Weekly Barometer 25 janvier 2012 Biotechnology Certificate New Technologies For Health January 2018 ATONRÂ PARTNERS SA 12, Rue Pierre Fatio 1204 GENEVA SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch
2 Investment Case After a very tough 2016 marked notably by political rhetoric on drug pricing and a very low level of drug approvals by the FDA, and a sharp recovery that followed in 2017, we believe the current rerating of the Biotechnology sector is likely to gain steam as we move into 2018. We see M&A as a very powerful catalyst to support sector's undemanding valuations On the therapeutic front, we believe that genes therapies and personalized medicine will be on investors agenda as we move into 2018 as newer technologies (including mobile wearables) are now able to capture, analyze, and share clinical data in a very short timeframe. With the new US tax-code and the huge incentive it has on investments (expense of amortizations), Capex is likely to get a boost and is likely to benefit the "hardware" players We also believe that personalized medicine is not far away from becoming ubiquitous as prices for new testing (including DNA analysis) and analysis are coming down sharply Against this backdrop, we favor Biotech companies exposed to gene therapies, antibodies and rare diseases over the larger market cap names which benefited more from rising drug prices than from volume growth Biotechnology Certificate details Issuing bank: UBS AG Zurich, Calculation agent: UBS AG, London Branch ISIN: CH0275762380 Currency: USD Fees: 1.6% management fee
3 Immunotherapy Personalized Medicine Cardiovascular Rare diseases Neurology
4 What Is Biotechnology? The term has appeared for the first time with the discovery of DNA Modern biotechnology involves the use of live organisms or their products (bacteria or enzymes) to manufacture drugs Biotechnology products have wider applications than classic pharma A completely different business model than pharma: R&D intensive Smaller size Entrepreneurial High risk, high reward profile Today lines are blurred between pure biotech and pharmaceutical companies as these industries are partially consolidating
5 Solution To A Global Social Issue - The "Hope Offering" Entrepreneurial, knowledge intensive High risk, high reward profile, strictly regulated Computing power is an underlying fundamental of the industry Reimbursement and pricing important success factors R&D dependent, high capital requirements Constant business model evolution
$ billion Biotechnology Certificate 6 Global Biotechnology Market Expected To Grow By 8% CAGR Through 2020 600 500 $ 452 bn $ 491 bn $ 533 bn 400 $ 358 bn $ 383 bn $ 416 bn 300 200 100 0 2015 2016 2017 2018 2019 2020 Source: MarketLine Industry Profile
7 United States Dominate The Biotechnology Market Geography 2015 (in $ Bn) Market share (%) United States 147.0 41.1% Europe 73.8 20.6% Asia-Pacific (ex. Japan) 49.2 13.8% Japan 39.4 11.0% Middle East 6.5 1.8% Rest of the World 42.0 11.7% Total $357.9B Source: AtonRâ Partners & MarketLine Why? An entrepreneurial ecosystem, more active venture capital, M&A and IPO market
8 Global Mortality Causes In 2015 (nb. of cases) Diabetes, urogenital, blood, and endocrine 6% Neurological and mental 4% Digestive 2% Chronic liver 2% Other 1% Chronic respiratory 7% Injuries 8% Infections 16% Cancer 16% Communicable, maternal, neonatal, and nutritional 6% Cardiovascular 32%
9 New Challenges For A New World (I) Oncology cases have increased by 17% worldwide during the last 10 years due to the aging of the population (probability increases with age) Neurological Diseases are affecting more and more people (+35.2% growth from 2005) due to: Aging, Obesity, Smoking and Genetic Predisposition Diabetes and chronic kidney diseases increased worldwide by 30% from 2005 due to: Obesity, High Blood Pressure, Smoking, Environmental, Inactivity IMPACT OF DIABETES
10 New Challenges For A New World (II) Infection cases have decreased by 10% during the last 10 years led primarily by decreases in HIV/AIDS and tuberculosis cases Cheaper gene sequencing trigger the development of personalized medicine notably in oncology Rare diseases are more and more attractive due to governmental support and high profit margins Rare diseases affect 30 millions AMERICANS Orphan drug sales could reach $178 bn by 2020 (2015-20 CAGR 12%) In the last 5 years That s 1 in 10! of all new drug approvals were for rare diseases
WW Market Share (%), 2022 Biotechnology Certificate 11 Oncology Has The Largest Market Potential 20% Top 10 Therapeutic Areas By 2022 - Market Share & Sales Growth 18% 16% 14% 12% 10% Oncology treatment sales are expected to reach $190bn by 2022 Oncology; 16.30% market share 8% Anti-rheumatics Anti-diabetics Anti-virals 6% 4% Vaccines Sensory Organs Dermatologicals 2% Anti-hypertensives Bronchodilators 0% MS therapies -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% % sales growth 2015-2022 Source: EvaluatePharma 2016 Emerging markets will lead Anti-diabetics growth
12 50 Number of new drugs approved by FDA 49 45 40 35 30 32 35 38 29 31 34 35 43 35 41 45 25 20 26 28 26 26 22 15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: AtonRâ Partners, EvaluatePharma 2017 A record year for FDA approvals in 2017, following an unprecedented low number in 2016 as fewer applications were submitted and complete response letters (CRLs) were sent due to manufacturing practice deficiencies (GMP) The 2018 outlook is promising as well as: many important drugs in the last stages of development are awaiting approval the 21st Century Cure Bill is aimed at getting new drugs and devices approved faster the FDA is reshaping current regulations to speed up approvals of new drugs and promote competition
13 Food and Drug Administration The first level of decision-making before commercialization consistent legal and political framework across states the FDA has the most demanding approval standards in the world The FDA does not decide on a drug s reimbursement policy: insurance companies have the right to decide individually biotech companies start reimbursement discussions at the earliest stages of research Percentage of People by Type of Health Insurance Coverage in US 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% With Health Insurance 91% Uninsured 9% Private insurance 56% Employment based 49% Direct purchase 7% Government plan 36% Medicaid 20% Medicare Military Health Care 2% 14% Source: Census Bureau's March 2014, March 2015, and March 2016 Current Population Survey (CPS: Annual Social and Economic Supplements).
14 Upcoming Catalysts Aging population Personalized Medicine Chronic diseases M&A potential Growth Emerging countries Orphan drugs Government support Nutrition habits
15 Personalized Medicine: The Future Of Medicine? Treatments targeted to the needs of individual patients Technological breakthroughs and computer power are giving a boost to this field Strong government support Source: 2015 Progress Report: Personalized Medicine at FDA
16 A Fast Changing World Changing Nutrition Habits Obesity levels (13% of worldwide obese population comes from the U.S.). The two countries showing the highest growth in obesity are China and India (15% of the worldwide obese population) leading to: Emerging Markets: A Real Opportunity For Biotech huge populations increasing prosperity and standards of living (growing middle class) aging population Global executives are expecting 30% of their biopharmaceutical sales to come from emerging markets by 2018
17 2018 Is Expected To Be A Very Strong Year In M&A Strong pipeline in high growth therapeutics External growth through M&A represents an attractive opportunity 2015 worldwide biopharma M&A Record deal value of $430 billion Novel technologies platform High returns potential Cheap Valuations
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