Pharsight
Pharsight Corporation
Investor Presentation
February 2005
Shawn O’Connor President & CEO
Cynthia Stephens SVP & CFO
Forward-Looking Statements
This presentation contains forward-looking statements related to future events or our future financial performance, including forward-looking statements regarding our competitive position, trends in customer demand, potential business growth, opportunities to leverage our financial model, our market position, potential increases in our revenue, customer base and market interest in our solutions, expansion of scope and increasing efficiency of consulting engagements, new service offerings, market conditions and future revenue growth and profitability. Actual releases of future versions of our software, including any new features and/or functionality that may be included therein, will be on a when-and-if available basis only, and whether any new version will actually be made available remains at the sole discretion of Pharsight.
These forward-looking statements involve risks and uncertainties, and factors that could cause actual results to differ materially include the following: uncertainties involved in pharmaceutical drug development, changes in government regulation of the pharmaceutical industry, and the failure of the market for Pharsight’s products and services to develop as expected, or for new customers beyond large pharmaceutical customers, who form a large component of our client base, to adopt our solutions. Further information on potential factors that could affect actual results is included in Pharsight’s Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission on November 12, 2004. All forward-looking statements are based on information available to Pharsight as of the date hereof, and Pharsight assumes no obligation to update such statements, whether as a result of new developments or otherwise.
Copyright © 2005 Pharsight. All rights reserved.
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Pharsight is…
Delivering breakthrough improvement in the clinical drug development process to pharmaceutical companies by…
Accelerating client product time-to-market
Improving client development efficiencies
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Profile
Background
Founded 1995; IPO August 2000 Headquarters—Mountain View, CA
East Coast Office—Cary, NC
Headcount—approx 80
US, Europe, Australia
OTCBB: PHST
Business and Products
Market leading provider of data repository and report automation tools and PK/PD data analysis software
Pharsight® Knowledgebase Server TM(PKS TM) Suite
WinNonlin®
Opportunity to leverage and accelerate use of scientific methodology through new software application
Drug Model Explorer TM (“DMX TM”)
Unique provider of strategic scientific consulting and decision analysis delivering significant impact to customers’ drug development process
Recent Financial Performance
Demonstrable progress towards achievement of long-term sustainable, profitable revenue growth, with…
4 consecutive quarters of net income 7 consecutive quarters of revenue growth
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Executive Team
Shawn O’Connor
President & Chief Executive Officer QRS, Diasonics Ultrasound, Peat Marwick
Cynthia Stephens
SVP & Chief Financial Officer Rainmaker Systems, Calico, Quiver, Infoseek/ The Walt Disney Company
Mona Sowiski
SVP Drug Development Consulting Services Mitchell Madison Consulting, CSC/APM Healthcare, Stanford, Pitt
Daniel Weiner, PhD
SVP Software Products
IVAX, Merrell Dow, Syntex, Quintiles
William Gillespie, PhD
VP & Lead Scientist, Consulting Services, East Coast
GloboMax, FDA (CDER), Univ. of Texas at Austin-College of Pharmacy
Greg Lee, PhD
VP Research & Development Sunrise Test Systems, Weitek, Schlumberger
Nancy Risch
VP Global Sales BBN Corporation, Interleaf, GE, Wang
Russ Wada, PhD
VP Consulting Services, West Coast and Japan Stanford, MiniMed Infusion Systems, Hughes Aircraft, TRW
Rene Bruno, PhD
Managing Director, Consulting Services, Europe Genentech, Rhone-Poulenc Rorer, Syntex
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Our Market Opportunity:
Drug Development Cost and Timeline
Research $25 Billion1
High throughput screening Combinatorial chemistry Genomics Rational drug design
Significant Productivity Increase and Investment
Clinical Development $48 Billion1
Long, risky and complex process
Of 5,000 screened compounds, 250 enter preclinical testing, 5 enter clinical testing, 1 is approved by FDA2
Avg cost to develop new drug $802M2
Only 3 out of 10 drugs produce revenues that match or exceed R&D costs2
Productivity Continues To Decline
1 2002 Estimated Global Pharma and Biotech R&D Spending by Category: BioPharm International, March 2003
2 PhRMA 2003 Industry Profile, March 2003
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Our Market Opportunity:
Development Expenditure Estimates
2003 – 2008 CAGR
Branded Pharma 8.6%
Generics 22.6%
Biotech 2.7%
Total Pharma 11.0%
$80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0
2003 2004 2005 2006 2007 2008
Phase I – III Estimated at 34% of Total Spend
Branded Pharma
Generics
Biotech
Development Expenditure by Segment & Product Development Phase: Jefferies & Company—Jefferies Pharmaceutical Services Quarterly Preview – January 19, 2005
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Our Market Opportunity: Increasing Drug Failure Rates
Decreasing FDA Approval Rates
Chance of drug successfully reaching FDA approval from Phase I has rapidly decreased
Today = 8% approval rate1
25 Years Ago = 14% approval rate1
Impact of Shifting Failure Rates to Earlier Phases
Shifting 5% of failures from Phase III to Phase I = $20M reduction in drug development costs1
Shifting 5% of failures from Phase II to Phase I = $21M reduction in drug development costs1
Improving ability to predict failure by 10% before beginning clinical trials = $100M reduction in drug development costs1
1 Pacific Research Institute – Peter J. Pitts, Challenges and Opportunities in Health Care, Financial Times Global Pharmaceutical Conference, October 18-19, 2004
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Pharsight
Software Products
Overview of Key Software Offerings
WinNonlin® (“WNL™”)
Industry Standard for Pharmacokinetic (“PK”), Pharmacodynamic (“PD”) Modeling and Non Compartmental Analysis
Pharsight® Knowledge Server™ (“PKS™”)
Enterprise Data Management Systems for Secure Storage and Management of PK/PD Data
Trial Simulator™ (“TS2™”)
Computer Assisted Clinical Trial Design & Simulation
WinNonMix® (“WNM™”)
Population Pharmacokinetic Modeling & Simulation
Drug Model Explorer™ (“DMX™”)
Software-Based Communication Technology, Designed to Facilitate Quantitative Decision-Making in Drug Development
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Key Software Offerings
WinNonlin® (“WNL™”)
Industry Standard for Pharmacokinetic (“PK”), Pharmacodynamic (“PD”) Modeling and Non Compartmental Analysis
Key Benefits
Used to simulate effects of different dosing regimens and changes in pharmacokinetic parameters required in regulatory submissions Increases productivity in modeling, analysis and reporting activities
Extensive built-in-library of PK, PD and PK-PD models
One-button export of results, plots and tables to MS Word
Potential Growth Drivers
Maintain market share under current subscription model via renewals Provide upgrade path to support incremental new revenue opportunity
WNL 5.0 release announced for early fiscal year 2006
Sales Model
Subscription license model Low-cost inside sales force Average selling price $3,000—$6,300 per seat
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Key Software Offerings
Pharsight® Knowledge Server™ (“PKS™”)
Enterprise Data Management Systems for Secure Storage and Management of PK/PD
Data
Key Benefits
Dramatically improves data management and data access Increases productivity in analysis and reporting tasks Reduces long data preparation cycle for PK analysis
Supports compliance with FDA requirements for electronic records and signature, CFR 21 part 11
Potential Growth Drivers
Installed base of current large pharma clients – expand seat count within current clients Optimize adoption pattern of industry – expand client-base beyond largest pharma into mid-size pharma and biotech
Tendency to follow the large-pharma leaders
Provide upgrade path, expanded utility
PKS 3.0 release announced for early fiscal year 2006
Sales Model
Subscription and perpetual license model Software license plus services Direct sales force Average selling price $5,500—$30,000 per seat
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Pharsight Knowledgebase Suite™ “PKS™”
WinNonlin
PKS Reporter
PKS Connectors
PKS Clients
Word
NONMEM
Excel
SAS
Pharsight Knowledgebase Server
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Key Software Offerings
Trial Simulator™ 2.0 (“TS2™”)
State-of-the-Art Clinical Trial Design & Simulation Software
Key Benefits
Minimize risk of trial design
Intuitive, protocol-based interface for specifying trial designs
Formalize assumptions Quantify uncertainty
Built-in facility for exploring alternative trial designs and model uncertainty
Reduce cost of clinical trials and drug development time-to-market
Growth Drivers
Increase potential interoperability with other Pharsight tools
Sales Model
Subscription license model Low-cost inside sales force Average selling price $18,000—$25,000 per seat
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Key Software Offerings
WinNonMix® (“WNM™”)
Nonlinear Mixed Effects (Population) Analysis Software Application
Key Benefits
Extensive built-in library of PK, PD and PK-PD models NONMEM data import wizard Built-in report-ready graphics capability Estimation algorithms for sparse and for rich data sets Maximum likelihood or restricted maximum likelihood
Growth Drivers
Increase interoperability with other Pharsight tools
Provide upgrade path, expanded utility
Sales Model
Subscription license model Low-cost inside sales force Average selling price $6,700 – 15,600 per seat
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Key Software Offerings
Drug Model Explorer™ (“DMX™”)
Software-Based Communication Technology, Designed to Facilitate Quantitative Decision-Making in Drug Development
Recently Released to Market
Desktop application introduced in FY2004 Web-server application released Q3 FY2005
Key Benefits
Facilitates more efficient collaboration within project teams to explore key drug attributes, and their respective uncertainties
Powerful, user-friendly interface
Enables more flexible scenarios & generates views of program data from underlying model outputs & simulated responses over defined problem-space
Potential Growth Drivers
Expand client base of early adopters Expand utility and footprint of application Increase interoperability with other Pharsight tools
Sales Model
Subscription and perpetual license model Cross-sold with strategic consulting services
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Software Products Market Acceptance
Over 900 customers (FY2004)
All top 20 Pharma1 apply our computer-assisted drug development software products Our software applications are licensed for use on more than 3,000 researcher desktops 2 of the top 5 Pharma1 are early adopters of our new DMX TM ?product
Importance of DMXTM mentioned by 1 large client at recent FDA/DIAS workshop and AAPS
4 of the top 10 Pharma1 are PKS TM ?customers
7 of the top 20 Pharma1
14 PKS TM customers to-date
1 Pharma Exec 50: Pharmaceutical Executive, May 2004
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Pharsight
Strategic Consulting Services
Strategic Consulting Services Methodology
A formal, quantitative, model-based decision-making method
Increases drug development productivity
Decreases late stage attrition Decreases time-to-market
Increases # of drugs reaching market per $ invested
Improves clinical quality and commercial performance of final product
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Strategic Consulting Services Offerings
Preclinical
Candidate prioritization, selection & preparation for first-in-man/ proof-of-concept
Early Phase
(I/IIa)
Proof-of-concept strategy Dose-finding strategy First-in-man dose Biomarker trial design Dose-ranging trial design
Late Phase
(IIb/III)
Go/no-go decision support Pivotal registration trial design
Post-Approval
Life-cycle management
Phase IIIb/IV strategy Competitive positioning
Label expansion strategy
LEVEL OF INTEGRATION AND
POTENTIAL IMPACT
Scaling (competitors, analogues) Clinical utility index analysis Adaptive trial and program design
Product profile assessment Dose justification and optimization
Support in-licensing and out-licensing decisions
Strategic consulting services combined with novel technology (DMX TM)
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Strategic Consulting Services Customer Testimonial
Aventis turned to a computer model from a small company named Pharsight. Using its own animal and human test data, Aventis was able to simulate later-stage clinical trials. Based on that simulation, “We stopped funding development of the compound. The ratio between the therapeutic benefit and side effect demonstrated that this compound was not as beneficial as Evista.” Douglas estimates that the Pharsight computer model saved Aventis $50M to $100M, the cost of later-stage clinical trials. “We were able to switch to another project with a greater chance of success.”
Frank Douglas Aventis Chief Scientific Officer and
Executive VP of Drug Innovation and Approval
FORBES ASAP
October 7, 2002
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Strategic Consulting Services Potential Growth Drivers
Industry Factors
Increased acceptance of modeling and simulation as alternative to clinical trial results in Pharma’s development cycle FDA Critical Path Initiative
Internal Factors
Expanding scope and increasing efficiency of consulting engagements
Expanded service offering
Continuing recruitment of best & brightest in the scientific community
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Strategic Consulting Services Market Penetration – Current Clients
Top 5 Pharma
100% Market Penetration
Top 10 Pharma
50% Market Penetration
Existing Pharsight Clients Unaddressed Market Opportunity
Top 50 Pharma
30% Market Penetration
Existing Pharsight Clients Unaddressed Market Opportunity
1 Pharma Exec 50: Pharmaceutical Executive, May 2004
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Pharsight
Financial Overview
FY04 Accomplishments FY05 Objectives
Fiscal Year 2004 Results
Positive revenue momentum
Y-Y revenue growth of 27%
Effected operating efficiencies
Y-Y reductions in operating loss of 84%
Achieved profitability in Q4
Achieved positive annual operating cash flow
Introduced new product offering (DMX)
Fiscal Year 2005Objectives
Continued revenue growth
YTD Y-Y revenue growth of 34%
Profitability
YTD net income of $1.9 million, or 12% of revenues
Expansion of DMX capabilities
Release of DMX web-server in Q3
Additional new product development
Announced planned release of WNL 5.0 and PKS 3.0 early fiscal 2006
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Summary Statement of Operations—Y/Y Current Quarter & Year-to-Date
(‘000s except per share data)
Q3 Q3 YTD YTD
FY05 FY04 FY05 FY04
Revenues $6,462 $4,583 $16,568 $12,327
Cost of revenues 1,948 2,084 5,606 5,635
Gross profit 4,514 2,499 10,962 6,692
Operating expenses 3,024 2,771 8,851 8,782
Income (loss) from operations 1,490 (272) 2,111 (2,090)
Net income (loss) 1,411 (327) 1,926 (2,305)
Net income (loss) attributable to
common stockholders 1,266 (472) 1,461 (3,080)
EPS (common), basic $0.07 $(0.02) $0.08 $(0.16)
EPS (common), diluted $0.05 $(0.02) $0.07 $(0.16)
WASO—basic 19,117 19,052 19,088 19,049
WASO—diluted 28,195 19,052 28,282 19,049
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Summary Operating Results by Segment – Y/Y Current Quarter & Year-to-Date
(‘000s)
Q3 Q3 YTD YTD
FY05 FY04 FY05 FY04
SOFTWARE PRODUCTS $% $% $% $%
Revenues $4,153 100% $2,284 100% $9,309 100% $6,245 100%
Gross profit 3,597 87% 1,575 69% 7,907 85% 4,592 74%
Income (loss) from operations 1,397 34% (155) -7% 1,899 20% (981) -16%
STRATEGIC CONSULTING SERVICES
Revenues $2,309 100% $2,299 100% $7,259 100% $6,082 100%
Gross profit 917 40% 924 40% 3,055 42% 2,100 35%
Income (loss) from operations 187 8% (59) -3% 306 4% (879) -14%
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Summary Balance Sheet December 31, 2004
Dec 31, March 31,
(‘000s) 2004 2004
ASSETS
Cash & Cash Equivalents $8,766 $10,027
Accounts Receivable, Net 6,393 3,770
Total Current Assets 15,725 14,517
Total Assets 16,584 15,294
LIABILITIES & STOCKHOLDERS’ DEFICIT
A/P & Accrued Expenses $3,345 $2,518
Deferred Revenue—Short Term 7,954 7,987
Notes Payable & Capital Leases 1,875 1,930
Total Current Liabilities 13,174 12,435
Deferred Revenue—Long Term 144 516
Notes Payable—Long Term 438 1,094
Redeemable Conv Pref Stock 6,266 6,164
Stockholders Deficit (3,438) (4,915)
Total Liabilities & S/H Deficit 16,584 15,294
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Equity Structure
(All share data as of December 31, 2004)
Common Shares O/S: 19.1 million Preferred Shares O/S: 1.9 million
Series A 1.8 million / Series B 0.1 million
Common Equivalent Shares (as converted): 26.6 million PIPE Financing 6/02 and 9/02 = $7.5M
1.8 million Units = 1 share Series A redeemable convertible stock + 1 warrant Preferred conversion ratio 1:4 Warrants exercisable for 1 share common @ $1.15 Dividend rights: 8%/annum cash or Series B shares Conversion:
Automatically upon consent of 75% of preferred holders, or
Upon close of public offering of at least $3.006 per share and proceeds of $40M
Redemption:
At election of at least 75% of preferred holders (or at Pharsight’s option) after 5th anniversary of initial issuance at $4.008 per share (June 2007)
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Quarterly Revenues
(‘000s) $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0
Software Products Strategic Consulting
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 Q1 FY05 Q2 FY05 Q3 FY05
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Quarterly Gross Profit
(Percentage of Segment Revenues)
Strategic Consulting
Software Products
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 Q1 FY05 Q2 FY05 Q3 FY05
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Sequential Profitability
(‘000s)
Profitability achieved Q4 FY04 $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 $3,500
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 Q1 FY05 Q2 FY05 Q3 FY05
Revenues Costs & Expenses
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Quarterly Operating Income Growth
(000s) $1,500 $1,000 $500 $0
-$500
-$1,000
-$1,500
-$2,000
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 Q1 FY05 Q2 FY05 Q3 FY05
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Quarterly Operating Cash Flow
(‘000s) $2,000 $1,500 $1,000 $500 $0
-$500 -$1,000 -$1,500
Q1 FY04 Q2 FY04 Q3 FY04 Q4 FY04 Q1 FY05 Q2 FY05 Q3 FY05
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Summary
Current Pharma Market Trends…
Increasing Mindshare for Quantitative-Based Modeling & Simulation… Continuing Pharsight Investment in Revenue Optimization & Product Development… Financial Stability Achieved in FY04 and First 9 Months of FY05…
All Support Our Drive Towards Sustainable Growth and Profitability
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Notices
Proprietary Notice
All contents Copyright ©2005 Pharsight Corporation. All rights reserved. The copyright for this document is owned by Pharsight Corporation.
No part of this document may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, for any purpose, without the express written permission of Pharsight Corporation. WinNonlin®, WinNonMix® and Pharsight® are registered trademarks of Pharsight Corporation. Pharsight Knowledgebase ServerTM, PKSTM, PKS ReporterTM, Drug Model ExplorerTM, DMXTM, Trial SimulatorTMand TS2TMare trademarks of Pharsight Corporation.
All other brand and product names are trademarks or registered trademarks of their respective holders.
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Pharsight
Pharsight.