Biotechnology Positioning and What Matters in 2014

EQUITY RESEARCH
RBC Capital Markets, LLC

Michael J. Yee (Analyst)
(415) 633-8522
michael.yee@rbccm.com
Charmaine Chan (Associate)
(415) 633-8621
charmaine.chan@rbccm.com
John Chung (Associate)

(415) 633-8620
john.chung@rbccm.com
Adnan Butt (Analyst)
(415) 633-8588
adnan.butt@rbccm.com
December 20, 2013
Biotechnology: Positioning and what matters in

2014
Event
In 2014 we anticipate 20% upside to large cap biotech (2013 was +82%). This is based on expecting
20-25% EPS growth for the group and for a reasonable forward P/E of 18-20x to remain stable we
dont anticipate any real P/E expansion next year vs. 2012-13, which saw significant "re-rating" due to
so much pipeline success and innovation. 2014 doesn't have as much major clinical news and is more an
execution year on recent big biotech products, where investors should get rewarded for strong secular
fundamentals, commercial execution, and flowthrough to operating leverage and earnings upside. We
raised our PT on GILD to $90 which remains our best large cap idea as outperformance should be led by
large earnings upside coming and we want to buy major upside consensus earnings revisions, followed
by BIIB/CELG and then lower-return/lower risk AMGN. VRTX is our top mid-cap on positive CF data in
summer and stock should start to go up from here into the data.
The report details key questions for each company and our views. We're hosting a conf call 12/20 @
10am ET with a separate extra detailed 185-pg slide deck reviewing these key issues on each stock
for 2014 and tidbits to know (800-602-4090).
Estimates still need to rise: Biotech is set to beat, in our view, and estimates should increase, so PEs
should remain at least the same, which would imply upside to stocks. We believe we are in a multi-year
period of innovation, with new product cycles coming to market, which has helped support a strong
secular biotech market. We believe commercial success of these new products will drive significant
earnings upside and continue to push stocks higher.
There are fewer catalysts in 2014 than 2013. As a result, to keep up high enthusiasm for the group, we
need to find the next leg of the story for each stock when we go into 2015. Recent pipeline successes are
appreciated already and driving near-term EPS in 2014-16 (Tecfidera, Sovaldi, Revlimid, Abraxane etc).
But this success needs to continue, particularly with Phase II/III programs (LINGO, SMA, Tysabri, GILD
cancer or Hep B, CELG partnered programs, AMGN Kyprolis, etc.) as these drive the out years (2016-18)
when recent blockbusters may decelerate. We like the theme that a large cap company needs at least
one big drug coming every three years.
Sentiment and risks? Valuation is viewed as very attractive, especially given growth rates expected in
out years: 16x 2015 EPS and 13x 2016 EPS versus 3-year CAGR of 20-25% for GILD, CELG, and BIIB. This
makes these names look cheap or at least like growth at a reasonable price (GARP). The risks to the
sector are: 1) rotation trade where this outperforming sector is a relative source of funds if economy
picks up faster, 2) success of GILD which needs to meet high expectations for the overall sentiment of the
sector, 3) perception of managed care sensitivity to pricing including orphan drugs, 4) access to capital
markets for smid cap biotech
For smid-caps: We need to be much more selective in 2014. In 2013, unusually high deal flow and strong
IPO performance drove up almost all smid-caps. However, given current valuations, even higher-quality
names need strong data to sustain stock performance. In the smid-cap space, we like PRTA, AUXL, SGEN,
CBST and AERI.
Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted.
For Required Conflicts Disclosures, see Page 194.
Biotechnology: Positioning and what matters in 2014
Table of contents
Biotech for 2014: Tough act to follow, expect more moderated performance next year. ..... 3
Company Profiles Large Caps ........................................................................................... 10
Amgen (AMGN) ........................................................................................................................ 11
Biogen Idec(BIIB) ...................................................................................................................... 24
Celgene (CELG) ......................................................................................................................... 36
Gilead Sciences (GILD) .............................................................................................................. 44
Company Profiles Mid Caps (YEE) .................................................................................... 54
Acorda Therapeutics (ACOR) .................................................................................................... 55
ARIA Pharmaceuticals (ARIA) ................................................................................................... 60
Auxilium Pharmaceuticals (AUXL) ............................................................................................ 66
BioMarin (BMRN) ..................................................................................................................... 70
Infinity Pharmaceuticals (INFI) ................................................................................................. 82
InterMune (ITMN) .................................................................................................................... 86
Myriad Genetics (MYGN) ......................................................................................................... 91
Pharmacyclics (PCYC) ............................................................................................................... 94
Prothena Corporation (PRTA)................................................................................................. 101
United Therapeutics (UTHR) .................................................................................................. 106
Vertex Pharmaceuticals (VRTX) .............................................................................................. 110
Xenoport (XNPT)..................................................................................................................... 117
Company Profiles SMid Caps (Butt) ............................................................................... 116
Aerie Pharmaceuticals (AERI) ................................................................................................. 122
ArQule (ARQL) ........................................................................................................................ 126
AVEO Pharmaceuticals, Inc. (AVEO) ....................................................................................... 131
Cubist Pharmaceuticals (CBST) ............................................................................................... 134
Curis, Inc. (CRIS) ..................................................................................................................... 138
Durata Therapeutics, Inc. (DRTX) ........................................................................................... 143
Endocyte, Inc. (ECYT) .............................................................................................................. 147
ImmunoGen, Inc. (IMGN) ....................................................................................................... 152
Kamada Ltd. (KMDA) .............................................................................................................. 157
The Medicines Company (MDCO) .......................................................................................... 162
PDL BioPharma Inc. (PDLI) ...................................................................................................... 167
Regeneron Pharmaceuticals, Inc. (REGN) ................................................................................. 171
Seattle Genetics Inc. (SGEN) ................................................................................................... 176
Sunesis Pharmaceuticals, Inc. (SNSS) ..................................................................................... 181
Spectrum Pharmaceuticals (SPPI) .......................................................................................... 185
XOMA Corporation (XOMA) ................................................................................................... 190
December 20, 2013
Biotech for 2014: Tough act to follow, expect more moderated

performance next year.
In 2014 we anticipate more modest 15-20% upside to large cap (2013 was +82%). This is based
on our expecting 20-25% EPS growth for the group and for a reasonable forward P/E of 18-20x to
remain stable we dont anticipate any real P/E expansion next year vs. 2012-13, which had
significant re-rating due to so much pipeline success and innovation. 2014 becomes an
execution year on these big products. Expected performance of top large-caps in order for 2014
is: GILD > BIIB > CELG > AMGN. In the smid-cap space, we like VRTX, PRTA, AUXL, SGEN, CBST and
AERI
Our two part thesis is:
1.
2.
Estimates still need to rise: Biotech is still set to beat and estimates need to increase so PEs
should remain at least the same and still imply upside to stocks.
There are FEWER big catalysts in 2014 than 2013. Thus we need to find the next upside leg
in the pipeline: To keep up high enthusiasm for the group, we need to find the next leg of
the story for each stock. Recent pipeline successes are appreciated already and driving nearterm EPS in 2014-16 (Tecfidera, SOF, Revlimid, Abraxane, etc). But this momentum needs
to continue particularly with Phase II/III programs (LINGO, SMA, Tysabri, GILD cancer or Hep
B, CELG partnered programs, AMGN Kyprolis, etc) as these drive the outer years (2016+)
when recent successes may decelerate. We like the theme that a large cap company needs
at least one big drug coming every 3 yearswill we find that in 2014-15?
Overall investor feedback is still positively biased in large cap biotech. We expect very attractive
growth rates, especially in outer years: 16x 2015 EPS and 13x 2016 EPS versus 3-year CAGR of 2025% for GILD, CELG, and BIIB. This makes these names look cheap or at least like growth at a
reasonable price (GARP). We especially see upside earnings bias for GILD, which is coming up on a
potential big launch that we think will exceed expectations.
We believe we are still in the midst of a multi-year period of innovation with new product
cycles coming to market, which has helped support a strong secular biotech market. We are now
entering a period where large cap biotech is going from pipeline success to having multiple new
products that are expected to drive significant earnings upside, which should continue to push
stock prices higher.
For smid-caps, we need to be significantly more selective in 2014. In 2013, unusual deal flow and
strong IPO performance drove up almost all the smid-caps as well as any derivatives. However,
given current valuations, even the higher-quality names will need strong data to sustain stock
performance.
Risks to watch out for the biotech sector include:
December 20, 2013
The rotation trade which takes investors out of winners like biotech and into sectors that
underperformed in 2013 (e.g. energy, telecom) on the basis that the economy picks up
and/or growth and cyclical sectors become more overweight
As goes GILD, as goes the group. Success of Gileads sofosbuvir will drive sentiment and
enthusiasm higher for the group. Disappointment will suggest biotech cannot deliver on socalled blockbusters and will lead the group much lower (this is a well-loved and well-owned
name).
Major pipeline disappointments could shift sentiment from todays general enthusiasm for
innovation to a reminder that drug development is indeed risky. Biotech is inherently risky
and clinical trials can disappoint, which can cause sentiment to turn negative on stocks or the
whole sector.
Access to capital markets will be key for smid-cap biotechs. 2013 saw 43 IPOs (!) and over
$2.9B in capital raised for the biotech sector vs. an average of 9 IPOs and $0.9B each year in
the past 5 years. A decline in appetite to keep financing more companies with higher risk can
drive increasing volatility for small cap biotechs.
Exhibit 1: 2014 was an exceptional year for biotech IPOs with record number of offerings
Source: Company reports, NASDAQ
December 20, 2013
Exhibit 2: Healthcare was a top performing sector in 2014, led particularly by the strength in the biotech sector
Source: Bloomberg
December 20, 2013
Exhibit 3: Most important catalysts and expected stock movements for stocks in our universe
Source: Company reports, RBC Capital Markets estimates
December 20, 2013
Exhibit 4: Upcoming FDA/EMA regulatory events

Ticker
Company
Drug
Indication
Timing
Comment
Regulatory Decision Dates:

SNY
Sanofi/Genzyme
Lemtrada
sBLA
RMS
Q4:13
PCYC
Pharmacyclics
Ibrutinib
NDA
CLL
Early 2014
PDUFA 2/28/14; MCL approved but not CLL

yet
AUXL
Competitor Upsher
Smith
Testim/Vogelxo
NDA
low testosterone
Q1:14
likely final approval of competitor Upsher

Smith's Vogelxo; AB-rating designation
negative for AUXL
CELG
Celgene
Revlimid
Legal
Myeloma
BMRN
BioMarin
Vimizim (GALNS)
MAA
Morquio IVA
1H:14
ACOR
Acorda
Ampyra
Para IV
MS walking
Jan 22, 2014
potential first day of paragraph IV filing by

competitors
UTHR
United Therapeutics
Oral Remodulin
NDA
PAH
Feb 16, 2014
PDUFA for 2nd resubmission
BMRN
BioMarin
Vimizim (GALNS)
BLA
Morquio IVA
Feb 28, 2014
PDUFA date, granted priority review
CELG
Celgene
Apremilast
NDA
psoriatic arthritis
Mar 31, 2014
1st apremilast indication
BIIB
Biogen
rFIXFc
BLA
hemophilia B
VRTX
Vertex
Kalydeco
sNDA
CF
GILD
Gilead
Sovaldi
Legal
HCV
BIIB
Biogen
rFVIIIFc
BLA
hemophilia A
AZN
AstraZeneca
Olaparib
MAA
ovarian cancer
CELG
Celgene
Revlimid
Legal
Myeloma
GILD
Gilead
Idelalisib
NDA
refractory iNHL
Jul 11, 2014
likely PDUFA date for Idelalisib in refractory

iNHL
GILD
Gilead
Idelalisib
MAA
chemo unfit CLL
Q3:14
first CLL approval for idelalisib; in previously

treated, chemo unfit CLL
PCYC
Pharmacyclics
Imbruvica
MAA
R/R MCL and R/R CLL
Q3:14
European approval for 2 indications
CELG
Celgene
Apremilast
NDA
psorarsis
YE:14
yet to file sNDA
SGEN
Seattle Genetics
Adcetris
sBLA
HL, sALCL
YE:13 / early 2014
AVEO
Aveo Pharma
Tivopath
MAA
kidney cancer
YE:13 / early 2014
ECYT
Endocyte
EC145 / EC20
MAA
Celgene
Revlimid
Legal
Platinum resistant ovarian

cancer
Myeloma
YE:13 / early 2014
CELG
Q1 - Q2:14
Apr 4, 2014
May 30, 2014
Jun 2014
Jun 12, 2014
May-Jun, 2014
Mid 2014
Dec 2014
sBLA accepted Jan 28, 2013
potential Markman hearing

assuming standard 210 day CHMP review
Delayed due to manufacturing Qs, standard

review
sNDA to include patients w/ 1 non-G551D
NCA memo on screening adults for HCV
standard review
first potential PARP approval
potential outcome of Markman hearing
Label extension for extended duration
CHMP decision expected

Expiration of 30-month stay w/ Natco
December 20, 2013
Exhibit 5: Upcoming key clinical trial data

Ticker
Trial
Drug
Indication
Stage
Timing
Comments
Potentially Pivotal
BIIB/ISIS
SMN-Rx
SMA
Phase Ib/2a
Q1:14
multiple ascending dose data for SMN-Rx
Ibrutinib
relapsed/refractory CLL
Phase III
Q1:14
Interim analysis expected from ibrutinib-mono vs. ofatumumab
BI
BIBF-1120
IPF
Phase III
Q1:14
pivotal trial for BIBF-1120 in IPF; potential competitor to ITMN
AMGN
AMG-145
hypercholesterolemia
Phase III
Q1:14
Results from 4 Phase III (mono, combo, HEFH, statin-intolerant)
REGN
REGN-727
hypercholesterolemia
Phase III
Q1:14
Results from 9 Phase III
KMDA
Inh. AAT
AATD
Phase II/III
Q2:14
Pivotal Phase II/III (EU); partner Chiesi
ACOR
Ampyra
Post-stroke
Phase IIb/III
Q2:14
Phase IIb start of post-stroke trial
PCYC
RESONATE
BIIB/ABBV
DECIDE
Daclizumab
RRMS
Phase III
Q2:14
Phase III pivotal trial in RRMS vs Avonex
ITMN
ASCEND
Esbriet
IPF
Phase III
Q2:14
Pivotal trial for potential US approval
AMGN
FOCUS
CF vs. BSC
Salvage Myeloma
Phase III
H1:14
Pivotal trial for full approval in US and EU application
AMGN
ASPIRE
Rd+CFx vs Rd
R/R Myeloma
Phase III
H1:14
Pivotal controlled study w/ SPA (PFS of CRd vs Rd)
AMGN
T-Vec
melanoma
Phase III
H1:14
Final OS analysis (2nd endpoint) critical to BLA filing
VRTX
Kalydeco
pediatric gating CF
residual CFTR
Phase II/III
H1:14
pivotal for approval in agt 2-5yrs CF pts with CFTR gating mutation
+ PhII data from (N+1) study of CF pts with residual CFTR function
PRTA
NEOD-001
AL amyloidosis
Phase I
May 2014
AMGN
AMG-416
2nd hyperparathyroidism
Phase III
May/Jun 2014
Imbruvica
myeloma
Phase II
Jun 2014
potential POC of activity in myeloma w/ dex
Jakafi
pancreatic cancer
Phase II
Jun 2014
data update at ASCO
REGN
Dupilumab
atopic dermatitis
Phase II
Mid 2014
POC in this indication
LLY
Ixekizumab
psoriasis
Phase III
Mid 2014
Phase III readout
Kalydeco/VX-809 F508del homozygous CF
Phase III
Summer 2014
Pivotal trials for approval in homozygous F508del CF(50% of patients)
Super QUAD
HIV
Phase III
Jun - Sep 2014
Readout of Super QUAD vs Stribild in na
AMG-386
recurrent ovarian cancer
Phase III
H2:14
Phase III OS data in combo w paclitaxel vs paclitaxel
STX-100
IPF
Phase II
H2:14
initial POC
Jakafi
polycythemia vera
Phase III
H2:14
Phase III readout
Super Quad
HIV nave
Phase III
Q2:14 - Q3:14
MS remyelination
Phase II
Q3:14
PCYC
INCY
VRTX
RECAP
TRAFFIC/
TRANSPORT
GILD
AMGN
TRINOVA-1
BIIB
INCY
RELIEF
GILD
initial POC data for activity in amyloidosis

Phase III readout
TAF has less bone and kidney effects than Viread
BIIB
RENEW
ANTI-LINGO
MRK
IMPROVE-IT
Vytorin
Phase III
Sep 2014
AMGN/AZN
Brodalumab (AMG psoriasis

827)
Phase III
Q4:14
Phase III readout
BMRN
PEG-pal
PKU
Phase III
Q4:14/Early 2015
Phase III readout
Dupilumab
uncontrolled asthma
Phase II
YE:14/Early2015
POC in this indication
Tysabri
SPMS
Phase III
Early 2015
SMN-Rx
SMN
Phase III
H1:15
REGN
BIIB/PRGO
ASCEND
BIIB/ISIS
first POC data in remyelination of optic nerve

DSMB recommended continuation Mar 2013; study calls for collection
of 5250 clinical endpoints to demonstrate prevent of CV events;
readthrough to MK-0653C
pivotal trial for new MS market

Phase III readout in infants Type 1
December 20, 2013
Exhibit 6: RBC Biotech coverage universe by market capitalization
Company
Ticker
Rating
Risk
MktCap. ($ MM)
Price Target
Price ($)
Analyst
Gilead Sciences
GILD
Outperform
$112,594
$90
$73.43
Michael Yee
Amgen
AMGN
Outperform
$84,915
$125
$112.60
Michael Yee
Celgene Corp.
CELG
Outperform
$67,588
$190
$164.02
Michael Yee
Biogen Idec
BIIB
Outperform
$65,481
$325
$277.21
Michael Yee
Regeneron Pharmaceuticals
REGN
Outperform
$26,898
$344
$270.55
Adnan Butt
Vertex Pharmaceuticals
VRTX
Outperform
$16,351
$95
$69.95
Michael Yee
BioMarin Pharma
BMRN
Outperform
$9,722
$77
$68.36
Michael Yee
Pharmacyclics
PCYC
Outperform
Speculative
$7,475
$150
$101.41
Michael Yee
Cubist Pharmaceuticals
CBST
Outperform
$4,846
$82
$65.43
Adnan Butt
Seattle Genetics
SGEN
Outperform
$4,734
$48
$38.65
Adnan Butt
United Therapeutics
UTHR
Sector Perform
$4,358
$68
$86.76
Michael Yee
The Medicines Company
MDCO
Outperform
$2,353
$50
$36.81
Adnan Butt
Myriad Genetics
MYGN
Sector Perform
$1,862
$32
$24.39
Michael Yee
ImmunoGen
IMGN
Outperform
Speculative
$1,230
$18
$14.40
Adnan Butt
Intermune
ITMN
Sector Perform
Speculative
$1,207
$15
$13.49
Michael Yee
Acorda Therapeutics
ACOR
Outperform
Speculative
$1,194
$42
$28.93
Michael Yee
PDL BioPharma
PDLI
Sector Perform
$1,154
$8
$8.24
Adnan Butt
Ariad Pharmaceuticals
ARIA
Sector Perform
Speculative
$1,025
$4
$5.52
Michael Yee
Auxilium Pharmaceuticals
AUXL
Outperform
$1,003
$22
$20.24
Michael Yee
XOMA Ltd.
XOMA
Outperform
Speculative
$644
$9
$6.30
Adnan Butt
Infinity Pharmaceuticals
INFI
Outperform
Speculative
$606
$35
$12.61
Michael Yee
Prothena
PRTA
Outperform
Speculative
$606
$38
$27.73
Michael Yee
Dendreon
DNDN
Sector Perform
Speculative
$532
$3
$3.38
Michael Yee
Kamada
KMDA
Outperform
Speculative
$510
$20
$14.18
Adnan Butt
Spectrum Pharmaceuticals
SPPI
Outperform
Speculative
$497
$15
$8.27
Adnan Butt
Endocyte
ECYT
Outperform
Speculative
$377
$22
$10.42
Adnan Butt
Durata Therapeutics
DRTX
Outperform
Speculative
$325
$17
$12.20
Adnan Butt
Aerie Pharmaceuticals
AERI
Outperform
Speculative
$254
$20
$15.92
Adnan Butt
AVEO Pharmaceuticals
AVEO
Sector Perform
Speculative
$254
$2
$1.61
Adnan Butt
Sunesis Pharmaceuticals
SNSS
Outperform
Speculative
$251
$9
$4.65
Adnan Butt
Xenoport Inc.
XNPT
Outperform
$245
$12
$5.13
Michael Yee
Curis Inc.
CRIS
Outperform
Speculative
$235
$7
$2.74
Adnan Butt
ArQule
ARQL
Sector Perform
Speculative
$135
$5
$2.16
Adnan Butt
Source: Thomson, RBC Capital Markets estimates
December 20, 2013
Company Profiles Large Caps
December 20, 2013
10
Amgen (AMGN)
Outperform
Price Target USD $125.00
Target/Upside/Downside Scenarios
Exhibit 7: Amgen
Investment summary
We view AMGN as a long-term positive based on conservative 3to 5-year guidance (room for upward revision), especially as
growth via geographical expansion, biosimilars (most view it as
rev erosion, not growth), and pipeline optionality are not in
consensus. AMGN is also focused on continued dividend growth,
which is attractive for long-term investors. Another underappreciated driver is AMGN's margin expansion from reduction
in percentage of Enbrel profit shares late in 2013, reducing SG&A
by as much as 3.5% in 2014, and again by 2% + in 2017 when the
profit-sharing agreement ceases. Thus, AMGN remains a "better
pharma" with valuation discount (14.5x vs. 15.5x) with growing
dividend and commitment for return of high percentage of
capital, potential cost-reduction levers, and an overall more
robust pipeline that could begin to be factored in estimates in
the next 12 years
Potential catalysts to our thesis
Source: RBC Capital Markets estimates
Target price/ base case

Our base case of $125/share assumes minimal erosion of base
business (-1% y/y post 2016) using an 8% discount rate and 1.5% terminal growth rate. We also include probability adjusted
(1040%) value for seven pipeline opportunities: T-Vec,
AMG386, sclerostin, AMG-145, AMGN's early-stage neurology
pipeline (AMG747, AMG334) and its immunology assets in
collaboration with AZN (AMG181, AMG827, of which AMGN
roughly has ~55% economics), as well as AMGN's biosimilar
program. Probability-adjusted pipeline value is $20/ share of our
price target.
Risks to our investment thesis:
Upside scenario
Our upside scenario of $135/share assumes a more stable core
base business (-1% growth rate, -1% terminal growth,
$110/share) and higher probability of success for two of the
pipeline programs, namely 60% instead of 30% for AMG-145 and
50% instead of 25% for sclerostin. Pipeline accounts for
$25/share in this scenario.
Downside scenario
Our downside scenario of $105/share assumes no pipeline
contribution at all, as some investors remain skeptical of
AMGN's ability to renew growth with its current pipeline
portfolio.
December 20, 2013
Greater pipeline enthusiasm driven by PCSK-9, T-Vec

(melanoma), AMG-386 (ovarian cancer). AMGN currently
has little pipeline value ascribed and positive data readout
and regulatory filing of these Phase III assets will increase
investor enthusiasm for revenue growth in 2015 and
beyond.
De-risking of Kyprolis asset and new product cycle),
through demonstration of impressive PFS (5 months+) in
ASPIRE and good CV safety (3-4% event rate), debunking
concerns its challenging profile will decrease its potential in
earlier lines of myeloma treatment.
Greater than expected competitive impact on various

franchises: We believe competitive products from Teva will
have limited erosion on AMGN's base business in the next 12 yrs. However, inability for AMGN to meet sales estimates
can erode investor confidence of resilience of franchise and
AMGNs ability to manage competitive threats. AMGN does
has many levers at its disposal (price increases, cost cuts,
share buybacks).
Clinical risk, should ASPIRE and ENDEAVOR trial results be
less robust than expected. AMGN completed acquisition of
ONXX on premise that Kyprolis could garner EU approval
and show superiority vs. Velcade (another proteasome
inhibitor to go generic in 2015/2016). Poorer than expected
clinical updates in 2014 will render this acquisition a
strategic failure leaving AMGN with greater financial risk.
11
Key questions / debates for AMGN

1.
What is the competitive situation with

Teva on Neupogen/Neulasta?
Teva has launched Granix (competitor to Neupogen) Nov 2013 but withdrew both
pegylated and albumin long acting versions (future competitor to Neulasta) due to
litigation and agencys request for additional data. We do not expect Neulasta (25% of
AMGNs revs) competition until after patent expiration (Dec 15).
2.
How should we view AMGN vs. REGN

PCSK-9 competition?
Efficacy in Phase II looks comparable (45-50% monotherapy, 50-60% combo), so we

expect Phase III to be similar for the two compounds. Potential differentiation lies in
very low adverse events rate (myalgia, no liver enzyme abnormalities, low injection
site reactions), infrequent neutralizing antibodies and long-term follow-ups. We
continue to believe both AMGN and REGN will fill for regulatory approval by YE:14
without waiting for cardiovascular outcomes data.
3.
Any updates to biosimilars regulatory

update in the US?
Sponsors have been discussing with the FDA individually on design of pivotal trials,
and recall draft guidance was published in 2012, but there have been few updates
since on erecting regulatory pathway for approval of biosimilars.
4.
What are our views on ASPIRE interim

results?
We think the study is likely to stop at interim in H1:14 as KRd should give
higher/deeper responses (75%+ ORR) than Rd (65-70% ORR). We estimate CHF (CV)
events will be 3-5%+, similar to label stated 3% but higher than 1-2% for Rd.
5.
Will CLARION and ENDEAVOR work?
These head-to-head studies against Velcade are crucial to Kyprolis, and we think 2
line ENDEAVOR is likely to work as deeper CRs and VGPRs will likely drive longer PFS
st
in these sicker patients. Similarly in 1 line CLARION, Kyprolis should show higher CR
but the bar is higher here as PFS in VISTA is already 20.7 months.
December 20, 2013
nd
12
Exhibit 8: Expected news flow for AMGN

Timing
Expected News Flow
Program
Early/H1:14
Final OS analysis (2nd endpoint) from T-Vec in melanoma
T-Vec
Q1:14
Pivotal Phase II data from adult R/R B-precursor ALL
Blinatumomab (AMG 103)
Q1:14
Results from four Phase III trials (Mono, Combo, HeFH, Statin-intolerant)
AMG-145
May/Jun 14
Phase III readout for AMG-416 in 2nd Hyperparathyroidism
AMG-416 (KAI-4169)
H1:14
Phase III FOCUS final analysis (Kyprolis vs corticosteroid)
Kyprolis
H1:14
Phase III ASPIRE interim analysis (KRd vs Rd - for EU approval)
Kyprolis
H1:14
MRK's Odanacatib anticipated filing (after extension data)
Prolia competitor
H2:14
Phase III OS data for TRINOVA-1 (AMG-386 + paclitaxel vs paclitaxel) in recurrent ovarian
cancer
Trebananib (AMG-386)
Mid 2014
Phase III for LLY's Ixekizumab for psoriasis
Ixekizumab (LLY)
Oct 2014
Phase IIb (COSMIC-HF) data in AHF chronic patients
Omecamtiv Mecarbil
Q4:14
Results from Phase III in psoriasis
Brodalumab (AMG 827)
2014
US Filing for Ivabradine for CHF
Ivabradine
2015
PFS Phase III data of TRINOVA-3 (AMG-386 +/- paclitaxel + carboplatin) in first-line ovarian
cancer
YE:15
Phase III readout from two pivotal Phase III trials in postmenopausal osteoporosis (vs.
placebo or alendronate)
Romosozumab (AMG 785)
Mid 2016
OS Phase III data of TRINOVA-3 (AMG-386 + paclitaxel + carboplatin) in first-line ovarian

cancer
2016
Phase III of Rilotumumab (blocks HGF/SF) to MET receptor in gastric cancer
Rilotumumab (AMG 102)
2016
Phas III data from biosimilar Humira global trial
2017
Launch Biosimilars Portfolio (Humira, Remicade, Avastin, Herceptin, Rituxan, Erbitux)
Source: Company reports and RBC Capital Markets Estimates
We believe AMGNs guidance in Jan is likely to encompass current consensus EPS of $8.13 vs. our
$8.15. AMGN historically gives conservative initial guidance and then guides up over the year.
Consensus included a mostly neutral EPS impact from ONXX in 2014 (and accretive by ~3-5% in
2015).
1. Phase III ASPIRE interim analysis in H1-14

We think it will be in Q2 and will be looking for stopping at the interim for meeting the criteria for
statistical significance. This study completed enrollment in February 2012. Thus, assuming the
median completed enrollment in Fall of 2011 then in Q2:14 we estimate median duration of PFS
could be 20+ months for CRd vs. mid to high teens for Rd.
We estimate cardiovascular safety (specifically CHF) will be 3-5%+ given much longer duration vs.
1-2% for Rd implying a delta of low single digits which is no different than Kyrpolis single-agent
3rd line which already has 3% in the label. One would expect it to be higher given longer-duration
and thus longer follow-up captures more events. Notably the CV events in 3rd line were fairly
early, i.e. first cycle of drug.
We believe Phase III FOCUS data in H1-14 has a 50% chance of positive data
December 20, 2013
13
Exhibit 9: Kyprolis combination regimens show deep responses in studies
Tx
Setting
Prior
ORR
Tx
CRd
II
53
98%
Kyprolis
CCd
II
58
90%
CMP
I/II
66
91%
Pi
VMP
III
344
71%
NDMM
RVd
II
35
100%
Pi/iMid
IRd
II
56
95%
MPR
80%
iMid
Rd
III
541
73%
MPT
III
547
62%
CRd
II
52
3
77%
Kyprolis
CarPomD
II
30
6
50%
Cd
II
257
5
24%
RRMM
iMid
RD
III
353
3
60%
Pi
Vd
III
333
2
38%
mAb-iMid
Elo-Rd
II
36
2
92%
Highlighted yellow indicate regimens being explored in pivotal studies
Backbone
Regimen
Stage
>VGPR
nCR/CR
81%
77%
56%
41%
74%
71%
45%
43%
28%
42%
13%
6%
62%
53%
6%
30%
57%
20%
33%
14%
9%
6%
0%
0%
14%
6%
14%
64%
AE-related
discontinuations
4%
12%
11%
33%
12%
24%
13%
14%
19%
12%
25%
Source: Company reports, ASH 2012, ASCO2013
December 20, 2013
14
Exhibit 10: Kyprolis Studies Planned For Patients in Various Lines of Therapy
Stage
Trial Name
Phase
# Prior
Drugs
Third
Line
FOCUS
III
302
Regimen
K
ASPIRE
(SPA)
III
780
1-3
vs. corticosteroid
(optional Cytoxan)
KRd
vs. Rd
Second
Line
Kd
ENDEAVOR
III
888
1-3
vs. Vd (SQ or IV)
OS
Final analysis
1H:14
20/27mg/m
prednisone 30mg
dex 6mg
20/27mg/m (10min infusion)
x 18 cycles
R: 25mg, d: 40mg
PFS
20/56 mg/m (30min

infusion)
d: 20mg
PFS
20 mg/m does escalation to

45, 56, 70, 88 mg/m
MTD
II
127
1-2
Kd
20 mg/m, then MTD
ORR
III
882
III
III
756
200
In mid-13, DSMC recommends

trial to continue to final analysis
Interim analysis To support EU approval and label

1H:14
expansion in US
~2015-16
V: 1.3 mg/m
d: 20mg
Kd
vs. VMP
(SQ or IV)
KRd
(followed by R
maintenance)
vs. VRd
(followed by R
maintenance)
K + Cytoxan + d
(followed by K
maintenance)
Comments
R: 25mg, d: 40mg
1-2
Front
Line
CHAMPION 2
Data Timing
18
KMP
ECOG Study
Primary
Endpoint
I
CHAMPION 1
CLARION
Dosing
20/36 mg/m (30-60min

infusion) x 9 cycles
Data presented at Determined 70mg/m as the MTD

in a weekly infusion (30mins).
ASH 2013
Phase II initiated to explore
~2015
weekly dosing at MTD
For global registration in front-line
MM. Going head-to-head vs.
Velcade in transplant-ineligible
pts
PFS
~2016-17
OS
~2018
Head to head comparison of K

vs. V based on ORR and MRD
CR rate
(sCR+CR)
~2015
Induction therapy of K + Cytoxan,

plus K maintenance
1.3 mg/m x 9 cycles

20/36 mg/m (30min
infusion)
x 12 cycles
Designed to show superiority vs.

Velcade. Important in EU where
Rev may be too expensive
V: 1.3 mg/m x 12 cycles

20 mg/m then MTD x 8
cycles, then 56 mg/m
maintenance
2.Sales of Teva Neupogen as a read-through to biosimilar-like competition.

With Teva Neulasta now delayed for likely at least a year, sales of Tevas Neupogen (brand name
here) will be watched given 20% price discount from AMGN. We think sales will be modest for the
first year so this should give increased confidence to AMGNs ability to maintain strong market
share.
Neupogen/Neulasta comprises up to 33% of US sales and Teva has launched Granix (Neupogen
competitor) on November 11, 2013. We think sales will be modest off the first years so this should
give increased confidence to AMGNs ability to maintain strong market share.
Sales of Granix will be watched given 20% price discount to AMGN, but recall this is not a
biosimilar and thus would require market building. Investors are concerned Teva could sign
contracts with major managed care players at large discounts to incentivize priority coverage or
utilization and gain share. AMGN could offer rebates/discounts and limit price increases on the
four other drugs it already sells to these payors (Xgeva, Aranesp, etc) to make AMGN products
more on par and economical to managed care.
Recall Teva withdrew the peg version of their Neulasta me-too due to AMGN lawsuit, and
their 2nd long-acting (albumin version) due to FDAs need for additional data. This means that
AMGNs Neulasta franchise will not see competition until after Dec 2015.
December 20, 2013
15
3. Phase III PCSK-9 data during 2014

We believe multiple Phase III positive studies and possible H2:14 analyst R&D meeting could push
a higher P/E multiple as investors recognize this late-stage product is possible coming to market in
2015. Currently there is no Phase III data for AMG-145 yet (Phase III readout Q1:14), and
competitor REGN will have data in the same timeframe. REGNs first Phase III MONO (REGN727
vs. ezetimibe, n=100) has readout showing 47% LDL reduction
AMGN have presented positive Phase II data showing 4066% LDL reductions and similar to
competitor REGN/SNY. One of AMG-145s differentiation is potential for once-monthly dosing,
which REGN/SNY have recognized and thus recently initiated a once-monthly dosing study as well.
Hypercholesterolemia affects 12M in the US and is a $10B+ opportunity with 10-20% penetration.
We believe the market is enormous and can fit multiple players over time (like statin market).
Phase III data in Q1:14 (mono, combo, HeFH, statin intolerant) should bring greater enthusiasm to
this potential blockbuster for a core market of 1M+ hypercholesterolemia patents intolerant of, or
unable to reach LDL goals despite, statins. We believe anti-PCSK9 market will grow to $2- $5B+
over time and AMG-145 will garner $2B+ of peak sales, worth $10/share for AMGN (* contact us
for detailed deep dive*). AMGN is also collaborating w/ Servier (2nd largest French pharma) in
development and commercialization of Procoralan/Ivabradine (approved in Europe since 2005)
for chronic heart failure and S38844 (Phase II) for CV disease. AMGN intends to file US registration
for Procoralan in 2014, and use that as a cardiovascular launch pad prior to launch of AMG-145 in
2015.
Exhibit 11: Schematic of Hypercholesterolemia Patients, unmet need and potentially large market
opportunity for AMGN
Source: AHA, AMA and RBC Capital Markets estimates
December 20, 2013
16
Exhibit 12: Our PCSK9-APP Values AMG-145 at $10+/share on very conservative market penetration assumptions
PCSK9 INTERACTIVE MODEL---> You can change the assumptions in blue in the Box here.
Probability (AMGN)
Probability (REGN)
Probability (PFE)
Pricing ($)
NET Price of AMG-145 in US ($) per year
NET Price of REGN-727 in US ($) per year
NET Price of PFE's RN-316 in US ($) per year
Ph3 start Approval Market

100%
85%
85%
100%
85%
85%
90%
85%
77%
US
$ 10,000
$ 10,000
$ 10,000
ROW
$ 7,000
$ 7,000
$ 7,000
3%
0%
Price Increase Per Year
Volume (#) for USA Only

How Many People take Statins?
Risk Profile Segmentation (Low - High)

What % Are on Combo Therapy (Stain + x) Already?
What % Still Can't Reach LDL Goals?
What % Has Medical Imperative To Lower LDL?
Theoretical Market Size (# of Patients in '000)
Likely Market Size (# of Patients in '000)
US
ROW
30 M
Low
27%
10%
18%
13%
18 K
5K
AMGN-145
Rev. Estimate for Low-Risk Patients ($M)
Rev. Estimate for Medium-Risk Patients ($M)
Rev. Estimate for High-Risk Patients ($M)
Peak Sales US ($M)Peak Sales WW ($M)

$
$
$ 190
$
319
$ 2,215
$
2,974
REGN-727

$
$
$ 133
$
263
$ 2,092
$
3,003
PFE (RN-316)

$
$
$
95
$
160
$ 1,477
$
2,084
50 M
Medium
High
40%
33%
28%
48%
23%
27%
28%
50%
214 K 642 K
107 K 417 K
PCSK9 for AMGN ($/share)

PCSK9 for REGN ($/share)
PCSK9 for SNY ($/share)
PCSK9 for PFE ($/share)
2014
2015
2016
2017
2018
2019
2020
Total
$12
$29
$3
$0.6
2021
Prob. Adjusted
$10
$25
$2
$0.5
2022
2023
2024
Total REVENUE - Low -Risk Pts ($M)

Total REVENUE - Medium Risk Pts ($M)
Total REVENUE - High Risk Pts ($M)
Total REVENUE - USA ($M)
Total REVENUE - ex-US ($M)
TOTAL WW REVENUE ($M) for AMG-145
$
$
$
$
$
$
17
179
115
82
196
$
$
$
$
$
$
27
371
236
162
398
$
$
$
$
$
$
37
578
370
245
615
$
$
$
$
$
$
58
800
522
336
858
$
$
80
$ 1,143
$ 753
$ 470
$ 1,223
$
$ 104
$ 1,403
$ 937
$ 570
$ 1,507
$
$ 129
$ 1,683
$ 1,139
$ 673
$ 1,812
$
$ 156
$ 1,750
$ 1,208
$ 697
$ 1,905
$
$ 184
$ 1,819
$ 1,281
$ 722
$ 2,003
$
$
$
$
$
$
215
1,975
1,442
748
2,189
Total REVENUE - Low -Risk Pts ($M)

Total REVENUE - Medium Risk Pts ($M)
Total REVENUE - High Risk Pts ($M)
TOTAL WW REVENUE ($M) for REGN-727
$
$
$
$
$
$
13
179
110
82
192
$
$
$
$
$
$
23
371
232
162
394
$
$
$
$
$
$
33
578
366
245
611
$
$
$
$
$
$
53
800
517
336
853
$
$
75
$ 1,247
$ 812
$ 510
$ 1,322
$
$
93
$ 1,511
$ 995
$ 610
$ 1,605
$
$ 112
$ 1,683
$ 1,122
$ 673
$ 1,795
$
$ 132
$ 1,808
$ 1,222
$ 718
$ 1,940
$
$ 154
$ 1,940
$ 1,330
$ 764
$ 2,094
$
$
$
$
$
$
176
2,081
1,445
812
2,257
December 20, 2013
17
Exhibit 13: AMG-145 Phase III Studies, With First Readouts in Q1:14 in Hypercholesterolemia
Trial
Readout
n=
Trial
Endpoints
OSLER-1
Q4:13
140
Fasting LDL-C>85mg/dL
Fasting triglycerides <=400mg/dL (4.5mmol/L)
Inclusion
AMG-145
reported outcomes
(wk 2 and 4)
ability for subjects to self-administer 2

doses of AMG-145
(wk 2 and 4)
OSLER-2
YE:13
140
Fasting LDL-C>85mg/dL
Fasting triglycerides <=400mg/dL (4.5mmol/L)
AMG-145
reported outcomes
(wk 4 and 8)
ability for subjects to self-administer 2

doses of AMG-145
(wk 4 and 8)
LAPLACE-2
(statin add-on)
Early 2014
1700
Fasting LDL-C of 150mg/dL (if no statin)

Fasting LDL-C of 100mg/dL (if on non-intensive
statin)
Fasting LDL-C of 80mg/dL (if on intensive statin)
Fasting trigylycerides <=400mg/dL
AMG-145 + statin
Zetia + statin
statin
LDL from baseline

(wk 12)
AMG-145 vs Zetia as add-on to statin vs

statin alone
(24-arm Q2W and Q4W)
RUTHERFORD-2
(HeFH)
Early 2014
300
Diagnosed HeFH on stable statin dose

Fasting LDL-C>=100mg/dL
Fasting triglycerides <=400mg/dL
Zetia/statins +/- AMG-145
LDL from baseline

(wk 12)
AMG-145 as add-on to Zetia/statins in

HeFH
(4-arm, Q2W and Q4W)
GAUSS-2
(mono f/ statin
intolerant)
Early 2014
300
intolerant to 2 statin+, or on stable low dose

subject not at LDL-C goal
fasting triglyceride <=400mg/dL
AMG-145 vs Zetia
LDL from baseline

(wk 12)
AMG-145 vs Zetia in statin intolerants

(4arm, Q2W and Q4W)
MENDEL-2
(Framingham risk)
Early 2014
600
10Yr Framingham Risk of <=10%

Fasting LDL-C >=100mg/dL and <190mg/dL
AMG-145 +/- Zetia vs pbo
LDL from baseline

(wk 12)
AMG-145 vs Zetia vs pbo in pts w/ 10Yr FR

of <=10%
(6-arm Q2W and Q4W)
TESLA*
(HoFH)
H1:14
67
Diagnosed HoFH, weight >40kg

Stable LDL therapies for 4 wks+
LDL-C>130mg/dL
AMG-145 vs pbo
LDL from baseline

(wk 12)
AMG-145 in HoFH
TAUSSIG*
(HeFH/HoFH)
H1:14
125
Diagnosed HEFH/HoFH, weight >40kg

Stable LDL therapies for 4 wks+
LDL-C>130mg/dL
AMG-145
long-term extension
study
monotherapy in HoFH/HeFH patients

(2 arms, Q2W and Q4W)
GLAGOV
(atherosclerosis)
May 2015
950
clinical indication for coronary angiography

20-50% reduction in lumen diameter or prior PCI
fasting LDL-C>80mg/dL
AMG-145
PAV from baseline
AMG-145 vs pbo, atherosclerotic disease

burden in 78 wks
FOURIER
(outcomes)
Early 2018
Zetia + Lipitor +/- AMG-145
Time to MACE
22500 CV disease and high risk for recurrence

Fasting LDL-C>70mg/dL or non-HDLC>100mg/dL
Fasting triglycerides <400mg/dL
Description
outcomes trial, timeframe of 5 yrs
December 20, 2013
18
Exhibit 14: Competitor REGN Will Also Have Phase III Readouts in 2014
Trial
Readout
n=
Inclusion
Trial
Endpoints
Description
MONO
Q3:13
103
LDL-c between 100 - 190mg/dL

(uptitrate to 150mg @ wk 8 if needed)
REGN727 vs Zetia
LDL from baseline

(wk 24)
REGN727 vs Zetia in hypercholesterolemia patients

(2 arms, Q2W)
COMBO I
(statin add-on)
Q2:14
306
hypercholesterolemia + CHD risk

not controlled on max-tolerated statins/fibrates
statins/fibrates +/- REGN727
LDL from baseline

(wk 24)
REGN727 vs pbo on top of statins

(2 arms, Q2W)
COMBO II
(statin add-on)
Q2:14
660
hypercholesterolemia + CHD risk

not controlled on max-tolerated statins/fibrates
statins/fibrates +/- REGN727
LDL from baseline

(wk 24)
REGN727 vs pbo on top of statins

(2 arms, Q2W)
ALTERNATIVE
(statin intolerant)
Q1:14
250
HeFH or non-FH w/ moderate, high or very high CV REGN727 vs Zetia vs Statin

risk and statin intolerance
LDL from baseline

(wk 24)
REGN727 vs Zetia vs Statin

(3 arms, Q2W)
OPTIONS I
(statin add-on)
Q1:14
350
LDL>70mg/dL (history of CV) but <250mg/dL

LDL>100md/dL (no history of CV) but <250mg/dL
(REGN727 vs Zetia) + Lipitor vs

Lipitor/Crestor
LDL from baseline

(wk 24)
(REGN727 vs Zetia) + Statin

(7 arms, Q2W)
OPTIONS II
(statin add-on)
Q1:14
300
LDL>70mg/dL (history of CV)

LDL>100md/dL (no history of CV)
(REGN727 vs Zetia) + Crestor vs LDL from baseline

Crestor
(wk 24)
(REGN727 vs Zetia) + Statin

(6 arms, Q2W)
FH II
(HeFH)
Q4:14
249
HeFH
REGN727 vs LMT (Lipitor,

Crestor or Zocor)
LDL from baseline

(wk 24)
REGN727 vs LMT
(2 arms, Q2W)
FH I
(HeFH)
YE:14
471
HeFH
REGN727 vs pbo
LDL from baseline

(wk 24)
REGN727 vs pbo
(2 arms, Q2W)
Long Term
(Safety)
Q4:14
2100
HeFH or HC w/ CHD risk

REGN727 vs pbo
safety for 20 months

(AE, lab, vital signs, ECG)
REGN727 vs pbo
(2 arms, Q2W)
High FH
(High HeFH)
Q1:15
105
HeFH
LDL>160mg/dL
REGN727 vs pbo
LDL from baseline

(wk 24)
REGN727 vs pbo
(2 arms, Q2W)
CHOICE I
(Q4W)
Q1:15
700
HC and CVD risk
REGN727 vs pbo
LDL from baseline

(wk 24)
REGN727 vs pbo
(3 arms of 2 doses, Q4W)
OUTCOMES
Mar '2018
REGN727 vs pbo
Time to MACE
REGN727 vs pbo
(2 arms, Q2W)
18000 Recently hospitalized or ACS
4. AMGNs Other Pipeline readouts in 2014

T-Vec (immunotherapy for melanoma) - Data shows that >50% of T-Vec responders (16% vs. 2%
GM-CSF) have duration of one year or more, which bodes well for final OS analysis mid 2014.We
think it's possible T-Vec could partner with another immunotherapy checkpoint agent such as
MRK's PD-1. Expectations for the drug or its potential as combination therapy are very low. We
conservatively assign 30% probability that T-Vec will grow to be a $500M+ peak sales therapy.
AMG-386 (anti-angiogenesis peptibody targeting Ang1/Ang2/receptor Tie2) - first Phase III in
recurrent ovarian cancer was positive, with AMG-386 +paclitaxel showing stat sig improvement in
PFS (7.2 vs. 5.4 months, p<0.001) over paclitaxel alone, but approval hinges on OS benefit (H2:14,
events only 3040% mature at this time). AMGN has previously said that OS trend started
negative against drug but reversed over time. There will be an additional Phase III (TRINOVA-3,
AMG-386 +/- paclitaxel + carboplatin in first line patients).
We conservatively assign 25% probability that AMG-386 could be $1B+ ovarian cancer therapy.
Blinatumomab (bi-specific T-cell engagers for ALL, DLBCL), where we are expecting pivotal PhII
data from relapsed/refractory B-precursor ALL in H1:14. Recall the two Phase II r/r enrolled
pediatric/adolescent as well as adult patients. Phase II adult r/r ALL study will enrol 65 patients in
the U.S. and EU, who will receive 1-2 cycles of blinatumomab induction (5mg/m2/day wk 1; 15
mg/m2/day subsequently) and 1-3 cycles of consolidation. The primary endpoint is CR and CRh
within 2 cycles. Secondary endpoints include duration, OS, and 100-day mortality after HSCT,
among others. The rate of MRD response in first 2 cycles is an exploratory endpoint.
December 20, 2013
19
Phase I/II pediatric and adolescent patients with r/r B-precursor ALL study will enrol 85 patients
across 48 centers in the U.S.,Canada and EU. The Phase I portion will enrol up to 48 patients who
will receive 5-60 ug/m2/day (4 wks on; 2 wks off) of blinatumomab. The Phase II portion will enrol
a maximum of 40 patients. The primary endpoint is MTD (defined by <= 1 of 6 patients with DLT
or MAD). Secondary endpoints include CR rate in first 2 cycles, duration, and OS among others.
For hurdle rates, key opinion leaders define it as a CR of 30-40% or more, induction mortality of
less than 5-10%, duration of response of greater than 6 months, and OS of 8 months or more.
However, we caveat that FDA has been unpredictable.
AMG 785 (Romosozumab), an anti-sclerostin antibody in Phase III development for the treatment
of postmenopausal osteoporosis. Mike likes this as another one to watch with pivotal P3 data
expected in 2015, as it has potential to add another $1B to AMGN's top line by 2020.
December 20, 2013
20
Exhibit 15: AMGN Valuation-APP points to $125/share as base case, with modest contribution from pipeline
AMGN Valuation APP --> Change Assumptions in Blue
How Do we Value AMGN?
How Do We Value AMGN's Pipeline?

Prob. of Success
Per DCF
Per PE
Bear Case (no pipeline)
$106
Multiple
Base Case (prob adjusted pipeline)
$126
EPS in 2015
Bull Case (higher prob. Adjusted pipeline)
$134
Price
Super Bull Case (100% Pipeline Success)
$150
AMGN's yield
1.8%
Discount Rate
8.0%
Terminal Growth Rate
-2.0%
Core Product Rev Growth Rate post 2016
-1.5%
17x
$8.62
$125
Product Sales (in $MM)

Aranesp
y/y change in Aranesp (%)
Epogen
y/y change in Epogen (%)
Neulasta
y/y change in Neulasta (%)
Neupogen
y/y change in Neupogen (%)
Enbrel
y/y change in Enbrel (%)
AMG-145 (PCSK9)
Prolia
Xgeva
Sensipar
Vectibix
Kyprolis
Nexavar
Stivarga
Other products and revenues
Total Revenues
Rev Growth (%)
COGS
% of revenues
R&D
% of revenues
SG&A
% of revenues
Interests
Taxes
Tax rate
Net Income
# shares outstanding
EPS
30%
550
AMG386 (ovarian cancer)
25%
1,100
Sclerostin (bone building)
25%
1,200
AMG-145 (hypercholesterolemia)
60%
2,000
Phase I/II pipeline - AMG747, AMG334
10%
1,200
Collaboration pipeline - AMG181, AMG827
20%
800
Biosimilars Venture
35%
2,000
Pipeline Value
What Are Consensus Estimates for 2013-2015?
Sales in 2022
T-Vec (melanoma)
$19.11
to
$43.59
How Will EPS Change with Earlier Neulasta Entry/ Other Competition?
Consensus
2012A
2,040
1,941
4,092
1,260
4,236
472
748
950
359
1,167
$17,265
2,735
15.8%
3,296
19.1%
4,717
27.3%
-$428
970
15.9%
5,119
787
$6.51
EPS (less aggressive sharecount reduction)
Product Sales (in $MM)
YOUR ASSUMPTIONS
2013
1,958
-4%
1,883
-3%
4,288
5%
1,229
-3%
4,596
9%
2014
1,860
-5%
1,826
-3%
4,203
-2%
1,093
-11%
4,688
2%
712
1,045
1,058
377
70
85
12
1,045
$18,358
6%
877
1,388
1,077
422
400
400
50
1,180
$19,465
6%
2015
1,749
-6%
1,771
-3%
4,014
-5%
962
-12%
4,735
1%
0
1,010
1,698
1,085
444
680
500
80
1,300
$20,028
3%
2,787
16.1%
3,690
20.1%
5,012
27.3%
-$484
790
12.7%
5,595
762
$7.34
2,944
16.1%
3,971
20.4%
4,730
24.3%
-$600
1,047
14.9%
6,173
757
$8.13
2,978
15.9%
4,026
20.1%
4,747
23.7%
-$600
1,136
15.2%
6,542
751
$8.71
COGS
% of revenues
R&D
% of revenues
SG&A
% of revenues
Interests
Taxes
Tax rate
Net Income
# shares outstanding
$7.34
$8.13
$8.71
EPS (no sharecount reduction from 2013)
Aranesp
y/y change in Aranesp (%)
Epogen
y/y change in Epogen (%)
Neulasta
y/y change in Neulasta (%)
Neupogen
y/y change in Neupogen (%)
Enbrel
y/y change in Enbrel (%)
AMG-145 (PCSK9)
Prolia
Xgeva
Sensipar
Vectibix
Kyprolis
Nexavar
Stivarga
Other products and revenues
Total Revenues
Rev Growth (%)
2012A
2,040
1,941
4,092
1,260
4,236
472
748
950
359
1,167
$17,265
2,735
15.8%
3,296
19.1%
4,717
27.3%
-$428
970
15.9%
5,119
787
$6.51
2013
1,958
-4%
1,883
-3%
4,288
5%
1,229
-3%
4,596
9%
2014
1,860
-5%
1,826
-3%
4,203
-2%
1,093
-11%
4,688
2%
712
1,045
1,058
377
70
85
12
1,045
$18,358
6%
877
1,388
1,077
422
400
400
50
1,180
$19,465
6%
2015
1,749
-6%
1,771
-3%
4,014
-5%
962
-12%
4,735
1%
0%
1,010
1,698
1,085
444
680
500
80
1,300
$20,028
3%
2,787
16.1%
3,690
20.1%
5,012
27.3%
-$484
790
12.7%
5,595
762
$7.34
2,944
16.1%
3,971
20.4%
4,730
24.3%
-$600
1,047
14.9%
6,173
757
$8.13
2,978
15.9%
4,026
20.1%
4,747
23.7%
-$600
1,136
15.2%
6,542
751
$8.71
$7.34
$8.10
$8.59
December 20, 2013
21
Exhibit 16: Table of Old vs New Estimates for AMGN

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
15582
2012A
17265
6.51
2013E
18469
18454
7.42
2014E
19856
19732
8.15
8.00
5.32
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
4048
4238
Q2
4477
4679
Q3
4319
4748
4772
4976
5030
Q4
4421
4804
4789
5078
1.96
1.89
1.94
1.63
2.03
2.06
2.09
1.97
Exhibit 17: Income Statement for AMGN

($ in millions, except per share)
Fiscal Year Ends December
Revenues:
Product sales
Aranesp
Epogen
FYA
2011
FYA
2012
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013
1QE
Mar-14
2QE
Jun-14
3QE
Sep-14
4QE
Dec-14
FYE
2014
FYE
2015
15,295
2,303
2,040
16,639
2,040
1,941
4,151
468
435
4,595
524
502
4,647
449
491
4,710
459
492
18,103
1,900
1,920
4,678
443
475
4,882
445
483
4,936
436
471
4,984
431
460
19,480
1,755
1,889
20,182
1,621
1,840
Neulasta
Neupogen
Enbrel
Prolia
Xgeva
Sensipar
Vectibix
Kyprolis
Nexavar
Stivarga
Other Products
Other revenues
3,952
1,260
3,701
203
351
808
322
4,092
1,260
4,236
472
748
950
359
1,039
299
1,039
142
223
264
87
1,120
324
1,157
188
249
259
93
1,135
466
1,155
178
261
259
107
1,157
297
1,183
242
310
277
100
1,155
290
1,224
229
336
283
104
541
626
155
87
179
84
146
101
4,380
1,389
4,557
714
1,006
1,046
380
69
87
12
643
366
1,152
283
1,127
198
287
268
94
355
287
1,086
300
1,206
206
273
264
93
69
87
12
163
94
169
94
181
94
183
94
1,115
283
1,256
251
364
289
105
119
107
15
189
94
4,579
1,153
4,790
920
1,297
1,117
403
400
400
55
722
376
4,421
1,027
4,910
1,160
1,570
1,195
424
680
500
68
765
350
Total Revenues
15,582
17,265
4,238
4,679
4,748
4,804
18,469
4,772
4,976
5,030
5,078
19,856
20,532
2,345
3,116
4,434
9,895
5,687
2,735
3,296
4,717
10,748
6,517
671
851
1,144
2,666
1,572
714
944
1,237
2,895
1,784
715
966
1,218
2,899
1,849
749
1,027
1,394
3,170
1,634
2,849
3,788
4,993
11,630
6,839
744
917
1,123
2,783
1,989
776
986
1,181
2,944
2,032
785
1,002
1,185
2,971
2,059
792
1,037
1,296
3,125
1,953
3,097
3,942
4,785
11,824
8,032
3,189
4,077
4,844
12,109
8,423
Operating expenses:
Cost of sales
Research and development
Selling, general and administrative
Total expenses
Operating income
Interest and other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Non-GAAP EPS - Basic
Non-GAAP EPS - Diluted
Shares outstanding - Basic
Shares outstanding - Diluted
(19)
(428)
(87)
(145)
(163)
(183)
(578)
(194)
(194)
(194)
(194)
(776)
(696)
5,668
810
4,858
$5.37
$5.32
905.3
912.5
6,089
970
5,119
$6.60
$6.51
775.3
786.5
1,485
(13)
1,498
$1.99
$1.96
751.0
764.0
1,639
195
1,444
$1.92
$1.89
752.0
764.0
1,686
205
1,481
$1.96
$1.94
754.0
765.0
1,451
189
1,263
$1.67
$1.64
754.9
769.9
6,261
576
5,686
$7.55
$7.42
753.0
766.0
1,795
233
1,561
$2.07
$2.03
755.9
770.9
1,838
244
1,594
$2.11
$2.06
756.8
771.8
1,865
248
1,617
$2.13
$2.09
757.8
772.8
1,759
234
1,525
$2.01
$1.97
758.7
773.7
7,256
960
6,297
$8.31
$8.15
757.3
772.3
7,727
1,028
6,699
$8.78
$8.62
762.6
777.6
December 20, 2013
22
Valuation
We arrive at our $125 price target by using two methodologies:
1) A forward P/E multiple of 17x applied to our 2015 fully taxed non-GAAP EPS estimate,
discounted back for two years at 8%. This multiple is at the low end of the large-cap peer group
and in line with pharma multiples. If Amgen outperforms expectations, then the multiple is likely
to expand relative to its peers. We believe this P/E is reasonable given our assessment of more
stable core franchise, the accelerating growth rate, potential upside to expectations for
denosumab and EPO, and improving future outlook.
2) DCF: Our base case of $125/share assumes minimal erosion of base business (-1% y/y post
2016) using an 8% discount rate and -1.5% terminal growth rate. We also include probability
adjusted (1040%) value for seven pipeline opportunities: T-Vec, AMG386, sclerostin, AMG-145,
AMGN's early-stage neurology pipeline (AMG747, AMG334) and its immunology assets in
collaboration with AZN (AMG181, AMG827, of which AMGN roughly has ~55% economics), as well
as AMGN's biosimilar program. Probability-adjusted pipeline value is $20/share of our price
target.
Price target impediments

Our price target is dependent on Amgen's ability to commercialize Prolia/Xgeva as the standardof-care treatment for post-menopausal osteoporosis, and Xgeva for the prevention of SREs. Any
delays in realizing these therapies' commercial potential or a regulatory setback with Xgeva could
impede the stock from reaching our price target. Our price target is also dependent on stabilizing
sales on its core franchise, and slightly growing sales from newer approved products. Finally, the
company faces potential competition from generic products inside and outside the U.S. and
biosimilars outside the U.S., which could threaten the company's product sales, especially if the
pathway for "interchangeable" biosimilars gains traction and becomes a readily viable path for
generic manufacturers
December 20, 2013
23
Biogen Idec(BIIB)
Outperform

Exhibit 18: Biogen Idec
Investment summary
Our long-term positive thesis on BIIB is based the view that 1)
estimates generally still need to go up for FY14-15 due to
Tecfidera doing better than expected (EU sales to come into
play) and the high margin sales flow all to the bottom line, plus
Avonex core business doing in-line to better than expected, 2)
the story is mainly focused on 2014-15 pipeline readouts which
aren't really in estimates. These pipelines are often first in class
in areas of unmet need with very large market potentials ($1
9B), where even nominal assumed probabilities put the stock in
the $250-$275M range. Our thesis is that one of more of these
six proof-of-concept or pivotal readouts in 2014-2015 will be
positive, supporting investor confidence of further re-rating for
BIIB. Compared to its large cap peers, BIIBs catalyst rich year,
outperforming base business and lack of overhangs (legal,
commercial, regulatory) render it likely the most attractive stock
to own for pipeline upside. We believe there is 5-35% probability
of success for pipeline readouts (5% probability for Tysabri in
SMS, 50% for SMN, 25% for ANTI-LINGO, 20% for IP and lupus
and 5% for Alzheimers indication) which are not fully reflected
in the stocks current valuation.

Our $325 price target (from $275) is based on DCF analysis that
values the base business ($127/share, now higher from better
Tysabri economics, added operating leverage and tax synergies
from consolidated ex-US IP), the commercial prospects of
Tecfidera ($88/share based on certainty of EU revs post NAS
designation) and hemophilia ($15/share) programs. For various
pipeline programs. we add probability adjusted value of
$67/share. We also include adjusted value of operational
synergies should these pipeline programs be successful
($28/share).
Upside scenario
Our upside scenario of $358/share (from $295) is based on
prospects of core business, good Tecfidera and pending
hemophilia launches, as well as same valuation for SMN-Rx. We
assign greater prob. adjusted value for remaining pipeline as we
gain visibility on their prospects in next 12-months, which lowers
discount rate f0rm 25% to 18% or to 10% respectively.
Additionally, we include $38/share of expected operational
synergies (instead of $28/share) from pipeline success..
Downside scenario
Our downside scenario of $230/share is based on similar
assumptions to our base case, except less bullish prospects for
Tecfidera, and only nominal value for pipeline given none has
shown pivotal data.
December 20, 2013
Continued Tecfidera outperformance and better than

expected leverage. Consensus estimate in 2014 still reflects
mostly only US demand, so better than expected EU sales
($200M+) could lead to further upside revision. Consensus
assumed reasonable operating leverage expansion (39% to
46-48%) but this could improve with better Tecfidera sales.
Hemophilia launch beats very modest estimates. Investors
currently do not view this as a significant leg of growth,
despite this being a $3-$4B market opportunity in the US. If
the market turns out to be less sticky and more switchers
adopt BIIBs therapies, this could be an underappreciated
revenue driver leading to further upside revision and op.
leverage improvement.
Pipeline credit likely to support higher value over the long
term. Anticipation of Phase II anti-LINGO antibody in H2:14
has the potential to be the next big thing at Biogen after
Tecfidera. Separately, Tysabri has a reasonable probability
of success in SPMS based on our analysis of data from
ECTRIMS, and LINGO science and mechanism make good
sense so proof-of-concept data in 2014 could usher in
another leg of upside for BIIB
Tecfidera missing cons estimates, or disappointing pipeline

readouts where none of six were successful.
24
Key questions / debates for BIIB

1.
Isnt Tecfidera consensus already high

with limited room for upside revision?
2.
What are the chances that ANTI-LINGO

will work?
3.
How secure are BIIBs dosing patents

going out to 2028-2029 in US/EU?
4.
What are the chances Tysabri will work

in SPMS in 2015?
5.
What are consensus expectations for

hemophilia launch?
December 20, 2013
Tecfidera consensus is $1.9B and $2.8B for 2014-2015, and while fast growing, still
reflects mostly US demand in our view, as it is already on a $1.3B+ run-rate in first 4
quarters and this is a chronic therapy with stacking revenues. Better than expected
EU sales could still prompt upward revision in the $100-$500M range in 2014-2015,
and there is likely still upside to operating leverage the Street is not fully accounting
for.
It is a small Phase II (n=80, 6 months) in optic neuritis where proof of concept of
activity should translate into measurable changes in optic nerve conduction velocity
from baseline. BIIB will also be measuring thickness of the retinal ganglion layer, as
well as patients visual acuity. While our expectations are modest (25%), the
scientific rationale and the setup for demonstration of activity are sound.
We estimate Tecfidera is worth ~$38/share if patents goes out only to 2020,
$50/share for $58/share if they go out to 2023 (middle scenario) and $88/share if it
lasts to 2029, with no terminal value. It is indeed a development to watch but first
Paragraph IV filing would be in 2016, so this is a background bear scenario unlikely
to affect stock performance in 2014.
We assume 35% probability of success anecdotally some patients who remain on
Tysabri despite transition to SPMS appear more stable. There is likely a threshold
effect of myelin destruction pass that is coupled with increased inflammation. In
Phase II, Tysabri was able to reduce MRI atrophy endpoints, CSF endpoints as well as
demonstrate improvement in EDSS. While a long shot, Tysabri is the most promising
candidate drug for SPMS currently.
Despite delays of Eloctate (FVIII) approval to June 2014 and Aprolix (FIX) to April
2014, consensus expectations were sufficiently modest (<$80M vs. our $60M) and
overall impact to revenues (2014E: $8B+) it is not the core thesis for BIIB.
Additionally consensus estimates for peak hemophilia sales also remains modest
(<$750M) on projected $10-$11B of total revenues, so this could be an area for
upside revision if the launch performs in 2014.
25
Exhibit 19: Expected news flow for BIIB

Timing
Commercial and Late Stage Pipeline
Expected News Flow
Program
Apr 4, 2014
Mid 2014
Jun 12, 2014*
May 19, 2014
2014
Pipeline Readouts:
Estimated approval of rFIXFc for hemophilia B

Phase III results in RRMS for Daclizumab
Estimated approval of rFVIIIFc for hemophilia A
Estimated US approval of Plegridy
KIDS A-LONG and B-LONG readout + EU filing
rFIXFc (Alprolix)
Daclizumab
rFVIIIFc (Eloctate)
Plegridy
Early 2014
Mar 2014
Phase Ib/2a multi-dose SMN-Rx data (3,6,9mg) data

Phase III start (safety + tolerability) multi-dose in infants
SMN-Rx
SMN-Rx
H2:14
Sep 2014
Nov 2014
Nov 2014
Early 2015
Early 2015
Phase II double-blind MAD of STX-100 in IPF

Phase II (RENEW) data in acute optic neuritis
Phase I data in prodromal/mild Alzheimers
Phase II (ATLAS) data in lupus neuritis
Phase I data for DMPK
Phase III (ASCEND) data in SPMS
STX-100
BIIB-033
BIIB-037
BIIB-023
DMPKRx
Tysabri
H1:15
Potential Phase III readout in Type 1(infant) pts
SMN-Rx
Jun 2016
Phase II (SYNERGY) dose-evaluating results of LINGO + Avonex vs BIIB-033

Avonex in RRMS
Competitor News
May 25, 2014
Copaxone patents expire

Expect generic launch from MYL, MNTA
Copaxone
Q4:14
Synthon study results of Copaxone biosimilar
Copaxone
Q4:14
BAX Phase III data for long-acting hemophilia A
BAX855
2015
YE:15
Phase III results in Teva's CONCERTO

Ocrelizumab Phase III in primary progressive MS
Laquinimod
Ocrelizumab (Roche)
1) Starting off in 2014, we should get conservative guidance in Jan but during H1:14, Tecfidera will
continue to march along increasing market share on its way towards $2B+ in 2014 and $3B in
2015 (surpassing Gilenya which is doing close to $2B WW and also growing quickly) although
estimates have been catching up a bit near-term and for 2014. Early '14 has SMN-Rx "multi-dose"
data and this should look good as BIIB starts Phase III.
2) Hemophilia launch mid-year is a good set-up because if sales exceed then Street will say openended $4B market is up for grabs for BIIB now. If OK launch, it won't matter much given smaller
driver for BIIB earnings/expectations.
3) Copaxone AB-rated generic possibility in mid-14? Based on comments by Teva this could
capture 25-50% share of branded after a year or more. While headline risk to BIIB, our checks
with docs is this will matter to Copaxone mostly if at all as there will unlikely be any step edits to
drive pts away from orals and docs highly prefer orals and have been swapping pts off Copaxone
for awhile due to low efficacy/injections.
December 20, 2013
26
4) BIIB starts to get more exciting into H2:14 because there's going to be pipeline and we want to
be there: Phase II anti-LINGO antibody data in optic neuritis (any visual acuity improvement is
positive) in H2:14, Phase II STX-100 IPF data, and H1:15 is big Phase III Tysabri SPMS data which if
positive could add $2B to consensus. We are less interested in daclizumab due to profit split with
ABBV and niche role in MS given subQ and infection risk vs superior orals.
5) By the time we get to YE:14 going into 2015 the Street will also figure out 2015-17 consensus
EPS is too low due to leverage on Tecfidera, better Avonex (Peg-Avonex), hemophilia upside, and
margin expansion: every $300-400M in upside leads to $1 in higher EPS. Street also consistently
models expenses too high and this will be lower as a % of sales. Unlike CELG, there is no 2015-17
guidance at BIIB but if we run this through the model, we can get $1-2 higher EPS towards 2017.
Some bulls are upwards of $20/share towards 2018+ if EPS CAGR is 20%.The 4 drugs that we are
most excited about with proof of concept or pivotal data over next 12-24 months are:
Things to Note for BIIB in 2014

Tecfidera US sales tracks in-line for Q4 (TRx at 24% QTD, or $338M vs. cons $334M). However, if
we proactively account for holiday impact in the remaining 3 weeks, we get a lower bound
estimate of $310M (*Contact us for our TecfiAPP*). Noting likely incremental inventory build, we
believe Tecfidera will come in line with cons estimate of $334M for Q4. TRx market penetration is
at 13.5% this week For comparison, Gilenya penetration is at 10% and Aubagio at 3%.
For 2014, a new dynamic will be first EU sales likely beginning Jan after EMA confirmed Tecfidera
qualifies as new active substance, which confers 10 yrs of data protection. Consensus estimates
EU peak sales will be $1-2B+ before exclusivity expires in 2023. we note BIIB also has EU patent
for twice-daily dosing expiring 2028, which adds as another layer of patent protection
underappreciated in the model in our view
Tecfidera 2014 -2015 cons of $1.9B and $2.8B reflects mostly US demand in our opinion. It is
already on a $1.3B+ run-rate in the first 4 quarters as scripts continue to grow rapidly (24% QTD
for Q4), gaining market share. Even though EU will likely be a slower and staggered launch vs. US,
as a proxy, Recall Gilenya sales ex-US accounted for 31% and 46% of total Gilenya sales in its first
and second year of launch. For BIIB, if we assume EU region to contribute 10% and 20% of sales
for 2014-2015, we estimate this could add ~$216M and $600M to topline, and $0.60 and $1.90.
2. LINGO Phase II data in optic neuritis in H2-14. We think the investment thesis will start to shift
by mid-year 2014 from Tecfidera sales to big pipeline upside from multiple mid-late stage
readouts starting H2-14. We think general positive trends (visual acuity, remyelination of optic
nerve, etc) is sufficient to give investors confidence the drug is active and could lead to positive
efficacy in the much larger and more important Phase II MS study already enrolling on top of
Avonex.
3. Hemophilia launch expectations are relatively low for Biogen (stock has been moving on
Tecfidera, not really hemophilia) but bullish investors think the market opportunity is significant
for a long-acting drug and BIIB might take up to 25% (or even more) of the $4B+ worldwide
market. If sales come out greater than expected in the first years, investors will believe its likely
BIIB could take more market share than expected which would be upside to consensus.
4. Tysabri Phase III SPMS data early 2015.The primary endpoint is percentage of patients
experiencing confirmed disability progression as measured by EDSS, T25FW and 9HPT. Given the
lack of approved therapies, a strong trend but not statistically significant decrease in progression
December 20, 2013
27
could induce greater use of Tysabri, especially since it is a continuum of patients transitioning
from RRMS (Tysabri currently improved indication) to SPMS.
What are the Key Pipeline Products To Watch?

SMN-RX for SMA (Phase I/II multi-dose readout late 2013; anticipated Phase III start early 2014)
Potential: The multi-dose study (n = 24) examines 3 doses in Type II/III patients, which should 1)
identify the go-forward dose to maximize responders and 2) further de-risks program by showing
durable Hammer-smith (for 9 months vs. 3 months reported in Mar, which resulted in stat sig
Hammersmith improvement of 3.1 pts).
Separately, BIIB and ISIS has also started examining 2 separate doses (3 intrathecal injections) in
infants in hopes of identifying go-forward schedule for Phase III start in the most dire, Type I
patient population by early 2014.
Background: Recall in Mar, BIIB and partner ISIS reported promising Phase I single-dose data over
85 days, where drug appears active and safe (see bull vs. bear debate below). BIIB has an option
to license this program after "multi-dose" data YE:13/early'14. This is a favorable set-up for BIIB as
the study will be telling of response across 3 doses (likely higher than todays doses) and durability
for 9 months. By 2014, a pivotal/Phase II/III single-arm study should be underway in infants and
we think drug has potential for Breakthrough Designation. Our deep dive work, combined with
today's data, leads us to believe SMN-Rx has at least 50% probability of success, $12B+ peak
sales, or $1020/share of optionality value for BIIB.
Data thus far: SMN-Rx demonstrated stat sig improvement (+3.1 pts) in Hammer-smith (function)
at the "highest dose" of 9mg after only 1 injection on the expanded (0 -66 points) scale. Mean
change of 3.1 points is promising, especially given majority (6/10) are responders, and 50% are
over age of 5 where spontaneous improvement is unlikely. SMA is a rare genetic motor neuron
disorder impacting the brain and spinal cord. It is caused by deletion/mutation of the survival
motor neuron 1 (SMN1) gene, which results in reduced levels of the Survival Motor Neuron (SMN)
protein. Reduced SMN protein levels lead to dysfunction/loss of -motor neurons in the spinal
cord that is responsible for muscle contraction.
ISIS SMN-Rx is an oligo-nucleotide that targets SMN2 gene to make more of the SMN protein. It
does so by preventing the spliceosome from editing out exon-7. More exon-7 containing
transcripts ("full length") gives more stable SMN proteins, which should help with motor neuron
survival
STX-100 for IPF (Phase II readout H2:14)

Potential: In addition to safety and tolerability and PK/PD (serum t1/2 of antibody), this multidose, dose-escalation study will examine if 8 consecutive weekly doses of STX-100 (subQ) can
effect slowing of lung function decline as measured by FVC, FEV1 and DLCO, as well as
radiographically. Measurements will be taken at week 4 and 8. While preliminary and (n= 8 in
each of 4 dosing cohort) trial, this study should provide signal of efficacy, if any vs. placebo (6
treatment vs. 2 pbo in each cohort) in IPF.
Background: STX-100 is a monoclonal antibody that targets integrin v6, which activates (TGF)
complex responsible for fibroblast proliferation. Excessive fibroblast activity deposits extracellular
matrix (ECM) in injured tissue, causing fibrosis.
Integrin v6 is selectively expressed in epithelial tissues (lining of lungs) and (TGF) is highly
over-expressed in lungs of IPF patients. Inhibition of integrinv6 may allow for the isolated and
December 20, 2013
28
reduction of (TGF) effects in lung tissues only, without affecting (TGF) other functions as a
cytokine in other tissues.
Data thus far: In animal models, STX-100 has shown anti-fibrotic activity even when fibrosis is
underway. BIIB has also shown good safety and tolerability in Phase I. Moreover, STX-100s
activity level of v6 inhibition could be tracked via biomarkers (e.g. MMP-12, MMP-13,
cathespinK, CCL9, CCL12 for macrophage activation) and correlate to clinical measurements.
ANTI-LINGO for re-myelination in optic neuritis (Phase I readout Sep 2014)

Potential: The RENEW trial in acute optic neuritis is a proof-of-concept study of ANTI-LINGOs
ability to effect remyelination of the optic nerve, which should be manifested in measurable
change in optic nerve conduction velocity from baseline of patients unaffected eye. Another
clinical attribute would be thickness of the retinal ganglion cell layer, also measurable by spectraldomain optical coherence tomography. Clinically, patients will also be assessed for change in
visual acuity. The double blind, placebo controlled study (n=80) should prove strong proof-ofconcept for possibility and degree of remyelination possible (ANTI-LINGO Q4W at 100mg/kg for
20 wks) in a 6 month time-frame (measurements at baseline and wk 24).
Background: MS is characterized by inflammation, accumulation of myelin lesions, axonal loss as
well as neuro-degeneration. Treatments available today tackle mostly inflammation only. In
earlier stages of RRMS, spontaneous remyelination occurs naturally and patients do not
accumulate disability, but this ability gradually declines.
Spontaneous Remyelination does occur naturally in some lesions of MS patients. This occurs
frequently in early stages of disease (RRMS, where patients recover and do not accumulate
disability), but infrequently in late stages disease (SPMS, where patients progressive accumulate
disability). This suggests that promoting remyelination may prevent accumulation of axonal loss
and disability.
Oligodendrocytes are cells responsible for nourishing the axons as well as for myelin production.
LINGO-1 is an integral membrane protein that prevents maturation of progenitor (OPCs) into new
oligodendrocytes. The antagonization of LINGO-1 should promote oligodendrocyte differentiation
for increased myelination.
Data thus far: In cell-cultures, the antibody ANTI-LINGO leads to dose dependent production of
myelin basic protein. ANTI-LINGO effects remyelination in de-myelinated rat brain samples, and
shows functional recovery in rodents experimentally induced to mimic MS.
BIIB-023 for Lupus Nephritis (Phase II readout: Nov 2014)

Potential: The study will be first to show if BIIB-037 can induce complete or partial renal response,
as well as in composite SELENA-SLEDAI and BILAG scores over 52 wks in 300 patients with lupus
nephritis. The study tests low vs. high dose of BIIB-023 (IV) vs. placebo in combination with oral
steroids (prednisone and MMF).
Background: TWEAK stands for TNF-Like Weak Inducer of apoptosis, a target discovered
internally at BIIB. TWEAK signals only through one receptor, Fn14 (FGFinducible molecule 14) and
is highly unregulated locally in target organs in inflammatory and autoimmune diseases. Lupus
nephritis patients with renal involvement have higher levels of TWEAK than those without. In
animal models, treatment with anti-TWEAK lowers cytokine production and reduces urinary
protein levels (crude measure of kidney damage)
December 20, 2013
29
In lupus nephritis, there is a perpetual cycle of renal cell inflammation, injury and cell death.
TWEAK signals through Fn14, which promotes persistent NK- activation and keeps the vicious
cycle ongoing.
BIIB-037 for Prodromal/Mild Alzheimers (Phase I readout: Nov 2014)

Potential: In addition to providing safety (immunogenicity, PK serum concentrations, presence of
amyloid-related edema or hemorrhage) and tolerability, this multi-dose study could provide
proof-of-concept of BIIB-037s ability to cross the blood-brain-barrier and to reduce amyloid
plaques as measured by 18F-AV-45 PET scans over 26-70 wks in 160 patients with Prodromal or
mild Alzheimers.
Background: BIIB believes Bapineuzumabs failure might be due to dosing limitation (every 3
months because of micro-hemorrhage, when t1/2 of the antibody is 2 wks) rather than inherent
flaw of the amyloid hypothesis. PET imaging reveals that Bapineuzumab does lead to decrease in
amyloid plaques. Study failure could also be due to dosing in patients too advanced in the disease.
BIIB037 is reverse-engineered from aging patients who were cognitively stable over three years,
who recovered from cognitive impairment, or whose AD only minimally progressed. Recombinant
versions of antibodies isolated from patients was generated and selected for affinity towards
aggregated amyloid beta (KD <1nM). Repeated injections into mice demonstrated BIIB-037s
ability to cross the blood-brain barrier, and to reduce monomeric, oligomeric amyloid as well as
myloid plague in a dose dependent manner.
Tysabri for SPMS (Phase III readout: early 2015)

Potential: This Phase III study (n=856) examines Tysabris ability (vs. placebo, both IV Q4W of
300mg or currently marketed dose in RRMS) to slow relapse-independent disability progression in
patients with secondary progressive MS over 96 wks. Measures such as walking speed, MRI (brain
volume), and patient QoL will be taken.
Background: Tysabri is approved as monotherapy in Crohns Disease, as well as in RRMS with
heralded best efficacy (% ARR of 67%) in reduction of risk of relapse with clinical signs of slowing
of disability accumulation. Tysabri binds to the alpha 4 integrin of adhesion molecules found on
lymphocytes, which prevents its interaction with endothelial cells. Tysabris overall effect is to
prevent migration of autoreactive leukocytes into target organs which then exacerbates
inflammation.
SPMS (along with PPMS, which is more rare) make up 40% of MS patients for whom there are
limited treatment options. Patients experience continual axonal damage (neurofilament light
chain in CSF) and demyelination (myelin basic protein) along with widespread, systemic
inflammation (osteopontin, CXCL13 and MMP9 in CSF).
Data thus far: In an open-label Phase IIa (n = 17), decrease in CSF markers (osteopontin,
neurofilament, myelin basic protein) was observed alongside reduction in MRI atrophy endpoints
at wk 12 from baseline. An improvement in EDSS (lowering of score) was also observed (p = 0.01)
at wk 60 vs. baseline. These signs of efficacy in reduction of inflammation and tissue damage
suggests Tysabri might reduce intrathecal inflammation and axonal damage in progressive forms
of MS, though caveat the very small number of patients in trial.
December 20, 2013
30
Exhibit 20: BIIBs robust and diversified pipeline in multitude of neurological and autoimmune indications
Program
ISIS-SMNrx
Stage
Phase Ib/IIa
Indication
Spinal Muscular Atrophy
Timing
YE:13 - Q1:14
Key Data Points

The multi-dose study (n=24) examines 3 doses in Type II/III
patients, which should 1)identify the go-forward dose to maximize
responders and 2) further de-risks program by showing durable
Hammer-smith score improvement
STX-100
Phase II
Idiopathic Pulmonary
Fibrosis
2H:14
In addition to safety and tolerability and PK/PD (serum t1/2 of

antibody), this multi-dose escalation study will examine if 8
consecutive weekly doses of STX-100 (subQ) can effect slowing
of lung function decline as measured by FVC, FEV1 and DLCO
ANTI-LINGO
(BIIB 033)
Phase I/II
Optic Neuritis
Multiple Scelerosis
2H:14
The RENEW trial in acute optic neuritis is a proof-of-concept

study of ANTI-LINGO's ability to effect remyelination of the optic
nerve, which should be manifested in measurable change in optic
nerve transfer velocity from baseline of patient's unaffected eye
Anti-TWEAK
(BIIB 023)
Phase II
Lupus Nephritis
2H:14
The study will be first to show if BIIB-037 can induce complete or

partial renal response, as well as in composite SELENA-SLEDAI
and BILAG scores over 52 weeks in 300 patients with lupus
nephrtis.
BIIIB037
Phase Ib
Alzheimer's
2H:14
In addition to providing safety (immunogenicity, PK serum

concentrations, presence of amyloid-related edema or
hemorrhage) and tolerability, this multi-dose study culd provide
proof-of-concept of BIIB-037's abilit to cross the blood-brainbarrier
Tysabri
Phase III
SPMS
1H:15
This P3 study (n=856) examines Tysabri's ability (vs. pbo, both IV

Q4W of 300mg or currently marketed dose in RRMS) to slow
relapse-independent disability progression in patients with SPMS
over 96 wks. Measures such as walking speed, MRI (brain
volume)
Phase II/III
Spinal Muscular Atrophy
1H:15
ISIS expects to start two pivotal trials (infant onset, childhood

onset) in early 2014 with data readout possible by mid-2015 from
the infant onset study.
ISIS-SMNrx
December 20, 2013
31
Exhibit 21: Our Tecfi-APP projects that even flattish NRx of ~850/week will approximate 2014 WW consensus ($1.6B vs. $1.9B), and
EU sales should add $200-$300M in its first year of launch.
NEW RBC 2013 Weekly TECFIDERA - APP
Tecfidera Annual Cost (2013)

Tecfidera Monthly Cost
Tecfidera Annual Cost (2014)
Tecfidera Monthly Cost
Gross To Net
IMS Capture Rate
Estimated 2013 Tecfidera Sales (US)

Consensus Estimate for 2013 (WW)
Estimated Q4:13 Tecfidera Sales (US)
Consensus Estimate for Q4:13 (WW)
Estimated 2014 Tecfidera Sales (US)
Consensus Estimate for 2013 (WW)
RBC
Base Case
1670
2%
7%
800
85%
RBC Comments
Week 11 "true" NRx hit 1670, it's highest and have come down since as expected
NRx growth gradually declined from 33% to 12% to 5% to 3% (Row 52)
This depends on how rapidly we believe it will drop to its steady state levels and considering how rapid uptake was, we believe drop could be fairly rapid as w
For reference, Gilenya weekly NRx has been steady ~600 for the past year. Considering the superior profile of Tecfidera, we beliieve ~1.5x Gilenya is reason
Too early to tell what the on-going refill rate will be for Tecfidera (Row 57) but Gilenya and Aubagio has been steady at ~80%. If compliance is higher, this co
$54,900
$4,575
$58,194
$4,850
$54,900
$4,575
$57,645
$4,804
Reported Tecfidera annual wholesale acquisition cost (WAC) is $54,900

Tecfidera WAC divided by 12 months in a year
This could vary but MS therapies are around 10-20%, depending on how much of government discounts
This certainly varies by drug, disease, time in launch but usually larger and chronic diseases like MS enjoy higher capture rates vs. smaller and acute disease
12%
78%
10%
80%
$786
$792
$312
$334
$1,606
$1,900
$784
$792
$310
$334
7000
6000
TRx
5000
Rx Count
Estimated Peak True NRx

NRx Growth Rate to Reach Peak
Rate of NRx Decline After Peak
Estimated NRx Normalization Level
Estimated 1-month Refill Rate
Your
Input
1670
2%
7%
880
85%
Reality Check
1,745,000
132,460
8%
4000
True
NRx
Combined Total Market TRx in 2012

Implied Tecfidera Total TRx in 2013
Implied Tecfidera TRx Market Share
Gilenya TRx Market Share in First Yr
Gilenya TRx Market Share in 2012
1,745,000
132,713
8%
3%
3%
8%
8%
Combined Total Market NRx in 2012

Implied Tecfidera Total NRx in 2013
Implied Tecfidera NRx Market Share
Gilenya NRx Market Share in First Yr
Gilenya NRx Market Share in 2012
372,000
37,456
10%
4%
8%
372,000
38,293
10%
4%
8%
40
1/3/14
41
1/10/14
42
1/17/14
43
1/24/14
1336
1007
1149
1166
938
900
828
945
880
843
157%
817
5251
23%
3915
85%
-25%
-329
5368
2%
4361
85%
14%
141
5371
0%
4222
85%
2%
17
5108
-5%
3942
85%
-20%
-227
4992
-2%
4053
85%
-4%
-38
5413
8%
4513
85%
-8%
-73
5392
0%
4564
85%
14%
117
5398
0%
4453
85%
-7%
-65
5172
-4%
4292
85%
-4%
-37
5265
2%
4422
85%
3000
2000
1000
Week
Tecfidera Rx By Dose
Starting Packet (120 - 240mg) NRx (a)
120mg BID NRx (b)
240mg BID NRx (c)
IMS Reported NRx (d)=(a+b+c)
Implied "True" NRx (e)=(d-c)
Reported NRx wk/wk growth rate
"True" NRx wk/wk growth rate
Increase in "True" NRx wk/wk
Reported/ Estimated TRx (g)=(e+f)
TRx wk/wk growth rate
Estimated Number of 1-month Rx Refill (f)=(g-e)
Estimated 1-month Refill/ Compliance Rate
0
1
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
Weeks Since Launch (2013 Apr - Dec)
44
1/31/14
45
2/7/14
46
2/14/14
47
2/21/14
48
2/28/14
49
3/7/14
50
3/14/14
51
3/21/14
52
3/28/14
53
4/4/14
54
4/11/14
937
880
880
912
880
11%
95
5529
5%
4592
85%
-6%
-57
5465
-1%
4585
85%
0%
0
5372
-2%
4492
85%
4%
32
5347
0%
4436
85%
-3%
-32
5467
2%
4587
85%
December 20, 2013
32
Exhibit 22: Valuation-APP Points to $320/Share as Base Case for BIIB, Based on Relatively Low Pipeline Expectations for 2014
BIIB Valuation APP --> Change Assumptions in Blue
How Do we Value BIIB?
How Do We Value BIIB's Pipeline?

Prob. of Success
Sales in 2022
Per DCF
Per PE and PEG
$230
PE Multiple
$325
EPS in 2015
$358
Price
$788
Discount Rate
Terminal Growth Rate
8.0%
Equiv. PEG
2%
EPS (CAGR)
24x
$13.77
$325
0.9x
26%
Tysabri (SPMS)
35%
$ 1,300
SMA (SMN)
50%
$ 2,412
ANTI-LINGO (remyelination for MS)
25%
$ 4,000
STX-100 (IPF)
20%
800
BIIB-023 (Anti-TWEAK for lupus)
20%
600
Other (BIIB-037 for Alzheimers)
5%
$ 9,000
Pipeline Value
$95
to
$558
NPV analysis of BIIB's - BASE CASE (REALISTIC probability adjusted pipeline)

Assumption
Total Revenues (w/ 100% pipeline)
Total Revenues (no pipeline)
Total Revenues (prob. adjusted pipeline - Base Case)
Total Revenues (prob. adjusted pipeline - Bull Case)
Core Revenues (Avonex, Rituxan, GA-101, Royalties)
Hemophilia Revs
Tysabri Revs
Base Case
Bull Case
Tysabri (SPMS)
SMA (SMN)
ANTI-LINGO (remyelination for MS)
STX-100 (IPF)
BIIB-023 (Anti-TWEAK for lupus)
Other (BIIB-037 for Alzheimers)
35%
50%
25%
20%
20%
5%
BG-12 Rev
BG-12 Royalties
BG-12 Royalties as percent of BG-12 Revs
BG-12 Cannabilization
Core Growth (%)
2012
$5,516
$5,516
2013
$6,844
$6,844
$6,844
$6,844
$4,503
$1,552
2014
$8,310
$8,310
$8,310
$8,310
$4,516
$55
$1,823
45%
55%
30%
30%
30%
10%
2015
$9,119
$9,019
$9,054
$9,064
$4,256
$113
$1,950
2016
$10,292
$9,809
$9,990
$10,035
$4,092
$187
$2,080
2017
$13,154
$10,875
$11,502
$11,671
$4,010
$265
$2,500
2018
$15,219
$10,760
$11,872
$12,180
$3,930
$330
$2,400
2019
$17,293
$10,731
$12,382
$12,820
$3,851
$380
$2,400
2020
$19,436
$10,704
$12,850
$13,412
$3,774
$430
$2,400
2021
$21,474
$10,579
$13,186
$13,869
$3,699
$480
$2,300
2022
$23,297
$10,475
$13,471
$14,262
$3,625
$550
$2,200
2023
$25,063
$10,434
$13,699
$14,591
$3,552
$600
$2,100
$100
$400
$94
$850
$374
$400
$100
$100
$500
$1,150
$749
$900
$250
$200
$1,300
$1,300
$1,263
$1,600
$450
$300
$1,800
$1,300
$1,741
$2,400
$600
$400
$2,500
$1,300
$2,153
$3,200
$700
$500
$3,300
$1,300
$2,412
$4,000
$800
$600
$4,000
$1,300
$2,533
$4,500
$900
$700
$5,000
$788
$0
0%
$0
$1,916
$50
3%
$200
$2,700
$450
17%
$500
$3,450
$1,000
29%
$600
$4,100
$1,500
37%
$620
$4,100
$1,800
44%
$750
$4,100
$0
0%
$750
$4,100
$0
0%
$750
$4,100
$0
0%
$750
$4,100
$0
0%
$750
$4,182
$0
0%
$750
$2,206
$2,206
$2,206
$2,206
13%
22%
$1,480
24%
$1,650
$2,824
$2,824
$2,824
$2,824
13%
19%
$1,576
22%
$1,826
$3,777
$3,777
$3,777
$3,777
13%
18%
$1,593
22%
$1,956
$3,934
$3,847
$3,878
$3,886
12%
17%
$1,648
21%
$2,098
$4,310
$3,886
$4,045
$4,084
11%
16%
$1,806
21%
$2,358
$6,044
$4,015
$4,573
$4,723
11%
15%
$1,781
20%
$2,374
$7,590
$3,621
$4,611
$4,885
11%
15%
$1,857
19%
$2,353
$11,181
$5,341
$6,810
$7,200
11%
15%
$1,928
18%
$2,313
$13,058
$5,286
$7,196
$7,696
11%
15%
$1,978
17%
$2,176
$15,065
$5,314
$7,648
$8,259
11%
14%
$1,886
16%
$2,155
$16,810
$5,334
$8,015
$8,723
11%
14%
$1,918
16%
$2,192
$18,322
$5,229
$8,151
$8,949
25%
24%
22%
21%
21%
21%
22%
22%
22%
23%
23%
23%
Net Income ($M) - 100% pipeline
$1,655
$2,157
$2,937
$3,090
$3,406
$4,759
$5,938
$8,704
$10,124
$11,644
$12,962
$14,108
FCF($M) - 100% pipeline

FCF ($M) - no pipeline
FCF ($M) - prob. Adjusted pipeline Base Case
FCF ($M) - prob. Adjusted pipeline Bull Case
$1,770
$2,272
$2,272
$2,272
$2,272
$3,002
$3,002
$3,002
$3,002
$3,153
$3,086
$3,109
$3,116
$3,463
$3,135
$3,259
$3,289
$4,793
$3,227
$3,660
$3,776
$5,952
$2,895
$3,663
$3,875
$8,670
$4,217
$5,345
$5,643
$10,067
$4,150
$5,615
$5,997
$11,561
$4,150
$5,938
$6,404
$12,857
$4,145
$6,199
$6,737
$13,983
$4,048
$6,287
$6,894
-1
$2,454
$2,454
$2,454
$2,454
0
$3,002
$3,002
$3,002
$3,002
1
$2,919
$2,857
$2,879
$2,885
2
$2,969
$2,688
$2,794
$2,820
3
$3,805
$2,562
$2,905
$2,997
4
$4,375
$2,128
$2,693
$2,848
5
$5,901
$2,870
$3,638
$3,841
6
$6,344
$2,615
$3,539
$3,779
7
$6,746
$2,421
$3,465
$3,737
8
$6,946
$2,239
$3,349
$3,640
9
$6,995
$2,025
$3,145
$3,449
-2%
2%
COGS
R&D (%) - based on prob. Adjusted
R&D ($M)
SG&A (%) - based on prob. Adjusted
SG&A ($M)
EBIT (100% pipeline)
EBIT (no pipeline)
EBIT (prob. Adjusted pipeline Base Case)
EBIT (prob. Adjusted pipeline Bull Case)
Tax rate (100% pipeline)
Terminal Growth (100% pipeline)

Terminal Growth (no pipeline)
Terminal Growth (prob. Adjusted pipeline)
Discount rate
Discount period
NPV ($M) - 100% pipeline
NPV ($M) - no pipeline
NPV ($M) - prob. adjusted pipeline
10%
24%
26%
Other Assets BG-12

25%
13%
2.0%
0.2%
2.0%
8.0%
2014
Share counts
Price ($/share) - 100% pipeline
Price ($/share) - no pipeline
Price ($/share) - prob. adjusted pipeline (Base Case)
Price ($/share) - prob. adjusted pipeline (Bull Case)
$1,770
$1,770
$1,770
$1,770
238.6
$788
$230
$325
$358
December 20, 2013
33
Exhibit 23: Table of Old vs New Estimates for BIIB

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
5049
2012A
5516
6.53
2013E
6844
6844
8.72
2014E
8315
8045
11.68
11.29
5.9
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
1292
1415
Q2
1421
1723
Q3
1386
1828
Q4
1418
1877
1941
2035
2139
2200
1.97
2.30
2.35
2.10
2.65
2.91
3.11
3.01
Source: RBC Capital Markets
Exhibit 24: Income Statement for BIIB

Avonex
Rituxan
Gazyva (Obinutuzumab/GA101)
Tysabri - US Transfer revenue
Tysabri - US revenue
Tysabri - Ex-US sales
Fampyra - Ex-US sales
Factor VIII and IX
Oral fumarate (Psoriasis)
Tecfidera (BG-12)
FYA
2011
2,687
997
322
757
14
55
-
1QA
Mar-12
662
285
88
198
15
13
-
2QA
Jun-12
762
285
93
187
20
15
-
3QA
Sep-12
736
288
102
173
12
16
-
4QA
Dec-12
753
281
105
190
11
16
-
FYA
2012
2,913
1,138
388
748
57
60
-
1QA
Mar-13
746
265
113
199
23
14
-
2QA
Jun-13
774
289
218
169
17
16
192
3QA
Sep-13
733
303
232
169
17
16
286
4QE
Dec-13
727
290
236
216
18
17
310
FYE
2013
2,980
1,147
113
686
753
75
63
788
1QE
Mar-14
714
318
0
238
226
18
16
368
2QE
Jun-14
746
311
1
245
198
19
9
17
443
3QE
Sep-14
730
311
2
256
200
20
21
18
520
4QE
Dec-14
730
296
4
257
203
20
30
19
585
FYE
2014
2,920
1,236
8
996
827
76
60
68
1,916
FYE
2015
2,760
1,109
59
1,050
900
86
185
72
2,700
Contracts and other sales

Royalties
Total Revenues
Cost of goods sold
59
158
5,049
467
3
29
1,292
133
22
37
1,421
139
12
47
1,386
139
6
56
1,418
134
44
169
5,516
545
22
33
1,415
134
11
38
1,723
231
17
54
1,828
235
6
57
1,877
258
55
182
6,844
857
16
28
1,941
264
10
36
2,035
267
15
46
2,139
275
6
50
2,200
282
47
160
8,315
1,088
30
140
9,091
1,177
1,215
354
329
296
344
1,323
283
327
409
462
1,480
375
360
385
458
1,577
1,600
Sales, general & administrative
1,049
300
301
298
375
1,273
351
430
404
465
1,650
438
455
460
474
1,827
1,964
318
86
79
76
78
318
85
Total Operating Expenses
3,050
875
850
811
933
3,469
858
990
1,051
1,187
4,085
1,079
1,084
1,122
1,215
4,500
4,753
Operating Income
1,999
417
571
606
497
2,091
557
736
784
690
2,767
862
951
1,016
984
3,814
4,352
Collaboration profit (loss) sharing
Other Income (net)

Pretax Income
Provision for taxes
(46)
1,953
15
432
574
(5)
602
(14)
483
(1)
2,090
(14)
(10)
542
726
(5)
779
(8)
682
85
(38)
2,730
(3)
860
(3)
949
(3)
1,014
(3)
982
(10)
3,804
(10)
4,342
506
94
135
146
149
524
77
177
212
180
647
227
250
268
259
1,004
1,016
Net Income
1,446
338
438
456
334
1,566
469
549
561
502
2,081
633
698
746
723
2,800
3,326
Net income adjusted for diluted EPS calculation
1,446
338
438
456
334
1,566
469
549
561
502
2,081
633
698
746
723
2,800
3,326
EPS - Basic (Non-GAAP)
$5.97
$1.41
$1.83
$1.93
$1.41
$6.58
$1.98
$2.31
$2.37
$2.11
$8.77
$2.66
$2.93
$3.13
$3.03
$11.75
$13.89
EPS - Diluted (Non-GAAP)
$5.90
$1.40
$1.82
$1.91
$1.40
$6.53
$1.97
$2.30
$2.35
$2.10
$8.72
$2.65
$2.91
$3.11
$3.01
$11.68
$13.77
Shares outstanding - basic
242.4
239.8
239.0
236.5
236.6
238.0
236.8
237.5
237.1
237.4
237.2
237.8
238.1
238.5
238.9
238.3
239.5
Shares outstanding - diluted
245.1
241.8
240.6
238.1
238.3
239.7
238.3
238.7
238.3
238.8
238.6
239.2
239.5
239.9
240.3
239.7
241.6
Detailed Sales Summary

($MM)
FYA
1QA
2QA
3QA
4QA
FYA
1QA
2QA
3QA
4QE
FYE
1QE
2QE
3QE
4QE
FYE
FYE
2011
Mar-12
Jun-12
Sep-12
Dec-12
2012
Mar-13
Jun-13
Sep-13
Dec-13
2013
Mar-14
Jun-14
Sep-14
Dec-14
2014
2015
Avonex
US
1,628
401
464
462
467
1,794
491
479
457
445
1,872
452
456
450
445
1,803
1,740
RoW
1,058
261
298
274
286
1,119
255
295
277
282
1,109
262
290
280
285
1,117
1,020
2,686
662
762
736
753
2,913
746
774
734
727
2,981
714
746
730
730
2,920
2,760
US
2,925
792
784
787
769
3,132
865
811
947
817
3,440
900
880
880
835
3,495
3,320
RoW
3,515
930
933
980
960
3,803
970
960
970
960
3,860
960
960
960
960
3,840
4,119
6,440
1,722
1,717
1,767
1,729
6,935
1,835
1,771
1,917
1,777
7,300
1,860
1,840
1,840
1,795
7,335
7,439
US
746
201
211
230
243
885
257
218
232
236
943
238
245
256
257
996
1,050
RoW
763
198
184
173
190
745
199
169
171
216
755
226
198
200
203
827
900
1,509
399
395
403
433
1,630
456
387
403
452
1,698
464
443
456
460
1,823
1,950
Worldwide Sales
Rituxan
Worldwide Sales
Tysabri
Worldwide Sales
December 20, 2013
34
Valuation
We believe BIIB has the most comprehensive MS armamentarium with Avonex, Tysabri, and
Tecfidera, with potential for double-digit revenue as well as EPS growth for the next 5+ years.
Moreover, BIIB has the best risk-adjusted and most diversified pipeline (neurology, immunology,
hematology) that could propel next-leg of growth (we estimate could add $5-$10B of EV if
successful) not in cons estimates. We think Tecfidera can become a leading oral therapy, while
Avonex should remain a mainstay as ABCR MS therapy, and Tysabri could grow meaningfully w/
JCV risk stratification.
Our $325 price target (from $275) is based on DCF analysis that values the base business ($127/
share from $115, now higher from better Tysabri economics, added operating leverage and tax
synergies from consolidated ex-US IP), the commercial prospects of Tecfidera ($88 from
$76/share based on certainty of EU revs post NAS designation) and hemophilia ($15/share)
programs. For various pipeline programs we add probability adjusted value ($13 for SMN-RX for
50% probability on $2.5B peak sales, $27/share for ANTI-LINGO for 25% on $5B+ peak sales,
$4/share for IPF based on 20% probability on $1B peak sales, $4/share for ANTI-TWEAK for 20%
probability on $750M peak sales, $10/share for Tysabri SMS for 35% probability on $2B peak
sales, and $9/share for nominal 5% probability on BIIB-037's potentially $10B+ peak sales) and
prob. adjusted value of operational synergies should these pipeline programs be successful
($28/share).

Risks to our thesis are disappointing Tecfidera launch sales, worse-than-expected erosion of
Avonex, and less than projected growth in Tysabri. However, we think competition, market share
loss, and new oral MS drugs are well known already by the Street and reflected in estimates.
Failure for BIIB's pipeline programs (SMN program for orphan disease SMA, ANTI-LINGO for remyelination, Tysabri for SPMS, as well as autoimmune and fibrotic diseases) to have successful
data readouts in the next 23 years would also contribute to downside, given that BIIB's premium
valuation to peers reflects some expectation of success in continued generation of blockbuster
therapies.
December 20, 2013
35
Celgene (CELG)
Outperform

Exhibit 25: Pharmaceuticals
Investment summary
Our investment rationale is based on CELG's improved long
term growth trajectory that is increasingly becoming more
diversified, with imminent launches of three new products with
near-blockbuster potential: pomalidomide for relapsed
refractory myeloma, Abraxane in pancreatic cancer, and
Apremilast in a variety of autoimmune indications. We believe
there is visibility for double-digit growth on top and bottom
lines, also helped by improving operating margins as revenue
base substantially expands. We believe CELG has a reasonably
attractive and sustainable growth strategy (20%+ EPS growth in
next 5 years) which justifies a premium multiple of 20x 2015E
EPS of $9.42, which puts PEG at less than 1x.

Our base case of $190/share is a 60/40 blend of two valuation
methodologies: 1) 21x 2015E EPS yields $200/share, at PEG of
0.8x with CELG's above peer group CAGR EPS growth of 20%+. 2)
DCF yields $175/share, based on key assumptions of double-digit
base business growth in next 5-8 years (Revlimid, Pomalyst,
Abraxane, Apremilast), as well as 95% probability Revlimid
polymorph holds till 2026. This values base business at
$163/share. We also probability-adjusted (35-45% from 15-20%)
early-stage pipeline (CC-486 for hematology/solid tumors, CC223/CC-122/CC-292 for oncology, PDA-001/002, CART for
translational stem-cell research, as well as partnered programs),
which adds $27/share (from $18/share).
Upside scenario
Our upside scenario of $200 uses the same assumptions as our
base case, except that we assume 100% (instead of 95%)
probability that 2026 polymorph patent holds, and we assume
$37/share for earlier pipelines, representing higher probability of
success of 50%+.
Downside scenario
Our downside scenario of $122 uses the same assumptions as our
base case, but with lower probability (60% instead of 95%) that
the 2026 polymorph patent will hold. Additionally, we do not
include any value for early-stage pipeline
December 20, 2013
CELG guidance raise for 2015-2017 in Jan for greater

visibility on Revlimid, as well maturing pipeline
opportunities (e.g. CC-292 combo w/ Revlimid and
Rituxan, MOR202 w/ Rd, CC-486 in wider spectrum of
AML/MDS patients, next-gen IMiD CC-122 w/ proof of
concept data in B-cell malignancies).
Revlimid "continuous treatment" becomes a standard of
care and confers sustained double digit rev growth; there
is zero use in EU currently and only 50% use in US. (Filing
in US/EU in Q1:14)
Revlimid as evolving backbone of future new regimens
(e.g.,
Velcade/Kyprolis,
MLN-9708
oral,
ABBV
elotuzumab, JNJ antibody daratumumab, MOR202) all the
durations of Revlimid will be going up as pts are going out
longer and longer with these new combos coming.
Unexpected challenges to validity of 2026 Revlimid

patent. Revlimid is in a specific crystalline form with
defined physical and chemical attributes as protected by
the '800 patent. There is, however, also risk to patent
challenges such as the one by Natco which will undergo
Markman hearing likely in H2:14. The invalidity of the
'800 patent, or the emergence of generic Revlimid, could
be substantially detrimental to CELG's earnings power
beyond 2017.
Lackluster Apremilast sales in 2014. The value
proposition of Apremilast will be in the pre-biologic
space, where patents are also not well controlled by
generic steroids. This is a new therapy as well as market
segmentation, which could lead to less than robust sales
upon initial launch in 2014.
36
Key questions / debates for CELG

1.
What are our expectations for

guidance revision in Jan 2014?
We expect CELG to raise 2017 by $500m and/or raising EPS by $0.50-1.00 suggests
strong outlook (considering conservative mgmt). This will be based on higher
utilization of Revlimid in USA (due to recent MM-020 results on high end of their
expectations), and long-term Vidaza in EU, and greater Pomalyst projections.
2.
What are our views on pending

Markman hearing vs. Natco?
While a Markman hearing likely adds volatility in H1:14, in our view CELG has
strengths in breadth of its patents, good precedence of validity of polymorph claims
in general and Cephalon's recent polymorph litigation success in April 2013. Natco's
defense is that CELG's claims should cover narrower constructs, leaving them room
to operate.
3.
What else is key to CELG sentiment in

2014?
3 existing growth products need to continue to meet and beat: Revlimid (does
continuous use pick up in USA post-020 data?), Abraxane pancreatic indication just
launched as $1B driver, and Pomalyst continuing to exceed expectations (positive
feedback post ASH over Kyprolis)
4.
Thoughts on Apremilast launch in

2014?
Apremilast launch is a rare case in biotech where sellside/buyside expectations are

actually lower than company guidance so we find the set-up reasonable. Consensus
of $120M for 2014 (implies mid-single digit penetration), especially given sales will be
augmented also by psoriasis in H2:14, and likely ankylosing spondylitis as a 3rd
indication going into 2015
5.
What pipeline readouts are most

interesting?
CELG has a host of proprietary and partnered pipeline, of which we watch for CC-292
combo w/ Revlimid and Rituxan, MOR202 w/ Rd, CC-486 in wider spectrum of
AML/MDS patients, next-gen IMiD CC-122 w/ proof of concept data in B-cell
malignancies.
December 20, 2013
37
Exhibit 26: Expected news flow for CELG

Timing
Expected News Flow
Program
Q1:14
EU Filing in front-line (non-transplant) maintenance based on MM-015
Revlimid
Q1:14
US Filing in front-line (non-transplant) based on MM-020
Revlimid
H2:14/H1:15
H2:14/H1:15
Filing in front-line (transplant) based on IFM 2005-02

Filing in front-line (transplant) based on CALGB 100104
Revlimid
Mar 21, 2014
PDUFA data for psoriatic arthritis
Early 2014
Potential sNDA submission in psoriasis
Apremilast
Apremilast
Mid 2014
Potential MAA submission for psoriasis and psoriatic arthritis
Apremilast
YE:13/'Early 2014
Phase III in ankylosing spondylitis
Apremilast
H1:14
Phase III data vs pom vs pbo in myelofibrosis (RESUME, chinese patients)
Pomalidomide
H1:14
Q3:14
2015
2015
Mature Phase III OS data on melanoma

IST Phase II results of abraxane + gemcitabine in adjuvant pancreatic
Phase III results of abraxane in TNBC
Phase III results of abraxane in adjuvant pancreatic
Abraxane
Abraxane
Abraxane
Abraxane
ASCO 2014
Potential PhI/IIa dose-escalation data of MOR202

(single agent + combo w/ Velcade + dex or Rev + dex)
MOR202
Markman Timelines vs Natco/Watson

Jan 3, 2014
Propose date for Markman hearing
Revlimid
Natco
Q1 or Q2:14
Markman hearing
Mid 2014
Estimated outcome from Markman hearing (60 days after hearing)
Natco
Dec 2014
30 month stay expires
Natco
Exhibit 27: CELGs vision of market opportunity targetable post approval in front-line settings (transplant eligible and ineligible) with
patients opting for continuous or maintenance therapy
Source: Company Reports (ASH 2013)
December 20, 2013
38
Exhibit 28: Mid- to longer-term expansion development for Revlimid as backbone of myeloma
therapy and expansion into leukemia/lymphomas
Source: Company Reports (ASH 2013)
December 20, 2013
39
Exhibit 29: Extensive list of CELG partnerships in early stage pipeline programs
Company
Ticker
Announced
Program
Indication
Stage
OMED
Dec-13
Demicizumab
6 anti-CSC products
Phase I/II
PharmAkea
Oct-13
Small-molecule discovery
Adimab
Aug-13
Antibody discovery
Solid tumors
NSCLC
Pancreatic
Cancer
Fibrotic disease
Undisclosed
Acetylon
Jul-13
ACY-1215
ACY-738
-
Cancer
Hematology
Inflammation
Pre-clinical
CKD
Phase I
MM
Phase I
Pre-clinical
OncoMed
Pre-clinical
Pre-clinical
Phase I/II
Array
Biopharma
Tengion
ARRY
Jul-13
TNGN
Jul-13
Morphosys
MOR.F
Jun-13
Neo-Kidney Augment
program
MOR202
May-13
Dt-modified compound
Apr-13
BLUE
Mar-13
CAR-T cell
Cancer
Inflammation
Protein
homeostasis
Hematology
Presage
Biosciences
Sutro
Biopharma
VentiRx
Inhibrx
Mar-13
Drug-discovery platform
Solid tumors
Pre-clinical
Dec-12
Antibody discovery
Undisclosed
Pre-clinical
Oct-12
Jun-12
VTX-2337
Antibody discovery
Solid tumors
Undisclosed
Phase I/II
Pre-clinical
AnaptysBiio
Apr-12
Antibody discovery
Pre-clinical
EPZM
Epizyme
Quanticel
Pharmaceutic
als
AGIO
Agios
Apr-12
Nov-11
DOT1L
-
Cancer
Inflammation
MLL
Cancer
Apr-10
AG-221
Phase I
XLRN
Feb-08
ACE-011
ACE-536
IDH2/1 mutant
cancers
Beta-Thalassemia
MDS
CKD
Concert
Pharma
FORMA
therapeutics
BlueBird Bio
Acceleron
Pre-clinical
Pre-clinical
Phase I
Pre-clinical
Phase I/II
December 20, 2013
40
Exhibit 30: RBCs CELG Valuation APP points to$190/share as base case, blended 60/40 of PE and DCF analyses
CELG Valuation APP --> Change Assumptions in Blue
How Do we Value CELG?
How Do We Value CELG's Pipeline?

POS
Per DCF
Polymorph Patent Valid?
40%
60%
95%
100%
100%
Super Bear Case (no pipeline, polymorph)

Per PE and PEG
$102
$122
$175
$200
$226
Base Case PT: 40%DCF,60% PE
$190
Discount Rate
Terminal Growth Rate (base business post 2026)
Terminal Growth Rate (post 2026 for pipeline)
8.0%
-20%
4%
Assumption
Total Revenues (no pipeline except Apremilast)
Total Revenues (prob. adjusted pipeline - Base Case)
Total Revenues (prob. adjusted pipeline - Bull Case)
Total Revenues (w/ 50% pipeline)
Core Revenues
Revlimid (first expiry 2017-2018, US polymorph Patent 2027, EU 2024)
CC-223/CC-122/CC-292 (TORK, BTK,PPM)

PE Multiple
Price
21x
$9.42
$200
Equiv. PEG
EPS (CAGR)
0.8x
26%
EPS in 2015
2012
$5,507
$2,856
2019
$14,293
$14,561
$14,891
$15,343
2020
$15,645
$16,007
$16,447
$17,045
2021
$16,965
$17,417
$17,957
$18,690
2022
$17,927
$18,472
$19,112
$19,967
2023
$18,717
$19,335
$20,055
$21,017
$4,791
12%
$1,015
$5,346
12%
$1,401
$5,989
12%
$1,765
$6,699
12%
$2,065
$7,435
11%
$2,540
$8,179
10%
$3,022
$8,915
9%
$3,476
$9,628
8%
$3,893
$10,302
7%
$4,010
$10,920
6%
$4,130
38%
$970
41%
$350
192%
$177
$623
26%
$1,250
29%
$640
83%
$150
$649
17%
$1,480
18%
$880
38%
$128
$671
23%
$1,658
12%
$977
11%
$120
$300
19%
$1,807
9%
$1,074
10%
$60
$150
15%
$1,933
7%
$1,171
9%
$50
$100
12%
$2,049
6%
$1,265
8%
$50
$80
3%
$2,152
5%
$1,353
7%
$50
$60
3%
$2,152
0%
$1,435
6%
$30
$50
$80
$200
$150
$300
$380
$50
$150
$400
$650
$50
$280
$500
$900
$250
$450
$500
$1,150
$550
$600
$500
$1,300
$900
$750
$500
$1,400
$1,300
$880
$500
$1,500
$1,600
$1,000
$0
$306
$0
$0
56%
$690
125%
$120
$302
$823
$245
$790
$208
$594
45%
40%
35%
40%
5%
24%
R&D ($M)
23%
$2,644
Tax rate (100% pipeline)
16.5%
17%
Assumption
FCF($M) - 50% pipeline

FCF ($M) - no pipeline
FCF ($M) - prob. Adjusted pipeline Base Case
FCF ($M) - prob. Adjusted pipeline Bull Case
Terminal Growth (no pipeline)
Terminal Growth (prob. Adjusted pipeline)
Terminal Growth (50% pipeline)
Discount rate
Discount period
NPV ($M) - no pipeline
5%
22%
5%
21%
5%
20%
5%
18%
$1,439
$1,601
$1,764
$1,918
24%
$1,537
$3,140
24%
$1,846
$3,765
22%
21%
$2,017 $2,217
$4,804 $5,956
5%
17%
5%
17%
5%
16%
5%
16%
5%
15%
5%
15%
5%
14%
$2,070
$2,179
$2,330
$2,481
$2,613
$2,678
$2,707
20%
$2,399
$7,036
19%
$2,562
$7,701
19%
$2,781
$8,561
19%
$3,009
$9,497
19%
$3,222
$10,434
18%
$3,362
$11,169
18%
$3,461
$11,810
17%
17%
17%
17%
17%
17%
17%
17%
17%
17%
17%
$2,622
$3,144
$4,011
$4,973
$5,875
$6,430
$7,149
$7,930
$8,712
$9,326
$9,862
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$2,343
$2,766
$2,766
$2,766
$2,766
$3,249
$3,249
$3,249
$3,249
$4,135
$4,118
$4,125
$4,132
$5,173
$5,079
$5,107
$5,140
$6,181
$5,979
$6,032
$6,099
$6,873
$6,533
$6,619
$6,728
$7,775
$7,250
$7,384
$7,549
$8,738
$8,029
$8,212
$8,435
$9,695
$8,809
$9,041
$9,318
$10,481
$9,420
$9,703
$10,036
$11,164
$9,953
$10,278
$10,658
Net Income ($M) - no pipeline

Cash Flow
$64
2018
$13,030
$13,205
$13,425
$13,720
Pomalyst (US 2024, EU 2023)
SG&A (%) - based on prob. Adjusted

SG&A ($M)
EBIT (no pipeline)
to
2017
$12,068
$12,178
$12,314
$12,483
$649
COGS
R&D (%) - based on prob. Adjusted
$19
2016
$10,598
$10,658
$10,728
$10,798
$4,265
30%
20%
15%
20%
Pipeline Value
2015
$9,030
$9,046
$9,062
$9,070
$426
MOR202/CC-486 (hematology/solid tumors)

CC-223/CC-122/CC-292 (TORK, BTK,PPM)
PDA-001, 002, HPDSC, CART (translational)
Partnered (Epizyme, Agios, Forma, Quanticel)
Partnered (Epizyme, Agios, Forma, Quanticel)
$ 1,200
$ 1,600
$ 1,800
$ 1,100
2014
$7,591
$7,591
$7,591
$7,591
$3,767
Thalomid (US 2023, EU 2019)

Vidaza (US expired 2011, EU 2018)
PDA-001, 002, HPDSC, CART (translational)
Sales in 2024
45%
40%
35%
40%
2013
$6,437
$6,437
$6,437
$6,437
Abraxane (US 2026, EU 2022)
Apremilast (US 2027)
MOR202/CC-486 (hematology/solid tumors)
-20.0%
4.0%
5.0%
8.0%
2014
$2,343
2013
$2,988
2014
$3,249
2015
$3,813
2016
$4,354
2017
$4,746
2018
$4,802
2019
$4,934
2020
$5,059
2021
$5,140
2022
$5,089
2023
$4,979
$2,343
$2,988
$3,249
$3,819
$4,378
$4,789
$4,865
$5,025
$5,175
$5,275
$5,242
$5,142
$2,343
$2,988
$3,249
$3,826
$4,406
$4,841
$4,945
$5,138
$5,316
$5,437
$5,422
$5,331
NPV ($M) - 50% pipeline
$2,343
$2,988
$3,249
$3,829
$4,435
$4,906
$5,052
$5,291
$5,507
$5,657
$5,663
$5,585
NPV
NPV
NPV
NPV
NPV
Sum ($M) - Super Bear Case

Sum ($M) - no pipeline
Sum ($M) - prob. Adjusted pipeline
Sum ($M) - prob. Adjusted pipeline
Sum ($M) - 50% pipeline
$26,581
$69,774
$77,773
$85,742
$96,996
December 20, 2013
41
Exhibit 31: Comparison of Consensus Estimates for 2015 and 2017 vs. Current Guidance
Our Analysis of CELG's 2017 Guidance vs Consensus Estimates for 2013, 2015 and 2017
Total Revenue Projected CAGR
13%
15%
17%
19%
Total Projected Revs ($B)
Consensus ($B)
Guidance on Hematology Sales ($B)
Guidance on Oncology Sales ($B)
Projected EPS ($/share)
Consensus ($/share)
Implied sales of Revlimid ($B)
Consensus ($B)
Implied sales of Pomalyst ($B)
Consensus ($B) for pomalidomide
Implied sales of Abraxane in pancreatic ($B)
Consensus ($B)
Implied sales of Apremilast ($B)
Consensus ($B)
Implied sales of other products ($B)
Implied sales of Vidaza Intl ($B)
Implied sales of abraxane in lung and breast ($B)
Implied sales of thalidomide and others ($B)
Consensus ($B) of other products
2013
2015
$7.7
$7.9
$8.2
$8.5
2017
$9.8
$10.5
$11.2
$12.0
$6.20
$6.43
$5.3 - 5.4
$0.6 - 0.7
$8.61
$8.90
$6 - 6.5
$1 - 1.25
$12.12
$12.42
$8.3 - $8.8
$1.5 - 2.0
$5.90 - $5.95
$5.99
$8 - $9
$9.40
$13 - $14
$14.88
$4.2
$5.4
$5.4
$6.8
$6.7
$1.0
$1.4
$0.7
$0.6
$1.5
$1.1
$3.1
$0.8
$0.8
$0.4
$1.5
$1.9
$0.8
$0.3
$0.2
$0.6
$0.4
$2.4
$1.9
$1.6
$0.1
$0
December 20, 2013
42
We note that there are no estimate changes for CELG contingent with the publication of this 2014 Outlook piece.
Exhibit 32: Income Statement for CELG

REVENUES:
Revlimid
U.S.
ROW
Thalomid
FYA
2011
FYA
2012
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013
1QE
Mar-14
2QE
Jun-14
3QE
Sep-14
4QE
Dec-14
FYE
2014
FYE
2015
3208
1832
1376
338
3767
2150
1617
302
1003
568
435
57
1052
625
427
66
1090
633
457
60
1120
658
462
62
4265
2484
1781
245
1118
645
473
52
1178
692
486
52
1229
733
496
53
1266
762
504
51
4791
2832
1959
208
5346
3172
2175
177
Vidaza
Abraxane
Istodax
Pomalidomide
Aprelimast
Others
Total product sales
Collaborative agreements and other revenue
Royalty Revenue
Total Revenue
EXPENSES:
Cost of Sales
Research and Development
Sales, General & Administrative
Total Expenses
Income from operations (EBIT)
Total Other Income
705
387
27
0
0
6
4670
18
123
4811
823
426
66
0
0
2
5386
11
110
5507
204
123
13
29
0
1
1429
7
28
1465
211
155
14
66
0
1
1564
3
32
1599
220
170
12
90
0
2
1644
2
28
1674
155
201
12
121
0
1
1672
3
25
1699
790
649
50
306
0
4
6309
15
113
6437
142
223
14
137
4
1
1690
3
24
1717
147
246
14
162
22
1
1822
3
26
1851
151
265
15
184
38
1
1935
3
29
1966
154
281
14
207
56
1
2029
3
26
2058
594
1015
56
690
120
2
7476
10
105
7591
623
1401
62
970
350
2
8931
13
86
9030
303
1240
1099
2642
2169
-21
288
1310
1258
2856
2651
-65
78
330
333
741
724
-15
77
345
384
806
794
-6
80
372
405
856
818
-14
89
393
415
897
802
-20
324
1439
1537
3299
3138
-55
84
375
442
901
815
-3
91
392
456
939
911
-3
97
408
465
970
996
-3
101
426
483
1010
1047
-3
374
1601
1846
3821
3770
-10
441
1742
1992
4174
4856
10
Pre-tax income
Taxes
Net Income
2149
395
1753
2586
424
2162
709
117
592
788
135
653
805
135
670
782
128
655
3083
514
2569
813
133
680
909
152
757
994
163
831
1045
167
878
3760
615
3145
4866
803
4063
EPS Basic - Non-GAAP

EPS Diluted - Non-GAAP
Shares Outstanding - Basic
Shares Outstanding - Diluted
$3.85
$3.79
455
463
$
$
5.02
4.91
431
441
$
$
1.42
1.37
418
432
$
$
1.58
1.52
414
429
$
$
1.62
1.56
412
429
$
$
1.58
1.52
414
430
$
$
6.20
5.97
415
430
$
$
1.64
1.58
415
431
$
$
1.83
1.76
413
429
$
$
2.02
1.95
411
427
$
$
2.13
2.05
412
428
$
$
7.62
7.34
413
429
$
$
9.76
9.42
416
431
Valuation
Our base case of $190/share is a 60/40 blend of two valuation methodologies: 1) 21x 2015E EPS
yields $200/share, at PEG of 0.8x with CELG's above peer group CAGR EPS growth of 20% +. 2) DCF
yields $175/share, based on key assumptions of double digit base business growth in next 5-8
years (Revlimid, Pomalyst, Abraxane, Apremilast), as well as 95% probability Revlimid polymorph
holds till 2026. This values base business at $163/share. We also probability adjusted (35-45%)
early-stage pipeline (CC-486 for hematology/solid tumors, CC-223/CC-122/ CC-292 for oncology,
PDA-001/002, CART for translational stem-cell research, as well as partnered programs), which
adds $27/share.

Our price target is significantly dependent on the clinical, regulatory, and commercial success of
Revlimid, Pomalyst, Abraxane, and Apremilast in both the U.S. and Europe. Impediments to our
current price target include: 1) regulatory delays or setbacks; 2) slower-than-expected commercial
growth; and 3) competition from Velcade, Kyprolis and other competitor pipeline candidates.
These issues would increase the discount rate for our future projections and potentially make our
estimates unachievable
December 20, 2013
43
Gilead Sciences (GILD)

Outperform

Exhibit 33: Gilead Sciences
Investment summary
We believe GILD will continue to outperform in the next 1-3
years, due to pending transformation to its top and bottom
line growth from its HCV franchise. We believe GILD will
undergo cycles of upward revision, beginning with 1) cons
raising 2014 '7977 launch estimates closer to $3B from $2.1B,
2) Street models beginning to reflect both US and ex-US
volume levers 3) Street appreciating sustainability of the HCV
sales curve, first increasing over first 5 years 2014-19 from
$2B+ to $9B peak and slowing afterwards, though retaining a
$2-7B+ sustainable tail (like PI's current sales) for another
decade, due to the vast number of HCV patients that we
expect to become cirrhtoic and need treatment as a result. We
also believe stock should go higher as more data de-risks and
furthers GILD from competition in the HCV race. On the HIV
front, we believe revenues will be sustained through new
product cycles (next-gen Viread) and soften impact of IP
expiration in 2018 2022.

Our base case of $90/share (from $80/share) now reflects a blend
of DCF (33%, $80/share) and PE (67%, $95/share). Our PE valuation
assumes 19x 2016 EPS, premium over group valuation of 16x due
to GILD's leading growth rates. Our DCF reflects combined earnings
power of GILD's HIV, HCV, oncology and operational synergies. For
HIV, we assume 80% maintenance post 2018, which is more than
offset by HCV becoming an $8B+ franchise. We use a discount rate
of 8% and a terminal growth rate of 1.5% for HIV/oncology and 50% for HCV after 2029..
HCV upside levers: If treatment volume doubles to

100K+, US is an $8B+ market. US prevalence is 1.7M
patients so 50% penetration is an $80B market; i.e. a long
runway of revenue potential that consensus thinks peaks
in 2-3 years followed by a cliff.
Oncology build out. Idelalisib's US launch in R/R iNHL (Jul
11 PDUFA) and quick EU filing now ahead of PCYC, plus its
Phase III JAK now head-to-head vs. INCY Jakafi starting up
adds upside not in estimates.
Hep B Lever: GILD has two programs with early data at
AASLD and Phase II proof-of-concept could begin to
readout YE:14 This might add another leg of significant
opportunity vs. minimal to no downside right now (e.g. a
10% probability works out to $2-3/share in our model).
Upside scenario
Our upside scenario of $99/share (from $90/share) uses
assumptions as the base case, but assumes a higher terminal
growth rate of 4% for HIV and oncology businesses post 2029,
which adds $5/share to valuation. In addition, we probability
adjust for 10% chance that emerging HBV program could replicate
the success envisioned for HCV as well as 25% chance for other
pipeline (simtuzumab, momelotinib) success.
Downside scenario
Our downside scenario of $62/share (from $52/share) assumes
lower blended HCV share (30%) where 7977 becomes a $7B+
franchise but with shorter HCV rev tail that lasts for only a decade.
This also assumes lower investor confidence in sustainability of HIV
business and competitiveness of its oncology assets.
December 20, 2013
Unexpected safety concerns with key HCV drug 7977,

delay in approval of 7977/5885 combo YE:14, or failure
for GILD to gain substantial share (40-50%) in all-oral HCV
market
HCV market potential fails to materialize, where
revenue growth turns out to be smaller than anticipated
(growing from $3B to $10B+ in next five years) due to
faster than expected pricing erosion.
Perception of growing competitive impact in HIV and
HCV, such as GSKs dolutegravir dampening growth of
Stribild or stellar HCV Phase II data update from MRK
could increase investor caution on assumptions of GILDs
dominant shares in these core markets.
44
Key questions / debates for GILD

1.
How should we think about ongoing

Sovaldi launch?
Our due diligence and Sofos-APP analyses suggest 2014 launch will be very robust
and handily beat 2014 cons of $2.1B. We only have first weeks of Olysio scripts but
that is already in-line to better than historical VRTX/MRK scripts when launched in
2010. We will watch for warehousing beginning H2:14 in anticipation of GILDs allorals (7977/5885)
2.
What to watch out for when

competitor ABBV launches early 2015?
Investors will watch for pricing (expected to be at modest 15-20% discount to GILDs
$84k for 12 wk regimens) as well as script impact to Sovaldi. We believe the stock
could trade closely mirroring the perceived competitive dynamic.
3.
What are other HCV competitors to

watch for?
MRK has entered Phase II (C-WORTHY) with its once-daily, protease based all-oral
regimen and investors will look to see if it could achieve 95%+ SVR in the absence of
RBV. We believe data update at EASL (efficacy and safety of whether there are rash
and liver enzyme elevations) could shed light on this competitive regimen to watch.
4.
What are our expectations of Phase III

data for TAF (Super QUAD) in HIV?
This needs to show stat sig. bone and renal improvements to convert older patients
into this regimen to prevent HIV revenue loss when Viread goes generic in 2018. This
will also be important for pricing and reimbursement negotiations especially in EU
where GILD derives 40% of its HIV revenues.
5.
Expectations for idelalisib market share

in iNHL and CLL?
Approval in R/R iNHL could come as early as Jul 2014 where it could operate without
competition, and potential EU/US approval in R/R CLL as combo w/ Rituxan could
also potentially garner as much as 20% market share in a best case scenario. We
believe idelalisib could be a source of revenue upside for GILD in 2014-2016 as the
lymphoma market switches to oral combinations.
Our positive thesis on GILD is driven primarily by its first-in-class, first-to-market position in alloral HCV that should exceed launch estimates and also peak consensus of $7B (which is our
primary thesis and would push stock higher) and secondarily by an emerging oncology and HBV
franchise increasingly piquing investor interest. Key is we like the stock for big launch into H1:14.
For HCV, next key event is the first Phase III single-tablet pill datasets coming up in Q4:13 (ION 23), which we think will show cure rates of 9095% in its 8-wk and 12-wk once-daily regimens (see
our SVR estimates for ION 1,2,3) and further de-risks the program.
Regarding competition in HCV, we continue to watch. But the over-riding thesis is GILD has a
competitive advantage because it is a simple daily pill for 812wks with no RBV and requires no
boosting and no breakthroughs (resistance) to date. Others lack a simple pill, have relapses and
breakthroughs, leaving OUS as the more likely only battleground. Either way, we model
competition but this needs to be watched for outer-years
What matters for GILD this year?

2014 guidance in January however, we think it is unlikely they will give h guidance for Hep C
sales and they do not project by product line.
December 20, 2013
45
Weekly and Monthly IMS data for Sovaldi and then eventual reported quarterly sales especially
the first 2 quarters (before sales will slow and flatten and/or decline due to warehousing for alloral in 2015)
Phase III HIV TAF son-of-Viread data in H2:14 this needs to be stat sig on bone and renal
improvements to convert pts from older regimens onto the newest regimen and prevent any loss
HIV revenue losses post-2018 when Viread goes generic. Those endpoints will also be important
for payors and European reimbursement post 2018.
Towards end of 2014 there could be Phase II Hep B data for GS-4774 were looking for 10-50%
reductions in HBsAg but they probably want to combine with Viread too to further increase
potency.
In H2:14, sales of Idelalisib in cancer and market share dynamics with PCYC in H2:14 and into
2015. Feedback from ASH is this franchise could get 20%+ market share in CLL and r/r iNHL has
little to no real competition for awhile.
4 Key Points Relevant to HepC Launch and GILD Upside

1) Launch of Sovaldi strong and will surpass buyside expectations based on our Sovaldi-APP
model. Sellside will continue to raise estimates. Secondly the all-oral is coming sooner than
expected now by late summer 2014 and estimates will pull forward everything by 3-6 months. H114 will be strong even on GT2/3 and huge GT1 pool will be ramping into new all-oral in summer
possibly driving $3B+ this year.
2) Spring will have Phase II all-oral competitor Merck data w/o RBV in key GT1a but the bar is
pretty high due to recent GILD ION data showing 94-99% cures w/o RBV for 8-12wks. MRK might
be 90-95% best case. But is 95% the minimum new bar now? Will GILD go low to 6-wks in 2015
with a "triple combo" using new GS-5816?
3) By H2:14 and into 2015 OUS sales will actually matter and consensus doesn't really model this
much but number of pts in EU, Japan, and RoW could dwarf US and will be staggered over
multiple years (drives a longer more sustainable biz). This will be driving the tail longer than
expected.
4) By year-end 2014 or early '15, ABBV could be approved and investors will debate pricing. We
predict relatively similar pricing at first. ESRX and other PBM's will look at pricing but will place
GILD/ABBV relative equal on formularies and ABBV will gain natural ~20% share from existing
sales relationships anyways at gastroenterologists (Humira for Crohn's) and VA contracts (10%
mkt) and some OUS countries which is very good for ABBV ($2B WW). In addition it'll be fine for
GILD because PBM's should theroetically be motivated to maintain high volume of high priced
drugs which drives higher revenue generation for them, and just seek normal 20-30% net rebating
which drives better margins so there won't be some huge pressure to "force" ABBV share on
doctors and patients. PBM's would need to implement step edits which isn't reasonable or likely
given GILD is clearly 1st line and ABBV has limitations for many pts due to ritonavir.
If all this plays out, GILD could be generating $8-10B FCF and will in-license and acquire to build
out the pipeline and may surprise with a dividend in 2015.
December 20, 2013
46
Our thoughts on Launch Dynamics for 2014

Sofosbuvir is now approved with a broad label for treatment of HCV as part of combo antiviral
treatment at $28,000 per bottle or $84,000 for a standard 12-week treatment. However, one
upside is that FDA allows consideration of treatment as an "all-oral" for double-duration of 24w
(SVR of 52-82% range) for the big GT1 market for interferon ineligible. There will clearly be some
pts (25% or more is our estimate) choosing to go with no needles and just longer duration of pills
with upshot for GILD revenues being $168k in theory for 2014. So this could be double the
revenue per patient for this group. Bottom line is we reiterate our thesis that GILD will beat
consensus of $225M in Q1:14 based on our SOFO-APP model and modeling based on the 2011
VRTX/MRK launches.
GILD's SOF is priced at a premium ($83K) compared to VRTX's launch ($50K). The ~50% higher
pricing is factored into our APP. Standard pricing of $28K for 28 days (or $84K for 12-wk
treatment) implies $84K for GT 1, 2, 4 for 12 wks and $168K for GT 3 for 24 wks. Some of the GT1
pts will also take it for "24 weeks" at $168k (PHOTON-1 HIV/HCV patients showed 76% SVR;
SPARE of African-American, poor responders to IFN showed 90 -96% SVR; however, QUANTUM
showed only 52% SVR but this study was 'flawed' due to non-compliance due to GS-938). No
guidance is given yet on gross-to net but we note VRTX saw adjustments of roughly 15% in its first
year. We also predict GILD will take price increases in 2014 and the "all-oral combo" in 2015 will
be priced above $100K. That said, some may choose to do off-label SOF+Simeprevir (JNJ) which
would be $145k for 12 weeks and shorter (but requires insurance and off-label
GILD could generate 20-30%+ revs from non-GT-1 patients. GILD's regimen represents a major
advancement for GT2-6, which have not seen a new therapeutic since IFN. Thus we believe GILD
will command substantial market share, generating over $100M+ per Q. Thus, GILD's combined
HCV revs could be $300M+ in Q1 and help drive a big $600M+ in Q2.
Expect GILD's HCV revs to taper off in Q4 in anticipation of new all-orals in 2015. We expect
quarter revs of $300M, $600M, $600, then down towards $450M i.e. $2B total vs. cons $1.7B for
2014.
Separately, we believe JNJ's TMC-435 will gain 70%+ share from VRTX/MRK (30%) in treatment
experienced. JNJ could, together with ~10-20% share in GT-1 naives, generate ~200M in quarterly
revs in 2014. However, we would expect this to quickly fall off by 2015 when GILD's anticipated
all-oral combo is launched and become the standard of care.
December 20, 2013
47
Exhibit 34: Expected news flow for GILD

Timing
Expected News Flow
Program
HCV
Jan 2014
Full EU approval of Sovaldi (sofosbuvir)
Late Q1:14
Anticipated US filing for Sofosbuvir + 5885 for GT 1
May 3, 2014
NCA Decision Memo on Screening for HCV in adults
EASL 2014
Topline SVR12 readout from SOF/GS-5816 Phase II study
Jun 3, 2014
Expected NCA Completion on Screening for HCV in adults
Jul - Sep, 2014
US approval of Idelalisib in refractory iNHL
Q3 - Q4:14
Anticipated US approval of Sofosbuvir for all-orals GT-1
H1:15
Potential approval of Sofosbuvir in Japan
Sofosbuvir combo
SOF/GS-5816
Sofosbuvir combo
HIV
Q4:13
Anticipated MAA approval of Dolutegravir (Tivicay)
Competitor GSK
YE:13
Estimated readout for Stribild switch study (Ritonavir-boosted PI + Truvada)
Stribild
YE:13
Estimated readout for Stribild switch study (Ritonavir-boosted NNRTI+ Truvada)
Stribild
Q4:13
Anticipated MAA approval of switch indication for Complera
Dec 13, 2013
PDUFA of sNDA for switch indication for Complera
H1:14
Resubmission of US NDA for Cobicistat and Elvitegravir
Jun 2014
Phase III readout of Super QUAD vs Stribild in naives (Study 1)
GS-7340 QD tablet
Sep 2014
Phase III readout of Super QUAD vs Stribild in naives (Study 2)
GS-7340 QD tablet
Mar 2015
Phase IIIb readout of Stribild vs boosted Reyataz in treatment nave women
Stribild
H1:14
Final Phase I MAD readout of GS-9620 (TLR agonist) in TN/Suppressed HBV Patients
GS-9620
Q3:14
Phase II readout of GS-4774 (therapeutic vaccine) As Add-On for Virally Suppressed HBV
GS-4774
Q3:15
Phase III readout of TAF vs Viread in Antigen-Negative HBV
GS-7340
Q4:15
Phase III readout of TAF vs Viread in Antigen-Positive HBV
GS-7340
Jul 11, 2014
PDUFA for GS-1101 + BR in double refractory iNHL
Idelalisib
Q3:14
Anticipated MAA approval for GS-1101 +/- Rituxan in previously treated, chemo unfit CLL
Idelalisib
Oct 2015
Phase III readout for GS-1101 vs GS-1101+ bendamutine/Rituxan in previously treated CLL
Idelalisib
HBV
Oncology
Other programs
Ranexa
Topline results f/ three Phase III T2DM monotherapy, sulfonylurea and metformin studies
December 20, 2013
48
Exhibit 35: Our launch APP of weekly Sovaldi(GILD) and Olysio (JNJ) scripts suggest beatable 2014 consensus ests ($2.1B for GILD)
Sovaldi (GILD)
Your
RBC
Input
Base Case
1352
1273
1.5%
1.5%
-2.5%
-2.5%
NRx Re-Growth for All-Orals
3.0%
2.5%
93%
93%
7977 Treatment Cost
$84,000
$84,000
7977 Monthly Cost
$28,000
$28,000
7977/5885 Treatment Cost
$90,000
$90,000
7977/5885 Monthly Cost (8 wks)
$45,000
$45,000
Gross To Net
15%
15%
IMS Capture Rate
85%
85%
Sovaldi (GILD)
Q4:13
Q1:14
Q2:14
Q3:14
Q4:14
TRx
2,400
19,455
23,643
25,755
26,100
NRx
2000
11,046
13,194
13,543
14,570
Script Predicted Revs ($M)
$67
$545
$662
$721
$731

Inventory Build? ($M)
$5
$50
$50
$0
$0
Total
$72
$595
$712
$721
$731
Consensus for US sales ($M)
$65
$300
$550
$450
$400
$2,759
vs
Cons
$2,100
7977 Revs for 2014 ($M)
WW
* EU to generate sales Feb '13

* Sofosbuvir formal launch started Dec 9, 2013
Reality Check
Incivek (VRTX)
Q3:11
Q4:11
Q1:12
Q2:12
TRx
22,300
27,100
22,400
20,600
NRx
14,700
14,000
12,200
10,100
Inventory Build?
$60 -$80
$547
$357
$328
Incivek (VRTX)
$420
Source: IMS Data and RBC Capital Market estimates (Note script numbers are RBCs forward projections based on IMS data, not the actual data itself)
December 20, 2013
49
Exhibit 36: Our launch APP of weekly Sovaldi(GILD) and Olysio (JNJ) scripts suggest beatable 2014 consensus ests (contd)
Olysio (JNJ)
Your
RBC
Input
Base Case
250
1024
2.0%
1.0%
-3.0%
-2.5%

800
93%
93%
7977 Treatment Cost
$66,360
$84,000
7977 Monthly Cost
$22,120
$28,000
Gross To Net
15%
15%
IMS Capture Rate
85%
85%
Q4:13
Q1:14
Q2:14
Q3:14
Q4:14
TRx
530
2,802
3,162
4,069
4,897
NRx
480
1,479
1,785
2,245
2,691
$12
$62
$70
$90
$108
Olysio (JNJ)

Total
Olysio Revs for 2014 ($M)
$2
$5
$10
$10
$5
$14
$67
$80
$100
$113
$360
vs
Cons
$380
WW
*Japan and Canada will also generate sales

Source: IMS Data and RBC Capital Market estimates (Note script numbers are RBCs forward projections based on IMS data, not the actual data itself)
December 20, 2013
50
Exhibit 37: Valuation-APP for GILD Points to $90/share as base case (Blended DCF 33% and PE 67% Valuation)
What are HCV + HIV & emerging Oncology businesses potentially worth to GILD?
Per DCF
Per PE
Bear Case
$62
Multiple
Base Case
$80
EPS in 2016
Bull Case ($5B+ in 7977 sales)
$99
Price
Base Case PT:33% DCF,67% PE
$90
PEG
Revenue Scenarios
GILD (HIV, HCV, Oncology)
GILD (HIV, HCV, Oncology)
GILD (HIV, HCV, Oncology, Pipeline)
19x
$6.64
$95
0.67x
28%
CAGR
Description
HIV and HCV declines 10% and 5% annually post 2018; oncology grows modestly
HIV declines only 20% from 2018-2029; HCV long tail and declines 50% only post 2029
Same as Base Case, but 10% POS for HBV25% for IPF, Myelofibrosis
Total
$62
$80
$99
DCF Analysis of GILD:

Assumption
Total Revenues
HIV Core Revenues
PSI-7977
0%
Oncology Revenues (Idelalisib, syk)
Pipeline (HBV)
0%
Pipeline (IPF, myelofibrosis)
0%
EBIT (HIV/Oncology/prob. adjusted pipeline)
EBIT (HCV Biz)
Operating Margin (HIV Biz)
Operating Margin (HCV Biz)
Overall Operating Margin
Tax rate (HIV Biz)
Tax rate (HCV Biz)
Profit
Cash Flow
Assumption
Net Income
Capex
Dep/Amort
Working Capital
Stock option expense
FCF
Terminal Growth of Core Biz
Terminal Growth of PSI-7977
Discount rate
Discount period
NPV
2011
2012
2013
2014
2015
2016
2017
2018
2019
$8,385
$8,385
$9,319
$9,319
$10,952
$10,952
$14,352
$11,827
$2,488
$37
$19,606
$13,172
$6,074
$360
$3,651
$4,010
44%
42%
$4,423
$0
44%
44%
25%
43%
27%
$2,738
$2,927
40%
25%
15%
$3,317
$5,457
$1,592
46%
64%
49%
25%
15%
$5,446
$6,766
$4,374
50%
72%
57%
25%
15%
$8,792
$24,894
$14,401
$9,818
$675
$500
$200
$7,990
$7,658
53%
78%
63%
25%
15%
$12,502
$26,709
$14,752
$10,987
$970
$1,800
$450
$8,741
$8,790
56%
80%
66%
25%
15%
$14,027
$26,970
$14,222
$11,518
$1,230
$2,500
$700
$8,962
$9,215
58%
80%
67%
25%
15%
$14,554
$27,183
$13,938
$11,795
$1,450
$3,500
$1,000
$9,233
$9,436
60%
80%
69%
25%
15%
$14,945
2011
2012
2013
2014
2015
2016
2017
2018
2019
$2,738
(43)
276
27
39
0.5%
$2,927
(43)
276
(134)
207
2.2%
$3,317
(43)
287
(140)
237
2.2%
$5,446
(43)
299
(145)
291
2.2%
$8,792
(43)
311
(151)
323
2.2%
$12,502
(43)
323
(157)
357
2.2%
$14,027
(43)
336
(163)
356
2.2%
$14,554
(43)
349
(170)
332
2.2%
$14,945
(43)
363
(177)
350
2.2%
$3,037
$3,233
$3,659
$5,848
$9,232
$12,981
$14,512
$15,022
$15,439
$3,037
-2
$3,771
-1
$3,952
0
$5,848
1
$8,548
2
$11,129
3
$11,520
4
$11,041
5
$10,508
0.5%
-90%
8.0%
2014
NPV Sum
Share counts
Price/Share
$136,033
1698.4
$80
December 20, 2013
51
Exhibit 38: Table of Old vs New Estimates for GILD

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
8385
2012A
9703
2013E
10952
10872
2014E
14467
13632
1.92
1.95
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
2282
2532
Q2
2405
2767
2.00
1.97
Q3
2427
2783
3178
3622
3750
3.37
2.79
Q4
2588
2870
2790
3917
0.48
0.50
0.52
0.68
0.85
0.89
0.50
0.47
0.94
Exhibit 39: Income Statement for GILD

Viread
Emtriva
Truvada (Emtriva/Viread)
Atripla (Emtriva/Viread/Sustiva)
Complera (TMC-278/Emtriva/Viread)
Hepsera
Elvitegravir
Cobicistat
Stribild (QUAD)
GS-7977/5885 (HCV)
Idelalisib (iNHL/CLL)
Total Antiviral Franchise
AmBisome (ex-US)
Letairis
Cayston (aztreonam lysine)
Ranexa
Other
Total Product Sales
Royalties & contracts
Total Revenues
Total COGS
Selling, general & administrative
Operating Income (Loss)
Total Other Income (Expense)
Pretax Income
Provision for taxes
Net Income
EPS - Basic (GAAP)
EPS - Diluted (GAAP)
EPS - Diluted (Non-GAAP)
Shares Outstanding - Basic (MM)
Shares Outstanding - Diluted (MM)
Year/Year % Growth
HIV sales
Total product sales
Revenues
EPS - Diluted (non-GAAP)
Expense Analysis
Gross margin (% of sales)
Gross margin (% of sales, ex-Sustiva)
R&D of core biz (% of revenue)
SG&A of core biz (% of revenue)
Net margin (% of revenue)
Tax rate
FYA
2011
FYA
2012
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013
1QE
Mar-14
2QE
Jun-14
3QE
Sep-14
4QE
Dec-14
FYE
2014
FYE
2015
245.5
6.9
777.5
953.7
298.0
22.0
3.5
2.0
229.0
665.0
3,203.9
81.0
118.0
34.0
109.0
4.3
3,550.2
71.3
3,621.5
763.5
533.0
470.0
1,766.5
1,855.0
(63.1)
1,791.9
439.0
1,357.9
$0.88
$0.80
$0.85
1,536.6
1,697.6
242.0
6.2
799.2
929.1
321.0
21.0
7.0
3.9
263.0
712.0
6.0
3,313.0
90.0
127.0
29.0
115.0
4.3
3,678.3
71.3
3,749.6
784.3
555.0
475.0
1,814.3
1,935.3
(61.1)
1,874.2
449.8
1,429.4
$0.93
$0.84
$0.89
1,537.8
1,699.2
244.2
6.2
816.2
925.5
346.0
19.0
13.0
5.7
298.0
795.0
31.0
3,505.7
83.0
124.0
27.0
102.0
4.3
3,846.0
71.3
3,917.3
809.0
588.0
515.0
1,912.0
2,005.3
(58.1)
1,947.2
444.0
1,506.2
$0.98
$0.89
$0.94
1,539.0
1,700.8
948.2
26.0
3,111.9
3,682.3
1,226.0
88.0
26.0
13.1
991.0
2,640.0
37.0
12,799.2
340.0
479.0
121.0
425.0
17.2
14,181.4
285.2
14,466.6
3,044.6
2,196.0
1,925.0
7,165.6
7,301.1
(250.4)
7,050.7
1,699.3
5,368.4
$3.49
$3.16
$3.37
1,537.2
1,698.4
976.6
24.0
3,050.1
3,645.5
1,700.0
52.8
72.0
37.0
1,520.0
5,900.0
360.0
17,455.0
345.0
440.0
130.0
432.0
18.0
18,820.0
252.0
19,072.0
3,587.5
2,307.7
2,422.1
8,317.4
10,754.6
(197.4)
10,557.3
2,290.9
8,284.3
$5.31
$4.81
$5.03
1,560.3
1,723.9
737.9
28.8
2,875.1
3,224.5
38.7
144.7
-
848.7
29.4
3,181.1
3,574.5
342.2
108.3
57.5
210.3
6.7
700.2
877.1
148.2
26.4
92.1
250.2
6.6
807.8
938.1
188.7
21.5
99.4
231.6
6.8
813.7
899.7
210.7
20.3
144.0
226.0
6.8
806.0
908.0
237.0
20.0
1.5
181.0
80.0
918.1
27.0
3,127.7
3,622.9
784.6
88.2
1.5
516.5
80.0
7,049.7
330.2
293.4
90.8
320.0
18.3
8,102.4
283.0
8,385.4
2,124.7
1,229.2
1,242.0
4,595.5
3,789.8
(138.8)
3,651.0
861.9
2,803.6
$1.81
$1.77
$1.92
1,550.1
1,580.0
8,141.8
346.6
410.1
108.3
372.7
18.9
9,398.4
304.1
9,702.5
2,471.4
1,759.9
1,461.0
5,692.3
4,010.2
(398.2)
3,612.0
1,038.4
2,591.6
$1.71
$1.64
$1.95
1,514.6
1,584.3
2,061.1
85.3
118.1
31.9
96.3
0.8
2,393.5
138.1
2,531.5
634.4
497.6
374.3
1,506.4
1,025.2
(85.1)
940.0
222.4
722.1
$0.47
$0.43
$0.48
1,521.4
1,665.1
2,312.2
75.1
128.3
34.0
107.0
0.6
2,657.3
110.1
2,767.4
684.7
523.9
405.0
1,613.6
1,153.8
(78.2)
1,075.6
308.0
772.6
$0.51
$0.46
$0.50
1,526.9
1,694.6
2,326.7
97.8
135.1
28.0
115.8
6.2
2,709.7
73.2
2,782.8
681.9
546.2
406.9
1,635.0
1,147.9
(68.2)
1,079.7
294.5
788.6
$0.51
$0.47
$0.52
1,532.1
1,691.9
2,466.3
83.0
123.0
26.0
96.0
4.3
2,798.6
71.3
2,869.9
699.5
578.0
496.0
1,773.5
1,096.4
(68.1)
1,028.3
259.1
773.2
$0.50
$0.46
$0.50
1,534.5
1,694.7
9,166.4
341.2
504.4
119.9
415.1
12.0
10,559.0
392.7
10,951.7
2,700.5
2,145.8
1,682.1
6,528.4
4,423.3
(299.6)
4,123.6
1,084.0
3,056.5
$2.00
$1.81
$2.00
1,528.7
1,686.6
216.5
6.7
719.0
874.0
261.0
26.0
2.5
1.5
201.0
468.0
2,776.6
86.0
110.0
31.0
99.0
4.3
3,106.9
71.3
3,178.2
687.8
520.0
465.0
1,672.8
1,505.5
(68.1)
1,437.4
366.5
1,074.8
$0.70
$0.63
$0.68
1,535.5
1,696.1
8%
10%
5%
4%
15%
16%
16%
1%
7%
8%
11%
6%
15%
14%
15%
1%
14%
15%
15%
4%
14%
11%
11%
0%
13%
12%
13%
3%
35%
30%
26%
42%
39%
34%
31%
72%
42%
36%
35%
72%
42%
37%
36%
86%
40%
34%
32%
68%
36%
33%
32%
50%
74%
87%
15%
15%
36%
24%
74%
84%
18%
15%
32%
29%
73%
83%
20%
15%
32%
24%
74%
84%
19%
15%
30%
29%
75%
84%
20%
15%
32%
27%
75%
84%
20%
17%
30%
25%
74%
84%
20%
15%
31%
26%
78%
86%
16%
15%
36%
26%
78%
86%
15%
13%
40%
25%
79%
86%
15%
13%
41%
24%
79%
86%
15%
13%
41%
23%
79%
86%
15%
13%
40%
24%
81%
95%
12%
13%
45%
22%
December 20, 2013
52
Valuation
Our base case of $90/share reflects a blend of DCF (33%, $80/share) and PE (67%, $95/share). Our
PE valuation assumes 19x 2016 EPS, premium over group valuation of 16x due to GILD's leading
growth rates (CAGR 28%, PEG of 0.7). Our DCF reflects the combined earnings power of GILD's HIV
($25/share), HCV ($43/share), oncology ($7/share) and operational synergies ($5/share). For HIV,
we assume 80% maintenance post 2018, which is more than offset by HCV becoming an $8B+
franchise (50% blended HCV share in $15B+ global market). We assume oncology will generate
peak sales of $2B+ in next decade. We foresee the combined business to experience substantial
margin improvements (4567%). Due to the greatly de-risked profile of HIV and HCV businesses,
we use a discount rate of 8% and a terminal growth rate of 1.5% for HIV/oncology and -50% for
HCV after 2029.

Risks to our price target and possible impediments include: 1) greater than expected HIV revenue
erosion post generic entrance in 2018 2) clinical, regulatory and safety setbacks that prevents HCV
franchise in becoming a $8B+ franchise 3) material legal disputes that delays or increases cost of
goods for sofosbuvir 4) inability for oncology franchise to emerge as $2B+ revenue
December 20, 2013
53
Company Profiles Mid Caps (YEE)
December 20, 2013
54
Acorda Therapeutics (ACOR)

Outperform, Speculative
Exhibit 40: Acorda Therapeutics
Investment summary
We rate Acorda shares Outperform, Speculative Risk. We
believe Acorda is an attractive investment based on: 1)
sustained growth in Ampyra since launch, with increasing
penetration in patients with less walking impairment and higher
patient retention rates 2) optionality value into a potentially
very large indication expansion opportunity in post-stroke,
where the population (8M prevalence) and the unmet need in
ambulatory/sensory improvement is large and 3) early but
interesting pipeline opportunities (early proof-of-concept with
GGF2 in heart failure, AC105 for acute spinal cord injury,
rHIgM22 for remyelination in MS) that could be potentially
transformative and are not in valuation estimates. We believe
the potential for regulatory success in Ampyra for post-stroke
renders ACOR a compelling smid-cap value play with interesting
attractiveness as a takeout candidate for companies in the
neurology space.

Our target price of $42/share is supported by a DCF valuation for
Ampyra alone in the US with IP extended to February 2026,
valuing it at $26/share, plus $8/share in cash, $4/share for
royalties on Ampyra sales ex-US, and $4/share for optionality
value in Ampyra in the post-stroke indications (20% probability
on doubling of Ampyra franchise sales).
Upside scenario
Our upside scenario of $48 assumes similar SOTP as our base
case ($26/share for Ampyra, $8/share in cash, $4/share for
royalties on Ampyra ex-US). We, however, assume 40%
probability of success in post stroke ($8/share, post-stroke peak
sales of $600M, with sales beginning in late 2015) and $2/share
for other pipeline indications (5% probability of success for GGF2
in heart failure and AC105 for acute spinal cord injury)
Clarity on Phase II/III post-stroke study in Q2:14,

especially if FDA signs off on adaptive or staggered
development (running 2 trials semi-parallel) which enables
data in 2015 rather than 2016/2017. Success in post-stroke
could double Ampyra sales.
Potential upside to Qutenza/Diazepam revs, where
expectations are very modest. This is an incremental
positive catalyst should Acorda be able to demonstrate
leverage of its salesforce through smart, low-cost business
development.
Paragraph IV filers could emerge in Jan 2014, as while it

will likely trigger a 30-month stay and generic erosion
cannot emerge till likely 2018, the headline risk reminds
investors of potential generic erosion much sooner than
the assumed 2026 (BID formulation and dosing patent).
Delays to Phase II/III post-stroke in Q2:14 start either
due to inability to identify a suitable once-daily
formulation, or FDA requirement for a strict Phase II prior
to generating pivotal data through two Phase III trials.
Downside scenario
Our downside scenario of $26 assumes stagnant US Ampyra
sales growth, peaking at $350M in 2014 and patent exclusivity
expiring at the end of 2018, valuing the franchise only at
$14/share. We do continue to include $8/share in cash and
$4/share for royalties on Ampyra ex-US. We assume no
optionality for regulatory success in post-stroke or cerebral
palsy, and no value for other pipeline indications
December 20, 2013
55
Key questions / debates for ACOR

1.
When do we expect paragraph IV filers

on Ampyra?
First possible filing is Jan 22, 2014 so we expect to see possible multiple filers as
headline risk. Recall orphan exclusivity runs till Jan 2017 and ACORs methods of use
and formulation patents extend to 2018 and 2026.
2.
Likelihood post-stroke study could

work?
Likely to work since it is an active drug with benefit in walking in MS patients;

investors need clarity on a number of issues by Q2:14: number of studies needed,
whether responder analyses is permitted, size of the study and nature of primary
endpoint to help handicap likelihood of success and to ensure the trial is large
enough to demonstrate walking improvement benefit in post-stroke patients who can
be heterogeneous
3.
Our expectations for Qutenza (pain)

and Diazepam (epilepsy) launch?
We are modest in our expectations for Qutenza ($5.6M for 2014, it did $3M in 2010
prior to ACOR acquisition) and expect likely Diazepam approval in H2:14, though this
is likely also a product with a gradual launch ramp due to generic competition in
other forms of administration.
We think ACOR is a relatively inexpensive, smid-cap value biotech but will need longer-term
patience. We think the stock will go up later in 2014 and into 2015 for pipeline. Its generating
healthy 10-15% revenue growth (mostly via price) has upside optionality to double revenues if
Ampyra Phase II/III stroke study works (later in 2015), and an interesting pipeline of spec-pharma
like niche products (nasal diazepam, pain patch) and high-risk speculative programs (Phase I remyelination antibody, Phase I acute heart failure drug, and Phase II IV acute spinal cord injury
drug). In totality, it's not that expensive at a $1.3B mkt cap or $1B EV which is only roughly 3x
current sales with upside on all the programs above. That said, the interesting catalysts to us don't
have data for awhile (post-stroke 2015 and re-myelination YE14/15, nasal diazepam approval
YE14). Near-term investors need to prepare for Paragraph IV filers in January and continue to
monitor fairly modest quarterly Q/Q Ampyra growth in MS. 2014 guidance in January will likely
have a wide range that encompasses consensus, no similar to prior years.
Will Phase II/III post-stroke study work? We think the post-stroke study will probably work in
2015 since we know it's an active drug and has "some" benefit on walking improvement based on
Phase II showing clear trend in effect. The question is how much effect size and how to design the
study? And with no responder analysis this time, it needs to be well powered to show a modest
15-20% effect size.
There are questions around whether clinical benefit can be teased out from a small Phase II, what
is the right primary endpoint and what to change it to now and do we have enough info to power
for it (co says likely not going to use T25WT like in MS), whether one or two studies are needed,
and whether there is differences in patients based on heterogeneity of patients (time since
stroke, degree of myelination, age of pts, etc). Currently, while ACOR plans on 1) having primary
endpoint as walking speed, it is not necessarily traditional timed 25 foot walk test, 2) unclear
whether they can use of a responder analysis 3) no way to select patients most likely to respond
4) trial size probably similar to MS (n = 300).
December 20, 2013
56
We do think the study will work but acknowledge risk compared to MS (40% of pts have a 25%
improvement in walk speed) in terms of clinical magnitude of benefit. Separately, dosage
selection is also a gating factor, with ACOR conducting a PK study to verify similar exposures to
BID dosing vs. "new once-daily" dosing but this is a risk factor to change doses
Thoughts on likely paragraph IV filers in Jan 2014. We note Jubilant Life Sciences (India) and
Enaltec labs (India) filed DMFs for dalfampridine in March 2011 and May 2012 respectively.
Separately, drug distributor Accord Healthcare and formulations developer Intas Pharma sued
Acorda in April 2013 for refusal to provide samples of Ampyra (under REMS distribution
restrictions) for bioequivalence studies necessarily for ANDA filing by Jan 2013. We will watch for
one or more paragraph IV filings in Jan 2014 in competition for 180-day exclusivity.
Recall while ACORs method of use patent extends till Feb 2026, the claims center on usage of
Ampyra as 10mg sustained released tablet (formulation of 4-AP) as oral administration every 12
hrs for the therapeutic benefit of increased walking speed in humans with multiple sclerosis, as
well as for improvement in lower extremity muscle strength, and for specifically defined PK/PD
parameter ranges after administration. While these claims are well defined and necessitates
generic filers to come up with alternative dosages and administration, paragraph IV filers are very
likely to emerge and create an overhang for investors, who will contemplate the risk of potential
onset of generic erosion as soon as 2017 (when orphan exclusivity expires Jan 2017) or when its
method of use patent expires (Jul 2018).
Exhibit 41: Expected news flow for ACOR
Timing
Expected News Flow
Early 2014
Regulatory feedback form FDA on post-stroke design
Jan 22, 2014
First day of potential Paragraph IV filing on Ampyra
Q2:14
Initiate Phase IIb/III start in chronic stroke post FDA discussions
Q2:14
Phase III readout of Qutenza in PDN
Dec 2013 or early 2014
Phase III readout of USL261 for Seizure Clusters
Q3:14
Potential approval and marketing of Diazepam
Jan 2015
Phase I readout of GGF2 to further refine safe dose ranges
Early 2015
Phase I double blind SAD safety and PK study results
Jan 22, 2017
First day of theoretical generic Ampyra approval
Program
Ampyra
Ampyra
Astellas
competitor
GGF2
rHIgM22
December 20, 2013
57
Exhibit 42: Pipeline for ACOR

Product
Stage of Development
Indication
Partner
Zanaflex Capsules
Marketed
Spasticity
Proprietary
Ampyra (Fampridine-SR)
Marketed
Walking improvement in MS
US Proprietary; ex-US partner is

Biogen
Qutenza
Marketed
Postherpetic neuralgia (patch/liquid)
Acquired from NeurogesX
Intranasal diazepam
NDA Filed
Acute repetitive seizures
Proprietary*
Ampyra (Fampridine-SR)
Phase II/III
Post stroke
Ampyra
NP-1998
Phase II/III
Diabetic neuropathy (PDN)
Acquired from NeurogesX
AC105
Phase II
Acute Spinal cord injury
Proprietary**
GGF2
Phase I
Cardiovascular (heart failure)
Proprietary
rHIgM22
Phase I
Multiple Sclerosis
Proprietary
Neurological disorders
Proprietary
Remyelinating antibodies
Preclinical
Exhibit 43: Table of Old vs New Estimates for ACOR

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
292.2
2012A
305.8
2013E
335.8
2014E
364.7
376.3
0.73
0.72
0.76
3.84
0.55
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
71.2
71.9
Q2
75.7
87.1
Q3
77.4
84.9
Q4
81.5
91.9
81.6
92.4
93.4
97.4
(0.03)
0.10
0.18
0.30
0.16
0.24
0.20
0.14
December 20, 2013
58
Exhibit 44: Income Statement for ACOR

Acorda Therapeutics, Inc.
Michael J. Yee (415) 633-8522
Michael J. Yee (415) 633-8522
Annual and Quarterly Income Statement

REVENUES:
Ampyra (US Sales)
Fampyra (ex-US Royalties & Milestones)
Zanaflex (authorized generic Royalties)
Zanaflex
Qutenza (capsaicin 8% patch)
Diazepam (nasal spray)
License Revenue
Total Revenue
FYA
2009
50.0
0.0
0.0
4.7
54.7 $
FYA
2010
3QA
Sep-13
4QE
Dec-13
FYE
2013
1QA
Mar-14
2QA
Jun-14
3QA
Sep-14
4QE
Dec-14
FYE
FYE
2014
2015
62.3
2.9
3.1
1.3
2.3
71.9 $
77.8
2.2
3.6
1.2
2.3
87.1 $
77.8
2.0
2.1
0.8
2.3
84.9 $
82.1
2.2
3.2
1.3
0.80
2.3
91.9 $
300.0
9.3
12.0
4.7
0.8
0.0
9.1
335.8 $
72.0
2.2
3.3
0.7
1.10
2.3
81.6 $
82.0
2.3
3.8
0.8
1.30
2.2
92.4 $
83.0
2.4
3.6
0.7
1.50
2.2
93.4 $
86.0
2.4
3.8
0.5
1.70
0.70
2.3
97.4 $
323.0
9.2
14.5
2.7
5.6
0.7
9.0
364.7 $
339.0
9.4
16.5
2.2
9.2
7.0
9.0
392.3
64.2
42.1
148.8
257.2
35.1
(3.0)
57.0
53.9
168.7
280.2
25.6
(1.3)
13.5
12.5
48.2
74.4
(2.5)
(0.4)
16.9
13.2
48.0
78.3
8.8
(0.6)
17.2
13.8
42.3
73.5
11.4
(0.4)
16.2
13.4
43.5
73.3
18.6
(0.4)
63.9
53.0
182.0
299.5
36.3
(1.8)
14.2
12.9
44.5
71.7
9.8
(0.4)
16.1
13.8
47.1
77.2
15.2
(0.4)
16.3
16.2
48.5
81.2
12.2
(0.3)
16.9
19.0
52.5
88.5
8.9
(0.3)
63.5
61.9
192.6
318.7
46.1
(1.4)
66.7
68.1
201.0
336.4
55.9
(2.4)
8.2
4.2
4.0
0.10 $
40.0
41.6
11.0
3.5
7.5
0.18 $
40.3
42.0
18.2
5.5
12.7
0.30 $
40.5
42.2
9.4
2.8
6.6
0.16 $
40.6
42.3
14.8
4.4
10.3
0.24 $
40.8
42.5
11.9
3.6
8.3
0.20 $
41.0
42.7
8.6
2.6
6.0
0.14 $
41.1
42.8
Pre-tax income
Taxes
Net Income
EPS Diluted*
(83.9)
0.0
(83.9)
(2.22) $
37.7
40.7
(11.8)
0.0
(11.8)
(0.31) $
38.4
40.8
FYA
2009
2QA
Jun-13
266.2
7.1
9.1
14.3
0.0
0.0
9.1
305.8 $
35.5
30.6
133.2
199.3
(8.4)
(3.3)
Ampyra
US
1QA
Mar-13
210.5
1.7
0.0
45.8
0.0
0.0
34.3
292.2 $
11.4
34.6
89.9
135.9
(81.3)
(2.7)
Y/Y Growth
FYA
2012
133.0
0.0
0.0
48.6
0.0
0.0
9.5
191.0 $
EXPENSES:
Cost of Sales
SG&A
Total Expenses
Total Other Income
FYA
2011
FYA
2010
32.0
1.4
30.6
0.76 $
39.0
40.1
24.3
(130.7)
154.9
3.84 $
39.5
40.3
(2.9)
(1.8)
(1.1)
(0.03) $
39.8
39.8
34.5
11.4
23.1
0.55 $
40.1
41.7
44.7
13.4
31.3
0.73 $
40.9
42.6
53.5
16.1
37.5
0.86
41.7
43.4
FYA
2011
FYA
2012
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2014
FYE
2015
58%
26%
9%
17%
11%
13%
13%
16%
5%
7%
5%
8%
5%
Source: Company reports and RBC Capital Markets estimates. *Basic shares used to calculate diluted EPS when earnings are negative.
* Ampyra and Zanaflex product sales have been restated to net sales from gross sales, based on reported discounts and adjustments
Valuation
Our price target of $42/share is supported by a DCF valuation for Ampyra alone in the US with IP
extended to February 2026, valuing it at $26/share, plus $8/share in cash, $4/share for royalties
on Ampyra sales ex-US, and $4/share for optionality value in Ampyra in the post-stroke
indications (20% probability on doubling of Ampyra franchise sales). For US Ampyra, we use a 8%
discount rate with no terminal value after patent exclusivity ends. Our discount rate and
assumptions are generally in line with commercial-stage, high-growth franchises with good
visibility into revenue growth.

Our price target is significantly dependent on the commercialization success of Fampridine-SR.
Impediments to our current price target include: 1) commercial setbacks or regulatory delays in
Europe; 2) unexpected new safety signals; and 3) slower-than-expected uptake in the market.
These issues would increase the discount rate for our future projections and potentially make our
estimates not achievable
December 20, 2013
59
ARIA Pharmaceuticals (ARIA)

Sector Perform, Speculative Risk
Exhibit 45: Aria Pharmaceuticals
Investment summary
ARIA is a smid-cap oncology company with two wholly owned
assets: Iclusig, which is approved for 3rd line CML and '113, a
competitive ALK lung cancer drug active in Crizotinib failures.
ARIA has new challenges to tackle to maintain and grow Iclusig's
usage, as it is scheduled to undergo an ODAC committee
meeting to re-assess its risk-benefit in the currently approved,
salvage CML setting. Our view is that while removal of Iclusig
from the market is an unlikely event (as it is the only viable
treatment for patients with 1) T315I mutation, and 2) those
failing 2nd gen therapies who now have a complicated
resistance profile), ODAC panel in 2014 now constitutes
significance binary risk for the stock, and decreases visibility into
Iclusig's ability to reach its peak sales potential of $200M

Our base case of $4/share values Iclusig at $2.50/share,
assuming $200M sales in 2nd/3rd line and T315I patients, for
whom Iclusig remains the only effective treatment for some CML
patients. Separately, we value '113 as a $150M ALK lung cancer
drug ($1.50/share) based on competitive Phase I/II data seen to
date, though ALK is a more competitive therapeutic space. We
do not assign valuation to ponatinib optionality in GIST or FGFR
lung cancer.
Upside scenario
Our upside scenario of $8/share values Iclusig as a $300M drug,
assuming optimal commercial execution and the optionality of a
takeout, which increases the NPV of cash flows to $5.50/share.
We continue to value '113 at $1.50/share. We also include
ponatinib's optionality in 2nd line GIST (Phase II proof of concept
data in H1:14) which adds $1/share, given the unmet need after
patients fail Nexavar
Downside scenario
Potential return of Iclusig to US markets, especially if it is

earlier than expectations of H2:14 and after a successful
ODAC panel. We continue to believe the event could be
binary, and remains a large overhang for the stock
rd
New 3 drug to renew investor enthusiasm for potential
value creation and de-risking through a new program. ARIA
management believes this is one which should drive
investor interest and has retained/continued its
development amidst costs saving measurements where
most other programs have been shelved.
Commercial execution risk: While our diligence suggests

physicians remain comfortable with the profile of Iclusig in
salvage patients, the series of safety headlines, upcoming
label revision and the pending ODAC meeting in 2014 could
increase physician caution, lower usage in 2nd line patients,
and relegate Iclusig to the most dire 3rd line and T315I
patients. Heightened caution and narrow usage could
render Iclusig's peak sales potential below our assumed
$200M.
Financing risk: While stopping of EPIC extends ARIA's cash
runway to 2 yrs from 15 months, this does not completely
obviate the possibility of dilutive financing in the next 12
months (to maintain greater than 1 year of cash), in our
view.
Our downside scenario of $2/share assumes Iclusig is unable to

return to the market in the US, and ARIA will only focus on
development of '113 for ALK lung cancer. We include
$0.50/share of cash in valuation in this scenario.
December 20, 2013
60
Key questions / debates for ARIA

1.
Thoughts on return of Iclusig to US

market?
We believe the decision is likely preceded by a binary ODAC panel, likely in H1:14,
with potential for re-approval mid-2014. We believe this is a key event and stock is
likely to remain range-bound pending clarity on the issue.
2.
What are our assumptions about

financing?
We believe ARIA could do a financing round ($50-$100M) in H2:14 should Iclusig

return to US markets; we believe EU sales could grow close to $70M longer term but
financing is needed for 113 development in ALK and to help reignite US Iclusig
marketing.
3.
What else are investors anticipating for

2014?
The debut of a new drug program, which management feels is promising and has
chosen to continue development of despite shelving of all other discovery assets.
Our overall call is that stock will be range-bound until the FDA decides if or when Iclusig can get
back on the market, likely by mid-14 after a reasonably likely ODAC panel, since pts can get the
drug through IND right now anyways. Over a longer-time period, we do think Iclusig eventually
comes back (upside if sooner and no panel) which supports our $4 PT which is based on 4-5x sales
on a $100-200M WW drug in EU (and USA T315i primary use). We assume ALK could be maybe a
~$100M+ drug but this is far off and we believe co will need to raise capital in H2-14 after Iclusig is
back on market. We think a new "3rd drug" to be detailed in 2014 could also be interesting a year
from now during that time-frame
ODAC FDA Panel for Iclusig remains a potential and "logical" next steps, and management said
they would not be surprised but this is the FDAs decision. ARIA assumes no future US revenues
in 2014 budget forecast (but they will book EU revenues); combined with 35% reduction in cash
usage, this projection supports cash out to mid-15 now, vs. prior consensus YE:14. We estimate
quarterly cash burn to $40-$45M (from $60-$65M previously), with roughly YE:13E and YE:14E
cash of $215M and $70M, respectively.
ARIA remains available on the market in EU after PRACs recommendation, though the CHMP is
continuing a more in-depth review the benefits to risk. Currently the CHMP recommends that
Iclusig should not be used in patients who have had heart attack or stroke, and that CV risks be
assessed in patients before and during treatment with Iclusig, with monitoring of vascular
occlusion, thromboembolism and blood clots. We believe the EMA is unlikely to pull the drug
from the market, as its current usage is already limited to patients who cannot be treated
(intolerant or resistant) with other CML drugs.
113 still going but now solely a 2nd line ALK drug. For '113, ARIA has stopped development in
EGFR and ROS since Nov 2013, and will proceed only with a single arm, pivotal trial (Q1:14) in
crizotinib-failures with CNS involvement, after confirming on safety of the 90mg/180mg titration
schedule.
A "3rd drug" to debut in 2014, which could renew investor interest no details were disclosed
yet due to competitive reasons but management feels this is one that has promise and they
shelved other discovery programs.
December 20, 2013
61
Exhibit 46: Expected news flow for ARIA

Time
Expected News Flow
Program
Early 2014
Potential Phase II data in 2nd line GIST
Iclusig
H1:14
Potential ODAC panel for Iclusig
Iclusig
H2:14
Potential for return of Iclusig to US markets should ODAC be positive
Iclusig
2015
Sprycel/Tasigna vs Gleevec 5 yr data
Q1:14
Initiate pivotal PhII trial in ALK+ Xalkori failures for AP26113
AP26113
Late 2015/Early 2016
Potential marketing approval of AP26113
AP26113
Competitor
Exhibit 47: Pipeline for ARIA

Product
Iclusig
Indication
Partner
Stage
Last line CML
Proprietary
Suspended (US), Marketed (EU)
Solid tumors (e.g. GIST)
Proprietary
Phase II
AP26113
NSCLC (ALK+, Crizotinib failures)
Proprietary
Phase II
3rd drug
To be disclosed in 2014
Proprietary
pre-clinical/Phase I
Exhibit 48: Table of Old vs New Estimates for ARIA

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
25.3
2012A
0.6
2013E
48.1
2014E
34.0
34.0
-0.91
-0.87
-0.93
-1.34
-1.54
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
0.1
6.5
Q2
0.3
13.9
Q3
0.1
16.7
Q4
0.1
11.0
11.0
5.5
7.5
10.0
-0.36
-0.37
-0.36
-0.45
-0.26
-0.25
-0.21
-0.19
December 20, 2013
62
st
nd
Exhibit 49: Our valuation of 113 as potential 1 /2 line ALK+ Lung cancer drug ($1.50/share)
113 ALK Valuation---> You can change the assumptions in blue in the Box here.
US ALK+ Market
ALK+ Nave
Growth Rate of Overall Lung Cancer Market
Incidence
113 Market Share (%)
Duration of therapy (in months)
2016E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
3%
10
7%
10
10%
10
12%
10
13%
10
14%
10
15%
10
15%
10
15%
10
15%
10
15%
10
7%
9
15%
9
20%
9
22%
9
23%
9
25%
9
25%
9
25%
9
25%
9
25%
9
25%
9
2880
120,000
3%
EU ALK+ Market
2016E
ALK+ Nave
Growth Rate of Overall Lung Cancer Market
Incidence
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2%
6480
ALK Refractory
Incidence
Price of therapy in EU ($)

Price Growth
2018E
2%
6480
ALK Refractory
Incidence
Price of therapy in US ($)

Price Growth
2017E
1%
10
3%
10
6%
10
8%
10
10%
10
12%
10
12%
10
12%
10
12%
10
12%
10
12%
10
3%
7
7%
7
12%
7
16%
7
18%
7
19%
7
20%
7
20%
7
20%
7
20%
7
20%
7
2700
75,000
-2%
Total WW End User Sales (in ALK+ Population Only)
$
Probability
NPV/Share (in $) for ALK+

Probability adjusted NPV/Share (in $) for '113
$2.65
60%
66
$ 118
Adjusted Value
$1.59
$1.6
175
215
246
274
298
311
318
324
330
Peak Sales ($M)
$330
December 20, 2013
63
Exhibit 50: Our valuation of Iclusig given current US/EU marketing status points to $2.50/share
Pont-APP INTERACTIVE MODEL---> You can change the assumptions in blue in the Box here.
US Market
1st line (have not taken a TKI)
Incidence
Growth Rate
Ponatinib Market Share (%)
2nd line (failed one TKI)
Incidence
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
28
0%
30
1%
30
2%
30
3%
30
3%
30
3%
30
3%
30
3%
30
3%
30
3%
30
3%
30
3%
30
3%
30
0%
10
0%
11
5%
11
10%
11
15%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
0%
12
0%
13
10%
14
20%
15
30%
16
40%
16
40%
16
40%
16
40%
16
40%
16
40%
16
40%
16
40%
16
40%
16
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
0%
42
0%
44
0%
46
0%
47
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
0%
48
1%
26
2%
28
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
2%
30
13%
10
20%
11
22%
11
24%
11
25%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
20%
11
15%
12
25%
13
33%
14
45%
15
50%
16
53%
16
55%
16
55%
16
55%
16
55%
16
55%
16
55%
16
55%
16
55%
16
1000
Pts w/T315i mutations

Drug induced mutation
% of Incidence w/ Inherent T315i
406
12%
1%
115,000
3%
EU Market
1st line (have not taken a TKI)
Incidence
Growth Rate
4000
1%
2nd line (failed one TKI)

Incidence
2000
3rd line (failed two TKI)

Incidence
1000
Pts w/T315i mutations

Drug induced mutation
% of Incidence w/ Inherent T315i
Price of therapy in EU ($)

Price Growth
2014
2000
3rd line (failed two TKI)

Incidence
Price of therapy in US ($)

Price Growth
2013
4600
2%
400
12%
1%
80,000
0%

Total REVENUE - EU ($M)
TOTAL WW REVENUE ($M)
$
$
$
5
16
$
$
$
28
28
$
$
$
15
37
52
$
$
$
35
45
81
$
$
$
60
52
112
$
$
$
85
51
136
$
$
$
93
54
147
$
$
$
98
55
153
$
$
$
103
56
159
$
$
$
108
57
165
$
$
$
114
58
172
$
$
$
119
59
179
$
$
$
125
61
186
$
$
$
132
62
194
BASE CASE
DCF VALUATION
WW revenue (in $M)
COGS (% of revs)
R&D (% of revs)
2013
$16
5%
2014
$28
5%
20%
$6
100%
$28
-$7
2015
$52
5%
8%
$4
50%
$26
$19
2016
$81
5%
6%
$5
20%
$16
$56
2017
$112
5%
5%
$6
16%
$18
$83
2018
$136
5%
4%
$5
14%
$19
$105
2019
$147
5%
3%
$4
12%
$18
$117
2020
$153
5%
3%
$5
11%
$17
$124
2021
$159
5%
3%
$5
11%
$17
$129
2022
$165
5%
3%
$5
11%
$18
$134
2023
$172
5%
3%
$5
11%
$19
$139
2024
$179
5%
3%
$5
11%
$20
$145
2025
$186
5%
3%
$6
11%
$20
$151
2026 Terminal
$194
5%
3%
$6
11%
$21
$157
-$91
-$7
$19
$56
$83
$105
$117
$124
$129
$134
$139
$145
$151
$157
-$110
-$22
1
-$20
$8
2
$7
$47
3
$35
$75
4
$51
$98
5
$61
$73
6
$41
$87
7
$45
$96
8
$45
$99
9
$42
$103
10
$40
$107
11
$38
$112
12
$36
$118
13
$34
$35
SG&A (% of revs)
$71
-$91
EBIT - WW
Total EBIT
FCF (in $M)
Discount period
NPV
Terminal Growth (%)
Discount Rate
NPV Sum (in $M)
Share count (in M)
NPV/Share (in $)
-$110
$220
13
$64
-25%
10%
$517
204.4
$2.53
December 20, 2013
64
Exhibit 51: Income Statement for ARIA

ARIAD Pharmaceuticals, Inc
Revenues:
Ponatinib
AP26113
License and collaboration revenue
Service revenue
Total revenue
Operating expenses:
Cost of Goods
General and administrative
Total operating expenses
Income from operations
Total other income (expense), net
Income before taxes
Net Income
Basic EPS
Diluted EPS
Shares outstanding:
Basic
Diluted
FYA
2011A
Summary (WW Sales)

Ponatinib
25.1
0.2
25.3 $
77.7
24.4
102.1
(76.8)
(46.8)
(123.6)
(123.6)
($0.93)
($0.93)
FYA
2012A
1QA
Mar-13
0.6
0.6 $
144.7
60.9
205.6
(205.1)
(15.8)
(220.9)
(220.9)
($1.34) $
($1.34) $
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013E
6.5
13.9
16.7
11.0
6.5 $
13.9 $
16.7 $
11.0 $
48.1
48.1
0.3
41.3
29.5
71.0
(64.5)
(0.1)
(64.6)
0.1
(64.7)
(0.36)
(0.36)
0.2
40.7
42.1
83.0
(69.1)
0.1
(69.0)
(0.1)
(68.9)
($0.37)
($0.37)
0.4
45.1
37.4
83.0
(66.2)
(0.0)
(66.2)
0.1
(66.3)
($0.36)
($0.36)
0.3
50.0
44.0
94.3
(83.3)
0.0
(83.3)
(83.3)
($0.45)
($0.45)
1QA
Mar-14
1.2
177.1
153.0
331.3
(283.2)
0.1
(283.1)
(283.1)
($1.54) $
($1.54) $
2QA
Jun-14
3QA
Sep-14
4QE
Dec-14
FYE
2014E
FYE
2015E
34.0
34.0
55.0
55.0
11.0
5.5
7.5
10.0
11.0 $
5.5 $
7.5 $
10.0 $
0.3
31.0
28.0
59.3
(48.3)
0.0
(48.3)
(48.3)
(0.26)
(0.26)
0.2
27.0
26.0
53.2
(47.7)
0.0
(47.7)
(47.7)
($0.25)
($0.25)
0.2
25.0
24.0
49.2
(41.7)
0.0
(41.7)
(41.7)
($0.21)
($0.21)
0.3
25.0
24.0
49.3
(39.3)
0.0
(39.3)
(39.3)
($0.19)
($0.19)
1.0
108.0
102.0
211.0
(177.0)
0.1
(176.9)
(176.9)
($0.91)
($0.91)
1.7
80.0
121.1
202.8
(147.8)
0.1
(147.6)
(147.6)
($0.70)
($0.68)
132.4
132.4
165.0
172.2
178.5
185.7
184.7
191.9
185.2
192.4
185.8
193.0
183.6
190.8
186.4
193.6
186.9
194.1
202.5
209.7
203.1
210.3
194.7
201.9
209.6
216.8
2011A
2012A
Mar-13
6.5
Jun-13
13.9
Sep-13
16.7
Dec-13
11.0
2013E
48.1
Mar-14
11.0
Jun-14
5.5
Sep-14
7.5
Dec-14
10.0
2014E
$34
2015E
$55
AP-26113
Source: Company reports and RBC Capital Markets estimates.
*Basic shares used to calculate diluted EPS when earnings are negative.
Valuation
Our base case of $4/share values Iclusig at $2.50/share, assuming $200M sales in 2nd/3rd line and
T315I patients, for whom Iclusig remains the only effective treatment for some CML patients.
Separately, we value '113 as a $150M ALK lung cancer drug ($1.50/share) based on competitive
Phase I/II data seen to date, though ALK is a more competitive therapeutic space. We do not
assign valuation to ponatinib optionality in other indications as development of most programs
(e.g. GIST) is slowed/ halted to minimize cash burn.

Our price target is dependent primarily on ponatinibs potential to remain available as second-line
drug in CML and Ph+ ALL, as well as on the clinical and commercial prospects of '113 in ALK+
NSCLC. Potential impediments include negative regulatory updates to ponatinib US/EU launch,
unfavourable changes to pricing, or less than optimal market penetration. Ponatinib also has
commercial execution risks, as ARIAD will be launching the drug as standalone product in the CML
market, which despite its utility as a last line therapy, now carries heightened risk with arterial
thrombosis and cardiovascular events.
Clinical setbacks in '113 would also render our price target unachievable, as we ascribe $2/share
for its potential as ALK+ NSCLC drug.
December 20, 2013
65
Auxilium Pharmaceuticals (AUXL)

Outperform

Exhibit 52: Auxilium Pharmaceuticals
Investment summary
We see Auxilium as an interesting value stock with possible
turnaround for 2014 given low expectations. We believe Xiaflex
approval in Peyronies is likely is set the stage for sentiment
shift, as AUXL now 1) has a scarce asset of the only drug for
Peyronie's treatment, 2) has an opportunity to meet/beat
modest launch expectations (cons of $30M) in 2014, and 3) in
our view is now increasingly attractive to a potential acquirer
given its urology product offerings (Xiaflex, Stendra) and
potentially accretive synergies to bigger spec pharma players.
We think the longer-term bull case is AUXL's potential to do
financial transactions or alternatively as takeout and
consolidation under a larger spec pharma company (e.g. ACT,
ENDP), where we think a conservative valuation of 4x sales exTestim (and 2x for Testim) could command 30%+ potential
upside to current levels even after accounting for net debt
($500M). As standalone, we also like AUXL as a 1 year
turnaround-play with Actient (and Stendra) benefits of product
diversification and leverage likely becoming more apparent in
2014

Our price target of $22/share assumes that Xiaflex will grow to a
$450M franchise (Dupuytren's, Peyronie's) and Actient products
will grow from $125M to $300M in the next decade (single-digit
growth). We do assume Testim annual erosion of -4% beginning
2017. We assume modest operational synergies (EBIT increasing
from 26% to 39% as revs grow from $360M to $800M). We use a
discount rate of 10% to arrive at NPV, assuming no terminal
value post 2029
Upside scenario
Our upside scenario of $28/share assumes increased cost
synergies, in a scenario where an acquirer decreases SG&A by
40%, resulting in EBIT of 4050%. We use the same discount rate
of 10% for execution risk and no terminal value post 2029
Downside scenario
Our downside scenario of $14/share assumes rapidly eroding
Testim (-15% y/y beginning 2017), lower potential for Xiaflex as a
franchise ($330M only), slow growth of Actient products (mid
single digits), and no operational synergies as revenues grow
from $360M to $600M in the next decade. We believe chances
of all of these unfavorable conditions occurring is quite low, and
this represents a floor valuation for the stock.
December 20, 2013

Robust Xiaflex launch in Peyronies to beat modest
consensus estimate of $30M given high patient per revenue
(could be as much as 7x that of Dupuytrens), unmet need
and patient resolve to rectify the condition.
Surprise Stendra launch upside, where expectations are
close to zero given competitive ED market. Should AUXL
obtain label-change for faster onset of action, this could
provide meaningful differentiation from current products
Competitive product Vogelxo to get AB-rated, rendering it

substitutable to Testim. We believe this is unlikely
anecdotally based on 505(b)(2) filings, but this remains an
overhang on the stock until resolution likely in Q1:14 when
Upsher Smith obtains final FDA approval.
Existing debt and limited financial leverage AUXL has
existing $625M of debt and is limited in ability to actualize
additional business development. Significant reduction of
Testim cash flows could add to financial strain
66
Key questions / debates for AUXL

1.
Timing and status of final approval of

competitor Upsher Smiths Vogelxo?
We believe final approval could come in Q1:14 though we believe the product is
unlikely to be rated substitutable to Testim, as it is a 505(b)(2) filing and these
products are not bioequivalent in that they use different enhancers.
2.
What should one expect for Testim

trends forward?
We believe the product is likely to see erosion (we model 9% y/y) despite signs of
script stabilization, due to increasing competitive testosterone gel market and new
entrants (Vogelxo). That said, Testim already trades at a low sales multiple
($5/share) and Actient products, Striant and Xiaflex in Peyronies adds net-revenue
growth.
3.
Thoughts on launch expectations for

Peyronies?
We believe consensus models conservatively ($30M) assuming only ~20%

penetration into accessible patient pool who already seeks invasive treatment.
Revenue per patient for Peyronies could also be 5-7x as much as for Dupuytrens
(where first year launch revenues were $14M)
We like AUXL as a one-year long position because things are starting to turn around a bit and
sentiment is still pretty negative. We think a number of things over the course of 12-18 months
could have the stock towards mid to high $20s.
We think there are 5 things that could lead the stock higher:
December 20, 2013
continued execution on its Actient accretion which could lead to higher revenues and EPS
upside given expense synergies and cross-selling efforts for urology products
recent Xiaflex Peyronie's approval could exceed low expectations (14 consensus is $30M)
and this is also fairly accretive because of urology salesforce Recall Xiaflex is currently priced
at ~$3100/vial, and while Dupuytren's patients only use 1.1 vials on average, Peyronie's
patients could use up to 4 cycles of 2 injections (vials) each. This suggests revenue per patient
could be ~7x as much, which makes meeting cons estimate of $30M likely very achievable.
Consensus assumes roughly 1300 patients to seek treatment for Peyronie's in 2014, which is
20% of those already seeking invasive treatment (surgery, or verapamil injections). We
believe this is very achievable given the unmet need, existing J-code and reimbursement
infrastructure, and our diligence with physicians who anticipate demand for the drug.
recently in-licensed US rights to Stendra for ED (through Vivus) could be another unexpected
potential upside opportunity (neutral to 14 and accretive to 15); Sanofi also just in-licensed
the rights from VVUS to multiple emerging market regions and believes there is opportunity
here.
we think the Xiaflex pipeline remains under-valued given Phase IIB now underway in frozen
shoulder syndrome and the largest opportunity cellulite will also begin a Phase II study
soon.
We think all these things are likely to lead to a long-term takeout because significantly higher
profitability could occur if these urology products were all under a much larger pharma or
spec pharma/urology company. AUXL spends too much on SG&A for a small company. We
think CEO Adrian Adams has a history of selling 3 companies and AUXL will likely be sold
down the road.
67
Exhibit 53: Expected news flow for AUXL

Timing
Expected News Flow
Program
YE:13/early 14
Begin detailing Stendra for ED (licensed from VVUS)
Stendra
Jan 1, 2014
Express Script Formulary Exclusion of Testim
Testim
Q1:14
Final approval of Vogelxo (and potential designation of AB-rating)
Competitor Upsher Smith
Q1:14
Submission of sNDA for Stendra for 15-min onset label expansion
Stendra
Q1:14
Submission of sNDA for multi-cord for Dupuytrens'
Xiaflex
H2:14
Potential filing by competitor Repros (Androxal)
Competitor Repros
Q3:14
Potential Label expansion for multi-cord injection
Xiaflex
Oct 13, 2014
Expiration of 30-month stay on Watson (ANDA on generic Testim)
Competitor Watson
Q1:15
Phase II a results from multi-dose cellulite study
Xiaflex
Jun 28, 2015
Expiration of 30-month stay on Upsher-Smith (505(b)(2) on Testim
Competitor Upsher Smith
Sep 2015
Expiration of 30-month stay on Perrigo (ANDA on 1.6% Androgel)
Competitor Perrigo
Exhibit 54: Pipeline for AUXL

Product
Stage
Indication
Partner
TESTIM
Marketed
Hypogonadism
Ferring
Testopel
Marketed
Hypogonadism
Edex
Marketed
Erectile Dysfunction
Osbon ErecAid
Marketed
Erectile Dysfunction
Striant
Marketed
Hypogonadism
Xiaflex
Marketed
Dupuytren's contracture
Sobi
Marketed
Peyronie's
BioSpecifics/ SOBI
Phase II
Frozen Shoulder Syndrome
BioSpecifics
Phase II
Human and Canine Lipomas*
BioSpecifics
Phase I
EFP/Cellulite*
BioSpecifics
Phase I
Overactive bladder
Proprietary
Transmucosal film
Exhibit 55: Table of Old vs New Estimates for AUXL

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
264.3
2012A
395.3
2013E
385.6
2014E
467.6
480.0
0.93
1.51
-0.69
1.74
0.46
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
73.6
66.3
Q2
78.2
100.5
Q3
71.0
108.1
Q4
172.5
110.7
103.90
115.10
118.00
130.60
-0.05
0.22
0.17
0.12
0.10
0.21
0.29
0.33
December 20, 2013
68
Exhibit 56: Income Statement for AUXL

Auxilium Pharmaceuticals, Inc.
FYA
FYA
FYA
1QA
2QA
3QA
4QE
FYE
1QE
2QE
3QE
4QE
FYE
FYE
2010
2011
2012
Mar-13
Jun-13
Sep-13
Dec-13
2013
Mar-14
Jun-14
Sep-14
Dec-14
2014
2015
Revenue
Testim Sales
192.9
207.9
237.5
185.0
164.7
14.1
44.1
55.2
12.0
15.0
15.9
18.5
61.4
13.5
16.5
17.5
20.5
68.0
74.0
Xiaflex US Sales (Peyronie's)
0.3
0.3
2.0
6.0
9.0
13.0
30.0
56.0
Testopel
14.4
20.6
21.8
56.8
22.0
22.5
23.0
23.5
91.0
99.2
Edex (non-oral Prostacyclin)
5.0
8.0
8.5
21.5
8.0
8.5
8.5
9.0
34.0
37.4
ErecAid (vacuum system)
2.5
3.0
3.0
8.5
3.0
3.5
3.0
3.5
13.0
15.5
Striant
1.1
1.3
1.3
3.7
1.3
1.5
1.5
1.5
5.8
7.0
Theo-24 (COPD & Asthma)
3.0
3.9
4.0
10.9
4.0
4.5
4.5
5.0
18.0
22.0
Semprex-D (antihistamines)
1.2
1.5
1.5
4.2
1.6
1.8
1.6
2.0
7.0
8.0
Stendra (PDE5)
0.2
0.2
0.8
1.6
2.7
3.9
9.0
26.0
Xiaflex US Sales (Dupuytren's)
Royalties, Milestones etc revenue
4.4
12.3
102.6
$ 211.4
$ 264.3
$ 395.3
Cost of goods sold
49.7
55.7
48.0
61.9
164.7
179.9
Total Revenue
45.5
54.4
52.3
50.0
202.2
46.0
47.0
45.0
47.0
8.8
3.9
1.7
1.6
16.0
1.7
1.7
1.7
1.7
6.8
66.3
$ 100.5
$ 108.1
$ 110.7
$ 385.6
$ 103.9
$ 115.1
$ 118.0
$ 130.6
$ 467.6
78.3
15.1
22.7
28.1
28.8
94.7
28.7
30.8
31.5
34.9
125.9
46.0
11.2
12.9
11.1
13.8
49.0
12.3
13.7
13.2
16.0
55.2
58.5
185.5
41.3
50.7
55.2
56.9
204.1
52.5
54.5
53.0
57.0
217.0
230.0
6.8
$
516.5
EXPENSES:

Total Expenses
Total Other Income
Pre-tax income
Taxes
Net Income (Loss)
262.4
297.5
309.7
67.7
(51.0)
(33.2)
85.6
(1.4)
86.3
94.4
14.2
99.5
13.7
347.9
11.2
93.5
37.7
99.0
10.4
97.7
16.1
20.3
138.9
107.9
398.1
427.4
22.7
69.5
89.1
(0.3)
0.2
0.4
(0.9)
(3.2)
(4.9)
(5.2)
(14.2)
(5.2)
(5.2)
(5.2)
(5.2)
(20.8)
(20.6)
(51.3)
(33.0)
86.0
(2.3)
11.0
8.8
6.0
23.6
5.2
10.9
15.1
17.5
48.7
68.5
0.0
0.0
0.0
0.3
0.2
0.5
0.2
0.4
0.6
0.7
1.9
10.3
8.5
5.8
23.0
5.0
10.4
14.5
16.8
46.8
58.2
(51.3)
(33.0)
86.0
(2.3)
11.0
EPS Basic (non-GAAP)
$ (1.08) $ (0.69) $
1.75
$ (0.05) $
0.22
0.17
0.12
0.47
0.10
0.21
0.29
0.34
0.94
1.14
EPS Diluted (non-GAAP)*
$ (1.08) $ (0.69) $
1.74
$ (0.05) $
0.22
0.17
0.12
0.46
0.10
0.21
0.29
0.33
0.93
1.12
47.4
47.9
48.8
49.2
49.3
49.4
49.5
49.4
49.6
49.7
49.8
49.9
49.7
51.2
53.5
48.5
49.3
49.5
49.9
49.7
50.0
49.8
50.1
50.2
50.3
50.4
50.2
51.8
Source: Company reports and RBC Capital Markets estimates. *Basic shares used to calculate diluted EPS when earnings are negative.
* Actuals prior to and including FY2012 were on a GAAP basis; FY2013 onwards contains non-GAAP estimates.
Valuation
Our price target of $22/share assumes that Xiaflex will grow to a $450M franchise (Duputyren's,
Peyronie's) and Actient products will grow from $125M to $300M in the next decade (single-digit
growth). We do assume Testim annual erosion of -4% beginning 2017. We assume modest
operational synergies (EBIT increasing from 26% to 39% as revs grow from $360M to $800M). We
use a discount rate of 10% to arrive at NPV, assuming no terminal value post 2029.

Our price target is significantly dependent on the clinical, regulatory, and potential
commercialization of Testim, Xiaflex and newly acquired Actient urology product. Impediments to
our price target include: 1) regulatory delays or setbacks; 2) unexpected new safety signals; and 3)
slower than expected commercial growth and 4) sooner than expected generic erosion, such as
approval/launch of generic Testim before 2015/2016. These issues would decrease cash flows and
increase the discount rate for our future projections and potentially make our estimates
unachievable
December 20, 2013
69
BioMarin (BMRN)
Outperform
Exhibit 57: BioMarin Pharmaceuticals
Investment summary
We believe BMRN enjoys bellwether status for mid-cap biotech
is supported by its solid pipeline (parp, peg-pal, BMN-701,
achondroplasia, Battens) and Street confidence in getting to
$1B+ total revenues from $544M today.
That said, launch execution in US (bolus should start launch off
well) then EU (needs country by country reimbursement) for
2014-15 will be a key sentiment driver and need for eventual
profits. BMRN's valuation is probably the only real pushback
(M&A-like 10x multiple on $1B+ sales in 2018-2020) and also
various specific risks to each program, but basically that it
requires strong Vimizim commercial execution, smooth EU
reimbursement and launch, positive readouts for PARP and
signals of efficacy in achondroplasia (we are more bearish than
consensus) in early 2015 to sustain pipeline momentum.

Our base case of $77/share assumes stable base business growth
(9% y/y, $19/share), Vimizim to grow to $650M franchise by
2017 (90% probability adjusted, $22/share), PEG-pal $300M
franchise by 2019 (70% probability adjusted, $8/share), BMN701 as $450M franchise by 2020 (80% probability, $13/share)
and BMN-673 $500M by 2017 (60% probability adjusted,
$10/share) and $5/share for remaining pipeline (BMN-111,
BMN-190). We use 10% discount rates, -2% terminal values.
Upside scenario
Our upside scenario of $80/share assumes more robust growth in
base business (10% y/y) and even better Vimizim prospects
($700M adjusted for 95% probability of success), as well as higher
probabilities across all pipeline programs: PEG-Pal (75%
probability instead of 70%), BMN-701 (90% instead of 80%),
BMN-673 (80% instead of 60%). We continue to assume modest
value ($6/share) for early stage pipeline (BMN-111, BMN-190).
Vimizim launch beats 2014 consensus of $60-$70M from

in-line pricing ($300-330k/year), stellar execution and rapid
adoption in both US and ex-US (e.g. Brazil is a large market,
approval expected mid 2014).
Potential proof-of-concept of activity for achondroplasia.
Should BMRN observe 50%+ increase in annualized growth
velocity without undue cardiac safety effects in pediatric
patients, this will usher in new enthusiasm for pipeline
value creation. We believe data is more likely early 2015
and only available for lowest dosing cohorts which may not
have optimal biological activity.
Vimizim approval delay beyond PDUFA date of Feb 28,

2014 due to manufacturing issues. While this is unlikely,
stock sentiment depends on Vimizim launch performance
(and hence timely regulatory approval).
Lackluster Vimizim launch performance coupled with large
expense growth, which could lead investors to believe that
the company is not progressing towards profitability, yet
with premium valuation and already high expectations for
pipeline success (e.g. BMN-701 for Pompe, Peg-Pal for PKU,
BMN-673 for metastatic breast cancer).
Downside scenario
Our downside scenario of $64/share assumes less robust growth
in base business (8% y/y) and slightly less promising Vimizim
prospects ($450M peak sales, still 90% probability of success). We
also assume lower probability of success across pipeline
programs: PEG-PAL (50% instead of 70%), BMN-701 (70% instead
of 80%), BMN-673 (50% instead of 60%) and only $4/share for
remaining pipeline.
December 20, 2013
70
Key questions / debates for BMRN

1.
What could Vimizim pricing be?
Company has stated it will be at the midpoint between Aldurazyme ($250k/year) and
Naglazyme ($400k/yr), so likely at the $300 - $350K/range, making this a $600 $750M market.
2.
What are Vimizim launch expectations

for 2014?
Company has indicated they are comfortable with consensus estimate of $60-$70M
(vs. our $58M). Recall they obtained French ATU approval since Nov 2013 which
could add to recorded revenues once formal reimbursement is achieved. Though
recall of the 1400 patients identified, only 20% is located in North America and
average duration of therapy for first year of launch is 6 months or less (vs. 1 year
given likely US/EU approval late Q1:14). Thus while we believe consensus is
achievable, it is not a layup.
3.
When could we get first proof-ofconcept data for achondroplasia (BMN111)?
The study has a 6-month natural history component followed by 6 months of

treatment, and study is just getting initiated. BMRN is looking for a 50% increase in
annualized growth velocity in the 6-month period of drug. First data of lowest dose
cohorts (2.5 and 7.5 ug/kg) could be available YE:14 or early 2015 at the earliest,
though dosage could be below optimal dose.
We think BMRN is a solid long-term biotech holding due to its leading core orphan drug franchise
and numerous pipeline products in development that could lead to further upside. That said there
are a relative lack of any real surprise upside catalysts and the stock will mostly trade on the
upcoming Vimizim US launch where we think it will be generally in-line or better, but theres
already high expectations (its rare to find anyone who actually thinks it will be a bad launch) since
the company knows where the first 1400 patients are around the world and mgmt has blessed
2014 consensus of $60-70M in first year sales.
Over next few months EU could give positive CHMP recommendation, and USA approval is
expected by Feb 28, 2014. The ensuing launch will likely "beat" initial consensus given pent-up
demand and bolus of pts ready to go during 2014 (we've done math on $350k x 200+ USA pts in
first year).
Bulls are pointing to: upside to Vimizim estimates, achondroplasia (dwarfism) data towards end of
2014, potential Battens disease data in 2015, Peg-Pal upside, PARP opportunity in breast/ovarian
cancer and other indications, and BMN-701 franchise, and long-term takeout.
Bears say some unquantifiable CMC manufacturing risk or PDUFA delay risk but only short-term,
and launch expectations high (mgmt already blessed consensus $60-70M for 2014),
reimbursement risk in EU (and possible more narrow label than US) and slow sales in Europe
given country by country launch, and valuation (stock trades at 18x forward year sales and 7x est.
2020 sales which makes takeout very difficult and likely not very accretive).
December 20, 2013
71
Overview of BMRNs Pipeline Programs

Vimizim:
FDA Advisory Committee panel in Nov 2013 adds to our confidence FDA will approve Vimizim
with a 'broad' label by PDUFA date of Feb 28, 2014. While some panelists believe data was
supportive of efficacy only in a subgroup of patients (13 vs. 7 vs. 1, all vs. some vs. no
patients), an overwhelmingly majority (19 vs. 1) voted for approval in all patients. The panel
was vocal in that limiting approval to a subgroup will not be appropriate (no clear way to
distinguish responders).
The minority (7/20) of panelists who believe data was better in some subgroups could not
articulate/identify which patients these are, and only one believed access should be
restricted. The one panelist who voted 'no' was bothered by convergence of effect in
extension study, and believe demonstration of tissue distribution data should have been
available.
Most panelists acknowledge that Vimizim benefit of 23m in 6MWT was 'adequate' and
clinically relevant, especially considering the heterogeneity of MPS IVA, the difficulty of
conducting a placebo randomized trial in these patients, and the limitations but proven utility
of 6MWT.
On safety, the majority of panelists do not have safety concerns (5 Yes, 16 No). Those who
have safety concerns simply point to need for adequate physician training and monitoring for
anaphylaxis, which are very manageable. They also suggest doing lab measurements to
ensure Vimizim is being taken up into tissues, and to test neutralizing antibodies do not
interfere
On market size, BMRN stated 1400 patients have been identified that is under the care of a
specialists. 235 of these have been on the BMN-673 trial, and it is their priority to transition
these patients to commercial drug first once it approved.
Geographical distribution of these patients: EUMEA (46%), 27% (Latin America), 20% (North
America), and APAC (6%). BMRN has filed for approval in US, EMA and Brazil, and will soon
for Japan and Canada.
Age distribution: 0 4 yo (9%), 5-12 yo (35%), 13-18yo (19%), 19yo (37%). The 1/3 of patients
who are adults could mean above average revenue generating potential, as an infant patient
weighs 13kg, but an adult at 30kg.
BMRN still anticipates pricing Vimizim at the midpoint between Aldurazyme ($250k/year) and
Naglazyme ($400k/yr), assuming average patient of 20-25kg, target compliance of 90%, and
factoring in mandatory discounting in various markets.
BMRN is likely to establish initial pricing in Germany, and since they do not expect to
generate over 50M Euros per year there, they do not expect an IQWIG assessment for orphan
drugs. There will be a GBA dossier assessment of benefit, which will take 6 months from
launch. Rating could affect discounts (6 16%) on pricing.
BMN-673 for breast cancer and beyond:
December 20, 2013
Preclinical data shows potent inhibition across 300 cell lines in multiple histologies (breast,
ovarian, Ewings sarcoma, NSCLC). Data seen to date (median IC50 of 175uM) appears more
promising than other PARPs in development. Interestingly, they also observed very strong
synergy between BMN-673 and Temozolomide (commonly prescribed in Myeloma).
Phase III study in BRCA carrier metastatic breast cancer underway. This is a two arm trial with
2:1 randomization (1mg BMN-673 QD vs. physician choice of capecitabine/ gemcitabine/
erbulin/ navelbine) in 430 metastatic BRCA mutated patients. The primary endpoint is PFS.
Phase II supportive trial to start Q4:13, exploring activity in metastatic breast cancer BRCA
patients with prior treatment. They will use Myriads BRCAnalysis to definitely genotype
72
BRCA. The single arm study stratified into two cohorts: patients who have failed 2 lines of
chemotherapy in the metastatic setting, or 2) those with prior response to platinum. The
primary endpoint will be response rate.
Exploring Phase II neo-adjuvant study in H2:14, as earlier treatment could potentially have
bigger therapeutic impact. They are also evaluating the potential to test BMN-673 beyond
BRCA-defined subsets of breast cancer. Separately, a Phase I IST study of PARP + cytotoxic
combination will also begin later this year.
BMN-701 for Pompe
Pompe disease is characterized by proximal muscle weakness, and death is often caused by
respiratory failure. Onset could be infantile (fatal), juvenile or later in adulthood. Prevalence
is between 3-6K patients worldwide.
BMRN is conducting Phase III in late onset patients switching from Myozyme/Lumizyme. This
is a single arm trial, where patients will directly transition from prior drugs. The FDA has
agreed to this single arm trial (n=50, 90% powered to detect 4% change, alpha = 0.05) design
with change in maximum inspiratory pressure (MIP) at 24 wks as primary endpoint. This is
motivated by FDAs desire for availability of alternative therapy for Pompe patients, and one
which potentially could help with respiratory insufficiency.
BMRN is confident BMN-701 could deliver 4% MIP benefit as the compounds design
(independent on glycosylation) and preclinical modeling predict benefit of up to 8%. For other
endpoints such as FVC (volume) and walk score (6MWT), BMRN expects
stabilization/maintenance of baseline but not necessarily additional benefit, as patients
probably already derived the majority of benefit from being on Lumizyme/Myozyme.
PEG-PAL for PKU
December 20, 2013
Pivotal phase III discontinuation study will have 4 arms, 40mg or 20mg or 2 placebo arms for
wk 4-12. No treatment on week 13 and then 40mg per day. Data is expected Q4:14.
Finalized portable injection device (1mL syringe with 26 gauge thin-walled needle, ergonomic
design), which will be used as part of Phase III studies, and safety study to be included in
eventual BLA.
They believe key efficacy of Phe lowering, will make it eligible for accelerated approval.
Neurocognitive/neuropsychiatric (ADHD-RS and POMS) improvements will support full
approval.
PhII data has shown efficacy to be very promising, with most patients seeing efficacy between
2-4 months after starting drug.
Immunogenicity: did have IgM response in majority of patients to both PEG and pal. IgG
response detected in some patients for PEG.
AEs: Phase II they saw adverse events emerging during week 7 -12, including rash, joint pain,
fever. These events are manageable, including prophylaxis with NSAIDS, anti-histamines and
modification of dosing schedule (dosing little and more often rather than a lot and
infrequently).
Benefits of Peg-pal: sustained reductions of patients w/ PKU independent of diet. There has
also been anecdotal reports of improvements in overall and social function.
73
Exhibit 58: Peg-Pal Pivotal Phase III Trial Design
Source: Company reports
BMN-111 for Achondroplasia
Achondroplasia is one of the most common forms of human dwarfism, with incidence of 1 in
15,000 20,000 live births. These patients have major medical complexities given
disproportionately short stature, such as bowed legs, curvature and compression of spine,
recurrent ear infections, craniomedullary compression and respiratory issues.
The only treatment today is insertion of incremental metal plates into bones which are
repeatedly fractured, to give them an extra 4-6 inches of height to help with daily life.
BMN 111 is a 39 amino acid recombinant human CNP peptide. Global phase II currently being
finalized with first patient planned for Q4:13 or Q1:14.
Goal of PII study will be to confirm clinically relevant improvements in growth velocity and
medical complications in the absence of CV events.
Expect to see >50% increase in annualized growth velocity after 6 months.
Exploratory endpoints of bone mineral density, bone growth plate and bone, collagen, CNP
related biomarkers.
BMN-190 for Late Infantile Battens Disease
December 20, 2013
Patients are developmentally normal until around 3 yrs of age, at which point they usually
present with seizures 75% of the time. Eventually patients lose language function and rate of
decline is quick but predictable.
Natural disease study, create patient database to power clinical trial based on historical
control (Hamburg and Cornell). Supports 1 year study where devised MRI composite score to
clinical severity could be an important surrogate marker. Dose escalation + stable dose for 1
yr treatment.
74
Exhibit 59: BMN-111 (achondroplasia) Phase II Open Label Dose Finding Study Design
Research discovery platform
December 20, 2013
Expression and purification of proteins in mammalian cells (Vimizim, BMN701) and bacteria
(peg-pal) is BMRNs core competency, strengthened by acquisition of Lead therapeutics and
Zystor (glycosylation independent lysosome targeting) in 2010. For 2013, they acquired
Zacharon to gain glycobiology expertise and inked a collaboration with University College
London agreement to venture into gene therapy.
Sensi-Pro Assay (Zacharon): Analytical technology that looks at glycans (carbohydrates)
structures. Assay identifies and quantifies unique disease specific glyan structures. This is
important as 70% of lysomal disease caused by defects in glycan metabolism (MPS, Pompe,
Gaucher). More specifically, MPS I, II and III are childhood genetic disease that involves
neurological deterioration and are usually fatal. These diseases are unified by the inability to
degrade common glycan Heparin sulfate. This is leading BMRN to pioneer substrate
optimization therapy.
Gene therapy is a good strategic fit and nature transition for BMRN, where they will aim to
replace genetic defect with gene instead of protein. They have selected hemophilia A as their
entry point, as there is prior success gene therapy for hemophilia B. Since February, they have
generated factor VIII adenovirus-associated virus vectors/constructs and treated 500 mice
with promising results. They are on track to file IND late 2014/early 2015.
75
Exhibit 60: Expected news flow for BMRN

Time
Expected News Flow
Program
YE:13/Early 2014
Anticipated CHMP opinion for Vimizim for MPA IVA
Vimizim
Q4:13 - Q1:14
Initiation of Phase 1/2 trial for BMN 111 for achondroplasia
BMN-111
Feb 28, 2013
PDUFA date for GALNS for MPS IVA
Vimizim
Q1:14
Potential launch of Vimizim for MPS IVA
Vimizim
May - June 2014
Potential EMA approval of AZN's Olaparib in ovarian cancer
Competitor
Mid 2014
Anticipated Brazil approval of Vimizim (assuming priority review)
Vimizim
H2:14
PhII data in late-stage BRCA metastatic breast cancer
BMN-673 (PARP)
H2:14
Potential initiation of Phase II neo-adjuvant BRCA breast cancer
BMN-673 (PARP)
Q4:14/Early 2015
Top-line results for Phase III trial for PEG-PAL for PKU
PEG-PAL
Mid 2015
Phase III for BMN 673 in BRCA R/R breast cancer
BMN-673 (PARP)
Aug 2015
Phase III switching data for BMN-701 in Pompe
BMN-701
Oct 2015
Phase I/II data for BMN 190 for Batten's disease
BMN-190
Q1:16
Phase III readout in R/R ovarian cancer vs placebo
Niraparib (TSRO)
Exhibit 61: Pipeline for BMRN

Pipeline Product
Indication
Partner
Stage
Naglazyme
MPS VI
Aldurazyme
MPS I
Marketed
Kuvan
PKU
Firdapse
LEMS
BMN 110 (GALNS)
MPS IVA/ Morquio Syndrome
PEG-PAL
PKU
BMN-701
Pompe Disease
Phase III
BMN-673
genetically defined cancers
Phase II
BMN-111
Achondroplasia
Phase I
BMN-190
Late Infantile Neuronal Ceroid Lipofuscinoses (LINCL)
Phase I
Marketed
Merck Serono
Marketed
Marketed
BLA/MAA Filed
Merck Serono
Phase III
Exhibit 62: Table of Old vs New Estimates for BMRN

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
441.4
2012A
500.7
2013E
544.0
2014E
635.5
-0.46
-0.95
-1.23
-1.51
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
116.6
127.9
Q2
124.0
136.8
Q3
128.1
136.9
Q4
131.9
142.4
135.7
156.4
168.9
174.4
-0.31
-0.15
-0.38
-0.39
-0.38
-0.36
-0.35
-0.41
December 20, 2013
76
Exhibit 63: Income Statement for BMRN

BioMarin Pharma Inc
FYA
FYA
FYA
1QA
2QA
3QA
FYA
1QA
2QA
3QA
FYE
1QA
2QA
3QA
FYE
FYE
2009A
2010A
2011A
Mar-12
Jun-12
Sep-12
Dec-12
2012A
Mar-13
Jun-13
Sep-13
Dec-13
2013E
Mar-14
Jun-14
Sep-14
Dec-14
2014E
2015E
Net product revenues
315.7
369.7
437.6
116.2
123.0
126.3
131.0
496.5
127.3
132.4
134.3
141.3
535.3
135.2
155.2
167.9
173.5
631.8
741.5
Naglazyme
171.7
192.7
224.9
68.6
62.9
62.5
63.0
257.0
69.4
69.9
63.2
68.0
270.5
71.0
73.4
74.0
71.0
289.4
309.7
Aldurazyme
58.5
71.3
82.8
12.0
21.9
23.8
24.6
82.3
16.7
17.5
23.4
24.2
81.8
18.0
20.0
24.5
25.8
88.3
89.2
Kuvan
83.2
99.4
116.8
32.0
34.7
36.4
40.0
143.1
37.6
40.9
43.6
45.0
167.1
42.0
44.5
45.0
47.3
178.8
187.7
6.4
13.1
3.6
3.6
3.6
3.4
14.2
3.6
4.1
4.1
4.1
15.9
4QA
4QE
4QE
Revenues:
Firdapse
4.2
4.3
4.4
4.4
17.3
18.9
13.0
20.0
25.0
58.0
136.0
Collaborative agreement revenues
2.4
0.7
0.5
0.1
0.4
1.2
0.2
2.0
0.1
0.9
1.8
0.2
3.0
0.1
0.2
0.2
0.1
0.6
0.6
Royalty and license revenues
6.6
5.9
3.2
0.3
0.6
0.6
0.8
2.3
0.4
3.5
0.8
0.9
5.7
0.4
1.0
0.8
0.8
3.0
Vimizim (GALNS)
Total revenue
324.7
376.3
441.4
116.6
124.0
128.1
131.9
500.7
127.9
136.8
136.9
142.4
544.0
135.7
156.4
168.9
174.4
635.5
4.0
$
746.1
Operating expenses:
Cost of sales
65.9
70.3
84.0
17.1
23.6
24.6
26.5
91.8
20.5
22.6
28.1
26.0
97.1
26.5
29.0
30.4
31.2
117.1
129.8
115.1
147.3
214.4
73.8
77.8
66.2
84.4
302.2
83.7
85.7
88.1
96.0
353.5
88.4
96.0
103.0
112.0
399.4
415.4
Selling, General and administrative
124.3
151.7
175.4
45.2
51.5
46.3
55.0
198.2
51.1
50.7
61.8
65.0
228.5
68.0
72.7
74.0
79.0
293.7
308.4
308.2
375.7
475.2
138.5
155.0
138.6
178.8
610.9
160.8
156.9
187.6
189.5
694.8
185.9
201.7
212.4
226.2
826.2
863.5
16.4
0.5
(33.9)
(21.9)
(31.0)
(10.5)
(46.9)
(110.3)
(32.9)
(20.1)
(50.7)
(47.2)
(150.8)
(50.2)
(45.3)
(43.5)
(51.8)
(190.8)
(117.4)
Total other income
(15.9)
(22.0)
(7.8)
(2.1)
(1.3)
(1.3)
(3.2)
(7.9)
(11.6)
(0.2)
(2.0)
(4.7)
(18.5)
(6.2)
(6.2)
(6.1)
(6.2)
(24.7)
(25.2)
(118.1)
(44.5)
(20.3)
(52.7)
(51.8)
(169.3)
(56.4)
(51.5)
(49.6)
(58.0)
(215.5)
(142.6)
(3.5)
(4.7)
1.2
0.7
3.0
(2.0)
1.0
2.0
2.0
Income before taxes
0.6
(21.5)
(41.7)
(24.0)
(32.2)
(11.8)
(50.1)
1.1
(227.3)
10.2
(6.4)
2.9
(0.5)
205.8
(51.9)
(24.0)
(32.2)
(5.4)
(53.0)
(114.7)
(39.8)
(21.5)
(53.4)
(54.8)
(169.6)
(54.4)
(52.5)
(51.6)
(60.0)
(218.5)
(149.6)
Net Income
0.2
3.0
7.0
Basic EPS
($0.00)
$2.00
($0.46)
($0.21)
($0.27)
($0.04)
($0.43)
($0.95)
($0.31)
($0.15)
($0.38)
($0.39)
($1.23)
($0.38)
($0.36)
($0.35)
($0.41)
($1.51)
($1.01)
Diluted EPS
($0.00)
$1.73
($0.46)
($0.21)
($0.27)
($0.04)
($0.43)
($0.95)
($0.31)
($0.15)
($0.38)
($0.39)
($1.23)
($0.38)
($0.36)
($0.35)
($0.41)
($1.51)
($1.01)
Basic
100.3
103.1
112.1
115.1
117.9
123.4
124.6
120.2
128.0
139.4
140.8
142.1
137.6
142.8
144.1
145.4
146.7
144.7
147.6
Diluted
132.0
125.7
112.1
115.1
117.9
123.4
124.6
120.2
128.0
139.4
140.8
142.1
137.6
142.8
144.1
145.4
146.7
144.7
147.6
2009A
2010A
2011A
Mar-12
Jun-12
Sep-12
Dec-12
2012A
Mar-13
Jun-13
Sep-13
Dec-13
2013E
Mar-14
Jun-14
Sep-14
Dec-14
2014E
2015E
$155
$166
$181
Shares outstanding:
Summary (WW Sales)

Aldurazyme
$46
$46
$48
$53
$193
$48
GALNS
$54
$51
$51
$203
$48
$53
$51
$53
$205
$207
13.0
20.0
25.0
58.0
136.0
Valuation
Our base case of $77/share assumes stable base business growth (9% y/y, $19/share), Vimizim to
grow to $650M franchise by 2017 (90% probability adjusted, $22/share), PEG-pal $300M franchise
by 2019 (70% probability adjusted, $8/share), BMN-701 as $450M franchise by 2020 (80%
probability, $13/share) and BMN-673 $500M by 2017 (60% probability adjusted, $10/share) and
$5/share for remaining pipeline (BMN-111, BMN-190). We use 10% discount rates, -2% terminal
values, and blended tax rates ranging from 23% to 32% depending on projected
product/geographical mix in our DCF valuation

Our price target is primarily dependent on prospects of the base business continuing to grow
modestly as well as pipeline clinical, regulatory, and commercial success of Vimizim, PEG-PAL, and
other pipeline products such as BMN-701 and BMN-673. If pipeline programs fail or the current
base business has disappointing sales relative to consensus expectations, the stock would be
unlikely to meet our price target. Vimizim regulatory delay (failure to obtain accelerated approval)
or inability to meet consensus launch estimates in 2014 could reduce the stock's momentum and
make outperformance unlikely
December 20, 2013
77
Dendreon Corporation (DNDN)

Exhibit 64: Dendreon Corporation

Our target price of $3/share assumes 80% probability that
Dendreon remains a standalone entity ($2/share, assuming it
solves pending liquidity concerns by refinancing convertible debt
at high single digits rate) and 20% probability it could be
acquired ($4-5/share) yielding cost synergies of 33% reduction in
SG&A expenses. We assume peak sales of $400M in the US, 10%
discount rate, zero price growth and 0% terminal growth.
Investment summary
We rate Dendreon Sector Perform, Speculative Risk because 1)
we don't foresee consistent quarterly growth in the next year
and competition (Zytiga and Xtandi in pre-chemo) remains a very
strong headwind, 2) our conversations with docs in the industry
suggest that the current and prevalent users have been and
continue to generally use the drug but not at any real uptick, 3)
large academic and trial centers are still enrolling significant
clinical trial patient reducing need for commercial therapies, 4)
new orals approved in pre-chemo will continue to remain a very
strong and growing competitive option, 5) ongoing turnover and
seasonality. All of these weigh on any meaningful growth from
current $320M run-rate and we do not project reaching the
$400M+ cash break-even run-rate that we estimate is needed
for profitability in next year (but perhaps in 2015). That said,
Provenge does have a place in the treatment paradigm as the
only immunotherapy with a survival benefit in mCRPC. Should
sales grow mid single digits year over year, coupled with costs
initiatives, DNDN has a chance to achieve cash-break even and
eventual profitability. Separately, we believe DNDN's eventual
EU approval should garner partnership/asset sale interest and
help lessen DNDN's current financing/liquidity concerns
Upside scenario
Our upside scenario of $4/share uses a price-to-sales multiple of
2.5x on a bull-case peak sales of $350M in the US. Alternatively
this assumes a much higher probability of takeout interest (50%
chance) made more likely by demonstration of better sales
trajectory in 2014-2015
Downside scenario
Our downside scenario of $1/share is a 50-50 probability
adjustment for 1) bankruptcy and no salvageable equity value
($0/share) and 2) DNDN's standalone as a company should it
manage to reach breakeven profitability in 2015/2016 due to
growing EU sales launch and lower operating costs in the US.
December 20, 2013
Asset sale or partnership for EU rights could be one of few

remaining opportunities. We pin probability of successful
EU partnership at 30%, where we assume market is 1/2
that of US (lower pricing and utilization), offset by better
gross margins (lower fixed cost using contract
manufacturing), DNDN might be able to monetize EU rights.
NOL's could modestly boost deal premium (should it
happen) DNDN's $1.5B of federal NOLs could be worth
$120M+ (<$1/share) using conservative assumptions
(Section 382) which could boost value in an acquisition
scenario for player who could maintain sales momentum
while slashing costs.
Financial risks of loss of liquidity and potentially solvency,

given $50M quarterly cash burn, only $280M of cash and
$620M of convertible debt due in early 2016. Failure to
reach partnership agreement for ex-US rights, achieve
Provenge revenue growth/reduce costs to reach cash break
even before end of runway (2015) would, in our opinion,
put DNDN at risk of being a going concern, potentially
erasing all equity value.
78
Key questions / debates for DNDN

1.
What are the chances DNDN gets

acquired?
We see 30% probability, but this acquirer will need to believe EU Provenge sales
could be $100-$200M+ plus with only incremental SG&A, and will slash essentially all
R&D costs.
2.
What are DNDNs $1.5B NOLs

potentially worth?
We conservatively assume in an acquisition scenario that Section 382 will limit the
NPV to $127M, or only $0.70/share and could thus only be an incremental asset to
potential acquirer.
3.
What is DNDNs cash and quarterly

burn-rate/
They have $233M as of Q3:13 and are now on a reduced burn-rate of $40-45M,
leaving them with fewer than 7 quarters of cash runway.
We estimate that DNDN has roughly 6-7 quarters of cash left and needs to figure out options for
refinancing its existing $620M in debt due 2016. We've run through our model and estimate that
even nearly completely slashing SG&A to zero (e.g. takeout scenario) and cutting COGS and R&D
by guidance today, the current $280M annual sales run-rate can barely get them to break-even.
Thus the value of a franchise that can barely get to break-even is not very interesting or valuable
given EV is nearly $800M or ~3x sales. If interest expense goes up on higher new rates on
refinanced debt in the future, this would add even more expenses and risk not in our model.
So the upside for someone would have to be through cutting all of R&D and believing EU sales
could do $100-300M with no real added expenses. We see this as a 30-35% likelihood (vs. cons
basically zero) but might be at or near current valuation. We think in the next 4-6 quarters, DNDN
will need to 1) refinance debt, 2) grow sales consistently over multiple quarters, 3) figure out how
to monetize EU, and 4) cut COGS and expenses even more.
Exhibit 65: Expected news flow for DNDN
Time
Event
Program
Aug 2014
Phase II ADT/Provenge sequencing study in non-metastatic CRPC
Provenge
Early 2015
Competitor Phase III Prostvac data (N=1200)
Prostvac
2016
Phase II Her2+ urothelial carcinoma readout
Neuvenge
Exhibit 66: Pipeline for DNDN

Product
Indication
Stage
Provenge
Metastatic HRPC
Marketed (US)
Metastatic HRPC
Approved (EU)
hormone sensitive prostate cancer
Phase II/III
Her2/neu+ bladder cancer
Phase II
HER2/neu + breast cancer
Phase I
HER2/neu + ovarian cancer
Phase I
Neuvenge (DN-2402)
HER2/neu + colorectal cancer
Phase I
TRPM8
Prostate/breast/colon/lung cancer
Phase I
CA-9
kidney cancer
Preclinical
CEA
colorectal cancer
Preclinical
December 20, 2013
79
Exhibit 67: Table of Old vs New Estimates for DNDN

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
344.0
2012A
325.3
2013E
282.8
2014E
301.0
-2.29
-2.65
-1.73
-0.95
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
82.0
67.6
Q2
80.0
73.3
Q3
77.9
68.0
Q4
85.5
74.0
73.0
76.0
74.0
74.0
-0.48
-0.45
-0.44
-0.36
-0.31
-0.27
-0.21
-0.19
Exhibit 68: Income Statement for DNDN

Revenues:
Provenge US Sales (net)
Provenge - ex US Sales
Other income (including royalties)
Total revenue
Operating expenses:
Cost of product sales
Selling, General and administrative
Restructuring and contract termination
Total other income
Income before taxes
Net Income
Basic EPS (GAAP)
Diluted EPS
Shares outstanding:
Basic
Diluted
Provenge Summary
US Sales
Ex-US Sales
Total
FYA
Dec-11
FYA
Dec-12
216.0
128.1
344.0 $
325.3
325.3 $
1QA
Mar-13
67.6
0.01
67.6 $
2QA
Jun-13
73.3
0.03
73.3 $
3QA
Sep-13
68.0
0.0
68.0 $
4QE
Dec-13
74.0
74.0 $
FYE
Dec-13
282.8
282.8 $
1QE
Mar-14
71.0
2.0
73.0 $
2QE
Jun-14
73.0
3.0
76.0 $
3QE
Sep-14
70.0
4.0
74.0 $
4QE
Dec-14
72.0
6.0
78.0 $
FYE
Dec-14
FYE
Dec-15
286.0
15.0
301.0
305.0
40.0
345.0
159.1
74.3
361.3
38.6
633.3
(289.3)
(46.1)
(335.4)
(335.4)
($2.29)
($2.29)
227.9
74.6
317.1
45.7
665.3
(339.8)
(53.8)
(393.6)
(393.6)
($2.65)
($2.65)
43.4
18.4
62.4
2.0
126.2
(58.6)
(13.4)
(72.0)
(72.0)
($0.48)
($0.48)
43.8
18.2
66.8
(0.3)
128.5
(55.2)
(13.7)
(68.8)
(68.8)
($0.45)
($0.45)
46.9
17.6
56.2
1.2
121.9
(53.9)
(13.3)
(67.2)
(67.2)
($0.44)
($0.44)
42.2
17.0
55.5
114.7
(40.7)
(13.6)
(54.3)
(54.3)
($0.36)
($0.36)
176.3
71.2
241.0
2.8
491.3
(208.4)
(54.0)
(262.4)
(262.4)
($1.73)
($1.73)
39.3
16.3
50.4
106.1
(33.1)
(13.6)
(46.7)
(46.7)
($0.31)
($0.31)
38.7
15.3
49.6
103.7
(27.7)
(13.7)
(41.3)
(41.3)
($0.27)
($0.27)
35.6
14.7
45.5
95.8
(21.8)
(13.7)
(35.4)
(35.4)
($0.21)
($0.21)
35.3
14.4
46.1
95.8
(17.8)
(13.7)
(31.5)
(31.5)
($0.19)
($0.19)
148.9
60.8
191.6
401.3
(100.3)
(54.7)
(155.0)
(155.0)
($0.96)
($0.96)
142.0
58.0
183.0
383.0
(38.0)
(54.6)
(92.5)
(92.5)
($0.53)
($0.53)
146.2
168.8
148.8
171.4
151.5
174.1
151.8
174.5
152.2
174.9
152.6
175.2
152.0
174.7
152.9
175.5
153.2
175.8
168.5
191.1
168.8
191.4
160.8
183.5
173.0
195.7
Dec-11
216.0
216.0 $
Dec-12
325.3
325
Mar-13
67.6
67.6
Jun-13
73.3
73.3
Sep-13
68.0
68.0
Dec-13
74.0
74.0 $
Dec-13
282.8
283
Mar-14
71.0
71.0
Jun-14
73.0
73.0
Sep-14
70.0
4.0
74.0
Dec-14
72.0
6.0
78.0 $
Dec-14
286.0
15.0
301 $
Dec-15
305.0
40.0
345
December 20, 2013
80
Valuation
Our target price of $3/share assumes 80% probability that Dendreon remains a standalone entity
($2/share, assuming it solves pending liquidity concerns by refinancing convertible debt at high
single digits rate) and 20% probability it could be acquired ($4-5/share) yielding cost synergies of
33% reduction in SG&A expenses. We assume peak sales of $400M in the US, 10% discount rate,
zero price growth and 0% terminal growth

Our price target is dependent primarily on the prospects of Provenge. Specifically, Provenge will
need supportive coverage of CMS without major restrictions, and EMA approval in 2013. Price
target impediments include financial risks of loss of liquidity and potentially solvency given high
quarterly cash burn, cash runway of less than 18 months and need to refinance convertible debt
due 2016. Failure to reach partnership agreement for ex-US rights, or to achieve Provenge
revenue growth/reduce costs to reach cash break even before end of runway (2015) would put
DNDN at risk of cessation of being a going concern, potentially erasing all equity shareholder
value
December 20, 2013
81
Infinity Pharmaceuticals (INFI)

Outperform, Speculative Risk
Price Target USD 35.00
Exhibit 69: Infinity Pharmaceuticals
Investment summary
We believe Infinity is an attractive small-cap biotech investment
candidate as the current valuation pins IPI-145 as an
undifferentiated next-generation treatment for CLL and iNHL
with only high single digit penetration, and fails to account for
any probability of success in aggressive cancer indications,
rheumatoid arthritis, or asthma. Our analysis of IPI-145's unique
MOA suggests, even modest probability of success could create
upside value currently not in estimates. With more clinical data
in cancer coming at ASCO 2014, as well as results from other
trials such as Phase II in RA, we believe multiple catalysts could
increase investor confidence in the differentiated safety and/or
efficacy profile of IPI-145 in an array of hematological cancers
(CLL, MCL, iNHL, potentially DLBCL and T-cell lymphoma) as well
as its potential utility in multiple disease indications (asthma and
rheumatoid arthritis).
The following are potential catalyst to our thesis

Our base case of $35/share assumes that IPI-145 will become a
differentiated treatment for CLL, MCL and iNHL, and gain 12-22%
market share ($1.8B peak sales, assuming 52-60% probability of
success), which yields $31/share. We assume very modest
probabilities (10%) of success for IPI-145 in RA and asthma,
which together is $4/share.
Upside scenario
Our upside scenario assumes that IPI-145 will become a best-inclass treatment for CLL and gain deeper 15-27% market share
($3B peak sales, assuming 70% probability of success), which
yields $36/share. We assume slightly higher (20%) probabilities
of success for IPI-145 in RA and asthma, which together
constitute $6/share
The following are risks to our investment thesis
Downside scenario
Our downside scenario assumes that IPI-145 will show only
comparable efficacy as other PI3K kinases in development for
CLL and MCL, and gain 7 13% market share ($1.2B peak sales,
assuming 50% probability of success), which yields $17/share.
We assume zero probability of success for IPI-145 in RA and
asthma.
December 20, 2013
Positive clinical updates: Phase I studies of IPI-145 in

multiple hematological cancers are continuing. With longer
follow-up and update potentially at ASCO, if they can show
improved responses with sustained durability and safety,
this may increase investor confidence on the competitive
profile of IPI-145.
Phase II data in RA: Data from the ASPIRA trial of IPI-145
in moderate-to-severe RA is expected mid-2014. At current
valuation, there is minimal expectation in inflammatory
indications.
Partnership: Leukemia and lymphoma space are expected
to face major transformation with the introduction of novel
oral agents. IPI-145 remains one of the few wholly-owned
assets with early signs of robust efficacy. A potential
partnership with a bigger biotech/pharma could provide
validation and the resources to expand and accelerate the
development of this drug.
Undifferentiated profile of IPI-145: A second-to-market

product is bound to face difficulty in uptake if it is not
differentiated in any way from earlier entrants. If IPI-145
fails to substantially prove as the best-in-class PI3k and oral
agent in development for CLL/NHL, interest on the stock
will continue to diminish.
Unexpected safety results: IPI-145 is still early in
development and lack long follow-up in large patient
numbers. Unexpected safety events may occur in later
stages of development, which could potentially increase its
risk in coming to market.
82
Key questions / debates for INFI

1.
How is IPI-145 differentiated from

GILDs idelalisib (GS-1101) and other
PI3Ks?
IPI-145 is a potent PI3k-delta/gamma inhibitor while idelalisib only targets the deltaisoform of PI3k. By targeting both the delta/gamma isoform, which are both
primarily expressed by leucocytes, IPI-145 could have greater efficacy as singleagent.
So far in clinical trials, albeit still early, IPI-145 has shown signs as potentially the
best-in-class PI3K-inhibitor with higher ORRs and CRs in CLL, iNHL and MCL vs.
idelalisib as well as responses in T-cell and Hodgkins lymphoma.
2.
What is INFIs strategy to market and

how far behind is IPI-145 vs. ibrutinib
(PCYC) and idelalisib (GILD)?
INFI initiated two potentially registrational trials of IPI-145 in 2013. First is a Phase II
trial of IPI-145 in double-refractory (chemo, rituximab) iNHL (DYNAMO). Second is
a Phase III controlled trial of IPI-145 vs. Ofatumumab in r/r CLL (DUO). Both are
expected to read out ~2015 and be on the market 2016. This puts INFI 1-2 years
behind PCYC and GILD.
3.
How would INFI enrol patients in the

US to IPI-145s Phase III CLL trial when
ibrutinib and idelalisib are expected to
enter the market soon?
This is a valid concern but INFI has several ways to mitigate this. First, this is a global
trial where majority of the accrual will be focused OUS, where ibrutinib and
idelalisib are not expected to be on the market for another year. Second, the study
is already open for enrollment in the US, where ibrutinib nor idelalisib are officially
approved yet (although ibrutinib expected soon). Lastly, docs have commented that
there may be some patients who may be incentivized to enter a clinical trial as
reimbursement or out-of-pocket costs may be burdensome for these expensive new
oral agents.
Exhibit 70: Detailed table of currently on-going IPI-145 clinical trials in multiple hematologic and inflammatory indications
Enrollment
Trial Initiated
Est. Trial
Completion
Phase I expansion at 25mg BID in r/r CLL/iNHL/MCL
30
Q3:12
Q3:14E
Phase I expansion at 25mg BID in treatment-nave, high-risk CLL
30
Q1:13
Q3:14E
Phase I expansion at 75mg BID in rr CLL, iNHL, MCL, T-cell, aNHL, ALL
150
Q1:13
Q3:14E
Phase Ib
Investigator-sponsored trial, IPI-145 50mg BID in combination with B or R or BR in

r/r hematologic malignancies
70
Q2:13
Q2:14E
Phase II
DYNAMO: Single-agent, open-label study in r/r iNHL, refractory to R and chemo
120
Q2:13
Q2:15E
300
30
Q4:13
Q3:12
Q2:15E
Q4:13E
316
Q2:13
Q2:14E
Stage
Advanced
Hematologic
Malignancies
iNHL
Phase I
Clinical Trial Detail
CLL
Phase III DUO: Phase III monotherapy of IPI-145 25mg BID vs. Ofatumumab
Asthma
Phase II a Multi-dose cross-over study of IPI-145 in mild asthmatic patients
Rheumatoid
ASPIRA: Double-blind study of IPI-145 in moderate-to-severe RA patients with
Phase II
Arthritis
inadequate response to methotrexate alone
Highlighted in yellow indicate potential pivotal trials
Source: Company reports, www.clinicaltrials.gov
December 20, 2013
83
Exhibit 71: Expected news flow for INFI

Time
YE:13
YE:13
1H:14
Mid 2014
Mid 2014
2H:14
2015
2015
Expected News Flow

Initiate Phase III "DUO" trial of IPI-145 vs. Ofa in R/R CLL (n=300, 1st endpt is PFS)
Report results from Phase II POC trial in asthma
Submit IND and initiate Phase I trial on new PI3K (delta-gamma) candidate
Present interim results for IST Phase Ib open-label, dose-escalation trial of IPI-145 + B/R in
NHL, CLL, T-cell patients (N ~ 70)
Present updated results from Phase I trial of IPI-145 in CLL, MCL, iNHL, aNHL
(focus on pts initiated in 2013, also TN high-risk CLL cohort)
Report Phase II data from "ASPIRA" trial of IPI-145 in moderate-to-severe RA
(N=300, IPI-145 + MTX vs. Pbo + MTX)
Report results from Phase II "DYNAMO" trial of IPI-145 in double-refractory iNHL
Report results from Phase III "DUO" trial of IPI-145 vs. Ofa in R/R CLL
Program
IPI-145
IPI-145
IPI-443
IPI-145
IPI-145
IPI-145
IPI-145
IPI-145
Exhibit 72: Pipeline table for INFI

Drug (Target)
Indication
IPI-145 (PI3K-delta/gamma)
Hematologic Malignancies
Double-refractory Inhl ("DYNAMO")
R/R CLL ("DUO")
Asthma
Rheumatoid Arthritis ("ASPIRA")
IPI-443 (PI3K-delta/gamma)
Hematologic Malignancies
Inflammatory Disease
Stage
Trial Initiated
Phase I
Phase II
Phase III
Phase IIa
Phase II
Nov-11
May-13
Dec-13
Jul-12
Apr-13
Pre-clinical
Pre-clinical
Exhibit 73: Table of Old vs New Estimates for INFI

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
2.8
2012A
47.1
2013E
0.0
2014E
0.0
(1.50)
(1.70)
(2.83)
(3.28)
(3.44)
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
25.2
0.0
Q2
21.9
0.0
Q3
0.0
0.0
Q4
0.0
0.0
0.0
0.0
0.0
0.0
(0.57)
(0.68)
(0.71)
(0.86)
(0.88)
(0.91)
(0.73)
(0.78)
December 20, 2013
84
Exhibit 74: Income Statement for INFI

Fi s ca l Yea r Ends December
Revenues:
IPI-145
FYA
2012E
-
Retas pi myci n (IPI-504)

Col l a bora tive R&D revs from Purdue entities
Total revenue
Operating expenses:
Cos t of s a l es
Res ea rch a nd devel opment
Genera l a nd Admi ni s tra tive
Total Opera ting Expens es
Ga i n/pa yment on pa rtners hi p
Income (l os s ) from opera tions
Other income (expense):
Interes t Expens e
Other non-recurri ng i ncome:
Interes t a nd i nves tment i ncome
Total other expens es
-
47.1
47.1
118.6
27.9
146.5
46.6
(52.8)
-
20.2
7.4
27.7
(27.7)
-
26.1
6.7
32.8
(32.8)
-
26.9
7.3
34.2
(34.2)
-
34.0
7.8
41.8
(41.8)
-
107.2
29.2
136.4
(136.4)
-
35.0
7.8
42.8
(42.8)
-
37.0
7.8
44.8
(44.8)
-
32.0
7.8
39.8
(39.8)
-
35.0
7.8
42.8
(42.8)
-
139.0
31.2
170.2
(170.2)
-
166.8
35.9
202.7
(202.7)
-
59.4
186.8
44.9
231.7
(231.7)
-
(1.9)
0.2
0.6
(1.2)
-
0.3
0.3
-
0.2
0.2
-
0.2
0.2
-
0.1
0.1
-
0.8
0.8
-
0.1
0.1
-
0.1
0.1
-
0.1
0.1
-
0.1
0.1
-
0.4
0.4
-
0.3
0.3
-
0.3
0.3
-
Income Ta x Expens e (Benefi t)
(54.0)
(1.70)
(1.70)
(27.3)
(0.57)
(0.59)
(32.6)
(0.68)
(0.68)
(33.9)
(0.71)
(0.71)
(41.7)
(0.86)
(0.86)
(135.6)
(2.83)
(2.83)
(42.7)
(0.88)
(0.88)
(44.7)
(0.91)
(0.91)
(39.7)
(0.73)
(0.73)
(42.7)
(0.78)
(0.78)
(169.8)
(3.28)
(3.28)
(202.4)
(3.79)
(3.79)
(231.4)
(4.21)
(4.21)
31.7
34.8
47.6
46.1
47.9
51.2
48.1
52.1
48.3
52.3
48.0
52.0
48.8
52.8
49.3
53.3
54.3
58.3
54.8
58.8
51.8
55.8
53.3
57.3
54.9
58.9
Net income
EPS (ba s i c)
EPS (di l uted)
Shares outstanding:
Ba s i c
Di l uted
1QA
Mar-13
2QA
Jun-13
3QA
Sep-13
4QE
Dec-13
FYE
2013E
-
1QE
Mar-14
2QE
Jun-14
3QE
Sep-14
4QE
Dec-14
FYE
2014E
FYE
2015E
FYE
2016E
59.4
Valuation
Our $35 price target is based on a sum of the parts valuation: 1) $31/share for IPI-145 in
hematological indications and 2) $4/share for IPI-145 in rheumatoid arthritis and asthma. In
haematology, the valuation is a DCF analysis of probability adjusted (52% success in CLL, 52% in
MCL, and 60% in iNHL) anticipated revenues in three indications (CLL, MCL, and iNHL), assuming
varying degrees (7-22%) of peak penetration into front line and relapsed refractory patients each
year, as well as penetration into the prevalence pool (patients who were diagnosed in earlier
years but chose to forgo treatment, or they have cycled through all available therapies). We base
our assumptions on prevalence and incidence rates of each of conditions on published statistics
from the National Cancer Institute, cross-referenced with estimates from pharmaceutical
companies currently selling therapies in the space. We also assume European Union sales to
approximate 75% of the US, with an anticipated launch delay of 12 months. Our combined
assumed peak sales across the three indications are over $1.8B by 2027.

Our price target is primarily dependent on clinical, regulatory, and commercial success of IPI-145
in multiple haematological indications (CLL, MCL, and iNHL). Risks include clinical setbacks (fewer
than expected response rates in each patient population, shorter than expected duration of
response or unexpected safety, or tolerability issues), lack of differentiation of IPI-145 from more
clinically advanced PI3K in development, regulatory delays, failure to reach probability-adjusted
(52%) peak sales of over $1.8B by 2027, as this represents $31/share in our price target. Failure to
advance IPI-145 beyond Phase II for RA and asthma should also erase $4/share of optionality
value included in our price target (nearly 10% probability adjusted for success, $150MM total
equity value).
December 20, 2013
85
InterMune (ITMN)
Exhibit 75: InterMune
Investment summary
We rate InterMune Sector Perform, Speculative Risk for two
reasons. While visibility on European launch of Esbriet has been
slowly improving, with the drug now approved and reimbursed
in 13 countries (vs. fear of inability to obtain reimbursement at
reasonable prices 1 year ago), sales momentum is slower to
build in EU, with investors likely to harbour uncertainty on peak
sales potential for many more quarters. Secondly, the second
lever of stock performance is a binary clinical readout in Q2:14,
which we currently assign less than 50% probability of success
due to the difficult and unpredictable disease course of IPF. That
said, we believe positive results could drive 100% upside vs. 50%
downside if negative. Separately, a key competitor readout from
Boehringer (likely Q1:14) could also impact sentiment/perceived
value perception of ITMN's US franchise. Given the binary
events, while we recognize attractiveness of the stock on a
risk/reward basis ($25 if both events are positive, $7 - $9/share
if negative), we remain at Sector Perform pending increased
visibility on commercial and clinical risks


Our base case of $15/share assumes Esbriet will garner ~2030%
of EU market share, at an average price of $3133K for the first
year, and $29K+ thereafter, yielding $300400M in peak sales. A
DCF analysis of free cash flow until 2021, using a discount rate of
10% and terminal growth rate of -15%, yields $11/share. We
assume a 35% chance of approval of Esbriet in the US in 201415
and that it will gain 20-25% market share in 2021, with a DCF
analysis of free cash flow ($12/share) yielding $4/share
Upside scenario
Our upside scenario of $20/share assumes Esbriet will garner
30%+ market share in the EU to yield $400M+ in peak sales
(yields $13/share) In the US, we assign a 55% chance of ASCEND
success, leading to approval and Esbriet gaining 20%+ market
share ($7/share).
Downside scenario
Our downside scenario of $9/share assumes only modest
penetration of 15% in the EU market to yield only $300M in peak
sales ($9/share) In the US, we assume ASCEND failure and
inability to receive regulatory approval from the FDA
December 20, 2013
Setbacks by competition: ITMN face great uncertainty in

where Esbriet may fit in the future landscape of IPF therapy
as there are several drugs in development, especially in the
US where no drugs are currently approved. Any setback by
competition may increase ITMNs potential in capturing a
bigger share of the future IPF market.
Positive Phase III ASCEND trial: US approval for Esbriet
depends on the outcomes of the Phase III ASCEND trial,
which is expected to readout in Q2:14. If this study is
positive, it could potentially double Esbriets market
opportunity and ITMNs valuation accordingly.
Positive competitive developments: Several major pharma

and biotech including Boehringer Ingelheim, BIIB, and GILD
have drugs in mid-to-late stage development for IPF. If
these drugs report positive data, this could pressure
Esbriets peak sales opportunity.
Negative Phase III ASCEND outcome: If Esbriet does not
meet its primary endpoint (FVC change) in the Phase III
ASCEND trial, US approval becomes increasingly uncertain
and the uptake in the EU may also face difficulty.
86
Key questions / debates for ITMN

1.
What is different for the ASCEND trial

compared to the prior Phase III trials
and why is this more likely to work?
The major differences for the ASCEND trial lies in the change in the eligibility
criteria, which were enriched for patients who are more likely to experience FVC
decline and disease progression. This was derived from the prior two CAPACITY
trials, which met the primary endpoint in only one of the studies and thus a CRL
issued by the FDA in 2010. Analysis of these prior trials for the patients meeting the
new ASCEND criteria showed enhanced magnitude of Esbriet treatment effect on
FVC and secondary endpoints.
2.
How is the competitive landscape in

IPF and how does ITMNs Esbriet
compare with others?
IPF is a fatal orphan disease with no approved therapy in the US. In 2011, Esbriet
was approved for treating adults with mild-to-moderate IPF. Currently, there are
several major pharma/biotech companies with drugs in mid-to-late stage
development for IPF. The leading competitor remains Boehringer Ingelheim, which
has Phase III due to read-out in Q1:14. BIs BIBF-1120 did show a strong 68%
reduction in annualized rate of FVC decline in Phase II, although the study was small
and there were large dropouts. Companies such as BIIB, GILD, and Fibrogen also
have drugs with novel MOA in development for IPF. In our view, Esbriet provides
only modest benefit to IPF patients, as evidenced by mixed Phase III study results.
Exhibit 76: Enrollment criteria for ASCEND vs. prior CAPACITY trials
December 20, 2013
87
Exhibit 77: RBC estimate of Esbriet penetration in various EU regions in 2014

Esbriet EU Launch APP
Population
(in M)
Mild/
Mod Pts
Price
(1st yr)
Price
(2nd yr)
2012EA
Q1'13A
Q2'13A
Q3'13A
Q4'13E
2013E
Q1'14E
Q2'14E
Q3'14E
Q4'14E
2014E
42,600
33,000
7%
8.0%
9.0%
9.5%
10.0%
11%
11.0%
12.0%
13.5%
14.5%
13%
32,468
44,000
$
$
30,844
41,800
0%
0%
1.2%
0.0%
3.0%
0.0%
4.5%
1.2%
5.2%
1.7%
4%
1%
6.2%
2.2%
7.0%
3.0%
7.7%
4.0%
8.5%
4.5%
7%
3%
Germany (Sep'11)
France (Nov'12)
82
64
9,563
7,313
Italy (Jul'13)
61
7,313
$
$
Spain
47
5,288
31,000
29,450
0%
0.0%
0.0%
0.0%
0.0%
0%
0.0%
1.5%
2.5%
3.5%
2%
England/Wales (Aug'13)
63
7,088
31,529
29,952
0%
0.0%
0.0%
0.8%
2.0%
1%
3.0%
3.8%
4.5%
5.0%
4%
Next Five EU
58
6,525
31,000
29,450
1%
2.0%
4.0%
4.3%
4.7%
4%
5.3%
6.0%
6.7%
7.5%
7%
Canada
30
35,000
35,000
0%
0.5%
2.0%
3.0%
4.0%
2%
5.0%
5.5%
6.0%
7.0%
5%
35,988
38,249
-5%
$26.1
$10.5
$14.1
$18.9
$22.6
$66.1
$26.7
$30.6
$34.3
$37.3
$128.8
Implied Average Price

Speed of launch vs base assumptions
TOTAL REVENUES (in $M)
Exhibit 78: Expected news flow for ITMN

Time
YE:13
Expected News Flow

Complete pricing and reimbursement in Spain, Netherlands
Program
Esbriet
YE:13 or Early 2014
Phase III readout for Boehringer's BIBF-1120
BIBF-1120
YE:13 or Early 2014
Phase II POC data for BIIB's STX-100
STX-100
Feb 2014
Last patient completes 35 day safety follow up
Pirfenidone
Q2 2014
Readout of Phase III ASCEND data
Pirfenidone
Mid 2014
Targeted registration of Esbriet in the US
Pirfenidone
Early 2015
Potential US launch of Esbriet
Pirfenidone
Exhibit 79: Pipeline table for ITMN

Product
Esbriet (pirfenidone)
Indication
IPF
Partner
Proprietary
Shionogi
Stage
Marketed (EU)
Marketed (Canada)
Phase III (US)
Marketed (Japan)
December 20, 2013
88
Exhibit 80: Table of Old vs New Estimates for ITMN

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
25.6
2012A
30.2
2013E
68.2
2014E
128.8
131.3
(1.84)
(1.88)
(2.58)
(2.30)
(2.75)
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
8.9
10.5
Q2
5.5
14.4
Q3
7.5
19.7
Q4
8.2
23.6
26.7
30.6
34.3
37.3
(0.64)
(0.77)
(0.61)
(0.51)
(0.47)
(0.41)
(0.68)
(0.71)
(0.46)
Exhibit 81: Income Statement for ITMN

FYA
Fi s ca l Yea r Ends December
2QA
3QA
4QE
FYE
2QE
3QE
4QE
FYE
FYE
2012A
Mar-13
1QA
Jun-13
Sep-13
Dec-13
2013E
Mar-14
1QE
Jun-14
Sep-14
Dec-14
2014E
2015E
26.2
10.5
14.4
19.7
23.6
68.2
26.7
30.6
34.3
37.3
128.8
186.1
4.1
Revenues:
Es bri et
Actimmune
Col l a bora tion revenues
Total revenue
30.2
10.5
14.4
19.7
23.6
68.2
26.7
30.6
34.3
37.3
128.8
186.1
Opera ting expens es :

Cos t of s a l es
10.9
2.4
1.9
2.8
3.5
10.6
4.0
4.6
5.1
5.6
19.3
106.6
25.9
27.5
27.3
31.0
111.7
29.0
26.0
22.0
18.0
95.0
71.3
Sel l i ng, Genera l a nd a dmi ni s tra tive
105.4
30.0
37.3
35.2
45.0
147.5
35.0
35.0
40.0
48.0
158.0
164.3
Total opera ting expens es
27.9
222.9
58.2
66.7
65.3
79.5
269.8
68.0
65.6
67.1
71.6
272.3
263.5
(192.7)
(47.7)
(52.3)
(45.6)
(55.9)
(201.6)
(41.3)
(35.0)
(32.9)
(34.3)
(143.5)
(77.4)
Total other i ncome
(8.7)
(2.0)
(10.4)
(4.4)
(3.7)
(20.6)
(3.3)
(3.3)
(3.3)
(3.3)
(13.2)
(13.4)
Income before taxes
(201.4)
(49.7)
(62.8)
(50.0)
(59.7)
(222.2)
(44.6)
(38.3)
(36.2)
(37.6)
(156.7)
(90.7)
1.0
0.4
0.5
0.2
0.5
1.6
0.4
0.4
0.4
0.4
1.6
Income from opera tions
Provi s i on for i ncome taxes
1.8
Net Income
(150.2)
(49.9)
(62.9)
(49.9)
(59.9)
(222.5)
(45.0)
(38.7)
(36.6)
(38.0)
(158.3)
(91.5)
Ba s i c EPS
($2.30)
($0.64)
($0.77)
($0.61)
($0.68)
($2.71)
($0.51)
($0.47)
($0.41)
($0.46)
($1.84)
($1.04)
Di l uted EPS
($2.30)
($0.64)
($0.77)
($0.61)
($0.68)
($2.71)
($0.51)
($0.47)
($0.41)
($0.46)
($1.84)
($1.04)
Ba s i c
65.2
77.4
81.2
81.4
88.5
82.1
88.8
82.5
89.2
82.8
85.8
88.2
Di l uted
72.4
84.6
88.4
88.6
95.7
89.3
96.0
89.7
96.4
90.0
93.0
95.4
Shares outstanding:
December 20, 2013
89
Valuation
Our base case of $15/share assumes Esbriet will garner ~2030% of EU market share, at an
average price of $3133K for the first year, and $29K+ thereafter, yielding $300400M in peak
sales. A DCF analysis of free cash flow until 2021, using a discount rate of 10% and terminal
growth rate of -15%, yields $11/share. We assume a 35% chance of approval of Esbriet in the US
in 201415 and that it will gain 20-25% market share in 2021, with a DCF analysis of free cash flow
($12/share) yielding $4/share.
December 20, 2013
EU launch could be slower than expected due to lengthy national/regional reimbursements

region-by-region, more regimented healthcare access systems, and periodic pricing and
utilization reviews.
Duration of therapy could be less than 912 months and result in high patient turnover and
lower annual revenues per patient. It is possible that doctors or patients do not sense any
treatment effect and decide to discontinue patients earlier than expected, or before our
model of 912 months duration of therapy.
Boehringer's BIBF-1120 Phase III for IPF reads out in H1:14, which could be a competitor
beginning in 2015.
Phase III Esbriet ASCEND study could fail in H1:14, which would eliminate any chance of US
revenues and, depending on the efficacy curves and trends, and safety, could cause EU
doctors to reduce use of Esbriet in Europe or could cause some patients to come off drug
90
Myriad Genetics (MYGN)

Sector Perform

Exhibit 82: Myriad Genetics
Investment summary
We maintain our Sector Perform rating on Myriad Genetics
because the Street should continue to monitor competitive
concerns, reimbursement, and sustainability of business. MYGN
continues to beat earnings expectations but investors won't
seem to get paid off for it until more quarters report during
2014 and they beat while competitor revenues remain modest.
This will give investors a bit more confidence to step up when
more info is known later next year. We do think competitor revs
will grow and might take 15-20% share over the long-run but
won't be 50% share anytime soon because docs don't have
incentive to promote the lower price test and insurers are
covering them all (no co-pays for preventive care due to ACA).
So DCF says better to buy closer to low $20s which implies a 50% rev decline and is too bearish and $18/share implies
revenues nearly cease in 2018 (very unlikely).
Favorable court decision against BRCA test competitors:

MYGN is currently involved in nine lawsuits related to
protecting its IP on BRCA1/2 gene testing for breast or
ovarian cancer risk. This remains a significant overhang as it
puts at risk 75% of its revenues. If the court grants MYGN
preliminary injunction against the competitors, it would be
a clear positive event for MYGN.
Smooth and rapid transition to myRisk: MYGN initiated its
staged launch of myRisk (its 25-gene pan-cancer panel test)
in Fall 14. They aim to fully convert all BRCAnalysis test
volumes to this new test by 2015. If the market transition
and uptake to this new product goes smoothly in 2014, it
could mitigate concerns on competitive threat to
BRCAnalysis.
Our base case of $32/share assumes growth at 6-10% y/y

revenue growth until 2018, at which we apply a terminal growth
rate of -25% for BRCAnalysis and -5% for all remaining products.
We discount cash flows at 10%. Inherent in our growth
assumptions is that new products such myPath, myPlan and
other products in development will provide new markets for
penetration (new $500M-$1B market), and that BRCAnalysis revs
will successfully convert to MyRisk panel during 2014-2015
Upside scenario
Our upside scenario of $35 assumes growth at 10-12% y/y until

2018, with higher growth rates afforded by new products such
as Prolaris and MYGN's new pan-cancer testing panel which will
broaden the preventive diagnostics market beyond
breast/ovarian indications. We maintain -25% terminal growth
for BRCAnalysis and -5% for other products post 2018. Included
in valuation is $6/share in cash
Downside scenario
Our downside scenario of $18 is a blended case of 2 of the most
dire valuation scenarios, where all cash flows cease post 2015
($12/share, case 1, 20% weighted) or post 2018 ($20/share, case
2, 80% weighted). These are extremely pessimistic views on the
sustainability of revenues post expiration of MYGN's key BRCA
patents. Included in valuation is $6/share in cash
December 20, 2013
CMS pricing reduction: Medicare released the final CLFS

rates for 2014, where the BRCA test was listed as $1438,
significantly down from its previous price of $2795. MYGN
believes this was due to clerical errors and are in the
process of getting this sorted out. If this is confirmed as the
final rates, this puts future pricing assumptions at risk for
MYGNs products.
Unfavourable court ruling on BRCA patents: If the court
rules in favor of the nine competitors who have or plan to
launch competitive BRCA1/2 testing, this puts at risk not
only MYGNs dominance in this market but also the
potential of future genetic risk analysis tests.
91
Exhibit 83: RBC estimate of MYGN core business dynamics in FY14

Sep-13
Q1:14E
Base biz Q/Q
Base Biz
Celebrity/ Publicity
Competition
Total Revs ($MM)
172.0
35.0
(5.0)
202.0
Dec-13
Q2:14E
8%
185.0
15.0
(10.0)
190.0
Mar-14
Q3:14E
0%
185.0
5.0
(15.0)
175.0
Jun-14
Q4:14E
5%
195.0
0.0
(20.0)
175.0
FY14E
737.0
55.0
(50.0)
742.0
Exhibit 84: Expected news flow for MYGN

Timing
YE:13
YE:13 - Early 2014
1H:14
2H:14
YE:14
YE:14
2015
Expected News Flow

Final determination of 2013 gapfill pricing
Summary judgement decision on suit against Ambry and Gene-by-Gene
Potential exercise of option to acquire Crescendo (Vectra D, multi-biomarker blood test to
quantify RA)
Medicare reimbursement approval for Prolaris
EU approval of AZN's olaparib in BRCA+ ovarian cancer
US approval of AZN's olaparib
Launch HRD test for platinum therapies
Exhibit 85: Pipeline table for MYGN

Product
Molecular Diagnostics
myRisk
myPlan Lung
myPath Melanoma
BRACAnalysis
Melaris
Colaris
Colaris/AP
Theraguide 5FU
On Dose
Prezeon
Panexia
VeriPsych
Phased Launch (Sep 2013)
Phased Launch (Oct 2013)
Phased Launch (Nov 2013)
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Marketed
Indication(s)
Panel for 7 cancers
Post surgical treatment decisions in lung cancer
Differentiating malignant melanoma from benign
Breast and ovarian cancer
Melanoma and pancreatic cancer
Colorectal and endometrial cancer
Colorectal polyps and cancer
Toxicity to 5FU-based chemo
Exposure to 5FU-based chemo
PTEN status for cancer
Pancreatic cancer
Schizophrenia
Price
Partner(s)
$3,400
$3,400
$1,500
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Proprietary
Rules Based Medicine
December 20, 2013
92
Exhibit 86: Income Statement for MYGN

Fiscal Year Ends June
FYA
1QA
2QA
3QA
4QA
FYA
1QA
2QE
3QE
4QE
FYE
2012
Sep-12
Dec-12
Mar-13
Jun-13
2013
Sep-13
Dec-13
Mar-14
Jun-14
2014
468.6
127.3
140.7
148.4
166.1
582.4
193.0
180.5
166.3
165.5
705.3
23.6
6.2
8.5
8.1
8.027
30.8
9.5
9.5
9.3
Revenue:
M olecular Diagnostic Revenue
RBM Companion Diagnostics Services
Total Revenues
492.2
133.4
$ 149.1
$ 156.5
$ 174.1
613.2
202.5
$ 190.0
$ 175.3
$ 174.8
37.3
$
742.6
Expenses:
Cost of revenue
64.7
17.3
19.9
20.3
22.1
79.6
25.5
25.0
23.3
23.1
42.6
11.4
14.1
13.6
14.6
53.7
16.8
16.9
15.8
15.9
65.4
208.4
56.1
59.6
64.6
71.5
251.8
77.3
79.8
76.3
74.5
307.8
315.7
84.9
93.6
98.6
108.2
385.2
119.6
121.7
115.3
113.5
470.1
176.5
48.6
55.6
57.9
65.9
228.0
82.9
68.3
60.0
61.3
272.5
36%
36%
37%
37%
38%
37%
41%
36%
34%
35%
37%
4.2
1.2
1.4
1.3
1.3
5.2
0.9
1.3
1.3
1.2
4.7
180.7
49.8
57.0
59.2
67.2
233.2
83.8
69.6
61.2
62.5
277.3
SG&A
Total Expenses
Operating Income
EBIT M argin
Interest/ Other Income
Income before Taxes
Taxes
Net Income
EPS-basic, pro forma*
EPS-diluted, pro forma* - Fully Taxed
EPS-GAAP* - M inimal Tax
96.9
72.4
19.7
21.9
21.3
23.2
86.1
28.4
27.9
24.5
25.0
105.7
108.4
30.1
35.0
37.8
44.1
147.1
55.5
41.8
36.7
37.5
171.5
$1.28
$0.37
$0.43
$0.47
$0.55
$1.82
$0.70
$0.54
$0.49
$0.52
$2.26
$1.25
$0.36
$0.42
$0.46
$0.53
$1.77
$0.68
$0.52
$0.48
$0.50
$2.19
$2.03
$0.58
$0.66
$0.70
$0.79
$2.72
$0.99
$0.85
$0.77
$0.81
$3.43
Basic Shares Outstanding
84.6
81.6
81.7
80.3
80.2
80.9
79.6
77.2
74.9
72.5
76.1
Diluted Shares Outstanding
86.5
83.9
84.2
82.4
82.6
83.3
81.8
79.6
77.3
74.9
78.4
Valuation
Our price target of $32 is based on 14x our FY14E EPS plus $6/share in cash. We assume MYGN's
will grow at 6-10% y/y until 2018, at which we apply a terminal growth rate of -25% for
BRCAnalysis and -5% for all remaining products. We discount cash flows at 10%. Inherent in our
growth assumptions is that new products such as Prolaris, myPath, myPlan and other products in
development will provide new markets for penetration (new $500M-$1B market), and that
BRCAnalysis revs will successfully convert to MyRisk panel during 2014-2015, but with limited
market expansion despite its increased sensitivity and applicability to cancers beyond
breast/ovarian indications.

Our price target is primarily dependent on the commercial success of the diagnostics business and
its ability to achieve sustained top and bottom line growth every year, even amidst the
introduction of competition in BRCA testing. Greater than expected BRCA testing share loss
(greater than single digits) could make 10%+ y/y rev growth unachievable. Inability for MYGN to
convert BRCA revs (80%) to next-gen MyRisk cancer-panel will also make rev growth
unachievable.
December 20, 2013
93
Pharmacyclics (PCYC)
Exhibit 87: Pharmacyclics

Our $150 price target is based on a sum-of-the-parts DCF
analysis of anticipated revenues in six leukemia/lymphoma
indications, assuming various probability of approval and varying
degrees of peak penetration into front-line, relapsed/refractory,
and prevalence pool. We arrive at probability-adjusted,
worldwide peak sales estimate of $6.5B+ WW for Ibrutinib in
2026, with $3B+ from the US. We use a discount rate of 8%,
terminal growth of -20%, yielding $145/share (from $118/share).
Regulatory/developmental milestones of $400M+ yield $5/share
Investment summary
We rate Pharmacyclics shares Outperform, Speculative Risk
because we think Imbruvica will start off with good momentum
and our analysis predicts an above-consensus launch. Plus Phase
III RESONATE-1 in CLL is likely positive and coming soon. The
stock could go higher if launch significantly exceeds these
estimates and gives investors further confidence that doc
demand is high. Our thesis is predicated in part on: 1) our
proprietary survey results that suggest very high enthusiasm and
planned adoption of Ibrutinib in three major CLL patient
segments (relapsed/refractory, elderly chemo-intolerant, and
"wait and wait") soon after it launches in 2014. Our positive
thesis is also based on expectation for: 2) potential positive data
in DLBCL and myeloma in H1:14 (low investor expectations); 3)
the extensive market reach/depth of partner JNJ, which could
help grow Ibrutinib sales ex-US rapidly and broadly, giving us
confidence in peak sales potential. We believe Ibrutinib's overall
safety and efficacy profile, long durability of response, responses
in multiple leukemia/lymphoma indications, first to market
advantage, and partnership with JNJ could help it to become a
$6.5B+ WW peak sales drug
Upside scenario
Our upside scenario of $170 assumes higher probability of
approval for DLBCL and myeloma. This higher probability
adjustment now values Ibrutinib with $7.5B+ peak sales. Here
we also apply 50% probability IP extends to 2029, which now
values Ibrutinib at $165/share We maintain the same discount
and terminal growth rates.
Downside scenario
Our downside scenario of $84 assumes the same probability of
approvals for the six indications but models the inability for
Ibrutinib to effect market expansion in each of the
leukemia/lymphoma indications. This reduces Ibrutinib peak
sales to $3.5B WW, with $1.8B from the US. We maintain the
same discount and terminal growth rates, and still value
regulatory/developmental milestones at $5/share.
December 20, 2013
Accelerated approval in CLL with broad label: The ibrutinib

PDUFA for CLL is late Feb 14. However, given the unmet
need in high-risk CLL and the Breakthrough Therapy
designation, approval may come soon. Once it is approved,
focus will be on the breath and flexibility of the label. If it is
not limited to only r/r del17p patients, uptake may be very
rapid given the current enthusiasm, which may lead to
estimate revisions and increased interest in the stock.
Very strong RESONATE data: Topline data for Phase III
study of ibrutinib vs. Ofa in r/r CLL is expected in Jan 14.
This will be the first Phase III data for ibrutinib and if the
strong responses and durability from Phase II are replicated
in a large controlled study, this may further cement
ibrutinibs expected dominance in the CLL market.
Rapid emergence of strong competitors: Recently, several

companies such as ABBV, CELG, and Ono have reported
promising early stage data on their novel oral compounds
for hematologic malignancies. Although still several years
behind, if these potential competitive products continue to
produce robust data in later-stage trials, it may threaten
ibrutinibs peak WW sales potential.
94
Key questions / debates for PCYC

1.
Isnt the treatable population in CLL

small because the majority are under
watch and wait?
At diagnosis, approximately 50-60% of patients are asymptomatic and thus delayed

treatment and put aside into the watch and wait category. However this is not
because its been medically proven that these patients survive longer without
treatment but more because the current treatments available to them are too toxic
(given median age at diagnosis of 70+) to warrant them to go through with it unless
they need to. Eventually, majority of the patients do progress and require treatment
unless they die from other comorbidities first.
Because the prevalence and incidence is already very large, despite a minority share
receiving treatment, the absolute number of patients treated today is quite large.
Roche provided good data on this at their analyst day where they showed that in
2012 in the US, ~8900 front line and ~7000 relapsed CLL patients were treated with
drugs. As quick comparison, the number of patients treatable with TKIs for CML in
front and 2nd/3rd-line are roughly 5000 and 2500 respectively. When you also take
into account how the numbers provided by Roche represent patients being treated
with current CLL regimens that are known to be quite intolerable, these numbers
likely represent those who need immediate treatment. Therefore with more
tolerable yet potent new drugs like ibrutinib, these numbers are likely to expand
given the incidence pool is almost double at 14-16k.
2.
FCR works well enough with remissions

as long as 6+ years and you only have
to get it for 6 cycles, why would
anyone opt for everyday chronic
therapy instead?
It is true that FCR is a robust regimen with response rates north of 90% and median
PFS over 3 years. However, only a subset of patients are eligible for this therapy as
fludarabine and cyclophosphamide are too risky for the majority of patients who are
elderly and have co-morbidities such as hypertension, coronary artery disease, or
hyperlipidemia.
Also, even though FCR may work well in many patients who are fit enough to tolerate
them, it is known to be particularly weak in patients with poor prognostic markers
such as del17p, which is why these patients are recommended for clinical trials
according to the NCCN guidelines. The survival in these patients are known to be
much more dismal at 2-3 years and known to be present in 5-10% of newlydiagnosed patients and up to 40% in relapsed/refractory patients. Ibrutinib has
shown equally robust responses in these subset of patients and thus could represent
the early targetable population.
3.
Are the 2014 launch estimates for

ibrutinib too high?
December 20, 2013
2014 consensus estimates for ibrutinib is ~$230-240M. Based on our analysis of initial
script trends, historical comparative analysis to CML drugs and initial Gleevec
quarterly sales suggest that these estimates are very achievable. Our analysis
suggests only 10% and 5% penetration respectively into MCL and CLL incidence pools
could support sales of $240M+ due to the chronic therapy.
95
Exhibit 88: RBCs Imbruvica-APP predicts above consensus launch in 2014 based on early IMS data
Imbruvica Weekly Script APP - RBC
Your
RBC
Input
Base Case
Estimated Peak NRx
295
449
NRx Growth Rate after wk 8
0.3%
0.5%
NRx Growth Rate after CLL Approval
0.5%
1.0%
90%
93%
Estimated % Pts w/ Dosage Reduction (MCL)
14%
14%
Estimated % Pts w/ Dosage Reduction (CLL)
10%
10%
Imbruvica Treatment Cost (MCL)
$130,800
$130,800
Imbruvica Monthly Cost (MCL)
$10,900
$10,900
Imbruvica Treatment Cost (CLL)
$98,100
$98,100
Imbruvica Monthly Cost (CLL)
$8,175
$8,175
Gross To Net
8%
8%
IMS Capture Rate
85%
85%
600
500
400
300
200
100
0
Imbruvica (PCYC)
Q4:13
Q1:14
Q2:14
Q3:14
Q4:14
TRx
845
4,516
5,364
6,073
6,626
NRx
747
2,595
3,028
3,403
3,699
$9
$49
$54
$60
$63
$3
$5
$7
$5
$5
$12
$54
$61
$65
$68
$248
vs
Cons
$227
Total
partial Q
Imbruvica Revs for 2014 ($M)
350
300
250
200
Week Ending
PCYC/JNJ
Imbruvica
Imbruvica DELAY
DELAY
Week
TRx
NRx
% MCL
TRx
NRx
% MCL
11/15/13
100%
100%
11/22/13
66
66
95%
66
66
99%
11/29/13
68
68
90%
68
68
98%
12/6/13
104
104
85%
104
104
96%
12/13/13
154
150
85%
154
150
95%
12/20/13
204
170
85%
204
170
94%
12/27/13
240
180
85%
240
180
94%
1/3/14
267
190
85%
267
190
94%
1/10/14
305
191
85%
306
192
94%
1/17/14
10
333
193
85%
335
194
94%
1/24/14
11
346
194
85%
347
196
94%
1/31/14
12
354
196
85%
356
198
94%
2/7/14
13
357
197
85%
360
199
94%
2/14/14
14
357
198
85%
360
201
94%
2/21/14
15
358
199
85%
362
202
94%
2/28/14
16
359
200
85%
364
203
94%
3/7/14
17
364
204
80%
366
204
94%
3/14/14
18
368
207
75%
368
206
94%
3/21/14
19
372
211
71%
370
207
94%
3/28/14
20
376
214
68%
372
208
94%
150
100
50
0
1
Revs ($M)
Imbruvica Weekly Script APP - RBC
Source: IMS Health, RBC Capital Markets estimates
December 20, 2013
96
Exhibit 89: Comparison of Imbruvica 2014 estimates vs. historical Gleevec launch revenues
Comparison of Imbruvica (PCYC) Ests (2013-2014) to
Historical Gleevec US Revs (2001-2002)
$120
$100
Revs ($M)
$80
$60
$40
$20
$0
1st Q
2nd Q
3rd Q
4th Q
5th Q
Launch Quarter
PCYC Imbruvica Ests (2013-2014)

NVS Gleevec US Revs (2001-2012)
Exhibit 90: Table of ibrutinib Phase I and II data to date in multiple hematologic malignancies
Indication
Treatment Stage
Regimen
ORR
CR
R/R
Ibrutinib
75%
2%
Treatment-nave
Ibrutinib
71%
13%
CLL
R/R High-Risk
Ibrutinib + R
95%
8%
R/R
Ibrutinib + Ofa
100%
4%
R/R
Ibrutinib + BR
93%
13%
R/R
Ibrutinib
68%
21%
MCL
R/R
Ibrutinib + BR
100%
80%
Treatment-nave
Ibrutinib + R-CHOP
100%
80%
R/R
Ibrutinib
44%
19%
fNHL
R/R
Ibrutinib + BR
100%
50%
Treatment-nave
Ibrutinib + R-CHOP
100%
33%
R/R
Ibrutinib
23%
9%
R/R
Ibrutinib
41%*
17%*
DLBCL
R/R
Ibrutinib + BR
0%
0%
Treatment-nave
Ibrutinib + R-CHOP
100%
71%
WM
R/R
Ibrutinib
83%
0%
MZL
R/R
Ibrutinib + BR
100%
0%
MM
R/R
Ibrutinib + Dex
8%
0%
Highlited yellow indicate studies submitted for approval with FDA (MCL approved Nov '13)
Highlited pink indicate regimens currently being explored in pivotal trials for ibrutinib
*Indicate data from ABC-subtype of DLBCL
PR
73%
58%
87%
96%
80%
47%
20%
20%
25%
50%
67%
14%
24%*
0%
29%
83%
100%
8%
N eval
85
31
40
24
30
111
5
5
16
2
3
70
29*
4
7
35
1
13
# Prior Tx
4
0
2
3
2
3
3
0
3
3
0
3
3
3
0
2
3
4
Duration
74% PFS @ 26 mo
96% PFS @ 26 mo
95% PFS @ 7 mo
100% PFS @ 13 mo
90% PFS @ 11 mo
Median PFS 13.9 mo
Median PFS 13.4 mo
Median OS 9.8 mo*
91% PFS @ 6 mo
December 20, 2013
97
Exhibit 91: Detailed table of currently on-going trials for ibrutinib in various hematologic malignancies
Stage
Clinical Trial Detail
Comments
RESONATE: ibrutinib vs. ofatumumab in patients with R/R CLL
391
Q3:12
Q1:14E
Phase II
R/R
RESONATE-17: ibrutinib-mono in patients with R/R CLL with del17p
111
Q1:13
Q2:14E
-Primary endpt is ORR
272
Q4:12
Q2:15E
-Granted SPA, primary endpt is PFS
580
Q3:12
Q3:15E
- Primary endpt is PFS

- Key exclusion criteria is patients with del17p
because BR is weak in del17p
523
Q3:13
Q1:18E
-Primary endpt is PFS
HELIOS: bendamustine and rituximab + ibrutinib/placebo in R/R CLL
Phase III
NCI Study: Ibrutinib vs. Ibrutinib+R vs. BR in treatment-nave elderly CLL
Front-line
Phase II
R/R
SPARK: ibrutinib-mono in R/R MCL pts who progress after bortezomib therapy
110
Q3:12
Q1:14E
- Primary endpt is ORR at 6 montsh from the

completion of enrollment
Phase III
R/R
RAY: OUS study of ibrutinib vs. temsirolimus in R/R MCL patients
280
Q3:12
Q3:14E
- Primary endpt is PFS; study outside the US
Phase III
SHINE: ibrutinib/pbo + bendamustine and rituximab in newly diagnosed MCL
Front-line
520
Q1:13
Q1:18E
- Primary endpt is PFS
125
Q2:11
Q2:14E
- Reported 41% ORR in ABC-DLBCL vs 5% in GCBDLBCL at EHA2013

- Initiated new cohort in non-GCB DLBCL with
higher 840mg in July '13
Phase Ib/II Dose escalating study of ibrutinib+R-CHOP in patients with newly diagnosed
Front-line NHL
32
Q2:12
Q3:14E
- Reported 100% ORR. RP2D identified as 560mg

@ ASCO '13
- Expansion cohort at 560mg underway in newly
diagnosed DLBCL
Phase III
DBL3001: ibrutinib+R-CHOP vs. R-CHOP in newly diagnosed non-GCB DLBCL
Front-line
800
2H:13E
Phase II
R/R
DLBCL
Est. Trial
Completion
-Primary endpt is PFS with interim analysis at

50% of events
Phase III
R/R
MCL
Trial
Initiated
Phase III
R/R
Phase III
RESONATE-2: ibrutinib vs cholorambucil in newly diagnosed elderly CLL
Front-line
CLL
Enrollment
Ibrutinib-mono in in R/R activated B-cell (ABC) and germinal-cell B-cell (GCB)

DLBCL
-Primary endpt is improvement in event-free

survival
fNHL
Phase II
R/R
Ibrutinib-mono in subjects in follicular lymphoma pts who are chemoimmunoresistant and relapsed from 2 prior therapies, including at least 1 rituximab
110
Q1:13
Q3:16E
- Primary endpt is ORR
WM
Phase II
R/R
NCI Study: ibrutinib-mono in pts with R/R WM
63
Q2:12
Q2:14E
-Primary endpt is ORR
MM
Phase II
Ibrutinib-mono and in combination with dexamethasone in subjects with R/R

multiple myeloma
164
Q1:12
Q1:15E
-As of July 2013, enrolling at 560/840mg +/Dex, 840mg

- Update expected in 1H:14
Highlighted in yellow indicate pivotal trials

Source: Company reports, RBC Capital Markets Estimates, www.clinicaltrials.gov
Exhibit 92: Expected news flow for PCYC

Timing
Expected News Flow
Program
By Jan 2014
Interim analysis on Phase III RESONATE (Ibrutinib vs Ofa) in R/R CLL
Ibrutinib
Feb 28, 2014
Anticipated Ibrutinib PDUFA in R/R CLL
Ibrutinib
H1:14
Mid 2014
H2:14
Aug - Sep 2014
Results from SPARK: PII study of ibrutinib in patients with MCL who progress after
bortezomib therapy.
Update on PII study of ibrutinib in subjects with r/r multiple myeloma
*Key will be looking for responses at higher doses with or w/o dex
Ibrutinib
Ibrutinib
Results from RESONATE-17: PII study of ibrutinib in r/r CLL patients with del17p
Ibrutinib
Anticipated EU Ibrutinib approval in R/R MCL and R/R CLL
Ibrutinib
December 20, 2013
98
Exhibit 93: Pipeline table for PCYC

Product
Imbruvica
(previously ibrutinib, PCI-32765; Btk inhibitor)
Abexinostat
(PCI-24781; pan HDAC inhibitor)
PCI-27483
(Factor VIIa Inhibitor)
PCI-45292
(2nd gen. BTK inhibitor)
Stage
On Market
Phase III
Phase II
Indication(s)
MCL
CLL/SLL, MCL, iNHL, DLBCL
MM, fNHL
Partner(s)
Phase II
Lymphoma
Servier (ex-US)
Phase Ib/II
Pancreatic cancer
None
Preclinical
Autoimmune diseases
None
Janssen (J&J)
Exhibit 94: Table of Old vs New Estimates for PCYC

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
81.4
2012A
164.7
2013E
248.9
2014E
390.5
386.3
0.96
1.21
0.27
1.26
0.83
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
1.9
2.8
Q2
2.1
54.7
Q3
102.7
79.1
Q4
58.0
112.3
110.3
61.3
150.3
68.8
(0.73)
0.16
0.55
0.85
0.59
0.09
0.90
(0.62)
December 20, 2013
99
Exhibit 95: Income Statement for PCYC

Fi s ca l Yea r Ends Dec
BTK i nhi bi tor s a l es (US)
Profi t s pl i t (ex-US)
Li cens e a nd mi l es tone revenues
Total revenues
Cos t of goods
Sa l es , genera l & a dmi ni s tra tive
Rei mburs ement to JNJ (US profi t s pl i t)
Cos ts a s s oci a ted wi th JNJ (EU opera tions )
Operating Income
Interes t a nd other i ncome, net
Pretax Income (l os s )
Ta xes
Net Income (loss)
EPS-ba s i c (GAAP)
EPS-di l uted (GAAP)
Sha res outs tandi ng - ba s i c
Sha res outs tandi ng - di l uted
2012A
Dec-12
164.7
164.7
77.9
20.4
80.1
84.6
0.2
84.8
(3.0)
87.8
$1.26
$1.15
69.3
74.2
1Q:13A
Mar-13
2.8
2.8
35.8
20.0
55.8
(53.0)
0.1
(52.9)
(1.0)
(51.9)
($0.73)
($0.73)
70.9
75.9
2Q:13A
June-13
54.7
54.7
45.3
17.7
42.7
12.0
(0.0)
12.0
(0.3)
12.4
$0.17
$0.16
73.0
77.2
Q3:13A
Sep -13
79.1
79.1
45.1
26.1
25.7
53.4
0.1
53.6
11.2
42.3
$0.58
$0.55
73.3
77.7
Q4:13E
Dec -13
12.0
112.3
112.3
50.0
30.0
28.0
84.3
0.1
84.4
17.7
66.6
$0.91
$0.85
73.6
78.1
2013E
Dec-13
248.9
248.9
176.2
93.9
152.1
96.7
0.3
97.1
27.6
69.4
$0.92
$0.83
72.7
77.2
1Q:14E
Mar-14
50.0
60.3
110.3
6.0
55.0
35.0
(14.7)
51.3
58.9
0.1
59.0
12.4
46.6
$0.63
$0.59
73.9
78.4
2Q:14E
June-14
61.0
0.3
61.3
7.3
45.0
37.0
(13.7)
52.6
8.6
0.1
8.7
1.8
6.9
$0.09
$0.09
74.2
78.7
Q3:14E
Sep -14
65.0
85.3
150.3
7.8
40.0
34.0
(10.4)
60.4
89.8
0.1
89.9
18.9
71.1
$0.95
$0.90
74.5
79.0
Q4:14E
Dec -14
68.0
0.5
0.3
68.8
8.2
35.0
34.0
50.5
127.7
(58.9)
0.1
(58.8)
(12.3)
(46.5)
($0.62)
($0.62)
74.8
79.3
2014E
Dec-14
244.0
0.5
146.0
390.5
29.3
175.0
140.0
11.7
292.0
98.5
0.4
98.9
20.8
78.1
$1.06
$0.96
74.3
78.8
Valuation
Our $150 price target is based on a sum-of-the-parts DCF analysis of anticipated revenues in six
leukemia/lymphoma indications (CLL, MCL, DLBCL, fHNL, MM, and Waldenstroms), assuming
various probability of approval (95%, 100%, 25%, 36%, 0%, and 90%) and varying degrees of peak
penetration (540%) into front-line, relapsed/refractory, and prevalence pool (we define
prevalence as patients who were diagnosed in earlier years but chose to forgo treatment, or
previously had treatment but stopped and are not counted in the "front-line" vs.
"relapsed/refractory" patients currently undergoing treatment; we use this population to model
market expansion) in each of these indications. We arrive at probability-adjusted, worldwide peak
sales estimate of $6.5B+ WW for Ibrutinib in 2026, with $3B+ from the US. Our valuation assumes
12% COGS, SG&A normalizing to 714% of sales above $3B+, and low single digits of R&D once it
reaches the market. We use a terminal growth rate of -20% post patent expiration in 2026. We
apply a discount rate of 8% with 2013 as base year, yielding $145/share. We discount at 4% the
expected development/regulatory milestones of $400M expected in the next 45 years, which
yields $5/share. Our combined price target is $150/share.

Our price target is primarily dependent on the clinical success of PCYC's lead drug Ibrutinib across
multiple indications (CLL, MCL, DLBCL, fNHL, MM, and Waldenstroms), but especially in its ability
to gain substantial (2040%) market share in CLL, as well as expand the market (20%+) by
increasing the number of patients eligible/motivated to obtain treatment. Impediments to our
price target include: 1) longer-than-expected development time; 2) unexpected adverse events in
clinical trials; 3) reduced efficacy in pivotal trials; and 4) inability for Ibrutinib to catalyze a
paradigm shift from chemoimmunotherapy to oral therapy, which is needed to achieve modeled
penetration into the three (front-line, relapsed/refractory, and prevalence) pools.
December 20, 2013
100
Prothena Corporation (PRTA)

Exhibit 96: Prothena Corporation

Our 38 price target is a sum-of-the-parts analysis of probabilityadjusted value of three pipeline indications. 1) We assign a 30%
and 10% probability for lead program in AL and AA amyloidosis,
respectively, to become a $1B indication. We discount riskadjusted peak sales of ~$330MM in 2026+ at 10% and terminal
growth rate of -20% yielding $23/share. 2) We assume 5%
probability of success for PRX-002's potential in Parkinson's,
worth $8/share and 3) $20M EV to account for
platform/technology value for MCAM (inflammation, Phase I in
2015), worth $1/share. 4) We also include $6/share cash
Investment summary
We rate Prothena Outperform, Speculative Risk because this is
an early-stage, off-the-radar therapeutics company with biologic
assets in three indications of high unmet need: amyloidosis,
neurodegenerative diseases (Parkinson's, multiple system
atrophy), and inflammation. While very little clinical data is
available to date, we expect POC Phase I data coming in 1H:14
for NEOD001 in amyloidosis could potentially show the drug is
active and de-risk the asset. Consistent with how investors
analyze and value orphan drug programs, this could lead to
significant relative value creation, especially for small cap
biotech stocks. Our positive view on the asset is predicated on
good scientific rationale, defendable mechanism of action, and
the overall high success rates of antibodies in the targeting and
clearing of proteins, which is believed to be the direct culprit in
amyloidosis. Separately, PRTA is also moving a second pipeline
drug (in collaboration with Roche) into the clinic, PRX002, a
novel antibody for Parkinsons disease. Lastly, we believe the
stock's valuation is attractive, especially compared to other
orphan drug biotech comparables that trade at 3-5x higher
enterprise value.
Upside scenario
Our $47 upside scenario represents higher assumed probability
of success for the AL amyloidosis indication (40%) which adds
$7/share. We also assume 7% prob. of success for PRX-002 in
Parkinson's. We continue to assume $20M EV for
platform/technology value for MCAM ($1/share) and $6/share in
cash (90% of assumed YE:14 cash).
Downside scenario
Our $20 downside scenario represents extremely conservative
assumptions on probability of success (15%) for the lead, AL
amyloidosis
indications.
Biologics
have
consistently
demonstrated higher (~20%) probability of eventuality to
market. We assume 3% probability of success of PRX-002 for
Parkinson's ($5/share).
December 20, 2013
Failure for NEOD001 to generate POC data that warrants

advancement to Phase II. Our thesis of value creation is
dependent on the generation of consistent, dosedependent changes in biomarkers to indicate biologic
activity and potential for organ benefit in the next 6-9
months. Underwhelming response will decrease the
program's potential and necessitates lowering of the
program's assigned probability of success.
Inability for NEOD001 to demonstrate organ function
benefit. As NEOD001 advances, differentiation versus
currently available treatments is crucial in validating that its
"faucet shutting/plug draining" dual mechanism confers an
overall survival benefit for patients compared to
chemotherapy or proteasome inhibitors. The lack of
differentiation would reduce commercial potential much
and our peak sales estimate of $500MM$1B (riskadjusted as $300MM currently) would be unachievable.
Emergence of serious safety signal that precludes
continued development. The development of serious
cardiac or renal toxicities, or very high immunogencity rates
that results in generation of neutralizing autoantibodies,
could preclude the development of NEOD001. Even though
amyloidosis is a dire disease, treatments will need to
demonstrate good enough safety, tolerability and sustained
efficacy to enable chronic dosing.
101
Key questions / debates for PRTA

1.
Why would anyone use NEOD001

when chemo or MM drugs such as
Velcade already work in AL
amyloidosis?
It is true that select regimens such as melphalan+dex or Velcade currently work in

AL amyloidosis but they are not great and have lots of room for improvement. These
current regimens have shown robust hematologic responses but mortality rates
remain high as the organ response rates are not as deep and come too slow.
NEOD001 directly targets the amyloid deposits accumulated in organs, which could
potentially lead to earlier and deeper organ response rates. This could lead to
improved survival outcomes for AL amyloidosis patients, whom still face dismal
outcomes with median survival of ~3 years.
2.
What gives you confidence NEOD001

will work without any clinical data?
Isnt the damage to the organs already
done?
In AL amyloidosis, the proof in the cause of the poor outcomes is very concrete. Misfolded light chains accumulate and infiltrate key organ walls, most importantly the
heart. From biopsy and image analysis, it has been shown that this gradually
thickens the wall of the cardiac muscle, making it harder and harder to carry out its
normal function. This leads to complications such as heart failure and/or arrhythmia,
which are the primary cause of death in virtually all patients with AL amyloidosis.
By targeting the deposits directly and mediating their removal, we believe this has
the potential to reverse the damage and lead to improved outcomes. Mouse studies
validate this theory as AA/AL amyloidosis induced mice treated with murine model
of NEOD001 lived longer and showed reduced disease burden compared to
comparator arms.
3.
Where are the AL amyloidosis patients

treated and by whom?
AL amyloidosis is a rare disease and due to its complexity of disease and lack of
familiarity by many physicians, management of these patients is carried out at a
select few centers of excellence in the country (in the US, BU, Mayo, Stanford,
etc.). They are usually taken care of by a coordinated team of physicians consisting
of cardiologists, oncologists and hematologists.
4.
In NEOD001s on-going Phase I, what

are we looking for and what will be
considered good data?
NEOD001s currently on-going Phase I is a standard 3+3 dose escalation study to

determine the safety and maximum-tolerated-dose (MTD) for the drug. However
exploratory and functional endpoints such as hematologic response and NT-proBNP
will also be measured. Any hematologic or organ response and improvements in
cardiac and kidney biomarkers such as NT-proBNP and creatinine clearance would
show the drug is active.
5.
What gives you confidence NEOD001

will lead to survival in AL amyloidosis
patients?
Although everything is a speculation without actual clinical proof, our analysis of

NEOD001s MOA, pre-clinical data and various literatures and as laid out above,
suggest that it has a good chance of showing organ response or improvement in
cardiac biomarkers in Phase I. If this plays out, we believe there is convincing
analysis done by KOLs that suggests hematologic response and cardiac biomarker
response leads to statistically significant survival based on retrospective analysis of
AL amyloidosis patients treated between 1995 and 2010. Survival benefit will likely
have to wait until Phase II/III to be determined.
December 20, 2013
102
Hematologic and organ responses are likely to provide a crucial early look into the potential
survival benefit of the drug. Unlike in cancer where the correlation between survival and
treatment response rates is unclear, in AL amyloidosis response to therapy has become a strong
prognostic marker of extended survival. The efficacy of treatment for AL amyloidosis is measured
in two ways (Exhibit 97):
1)
2)
hematologic response: measures the reduction in the burden of the underlying clonal plasma
cell disease
organ response: measures the improvement in the organ function by looking for parameters
such as decrease in NT-proBNP (indication of reduction in cardiac damage) or decrease in
urinary protein excretion (improvement in kidney function).
Improvement in cardiac biomarkers could provide key POC in early stages of development. It is
well understood that cardiac involvement is a major prognostic factor because heart failure and
fatal arrhythmias are the primary cause of death in virtually all patients with AL amyloidosis.
Cardiac biomarkers such as troponins provide a quantitative assessment of cardiac damage and Nterminal pro-B-type natriuretic peptide (NT-proBNP) indicate cardiomyocyte stress. In a
retrospective analysis of 377 patients with AL amyloidosis, NT-proBNP response at six months was
significantly associated with survival (Exhibit 97). Therefore, if NEOD001 achieves in
demonstrating improvement in these two biomarkers (drop in NT-proBNP and increase in
troponin) in Phase I, we believe this will provide a strong POC for the drugs potential efficacy in
treating AL amyloidosis patients.
Exhibit 97: Response in NT-pro-BNP after chemotherapy leads to significant improvement in
survival in AL amyloidosis
Source: G. Palladini et al, ASH 2010
After confirming safety and proof of efficacy from Phase I, we believe Phase II/pivotal trial could
begin earlier than expectations in H1:14. As can be seen from a close comparable precedent,
Takeda initiated a Phase III trial of its oral proteosome inhibitor, MLN9708, in relapsed/refractory
AL amyloidosis in October 2012, before reporting the results from its Phase I portion at ASH in
December 2012. What is most interesting with this example is how Takeda was able to proceed
straight to a pivotal Phase III trial after only conducting one Phase I dose-escalating trial. We
December 20, 2013
103
believe Prothena will be able to follow a similarly rapid path given the unmet medical need of the
target population and the comparable design of the Phase I studies.
Exhibit 98: Expected news flow for PRTA
Time
YE:13 - 1H:14
1H:14
May 2014
Expected News Flow

Initiate expansion Phase I cohort of NEOD001 at maximum tolerated dose (MTD)/
recommended Phase II dose (RP2D)
Program
NEOD001
Report topline/interm results from Phase I trial of NEOD001 in AL amyloidosis

(abstract submission deadline Feb 2014)
NEOD001
Present detailed results from Phase I trial of NEOD001 in AL amyloidosis

-Likely at International Symposia on Amyloidosis (May 14)
NEOD001
Mid-14
File IND and initiate Phase I trial of PRX002 in Parkinson's disease
2H:14
Initiate Phase II/potentially pivotal trial of NEOD001 in AL amyloidosis
PRX002 (NEOD002)
2015
File IND and initiate Phase I trial of MCAM in oncology or inflammatory disease
NEOD001
PRX003 (MCAM)
Exhibit 99: Pipeline table for PRTA

Drug
Clinical Stage Assets
NEOD001
Pre-clinical Programs
PRX002 (NEOD002)
PRX003 (MCAM)
Discovery
Indication
Stage
Trial Start
Trial End
AL amyloidosis
AA amyloidosis
Phase I
Pre-clinical
Apr-13
Mid-14E
Parkinson's disease
Inflammatory disease
Metastatic cancer
Alzheimer's disease
Type-2 diabetes
Pre-clinical
Pre-clinical
Pre-clinical
Discovery
Discovery
Mid-14E
1H:15E
December 20, 2013
104
Exhibit 100: Income Statement for PRTA

FYA
2012A

Revenues:
Revenues from related party
NEOD001
Total revenue
Operating expenses:
Cost of sales
General and Administrative
Income (loss) from operations
Other income (expense):
Interest income
Total other income/expenses
Income Tax
Net income
EPS (basic)
EPS (diluted)
Shares outstanding:
Basic
Diluted
1QA
Mar-13
2QA
Jun-13
3QE
Sep-13
4QE
Dec-13
FYE
2013E
FYE
2014E
FYE
2015E
FYE
2016E
2.7
2.7
34.1
9.9
44.1
(41.4)
-
0.2
0.2
6.0
3.2
9.1
(9.0)
-
0.2
0.2
8.1
3.2
11.4
(11.2)
-
0.2
0.2
6.3
3.4
9.7
(9.6)
-
0.2
0.2
8.0
3.5
11.5
(11.3)
-
0.7
0.7
28.5
13.3
41.7
(41.1)
-
0.7
0.7
47.0
15.3
62.3
(61.6)
-
0.8
0.8
68.7
19.9
88.6
(87.8)
-
0.9
23.6
24.5
72.2
21.8
94.0
(69.5)
-
0.0
0.0
-
0.0
0.0
-
0.0
0.0
-
0.0
0.0
-
0.0
0.0
-
0.1
0.1
-
0.1
0.1
-
0.1
0.1
-
0.1
0.1
-
0.0
(41.4)
0.0
(9.0)
0.1
(11.3)
0.1
(9.7)
0.0
(11.3)
0.3
(41.3)
0.3
(61.8)
0.3
(88.0)
0.3
(69.7)
(2.84)
(2.84)
(0.51)
(0.51)
(0.64)
(0.64)
(0.55)
(0.55)
(0.57)
(0.57)
(2.26)
(2.26)
(2.99)
(2.99)
(3.65)
(3.65)
(2.63)
(2.63)
14.6
15.6
17.7
19.2
17.7
19.7
17.7
19.7
19.9
22.7
18.2
20.3
20.7
23.7
24.1
25.6
26.5
29.9
Valuation
Our $38 price target is a sum-of-the-parts analysis of probability-adjusted value of three pipeline
indications. 1) We assign a 28% and 10% probability for lead program in AL and AA amyloidosis,
respectively, to become a $1B+ indication. We discount risk-adjusted peak sales of ~$330MM in
2026+ at 10% and terminal growth rate of -20% (slower erosion for a biologic) yielding $23/share.
2) We assume 5% probability of success for PRX-002's potential in Parkinson's, worth $8/share
post Roche partnership (from $2/share) and 3) $20M EV to account for platform/technology value
for MCAM (inflammation, Phase I in 2015), worth $1/share. 4) We also include $6/share cash.
December 20, 2013
Failure for NEOD001 to generate POC data that warrants advancement to Phase II. Our thesis
of value creation is dependent upon the generation of consistent, dose-dependent changes in
biomarkers to indicate biologic activity and potential for organ benefit in the next 6-9
months. Underwhelming response will further decrease the program's potential and
necessitates lowering of the program's assigned probability of success. Conversely, positive
data will meaningfully de-risk the data and likely increase institutional investor interest in this
biologic asset for an unmet indication.
Failure for PRX-002 to advantage to Phase II, as $8/share of our price target is based on
nominal 5% probability of ultimate success that the program will gain clinical, regulatory and
commercial success in becoming a $5B drug.
105
United Therapeutics (UTHR)

Sector Perform

Exhibit 101: United Therapeutics

We derive our $68 price target based on a 16x forward P/E of
fully taxed GAAP 2015E EPS, discounted back at 10%. We use
2015E because it assumes a normalized trajectory for highergrowth products Tyvaso and AdCirca. Our DCF assumes a blend
of 2 scenarios: IP weakening post 2017 (55% probability) with
negative growth of 15%, and IP extending till 2023 (45%
probability) with low double digit growth, and -50% terminal
growth rate.
Investment summary
We rate UTHR Sector Perform due to our assessment of: 1)
uncertainty of patent litigation with Sandoz and 2) increasing
competitive risks in PAH with recent new approvals from Bayer
and Actelion. UTHR's entire business is on providing PAH
therapies to patients in various stages of the disease, and new
oral therapies could compete for market share, potentially
delaying patient initiation on later stage therapies (Tyvaso,
Remodulin). While we believe UTHR's products, Tyvaso and
AdCirca, will continue to ramp, the lack of near-term catalysts
also makes stock outperformance difficult in our view. In
addition, despite a currently growing and seemingly stable
multiple product PAH franchise, the risk of genericization
remains a headwind beginning potentially as early as late 2014.
UTHR is currently in litigation with challenger Sandoz, and an
unfavorable outcome could negatively affect UTHR's ability to
maintain IP protection of its products till 2023 (which many
Street models assume). Our price target values the current
business assuming double-digit revenue growth in the near term
and assumes lower, single-digit growth from 2017 onwards,
with probability-adjusted revenues for potential generic
entrants between 2017-2023.
Upside scenario
Our upside scenario of $89/share assumes a 21x forward P/E of
fully taxed GAAP 2015E EPS, discounted back at 10%. Our DCF
analysis assumes 100% probability that the Remodulin IP is
protected until 2023, and assumes a more optimistic forward
topline growth rate of 15% post 2016.
Downside scenario
Our downside scenario of $50/share assumes an 12x forward
P/E of fully taxed GAAP 2015E EPS, discounted back at 10%. Our
DCF analysis assumes 100% probability that the Remodulin IP
expires in 2017, with negative growth of 5% annually thereafter
with generic entrants.
December 20, 2013
Settlement of Remodulin patent case vs. Sandoz: The

potential generic entry, possibly as early as late 2014 is a
large overhang on UTHR stock. Depending on when the
Remodulin patent expiries, it could be 15% to our PT.
Positive pipeline updates: With oral Remodulin being
rejected by the FDA, UTHR is focusing its efforts on other
Remodulin lifecycle management modalities, such as its
implantable pump partnered with Medtronic and selfinjectable formulations partnered with Ascendis. Any
positive updates on this front could provide further IP
protection and modest stock upside.
Remodulin expansion into Asia: UTHR has partnered rights
to Remodulin in Japan and China. Approvals for both
countries are expected to come in 2014.. Japan already has
a well established PAH market with Flolan and entry into
these markets would provide incremental sales growth
depending on reimbursement.
Early generic Remodulin entry: Our core thesis depends on

the sustained growth of its Remodulin franchise beyond
2017. However, with Sandoz challenging the IP, generics
could enter as early as late 2014 if UTHR fails to protect its
IP.
106
Exhibit 102: Scenario analysis yields $56-70/share as reasonable valuation range for UTHR
Exhibit 103: Expected news flow for UTHR

Timing
Expected News Flow
Program
YE:13 - 1H:14
Safety results from Remodulin Implantable Pump Study
Remodulin Implantable
YE:13 - 1H:14
Potential MAA approval of competitor Opsumit (macitentan) In Europe
Feb 16, 2014
PDUFA day for oral-Remodulin refiling
Oarl Remodulin
Mid 2014
Actelion's interim analysis on efficacy of selexipag
Selexipag (ATLN)
Jun 2015
End of 30-month stay with Sandoz
Mid 2016
Phase III results of FREEDOM-EV
Macitentan (ATLN)
December 20, 2013
107
Exhibit 104: Pipeline table for UTHR

Product Pipeline
Indication
Stage
Partner
Remodulin
Pulmonary arterial hypertension
Commercial
Tyvaso
Commercial
NEBU-TEC
Adcirca (tadalafil) Tablets
Commercial
Lilly
CardioPAL SAVI and Decipher

Cardiac Event Monitors
Cardiac arrhythmias and ischemic heart disease
Commercial
ch14.18
Neuroblastoma
Phase III
NCI
Remodulin Implantable Pump
Phase III
Medtronic
8H9 MAb
Metastatic brain cancer
Phase I
Memorial-Sloan
Glycobiology Antiviral Agents
Hepatitis C and other infectious diseases
Pre-Clinical
Oxford University
PLX cells
Pre-Clinical
Pluristem
Self-injectable Remodulin
Pre-Clinical
Ascendis
Exhibit 105: Table of Old vs New Estimates for UTHR

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
746.3
2012A
916.1
2013E
1109.2
2014E
1164.3
1167.4
6.18
6.08
3.60
5.67
5.29
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
204.2
245.1
Q2
225.6
280.6
Q3
242.5
302.2
Q4
243.8
281.3
275.2
296.7
309.4
283.0
1.19
1.52
1.17
1.40
1.43
1.59
1.65
1.49
December 20, 2013
108
Exhibit 106: Income Statement for UTHR

($ in MM; except per share)
2012A
Q1:13A
Q2:13A
Q3:13A
Q4:13E
2013E
Q1:14E
Q2:14E
Q3:14E
Q4:14E
2014E
2015E
Remodulin
458.0
114.7
124.3
132.3
119.0
490.3
116.6
122.5
126.1
107.2
472.4
425.2
Tyvaso
325.6
94.6
109.5
120.3
114.0
438.4
115.1
124.4
131.8
123.9
495.2
398.4
AdCirca
122.5
33.8
43.7
47.4
48.0
172.9
43.2
49.7
51.2
51.7
195.7
213.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
10.0
2.0
3.1
2.2
0.3
7.6
0.3
0.3
0.3
0.3
1.0
Revenues:
Telemedicine services and products

Other
Total Revenue
916.1
245.1
280.6
302.2
281.3
1,109.2
275.2
296.7
309.4
283.0
1,164.3
1.0
$
1,037.9
173.4
50.4
54.6
72.7
56.3
234.0
55.0
59.3
61.9
56.6
232.9
207.6
201.7
71.4
71.4
94.1
75.9
312.8
77.1
83.1
86.6
79.3
326.0
290.6
Cost of product sales
119.3
29.3
32.3
30.7
39.4
131.7
33.0
35.6
37.1
34.0
139.7
124.5
Cost of service sales
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
494.4
151.1
158.3
197.6
171.6
678.5
165.1
178.0
185.6
169.8
698.6
622.7
421.6
94.0
122.3
104.6
109.7
430.7
110.1
118.7
123.7
113.2
465.7
415.1
Total other (expense) income, net
(12.6)
(11.6)
Income before income tax
440.7
19.0
90.8
(3.2)
118.5
(3.8)
101.2
(3.5)
106.4
(3.2)
417.0
(13.7)
106.9
(3.1)
115.6
(3.1)
120.6
(3.1)
110.1
(3.1)
453.2
403.6
Income tax benefit (expense)
(136.2)
(28.5)
(38.7)
(38.5)
(36.2)
(141.9)
(36.4)
(39.3)
(41.0)
(37.4)
(154.1)
(137.2)
Net income
304.4
62.3
79.9
62.7
70.3
275.1
70.6
76.3
79.6
72.7
299.1
266.4
GAAP Basic EPS
5.84
1.24
1.60
1.25
1.45
5.57
1.48
1.65
1.71
1.55
6.41
5.66
GAAP Diluted EPS
5.67
1.19
1.52
1.17
1.40
5.29
1.43
1.59
1.65
1.49
6.18
5.37
Non-GAAP Diluted EPS
9.38
2.65
3.11
2.78
1.40
9.86
1.57
1.74
1.79
1.64
6.76
8.59
Shares Outstanding
Basic
52.1
50.2
49.8
50.0
48.4
49.4
47.8
46.2
46.6
46.9
46.7
47.0
Diluted
53.7
52.4
52.6
53.7
50.1
52.0
49.5
47.9
48.3
48.6
48.4
49.6
Valuation
We derive our $68 price target based on a 16x forward P/E of fully taxed GAAP 2015E EPS,
discounted back at 10%. We use 16x (up from 14x) due to the recent move up in the biotech
sector where the median multiple for peer comparable mid-large cap biotechs has increased to
16x 15E EPS. We use 2015E because it assumes a normalized trajectory for higher-growth
products Tyvaso and AdCirca. Our DCF assumes a blend of 2 scenarios: IP weakening post 2017
(55% probability) with negative growth of 15%, and IP extending till 2023 (45% probability) with
high single digits growth, and -50% terminal growth rate.

Our price target is primarily dependent on the prospects of UTHR's key franchises. Specifically, we
expect Tyvaso and AdCirca to continue to grow based on market share gains. If those franchises
fail to grow as expected, achievement of our price target would be impeded.
December 20, 2013
109
Vertex Pharmaceuticals (VRTX)

Outperform

Exhibit 107: Vertex Pharmaceuticals
Investment summary
Our positive view of VRTX is based on confidence in its leadership
in discovery/development of Cystic Fibrosis therapies
(combinations of correctors + potentiators) for F508del
homozygous and heterozygous patients, which would expand its
addressable market from 4% to 80% of affected patients. Despite
the recent pull back due to investor uncertainty on upcoming
Kalydeco R117H Phase III data and HCV nuke still on US hold, all
these are fairly short-term and has kept stock range-bound. At the
end of the day, this is likely a 2014 story with a significant binary
event coming up, which we think will be positive and unlock 10x
more revenues to $4B+ CF from $400M today. We believe this is
attractive risk-adjusted upside. We believe the stock is likely to g
upward momentum, as we believe clinical and regulatory success
will enable VRTX's leadership position in a very significant market
opportunity ($910B WW peak sales, 60K patients WW, pricing of
$150200K per patient), which could propel very strong revenue
growth for the next decade.


Our base case of $95/share is an SOTP analysis of VRTXs HCV
($10/share) and cystic fibrosis franchises ($75/share), as well as
its earlier epilepsy/RA pipeline ($2/share), NOLs ($4/share), and
net cash ($3/share). For CF, we value Kalydeco in G551D and
other gating mutations as potential $1.5B peak sales, VX809/Kalydeco combo in F508del homozygous as potential $6B+
peak sales, and in F508del heterozygous as potential $2.5B+
peak sales.
Upside scenario
Our upside scenario of $120 assumes similar valuation to our

base case but incorporates 90% probability of CF combo success
in F508del homozygous patients ($64/share) and 70% probability
of success in F508del heterozygous patients ($15/share). Success
in its all-oral HCV program could potentially add $10/share in
additional upside.
Downside scenario
Our downside scenario of $52 assumes negative Phase III
readout for CF combo in F508del homozygous patients, which
removes 80% of the optionality value ascribed in our price
target. We retain $13/share of residual value as VRTX has followon corrector and potentiator compounds that it could advance
to Phase III for more chances for success. Additionally by 2014,
we believe VX-135 will likely have a positive "go" decision for
Phase III in HCV, and we ascribe $7/share.
December 20, 2013
Expansion of Kalydeco label: The current label for Kalydeco

is only indicated for CF adults with G551D mutation (3-4%
of CF population). Given the penetration into this
population is already near the peak, the near-term sales
growth is expected to come from other studies (non-G551D
gating, R117H, residual CFTR) that can expand the label to
10-15% of CF patients
Strong VX-135+Dac HCV data and lifting of clinical hold:
VX-135 is one of the rare HCV nucs in development. Data
from Phase II study of VX-135+Dac (BMY) is expected to
read out early 2014. If the SVR data is 90%+ and
comparable to prior GILDs Sofosbuvir data, this could reattract investor attention to VRTXs HCV franchise.
Positive Phase III CF combo data: Biggest binary catalyst
for VRTX in 2014 are the results from the two Phase III trials
of VX-809+Kalydeco in F508del-homozygous CF pts. If this
succeeds, it could become the first disease-modifying
therapy for 50% of CF patients and unlock $4B+ of
additional CF revenue potential.
Mixed or negative Phase III CF combo data: Kalydeco was

approved for G551D patients based on impressive 16%
relative benefit on FEV1 and improvement in sweat
chloride transport. The VX-809+Kalydeco combo Phase II
showed positive yet more modest improvement in FEV1
and no improvement in sweat chloride. Therefore if the
outcome of the two Phase III trials are mixed or negative,
this puts approval in F508del at risk and current valuation
as unsustainable.
110
Key questions / debates for VRTX

1.
What does the Phase III VX-809 +

Kalydeco combo in F508del CF need
to show for it to be positive?
The two (N=500 each) Phase III trials (TRAFFIC, TRANSPORT) are powered to
show a 5% relative benefit (vs. placebo) in ppFEV1 at 24 weeks. Feedback from
doctors suggest 5% relative benefit is clinically significant in these patients. In Phase
II trials, at the two dosing regimens (600mg QID, 400mg BID) being explored in
Phase III, it showed a ~9% relative benefit in ppFEV1 after 28-days of combo
therapy. As comparison, Kalydeco (in G551D) showed a ~8% relative benefit in
ppFEV1 in Phase II and then later produced a ~16% relative benefit in a larger and
longer Phase III trial.
2.
What are the pricing expectations for

VX-809 + Kalydeco combo if it is
succeeds and is approved for the larger
F508del CF population?
In our view, pricing could be closer to $250-300k vs. buyside/sellside consensus of

$200k, providing 25-50% CF upside from pricing alone. Bear case on pricing is US will
need to come down to $200k or lower and the uber-bears think EU could be PAH
and IPF-like pricing at $60-150k. Based on our discussions with the company, we
think management might surprise Street and have US pricing at $300k like Kalydeco
if: VX-809 combo comes in high-single-digit FEV1 benefit but concomitant with
hitting on key secondary endpoints like: 1) reduction in exacerbations; and 2) weight
gain. This is what Kalydeco also showed, which supports $300k because it suggests
potential disease modification. Also, theoretically, management believes it would be
selling underlying same Kalydeco (actually at an even higher dose and more drug
than current approved dose) and then adding a second drug (809). Thus we could
see $250-300k price which would be upside to current consensus $200k.
Positive Phase II VX-661 data greatly validates combo (corrector + potentiator) approach and
de-risks Phase III data next year. The relative change with VX-661 100mg + ivacaftor 150mg
combo is 9.0% (absolute improvement of 4.8%), comparable to the day 28-56 relative VX-809
change of 8.8-12.8% with 400mg BID and 600mg QD(absolute improvements around 6.6-8.6%).
This is because while VX-661 has better tissue penetration and the benefit of no DDI with
Kalydeco, it is not necessary more potent so it makes sense for data sets to be similar. The two
data sets strongly validate the corrector + potentiator approach, and de-risks Phase III in our view.
In addition, there were no new safety signals in this trial, with adverse events similar between
treatment and placebo groups.
December 20, 2013
111
Exhibit 108: Table of outcomes from VX-809/661+Kalydeco Phase II in F508del-homozygous CF

Absolute
N
(vs. placebo)
Combination Therapy Segment
VX-809 + ivacaftor (250mg) - Day 28 - 56
600mg QD (VX-809)
21
8.6
400mg BID (VX-809)*
11
6.6*
VX-661 + ivacaftor (150mg) - Day 0 - 28
100mg QD (VX-661)
15
4.8
150mg QD (VX-661)
16
4.5
Relative
(vs. placebo)
12.8
8.8*
9.0
7.5
Monotherapy Segment
VX-809 mono Day 0 - 28
600mg QD (VX-809)
400mg BID (VX-809)*
VX-661 mono Day 0 - 28
100mg QD (VX-661)**
150mg QD (VX-661)**
21
11
-1.97
-4.33*
-3.92
-6.32*
8
9
1.9**
2.7**
3.1**
4.2**
* 400mg BID was not powered with the intent to provide statistically significant comparisons within group or to placebo
** Not statistically significant
Exhibit 109: Comparison of the absolute and relative ppFEV1 benefit reported in Phase II for VX809/661+Kalydeco in F508del-homozygous CF
Mean Change in ppFEV1 from 28 Days of Combo Therapy
14.0
% change in ppFEV1
12.0
10.0
8.0
6.0
5%
4.0
2.0
0.0
600mg QD (VX-809)
400mg BID (VX-809)*
100mg QD (VX-661)
150mg QD (VX-661)
Regimen (+ ivacaftor)
Absolute (vs. placebo)
Relative (vs. placebo)
* 400mg VX-809 was not powered with the intent to provide statistically significant comparisons within group or to placebo
December 20, 2013
112
Exhibit 110: RBCs valuation APP for VRTXs CF franchise yields probability-adjusted $75/share
VRTX CF INTERACTIVE MODEL---> You can change the assumptions in blue in the Box here.
Probability (Other Gating Mutations)
Probability (F508del homozygous)
Probability (F508del heterozyous)
Ph3 start
100%
100%
75%
Approval
50%
75%
60%
Market
Rev. Estimate for Gating Mutations ($M)

Rev. Estimate for F508del homo ($M)
Rev. Estimate for F508del Hetero ($M)
Peak Sales US ($M)

Peak Sales WW ($M)
$
1,109
$ 1,659
$
3,687
$ 5,882
$
1,042
$ 2,413
50%
75%
45%
$/share (Prob. Adjusted)
$11
$53
$10
Total $/share (prob. Adjusted value)

US Market
All Gating Mutations - Kalydeco only
Prevalence
Growth Rate
CF Combo Market Share (%)
Annual price growth (%)
Net Price of Kalydeco in US ($)/ yr
F508del - homozygous
Prevalence
Growth Rate
F508del - heterozygous
Prevalence
Growth Rate
6000
3%
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
6180
6365
6556
6753
6956
7164
7379
7601
7829
8063
8305
8555
8811
9076
9348
20%
2%
23%
-12%
28%
2%
35%
2%
40%
2%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
45%
1%
15480
15975
16455
16948
17457
17980
18520
19075
19648
20237
20844
21470
22114
22777
23460
6%
2%
26%
2%
45%
-13%
55%
2%
63%
2%
65%
2%
65%
2%
65%
2%
65%
2%
65%
2%
65%
2%
65%
2%
65%
2%
65%
2%
9548
9835
10130
10433
10746
11069
11401
11743
12095
12458
12832
13217
13613
14022
8%
2%
16%
2%
22%
2%
25%
2%
28%
2%
30%
2%
30%
2%
30%
2%
30%
2%
30%
2%
30%
2%
30%
2%
$ 257,000
15000
3%
$ 225,000
9000
3%
9270
$ 195,000

TOTAL WW REVENUE ($M)
Total REVENUE - Other Gating Mutations ($M)

Total REVENUE - F508del homozygous ($M)
Total REVENUE - F508del heterozygous ($M)
NPV/Share (in $) for VRTX
$75
$116
$
$
$
298 $
90 $
388 $
544 $ 1,376 $ 2,467 $ 3,271 $

227 $ 756 $ 1,308 $ 1,818 $
771 $ 2,132 $ 3,775 $ 5,089 $
4,006 $
2,314 $
6,320 $
4,362 $
2,626 $
6,988 $
4,650 $
3,369 $
8,019 $
4,854 $
3,854 $
8,708 $
5,006 $
4,364 $
9,370 $
5,162 $
4,495 $
9,657 $
5,323 $ 5,490 $
4,630 $ 4,769 $
9,954 $ 10,259 $
5,661 $
3,062 $
8,724 $
5,838
1,678
7,516
$
$
$
388 $
$
$
587 $ 797 $ 1,031 $ 1,210 $

184 $ 1,335 $ 2,480 $ 3,251 $
$
$
264 $ 627 $
1,383 $
4,027 $
910 $
1,422 $
4,445 $
1,121 $
1,474 $
4,829 $
1,717 $
1,518 $
5,172 $
2,017 $
1,564 $
5,532 $
2,274 $
1,610 $
5,704 $
2,343 $
1,659 $
5,882 $
2,413 $
1,467 $
5,360 $
1,896 $
1,411
4,608
1,498
NPV/Share (in $) for VRTX (prob. Adjusted)
1,709 $
6,065 $
2,485 $
$75
December 20, 2013
113
Exhibit 111: Expected news flow for VRTX

Timing
Expected News Flow
Program
Cystic Fibrosis (Kalydeco) - Indication Expansion

Q1:14
Potential filing on R117H gating mutation on patients aged 18 and older

(2-3%, or 1100 patients)
Kalydeco
Q2:14
Phase III data on pediatric (2-5yrs) CF pts with a CFTR gating mutation
(1%, or 300 patients)
Kalydeco
Q2:14
Phase II data on CF patients who have residual CFTR function (N-of-1 study)
(9%, 3000 patients)
Kalydeco
'Mar 27, 2014
PDUFA for sNDA - patients w/ 1 non-G551D gating mutation age 6 and older
(1% or 400 patients)
Kalydeco
Cystic Fibrosis (Kalydeco, VX-809) - Combo

Mid 2014
Exploratory Phase II (8 wks) results evaluating VX-809/Kalydeco (400mg BID and

250mg BID) in heterozyous adult patients w/ 1 F508del and 2nd mutation
Kalydeco/VX-809
Mid 2014
Phase III results (TRAFFIC & TRANSPORT) evaluating VX-809/Kalydeco (600mg QD

and 400mg BID) in homozygous F508del (24 wks)
Kalydeco/VX-809
Early 2015
Phase III results evaluating VX-809/Kalydeco (600mg QD and 400mg BID) in

homozygous F508del paediatric patients age 6 - 11
Kalydeco/VX-809
Cystic Fibrosis (Kalydeco,VX-661) - Combo

Q1:14
Phase II (n= 20) results evaluating Kalydeco/VX-661 in patients w/ 1 copy of

G551D and 1 copy of F508del (4 wks)
Kalydeco/VX-661
YE:14/early 2015
Phase IIb results evaluating VX-661/Kalydeco in homozygous F508del adult

patients (12 wks)
Kalydeco/VX-661
Cystic Fibrosis (Kalydeco, VX-809, additional corrector) - Triple Combo

YE:14
Advance triple combo (Kalydeco/VX-661 or VX983 + 2nd gen corrector (currently

preclinical) to Phase II
Kalydeco + 2 correctors
HCV (Telaprevir, VX-135 and collaborations)

Q1:14
VRTX to submit additional clinical, preclinical and PK data to FDA
Clinical hold
Feb 2014
Phase IIb results from VX-135 + dac
VX-135 + Dac
H1:14
Phase IIb results from VX-135 + TMC435 +/- RBV
VX-135 + TMC-435
December 20, 2013
114
Exhibit 112: Pipeline table for VRTX

Product/Indication
Phase
Target
Partner
Hepatitis C
Inci vek (Tel a previ r)
Vx-135
Ma rketed (U.S.) /EU
Protea s e i nhi bi tor
Pha s e II
Nucl eotide a na l og
Vertex (NA); Ja ns s en (ROW);

Mi ts ubi s hi Ta na be (Fa r Ea s t)
Al i os
Cystic Fibrosis
Ka l ydeco (VX-770)
Ma rketed (U.S.) /EU
Ta rgets G551D mutation
CF Founda tion
Ka l ydeco (VX-770)
Pha s e III
Ta rgets G551D mutation (a ged 2to 5)
CF Founda tion
Ka l ydeco (VX-770)
Pha s e III
Ta rgets R117H mutation
CF Founda tion
Ka l ydeco (VX-770)
Pha s e III
Ta rgets non-G551D ga ting mutation
CF Founda tion
VX-809
Pha s e II
Ta rgets F508del mutation
CF Founda tion
VX-661
Pha s e II
Ta rgets F508del mutation
CF Founda tion
Rheumatoid arthritis
VX-509
Pha s e IIb
JAK3
Propri etary
not di s cl os ed
Propri etary
Influenza
VX-787
Pha s e I
Exhibit 113: Table of Old vs New Estimates for VRTX

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
1411
2012A
1528
2013E
1037.0
1040
(2.94)
(2.92)
2014E
602.0
696
(2.85)
(2.19)
0.14
(0.51)
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
438.7
328.4
Q2
418.3
310.8
Q3
336.0
221.7
121.0
127.5
136.8
Q4
334.0
176.0
179.2
143.8
(1.43)
(0.26)
(0.54)
(0.85)
(0.83)
(0.60)
(0.71)
(0.69)
(0.55)
December 20, 2013
115
Exhibit 114: Income Statement for VRTX

($ in MM; except per share)
2012A
Tel a previ r Revenue
1,279.4
US Sa l es
1,161.7
EU Roya l ties
117.7
Ka l ydeco
171.7
GSK Roya l ty Revenues (non-ca s h)
23.8
Col l a bora tive R&D a nd mi l es tones
52.1
Total Revenues
1,527
Roya l ty Expens es
43.1
COGS
236.7
Res ea rch a nd Devel opment Expens es
806.2
Sa l es , Genera l a nd Admi ni s tra tive Expens es
436.8
Res tructuri ng Expens e
1.8
Other (As s et Impa i rment) / Acqui s i tion-Rel a ted Expens es
Total Costs and Expenses
1,524.7
Operating Income (Loss)
2.3
Interes t Income
0.0
Interes t Expens e
(14.7)
Other Income/(Expens e), Net
(14.7)
Income (Los s ) before Ta x
(12.4)
Provi s i on for Income Ta x
0.0
Net Income (Loss)
(107.0)
EPS, Basic (GAAP)
($0.51)
EPS, Diluted (GAAP)*
($0.51)
Sha res Outs tandi ng, Ba s i c (GAAP)
211.9
Sha res Outs tandi ng, Di l uted* (GAAP)
214.7
Pro Forma Excluding Options Expense
Options Expens e (from pres s rel ea s e)
113.8
Net Income (Los s ), Non-GAAP
255.5
EPS, Ba s i c (Non-GAAP, a s reported)
$1.21
Q1:13A
244.6
205.6
39.0
61.8
4.6
17.4
328.4
11.8
31.0
218.1
92.9
0.0
Q2:13A
199.9
155.8
44.1
99.0
5.0
6.8
310.8
13.2
24.7
222.5
106.5
0.8
Q3:13A
106.6
85.6
21.0
101.1
6.0
8.0
221.7
7.3
20.0
228.6
87.8
12.0
Q4:13E
58.6
41.6
17.0
102.0
7.5
8.0
176.0
11.0
18.2
225.0
85.0
0.0
2013E
609.7
488.6
121.1
363.9
23.1
40.1
1,037
43.3
93.9
894.1
372.2
0.0
Q1:14E
0.0
40.0
0.0
106.0
7.5
7.5
121.0
8.0
18.7
220.0
70.0
0.0
Q2:14E
0.0
20.0
0.0
112.5
7.5
7.5
127.5
8.0
18.1
230.0
65.0
0.0
Q3:14E
0.0
10.0
0.0
121.8
7.5
7.5
136.8
8.0
18.9
190.0
60.0
0.0
Q4:14E
0.0
3.0
0.0
128.8
7.5
7.5
143.8
8.0
19.5
190.0
55.0
0.0
2014E
73.0
73.0
0.0
469.1
30.0
30.0
602
32.0
75.1
830.0
250.0
0.0
2015E
18.3
18.3
0.0
850.1
30.0
30.0
928
27.0
120.1
780.0
300.0
0.0
766.7
(438.3)
0.0
(4.7)
(4.7)
(442.9)
(130.3)
(312.6)
($1.43)
($1.43)
215.4
226.4
367.7
(56.9)
0.0
(6.6)
(6.6)
(63.5)
(1.8)
(57.2)
($0.26)
($0.26)
222.1
233.0
355.8
(134.1)
4.7
0.0
4.7
(129.4)
(0.8)
(124.0)
($0.54)
($0.54)
230.5
241.5
339.2
(163.2)
0.0
0.0
0.0
(163.2)
0.0
(163.2)
($0.71)
($0.71)
231.0
241.9
1,829.3
(792.4)
0.0
(11.2)
(6.6)
(799.0)
0.0
(657.0)
($2.94)
($2.94)
223.7
235.7
316.7
(195.7)
0.0
0.0
0.0
(195.7)
0.0
(195.7)
($0.85)
($0.85)
231.4
231.4
321.1
(193.6)
0.0
0.0
0.0
(193.6)
0.0
(193.6)
($0.83)
($0.83)
231.9
231.9
276.9
(140.0)
0.0
0.0
0.0
(140.0)
0.0
(140.0)
($0.60)
($0.60)
232.4
232.4
272.5
(128.7)
0.0
0.0
0.0
(128.7)
0.0
(128.7)
($0.55)
($0.55)
232.8
232.8
1,187.1
(658.1)
0.0
0.0
0.0
(658.1)
0.0
(658.1)
($2.85)
($2.85)
231.1
232.1
1,227.1
(298.8)
0.0
0.0
0.0
(298.8)
(101.6)
(197.2)
($0.84)
($0.84)
233.4
244.7
31.2
6.7
$0.03
41.3
(6.4)
($0.03)
31.2
(74.4)
($0.32)
27.0
(136.2)
($0.59)
130.6
(210.4)
($0.94)
30.0
(165.7)
($0.72)
27.0
(166.6)
($0.72)
24.0
(116.0)
($0.50)
23.0
(105.7)
($0.45)
104.0
(554.1)
($2.40)
105.0
(92.2)
($0.39)
Valuation
Our base case of $95/share is an SOTP analysis of VRTXs HCV ($10/share) and cystic fibrosis
franchises ($75/share), as well as its earlier epilepsy/RA pipeline ($2/share), NOLs ($4/share), and
net cash ($3/share). For CF, we value Kalydeco in G551D and other gating mutations as potential
$1.5B peak sales (50% probability adjusted, $11/share), VX-809/Kalydeco combo in F508del
homozygous as potential $6B+ peak sales (75% probability adjusted, $53/share), and in F508del
heterozygous as potential $2.5B+ peak sales (45% probability adjusted, $10/share).

Our price target is dependent primarily on the regulatory and commercial success of Kalydeco and
VX-809 for cystic fibrosis. At Vertex's current valuation, a base level of sales in the broader cystic
fibrosis patient population are already assumed. The magnitude of the VX-770 launch, combo
data for CF, and additional HCV regimens will be essential in determining the upside (or downside)
from current levels. Any delay in launch, increased competition, regulatory setbacks, or other
limitations to the market potential of telaprevir, CF therapies, or other HCV therapies could
negatively impact our valuation. Upside could come from pricing, better-than-anticipated market
penetration, setbacks for competition, new partnerships, and clinical success of earlier-stage
programs that are not included in our valuation (such as the epilepsy and RA programs).
December 20, 2013
116
Xenoport (XNPT)
Outperform

Exhibit 115: Xenoport
Investment summary
We believe XNPT is an attractive small cap play with two
underappreciated developments that could create value over
the next 1218 months, especially given very low expectations
on each of those fronts: 1) re-launch Horizant in RLS and PHN,
where they will be better able to capitalize on the relatively
untapped markets; and 2) progress on developing '829 into a
psoriasis or multiple sclerosis asset. We would like to see this
partnered or the company acquired by someone with vast
resources to fully develop and commercialize it against big MS
players. Our thesis has consistently been the attractiveness of
these markets, both of which have been (to different extents)
de-risked by Tecfidera ($34B estimated peak sales WW now)
juxtaposed against the very low valuation of $170MM EV
investors assign to this BG-12 like pro-drug '829 (and FDAapproved RLS/PHN drug Horizant too). We believe XNPT's start
of Phase II in psoriasis could help generate investor interest
(although financing is likely in 2014 if no big partnership) for
potential value inflection on good proof-of-concept data in next
912 months.

Our base case of $12/share assumes that: 1) Horizant can grow
to $75M franchise ($4/share); and 2) '829 will potentially show a
differentiating profile (better tolerability, once-daily dosing) that
will garner partnership interest in either neurology or
dermatology (valued as 20% probability it should materialize into
a $800M drug around 20192020, giving $8/share). We exclude
the ~$2 cash in valuation as it will be used to fund R&D and
operations. We removed $2 from our original valuation due to
the recent discontinuation of AP in spasticity.
Upside scenario
Our upside scenario of $14/share assumes higher probability of
success for '829 (30% probability of $800M drug, ~$10/share)
should it attract partnership interest in both psoriasis and MS
indications.
Downside scenario
Our downside scenario of $4/share assumes muted investor
interest/expectation that '829 will be partnered in the near term
(lowered probability to 10%, ~$3/share). We also assume that
Horizant will be only a $20M franchise (worth $1/share).
December 20, 2013
Initiation of Phase II in psoriasis: XNPT is preparing an IND

and getting ready for Phase II psoriasis start, with a more
detailed update Q1:14. We have always thought this would
be a good investment to show proof-of-concept on good
efficacy, potentially better safety (e.g., less flushing and GI
side effects) and comparability of activity for once-daily vs.
twice-daily dose. Importantly, demonstrating efficacy could
bridge the path for development in MS. We believe XNPT's
start of Phase II in psoriasis could help generate investor
interest for potential value inflection on good proof-ofconcept data in next 912 months.
Better than expected Horizant sales growth. As XNPT have
begun the re-launch of Horizant on its own, consistent
quarterly sales growth will increase investor confidence it is
a viable market ($50-$100M peak sales, $4+/share).
Less than expected differentiation or emergence of safety

signals from 829: XNPT is expected to initiate and generate
first POC data of 829 in psoriasis in 2014. If the data fail to
show potentially better safety (e.g. less flushing and GI side
effects) or efficacy (vs. Apremilast, Tecfidera, and
Fumaderm show 38-50% PASI-75), investors will likely
discount its potential and the probability of it being
partnered would also diminish.
117
Key questions / debates for XNPT

1.
What is the sales potential for Horizant

and how much is it worth for XNPT?
In our view, Horizant alone can be worth $4- 5/share if it can grow to $50-$100M
product. XNPT reacquired the rights to Horizant in May 2013 from GSK. We believe
XNPT can grow sales ($15-$20M in next 1-2 yrs) off a low base ($7-$8M currently) as
a stand-alone company, especially given very low investor expectations for the asset,
and turn it into a break-even sales franchise. Any growth from primary care
penetration from contract salesforce is upside. Assuming 2-3x peak sales of $50100M for sales in RLS and PHN, Horizant can be worth $4-5/share as a standalone
asset. GSKs $20-$40M equity investment should also net out initial expenses
required for XNPT to build sales infrastructure
2.
How is 829 differentiated from

Tecfidera?
XP23829 is a pro-drug formulation of monomethyl fumarate (MMF), the active

ingredient in BIIBs Tecfidera (BG-12). Early pre-clinical and PK/PD studies suggest
that this drug could have better tolerability vs. Tecfidera, as the slower release of
MMF is likely correlated with fewer GI and flushing adverse events. Also, although
the data is early and insufficient, it has the potential to provide dosing convenience
(QD vs. BID). Considering XNPTs EV is less than $200M, we think the market prices in
very little, if any success in becoming a potential second-generation oral MS drug (vs.
investors prescribing Tecfidera with $3-4B peak market potential).
Exhibit 116: Expected news flow for XNPT

Timing
2013 - 2014
Q3:13
Mi d 2013
YE:13
Ea rl y 2014
2014
Expected News Flow
Program
Rel a unch of Hori za nt i n RLS a nd PHN
Hori za nt
Res ul ts of compa ra ti ve mul ti -dos e PK s tudy vs BG-12
XP23829
Dos e es ca l a ti on res ul ts i n hea l thy vol unteers (N = 75)
XP23829
Go-forwa rd pa th for '829 (ps ori a s i s or MS) pos t FDA feedba ck
XP23829
Potenti a l Pha s e II s ta rt for '829
XP23829
PFE to fi l e for a pprova l of Xel ja nz i n ps ori a s i s
Competi tor
December 20, 2013
118
Exhibit 117: Pipeline table for XNPT

Product
XP-13512 (Hori zant)
Indication
Partner
Commerci al
Res tl es s l egs s yndrome (RLS)
Gl axoSmi thKl i ne,

As tel l as
Commerci al
Pos t herpeti c neural gi a
Gl axoSmi thKl i ne
XP21279
Phas e II
Parki ns on's di s eas e
Propri etary
XP23829
Phas e I
RRMS
Propri etary
Precl i ni cal
Ps ori as i s
Propri etary
Exhibit 118: Table of Old vs New Estimates for XNPT

FY Dec
Revenue (MM)
Prev.
EPS (Op) - FD
Prev.
2011A
43.5
2012A
21.6
2013E
8.2
2014E
20.6
(0.94)
(0.78)
(1.87)
(1.71)
(1.55)
Revenue (MM)
2012
2013
Prev.
2014
EPS (Op) - FD
2013
Prev.
2014
Q1
10.4
0.5
Q2
10.4
2.1
Q3
0.4
2.5
Q4
0.5
3.2
3.6
4.7
5.6
6.7
(0.50)
(0.51)
(0.39)
(0.47)
(0.50)
(0.47)
(0.36)
(0.38)
December 20, 2013
119
Exhibit 119: Income Statement for XNPT

FYA
1QA
2QA
3QA
4QE
FYE
1QE
2QE
3QE
4QE
FYE
FYE
2012
Mar-13
Jun-13
Sep-13
Dec-13
2013
Mar-14
Jun-14
Sep-14
Dec-14
2014
2015
REVENUES:
Horizant (US)
1.6
2.0
2.5
6.2
2.8
3.7
4.5
5.5
16.5
36.0
0.1
0.1
0.1
0.1
0.3
0.6
0.4
0.6
0.7
0.9
2.6
4.9
Collaboration Revenue/Milestones
Revenue f/ unconsolidated joint operating activities
21.5
0.4
0.4
0.4
0.4
1.5
0.4
0.4
0.4
0.4
1.5
1.5
Total Revenue
21.6
0.5
2.1
2.5
3.2
8.2
3.6
4.7
5.6
6.7
20.6
42.4
Royalty - Ex-US
EXPENSES:
Cost of Product Sales
0.2
0.3
0.5
1.2
0.6
0.7
0.9
1.1
3.3
7.2
42.9
13.4
10.2
6.0
7.8
37.4
12.0
10.0
8.0
8.0
38.0
39.9
Sell, generative and administrative
30.2
10.7
15.8
14.9
17.5
59.0
15.0
16.5
16.0
18.5
66.0
69.3
Total Expenses
73.2
24.1
26.3
21.3
25.8
97.6
27.6
27.2
24.9
27.6
107.3
116.4
(51.6)
(23.6)
(24.2)
(89.4)
(74.0)

Total Other Income
Pre-tax income
Taxes
(18.8)
(22.6)
(24.0)
(22.6)
(19.3)
(20.9)
(86.7)
0.3
0.1
0.1
(0.1)
(0.1)
0.0
(0.1)
(0.1)
(0.1)
(0.1)
(0.3)
(0.5)
(30.8)
(23.5)
(24.1)
(18.8)
(22.7)
(89.2)
(24.0)
(22.7)
(19.4)
(21.0)
(87.0)
(74.5)
Net Income
(30.8)
(23.5)
(24.1)
(18.8)
(22.7)
(89.2)
(24.0)
(22.7)
(19.4)
(21.0)
(87.0)
(74.5)
EPS Diluted*
(0.78)
(0.50)
(0.51)
(0.39)
(0.47)
(1.87)
(0.50)
(0.47)
(0.36)
(0.38)
(1.71)
(1.28)
39.4
47.2
47.5
47.7
47.9
47.6
48.1
48.3
54.5
54.7
51.0
58.0
41.2
48.4
48.7
48.9
49.1
48.7
49.3
49.5
55.7
55.9
52.2
59.2
Valuation
Our price target of $12/share assumes that: 1) Horizant can grow to $75M franchise ($4/share);
and 2) '829 will potentially show a differentiating profile (better tolerability, once-daily dosing)
that will garner partnership interest in either neurology or dermatology (valued as 20% probability
it should materialize into a $800M drug around 20192020, giving $8/share). We exclude the ~$2
cash in valuation as it will be used to fund R&D and operations. We removed $2 from our original
valuation due to the recent discontinuation of AP in spasticity.

Our price target is significantly dependent on the clinical and regulatory success of Xenoport's
various product candidates. Impediments to our price target include: 1) lack of efficacy; 2)
unexpected safety or adverse events; 3) longer-than-expected development time; and 4)
competition. Any negative or unexpected developments related to these issues would
significantly affect the company's future outlook and the ability for the stock to reach our price
target.
December 20, 2013
120
Company Profiles SMid Caps (Butt)
December 20, 2013
121
Aerie Pharmaceuticals (AERI)

Exhibit 120: Aerie Pharmaceuticals
Investment summary
We believe AERI shares offer the potential for significant upside as
both products in development, AR-13324 and PG324, use a new
mechanism of action for the treatment of glaucoma, a blockbuster
potential market. AR-13324 will enter Phase III trials based on
positive Phase IIb data and PG324 a Phase IIb study based on
promising preclinical data in 2014. Results from these and
additional studies are expected 20142016. Millions of patients
worldwide suffer from glaucoma, most need multiple
medications, and we forecast peak sales of AERIs products at
~$1B.
AERI owns 100% of the rights to AR-13324 and PG324 worldwide
and patent protection extends into 2030, which means the
company is free to partner or be acquired. Given that
ophthalmology remains an attractive therapeutic area and AERIs
product candidates could have a convenient, one drop once per
day efficacy and safety profile, progress through clinical and
regulatory milestones, as well as a partnership, could all be upside
catalysts.

We value AERI at $20, which includes US and EU sales of AR13324 and PG324. We assign a 60% probability of success and a
value of ~$14 per share to the US and $6 per share to the EU
opportunity. We forecast peak PG324 sales of $700800MM and
AR-13324 sales of $200300MM in the US and $500600MM
and $100200MM in the EU, respectively. Finally, we assume
patent protection through 2030 and include a terminal value
based on a discount rate of 15% and a growth rate of -50%.
Upside scenario
Our $32 upside scenario includes ~$23 per share in value for the
US opportunity and ~$9 per share in value for the EU
opportunity. We forecast peak PG324 sales of $1.21.3B in the
US and $900M$1B in the EU and AR-13324 sales of $200
300MM in the US and $200300MM in the EU. We assign
products in the pipeline a 60% probability of success, a discount
rate of 15%, and a terminal growth rate of -50%.
Downside scenario
Our ~$7 downside scenario assumes that PG324 will not be
approved in the US or EU. We value the US opportunity for AR13324 at ~$5 per share and the EU opportunity at ~$3 per share.
We assume market share ramps up to roughly 15% of total
second-line glaucoma prescriptions in the US and 10% in the EU.
Under such a scenario, peak sales are forecast to be $400500M
in the US and $300400MM in the EU.
December 20, 2013
Potential catalysts for the stock

Our investment view is driven by:
Phase IIb data for PG324 in 2014. Important catalyst as it
could show differentiation in efficacy vs. latanoprost, the
current market leader.
Phase III data for AR-13324 in 2015. Important catalyst as
positive data could lead to an NDA and MAA filing.
Phase III data for PG324 in 2016. Key catalyst as clean safety
and efficacy beyond latanoprost could make PG324 the firstline drug of choice.
Potential partnership for AR-13324 and PG324. AERI owns
worldwide rights to both product candidates and a
partnership is likely after Phase III data.
Potential approvals and launches in 2017 in the US and 2018
in the EU following regulatory filings in 2016.
Pivotal Phase III and earlier-stage studies could fail. AR-13324
must show non-inferiority to a comparator over a longer
period and PG324 must show a benefit in patients, which
raises risk of failure.
PG324 Phase IIb study could fail. Our assumption for success
is based on pre-clinical data with PG324, and testing it in
patients increases risk.
AERI could fail to find a partner for AR-13324 and PG324
outside the US.
Sales ramp of AR-13324 and PG324 could lag expectations as
clinicians fail to take up AERIs drugs, payers put up hurdles
for reimbursing branded drugs, leading to slow adoption
122
Key questions / debates for AERI

1.
Will the 28-day Phase IIb PG324 trial

work?
Preclinical data demonstrated a strong benefit for PG324, which is AR-13324

combined with latanoprost in a once daily eye do, over latanoprost alone. Prior trials
have demonstrated the benefit combination rho-kinase inhibitor and prostaglandins
have over either compound alone. We believe PG324 could demonstrate a benefit
over each of the individual components.
2.
Will the 28-day Phase IIb PG324 clinical

trial readout be a catalyst for AERI
shares?
Phase IIb data for PG324 could be the first window into evaluating its potential as
first-line drug with a blockbuster potential. As such, Phase IIb PG324 data should be a
significant catalyst for AERI shares.
3.
Can AR-13324 be a standalone

product?
AR-13324, a rho-kinase and norepinephrine transporter inhibitor, could demonstrate

similar or better efficacy and better safety than any second-line drug for glaucoma.
nd
Given the significant limitations of current 2 -line drugs, we believe AR-13324 can
have significant sales in both the second- and first-line glaucoma markets.
4.
Is there5 any room for branded drugs

in a highly genericized glaucoma
market?
Key potential advantages for AERIs products include better efficacy, safety and
convenience across a broad swath of patients. Given that its the first new
mechanism of action targeting glaucoma in nearly two decades, we believe AERIs
compounds can be priced at a premium.
5.
Does AERI need to part5ner AR-13324

or PG324?
AERI has sufficient capital to see AR-13324 through to an NDA filing and PG324
through Phase IIb data, both significant catalysts. As such a partnership is not needed.
However, a regional partnership for compound could provide validation for AERIs
anti-glaucoma drugs.
December 20, 2013
123
Exhibit 121: Expected news flow for AERI

Timing
Early 2014
1Q:14
Mid-2014
Mid-2014
2014 / 2015
2014 / 2015
Mid-2015
1H / Mid-2015
2H:15 / Early 2016
2015 / 2016
Mid-2016
1H / Mid-2016
2H:16 / Early 2017
1H / mid-2017
Mid-2017
Mid-2018
Expected News Flow

Initiate Phase IIb studies in glaucoma
3-month data from 6- and 9 -month tox studies
Initiate Phase III trials in glaucoma
Phase IIb results
Final 6- and 9-month data from 2 tox studies
Potential ex-US partnership(s)
Efficacy results from Phase III studies
Initiate Phase III trials in glaucoma
Phase III results in glaucoma
Initiate Phase I trials
File NDA
Efficacy results from Phase III studies
Phase III results in glaucoma
Expect approval and launch
File NDA
Expect approval and launch
Program
PG324
AR-13324
AR-13324
PG324
AR-13324
AR-13324
PG324
AR-13324
AR-13533
AR-13324
PG324
PG324
AR-13324
PG324
PG324
Exhibit 122: AERI Pipeline

Product
AR-13324
PG324
AR-13533
Mechanism
Dual-action ROCK / NET inhibitor
Triple-action ROCK / NET inhibitor and
latanoprost, a PGA
Dual-action ROCK / NET inhibitor
Stage
Phase III planned
Phase IIb planned
Indication
Glaucoma
Glaucoma
Pre-clinical
Glaucoma
Partner
December 20, 2013
124
Exhibit 123: Income Statement for AERI
Valuation
We value AERI at $20 per share, which includes US and EU sales of AR-13324 and PG324. We
assign a probability of success of 65% to both products and a value of ~$14 per share to the US
and $6 per share to the EU opportunity. We assume a US launch in 2017 and an EU launch in
2018. Currently, we assume that AERI will sell AR-13324 and PG324 in the US and a partner will
commercialize these compounds outside the US. We forecast peak PG324 sales of $700800MM
in the US and $500600MM in the EU and AR-13324 sales of $200300MM in the US and $100
200MM in the US. We currently assign no additional value to the earlier-stage pipeline. Finally, we
assume product sales extend through 2030 and include a terminal value based on a discount rate
of 15% and a terminal growth rate of -50%.

Our price target is dependent solely on the clinical, regulatory and commercial success of AR13324 and PG324. A Phase IIb study for PG324 and a Phase III study for AR-13324 are expected in
2014 and failure to demonstrate efficacy or safety in one or both of these studies would be a
significant setback. Furthermore, any setbacks in regulatory approvals in the US or EU, delay in
launch, failure to secure a partnership outside the US for AR-13324 and PG324, increased
competition or other limitations to the market potential of these products either due to better
efficacy and/or safety outcomes or pricing pressure due to the availability of generic drugs for
glaucoma, could negatively impact our valuation.
December 20, 2013
125
ArQule (ARQL)
Exhibit 124: ArQule Pharmaceuticals
Investment summary
Our long-term thesis on ARQL is based on expected positive data
for its main drug tivantinib in 2014/2015 for 2nd line HCC and
additional details and data in 2013/2014 for NSCLC. We believe
there are multiple shots at success for tivantinib with HCC and
even NSCLC and the proprietary pipeline. However, timelines to
Phase III data are long and uncertain given uncertainty regarding
the tolerability of tivantinib in patients with liver cancer.

We arrive at our $5 price target using a DCF/ sum of the parts
analysis probability adjusted for success in second-line HCC and
NSCLC. For second-line HCC, we assume a 50% probability of
success, a 15% discount rate, and a -50% terminal growth rate to
arrive at a value of ~$4/share. For NSCLC, we assume a 10%
probability of success, 15% discount rate, and a -50% growth
rate to arrive at a value of ~$1/ share.
Upside scenario
Our $8/share upside scenario assumes tivantinib approval in
first-line liver cancer following approval in the second-line
setting. For first-line HCC, we assume a 50% probability of
success to arrive at a value of ~$7/share. For second-line HCC,
our probability of success remains 50% but the value is reduced
to ~<$1/share. The value of the NSCLC franchise is reduced to
~$1/share as we assume tivozanib treatment price is reduced
due to approval in the larger first-line HCC setting.

Update on the ability to dose and enrol patients in the
ongoing Phase III 2nd-line liver cancer study.
Positive Phase III details from previously stopped NSCLC
studies, which could show a path forward and updates
from ongoing Phase II studies by YE:13 and early 2014.
Positive updates from non-ARQL sponsored tivantinib
studies in 2014/ 2015.
Phase III data in 2nd-line liver cancer patients by
2015/2016. An earlier interim readout is possible in 2014 or
later.
Progress in the proprietary pipeline.
Setbacks in the early or late-stage pipeline evaluating
tivantinib in a number of cancers.
Failure for tivantinib to secure approval in second-line liver
cancer and/or finding a path forward in NSCLC.
Setbacks in earlier stage, proprietary programs.
Greater than expected competition in the clinic or
commercially.
Higher than forecast cash burn.
Downside scenario
Our downside scenario assumes that tivantinib pivotal trials do
not succeed, in which case valuation approaches net cash
balance or roughly $2/share .
December 20, 2013
126
Key questions / debates for ARQL

1.
Can tivantinib be dosed safety in

patients with 2nd-line liver cancer?
Tivantinib Phase III dose was lowered to 120mg from 240mg twice per day due to
neutropenia. Given questions around tolerability, the dose can be further reduced
and the data safety monitoring committee (DMC) will evaluate the trial on a regular
basis for detriment. Accordingly, there is risk to the timing and outcomes of the
ongoing Phase III pending further updates.
2.
Can tivantinib be dosed effectively in

patients with 2nd-line liver cancer?
Tivantinib Phase III dose was lowered to 120mg from 240mg twice per day due to
neutropenia. The Phase II dose was reduced from 360 mg to 240 mg and still
demonstrated a PFS and OS benefit in c-MET high patients with liver cancer. The
lowered tivantinib dose could still be effective though further analysis and updates
are pending.
3.
When will the Phase III 2nd-line liver

cancer studies read out?
Timing for Phase III data was previously expected to be 2015 with an interim
possible in 2014. However, timelines have become more uncertain given the lower
than expected tolerability seen in the ongoing Phase III study.
4.
Can the NSCLC studies identify a

population to pursue?
Patients with high c-MET expression in the Phase III MARQUEE study demonstrated
better PFS and OS (HR of 0.72 and 0.70, respectively, stat sig). The Phase III
ATTENTION study has the potential to corroborate these trends when data are
presented in 2014. Phase II KRAS and EGFR NSCLC studies could also readout and a
path forward in any of these three patient types would be positive
5.
How much cash does ARQL have left?
We believe ARQL has sufficient funding to last through the end of 2015 assuming no
further financings or partnerships.
December 20, 2013
127
Exhibit 125: Expected news flow for ARQL
Exhibit 126: ARQL Pipeline
December 20, 2013
128
Exhibit 127: Estimate Changes for ARQL

FY Dec
Revenue (MM)
prev.
EPS - Diluted
prev.
Revenue (MM)
2013
2014
EPS - Diluted
2013
2014
Scenario
2013E
$16.1
$16.0
-$0.44
2014E
$15.4
$26.9
-$0.56
-$0.35
2015E
$4.1
$30.7
-$0.67
-$0.40
2016E
$1.9
$74.3
-$0.76
-$0.62
Q1
5.7A
3.8E
Q2
4.4A
3.8E
Q3
3.5A
3.9E
Q4
2.3E
3.9E
(0.09)A
(0.13)E
(0.11)A
(0.13)E
(0.10)A
(0.14)E
(0.14)E
(0.15)E
Target
$5.00
Upside
$8.00
Downside
$2.00
2017E
$58.3
2018E
$87.7
-$0.44
$0.14
Exhibit 128: Income Statement for ARQL
December 20, 2013
129
Valuation
We arrive at our $5 price target using a DCF/ sum of the parts analysis probability adjusted for
success in second-line HCC and c-MET high and KRAS mutant NSCLC. For second-line HCC, we
assume a 50% probability of success, a 15% discount rate, and a -50% terminal growth rate to
arrive at a value of ~$4/share. For KRAS mutant or c-MET high NSCLC, we assume a 10%
probability of success, 15% discount rate, and a -50% growth rate to arrive at a value of ~$1/
share.

Our price target is dependent primarily on the clinical, regulatory, and commercial success of
tivantinib in hepatocellular carcinoma and KRAS mutant NSCLC. We expect Phase III results for
tivantinib in 2014/2015 to show OS benefit in second-line liver cancer and Phase II results for
tivantinib in KRAS mutant NSCLC to show a PFS benefit. Any clinical, regulatory, or commercial
setbacks could negatively impact our valuation. Upside could come from better than anticipated
market penetration, partnerships for the pipeline, and clinical success of programs not directly
included in our valuation.
December 20, 2013
130
AVEO Pharmaceuticals, Inc. (AVEO)

Underperform, Speculative Risk
Exhibit 129: AVEO Pharmaceuticals, Inc.
Investment summary
We believe shares will be range bound pending further tivozanib
Phase II data and visibility on cash burn. Shares could begin
reflecting pipeline optionality as we get closer to Phase II
readouts for tivozanib in breast cancer as well as from several
investigator sponsored studies in 2015. Any signs of activity for
AV-203 in Phase I or a partnership for ficlatuzumab could support
shares as well. The pipeline, however, is unlikely to receive any
credit pending successful data from ongoing or future studies.

Tivozanib Phase II biomarker details from colorectal in 2014
and triple-negative breast cancer studies in 2015.
Positive data from several investigator sponsored trials with
tivozanib in 2015 and beyond.
Advancement of the early stage non-tivozanib pipeline in
Phase I or Phase II trials.
Partnerships for pipeline assets.
Clinical setbacks for tivozanib or earlier stage pipeline
assets.
Discontinuation of current Astellas partnership.

Higher than forecast cash burn.

Price target/base case: $2/share. Our $2 price target is based on
a probability adjusted sum-of-the-parts analysis of AVEOs
pipeline and includes tivozanib at ~$1/share and net financial
assets at ~1/share.
Upside scenario
Upside scenario: $4/share (previously $7). Our upside scenario
assumes tivozanib at $2/share with pipeline progress that
includes AV-203 at ~$1/share.
Downside scenario
Downside scenario: $1/share (previously $2). Our downside
scenario assumes that tivozanib and AV-203 do not succeed
clinically. Under this scenario we are left with net financial assets
of ~$1/share.
December 20, 2013
131
Key questions / debates for AVEO

1.
Does tivozanib have activity?
Tivozanibs promise lay in its potential to have greater specificity for the VEGF
receptor and its combinability with chemotherapy. Though the FDA did not approve
tivozanib based on Phase III data, tivozanib demonstrated activity and several more
trials are ongoing which have the potential to demonstrate activity.
2.
Is Astellas still committed to the

partnership?
Though kidney cancer was the most advanced program, we believe Astellas
partnered with AVEO for tivozanib over the broader program. As such it Astellas is
unlikely to decide on whether or not to make further investments in the program
pending readouts from the Phase II biomarker studies.
3.
What are the next catalysts for

tivozanib and AVEO?
There are at least two company sponsored Phase II studies ongoing. Even though
the CRC study did not meet the primary endpoint, biomarker analysis data is
expected in 2H:14 and the TNBC study could readout in 2015. Several investigator
sponsored trials (ISTs) are evaluating tivozanib across a variety of cancers and
positive results could create pipeline optionality though there is less visibility on
their timing.
4.
Is there upside in the earlier stage

pipeline?
AV-203 is in Phase I studies and AV-380 could enter the clinic in 2014/ 2015.
However, these programs are unlikely to receive much credit at this stage.
5.
When will AVEO need cash again?
We estimate AVEO has sufficient to fund operations through 2015 without any
additional financings or partnerships.
Exhibit 130: Expected news flow for AVEO
Exhibit 131: AVEO Pipeline
December 20, 2013
132
Exhibit 132: Income Statement for AVEO
Valuation
Price target/base case: $2/share. Our $2 price target is based on a probability adjusted sum-ofthe-parts analysis of AVEOs pipeline and includes tivozanib at ~$1/share and net financial assets
at ~1/share. We currently exclude AV-203 for which we await Phase I data.

Our price target is dependent primarily on the clinical, regulatory, and commercial success of
tivozanib and AV-203 in cancer. Any clinical, regulatory, or commercial setbacks could negatively
impact our valuation. Upside could come from approvals, better than anticipated market
penetration, partnerships for the pipeline, and clinical success of programs not directly included in
our valuation.
December 20, 2013
133
Cubist Pharmaceuticals (CBST)

Outperform

Exhibit 133: Cubist Pharmaceuticals
Investment summary
We rate Cubist shares Outperform and expect that they could
approach or exceed our price target based on potential sales
growth for Cubicin, upcoming NDA and MAA filings for
ceftolozane-tazobactam (toltaz; CXA-201) for gram negative
infections in cIAI and VAP/ HAP., potential approvals for
tedizolid and toltaz in 2014-2015, upside to our commercial
expectations for Dificid and tedizolid, as well as from litigation
wins or potential favorable settlement vs. paragraph IV
challengers. Other candidates in Phase III trials including
surotomycin for CDAD and bevenopran for OIC as well as
potential business development activities could lead to further
upside. Positive Phase III data is likely to lead to multiple
expansions given the expected de-risking of a major driver, the
expectation for future top- and bottom-line growth, and profile
as a leading hospital-focused, antibiotic company.


Price target base case $82/share: We value Cubicin at roughly
$38/share, assume TEVA and HSP entry in June 2018 and 2021,
respectively, net cash at ($8)/share, CXA-201 at $30/share,
additional Phase III programs at $4/share, and Entereg at
~$2/share. For CXA-201, we assume approvals in 2015 and peak
sales of $1B WW. Potential triggers for upside could be
increased probabilities of success for Phase III programs. Given
the updates on TSRX and OPTR, we include Dificid at $9/share
and tedizolid at ~$6/share.
Upside scenario
Our upside scenario of $103 assumes only TEVA entry until 2028,
which gives us a value of ~$43/share. The value of net cash is
($8)/share. We also assume additional years of CXA-201 sales in
the US and EU for $40/share. Our success assumptions are
higher for Dificid, which is ~$12/share, and tedizolid, which is
$10/share. Entereg and other pipeline assets remain unchanged
and potential upside from increased probabilities of success.
Downside scenario
Our downside scenario of $44/share assumes that Hospira is
able to launch its branded version of daptomycin at the same
time as TEVA in 2018 and additional generics enter in 2021,
leading to Cubicin at $35/share. The value of net cash at
($8)/share and Entereg at $2/share stay unchanged. We also
include Dificid worth $9/share and tedizolid, which is ~$6/share.
We do not include any Phase III assets in our downside scenario.
December 20, 2013

Commercial execution for Cubicin. Cubicin should continue
to post high-single- to low-double-digit growth y/y, which
we believe provides baseline support for Cubicin shares.
Tedizolid June 22, 2014 PDUFA. Approval would further
diversify the top-line.
Phase III guidance and data for CXA-201 (toltaz) in
VAP/HAP. CBST will provide guidance on Phase III plans for
VAP/HAP. An open-label Phase III trial is ongoing with data
expected in 2015.
Surotomycin for CDAD and benevopran for OIC in Phase
III. Data from these studies could be available in the
2014/2015 time frame.
Business development. CBST has guided toward future
deals although the timing is uncertain.
Cubicin and Dificid sales could lag expectations as hospital
environments become more price conscious or if it faces
greater than expected competition.
CXA-201 (toltaz) could suffer clinical or regulatory
setbacks and commercial uptake could lag expectations.
Pipeline candidates such as surotomycin or benevopran
could fail to show efficacy or safety or the FDA could fail to
approve pipeline products, such as tedizolid.
Business development activities could be viewed
unfavorably by the Street.
Paragraph IV challengers could invalidate Cubicin or Dificid
patents.
134
Key questions / debates for CBST

1.
Will toltaz see off label use beyond

cUTI/ cIAI?
CBST is conducing an open-label Phase III study and will start a controlled, doubleblind study for toltaz in HAP/ VAP. We believe it is likely that physicians could try
toltaz in severe HAP/ VAP patients with limited options. However, such usage is
more likely one Phase III data from either study readout. As such we consider
upcoming data to be catalysts for the stock as well.
2.
Why does success for toltaz matter to

CBST shares?
Toltaz addresses a potentially major market targeting gram negative infections.

Positive Phase III data could give visibility to another potential $1B+ in revenues and
lead to potential revenue and price-earnings multiple expansion. Failure of the
Phase III cIAI study to meet the primary endpoint would be a significant setback as
positive data from both Phase III studies is required for approval.
3.
Do new long-acting antibiotics pose a

threat to Cubicin upon approval?
We believe the newer long-acting antibiotics are initially likely to target vancomycin
upon approval. Cubicin use is typically reserved for more severely ill patients.
Furthermore, CBST acquired tedizolid to potentially expand its foot print in the gram
positive arena with an intravenous and an oral drug.
4.
Is the upcoming Cubicin patent

litigation trial vs. HSP still meaningful?
The Markman ruling was highly favorable towards CBST and the upcoming trial on
Feb. 18, 2014 does not present a threat to CBST, in our view. Expectations are still
for a settlement, likely favourable, and/ or an outright win, which would be upside
to expectations.
5.
Where else could upside for CBST

shares come from?
Successful launch and commercialization of Dificid and tedizolid, positive Phase III
data from one or more pipeline candidates, and further business development could
all be upside catalysts.
December 20, 2013
135
Exhibit 134: Expected news flow for CBST
Exhibit 135: CBST Pipeline
December 20, 2013
136
Exhibit 136: Income Statement for CBST
Valuation
We derive our $82/share target using a DCF/sum-of-the-parts analysis. We value Cubicin at
roughly $38/share, assume TEVA and HSP entry in June 2018 and 2021, respectively, net cash at
($8)/share, CXA-201 at $30/share, additional Phase III programs at $4/share, and Entereg at
~$2/share. For CXA-201, we assume approvals in 2015 and peak sales of $1B WW. Potential
triggers for upside could be increased probabilities of success for Phase III programs. Given the
updates on TSRX and OPTR, we include Dificid at $9/share and tedizolid at ~$6/share. At $82,
CBST shares would trade at ~5x our 2014 revenue estimate, which is below other profitable
biotechs at ~67x 2014E revenue.

Our price target is dependent on continued sales growth of Cubist and Dificid, the approval of
tedizolid, success of toltaz, and advancement of its pipeline. Risks include new transactions, which
could be dilutive in the near term or fail to live up to expectations.
December 20, 2013
137
Curis, Inc. (CRIS)

Exhibit 137: Curis, Inc.
Investment summary
Our Outperform rating is based on the expected commercial
uptake of Erivedge in the US and EU as well as clinical and
regulatory news flow. Erivedge royalties on sales by partner
Roche/Genentech provide downside support, while the
proprietary and partnered pipeline remains underappreciated,
especially with the partial hold on CUDC-427 and a highly
competitive PI3Ki landscape, and offers the option for upside.
CUDC-427, an IAP antagonist could advance to Phase I and Phase
II studies, and CUDC-907, a dual PI3 kinase and HDAC inhibitor, is
in Phase I. Debio 0932, partnered with Debiopharm, is in or
entering Phase I and Phase I/II studies in solid tumors, NSCLC,
and kidney cancer. Results are expected in 2014.

analysis probability adjusted for the pipeline. For Erivedge in
basal cell carcinoma, we value the royalties at ~$4/share. We
also include ~$3 in value from the proprietary and partnered
pipeline using a probability adjusted sales multiple based
analysis. For the proprietary pipeline, we assume sales could
vary from $0M to $2B, apply a 5x sales multiple, and discount
back 78 periods at 15%. Net cash is $0.40/share.
Upside scenario
Our $10 upside scenario assumes a greater probability of success
by reducing the probability of $0M (i.e., drug is not approved),
especially for CUDC-907. Using this approach, the value of the
proprietary pipeline increases to ~$6/share while Debio 0932
and cash per share stay unchanged.

Erivedge prescription data. TRx and NRx are growing and
trends on a weekly and monthly basis should continue to
go up.
CUDC-427 program re-initiation. A lifting of the partial hold
by the FDA, details on Phase II and Phase I plans, and
restarting studies could be catalysts as well.
CUDC-907 Phase I data is expected in 2014, which if safe
and shows activity could be an important catalyst.
Debio 0932 Phase I and Phase II data from partner
Debiopharm could be a catalyst as well..
Erivedge prescription, sales, and royalties could lag our
estimates.
Clinical, regulatory, and/or commercial setbacks for CUDC427, CUDC-907, and Debio 0932.
Competition from other agents targeting similar indications
or the same mechanism of action for marketed and
pipeline products could be tougher than expected.
Downside scenario
We assume Erivedge will see a more modest ramp that is
roughly half of that in our base case assumptions, which leads to
a royalty value of ~$2/share. We also ascribe no value to the
proprietary pipeline while partnered pipeline and cash per share
remain unchanged.
December 20, 2013
138
Key questions / debates for CRIS

1.
Can CUDC-907 be dosed safely and still

demonstrate efficacy?
Early Phase I data at ASH showed activity with the 30 mg daily dose but an
accumulation of metabolites and low plasma levels. The twice weekly dose showed
metabolites no longer accumulated, clean safety, and we expect a similar outcome
for the three times weekly dose. Plasma levels matter less as long as CUDC-907 is
reaching the targeted issues, including bone marrow.
2.
Does CUDC-427 have a tolerability

problem?
The FDA imposed a partial hold on the CUDC-427 program due to the death of one
patient. We believe CUDC-427 could be safe as despite being dosed in 51 patients
and only one saw a severe increase in AST, ALT and bilirubin and also had extensive
breast cancer which had metastasized to the liver, lungs, bones and ovaries.
3.
Will the CUDC-427 program be

reinitiated?
CRIS is submitting analyses to the FDA and a decision on whether or not to accept
the explanation and protocol amendment could be out in 1Q:14. The partial hold by
the FDA resulted in a significant loss in value for CRIS shares and resuming the
program could be a significant positive.
4.
How big can Erivedge get?
We assume roughly 30,000 patients with metastatic or inoperable BCC could be

eligible to get Erivedge, which means sales of $2B+ if the market is fully penetrated.
Our model assumes roughly $1B in peak sales in the US and outside the US. This also
provides downside protection for CRIS shares.
5.
When will CRIS need more capital?
CRIS has sufficient cash to last it into 2016, well beyond what we believe could be
value creating events from its pipeline.
December 20, 2013
139
Exhibit 138: Expected news flow for CRIS
Exhibit 139: CRIS Pipeline
December 20, 2013
140
Exhibit 140: Estimate Changes for CRIS

FY Dec
Revenue (MM)
prev.
EPS - Diluted
Revenue (MM)
2013
prev.
2014
EPS - Diluted
2013
2014
Scenario
prev.
2013E
$13.8
2014E
$11.4
-$0.21
-$0.33
2015E
$8.9
$11.9
-$0.38
2016E
$13.0
2017E
$21.1
2018E
$28.2
-$0.38
-$0.30
-$0.17
Q1
0.9A
Q2
5.4A
Q3
7.2A
1.2E
6.5E
1.7E
Q4
1.3E
1.1E
2.1E
(0.06)A
(0.10)E
(0.02)A
(0.04)E
(0.02)A
(0.10)E
(0.10)E
(0.09)E
Target
$7.00
Upside
$10.00
$9.00
Downside
$2.00
Exhibit 141: Income Statement for CRIS
December 20, 2013
141
Valuation
We arrive at our $7 price target using a DCF/ sum of the parts analysis probability adjusted for the
pipeline. For Erivedge in basal cell carcinoma, we value the royalties at ~$4/share. We also include
~$3 in value from the proprietary and partnered pipeline using a probability adjusted sales
multiple based analysis. For the proprietary pipeline, we assume sales could vary from $0M to
$2B, apply a 5x sales multiple, and discount back 78 periods at 15%. Net cash is $0.40/share.

Main risks that could cause CRIS shares to fall short of our price target:
1.
2.
December 20, 2013
Commercial and clinical risk for Erivedge: Any commercial or clinical setback or slip in the
timeline for this program would adversely impact CRIS shares.
Clinical risk for proprietary and partnered pipeline: Progress in Phase I and Phase II studies for
proprietary drugs including CUDC-907 and CUDC-427 as well as partnered product candidate
Debio 0932 is essential to achieving our price target. Any clinical, regulatory, or commercial
setbacks would be a negative for CRIS shares
142
Durata Therapeutics, Inc. (DRTX)

Exhibit 142: Durata Therapeutics, Inc.
Investment summary
Durata is developing dalbavancin, a wholly owned asset, for the
treatment of abSSSI. Two Phase III trials of dalbavancin have
reported positive results, in late 2012 and early 2013,
respectively, and an NDA and MAA have been filed. Dalbavancin
could be the first long-acting antibiotic targeting abSSSI on the
market with the potential to increase convenience, compliance,
and lower costs to the healthcare system. On balance, we see
the potential risk-reward as being highly favorable and expect
value to increase pending approval and even modest
commercialization success.

Dalbavancin May 22, 2014 PDUFA date.
Dalbavancin approval by YE:14 in the EU.
Dalbavancin US launch in 2014.
Commercial partnerships for dalbavancin.
Results from ongoing or planned dalbavancin studies.

Price target/base case: $15 per share. Our sum-of-the parts
analysis for dalbavancin arrives at a value of $15/share, including
approximately $3/share for the value of EU royalties. We assume
that dalbavancin is protected through 2023 with patents and/or
exclusivity, reaches peak market penetration of ~4%, receives
royalties of 15% on EU sales, which are 15% of US sales, and the
effective tax rate is 20%.

FDA or EMA could require additional data and fail to
approve dalbavancin.
Timelines for review and approval could be longer than
forecast.
DRTX could fail to find a partner for dalbavancin outside the
US.
Sales ramp could lag expectations due to greater than
expected competition.
Upside scenario
Upside target: $31 per share. We assume peak dalbavancin
market share will be 78%, up from the ~4% assumed in our
base case scenario .
Downside scenario
Our downside case of $3 assumes that dalbavancin launch could
be delayed in the US and that dalbavancin is not launched in the
EU. We also assume a slower ramp and a peak penetration in the
US of 2%. However, we note that the current pro forma cash is
~$4/share.
December 20, 2013
143
Key questions / debates for DRTX

1.
Will dalbavancin get paid for and used?
Dalbavancin could have a compelling pharmacoeconomic argument in being able to

prevent hospitalizations or facilitate hospital discharges, and improve outcomes.
Patients who may not need admission to the hospital or those who could be
discharged sooner if they are able to take a long-acting antibiotic are likely the first
candidates for long-acting antibiotics.
2.
Is a large commercialization partner

needed?
DRTX owns dalbavancin outright and currently plans to market the drug itself in the
US with ~140 sales professionals. We do not believe a large partner or sales force
are required and it is likely a compelling pharmacoeconomic argument that is going
to drive dalbavancin use.
3.
Are there approval risks for

dalbavancin?
The Phase III program was conducted under an SPA and both Phase III trials met the
primary endpoint. Accordingly, we believe regulatory risk is low.
4.
What impact could oritavancin

approval have on dalbavancin?
While both dalbavancin and oritavancin are long-acting antibiotics, they have
different clinical profiles so we believe there is room for both. Furthermore, since
these will be the first long-acting antibiotics both are likely to help grow the market
5.
What is the end game for DRTX?
Even a small market share could provide large upside for DRTX shares. We believe
DRTX could be an independent, profitable company but it could also be an attractive
takeout or partnering candidate for antibiotics focused companies.
Exhibit 143: Expected news flow for DRTX
Exhibit 144: DRTX Pipeline
December 20, 2013
144
Exhibit 145: Estimate Changes for DRTX

FY Dec
Revenue (MM)
prev.
EPS
prev.
Revenue (MM)
2013
2014
EPS
2013
2014
Scenario
2013E
$0.0
2014E
$18.0
$44.0
-$2.74
-$2.00
2015E
$78.7
$115.5
-$1.55
-$0.51
2016E
$135.4
$172.6
-$0.22
$0.44
Q1
0.0A
0.0E
Q2
0.0A
0.0E
Q3
0.0A
4.2E
Q4
0.0E
13.7E
(0.86)A
(0.61)E
(0.74)A
(0.54)E
(0.45)A
(0.86)E
(0.79)E
(0.73)E
-$2.79
2017E
$184.5
$284.3
$0.51
$2.12
2018E
$261.4
$389.5
$1.74
$3.81
Target
Upside
Downside
$17.00
$31.00
$3.00
prev.
$15.00
$20.00
$2.00
Exhibit 146: Income Statement for DRTX
December 20, 2013
145
Valuation
Our sum-of-the parts analysis for dalbavancin arrives at a value of $15/share, including
approximately $3/share for the value of EU royalties. We assume that dalbavancin is protected
through 2023 with patents and/or exclusivity, reaches peak market penetration of ~5%, receives
royalties of 15% on EU sales, which are 15% of US sales, and the effective tax rate is 25%.

Our price target is dependent primarily on the clinical, regulatory and commercial success of
dalbavancin for acute bacterial skin and skin structure infections (abSSSI). Any setbacks in clinical
development, delay in launch, increased competition or other limitations to the market potential
of dalbavancin could negatively impact our valuation. Upside could come from pricing,
compliance, better than anticipated market penetration, new partnerships, clinical success of
programs that are not included in our valuation, setbacks for potential competitors, and/or a
takeout.
December 20, 2013
146
Endocyte, Inc. (ECYT)

Exhibit 147: Endocyte, Inc.
Investment summary
Endocyte's small molecule drug conjugate technology has
generated several drug candidates and a partnership with
Merck. The lead candidate vintafolide is in Phase III studies in
PROC based on a statistically significant PFS benefit seen in a
Phase II trial, which was also the basis for an MAA filing. A Phase
II trial in non-small cell lung cancer is also ongoing. The ability to
select patients with folate receptor expression allows targeted
therapy and likely better efficacy. Three upcoming catalysts,
including an EU approval decision, Phase III PROC and Phase II
NSCLC data over the next 6-months if positive could result in
significant upside. Positive data is also likely to result in greater
validation for ECYTs small molecule drug conjugate (SMDC)
technology platform.

We value ECYT at $22. For PROC, we assume a launch in 2015, a
70% probability of success, and 12.5% discount rate for
~$7/share. We added NSCLC assuming a 20% probability of
success for ~$3/share. For other vintafolide indications we
assume $500M in peak sales, ~37% economics, 5x sales multiple,
and a 20% probability for a ~$2/share. We value the two Phase I
proprietary programs at ~$4/share assuming $500M each in
peak sales, discount period of 10 years, and a 10% probability of
success. Net cash and NOLs total ~$6/share.
Upside scenario
Our $29 per share upside scenario assumes a vintafolide EU
launch in 2014 and a US launch in 2015 for a value of ~$7 per
share. NSCLC and other vintafolide indications stay at ~$5 per
share. The probability of proprietary programs is raised to 20%
from 10%. This raises the value of these indications to
~$9/share. We also add proprietary inflammatory for ~$2/share.

Vintafolide EU approval decision by YE:13 based on Phase
II data for platinum resistant ovarian cancer. We currently
assume approval in 2015 for our base case scenario.
Vintafolide Phase II NSCLC data in 1Q:14, which is sooner
than the prior update of 1H:14.
Vintafolide Phase III PROC data in 1H:14 for PFS, which
could mean expanding enrollment by 100 patients.
Vintafolide Phase III PROC data in 2015 for OS, if the Phase
III trial expands in 2014.
Partner Merck could initiate more studies with
vintafolide.
Proprietary pipeline data and progress in 2014.
FDA or EMA could require additional data prior to
approving vintafolide.
Pivotal and late stage studies could fail, including
vintafolide for PROC and for NSCLC.
Merck could discontinue its partnership.
Sales ramp could lag expectations.
Downside scenario
Our downside scenario assumes that vintafolide approval is
delayed until 2015 from 2014 and that the probability of success
of vintafolide in PROC is 30% and in other indication is 20%. We
exclude other pipeline candidates from our valuation. This
results in a value of ~$5 for vintafolide. Cash and NOLs total
another ~$6/share for EU. We assign AR-13324 a 60% probability
of success, discount rate of 15%, and terminal growth rate -50%.
December 20, 2013
147
Key questions / debates for ECYT

1.
Will vinatafolide be approved in the EU

based on Phase II data?
A decision is expected by YE:13 or early 2014. We currently assume approval in 2016

so an approval by YE:13/ early 2014 would be upside to our estimates.
2.
Why is the Phase II NSCLC study

perceived to be higher risk?
Expectations are low as the interim analysis showed the mono-therapy arm was
unlikely to meet the pre-established efficacy hurdle. However, patients in
combination as well as the monotherapy arm were allowed to continue treatment.
Positive data would be upside to expectations.
3.
What are the chances of the Phase III

PROC study being positive?
The Phase II trial in platinum resistant ovarian cancer demonstrated a statistically

significant PFS benefit in patients who were FR100%. PFS and OS analyses from the
Phase III study will be based on FR100% patients. We believe chances of success are
high.
4.
Will doxil shortage affect the pivotal

study or EU launch?
ECYT has sufficient supply to see the ongoing Phase III study through to the PFS
analysis. Additional supply could come on line later in 2014, JNJ is seeking new
supply, the FDA and EMA have also approved alternatives. We believe ECYT has also
embarked on potential mitigation strategies in case the shortage persists.
5.
Are there other upside drivers for

ECYT?
ECYTs proprietary compounds are entering Phase I studies (EC1456, EC1719) and
early data could be available in 2014, which if positive would be upside. Decision by
Merck to initiate more studies would be upside as well.
December 20, 2013
148
Exhibit 148: Expected news flow for ECYT
Exhibit 149: ECYT Pipeline
December 20, 2013
149
Exhibit 150: Estimate Changes for ECYT

FY Dec
Revenue (MM)
prev.
EPS
prev.
Revenue (MM)
2013
2014
EPS
2013
2014
Scenario
prev.
2013E
$65.7
2014E
$48.2
2015E
$16.4
$36.8
-$1.54
-$1.06
2016E
$36.2
$68.7
-$1.16
-$0.40
-$0.64
-$0.70
Q1
14.5A
11.0E
Q2
16.5A
12.7E
Q3
16.6A
12.9E
Q4
18.1E
11.5E
(0.11)A
(0.14)E
(0.23)A
(0.16)E
(0.08)A
(0.15)E
(0.22)E
(0.24)E
Target
$22.00
Upside
$29.00
$28.00
Downside
$11.00
2017E
$99.1
$124.7
$0.13
$0.67
2018E
$189.7
$206.9
$1.84
$2.19
Exhibit 151: Income Statement for ECYT
December 20, 2013
150
Valuation
We arrive at our $22 price target using a probability adjusted DCF/ sum of the parts analysis. For
PROC, we assume a launch in 2015, a 70% probability of success, and 12.5% discount rate for ~$7
per share. We added NSCLC assuming a 20% probability of success for ~$3 per share. For other
vintafolide indications we assume $500M in peak sales, ~37% economics, 5x sales multiple, and a
20% probability for a ~$2/share. We value the two Phase I proprietary programs at ~$4/share
assuming $500M each in peak sales, discount period of 10 years, and a 10% probability of success.
Net cash and NOLs total ~$6/share.

Our price target is dependent primarily on the regulatory and commercial success of vintafolide
(EC145) in platinum resistant ovarian cancer as well as clinical success in non-small cell lung
cancer and/or other Merck partnered indications and proprietary programs. Any setbacks in
clinical development, delay in launch, increased competition or other limitations to the market
potential of EC145 could negatively impact our valuation. Upside could come from pricing, better
than anticipated market penetration, new partnerships, clinical success of earlier-stage programs
that are not included in our valuation, and/or setbacks for potential competitors.
December 20, 2013
151
ImmunoGen, Inc. (IMGN)

Exhibit 152: ImmunoGen, Inc.
Investment summary
Our long-term favorable view on ImmunoGen is based on the
antibody-drug conjugate technology platform, Roche's
development and marketing plan for Kadcyla (T-DM1) and
potential for upside from the proprietary pipeline that includes
IMGN853 for ovarian cancer or NSCLC, IMGN529 for NHL, and
IMGN289 for anti-EGFR resistant cancers. Partnered pipeline has
shown some interesting data, especially in blood cancers, and
continues to advance with several notable biopharma partners
with data likely in 2014/ 2015. ImmunoGen's broad portfolio of
proprietary and partnered antibody programs, and the growing
industry focus on antibody-drug conjugates as a necessary nextgeneration antibody technology with the potential of a takeout.

analysis probability adjusted for success for Kadcyla (T-DM1) in
breast cancer as well as other pipeline product candidates,
which we value using a probability adjusted sales multiple based
approach. For T-DM1 in breast cancer, we arrive at a value of
~$8/share for Kadcyla (T-DM1) royalty stream by assigning a 80%
probability of clinical, regulatory and commercial success in the
adjuvant setting. We value the remaining partnered and
proprietary pipeline at ~$7/share ($11 previously), cash at
~$2/share and NOLs at ~$1/share.

Kadcyla sales ramp which could be ahead of expectations.
Kadcyla MARIANNE early stage data in 2H:15 followed by a
sBLA in 2015.
Phase I IMGN853 data in mid-2014.
Phase I IMGN289 data in 2014.
Phase I IMGN529 data at ASCO around mid-2014.
Updates from partner programs where any signs of
advancement would be viewed positively, especially for
SAR650,984 and BT-062.
Kadcyla sales could lag expectations.
Pipeline programs could suffer setbacks.
Regulatory authorities could ask for further data or fail to
approve products.
Upside scenario
Our $21/share upside scenario assumes that T-DM1 will be used
in the adjuvant setting in metastatic breast cancer and values
the T-DM1 royalty stream at ~$9/share. Our valuation for the
pipeline product candidates goes up to ~$9 ($16 previously) per
share as we ascribe higher odds of success while cash and NOLs
remain unchanged.
Downside scenario
Our $10/share downside scenario assumes that T-DM1 will not
see use in the adjuvant setting, which reduces the value of the
royalty stream to ~$4. The value of product candidates is halved
assuming higher risk while cash and NOLs remain unchanged.
December 20, 2013
152
Key questions / debates for IMGN

1.
Does IMGNs ADC technology work?
In addition to Kadcyla, which is approved in the US and EU and marketed by Roche,

other pipeline programs are showing solid efficacy, good safety, and are advancing,
which gives us confidence that IMGNs ADC technology platform works.
2.
How big can Kadcyla get?
In our model, Kadcyla royalties to IMGN are worth ~$4/share without use in the
adjuvant setting and ~$9/share if they are used in the adjuvant setting. To reach
these forecasts Kadcyla sales need to reach $2B for the former and $7B for the later
setting, respectively. As a reference point Herceptin sales total more than $6B per
year.
3.
Which proprietary programs are likely

to succeed?
All three programs are in Phase I studies including IMGN853 for solid tumors,
IMGN529 for blood cancers, and IMGN289 for EGFR+ tumors. We are most
interested in IMGN289; however, IMGN853s targets have greater validation. Positive
efficacy and safety from any of the programs would be upside.
4.
Which partnered programs are the

most interesting?
IMGNs partners presented data from IMGN650,984 and BT062 in multiple myeloma.
Both seemed promising and we believe the Street is likely to become more
favourably inclined towards IMGN605,984.
5.
Is IMGN a takeout candidate?
Several large biopharma companies have partnered with IMGN for its technology
platform. As more data comes out positive either from the proprietary or partnered
pipeline, more investors will ascribe the optionality of an acquisition to IMGN shares.
December 20, 2013
153
Exhibit 153: Income Statement for IMGN
December 20, 2013
154
Exhibit 154: IMGN Pipeline
Exhibit 155: Estimate Changes for IMGN

FY Dec
Revenue (MM)
prev.
EPS
prev.
2013A
$35.5
2014E
$71.6
-$0.87
-$0.55
Revenue (MM)
2014
2015
Q1
17.2A
11.8E
Q2
10.0E
12.8E
Q3
20.1E
18.7E
Q4
24.3E
19.8E
(0.13)A
(0.20)E
(0.23)E
(0.19)E
(0.12)E
(0.13)E
(0.08)E
(0.13)E
Target
$18.00
Upside
$28.00
Downside
$10.00
EPS
2014
2015
Scenario
2015E
$63.1
$53.1
-$0.66
-$0.78
2016E
$69.1
2017E
$81.1
2018E
$92.7
-$0.61
-$0.52
-$0.42
December 20, 2013
155
Exhibit 156: Income Statement for IMGN
Valuation
We arrive at our $18 price target using a DCF/ sum of the parts analysis probability adjusted for
success for Kadcyla (T-DM1) in breast cancer as well as other pipeline product candidates, which
we value using a probability adjusted sales multiple based approach. For T-DM1 in breast cancer,
we arrive at a value of ~$8/share for Kadcyla (T-DM1) royalty stream by assigning a 80%
probability of clinical, regulatory and commercial success in the adjuvant setting. We value the
remaining partnered and proprietary pipeline at ~$7/share (previously $11), cash at ~$2/share
and NOLs at ~$1/share.

Risks and impediments to our price target include negative regulatory and clinical trial results, a
loss of clinical partners, and slower-than-expected development of its internal pipeline.
December 20, 2013
156
Kamada Ltd. (KMDA)

Exhibit 157: Kamada Ltd.
Investment summary
We believe Kamada offers a compelling risk-reward profile with
base support from an established and growing revenue base of
plasma-derived products, including Glassia sales to Baxter.
Upside is expected from the pipeline that includes Inhaled AAT,
currently in pivotal Phase II/III trials in the EU and Phase II trials
in the US. Kamada owns 100% of the rights to Inhaled AAT in the
US and has partnered it with Chiesi in the EU. Phase II/III results
expected by early 2014 and Phase II US data in 2014 could lead
to significant upside in KMDA shares given its potentially
differentiated commercial profile, which could both gain market
share and expand the under diagnosed and under penetrated
AATD market. Even more upside could be derived from the
earlier stage pipeline targeting Type 1 diabetes, cystic fibrosis,
and bronchiectasis for which Kamada has generated proof of
activity in Phase II clinical trials.

Our $20/share target includes US Glassia, Inhaled AAT in the US
and EU, revenues from Kamadas non-Glassia proprietary and
distribution products, pipeline, and net cash. We assign a 70%
probability of success to Inhaled AAT and believe it has a high
likelihood of becoming the market leader in the US and EU. We
value intravenous and inhaled AAT revenues at ~$15/share, nonAAT products at ~$1/share, earlier pipeline at $2/share, and net
cash at ~$1/share. Our base case valuation does not reflect
success in any non-AATD indications and a 12.5% discount rate.
Upside scenario
Our $27/share upside scenario assumes ~$6/sharefrom the
earlier stage pipeline, which includes Type 1 diabetes, cystic
fibrosis and bronchiectasis. We assume a very low probability of
success for these indications (10-15%), which could increase with
additional clinical data. We assign a 70% probability of success to
Inhaled AAT and use a conservative discount rate of 12.5%. We
value intravenous and inhaled AAT revenues at $18/share.
Downside scenario
Our $11/share downside scenario reflects the failure of
Kamadas Inhaled AAT to demonstrate clinically meaningful and
statistically significant activity compared to placebo in patients
with AATD. Under such a scenario, our valuation assumes the
vast majority of KMDAs valuation is derived from currently
marketed products, including Glassia in the US, which should
continue to gain market share in the absence of inhaled AAT%.
December 20, 2013

Phase II/III data for inhaled AAT study by early 2014.
Important catalyst as it could also show differentiation in
efficacy on clinical endpoints.
Phase II data for inhaled AAT US study in 2014.
Potential partnership for inhaled AAT in the US in
2014/2015. KMDA owns all US rights to inhaled AAT and we
expect a partnership after Phase II/III data.
Potential approvals and launches in 2015 in the EU and
2016 in the US following regulatory filings in 2014 and
2015, respectively.
Other clinical and business development news flow,
including data from the Phase II type 1 diabetes study,
potential start of the Phase II cystic fibrosis study, and/or
partners for other programs.
Pivotal Phase II/III study could fail. The pivotal study is
comparing inhaled AAT to placebo and measuring clinical
endpoints, which raises the risk of the study not crossing its
pre-determined clinical and statistical threshold.
EMA or FDA could require additional trials especially since
inhaled AAT is delivered via a device.
KMDA could fail to find a partner for inhaled AAT in the US
or KMDA could opt for a different selling model.
Sales ramp of inhaled AAT could lag expectations as
patients fail to switch, market does not expand, or
intravenous products continue to be used.
157
Key questions / debates for KMDA

1.
Whats the likelihood of the ongoing,

pivotal Phase II/ III study working?
Patients with alpha-1 antitrypsin deficiency are treated with intravenous alpha-1
antitrypsin, including KMDAs Glassia. The ongoing Phase II/ III study is evaluating an
inhaled version in AATD, which is more convenient, delivers the drug where it needs
to go, and potentially makes dosing more efficient. Since its a different way to
deliver a product that already works, we believe risk to the pivotal study is low.
However, unlike historical studies the pivotal study is evaluating several efficacy
criteria vs. placebo, which if positive have the potential to create significant
differentiation for KMDAs inhaled AAT but also raise the bar somewhat for success.
2.
Will there be sufficient data for a US

BLA filing?
KMDA will initiate a pk/pd and safety study in roughly 36 US patients with AATD by
YE:13. Read out will likely be in 2014 given the 12 week double blind followed by the
double blind open label extension period. These data in combination with the
pivotal Phase II/III study conducted in the EU are likely sufficient for BLA in 2015.
3.
Whats the market opportunity for

inhaled AAT?
All current forms of AATD are intravenous. KMDAs AATD could be the first and only
inhaled AAT available for patients. We believe clinical and regulatory success is likely
to lead to significant commercial success from both patient gains and an expansion
of the market.
4.
Does the pipeline hold any attractive

assets?
KMDAs pipeline includes an ongoing Phase II/ III study in type 1 diabetes, and
planned/ ongoing studies in cystic fibrosis and bronchiectasis. Success in any of
these indications, especially cystic fibrosis or bronchiectasis, is likely synergistic with
the companys current pipeline.
5.
Is Baxter the potential future acquirer

of KMDA?
Baxter sells Glassia for KMDA in the US and has an agreement with KMDA to
produce more Glassia for the US. However, KMDA owns all rights to inhaled AAT in
the US, which is partnered with Chiesi in the EU. Any of the potential partners could
becomes more interested in KMDA once the trials read out positively or inhaled AAT
secures regulatory approval; however, cystic fibrosis, type 1 diabetes, and/ or
bronchiectasis are all attractive indications which could secure partnerships.
December 20, 2013
158
Exhibit 158: Expected news flow for KMDA
December 20, 2013
159
Exhibit 159: KMDA Pipeline
Exhibit 160: Estimate Changes for KMDA

FY Dec
Revenue (MM)
2013E
$71.2
2014E
$75.4
2015E
$96.0
2016E
$123.7
2017E
$147.5
2018E
$157.8
EPS
$0.03
$0.13
$0.56
$1.10
$1.90
$1.89
$1.80
Q1
12.6A
18.8E
Q2
16.1A
18.8E
Q3
17.5A
18.8E
Q4
25.0E
18.8E
(0.07)A
0.03A
0.00A
0.03E
0.02E
0.04E
0.06E
0.05E
0.04E
Target
$20.00
$18.00
Upside
$27.00
$25.00
Downside
$11.00
$10.00
prev.
Revenue (MM)
2013
2014
EPS
2013
prev.
2014
Scenario
prev.
December 20, 2013
160
Exhibit 161: Income Statement for KMDA
Valuation
Our $20 price target includes US Glassia, Inhaled AAT in the US and EU, revenues from Kamada's
non-Glassia related proprietary and distribution products, early stage pipeline, and net cash. We
assign Inhaled AAT a 70% probability of success and believe it has a high likelihood of becoming
the market leader in the US and EU. We value intravenous and Inhaled AAT revenues at
~$15/share, non-AAT products at ~$1/share, early stage pipeline at $2/share, and net cash at
~$1/share. Our base case uses a fairly conservative 12.5% discount rate. Levers for upside include
adjusting the probability of success and discount rate depending upon clinical, regulatory and
commercial outcomes and success in the earlier stage pipeline.

Our price target is dependent primarily on the clinical, regulatory and commercial success of
inhaled AAT for AATD. Pivotal Phase II/III study in the EU and Phase II study in the US are ongoing
and failure to demonstrate efficacy or safety in these studies would be a significant setback and
could impede achievement of our price target. Furthermore, any setbacks in regulatory approvals
in the US or EU, delay in launch, failure to secure a partnership in the US for inhaled AAT,
increased competition or other limitations to the market potential of inhaled AAT could negatively
impact our valuation. Upside could come from positive pivotal trial data, better than anticipated
market penetration, new partnerships with better than forecast terms, and clinical success of
programs that are not included in our base case valuation.
December 20, 2013
161
The Medicines Company (MDCO)

Outperform

Exhibit 162: The Medicines Company
Investment summary
Our Outperform rating is based on significant upcoming news
flow, which could potentially include several product approvals,
including cangrelor, oritavancin, Ionsys, and Fibrocaps, which
have reported positive results, as well as pivotal trial plans for
Carbavance, a late stage candidate. Shares could be volatile with
an upcoming litigation decision vs. HSP over Angiomax
paragraph IV challenge. Our DCF model assigns a probability of
70% for generic entry in 2H:19 and 30% probability of entry in
2H:15. A favorable decision is likely to lift an overhang and result
in considerable upside for MDCO shares while a negative
decision is unlikely to have a long-term fundamental impact. A
settlement with one or more paragraph IV challengers is also
likely to be viewed positively. We believe risk-reward could be
balanced at current levels but still challenging for investors with
shorter term horizons unwilling to face volatility related to
litigation.


Base case: $50. Angiomax and net cash at approximately $15 per
share (70% prob. exclusivity retained through mid-2019; 30%
prob. generic erosion mid-2015). Our $50 price target includes
~$32/share for its pipeline products, including ~$7/share for
cangrelor, $5/share for Ionsys, ~$5 for Oritavancin, ~$5/share
for Fibrocaps, $7/share for Carbavance, $2/share for Phase I
assets, $5/share for other marketed products, including
$1/share for cleviprex and other products, $3/share for
Recothrom, and $1/share for Minocin/ RPX602.
Upside scenario
Upside case: $63. Reduce the probability of generic Angiomax
entry in 2015 to 0%, which raises Angiomax franchise and net
cash to $18. Levers for upside include success in three late-stage
clinical programs, which would cause us to increase their
probabilities of success for cangrelor, oritavancin, Ionsys and
Fibrocaps, and a broader market for Carbavance. We also extend
the protected life of Cangrelor in the US and EU.
Downside scenario
Downside case: $28. We increase the probability of generic
Angiomax entry in 2015 to 100%, which reduces the value of the
Angiomax and net cash franchise to $8. We also reduce the
probabilities of success by 50% for cangrelor, Ionsys, oritavancin
and Carbavance. We include Fibrocaps at ~$5/share and
$1/share for Minocin/ RPX602. We do not include the
earlierstage pipeline worth ~$3.
December 20, 2013

Cangrelor regulatory decisions in 2014. US approval is
likely by May 1, 2014 and a EU approval in 2014/ 2015.
Oritavancin regulatory submissions and NDA filings in
2013/2014. Phase IIIs have reported out positively and an
NDA is expected in 4Q:13 with approval likely in 2014. An
MAA is expected early 2014.
Ionsys regulatory filings in 2014. Currently an sNDA is
planned for early 2014, followed by an MAA and a US
approval is possible in 2014.
Fibrocaps regulatory filings in 2013/2014. Phase III data for
Fibrocaps was positive, an MAA has been filed, and BLA is
expected in 1Q:14.
Angiomax paragraph IV patent litigation decision vs. HSP,
which if positive would be highly favorable.
Other clinical and business development news flow. Based
on positive Phase III data for Fibrocaps, MDCO could
acquire ProFibrix. News flow from earlier-stage programs is
also anticipated.
FDA or EMA could require additional data. We expect
cangrelor, oritavancin, and Ionsys to be filed for approval
but regulatory agencies could require more data or fail to
approve these drug candidates.
Pivotal and earlier stage studies could fail.
Angiomax patent could be overturned. Paragraph IV
litigation is ongoing vs. five companies and a trial is
expected in September 2013, which carries the risk of
Angiomax patents being overturned.
162
Key questions / debates for MDCO

1.
What is Angiomax worth and how

important is it for MDCO shares?
Angiomax could be worth $8/ share if generics enter in 2H:15 or $18/ share if
generic entry takes place in 2H:19. Regardless, recent business development has left
MDCOs valuation less dependent on Angiomaxs prospects, with positive data for
cangrelor and oritavancin, and additions of Ionsys, Fibrocaps, carbavance,
Recothrom and other assets. Using current values, our $50 price target would
increase to $53 if generic entry is delayed until 2019 or decline to $43 if generics
enter in 2015. Cangrelor US approval could come around mid-2014 and EU approval
around YE:14, oritavancin around 2H:14 and 1Q:15, Ionsys around YE:14 and 1H:15,
and Fibrocaps in 1Q:15 and YE:14, respectively
2.
Can a Cangrelor and Angiomax

combination fend of generic
competitors?
Approximately 5,000 patients received both cangrelor and Angiomax in the Phase III
study and the efficacy was better than other combinations. MDCO is seeking patent
protection for the use of Angiomax and cangrelor, and although likely difficult to
enforce, MDCO could try to increase the convenience factor for hospitals and
cardiologists by combining the packaging, providing training on use, and conducting
further trials.
3.
What is the most important near-term

perceived risk for MDCO shares?
A settlement or court wins vs. paragraph IV challengers for Angiomax, in particular

Hospira, where a litigation decision is expected in 1H:14, is the next big overhang. A
decision either favorable or not could lift an overhang on MDCO shares.
4.
Could carbavance a big, widely used

gram-negative drug?
MDCOs carbavance could enter Phase III clinical trials in patients with cUTI and
resistant gram negative infections, such as KPC or CRE. Carbavance appears to have
broad activity but we believe it could initially target specific organisms and specific
patients before expanding to the broader gram negative market, especially for
resistant infections. Pivotal studies could read out in 2016/ 2017 and carbavance
could be on the market in 2017/ 2018.
5.
Will Hospira and other generics

companies settle with MDCO over
Angiomax paragraph IV litigation?
A decision vs. HSP over the paragraph IV litigation is expected in 1H:14. A favorable
decision is likely to lead to upside as Street expectations are cautious. A favorable
decision is also likely to lessen the pressure for settlement with other paragraph IV
challengers. An unfavorable decision is likely to have a short-term negative impact
on MDCO shares.
December 20, 2013
163
Exhibit 163: Expected news flow for MDCO
December 20, 2013
164
Exhibit 164: MDCO Pipeline
Exhibit 165: Estimate Changes for MDCO

FY Dec
Revenue (MM)
prev.
EPS
prev.
2013E
$689.8
Revenue (MM)
2013
2014
EPS
2013
2014
Scenario
prev.
2014E
$800.5
$805.7
$1.42
$1.62
2015E
$1,000.8
$912.7
$4.11
$3.98
2016E
$1,221.7
2017E
$1,518.5
2018E
$1,871.9
$5.17
$6.66
$8.46
Q1
155.8A
172.8E
Q2
172.8A
182.0E
Q3
174.3A
195.8E
Q4
187.0E
249.9E
(0.21)A
0.17E
0.30A
0.25E
0.12A
0.33E
0.04E
0.69E
Target
$50.00
Upside
$63.00
$64.00
Downside
$28.00
$0.28
December 20, 2013
165
Exhibit 166: Income Statement for MDCO
Valuation
We value MDCOs Angiomax franchise and net cash at approximately $15 per share (70% prob.
exclusivity retained through mid-2019; 30% prob. generic erosion starting mid-2015). Our $50
price target (previously $41) includes approximately $32/share for its pipeline products, including
~$7/share for cangrelor (80% probability adjusted), $5/share for Ionsys (65% probability
adjusted), ~$5 for Oritavancin (65% probability adjusted), ~$5/share for Fibrocaps (65%
probability adjusted), $7/share for Carbavance (50% prob.) and $2/share for Phase I assets (5%
probability). We also include $5/share for other marketed products, including $1/share for
cleviprex and other products and $3/share for Recothrom, and $1/share for Minocin / RPX602.

Risks to our price target include lower-than-forecast sales of Angiomax in the U.S. or in Europe,
ongoing litigation vs. paragraph IV challengers, and pipeline setbacks, including negative data as
well as potential regulatory and commercial risk.
December 20, 2013
166
PDL BioPharma Inc. (PDLI)

Sector perform

Exhibit 167: PDL BioPharma Inc.
Investment summary
PDLI is in the process of determining if it can continue operations
as a dividend paying company that generates revenues by
extending loans or buying royalties on biotech, pharma and
medical device assets, both already on the market and those in
the process of seeking regulatory approval. We believe the
objective will remain maintaining a low cost structure while
distributing the cash flow to investors. PDLI is committed to
paying a $0.60/year dividend through 2015 and will likely return
excess cash through special dividends and repurchase its debt
and/or stock or extend the life of the company by closing more
royalty or royalty-like transactions. The primary risk to PDLI
comes from lower than forecast sales and deals not generating
expected returns.

Obinutuzumab approval by YE:13.
Settlement or favorable outcomes vs. Genentech/Roche in
ongoing arbitration and litigation.
Favorable deals with good economics in 2014 and beyond.

Our target/base case scenario is $8 per share. We use a DCF of
expected dividend payments discounted at ~7% (~PDLIs average
cost of capital) of ~$4 per share and a DCF of the cash flow
stream beyond 2015 from the currently announced deals of ~$3
per share and potential five future deals of ~$2. We assume a
10% probability of success for Solanezumab in Alzheimer's. We
forecast $0.60/year in 2013 and most of 2014, and escalating
dividends in 20142015.

Failure of partnered compounds to gain clinical or
regulatory success.
Lower than forecast sales and associated royalties.
Inability to complete further transactions or to ensure their
success.
Adverse outcomes from ongoing litigation vs. Roche.
Upside scenario
Our $10 per share upside includes one potential items not
included in our base case. This is a potential settlement with
Roche of $250M .
Downside scenario
Our $5 downside scenario, we assume there are no further deals
done to extend the life of the company, and that there is no
settlement with Roche. We also assume half the return from the
Depomed deal vs. our base or upside scenarios.
December 20, 2013
167
Key questions / debates for PDLI

1.
Can PDLI continue operations as a

dividend paying company?
The transactions done so far have generated attractive rates of return. The number,
size and timing are large enough that they could support dividend payouts over the
long term.
2.
Can PDLI keep finding high quality

deals?
Doing more deals will likely increase the risk associate with generating a return.
However, given the dynamics of the healthcare sector, specifically biotech medical
device companies, we believe it will be able to find imperfectly priced opportunities
where its prior expertise in biotech is likely to generate a positive return.
3.
What will be the outcome of the

Genentech (Roche) disagreement/
litigation?
PDLI and Roche are trying to arrive at a settlement and we have not included any
settlement cash in our base case valuation. Should Genentech agree to a payment
(potential payments to PDLI could total $1B; however, our upside scenario assumes
$250M) due to a breach of contract and underpayment of royalties, it could be
upside to expectations.
4.
Will PDLI raise its dividend payout?
PDLI typically announces its dividend payout decision in the first quarter. We assume
a dividend payout of $0.60 per year but the actual payout could increase if the
decision is to wind down the company. A payout ratio of 5-10% would still be higher
than that of many dividend paying companies.
5.
Does PDLI require further capital?
PDLI may be opportunistic about raising more capital especially if its transaction
history is success and if it were to compete against other companies to secure larger
transactions. However, it could also partner with others to close larger sized deals.
December 20, 2013
168
Exhibit 168: Expected news flow for PDLI
Exhibit 169: PDLI Pipeline
December 20, 2013
169
Exhibit 170: Estimate Changes for PDLI

FY Dec
Revenue (MM)
prev.
EPS
prev.
2013E
$432.6
$432.8
$1.49
2014E
$539.6
$548.8
$1.81
$1.84
2015E
$603.0
$617.9
$2.90
$2.79
2016E
$356.8
2017E
$22.4
2018E
$30.5
$1.89
$0.59
$0.48
Revenue (MM)
2013
prev.
2014
prev.
Q1
91.8A
Q2
143.6A
Q3
97.3A
113.6E
115.4E
168.0E
170.6E
132.0E
134.4E
Q4
99.80E
100.0E
126.0E
128.3E
0.36A
0.50A
0.30A
0.37E
0.38E
0.57E
0.58E
0.44E
0.45E
Target
$8.00
Upside
$10.00
Downside
$5.00
EPS
2013
prev.
2014
prev.
Scenario
0.31E
0.32E
0.43E
0.44E
Exhibit 171: Income Statement for PDLI
Valuation
Our target base case scenario is $8 per share. We use a DCF of expected dividend payments
discounted at ~7% (~PDLIs average cost of capital) of ~$4 per share and a DCF of the cash flow
stream beyond 2015 from the currently announced deals of ~$3 per share. We also include ~$2
per share as the assumed value for five future deals, similar to the six deals concluded over the
past two years. Upside could come from milestones from Depomed and a potential Roche
settlement of ~$2/share. We forecast $0.60/year in 2013 and most of 2014, and escalating
dividends in 20142015.

The biggest risks to our price target come from a dispute with Roche over its licensing agreement
and the ability of in-licensed products from Depomed to deliver on expected revenues. The ability
to successfully close and execute on future deals is also a risk to upside for our valuation.
December 20, 2013
170
Regeneron Pharmaceuticals, Inc. (REGN)

Outperform

Exhibit 172: Regeneron Pharmaceuticals, Inc.
Investment summary
Our Outperform rating is based on ongoing and expected growth
in Eylea sales, top- and bottom-line growth, potential longevity
of the ophthalmology franchise, a robust late-stage pipeline with
several potential blockbuster drugs, several earlier stage
compounds that remain below the radar, and a highly
productive and industry-leading antibody discovery engine. The
company's landmark deal with Sanofi provides ~$160M/year to
fund antibody discovery for eight years, gives Regeneron 50% of
the profits, and defers all development costs until the
partnership is profitable. Eylea can be a blockbuster product for
several years even if a competitor drug is approved in the 2019
or later time-frame, the ophthalmology franchise is growing with
combination therapy, and visibility on several blockbuster
potential products, including alirocumab for LDL-cholesterol,
sarilumab for rheumatoid arthritis, and dupilumab for
eosinophilic asthma and atopic dermatitis, is expected in 2014/
2015. We view Regeneron as a core long-term biotech holding.


We arrive at our $344 price target using a DCF/sum-of-the-parts
analysis. We arrive at a value of ~$271/share for Eylea (US
$174/share; EU $62/share; Japan $36/share). For the antibody
platform/pipeline (includes REGN727 and sarilumab), which we
value by applying a probability adjusted sales multiple
discounted back various periods at 9%, our value is $63/share.
Next we value Zaltrap at $3/share, Arcalyst at $1/share, and
cash/NOLs at $6/share.
Upside scenario
Our upside scenario $388/share assumes slower Eylea erosion in
the outer years supported by the launch of combination drugs.
This raises the value of Eylea in our model to $315/share (US
$202/share; EU $72/share; Japan $41/share). For the antibody
platform/pipeline (includes REGN727), the value is $62/share
but the rest of the valuation items remain unchanged at a total
of ~$10/share.
Downside scenario
Our downside scenario $266/share assumes flatter Eylea
trajectory and strong competitor launches with Eylea share
eventually being less than the new agents. This reduces the
value of Eylea in our model to ~$225/share (US $147/share; EU
$49/share; Japan $29/share). We also lower the value of the
antibody platform/pipeline by 50% to $31/share. The rest of the
valuation items remain unchanged at a total of ~$10/share.
December 20, 2013

Quarterly results. Expectations will likely come in but still
stay high for "beats" and "raises".
Eylea DME US and EU approvals in 2014/2015, especially if
the US approval comes in 3Q:14 (PDUFA August 18, 2014).
Combination Eylea and PDGF-R or ANG2 Phase I data in
2014/ 2015.
Alirocumab Phase III data details in 1Q:14 followed by
additional Phase III readouts throughout 2014.
Dupilumab Phase II data in 2014/ 2015.
Pipeline progress and updates from earlier Phase I and
Phase II programs, including Phase III 2-year DME data.
Technological innovation leading to new or different
approaches to treating various disorders.
Eylea competitors could post better than expected results
in wet AMD, RVO, or DME, and Eyleas sales ramp could be
below expectations.
Alirocumab Phase III studies could fail to demonstrate
sufficient efficacy and/or safety or suffer clinical,
regulatory, or commercial setbacks. Competition could
prove tougher than expected.
Dupilumab and other pipeline candidates could suffer
clinical, regulatory, or commercial setbacks or face tougher
than expected competition.
Expenses could stay high and SNY could stop funding the
pipeline.
171
Key questions / debates for REGN

1.
Has Eylea sales growth peaked?
We believe there is room for growth in Eylea based on its better than expected
efficacy vs. other anti-VEGFs, a sooner than expected DME approval in 3Q:14
(PDUFA date August 18, 2014), potential to differentiate vs. Lucentis and/ or Avastin
on safety, especially with upcoming 2-year DME data, and any further safety
concerns regarding Avastin in wet AMD.
2.
Will compounding pharmacy oversight

impact demand for Avastin?
We believe demand will continue to shift away from compounded Avastin over
time, especially with the FDA posting a list of compounding pharmacies that have
volunteered for oversight.
3.
Will the FDA approve alirocumab

without outcomes study data?
As long as the ability to lower LDL-C remains high, safety remains clean, and
enrolment in the ongoing outcomes study continues, we believe alirocumab is likely
to get approval prior to seeing outcomes study data in 2017/ 2018 or sooner.
4.
What are future competitive threats to

REGN or its pipeline?
Given the success of Eylea, wet AMD and DME are the focus of several biotech
companies. Big pharma is also targeting dry AMD. However, REGN could continue to
be the innovator in ophthalmology with new compounds and additional indications.
Other biotech and pharma companies have LDL-cholesterol lowering products under
development as well. However, that market is large and will need multiple players
to educate and expand it.
5.
What could take REGN shares higher?
1) Better than expected Eylea sales; 2) Sooner than expected DME approval (PDUFA
date August 18, 2014), 3) Continued concerns over compounded Avastin safety, 4)
Advancement for the ophthalmic franchise, which remains underpriced; and 5) Data
from the earlier stage pipeline, which is not yet the Streets focus.
December 20, 2013
172
Exhibit 173: Expected news flow for REGN

Timing
Expected News Flow
Program
2013
Quarter comps/performance
Eylea, Lucentis
2013 / Early 2014
Initiate Phase I combination studies with Eylea
Anti-PDGF / Nesvacumab
3Q:14
DME PDUFA - August 18, 2014
Eylea
2014
2-year data in DME
Eylea
2015
Initiate Phase III trials (?)
Competitor: DARPin (AGN)
2015
Phase III head to head data in DME
Eylea, Lucentis, Avastin
Eylea (VEGF-Trap Eye)
Zaltrap (Aflibercept; VEGF-Trap)

2014 / 2015
Potential data from earlier stage combination studies
Zaltrap
Alirocumab (REGN727; SAR236553)

1Q:14
Phase III ODYSSEY MONO details
REGN727
2014
Phase III data anticipated
Competitor: AMG-145 (AMGN)
2014
Phase III data from 9 additional studies
REGN727
2014 / 2015
File for approval
REGN727
YE:15
First approval (SNY guidance) for LDL-c lowering
REGN727
2016
Global launch for LDL-c lowering (SNY guidance)
REGN727
Mid-2014
Potential Phase II data in moderate-to-severe atopic dermatitis
Dupilumab (REGN668)
2H:14
Potential Phase II data in nasal polyposis
Dupilumab (REGN668)
YE:14 / 1H:15
Potential Phase II data in moderate-to-severe uncontrolled asthma
Dupilumab (REGN668)
YE:13
Initiate Phase II trial in NIU
Sarilumab (REGN88)
YE:13 / Early '2014
Potential Phase III results from MOBILITY
Sarilumab (REGN88)
2015/2016
File BLA
Sarilumab (REGN88)
2013 / 2014
Update on clinical plans
REGN475
2013 / 2014
Complete Phase Ib enrollment in advanced malignancies
Nesvacumab (REGN910)
2013 / 2014
Initiate further Phase I studies
Enoticumab (REGN421)
2013 / 2014
Expand Phase I program and initiate Phase II
REGN1033
2013 / 2014
Update on clinical plans
Fasinumab (REGN475)
Dupilumab (REGN668)
Sarilumab (REGN88)
Antibody Program
December 20, 2013
173
Exhibit 174: REGN Pipeline
December 20, 2013
174
Exhibit 175: Income Statement for REGN
Valuation
We arrive at our $344 price target using a DCF/sum-of-the-parts analysis. We arrive at a value of
~$271/share for Eylea (US $174/share; EU $62/share; Japan $36/share). For the antibody
platform/pipeline (includes REGN727 and sarilumab), which we value by applying a probability
adjusted sales multiple discounted back various periods at 9%, our value is $63/share. Next we
value Zaltrap at $3/share, Arcalyst at $1/share, and cash/NOLs at $6/share. Drivers for upside
include greater than forecast market shares for Eylea and alirocumab, higher than forecast sales
for sarilumab and dupilumab, greater than forecast pipeline productivity, and competitor
setbacks.

Risks to our price target include commercial uncertainty in the AMD and oncology space, and
clinical and regulatory risks for pipeline programs, and potential legal risk from competitors, such
as Roche.
December 20, 2013
175
Seattle Genetics Inc. (SGEN)

Outperform

Exhibit 176: Seattle Genetics Inc.
Investment summary
We view SGEN as a long-term and core biotech holding given its
industry-leading antibody-drug conjugation (ADC) technology, a
validated, rare, and coveted platform, a growing proprietary
pipeline, multiple partnerships with leading biotechnology and
pharmaceutical companies, robust late- and early-stage clinical
pipeline, its retained product rights, and solid balance sheet.
Ultimately, we believe SGEN will become a profitable, multiproduct company, with sales and marketing infrastructure in the
U.S., or it may be a target at some point for acquisition by a
larger company looking to build a pipeline of antibody products
in hematology/oncology. News flow is likely to accelerate into
2014 and 2015 and data from several Phase I, II, and III clinical
trials from both proprietary and partnered drug candidates.
Compendia listings, label updates, and data from investigator
sponsored studies (ISTs) could accelerate Adcetris sales as well.

Our $48/share price target is supported by a sum-of-the-parts
analysis, which assigns $25 in value to Adcetris across HL, ALCL,
DLBCL, CTCL, and PTCL, $20 to the pipeline and $3 in cash. We
include several proprietary and partnered programs in Phase I
and Phase II studies. For Adcetris, we assume peak sales of $1B+
in the U.S. and ~$700800M ex-U.S. We probability adjust our
first-line HL/ALCL value to 45%, and the r/r DLBCL, CTCL, and
PTCL values to 65%. We value the pipeline on a probability
adjusted sales multiple basis.
Upside scenario
Our $77 upside case includes four potential items not included in
our base case. These are: 1) higher probability of use in first-line
HL and ALCL (85% vs. 50% in base case) yielding ~$14 per share
in value; 2) first-line DLBCL usage yielding ~$18 per share in
value (65% probability adjustment); 3) use in first-line PTCL
equalling ~$2.50 per share (65% probability adjustment); and 4)
use in first-line CTCL equalling ~$1.60 per share (65% probability
adjustment). There is room for further upside based on clinical,
regulatory, and commercial catalysts that could cause us to
increase our probabilities.
Downside scenario
We eliminate the probability of first-line use in HL and ALCL,
DLBCL, PTCL, and CTCL. There is potential for further downside
risk if partnered programs suffer setbacks or pipeline
productivity goes down.
December 20, 2013

Modest growth in Adcetris sales from additional
indications, off-label use, or compendia listings.
Results from Phase III studies in HL, newly diagnosed HL,
relapsed/refractory CTCL and front-line CTCL in 2014/ 2015
and beyond.
Compendia listing for CTCL in 2014/ 2015 and potentially
for DLBCL in 2015/ 2016.
Phase II DLBCL plans and updates in relapsed/refractory
and newly diagnosed patients.
Safety and activity data from proprietary candidates SGN75, SGN-19a, SGN-CD33a, and SGN-LIV1a.
Results in partnered programs with Roche, Celldex,
Progenics, Bayer, Astellas, Abbott, and others are in
development and the timing of data remains unknown.
Data from several investigator sponsored studies.
Potential licensing of technology by additional partners.
Phase III clinical trials could fail to demonstrate compelling
Adcetris safety and/or efficacy, especially relative to
existing therapies.
New or unexpected side effects could be identified.
Adcetris sales could lag expectations across current and
future indications due to safety, cost, reimbursement, or
competitive concerns.
Partnered and/or proprietary programs could fail
Competing technologies could obviate the advantages
offered by SGENs platform.
176
Key questions / debates for SGEN

1.
Are serious side effects, such as

pancreatitis, associated with Adcetris?
There are several serious warnings and precautions already listed on the Adcetris
label, as they are with several cancer drugs. Pancreatitis was listed as part of the
post-marketing experience. Physicians pay attention to it but at this time the rate of
pancreatitis is not high enough to pose a threat to current or future Adcetris usage,
in our view. Recent views from physicians out of the ASH conference were
supportive of Adcetris compelling efficacy and potential for use in first-line patients.
2.
Is CD30 expression necessary?
Mechanistically investors want to see Adcetris do better in CD30+ patients with

higher levels of expression. However, recent updates at ASH showed that while
CD30 expression may not be detectable with IHC, it can show up with more
sophisticated technologies. In short, it seems the level of expression does not
matter but there has been expression to date.
3.
Can Adcetris become a billion dollar

drug and does it matter?
SGEN has a development plan that slowly and surely builds on expanding the
number of patients eligible to receive Adcetris over time. Right now we believe
Adcetris could see use as a first-line agent as long as the risk-benefit dos not change
longer term. Where Adcetris use is secure, in our view, is higher risk and relapsed/
refractory patients. Furthermore, as SGENs pipeline matures it becomes less and
less reliant on Adcetris as the only marketed proprietary product.
4.
Whats the likely driver for SGEN

shares in 2014?
Early stage/ Phase I readouts from up to four proprietary programs, including SGNCD19A, SGN-CD33, SGN-LIV1A and possibly SGN-CD70. High response rates and
good tolerability are likely tog give investors on future revenue opportunities. A
path forward in ALL or AML alone would present blockbuster potential drugs.
5.
Do partnered program read outs

impact SGEN shares?
SGEN has already benefited from Roche highlighting the advancement of two ADCs
from SGEN technology advancing to Phase II. Another partner, Celled, is in the
process of conducting pivotal studies. The large number of partnered studies is likely
to yield more success from compounds advancing and SGEN receiving credit.
December 20, 2013
177
Exhibit 177: Expected news flow for SGEN
December 20, 2013
178
Exhibit 178: SGEN Pipeline
December 20, 2013
179
Exhibit 179: Income Statement for SGEN
Valuation
Our $48/share price target is supported by a sum-of-the-parts analysis, which assigns $25 in value
to Adcetris across HL, ALCL, DLBCL, CTCL, and PTCL, $20 to the pipeline and $3 in cash. We include
several proprietary and partnered programs in Phase I and Phase II studies. For Adcetris, we
assume peak sales of $1B+ in the U.S. and ~$700800M ex-U.S. We probability adjust our first-line
HL/ALCL value to 45%, and the r/r DLBCL, CTCL, and PTCL values to 65%. We value the pipeline on
a probability adjusted sales multiple basis.

Risks to our price target involve negative clinical or regulatory developments, significantly higherthan-expected toxicity for the company's conjugates, which could increase clinical development
risk, and the loss of corporate partners.
December 20, 2013
180
Sunesis Pharmaceuticals, Inc. (SNSS)

Exhibit 180: Sunesis Pharmaceuticals, Inc.
Investment summary
Sunesis' primary value driver is vosaroxin, which is in Phase III
testing for the treatment of relapsed or refractory acute myeloid
leukemia (AML). Data from the 712-patient VALOR trial, which is
comparing vosaroxin and cytarabine to cytarabine alone, is
expected in 2Q:14 and could be a transformative catalyst for
SNSS shares. Earlier-stage studies in both treatment experienced
(relapsed/ refractory) and newly diagnosed patients have
demonstrated vosaroxins activity and relative safety. We view
SNSS as having an attractive risk-reward given the significant
unmet need, especially in patients with relapsed/refractory AML;
however, this is a binary event.

Pivotal Phase III VALOR data for vosaroxin in
relapsed/refractory AML in 2Q:14.
Success from earlier-stage programs or IST for vosaroxin in
2014/ 2015.
NDA and MAA filings in 2014 pending positive Phase III
data for vosaroxin.

We arrive at our $9 price target using a product level DCF that
assumes peak vosaroxin sales of $500600M in the U.S. and EU,
a 20% royalty on sales in Europe, a relatively discount rate of
12.5%, and a terminal growth rate of -50%. For our base case
model, we assume 0% penetration in the first-line setting, 50%
penetration in the second-line setting, and 5% penetration in the
elderly chemotherapy ineligible patient population to arrive at a
value of ~$9/share. Penetration into the first-line setting would
be an upside driver.

Pivotal Phase III VALOR study could fail and/or regulatory
authorities could fail to approve vosaroxin.
Sales ramp for vosaroxin could lag expectations.
Competitors could emerge as successful treatment of AML
remains a high unmet need.
Upside scenario
Our upside scenario of assumes first-line penetration starting in
2017 and increasing to 40%, second-line penetration peak of
35% in 2020 and declining thereafter, and 0% penetration in the
elderly chemotherapy ineligible setting for a value of
~$12/share. Penetration into the elderly chemo ineligible setting
in the early years could be a driver of upside.
Downside scenario
Our downside scenario assumes that vosaroxin pivotal and other
ongoing studies do not meet their primary endpoints and shares
go to near cash, which is ~$1/share.
December 20, 2013
181
Key questions / debates for SNSS

1.
Will the Phase III vosaroxin trial in AML

work?
Clearly the interim analysis that resulted in the trial being upsized showed a certain
level of promising activity for vosaroxin + cytarabine over cytarabine alone arm.
However, the lack of progress in the LI-1 studies have raised the perceived risk
associated with vosaroxin use. Overall, since the trial has several interim safety
looks built in ahead of OS data in 2Q:14, we believe there still the possibility of a
positive readout.
2.
What level of OS benefit is needed for

vosaroxin to get used?
Given the dearth of treatment options available to patients with relapsed/

refractory AML, we believe a statistically significant improvement in survival could
be meaningful. However, the trial has 80% power to show a 20% OS benefit (e.g., 6
months vs. 5 months).
3.
Why did LI-1 not work and what could

it mean?
The primary reason for LI-1 mono and combination therapy vosaroxin arms not
expanding to the next stage appears to be tolerability. However, data is not
reported yet. According to the company there is greater supportive care for patients
and physicians are more aware of how to use vosaroxin in the pivotal study
ameliorating risk. Furthermore, there have been several safety looks so far and the
trial has been allowed to progress.
4.
What other catalysts are there for

SNSS?
The main 2014 catalyst is pivotal OS data. However, several smaller trials being
initiated and they could begin reporting data in 2014/ 2015.
5.
What is SNSS funding position?
SNSS has sufficient cash to last through 2Q:14, when pivotal vosaroxin data are
expected. We assume a financing as long as data are positive.
Exhibit 181: Expected news flow for SNSS
December 20, 2013
182
Exhibit 182: SNSS Pipeline
Exhibit 183: Estimate Changes for SNSS

FY Dec
Revenue (MM)
2013E
$6.5
2014E
$53.0
2015E
$71.9
2016E
$153.0
2017E
$248.6
2018E
$312.1
EPS
-$0.76
-$0.47
-$0.33
-$0.27
-$0.32
$0.25
$0.31
$0.83
$1.20
Q1
2.0A
0.8E
Q2
2.0A
0.8E
Q3
2.0A
0.8E
Q4
0.5E
50.8E
(0.23)A
(0.24)E
(0.16)A
(0.25)E
(0.15)A
(0.35)E
(0.23)E
0.25E
Target
$9.00
Upside
$12.00
Downside
$1.00
prev.
Revenue (MM)
2013
2014
EPS
2013
2014
Scenario
December 20, 2013
183
Exhibit 184: Income Statement for SNSS
Valuation
We assign a $9 target to SNSS based on two methodologies: 1) a product level DCF that assumes
vosaroxin sales of $500600M in the U.S. and EU, a 20% royalty on sales in Europe, a discount rate
of 12.5%, and a terminal growth rate of -50%; and 2) a probability adjusted scenario analysis using
a sales multiple of the projected US opportunity. We use $500600M in peak sales, a 4x sales, 5year to peak sales, 12.5% discount rate, and a 65% probability of success to arrive at a value of
~$9 per share.
Drivers for upside could be use in the first-line setting, a more rapid uptake than currently
projected, and lower than forecast COGS and SG&A expenses.

Our price target is dependent on the clinical and regulatory success of Sunesis' product
candidates. Impediments to our price target include: 1) failure of the current Phase III VALOR trial;
2) unexpected adverse events; and 3) longer-than-expected development time. Progress of
partnered programs may also be impacted by portfolio decisions by the partners, which could
adversely impact Sunesis.
December 20, 2013
184
Spectrum Pharmaceuticals (SPPI)

Exhibit 185: Spectrum Pharmaceuticals
Investment summary
Spectrum is a cancer-focused biotechnology company with
Folotyn, Zevalin, Fusilev, and Marqibo on the market, and then
belinostat awaiting regulatory decision, and an NDA for
apaziquone expected. Most of these products also have or will
have late-stage trials ongoing which could readout out in 2015/
2016 and beyond. Spectrums earlier-stage pipeline has several
product candidates, including some in Phase II that target
blockbuster potential indications, which could help shift the
Streets focus to the pipeline. The companys core business
model is to in-license with favorable economics, develop, and
sell hematology/oncology drugs, all of which can leverage its
commercial infrastructure. In our view, risk-reward is favorable
despite potentially declining Fusilev sales given expected
diversification from other marketed products, sales of new inlicensed, acquired, or developed products in 2014/ 2015, and
additional upside from the pipeline.

Price target/base case: $15. We arrive at our $15 price target
using a product level DCF valuation. Our product level NPV
assigns a value of ~$3/share to Fusilev assuming sales of
~$80M+/year, ~$5/share to Zevalin, assuming peak sales of
~$100M and ~$2/share to Folotyn, assuming sales of
~$80M/year, both of which we assume grow over time. We
assign late-stage pipeline candidate Marqibo, belinostat,
apaziquone and melphalan a value of ~$4/share and also include
cash of ~$1/share.
Upside scenario
Our upside scenario of $20 assigns a value of ~$7/share to
Zevalin, $4/share to Fusilev, and Folotyn at ~$3.50/share. We
include late-stage candidates Marqibo, belinostat, melphalan
and apaziquone at $5/share. Financial assets are worth
$1/share.
Downside scenario
We exclude Fusilev and lower the values of Zevalin to ~$3/share
and Folotyn to ~$3/share. Next we include Marqibo, belinostat,
and cash for ~$3/share.
December 20, 2013

Zevalin and Folotyn sales could continue to grow modestly
which would be viewed as a positive. Fusilev sales could
stabilize and if they do that would be a positive driver.
Marqibo launch diversifies the top-line and could beat
currently low expectations.
Belinostat approval is expected in 2014 following an NDA
filing by YE:13.
Apaziquone NDA filing in 2014 could bring upside driver,
especially if followed by an ODAC and approval.
Pipeline news flow in 2014 could mean data from Phase II
studies, which would be a driver for upside as the Street is
not focused on it.
Business development is a catalyst although timing is
uncertain, especially as SPPI has delivered two good deals
(Marqibo and melphalan).
Sales of marketed could lag expectations. In particular,
Fusilev could continue to decline and Marqibo launch could
disappoint.
FDA/ EMA could require more data for belinostat as two
products are already approved for r/r PTCL.
Captisol encapsulated melphalan study could fail to meet
the primary endpoint.
Pivotal or earlier-stage studies could fail.
Business development activity could result in transactions
that do not deliver a positive NPV.
185
Key questions / debates for SPPI

1.
Do Fusilev sales still matter?
A run rate of $20-25M per quarter could still be upside to expectations, especially if
we have greater visibility regarding demand trends. However, SPPI shares should
become increasingly less reliant on Fusilev sales as the revenue stream diversifies
and the focus shifts to the pipeline in 2014/ 2015.
2.
What are expectations for Folotyn and

Zevalin?
Management is reigning in expectations of growth for Folotyn and Zevalin. Modest

annual increases are expected but there could be quarter to quarter variability.
Accordingly, visibility on reliable growth would be a positive
3.
Are there upside surprises in the later

stage or marketed pipeline?
Phase III trials for Zevalin and Marqibo are ongoing, a pivotal study for captisol
encapsulated melphalan, belinostat NDA is filed, and an apaziquone Phase III
initiation and NDA are expected and success in any of these programs would provide
support.
4.
Since expectations are low, could the

earlier stage pipeline deliver an upside
catalyst?
Phase II data for SPI-2012 for neutropenia and for SPI-1620 for cancer could be out
in 2014/ 2015. If positive this would further shift the focus towards the pipeline,
which remains under appreciated by the Street.
5.
Will SPPI do more business

development?
Management could be opportunistic about doing more transactions. However, as

revenues stabilize and the pipeline matures SPPI could also become a takeout
target.
Exhibit 186: Expected news flow for SPPI
December 20, 2013
186
Exhibit 187: SPPI Pipeline
December 20, 2013
187
Exhibit 188: Estimate Changes for SPPI

FY Dec
Revenue (MM)
prev.
EPS
prev.
Revenue (MM)
2013
2014
EPS
2013
2014
Scenario
prev.
2013E
$156.1
2014E
$174.1
$176.5
-$0.10
-$0.09
2015E
$207.7
$209.4
$0.15
$0.14
2016E
$241.4
2017E
$287.0
2018E
$329.6
$0.37
$0.62
$0.84
Q1
38.7A
38.5E
Q2
33.2A
40.6E
Q3
42.4A
44.0E
Q4
41.7E
51.2E
(0.05)A
(0.04)E
(0.17)A
(0.01)E
(0.13)A
(0.07)E
(0.10)E
0.02E
Target
$15.00
Upside
$20.00
$19.00
Downside
$9.00
$8.00
-$0.45
Exhibit 189: Income Statement for SPPI
December 20, 2013
188
Valuation
We arrive at our $15 price target using a product level DCF valuation. Our product level NPV
assigns a value of ~$3/share to Fusilev assuming sales of ~$80M+/year, ~$4/share to Zevalin,
assuming peak sales of ~$100M and ~$3/share to Folotyn, assuming sales of ~$80M/year, both of
which we assume grow over time. We assign late-stage pipeline candidate Marqibo, belinostat,
apaziquone, and melphalan a value of ~$4/share and also include cash of ~$1/share.

Our price target is dependent primarily on the commercial success of Zevalin, Folotyn, and Fusilev.
Any setbacks in market uptake or clinical development of Zevalin, Fusilev, Folotyn or other
pipeline product candidates could negatively impact our valuation. The biggest risk to Fusilev
estimates is the potential for market share loss when generic leucovorin supplies fully return to
the market. Upside could come from two late-stage programs (Apaziquone and Belinostat) or
other pipeline programs, price increase for marketed products, better-than-anticipated market
penetration for Fusilev, and/or lower-than-forecast loss in Fusilev sales.
December 20, 2013
189
XOMA Corporation (XOMA)

Exhibit 190: XOMA Corporation
Investment summary
An investment in XOMA is predicated on the assumption that its
lead drug, gevokizumab (XOMA 052), will be successfully
developed for anyone of several potential indications, such as
Behcet's disease/ non-infectious uveitis or for the much larger
EOA or cardiovascular disease markets. XOMA is seeking
additional orphan indications to pursue gevokizumab approval in
to ensure a path to the market. Partner, Servier provides all of
the funding for the cardiovascular disease development and will
pay the first $50M of Behcet's development and 50% thereafter.
As a result, the required investment and financial risk for XOMA
is substantially diminished. Several planned and ongoing Phase II
studies with several targeting orphan indications increase the
likelihood of success and potentially provide a path to expedited
approval. Further upside could come from XOMAs earlier stage
pipeline, which is targeting insulin related disorders.

We arrive at our $9 price target using a product level DCF
valuation. Our product level NPV assigns a value of ~$6/share to
Gevokizumab. Estimate assumes a 35% addressable NIU market
and a market penetration of 29.5% in 2030 and a 6% addressable
Behcets and a market penetration of ~55% in 2030. An
additional $3-4/share for gevokizumab in an additional
indication and cash.
Upside scenario
Our upside scenario assumes similar values for gevokizumab in
NIU and Behcets but adds a probability adjusted sales multiple
based sum-of-the-parts valuation for the pipeline, which adds
~$8/share in value.

Phase II erosive osteoarthritis of the hand data (EOA) in
1Q:14.
Faster than forecast enrollment in Behcets and NIU pivotal
studies.
Phase III Behcets data in 3Q:14 or sooner.
Phase III NIU data in 2014.
Pivotal trial initiation for neutrophilic dermatoses.
Data from one or more of several ongoing proof-of-concept
studies.
Slower than anticipated clinical trial enrollment.
Clinical setbacks for ongoing pivotal studies.
Failure of gevokizumab to advance in one or more
indications beyond NIU and Behcets.
Regulatory, commercial, or competitive hurdles for
gevokizumab.
Downside scenario
Gevokizumab market penetration is reduced to 15% and
Behcets market penetration reduced to ~28% in 2030, to arrive
at a value of ~$2 in value.
December 20, 2013
190
Key questions / debates for XOMA

1.
Will the Phase II EOA trial work?
The initial Phase II results in erosive osteoarthritis of the hand patients with high
CRP were promising. Next up is scan data possibly showing an impact on disease
modification. We think the odds are high for longer term pain/ function data to
be favorable and there is a possibility treatment with gevokizumab could
demonstrate a reduction in damage over time.
2.
Will Phase III Behcets and NIU trials

get delayed?
Centers are up and enrolment could be on track to deliver data in 2014. Phase III
data from Behcets disease (EYEGUARD B) is expected by mid-2014 and the noninfectious uveitis studies (EYEGUARD A and C) could read out in 2014 as well.
3.
What are expectations for EYEGUARD

A, B, and C clinical studies?
We expect the trials to work given the previously seen positive data in two
Behcets pilot studies. As long as the EYEGUARD B study works, only one of the
remaining Phase III studies needs to be positive for regulatory approval.
4.
Is there anything in the pipeline thats

underappreciated?
In addition to Behcets and NIU, XOMA and partner Servier are testing
gevokizumab, an IL-1beta antagonist, across a variety of indications including
cardiovascular disorders. XOMAs earlier stage assets can also target different
metabolic orders such as diabetes, hyperinsulinism or insulinoma with X-met A, S
or D. Given the Streets focus on EOA, Behcets and NIU, positive updates from
the pipeline could be upside.
5.
What is the long-term drug

development strategy at XOMA?
XOMA is clearly focused on developing gevokizumab, most likely for an orphan

indication, which could be the most expeditious path to the market, but also for
bigger indications such as EOA or cardiovascular disease. The point is to get a
drug to market and potentially use those revenues to fully develop the pipeline.
The next pivotal trial to begin could be in neutrophilic dermatoses.
December 20, 2013
191
Exhibit 191: Expected news flow for XOMA
Exhibit 192: XOMA Pipeline
December 20, 2013
192
Exhibit 193: Income Statement for XOMA
Valuation
We arrive at our $9 price target using a product level DCF valuation. Our product level NPV
assigns a value of ~$6/share to Gevokizumab. Estimate assumes a 35% addressable NIU
market and a market penetration of 29.5% in 2030 and a 6% addressable Behcets and a
market penetration of ~55% in 2030. An additional $3-4/share for gevokizumab in an
additional indication and cash, we arrive at our valuation of ~$9/share.

Risks to our price target include: 1) clinical risk for gevokizumab in pivotal program and POC
trials; 2) regulatory risk in the pivotal program; and 3) financing risk; however, we expect no
additional capital raises until data read-outs from gevokizumab warrant further investment.
December 20, 2013
193
Required disclosures
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RBC Capital Markets, Equity Research
As of 30-Sep-2013
Investment Banking
Serv./Past 12 Mos.
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
Percent
Count
Percent
769
656
83
51.00
43.50
5.50
271
179
13
35.24
27.29
15.66
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December 20, 2013