Pharmaceutical Product Development NASDAQ: PPDI Fred Eshelman Chief Executive Officer Banc of America Healthcare Conference 2008 13 May 2008
Safe Harbor Except for historical information, all of the statements, expectations and assumptions discussed in today s presentations, including statements and expectations regarding PPD s future financial performance, the market for CRO services and its compound partnering initiatives, are forward-looking statements that involve a number of risks and uncertainties. Although PPD attempts to be accurate in making these forward-looking statements, it is possible that future circumstances may differ from the assumptions on which such statements are based. Additional factors that could cause actual results to differ materially are set forth from time to time in the SEC filings of PPD. To ensure compliance with Reg. FD, PPD will not disclose during this presentation or Q&A session any material information that has not been previously publicly disclosed. This presentation includes selected non-gaap financial measures. For a presentation of and reconciliation to the most directly comparable GAAP financial measures, go to the link titled GAAP/Non-GAAP Reconciliation under Investor Presentations & Events in the Corporate section of PPD s Web site located at www.ppdi.com
Corporate Mission Accelerate the delivery of SAFE and EFFECTIVE therapeutics to patients. Help Clients & Partners MAXIMIZE RETURNS on their R&D investments. We provide Drug Discovery, Development and Post-Approval Services to: PHARMACEUTICAL, BIOTECHNOLOGY, MEDICAL DEVICE, ACADEMIC & GOVT.
Industry Growth Drivers SOURCE Pharma R&D Biotech R&D Compound Pipeline FDA DRIVERS Outsourcing Penetration Venture Capital Funding Increased Complexity Escalating Safety and Efficacy Requirements
Growth Drivers: Pharma R&D Spending Historical and Projected GLOBAL R&D Spend Historical and Projected GLOBAL Spending on Development by Phase * R&D Spend - $ Billions $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 14.9% 15.1% 15.7% 15.1% 15.1% 15.2% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% % of Sales $ Billions $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $- $37.0 $30.0 $25.0 $23.0 $20.0 $16.0 $10.0 $7.0 $8.0 2007 2009 2011 2007 2009 2011 2007 2009 2011 $- 2004 2005 2006 2007E 2008E 2009E 10.0% Industry Analysts expect outsourcing penetration rate to continue to increase Preclinical Phase I Phase II/III * Excludes other categories of R&D Sources: Goldman Sachs, 2007; company websites
Growth Drivers: BioTech R&D & VC Funding Annual Bio-Tech R&D Spending Annual Bio-Tech Funding $16.0 $14.0 $12.0 $10.0 $8.0 $8.7 $10.0 $11.6 $13.3 $13.8 $14.5 $$ Billions $30.0 $25.0 $20.0 $15.0 $14.4 $16.5 $20.8 $20.1 $20.3 $24.8 $6.0 $4.0 $2.0 $10.0 $5.0 $10.4 $- 2004 2005 2006 2007 2008E 2009E Large Bio-Tech s need for outsourcing & Small Bio-Tech s need for development infrastructure $- 2001 2002 2003 2004 2005 2006 2007 Note: Includes financings of public biotech firms with the exceptions of public offerings and certain investments from corporate partners. Sources: BioWorld Financial Watch via Jefferies & Company, 2008; Goldman Sachs, 2007
Growth Drivers: Compound Pipeline Total Pipeline Biotech Pipeline 9000 1600 Number of Products in Clinical Development 8000 7000 6000 5000 4000 3000 2000 1000 0 6994 7360 7322 7406 7737 5930 6046 6416 6198 5995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Number of Products in Clinical Development 1400 1200 1000 800 600 400 200 0 130 153 165 180 192 203 190 197 208 217 232 74 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Complexity and Size of Clinical Trials is increasing Phase II/III or Late Stage Early Stage Sources: Pharmaprojects; Goldman Sachs 2007; FDA
Growth Drivers: The FDA and Drug Safety FDA 2008 budget includes increases of $11.2M to modernize drug safety and $7.2M for medical device safety and review programs Proposed increases of nearly $150M in new user fees over 5 years to modernize and enhance the FDA s postmarket surveillance system FDA s Critical Path Initiative: custom-tailored therapies for individual patients
Our Business Development services since 1985 Clients have included 47 of top 50 pharmaceutical* companies and 250+ biotechnology/small pharmaceutical and medical device companies Second largest Phase II-IV IV CRO business Industry leading margins Innovative compound partnering/risk sharing model * Ranked according to Sales Volume
Global Presence 10,400+ professionals worldwide Offices in 31 countries Russia/Ukraine acquisition expected to close in 2 nd Half of 2008 Canada Mexico USA Belgium England France Germany Italy Netherlands Scotland Spain Portugal Sweden Denmark Poland Czech Republic Hungary Greece Turkey Israel India China Korea Taiwan Hong Kong Thailand Singapore Peru Chile Brazil Argentina South Africa Australia
Key Service Areas Net Revenue by Business & RX Area 3 months ended 03/31/08: Business Group Therapeutic Area Discovery 5% Phase I 3% Labs 14% Phase II-IV 78% Endocrine Cardio 3 CNS 4 5 2 1 Other Oncology AI/AV
The R&D Process & Where PPD Operates Drug Discovery Preclinical Clinical Trials FDA Review Post-Approval Pre-Discovery One FDA 5,000-10,000 250 5 Approved Compounds Drug Phase I Phase II Phase III Phase IV # of Volunteers Surveillance 20-100 100-500 1,000-5,000 3-6 Years 6-7 Years ½ - 2 Years IND Submitted NDA Submitted Large Scale Mfg DEVELOPMENT SEGMENT Phase I Clinic - Larger, Complex Study Specialization GLOBAL Phase II-IV Drug Development - Multi-Phase Trial Development and Biostatistics - Medical Communications and Market Development - Regulatory Management and Clinical Informatics - Data Management and Post Approval Services PPD LABS - BioAnalytical, cgmp & Global Central Labs PPD Biomarker Biomarker Services Piedmont Research Ctr - Specialty Pre-Clinical Oncology Lab DISCOVERY SEGMENT PPD Compound Partnering Risk-sharing model, leveraging PPD s Phase II-IV Capabilities Multiple Compounds
Breakdown of global R&D spending: Uncategorized 11.0% Phase IV Approval Phase III Phase II Phase I 13.3% 6.9% 11.7% 5.8% 25.5% PPD provides services in almost all of these areas, including Large Scale,, complex GLOBAL clinical projects, as well as partial scope or customized protocols. Discovery/Pre- Clinical 25.7% Source: PhRMA, 2007 Annual Membership Survey
TWO BUSINESS SEGMENTS: DEVELOPMENT SEGMENT Contract Research & Drug Development DISCOVERY SEGMENT Discovery Sciences / Compound Partnering
Development Segment Net Revenue and Backlog by Client-Type 3 months ended 03/31/08: Revenue Backlog Govt / Other 11% Govt / Other 12% Pharma 58% Biotech 31% Pharma 53% Biotech 35%
Development Segment GEOGRAPHIC MIX: Net Revenue Mix 1 / Growth by Region 12 months ended 12/31/07: Asia/Pacific, 2% EMEA, 33% Latin America, 8% North America, 57% 07/ 06 Growth North America EMEA Latin America Asia Pacific 12% 30% 31% 80% 1 Net revenue amounts exclude reimbursed out-of-pockets
Development Segment GROWTH DRIVERS: RFPs and New Authorizations Dollar Value of RFPs ($ billions) New Authorizations ($ thousands) 7.0 6.0 5.0 4.0 3.0 2.0 1.9 2.7 2.8 3.0 4.1 4.9 6.0 1.8 3000 2500 2000 1500 1000 Gross Cancellations Net 1068 1002 2197 1971 1766 1212 741 690 1.0 500-2001 2002 2003 2004 2005 2006 2007 Q1'08 0 2001 2002 2003 2004 2005 2006 2007 Q1'08
TWO BUSINESS SEGMENTS: DEVELOPMENT SEGMENT Contract Research & Drug Development DISCOVERY SEGMENT Discovery Sciences / Compound Partnering
Compound Partnering / Discovery Overview Hedge against potential cycles and shouldering of CRO growth Creates Development (CRO) work and Financial Milestones (Has the potential for substantial boost to EPS in future) Why Partner with PPD? Compounds don t get lost in the shuffle Rigor, speed, innovation in driving to market Leverage off PPD s vast Development expertise
Compound Partnering / Discovery Pipeline Pre-IND Phase I Phase II Phase III NDA/MAA Dapoxetine (genitourinary) w/jnj TAK 322 (DPP4 Inhibitor, type II diabetes) w/takeda TAK 322 in combination with Actos (DPP4 Inhibitor) TAK 472 (DPP4 Inhibitor) PPD Statin (HMG-CoA reductase inhibitor)
Compound Partnering / Discovery Compound Partnering / Discovery Pipeline - DAPOXETINE Indication: Premature ejaculation Status: Source: Sales/Marketing: Market: Economic Terms: NDA accepted for filing 2/05; not approvable letter 10/05; EU filing December 7, 2007 Eli Lilly Johnson & Johnson Estimate ~30% of males experience PE PPD bought out Lilly s share (up to peak annual sales of $800 MM) for $65 MM. J&J responsible for development and marketing costs; remaining deal terms include up to $5 MM potential pre-marketing milestones on Ex-US regulatory approvals, up to $50 MM in sales-based milestones, double digit royalties which increase with sales levels.
Compound Partnering / Discovery Compound Partnering / Discovery Pipeline DP4 INHIBITORS (TAKEDA) Indication: Type 2 diabetes Status: Source: Sales/Marketing: Market: Economic Terms: TAK 322 NDA - submitted December 27, 2007 - filed February 27, 2008 TAK 322 in combination with Actos Phase III TAK 472 Phase II Syrrx (Takeda) Takeda $10-12 billion PPD made $25 MM equity investment (11.7%) in Syrrx now repaid. Received 3 payments of $15 MM: i) up-front payment; ii) payment for dosing of 20th patient in Phase III; and iii) NDA filing in Feb 2008. Remaining deal terms include: a potential of up to $55.5 MM development milestones of which we expect $25 MM upon approval; up to $33 MM sales-based milestones; US sales-based royalties from mid-single digit to low double digit levels; ROW royalty range from mid-to-upper single digit levels.
Compound Partnering / Discovery Compound Partnering / Discovery Pipeline PPD STATIN Indication: Dyslipidemia Status: Source: Sales/Marketing: Market: Economic Terms: Phase IB (in patients); Phase II TBD Ranbaxy TBD $32+ billion PPD paid $250,000 up-front license fee; PPD responsible for future development, manufacturing and commercial expense; PPD pays potential development and sales-based milestones up to $44 million and royalties on potential product sales. PPD has worldwide exclusive license except India.
OVERALL COMPANY PERFORMANCE
Historical Performance Backlog ($MM). CAGR 30% $2,238 $2,655 $2,838 $1,799 $345 $674 $974 $1,120 $1,293 2000 2001 2002 2003 2004 2005 2006 2007 Q1-2008
Historical Performance Net Revenue 1 ($MM) $563 CAGR 21% $774 $669 $962 $1,146 $1,295 $345 $432 $368 2000 2001 2002 2003 2004 2005 2006 2007 Q1-2008 1 Net revenue amounts shown exclude reimbursed out-of-pockets.
Historical Performance Earnings-per-share*, split-adjusted CAGR 25% $1.13 $1.43 $1.48 $0.32 $0.47 $0.64 $0.81 $0.87 $0.44 2000 2001 2002 2003 2004 2005 2006 2007 Q1-2008 * Earnings per diluted share from 2000 to 2007 exclude non-cash stock option expense 1 2 3 4 5 1 Excludes $33.8 million in non-operating, non-cash charges related to the impairment of equity investments, $32 million of which is related to impairment of our equity investment in DNA Sciences 2 Excludes $10.1 million related to the impairment of equity investments, $1.9 million restructuring charge, $5.7 million gain related to the sale of assets of the Discovery business, and $65 million payment to acquire dapoxetine patents 3 Excludes $2.6 million restructuring costs, a $3.7 million tax benefit associated with release of valuation allowance and $2.0 million related to impairment of equity investments. 4 Excludes $5.1 million gain on exchange of assets, a $0.8 million reduction in a capital loss valuation allowance, and a $5.9 million impairment of an equity investment 5 Excludes $1.1 million impairment of an intangible asset, a $6.5 million impairment of an equity investment, and a $4.9 million impairment of a short-term investment portfolio, net of tax.
Historical Performance Cash Flow from Operations and Free Cash Flow Cash Flow from Operations ($ millions) Free Cash Flow ($ millions) 250 200 187.5 226.6 140 120 100 131.8 99.9 150 100 116.6 80 60 40 39.4 50 20 0 2006 2007 Q1'08 0 2006 2007 Q1'08
Why Invest in? Exceptional Backlog Growth Innovative, GLOBAL company Industry-leading margins Consistent track record of growth No Long-Term Debt Strong Cash Position, only CRO paying a dividend Clear long-term strategy to drive Shareholder Value
Pharmaceutical Product Development NASDAQ: PPDI Fred Eshelman Chief Executive Officer Banc of America Healthcare Conference 2008 13 May 2008