2ndANNUAL

Successful Biotech Boards 2017

RSA Talent Equity®

RSA Talent Equity®

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This is the second of our annual reports analysing the performance of biotech Boards, CEOs and Chairs in Europe and the USA.

Welcome to our latest Talent Equity® report

Nick Stephens Executive Chairman

Mark Howard Partner, Global Practice Leader Biotech & Speciality Pharma

In this report, we’ve taken a forensic look at the investment performance of the leading biotech companies over the last three years and the elements that have contributed to the performance of their Boards: • Share ownership • Over-commitment • Succession planning • Diversified composition º Gender diversity • Remuneration

As always, by analysing the industry’s leaders, we’ve focused on best practice to learn more about how to improve Board performance across the sector and the companies that they lead. This year we’ve added insight on the differences between high-performing public company Boards on different stock exchanges.

Our goal was to bring you insights that can be used in data-driven decision support, vital for building, assessing and refreshing Boards. Better leadership planning can help you ensure the best return on your technology and capital.

If you’re running a private company with public ambitions, or you lead at a public company, you have a responsibility to patients and shareholders to ensure that your Board is as effective as it can possibly be.

Please read this report and bear it in mind when planning the evolution of your leadership team. We hope that together we can build better companies, contribute to the success of our sector and change patients’ lives.

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Overview

56% EU42% USFig. 1: Average three year TTR

When comparing the return on investment (our measure is the Total Trailing Return) of biotech companies over the past three years, we found that the European companies in our survey significantly outperformed their US peers. Yet, when it comes to average market capitalisation, the US-based companies win by a landslide: $3.1 billion vs. $727 million.

Despite a difficult climate for the industry, more European companies are in the

lead for value creation, with our analysis indicating that there has been a re-balancing of transatlantic disparity from the US towards Europe. The top performers for the three-year period were Santhera (155% of total trailing return (TTR)), Tiziana Life Sciences (123% TTR) and Exelixis (63% TTR).

To better understand the drivers behind these differences in performance, we’ve correlated Board success factors with this financial data to provide a guide to how to build the most effective biotech Boards.

0 20 40 60 80

Fig.2: Top 20 Success Score by Stock Exchange

n Average companies’ success score (average three year TTR – BIOG TTR)

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The RSA Group’s Board Success Factors Building on our previous reports, we identified six factors vital to the success (or failure) of Boards. These are examined in our current analysis of the top 20 company Boards. Each factor can be assessed and managed by the Chair to give the company its best chance of global success: • Share ownership • Over-commitment • Succession planning • Diversified composition º Gender diversity • Remuneration

Share ownershipOur data indicates that in companies where directors own stock, those businesses

Success factors for best Boards

outperform their peers. For the top 20 companies in the EU and the US, Board members held a combined average stake worth US$19.7 million. These numbers are significantly skewed by large shareholdings in a small number of companies. Large shareholdings are more common in the US where long-term compensation has a more significant weight in the total compensation structure. We believe that the UK biotech industry would substantially benefit from a change in the Corporate Code to allow share-based remuneration for independent non-executive directors, especially for early-phase organisations.

Company Market Cap ($ million)

Avg. Cash ($) Avg. Value of Stock

Compensation ($)

Avg. Value of Options

Compensation ($)

Avg. Total Compensation ($)

Santhera 375 103,480 0 116,494 219,974

Tiziana Life Sciences 215 50,955 0 1,051,168 1,102,123

Exelixis 5,510 0 327,029 144,307 471,336

Galapagos 4,058 53,324 698,250 0 751,574

Anavex Life Sciences 222 0 0 282,725 282,725

Neurocrine Biosciences 3,740 61,323 0 835,991 897,314

bluebird bio 4,390 67,708 51,061 132,295 251,064

La Jolla Pharmaceutical 570 60,000 0 475,136 535,136

Medigene 288 34,580 84,894 0 119,473

Immunomedics 825 73,500 45,000 45,000 163,500

Oxford Biomedica 209 92,450 0 0 92,450

4D Pharma 201 81,270 0 0 81,270

Seattle Genetics 9,220 64,058 0 133,474 197,532

Erytech Pharma 366 41,952 44,405 0 86,357

Halozyme Therapeutics 1,860 68,214 200,000 0 268,214

Acceleron Pharma 1,110 45,131 0 186,951 232,082

Innate Pharma 750 40,350 0 0 40,350

Newron Pharma 330 43,854 0 75,226 119,080

Regenerx 28 23,178 0 44,855 68,033

Fig. 3: Summary of share-based compensation polices

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Moderated commitmentThe directors of our survey’s top 20 companies serve, on average, on three company Boards each. One third of directors hold just one Board position, which allows them to focus both on their commitments and on developing skills to address new business challenges. A director who is considered to be ‘over-Boarded’ serves on five Boards or more, down from six previously. Directors in the US serve on more Boards than their European counterparts, averaging 3.5 Boards compared to 2.3 Boards for EU directors.

Succession planningSuccessful companies refresh their Boards to adjust for the new market conditions and strategy pivots. Our top 20 companies show a healthy degree of “refreshment” that allows them to outperform their peers. Over a quarter of the surveyed Board members have been appointed in the last two years and 17% of them are under 50-years old. Though age is not correlated with performance, more mature Boards, without a broad enough age range, risk not having enough time to allow the next generation to learn on the job. Boards in the EU appear to have a better succession planning their US counterparts, with twice as many directors under 50. Diversified composition US and EU Boards are different in composition. In our surveyed companies, US Boards have on average eight directors ranging from five to eleven. EU companies have six directors on average, ranging from four to eight. Boards in the EU and US share similar functional backgrounds with, for example, over a third of directors coming from a finance background.

Almost all Board members come from a cross-functional background: scientists-turned entrepreneurs, investors turned founders, etc.

Santhera Exelixis Anavex Life Science

bluebird bio, Inc.

Medigene Oxford Biomedica

4D Pharma Erytech Pharma

Acceleron Pharma

Newron Pharma

Pharma 27%

R&D 20%

Financial 34%

Biotech 7%

Clinical 9%

Legal 3%

Fig. 4: Professional backgrounds of Board members

Fig. 5: Average number of boards per director

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Santhera 0

Tiziana Life 2.5 ll◗

Exelixis, Inc. 13 lllllllllllll

GALAPAGOS 8 llllllll

Anavex Life 3 lll

Neurocrine 13 lllllllllllll

bluebird bio, Inc. 4 llll

La Jolla 4 llll

Medigene 1 l

Immunomedics 0

Oxford Biomedica 6 llllll

ADOCIA 6 llllll

4D Pharma 3 lll

Seattle Genetics 13 lllllllllllll

ERYTECH 4 llll

Halozyme 4 llll

Acceleron Pharma 6 llllll

INNATE PHARMA 8 llllllll

Newron Pharma 4 llll

Regenerx 14 llllllllllllll

Fig 6: Median years on Board. Note: Those companies with a median of 0 have had multiple new directors added in 2017.

Gender diversity The top 20 Boards have, on average, 16% female directors, with the most diverse Board being half female. European Boards show more progress in gender diversity than their American counterparts, with 18% vs. 11% female directors. Despite the recent positive trend, there is still a lot of room for improvement in the sector. According to STAT news, women hold only 21% of senior executive positions at Fortune 500 companies, while they make 78% of the healthcare workforce. RemunerationCompetitive compensation has a significant impact on the success of a company. Better-compensated Boards produce companies that build more value for their shareholders. 86% of the combined top 20 Boards’ average remuneration is based on long-term compensation, with 67% option-based and 19% stock-based. European long-term compensation constitutes 49% of the director remuneration with 46% option-based and 3% stock-based.

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Our Global Biotech Boards: CEOs & Chairs Talent Equity® analysis identifies biotech’s top performing Boards in the US and the EU. We studied publicly traded biotech companies to identify the top 20 Boards behind the leading companies.

Objective methodology

We performed statistical analysis to identify an ideal Chair and an ideal CEO profile. We then studied the profiles of 20 CEOs and 20 Chairs who outperformed their industry peers during the three year period up to June 2017.

We gathered information for this report using both primary and secondary research, including comprehensive research of secondary sources, such as company literature, databases, investment reports and business journals.

To identify the top talent among publicly traded biotech companies, we studied 130 companies across the US and the EU. We then benchmarked their performance against The Biotech Growth Trust (BIOG), which invests in a diversified portfolio of shares and related securities in biotechnology companies on a worldwide basis. From this we selected the top 20 biotech companies.

Half of the companies are located in the US and the other half are EU-based. We focused only on SMEs and excluded large, well-established companies such as Biogen, Amgen, etc. We selected the companies based on their three year total trailing return (TTR) vs. BIOG score, picking those that scored the highest amongst their peer group. To identify our top talent picks, we applied objective metrics, our talent expertise and industry knowledge in an analogous process to our Data Driven Due Diligence executive search methodology.

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Top 20 companies

Company three year TTR (%) Success score = 3y TTR – BIOG (%)

Santhera 172.19 155

Tiziana Life Sciences 139.71 123

Exelixis Inc. 79.9 63

Galapagos NV. 72.64 56

Anavex Life Sciences Corp. 68.39 51

Neurocrine Biosciences Inc. 58.88 42

bluebird bio Inc. 50.65 34

La Jolla Pharmaceutical Company 47.62 31

Medigene 34.51 18

Immunomedics Inc. 30.07 13

Oxford Biomedica 29.02 12

Adocia 24.39 7

4D Pharma 23.02 6

Seattle Genetics Inc. 22.34 5

Erytech Pharma 21.96 5

Halozyme Therapeutics Inc. 21.51 5

Acceleron Pharma Inc. 20.45 3

Innate Pharma 20.06 3

Newron Pharma 17.52 1

Regenerx Biopharmaceuticals Inc. 17.25 0.25

As (%) of the top 20 peer group (unless stated otherwise)

CEO Chair

Tenure (median years) 5 6

No. of publications (average) 67 80

No. of patents (average) 42 39

Finance experience 20% 50%

Pharma/biotech background - strategy 40% 45%

Founders 40% 55%

PhDs/MDs 50% 65%

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The CEOs of the top 20 companies have a number of common traits: 60% of this peer group are PhDs and/or MDs. 40% of the group are scientist-turned-entrepreneur, using their scientific expertise to build successful businesses.

The scientists of the group are extremely prolific – a PhD/MD CEO holds, on average, 42 patents and patent applications. The group is also a very well published one, with 67 peer-reviewed publications on average.

20% of the peer group comes from a financial background, learning about the industry as an investment banker or VC/PE investor. In a few cases the CEOs come from a financial management background, holding previously a CFO post in a big pharma or a biotech company. The rest of the peer group gained their operational experience in the pharma sector by learning the trade at a larger company, such as Bayer, or through providing services to the sector, for example as a management consultant.

Two of the 20 companies have female CEOs, which is slightly higher than the industry average, which is 8%.

CEOs

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CEOs

Thomas MeierScientific expertise

Founder (MyoContract)

Christopher U. MisslingInvestment banking background

Strategic implementation (biotech)

George F. TidmarshClinical development

Founder (Threshold Pharmaceuticals)

Cynthia L. SullivanStrategic implementation (biotech)

Operations

Gerard SoulaIn/out-licensing & collaborations Founder (Flamel Technologies)

Kevin C. GormanScientific expertise

Founder (Neurocrine, Onyx)

Nick LeschlyInvestor (VC background)

Strategic implementation (pharma)

Michael M. MorrisseyScientific expertise

Drug discovery

Onno van de StolpeBusiness development Founder (Galapagos)

Our featured Talent Equity® CEOs and their expertise are listed in the table below. Links to full executive bios are included.

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Stefan WeberFinancial management (biotech)

Strategic implementation (biotech)

J.J. FinkelsteinRegulatory approval

Strategic implementation (biotech)

Duncan PeytonInvestor (PE)

Legal expertise

Clay B. SiegallDrug development

Founder (Seattle Genetics)

Gil BeyenStrategic implementation (biotech)

Founder (TiGenix)

Helen TorleyCommercialization/new product launch

In/out-licensing & collaborations

Habib DableCommercialization/new product launch

Strategic implementation (pharma)

Kunwar ShailubhaiCommercialization/new product launch

In/out-licensing & collaborations

Dolores SchendelScientific expertise

Founder (Trianta Immunotherapies)

John DawsonFinancial management (biotech)

Strategic implementation (biotech)

Mondher MahjoubiCommercialization/new product launch

Clinical expertise

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Chairs of the top 20 companies are even more homogeneous than the CEO group: 65% of this peer group are PhDs and/or MDs. 55% of the group are serial founders that have built multiple biotech companies.

Just like the CEOs, the scientists of the group are very prolific – a PhD/MD CEO holds, on average, 39 patents and patent applications. Chairs are even better published than the CEOs, with 80 peer-reviewed publications on average.

Half of the Chairs come from a finance background, such as investment banking, sell side, VC/PE, and even hedge fund management. It is often the case that Chairs with a finance background co-founded the company.

45% of the Chairs are pharma and/or biotech industry veterans. During many years of their service they have held multiple strategic roles, often focused on commercialisation and new product launches. In some cases, Chairs bring in- and out-licensing expertise gained by leading business development efforts at their previous companies.

Only one company has a female Chair.

Chairs

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Chairs

Kevin C. TangInvestor (hedge fund)

Founder (Ardea Biosciences)

Behzad AghazadehInvestor (PE)

Strategic implementation (biotech)

Gerard SoulaIn/out-licensing & collaborations Founder (Flamel Technologies)

Christopher U. MisslingInvestment banking

Strategic implementation (biotech)

William H. RastetterInvestor (VC)

Scientific expertise

Daniel S. LynchInvestor (VC)

Financial management (pharma)

Elmar SchneeBusiness development

Strategic implementation (pharma)

Stelios PapadopoulosInvestment banking

Founder (Exelixis, Anadys)

Raj ParekhInvestor (VC)

Founder (Oxford GlycoSciences)

Our featured Talent Equity® Chairs and their expertise are listed in the table below. Links to full executive bios are included.

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Ulrich KöstlinStrategic implementation (pharma)

Commercialization/new product launch

Allan L. GoldsteinScientific expertise Founder (Regenerx)

David NorwoodInvestment banking

Founder (Oxford Nanopore)

Clay B. SiegallDrug development

Founder (Seattle Genetics)

Gil BeyenStrategic implementation (biotech)

Founder (TiGenix)

Connie L. MatsuiStrategic implementation (pharma)

Commercialization/new product launch

Francois NaderStrategic implementation (pharma)

Investor (VC)

Gabriele CerroneInvestor (PE)

Founder (Tiziana)

Horst DomdeyScientific expertiseFounder (Medigene)

Lorenzo TallarigoStrategic implementation (pharma)

Business development

Hervé BraillyScientific expertise

Founder (Innate Pharma)

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