Biotechnology

What is Biotechnology?
bio—the use of biological processes; and techno
logy—to solve problems or make useful products.

Biotech in 21st century -- Using modern technolog

y such as genetics, molecular biology to
understand biological phenomenon in a new
level of precision (at the cellular and m
olecular level), and solve problems or cr
eate product around that understanding
 Three major areas of Biotech
 Medical biotechnology (Red biotechnology) Some
examples are the designing of organisms to produce
antibiotics, and the engineering of genetic cures to diseases
through genomic manipulation.
 Industrial biotechnology (White biotechnology) An
example is the designing of an organism to produce a
useful chemical.
 Agricultural biotechnology (Green biotechnology) An
example is the designing of an organism to grow under
specific environmental conditions or in the presence (or
absence) of certain agricultural chemicals.
“Financial Definition” of Biotech
Companies in any of the three areas are
technically biotech. Yet, for professional
investors, “Biotech” is a buzz word that
mainly associates with medical care
sector (usually smaller) companies that
uses new technologies.
 Industry at a glance
 There are 1,473 biotechnology companies in the United
States, of which 314 are publicly held.
 Market capitalization: $311 billion as of mid-March
2004.
 Revenues: increasing from $8 billion in 1992 to $39.2
billion in 2003.
 Employed: 198,300 people as of Dec. 31, 2003.
 R & D: spent $17.9 billion on research and development in
2003.
 The top eight biotech companies spent an average of
$104,000 per employee on R&D in 2003.
 2003 Pharmaceutical Sales by
Region
World Audited 2003 Sales % of Global % Growth
Market ($ billion) sales ($) (constant $)
North America 229.5 49% 11%

European Union 115.4 25% 8%

Rest of Europe 14.3 3% 14%

Japan 52.4 11% 3%

Asia, Africa and 37.3 8% 12%

Australasia

Latin America 17.4 4% 6%

TOTAL $466.3 100% 9%

 U.S. Government
Position of US Biotech - Regulatory Body (FDA)
- Public Health Care
Programs
- Medicare
U.S. Health Care - Medicaid
Industry Monitor
For Profit and
Health Benefit Regulate
Providers
Product
Organizations
Not-for-Profit Service
Health Benefit Organizations
Providers -Hospital
management Biotech Pharmaceutical
-Long term care Companies
-Etc.

Others
 Typical Value Chain of a
Pharmaceutical Product using
Biotechnology
Discovery of Marketing of
the Product the Product
 Typical Biotech vs.
Pharmaceuticals Companies
Biotech Pharmaceutical
s
Cap Size Small Big
Balance Sheet Burn Cash ( - ) Strong Cash inflow
/Cash Flow
Cost R&D R&D, Manufacturing.
Marketing
Financing Almost all Equity Debt & Equity mixed
Net Income Negative Positive
Pipeline Strong Moderate/Weak
Dividend None Moderate - Strong
 Market
Arthritis
 46 million adults (non-institutionalized) in the U.S. (2003)
 21% of adults (non-institutionalized) in the U.S. (2003)
Cancer
 23 million suffering worldwide. Estimated of 1.37 million people in the US will be
diagnosed with cancer in 2005
 about 1 in 3 lifetime risk; 38% of women and 43% of men
 The average cost of cancer treatment is well over $100,000 per person.
 Estimated $280 billion spent on treatment drugs for cancer annually. More than $100
Billions in US
Diabetes
 Estimated 18.2 million people in the United States, or 6.3% of the population (2005)
 165 million cases worldwide (2003)
 $132 billion spent in direct and indirect costs in America (2002)
Heart Disease
 25 million adults in the US
 Heart disease and stroke cost US around $214 billion annually. ($115 billion direct) (2002)
 i sk
o r R
aj acto
M F
r Porter’s Competitive Force
Political & Legal Forces
• FDA
External Force  New Entrants
 Barriers: Technology, Risk,
Fixed Cost
LOW

 Power of Suppliers
 Biotech equipment firms
ID
LOW-MID  Power of Buyers
M

 Direct: Big Pharma

 End-user: Patients
 Substitutes
 Non-biotech Drugs, Generic
MID-HIGH (future)
 Rivalry
LOW

 Competition mainly on
function/quality instead of
price
 US Regulatory Body - FDA
Food and Drug Administration

 Sets health and safety standards

 Drugs, food , medical devices, cosmetics products,
and biologics
 Also monitor for proper production standards
 Ensure labeling is truthful and informative.
 Pre Clinical Tests
 The beginning of the drug approval process
 To see the potential effects on humans, tests are performed on:
 Isolated tissues
 Cell Cultures
 Animals

 Company decides whether to put the drug into the human

testing process, based on the marketability of the product,
their financial situation etc.
 On average, only one compound in a thousand will actually
make it to human testing
 The IND Filing
 The goal : provide pre-clinical data of sufficient quality to
justify the testing of the drug in humans
 FDA has 30 days to review the IND application
 Must be filed annually until the completion of clinical
testing
 At this time patents are usually applied for, patents last
generally for 20 years
 About 85% of all IND applications move on to begin
clinical trials
 If succeed, 20% chance of the product making it to the
market
 Phase I

 Duration: 1 to 3 years
 Sample size: less than 100 patients
 Test on: Healthy volunteers
 If passed this Phase, chances of the product reaching
to the market will be: ~30%
 Begins to analysis and develop the drugs safety
profile
 How the drug is absorbed, metabolized and excreted
 Phase II
 Duration: ~2 years
 Sample size: 100 – 300 patients
 Test on: volunteers who suffer from the
disease
 If passed this Phase, chances of the product
reaching to the market will be: ~60%
 To evaluate the drug's safety and assess side effects
 Establishes the optimal dosage of the drug
 Phase III

 Duration: 3-4 years

 Sample size: >1000 patients
 Test on: volunteers who suffer from the disease
 If passed this phase, chances of the product reaching to the
market will be: ~70%
 Verifies the drug’s effectiveness in its intended use
 Assessment of long term effects
 NDA Filing

 Upon desirable result from Phase III, New Drug App

lication (NDA) will be summit
 NDA contains data supporting the efficacy and safe
ty of the drug
 Approval can take 2 month to several years, but av
erage is around 18 to 24 months
 Drugs are subject to ongoing review, making sure n
o adverse side effects appear from the drug.
 After FDA’s approval, the drug can be marketed an
d distributed
 Patent
 Biotech inventions are subject to the same rules as all other inventions

 Generally last 20 years

 Since most companies file for patent during pre-clinical trail. Usually the patent is
only good for another 10 years or so after it gained FDA approval
 What can be patented
 Product
 Method
 Use

 Examples
 DNA and RNA sequences
 Proteins, enzymes, antibiotics
 Antibodies, antigens
 Micro-organisms, cell lines, hybrids
 Phase IV

 Observational studies in an ongoing

evaluation of the drug's safety during routine
use

 Monitor any usage of the drug for conditions

other than the approved medical indication
Review & Approvals
 Key Points about the Clinical
Process
 To bring a drug through all phases of the clinical trial
process, it costs around:
 $350 - $500 millions
 10-15 years

 Key factors that determine the quality of a company's

pipeline:
 one or more successful products on the market
 a large pipeline of candidate drugs with some in late-stage
 enough cash to fund the development of their new drug
candidates
 Review & Approvals
 108 biotechnology medicines already
approved and available to patients
 324 biotechnology medicines in development
 either in human clinical trials or under review by
the FDA
 for nearly 150 diseases

 154 medicines for cancer, 43 for infectious

diseases, 26 for autoimmune diseases and 17 for
AIDS/HIV and related conditions
Biotech in the Stock Market
TECH BOOM
AMEX BIOTECH INDEX
vs. S&P 500 vs. NASDAQ
5 YEARS AMEX BIOTECH INDEX
vs. S&P 500 vs. NASDAQ

-S&P 500
-AMEX
Biotech
-NASDAQ

Tech Bust
 Industry Financials
U.S. Biotech Industry Statistics: 1994–2004*

Year 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994

Sales* 33.3 28.4 24.3 21.4 19.3 16.1 14.5 13 10.8 9.3 7.7

Revenues 46.0 39.2 29.6 29.6 26.7 22.3 20.2 17.4 14.6 12.7 11.2

R&D 19.8 17.9 20.5 15.7 14.2 10.7 10.6 9.0 7.9 7.7 7.0
Expense

R&D/ $0.59 $0.63 $0.84 $0.73 $0.74 $0.66 $0.73 $0.69 $0.73 $0.83 $0.91
$ Sales

Net Loss 6.4 5.4 9.4 4.6 5.6 4.4 4.1 4.5 4.6 4.1 3.6

No. of 330 314 318 342 339 300 316 317 294 260 265
Public
Companies

No. of 1,444 1,473 1,466 1,457 1,379 1,273 1,311 1,274 1,287 1,308 1,311
Companies

Employees 187,5 177,0 194,6 191,0 174,0 162,0 155,0 141,0 118,0 108,0 103,0
00 00 00 00 00 00 00 00 00 00 00
*Amounts are U.S. dollars in billions.
Sources: Ernst & Young LLP, annual biotechnology industry reports, 19932005.
      Financial data based primarily on fiscal-year financial statements of publicly traded companies.
 Industry Financials
Biotech Industry Net Loss / $ Sales
$0. 50

$0. 45
$0. 47 $0. 43 $0. 39
$0. 40
$0. 44
$0. 35 $0. 29 $0. 35

$0. 30

$0. 25
$0. 28 $0. 21
$0. 27 $0. 20

$0. 15
$0. 19 $0. 19
Towards Breakeven $0. 10

($0 loss/$ Sales) $0. 05

$-
19 94 1995 1996 1997 1 998 1999 2 000 2001 20 02 2003 2004
 Industry Ratios
Market P/E ROE Long-term Net Prof P/B P/FCF
Cap % Debt/Equity it Margi (mrg)
n% (mrg)
From Yahoo Finance Nov 10, 2005

Sector: 2208.2 21.91 14.43 0.01 9.93 11.05 457.4

B
Health Care
Industry: Biotech 326.6B (-) 1.7 0.00 2.80 11.33 3035.
6
Amgen Inc. 99.0B 28.90 17.55 0.19 30.66 4.82 N/A

Genetech Inc. 98.5B 87.85 15.61 0.27 20.52 12.82 52.11

Gilead Sciences 23.5B 37.87 32.02 0.00 36.32 8.97 N/A

Inc.
Biogen Idec Inc 19.2B 107.52 4.29 0.00 36.33 3.86 N/A
.
Cash
Total Financing
 Key Issues Concerning
the Future of the Industry
 Generic Competition
 Changing Social & Legal Environ
ment
 Blockbuster Model vs. Personali
zed Health Care
 Biotech and Big Pharmas: New
Collaborative Dynamics
 Generic competition
 Currently no bio-generic in the US market
 Technological difficulties
 Biotech companies argues: Biotech drugs are not defined
by molecular make up but the production process
 Difficult but possible (they exist in China & Latin
America, up and coming in Europe)

 Regulatory difficulties
 No clear regulatory guidelines to permit the production
of generic biologics in the US Two challenges
1. How to prove that a generic biologic is chemically and
therapeutically equivalent to the original?
2. Who is the proper authority regarding the bi
o-generics?
– The law that is written to regulate generic dru
gs does not include bio-generic
 Generic competition
 Bio-generics are very
likely to come in the
future
 BUT they most likely
will face stricter pre-
approval testing
requirements than
chemically based generics
 More costly to produce
and therefore less price
difference between
original & generic
Changing Social & Legal
Environment
 Pressure from the public and governments wor
ldwide to contain drug prices
 In Sept 2004, Merck’s Blockbuster, Vioxx, w
as pulled off the market
 Studies found the drug to increase the risk of he
art attacks and strokes if used longer than 18 mo
nths
 Pfizer's Bextra, which is in the same drug class
(Cox-2 inhibitors) was also dropped out later
 So far, ~4,000 lawsuits has filed against Merck o
n Vioxx
 Investors panicked over closer scrutiny and tight
er regulation towards the pharmaceutical and biot
ech industry
 Social & Legal Environment:
Drug Safety Issues
 The Downside
 Cash burning biotech are vulnerable to higher testing cost
and delay in the approval process
 The Upside
 Biotech generally focus on life-threatening disease, where
side-effects are more tolerable
 New Technology can evaluate safety earlier in the
development process and even prior to clinical trials
 E.g. Pharmacogenomics

 Higher safety standard will benefit the industry in the long

run
 Blockbuster Model vs
Personalized Health Care
 The Blockbuster model
 Blockbuster - A medicine with sales over $1billion
 The model:
 Find treatments for disease with the biggest market
 Pool resources on breeding the few potential blockbuster
 Pros:
 Hitting ‘the Jackpot’
 Cons
 Attract competition
 Relay heavily on blockbuster
 Blockbuster Model vs
Personalized Health Care
 The Future: Personalized Health Care
 Individualized Drugs Using New Diagnostic Equipment
 Business Model
 Lots of small but high-margin markets
 Pros
 Lower safety risk
 Less exposure to competition
 Relatively shorter approval time and
lower research cost due to smaller scale
of tests are needed
 Diversified Risk
 Cons
 Less overall margin
Biotech and Big Pharmas:
New Collaborative Dynamics
 Traditionally big pharmas are often in a stronger position
when negotiating licences from biotech to market their drugs.

 Yet, big pharmas’ pipeline are getting weaker due to their

focus on developing and marketing in recent years
 Of the drugs approved in 2004, more originated in biotech labs than in
the labs of big pharma.
 Biotech pharmaceuticals accounted for over $42.1 billion
in 2004 worldwide sales
 Biotech drugs account for 25% of the total active pipelin
e
 Of the 305 biotech projects of the top 10 pharmas, 63 % w
ere in-licensed.
 Biotech and Big Pharmas: New
Collaborative Dynamics
2004 Merger & Acquisition
 On the other hand,
biotechs are growi
ng bigger and the
industry is consol
idating

 As a result, Big Pharms now:

1. Seeks more partnerships with biotechnology companie
s
2. Willing assume risk and enter partnerships at earli
er stages in the drug development process
3. Pays more to acquire biotech pipelines
 The Future

Industry Maturing - From potential to performance

 Managements are becoming more skilled in the bu

siness instead merely focusing on the technolog
y
 More consolidation
 Big pharma’s weak pipeline gives biotechs more
bargaining power
 The days of investing merely on ideas/stories a
re gone, investors now look for companies with
real profitable products with growth potential
 The Future
From Potential to Profitability

 Industry is estimated to achieve the first net income in its 30-

year history in 2008.

Future Challenges and Opportunities

 Bio-generic (especially in the international market)

 Tightening regulation and public concerns

 Shifting from blockbuster driven to the personalized health care

model
The Biotech Stock Picking System
 Successful Product(s) Strong Sell if neither
 Solvency
 Quantity of Pipeline
Worth Looking into
 Quality of Pipeline
 Management
 Collaborations Makes an okay
biotech to a good
 R&D one

 Successful Product(s)
 Best to have one or more established drug already genera
ting cash for the business
 Solvency
1. MUST have enough cash to “burn” for its R&D until it g
ets a drug into the market that can generate sufficient
income to sustain the business (look at burn rate)
2. If not, it MUST have a SECURED source of financing (e.g.
collaboration with a big pharma)
The Biotech Stock Picking System
 Quantity of Pipeline
 Plenty of drugs in the pipeline with at least two ore more in later clinical trials
(Phase 2 or 3)
 Quality of Pipeline
 Drugs in pipeline should be 1)Diversified and 2)Aimed at markets that is both large
and under-serviced.
 Management
 Proven track record of taking a drug through the regulatory hurdles and/or to the
marketplace
 A good mix of executives specialized in technology and business

 Collaborations
 1) Marketing and Developing partnership pharmaceutical companies
 2) Research collaboration with corporate or academia partner (e.g. University)
 Research & Development
 Growing R&D spending and growing or sustaining R&D/$ Sales
Inspired science.
Defining
moments.
Amgen Inc. (AMGN)
• “Applied Molecular Genetics Inc”

• Specializes in molecular and cellular biology

• Produces and markets therapeutic products for th

e treatment of nephrology, cancer, inflammatory di
seases, metabolic and neurodegenerative disorde
rs

• 1st : sales
• 2nd: market capitalization ($99b)
 History

Initial Public Offering sales surpass $1b

1983 1992

1980 1989 Now

Established FDA approves EPOGEN® Sales surpass $10.5b
Five Blockbusters
 CEO Of The Year -- Medicine Man
Kevin Sharer

In terms of innovation and commercialization, Amgen and

his [Sharer's] leadership clearly are a model."
 Leadership Team
Hassan Dayem, Ph.D
Senior vice president and chief information officer since 2002; Vice president, Information Servicesand ch
ief information officer at Merck & Co., Inc. from 1997 to 1998.

Dennis M. Fenton, Ph.D.

Executive vice president from 2000. Joined Amgen since 1988.

Brian McNamee
Senior vice preside, Human Resources from 2001. Vice president of Human Resources at Dell Computer
Crop from 1999 to 2001. Various human resources positions since 1988.

George Marrow
Executive vice president of Worldwide Sales and Marketing since 2001 and became executive vice presi
dent, Global Commercial Operations in April 2003. Various management positions since 1993.

Richard Nanula
Executive vice president and chief financial officer since 2001. Various management positions since 1986
.

Roger M. Perlmutter, M.D., Ph.D.

Executive vice president of Research and Development since 2001. Executive vice president, Worldwide
Basic Research and Preclinical Development of Merck Research Laboratories.

David J. Scott
Senior Vice president, general counsel and secretary since March 2004. Senior vice present and general
counsel of Medtronic, Inc from 1999 to 2004.
Stock Price - AMGN
• Stock price: $79.89 (as of Nov7, 2005)
• # of outstanding shares: 1,234 millions
• Exchange: NASDAQ
• Volume: 7,518,000
• Zero Dividend Policy

• Headquarters: California
• Staff employed: more than 14,000

• Mission: To serve patients

Successful products
on the market
 Blockbusters
Strategy: often target medical problems that haven't received much
attention from the pharmaceutical industry

EPOGEN® Stimulate the production of red blood cells to treat

Aranesp® anemia

NEUPOGEN® Selectively stimulate the production of neutrophils,

Neulasta® one type of white blood cell that helps the body figh
t infections

ENBREL® Blocks the biologic activity of tumor necrosis factor

(TNF) by competitively inhibiting TNF, a substance
induced in response to inflammatory and immunolo
gical responses, such as rheumatoid arthristis and
psoriasis
Revenue Composition
12
billions

10
8
6
4
2
0
2000 2001 2002 2003 2004
EPOGEN Aranesp Neulasta
NEUPOGEN ENBERL Others
Sales Breakdown (as at Sep 2005)
Others- 2%

Enbrel-21%

EPOGEN-21%

NEUOGEN-10%

Aranesp-27%
Neulasta-19%

Solid: US
Dot pattern: international
International Sales
12000
10000
8000
6000
4000
2000
0
2000 2001 2002 2003 2004

US International
A deep product pipeline
with late-stage candidates
Other Principle Products
• Kineret rheumatoid arthritis
• Kepivance™ chronic kidney disease
• Sensipar® mouth sores bought

Potential Candidates
• Panitumumab colorectal cancer ($1 billon market)
• AMG 162 osteoporosis (bone loss) and possibly also bone cancer
2002

1991
2002

2004
1998
1999
2003
2002
2004
2001
2004

2001

1989
Positive Developments

• July 4 FILLING UP AMGEN'S PIPELINE

• encouraging early data on osteoporosis and cancer drugs
• 10 more are ready for human testing
• predicts Amgen will apply for FDA approval for four
products in the next five years.

• Amgen also periodically seeks government approval to use an

existing product to treat additional maladies.
Negative Developments
• Lack of expertise in small molecule and immunotherapeu
tics development

• Heavy reliance on Aranesp and Enbrel Marketing

Financial Analysis
2005 results
• First Quarter 2005 GAAP Earnings Per Share of 67 Cents
• Total Product Sales Increased 24 Percent
• 2005 Guidance Increased for Total Revenue and Adjusted EPS from
the previous range of $2.70 to $2.85 to a range of $2.80 to $2.90
• Second Quarter 2005 GAAP Earnings Per Share Increased 44 perc
ent to 82 Cents
• 2005 Revenue Growth Guidance Raised to Mid-to-High Teens
• 2005 Adjusted Earnings Per Share Guidance Increased to a Range
of $3.10 to $3.20, a Growth Rate of 29 to 33 Percent

• Third Quarter 2005 GAAP Earnings Per Share slipped to 77 cents

• Product Sales Growth of 19 Percent Driven by Sales of Aranesp, N
eulasta and Enbrel
Income Statement
Year 2004 As a % revenue / YOY growth 5-year growth
operating expense
Product Sales 95% 27% 228%
Cost of Sales 24% 29% 331%
R&D 28% 23% 146%
S,G&A 35% 31% 291%
Income 22% 4.6% 115%

• Write-off of acquired in-process R&D Since

• Amortization of acquired intangible assets 2002

• Diluted EPS: 2.26 (Sept 2005)

• ROE: 17.55% (Sept 2005)
 Income Statement
*Sudden drop in 2002 was due to write off acquired IPR&D of Tularik and Immunex
200 2
Hundreds

8% 9% 47% 51% 26%

150 1.5
100 1
50 0.5
0 0
2000 2001 2002 2003 2004
-50 -0.5
-100 -1
-150 -1.5

EBIDTA Gross Profit Sales EPS

Cost Structure
8000
7000
6000
5000
4000
3000
2000
1000
0
2000 2001 2002 2003 2004

R&D Cost of Sales S,G&A Write off

Balance Sheet
• Cash/share = 5,551/1,234 =$4.5

• Intangible assets: 4,802 (Dec 2002)

• Goodwill: 9,871(Dec 2002)
– acquisition of Immunex
– >Total assets increases 279%

• D/E: 20% (Sept 2005)

Cash flow Statement
• Growth in operating is mainly contributed from growth in
products sales

• Heavy write off of acquired in-process research and

amortization

• Most of the investing is on manufacturing expansion

• Repurchase of CS and issuance of debt

• Free CF: 3,697-1,336=2,361 millions

Cash Flow Statement
5000
4000
3000
2000
1000 Operating
0 Investing
-1000 2000 2001 2002 2003 2004 Financing
-2000 Free CF
-3000
-4000
-5000
-6000
R&D Productivity
Product Candidates
1) Internal research

2) Acquisitions (Tularik & Immunex)

3) Licensing from and collaborations with 3rd parties

1) Internal Research - Rich Pipeline

• Invest at least 20% of product sales in R&D each year

since 1994

• 40 compounds undergoing preclinical or patient trials

2) Acquisitions

• Acquisitions have contributed to Amgen's

growth history.

• 1994 Synergen Inc

• 2000 Kinetix Pharmaceuticals Inc
• 2002 Immunex Corporation
• 2004 Tularik Inc
Collaborations
• More than 100 active collaborations

Amgen Ventures
• offer early stage companies access to Amgen's extensive
capabilities while providing Amgen with insight into external
research innovations
• pave the way for future collaborations
Joint Venture
• 50-50 joint venture with Kirin (KA)

Licensing
• Johnson & Johnson – PROCRIT

Co-promotion
• Wyeth – ENBREL
• outside US – Aranesp, Neulasta, NEUPOGEN, ENBREL
Current patents &
patent applications
Patent Expiry

• Epogen 2004
• Neupogen 2006
Next
• Epogen  Aranesp
generations!
• Neupogen  Neulasta
Other Issues
Stock Option Expense

Effect on EPS: -6%

5 year: AMGN vs. AMEX Biotechnology
News
• 2000-2001. Slow in moving the product pipeline; no signi
ficant innovation

• Late 2001. Introduction of Aranesp (blockbuster)

• 2002. Acquisition of one of the top tier in bio-tech :Immun

ex (expanded pipeline: Enbrel and Kineret)

• 2003-2004. Patent expiration in one of the blockbuster: E

pogen
1 year
NEWS
• April: reduced uncertainty about proposed changes in
certain Medicare reimbursement policies

• 16% Rise in July: Amgen's submission to the magazine's

Editorial Advisory and Securities Review Committee

• 7% Rise Recently: successful cancer treat test

(Panitumumab)
Capital
Expansion
Manufacturing
• Global leader in biotech manufacturing

• Producing more than 1/3 of the world’s output of non-

vaccine and non-insulin protein therapeutics
Investing in Future Growth…

plans to invest billions of dollars in capital projects to

expand its capabilities

• Colorando
• Puerto Rico
• Rhode Island
Marketing Strategy

• Retention of marking rights to products in develo

pment i.e. Epogen and Neupogen
Customer & Market
• Top 3 wholesalers
– AmerisourceBergen Corp (32%)
– Mckesson Corporation (15%)
– Cardinal Distribution (15%)

• Direct sales to health care providers in US, Europe, Can

ada and Australia:
– Clinics
– Hospitals
– Pharmacies
Reliance on Supply
• Limits on supply for ENBREL®

• Certain of raw materials, medical devices and

components are single-sourced from third parties
Recognitions
• 1st in Pharmaceutical Executive Industry Audit

• 2nd in Science’s 2005 Top Biotech and Pharma Empl

oyers Survey
The Biotech Stock Picking System
– Successful Product(s)

– Solvency

– Quantity of Pipeline

– Quality of Pipeline

– Management

– Collaborations

– R&D
Recommendation

BUY!
(long-term investment)
 Genentech
In Business for Life
Company Background

 Stock Price: US $93.98 (on Nov. 09, 2005)

 Ticker Symbol: DNA – N
 Workforce: 8300 employees
 Location: South San Francisco
 Outstanding Shares: 1,056,450,000
5-yr Stock Price Aty
1-yr Stock Price Aty
 Company History
 World’s 2nd largest biotechnology company
 1976, Genentech was founded in 1976 by venture capitalist
Robert A. Swanson and biochemist Dr. Herbert W. Boyer.

Robert Swanson Dr. Herbert Boyer

History
 1980, went public.
– Successfully raised $35 million for Genentech.

 1990, Acquired by Roche Holding (Switzerland)

- a $2.1 billion merger.

 1999, Roche reissued Genentech shares

– Genentech (ticker symbol DNA) returned to the NYSE
– Started at $97 and closed at $127.
– The largest public offering in the history of the US health car
e industry
Top Executives CEO
Executive Officers
 Arthur D. Levinson, Ph.D. (joined in 1980)
Chairman and Chief Executive Officer
 Ian T. Clark (joined in January 2003 )
Senior VP, Commercial Operations
Bachelor of Science degree in bilogoical sciences department
 Susan Desmond-Hellmann, M.D., M.P.H. (joined in 1995)
President, Product Development
 David A. Ebersman, (joined in 1994)
Senior Vice President, CFO
Bachelor of Arts in Economics and International Relations.
 Stephen G. Juelsgaard, D.V.M., J.D. (joined 1985)
Executive VP, General Counsel and Secretary
(doctorate veterinary medicine, master of Science degree and Law degree )
 Richard H. Scheller, PhD (joined 2001)
Executive VP, Research
 Patrick Y.Yang, Ph.D. (joined 2003)
Senior VP, Product Operations
Mission and Values

“ Our mission is to be the leading biotechnology company,

using human genetic information to discover, develop, ma
nufacture, and commercialize bio-therapeutics that addre
ss significant unmet medical needs.

We commit ourselves to high standards of integrity in

contributing to the best interests of patients, the medical p
rofession, our employees and our communities, and to se
eking significant returns to our stockholders, based on the
continual pursuit of scientific and operational excellence.”
Growth Strategy outlined for 1999 to 2005

The 5X5 goals that outlined in 1999 and hopes to achieve by the
end of 2005:
1. 25 % average annual non-GAAP EPS growth

2. 25 % non GAAP net income as a percentage of ope

rating revenues
3. 5 new products/indications approved
4. 5 significant products in late-stage clinical trials
5. $500 million in new revenues from strategic allianc
es or acquisitions
Major Stakeholder- Roche

 At Dec 31, 2004, Roche’s ownership % was 56.1%

 At Sept 30, 2005, Roche’s ownership % was 55.5%
 Affiliation agreement shows:
– upon Roche's request, DNA will repurchase share of the
common stock to increase Roche's ownership to the Min %,
55.7%
– Roche has a continuing option to buy stock from DNA at
prevailing mkt prices to maintain its % owner interests.
 Products
1. Oncology
cancer treatment

2. Immunology
immune disorder

3. Vascular Medicine
heart disease

4. Specialty
Biotherapeutics
other areas
Product Approval Timeline
Revenue Composition

Avasitin –
14.80%

Herceptin –
12.88% Rituxan –
45.64%
Growth
Hormone
-9.44%

Thrombolytic
-5.33% Xolair -5.%
Pulmozyme – 4.8%
In 2004, Genetech:

 Entered into 3 partnerships

 Received 2 product approvals
 Launched 2 breakthrough oncology products :
Avastin + Tarceva
 Saw promising results in numerous clinical trials
 Add 13 new projects to it development pipeline
 Delivered substantial growth
 Continued to receive recognition as the best
place to work in 2004
 Development Pipeline
Information updated November 2005

Awaiting FDA Action

Rituxan® Frontline intermediate grade or aggressive

Hematology/Oncology NHL

Rituxan® Immunology Refractory rheumatoid arthritis

 Development Pipeline
FDA Filing Preparation

Avastin® Metastatic breast cancer

Non-small cell lung cancer
Second line colorectal cancer

Herceptin® Adjuvant breast cancer

Metastatic breast cancer in
combination
with Taxotere
Development Pipeline

PHASE III
Avastin Refractory Ovarian Cancer*
Xolair Pediatric Asthma
Lucentis Wet age-related macular degeneration
Rituxan® Relapsed chronic lymphocytic leukemia
Hematology/Oncology
Rituxan-Immunology ANCA-associated vasculitis
Lupus nephritis*
Moderate-to-severe rheumatoid arthritis*
Primary progressive multiple sclerosis
Systemic lupus erythematosus
Tarceva® Adjuvant non-small cell lung cancer*
Tarceva® +/- Avastin® Second line non-small cell lung cancer
 Development Pipeline

PHASE II
2nd Generation Anti- Rheumatoid arthritis
CD20
Apo2L/TRAIL Cancer therapy*
Avastin® +/- Tarceva® Non-small cell lung cancer
Omnitarg™ Ovarian cancer
Raptiva® Adult atopic dermatitis*
Rituxan® Immunology Relapsed remitting multiple sclerosis
Topical VEGF Diabetic foot ulcers*
Xolair® Peanut allergy
Development Pipeline

PHASE I

Anti-NGF Acute and Chronic Pain

BR3-FC Rheumatoid Arthritis*

Tropical Hedgehog Basal Cell Carcinoma*

Antagonist
Important Products Introduction

 Avastin - New
 Tarceva - New
 Rituxan – 15% sales increase
 Herceptin – 13.6%
 Activase, TNKase, and Cathflo Activase – 8%
Avastin – Oncology
 Avastin
Anti-VEGF antibody
For use in combination with intravenous 5-
Fluorouracil-based chemotherapy as a treatment for
first-line metastatic colorectal cancer
 In 2004, Avastin launch was the most successful
oncology therapeutic in US. The total sales of the 1st
10 month in US was 545 M, which exceeded the full
year sales of any other product in the therapeutic area
by about 175 M.
 In the 1st half 2005 sales of Avastin where 464 M
compared with 171 million in first half 2004.
Tarceva – Oncology
 approved Nov. 18, 2004
 Small molecule HER1/EGFR inhibitor
For use as an oral tablet for the treatment of patients
with locally advanced or metastatic non-small cell l
ung cancer after failure of at least one prior chemot
herapy regimen
 The only drug in epidermal growth factor receptor
class to demonstrate an increase in survival I
advanced non-small cell lung cancer patients in a
phase Ii clinical trial
Rituxan – Oncology

Anti-CD20 antibody
approved for the treatment of patient with relapsed or
refractory low-grade or follicular, CD20 positive, B-ce
ll non-Hodgkin's lymphoma
 One of Genentech top-selling drugs in 2004
 In 2004, Sales of 1.71 B, 14.9% increase
 In first half of 2005, 890.8 M, 18.5 % increase
compare with first half of 2004
 Marketed in US by Genentech and Biogen Idee
 by Zenyaku in Japan
Herceptin

Anti-HER2 antibody
For metastatic breast cancer in HER2 over express
ed tumors
No. 3 best-selling drug to the company
In 2004, sales of 484 M, a 13.6% increase
In the first half of 2005, sales of 291.1M, a 25.9% inc
rease
Marketed by Genentech in US, and Roche in the rest
of the world
3 Vascular Drugs

 Activase, TNKase, and Cathflo Activase

 In 2004, total net sales of 200M, an increase
of 8% compared with 2003
 in the first half of 2005, sales of the 3 drugs
were 106.9M, up 9.3% increase
Activase

 In 2004, approved for treating heart attacks,

acute ischemie stroke and massive
pulmonary embolism
 The 1st drug to be indicated for the mngt of
stroke
Cathflo Activase®
TNKase™

 Cathflo Activase
Thrombolytic agent
For the restoration of function to central venous acce
ss devices as assessed by the ability to withdraw blo
od
 On Jan 4, 2005, approved by FDA for catheter cleara
nce in pediatric patients
 TNKase
Single-bolus thrombolytic agent
For the treatment of acute myocardial infarction (AMI)
Licensed Products
 receive royalty revenue under license
agreements
 based on technology developed by us or on
intellectual property to which Genentech has
rights.
 products are sometimes sold under different
trademarks or trade names.
 Significant licensed products, representing
94% of our royalty revenues in 2004
Licensed Products
Sales Revenue Composition

Avasitin –
14.80%

Herceptin –
12.88% Rituxan –
45.64%
Growth
Hormone
-9.44%

Thrombolytic
-5.33% Xolair -5.%
Pulmozyme – 4.8%
Product Sales
Each Product Revenue Growth
Each Product Revenue Growth
Each Product Revenue Growth
General Growth
Royalties income

 In 2003, increase 37% to 500.9M

 In 2004, Increase 28% to 641.1 M
 Reasons:
– Due to higher 3rd Party sales by various
licensees, mainly Roche (Rituxa + Herceptin)
– Increase of ex rate of Euro dollars
Contract Revenue

 In 2003, increased 226% to 177.9M

 In 2004, increased to 30% to 231.2M
 Reason:
– Driven from the collaborators for $$ earned on development
efforts related to
– Lucentis,
– Rituxan Immunology
– Commercialization of Terceva
– New drug, Avastin
Research and Development

 In 2003, R+D expense increased 16% to 722M

 In 2004, it increased 31%,
 In 2004, it’s a % of operating revenue was 21%
Balance Sheet

2004 2003

Net mkt Value of Asset – 9403.4M 8736.2M

increase

Price/Book Value 11.23 7.09

Increase
Income Statement
2004 2003

1.Sales Revenue - 3.75B 2.8B

Increase = 43 %

Free Cash flow - 546 M 915 M

Increase

Net Earning – increase 784.8 M 610.2 M

Cash Flow Statement

2004 2003

Operating CF 1195.8 M 1236.9 M

(increase)

Financing CF -846.3 M 325.5 M

(decrease)

Investing CF -451.6M -1398.4 M

(increase)
 Key Ratios

2004 2003 2002 2001 2000

P/B 11.23 3.76 1.59 2.42 3.77
P/E 88.92 81.08 217.80 185.79 --
Current Ratio 3.447 3.10 3.22 3.35 3.96
Net Profit Margin 22.0 18.49 2.47 7.63 -0.10
%
ROE % 12.8 8.07 0.93 2.11 -1.13
Price/Book Value – 5yrs Trend

12
11.23
10

6 P/B

4 3.77 3.76
2 2.42
1.59
0
2000 2001 2002 2003 2004
Price/ Equity Ratio – 5yrs Trend

250
217.8
200
185.7
150
P/E ratio
100
81.08 88.92
50

0
2000 2001 2002 2003 2004
Current Ratio – 5yrs Trend

4.5
4 3.96
3.5 3.47
3.25 3.22 3.1
3
2.5
Current Ratio
2
1.5
1
0.5
0
Net Profit Margin % - 5 yrs trend

25
22
20
18.49
15
Net Profit
10
Margin %
7.63
5
2.47
0 -0.1
2000 2001 2002 2003 2004
-5
ROE % trend

14
12.8
12
10
8 8.07
6
4
2 2.11
0.93
0
-1.13
-22000 2001 2002 2003 2004
2005 Q1 – Q3

 Product Sales
 R+D Expenses
 Operation Costs
 Liquidity + Capital Resources
 CF Statement
 New Projects
 Recent News
 Stock Price information
In 2005, Product Sales
In 2005, Operation Cost
In 2005, R+D Expense
In 2005, Liquidity + Capital Resources
Cash Flow Statement
New Projects

 In 2004, addition of 13 projects to the

pipeline
 6 of which are new molecular entities:
– Anti-NGF for acute and chronic pain,
– BRS-Fc for rheumatoid arthrities
– A tropical Hedgehog antagonist for basal cell
carcinoma
– A tropical vascular endothelial growth factor for
diabetic foot ulcers
– Two other undisclosed molecular entities
Recent News

 In November 2005, the FDA approved Tarceva®

(erlotinib) in combination with gemcitabine
chemotherapy for the treatment of advanced
pancreatic cancer in patients who have not
received previous chemotherapy.
 Tarceva is the first drug in a Phase III trial to have
shown a significant improvement in overall survival
when added to gemcitabine chemotherapy as initial
treatment for pancreatic cancer.
Recent News

 On November 7, 2005, Genentech

announced that preliminary data from a
Phase III trial showed Lucentis™
(ranibizumab) is the first investigational
therapy to demonstrate clinical benefit over
photodynamic therapy in a head-to-head
study of patients with wet age-related
macular degeneration.
 Beat the QLT down (a Canadian based
BioTech firm )
 Recent Stock Price

Nov 9, 2005, DNA stock price: 94.88 USD

The Biotech Stock Picking System

 Successful Product(s)
 Solvency
 Quantity of Pipeline
 Quality of Pipeline
 Management
 Collaborations
 R&D
Recommendation

Hold !
Celgene
The Top Management Team
John W. Jackson
Chairman and Chief Executive Officer

Has been Chairman of the Board and Chief Executive Officer since
January 1996 and a member of the Executive Committee of the Board of
Directors.

Sol J. Barer
President and Chief Operating Officer

Has been the President since October 1993 and the Chief Operating
Officer and one of the directors since March 1994 and a member of
the Executive Committee of the Board of Directors.

Robert J. Hugin
Chief Financial Officer

Has been the Senior Vice President and Chief Financial Officer
since June 1999 and was elected to serve as a director in Dece
mber 2001.
 ABOUT THE COMPANY
• Initially a unit of the Celanese Corporation in 1980.

• spun off as an independent biopharmaceutical company i

n 1986.
Very Convenient
• Specializes in the discovery, development, and commerc
ialization of orally administered drugs for the treatm
ent of cancer and inflammatory diseases via gene regul
ation.

• Have two main subsidiaries,

1.Signal Pharmaceuticals (formed in 2000)
2.Celgro.
 Snapshot
• Stock price: $58.28 (as of Nov10, 2005)
• # of outstanding shares: 167.9 Million
• Dividend: always 0
• Market Capitalization: 9.78 Billion
• Earning Per Share: $ 0.51
 ABOUT THE COMPANY
Major Products in the Market
• THALOMID
approved by FDA in July of 1998.
• Ritalin® family & FOCALIN series
FOCALIN approved by FDA in November 2001.
FOCALIN XR (extended-release capsules)
approved on May 27, 2005
• ALKERAN
in-licensed from GlaxoSmithKline for
distribution in the US in March 2003 to
distribute, promote, and sell ALKERAN.

These are the current major Revnue Drivers

 THALOMID® No.1 Revenue Driver

What does it do?

• Initially approved as the treatment of moderate to severe Erythema Nordosom Lepro
sum (ENL) and maintenance therapy for prevention and suppression of the disease.

• Its function has been expanded to treat various types of cancers.

• Also it is under development as a potential treatment for various serious chronic

illnesses, such as:

In 2003 the National Comprehensive Cancer Network guidelines recommen

ded the combination of THALOMID and dexamethasone as the first-line
standard of care for newly-diagnosed myeloma patients.

On October 22, 2004, Celgene received an approvable letter from the FD

A relating to its THALOMID® multiple myeloma (or MM) supplemental new
drug application, or sNDA.
 S.T.E.P.S.®
- Celgene's Innovative Restricted Distribution Program
What is it?
• S.T.E.P.S.® stands for System for Thalidomide Education and Pre
scribing Safety.

• Since its inception, nearly 115,000 individuals have taken adva

ntage of Celgene’s S.T.E.P.S.® program.

• A blueprint for pharmaceutical products that offer life-saving

or other important therapeutic benefits but have potentially pr
oblematic side effects.

• THALOMID(R) is the first drug approved under a special "Restric

ted Distribution for Safety" regulation.

• The system is included as part of the THALOMID prescribing info

rmation and was developed to prevent fetal exposure to THALOMID
.

• S.T.E.P.S. intellectual property estate includes five U.S. pate

nts expiring between the years 2018 and 2020

Prescription for THALOMID must go through the S.T.E.P.S.—Mandatory

RETALIN® family & FOCALIN series
No.2 Revenue Driver
What does it do?

FOCALIN
• a refined form of Ritalin that offers tolerability and
dosing advantages over the parent drug.
• For the treatment of attention deficit disorder and
attention deficit hyperactivity disorder (ADHD) in
children and adolescents.

FOCALIN XR
• is long-acting version of FOCALIN and is for the
treatment of Attention-Deficit/Hyperactivity Disorder
(ADHD) in adults, adolescents, and children.

ADHD is one of the most common psychiatric disorders of

childhood and is estimated to affect five to seven
percent of children and approximately four percent of
the adult population in the U.S.
 ALKERAN No.3 Revenue Driver
What does it do?

A therapy for the palliative treatment of

• multiple myeloma
(Since the therapy was first introduced in 1962, ALKERAN
has remained a standard treatment for the management of M
M.)

• non-resectable epithelial carcinoma of the ovary.

In the 2004 American Society of Hematology meeting, clini

cal trial data was presented. In combination with other a
nti-cancer therapeutics, including THALOMID(R) (the #1 re
venue driver), ALKERAN(R) was a key component of several
investigational MM studies which reported positive result
s.
 REVLIMID The Potential Product

Recent News
WASHINGTON, Sept 14, 2005 /PRNewswire-FirstCall via
COMTEX News Network/ -- Celgene Corporation announc
ed that the Oncologic Drugs Advisory Committee (ODA
C) of the U.S. Food and Drug Administration (FDA) r
ecommended full approval of REVLIMID for the treatm
ent of patients with transfusion- dependent anemia
due to low- or intermediate-1-risk myelodysplastic
syndromes (MDS) associated with a deletion 5q cytog
enetic abnormality with or without additional cytog
enetic abnormalities.
 REVLIMID
A current cost driver but a Potential Revenue Driver

What does it do?

• A leading IMiD IMMUNOMODULATORY DRUGS (in clinical trial
s)

• A potential treatment for myelodysplastic syndromes (MD

S) and multiple myeloma
affect approximately 300,000 and 200,000 people worldwide,
respectively.

• It offers “Transforming Potential” in Hematological Canc

ers.

• It is being evaluated in more than 30 blood cancers and

solid tumors.

• Taken orally as capsules very convenient

 ABOUT THE COMPANY
Other Current Researches

• Other IMiDs® : ACTIMID™, (CC-11006)

• PDE4 & TNF-alpha Inhibitors
• Benzopyrans
• Kinases Inhibitors
• Tubulin Inhibitors
• Ligase Modulators
• Stem cells Programs

These are the current major Cost Drivers

 The Product Pipeline
The core programs:
• ACTIMID™
• (CC-11006)
• PDE4 & TNF-alpha Inh
ibitors

Other investigational
compounds:
• Benzopyrans
• Kinases Inhibitors
• Tubulin Inhibitors
• Ligase Modulators
• placental
• cord blood derived s
tem cell programs
 ABOUT THE COMPANY
• The company has been running negative since its
“independence” in 1986, until 2003.

For the fiscal year ended December 2003 the Celgene Corp
oration achieved revenues totaling $271.5 million, an in
crease of 100% on 2002 revenues which totaled $135.7 mil
lion

• Currently Celgene is a profitable fast growing company.

The fuel for Celgene’s fast growth comes from its

current products in the market.
 Company Performance Overview
—Income Statement
(2000~2004)

In Millions 2000 2001 2002 2003 2004

Sales 84.2 114.2 135.7 271.5 377.5

Gross Operating Profit 79.6 105.7 123.9 233.2 332.1

EBIDTA -23.0 -20.0 -30.7 8.2 57.0

Net Income -16.3 -1.9 -100.0 13.6 52.8

Diluted EPS -0.13 -0.02 -0.66 0.08 0.31

 Revenue Composition
—the Major Revenue Drivers
THALOMID
90.00%

80.00%
FOCALIN
70.00%

60.00%
ALKERAN
50.00%

40.00%
other
30.00%

20.00%
collaborative ageements
10.00% and other revenue

0.00%
2004 2003 2002 Royalty revenue (from
FOCALIN)
 Revenue Composition
—the Major Revenue Drivers
% of Total Revenue

2004 2003 2002

 
 
THALOMID 81.74% 82.40% 87.71%

FOCALIN 1.11% 0.88% 2.84%

ALKERAN 4.49% 6.57% --

Other 0.23% 0.21% --

Total net 87.57% 90.05% 90.55%

product sales

Collaborative 5.30% 5.59% 5.98%

agreements
and other
Revenue

Royalty 7.13% 4.36% 3.47% revenue

•About 90% of the total revenue came from product sales,

almost all of which came from the sales of the three current
drugs in the market.

•Other sales accounted for <0.25 %

 THALOMID® No.1 Revenue Driver
2002 2003 2004

$ 119,060 thousand $ 223,686 thousand $ 308,577 thousand

87.71% 82.40% 81.74%

• 2002--2003: net sales were higher in 2003, as compared to

2002, due to the combination of price increases and
oncologists’ expanded use of the product as a treatment for
various types of cancers, especially first-line use in MM. Net
sales in 2003 also benefited from the market introduction,
during the first half of the year, of two new higher-strength
formulations, which had higher per unit sales prices.

• 2003-2004: net sales were higher in 2004, as compared to 2003,

primarily due to a combination of price increases implemented
in the second half of 2003 and in the first nine months of
2004 and increased number of prescriptions. The total number
of prescriptions increased approximately 9.4% from the prior
year period.
 THALOMID® No.1 Revenue Driver
Significant Event

1. In October 2004 Celgene acquired all of the outstandi

ng shares of Penn T Limited, a worldwide supplier of THAL
OMID®.

• Through manufacturing contracts acquired in this acquisition, the

company is now able to have total control over the manufacturing
of THALOMID® worldwide.

• It also increased Celgene’s participation in the potential sales

growth of THALOMID® in key international markets.
 THALOMID® No.1 Revenue Driver
Significant Event
2. In December 2004 it revised the Pharmion product s
upply agreement acquired in the Penn T acquisition.
Under the modified agreement, Pharmion paid Celegene

• A one-time payment of $77.0 million in return for a redu

ction in their total product supply purchase price from
28.0 percent of Pharmion’s thalidomide net sales, includ
ing cost of goods to 15.5 percent of net sales.

• An additional $8.0 million over the next three years to

extend the two companies’ existing thalidomide research
and development efforts.

• A one-time payment of $3.0 million for granting Pharmion

license rights to develop and market thalidomide in thre
e additional Asian territories (Hong Kong, Korea and Tai
wan), as well as for eliminating termination rights held
by Celgene tied to the regulatory approval of thalidomid
e in Europe in November 2006.
 S.T.E.P.S.®
- Celgene's Innovative Restricted Distribution Program

• In 2004, $0.5M from S.T.E.P.S. use licensing fees.

In November 2004, Celgene granted a non-exclusive license to the

four companies who manufacture and distribute (sell) isotrentino
in (Accutane(R) for the rights to Celgene's patent portfolio (th
e S.T.E.P.S. System) directed to methods for safely delivering t
he product to potentially high-risk patient populations.

This will bring more income in the coming years.

 THALOMID® No.1 Revenue Driver
Near Future Outlook

Opportunity: (having the total control over the supply of

THALOMID)

• Lower cost of production through economy of scale and

less cost paid to the intermediaries.

• Greater potential future income from both the company’s

own sales and from sales by others in the international
market, and from license fees from the STEPS system.

Threat:
• Depend too much on this one drug.
• Near-Term Competition With THALOMID®:
 reduce THALOMID® sales.
RETALIN® family & FOCALIN series
No.2 Revenue Driver

In April 2000, Celgene granted Novartis Pharma AG an

exclusive license (excluding Canada) for the developm
ent and marketing of FOCALIN(R) and long acting drug
formulations in return for substantial milestone paym
ents and royalties on FOCALIN(R) and the entire RITAL
IN(R) family of drugs.

In 2002, Novartis launched FOCALIN(R) and RITALIN(R)

LA, the long-acting version of RITALIN(R), in the Uni
ted States, following regulatory approval.
 RETALIN® family & FOCALIN series
No.2 Revenue Driver
2002 2003 2004
Product Sales $ 3861 thousand $ 2383 thousand $ 4177 thousand
2.84% 0.88% 1.11%
Royalty $ 4710 thousand $ 11848 thousand $ 26919 thousand
Revenue
3.47% 4.36% 7.13%

• 2002—2003: The sales dropped by 38.3% due to the timing of shipments to N

ovartis for their commercial distribution.

• 2003—2004: FOCALIN® net sales increased by 75.3% in 2004,due to better ti

ming of shipments to Novartis for their commercial distribution.

• Revenue from the royalty has increased in both 2003 and 2004.
2002—2003: by 151.5%
2003—2004: by 127.2%.
The increases were due to increases in the royalty rate on both RITALIN®
and RITALIN® LA as well as increases in RITALIN® LA sales by Novartis.
 RETALIN® family & FOCALIN series
No.2 Revenue Driver

Celgene has been able to maximize the full potential of

this unique asset.

A steady stream of income from:

• royalties on sales of the entire Ritalin family of drugs
,
• a portion of the revenue from product sales of FOCALIN.

Retained the exclusive commercial rights to FOCALIN(R) a

nd FOCALIN(R) XR for oncology-related disorders.
Eg. chronic fatigue associated with chemotherapy.
RETALIN® family & FOCALIN series
No.2 Revenue Driver

Important news
• The company recently completed a double-blinded randomiz
ed placebo-controlled clinical trial evaluating FOCALI
N's potential in the treatment of cancer fatigue associa
ted with chemotherapy

A huge potential market

• It is evaluating potential clinical and regulatory devel

opment strategies for this indication.
 ALKERAN No.3 Revenue Driver
2002 2003 2004

-- $ 17827 thousand $ 16956 thousand

-- 6.57% 4.49%

Because the supply and distribution agreement with GSK

was executed in March 2003, therefore sales for this
product are reflected only in the 2003 period.

• 2003—2004: net sales dropped by 4.9%, due to supply

disruptions earlier in the year  inconsistent supplies
of ALKERAN® IV  inconsistent end-market buying
patterns.
 ALKERAN No.3 Revenue Driver

A strategically valuable agreement

• provides Celgene with an approved oncology product
that complements its THALOMID and REVLIMID(the poten
tial revenue driver).

Overall, a stable revenue driver...

REVLIMID Potential Revenue Driver
Near Future Outlook

REVLIMID could have a positive effect on the lives of

tens of thousands of patients around the world and on
the company itself.

Definitely a great potential revenue driver.

 Cost Structure
—Major Cost Components as % of total expenses
50.00%
45.00%
40.00%
35.00%
30.00%
COG
25.00%
R&D
20.00% S,G and A
15.00%
10.00%
5.00%
0.00%
2004 2003 2002

R&D expenditure accounts for most of the total cost,

followed by S,G and A and then COG.
 Cost Structure
—Major Cost Components

% of Total Expenses 2004 2003 2002

COG 17.8% 19.3% 8.3%

R&D 48.0% 44.8% 33.9%
S,G and A 34.1% 35.9% 26.4%
 Major Cost Component R&D

R&D spending has been increasing in each of the past years.

 Major Cost Component R&D
2002 2003 2004
R&D $ 84.9 M $ 122.7 M $ 160.9 M
% of Total Revenue 62.6% 45.2% 42.6%
Increase from Prior Year + 17.3 M (25.5%) + 37.8 M (44.5%) + 38.2 M (31.1%)

• 2002~2003: the increase was primarily due to the

initiation of several large studies related to THALOMID®
and REVLIMID® clinical programs in the second half of
2002.

• 2003~2004: the increase was primarily due to increased

spending in various late-stage regulatory programs.
These included Phase II regulatory programs for
REVLIMID® in MDS and MM, as well as ongoing REVLIMID®
Phase III SPA trials in MM.
 Major Cost Component
R&D Break Down
2002 2003 2004

Major Human Phamaceutical cl

$ 27.4 M $ 52.8 M $ 78.3 M
inical Programs

Other Human Phamaceutical cl

$ 22.2 M $ 29.2 M $ 33.4 M
inical Programs

biopharmaceutical discovery
$ 32.3 M $ 33.7 M $ 40.6 M
and development programs

placental stem cell and

$ 3.0 M $ 7.0 M $ 8.6 M
biomaterials programs

Total $ 84.9 M $ 122.7 M $ 160.9 M

 Major R&D Cost Drivers

To support multiple core programs:

• THALOMID®,
• REVLIMID®,
• ACTIMIDTM,
• CC-11006,
• PDE4/TNF-alpha inhibitors

To investigate other compounds, such as:

• kinase inhibitors,
• benzopyrans,
• ligase inhibitors
• tubulin inhibitors,
• placental
• cord blood derived stem cell programs.
 Major Cost Component R&D
Near Future Outlook

At current stage, it’s still quite uncertain about which

of these compounds will turn from a cost driver to
become a revenue driver.

One thing that is certain is that R&D spending will keep

accelerating into the near future years.
 Major Cost Component COG
2002 2003 2004

COG $ 20.87 M $ 52.95 M $ 59.72 M

% of Net Product Sales 18.1% 21.7% 17.0%

Increase from Prior Year + 1.9 M (9.9%) + 32.1 M (153.7%) + 6.8 M (12.8%)

2002~2003:
•Big increase, primarily due to significant growth in THALOMID®
sales volumes, higher royalties on THALOMID® product sales.

•COG also increased as a % of net product sales.

2003~2004:
•Smaller increase primarily as a result of higher royalties on
THALOMID®, partially offset by lower ALKERAN® sales.
 Major Cost Component COG

• Overall, the COG occupies less than 22% of the net

product sales.

• It is possible to further lower its cost of production

for THALOMID through the economy of scale (since it
controls the worldwide supply now)

• The introduction of the REVLIMID will certainly increase

the COG, but also the revenue.
 Major Cost Component S,G and A
2002 2003 2004

S, G and A $ 66.17 M $ 98.47 M $ 114.20 M

% of Total Revenue 48.7% 36.3% 30.3%

Increase from Prior Year + 13.6 M (25.9%) + 32.3 M (48.8%) + 15.7 M (16.0%)

2002~2003:

The significant increase in employees largely explains the

jump in S,G and A expenses.
Major Cost Component S,G and A
2002~2003 continuous:
S, G and A expenses increased primarily due to

• first-time expenses of approximately $10.1 million relat

ed to the Stem Cell Therapies segment following the Dece
mber 2002 acquisition of Anthrogenesis Corp.

• an increase of approximately $12.0 million in commercial

expenses related to the expansion of the sales and marke
ting organization and an increase in customer service st
aff

• an increase of approximately $10.0 million in general ad

ministrative and medical affairs expenses.
Major Cost Component S,G and A
2003~2004:
S, G and A expenses increased by $15.7 million, as a
result of an increase of

• approximately $12.0 million in general administrative

and medical affairs expenses primarily due to higher
headcount-related expenses; and

• an increase of approximately $3.6 million in sales force

expenses primarily due to the creation of a sales
operations group.
Major Cost Component S,G and A

• On a decreasing trend as a % of total revenue

A Good Sign…
 Company Performance Overview
—Balance Sheet
(2000~2004)
In Millions 2000 2001 2002 2003 2004

Cash and Equivalents 161.4 47.1 85.5 267.5 135.2

Cash Per Share 1.09 0.31 0.53 1.65 0.82
Intangibles 0.0 0.0 6.0 6.2 150.2
Total Assets 346.7 354.0 327.3 791.3 1107.3
Long Term Debt 12.3 11.0 0.0 400.0 400.0
Total Liabilities 51.2 43.6 50.6 481.3 629.8
# of Outstanding Shares 148.0 151.2 160.4 162.8 165.1
Total Equity 295.5 310.4 276.7 310.1 477.4
D/E 0.17 0.14 0.18 1.55 1.32

Consists of only common shares

Arrange 400M convertible notes (due in five years) in 2003. The

notes can be converted to 16,511,840 shares anytime. In substance,
these are equities.
 Company Performance Overview
—Cash Flow Statement
500.0
(2000~2004)
Increase due to the issuance
of the convertible notes
400.0
Growth due to significant
increase in products sales
300.0

200.0
Operating
Investing
100.0
Financing
Free CF
0.0
2,000 2,001 2,002 2,003 2,004
-100.0

-200.0

-300.0
2005 RESULTS
 Company Performance Overview 2005
(Up to September 30)

Nine-Month Period Ended September 30

2005 2004 % Change
Net product sales:
THALOMID $ 281,972 $ 222,498 26.7 %
Focalin 3,129 3,698 (15.4%)
ALKERAN 30,803 12,025 156.2%
Other 1,024 712 43.8%
Total net product sales 316,928 238,933 32.6%
Collaborative
agreements 35,829 15,420 132.4%
and other revenue
Royalty revenue 34,846 17,741 96.4%
Total revenue $ 387,603 $ 272,094 42.5%
R&D 138,413 116,520 18.8%
COG 53,999 43,655 23.7%
S, G and A 126,114 79,408 58.8%
Net Income 59,728 30,517 95.7%
 Company Performance Overview 2005
--Key Ratios

Company Amex Biotech S&P 500

Current P/E Ratio 116.0 20.2 18.1
Price/Sales Ratio 21.36 3.39 1.44
Price/Book Value 17.72 4.42 2.79

Price/Cash Flow Ratio 92.50 15.00 11.80

Return On Equity 16.2 21.9 15.8

Return On Assets 7.9 10.9 2.8
Return On Capital 9.5 17.8 7.6

• These ratios are based on latest 12 months' results

The Biotech Stock Picking System
– Successful Product(s)

– Solvency

– Quantity of Pipeline

– Quality of Pipeline

– Management

– Collaborations

– R&D
 Recommendation
1. Very high risk
2. High growth potential

BUY