Washington Biotechnology
& Medical Technology Annual Report, 2006

Capital Availability

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Drug research and development is time-consuming and capital intensive, and the availability of capital is the key factor driving the development of biotechnology and medical device products.

Today, the fully capitalized cost to develop a new drug, including studies conducted after receiving regulatory approval, averages $897 million and takes fifteen years according to an analysis by the Tufts Center for the Study of Drug Development. The high cost due largely to the rigorous and time consuming regulatory drug approval process. Notably, twenty novel medicines won U.S. Food and Drug Administration (FDA) approval in 2005, down from a peak of 53 in 1996. (see Drug Development & Approval Process).

Typical sources of funding include angel and venture capital, government grants, institutional funds, public markets, and acquisition -- being acquired by a larger company that will provide financial, manufacturing and marketing resources.

According to a study by Irving Levin Associates, venture capital firms invested $7.3 billion in biotechnology and healthcare related firms in 2005, an increase of 5 percent over 2004. The medical device and pharmaceutical sectors each accounted for approximately $1.4 billion in venture capital while biotechnology firms received the largest share -- $2.1 billion, based on 102 deals with disclosed prices.

Locally, more than $387 million was raised by Washington State based biotechnology and medical device companies in 2005, according to Info.Resource data, compared to $790 million in 2004 a year that included IPO's by Lumera ($41.7 million), Seattle Genetics ($66.4 million), and Xcyte ($33.6 millon), and secondary stock offerings by Cell Therapeutics ($49.2 million), Dendreon ($130.7), and Targeted Genetics ($24 million).

In 2005, the single largest fundraising in Washington State was Dendreon's secondary stock offering which raised $48 million. Leading local industry, however, was Light Sciences Oncology -- a spin out from parent company Light Sciences Corp. (2004) -- which raised $67 million in two separate venture capital investments. Others successful recipients of sizable investments in 2005 included: recent start-up (2004) Alder Biopharmaceuticals ($21 million), Calypso Medical Technologies ($52.5 million), Microvision ($25 million), and Sonus Pharmaceuticals ($26.8 million). Another company, Cell Therapeutics raised $68 million through the sale of Trisenox, its only FDA approved drug, which it used to repay an investor and fund operations. The following are select private investments made in Washington State firms in 2005.

Private Transactions, 2005 (>$2 million)

Public Capital Markets

In 2005, twenty-two publicly traded biotechnology and medical device companies were headquartered in the state. In 2005, only one company gained public market access -- IsoRay located in Richland began trading on the OTC Bulletin Board. IsoRay, Inc. (ISRY.OB) through its subsidiary, IsoRay Medical, Inc., is the sole producer of the Cesium-131 brachytherapy seed, used to treat prostate and other cancers.

In 2004, three IPO's were completed totalling $141.7 million. Corus Pharma's planned $100 million IPO in 2005 was shelved due to poor market conditions. However, Corus successfully raised $60 million in venture financing in April 2004 one of the top biotechnology investment in the country during the previous 12 months.

Initial Public Offerings, 2004

• Lumera Corp. (Redmond) - $41.7 million
• Seattle Genetics (Bothell) - $66.4 million
• Xcyte Therapeutics (Seattle) - $33.6 million

Publicly Traded Companies in Washington

Industry Consolidation

Industry consolidation which has significantly impacted Washington State's biotechnology and medical device industry in recent years continued in 2005 with the acquisition of Corixa Corp. and ID Biomedical by GlaxoSmithKline, Quinton Cardiology Systems merger with Cardiac Science, and the ProCyte Corp. merged with PhotoMedex.

Consolidation of biotechnology and medical device firms will continue to change the dynamics of local industry driven by larger company need to diversify their product pipeline, and local company requirements for commercialization scale-up, marketing support and ongoing capital investment.

Significant Mergers & Acquisitions (by year)

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