ChangeWave Research: Biotechnology and Biogenerics Survey

ChangeWave Research Report:

Biotechnology and Biogenerics Survey

Bioinformatics Critical to Drug Development Over Next 2 Years;

Shortage of New Biotech Drugs in Pipeline

Overview

The field of Biotechnology is undergoing major transformations thatwill have a dramatic impact on the industry. During the week of November 10 - 16, 2004 we surveyed Alliance healthcare members who work in or are knowledgeable about Biotechnology. A total of 145Alliance members participated. Here’s what we found.

(A) Biotechnology Trends

  • Bioinformatics Most Critical to Drug Development Over Next TwoYears.Respondents rank Bioinformatics (40%) as the most critical to biotech drug development over the next two years, followed by Drug Delivery (36%), and Pharmacogenomics (27%).
  • Top Small or Mid-Tier Companies.EPIX Pharmaceuticals Inc. (EPIX; 7%) and Stem Cells, Inc (STEM; 7%) were most cited by respondents as small or mid-tier companies likely to grow faster than their competitors over the next two years.
  • Top Drug Delivery Technologies – Next Two Years. Respondents think Insulin Delivery (32%), Inhalation/Respiratory Delivery (32%) and Transdermal (26%) are the drug delivery technologies that will have the biggest impact in the marketplace over the next two years.
  • Top Drug Delivery Companies – Next 12-24 Months. Alkermes (15%) is the drug delivery company respondents find best positioned for growth in the global market over the next 12-24 months. Flamel Technologies (13%), Nastech Pharm. (13%), and Nektar Therapeutics (13%) are also considered well positioned for growth.
  • Biotech Research Funding in 2005. Respondents rank Anti-Angiogenesis (15%) and Gene Therapy (15%) as the biotech research areas that will attract the most private and public funding in 2005. Monoclonal Antibody (12%) and Proteomics (12%) also received double digit mention.
  • Companies with Best Prospects of Success in RNA Interference Drug Trials. Fourteen percent (14%) of respondents believe CytRx (ALS, Cytomegalovirus, Obesity, Diabetes) has the best prospects of being successful in its early-stage clinical trialsof RNA interference drugs. Another 9% believe Sirna Therapeutics (Macular Degeneration, Hepatitis C) has the best prospects.
  • Impact of U. S. Stem Cell Research Restrictions.While 43% of respondents believe that a redirection of resources out of the US because of Stem Cell research restrictions is not disrupting or changing large pharma research efforts, another 25% do believe it is having a disruptive impact.
  • Shortage of New Biotechnology Derived Drugs in the Pipeline.Thirty-nine percent (39%) of respondents believe there is a shortage of new biotechnology-derived drugs in the pipeline - with 17% saying it is a "Serious Shortage" and 22% a "Moderate Shortage."
  • Implications of a Shortage. Among those respondents who believe there is a shortage of New Biotech drugs in the pipeline, half (50%) think it will result in an “Increase in Big Pharma Acquisitions of Biotech Companies” over the next 12 to 18 months. A similar number (48%) think there will be an “Increase in Joint Ventures/Alliances Between Big Pharma and Biotech Companies.”
  • FDA Approval Process. Forty-three percent (43%) of respondents do not expect changes in the FDA approval process for biotech drugs, instruments, or related items over the next 12 months, while 33% of respondents do expect modifications.

(B) Biogeneric Drugs

  • Biogeneric Drugs Still Several Years Off.Thirty-one percent (31%) of respondents estimate that the first biogeneric drugs will appear on the US market in 2008 or later. Another 16% think we will see biogeneric drugs on the market by 2007, while only 14% think it will occur within the next 2 years.
  • Key Barriers to Success for Biogenerics.Half (50%) of the respondents anticipate "Regulatory and Legal" obstacles as the key barrier to success for biogeneric drugs in the US market. "Bureaucracy" (28%) and the "Costs of Research" (23%) were also identified as potential problems.
  • Biogeneric Drugs with the Best Chance of Reaching Market.Erythropoietin (EPO; 26%) was identified as the biogeneric drug with the best chance of reaching either the US or EU market between 2005 and 2008. Another 14% see Human Growth Hormone (HGH) as having the best chance, while 8% say it’s Interferon-Beta.

Bottom Line:Bioinformatics (40%), Drug Delivery (36%) and Pharmacogenomics (27%) are most critical to biotech drug development over the next two years. Among delivery technologies, Insulin Delivery (32%) and Inhalation/Respiratory Delivery (32%) will have the biggest impact, with Alkermes (15%) the company best positioned for growth. Anti-Angiogenesis (15%) and Gene Therapy (15%) are the biotech research areas likely to attract the most funding. A shortage of new biotechnology drugs in the pipeline is likely to cause an increase in acquisitions of biotech companies by big pharma, as well as more joint ventures and alliances.

While results indicate that the emergence of biogeneric drugs is probably several years off, Erythropoietin was identified as the biogeneric drug with the best chance of reaching the market. One-half of all respondents cite regulatory and legal obstacles as the key barrier to success for biogeneric drugs.

The ChangeWave Alliance is a group of 4,900 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

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Table of Contents

Summary of Key Findings...... 4

The Findings...... 5

(A) Biotechnology Trends...... 5

(B) Biogeneric Drugs...... 17

ChangeWave Research Methodology...... 35

About ChangeWave Research...... 36

I. Summary of Key Findings

Introduction

The field of Biotechnology is undergoing major transformations thatwill have a dramatic impact on the industry. During the week of November 10 - 16, 2004 we surveyed Alliance healthcare members who work in or are knowledgeable about Biotechnology. A total of 145 Alliance members participated. The findings focus on two key areas:

(A) Biotechnology Trends

(B) Biogeneric Drugs

II. The Findings

Total Respondents (n = 145)

(A) Biotechnology Trends

(1) Question Asked: The tools, instruments, and discovery techniques of biotechnology are often the unsung heroes of drug development. Which of the following tools, instruments, and/or discovery techniques do you believe will be most critical to drug development over the next two years? (Choose No More Than Two)

Bioinformatics (including genomic databases/research enabling tools) / 40%
Drug Delivery / 36%
Pharmacogenomics / 27%
Biochips / 15%
Assay Development / 11%
Imaging Systems / 11%
Drug Improvement / 9%
RNA Interference / 8%
Lead Generation and Optimization / 8%
Combinatorial Chemistry / 8%
Instruments / 3%
Other / 7%

Bioinformatics Most Critical to Drug Development Over Next TwoYears.Respondents rank Bioinformatics (40%) as the most critical to biotech drug development over the next two years, followed by Drug Delivery (36%), and Pharmacogenomics (27%).

(2) Question Asked: Within these segments, can you name a small or mid-tier company that you think will grow faster than their competitors over the next two years? Please explain why.

EPIX Pharmaceuticals Inc. (EPIX) / 7%
Stem Cells, Inc. (STEM) / 7%
Affymetrix Inc. (AFFX) / 4%
Amylin Pharmaceuticals Inc. (AMLN) / 4%
Applera Corp. - Applied Biosystems (ABI) / 4%
ID Biomedical Corp. (IDBE) / 4%
Invitrogen Corp. (IVGN) / 4%
ISIS Pharmaceuticals Inc. (ISIS) / 4%
Northfield Laboratories Inc. (NFLD) / 4%

Top Small or Mid-Tier Companies.EPIX Pharmaceuticals Inc. (EPIX; 7%) and Stem Cells, Inc (STEM; 7%) were most cited by respondents as small or mid-tier companies likely to grow faster than their competitors over the next two years.

Sample of Alliance Member Responses:

(a) Bioinformatics (including genomic databases/research enabling tools) (40%)

  • SKY9516 writes, “Stem Cells, Inc. (STEM). They will benefit heavily from the Calif. initiative (Prop. 71).”
  • TPE1099 writes, “Stem Cells, Inc.’s (STEM) investment in stem cell research is getting very close to paying off big time for them. The tools checked above will be a huge help in evaluating the results of their tests.”
  • NIL5788 writes, “…Accelrys Inc. (ACCL).”
  • DRS0546 writes, “Curis Inc. (CRIS). Holds patents onsonic hedgehog pathway; already has partnerships,royalty plans and results in animals.”
  • DAV3892 writes, “DNA Print Genomics (DNAP) - good core management and unique products.”
  • KLL5671 writes, “Invitrogen Corp. (IVGN) - leader in and sells tools for genomes based drug discovery…”

(b) Drug Delivery (36%)

  • WAS9107 writes, “Alkermes Inc. (ALKS),the best delivery product pending approval.”
  • SSL1154 writes, “…Amylin Pharmaceuticals Inc. (AMLN) -inhalable insulin Sontra (or it's partners 'cause it's not public)- unique transdermal delivery.”
  • AME1382 writes, “AT-GC BioPharm.”
  • BVE2993 writes, “Dendreon Corp. (DNDN) - they are growing.”
  • DRU7021 writes, “Elan Corp. PLC (ELN), they have excellent delivery system technology.”
  • TIN7270 writes, “Emisphere Technologies, Inc. (EMIS).”
  • CWM6931 writes, “ID Biomedical Corp. (IDBE): Their current technology provides a safe and effective delivery system for administering vaccines.”
  • DDU7628 writes, “…In Drug delivery: Medimmune Inc. (MEDI) may be better looking within two years in FluMist. Benefited from CHIR problem.”
  • BOB2633 writes, “Nastech Pharmaceutical Company Inc. (NSTK). Both their nasal delivery system and their pipeline of new drugs in development with other partners will propel this well managed company's stock price to new highs within two years.”
  • LMC8181 writes, “NexMed Inc. (NEXM) - transdermal delivery.”
  • MTA6607 writes, “…Northfield Laboratories Inc. (NFLD): artificial Blood…”
  • FER6743 writes, “Penwest Pharmaceuticals Co. (PPCO).”
  • A127454 writes, “Pro-Pharmaceuticals Inc. (PRW) has invented a way to deliver already approved cancer drugs that reduces their toxicity by 80 to 90%, while increasing the efficacy.”
  • ECR4086 writes, “SurModics, Inc. (SRDX) - make the drug coatings for Cypher stents…”

(c) Pharmacogenomics (27%)

  • MUG3722 writes, “Cell Genesys Inc. (CEGE)”

(d) Biochips (15%)

  • TXQ8944 writes, “Affymetrix Inc. (AFFX),exponential growth in biochip field.”
  • POR7751 writes, “Affymetrix Inc. (AFFX) …”
  • NIL5788 writes,“Acacia Research CombiMatrix Corp (CBMX),…”

(e) Assay Development (11%)

  • DDU7628 writes, “Beckman Coulter Inc. (BEC) in Assay Development, the sale is good and growing. …”
  • HAN5261 writes, “…BioCore Medical Technologies, Inc.- They have proven technology for assaying proteins etc using the surface plasmon technique.”

(f) Imaging Systems (11%)

  • DJA1158 writes, “EPIX Pharmaceuticals Inc. (EPIX),Cytogen Corp. (CYTO) in imaging …”
  • LUD7603 writes, “EPIX Pharmaceuticals Inc. (EPIX) leading developer of magnetic resonance imaging, non-invasive technique which allows visualizing and examining the organs and tissues at molecular resolution. Revolution in diagnostics and treatment.”
  • TIS3735 writes, “EPIX Pharmaceuticals Inc. (EPIX) for its work in contrast agents for clinical imaging; Xenogen Corp. (XGEN) for its lab imaging machines.”

(g) Drug Improvement (9%)

  • GAT9662 writes, “ID Biomedical Corp. (IDBE) is a biotechnology company focused on the development of subunit vaccines, including those based on its Proteosome protein intranasal adjuvant/delivery technology. They are developing a flu vaccine that is potentially better than Medimmune Inc. (MEDI).”
  • DRJ5952 writes, “Johnson & Johnson Inc. (JNJ).”

(h) RNA Interference (8%)

  • JES5551 writes, “Geron Corp. (GERN), Stem Cells, Inc. (STEM) and ISIS Pharmaceuticals Inc. (ISIS)for their areas of expertise and somewhat untethered funding - finally.”
  • XUE9359 writes, “Ambion, Inc.,Applera Corp. - Applied Biosystems (ABI).”
  • RWB6430 writes, “ISIS Pharmaceuticals Inc. (ISIS) ability to generate new drug targets using their huge patent estate in antisense technology.”
  • KLL5671 writes, “…Lexicon Genetics Inc. (LEXG) - finds and applies genes in mice that works, then applies in humans that represent potential drug targets.”
  • JC41152 writes, “Medarex Inc. (MEDX) - linking up with big pharmas for monoclonals.”

(i) Lead Generation and Optimization (8%)

  • SAR0128 writes, “Tripos Inc. (TRPS) has a unique combination of discovery informatics and chemistry capabilities that should increase the speed and quality of lead generation and optimization.”

(j) Instruments (3%)

  • MTA6607 writes, “Cambridge Heart Inc. (CAMH.OB); provides Antenna & Guide lines for implantation of defibullators…”
  • MTL7799 writes, “Staar Surgical (STAA) should get FDA approval for an implantable contact lens. There is only one other competitor in the marketplace that was just approved. This lens is foldable and most similar to current lens implantation techniques used in cataract surgery.”
  • FLO8176 writes, “Tecan, solid instrumentation and flexible workstation approach allows adapting equipment to many uses.”

(k) Other (7%)

  • DB76584 writes, “Amylin Pharmaceuticals Inc. (AMLN)--Exenatide
  • POR7751 writes, “…Applera Corp. - Applied Biosystems (ABI), Invitrogen Corp. (IVGN).”
  • KCO6695 writes, “Applied Digital Sciences.”
  • SPE2818 writes “AVANIR Pharmaceuticals (AVN) - impressive pipeline and non-compete patents.”
  • WJH7828 writes, “Biosite Inc. (BSTE),Northfield Laboratories Inc. (NFLD).”
  • SER5830 writes, “DiaMedica Inc., private company developing diagnostics and therapeutics for type 2 diabetes based on a paradigm changing basic discovery. Forbes Medi-Tech Inc. (FMTI) has a proven line of cholesterol lowering agents derived from tree pulp. The compounds are added to foods and licensing is completed in Europe. The science is solid.”
  • RGW6777 writes, “Efoora Health Management Inc. (EFOR.PK)...This is a small company that has made some breakthrough in developing diagnostic tests for AIDS, Prion diseases and other significant breakthroughs. They will be coming public with part of their company and tools in the near future. They have great potential.”
  • CAR7600 writes, “Genoptix, Inc.--company markets info regarding drugs most likely to battle a patient's oncologic disease.”
  • NER7880 writes, “Omni Genetics, Inc.”
  • HAN5261 writes, “Proteomics International Pty Limited (listed in the ASX Australia)- have developed cutting edge technology for proteomics research anddevelopment…”

(3) Question Asked: Drug delivery represents a $20 billion segment in the pharmaceutical industry. Of the following drug delivery technologies, which one do you think will have the biggest impact in the marketplace over the next two years? (Choose No More Than Two)

Insulin Delivery / 32%
Inhalation/Respiratory Delivery / 32%
Transdermal / 26%
Release and Bioavailability / 18%
Needleless Injection / 14%
Patches / 14%
Oral Controlled / 12%
Injectable Controlled Release / 11%
Solubilization / 2%
Don't Know / 9%

Top Drug Delivery Technologies – Next Two Years. Respondents think Insulin Delivery (32%), Inhalation/Respiratory Delivery (32%) and Transdermal (26%) are the drug delivery technologies that will have the biggest impact in the marketplace over the next two years.

(3A) Question Asked: Why?

Respondents who chose Insulin Delivery cited the massive numbers of people affectedas their main reason, while Inhalation/Respiratory Delivery and Transdermal scored well because of the ease of administration.

A sample of the open-ended responses to this question can be found in Appendix A on page 21.

(3B) Question Asked: Which of the following drug delivery companies do you believe are best competitively positioned for growth in the global market over the next 12-24 months? (Check All That Apply)

Alkermes (multiple drug delivery systems) / 15%
Flamel Technologies (polymer-based delivery technologies) / 13%
Nastech Pharm. (nasal administration) / 13%
Nektar Therapeutics (multiple drug delivery systems) / 13%
Atrix Labs (sustained release biodegradable polymer) / 10%
SkyePharma (multiple drug delivery systems) / 10%
MacroChem (transdermal drug delivery) / 9%
Durect Corp. (multiple drug delivery systems) / 8%
Nexmed (transdermal drug delivery) / 8%
Noven Pharm. (transdermal drug delivery) / 8%
Emisphere (oral delivery of macromolecules) / 3%
Penwest Pharm. (oral drug delivery) / 3%
Vivus (sexual dysfunction products) / 3%
Don't Know / 43%
None of the Above / 3%

Top Drug Delivery Companies – Next 12-24 Months. Alkermes (15%) is the drug delivery company respondents find best positioned for growth in the global market over the next 12-24 months. Flamel Technologies (13%), Nastech Pharm. (13%), and Nektar Therapeutics (13%) are also considered well positioned for growth.

(4) Question Asked: What do you consider the single most important technological advance to happen in the biotechnology industry during 2004?

Cancer Treatments / 18%
Stem Cell Research / 13%
Inhalation Therapies (e.g., Insulin) / 11%
RNA Interference (RNAi) Research / 11%
Human Genome Research / 4%
Coated Stents / 4%
Gene Therapy / 4%
Other / 33%

Cancer Treatment Seen as Most Important Technological Advance. Eighteen percent (18%) of respondents say thatthe most important technological advancesto happen in the biotechnology industry during 2004 have been inCancer Treatments. Stem Cell Research (13%), Inhalation Therapies (11%) and RNA Interference (RNAi) Research (11%) also received double digit mention.

A sample of the open-ended responses to this question can be found in Appendix B on page 27.

(4A) Question Asked: Based on your knowledge of the biotech industry, what area of biotech research do you think will attract the most private and public funding in 2005?

Anti-Angiogenesis / 15%
Gene Therapy / 15%
Monoclonal Antibody / 12%
Proteomics (including small molecule proteins) / 12%
RNA Interference / 9%
Tissue Engineering / 7%
Biochips / 6%
Genomic Modeling and Data Collection / 6%
Combinational Chemistry / 0%
Don't Know / 12%
Other / 6%
None of the Above / 1%
No Answer / 6%

Biotech Research Funding in 2005.Respondents rank Anti-Angiogenesis (15%) and Gene Therapy (15%) as the biotech research areas that will attract the most private and public funding in 2005. Monoclonal Antibody (12%) and Proteomics (12%) also received double digit mention.

(5) Question Asked: RNA interference technologies hold promise for breakthrough drugs, but are still at a very early stage. Which of the following companies do you believe have the best prospects of being successful in early-stage clinical trials? (Please Choose Only One)

CytRx (ALS, Cytomegalovirus, Obesity, Diabetes) / 14%
Sirna Therapeutics (Macular Degeneration, Hepatitis C) / 9%
Alnylam Pharmaceuticals (Macular Degeneration, Parkinson's) / 6%
Benitec (Hepatitis C) / 2%
Don't Know / 58%
Other / 2%
None of the Above / 6%
No Answer / 6%

Companies with Best Prospects of Success in RNA Interference Drug Trials. Fourteen percent (14%) of respondents believe CytRx (ALS, Cytomegalovirus, Obesity, Diabetes) has the best prospects of being successful in its early-stage clinical trialsof RNA interference drugs. Another 9% believe Sirna Therapeutics (Macular Degeneration, Hepatitis C) has the best prospects.