Alan E SmithSenior Vice PresidentChief Scientific OfficerGenzyme

MIT R&D Conference November 3rd 2005

Biotechnology - business appears to be great …

~ 150 marketing approvals for biotech drugs and vaccines in last 5 years – more than all previous years combined

Many big revenue products:- Enbrel - Aranesp/Epogen - Cerezyme - Rituxin- Remicade - Neulasta/Neupogen - Synagis - Rebif- ReoPro - Avonex - Herceptin - Viread

2004 R&D approx 32 new - 1st indication “biotech” products approved 350 products in clinical stage development

2004 Financing 37 Biotechs went public WW, 28 in US $21B financing raised; 2nd best year ever

Our business is time-consuming, expensive, & riskyCenter for Study of Drug Development, Tufts University, 2003 - 2005

. . . but the Biopharmaceutical World is tough

10,00010,000

250250

1010

11

2 4 86 1210 14

15 Years

Lead Discovery

Safety & efficacy in animals

Safety & efficacy in humans

Regulatory Approval

~$1B

Post - Approval : 73% need additional studies 30% recoup development costs 0

PhRma 2002, Nature Drug Discovery 2005

The Productivity Conundrum

NMEs approved

R&D Spending ($B)

20

25

30

35

40

45

50

55NMEs

15171921232527293133$35B

19960.3

19970.5

19980.7

1999 0.7

20001.0

20011.4

20031.6

20022.1

15 13

$B/NME

Increased R&D investment hasn’t translated into more products

But in even this environment Genzyme is doing well

Revenues & R&D Spending

0

0.5

1.0

1.5

2.0

2.5

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

To

tal R

eve

nu

es

($B

)

0

50

100

150

200

250

300

350

400

450

R&

D S

pen

din

g (

$M

)1st $Billion – 19 Years2nd $Billion – 3 Years

Where do opportunities that drive long term growth come from?

Current +1 +2 +3 +4 +5 +6 +7

Re

ven

ue

CommittedGrowth

Rate

Existing Product Revenue

RevenueGap

New Product Revenue

Success demands continuous development of new opportunities

Year

Always a revenue gap in the out years

Internally Originated Discovery Programs

Preclinical Candidates

Drugs inClinic

Marketed Drugs

Clinical Candidates

Drugs inClinic

Marketed DrugsDiscover more:

Discover outside & partner or acquire:

Discover inside:

We have to do all three

MarketedProductsDiscovery

Preclinical Research

Preclinical Development Pivotals

ClinicalResearch

Our Model

Why look outside?

Estimated global health R&D funding 2000

Public funding: advanced countries

Private funding: Pharma, Biotech

Private funding: not for profit

Public Funding: developing countries

TOTAL

$38.0B

$53.0B

$9.4B

$2.5B

$103B

* Global Health Forum 2001, PMPRB 2002, Genzyme Est.

Of the top 10 selling drugs in 2002 . .

Monsanto3.0NSAIPfizer

Ferrosan3.0Anti-depressantsGlaxo SmithKline

Takeda3.1AntiulcerantsTAP Pharma

Pfizer/Sumitomo3.8Calcium antagonistsPfizer

Kirin-Amgen4.2AntianaemicsJohnson & Johnson

Warner-Lambert7.9AntihyperlipidaemicsPfizer

Originator‘02

$BTherapeutic

CategoryCompany

Celebrex9

Seroxat/Paxil8

Prevacid7

Norvasc5

Procrit/Eprex4

Lipitor1

Product#

Success demands it

Risk of Failure

Cost of Deal

Preclinical Candidates

Drugs inClinic

Marketed Drugs

An investment balance required – early & late stage partnerships

Every company strives hard to strike the correct portfolio balance between the risk of early stage and the growing cost of late stage partnerships

Genzyme has ongoing collaborations with all kinds of organizations

Public/Commercial•Pharmaceutical companies•Biotech companies•Startups•Venture Capital groups

•Private/Non-Profit •University Investigators•Clinical / Hospital Investigators•Government Institutes•Private Research Institutes

How do you do it?

Genzyme’s Unsolicited Partnering Opportunities Q1-Q3 ’04 Snapshot Total - 538 submissions

89 (16.5%) Interesting

14 - Followed up by BD or Scientist

27 - Received more information; then no interest11 - Pending with additional information

37 (6.9%) - Initiated a Confidentiality Agreement

7- Pending review of information 1 (0.2%) - Received info = SRA

3 (0.5%) - Received info = MTA

1 (0.2%) - Received info = LIC25 - Received info: no interest

A 1% hit rate . . . about average

Renagel example - partnership and acquisition

• Henri Termeer• Chairman, Genzyme Board of Directors • Member, Geltex Board of Directors

• Bob Carpenter • Chairman, Geltex Board of Directors • Member, Genzyme Board of Directors

• Joint venture with Geltex in 1997 before product approval • $27.5M for 50% of Renagel in US & Europe

• Geltex acquired in 2001 after Renagel launch, • $1 Billion in cash and stock

• 2005 revenues ~$400M (annualized Q2 2005)

Later stage acquisition lowers risk . . .but at a price!

. . . but acquisitions have downsides too

Cost of acquiring quality late stage products candidates is high, and getting higher –

Buying someone else’s innovation . . .

to reduce internal risk . . .

with steadily increasing competition – many in same game, many with deep pockets - all looking for the same thing

Many, perhaps most, acquisitions fail to live up to expectations

Outside collaborations and acquisitions must be carefully chosen and managed. How? …

Reproducible ‘proof of concept’ efficacy data in relevant disease model

Preliminary animal safety data

Stable prototype formulation

Production plan for manufacturing product

Commercial plan – including access to IP, competition, etc.

Regulatory strategy

Clinical development plan

What’s important: 1) a solid, compelling story

A development checklist:

• Financial – Upfront and ongoing commitment• Financial – Expected return on investment • Timing – Pipeline needs• Technical – Therapeutic area experience and expertise• Technical – Therapeutic platform• Capacity – People and facilities• Market – Call point• Strategic – Desired area of growth

Needs & abilities on both sides of the table:

Initial partnering requirements: a compelling story AND a good fit:

What’s important: 2) a fit

Personal

•Connection - awareness of opportunity wherever it might be•Champion(s) - person(s) who are connected & truly believe• Initiative – turning belief into action •Persistence – there are always non-believers & setbacks•Dedication – it’s always more work than you think

Organizational

•Flexibility – Partners have differing needs from relationship•Openness – Frequent face-to-face communication•Experience – Realistic expectations, well-founded decisions •Quality – Essential in all aspects of a collaborative

After the ink is dry, success requires people who will are committed andorganizations that – while recognizing and respect differences - are compatible

What’s important: 3) people & organization

Summary

Biotech industry • Success is rare, time consuming, and very expensive• Committed to aggressive long-term growth• Seeks and commercializes innovation• An essential part of the equation is partnering & acquisition

Partnering• Must choose wisely • Need an extensive understanding of external landscape and a• Through understanding of internal needs that partnership will fill• Goal is to find a fit between the external opportunity and internal need• Dedicated people and receptive organizations make the relationship work