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CONFIDENTIAL

Intellectual Property Valuation


Biotechnology Name Contents:
ANALYSIS
Draft 1.0 Valuation Parameters
Revenue Forecast - PV
Contribution Margin - NPV
Value Profile - rNPV
Company/Institution Name Summary and rNPV Chart
Company/Institution Address
DESCRIPTION of
Valuation Schedules
August 25, 2010
Model INSTRUCTIONS
Copyright © 2001 BioGenetic Ventures, Inc.
Version 6.0

This Valuation Analysis is a strategic tool for management and a financial forecasting tool. The data presented is not necessarily prepared in
accordance with Generally Accepted Accounting Principles (GAAP). No representation or warranty is made as to the accuracy, reliability or
completeness of any of the information contained herein. Nothing contained in this document is, or should be relied upon as, a promise or
representation of future events or conditions. Recipients of this document agree that all information contained herein is of a confidential nature, that
they will treat it in such confidential manner and that they will not, directly or indirectly, disclose or permit their agents or affiliates to disclose any of
such information without the prior written consent of this company.
VALUATION PARAMETERS Company/Institution Name
Biotechnology Name TECHNOLOGY VALUATION
Draft 1.0

METRIC SOURCE
MARKET DATA
Number of Cases Forecast for Year 1 685,000,000 Maximum = population of U.S., Canada, western Europe, and Japan
Annual Population Growth 0.270%CIA World Factbook, 2000. Estimated Growth in US and Europe Population
Peak Market Penetration 5.0%
Revenue Per Unit 100
Market Ramp Time to Peak Penetration (Years) 3
Orphan Drug (< 200,000 U.S.)? (y/n) N
Years of Revenue 10

NUMBER OF CLINICAL TRIAL SUBJECTS


Phase 1 50 20-80; Pharmaceutical Manufacturing and Research Association
Phase 2 200 100-300; Pharmaceutical Manufacturing and Research Association
Phase 3 2,000 1,000-5,000; Pharmaceutical Manufacturing and Research Association

DURATION OF PHASES (YEARS)


Preclinical 1 Pharmaceutical Manufacturing and Research Association
Phase 1 1 Pharmaceutical Manufacturing and Research Association
Phase 2 2 Pharmaceutical Manufacturing and Research Association
Phase 3 3 Pharmaceutical Manufacturing and Research Association
FDA 2 Pharmaceutical Manufacturing and Research Association
9 Total Years of Pre-market Development

COSTS
Annual Pre-Market Patent Fees $10,000
Annual Preclinical Costs $500,000 Approximate Total Costs for 2 Scientists
Per Patient Phase 1 $12,000 Hollister-Stier
Per Patient Phase 2 $12,000 Hollister-Stier
Per Patient Phase 3 $6,000 Hollister-Stier
Approval Costs $1,300,000 $309,647 for PDUFA and $500,000-1,500,000+ for NDA preparation (ProPharma Partners; Covance)
Animal studies supporting Phase 1 $500,000 SEC documents referencing 2001 survey
Animal studies supporting Phase 2 $1,000,000 SEC documents referencing 2001 survey
Animal studies supporting Phase 3 $1,500,000 SEC documents referencing 2001 survey
Manufacturing/Marketing Costs + Markup 60%Manufacturing, 25%; Marketing, 25%; Margin, 10% (McKinsey New Venture, Moscho et al. Nature Biotech 18:719, 2000)

RATES
Royalty Rate 5.0%
Discount Rate 20%VC and pharma IRR (cost of capital for biotech)

RISK MITIGATED (Entering phase)


Preclinical 10%Pharmaceutical Manufacturing and Research Association
Phase 1 20%Pharmaceutical Manufacturing and Research Association
Phase 2 30%Pharmaceutical Manufacturing and Research Association
Phase 3 67%Pharmaceutical Manufacturing and Research Association
FDA 81%FDA FY 2000 Performance Report to Congress for the Prescription Drug User Fee Act

DESCRIPTION OF CONTENT:
VALUATION PARAMETERS - This page defines the variables used in the analysis.

Page 2 of 8 Pages
REVENUE FORECAST - PV Company/Institution Name
Biotechnology Name TECHNOLOGY VALUATION
Draft 1.0
Annual Growth 0.27%
Peak Competitive Market Share 5.0%
Revenue Per Unit (ASP) $100

YEAR
Revenue Forecast 1 2 3 4 5 6 7 8 9 10

PRODUCT REVENUE
Number of Cases 685,000,000 686,849,500 688,703,994 690,563,494 692,428,016 694,297,572 696,172,175 698,051,840 699,936,580 701,826,409
Market Share 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3%
Units Sold - - - - - - - - - 8,772,830
Product Revenue - - - - - - - - - 877,283,011

ORPHAN DRUG TAX CREDITS - - - - - - - - - -

PV of Product Revenue 2,306,727,506 2,768,073,007 3,321,687,608 3,986,025,130 4,783,230,156 5,739,876,187 6,887,851,425 8,265,421,709 9,918,506,051 11,902,207,262
PV of ODTC - - - - - - - - - -

PV of Revenue (Product + ODTC) 2,306,727,506 2,768,073,007 3,321,687,608 3,986,025,130 4,783,230,156 5,739,876,187 6,887,851,425 8,265,421,709 9,918,506,051 11,902,207,262

PV of Revenue 2,306,727,506

Discount Rate 20.0%

YEAR 20 Year
11 12 13 14 15 16 17 18 19 20 Total
PRODUCT REVENUE
Number of Cases 703,721,340 705,621,387 707,526,565 709,436,887 711,352,367 713,273,018 715,198,855 717,129,892 719,066,143 721,007,621
Market Share 2.5% 3.8% 5.0% 5.0% 5.0% 5.0% 3.8% 2.5% 1.3% 0.0%
Units Sold 17,593,033 26,460,802 35,376,328 35,471,844 35,567,618 35,663,651 26,819,957 17,928,247 8,988,327 - 248,642,639
Product Revenue 1,759,303,350 2,646,080,203 3,537,632,826 3,547,184,435 3,556,761,833 3,566,365,090 2,681,995,707 1,792,824,730 898,832,678 - 24,864,263,862

ORPHAN DRUG TAX CREDITS - - - - - - - - - - -

PV of Product Revenue 13,229,909,101 13,764,726,902 13,342,376,038 11,765,691,855 9,862,208,904 7,566,536,485 4,800,205,675 2,541,851,962 898,832,678 -
PV of ODTC - - - - - - - - - -

PV of Revenue (Product + ODTC) 13,229,909,101 13,764,726,902 13,342,376,038 11,765,691,855 9,862,208,904 7,566,536,485 4,800,205,675 2,541,851,962 898,832,678 -

REVENUE FORECAST - PV - This page provides a 20 year revenue forecast for the drug or diagnostic. Note that even though the revenue analysis begins in the current year, revenue is not recognized in the analysis until the
product reaches the market. Revenue is recognized according to the value of "Years of Revenue" on the data entry page.

NOTE - ORPHAN DRUG TAX CREDITS: Although tax credits are not revenue in terms of GAAP, tax credits are a benefit that nearly universally impact the value of a biotechnology. For this reason we have considered orphan
drug tax credits as a "revenue," or benefit, of developing this drug.

Page 3 of 8 Pages
CONTRIBUTION MARGIN - NPV Company/Institution Name
Biotechnology Name TECHNOLOGY VALUATION
Draft 1.0
Technology
Acquisition
YEAR
Contribution Margin Forecast 1 2 3 4 5 6 7 8 9 10

DEVELOPMENT STAGE Preclinical Phase 1 Phase 2 Phase 2 Phase 3 Phase 3 Phase 3 FDA FDA Revenue

PRODUCT REVENUE - - - - - - - - - 877,283,011


ODTC - - - - - - - - - -

COSTS Annual Costs


Patent Fees $10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 -
Preclinical Research $500,000 500,000 - - - - - - - - -
Phase 1 $600,000 - 600,000 - - - - - - - -
Phase 2 $1,200,000 - - 1,200,000 1,200,000 - - - - - -
Phase 3 $4,000,000 - - - - 4,000,000 4,000,000 4,000,000 - - -
FDA Fees $650,000 - - - - - - - 650,000 650,000 -
Animal Studies 1 (1st year) $500,000 - 500,000 - - - - - - - -
Animal Studies 2 (all years) $500,000 - - 500,000 500,000 - - - - - -
Animal Studies 3 (1st 2 years) $750,000 - - - - 750,000 750,000 - - - -
Manufacturing/Marketing 60% - - - - - - - - - 526,369,806
Royalty 5% - - - - - - - - - 43,864,151
Other - - - - - - - - - -
Total Costs 510,000 1,110,000 1,710,000 1,710,000 4,760,000 4,760,000 4,010,000 660,000 660,000 570,233,957

Net Contribution Margin (510,000) (1,110,000) (1,710,000) (1,710,000) (4,760,000) (4,760,000) (4,010,000) (660,000) (660,000) 307,049,054
Cumulative Net Contribution Margin (510,000) (1,620,000) (3,330,000) (5,040,000) (9,800,000) (14,560,000) (18,570,000) (19,230,000) (19,890,000) 287,159,054

NPV Contribution Margin 797,853,452 958,036,142 1,150,975,371 1,383,222,445 1,661,918,934 2,000,014,721 2,405,729,665 2,891,687,598 3,470,817,118 4,165,772,542

NPV Contribution Margin 797,853,452

Discount Rate 20.0%

YEAR 20 Year
11 12 13 14 15 16 17 18 19 20 Total

DEVELOPMENT STAGE Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue -

PRODUCT REVENUE 1,759,303,350 2,646,080,203 3,537,632,826 3,547,184,435 3,556,761,833 3,566,365,090 2,681,995,707 1,792,824,730 898,832,678 - 24,864,263,862
ODTC - - - - - - - - - - -

COSTS Annual Costs


Patent Fees $10,000 - - - - - - - - - - 90,000
Preclinical Research $500,000 - - - - - - - - - - 500,000
Phase 1 $600,000 - - - - - - - - - - 600,000
Phase 2 $1,200,000 - - - - - - - - - - 2,400,000
Phase 3 $4,000,000 - - - - - - - - - - 12,000,000
FDA Fees $650,000 - - - - - - - - - - 1,300,000
Animal Studies 1 (1st year) $500,000 - - - - - - - - - - 500,000
Animal Studies 2 (all years) $500,000 - - - - - - - - - - 1,000,000
Animal Studies 3 (1st 2 years) $750,000 - - - - - - - - - - 1,500,000
Manufacturing/Marketing 60% 1,055,582,010 1,587,648,122 2,122,579,696 2,128,310,661 2,134,057,100 2,139,819,054 1,609,197,424 1,075,694,838 539,299,607 - 14,918,558,317
Royalty 5% 87,965,167 132,304,010 176,881,641 177,359,222 177,838,092 178,318,254 134,099,785 89,641,236 44,941,634 - 1,243,213,193
Other - - - - - - - - - - -
Total Costs 1,143,547,177 1,719,952,132 2,299,461,337 2,305,669,883 2,311,895,191 2,318,137,308 1,743,297,209 1,165,336,074 584,241,241 - 16,181,661,510

Net Contribution Margin 615,756,172 926,128,071 1,238,171,489 1,241,514,552 1,244,866,641 1,248,227,781 938,698,497 627,488,655 314,591,437 -
Cumulative Net Contribution Margin 902,915,226 1,829,043,297 3,067,214,786 4,308,729,339 5,553,595,980 6,801,823,761 7,740,522,259 8,368,010,914 8,682,602,352 8,682,602,352

NPV Contribution Margin 4,630,468,185 4,817,654,416 4,669,831,613 4,117,992,149 3,451,773,116 2,648,287,770 1,680,071,986 889,648,187 314,591,437 -

DESCRIPTION OF CONTENT:
CONTRIBUTION MARGIN - NPV - This analysis estimates the current value of the contribution margin of the technology. Contribution margin is defined as the net cash contribution (revenue less direct costs).
We do not consider operating expenses here because overhead application rates vary considerably from one company to another and are therefore irrelevant in establishing an independent technology value.

Page 4 of 8 Pages
VALUE PROFILE - rNPV Company/Institution Name
Biotechnology Name TECHNOLOGY VALUATION
Draft 1.0
YEAR
1 2 3 4 5 6 7 8 9 10
Risk-Added and Adjusted Values
DEVELOPMENT STAGE Preclinical Phase 1 Phase 2 Phase 2 Phase 3 Phase 3 Phase 3 FDA FDA Revenue
RISK MEDIATED 10% 20% 30% 30% 67% 67% 67% 81% 81% 100%

RISK-ADDED COSTS Annual Costs


Patent Fees $10,000 100,000 50,000 33,333 33,333 14,925 14,925 14,925 12,346 12,346 -
Preclinical Research $500,000 5,000,000 - - - - - - - - -
Trials - Phase 1 $600,000 - 3,000,000 - - - - - - - -
Trials - Phase 2 $1,200,000 - - 4,000,000 4,000,000 - - - - - -
Trials - Phase 3 $4,000,000 - - - - 5,970,149 5,970,149 5,970,149 - - -
FDA Fees $650,000 - - - - - - - 802,469 802,469 -
Animal Studies 1 (1st year) $500,000 - 2,500,000 - - - - - - - -
Animal Studies 2 (all years) $500,000 - - 1,666,667 1,666,667 - - - - - -
Animal Studies 3 (1st 2 years) $750,000 - - - - 1,119,403 1,119,403 - - - -
Manufacturing/Marketing 60% - - - - - - - - - 526,369,806
Royalty Splits 5% - - - - - - - - - 43,864,151
Other - - - - - - - - - -
Risk-Added Total Costs 5,100,000 5,550,000 5,700,000 5,700,000 7,104,478 7,104,478 5,985,075 814,815 814,815 570,233,957

PV of Risk-Added Total Costs 1,525,057,399 1,823,948,879 2,182,078,654 2,611,654,385 3,127,145,262 3,744,048,941 4,484,333,357 5,374,017,938 6,447,843,748 7,736,434,720
PV of Revenue 2,306,727,506 2,768,073,007 3,321,687,608 3,986,025,130 4,783,230,156 5,739,876,187 6,887,851,425 8,265,421,709 9,918,506,051 11,902,207,262

Risk Adjustment 10% 20% 30% 30% 67% 67% 67% 81% 81% 100%
Risk Adjusted PV of Total Costs 152,505,740 364,789,776 654,623,596 783,496,316 2,095,187,326 2,508,512,791 3,004,503,349 4,352,954,530 5,222,753,436 7,736,434,720
Risk-Adjusted PV Revenue 230,672,751 553,614,601 996,506,282 1,195,807,539 3,204,764,204 3,845,717,045 4,614,860,454 6,694,991,585 8,033,989,902 11,902,207,262
Risk-Adjusted NPV 78,167,011 188,824,826 341,882,686 412,311,223 1,109,576,879 1,337,204,255 1,610,357,106 2,342,037,055 2,811,236,466 4,165,772,542

Risk-Adjusted NPV 78,167,011

Discount Rate 20.0%

YEAR 20 Year
11 12 13 14 15 16 17 18 19 20 Total

Development Stage Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue -
Risk Mediated 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

RISK-ADDED COSTS Annual Costs


Patent Fees $10,000 - - - - - - - - - - 286,134
Preclinical Research $500,000 - - - - - - - - - - 5,000,000
Trials - Phase 1 $600,000 - - - - - - - - - - 3,000,000
Trials - Phase 2 $1,200,000 - - - - - - - - - - 8,000,000
Trials - Phase 3 $4,000,000 - - - - - - - - - - 17,910,448
FDA Fees $650,000 - - - - - - - - - - 1,604,938
Animal Studies 1 (1st year) $500,000 - - - - - - - - - - 2,500,000
Animal Studies 2 (all years) $500,000 - - - - - - - - - - 3,333,333
Animal Studies 3 (1st 2 years) $750,000 - - - - - - - - - - 2,238,806
Manufacturing/Marketing 60% 1,055,582,010 1,587,648,122 2,122,579,696 2,128,310,661 2,134,057,100 2,139,819,054 1,609,197,424 1,075,694,838 539,299,607 - 14,918,558,317
Royalty Splits 5% 87,965,167 132,304,010 176,881,641 177,359,222 177,838,092 178,318,254 134,099,785 89,641,236 44,941,634 - 1,243,213,193
Other - - - - - - - - - - -
Risk-Added Total Costs 1,143,547,177 1,719,952,132 2,299,461,337 2,305,669,883 2,311,895,191 2,318,137,308 1,743,297,209 1,165,336,074 584,241,241 - 42,467,299,132

PV of Risk-Added Total Costs 8,599,440,916 8,947,072,486 8,672,544,425 7,647,699,706 6,410,435,788 4,918,248,716 3,120,133,689 1,652,203,775 584,241,241 -
PV of Revenue 13,229,909,101 13,764,726,902 13,342,376,038 11,765,691,855 9,862,208,904 7,566,536,485 4,800,205,675 2,541,851,962 898,832,678 -

Risk Adjustment 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Risk Adjusted PV of Total Costs 8,599,440,916 8,947,072,486 8,672,544,425 7,647,699,706 6,410,435,788 4,918,248,716 3,120,133,689 1,652,203,775 584,241,241 -
Risk-Adjusted PV Revenue 13,229,909,101 13,764,726,902 13,342,376,038 11,765,691,855 9,862,208,904 7,566,536,485 4,800,205,675 2,541,851,962 898,832,678 -
Risk-Adjusted NPV 4,630,468,185 4,817,654,416 4,669,831,613 4,117,992,149 3,451,773,116 2,648,287,770 1,680,071,986 889,648,187 314,591,437 -

DESCRIPTION OF CONTENT
VALUE PROFILE - rNPV - Every biotechnology has a risk-adjusted net present value (rNPV) that is a function of the NPV of the future payoff (P),
the NPV of the future costs (C), and the risk mediated (R) at each stage of development. The rNPV is calculated for each year of the drug or treatment's product life cycle.

Page 5 of 8 Pages
SUMMARY & VALUE PROFILE - rNPV Company/Institution Name
Biotechnology Name TECHNOLOGY VALUATION
Draft 1.0

Risk-Adjusted Net Present Value (rNPV)


12

10

8
Value ($)

Time (years)

PV of Revenue NPV of Cash Flow Risk-Adjusted NPV


$2,306,727,506 $797,853,452 $78,167,011

DESCRIPTION OF CONTENT
SUMMARY & rNPV CHART - The rNPV is graphically represented as a function of time. PV of Revenue, NPV of Cash Flow, and rNPV are summarized.

Page 6 of 8 Pages
Company/Institution Name
BIOTECHNOLOGY VALUATION
Description of Valuation Schedules
Page 2 VALUATION PARAMETERS - This page defines the variables used in the analysis.

Page 3 REVENUE FORECAST - PV - This page provides a 20 year revenue forecast for the drug or diagnostic. Note that even though the revenue analysis begins in the current year, revenue
is not recognized in the analysis until the product reaches the market. Revenue is recognized according to the value of "Years of Revenue" on the data entry page.
CONTRIBUTION MARGIN - NPV - This analysis estimates the current value of the contribution margin of the technology. Contribution margin is defined as the net cash contribution
Page 4 (revenue less direct costs). We do not consider operating expenses here because overhead application rates vary considerably from one company to another and are therefore
irrelevant in
establishing an independent technology value.

Page 5 VALUE PROFILE - rNPV - Every biotechnology has a risk-adjusted net present value (rNPV) that is a function of the NPV of the future payoff (P),
the NPV of the future costs (C), and the risk mediated (R) at each stage of development. The rNPV is calculated for each year of the drug or treatment's product life cycle.

Page 6 SUMMARY & rNPV CHART - The rNPV is graphically represented as a function of time. PV of Revenue, NPV of Cash Flow, and rNPV are summarized.

Theoretical Basis for Valuation Methodology - As discussed in detail in Stewart, Allison, and Johnson "Putting a Price on Biotechnology" Nature Biotechnology Sept. 2001,
biotechnology value is estimated by a combination of risk-adjustment and discounting the anticipated cash flow.

Taking only risk-adjustment into account, the risk-adjusted value (rV) of an endeavor in which the risk changes is the payoff (P) times the current risk (R0) minus each associated cost (Ci)
times the likelihood (R0/Ri) of having to pay each cost.
n
rV = PR 0 −∑ C i R0 / R i
i=0

By extension, the risk-adjusted net present value (rNPV) is simply a time discount of each risk-adjusted factor.
n
rNPV = NPV PR0 −∑ NPV C i R 0 / R i
i=0

Practically, it is simpler to risk-add the annual costs and include them in a discounted cash-flow analysis and only risk-adjust for current risk after discounting. That is, a cost Ci, made
when risk mediated is Ri is accounted as a risk-added expenditure of Ci/Ri. Risk-added expenditures (Ci/Ri) can be added directly to a typical cash flow that is discounted normally.
Finally, the NPV of the cash flow (including each Ci/Ri) is risk-adjusted by the current risk mediated (R0).

n
rNPV = R0  NPV P− ∑ NPV C i / R i 
i=0

Example: A treatment has completed Phase I. $3M is needed to complete Phase II, where the risk mediated is the industry average of 30%. $50M more will be needed to complete
Phase III, where the risk mediated is the industry average of 67%. The Phase II expenditures are risk-added to $10M ($3M / 30%). The Phase III costs are risk-adjusted to $75M
($50M / 67%). These risk-added expenditures are added as costs to the NPV calculation. Finally, the NPV (that now includes risk-added costs) is risk-adjusted by the risk mediated to
date (in this example, 30%). rNPV Gradually
SUMMARY & rNPV CHART Wanes During
VALUE PROFILE - rNPV (Page 5) (Page 6)
12 Revenue Stages
CONTRIBUTION MARGIN - NPV (Page 4) 10

8
REVENUE FORECAST - PV (Page 3)
6

MODEL ASSUMPTIONS - (Page 2) 4

rNPV Builds During


1 2
R&D
3 4 5 6 7 8 9 10 11 12 13 14
Revenue
15
Begins
16 17 18 19 20

Page 7 of 8 Pages
Company/Institution Name
BIOTECHNOLOGY VALUATION
Model Instructions

DATA ENTRY

Step 1 COVER DATA - Complete the data input on the "Cover" worksheet as directed by the cell notes on the "Cover" worksheet.

Step 2 MODEL DATA - Enter the relevant metric data on the "Valuation Parameters" page (first page) under the "Analysis" worksheet tab. Do
not enter any data on the other schedules (except the "other" line in the "Contribution Margin - NPV" schedule, as needed) in the
"Analysis" worksheet. The data produced here are all generated as a result of the metric parameters input onto the "Valuation
Parameters" page.

Please note that we have preloaded some of the data input cells on the "Valuation Parameters" page with formulas for initial ease of
use. These cells are intended to be overridden with user data.

Step 3 PRINT - Print either the relevant worksheets or the entire workbook. Print pages have been predefined and will print an 8 1/2 x 11 inch
presentation-quality valuation package. To print all pages, select "Entire Workbook" on the "Print" screen.

Comments regarding this model may be sent to Ron Johnson (ron@biogeneticventures.com)


More information is available at http://www.biogeneticventures.com

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