion, fifth-year sales estimates for drugs approved in 2007 were
reduced sharply, to $5.3 billion from an initial forecast of $7.7 billion, due to disappointing adoption of
several approved drugs. According to CMR International’s Pharmaceutical R&D Factbook 2010, drugs
launched in the past five years accounted for less than 7% of industry sales in 2009, down from 8% in

2008. Standard & Poor’s expects that the FDA’s failure to approve Bydureon in 2010, as well as to defer
decisions on several other promising drugs into 2011, will weigh on 2010 figures as well.
Particularly troubling is the number of candidates that advanced to Phase III study, only to fail in what is the
largest and most costly stage of clinical development. According to CMR International, the number of Phase III
failures doubled between 2007–09 over 2004–06. Leaders of industry and global regulatory bodies have
noticed this issue. In late 2010, outgoing European Medicines Agency chief Thomas Lonngren cited the
waste of R&D efforts in criticizing the limited benefit and modest number of patients helped by many new
drugs. In 2009, executives at US pharmaceutical concern Merck & Co. Inc. estimated that 75 cents of every
dollar spent on R&D went towards funding failure.
This trend has sparked discussion over possible changes to the current clinical and regulatory climate that
would accelerate the clinical development timeline and help drugmakers to fail faster in order to become more
efficient in their R&D investments. It also underscores the need for changes to the current regulatory process,
which has seen its focus shift towards safety and increased testing prior to approval.
POSITIVE CATALYSTS POSITION SECTOR FOR REBOUND
Standard & Poor’s believes that biotech company valuations have been compressing in recent years
compared with historical premiums. On a price/earnings-to-growth (PEG) basis, the core group of profitable,
established biotech companies—Amgen Inc., Biogen Idec Inc., Celgene Corp., Cephalon Inc., Genzyme Corp.,
and Gilead Sciences Inc.—were recently trading at valuations around an average PEG of 1.0X our 2011
expected earnings. While Genzyme has traded at a premium to its peer group on this metric, we note that its
valuation has been supported by the prospect of the company being acquired by suitor Sanofi-Aventis SA
(discussed later in this section). In the past, profitable and growing biotech companies typically warranted a
PEG range between 1.3X and 1.5X current year earnings expectations. We attribute this trend to a view
among investors that biotech is a maturing industry and thus is poised for slower growth in the future.
While we expect valuations to remain narrower than past levels, we believe that the sector still holds above-
average growth prospects compared with the broader market over the next several years, boosted by several
emerging positive catalysts that we expect will renew investor interest. Among these catalysts are several novel
drugs nearing commercialization after several years of mostly niche drug approvals.
Novel drugs nearing the market

Despite the overhangs presented by the FDA and declining R&D productivity, we continue to anticipate
renewed investor interest in the biotech sector in 2011, driven by several promising new drugs that we view
as poised to garner FDA approval during the year.
 Benlysta. This drug is being developed by Human Genome Sciences Inc., a US biotechnology firm, and
GlaxoSmithKline plc, a UK-based pharmaceutical concern, to treat lupus, a chronic, autoimmune
inflammatory disease that afflicts around five million people worldwide in some form, according to the
National Lupus Foundation. A new therapy for lupus has not been approved in more than 50 years, though
there have been numerous failed drug candidates. Although the drug’s benefits are considered to be
somewhat modest, an FDA advisory panel voted 13–2 in favor of approval in November 2009. With limited
time to incorporate the panel’s labeling advice, the FDA delayed its approval decision from December 2010
to March 2011. The drug is also under regulatory review in Europe.
 Telaprevir. Another key drug is Telaprevir, for chronic Hepatitis C, a prevalent disease marked by liver
inflammation. Although there are several marketed treatments for Hepatitis C, cure rates are below 50%, with
significant relapse rates; side effects lead many patients to discontinue therapy or wait for new treatments. In
late-stage studies, Telaprevir produced significantly higher cure rates than current therapies in half the
treatment duration; its approval would mark a major advance in the treatment paradigm, in our view. In
November 2010, Vertex Pharmaceuticals Inc., which owns the US rights, completed its FDA new drug
application; in January 2011, it was granted Priority Review and an FDA action date in late May 2011.
Standard & Poor’s anticipates approval on this date and a drug launch around the middle of 2011. Johnson &
Johnson Inc’s Tibotec unit owns the European rights to the drug, with Vertex entitled to sales royalties.

M&A SLOWS AS PHARMA DIGESTS MEGA-MERGERS OF 2009
Although M&A activity was more modest in 2010 compared with 2009, Standard & Poor’s sees a favorable
long-term environment for mergers and acquisitions of biotechnology companies. According to market analyst
EvaluatePharma, pharmaceutical companies face a challenging decade due to the threat of generic competition
upon expiration of key patents: $267 billion in worldwide sales are at risk from patent expirations between
2011 and 2016. Given these looming losses,
WORLDWIDE PHARMA SALES AT RISK
Big Pharma in recent years has been acquiring
FROM PATENT EXPIRATIONS
(In billions of dollars) new assets to attempt to replace those
revenues. In 2009, several large deals
60 dominated the M&A landscape and had a
ripple effect on the entire biopharmaceutical
50
Chart H03: WORLDWIDE industry.
PHARMA SALES AT RISK
40 FROM PATENT In October 2009, Pfizer Inc., which has
EXPIRATIONS acquired many smaller biotechs in the past,
30
52 51 acquired pharmaceutical concern Wyeth
50 48
20 Pharmaceuticals Inc. in a deal valued at
33 33 around $68 billion. In November 2009,
10 Merck & Co. Inc. merged with Schering-
Plough Corp. in a $41 billion transaction.
0 Earlier in 2009, Roche Holding AG
2011 2012 2013 2014 2015 2016 completed its acquisition of the remaining
Source: EvaluatePharma's May 2010 forecast report. shares of Genentech Inc. in a $47 billion
transaction. Of note, the three acquiring
companies were among the pharmaceutical companies with the largest cash positions in early 2009,
according to market intelligence provider Frost & Sullivan.
Most of the other companies with large cash positions—such as Bristol-Myers Squibb Inc., AstraZeneca plc,
Sanofi-Aventis SA, GlaxoSmithKline plc, and Novartis AG—have remained active in drug licensing, but
have publically stated an affinity for modest deals rather than “mega-merger” transactions. However, in
July 2010, Sanofi-Aventis launched an effort to acquire Genzyme Corp. for approximately $18.5 billion.
Genzyme’s board rejected the bid as inadequate. Sanofi responded with a hostile bid, opening a cash tender
offer to Genzyme shareholders that attracted little interest. As of mid-February 2011, the parties continued
to negotiate, attempting to bridge the gap, which largely centered around their differences in the perceived
value of Genzyme’s key pipeline candidate Lemtrada (alemtuzumab), which is in late-stage study for
multiple sclerosis.
Industry R&D pipeline dust settling

In our view, acquiring entire organizations has been viewed as a less desirable option for pharmaceutical
companies, given the challenges of integrating an acquired company and an increasing reluctance to assume
greater clinical risk. In recent years, partnering deals have gained in prevalence as pharmaceutical companies
have externalized more R&D projects to broaden their pipelines. According to consulting firm Ernst &
Young LLP, US-based biotech companies entered into 132 partner deals in 2009, up from 115 in 2008,
although the potential value of these deals was $27.3 billion, down from the prior year’s $29.6 billion.
Standard & Poor’s attributes this trend to a shift among Big Pharma towards more selectively filling
pipeline gaps, while reducing the size of their research organizations and the number of therapeutic areas of
focus. According to consulting firm Challenger, Gray & Christmas, pharmaceutical companies laid off more
than 50,000 employees during 2010. Companies involved in the large 2009 deals discussed above have been
active in this regard, integrating their mergers and cutting headcount significantly. Pfizer announced plans
to eliminate 100 development programs and 19,000 employees to save $3 billion in R&D expenses, and
Roche announced a restructuring that included 6,300 jobs to be cut for $2.4 billion in cost reductions.
Lastly, Merck plans to let go 15,000 employees and cut $3 billion in costs.

However, in doing so, many programs previously partnered with smaller biotech companies were
terminated and their losses written off by the larger pharma company. In most cases, licensed rights were
returned to the originating company, with the latter losing any previously negotiated milestone and royalty
rights. Most of these smaller companies will need to re-partner their respective programs in order for them
to advance, given their limited operating resources and the burden of funding large late-stage studies.
Among the top 10 deal terminations in 2010, according to Deloitte Recap, more than half involved the
companies involved in the three large mergers of 2009.
A by-product of this consolidation has been the formation of new entities to absorb abandoned programs
and clinical assets. Of note, during 2010, former ImClone Systems CEO Sam Waksal launched a new
biotech company, Kadmon
TOP 10 PARTNERSHIP TERMINATIONS—2010 Partners, aimed at acquiring
DEAL DRUG discontinued and unwanted assets.
PHARMACEUTICAL BIOTECH VALUE DEVELOPMENT Kadmon’s initial focus is on
Chart B08: TOP 10
COMPANY COMPANY (MIL. $) STAGE
PARTNERSHIP
SUBJECT Hepatitis C compounds. In
Novartis AlnylamTERMINATIONS 700 Discovery RNAi therapeutics addition, a recent effort in the
† Schering Plough Anacor 555 Phase II Fungal infections pharmaceutical industry, called the
† Roche Intermune 530 Pre-clinical Hepatitis C CSTA Pharmaceutical Assets Portal,
† Merck GTx 507 Phase II SARMs/sarcopenia has been established for academic
† Schering Plough AVEO 490 Pre-clinical Cancer researchers to develop drugs based
Merck Serono Lpath 473 Phase I Cancer
on compounds previously shelved at
† Pfizer Celldex 440 Phase II Vaccines
the clinical stage. Lastly, the board
Cilag AG Basiliea 300 Phase III Ceftobiprole
KOS Pharma SkyePharma 165 Phase III Asthma
of the National Institutes of Health
† Merck Intercell 86 Pre-clinical Vaccines (NIH), a division of the US
† Involved in a 2009 mega-merger transaction. RNAi-Ribonucleic acid interference. Department of Health and Human
SARM-Selective androgen receptor modulators. Services (HHS), voted in late 2010
Source: Deloitte Recap. to approve the creation of the
National Center for Advancing
Translational Sciences, which intends to work with drug companies to identify abandoned compounds that
may work in other diseases. With this initiative, the NIH also hopes to help boost declining R&D
productivity, as discussed earlier in this section.
M&A deals seek to share clinical risk

As mentioned earlier, Sanofi-Aventis and Genzyme have been discussing a potential acquisition transaction.
However, differing opinions over the commercial prospects of Genzyme’s alemtuzumab for multiple
sclerosis have been a major stumbling block. As of mid-February 2011, the two sides were discussing the
inclusion of a contingent value right (CVR) in acquisition talks, which could facilitate an agreement while
providing Genzyme’s shareholders with additional benefits should alemtuzumab exceed certain commercial
thresholds. The use of CVRs has been dormant for many years in the biopharma industry as buyers have
been aggressive in paying for desired targets, despite the high risks. However, the market downturn and
decline in R&D productivity have resulted in their increasing use as a tool to share risk among the parties in
acquisition talks. CVRs were used in Celgene Corp’s 2010 acquisition of Abraxis Biosciences and Endo
Pharmaceuticals’ 2009 acquisition of Indevus Pharmaceuticals Inc.
Similarly, more partnering deals are taking on option-based structures, whereby a company licenses an
option on a program or company acquisition that is exercisable following a de-risking event, such as a key
clinical study data report. While we expect partnering to continue at a high rate, we anticipate competition
increasing as the Big Pharma industry nears its patent cliff, which should foster a shift toward more
acquisitions of growth-oriented biotechnology companies with revenues to replace those lost from patent
expirations.
Foreign acquirers
Another recent trend has been an increase in the number of foreign companies acquiring and partnering with
US-based companies. In recent years prior to 2010, the US dollar’s value had declined versus many international
currencies, including the euro, which made cheaper US dollar–based deals attractive to foreign companies. We

believe that the favorable foreign exchange environment contributed to the timing of Roche Holding’s initial
bid to acquire Genentech in mid-2008, as Roche sought to capitalize on a strong Swiss franc versus the US
dollar. However, the dollar’s value firmed against the franc over the remainder of 2008 and into 2009, which
led to Roche raising its bid in order to complete the transaction. In 2009, according to Ernst & Young, seven
of the nine largest alliances with US biotech companies featured European-based pharmaceutical companies.
Also notable is an increase in M&A activity among Japan-based companies. Japanese companies have
increasingly sought growth abroad due to an unfavorable domestic regulatory environment and significant
patent expirations in the coming years. According to data provider Dealogic, there were 15 outbound
Japanese pharmaceutical mergers in 2008 for a total of $17 billion, led by Takeda’s $8.8 billion acquisition
of US-based Millennium Pharmaceuticals Inc. While the pace of such deals has slowed somewhat as the
global M&A market has eased, several other sizable deals in which a Japanese company acquired a US-
based company to establish a US presence have been completed. Key recent deals include Dainippon
Sumitomo’s $2.6 billion purchase of US-based Sepracor Inc. (completed in October 2009) and Astellas
Pharma Inc.’s acquisition of US biotech OSI Pharmaceuticals Inc. for $4.5 billion (June 2010). 

INDUSTRY PROFILE
Biotech’s presence grows, along with its ties to Big Pharma

The US biotechnology industry underwent a major shift in 2009: Genentech Inc., which accounted for
roughly 20% of the industry’s revenues, was acquired by Roche Holding AG. While M&A activity was
more modest in 2010, as discussed earlier in this Survey, we believe that such deals are blurring the line of
distinction between the pharmaceutical and biotech industries. In its World Preview 2016 report, healthcare
intelligence provider EvaluatePharma forecasted that nine of the top 10 companies in projected worldwide
prescription drug sales from biotechnology in 2016 would be large pharmaceutical companies, with Amgen
Inc. being the lone exception. We believe this forecast reflects
TOP 10 COMPANIES IN GLOBAL PRESCRIPTION robust M&A activity in recent years, which we expect will
DRUG SALES FROM BIOTECHNOLOGY—2016 continue.
(Ranked by forecast 2016 global sales)
B07: TOP 10 Further highlighting the growth of biologics across the
SALES (BIL. $) CAGR (%)
COMPANIES IN healthcare industry, EvaluatePharma also forecasted that
Company 2009 F2016 2009-F16
GLOBAL
Roche PRESCRIPTION 32.8
21.9 5.9 eight of the top 10 drugs in 2016 would be biotech in origin,
Amgen 13.7
DRUG SALES FROM 17.6 3.6 including the top four, led by Roche’s Avastin (via its
Novo Nordisk 8.7
BIOTECHNOLOGY 14.1 7.1 acquisition of Genentech). EvaluatePharma projects that
Pfizer (Wyeth) 7.2 13.0 8.8 biotech drugs will account for nearly 50% of the top 100
Sanofi-Aventis 8.4 11.2 4.2 drugs in 2016, up from 15% in 2000 and 31% in 2009.
Abbott Labs 5.7 10.5 9.1 Lastly, according to the latest available data from the
Merck 6.8 9.9 5.5 Pharmaceutical Research and Manufacturers of America
GlaxoSmithKline 4.7 7.5 6.9 (PhRMA), an industry trade group, the number of biotech
Johnson & Johnson 5.6 6.7 2.6
drugs in clinical development increased by 51% between
Novartis 2.9 6.2 11.5
2006 and 2008, from 418 to 633. Standard & Poor’s
F-Forecast.
estimates that this number represents close to one-third of the
Source: EvaluatePharma.
overall industry pipeline.
CONSOLIDATION AT THE “DNA” OF THE INDUSTRY
According to the Biotechnology Industry Organization (BIO), an industry trade group, there were 294
biotechnology-related companies publicly traded in the US as of mid-2010, down by a quarter since late
2007. The organization stated that a hundred companies either were bought or went out of business during
that time. Most of the industry’s market capitalization and a majority of its revenues and profits are
becoming increasingly concentrated in a small number of large-cap drug developers, such as Amgen Inc.,
Gilead Sciences Inc., Celgene Inc., Genzyme Corp., and Biogen Idec Inc. Before its acquisition by Roche in
April 2009, Genentech was among the leaders of this group.
The list of the top revenue-generating US biotech companies has undergone significant change due to M&A
activity. Besides the Roche-Genentech transaction, recent deals include the purchase of ImClone Systems
Inc. by Eli Lilly & Co. (November 2008), the purchase of MedImmune Inc. by AstraZeneca PLC (June
2007), and the purchase of Chiron Corp. by Novartis AG (in April 2006). Genentech was the world’s
largest biotechnology company in terms of market capitalization at the time of its acquisition by its majority
shareholder, Roche Holding (parent company of Hoffmann-La Roche Ltd.), which had owned 56% of
Genentech, but had allowed the latter to operate independently. As of mid-February 2011, French
pharmaceutical company Sanofi-Aventis was engaged in talks to acquire US biotech Genzyme Corp.
Large biotech companies also play a role in sector consolidation, as evidenced by the merger between
Biogen Inc. and Idec Pharmaceuticals, each on the top 10 list when they merged to become Biogen Idec Inc.
in 2003. Additionally, Amgen Inc. acquired Immunex Corp. in 2002.

INDUSTRY TRENDS
In addition to the developments discussed earlier in the “Current Environment” section of this Survey, we
believe there are several other key trends facing the biotechnology industry. Among these are the convergence
of the traditional pharmaceutical model with that of the biotechnological, a rapidly changing regulatory
environment hastened by significantly higher drug prices as well as scientific advances, and a rapidly
changing competitive landscape among key diseases and treatments. We discuss several of these issues in the
following sections.
BIOTECH AND BIG PHARMA CONVERGING
In the 1980s and through much of the 1990s, big pharmaceutical companies (Big Pharma) shunned
biotechnology because of its lack of a track record and predictability. However, Big Pharma is now embracing
the technology, expecting that it will provide a wealth of new products to drive future growth. This is crucial
for Big Pharma, in our view, due to upcoming patent expirations for key pharmaceutical products.
Biotech plays a central role in recent Big Pharma consolidations

The year 2009 was marked by three major M&A transactions that consolidated the industry. Standard &
Poor’s believes the presence of strong biologics pipelines contributed to each of these deals. (For more
details, see the heading “M&A slows as pharma digests mega-mergers of 2009” in the “Current
Environment” section of this Survey.)
 Pfizer/Wyeth. Among the pharmaceutical companies most affected by patent expirations is Pfizer Inc. In
late 2011, the company will lose exclusivity for its cholesterol-lowering drug Lipitor, which accounts for
roughly 25% of its sales. In acquiring Wyeth Pharmaceuticals Inc., Pfizer gained one of the largest biotech
pipelines among traditional large pharmaceutical companies. According to healthcare intelligence provider
EvaluatePharma, Wyeth had the most exposure to biologics in its pipeline, at 42%, based on its projection
of 2012 sales.
 Merck/Schering-Plough. According to EvaluatePharma, Schering-Plough Corp.’s clinical pipeline had

21% exposure to biologics, which was in line with industry peers.
 Roche/Genentech. Roche Holding AG was already the majority owner of Genentech Inc. and had been
experiencing strong sales growth due to a license to market Genentech’s stable of biotech-derived drugs
outside the US. However, this agreement was set to expire in 2015, and Roche’s long-term pipeline was
viewed as heavily reliant on drugs discovered by Genentech.
Big Pharma retools with biotech-like R&D platforms and pipelines

In recent years, many leading pharmaceuticals companies have bolstered their exposure to biotech drugs
and technologies focusing on rare diseases, shifting from a prior focus on developing drugs with
“blockbuster” potential to serve large patient groups. According to the Tufts Center for the Study of Drug
Development, the share of orphan drugs (typically discovered by smaller biotechnology companies and
licensed to larger pharma concerns) approved in the US was 56% in 2006–08, up from 35% during the
comparable period last decade. In addition, many pharmaceutical leaders have established new R&D
platforms to better replicate the innovative and entrepreneurial structures more prevalent among biotech
companies. Some of these projects are discussed below.
 Pfizer. In 2007, Pfizer launched a biotherapeutics and bio-innovation center to serve as an incubator and
collaborator for early-stage research. Its units were designed to be more flexible, with small groups
developing drug candidates before turning them over to larger more focused business units. In June 2010,
Pfizer established a rare disease unit, and in-licensed rights to a drug to challenge Genzyme’s Cerezyme,
whose peak sales have surpassed $1 billion treating the rare enzyme disorder Gaucher’s disease.
 GlaxoSmithKline. In late 2007, GlaxoSmithKline plc introduced a plan to expand external partnerships
and to reduce the number of experiments it devotes to drug development. It divided its R&D operations
into smaller groups of scientists that would apply for funding to a central investment board, moving toward
more entrepreneurial, biotech-like units called Centres of Excellence for Drug Discovery. In February 2010,
the company established a rare disease unit as well.
 Merck. In addition to its merger with Schering-Plough in 2009, Merck has launched a unit, Merck
Bioventures, aimed at developing novel biotech therapies as well as biogenerics. In 2009, the company
stated that it had averaged 50 biotech deals a year since 2003, and planned to at least maintain that pace
over the coming years.
SHARE BUYBACKS SUGGEST BIOTECH MATURATION: NEXT STOP, DIVIDENDS?
In recent years, large-cap biotech companies have expanded their share repurchase programs as a means to
boost earnings and deploy excess cash flows, which have grown significantly. Until recently, such strategies
were more typically used by traditional pharmaceutical companies, as biotech companies opted to reinvest
profits in their clinical pipelines or to acquire new technologies to maintain the robust pipelines that growth
investors demanded. However, with the impact of new stock buyback announcements moderating, large-
cap biotech companies are increasingly facing the question of whether they would institute a dividend policy
to return excess cash to shareholders. While the industry has resisted the idea to date, Standard & Poor’s
believes that slowing growth is likely to lead to such programs, a development that we see further blurring
the lines between Big Pharma and large biotech.
BIOSIMILARS POISED TO INTRODUCE LONG-TERM COMPETITION FOR BIOTECH DRUGS
The pharmaceutical industry has faced competition from generic drugs since the approval of the Hatch-
Waxman Act in 1984. In contrast, the
NOTABLE BIOTECH DRUG US PATENT EXPIRATIONS
biotech industry has not had a formal
2009 regulatory pathway for the approval of
GLOBAL
biosimilar drugs (also referred to as follow-on
SALES
biologics or biogenerics), which has enabled
BRAND NAME COMPANY INDICATION (BIL. $)
several first-generation biotech drugs to be
2012 Table B06:
Enbrel Amgen/Pfizer Psoriasis, rheumatoid 6.47
sold without competition long after their
NOTABLE BIOTECH patents have expired. The biosimilar issue has
(Wyeth)
DRUG US PATENT arthritis
2013 been a critical issue for the biotechnology
EXPIRATIONS
Cerezyme Genzyme Gaucher's disease 0.79* industry for several years and the 2010
Epogen/Procrit Amgen/Johnson & Red blood cell 4.96 PPACA included formal FDA authorization
Johnson enhancement
to establish a regulatory pathway for the
Humalog Eli Lilly Type 1 diabetes 1.96
Neupogen Amgen White blood cell 1.29 approval and marketing of biosimilars. In
enhancement recent years, companies such as Merck &
Rebif Pfizer/Merck Serono Multiple sclerosis 2.14 Co., Pfizer Inc., and Teva Pharmaceuticals,
Remicade Johnson & Johnson Rheumatoid arthritis 5.92 Ltd. have launched or expanded biosimilar
2014 units in anticipation of such a pathway.
Aranesp Amgen Red blood cell 2.93
enhancement
The exclusivity period granted to originator
Copaxone Teva Multiple sclerosis 2.57
2015 drugs has been a contentious issue. In 2009,
Neulasta Amgen White blood cell 3.36 Congressional and White House leaders
enhancement sought a period of five to seven years. The
Rituxan Roche/Biogen IDEC Rheumatoid arthritis, 5.62 industry lobbied for 12–14 years, citing the
blood cancer cost of developing complex medicines, and
2016
Humira Abbott Labs Rheumatoid arthritis 5.57
claiming that any less time would stifle
2019 innovation for new medicines and research
Avastin Roche Oncology 5.74 on new uses for currently marketed ones.
Herceptin Roche Oncology 4.86 Despite a Federal Trade Commission (FTC)
2020 report stating that a period of 12 to 14 years
Lucentis Roche/Novartis Wet adult macular 2.34
would be excessive, the PPACA granted a 12-
degeneration
year exclusivity period. Groups representing
*2009 sales impacted by plant outage.
Sources: EvaluatePharma; company reports.
generic drugmakers have since continued to

seek a shortening of the period. Additional US Senate debate over the exclusivity period emerged in early
2011, fueling further uncertainty. The issues raised questioned whether the law would allow for small
adjustments to drug dosing and/or formulations to entitle drugmakers to a new 12-year exclusivity period,
as well as scrutiny over the definition of the exclusivity period itself. Branded drugmakers contend that the
exclusivity period should cover both marketing and data exclusivity, which could further delay the approval
process for biosimilar drugs should such groups be prohibited from filing for regulatory approval until the
exclusivity period expires. Standard & Poor’s believes that such debates have the potential to undermine the
spirit of the legislation by raising barriers to entry for biosimilar developers.
Another key issue yet to be fully determined is the criteria required to prove similarity, as biologics are
typically far more complex to produce than chemical-based small molecule drugs. Biotechnology industry
executives are eager for stringent clinical trials (which are not required for traditional pharmaceutical
generics), given their view that copies of such complex molecules could never be identical to the originals.
Those favoring generics say these trials would be burdensome, and would significantly raise development
costs. Of note, Merck decided in May 2010 to cancel development of its first planned biosimilar, a copy of
Amgen’s blockbuster anemia drug Aranesp, citing extensive safety testing demands that it said would be
required to secure approval. Standard & Poor’s believes that such demands are likely to represent high
barriers to entry and deter competition.
Standard & Poor’s agrees with the FTC’s assessment that branded drugmakers are likely to retain
significant market share upon the introduction of alternatives, as sizable development and manufacturing
costs are likely to deter entrants to many markets. In our view, these costs are likely to limit the price
discounts of the biosimilar version, which the FTC estimated to be between 10%–30%. Interestingly,
entering 2011, an increasing number of pharma and biotech companies have stated intentions to compete in
the biosimilar arena, which we believe would promote competition and drive prices lower. Still, we do not
expect any downward pricing pressure to push prices as low as the 80%–90% discount seen among generic
versions of traditional chemical-based pharmaceuticals.
In Europe, a regulatory pathway has been in place since March 2006, when the European Medicines Agency
issued the world’s first guidelines for regulatory pathways for selected groups of biologics. Since then,
Sandoz Ltd. (a subsidiary of Novartis AG) received European marketing authorization for Omnitrope, its
copy of human growth hormone, and launched the product in Germany at a 20% discount to the branded
drug. Omnitrope’s sales have been modest to date, as have generic versions of Amgen’s erythropoietin
(EPO) drugs, which carry similar price concessions. With several other countries making progress on
defining their biosimilar regulatory frameworks, calls for a consistent, global agreement have increased.
Although much money is at stake, opinions differ on the issue’s likely impact. A mid-2009 study by Medco
Health Solutions Inc., a pharmacy benefits manager, projected that biologics with approximately $32 billion in
sales may go off patent by the end of 2015. However, in its 2009 Drug Trend Report, which was published in
April 2010, Express Scripts Inc., a pharmacy benefits manager, cited an assessment by the Congressional
Budget Office (CBO) that federal government spending could be reduced by $7 billion over the next 10
years—a very modest amount in the context of a $2.5 trillion healthcare system.
SOARING DRUG COSTS PROMPT EXPANSION OF NEW TREATMENT PROGRAMS
Concerns about rising health expenses are not new, even though prescription drug prices represent just 10%
of healthcare expenditures, according to the Centers for Medicare & Medicaid Services (CMS), a division of
the US Department of Health and Human Services. Until recently, payers have generally avoided restrictions
on biologics, as the drugs tended to address seriously ill patients with few alternative treatment options and
making any efforts to restrict access to them controversial.
However, the number of biologics and the rise in their expenses are growing rapidly. The 2010 edition of
Drug Trend Report, published by Medco Health Solutions Inc., a pharmacy benefits management (PBM)
firm, estimated that specialty drugs accounted for 14.2% of all pharmacy spending during 2009, an increase
from 12.8% in 2008. In addition, the specialty category’s trend (the percentage change in plan spending
from one year to the next) grew by 14.7%, far outpacing the traditional drug category’s 1.8% increase.
Medco cited multiple sclerosis, rheumatoid arthritis, and oncology as the main drivers influencing the
specialty trend. Overall, drug prices rose by more than 9% in 2009, according to PBM firm Express Scripts
Inc. Of particular concern was the rising cost of cancer treatments. According to IMS Health Inc. forecasts,
cancer drug spending could soon be the top category for specialty drugs, reaching $80 billion by 2012.
Standard & Poor’s believes that new approaches to drug pricing will emerge in the coming years to ensure
that the cost of drugs reflects the value they provide to patients. Examples of this may include flexible
pricing models, where a drug’s price could be raised or lowered after reaching the market should new
evidence emerge or a new indication be developed. Drug companies may also enter into pay-for-performance
arrangements, in which they would reimburse regulators for drugs that are found not to induce a meaningful
patient response. Such arrangements are becoming more common in countries outside the US.
IMPACT OF PERSONALIZED MEDICINE AND COMPARATIVE EFFECTIVENESS STUDIES
Recent healthcare trends have promoted a shift toward the expanded use of two treatment paradigms, with
corollary concerns over whether they can coexist. The first paradigm is personalized medicine, which refers
to the development and administration of treatments (based on the presence of genetic biomarkers or
mutations) to patients who might best respond to an individually tailored treatment. The second—
comparative effectiveness studies—seeks to compare outcomes, such as survival across various therapies, to
determine the most efficacious and cost-effective therapies. Standard & Poor’s believes that in order to
successfully advance both approaches, comparative effectiveness studies will need to adequately reflect
outcomes from particular patient groups that might receive maximum benefit from certain treatments,
rather than narrowly defining the criteria used to determine a treatment’s effectiveness, and possibly restrict
how drugs are prescribed or reimbursed.
Advancement of personalized medicine

The premise of personalized medicine is that developing medicines that are closely matched to a patient’s
genetic profile is likely to improve the benefits to the patient and minimize adverse reactions. Projects aimed
at mapping the human genome have contributed to advances in the use of genetic biomarkers to better
determine patient response. So far, these scientific advances have not yet made much of a commercial
impact as only about 10% of US market–approved drug labels include information related to a patient’s
genetic profile. However, the Tufts Center for the Study of Drug Development estimated in late 2010 that
50% of trials now collect DNA from participants to help find biomarkers that correlate to a drug’s
effectiveness. Standard & Poor’s expects the migration toward personalized medicine to take time as drugs
developed using such information advance through the clinical process. Over time, expansion of personalized
medicine should lower R&D costs by reducing the length of biotech development timelines and enabling
identification of promising targets earlier in the process.
In September 2009, President Obama announced a $5 billion plan to fund medical and scientific research
that included $1 billion for research into the genetic causes of cancer and potential targeted treatments. The
National Institutes of Health (NIH) would disburse most of these funds through approximately 12,000
grant awards and include a project to collect tissue samples from people with various types of cancer,
sequence the genes, and make the information freely available to researchers. In June 2010, the heads of the
US Food and Drug Administration (FDA) and the National Institutes of Health (NIH), pledged to invest in
the science needed to advance the co-development and approval of paired diagnostics and therapeutics.
The personalized medicine market is gaining momentum. According to financial advisory and consulting
firm PricewaterhouseCoopers LLC (PwC), the market—which includes drugs, devices, storage, data sharing,
and other products and services—was $232 billion in 2009, and expected to grow 11% annually to $452
billion by 2015. Increasingly, companion diagnostics are being developed and used to determine the genetic
makeup of patients that may benefit from such personalized treatments.
Comparative effectiveness: how will findings be used?

Included in President Obama’s $787 billion stimulus package passed in February 2009 was $1.1 billion for
comparative effectiveness studies on currently marketed products, an endeavor that had received only
modest funding in the past. However, absent from this funding was a framework on how to apply the data
generated by such studies. The research is expected to draw from sources such as electronic health records,
registries, and healthcare claims to derive real-world outcome perspectives rather than relying solely on
randomized clinical studies. Critics have suggested that such results may lead to unfavorable reimbursement
decisions for a drug that is deemed less effective based on research that could be interpreted differently
among physicians. Similarly, it has been speculated that higher-priced drugs could face a loss of reimbursement
at the hands of older, cheaper drugs, based on price. Congress has denied its intention to use comparative
effectiveness studies to promote such outcomes, and has admitted that the initiative would be a work in
progress and likely to face a “bumpy road.” Standard & Poor’s believes that the initiative faces significant
challenges and notes an absence of representation from key constituencies in crafting the process. For
example, the FDA, the Centers for Medicare & Medicaid Services (CMS), and the pharmaceutical industry
were all excluded from appointment to both the Board of Governors of the Patient-Centered Outcomes
Research Institute (such appointments were announced in September 2010) and the Institute’s methodology
committee (in January 2011).
Standard & Poor’s believes that comparative effectiveness studies are likely to have a profound impact on
drug prices over the long term, particularly in cancer research, where progress has been incremental and
modest, despite an explosion in pricing. Leading cancer drugs such as Erbitux and Avastin (marketed by Eli
Lilly & Co./Bristol Myers Squibb Co., and Roche, respectively) are approved for several cancers, despite
extending life only for a matter of months. In addition, several marketed drugs have been approved for use
while merely delaying tumor progression and not extending life at all. We believe that many countries are
likely to explore similar forms of health-technology assessments to curb the widespread use of high-priced
medicines that offer only modest benefits. However, we expect such reviews to attempt to balance the fact
that many drugs perform differently in patient sub-groups based on unique genetic criteria, and their
effectiveness should be examined through a personalized medicine viewpoint.
The UK has led this shift, as its National Institute for Health and Clinical Excellence (NICE) has
recommended that its National Health Service not pay for several cancer drugs, either for lack of efficacy or
for being too expensive versus other available options. The agency has stated it is determined to pay only
when the price for innovation is in proportion to what it delivers, based on a quality-adjusted life-year
yardstick. We note the considerable ethical debate over placing a monetary value on a life, and expect the
debate to continue for many years as data from these comparative effectiveness studies are rolled out.
DISEASE TRENDS
Biotechnology is driving innovation and growth in oncology, infectious diseases, autoimmune disorders, and
diabetes. In the following section, we review biotech advances in these areas.
Cancer
Cancer occurs when cells continue to grow and divide, and do not die when they should. Cancer cells
damage nearby tissue and can spread to different parts of the body. About 12 million new cases of cancer
were diagnosed worldwide in 2007, according to the American Cancer Society (ACS), with 7.6 million
deaths from the disease. A December 2008 report by the World Health Organization forecast that cancer
was closing in on heart disease as the world’s leading killer. A December 2009 report from the National
Cancer Institute (NCI) cited positive trends of approximately 1% fewer diagnoses of cancer between 1999
and 2006, and a 1.6% decline in cancer deaths between 2001 and 2006, attributable largely to increased
risk reduction and screening efforts. Still, in most leading cancers, progress has been incremental while drug
and related medical costs have risen significantly. An analysis made by the National Institutes of Health in
early 2011 projected medical expenditures for cancer in the year 2020 of at least $158 billion, an increase of
27% over 2010, and that these costs could reach $207 billion if current trends continue.
Cancer treatment is currently one of the most dynamic therapeutic categories in the pharmaceutical sector,
and biotechnology companies are at the forefront of many of the ongoing changes. According to the
Pharmaceutical Research and Manufacturers of America’s (PhRMA) 2008 Medicines in Development
Report, cancer remains the largest contributor to the overall biotech industry pipeline with 254 candidates,
57% more than drugs for infectious diseases (162). We describe key trends in cancer therapies below.

 Biomarkers are personalizing cancer treatment. As treatments are increasingly tailored to specific genetic
subgroups, drugs will be prescribed for those for whom they are most likely to be effective, with the
potential to result in smaller and accelerated clinical trials. There have been several early examples of
therapies targeted for specific genetic subtypes of cancer—Herceptin, Gleevec, Avastin, Erbitux, and
others—that have been approved for use. KRAS, a gene that plays a role in cell growth regulation, has
received widespread attention in recent years. Patients with normal, non-mutated KRAS account for an
estimated 60% of colorectal cancer patients and have been shown to respond well to Amgen’s Vectibix and
Eli Lilly’s/Bristol Myers Squibb’s Erbitux. To date, the FDA, the National Comprehensive Cancer Network
(NCCN) and the American Society of Clinical Oncologists (ASCO) all have revised prescribing guidelines for
use of these drugs to reflect the findings.
 More oncology drugs are being administered orally. Traditional cancer medications were given
intravenously, in doctors’ offices, clinics, or hospitals. However, Express Scripts estimates that one-fourth of
investigational cancer drugs are taken orally.
BIOTECHNOLOGY MEDICINES IN DEVELOPMENT, They consist of small molecules, which can be
BY THERAPEUTIC CATEGORY more easily absorbed into the body than older
oncology drugs made up of large proteins that
0 50 100 150 200 250 300
are not easily absorbed.
Cancer/related 254
Infectious diseases 162 This is a technical distinction, but it has
Autoimmune disorders
H10: 59 important implications for doctors, patients,
BIOTECHNOLOGY
HIV/AIDS/related 34 and payers. Oral medications are easier to
MEDICINES
Respiratory disorders 27 IN distribute and administer than most
DEVELOPMENT,
Cardiovascular disease 25 BY biologics. Thus, they can be reimbursed
THERAPEUTIC based on traditional pharmacy benefits,
Blood disorders 20
CATEGORY
Diabetes/related 19 rather than the more complex, higher-priced
Skin disorders 19 specialty pharmacy benefits. As
Neurologic disorders 18 reimbursement for biologics comes under
Digestive disorders 15 pressure, manufacturers will have increasing
Genetic disorders 11 motivation to develop oral formulations for
Transplantation 10 biologics, as oral cancer medications are
Eye conditions 8
often less expensive than intravenously
Growth disorders 5
administered biologics.
Other 35
 Combination therapies are standard. Most
Source: Pharmaceutical Research and Manufacturers of America.
of the oncology drugs in development are
likely to be used in combination with other
approved oncology drugs, as scientists realize the importance of a multifaceted approach in treating cancer.
As a result, nearly all new oncology drugs are being tested in a variety of settings, for multiple indications,
including for use with other biologics and/or chemotherapies. New oncology drugs, therefore, have to be
judged not only on the initial indication for which they are approved, but also on their potential for use in
other areas and with other drugs. The FDA has also encouraged companies to develop combinations in
order to boost effectiveness and drive major advances in treatment paradigms, promising consideration for
such combinations before each medicine is evaluated on its own.
Infectious diseases
Infectious disease is an area of recent interest, fueled by global concerns about potential epidemics and the
rising number of hard-to-treat hospital infections. This field covers a broad range of research on disease-
preventing vaccines, new antibiotics to treat drug-resistant infections (a growing problem), and better,
cheaper chronic treatments for HIV and AIDS patients. After years without a new alternative for chronic
Hepatitis C, several promising treatments are nearing commercialization.
 HIV/AIDS. According to the United Nations, the number of people infected with HIV worldwide at the
end of 2009 was 33.2 million, up from 32.8 million at the end of 2008, with the increase attributable to
longer survival as a result of anti-retroviral therapy. According to figures released in late 2010, new HIV

infections and AIDS-related deaths may have stabilized and started to decline in many regions. Still, while
UN-backed programs are helping to get new patients on therapy, slightly more than two-thirds of people
with HIV globally are not receiving treatment. In late 2009, the World Health Organization updated
treatment guidelines, calling for earlier treatment of HIV, which it estimated could add three million to five
million patients to the estimated 9.5 million patients who require HIV therapy. The US represents a fraction
of the global HIV epidemic, with more than 1.1 million people infected, and 56,000 new infections each
year, according to the US Centers for Disease Control and Prevention (CDC).
 Hepatitis C. After years of dormancy and no new therapies, pipeline advancement is emerging in new
treatments for Hepatitis C, which has infected an estimated 5.3 million people in the US, according to the
CDC, and 170 million worldwide, according to the Hepatitis Foundation International, although the disease
remains widely under-diagnosed. In June 2010, US lawmakers urged Congress to pass legislation to boost
the detection of hepatitis after an Institute of Medicine (IOM) report highlighted deficiencies with the US
government’s response to the epidemic.
Decision Resources, a pharmaceutical industry research advisory firm, estimated in mid-2009 that the
Hepatitis C treatment market would expand from $2 billion in 2008 to nearly $8 billion in 2013, driven by
the introduction of new drugs to the market, before declining due to improved effectiveness of these
treatments. As discussed in more detail in the “Current Environment” section of this Survey, Vertex
Pharmaceuticals Inc. and Johnson & Johnson are among the leaders in developing new treatments: their
Telaprevir drug, a protease inhibitor, is currently under FDA review and could receive FDA approval
around mid-2011. Competing products include Merck’s boceprevir, which is also under FDA review. An
increasing number of earlier-stage compounds, including next-generation compounds that seek to reduce or
eliminate the use of Interferon or Ribavirin as components of standard treatment regimens, are in early-to-
mid-stage development.
 Drug-resistant infections. According to the Infectious Disease Society, “superbugs” like methicillin-
resistant staphylococcus aureus (MRSA), one of the most common hospital-acquired antibiotic-resistant
bacteria, cost the US healthcare system up to $34 billion per year. In October 2007, the CDC stated that
MRSA was approaching epidemic levels in some parts of the country. MRSA accounts for some 19,000
deaths and 94,000 life-threatening illnesses each year in the US.
According to a 2010 report from the Pharmaceutical Research and Manufacturers of America (PhRMA),
there were 395 new medicines and vaccines in clinical studies. Despite this need for novel therapies, we note
that the FDA has challenged many recent new applications for drugs aiming to combat infections. After
several delays, the FDA approved Vibativ, produced by Theravance Inc. and Japan’s Astellas Pharma Inc.,
in September 2009, though with a restrictive warning label. The FDA has also delayed the drug’s approval
for treating nosocomial (or hospital-acquired) pneumonia, another area of unmet medical need. Several
other potential treatments in late-stage study are Johnson & Johnson’s Zeftera (ceftobiprole), and Pfizer’s
Dalbavancin.
Autoimmune diseases
 Rheumatoid arthritis. Rheumatoid arthritis (RA) is one of the most common and serious forms of
arthritis, affecting 1.3 million Americans according to the Arthritis Foundation. RA is mainly characterized
by inflammation of the lining (synovium) of the joints, which causes swelling that can result in pain,
throbbing, and, ultimately, deformity. Rheumatoid arthritis is most common in women and onset typically
occurs between the ages of 40 and 60. Primary treatments include nonsteroidal anti-inflammatory drugs
(NSAIDs) and disease-modifying drugs called DMARDs, particularly methotrexate. Biologics are typically
used in combination with DMARDs to modify the immune system by inhibiting proteins called cytokines,
which contribute to inflammation.
Drugs approved for treating RA are also used for other inflammatory conditions such as psoriatic arthritis,
Crohn’s disease, and psoriasis. In July 2009, a panel assembled by the Institute of Medicine released a list of
100 health topics that it stated should get the highest priority in comparative effectiveness studies. Biologics
treating RA and these other disorders generated sales of more than $25 billion in 2008, according to market
intelligence provider EvaluatePharma, and were included in the first quartile of the panel’s list.
 Multiple sclerosis. Multiple sclerosis (or MS) is a chronic, often disabling, disease that attacks the central
nervous system (CNS)—the brain, spinal cord, and optic nerves. According to the National Multiple Sclerosis
Society, there are approximately 400,000 people with multiple sclerosis in the US and more than 2.5 million
people worldwide. There are currently seven approved disease-modifying treatments, six of which are
administered either by injection or IV infusion. The first orally dosed drug, Gilenya (Fingolimod, or FTY720),
marketed by Novartis AG, was approved in September 2010 and launched before the end of the year. A
second agent, Merck Serono’s Cladribine, was issued a “refuse to file” letter from the FDA in December
2009 and the company re-filed in early 2010.
MS therapies have expanded significantly in both price and use in recent years. According to Express
Scripts, the category saw a 40% rise in spending in 2009, of which 29% was due to rising costs and 11%
due to higher utilization. The introduction of new drugs to the market has the potential to possibly double
the current $8.8 billion market in the next five years, according to Frost & Sullivan.
Diabetes
Diabetes is becoming more prevalent, largely as a result of poor nutrition and a lack of physical activity.
The American Diabetes Association (ADA) estimates the number of people in the US with diabetes as near
24 million, or 8% of the population, but only 18 million have been diagnosed. According to the American
Association of Clinical Endocrinologists, another 57 million have pre-diabetes, characterized by rising blood
glucose levels, raising one’s risk of developing diabetes. The CDC estimates that the prevalence of diabetes
has doubled in the past 15 years.
The ADA has also forecasted the total cost of treating diabetes to be $174 billion in 2007, including $116
billion in excess medical expenditures and $58 billion in reduced national productivity, while a November
2008 published study commissioned by Novo Nordisk A/S pegged the figure at $217.5 billion. In 2005,
medical expenditures accounted for one in eight federal healthcare dollars, according to Mathematica Policy
Research, a policy research firm.
Standard & Poor’s believes there is ample room for growth in the diabetes treatment area, given the size of
the market, the unmet medical need, and safety concerns over current treatments. In fact, pharmaceutical
trade group PhRMA cited 235 new medicines in development to treat diabetes in a mid-2010 report.
However, we view the competitive landscape to commercialize next-generation diabetes projects as intense
and subject to regulatory scrutiny and delays, given the new guidelines requiring manufacturers to evaluate
cardiovascular risks before being granted approval. We expect this trend to increase clinical trial patient
sizes and further slow the drug pipeline.
Promising technologies
 Stem cells. These cells can be used to repair tissues and grow organs. Although embryonic stem cells are
particularly useful because they can transform into any kind of cell in the body, they are also highly
controversial because to date, starting a stem cell line has required the destruction of a human embryo
and/or therapeutic cloning. In 2001, then-President Bush limited use of embryonic stem cells in scientific
research. In 2009, President Obama lifted the ban on their use as one of his first official actions upon taking
office. However, in September 2010, a federal judge issued a temporary injunction barring the federal
government from funding research involving the destruction of human embryos. A temporary stay was
issued shortly thereafter, enabling NIH research to continue in the interim.
In addition to ethical considerations, the FDA has expressed concern about the potential for health-related
issues emerging from stem cell–based treatments, including new cancers or harmful immune system
responses, according to Nature Biotechnology magazine. The agency approved Geron Corp.’s application to
advance a therapy for spinal cord injuries into clinical trials in early 2009, but later placed the study on
clinical hold to review safety data over cysts seen in pre-clinical study. The agency has also authorized
clinical trials by StemCells Inc. for potential treatment for Pelizaeus-Merzbacher disease, a fatal brain
disorder in children. That study treated its first patient in February 2010.
In early 2010, the National Institutes of Health (NIH) predicted that stem cells could be used to research
genetic diseases and develop therapies and cures, not just for stem cell replacement. Opening up research to
more stem cell lines has provided cells containing gene mutations that can be reviewed and lead to new
therapies. In addition, scientists at the Whitehead Institute for Biomedical Research in Cambridge,
Massachusetts, have made considerable progress in advancing stem cell research that could potentially not
require embryonic destruction. Although a commercialized therapy based on stem cell research remains
years away, we expect the issue to remain controversial.
 RNA interference (RNAi). This important new technology involves switching particular genes on or off,
and is a natural pathway to control gene expression. Unlike traditional small molecule medicines that target
only certain classes of protein, RNAi seeks to design siRNAs (small interfering, or silencing RNA) for every
gene/mRNA, to block the production of disease-causing proteins before they are made. This would afford
the opportunity to improve disease control and intervention, and focus on disease prevention rather than a
standard symptom treatment model. RNAi was the subject of research by the winners of the 2006 Nobel
Prize for Medicine and seems to have tremendous potential for the treatment of cancer and infectious
diseases. However, despite significant initial interest and investment from leading pharmaceutical
companies, such interest appears to be waning. In 2010, Roche shuttered RNAi research as part of a
corporate-wide restructuring, despite initial investments of more than $300 million, and Novartis declined a
platform license option. Both deals involved Alnylam Pharmaceuticals, which advanced its internal pipeline
and reported major drug delivery advances during 2010.
 MicroRNA. RNAi is spawning a new area of study called micro-RNA (MiRNA), which focuses on short
strands of naturally-produced RNA that act as switches to regulate protein production, and may enable
treatments more advanced than RNAi. Early leaders in this field are Regulus Therapeutics LLC (a joint
venture between Alnylam and Isis Pharmaceuticals), which has entered into global alliances with
GlaxoSmithKline and Sanofi-Aventis, and Santaris Inc., which recently initiated a clinical study on the first
treatment in this class for Hepatitis C.
HOW THE INDUSTRY OPERATES

Biotechnology refers to the application of biological and biochemical science to large-scale production of
products to modify human health, food supplies, or the environment. Many of biotechnology’s basic
principles are thousands of years old. Bacteria, fungi, and other living organisms have long been used to
stimulate chemical reactions needed to process certain foods and beverages, such as cheese, wine, beer, and
other fermented products. Decades before the advent of genetic engineering, scientists produced medicines
made from living organisms on a large scale—such as penicillin in the 1940s. Since the 1970s, however,
scientists have learned how to manipulate organisms at the genetic level and reproduce those changes in
massive quantities, facilitating the creation of new medical products.
Current advances in biotechnology are indebted to groundbreaking research in genetics and molecular
biology conducted since the mid-twentieth century. In 1953, James D. Watson and Francis Crick first
described the structure of deoxyribonucleic acid (DNA)—the molecule that carries the genetic code for
virtually all forms of life. Then, in 1967, a team of US researchers, led by Arthur Kornberg, synthesized
biologically active DNA in a test tube.
COMMERCIAL MILESTONES
In the early 1980s, the US Supreme Court recognized patent rights on genetically altered life forms. This
important ruling enabled US biotech firms to invest in costly research projects, knowing that patents would
protect their discoveries and ultimately sustain financial incentives.
In April 2003, the International Human Genome Sequencing Consortium, an international group of
scientific centers, completed the sequencing of the human genome. This base of knowledge is enabling
medical researchers to run extensive screens of human proteins, giving them the potential to identify
thousands of biological targets against which new drugs can be developed.

To date, over 100 recombinant protein-based drugs have been approved, according to Medco Health
Service’s 2010 Drug Trend Report, with another 633 in development. These drugs generated more than $76
billion in worldwide sales in 2008 (latest available), and Medco forecasts growth to $115 billion by 2015.
Key classes of biotech drugs

In 1986, the US FDA approved the first monoclonal antibody (MAb), Johnson & Johnson’s Orthoclone, for
the treatment of transplant rejections. Today, MAbs are the key growth driver for the industry. We estimate
more than 200 MAbs in clinical development at the end of 2010, based on recent growth trends for the
category. According to Nature Biotechnology magazine, monoclonal antibodies represented 35% of the
total US biologics market through 2008, with most focused on cancer and inflammatory diseases. Leading
MAbs include Johnson & Johnson’s Remicade for inflammatory conditions and Roche’s Avastin for cancer.
In 2010, a widely anticipated monoclonal antibody, denosumab, received FDA approval for post-
menopausal osteoporosis (marketed as Prolia) and for delaying cancer-related skeletal events (as XGeva).
The drug is being explored for additional cancer uses, and is expected to reach blockbuster status and renew
the growth prospects for its marketer, Amgen Inc.
TOP 10 BIOTECHNOLOGY DRUGS

(Ranked by 2009 global sales)
SALES (MIL. $)
PRODUCT COMPANY INDICATED USE 2008 2009 % CHG.
1.Enbrel Amgen/Pfizer/Takeda Rheumatoid arthritis/psoriatic arthritis 6,199 6,469 4.4
2.Remicade J&J/Merck
Table B02: TOPRheumatoid
10 arthritis/Crohn's disease 5,302 5,922 11.7
3.Avastin RocheBIOTECHNOLOGY Oncology 4,818 5,744 19.2
4.Rituxan Roche/Biogen IDEC B-cell non-Hodgkin's lymphoma/rheumatoid arthritis 5,481 5,620 2.5
DRUGS
5.Humira Abbott Labs Rheumatoid and other forms of arthritis 4,540 5,566 22.6
6.Epogen/Procrit Amgen/J&J Red blood cell enhancement 5,163 4,964 (3.9)
7.Herceptin Roche Oncology 4,712 4,862 3.2
8.Lantus Sanofi-Aventis Diabetes 3,600 4,293 19.3
9.Neulasta Amgen Restoration of white blood cells 3,318 3,355 1.1
10.Aranesp Amgen Red blood cell enhancement 3,457 2,930 (15.2)
Total, top 10 46,590 49,725 6.7
Source: EvaluatePharma.
Other leading groups of biologic drugs are growth factors, hormones, fusion proteins, cytokines, and
therapeutic enzymes. Growth factor stimulants are proteins that can induce tissue development by affecting
genetic switches in cells. Notable examples include Amgen’s Epogen/Aranesp, which stimulate red blood cell
production, and Neulasta/Neupogen, which stimulate white blood cell production. Hormones are chemical
messengers that travel through the blood stream to other parts of the body to maintain chemical balance.
Key drugs in this group are insulin, human growth hormones, and thyroid stimulating hormones. Fusion
proteins are proteins created through the joining of two or more genes originally coded for separate
proteins. The leading biologic is this class is Amgen’s Enbrel, which treats inflammatory conditions such as
rheumatoid arthritis and psoriasis.
Cytokines are small proteins released by cells that have a specific effect on cell interactions. Key cytokine
classes include interleukins, lymphokines, and cell signal molecules, such as tumor necrosis factor (TNF),
often used for treatment of inflammatory disorders such as rheumatoid arthritis and psoriasis; and interferons,
which trigger inflammation and respond to infections, and are prevalent in treating multiple sclerosis and
hepatitis C. Lastly, therapeutic enzymes seek to replace naturally occurring enzymes, which are catalysts for
complex biological processes. Genzyme Corp. has been a leader in this class, where formulations are used in
treating rare disorders with few affected patients and usually sell at premium prices.
SPENDING ON R&D
In the biotechnology industry, investment in research and development (R&D) is crucial to building a long-
term sustainable organization. After years of growth, however, R&D spending declined in 2009. According
to Ernst & Young LLP, the consulting firm, US public biotechnology company spending on R&D decreased

by 13% in 2009 from 2008 levels, excluding the removal of Genentech Inc. from industry figures due to its
2009 acquisition by Roche. According to Ernst & Young, 64% of companies reported R&D reductions,
compared with only 37% in 2008. Biotech R&D as a percentage of product sales has traditionally been very
high, but has shown signs of decline as industry revenues have grown. Standard & Poor’s expects this trend to
continue as more biotech drugs reach the market. We note the potential for negative sentiment from investors
should levels of research investment drop precipitously, as innovation is a key differentiator for biotechs and a
factor in their
LEADING US BIOTECH COMPANIES RESEARCH & DEVELOPMENT EXPENDITURES valuations.
(In millions of dollars, ranked by 2009 R&D expenditures)
R&D R&D AS % Access to capital
----- EXPENDITURES ----- --------- REVENUES --------- OF REVENUES crucial
COMPANY B03: LEADING
2008 US BIOTECH
2009 % CHG. 2008 2009 % CHG. 2008 2009
COMPANIES RESEARCH & Companies in the
Amgen 3,030 2,864
DEVELOPMENT(5.5) 15,003 14,642 (2.4) 20.2 19.6 biotech industry range
Biogen-Idec 1,097 1,283 17.0
EXPENDITURES 4,098 4,377 6.8 26.8 29.3 in size from small start-
Gilead Sciences 733 940 28.3 5,336 7,011 31.4 13.7 13.4
ups to multibillion-
Genzyme 1,308 865 (33.9) 4,605 4,516 (1.9) 28.4 19.2
dollar firms. Given the
Celgene 2,671 795 (70.2) 2,238 2,677 19.6 119.4 29.7
need to fund R&D, one
Cephalon 404 442 9.3 1,975 2,192 11.0 20.5 20.1
Vertex Pharmaceuticals 360 401 11.3 176 102 (41.9) 205.4 393.8
of the most important
Regeneron Pharmaceuticals 278 399 43.4 238 379 59.1 116.6 105.1
issues facing young
Exelixis 257 235 (8.8) 118 152 28.8 218.4 154.7 biotechnology
Amylin Pharmaceuticals Inc. 293 185 (36.9) 840 758 (9.7) 34.9 24.4 companies is access to
Source: Standard & Poor's Compustat. capital.
New biotech entities are usually funded through seed money from private wealthy investors or small groups
of investors, called “angels,” and by venture capitalists. Venture capitalists raise money from wealthy
private individuals or institutional investors and create funds that invest in emerging high technology
companies (including biotech start-ups), usually with an exit strategy, such as an initial public offering, in
mind. Most biotech companies lose money and do not become sustained profitable companies. Until
recently, companies rarely faced difficulty in raising capital. However, the financing environment has been
challenging as financial markets continue to recover from the significant disruption caused by the global
recession. Venture financing has been volatile in recent years, mirroring the economic conditions brought
about by the global recession. Standard & Poor’s believes that 2008 represented the trough for venture
investing, and we see biotechnology remaining among the top industries for venture interest. We believe that
funding is likely to remain selective, but available to promising companies.
In 2010, 17 biotech companies completed IPOs. However, due to equity market volatility, their average
market performance through the end of 2010 was 13% below their average offering price, according to
Burrill & Co., an improvement over the three completed offerings in 2009, as the sector emerged from the
recession during the second half of 2009.
The recession significantly hurt smaller companies, as many faced limited financing options and were forced
to scale back R&D projects and to shelve potentially promising programs due to a lack of resources.
However, as the markets stabilized from their March 2009 lows, the pace of announced restructurings
slowed and more companies were able to secure financing to extend their cash runway. According to the
Biotechnology Industry Organization (BIO), an industry trade group, a quarter of publicly traded US
biotech companies had less than one year of operating capital as of mid-2010, an improvement over 45%
seen at the end of 2008. Typically, Standard & Poor’s looks for a cash balance that could see a biotech firm
through at least two years of operations as a benchmark of staying power.
The importance of partnerships

Once a small firm has a promising investigational candidate, it often chooses to team up with a major
pharmaceutical or biotech company. The larger company may provide up-front fees, R&D funding,
milestone payments, royalties, and possibly co-promotion rights. In addition, the partner often provides
needed production facilities and sales organizations for new products, as smaller firms typically lack the
commercial and manufacturing infrastructure to launch a new drug internally.

Many approved biotech products were developed with a collaborative partner, usually a leading
pharmaceutical company. The number of such agreements has risen steadily in recent years, as “Big
Pharma” and the major biotechs have realized the scientific and economic benefits of partnerships with
smaller biotech firms. These alliances are perceived as validation of the smaller firms’ prospects. In many
cases, acquisitions have occurred between firms that had been development partners, as larger firms gain
first-hand insights into a smaller company’s management, breadth of research capabilities, and prospects for
pipeline advancement. However, as noted earlier in this Survey, significant restructuring within the
pharmaceutical industry has led to the dissolution of many pharma–small biotech partner deals and the
need among biotech companies to seek new transactions in order to advance their clinical assets.
Patents make it happen

Patents are among the most important benchmarks of progress in developing new biotechnology products.
When a company obtains a patent for a new process or product, competitors are prohibited from commercial
use of that discovery. In the biotech industry, patents are critical to raising the capital for R&D.
Among the different types of patents, a “composition of matter” patent, which describes the product’s
chemical or biological nature, generally provides the company with the best protection. A “use” patent lets
the holder manufacture and market the compound for a specific therapeutic purpose, preventing
competitors from using the drug in the same way. A “process” patent describes the manufacturing process
of a product.
Since the World Trade Organization (WTO)—the international body that focuses on the rules of trade
between nations—established a multilateral trading system on January 1, 1995, many nations that had been
lax about protecting patents are changing their laissez-faire approach. WTO regulations include the
recognition of pharmaceutical patents, which extend for 20 years from the application date. Still, the ability
to obtain and enforce patent protection varies by country and US pharmaceutical companies have been leery
of doing business in countries that fail to recognize international patents. WTO regulations contain an
exception known as compulsory licensing, which allows a country to break patents in a national emergency
and make copies of an important drug, typically over concerns that their huge, poor populations do not
have the money to pay for life-saving, brand-name medications. Developing nations have become
increasingly aggressive in fighting Western brand-name drug patents due to high prices. Recently, the
Brazilian government declared Gilead Science Inc.’s core HIV compound Tenofovir to be of public interest,
signaling the country’s interest in avoiding the drug’s patent and plan to issue a compulsory license.
The issue of patents has become increasingly complex as advances in understanding the human genome
have been made. Although US patent law states that what occurs in nature cannot be patented, the US
Patent and Trademark Office has granted exclusive patent rights for gene sequences isolated from human
chromosomes. According to the American Civil Liberties Union (ACLU), up to 20% of human genes have
been granted patents. This practice has drawn criticism from multiple groups on the basis of impeding
scientific progress. These groups have argued that companies should be able to patent proprietary drugs and
tests derived from knowledge gained from gene sequencing, rather than patenting the natural discovery
itself. The biotech industry has defended these rights as protecting innovation and helping to recoup R&D
investments. In March 2010, a US district court invalidated several patents granted to Myriad Genetics Inc.
that covered two gene sequences responsible for hereditary cases of breast and ovarian cancer. The court
ruled that patents that had given Myriad a monopoly on its predictive cancer test based on those sequences
were improperly granted as the genes are directed to a law of nature. In October 2010, the US Department
of Justice opined that unmodified human DNA should not be eligible for patent. Standard & Poor’s expects
protracted legal debate over the issue, but we note that most drugs in development are not directly affected
given their manipulation of DNA to form a patentable invention.
INDUSTRY REGULATION
Congress passed the first federal law regulating the drug industry in 1906. Known as the Pure Food and
Drug Act, it required that drugs meet official standards of strength and purity, and that drug labels give an
accurate list of ingredients. However, in 1937, more than 100 people died after taking elixir sulfanilamide

(a sulfa drug mixed with diethylene glycol, which is used in automotive antifreeze). This calamity led to the
passage of the Food, Drug, and Cosmetic Act of 1938, which required that drugmakers submit evidence of a
product’s safety. It also required that a drug’s label state its contents, how it should be administered, and its
possible side effects. The FDA was created to oversee the law’s enforcement.
The law was strengthened in 1962, following an outbreak in Europe of severe birth defects caused by
thalidomide. Thalidomide’s near-entry to the US market created a clamor for tighter drug regulation, which
resulted in legislation requiring manufacturers to demonstrate both the safety and efficacy of new drugs
before receiving approval for commercial sale in the United States. In addition, this legislation required that
drug manufacturing facilities be subject to FDA approval and periodic inspection. (For further discussion of
issues facing the FDA, please see the “Current Environment” section of this Survey.)
THE DRUG DEVELOPMENT PROCESS
The biopharmaceutical approval process is both costly and lengthy. As of early 2011, the Tufts Center for
the Study of Drug Development (CSDD), a nonprofit academic research group, placed the average cost to
develop a new biologic at $1.3 billion, up from $1.2 billion in an earlier 2006 study. Frost & Sullivan
estimated in a 2009 industry report that the R&D development expense to launch a new molecular entity
could rise to $2 billion by 2015 and $2.5 billion by 2020.
In its 2006 analysis, the Tufts CSDD concluded that the process spanning preclinical development to
marketing approval can take between 10 and 15 years. New products take 97.7 months (or 8.1 years), on
average, to get through the clinical development and regulatory process, about 8% longer than the 90.3
months (7.5 years) for traditional medicines. A 2009 study by Frost & Sullivan placed the average at 12-
years, split between preclinical development (four years) and clinical/regulatory (eight years).
These trends have given rise to attempts to uncover new ways to accelerate the development timeline, while
reversing the trend of rising costs. An economic study sponsored by the National Institute of Standards and
Technology suggests that an improvement in the R&D technology infrastructure, led by the standardization
of data collection and quality control for post-market surveillance, would save 25% to 48% of R&D
expenses for each new biopharmaceutical drug approved by the FDA and would reduce development time
significantly. In July 2010, Mayo Clinic researchers launched a new cooperative model aimed at
streamlining data collection and clinical trial management in hopes of accelerating the development
timeline. In December 2010, the director of the FDA’s Office of Oncology urged companies to design small
pivotal, randomized trials powered to show a large cancer survival effect earlier in the process, rather than
continuing the recent trend of lengthy programs that show modest and incremental gains over existing
treatments. Such advances will be crucial to reverse these alarming trends.
The effort to discover and develop new therapeutics generally consists of several distinct steps: early discovery
and preclinical development, clinical trials, and regulatory filing and review.
Early discovery and preclinical development

According to the Tufts CSDD, preclinical work consumes nearly half of the R&D expenditures per biologic.
While it is common to focus on a drug company’s clinical development pipeline, industry insiders know that
many of the hurdles encountered during drug development occur before the compound enters the clinic. Key
steps in the process of developing biological drugs are detailed below.
 Target identification. Genes are identified that are thought to be responsible for causing a particular
disease. The ultimate goal in this step is to find and isolate potential areas for therapeutic intervention.
 Target validation. Once a prospective disease target is uncovered, its role in the disease must be
determined. Researchers use various methods, such as differential gene expression, tissue distribution
analysis, and protein pathway studies, to verify the target’s significance.
 Assay development. Assays, or chemical tests, are developed to determine the activity that potential
treatments have on the target. Ideally, a drug development screen should be cost effective, fast, accurate,

easy to perform, quantitative, and amenable to automation. Some screens can be reused for other drug
development studies, while many others must be tailored for the specific target and set of therapeutic
compounds that will be tested.
 Screening. Once the assay is ready for use, tests with a library of chemical compounds are conducted in
an attempt to modulate a validated target. Researchers look for a predefined minimum level of activity
against the target to advance the compound to secondary screening, which aims to confirm the activity,
measuring the potency and assessing the selectivity of hits from the primary screen. This helps the drug
developer to identify the most promising drug candidates in terms of their pharmacological characteristics.
 Lead optimization. Through rescreening, researchers zero in on candidates with the best chance of safety
and therapeutic efficacy. These molecules may demonstrate some activity, but they need to be modified to
improve their effectiveness and reduce their potential side effects. This process, known as lead optimization,
can include up to 10 or more iterations on previously optimized groups of compounds.
 Preclinical studies. Prospective compounds that exhibit the greatest activity with the least chance of toxicity
are called leads. Leads undergo years of FDA-mandated testing, which is necessary before human clinical trials
can be initiated. These preclinical tests are done on animals to examine the compound’s absorption,
metabolism, distribution, and excretion. The preclinical studies must prove a compound’s safety in terms of
potential carcinogenicity and other toxic consequences and assess preliminary effectiveness of a compound. A
sponsoring drug company must submit the results of preclinical testing to the FDA as part of an investigational
new drug application (INDA), which is a formal request for permission to begin human clinical testing.
Clinical trials: putting candidates to the test

The US drug approval system is one of the world’s most stringent. Biotechnology medications undergo the
same lengthy testing process as any other pharmaceutical product, to demonstrate safety and efficacy.
The clinical testing period in humans usually consists of three phases. During Phase I, the drug is
administered to a relatively small number of healthy people in order to test its safety in small doses. If this
initial test appears successful, the dosage is slowly increased to determine its safety at higher levels. During
Phase II, the drug is given to patients suffering from the disease or a condition that the drug is intended to
treat. This round of tests is designed to evaluate the drug’s effectiveness and safety, and generally includes a
larger patient population and a lengthier test period than Phase I.
Drugs that pass these hurdles then undergo Phase III, in which the most complex and rigorous tests are
performed on still larger groups of ill patients to verify the drug’s safety, effectiveness, and optimum dosage
regimens. Physicians closely monitor patients to determine efficacy and identify adverse reactions.
Usually, Phase III trials (and often those of Phase II as well) employ randomized, double blind tests with
placebo control to remove any chance for bias. This means that one group of patients is given the drug and
another is given an inert substance; however, if there is already an approved drug for the indication, it will
be used instead of the placebo. Neither the patients nor their doctors are aware of which patients are
actually receiving the drug being tested.
After the development work is complete, company scientists analyze the data. If the data is positive, the
company compiles it into a biologics license application (BLA) or a new drug application (NDA), which is
submitted to the FDA for review. The application contains results of the preclinical and clinical research and
includes details of the product’s formula, production, labeling, and intended use. The FDA estimates that, of
every 20 drugs entering clinical testing, an average of 13 or 14 will successfully complete Phase I. Of those,
about nine will finish Phase II, but only one or two are likely to survive the rigorous Phase III trials. Thus,
only 5% to 10% of all drugs entering clinical trials are ultimately approved for marketing.
Regulatory filing and review

The FDA’s Center for Drug Evaluation and Research is responsible for reviewing therapeutic biological
products and chemical-based drugs. The Center for Biologics Evaluation and Research reviews blood
products, vaccines, and tissue-based products.

BLAs and NDAs are typically voluminous documents, sometimes exceeding 100,000 pages. Once an NDA
or BLA is approved, the FDA determines the drug’s official labeling, including a detailed description of the
drug and its composition, indications, contraindications, and side effects. This information is included in a
drug’s package insert.
Following approval, the FDA continues to monitor the drug, because side effects or other unexpected
developments sometimes become known only after the drug is widely used. The FDA may require additional
post-market studies (Phase IV) For some medicines in order to evaluate long-term effects. Such studies are
becoming more common. A July 2008 analysis by the Tufts CSDD found that 75% of new drugs approved in
the US and Europe between 1998 and 2008 had post-marketing study commitments attached to them.
Often, after marketing has begun, the manufacturer submits supplemental applications requesting approval
to use the drug for additional indications. For their initial applications of a new drug, manufacturers tend to
seek narrow indications affecting well-defined sets of patients. Added approvals can greatly expand the
market size and commercial potential of a biologic.
PDUFA provides funding for, but doesn’t speed up, the approval process
In 1992, the FDA passed the first Prescription Drug User Fee Act (PDUFA), which allowed the agency to
collect fees from the biopharma industry to fund the review of drug applications. Since the initial act, user
fees have grown significantly as a percentage of the agency’s review budget. According to tax and advisory
firm PriceWaterhouseCoopers (PwC), user fees in fiscal 2008 accounted for nearly half of the agency’s
overall budget and two-thirds of human drug review costs.
As discussed earlier in this Survey, the FDA has been inconsistent in its timeliness and in the consistency of
approving new drugs. While drugmakers pay for standard applications (10 months) and extra for priority
reviews (6 months), a late 2010 survey conducted by PwC found that nearly half of the industry participants
do not feel that user fees have accelerated the review process and were unclear of the purpose of the user
fees. The PDUFA, which has to be reauthorized every five years, is set to expire in 2012.
Shortage of clinical trial candidates slows industry pipeline

More than 2.3 million people participate in a total of approximately 80,000 clinical trials every year in the
US, according to clinical trial listing service CenterWatch. Increasingly, however, drugmakers are struggling
to recruit a sufficient number of patients to participate in clinical studies. In 2009, CenterWatch estimated
that 81% of new drug candidates experience delays of up to six months because of patient enrollment
challenges. Standard & Poor’s attributes this situation to several factors. First, the number of drugs under
development has risen significantly: between 2003 and 2008, the number of drugs under development
increased 35% to 2,700, according to PhRMA. Second, demands to show efficacy and safety over existing
treatments have been growing. As more drugs are on the market for a given indication, new drugs face
larger and more expensive studies to reach statistically significant results.
Cancer research has been particularly challenged by trial enrollment concerns. According to the American
Society of Clinical Oncologists (ASCO), a National Cancer Institute (NCI) study showed that between 2000
and 2007, 40% of cancer trials did not achieve minimum accrual goals, including 60% in Phase III study,
the longest and costliest stage. According to the American Cancer Society, fewer than 5% of adults
diagnosed with cancer will take part in a clinical trial, with lack of patient awareness, fear of trying an
experimental therapy over an existing standard of care, and a lack of oncologist incentives to enroll their
patients in a study most often cited as factors contributing to the trend.
The FDA has urged sponsors to study cancer drugs at earlier stages of disease progression, but poor
enrollment has maintained the trend of new drugs being tested initially only for the sickest patients, where any
benefits would only delay disease progression, usually only modestly. The process of studying new drugs at
earlier stages has slowed the industry pipeline further. Over the long term, a hope is that increased use of
genetic factors that can help to determine which patients would likely benefit from a new treatment; this in
turn could potentially improve trial design and patient enrollment.

Expedited processes for life-and-death treatments
The FDA can allow for experimental drugs to be made available to seriously ill patients through its
investigational new drug (IND) treatment policy. This provision lets manufacturers sell drugs (on a cost-
recovery basis), provided that Phase I trials for the drug have been successfully completed. Since this policy
was enacted in 1987, more than 30 drugs have been granted IND treatment status.
Since 1997, drugs targeting life-threatening diseases that are not effectively treated by existing drugs can
receive “fast-track” or expedited review by the FDA. Between 1998 and 2005, the FDA granted nearly 500
fast-track designations, accounting for 20% of all investigational compounds in clinical development
worldwide during that period, according to Tufts, having a significant effect on speeding access to drugs
that treat AIDS, breast cancer, leukemia, and other diseases. Cancer drugs accounted for 40% of all fast-
track designations between 1998 and 2005.
Another mechanism available is an accelerated approval pathway, in which a drug can be approved on
clinical data that suggests that a drug has a meaningful benefit, with the promise of confirmatory data to
support a full approval designation. In December 2010, the FDA sought to revoke accelerated approval
status granted to Roche (via its acquisition of Genentech) in 2008 for advanced breast cancer. The approval
was based on mid-stage studies that showed a progression-free survival benefit. However, late-stage studies
ultimately showed a more modest average PFS benefit, while exposing patients to side-effect risks that the
FDA determined outweighed the benefit. In January 2011, Roche appealed the FDA’s decision.
Orphan drugs
Enacted in 1983, the Orphan Drug Act was designed to encourage companies to develop drugs to treat rare
diseases afflicting fewer than 200,000 individuals by providing research grants, tax breaks, and seven years
of exclusive marketing rights to manufacturers of drugs aimed at patient markets that would otherwise be
too small to justify commercial development.
An estimated 25 million Americans have one of the 6,000 rare conditions that have been identified by the
National Institutes of Health. According to the FDA’s website, more than 2,000 drugs and biologics have
been designated as orphan drugs, and approximately 350 have been approved. In its attempts to promote
research in orphan diseases, the FDA has granted orphan-drug status to 425 experimental drugs between
2006 and 2008, up from 208 between 2000 and 2002, according to the Tufts CSDD. However, the agency
has struggled to entice drugmakers to research many neglected diseases. Past efforts that offered priority
review vouchers were met with little response. In June 2010, the FDA published a list of 235 currently
approved treatments that it believed could have benefits for other disorders in hopes of promoting new
study programs.
Despite these efforts, patient advocate groups have pushed for additional policies that allow greater
flexibility in how the agency reviews these drugs. The agency has been called upon to accelerate
development timelines for conditions of serious unmet needs as well as to raise the exclusivity period to ten
years, to match levels set in Europe, from the current seven.
PRICING CONSIDERATIONS
To date, the US biopharmaceutical industry has been relatively unaffected by changes in general economic
activity, as demand for medicine in the United States is tied to the population’s health, rather than economic
cycles. New biopharmaceuticals are typically very lucrative, and manufacturers usually have wide discretion
in pricing them. Many factors go into the pricing decision, including the relative efficacy of a given drug
versus its rivals, the size of the target market(s), the price of competing therapeutics, and costs incurred in
development.
Because biotech drugs tend to be used for hard-to-treat, potentially fatal diseases, the cost–benefit equation
for these drugs has been supported by the high value that society places on human life. In addition, a lack of
alternative therapies for some conditions may leave doctors little choice in making prescription decisions.
However, the exemption from cost pressures is eroding, as pharmaceutical costs rise, new biotech products
come to market, and the biotechnology field grows increasingly competitive.

Although most drugs are priced near other established drugs in their class, breakthrough therapies for life-
threatening conditions are usually priced exceptionally high. For example, in 2007, Alexion Pharmaceuticals
Inc. launched Soliris for the
MOST EXPENSIVE BIOTECH DRUGS treatment of paroxysmal nocturnal
ANNUAL hemoglobinuria (PNH), a rare
DRUG INDICATION COST* ($) COMPANY blood disorder; the cost of a year’s
Soliris PNH disease 409,500 Alexion Pharmaceuticals treatment with Soliris is more than
Elaprase Hunter syndrome 375,000 Shire Pharmaceuticals $400,000. Furthermore, a 2008
Naglazyme Maroteaux-Lamy syndrome 365,000 BioMarin Pharmaceuticals Express Scripts analysis noted that
Cinryze Hereditary angioedema 350,000 ViroPharma drugs with orphan indications
Myozyme Pompe disease 300,000 Genzyme make up slightly more than one-
Arcalyst
Table B10: MOST
Cryopyrin-associated periodic 250,000 Regeneron
EXPENSIVE third of specialty drugs, but
syndromes (CAPS)
Fabrazyme Fabry disease BIOTECH DRUGS
200,000 Genzyme
contribute a disproportionate
Cerezyme Gaucher disease 200,000 Genzyme 71.3% of specialty drug spending,
Aldurazyme Hurler syndrome 200,000 Genzyme/BioMarin Pharma costing more than twice as much
*Estimated cost for a typical adult patient. Dosage may vary based on a patients' as non-orphan drugs.
weight and other factors. PNH-Paroxysmal nocturnal hemoglobinuria.
Source: Forbes. Europe has taken a leading
position on judging a drug’s cost
effectiveness. A growing number of drugs, particularly cancer drugs, have been approved by the European
Medicines Agency (EMEA) but have not been made available because they have been deemed as not cost-
effective by local governments. Such rulings can be made in each European Union (EU) member country
because the EU’s regulatory system is not harmonized. The UK’s National Institute for Health and Clinical
Excellence (NICE) has led the way.
KEY INDUSTRY RATIOS AND STATISTICS

 R&D as a percentage of sales. With new drugs representing the lifeblood of the biotechnology industry,
changes in this industrywide statistic can have an important impact on future trends in sales and earnings.
According to Ernst & Young, research and development (R&D) expenditures as a percentage of total
revenues were 30% for publicly held biotech companies in 2009, down from 38% in 2008. For most
money-losing operations, R&D expense typically far outpaces revenues. We believe that an appropriate
barometer when analyzing the more mature, profitable biotechs is approximately 15%–25% of revenues.
At present, the biotech industry devotes a higher percentage of its sales to R&D than any other major US
industry. This ratio should decline as the industry matures and more products are commercialized, leading
to ratios more comparable to those of the pharmaceutical industry.
 Annual budget of the National Institutes of Health (NIH). The NIH, a division of the US Department of
Health and Human Services (HHS), plays a vital role in drug discovery by funding basic research on the
fundamental mechanisms of disease. The budget is usually disclosed in the early part of the year as part of
the president’s total proposed federal budget for the fiscal year beginning October 1. The first and largest
NIH institute is the National Cancer Institute, established in 1937.
About 40% of the NIH’s budget supports basic research, 40% is for transitional research, and 20% is for
high-risk projects. The NIH receives approximately 50,000 research and training applications per year.
From these applications, the division uses a peer review system to select the most qualified proposals for
funding. For 2010, the NIH was funded $31.2 billion, which represents an increase of approximately 2%
over 2009. Moreover, the NIH says that this figure is below the pace of inflation for biomedical research,
which is closer to 4%. As a result, the NIH has projected continuing declines in the percentage of grants
accepted, which has fallen to approximately 20%, from a peak of 32% in 2001. 
 National healthcare expenditures. The Centers for Medicare & Medicaid Services (CMS) a division of
HHS, releases annual estimates of all healthcare spending in the United States. The data have a full-year lag

and are structured according to type of expenditure, such as hospital care, physician care, and drugs and
other medical nondurables.
The CMS’s annual report, Health, United States, includes detailed information on the sources and the
amount of funds for each segment. Changes in funding sources are important to recognize, as margins are
higher in the private sector than they are in government-financed sales (such as Medicaid and Medicare).
Spending changes in specific illness segments can have an important bearing on pharmaceutical sales and
demand for biotechnology products. Health, United States also provides figures on rates of change in total
healthcare spending by segment. Proportional changes in pharmaceutical spending can be measured against
other healthcare sectors to determine the industry’s relative growth.
The CMS estimates that national health expenditures rose to $2.5 trillion in 2009, representing 17.6% of
US gross domestic product (GDP), up from 16.6% in 2008. Further, CMS has projected that costs would
account for 19.6% of the national economy by 2019 and increase annually by an average of 6.3%, raised
slightly from its prior projections as a result of the March 2010 Patient Protection and Affordable Care Act
(PPACA).
 Medicare and Medicaid spending. Changes in spending and in reimbursement rates in these important
government healthcare entitlement programs can have a significant impact on biotechnology business.
Medicare is a federally funded national health insurance program for people aged 65 and older, as well as
for disabled persons. Historically, it has not covered the cost of drugs dispensed through retail pharmacies,
which constitute the bulk of drugs sold in the United States. However, it did reimburse for drugs
administered in hospitals, clinics, or doctors’ offices—a benefit directed disproportionately at biotechnology
products, which often are given by infusions or injections. As of September 2010, CMS projected Medicare
spending growth of 5.2% for 2010 and 2.7% growth in 2011. The former figure was raised and the latter
lowered from prior forecasts due to changes to the Sustainable Growth Rate (SGR) system during 2010. For
2012–19, CMS projected lower Medicare spending by 6.2% annually due to the PPACA.
Medicaid is a health benefits program for low-income US residents who are aged, blind, and disabled, or for
members of families with dependent children. Federal and state governments jointly fund the program,
although each state sets eligibility standards. Medicaid has traditionally covered the cost of pharmaceuticals
for members. As of January 1, 2006, however, those eligible for Medicare received their prescription drug
benefits through Medicare, and several million Medicaid recipients were moved to Medicare Part D for their
drug coverage. The 2010 Patient Protection and Affordable Care Act also promised to expand Medicaid
and Children’s Healthcare Insurance Program (CHIP) eligibility, beginning in 2014. As such, enrollment in
these programs are expected to increase by more than 40% over projected 2010 levels to 85 million persons
in 2014, before settling in the low 80–million range at the end of the decade. Commensurate spending on
these program expansions is expected to rise by 34% in 2014 and then remain largely flat over the balance
of the decade.
 Interest rates. Like most corporations, biotechnology companies closely monitor changes in interest rates,
as those rates affect management decisions on new capital expansion projects, acquisitions, and investment
of idle cash. High interest rates increase the cost of borrowing and tend to make acquisitions financed by
debt less attractive. In addition, increases in the rate at which future earnings are valued tend to push down
biotechnology valuations.
As of January 2011, Standard & Poor’s was projecting that the yield on the three-month Treasury bill (a
proxy for short-term interest rates) would average 0.2% for full-year 2011, up from 2010’s 0.1%. The
average yield on 10-year notes (a proxy for long-term interest rates) was projected to be 3.8% in 2011, up
from 3.2% in 2010.
While lower interest rates make debt financing more attractive, challenging credit conditions across the global
economy dim the prospects of smaller companies qualifying for debt financing. For biotech firms that have
substantial cash balances, lower interest rates can significantly reduce interest income, while their operating
expenditures may not decrease. In September 2007, the federal funds rate was at 5.25%, when the Federal

Reserve began cutting rates in order to spur a slowing US economy. As the recession worsened throughout
2008, rates were lowered to an unprecedented fed funds target range of 0.0%–0.25%, where they remained
through the end of 2010. The Federal Reserve has reiterated that the central bank is prepared for a
protracted period of low interest rates, particularly while signs of inflation remain absent.
HOW TO ANALYZE A BIOTECHNOLOGY COMPANY

The analysis of a biotechnology firm, like that of any company, includes a thorough study of both business
strategy and financial health. In contrast to companies in more mature industries, many biotech firms do
not have commercial track records. Thus, analysts sometimes have to rely more heavily on qualitative rather
than quantitative methods of valuation.
RESEARCHING THE BUSINESS
The first step in the analysis is to examine the company’s business strategy, core competencies, and market
position. Many biotech companies are still in a developmental phase, so this step may rely heavily on
qualitative judgments about management skill, technology, and new product potential.
In general, Standard & Poor’s does not believe that market capitalization is an overly useful variable for
measuring the success or prospects of a biotech entity, since market cap can be artificially inflated or
deflated in times when equities are priced irrationally. Furthermore, biotech companies tend to have varying
degrees of premiums incorporated into their share prices based on prospects for acquisition by a larger
entity, making it more difficult to rely on traditional valuation measures.
Products and pipeline are key

What are the company’s key products and features of the company’s technology platform? A biotech firm’s
product portfolio and research pipeline are essential to its success. A company’s intrinsic value should be
primarily a function of the prospective earnings to be gained from approved products and investigational
compounds in development, as well as the probability of successfully developing pipeline candidates.
As a general rule, Standard & Poor’s believes that companies with technologies that are scientifically sound
and patentable—with the potential to spawn novel product candidates and applications—offer better
risk/reward profiles than those that pin their hopes on candidates that may not provide product
differentiation.
Look for companies with a number of promising product candidates in later stages of clinical development,
preferably targeting diseases with large patient populations for which there is still a need for breakthrough
medications. At the same time, be wary of companies with limited resources that may strain their operating
capabilities by trying to develop too many marginal (referred to as “me-too” products) products in disease
areas that are already well served, which could result in a low likelihood of success or limited market
potential, and the possibility of recurring dilutive financing.
Patents provide protection

Do patents adequately protect the firm’s products? In assessing a biotech company’s product portfolio, it is
imperative to determine when the patents on its proprietary drugs and compounds expire. Although this
tends to be more of a problem for pharmaceutical companies than for biotech firms, the loss of market
exclusivity on key products, without adequate profit potential from other products or pipeline candidates,
can lead to financial trouble. The issue of patent protection is poised to become a larger issue in the coming
years, as progress toward a regulatory pathway for generic biotech drugs takes shape.
Current patents, meanwhile, can lead to royalties if a company decides to license its technology to other
firms. Patents also protect companies by preventing potential competitors from entering certain markets.

Assessing R&D
Have the company’s past research and development (R&D) efforts been productive? Most leading biotech
companies spend between 15%–20% of operating revenues on R&D, with most development-stage
biotechs often spending well over 100%. However, success rates—in terms of developing lucrative new
drugs and therapeutics—can differ markedly.
The bigger, better-funded firms tend to have the advantage of being able to afford to hire top scientists and
to conduct the larger, more costly clinical trials often required to develop new drugs, particularly as drug
safety comes under greater scrutiny. Furthermore, in a healthcare market dominated by managed care, a key
factor in future success will be the biotech industry’s ability to develop cost-effective new drugs that
constitute therapeutic breakthroughs. New products that provide similar results to existing therapies are
unlikely to achieve great commercial success.
Look for companies developing drugs for illnesses that are not adequately served by current treatments.
Generally, drugs for chronic illnesses (such as asthma and rheumatoid arthritis) that have large patient
populations can provide a higher return on R&D expenditures than can one-time treatments, such as vaccines.
Management strength
Does the firm have experienced management? The quality and experience of a company’s management and
scientific teams are very important in determining long-term success. The industry changes rapidly, so it is
crucial for a firm to be led by insightful and quick-thinking individuals who can adapt to volatile
circumstances.
Ideally, a biotech company should employ top executives who have helped develop and commercialize
pharmaceutical products at large drug companies and successful biotech firms. Look for a track record
demonstrating the ability to reach milestones. Management should be credible in terms of historically
meeting publicly stated goals and key development milestones. Be wary of a company that consistently
misses its own targets.
We like management teams that have operating experience. It is important that the people running the company
thoroughly understand and appreciate how expensive the drug development process is, and who have established
track records of allocating the company’s funds to projects offering the highest returns on investment.
Making the most of alliances

Has the firm entered into any promising collaborations or partnerships? Because of the extraordinarily high
costs of drug development, a significant discovery made by a small biotechnology or biopharmaceutical
company may go nowhere unless the firm can find a larger partner to fund clinical trials and help
commercialize the product. It is important that biotech firms choose corporate partners that are committed
to seeing the product to commercialization, which is increasingly important as many large pharma
companies consolidate and streamline their areas of focus, and that have research experience and
established sales infrastructure within a targeted market.
Careful attention should be given to the terms of the deal, as they tend to indicate the value the bigger
partner places on the biotech company’s technology. From the junior partner’s perspective, a good deal
typically includes a sizable up-front fee from the bigger firm, and may include equity, R&D funding for
product development, milestone payments for achieving R&D benchmarks, co-promotion rights, and
royalties on sales. Co-promotion rights are usually preferable to royalties, although the smaller firm may be
constrained by limited resources, while up-front payments are generally more desirable than those tied to
future R&D benchmarks.
Many biotech companies maintain both formal and informal relationships with scientists at leading medical
colleges or other organizations, such as the federal government’s National Institutes of Health (NIH). Such
relationships can be a valuable resource for a company in its quest for new drugs. Companies with
connections to the NIH often gain rights to medications or drug targets discovered by the NIH (usually in
conjunction with a leading university).

Financial resources
Is the company well financed? A biotech firm must have adequate funding for its development programs, or
it may be forced to curtail its R&D efforts. We like to see enough cash on the balance sheet to cover
operating expenses for at least two years. Such a position can safeguard a firm from becoming desperate for
funding and thus being forced to accept sub-optimal value on its assets.
An ample cash balance will let the firm operate from a position of strength when negotiating collaborative
arrangements. It also gives the firm the ability to carry product development ahead on its own if necessary.
The farther along a product is in the development process, the greater the potential future profits the firm
should be able to retain in any negotiated deal.
Having sufficient cash on hand is important because access to financing tends to change over time. The biotech
sector goes through periods when public equity markets are not particularly receptive to funding risky
ventures, and it is important for a company to have sufficient resources to see it through such times.
Regulatory compliance
How effectively does the company work with the US Food and Drug Administration (FDA)? Because all
drugs sold in the United States must first be cleared by this agency, it is critical that a firm is able to work
closely with the FDA and satisfy the regulatory authority’s drug approval requirements.
Size and experience can help. The larger biotech firms are usually adept at working with the agency, while
many smaller or newer firms are less proficient and often encounter major snags in obtaining approval for
their products. Managers hired from successful biotech or pharmaceutical firms with proven drug
development experience, and/or an alliance with a strong corporate partner, can prove to be invaluable.
Increasingly, companies are involving the FDA in trial design and protocol throughout the clinical process,
in an effort to prevent delays and negative surprises in the later stages.
ANALYZING FINANCIAL STATEMENTS
The usefulness of looking at a biotechnology company’s financial statements depends largely on whether the
firm has any earnings history. Because most biotech companies (about 90%) are in the developmental stages
and have little to no product sale revenues, traditional analytical techniques are of limited value. For these
companies, analysts tend to focus on the future earnings potential of products in development, and on
whether the company has the resources to fully develop those products.
Conversely, a financial analysis of one of the larger, profitable biotech companies tends to resemble that of a
traditional pharmaceutical firm. Key metrics include revenues, costs and expenses, R&D as a percentage of
sales, earnings, margins, growth in earnings per share and sales, and return on equity. When possible,
individual company statistics should be compared with those of rival companies and the industry average.
Key elements of the income statement

The income statement is central to any analysis, as it shows a company’s operating results over a stated
period of time.
 Sales. Starting at the top of the income statement, examine the short- and long-term trends in sales or
revenues. Ideally, sales in the current period should show increases from the corresponding period in the prior
year (year-over-year growth). However, because many biotech companies experience extremely rapid growth
following the commercialization of a new drug, a pertinent interim measure for relatively new products is
sequential sales growth—that is, increases from the immediately preceding quarter.
Growth rates should be compared with those of direct competitors whenever possible. Also, consider how
growth has been achieved. Has it been generated by unit volume gains, price increases, acquisitions, any
one-time or nonrecurring gains from asset sales, or some combination of these? Is the company gaining
market share, or just riding market growth or price hikes?

 R&D. Sufficient investment in R&D is critical to the success of any biotechnology company. R&D
spending is unusually high for the biotechnology industry in general. For developmental-stage companies
that have not yet produced commercial products, R&D typically exceeds revenues by a wide margin. When
comparing companies, most analysts look at ratios such as R&D as a percentage of sales, R&D
expenditures per employee, or R&D as a percentage of market capitalization.
 Selling, general, and administrative (SG&A) expenses. Royalty costs and costs related to product co-
promotion may be included in SG&A or another line item. Investors should compare royalty obligations
and the financial structure of collaborative arrangements between firms in order to assess the potential
profitability of a drug.
 Option expense. Companies were required to expense this item on the income statement beginning in
2006. Investors should be aware of options grants, since a high level of outstanding options could dilute
earnings per share (EPS) if these options are eventually exercised. A significant number of options
outstanding could also divert company cash to repurchasing shares in order to neutralize the dilutive effect
of options. This cash could have otherwise been used for product promotion, drug development, or
dividends (assuming that profitable biotech firms eventually pay dividends).
 Gross profit margin. This is the percentage of revenues left after deducting cost of goods sold. Gross
margins generally will be lower for biotech firms than for large pharmaceutical companies, due to the
complexity of manufacturing biologic drugs.
 Product profit margin. Standard & Poor’s uses the percentage of sales remaining after subtracting the
cost of goods sold (COGS) and SG&A to ascertain the maximum obtainable profitability per drug. This
figure may vary widely because of the costs of co-promotion and royalty arrangements that often are
embedded in certain expense line items. Management often does not detail such ongoing costs. In some
instances, there are also costs involved for post-marketing clinical trials to support approved products.
These costs also should be factored in.
 Operating profit margin. This is the percentage of sales remaining after subtracting all ongoing operating
costs. In the biotechnology industry, expenses (such as the cost of goods sold, R&D, labor, and overhead)
tend to be very high. Companies incur substantial costs during a drug’s R&D phase; once those costs have
been covered, however, a large portion of revenues flows to the bottom line.
 Net profit margin. Net profit margin equals net income as a percentage of total sales. It reflects a
company’s additions and subtractions for nonoperating income and expense items (typically interest income
and interest expense), as well as taxes. For top-tier firms, net profit margins are usually in the range of 15%
to 30%; the rest of the industry remains largely unprofitable.
 Tax rate. Investors should be aware of a firm’s tax rate going forward since many biotech firms will face
rising tax rates as they become profitable, which will restrict net earnings and earnings growth in certain years.
 Earnings per share. This figure—net EPS of outstanding common stock—is important for the more
established biotech firms that have achieved profitability. Net earnings are the bottom-line return on a
company’s business. Investors target growth and expect companies with profitable ongoing operations to
meet or exceed EPS expectations.
 Cash flow. A simplified definition of cash flow is net income (excluding special items) plus depreciation
and amortization, less capital expenditures. Projecting this figure over many years is useful for performing
discounted cash flow analysis of a firm.
 Return on equity (ROE). Calculated as net earnings as a percentage of average or ending shareholder’s
equity, ROE measures the return earned on shareholders’ capital.
 Return on assets (ROA). This ratio (net income divided by average or ending total assets) measures the
return on all assets under management’s care.

Using the balance sheet to assess liquidity
The balance sheet is a snapshot of a company’s financial condition at a specific moment in time, so it should
be examined to determine a company’s financial health. For biotechnology companies, most balance sheet
analysis focuses on liquidity.
 Cash. Analysts look at a company’s level of cash and marketable securities to assess short-term liquidity.
The proper level of cash and cash equivalents varies from company to company. For development-stage
biotech companies with no earnings, we like to see at least two years’ worth of cash on hand to fund
operations at the current “burn rate”—the rate at which cash is being consumed by R&D and other
expenditures. Investors also must consider the amount of convertible debt outstanding, if any, since a
number of biotech firms issue convertible notes. Subtracting outstanding debt from cash balances provides a
more stringent measure of a company’s actual financial strength.
 Inventory. Inventory as a percentage of product sales should be analyzed over time. A rising figure can be
a warning sign, indicating that sales are falling short of expectations.
 Current ratio. Another reliable check on liquidity is the ratio of current assets to current liabilities. The
current ratio measures a company’s ability to pay its bills. A higher-than-average current ratio indicates
financial strength, since current assets are readily available to be converted into cash. Given that most
biotech companies have relatively large cash positions and low debt (they often rely on equity financings),
biotech current ratios tend to be higher than those of other industries. This ratio is generally greater than
2.0 for many biotech firms. Any meaningful degradation in the current ratio from previous reporting
periods may signal a liquidity problem.
 Long-term debt to capital. This ratio is calculated by dividing long-term debt by total capital (the sum of
long-term debt and stockholders’ equity). Simply put, it shows the percentage of total capital that long-term
debt represents. A relatively low percentage indicates that the company may be less burdened than its peers
in terms of debt service.
Debt leverage varies significantly among biotechnology companies. Most have not tapped the debt markets
much because of their lack of cash flow to service interest payments. An appropriate debt load depends
largely on a company’s product lines and projected new product streams. Any sudden change in the
company’s attitude toward taking on debt should be thoroughly investigated.
EQUITY VALUATION
Standard & Poor’s believes that there are several relevant valuation methods for valuing biotech companies.
For the few profitable and still independent companies, a price-to-earnings (P/E) ratio is widely used to
compare a company’s valuation versus its peers. Taking this metric a step further, dividing the P/E ratio by a
company’s long-term growth rate yields a P/E-to-earnings growth (or PEG) ratio, which puts the P/E ratio in
the context of a company’s growth prospects rather than on an absolute basis. For companies that are not
profitable, but for which profitability is anticipated within a few years, it is not uncommon for a future
period’s P/E estimate to be used to value that company. Assigning that estimate with a target P/E multiple to
reflect its growth prospects, and discounting that total back to the present year at a rate that reflects the
risks of the company reaching that target valuation is a widely used technique.
The majority of publicly traded biotech companies remain at the development stage, and without near-term
commercial prospects. Valuing these companies can be more difficult. Standard & Poor’s believes it is
appropriate in these cases to analyze the revenue potential for the company’s pipeline drivers and to
discount their expected cash flows back to the present year at a discount rate commensurate with the risks,
which typically reflect the stage of development. Determining a net present value of these assets and dividing
the totals by the number of company shares can provide an estimate of a company’s stock price value. 

GLOSSARY
Agonist—A drug that promotes certain kinds of cellular activity by binding to a cell’s receptor.
Amino acids—These molecules are the building blocks of protein. There are 22 known, naturally occurring amino acids. These
include: nine essential amino acids that cannot be synthesized by the human body and must be obtained through dietary intake;
and 13 nonessential amino acids that can be manufactured by the body.
Antagonist—A drug that prevents certain types of cellular reactions by blocking other substances from binding to a cell’s
receptor.
Antibody—A protein produced by certain types of white blood cells to deactivate foreign proteins.
Antigen—Any substance that induces a body’s immune response.
Assay—A test that measures a biological response.
Autoimmune disease—A condition, such as multiple sclerosis, where the body produces antibodies against its own tissues.
Bioavailability—The percentage of a drug’s active ingredient that reaches a patient’s bloodstream and body tissues.
Biochip/microarray—A miniaturized technology that can be used to run hundreds of tests simultaneously. The chips are
etched with genetic or proteomic information and used by researchers to analyze DNA sequences, ascertain gene or protein
expression, or detect genetic abnormalities known as mutations.
Bioinformatics—A system whereby biological information is collected, stored, accessed, and analyzed via computers and
related electronic media.
Biologics—Also known as biologic drugs, biologics are medicinal preparations made from living organisms or their byproducts.
Vaccines, antigens, serums, and plasmas are examples of biologics.
Biologics license application (BLA)—The formal filing that drugmakers submit to the US Food and Drug Administration
(FDA) for approval to market new biologics-based drugs. The application must contain clinical evidence of the compound’s safety
and efficacy.
Biosimilar/biogeneric—A generic copy of a biological molecule, developed using modern biotechnology techniques. A
biosimilar has similar activity and is structurally nearly identical to the biologic that it copies. Unlike generic chemical-based
drugs, however, a biosimilar is not truly identical and therefore will require a different regulatory process than pharmaceutical
generics.
Breakthrough drug—A compound with a mechanism of action significantly different from that of existing drugs, representing a
major therapeutic advance.
Chemotherapy drugs—Cytotoxic drugs used to treat cancers.
Chromosomes—Microscopic, threadlike components in the nucleus of a cell that carry hereditary information in the form of
genes.
Clinical trials—Tests, typically consisting of three stages, in which experimental drugs are administered to humans to
determine their safety and efficacy before being submitted for regulatory marketing approval.
Clotting factors—Proteins involved in the normal clotting of blood.
Colony-stimulating factors—Proteins responsible for controlling the production of white blood cells.

Combination therapy—The use of two or more drugs that together have greater therapeutic power in treating illness and
diseases than either used alone.
Cytokines—A family of proteins, including interferons, interleukins, and various growth factors, that bind to cellular receptors
and are involved in the regulation of cell function.
Deoxyribonucleic acid (DNA)—The basic molecule that contains genetic information for most living systems. The DNA
molecule consists of four nucleotide bases (adenine, cytosine, guanine, and thymine) and a sugar-phosphate frame arranged in
two connected strands forming a double helix.
Enzyme—Protein that controls chemical reactions in the body.
Formulary—A list of recommended medicines and dosages that health insurers are willing to cover. Increasingly, the drugs on
formularies are grouped in categories, or tiers, which are defined by the extent to which payers want to encourage members to
use those drugs over alternatives.
Gene—The basic determinant of heredity, genes are chromosomal segments that direct the syntheses of proteins and conduct
other molecular regulatory functions.
Gene sequencing—A scientific technique whereby DNA strands are decoded in order to quantify the exact order of DNA’s four
nucleotides (A, C, G, and T). This method allows scientists to analyze the sequence of strands and identify specific genes
embedded in DNA.
Gene therapy—The introduction of specific genes into a patient’s body to replace defective ones or to suppress the action of a
harmful one.
Genome—The total complement of genetic material in a cell, comprising the entire chromosomal set found in each nucleus of a
given species.
Genomics—The study of genes and their functions, including mapping genes within the genome, identifying their nucleic acid
structures, and investigating their functions.
Growth factors—Proteins responsible for regulating cell proliferation, function, and differentiation.
Human growth hormone (HGH)—Pituitary hormone that stimulates the growth of long bones in prepubertal children.
Immunomodulator—A drug that attempts to modify the immune system.
Investigational new drug (IND)—Regulatory classification of an experimental new compound that has successfully
completed animal studies and has been approved by the FDA to proceed to human trials.
Macrophage—A type of white blood cell that aids in the destruction of unwanted substances, such as bacteria or dead cells.
Monoclonal antibodies—Large protein molecules produced by white blood cells, which seek out and destroy harmful foreign
substances.
New drug application (NDA)—The formal filing that drugmakers submit to the FDA for approval to market new chemical-
based drugs. The application must contain clinical evidence of the compound’s safety and efficacy.
Nucleic acid testing (NAT)—A method of biological screening and diagnostic testing that entails amplifying DNA and RNA to
identify diseases and infections. NAT is faster and more accurate than more traditional screens and is being used to test blood
supplies for HIV and hepatitis infection.
Orphan drug—A drug designed to treat a rare disease afflicting a relatively small patient population (currently fewer than
200,000 cases). The US government provides special incentives to encourage development of such drugs.

Pharmacogenomics—The study of how an individual’s genetic composition affects the response to drugs. It combines
traditional pharmaceutical sciences, such as biochemistry, with the knowledge of genes, proteins, and single nucleotide
polymorphisms.
Pharmacokinetics—Analysis of a drug’s absorption and distribution in the body, its chemical changes in the body, and how it
is stored and eliminated from the body.
Polymerase chain reaction (PCR)—A scientific technique that uses special reagents and polymerase enzymes to amplify a
specific fragment of DNA into larger quantities. PCR is used in a variety of genetic analysis settings, such as matching a DNA
sample with a particular person or detecting infections.
Priority review—An investigational drug receiving this status from the FDA will be reviewed by the agency within six months
of its BLA or NDA submission, rather than the standard 10 months.
Proteome—The set of all proteins expressed by a genome.
Proteomics—The study of encoded proteins and their function, with an emphasis on the role that proteins may play in the
development of disease.
Recombinant DNA technology—The process of creating new DNA by combining components of DNA from different
organisms. Usually, the new DNA is then incorporated into therapeutic substances.
Recombinant soluble receptors—Synthetic versions of proteins manufactured using recombinant DNA technology and
designed to block unwanted binding of cytokines to their cellular receptors.
Ribosome nucleic acid interference (RNAi)—Ribosomal nucleic acid, or RNA, plays an important role in protein production
by carrying instructions from a cell’s genes (DNA) to its protein-making apparatus. RNAi is a method that can be used to prevent
RNA from delivering its messages—in effect, silencing the gene and blocking production of the protein. Scientists believe RNAi
may have tremendous potential for the development of new therapies.
Single nucleotide polymorphism (SNP)—A variation in the sequence of a gene due to a change in a single nucleotide.
Treatment IND—An FDA program that allows experimental drugs treating life-threatening illnesses to be made commercially
available to very sick patients before the drugs obtain formal FDA approval.
Tumor necrosis factors (TNF)—Rare proteins of the immune system that appear to destroy some kinds of tumor cells without
affecting healthy cells. 

INDUSTRY REFERENCES
PERIODICALS Nature Biotechnology
http://www.nature.com/nbt
Beyond Borders: Global Biotechnology Report 2010 Monthly; encompasses biotech news and trends, opinions,
http://www.ey.com and research articles.
Annual report on the global biotechnology industry, with
information broken down by regions of the world. New England Journal of Medicine
http://www.nejm.org
BioCentury: The Bernstein Report on BioBusiness Weekly; professional medical journal containing detailed
http://www.biocentury.com scientific articles on medical treatments and health issues.
Weekly newsletter; analysis, interpretation, and
commentary on biotech news and developments. The Scientist
http://www.the-scientist.com
Drug Trend Report Monthly; covers scientific and business news.
http://medco.mediaroom.com
Published by Medco Media Center, an annual survey of the BOOKS
managed care industry’s utilization of prescription drugs.
The 2010 edition analyzes developments in 2009, including The Merck Manual of Diagnosis
a section on specialty pharmacy and biotechnology and Therapy, 18th Ed.
products. http://www.merck.com/pubs
Detailed information on various diseases and medical
Express Scripts: 2009 Drug Trend Report conditions, as well as therapeutics used to treat them.
http://www.expressscripts.com/research/studies/
drugtrendreport Stedman’s Medical Dictionary, 28th Ed.
Published in early 2010, an annual survey of the managed http://www.stedmans.com/product.cfm/481/215
care industry’s utilization of prescription drugs, including Comprehensive medical word reference.
advancements in traditional, specialty pharmacy and
biotechnology products. TRADE ASSOCIATIONS
Genetic Engineering & Biotechnology News American Society of Clinical Oncology (ASCO)
http://www.genengnews.com http://www.asco.org
Semimonthly; broad coverage of biotech news and analysis Professional association of clinical oncologists with up-to-
of industry trends. date information on cancer therapies and reimbursement.
IN VIVO: The Business & Medicine Report The Biotechnology Industry Organization (BIO)
The RPM Report: Regulation, Policy, Market Access http://www.bio.org
http://www.windhover.com Represents biotech companies, academic institutions, and
Monthly trade magazines. The first covers pertinent issues state biotech centers in legislative and regulatory affairs;
in the healthcare industry (biotech, medical devices, publishes industry statistics and information.
pharmaceuticals), with a focus on company-specific stories.
Pharmaceutical Research and Manufacturers of
The second covers regulatory and political trends, and
America (PhRMA)
issues of importance to the industry.
http://www.phrma.org
The Journal of the American Medical Association Represents prescription drug firms in legislative and
http://www.jama.com regulatory affairs; publishes industry statistics and
Weekly; publishes medical research papers on a wide information.
range of topics, as well as commentary from industry
experts and physicians.

GOVERNMENT AGENCIES ClinicalTrials.gov
http://www.clinicaltrials.gov
Centers for Medicare & Medicaid Services (CMS) A centralized database operated by the National Institutes
http://cms.hhs.gov of Health, listing information on thousands of public and
This division of the United States Department of Health private clinical drug trials, completed or ongoing, in the
and Human Services (HHS) administers the Medicare United States.
program and works with the states to administer Medicaid
and the State Children’s Health Insurance Program (SCHIP). Decision News Media SAS
CMS also regulates laboratory testing and oversees the http://www.drugresearcher.com
certification of nursing homes and continuing care http://www.inpharmatechnologist.com
providers. Breaking news on drug research and development.
European Medicines Agency (EMEA) The Pink Sheet

http://www.emea.europa.eu http://www.elsevierbi.com/index.html
Regulatory body responsible for approvals and oversight of Weekly newsletter; trade and regulatory coverage of the
medications in the European Union. pharmaceutical and biotech industries.
Food and Drug Administration (FDA) Health News Daily

http://www.fda.gov http://www.healthnewsdaily.com
Federal agency charged with supervising the US food, Site that provides daily stories on industrywide, regulatory,
pharmaceutical, and biotechnology industries; part of the and company-specific news.
Department of Health and Human Services.
Signals: The Online Magazine of Biotechnology
National Center for Health Statistics (NCHS) Industry Analysis
http://www.cdc.gov/nchs http://www.signalsmag.com
The US government’s principal vital and health statistics Recombinant Capital Inc.’s online magazine covering
agency; part of the Centers for Disease Control and biotech industry trends.
Prevention (CDC).
OTHER SOURCES
National Institutes of Health (NIH)
http://www.nih.gov IMS Health Inc.
Part of HHS, the NIH is the primary federal medical http://www.imshealth.com
research agency. It conducts research in its own Market research firm providing prescription and sales
laboratories and supports research by scientists in information on pharmaceutical and biotechnology
universities, medical schools, hospitals, and research medications.
institutions in the United States and abroad. All of its 27
institutes—including the National Cancer Institute, which Tufts Center for the Study of Drug Development
is a vast source of information on cancer treatments and http://csdd.tufts.edu
research trends—can be accessed through the NIH main A nonprofit academic research group (affiliated with Tufts
website. University) that provides strategic information to help drug
developers, regulators, and policymakers improve the
ONLINE RESOURCES quality and efficiency of pharmaceutical development,
review, and utilization
Biospace.com
http://www.biospace.com
A centralized bioscience-specific “hub” site providing up-
to-the-minute biotechnology and pharmaceutical
developments, as well as links to other sources of biotech
information.

COMPARATIVE COMPANY ANALYSIS — BIOTECHNOLOGY
Operating Revenues
Million $ CAGR (%) Index Basis (1999 = 100)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 14,642.0 15,003.0 14,771.0 14,268.0 12,430.0 10,550.0 3,340.1 15.9 6.8 (2.4) 438 449 442 427 372
ARQL § ARQULE INC DEC 25.2 14.1 9.2 6.6 D 52.9 54.5 18.6 3.1 (14.3) 78.2 136 76 49 36 285
BIIB [] BIOGEN IDEC INC DEC 4,377.3 4,097.5 3,171.6 2,683.0 2,422.5 2,211.6 118.0 43.5 14.6 6.8 3,710 3,472 2,688 2,274 2,053
CELG [] CELGENE CORP DEC 2,677.2 2,237.8 A 1,405.8 898.9 536.9 377.5 A 26.2 NM 48.0 19.6 10,215 8,538 5,364 3,430 2,049
CEPH [] CEPHALON INC DEC 2,192.3 A 1,974.6 1,772.6 1,750.8 C 1,211.9 A 1,015.4 A 44.9 47.5 16.6 11.0 4,881 4,396 3,946 3,898 2,698
CBST § CUBIST PHARMACEUTICALS INC DEC 562.1 A 433.6 294.6 194.7 120.6 68.1 5.4 NM 52.5 29.6 10,501 8,101 5,504 3,638 2,254
EBS § EMERGENT BIOSOLUTIONS INC DEC 234.8 178.6 182.9 152.7 130.7 83.5 NA NA 23.0 31.5 ** ** ** ** NA
GENZ [] GENZYME CORP DEC 4,515.5 A 4,605.0 3,813.5 A 3,187.0 A 2,734.8 2,201.1 A 635.4 A 21.7 15.5 (1.9) 711 725 600 502 430
GILD [] GILEAD SCIENCES INC DEC 7,011.4 A 5,335.8 4,230.0 3,026.1 A 2,028.4 1,324.6 169.0 A 45.1 39.6 31.4 4,149 3,158 2,503 1,791 1,200
MATK § MARTEK BIOSCIENCES CORP OCT 345.2 352.4 306.8 270.7 217.9 184.5 6.1 49.6 13.3 (2.0) 5,629 5,745 5,003 4,413 3,552
REGN § REGENERON PHARMACEUT DEC 379.3 238.5 125.0 63.4 66.2 174.0 34.5 27.1 16.9 59.1 1,099 691 362 184 192
SVNT § SAVIENT PHARMACEUTICALS INC DEC 3.0 F 3.2 F 14.0 D,F 47.5 D,F 87.8 D,F 113.3 F 80.7 F (28.1) (51.8) (6.9) 4 4 17 59 109
UTHR † UNITED THERAPEUTICS CORP DEC 369.8 281.5 210.9 159.6 115.9 C 73.6 0.4 A NM 38.1 31.4 84,828 64,564 48,381 36,613 26,586
VRTX † VERTEX PHARMACEUTICALS INC DEC 101.9 175.5 199.0 216.4 160.9 102.7 50.6 7.3 (0.2) (41.9) 202 347 394 428 318
LIFE SCIENCES TOOLS & SERVICES‡

AFFX § AFFYMETRIX INC DEC 327.1 320.2 371.3 355.3 367.6 A 346.0 96.9 12.9 (1.1) 2.1 338 331 383 367 380
A [] AGILENT TECHNOLOGIES INC OCT 4,481.0 5,774.0 5,420.0 4,973.0 D 5,139.0 D 7,181.0 8,331.0 (6.0) (9.0) (22.4) 54 69 65 60 62
BIO † BIO-RAD LABORATORIES INC DEC 1,784.2 A 1,764.4 A 1,461.1 A 1,262.2 1,181.0 1,090.0 A,C 549.5 A 12.5 10.4 1.1 325 321 266 230 215
CBM § CAMBREX CORP DEC 234.6 F 249.2 F 252.5 D,F 455.5 D,F 455.1 F 443.7 481.4 A,F (6.9) (12.0) (5.9) 49 52 52 95 95
CRL † CHARLES RIVER LABS INTL INC DEC 1,202.6 A 1,343.5 A 1,230.6 A 1,058.4 A,C 1,122.2 766.9 A 219.3 A 18.6 9.4 (10.5) 548 613 561 483 512
CVD † COVANCE INC DEC 1,962.6 A 1,827.1 1,631.5 1,406.1 A 1,250.5 A 1,056.4 829.0 9.0 13.2 7.4 237 220 197 170 151
DNEX § DIONEX CORP JUN 385.0 377.5 327.3 291.3 279.3 258.8 172.9 A 8.3 8.3 2.0 223 218 189 168 162
ENZ § ENZO BIOCHEM INC JUL 89.6 A 77.8 A 52.9 A 39.8 43.4 41.6 44.3 7.3 16.6 15.1 202 176 119 90 98
ERES § ERESEARCHTECHNOLOGY INC DEC 93.8 133.1 98.7 A 86.4 86.8 109.4 42.8 8.2 (3.0) (29.5) 219 311 231 202 203
KNDL § KENDLE INTERNA TIONA L INC DEC 551.9 678.6 A 568.8 373.9 A 250.6 215.9 117.2 16.8 20.7 (18.7) 471 579 486 319 214
LIFE [] LIFE TECHNOLOGIES CORP DEC 3,280.3 1,620.3 A 1,281.7 D 1,263.5 1,198.5 A 1,023.9 A 68.3 A 47.3 26.2 102.5 4,802 2,372 1,876 1,850 1,754
MTD † METTLER-TOLEDO INTL INC DEC 1,728.9 A 1,973.3 1,793.7 1,594.9 1,482.5 A 1,404.5 A 1,065.5 A 5.0 4.2 (12.4) 162 185 168 150 139
PRXL § PAREXEL INTERNA TIONA L CORP JUN 1,246.9 A 1,163.0 A 918.1 A 760.0 671.5 658.6 348.5 13.6 13.6 7.2 358 334 263 218 193
PKI [] PERKINELMER INC DEC 1,812.2 A,C 1,937.5 D 1,787.3 1,546.4 1,473.8 A,C 1,687.2 D 1,363.1 D 2.9 1.4 (6.5) 133 142 131 113 108
PPDI † PHARMACEUTICAL PROD DEV INC DEC 1,416.8 D 1,569.9 1,414.5 1,247.7 1,037.1 841.3 302.5 D 16.7 11.0 (9.8) 468 519 468 412 343
TECH † TECHNE CORP JUN 264.0 257.4 223.5 202.6 178.7 161.3 90.9 A,C 11.2 10.4 2.5 290 283 246 223 197
TMO [] THERMO FISHER SCIENTIFIC INC DEC 10,109.7 A 10,498.0 A 9,746.4 A 3,791.6 D 2,633.0 A 2,206.0 A,C 2,471.2 D 15.1 35.6 (3.7) 409 425 394 153 107
WAT [] WATERS CORP DEC 1,498.7 1,575.1 A 1,473.0 A 1,280.2 A 1,158.2 1,104.5 704.4 7.8 6.3 (4.9) 213 224 209 182 164
OTHER COMPANIES WITH SIGNIFICANT BIOTECHNOLOGY OPERATIONS

ALXN ALEXION PHARMACEUTICALS INC DEC 386.8 259.1 72.0 1.6 1.1 4.6 18.8 35.3 142.5 49.3 2,062 1,382 384 8 6
ALNY ALNYLAM PHARMACEUTICALS INC DEC 100.5 96.2 50.9 26.9 5.7 4.3 NA NA 88.0 4.5 ** ** ** ** NA
AMLN AMYLIN PHARMACEUTICALS INC DEC 758.4 840.1 781.0 510.9 140.5 34.3 0.0 NM 85.8 (9.7) NM NM NM NM NM
ELN ELAN CORP PLC -ADR DEC 820.9 761.8 516.4 497.3 426.7 D 464.0 1,007.8 (2.0) 12.1 7.8 81 76 51 49 42
ENZN ENZON PHARMACEUTICALS INC DEC 184.6 196.9 185.6 185.7 166.3 169.6 13.2 30.2 1.7 (6.3) 1,403 1,497 1,411 1,411 1,263
HGSI HUMAN GENOME SCIENCES INC DEC 275.7 48.4 41.9 25.8 19.1 3.8 24.5 27.4 135.2 469.5 1,124 197 171 105 78
MYGN MYRIAD GENETICS INC JUN 326.5 D 333.6 A 157.1 114.3 82.4 56.6 25.3 29.1 42.0 (2.1) 1,290 1,318 621 451 326
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
**Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change.
D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
BIOTECHNOLOGY INDUSTRY SURVEY Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies
Net Income
Million $ CAGR (%) Index Basis (1999 = 100)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2004 1999 10-Yr. 5-Yr. 1-Yr. 2009 2008 2007 2006 2005
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 4,605.0 4,196.0 3,166.0 2,950.0 3,674.0 2,363.0 1,096.4 15.4 14.3 9.7 420 383 289 269 335
ARQL § ARQULE INC DEC (36.1) (50.9) (53.4) (47.2) (7.5) (4.9) (17.4) NM NM NM NM NM NM NM NM
BIIB [] BIOGEN IDEC INC DEC 970.1 783.2 638.2 213.7 160.7 25.1 43.2 36.5 107.7 23.9 2,248 1,815 1,479 495 372
CELG [] CELGENE CORP DEC 776.7 (1,533.7) 226.4 69.0 63.7 52.8 (21.8) NM 71.2 NM NM NM NM NM NM
CEPH [] CEPHALON INC DEC 342.6 222.5 (191.7) 144.8 (175.0) (73.8) (58.8) NM NM 54.0 NM NM NM NM NM
CBST § CUBIST PHARMACEUTICALS INC DEC 79.6 169.8 48.1 (0.4) (31.9) (76.5) (17.8) NM NM (53.1) NM NM NM NM NM
EBS § EMERGENT BIOSOLUTIONS INC DEC 31.1 20.7 22.9 22.8 15.8 11.5 NA NA 22.1 50.6 ** ** ** ** NA
GENZ [] GENZYME CORP DEC 422.3 421.1 480.2 (16.8) 441.5 86.5 176.9 9.1 37.3 0.3 239 238 271 (9) 250
GILD [] GILEAD SCIENCES INC DEC 2,635.8 2,011.2 1,615.3 (1,190.0) 813.9 449.4 (66.5) NM 42.4 31.1 NM NM NM NM NM
MATK § MARTEK BIOSCIENCES CORP OCT 40.6 37.7 32.0 14.9 15.3 47.0 (14.8) NM (2.9) 7.8 NM NM NM NM NM
REGN § REGENERON PHARMACEUT DEC (67.8) (82.7) (105.6) (103.2) (95.4) 41.7 (23.1) NM NM NM NM NM NM NM NM
SVNT § SAVIENT PHARMACEUTICALS INC DEC (90.9) (83.2) (49.2) (1.5) 6.0 (35.3) 13.9 NM NM NM (655) (600) (355) (11) 43
UTHR † UNITED THERAPEUTICS CORP DEC 19.5 (42.8) 19.9 74.0 65.0 15.4 (33.5) NM 4.7 NM NM NM NM NM NM
VRTX † VERTEX PHARMACEUTICALS INC DEC (642.2) (459.9) (391.3) (207.9) (203.4) (166.2) (41.0) NM NM NM NM NM NM NM NM

AFFX § AFFYMETRIX INC DEC (23.9) (307.9) 12.6 (13.7) 65.8 47.6 (23.1) NM NM NM NM NM NM NM NM
A [] AGILENT TECHNOLOGIES INC OCT (31.0) 693.0 638.0 1,437.0 141.0 349.0 512.0 NM NM NM (6) 135 125 281 28
BIO † BIO-RAD LABORATORIES INC DEC 144.6 89.5 93.0 103.3 77.6 66.3 11.7 28.6 16.9 61.6 1,234 764 793 881 662
CBM § CAMBREX CORP DEC 10.4 7.9 (13.5) (1.2) (110.5) (25.9) 38.1 (12.2) NM 31.1 27 21 (35) (3) (290)
CRL † CHARLES RIVER LABS INTL INC DEC 111.2 (522.3) 157.6 125.2 142.0 89.8 17.1 20.6 4.4 NM 650 (3,050) 920 731 829
CVD † COVANCE INC DEC 175.9 196.8 175.9 145.0 119.6 97.9 45.8 14.4 12.4 (10.6) 384 429 384 316 261
DNEX § DIONEX CORP JUN 55.5 52.8 45.3 35.7 45.5 41.4 28.5 6.9 6.0 5.0 195 185 159 125 160
ENZ § ENZO BIOCHEM INC JUL (23.6) (10.7) (13.3) (15.7) 3.0 (6.2) 6.5 NM NM NM (362) (164) (204) (240) 46
ERES § ERESEARCHTECHNOLOGY INC DEC 10.7 25.0 15.3 8.3 15.4 29.7 5.3 7.3 (18.5) (57.3) 202 474 289 157 291
KNDL § KENDLE INTERNATIONAL INC DEC 15.2 29.4 18.7 8.5 10.7 3.6 7.7 7.0 33.7 (48.2) 197 380 242 110 138
LIFE [] LIFE TECHNOLOGIES CORP DEC 144.6 30.0 130.3 (191.0) 132.0 88.8 6.7 36.0 10.2 382.6 2,169 450 1,955 (2,866) 1,981
MTD † METTLER-TOLEDO INTL INC DEC 172.6 202.8 178.5 157.5 108.9 108.0 48.1 13.6 9.8 (14.9) 359 422 371 328 226
PRXL § PAREXEL INTERNATIONAL CORP JUN 39.3 64.6 37.3 23.5 (35.2) 13.8 15.6 9.7 23.3 (39.2) 252 414 239 151 (225)
PKI [] PERKINELMER INC DEC 92.7 126.1 133.8 118.3 66.5 98.3 28.4 12.6 (1.1) (26.5) 327 445 472 417 235
PPDI † PHARMACEUTICAL PROD DEV INC DEC 140.1 187.5 163.4 156.7 131.5 98.9 28.9 17.1 7.2 (25.3) 485 649 566 542 455
TECH † TECHNE CORP JUN 105.2 103.6 85.1 73.4 66.1 52.9 16.7 20.2 14.7 1.6 632 622 511 440 397
TMO [] THERMO FISHER SCIENTIFIC INC DEC 851.3 988.7 779.6 166.3 198.3 218.4 (14.6) NM 31.3 (13.9) NM NM NM NM NM
WAT [] WATERS CORP DEC 323.3 322.5 268.1 222.2 202.0 224.1 122.3 10.2 7.6 0.3 264 264 219 182 165

ALXN ALEXION PHARMACEUTICALS INC DEC 295.2 33.1 (92.3) (131.5) (108.8) (74.1) (6.4) NM NM 790.4 NM NM NM NM NM
ALNY ALNYLAM PHARMACEUTICALS INC DEC (47.6) (26.2) (85.5) (34.6) (42.9) (32.7) NA NA NM NM ** ** ** ** NA
AMLN AMYLIN PHARMACEUTICALS INC DEC (186.3) (315.4) (211.1) (218.9) (206.8) (157.2) (30.6) NM NM NM NM NM NM NM NM
ELN ELAN CORP PLC -ADR DEC (162.3) (35.2) (665.9) (408.7) 508.2 (368.3) 335.8 NM NM NM (48) (10) (198) (122) 151
ENZN ENZON PHARMACEUTICALS INC DEC 0.7 (2.7) 83.1 21.3 (89.6) 4.2 (4.9) NM (30.5) NM NM NM NM NM NM
HGSI HUMAN GENOME SCIENCES INC DEC 5.7 (244.9) (262.4) (251.2) (239.4) (242.9) (42.2) NM NM NM NM NM NM NM NM
MYGN MYRIAD GENETICS INC JUN 136.3 47.8 (35.0) (38.2) (40.0) (40.6) (10.0) NM NM 184.8 NM NM NM NM NM
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600.
#Of the following calendar year. **Not calculated; data for base year or end year not available.
Return on Revenues (%) Return on Assets (%) Return on Equity (%)
Ticker Company Yr. End 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005 2009 2008 2007 2006 2005
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 31.5 28.0 21.4 20.7 29.6 12.1 11.8 9.3 9.4 12.6 21.4 21.9 17.2 15.0 18.3
ARQL § ARQULE INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM
BIIB [] BIOGEN IDEC INC DEC 22.2 19.1 20.1 8.0 6.6 11.4 9.1 7.4 2.5 1.8 16.1 13.8 10.0 3.0 2.3
CELG [] CELGENE CORP DEC 29.0 NM 16.1 7.7 11.9 15.8 NM 7.1 3.5 5.4 19.7 NM 9.4 5.3 11.4
CEPH [] CEPHALON INC DEC 15.6 11.3 NM 8.3 NM 8.8 6.7 NM 4.9 NM 18.2 15.9 NM 15.1 NM
CBST § CUBIST PHARMACEUTICALS INC DEC 14.2 39.2 16.3 NM NM 9.4 27.1 9.9 NM NM 20.3 82.7 69.1 NM NM
EBS § EMERGENT BIOSOLUTIONS INC DEC 13.3 11.6 12.5 14.9 12.1 9.8 7.3 9.0 13.5 18.6 14.1 11.2 14.8 23.0 38.2
GENZ [] GENZYME CORP DEC 9.4 9.1 12.6 NM 16.1 4.5 5.0 6.2 NM 6.8 5.6 6.1 7.8 NM 9.3
GILD [] GILEAD SCIENCES INC DEC 37.6 37.7 38.2 NM 40.1 31.5 31.3 32.6 NM 27.5 50.1 52.8 61.2 NM 33.2
MATK § MARTEK BIOSCIENCES CORP OCT 11.8 10.7 10.4 5.5 7.0 6.1 6.1 5.4 2.5 2.8 6.6 6.7 6.3 3.1 3.7
REGN § REGENERON PHARMACEUT DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM

SVNT § SAVIENT PHARMACEUTICALS INC DEC NM NM NM NM 6.9 NM NM NM NM 2.5 NM NM NM NM 3.6
UTHR † UNITED THERAPEUTICS CORP DEC 5.3 NM 9.4 46.3 56.1 2.0 NM 3.7 19.2 26.1 3.4 NM 7.9 30.8 27.9
VRTX † VERTEX PHARMACEUTICALS INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM

AFFX § AFFYMETRIX INC DEC NM NM 3.4 NM 17.9 NM NM 1.3 NM 10.3 NM NM 2.2 NM 16.9
A [] AGILENT TECHNOLOGIES INC OCT NM 12.0 11.8 28.9 2.7 NM 9.2 8.6 20.4 2.0 NM 23.9 18.5 37.2 3.7
BIO † BIO-RAD LABORATORIES INC DEC 8.1 5.1 6.4 8.2 6.6 6.3 4.5 5.2 6.8 5.5 12.6 8.9 10.4 14.0 12.4
CBM § CAMBREX CORP DEC 4.4 3.2 NM NM NM 3.0 2.2 NM NM NM 11.7 9.0 NM NM NM
CRL † CHARLES RIVER LABS INTL INC DEC 9.2 NM 12.8 11.8 12.7 5.1 NM 5.9 4.9 5.5 8.6 NM 9.1 7.3 8.6
CVD † COVANCE INC DEC 9.0 10.8 10.8 10.3 9.6 9.4 11.9 12.3 12.3 12.1 13.5 17.1 17.3 17.5 17.5
DNEX § DIONEX CORP JUN 14.4 14.0 13.8 12.3 16.3 16.8 17.5 17.4 14.6 19.2 26.5 27.6 24.4 19.4 24.8
ENZ § ENZO BIOCHEM INC JUL NM NM NM NM 6.9 NM NM NM NM 2.6 NM NM NM NM 2.8
ERES § ERESEARCHTECHNOLOGY INC DEC 11.4 18.8 15.5 9.6 17.7 6.4 15.8 11.6 7.6 13.9 7.8 19.9 14.7 9.6 18.4
KNDL § KENDLE INTERNATIONAL INC DEC 2.8 4.3 3.3 2.3 4.3 2.8 5.6 3.9 2.7 6.1 7.2 18.0 13.3 6.5 9.5
LIFE [] LIFE TECHNOLOGIES CORP DEC 4.4 1.8 10.2 NM 11.0 1.6 0.5 4.0 NM 3.5 3.9 1.2 7.7 NM 6.7
MTD † METTLER-TOLEDO INTL INC DEC 10.0 10.3 10.0 9.9 7.3 10.2 12.1 10.9 9.7 6.9 28.4 37.4 29.5 24.4 15.8
PRXL § PAREXEL INTERNATIONAL CORP JUN 3.2 5.6 4.1 3.1 NM 3.6 7.9 6.1 4.6 NM 9.3 17.4 13.2 10.4 NM
PKI [] PERKINELMER INC DEC 5.1 6.5 7.5 7.7 4.5 3.1 4.3 4.9 4.5 2.5 5.8 8.0 8.5 7.3 4.3
PPDI † PHARMACEUTICAL PROD DEV INC DEC 9.9 11.9 11.6 12.6 12.7 7.4 10.9 10.3 11.9 12.4 11.1 16.1 15.5 18.5 19.1
TECH † TECHNE CORP JUN 39.9 40.2 38.1 36.2 37.0 21.5 21.5 20.6 22.0 21.3 22.3 22.4 21.9 24.1 23.4
TMO [] THERMO FISHER SCIENTIFIC INC DEC 8.4 9.4 8.0 4.4 7.5 4.0 4.7 3.7 1.3 5.1 5.6 6.7 5.5 2.0 7.3
WAT [] WATERS CORP DEC 21.6 20.5 18.2 17.4 17.4 18.3 18.4 15.3 14.6 14.0 42.8 51.7 56.5 68.8 42.0

ALXN ALEXION PHARMACEUTICALS INC DEC 76.3 12.8 NM NM NM 46.7 8.2 NM NM NM 63.1 19.0 NM NM NM
ALNY ALNYLAM PHARMACEUTICALS INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM
AMLN AMYLIN PHARMACEUTICALS INC DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NA
ELN ELAN CORP PLC -ADR DEC NM NM NM NM 119.1 NM NM NM NM 18.0 NM NA NA NM 122.1
ENZN ENZON PHARMACEUTICALS INC DEC 0.4 NM 44.7 11.5 NM 0.2 NM 20.2 4.0 NM 1.4 NM NA 29.0 NM
HGSI HUMAN GENOME SCIENCES INC DEC 2.1 NM NM NM NM 0.5 NM NM NM NM 2.2 NA NM NM NM

MYGN MYRIAD GENETICS INC JUN 41.7 14.3 NM NM NM 28.2 11.0 NM NM NM 31.7 12.5 NM NM NM
Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
Debt as a % of
Current Ratio Debt / Capital Ratio (%) Net Working Capital
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 4.9 3.1 2.1 1.7 2.6 31.6 30.8 33.3 27.0 15.5 70.4 88.8 133.7 152.1 70.2
ARQL § ARQULE INC DEC 1.9 1.7 5.5 5.6 3.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
BIIB [] BIOGEN IDEC INC DEC 3.5 2.7 1.1 2.9 2.8 14.2 15.0 0.8 1.2 0.6 61.2 70.7 28.9 8.6 4.2
CELG [] CELGENE CORP DEC 7.8 5.4 7.1 9.6 7.2 0.5 0.6 0.8 17.5 38.6 0.6 1.0 0.9 20.4 47.8
CEPH [] CEPHALON INC DEC 1.9 0.9 0.7 0.9 0.8 11.3 0.2 0.3 14.0 51.4 29.6 NM NM NM NM
CBST § CUBIST PHARMACEUTICALS INC DEC 3.6 6.5 6.1 9.7 3.8 32.8 49.0 78.0 89.6 90.9 75.8 66.4 102.2 115.3 166.7
EBS § EMERGENT BIOSOLUTIONS INC DEC 3.5 2.8 2.6 2.3 2.0 15.6 15.3 19.9 18.5 15.0 32.3 36.4 48.0 37.8 36.2
GENZ [] GENZYME CORP DEC 2.6 2.8 1.7 3.1 3.0 1.5 1.7 1.7 12.5 12.9 6.8 7.8 10.3 60.5 73.2
GILD [] GILEAD SCIENCES INC DEC 2.6 3.5 4.1 3.2 6.8 15.1 23.0 26.5 42.5 7.3 39.3 42.2 56.7 82.9 9.1
MATK § MARTEK BIOSCIENCES CORP OCT 9.7 5.7 4.2 3.4 4.6 0.0 0.1 1.6 8.4 12.2 0.1 0.3 5.8 37.8 52.4
REGN § REGENERON PHARMACEUT DEC 4.5 6.2 2.8 10.4 8.5 21.6 0.0 0.0 48.0 63.7 32.8 0.0 0.0 47.1 66.4
SVNT § SAVIENT PHARMACEUTICALS INC DEC 2.5 3.6 8.3 9.7 5.1 0.2 0.3 0.2 0.0 0.0 0.1 0.3 0.2 0.0 0.0
UTHR † UNITED THERAPEUTICS CORP DEC 1.0 5.1 1.3 14.4 11.5 4.4 35.0 0.0 54.8 0.0 NM 116.5 0.0 96.9 0.0
VRTX † VERTEX PHARMACEUTICALS INC DEC 4.6 4.0 2.5 3.1 3.8 8.8 54.6 0.0 3.8 43.0 11.9 44.2 0.0 3.8 63.2

AFFX § AFFYMETRIX INC DEC 5.8 6.3 7.9 4.1 4.3 45.4 51.0 42.2 17.8 18.5 71.6 75.2 74.8 41.3 34.3
A [] AGILENT TECHNOLOGIES INC OCT 3.5 2.4 2.2 2.6 2.3 53.8 41.7 37.8 28.1 0.0 102.3 112.9 103.9 62.0 0.0
BIO † BIO-RAD LABORATORIES INC DEC 3.7 2.6 2.5 3.5 3.2 35.8 28.6 29.5 34.0 39.2 64.6 66.0 71.9 52.5 61.8
CBM § CAMBREX CORP DEC 2.7 2.1 1.7 2.1 2.5 50.0 57.7 45.6 37.0 40.7 128.0 166.5 146.9 138.1 136.0
CRL † CHARLES RIVER LABS INTL INC DEC 2.4 2.1 2.0 1.9 1.3 24.4 30.2 20.0 24.8 12.2 132.3 170.5 158.8 226.3 241.1
CVD † COVANCE INC DEC 2.2 1.6 2.2 2.2 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
DNEX § DIONEX CORP JUN 2.6 2.1 2.2 2.6 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ENZ § ENZO BIOCHEM INC JUL 5.3 8.0 8.9 14.5 13.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ERES § ERESEARCHTECHNOLOGY INC DEC 4.9 3.8 2.4 4.1 2.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1
KNDL § KENDLE INTERNATIONAL INC DEC 1.4 1.4 1.4 1.5 2.1 36.2 51.4 58.2 58.4 1.0 245.0 291.7 333.3 350.9 1.8
LIFE [] LIFE TECHNOLOGIES CORP DEC 1.3 1.6 4.7 3.2 2.3 35.7 46.5 38.1 40.0 34.5 638.4 579.2 134.4 209.3 180.1
MTD † METTLER-TOLEDO INTL INC DEC 1.3 1.6 1.5 1.7 2.3 19.7 46.7 36.1 32.6 37.6 134.4 181.5 163.6 121.1 99.2
PRXL § PAREXEL INTERNATIONAL CORP JUN 1.4 1.3 1.4 1.5 1.5 34.8 0.8 0.1 0.3 0.5 128.9 2.4 0.2 0.5 0.9
PKI [] PERKINELMER INC DEC 1.8 1.6 1.5 1.6 2.0 25.0 24.3 23.9 8.4 12.1 144.0 161.9 174.7 56.6 48.2
PPDI † PHARMACEUTICAL PROD DEV INC DEC 1.9 2.0 2.3 1.8 1.9 0.0 0.0 0.0 0.0 3.0 0.0 0.0 0.0 0.0 6.9
TECH † TECHNE CORP JUN 16.5 12.8 12.4 8.3 9.6 0.0 0.0 0.0 3.5 4.8 0.0 0.0 0.0 9.3 11.1
TMO [] THERMO FISHER SCIENTIFIC INC DEC 2.8 2.8 1.9 1.7 1.7 10.6 10.8 10.9 11.7 14.1 71.4 72.8 116.0 144.7 83.4
WAT [] WATERS CORP DEC 3.0 3.3 1.9 1.5 1.5 37.1 43.1 46.0 58.0 63.8 64.3 75.0 86.4 159.3 161.8

ALXN ALEXION PHARMACEUTICALS INC DEC 4.4 3.3 5.4 8.0 8.1 1.5 36.3 65.7 58.6 68.9 3.6 73.4 116.0 90.4 85.1
ALNY ALNYLAM PHARMACEUTICALS INC DEC 2.7 4.4 5.6 9.7 4.5 0.0 0.0 1.5 2.9 8.2 0.0 0.0 0.8 3.0 8.6
AMLN AMYLIN PHARMACEUTICALS INC DEC 2.5 3.3 4.7 4.4 5.2 60.4 71.2 61.9 23.9 84.4 118.9 120.3 85.8 28.5 90.3
ELN ELAN CORP PLC -ADR DEC 4.5 2.3 4.4 2.0 6.7 74.6 114.7 128.8 89.4 86.3 169.9 460.7 246.5 194.6 177.0
ENZN ENZON PHARMACEUTICALS INC DEC 5.8 4.9 2.7 3.5 5.6 82.4 86.5 88.3 116.5 65.2 208.0 188.4 156.5 260.9 229.0
HGSI HUMAN GENOME SCIENCES INC DEC 4.8 0.6 1.4 4.3 3.2 44.2 146.9 101.6 77.8 55.0 97.1 NM NM 250.4 395.7
MYGN MYRIAD GENETICS INC JUN 11.4 5.1 10.8 9.4 5.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 14 - 10 17 - 10 27 - 16 32 - 25 29 - 19 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ARQL § ARQULE INC DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
BIIB [] BIOGEN IDEC INC DEC 16 - 12 28 - 14 42 - 21 84 - 64 NM - 69 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
CELG [] CELGENE CORP DEC 35 - 22 NM - NM NM - 70 NM - NM NM - 63 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
CEPH [] CEPHALON INC DEC 17 - 11 25 - 17 NM - NM 35 - 22 NM - NM 0 0 NM 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
CBST § CUBIST PHARMACEUTICALS INC DEC 18 - 10 10 - 5 30 - 20 NM - NM NM - NM 0 0 0 NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
EBS § EMERGENT BIOSOLUTIONS INC DEC 26 - 9 38 - 7 22 - 6 15 - 12 NA - NA 0 0 0 0 NA 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 NA - NA
GENZ [] GENZYME CORP DEC 47 - 30 53 - 37 42 - 32 NM - NM 45 - 32 0 0 0 NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
GILD [] GILEAD SCIENCES INC DEC 18 - 14 26 - 16 28 - 18 NM - NM 32 - 17 0 0 0 NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
MATK § MARTEK BIOSCIENCES CORP OCT 26 - 13 35 - 20 31 - 20 79 - 43 NM - 47 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
REGN § REGENERON PHARMACEUT DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
SVNT § SAVIENT PHARMACEUTICALS INC DEC NM - NM NM - NM NM - NM NM - NM 48 - 22 NM NM NM NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
UTHR † UNITED THERAPEUTICS CORP DEC NM - 74 NM - NM NM - 51 22 - 15 28 - 14 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
VRTX † VERTEX PHARMACEUTICALS INC DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0

AFFX § AFFYMETRIX INC DEC NM - NM NM - NM NM - NM NM - NM 58 - 33 NM NM 0 NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
A [] AGILENT TECHNOLOGIES INC OCT NM - NM 20 - 8 25 - 19 12 - 8 NM - 69 NM 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
BIO † BIO-RAD LABORATORIES INC DEC 19 - 10 33 - 18 33 - 19 22 - 15 22 - 16 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
CBM § CAMBREX CORP DEC 20 - 4 41 - 8 NM - NM NM - NM NM - NM 0 0 NM NM NM 0.0 - 0.0 0.0 - 0.0 190.6 - 53.6 0.7 - 0.5 0.7 - 0.4
CRL † CHARLES RIVER LABS INTL INC DEC 24 - 14 NM - NM 29 - 18 28 - 19 26 - 20 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
CVD † COVANCE INC DEC 21 - 12 32 - 10 33 - 21 30 - 21 28 - 19 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
DNEX § DIONEX CORP JUN 24 - 13 29 - 15 37 - 23 35 - 26 28 - 18 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ENZ § ENZO BIOCHEM INC JUL NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ERES § ERESEARCHTECHNOLOGY INC DEC 39 - 20 38 - 8 41 - 20 NM - 35 54 - 32 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
KNDL § KENDLE INTERNATIONAL INC DEC 25 - 8 26 - 8 40 - 23 69 - 36 37 - 9 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
LIFE [] LIFE TECHNOLOGIES CORP DEC 65 - 28 NM - 63 36 - 20 NM - NM 35 - 24 0 0 0 NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
MTD † METTLER-TOLEDO INTL INC DEC 21 - 9 19 - 10 25 - 16 21 - 14 23 - 18 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
PRXL § PAREXEL INTERNATIONAL CORP JUN 24 - 11 31 - 5 38 - 20 42 - 22 NM - NM 0 0 0 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
PKI [] PERKINELMER INC DEC 26 - 14 28 - 12 27 - 19 25 - 17 47 - 35 35 26 25 29 55 2.6 - 1.3 2.2 - 0.9 1.3 - 0.9 1.7 - 1.2 1.6 - 1.2
PPDI † PHARMACEUTICAL PROD DEV INC DEC 25 - 15 31 - 13 31 - 22 31 - 22 29 - 17 48 27 14 8 46 3.2 - 1.9 2.1 - 0.9 0.6 - 0.4 0.4 - 0.3 2.6 - 1.6
TECH † TECHNE CORP JUN 25 - 16 31 - 22 33 - 25 32 - 24 36 - 20 27 0 0 0 0 1.7 - 1.1 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
TMO [] THERMO FISHER SCIENTIFIC INC DEC 24 - 15 27 - 11 34 - 24 55 - 35 26 - 19 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
WAT [] WATERS CORP DEC 19 - 9 25 - 10 31 - 18 24 - 17 29 - 19 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0

ALXN ALEXION PHARMACEUTICALS INC DEC 14 - 9 NM - 57 NM - NM NM - NM NM - NM 0 0 NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ALNY ALNYLAM PHARMACEUTICALS INC DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
AMLN AMYLIN PHARMACEUTICALS INC DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ELN ELAN CORP PLC -ADR DEC NM - NM NM - NM NM - NM NM - NM 24 - 2 NM NM NM NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
ENZN ENZON PHARMACEUTICALS INC DEC NM - NM NM - NM 5- 3 19 - 13 NM - NM 0 NM 0 0 NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
HGSI HUMAN GENOME SCIENCES INC DEC NM - 11 NM - NM NM - NM NM - NM NM - NM 0 NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
MYGN MYRIAD GENETICS INC JUN 32 - 15 67 - 32 NM - NM NM - NM NM - NM 0 0 NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)
BIOTECHNOLOGY‡
AMGN [] AMGEN INC DEC 4.53 3.92 2.83 2.51 2.97 8.81 5.79 3.03 3.36 5.08 64.76 - 44.96 66.51 - 39.16 76.95 - 46.21 81.24 - 63.52 86.92 - 56.19
ARQL § ARQULE INC DEC (0.82) (1.16) (1.33) (1.33) (0.22) 0.26 0.98 2.01 2.23 2.99 6.38 - 2.62 6.09 - 1.75 10.59 - 5.47 7.09 - 3.83 8.43 - 4.56
BIIB [] BIOGEN IDEC INC DEC 3.37 2.67 2.02 0.63 0.48 11.69 8.70 6.44 9.60 8.38 55.34 - 41.75 73.59 - 37.21 84.75 - 42.86 52.72 - 40.24 70.00 - 33.18
CELG [] CELGENE CORP DEC 1.69 (3.46) 0.59 0.20 0.19 7.55 5.37 6.73 4.89 1.48 58.31 - 36.90 77.39 - 45.44 75.44 - 41.26 60.12 - 31.50 32.68 - 12.35
CEPH [] CEPHALON INC DEC 4.74 3.27 (2.88) 2.39 (3.01) 9.21 6.55 0.11 0.75 (10.36) 81.35 - 52.55 80.39 - 56.20 84.83 - 64.65 82.92 - 51.58 66.92 - 37.35
CBST § CUBIST PHARMACEUTICALS INC DEC 1.38 3.00 0.87 (0.01) (0.60) 3.40 5.09 1.35 0.27 (0.26) 25.50 - 13.81 28.74 - 16.25 25.72 - 16.97 26.77 - 17.82 23.47 - 8.64
EBS § EMERGENT BIOSOLUTIONS INC DEC 1.02 0.69 0.79 0.83 0.58 7.82 6.61 5.75 5.02 2.68 27.00 - 9.15 26.40 - 4.93 17.75 - 4.40 12.72 - 9.75 NA - NA
GENZ [] GENZYME CORP DEC 1.57 1.57 1.82 (0.06) 1.73 14.93 15.70 13.73 10.91 7.99 73.75 - 47.09 83.97 - 57.61 76.90 - 58.71 75.34 - 54.64 77.82 - 55.15
GILD [] GILEAD SCIENCES INC DEC 2.91 2.18 1.74 (1.29) 0.89 5.38 4.56 3.71 1.97 3.29 53.28 - 40.62 57.63 - 35.60 47.90 - 30.96 35.00 - 26.24 28.25 - 15.19
MATK § MARTEK BIOSCIENCES CORP OCT 1.22 1.14 0.99 0.47 0.49 16.29 15.27 13.79 12.66 12.16 31.35 - 15.36 39.60 - 22.47 31.00 - 19.64 37.22 - 20.15 70.50 - 23.14
REGN § REGENERON PHARMACEUT DEC (0.85) (1.05) (1.59) (1.78) (1.71) 4.89 5.24 5.84 3.31 2.02 24.97 - 11.81 25.25 - 12.62 28.74 - 13.55 24.85 - 10.88 17.37 - 4.61
SVNT § SAVIENT PHARMACEUTICALS INC DEC (1.51) (1.55) (0.94) (0.03) 0.10 0.96 1.16 2.59 3.40 1.20 16.62 - 3.45 28.42 - 2.80 24.20 - 10.58 12.32 - 3.58 4.79 - 2.25
UTHR † UNITED THERAPEUTICS CORP DEC 0.37 (0.94) 0.47 1.61 1.42 11.70 9.46 6.46 4.52 5.62 53.57 - 27.34 58.91 - 23.82 55.35 - 23.83 35.71 - 23.50 39.37 - 20.38
VRTX † VERTEX PHARMACEUTICALS INC DEC (3.71) (3.27) (3.03) (1.84) (2.28) 2.76 1.58 2.04 4.01 2.21 44.04 - 25.94 35.00 - 13.84 41.42 - 22.80 45.38 - 26.50 29.24 - 8.61

AFFX § AFFYMETRIX INC DEC (0.35) (4.49) 0.18 (0.20) 1.03 3.49 3.43 6.16 5.49 5.09 10.06 - 1.78 23.85 - 2.02 31.95 - 20.00 48.00 - 17.50 59.73 - 33.94
A [] AGILENT TECHNOLOGIES INC OCT (0.09) 1.91 1.62 3.33 0.29 4.86 4.81 6.75 7.79 7.39 31.77 - 12.02 38.00 - 14.76 40.42 - 30.26 39.54 - 26.96 36.10 - 20.11
BIO † BIO-RAD LABORATORIES INC DEC 5.28 3.32 3.49 3.92 2.98 26.42 17.95 16.10 24.73 19.68 100.99 - 51.33 109.50 - 60.51 115.23 - 66.80 84.34 - 57.10 66.90 - 46.54
CBM § CAMBREX CORP DEC 0.36 0.27 (0.47) (0.05) (4.18) 2.28 1.35 2.29 3.55 3.59 7.22 - 1.48 10.99 - 2.06 26.17 - 7.36 24.50 - 18.08 27.12 - 16.87
CRL † CHARLES RIVER LABS INTL INC DEC 1.70 (7.76) 2.35 1.82 2.04 10.73 9.03 8.67 4.72 2.92 40.14 - 23.03 69.19 - 19.92 68.00 - 42.71 51.50 - 33.73 53.09 - 40.50
CVD † COVANCE INC DEC 2.76 3.12 2.76 2.28 1.91 19.93 17.14 15.60 12.45 10.68 58.95 - 32.31 99.08 - 31.43 90.59 - 57.12 68.52 - 48.37 53.54 - 35.76
DNEX § DIONEX CORP JUN 3.10 2.85 2.37 1.78 2.20 10.39 9.02 8.13 7.94 7.71 74.43 - 39.92 83.71 - 42.07 88.39 - 54.62 62.33 - 45.76 61.19 - 40.00
ENZ § ENZO BIOCHEM INC JUL (0.63) (0.29) (0.38) (0.49) 0.09 1.87 2.70 3.27 2.73 3.14 7.98 - 2.70 14.90 - 3.36 18.98 - 9.70 16.47 - 9.11 19.55 - 12.35
ERES § ERESEARCHTECHNOLOGY INC DEC 0.22 0.49 0.30 0.17 0.31 2.09 1.96 1.56 1.84 1.61 8.50 - 4.48 18.85 - 3.86 12.34 - 6.12 18.54 - 5.88 16.80 - 10.01
KNDL § KENDLE INTERNATIONAL INC DEC 1.03 1.99 1.29 0.60 0.79 (1.53) (4.73) (7.38) (7.88) 6.11 25.66 - 8.28 52.00 - 15.86 51.34 - 30.02 41.11 - 21.34 29.50 - 7.30
LIFE [] LIFE TECHNOLOGIES CORP DEC 0.82 0.31 1.39 (1.86) 1.26 (10.16) (16.78) (0.53) (4.04) (2.98) 52.97 - 22.76 49.00 - 19.56 49.58 - 27.95 38.33 - 27.35 44.25 - 30.07
MTD † METTLER-TOLEDO INTL INC DEC 5.12 5.92 4.82 3.93 2.58 4.87 (0.52) 1.14 2.48 3.16 106.99 - 44.01 115.10 - 60.26 119.84 - 77.45 81.98 - 54.78 58.67 - 45.24
PRXL § PAREXEL INTERNATIONAL CORP JUN 0.68 1.16 0.69 0.44 (0.68) 1.18 4.33 3.60 3.54 2.94 16.62 - 7.20 36.16 - 6.11 26.05 - 14.00 18.84 - 9.60 12.52 - 8.56
PKI [] PERKINELMER INC DEC 0.80 1.07 1.13 0.95 0.51 (2.55) (2.40) (2.21) 0.45 1.91 21.09 - 10.88 29.95 - 12.70 30.00 - 21.28 24.17 - 16.31 24.02 - 17.92
PPDI † PHARMACEUTICAL PROD DEV INC DEC 1.19 1.58 1.38 1.34 1.15 8.44 8.11 7.83 6.28 4.57 29.53 - 17.97 49.39 - 20.60 43.14 - 30.52 41.17 - 29.55 33.67 - 19.94
TECH † TECHNE CORP JUN 2.78 2.65 2.16 1.88 1.64 11.50 11.85 10.33 7.83 6.57 69.95 - 45.38 82.92 - 57.10 72.00 - 54.49 60.74 - 45.27 59.44 - 32.99
TMO [] THERMO FISHER SCIENTIFIC INC DEC 2.06 2.36 1.85 0.85 1.23 0.27 (0.42) (3.33) (5.10) 2.32 49.70 - 30.83 62.77 - 26.65 62.02 - 43.60 46.34 - 29.95 31.87 - 23.94
WAT [] WATERS CORP DEC 3.37 3.25 2.67 2.16 1.77 4.10 2.60 1.81 (0.25) (0.03) 63.09 - 30.00 81.84 - 32.21 81.53 - 48.55 51.64 - 37.06 51.57 - 33.99

ALXN ALEXION PHARMACEUTICALS INC DEC 3.46 0.43 (1.27) (2.08) (1.95) 7.19 2.39 1.08 1.47 0.85 49.52 - 30.78 47.96 - 24.63 40.06 - 17.57 22.86 - 9.95 15.00 - 9.19
ALNY ALNYLAM PHARMACEUTICALS INC DEC (1.14) (0.64) (2.21) (1.09) (1.96) 4.24 4.86 4.86 5.38 2.23 26.36 - 14.82 36.37 - 16.37 37.35 - 14.87 24.46 - 11.29 15.22 - 6.76
AMLN AMYLIN PHARMACEUTICALS INC DEC (1.32) (2.30) (1.59) (1.78) (1.96) 2.96 2.53 4.08 4.85 0.60 15.69 - 7.89 37.38 - 5.50 53.25 - 35.55 51.54 - 35.58 42.36 - 14.50
ELN ELAN CORP PLC -ADR DEC (0.32) (0.07) (1.42) (0.94) 1.23 0.43 (1.28) (1.45) (1.02) (1.18) 9.13 - 4.61 37.45 - 4.99 24.90 - 11.70 19.42 - 11.88 29.93 - 3.00
ENZN ENZON PHARMACEUTICALS INC DEC 0.02 (0.06) 1.89 0.49 (2.06) 0.08 (0.42) (0.71) (3.07) (2.79) 10.92 - 4.70 9.85 - 2.95 10.36 - 6.31 9.28 - 6.50 14.07 - 5.70
HGSI HUMAN GENOME SCIENCES INC DEC 0.04 (1.81) (1.95) (1.91) (1.83) 4.08 (1.78) (0.09) 1.60 3.18 31.40 - 0.45 11.95 - 1.20 12.87 - 7.04 13.97 - 8.30 15.50 - 7.63
MYGN MYRIAD GENETICS INC JUN 1.46 0.54 (0.43) (0.52) (0.65) 4.53 J 4.76 J 3.92 J 3.15 J 2.20 J 47.08 - 22.38 36.22 - 17.17 29.59 - 15.00 15.94 - 9.92 13.03 - 7.53
J-This amount includes intangibles that cannot be identified.
The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s.
In this regard, Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s.
The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

Bio 0211

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Industry Surveys

February 24, 2011

Current Environment ............................................................................................ 1

Industry Profile ...................................................................................................... 9

Industry Trends ................................................................................................... 10

How the Industry Operates ............................................................................... 18

Key Industry Ratios and Statistics................................................................... 26

How to Analyze a Biotechnology Company ................................................... 28

CONTACTS: Comparative Company Analysis ......................................................... Appendix

Global Industry Surveys

Standard & Poor’s Industry Surveys

Biotech stocks extend post-recession slide

BIOTECHNOLOGY STOCKS VS. THE S&P MIDCAP INDEX

S&P Biotech Index S&P MidCap Index

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 1

HEALTHCARE REFORM AND EUROPEAN DEBT CRISIS: NEAR-TERM HEADWINDS

Bill funding costs affect some biotechs’ top-line results

European debt crisis spurs curbs on drug spending

DESPITE PROGRESS, FDA REMAINS A CAUSE OF INVESTOR SKEPTICISM

2 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

FDA faces scrutiny over drug safety oversight

The topic of declining R&D productivity has

4 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

POSITIVE CATALYSTS POSITION SECTOR FOR REBOUND

Novel drugs nearing the market

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 5

Industry R&D pipeline dust settling

6 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

M&A deals seek to share clinical risk

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 7

8 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

Biotech’s presence grows, along with its ties to Big Pharma

CONSOLIDATION AT THE “DNA” OF THE INDUSTRY

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 9

BIOTECH AND BIG PHARMA CONVERGING

Biotech plays a central role in recent Big Pharma consolidations

 Merck/Schering-Plough. According to EvaluatePharma, Schering-Plough Corp.’s clinical pipeline had

Big Pharma retools with biotech-like R&D platforms and pipelines

SHARE BUYBACKS SUGGEST BIOTECH MATURATION: NEXT STOP, DIVIDENDS?

BIOSIMILARS POISED TO INTRODUCE LONG-TERM COMPETITION FOR BIOTECH DRUGS

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 11

SOARING DRUG COSTS PROMPT EXPANSION OF NEW TREATMENT PROGRAMS

IMPACT OF PERSONALIZED MEDICINE AND COMPARATIVE EFFECTIVENESS STUDIES

Advancement of personalized medicine

Comparative effectiveness: how will findings be used?

14 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 15

HOW THE INDUSTRY OPERATES

18 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

Key classes of biotech drugs

TOP 10 BIOTECHNOLOGY DRUGS

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 19

The importance of partnerships

20 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

Patents make it happen

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 21

THE DRUG DEVELOPMENT PROCESS

Early discovery and preclinical development

22 BIOTECHNOLOGY / FEBRUARY 24, 2011 INDUSTRY SURVEYS

Clinical trials: putting candidates to the test

Regulatory filing and review

INDUSTRY SURVEYS BIOTECHNOLOGY / FEBRUARY 24, 2011 23

Shortage of clinical trial candidates slows industry pipeline