Biotechnology Strategy Project Realizing Israel Potential

1. Biotechnology Strategy ProjectRealizing Israel Potential Adi Alon Monitor Group

2. Agenda • Project Overview • The potential • The challenge and the action plan

3. Monitor Group - Overview • Founded 1983, Cambridge USA • Mix of strategy consulting, investment banking and private equity • Truly global operations - no local partnerships or geographic barriers • All Group companies operate through all 26 offices globally - including Tel Aviv • 80%+ of engagements are repeat clients • Committed to creating action - not reports • Working in almost all industry sectors • Leading global experts Decision Architects™ M2C Monitor Clipper Partners M.A.S.T. Activities Processes & Systems The Action Company Corporate Finance Marketspace Center (E-Commerce) Monitor Institute Monitor University

4. Project Overview - Key Issues Is there a potential for Biotechnology industry in Israel? If there is a potential - what should Israel do to realize it?

5. Government • A core group of demanding local customers • Unusual local demand in specialized segments that can be served globally • Customers whose needs anticipate those elsewhere • Factor (input) quantity • Factorquality • Factorspecialization Competitiveness of Nations, States, and Cities The Diamond Approach Context for Firm Strategy and Rivalry • A local context that encourages sustained investment in upgrading • Vigorous competition among locally-based rivals Demand Conditions Factor Conditions Related and Supporting Industries • A critical mass of capable local suppliers • Clusters instead of isolated industries

6. Project Overview - Key Activities • Over 100 interviews - profiling the industry and the challenges it faces • Developed detailed mapping of the activities conducted in biotechnology by Israeli industry and academia • Collected and analyzed relevant data to the challenges raised during Israeli cluster interviews • Conducted in depth research of international biotechnology clusters to identify development challenges and sources of success: • Profiled global industry trends and mapped them against the cluster activities in Israel Israel Research International Research Recommendations and Action Plan

7. Agenda • Project Overview • The Potential • The Challenge and the action plan

8. BioTherapeutics Growth driven by: Imminent patent expirations Increasing demand Need for improvement in R&D economics Bioinformatics, pharmocogenomics Agricultural Biotechnology Strong demand for insect-protected and herbicide-tolerant crops Recent shift towards products with enhanced output traits Diagnostic Therapy selection and monitoring utilizinggenetic data Industrial Biotechnology The pulp and paper industry Global Potential - Strong Growth Is Expected in the Biotech Market Projected Growth of Global Biotechnology Market ($B) 120 100 80 $Bn 60 40 20 0 2004 2010 Source: Consulting Resources Inc, 1998; Business (02/2000); Frost & Sullivan ; Biotechnology Industry Organization

9. NASDAQ Biotech Index (Jan 1994 - Jan 2001) VC Funds investment in Biotech U.S., UE + Switzerland, UK 1995–1999 Index $M Global Potential - Biotech Is Enjoying Increasing Investors Attention Source: NASDAQ, Price Waterhouse Coopers

10. Israel Potential • High quality academic research • Skilled human resources - over 1,700 graduates every year in related fields • Academic research and industrial R&D in key industry segments (e.g. cancer, immunology, bio-informatics, etc.) • Industrial success - growing sector with recently successful IPO’s (e.g. XTL, Compugen, Keryx). • Potential for the future: interdisciplinary areas

11. Israel Potential - Research and Industrial Development Covering Growing Segments of the Global Market Expected Market Size of Key Biotech Markets in 2005 ** 15% $4.7B 13% $1.6B ~$10B Input traits and bio pesticides Neurology 18% $8.8B ~$5B 43% $1B Israel Cluster Relative Activity in Future Development* 12% $5.5B Bioinformatics • Cancer ~$1B Autoimmune 17% $1.2B • % of academia research projects and products developed in industry: • Therapeutic areas • Platform technology • Agro-biotech 4% $1.3M Infectious Diseases 108% $1.4B 22% $3.1B Cardiovascular Pharmocogenomics • Diagnostics 0% 10% 40% 110% 20% 30% % of Expected Annual Market Growth Rate (1998-2005) * Research projects in the academia & number of products in the pipeline; ** Projected sales of existing products and of products under development Source: DataMonitor, Harry Langbeheim; Pharmaceutical Researches & Manufactures of America, Recombinant Capital ; Monitor Analysis

12. What Can Israel Gain - The Future Targets • Strengthening Israel’s knowledge base economy • Increasing employment in the sector from 3,500 today to 10,000 - 14,000 by 2010. • Increasing sector sales to $2 - $3Bby 2010, almost all of it export oriented. • Keeping scientific talent in Israel, over 1,700 students are graduating every year with science degrees in the related disciplines. • Attracting Israelis who reside oversees and have managerial experience in the industry.

13. What Other Countries Already GainedU.K. Example Increased Revenues Increased Employment Growing Sector U.K. Biotechnology Industry - Number of UK Biotech Companies U.K. Biotechnology Industry - Annual Revenues ($M) U.K. Biotechnology Industry - Number of Employees Source: Ernst & Young; OST Report on the UK Biotech Cluster, Aug 1999; Northwest Biotech Development Study (June ‘98); ERBI BioBusiness Trends ‘99 Report; Speech by Lord Sainsbury, August 1999

14. Agenda • Project Overview • The Potential • The Challenge and the action plan

15. The Challenge - Supporting The Growth of a Young Industry ...Comprised of small scale companies.. ..With lower overall market capitalization Emerging industry... Number of Biotech Companies, 1999 Average Sales and Number of Employees per Company, 1999 Market Capitalization of Public Companies, 2000* USA Israel Source: Harry Langbeheim; NBC; Press release; Interviews; Ernst & Young Life Science Report, 1999 & 2000

16. Key Principles of Action Plan • Placing Biotechnology of the National Agenda • Supporting infrastructure development: • Physical • Knowledge • Regulatory • Foster scale up and industry development through networking and linkages

17. Aims to enhance the development of Biotechnology cluster Promote local, national & international networking Support successful growth of new ventures Ensure the infrastructure of the region supports biotechnology Provides services to members: Secures better terms from service companies (legal and accountancy) Web site postings of partnering opportunities abroad Staging networking events Holding seminars on strategy, marketing & finance Collecting and publishing industry data Head of ERBI Private Sector Service Companies Academia Institute of Biotechnology Reddie & Grose Patent Agents Univeler Research Ltd Barclays Bank John Innes Research Center Weil, Gotshal & Manges Law Firm Government Garretts Law Firm Government Office for the East East of England Investment Agency Rothschild & Sons Investment Bank County Council Arthur Andersen Accountants Biotech Companies Beeson Gregory Stockbroker CeNes CTBL Ltd Customers Cambridge Drug Discovery Glaxo Wellcome Peptide Therapeutics Lundbeck Alizyme Plc Creating Cluster Dynamic U.K. - Role of the Private Sector In Cambridgeshire Eastern Region Biotechnology Initiative

18. Policy: Addresses issues related to policy, clinical trials, regulatory etc.. The Council regularly lobbies local, state, and federal government officials on issues related to biotech (e.g. regulatory affairs) Networking: Separate committees are also established to develop networks among professionals in specific areas of biotech activity (e.g. bioinformatics, business development, purchasing etc…) Committees may also include pharmaceutical companies and other interested parties (e.g. Compaq and Pfizer) Purchasing: The Council negotiates broad based agreements with scientific suppliers as a cost saving mechanism for its members Conferences: Local and international conferences are organized on broad issues (e.g. BIO2000) or on a specific topic (e.g. financing) Creating Cluster Dynamic Massachusetts Biotechnology Council The council provides a forum for networking between the various parts of the cluster, improves the business environment and interfaces between the industry and government Activities and Mechanisms Board of Directors Industry Representatives Other Cluster Representatives Genzyme MIT Office of Technology Transfer Biogen Venture Capital Genetics Institute Massachusetts General Hospital Millenium Arthur Andersen Additional Industry Representatives Additional Cluster Representatives

19. Private sector leadership headed by the IBO to work with government on implementing cluster initiative • Appoint a full time project leader or executive director to lead the implementation effort • Bring biotech on the national agenda and declare a clear vision for the industry • Form an intergovernmental task force to coordinate government policy • Attract an int’l company and support Israeli companies which offer integrated services and equipment in • pharmacology and animal testing • analytical services • GMP pilot batches manufacturing facility Upgrade physical infrastructure which supports the industry • Work with one university on a pilot plan which includes: • Increase financial and human resources to improve commercialization activities • Create a pre-seed funding to support final development of innovations with commercial potential to improve the odds of a successful technology transfer • Align IP and equity ownership rules of commercialization companies in the Universities with incubators Support applied research and technology transfer processes Areas of Recommendations — 7 Points Program

20. Improve early commercialization - create world class incubators dedicated to the industry • Set up world class scientific and business advisory board to support incubator projects • Increase funding and timing of projects to meet industry needs • Implement highly selective screening process for projects • Increase communication with the industry - clarify guidelines and information requirements for clinical trials • Facilitate approval of phase 1 clinical trials through either a) stronger linkages with the FDA (e.g. FDA affiliate office), or b) by adding resources to the health ministry • Add resources to the institute of standardization and control of pharmaceutical specialized in biotechnology for evaluation and GMP accreditation Reinforce regulatory infrastructure • Map infrastructure required to support research in academia • Map equipment requirements for academic research to ensure that Israel’s academia maintains its position • Implement tracking system for industry data and performance matrix • Track data on industrial and research activity to facilitate networking and monitor performance Areas of Recommendations — 7 Points Program (cont.)