Last year was a strong year for the large-cap biotechnology stocks which performed exceptionally well as shown by the AMEX Biotechnology Index (BTK) gaining slightly over 25%, while the smaller and mid cap names were only slightly up for the year as represented by the Nasdaq Biotech Index (NBI), rising only 2.84%. The BTK was led in a large part by Genentech's (DNA) 67% gain, who reported positive data on Avastin, Herceptin and Lucentis. In comparison to the relatively flat 3% gain of the S&P 500, the 1.5% gain of the Nasdaq 100, and the -.06% loss of the Dow Jones Industrial Average, large cap biotech was clearly a stellar performing sector in 2005. Going forward, we foresee 2006 as much more exciting for small and mid-caps, with numerous catalysts in 2006 that may help propel share prices.

Some of the drugs that we believe will impact the biotechnology sector (and that we will be monitoring closely) are detailed below. We have categorized the drugs by disease indications and have outlined expected catalysts for these drugs in 2006. We have chosen to concentrate on drugs within the indications of Multiple Sclerosis (MS), Osteoporosis, Myelodysplastic Syndrome (MDS), Hepatitis C, Coronary Artery Disease, Diabetes, Obesity and Pulmonary Arterial Hypertension (PAH). We believe these drugs have above average likelihood of approval and will offer promising treatments for their respective indications.

The second part of our outlook concentrates on four companies: Telik, NPS Pharmaceuticals, Alexion and Myogen. We feel these four companies have promising drugs in their pipelines, have upcoming catalysts to propel the stock and are currently undervalued based on their 5 and 10-year pipelines. We will be keeping a close eye on these companies in the coming months as catalysts approach.

PART I-DRUGS BY INDICATION

Multiple Sclerosis

Tysabri (Elan and Biogen Idec)

Tysabri is the most effective drug developed for multiple sclerosis (MS) to date and was slated to be a huge blockbuster before the discovery that some patients treated with Tysabri developed a rare neurological disease called PML. Tysabri works by a novel mechanism of action, blocking the migration of immune cells to the brain, which prevents the immune attack on nerve cells that characterize MS. The voluntary withdrawal of Tysabri in February 2005 due to the development of PML in two patients (and the ensuing death of one patient) taking Tysabri, sent shockwaves through the biotech industry.

While the companies continued to conduct safety evaluations of Tysabri, the Street remained firmly negative, with the majority predicting that Tysabri will not return to the market. Despite the negativity on the Street, we remained confident that Tysabri would return to market, albeit in a restricted capacity. Following the completion of Tysabri’s safety evaluation, Elan and Biogen Idec submitted a supplemental BLA in September 2005 and the FDA is expected to decide whether Tysabri can return to market by the end of March, 2006. Tysabri was withdrawn by the developing companies, not by the FDA, and we believe that the FDA feels, as we do, that Tysabri’s benefit will be worth the risk profile.

We remain confident of Tysabri’s return (most likely with a strong warning label), however, we also feel that Tysabri’s checkered safety record will dampen its re-uptake into the market. While Tysabri’s return will be a positive for Biogen, it will be much more significant for Elan, as Biogen currently owns 100% of the number one MS therapy, Avonex, but only owns 50% of Tysabri.

Osteoporosis

Denosumab (AMG 162; Amgen)

Denosumab is a recombinant form of osteoprotegerin, a decoy receptor that prevents the binding of RANK (Receptor Activator of Nuclear factor - Kappa B) ligand to the RANK receptor. The RANK/RANK ligand pathway is a key regulator of bone metabolism by stimulating osteoclast activity. Osteoclasts are the cells responsible for degrading bone. Therefore, Denosumab’s binding to RANK ligand prevents the activation of osteoclasts, slowing bone degradation.

Denosumab is currently in phase III studies in postmenopausal women with osteoporosis. This pivotal three-year study completed enrollment in mid-2005 and accordingly, we expect top-line data in the second half of 2006. In a dose-ranging phase II study, Denosumab, given as an injection twice a year, improved bone mineral density better than the best selling osteoporosis treatment, Fosamax (typically taken orally once-weekly or daily), at 2 years after treatment. These results bode very well for the ongoing phase III study and we predict positive results in 2006. We expect Denosumab to receive FDA approval in 2009.

Preos (NPS Pharmaceuticals)

Preos is recombinant parathyroid hormone (PTH) currently under FDA review for approval (expected by March 10). Preos is the second PTH drug to be under FDA review – Forteo (Eli Lilly) is a small fragment (1-34) of PTH that received FDA approval in 2002. Preos is the full-length version of the hormone. Unlike other osteoporosis medications, which reduce bone loss, both Forteo and Preos stimulate bone growth and replace loss connectivity to enhance bone strength.

We believe that Preos has a higher than average likelihood of approval based on impressive data obtained in the pivotal TOP trial. In this study, 2,600 postmenopausal women with mild to moderate osteoporosis were either treated with Preos or placebo for 18 months (in conjunction with vitamins A and D). After 18 months, women treated with Preos had an increase in the rate of bone formation as well as greater bone volume and bone mineral density than women in the placebo group. Furthermore, Preos also decreased the incidence of new vertebral fractures with those women treated with Preos being two-thirds less likely to develop new vertebral fractures.

These positive results indicate that Preos improves bone mineral density, bone strength and reduces the likelihood of developing new vertebral fractures. While Forteo has definite first-to-market advantage, we believe that the impressive results obtained from the TOP trial will allow Preos to compete effectively with Lilly’s Forteo for two primary reasons. Firstly, Preos has been shown to be efficacious in postmenopausal women with low bone mineral density, not just in women who have already had fractures (and thus more advanced disease). Therefore, Preos may receive a broader product label than Forteo. Furthermore, animal studies with Forteo have shown that Forteo can induce osteosarcoma, a bone cancer. While it is not known whether the risk of developing osteosarcoma translates to humans, use of Forteo has been limited to patients who are at risk of developing fractures or those who are intolerant of other osteoporosis treatments. Animal studies with Preos have shown that although there is still a risk of developing osteosarcoma, this risk appears to be lower than with Forteo. This lowered risk of developing osteosarcoma with Preos may make physicians more likely to prescribe Preos than Forteo.

Myelodysplastic Syndrome

Telintra (Telik)

Telintra is a glutathione S-transferase P1-1 (GST P1-1) inhibitor being investigated for myelodysplastic syndrome (MDS). MDS is a group of diseases in which the bone marrow produces immature blood cells called blasts. These blasts fail to mature and are typically destroyed in the bone marrow resulting in a deficiency of normal blood cells. The disease typically manifests as anemia, neutropenia (low neutrophil count), and thrombocytopenia (low platelet counts).

While recent focus has been on Revlimid (Celgene), which recently received approval for the treatment of MDS patients with 5q deletions (a chromosomal abnormality associated with a quarter of MDS patients), we believe 2006 will be a big year for Telintra. Recent results from the ongoing phase II study showed that treatment with Telintra resulted in a hematological improvement in 65% of patients with multiple blood cell type shortages. Telintra was shown to improve not only red blood cell counts, but also neutrophil and platelet counts, resulting in some patients reducing or completely removing their blood transfusion requirements.

The improvement in platelet and neutrophil counts distinguishes Telintra from Revlimid, which only increases red blood cell counts. The improvements were seen across all MDS subtypes (low, intermediate and high risk MDS subtypes) and in patients with 5q deletions as well as other chromosomal abnormalities. These results are impressive, demonstrating that Telintra possesses broad activity in MDS patients, improving cell counts in these patients to help reduce or remove patient reliance on blood transfusions. Moreover, Telintra appears to be well tolerated and does not exhibit myelosuppressive side effects that are typical of MDS drugs including Revlimid. These results not only suggest a role for Telintra for the treatment of MDS, but also as a potential treatment for chemotherapy-induced cytopenias.

Telik is currently developing an oral version of Telintra (the one in phase II studies is given by IV infusions). While the phase II study is ongoing (patients will continue to receive Telintra while experiencing benefits), we expect the company to initiate phase III studies in 2006. We expect this phase III study to provide more information on the benefits of Telintra, particularly whether the drug can remove patient requirements for blood transfusions.

Hepatitis C VX-950 (Vertex)

VX-950 is a novel drug that targets a unique process in the hepatitis C (HCV) infection pathway. While the drug is only in early phase II studies, results thus far have been impressive, particularly since the drug is being designed to treat the genotype 1 HCV strain, which is more difficult to treat than other HCV strains.

In a phase Ib, dose-finding study with VX-950 in patients with genotype 1 HCV, VX-950 given alone rapidly reduced HCV viral load. The viral load reduction with VX-950 monotherapy is greater than that with the gold standard treatment of peginterferon/ribavirin. Moreover, after 2 weeks of treatment with VX-950, half of the patients in the study had undetectable viral load.

Vertex initiated a second phase Ib study in the fourth quarter of 2005 to evaluate the combination of VX-950 with the peginterferon, Pegasys (PEG-alpha-interferon-2a, Roche). While monotherapy VX-950 has clearly demonstrated efficacy, there are concerns that small molecule inhibitors, such as VX-950, run the risk of the HCV virus mutating to become resistant to the drug. Given this risk of drug resistance, the ability to administer VX-950 in combination with another HCV treatment (peginterferon) is preferred. This ongoing phase II study is critical in determining whether VX-950 can be given in conjunction with peginterferon, and whether this combination is as effective (if not more so) than VX-950 alone. Data from this study, presented earlier this week, showed that VX-950 can be given with Pegasys. Indeed, after 14 days of treatment, the combination of VX-950 and Pegasys reduced viral load better than either drug given alone. Moreover, after 14 days of treatment with VX-950 and Pegasys, 50% - 75% had undetectable viral load (depending on the viral load detection limit).

While these results are very preliminary, they are impressive. VX-950 has shown unprecedented antiviral activity, as a single agent and in combination with peginterferon, in this difficult-to-treat patient group. While it remains to be seen whether the reduction in viral load with VX-950 can be sustained (amounting to a cure), the level of viral reduction seen with such short-term exposure to the drug suggests that VX-950 can indeed induce sustained virologic response in genotype 1 HCV patients. We are very positive on VX-950 and we foresee the drug combination of VX-950 and peginterferon dominating the HCV market, particularly in patients with genotype 1 HCV.

Vertex recently initiated a phase II study to evaluate the triple combination of VX-950, peginterferon and ribavirin. Results from this study are expected in the first quarter of 2006 and will shed light on whether VX-950 can provide additive benefits to the gold standard regimen of peginterferon/ribavirin. The company also intends to initiate a large phase II study to evaluate the effects of VX-950 treatment in over 200 patients. This study will compare 12 weeks of VX-950 treatment (in combination with peginterferon and ribavirin) against 48-weeks of peginterferon/ribavirin. This study is slated to begin in the first half of 2006, with trial data expected later in 2006. Results from this study will provide information on whether VX-950 can indeed induce a sustained virologic response.

Coronary Artery Disease

AGI-1067 (AtheroGenics and AstraZeneca)

AGI-1067 is being developed as an agent to reduce atherosclerosis, the major cause of coronary heart disease and stroke. In cells lining blood vessels, AGI-1067 blocks a response to inflammatory agents that normally leads to the production of proteins, such as VCAM-1, which recruit white blood cells to the site. This process of inflammation is thought to be involved in the build up of an atherosclerotic plaque. AGI-1067 is a modified version of the drug Lorelco, which has been shown to reduce the closing of coronary arteries after angioplasty, but whose use was been limited because it lowers HDL and has EKG changes suggesting an increased risk for arrhythmias (Lorelco has been discontinued in the US).

In its first phase II trial, AGI-1067 was shown to reduce restenosis rates much like Lorelco, but without the EKG changes and with less HDL reduction. However, the improvement in restenosis rates was modest compared to that seen with drug-eluting stents. In the second phase II trial, which had originally been designed as a restenosis study, a second group of reviewers was brought in to identify (in a blinded fashion) which patients would be appropriate to evaluate for a reduction in atherosclerosis (because the trial was designed for restenosis, not all patients had adequate baseline ultrasound scans). Final results from that study showed a reduction in overall plaque volume that was not statistically significant compared to placebo, but was significant relative to baseline. Complicating this was a substantial difference in the assessment of the placebo data between the two groups of investigators. Also, it is unclear how many of the atherosclerotic lesions included in the study were treated with angioplasty.

In December 2005, AstraZeneca licensed AGI-1067 in a potentially very lucrative deal for AtheroGenics. Results from a phase III outcomes trial (ARISE) are expected in the second half of 2006. Though the circumstances surrounding the phase II trial make the data to date difficult to assess, the licensing deal with AstraZeneca, which had full access to the data, suggests that there is potential for the drug.

Diabetes

Exubera (Nektar, Pfizer, and Sanofi-Aventis)

Exubera is slated to be the first inhaled insulin approved. Insulin is currently used in 30% of diabetic patients: all type 1 diabetics and type 2 diabetics failing oral medications. Exubera’s main advantage is that patients would be able to inhale rather than inject their mealtime insulin. This should make it quite popular, though there may be some patients who will have problems using it in intensive control of type 1 diabetes, and a long-term study is planned to make sure that the small reduction in pulmonary function testing seen with Exubera is indeed benign.

In September 2005, an FDA Advisory Committee recommended approval of Exubera for type 1 and 2 diabetics without lung disease. We expect approval by the end of January 2006, though additional delays are possible given the novelty of the formulation.

Though its bulky delivery device makes it less attractive than some other inhaled insulins in development, the closest competitors only began phase III trials mid-2005. Hence Exubera is likely to have several years of exclusivity. Given the size of the diabetes market, we expect it will become a blockbuster drug, though other devices will be more popular once they come on the market. For more details, please see our inhaled insulin revenue model update. LAF237 (Novartis) and Januvia (Merck)

Both of these drugs, which are in phase III development, are inhibitors of the DPP-IV enzyme, and prevent the breakdown of glucagon-like peptide-1 (GLP-1). GLP-1 stimulates the release of insulin and also reduces the secretion of glucagon, a hormone that stimulates the liver to increase blood sugar levels. There is also some preclinical data to suggest that GLP-1 may help prevent the deterioration of insulin-secreting cells. These drugs act along the same biological pathway as Byetta, which is an analogue of GLP-1. They have the advantage of being oral, although Byetta has the coveted side-effect of weight loss.

Because most patients with type 2 diabetes eventually fail existing oral drug treatment, there is a great need for new therapy. These drugs have the benefit of a good safety profile, so it will be easier to use them in combination with other treatment. Phase III data for Januvia is expected at this year’s American Diabetes Association annual meeting in June, and it will be interesting to see how it compares to data released already for LAF237.

From the data released thus far, we believe LAF237 will be stronger. Results from a yearlong extension phase of a study comparing LAF237 to metformin should be released in 2006. There is potential upside for LAF237 if the glucose control of patients on metformin deteriorates more rapidly than that of patients on LAF237, though it may be too soon to see a difference.

Given the size of the diabetes market, this class of drugs has blockbuster potential. The NDA filing for both drugs is expected in 2006. Novartis plans to file in the first half for LAF237, but Merck has not been specific about the timing for Januvia.

Obesity

Acomplia (Sanofi-Aventis)

Obesity is a worldwide epidemic, but current treatments are limited by modest efficacy and powerful side effects. As a result, only a minority of patients receive medications for obesity, and only two drugs, Meridia and Xenical, are approved for long-term therapy.

Acomplia uses a novel mechanism to reduce appetite: the inhibition of cannabinoid CB1 receptors in the brain. These receptors are thought to be involved in regulating appetite, and cravings such as smoking. Acomplia also appears to increase production of adiponectin, a cytokine made in fat cells that may reduce insulin resistance.

Acomplia’s effect on weight is not dramatic, but data suggests it is as least as good as existing options. Of note, there have been sizeable studies showing it also has effects on lipids (HDL and triglycerides) and diabetes, and it reduces the rate of the metabolic syndrome by a third relative to placebo. Acomplia does not increase blood pressure or heart rate, like some marketed products. Given Acomplia’s mechanism of action, we do have slight concerns over the higher rates of depression and anxiety seen in one study, but rates for these adverse effects are also higher than placebo for existing treatment, and we do not foresee this will be a major obstacle.

Acomplia has also been developed for smoking cessation. Results have been mixed, with one large trial showing abstinence that was not greater than existing treatment, another not demonstrating a difference from placebo, and a very large trial (5,055 patients) showing a modest improvement in abstinence at 1 year. However, Acomplia has the advantage of greatly reducing the weight gain seen with quitting smoking, and so we think it will be a relatively valuable addition to the smoking cessating market.

The NDA for Acomplia for obesity and smoking cessation was submitted in April 2005, and the PDUFA is expected in February 2006. Given the low usage of current long-term obesity drugs, Sanofi is likely to focus its positioning of Acomplia as a drug to treat multiple risk factors associated with obesity (diabetes, certain lipids, metabolic syndrome) and is likely trying to include these other indications in the label.

While we think without hard outcomes data, it will be difficult to gain an indication for some of these, particularly since Acomplia's benefits are modest, we also believe that physicians will be eager to try Acomplia. Without outcomes data, reimbursement is likely to still be an issue, as a number of managed care plans do not cover anti-obesity drugs.

Pulmonary Aterial Hypertension (PAH)

Ambrisentan (Myogen)

Pulmonary arterial hypertension is a condition in which increased blood pressure in the vessels of the lung leads to blood vessel damage and remodeling. It may arise spontaneously or as a result of other disease. PAH is not a common disease, but the high price of current treatments is attracting new entrants.

Ambrisentan is an oral agent that blocks the receptor for endothelin A. Endothelin plays a role in lung blood vessel contraction and cell growth. There is already one oral endothelin antagonist approved (Tracleer) and another in NDA status (Thelin). Tracleer has a first-to-market advantage, but is dosed twice a day and increases the risk of liver toxicity. Thelin is dosed once daily, and has shown comparable efficacy data to Tracleer with a lower incidence of liver function abnormalities. Ambrisentan may have even lower rates of liver toxicity (though longer trials are needed to establish this) and fewer drug-drug interactions, which would be a benefit in combination drug use. Ambrisentan also showed strong preliminary efficacy results in its first phase III trial. When looking at the larger trials, the placebo-subtracted results for Ambrisentan appeared superior to the other oral endothelin antagonists. On a cautionary note, it is difficult to compare different studies particularly without more detailed information, such as baseline data, and the Ambrisentan trial excluded patients with very high baseline 6-minute walk scores, which can lead to better results. Nevertheless, the data do look promising and results from a trial testing an even higher dosage (ARIES 1) should be available the second quarter of 2006.

PART II-COMPANY OUTLOOK

This portion of the outlook will concentrate on four companies (Telik, NPS Pharmaceuticals, Alexion and Myogen) within our evaluated company universe that we feel are well positioned for 2006. In identifying these four, we looked at companies with drugs that we feel have an above average likelihood of approval (LOA), are currently undervalued based on their 5 and 10 year drug pipelines and have an upcoming catalyst (s) that could provide a bump-up in the LOA, thereby lifting the probability adjusted revenue and pipeline values.

Telik (TELK)

With top-line phase III pivotal data from Telcyta expected within the next 6 months, Telik shares have the potential for considerable appreciation in 2006, making Telik one of our top choices for this year. Telcyta has thus far shown encouraging results in Phase I & II trials in non-small cell lung cancer (NSCLC) and the question of whether or not the drug can improve patient survival will likely be answered in 2006. Telik most recently reported positive interim data in July of 2005 from two multi-center Phase II studies evaluating Telcyta in combination with standard chemotherapy.

We have had a positive outlook on Telcyta in both ovarian cancer and NSCLC. If Telcyta gains FDA approval in 2007 for NSCLC, we project peak U.S. and worldwide revenue of $630 million and $1.5 billion by 2011. If the expected Phase III data is encouraging, we feel the stock price has the potential to move significantly higher in 2006 from its recent level of $17 per share. We currently value its 5 and 10-year pipeline at $58.17/share and $31.34/share. For Telcyta alone, our 5 year value for NSCLC is around $40 per share assuming a 2007 approval and projected worldwide revenue of $1.5B in 2011. While appreciation to this level is not likely to occur by the end of 2006, we think a significant move to the upside is very likely with positive Phase III data.

Telik’s other drug Telintra also has the potential to boost the stock price in 2006, though not likely to the same extent as Telcyta. With positive Phase II interim data already reported in 2005, Telik may announce the initiation of a Phase III trial sometime over the next year. As with Telcyta, we also have a positive outlook on Telintra with an LOA 26% above the average for a Phase II drug.

NPS Pharmaceuticals (NPSP)

NPS is number two on our top ideas for 2006 list. NPS’ drug Preos is scheduled for FDA action by March 10, 2006. We do not see difficulty in the approval of Preos, as it is very similar to Lilly’s drug Forteo. We have a corresponding LOA that is 10% above average for a drug in NDA.

Osteoporosis is a large and growing problem throughout the world and we currently project peak U.S. revenue of $996.4 million for Preos, with only a 6% peak market share among high fracture risk osteoporosis patients. We currently value its 5 and 10-year pipeline at $48.64/share and $25.99/share. While there are concerns that NPS may have trouble marketing the drug against the might of Lilly, we expect NPS’ experience in marketing Kineret (or the possibility of a large pharmaceutical partner either buying or partnering with NPS) improving the chances of Preos’ success in the market place.

Alexion Pharmaceuticals (ALXN)

After Pexelizumab for CABG failed to reach its study endpoint in the fourth quarter of 2005, Alexion’s stock fell to the low $20 range. While the Pexelizumab failure was a setback for Alexion becoming a multi-drug company, we feel Eculizumab for PNH offers enough revenue potential to drive Alexion’s stock price above $30/share. We expect Alexion to report data from both its Phase III studies TRIUMPH and SHEPHERD in the first quarter of 2006.

We have a 10% above average LOA outlook for Eculizumab, primarily based off previous results showing Eculizumab effective in treating PNH patients. While data to date has been in small patient groups, we feel successful TRIUMPH and SHEPHERD results will lead to an NDA filing in the first half of 2006.

While the number of people with PNH is small, Eculizumab has been granted Orphan Drug status and will be the only drug on the market for this life-threatening disease of the blood. We currently project peak U.S. revenue of $326.5 million, with Eculizumab gaining 80% market share and being priced at $100,000/year. We value Alexion’s 5 and 10-year pipeline at $36.35/share and $34.86/share. We caution that Alexion’s entire value rests on the approval of Eculizumab and negative results would lead to a considerable drop in Alexion’s shares.

Myogen (MYOG)

Myogen reported impressive results from its ARIES 2 trial of Ambrisentan for PAH on December 12, 2005 that lifted the stock significantly. Prior to the results, we had expected Ambrisentan to lag behind Thelin (Encysive) and Tracleer (Actelion) on the market, as it will be the third to market behind the other ETRA drugs. The impressive trial results, coupled with Ambrisentan’s better safety profile led us to raise Ambrisentan’s revenue expectations significantly. While the results were impressive, we are awaiting data from the ARIES 1 for confirmation and to better compare Ambrisentan against Tracleer and Thelin. We expect this data to be released in the second quarter of 2006 and to help propel Myogen’s stock even further. Positive Ambrisentan news is likely to negatively impact Encysive.

We expect Ambrisentan to be approved and take commanding share among the ETRA drugs. We currently have a 15% above average LOA for the drug and project peak U.S. revenue of $453.2 million. We currently value Myogen’s 5 and 10-year pipeline at $51.10/share and $47.31/share. While we see Myogen appreciating in value throughout the year, we caution that if results show that Ambrisentan is not superior to either Tracleer or Thelin, or higher than expected toxicity (ARIES 1 is for high dose levels), the stock could see serious setbacks, which would be positive for Encysive and Actelion.

EXPECTED CATALYSTS IN 2006

This portion of the outlook will concentrate on four companies (Telik, NPS Pharmaceuticals, Alexion and Myogen) within our evaluated company universe that we feel are well positioned for 2006. In identifying these four, we looked at companies with drugs that we feel have an above average likelihood of approval (LOA), are currently undervalued based on their 5 and 10 year drug pipelines and have an upcoming catalyst (s) that could provide a bump-up in the LOA, thereby lifting the probability adjusted revenue and pipeline values.

Telik (TELK)

With top-line phase III pivotal data from Telcyta expected within the next 6 months, Telik shares have the potential for considerable appreciation in 2006, making Telik one of our top choices for this year. Telcyta has thus far shown encouraging results in Phase I & II trials in non-small cell lung cancer (NSCLC) and the question of whether or not the drug can improve patient survival will likely be answered in 2006. Telik most recently reported positive interim data in July of 2005 from two multi-center Phase II studies evaluating Telcyta in combination with standard chemotherapy.

We have had a positive outlook on Telcyta in both ovarian cancer and NSCLC. If Telcyta gains FDA approval in 2007 for NSCLC, we project peak U.S. and worldwide revenue of $630 million and $1.5 billion by 2011. If the expected Phase III data is encouraging, we feel the stock price has the potential to move significantly higher in 2006 from its recent level of $17 per share. We currently value its 5 and 10-year pipeline at $58.17/share and $31.34/share. For Telcyta alone, our 5 year value for NSCLC is around $40 per share assuming a 2007 approval and projected worldwide revenue of $1.5B in 2011. While appreciation to this level is not likely to occur by the end of 2006, we think a significant move to the upside is very likely with positive Phase III data.

Telik’s other drug Telintra also has the potential to boost the stock price in 2006, though not likely to the same extent as Telcyta. With positive Phase II interim data already reported in 2005, Telik may announce the initiation of a Phase III trial sometime over the next year. As with Telcyta, we also have a positive outlook on Telintra with an LOA 26% above the average for a Phase II drug.

NPS Pharmaceuticals (NPSP)

NPS is number two on our top ideas for 2006 list. NPS’ drug Preos is scheduled for FDA action by March 10, 2006. We do not see difficulty in the approval of Preos, as it is very similar to Lilly’s drug Forteo. We have a corresponding LOA that is 10% above average for a drug in NDA.

Osteoporosis is a large and growing problem throughout the world and we currently project peak U.S. revenue of $996.4 million for Preos, with only a 6% peak market share among high fracture risk osteoporosis patients. We currently value its 5 and 10-year pipeline at $48.64/share and $25.99/share. While there are concerns that NPS may have trouble marketing the drug against the might of Lilly, we expect NPS’ experience in marketing Kineret (or the possibility of a large pharmaceutical partner either buying or partnering with NPS) improving the chances of Preos’ success in the market place.

Alexion Pharmaceuticals (ALXN)

After Pexelizumab for CABG failed to reach its study endpoint in the fourth quarter of 2005, Alexion’s stock fell to the low $20 range. While the Pexelizumab failure was a setback for Alexion becoming a multi-drug company, we feel Eculizumab for PNH offers enough revenue potential to drive Alexion’s stock price above $30/share. We expect Alexion to report data from both its Phase III studies TRIUMPH and SHEPHERD in the first quarter of 2006.

We have a 10% above average LOA outlook for Eculizumab, primarily based off previous results showing Eculizumab effective in treating PNH patients. While data to date has been in small patient groups, we feel successful TRIUMPH and SHEPHERD results will lead to an NDA filing in the first half of 2006.

While the number of people with PNH is small, Eculizumab has been granted Orphan Drug status and will be the only drug on the market for this life-threatening disease of the blood. We currently project peak U.S. revenue of $326.5 million, with Eculizumab gaining 80% market share and being priced at $100,000/year. We value Alexion’s 5 and 10-year pipeline at $36.35/share and $34.86/share. We caution that Alexion’s entire value rests on the approval of Eculizumab and negative results would lead to a considerable drop in Alexion’s shares.

Myogen (MYOG)

Myogen reported impressive results from its ARIES 2 trial of Ambrisentan for PAH on December 12, 2005 that lifted the stock significantly. Prior to the results, we had expected Ambrisentan to lag behind Thelin (Encysive) and Tracleer (Actelion) on the market, as it will be the third to market behind the other ETRA drugs. The impressive trial results, coupled with Ambrisentan’s better safety profile led us to raise Ambrisentan’s revenue expectations significantly. While the results were impressive, we are awaiting data from the ARIES 1 for confirmation and to better compare Ambrisentan against Tracleer and Thelin. We expect this data to be released in the second quarter of 2006 and to help propel Myogen’s stock even further. Positive Ambrisentan news is likely to negatively impact Encysive.

We expect Ambrisentan to be approved and take commanding share among the ETRA drugs. We currently have a 15% above average LOA for the drug and project peak U.S. revenue of $453.2 million. We currently value Myogen’s 5 and 10-year pipeline at $51.10/share and $47.31/share. While we see Myogen appreciating in value throughout the year, we caution that if results show that Ambrisentan is not superior to either Tracleer or Thelin, or higher than expected toxicity (ARIES 1 is for high dose levels), the stock could see serious setbacks, which would be positive for Encysive and Actelion.

EXPECTED CATALYSTS IN 2006