Pennsylvania

REPORTBioscience Industry

R E P O R T 3

Letter from:Fritz BittenbenderPresident Pennsylvania Bio

Letter from:Edward G. RendellGovernor Commonwealth of Pennsylvania

Pennsylvania Bio Board of Directors

Report: The Biosciences in Pennsylvania

About this Study

Diamond Sponsors

TABLE OF CONTENTS4

5

6

7

21

22

R E P O R T4

Pennsylvania’s Bioscience Industry

Pennsylvania is a global leader in the biosciences. Companies that call the Commonwealth home are among the most dynamic in the world, making it possible for millions of people to lead better, healthier, longer lives. Pennsylvania companies are discovering and developing:

• New therapies for debilitating and once untreatable conditions;

• Diagnostic tests that allow physicians to diagnose and treat diseases much earlier;

• Technologies that enable earlier targeting of potential cures during the drug discoveryprocess, helping move therapies to the market faster;

• Medical devices that are helping people move better, see better, hear better;

• Improved vaccines to prevent diseases.

This report begins to paint the picture of the industry: the size, the diversity, the impact it is having on Pennsylvania. There is no doubt that the biosciences are important to theCommonwealth. The bioscience industry is a cornerstone for Pennsylvania’s future economy,providing high quality jobs. Our location in the heart of the bio-pharmaceutical corridor with easy direct access to European markets makes us a logical selection for companies’ continuedgrowth and expansion. We are home to a highly skilled, science-oriented work force.

Pennsylvania’s bioscience community is vibrant and robust, with strengths along the continuum — world recognized university research; emerging and mature biotechnology, medical device and diagnostic companies; global pharmaceuticals. It is rare to find a locationwhere, within a car ride, so many of these vital components of the industry can be so easilyaccessed. Our research institutions received $1.3 billion in funding in 2003 through the NationalInstitutes of Health. Our companies are beginning to command attention within the world’sventure capital community, attracting more than $150 million in the first quarter of 2004 alone.Global pharmaceutical companies in our region provide a strong foundation for the industry. The pharmaceutical companies in our region are leading the way in delivering new treatments to patients, either through internal research and development or as partners to our youngcompanies. We have it all in Pennsylvania.

The report that follows provides a window into the world of Pennsylvania’s bioscience industry.Detailed information and background data that went into this report can be accessed throughPennsylvania Bio’s website — www.pennsylvaniabio.org. We encourage you to visit our site to learn more about this amazing industry and the hope these companies are bringing to patients globally.

Fritz BittenbenderPresidentPennsylvania Bio

WELCOME

Fritz Bittenbender President Pennsylvania Bio

R E P O R T 5

The Pennsylvania Life Sciences Commitment: A Word from the Governor

Pennsylvania is helping to lead the life sciences revolution. From breakthrough drugs, to newmedical devices, to tools and techniques that are changing the world — Pennsylvania is at the forefront and continues to build momentum. Whether your company is in the conceptual,formation, growth or maturity stage, it will find a proven network of state and industry support and collaboration that will help take it to the next level.

In 2002 alone, more than 2,000 life sciences-related companies with nearly 84,000 professionalscalled Pennsylvania home. In the same year, those life sciences employees earned an averageannual wage of more than $65,000. Pharmaceutical and medicine manufacturing accounts fornearly one-third of Pennsylvania’s life sciences employment base and, in 2002, those workers eachearned an average wage of more than $80,000. Together life sciences and medical professionalsaccount for almost 16 percent of Pennsylvania’s employment base — one of the highestconcentrations in the nation and a clear sign of a highly-skilled work force.

Pennsylvania has taken measures to build on its existing world-class life sciences base. In 2003, the Commonwealth, through the Governor’s Action Team, offered life sciences companies morethan $19 million in state assistance in the form of loans, grants and tax credits. As projects arecompleted, the state’s initial investment is expected to leverage more than $770 million in privatesector funds, creating nearly 2,300 new jobs and retaining more than 6,600.

Our commitment to the industry goes even further. The Commonwealth is continuing a $2 billion multi-year Life Sciences Enterprise commitment and adding a portion of our recently enacted $2 billion economic stimulus package to bolster the capital available for our businesses. Economicstimulus programs such as Expanded R&D Tax Credit with Tradeability, New Pennsylvania VentureGuarantee, New PA Venture Capital Investment, Keystone Innovation Zones and Core Industriesprovide more than $450 million every year that will specifically benefit the entrepreneurial lifesciences community.

The Economic Stimulus Package, together with our $2 billion plus Life Sciences Enterpriseprogram, focuses on meeting the needs of developing life sciences companies for capital, for abusiness environment that encourages long-term risk, for an appropriately educated and skilledwork force, and for an infrastructure that stimulates innovation in biotechnology across theCommonwealth.

Edward G. RendellGovernor Commonwealth of Pennsylvania

Edward G. RendellGovernor Commonwealth of Pennsylvania

Pennsylvania Bio Board of Directors

David U'Prichard, Ph.D. - ChairmanVenture PartnerApax Partners Ltd.

Arthur Boni, Ph.D.Deputy Director, Donald H. Jones Center for EntrepreneurshipCarnegie Mellon University

Michael CelanoPartnerKPMG, LLP

C. Boyd ClarkePresident, CEO & DirectorNeose Technologies, Inc.

Anne-Marie CornerPresident & CEOBiosyn, Inc.

Jill FelixPresident & CEOUniversity City Science Center

Charles Grezlak, Ph.D.Vice President, USHH Government Affairs & PolicyMerck & Co., Inc.

Ronald Herberman, M.D.Dir. University of Pittsburgh Cancer Institute & Director UPMC Cancer CentersUPMC Cancer Pavillion

Leslie Hudson, Ph.D.Vice ProvostUniversity of Pennsylvania

Peter Johnson, M.D.Executive Vice President – Life Sciences, Chief Scientific OfficerParadigm Genetics, Inc.

David KingCEOBioRexis Pharmaceutical Corporation

Jeffrey LibsonPartnerPepper Hamilton, LLP

James Maleckar, Ph.D.Senior Director and R&D Program Leader for Meninge-Pneumo FranchiseAventis Pasteur, Inc.

Fritz BittenbenderPresidentPennsylvania Biotechnology Association

Denise McGinnVice President, Business DevelopmentCentocor, Inc.

Scott MelvilleSenior Director, GovernmentAffairs & Regulatory CounselCephalon, Inc.

Kate Eby MooreAssistant Vice President, Global AdvocacyWyeth Pharmaceuticals

Bruce PeacockPresident & CEOAdolor Corporation

Tom PetzingerCEOLaunchCyte, LLC

Joseph Reiser, Ph.D.President, CEO & DirectorLocus Pharmaceuticals

RoseAnn RosenthalPresident & CEOBen Franklin Technology Partners, S.E.

Paul TouheyPresident & COOFujirebio Diagnostics, Inc.

Robert TowarnickiPresident & CEONucleonics, Inc.

Laurie TzodikovDirector, Client Development & ServicesBTG International, Inc.

Stephen WebsterPresident & CEONeuronyx, Inc.

Chris YochimAssociate Director of Licensing, Global Discovery Alliance GroupAstraZeneca

R E P O R T6

R E P O R T 7

Basic research - Pennsylvania is home to institutions that are conducting ground-breaking,innovative research. Research institutions in PA garnered $1.3 billion in NIH funding in 2003, a $100 million increase from 2002. Two universities, University of Pennsylvania and University of Pittsburgh, consistently rank in the top 10 in the nation.

Emerging industry - Pennsylvania’s young emerging companies are commanding attention for their break-through therapies and strong business models. Venture Capital (VC) investment isgrowing, underscoring the value these companies will provide to the future of healthcare. In the first quarter of 2004 alone, Pennsylvania bioscience companies have closed on more than $150 millionin VC funding.

Mature industry - Pennsylvania boasts companies that are developing, manufacturing anddistributing drugs, vaccines, medical devices, and diagnostics that are providing better treatmentsand testing to patients around the world, improving the lives of millions of people.

Global pharmaceuticals - Underpinning the industry in Pennsylvania is a legacy ofinnovation that was started by and continues with a strong presence of global pharmaceuticalcompanies that are now leading the world in delivering biotech therapies to the market.

The biosciences industry plays a critical role in Pennsylvania. Not only are the biotechnology,pharmaceutical, medical device and diagnostics companies that comprise this sector developingthe therapies, vaccines and devices that will extend and improve the lives of patients globally, ithas emerged as one of the key economic drivers for the Commonwealth. This study, commissionedby Pennsylvania Bio, demonstrates Pennsylvania’s leadership along this continuum. It shows thegrowth that is occurring: company growth, job growth, wage growth. It also highlights the needto continue to support the industry’s growth for both the economic health of the Commonwealthand the health of its citizens.

A directory of companies accompanies this report, and gives life to the numbers — corporate faces to the statistics of growth, health and hope. While the directory does not include all of the companies from which the data were drawn, it is a compendium of representativecompanies, research institutions and supporting organizations that clearly demonstrate theastounding strength and depth of the biosciences in Pennsylvania. To view the directory, visit www.pennsylvaniabio.org.

REPORT:The Biosciences in PennsylvaniaPennsylvania. World-class research. World-class industry. World-class results. No matter where you focus on the continuum of the biosciences, Pennsylvania leads.

In 1998, Pennsylvania Bio, the Commonwealth of Pennsylvania and the Ben Franklin TechnologyPartners of Southeastern PA, published a report on Pennsylvania’s bioscience industry. While directcomparisons can be difficult due to shifting mechanisms for collecting data, the resultsnonetheless show remarkable growth in the industry.1

This new report shows that, today, the industry in Pennsylvania is bigger and stronger than ever:

• 83,860 jobs;

• $5.5 billion in total wages;

• An average employee salary of $65,060;

• 2,038 establishments.

This study uses 2002 data, the most recent year for which complete data are available.

As a share of Pennsylvania’s total private employment, the biosciences have increased from 2001 to 2002:

There is no doubt that in a difficult economic climate marked by job losses, the biosciences offer a clear sector of growth. And this growth is impressive. While tracking young companies inthe biosciences sector can be difficult, the growth in the number of establishments indicates thatPennsylvania is an ideal location for company growth and expansion. The wage growth is a clearindicator of the high-quality jobs that are created by this industry. And the job growthunderscores the availability of a well trained, bioscience-oriented work force.

SHARE OF PA PRIVATE EMPLOYMENT

2001 2002

Employment 1.7% 1.8%

Total Wages 3.0% 3.2%

Average Annual Wage 179.8% 184.4%

Establishments 0.6% 0.7%

R E P O R T8

1 This study uses the U.S. Department of Labor's ES-202 database (renamed the Quarterly Census of Employment and Wages-QCEW-in 2003. The QCEW is a virtual census of employment in the United States, covering 99.7% of wage and salary civilian employment.

1998 2002 % GROWTH

Employment 59,000 83,860 42%

Total Wages $3 billion $5.5 billion 82%

Average Annual Wage $52,250 $65,060 25%

Establishments 1,100 2,038 85%

R E P O R T 9

What can account for this? Pennsylvania has many strengths that support the biosciences sector:

• World-class academic/research institutions that garner substantial NIH funding — $1.3 billion in 2003;

• A location in the heart of the bio-pharma corridor — 80% of the world’s largestpharmaceutical companies are within a 50-mile radius of Philadelphia — providing access to a deep scientific talent pool, exceptional managers, and partners for our region’sbiotechnology companies;

• Close proximity to the world’s financial center in New York City;

• Close proximity to the U.S. regulatory center in Washington DC;

• Easiest springboard in the U.S. to the European markets;

• High quality of life for families and a competitive cost of doing business, with stable real estate rates to help companies plan for growth;

• A strong heritage of innovation;

• Strong allied skills — ancillary industries and a robust service provider network that support the growth of the industry.

In addition, Pennsylvania is fortunate to have a supportive state government, with visionaryleaders in both the administration and in the legislature. Pennsylvania has instituted innovativeprograms for the biosciences that include:

• The Life Sciences Greenhouse Initiative, which provides a flexible mechanism for seed fundingand the commercialization of biotechnology and other Life Sciences business opportunities byaccelerating technology transfer, enhancing collaboration and attracting new business;

• Keystone Innovation Zones, geographically designated zones of opportunity and innovation designed to harness resources made available through partnerships formed by a combination of institutions of higher education, private businesses, business supportorganizations, commercial lending institutions, venture capital networks including angelinvestors, and foundations;

• The Commonwealth Universal Research Enhancement (CURE) program, through whichresearch grants are awarded to Pennsylvania health care institutions, colleges, universities and non-profit health organizations;

• Expanded R&D tax credits, with a tradability provision.

Strengths Across the Commonwealth

Many states boast of a single cluster of bioscience activity. Pennsylvania, however, has strengths across the Commonwealth.

The largest concentration of bioscience activity is in the metropolitan Philadelphia region. The five-county region that makes up greater Philadelphia — Bucks, Chester, Delaware,Montgomery and Philadelphia — accounts for nearly 50% of the total bioscience-relatedemployment in Pennsylvania.

Number of Establishments by County

0-25 26-50 51-100 101-200 >200

R E P O R T10

The top three counties in Pennsylvania, in terms of totalestablishments are Allegheny, Montgomery and Bucks counties.

R E P O R T 11

Allegheny County, in which Pittsburgh resides, has the third largest total bioscience-relatedemployment in the Commonwealth, and it has a clear strength in the medical device anddiagnostics sector with the greatest total number of employees and establishments in this sector.

Central Pennsylvania has an emerging industry, anchored by Pennsylvania State University and Penn State College of Medicine. Berks, Dauphin and Lancaster counties all have significantactivity, and Lancaster County shows nearly 50% growth in the number of establishmentsbetween 2001 and 2002.

$0-5 million

$6-10 million

$11-50 million

$51-100 million

$101-200 million

$201-500 million

$501 million - $1 billion

>$1 billion

Total Wages by County

Employment by County

0-1,000

1,001-2,000

2,001-5,000

5,001-10,000

>10,000

Montgomery, Chester and Allegheny counties have the largest bioscience employment.

As a whole, Pennsylvania’s share of the biosciences out-paces the nation. Location Quotients (LQ)measure relative concentrations, such as employment or total wages. Location quotients are the most commonly used tool to measure the relative size and role of a specific economic base.Mathematically, they compare a regional proportion with a national proportion — an LQ of 1indicates exactly the same proportion for the region as for the nation. An LQ below 1 indicatesunder-representation within a region, while an LQ greater than 1 indicates a higherconcentration regionally than for the nation.

In 2002, Pennsylvania outpaced the nation in its proportion of bioscience employment and total wages — LQs of 1.31 and 1.38 respectively.

300.0%

250.0%

200.0%

150.0%

100.0%

50.0%

0.0%

Biosciences sector

1.40

1.38

1.36

1.34

1.32

1.30

1.28

1.26

Biosciences sector

PA Location Quotients (2002)

Share of Annual PA Private Wage (2002)

1.31

1.38

229.3

164.5

241.0

136.0 141.7118.7

91.4123.3

153.7

206.2

Employment

Total Wages

High concentrations of employment in combination with high annual wages and strong growth clearly demonstrate why the biosciences sector is important to Pennsylvania’s economy.

R E P O R T12

Pharmaceutical and medicine manufacturing

All other basic inorganic chemical manufacturing

All other basic organic chemical manufacturing

Electromedical and electrotherapeutics apparatus

Instruments and related products manufacturing formeasuring, displaying and controlling industrialprocess variables

Analytical laboratory instrument manufacturing

Irradiation apparatus manufacturing

Medical equipment and supplies manufacturing

Testing laboratories

Research and development in the physical,engineering and life sciences.

R E P O R T 13

THE BIO-PHARMACEUTICAL SECTOR: THE CORE INDUSTRY

The bioscience core, as defined in this study, is drawn from Industry NAIC 32541: Pharmaceuticaland medicine manufacturing. This includes pharmaceutical and biotechnology manufacturers,manufacturers of substances for in-vitro diagnostic testing (such as blood tests), manufacturers of vaccines and other biological products, and raw material manufacturers and processors.

The Bio-Pharmaceutical Industry’s Impact in Pennsylvania

In total for 2002, the bio-pharmaceutical sector in Pennsylvania encompassed 124 establishments,27,121 employees, average annual wages of $80,885 and total annual wages of $2.2 billion.Across the board this sector shows growth. From 2001-2002, employment in the sector grewslightly more than 5% (compared with 4.5% nationally), the number of establishments grewnearly 1% and total sector wages grew more than 6%.

This core industry accounts for 32.3% of Pennsylvania’s bioscience jobs and 40.2% of annualwages. When weighing the importance within this industry group, two subsets overwhelminglyaccount for the majority of jobs and wages: Industry 325412: Pharmaceutical preparationmanufacturing (the pharmaceutical and biotechnology manufacturers in Pennsylvania) andIndustry 325414: Other biological product (except diagnostic) manufacturing (companiesmanufacturing vaccines and culture media).

NAICS Industry Employees Companies Total Wage Avg. Emp. Wage

325411 Medicinal and botanical manufacturing 76 10 $5,278 $69,142

325412 Pharmaceutical preparation manufacturing 23,339 79 $1,887,460 $80,871

325413 In-vitro diagnostic substance manufacturing 188 10 $10,812 $57,458

325414 Other biological product 3,517 25 $290,095 $82,488(except diagnostic) manufacturing

PA Industry 32541 Employment Share (2002)

86.1%

13.0%

0.7%0.3%

Medicinal and botanical manufacturing

Pharmaceutical preparation manufacturing

In-vitro diagnostic substance manufacturing

Other biological product manufacturing

Pennsylvania: A National Leader

Pennsylvania is a clear national leader in the bio-pharmaceutical sector, accounting for more than a representative share of bio-pharmaceutical sector wages and jobs.

Pharma. & med. mfg.

PA Location Quotients (2002)

Employment Total Wages

Average Wage (2002): NAICS 32541

2.08

2.38

2.45

2.40

2.35

2.30

2.25

2.20

2.15

2.10

2.05

2.00

1.95

1.90

MEDICAL DEVICES, DIAGNOSTICS, LABORATORY TESTING AND MORE — THE RELATED BIOSCIENCE SECTOR

Pennsylvania leads not only in pharmaceutical and biotechnology research and manufacturing. A strong biomedical device sector, diagnostics, laboratory testing services and much more arefound throughout the Commonwealth. Pennsylvania Bio, for this study, defines this “related”sector as:

The firms in Pennsylvania engaged in surgical and medical instrument manufacturing, laboratoryapparatus manufacturing, laboratory testing services, ophthalmic goods manufacturing, dentalequipment, dental laboratories, and related areas.

The totals in this related core underscore why these closely related industries are also critical to Pennsylvania:

• 56,739 employees;

• 1,914 companies;

• Total annual wages of $3.3 billion.

Pharma. & med. mfg.

8173

$90

$80

$70

$60

$50

$40

$30

$20

$10

$0

Pennsylvania United States

And the industry in Pennsylvania is providinghigh-quality jobs, with higher annual wages in Pennsylvania than the national average.

Pennsylvania’s leadership in biopharmaceuticalsclearly shows through the location quotients,which compare a regional proportion of anindustry with the national proportion.

R E P O R T14

(Thousands)

R E P O R T 15

NAICS Industry

325188 All other basic inorganic chemical manufacturing

325199 All other basic organic chemical manufacturing

334510 Electromedical and electrotherapeutics apparatus

334513 Instruments and related products manufacturing for measuring, displaying and controlling industrial process variables

334516 Analytical laboratory instrument manufacturing

334517 Irradiation apparatus manufacturing

339111 Laboratory apparatus and furniture manufacturing

339112 Surgical and medical instrument manufacturing

339113 Surgical appliance and supplies manufacturing

339114 Dental equipment and supplies manufacturing

339115 Ophthalmic goods manufacturing

339116 Dental laboratories

541380 Testing laboratories

541710 Research and development in the physical, engineering and life sciences

Bioscience “Related” Sectors

MEDICAL DEVICE AND DIAGNOSTIC COMPANIES

The medical device and diagnostics sector is a clear area of strength in Pennsylvania. This groupcomprises establishments that are engaged in manufacturing biomedical devices and apparatus or manufacturing biomedical diagnostic equipment and apparatus.

Biomedical device and diagnostics manufacturing account for 21.5% of Pennsylvania’s biosciencejobs and 14.8% of annual wages. Collectively, the subsets that make up the medical device sectorshow impressive numbers: The 330 companies in this group employ 18,024 Pennsylvanians,providing total annual wages of $808 million, and an average annual employee wage of $44,839.

NAICS Industry Employees Companies Total Wage Ave. Emp. Wage

334510 Electromedical & electrotherapeutics apparatus 1,187 30 $56,934 $47,978

334517 Irradiation apparatus manufacturing 64 5 $2,048 $32,256

339112 Surgical & medical instrument manufacturing 7,707 59 $372,149 $48,288

339113 Surgical appliance & supplies manufacturing 6,349 147 $269,124 $42,390

339114 Dental Equipment & supplies manufacturing 1,485 32 $71,643 $48,255

339115 Ophthalmic goods manufacturing 1,232 57 $36,283 $29,442

While the average wage in Pennsylvania for this sector is slightly below the U.S. average, its growth in PA is well outpacing the national average.

Devices & Diagnostics

Pennsylvania

United States

$60

$50

$40

$30

$20

$10

$0

Average Wage (2002)

4551

Devices & Diagnostics

Employment

Total Wages

1.35

1.30

1.25

1.20

1.15

1.10

PA Location Quotients (2002)

1.31

1.18

Pennsylvania accounts for more than a representative share of device and diagnostic sector wages and jobs.

R E P O R T16

(Thousands)

% growth in PA % growth in U.S.

Average Annual Wage 5.2% 2.8%

Total Sector Wages 6.7% 1.6%

RESEARCH AND DEVELOPMENT AND TESTING IN THE SCIENCES

Two important sectors in the related group of industries are Industry 54710: research and developmentin the physical, engineering and life sciences, and Industry 541380: testing laboratories. These sectorsinclude contract laboratories engaged in biology, biotechnology and other health-related research.While the total number of establishments in these industries decreased from 2001 to 2002, totalemployment grew 4.2% and total wages for the sector grew 7.2% during this period.

Estimates are that the bioscience-related portion of these industries accounts for nearly 10,000employees and $640 million in total annual wages, with an average annual employee wage of $67,750.

R E P O R T 17

Pennsylvania

United States

$80

$60

$40

$20

$0

Average Wage (2002): NAICS 541380, 541710

68 69

Research, Development & Testing (all)

Research, Development & Testing

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

PA Share of US Sector (2002)

4.5 4.4

Research, Development & Testing

1.04

1.03

1.03

1.02

1.02

1.01

1.01

1.00

PA Location Quotients (2002)

1.01

1.03

Employment Total Wages Employment Total Wages

(Thousands)

While Pennsylvania was not a particularly large recipient of venture capital investment in the nation, averaging just 2.5% of the total from 2001 through 2003, the first quarter of 2004showed significant venture activity for Pennsylvania companies as a whole and for the biosciencesin particular.

The total venture investment in Pennsylvania for the first quarter of 2004 was $200 million,placing it fifth in the nation when ranked by total dollars invested. Nineteen deals were funded.This level of investment is a 65% growth, quarter-over-quarter, for total venture capitalinvestments in Pennsylvania.

Twelve of the deals were biosciences related, including the four largest. The biosciencescommunity in Pennsylvania saw 167% growth, quarter-over-quarter, for venture capitalinvestment in the first quarter. Of particular note are several large deals that underscore the value of the companies in Pennsylvania:

INVESTMENTS IN PENNSYLVANIA2

Venture capital helps fuel the growth of young bioscience companies through the rigorousdevelopment and approval process, and a great deal of capital is needed to fund this. Average venture capital deals are higher than other industries:

Eximias Pharmaceutical Corporation $63.5 million

Nucleonics, Inc. $40.9 million

BioRexis Pharmaceutical Corporation $30 million

Morphotek $11.4 million

$14

$12

$10

$8

$6

$4

$2

$0PA Biotechnology PA Medical

Devices & Equip.PA all V.C. US all V.C.

Venture Capital - Average Deal Size

11.7

6.5

9.5

11.0

7.4

2.2

7.0

5.1

6.5

8.8

7.1 6.7

2001

2002

2003

R E P O R T18

2 Venture capital data are from the MoneyTree™ survey, cooperatively produced by PricewaterhouseCoopers, Thomson FinancialVenture Economics and the National Venture Capital Association, and supplemented with information from GrowThink Research.

(Millions)

Additionally, in the first quarter of 2004, two Pennsylvania companies, Immunicon and Animas,completed initial public offerings. Auxilium filed for IPO.

R E P O R T 19

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

Biotechnology Medical Devices & Equip.

Share of PA Venture Capital - Biosciences

19.1

23.0

27.0

7.8

3.45.2

2001

2002

2003

From 2001-2003, the biosciences venture capital activity represents a significant proportion of total venture funding in Pennsylvania.

On the whole, venture investment in Pennsylvania fell from 2001 to 2003 — as with the nation — but between 2002 and 2003, the investment in both biotechnology and medical devices began to rebound, and, as discussed, the first quarter of 2004 shows a marked upswing in investment in Pennsylvania biosciences companies.

$220

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

$0

Biotechnology Medical Devices & Equip.

PA Venture Capital - Biosciences

116.7124.0

187.1

76.9

14.8 28.2

2001

2002

2003

(Millions)

In the past, many venture-backed Pennsylvania companies had to seek out-of-state funding. That is changing, as a number of public and private efforts are underway to address risk-capitalshortfalls in Pennsylvania.

Research Funding through the National Institutes of Health

Pennsylvania is home to world-class universities and institutions, conducting ground-breakingresearch. With a rich history of medical firsts — the first hospital in the U.S.; development of the first polio vaccine; the first simultaneous heart, liver and kidney transplant; the first cancerhospital in the U.S.— Pennsylvania continues its legacy of innovation.

For fiscal year 2003, Pennsylvania ranked #4 nationally in funding from the National Institutes of Health, garnering $1.3 billion. Two Pennsylvania universities were in the top 10 — University of Pennsylvania (#3) and University of Pittsburgh (#8). These two universities anchor each side of the state, providing exceptional resources for their communities and the global industry:internationally recognized researchers, state-of-the-art laboratory space, strong technologytransfer programs, and much more.

22

20

18

16

14

12

10

8

6

4

2

0

Biotechnology Medical Devices & Equip.

PA Venture Capital - Biosciences

18

13

16

7

2

13

2001

2002

2003

The number of deals has fluctuated between 2001 to 2003.

R E P O R T20

R E P O R T 21

It is difficult to define what constitutes abiosciences or life sciences cluster. Studies vary with regard to the sectors of the industrythat are included in any given definition. What Pennsylvania Bio has done is to focus on a way to define the industry that is substantive and replicable so that it allows for comparisons in future studies.

A number of considerations were taken intoaccount to arrive at a satisfactory definitionfor purposes of collecting and analyzing datain this report. By creating a definition basedon the 2002 North American IndustryClassification System (NAICS) — the statisticalclassification system that forms the basis for allestablishment-based federal economic industrystatistics, including employment and wagedata — Pennsylvania Bio has achieved its goalsand sets its study apart from many previousreports, and many still being published, thatuse the older Standard Industrial Classification(SIC) system. The NAICS was developed jointlyby the U.S., Canada and Mexico to providenew comparability in statistics about businessactivity in North America. The NAICSclassification system attempts to catalogueindustries into similar “bundles.” Severalconsiderations were taken into account indeveloping the NAICS. First establishmentsengaged in similar production processes areclassified together. Next the NAICS containnew categories that focus on emergingindustries, industries that produce advancedtechnology and the services sector — all of which were underrepresented under the SIC system.

Using the NAICS, Pennsylvania Bio aimed to have a definition broad enough to includewhat are considered “core” sectors, as well asindustries that are part of a larger communityof biosciences as well as those that are directly

related to the core sectors. This is importantbecause Pennsylvania has strengths that span many sectors, including biotech and pharmaceuticals, medical device anddiagnostics, and laboratory services, among others. Part of the affiliation between coreand related sectors is based on supply-chainrelationships and part is based on similar labor requirements or other commonalities.

Pennsylvania Bio focused on the biosciencesfor this study as opposed to the life sciences.Often a life sciences sector can include in itsdefinition patient health care services. One of the largest disagreements with respect to establishing a definition has to do withIndustry 621 “Ambulatory Health CareServices,” Industry 622 “Hospitals,” andIndustry 623 “Nursing and Residential CareFacilities.” These industry groups are engagedin the provision of human health care services,they are not producing or supportingtechnology-based human bioscience products,processes or related activities. Each health care service sector is relatively large, in termsof total employment and total wages. Inaddition, each has a very different mix ofoccupations than the core and related sectors.

The relationship that exists between industrieswhich deliver human health services and those involved in the core and non-corebioscience sectors is undeniably strong —especially in Pennsylvania, which hassignificant institutional medical resourcesdevoted to research. Yet the two groups are also substantially different, and should be considered independent. It is for these reasons that Pennsylvania Bio focuses on the biosciences industry sector.

Data for this report were collected and analyzed by KLIOS.

ABOUT THIS STUDY

• Alpha Laval Biokinetics

Seven Penn Center tel. 215.656.29661635 Market Street www.alphalaval.comSuite 1500

Philadelphia, PA 19103

• Centocor

Commonwealth Corporate Center tel. 610.651.6000800 Ridgeview Drive www.centocor.comMail Stop H-6-3Horsham, PA 19044

• Cephalon

145 Brandywine Parkway tel. 610.344.0200

West Chester, PA 19380 www.cephalon.com

• Commerce Insurance Services - Life Science Practice

13 Emery Ave. tel. 877.396.3800Randolf, NJ 07869 www.commercescienceandtechnology.com

• GlaxoSmithKline

One Franklin Plaza tel. 888.825.5249Philadelphia, PA 19102 www.gsk.com

• Wyeth Pharmaceuticals

500 Arcola Road tel. 484.865.5000Collegeville, PA 19426 www.wyeth.com

Pennsylvania Bio Diamond Sponsors

For a complete copy of the Report, or to learn more about Pennsylvania Bio, visit www.pennsylvaniabio.org.

R E P O R T22

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, In

c.

We have a unique understanding of the issues thataffect the life science industry.

• Global Human Clinical Trials & Product Liability

• Errors & Omissions Liability

• Professional Liability Coverages for CROs, SMOs,Healthcare Providers & Facilities

• Directors & Officers Liability for Public and Private Companies

• Industry Specific Property and General Liability Coverages

• Employee Benefits Programs

For superior risk management and insurance advice or a review of your current insurance program, call 1-877-396-3800 for Dan Brettler at ext. 276-6456or Gary Leavy at ext. 276-6517.

A Recognized Leader in Life

Science Insurance

A Recognized Leader in Life

Science Insurance

In the state of New York, insurance services are offered through Commerce Insurance Brokerage Services and Commerce InsuranceBrokerage Services/New York, Inc.

At GlaxoSmithKline, we make discoveries in medicine everyday. Yet, we never forget

the real inspiration behind all our hard work. Do more. Feel better. Live Longer.

Our people have T H O U S A N D S of reasons to be

proud of their work .

Chris just happens to be O N E of them.

709 Swedeland RoadKing of Prussia,PA 19406610-270-6020

PO Box 133985 Moore DriveResearch Triangle ParkNC 27709919-483-6455

Focused on the Future

Wyeth is a global leader in pharmaceuticals, consumer health

care, and animal health products. Wyeth BioPharma and

Wyeth Vaccines are leaders in the biopharmaceutical

industry. With research and development (R&D) programs

focused on small molecules, vaccines and biotechnology,

Wyeth is exploring more than 60 new therapies for medical

conditions such as diabetes, breast cancer, multiple sclerosis,

HIV, Alzheimer’s disease, and schizophrenia.

www.wyeth.com

© 2004 Wyeth Pharmaceuticals Inc., Philadelphia, PA 19101

A pill.

Not just any pill but a true ‘drugster’. In today’s highly competitive pharmaceutical race,

speed-to-market is a crucial driver for commercial success. The earlier a new drug can hit

the market, the more rewarding for the company behind it. And, of course, for the patients.

Life science is a priority area for us at Alfa Laval. It is as fast growing as it is fast moving.

This is a welcome challenge. We have the products. We have the high-tech IQ. We have

the process know-how. We have the turnkey solutions. All the way from the laboratory to

full-scale production plants. In short, we can fuel the life science industry’s ambition to be

the first across the finish line.

Pure Performance: Pharmaceuticals. Oil. Water. Chemicals. Starch. Beverages.

Foodstuffs. You name it. Alfa Laval is helping most types of industries to purify and refine

their products and to optimize the performance of their processes. Time and time again.

Our equipment, systems and service are hard at work in more than 100 countries. Helping to

create better, more comfortable living conditions for mankind. We engineer the victories

in this never-ending process.

To learn more about how Alfa Laval can support you, visit our website where you can get a free subscription to ourmagazine ‘Here’.

The race fora quick remedy

www.alfalaval.com

therapeutic value

We are an international biopharmaceutical

company dedicated to the discovery,

development and marketing of innovative

products to treat sleep and neurological

disorders, cancer and pain.

www.cephalon.com