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Kolodny-Hirsch. As a long-time participant in this industry, it is certainly encouraging to finally see that more biotech companies are on the verge of profitability. Nonetheless, there are still hundreds of private and publicly traded biotech firms that are in the red and struggling to survive. This issue is not likely to go away soon and is compounded, in part, by the lack of access to lower cost, public equity financing. In the face of capital challenges, companies must sharply focus their spending plans, investing in activities that support nearer-term commercial opportunities. This means concentrating on core competencies and seeking partnering programs outside the scope of each company’s key strengths. One pressing issue facing the industry is that the number of biopharmaceuticals entering clinical trials and gaining regulatory approval has far outpaced existing industry capacity. Construction and validation of these facilities typically require long lead times of four to five years at a cost of $500 million or more. In a depressed market environment, increasing internal capacity is not a viable option. The need to balance financial risk in the face of growing demand will drive the industry to outsource protein manufacturing and other core competencies. This bodes well for contract manufacturing organizations with spare capacity and innovative platforms. Bonney. To get to the point of filing a NDA a company needs substantial investment and staying power and this requires real patience from the investment community — from VCs to mutual funds. If the investors see or perceive a threat to the biotech industry because of the popular attacks on the economically challenged pharmaceutical industry in general and on drug pricing in particular, investors ask themselves, why invest? If this happens there will be fewer NDAs and fewer new drugs brought to the patient population. So, we need to make sure that politicians and voters connect the dots and understand the long-term damage that will be done to the biotech industry if the investment cycle is threatened. Dr. Kleanthis Xanthopoulos Anadys Pharmaceuticals Inc. There is a lot of pressure from investors to deliver approvable products as quickly as possible. Many investors don’t want to wait the 10 years to 14 years it takes to develop a drug from scratch. What’s Your Opinion? 2005 — A look ahead What are the most significant business challenges you believe the industry will face in 2005? Altering the business model I believe several factors — the revisions to the Medicare Act to provide prescription drug coverage, the growing number of baby boomers moving into the Medicare system, rising medical costs, importation, liability issues, the higher costs of R&D, doing business globally, and less competition because of consolidation — will force the remaining industry players to alter significantly the way they do business. These companies will likely have to operate under some level of price-control restrictions in the United States, imposed by the federal government, despite the reelection of President Bush. Pharma companies will become much more selective about how they invest in R&D and for what projects. They will have to rely more on strategic and collaborative alliances/partnerships with other companies for greater access to combined resources. And they will have to redefine their customer mix and focus more on marketing and distribution than on research and innovation. Profitability and accountability pressures will be more challenging. Expectations and standards for these may need to be redefined. Teri P. Cox Senior Managing Partner Cox Communications Partners

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