BIOTECHNOLOGY BB Biotech4)

BIOTECHNOLOGY
A RESEARCH PUBLICATION BY DZ BANK AG
BB Biotech 4)
Year *) Security portfolio Net asset value Dividend
per share
CHF m CHF m EUR
2003 1982.7 74.66 – 2.50
2004e 2180 84.82 – 2.50
2005e 2400 93.38 – –
2006e 2720 105.84 – –
*) Fiscal year end December
Lacklustre Q3 results – but so far stock has still outperformed in 2004
– Q3 2004: net loss of CHF 104.2m (Q3 2003: CHF +10m).
– Net loss mainly caused by share-price losses affecting portfolio companies.
– Marked outperformance against the benchmark – the BTK index - so far in 2004.
– High spread to net asset value of over 15%, almost unchanged in over 12 months.
– Dividend payment of around CHF 2.50/share therefore likely.
– Still a high dependency on USD/CHF exchange rate.
– Core holdings currently overvalued by around 10%.
The stock is currently undervalued by around 17% in relation to its NAV (EUR 52.30). By
contrast, however, BB Biotech’s core holdings are overvalued by around 10% on the basis of a
peer-group comparison. Overall, therefore, we only anticipate upside potential of around 7%
for the stock and are therefore leaving our recommendation unchanged at a weak “buy“. For
investors with an investment horizon of six months, a dividend yield of around 3% may be a
further argument in favour of buying the stock. We see the stock’s fair value at EUR 47.60.
1)-7) Important: Please read the references to possible conflicts of interest
and disclaimers/disclosures at the end of this report.
Equities
Flash
2 Nov 2004
Buy
Price on 01 Nov 2004
(in EUR): 44.49
Risk classification: 4
Financial ratios 2003e:
Book value per share (in EUR): -
Equity ratio (in %): -
EBITDA margin (in %): -
Net margin (in %): -
ROE (in %): -
Dividend yield (in %): -
Free cash flow (EUR m): -
Number of shares
(million units): 25.7
Market cap
(in EUR m): 1143.39
Free float (in %): 100.00
SIN: 888509
ISIN: CH0001441580
Reuters: BIOZ.DE
Bloomberg: BBZ GY
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OND J FMAMJ J A S OND J FMAMJ J A S O
BB BIOTECH (FRA)
90-Tage-Durchschnitt
Source: DATASTREAM
Dr. Thomas Höger / Dr. Patrick Fuchs

Biotechnology – BB Biotech
Average results in Q3 2004
BB Biotech generated a net loss of CHF 104.2m in Q3 2004; in the same previous-year
period, the company still generated a profit of CHF 10m. The loss mainly stems from a net
loss of CHF 102m incurred by the securities. Over nine months, the profit amounts to CHF
228.7m (EPS: CHF 8.96) against CHF 291.9m (EPS: CHF 11.24) in the previous-year period.
Good price performance so far in 2004
Even though BB Biotech shares have underperformed their benchmark, the BTK index, in
the last three months, the overall performance over a 12-month period looks better: so far
this year, BB Biotech shares have significantly outperformed their benchmark, thereby
ending their negative run in the period 2000-2003, as shown in the following table. In our
view, the investment focus on smaller, strong-growth companies is paying off, as the BTK
index mainly consists of more mature biotechnology companies.
Performance of BB Biotech share against the BTK index
Period BB Biotech return BTK Index Return Difference
1 month 1.48% -2.93% 4.41%
3 months 4.64% 6.82% -2.18%
Year-to-date 14.30% 5.12% 9.17%
1 year 10.52% 10.33% 0.19%
3 years -13.12% -2.58% -10.54%
2003 4.29% 44.91% -40.62%
2002 -53.78% -41.74% -12.04%
2001 -25.63% -8.47% -17.15%
2000 61.15% 62.05% -0.90%
Source: Bloomberg; position at: 1.11.2004
The main reason for a slightly weaker performance than the benchmark in the last three
months is a disappointing price performance by Ligand Pharmaceuticals, which lost around
70% of its value during the period from 30.6.2004 to 30.09.2004. Admittedly, Ligand
Pharmaceuticals’s auditors, Deloitte&Touche, have resigned, sparking off rumours of
financial irregularities. As a result, a number of Ligand shareholders are taking a class
action against Ligand. In our view, the investment in Eye Tech-Pharmaceuticals, for
example, has done very well. BB Biotech was already invested in the company before it
went public. In the meantime, the entry price of USD 7.05 has increased more than fivefold.
Two other pre-IPO investments of BB Biotech (Auxilium and Theravance) have also
successfully completed their flotation in Q3, with share prices well in excess of the entry
price of USD 1.50 and USD 7 respectively paid by BB Biotech. Auxilium and Theravance are
currently trading at USD 7.85 and USD 16.55 respectively.
In Q3, BB Biotech reduced its stake in Celgene, Cell Therapeutics and Durect, and raised its
position in Actelion and Elan. New investments in the portfolio are United Therapeutics,
Incyte, Epigenomics and Idenix.
Net loss of CHF 104.2m
2004: so far, marked
outperformance against the
benchmark
Poor price performance above all
from Ligand Pharmaceuticals
Very successful investments in
pre-IPO companies
Portfolio changes
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 2

Biotechnology – BB Biotech
Valuation
In view of a still high spread between Biotech shares and their NAV, the stock still seems
fundamentally undervalued at its present level. We believe that the spread will only start to
narrow once BB Biotech’s management succeeds in generating a consistently better
performance in relation to the benchmark. As the previous table illustrates, this has been
the case in the current financial year, unlike in the period 2000-2003. Despite measures to
close the gap between the NAP and share price, including the dividend payout and capital
reduction, BB Biotech has so far failed to bring the spread lastingly below the 10% hurdle.
It is currently around 17%. The following graph shows the spread trend in the last 12
months:
BB Biotech - Spread between NAV and share price
Source: BB Biotech
BB Biotech pays a dividend, which depends on the amount of the average yearly spread: if
it is between
5% and 10%, the dividend amounts to 1% of the NAV at year-end;
>10% and 15%, it amounts to 2% of the NAV;
>15 and 20%, 3% of NAV and
>20%, 4% of NAV.
The average spread in the period between 31.12.2003 and 30.09.2004 amounted to
15.6%. This would mean a dividend payment of around CHF 2.50.
BB Biotech’s share-price performance continues to be strongly influenced by the USD/CHF
exchange rate, as over 90% of the portfolio is invested in US biotechnology shares.
In our view, BB Biotech’s core investment, which together makes up around 73% of the
portfolio, seem to be overvalued by around 10% in a peer-group comparison, as illustrated
in the following table:
Spread to NAV still over >15%
Spread practically unchanged in
the last 12 months
Average spread in 2004: 15.6%
Strong dependence on USD/CHF
exchange rate
Core holdings: overvalued by
around 10%
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 3

Biotechnology – BB Biotech
Selected valuation multiples for BB Biotech’s core holdings
Company
PER
2005e
EV/EBITDA
2005e
EBITDA Margin
2005e (%)
EPS CAGR
(03-07)e (%)
PEG Ratio
2004e
Gilead 32.1 17.6 52.5 21 1.8
Celgene 51.0 n.a. n.a. 100.7 0.9
Biogen IDEC 33.3 18.3 43.7 18 2.2
Sepracor neg. n.a. n.a. n.a. n.a.
Actelion 32.1 23.2 25.6 n.a. n.a.
Genzyme 25.2 n.a. 24.3 21.7 1.4
Eyetech 46.4 n.a. n.a. n.a. n.a.
The Medicines Company 32.6 35.9 17.6 n.a. n.a.
Mean 32.6 20.8 25.6 21.3 1.6
BTK indices mean 30.1 17.6 28.9 18.3 1.8
Global Pharma. mean 23.0 9.6 29.5 10.1 1.6
Overall, therefore, we only see upside potential of around 7% for the stock and our
recommendation is unchanged at a weak „buy“. For investors with an investment horizon
of six months, the dividend yield of around 3% may be a further argument in favour of
buying the stock. We see the stock’s fair value at EUR 47.60.
Fair value: EUR 47.60
Recommendation still a weak
„buy“
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 4

Biotechnology – BB Biotech
Company
No. of
Securities
30.09.2004
Changes
against
30.06.2004 Currency
Price in
Original
Currency
Market Value
on 30.09.
(CHF m)
As % of
Portfolios
As % of
Company
Market Value
on 30.09.
(EUR m)
Gilead 6,000,000 0 USD 37.38 279.9 14.2 1.4 180.70
Celgene 2,746,700 -143,900 USD 58.23 199.6 10.1 3.3 128.86
Biogen Idec 2,600,000 0 USD 61.17 198.5 10.1 0.8 128.15
Sepracor 3,000,000 0 USD 48.78 182.6 9.3 2.9 117.88
Actelion 1,199,223 192,813 CHF 128.00 153.5 7.8 5.4 99.10
Genzyme 2,229,000 0 USD 54.41 151.3 7.7 1.0 97.68
EyeTech 3,476,362 0 USD 33.99 147.4 7.5 8.5 95.16
Medicines Co. 4,074,075 0 USD 24.14 122.7 6.2 8.5 79.21
AtheroGenics 2,050,000 0 USD 32.95 84.3 4.3 5.5 54.42
Ligand Pharmac. 6,400,000 0 USD 10.02 80.0 4.1 8.7 51.65
Amgen 1,000,000 0 USD 56.81 70.9 3.6 0.1 45.77
ICOS 2,000,000 0 USD 24.14 60.2 3.1 3.2 38.86
Elan 2,000,000 1,794,000 USD 23.40 58.4 3.0 0.5 37.70
United Therapeutics 669,000 669,000 USD 34.93 29.2 1.5 3.1 18.85
Pozen 2,217,000 0 USD 8.74 24.2 1.2 7.7 15.62
Cell Therapeutics 2,378,062 -621,938 USD 6.86 20.4 1.0 3.9 13.17
Incyte 1,403,244 1,403,244 USD 9.63 16.9 0.9 1.9 10.91
Virologic 5,726,430 0 USD 2.00 14.3 0.7 10.7 9.23
Epigenomics 1,000,000 1,000,000 EUR 7.85 12.2 0.6 6.3 7.88
Auxilium Pharmac. 1,000,000 0 USD 8.53 10.6 0.5 4.9 6.84
Idenix 500,000 500,000 USD 16.00 10.0 0.5 1.0 6.46
Telik 208,400 0 USD 22.30 5.8 0.3 0.5 3.74
Durect 1,306,527 -948,430 USD 1.40 2.3 0.1 2.5 1.48
Theravance 2,007,168 0 USD 10.85 27.2 1.4 3.9 17.56
Total 1,962.4 99.7 1,266.88
Derivatives
Medicines Company
warrants (long)
Virologic warrants
(long)
Auxilium Pharmac.
(long)
675,925 0 USD 18.22 15.4 0.8 1.4 9.94
990,993 0 USD 1.19 1.5 0.1 1.8 0.97
1,501,501 0 USD 4.10 1.5 0.1 1.5 0.97
Total 18.4 1.0 11.88
Liquidity (net) -13.2 -0.7 -8.52
Total 1,967.4 100.0 1,270.11
BB BIOTECH bearer
shares
1,478,294 -1,394,848 100.1
Total 2,067.5 1,334.73
Source: BB Biotech
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 5

Biotechnology – BB Biotech
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Reprinting and reproduction requires the approval of DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main
DZ BANK Research – all covered
companies
Companies where DZ BANK, DZ Financial Markets
LCC and/or respective affiliates have provided
investment banking services in the last 12 months
Buy 74.2% Buy 80.8%
Hold 9.8% Hold 15.4%
Sell 16.0% Sell 3.8%
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1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 6

Biotechnology – BB Biotech
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BB BIOTECH (FRA)
90-Tage-Durchschnitt
Source: DATASTREAM
Rating History
Recommendation Date Price
buy 05.11.02 41.30
accumulate 07.06.02 47.02
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 7

C500e
Biotechnology – BB Biotech
Research Team Life Science
Dr. Christa Bähr, CFA Healthcare +49 – (0)69 – 74 47 – 72 42 christa.baehr@dzbank.de
Dr. Patrick Fuchs, CEFA Biotechnology/Healthcare +49 – (0)69 – 74 47 – 22 48 patrick.fuchs@dzbank.de
Dr. Thomas Höger, CEFA Biotechnology +49 – (0)69 – 74 47 – 30 67 thomas.hoeger@dzbank.de
Oliver Schlüter Pharmaceuticals/Pharma-Wholesale +49 – (0)69 – 74 47 – 16 04 oliver.schlueter@dzbank.de
Peter Spengler, CIIA Pharmaceuticals +49 – (0)69 – 74 47 – 36 94 peter.spengler@dzbank.de
Sales Institutional Investors
Frankfurt, Domestic +49 – (0)69 – 74 47 – 49 90 alexander.von.gilsa@dzbank.de
Frankfurt, International +49 – (0)69 – 74 47 – 12 18 barbara.schulz@dzbank.de
1)-7) Important: Please read the references to possible conflicts of interest and disclaimers/disclosures at the end of this report. 8