Biotech REview

WINTER 2007-2008

G R E AT E R B O S T O N

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Biotech REview

GREATER BOSTON BIOTECH INDUSTRY

Massachusetts ranks as one of the most significant biotechnology clusters in the world, anchored by the vibrant Boston and Cambridge scientific, medical and academic communities. The availability of a skilled, highly-educated workforce, as well as proximity to research partners and collaborative opportunities, attracts many of the world’s biotech and pharmaceutical companies to the area. According to the Massachusetts Biotechnology Council (MBC), there are over 400 biotech companies located in the state, employing roughly 43,000 workers representing a payroll of over $5 billion. MBC cites the pipeline of drugs currently being developed by local companies to represent 7 percent of the global drug pipeline.

Funding for this research-driven industry comes from a number of sources both public and private. After nearly doubling in size from 1998-2003, awards to research institutions from the National Institutes of Health have since been flat to negative. Collectively, Massachusetts institutions rank second to California in total awards each year since 2002 and have consistently outranked other states on a per capita basis. The chart below depicts total funding by the top recipient-states for the past three years. While generally flat, more significantly this represents a negative trend in real dollars.

Source: National Institutes of Health

Competition to attract life science firms is fierce, both within the United States and globally. At the state level, the Patrick administration filed legislation in July to support a 10-year, $1 billion life sciences initiative aimed at providing funding for research grants, training programs, and tax incentives for life science companies. Additionally, the Massachusetts Life Science Center, a quasi-public agency voted in October 2007 to approve more than $8.2 million to fund the establishment of a Stem Cell Registry and Bank at the University of Massachusetts Medical School in Worcester and $12 million in funding for matching grants investments. Governor Patrick has also cited a commitment to streamline the development process and to identify communities and sites where biotech firms can have permits issued within 180 days. INVESTMENT ACTIVITY — VENTURE CAPITAL, ALLIANCES AND IPOS

Venture capital (VC) investment in Massachusetts-based firms totaled $3.5 billion in 2007, with 25% or nearly $900 million invested in biotechnology companies. Although primarily focused on companies in the later stages of the drug-development cycle, this represents an increase over each of the past two years, and a record level of investment in local biotechs.

Annual VC investment in local biotechs since 2000 is depicted below.

Source: MoneyTree Report by PWC/NVCA

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The average transaction size was just over $10 million, with many of the larger VC investments occurring during the first half of 2007 and involving later-stage fundings to companies located in Cambridge. These included: Targenta Therapeutics ($70M), Microbia ($44M), and Sirtris Pharmaceuticals ($36M). Some of the larger deals funded during the second half of the year included:

BioVex Woburn $35,000 * Later Stage

Acceleron Cambridge $31,000 Later StagePharma

Xcellerex Marlborough $30,829 Later Stage

Elixir Cambridge $28,030 Later StagePharmaceuticals

BioScale Cambridge $24,960 Expansion

Inotek Beverly $19,312 Later Stage

Paratek Boston $22,000 Later StagePharmaceuticals

Zafgen Boston $21,000 Expansion

BioScale Cambridge $20,689 Early Stage* Represents fundings of $22M and $13M in third and fourth quarters, respectively

The initial public offering (IPO) market experienced a mixed response to the handful of biotechs that began trading in 2007, all of which debuted in the first half of the year. These included three Cambridge companies – Molecular Insight ($70M), Sirtris Pharmaceuticals ($60M), and Helicos Biosciences ($57M), as well as Lexington-based Synta Pharmaceuticals ($60M). Conditions in the debt markets, while not biotech-related, nonetheless affected investor appetite for new shares in the second half of 2007. None of the four companies that filed in the second half had yet to begin trading as of February 2008, with two companies withdrawing (Adnexus Therapeutics, Waltham and Archemix, Cambridge) and another postponing (Elixir Pharmaceuticals, Cambridge) its offerings.

Given the challenging IPO market, the industry is witnessing an increasing number of companies forming strategic alliances or completing mergers and acquisitions. Large pharmaceutical firms, facing expiring patents on blockbuster drugs and competition from lower-priced generic drugs, need to fill their revenue gaps and are looking to biotech companies to broaden their R&D capacity and product pipeline.

Some recent transactions involving local firms included:

• In September 2007, Bristol-Myers Squibb agreed to acquire Waltham-based Adnexus Therapeutics in a $430 million transaction that gave the pharmaceutical giant access to a protein drug-design technology and a pipeline of products.

• Also in September, Microbia and Forest Laboratories announced an agreement to co-develop and co-market linaclotide, with total licensing and milestone payments to Microbia of a potential $330 million over the term of the collaboration. Cambridge-based Microbia has about 70 employees and plans to expand to new facilities at 301 Binney Street later in 2008.

• In November, PerkinElmer expanded its offerings in the prenatal and maternal health markets by acquiring Cambridge-based ViaCell for $300 million. PerkinElmer is headquartered in Waltham and has 550 Massachusetts-based employees.

• In January, Genzyme and Isis Pharmaceuticals announced a collaboration whereby Genzyme would pay $150 million to purchase five million shares of Isis common stock and $175 million for the exclusive licensing of mipomersen, currently in Phase III development. Under the agreement, Isis will also be eligible to receive milestone and profit-sharing payments.

• In February, Dynogen Pharmaceuticals, a 20-person Waltham company announced its intention to go public by merging with California-based Apex Bioventures. The transaction is expected to be completed during the second quarter 2008.

Investment DevelopmentCompany Location (000s) Stage

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Biotech REview

LEASING MARKET STATISTICS

The greater Boston commercial lab market totals approximately 16.1 million square feet. Key statistics at the close of 2007 included:

Cambridge 8,258,374 1,128,329 13.7%

Suburbs 5,132,911 467,885 9.1%

Boston 2,673,157 26,402 1.0%

Total 16,064,442 1,622,616 10.1%

BOSTON LAB MARKET

At 2.7 million square feet, Boston’s lab supply is primarily concentrated in (i) buildings proximate to the hospitals and research institutions in the Longwood Medical Area (LMA); (ii) facilities occupied by the Massachusetts General Hospital in Charlestown and on Cambridge Street; and (iii) BioSquare, a lab development located adjacent to Boston Medical Center on Albany Street and sponsored by Boston Medical Center and Boston University.

As it has been for the past several years, availability of lab space in the LMA is virtually non-existent. There is relief on the immediate horizon, however, as the 702,940-square-foot Center for Life Sciences Boston (CLSB) located at 3 Blackfan Circle is expected to complete construction later in the first quarter. BioMed Realty Trust acquired the property over a year ago from Lyme Properties, 82% pre-leased to an impressive roster of

institutional tenants including Beth Israel Deaconess Medical Center (362,000 SF – floors 4 through 10), CBR Institute for Biomedical Research (51,000 SF – floor 3), Children’s Hospital (101,000 SF– floors 12 through14), and Dana Farber Cancer Institute (50,000 SF – floor 11).

While it prepares the research facility for staggered tenant occupancies in 2008, BioMed continues to market an additional 126,472 square feet comprised of 28,388 square feet on the second floor and 98,084 square feet on floors 15 through 18. (Note that this pending space will not be included in the vacancy and absorption calculations until the building comes online later in the first quarter.)

Since acquiring CLSB, BioMed has aggressively pushed asking rents, with recent proposals for a 10-year lease quoted in the $95 to $105 per square foot NNN range with a landlord-funded tenant improvement allowance ranging between $0 and $100 per square foot. These terms represent an average rental increase of 35-40% compared to existing signed leases in the building. The open question is whether potential new tenants will pay these highly escalated rents. None have to date.

Beth Israel Deaconess Medical Center’s (BIDMC) move into CLSB will likely provide for the availability of approximately 225,000 square feet of existing lab space in the third quarter as BIDMC consolidates its operations from multiple locations. BIDMC currently plans to vacate 135,000 square feet in the Harvard Institutes of Medicine Building (4 Blackfan Circle), 38,000 square feet in Harvard Medical School’s New Research Building (77 Avenue Louis Pasteur), and 50,000 square feet in Emmanuel College’s Alumnae Hall (79 Avenue Louis Pasteur).

Boylston Properties has announced plans to develop a new, six-story 130,000-square-foot lab-ready building at 121 Brookline Avenue. The property is being marketed as The Longwood Research Center and construction will begin once a lead tenant has been identified.

Square Feet Square Feet Vacancy Market Supply Available Rate

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Longwood Center (Joslin Parcel)Brookline and Longwood Avenues, Boston

Courtesy of National Development

Another research and lab project in the LMA development pipeline is proposed at Brookline and Longwood Avenues by a joint venture of National Development, Alexandria Real Estate Equities and Charles River Realty Investors. In January, the developer presented its plans for a nine-story, 350,000-square-foot building to be leased to the Joslin Diabetes Center and other tenants. The project is in the process of securing its required approvals, with expected filing of project review documents with the Boston Redevelopment Authority in late February.

NEIDL620 Albany Street, Boston

Approximately two miles east of the LMA, another 2 million square feet of development potential exists at BioSquare, a research lab and office complex near the Boston University Medical School. Four existing buildings total over 500,000 square feet and primarily serve the research needs of the Boston University Medical Center and its affiliates along with some private industry and incubator space. In 2003, Boston University Medical Center, a consortium of Boston University and Boston Medical Center, was awarded a federal grant to construct a Bio-safety Level 4 laboratory. Known locally as “BioLab,” the facility will house the National Emerging Infectious Disease Laboratories (NEIDL) and be one of two National Biocontainment Laboratories in the U.S. that along with a network of regional labs is intended to support biodefense and emerging infectious disease research. The 151,000-square-foot facility will also contain associated BSL-2 and BSL-3 labs, animal and insectary facilities, research support space and a clinical area. Construction began in 2006, is now more than 70% complete, and is scheduled to open by 2009, subject to environmental reviews and pending legal action.

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Biotech REview

CAMBRIDGE LAB MARKET

The vacancy rate for Cambridge’s 8.3-million-square-foot lab market increased from 12.9% to 13.7% during 2007, as the result of several factors. First, tenant demand decreased significantly during the second half of the year. Second, available supply increased due to new construction (301 Binney Street – 310,000 SF) and to existing labs being vacated by tenants moving to the suburbs. Third, as a result of rent spikes during the first half of the year and the lack of quality space options, a number of tenants migrated to the western suburbs with Cambridge companies leasing over 550,000 square feet in Waltham, Lexington, and Waltham.

The largest lab leases in 2007 were all signed during the first half of the year and included:

Novartis (s) 45 & 75 Sidney Street 150,000

Microbia 301 Binney Street 110,000

Altus 640 Memorial Drive 72,000 Pharmaceuticals (s)

Sirtris Pharmaceuticals 200 Technology Square 43,000

Harvard Medical One Kendall Square 25,000School (r)

(r) Renewal (s) Sublease

Pharmaceutical giant Novartis continued to expand and signed the largest lease of the year at University Park at MIT. Microbia also signed a major lease as the lead tenant at 301 Binney Street.

Demand fell off significantly during the second half of 2007. Second half leases included:

Helicos BioSciences One Kendall Square 17,000

Molecular Insight 160 Second Street 15,000

Tempo Pharmaceuticals 161 First Street 12,000

Joule Biotechnologies 83 Rogers Street 10,500

Quanterix Corp. One Kendall Square 10,400

Intelligent MD 19 Blackstone Square 8,600

Progenika 500 Technology Square 5,700

Nano-Terra 790 Memorial Drive 3,000

Velocity (signed lease activity) was respectable in 2007 by historical standards, totaling 558,000 square feet. However, over 80% of this velocity occurred during the first half of the year.

The chart below depicts historical lab transaction velocity since 2001.

Heading into 2008, demand in the market is fairly light. Vertex (500,000 SF) and the Broad Institute (100,000 SF) potentially have large requirements. Vertex is exploring the possibility of consolidating its current six locations into one facility in conjunction with its need for growth space. On a positive note, there has also been an up-tick in the number of start-ups and young companies looking for space.

Available supply increased during 2007, as a few large blocks of space – both new and existing- became available including:

• 310,000 square feet of new biotech-ready shell space at 301 Binney Street.

• 60,000 square feet of existing lab space at One Kendall Square, the result of the second phase of Genzyme’s long-planned relocation to its Framingham campus.

• 52,000 square feet of existing lab space at 128 and 148 Sidney Street, to be vacated by Immunogen upon its relocation to 830 Winter Street, Waltham in April 2008.

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Tenant Address SF

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Major blocks of available space at the end of 2007 included:

“Biotech-Ready” Shell

301 Binney Street BioMed Realty Trust 310,000

200 Technology Square Alexandria Real 110,000 Estate Equities

Cambridge Discovery The Bulfinch Companies 30,000Park, Bldg 100

Existing Lab

One Kendall Square The Beal Companies 150,000

640 Memorial Drive (s) Millennium 105,000

840 Memorial Drive The Abbey Group 60,000

128 Sidney Street MIT 37,700

345 Vassar Street MIT 26,000(s) Sublease

Despite the rising vacancy rate, a tenant’s choices in the market remain somewhat limited. 301 Binney and 200 Tech Square represent the top new product in the market and are offered at record-high rental rates ($68-$78/SF NNN). The majority of the available existing lab space is 15 to 20 years old, in need of major renovations and has not been well received by prospective tenants. The reconfiguration and renovation of these existing spaces presents a challenge for landlords in that the size, space configuration, type of lab, MEP systems and capacities are not easily adapted for new tenants. High-quality existing lab space continues to re-lease very quickly once it becomes available.

The strong demand in the early part of 2007 prompted landlords to aggressively raise asking rents for their new product. On average, asking rents for new product sponsored by biotech REITS, BioMed and Alexandria are 20% higher than at 2006 year end. Asking rents for new “biotech-ready” shell space range from $45 per square foot NNN at Cambridge Discovery Park in the Alewife submarket to $68-$78 per square foot NNN at 200 Tech Square (Alexandria) and 301 Binney Street (BioMed), respectively. These rents include landlord-funded tenant improvement allowances of $150-$180 per square foot.

Asking rents for existing lab space range from the low $30s to as high as $60 per square foot NNN depending on the quality, age, and location of the space. Landlords will fund

$30-$70 per square foot for tenant improvements for lower quality, older spaces. Tenant improvement allowances for high-quality spaces range from $0-$25 per square foot.

The significant trend in 2007 was the number and size of companies making the decision to leave Cambridge and relocate to the western suburbs. The spike in Cambridge rents, the lack of large blocks of contiguous space, and the poor quality of much of the existing lab supply prompted many companies to seek more economical, higher quality alternatives in the suburbs with greater expansion flexibility. Genzyme completed its two-year, phased plan to relocate 200,000 square feet from One Kendall Square to its company-owned Framingham campus. Shire, Altus Pharmaceuticals, ImmunoGen and a group of growing young companies – representing space requirements totaling over 500,000 square feet – all executed leases in the suburbs. Of this group, only Shire will maintain a Cambridge presence.

Following its high-profile purchase of the 1.1-million-square-foot Technology Square from MIT for $600 million in 2006, Alexandria Real Estate Equities continued its ambitious acquisition program through a number of land and office property acquisitions in the Kendall Square area during 2007. In eight separate transactions over a two and a half-year period, it invested nearly $400 million to assemble seven and

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Biotech REview

one-half, fairly contiguous city blocks primarily located on both sides of Binney Street between First and Third Streets. The acquisitions total approximately 16 acres of land, with 930,000 square feet of existing buildings. Alexandria plans to redevelop most of the properties and will soon enter into an entitlement dialogue with the city of Cambridge to secure its development rights. This assemblage will allow the REIT to create multiple new development sites in or near Kendall Square, the life science sector’s location of choice. Harvard University passed a major milestone in its ongoing effort to create an extended campus in Boston. Construction began on the first new academic building, a 589,000-square-foot lab facility, which will be part of the four-building, one-million-square-foot Harvard Allston Science Complex. The complex will be the home of the Harvard Stem Cell Initiative and other interdisciplinary scientific initiatives. This new construction speaks to Harvard’s renewed focus on the sciences which will certainly have a major impact on the region in general, and on the life science community in particular.

SUBURBAN BOSTON LAB MARKET

The suburban lab market totals approximately 5.1 million square feet and is spread over a wide geographic area. The major concentrations of supply are located in Waltham (1,003,000 SF), Lexington (777,000 SF), Framingham (511,000 SF – Genzyme) and Andover (442,000 SF – Wyeth, Eisai).

The suburban lab vacancy tightened significantly during the second half of 2007, ending the year at 9.1%, compared to 17.1% at mid-year. This dramatic decline was due to the significant migration of Cambridge tenants attracted by the lower rents, quality spaces, and expansion flexibility offered in the suburbs. Cambridge tenants were attracted to spaces in the western inner suburbs and along west and northwest Route 128.

New leases signed in these markets totaled over 400,000 square feet during the second half of 2007. Additionally, another 332,000 square feet of lease commitments were pending in these markets. New lab leases signed included:

Lexington

Shire plc 300 Patriot Way 132,152

Shire plc 125 Spring Street 52,000

Microbia Precision 60 Westview Street 40,200Engineering

Pulmatrix 99 Hayden Avenue 15,000

Waltham

Altus Pharmaceuticals 610 Lincoln Street 85,430

Magen BioSciences 100 Beaver Street 13,326

Watertown

WMR Biomedical 480 Arsenal Street 27,311

Woburn

Arqule 19 Presidential Way 40,000

Tenant Address SF

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Commitments pending at the end of 2007 included:

Lexington

Shire plc 400 Patriot Way 180,000

Shire plc 500 Patriot Way 30,000

Concert 128 Spring Street 40,000Pharmaceuticals

Raindance 44 Hartwell Avenue 26,828Technologies (s)

Bedford

Makoto Life Sciences (s) 15 DeAngelo Drive 20,000

Confidential 45 Wiggins Avenue 23,000

Watertown

Dicerna 480 Arsenal Street 12,000(s) Sublease

In addition to leasing the lab building located at 610 Lincoln Street, Altus Pharmaceuticals leased 333 Wyman Street, an 83,000-square-foot office building formerly occupied by Tufts Health Plan, which Altus will use strictly for office space. All of the new leases shown above were signed by companies migrating from Cambridge with the exception of Arqule at 19 Presidential Way in Woburn. The Arqule space represents space that Arqule had vacated and was marketing for sublease. Arqule is in growth mode again and has removed the space from the market.

On the supply side, given the recent robust leasing activity and commitments made, the Routes 128 west and northwest lab markets have tightened dramatically. Currently there are very few large blocks of space available. The largest available spaces include:

100 Research Drive, Wilmington 35,000

500 Patriot Way, Lexington 30,000

3 Forbes Road, Lexington (s) 25,000

480 Arsenal Street, Watertown 19,000

830 Winter Street, Waltham (s) 15,000(s) Sublease

Rents for existing Class A lab space located in the Routes 128 west and northwest submarkets range from $25-$42 per square foot NNN depending on quality, age and location. Rents for new biotech-ready shell space in the same markets ranged from $37-$43 per square foot NNN and include a landlord-funded tenant improvement allowance ranging from $130-$160 per square foot.

Genzyme has completed its new, six story, 177,000-square-foot Science Center located at 49 New York Avenue in Framingham and is currently pursuing LEED Gold Certification for the building. The new laboratory facility is the signature building on Genzyme’s Framingham campus. The project includes a separate central utilities building that presently supplies the new building and was designed with the capacity to serve future research, manufacturing, and development buildings on the campus. Designed to accommodate a major portion of Genzyme’s research activities, the new building will fulfill Genzyme’s objective to further enhance the relationships between research groups by consolidating all scientists under one roof.

Genzyme49 New York Avenue, Framingham

Tenant Address SF

Address SF

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Biotech REview

SHIRE HUMAN GENETIC THERAPIES (HGT)Lexington Technology Park Expansion

Shire’s leases and commitments, detailed in the previous section of this report, are all located in Lexington Technology Park, a 96.5-acre campus at the intersection of Routes 2 and 128. The site was the former corporate headquarters for Raytheon and redeveloped by Patriot Partners. Shire has leased 125 Spring Street and 300 Patriot Way, and committed to lease an additional 30,000 square feet in 500 Patriot Way, all to be used for research laboratories and office space. The commitment at 400 Patriot Way is for a 180,000-square-foot, build-to-suit manufacturing facility on which Shire has future purchase options. The company also has expansion rights at the final building at Lexington Technology Park, the proposed 168,000-square-foot 200 Patriot Way.

Shire’s expansion plans in Lexington and decision to stay in Massachusetts represent a significant economic development plan as a result of collaboration between the company, the town of Lexington, and the Commonwealth. In February, Shire’s Human Genetic Therapies unit, currently based in Cambridge, announced plans to invest $394 million to expand

its Lexington campus making it the company’s global center for research, development and production. Important factors in Shire’s decision to stay in Massachusetts were $48 million in tax and other incentives provided by the state and town of Lexington. Massachusetts has committed $40.5 million in incentives including grants for public infrastructure, in addition to the approval by Lexington and the state of a Tax Increment Financing (TIF) agreement valued at approximately $7.5 million.

300 Patriot Way, Lexington

Lexington Technology Park Site Plan

Courtesy of Patriot Partners

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LIFE SCIENCE / BIOTECHNOLOGY PRACTICE

Colliers Meredith & Grew has been an active participant in the local Life Science/Biotechnology real estate market since its Cambridge beginnings in the early 1980s. With a successful and proven track record of working with both tenants and landlords on life science and laboratory transactions, we have completed over 3 million square feet of biotech real estate assignments for our clients.

Whether your organization is a start-up biotech firm, a mature biotech or pharmaceutical company, or an institutional research organization, Colliers Meredith & Grew has the resources, experience, and knowledge to help you develop and execute real estate strategies that support and promote your organization’s plans and objectives. Start-ups, in particular, benefit greatly from our experience in assisting young companies to implement growth strategies and build the team of specialists - architect, engineer, legal counsel, contractor, project manager - required to successfully complete a project.

Colliers Meredith & Grew is a Boston-based commercial real estate company with integrated service groups including Brokerage, Capital Markets, Counseling & Valuation, Development & Advisory, Investment Sales, and Property & Asset Management. In addition to representing its core clients in New England, we provide national and international real estate services to our multi-market clients as a member of Colliers International and as an owner/member of Strategic Alliance Mortgage LLC (SAM). Colliers International is a worldwide affiliation of independently owned and operated companies in more than 260 offices in 57 countries. For more information about Colliers Meredith & Grew, please visit www.colliersmg.com.

If you have any questions or would like to learn how Colliers Meredith & Grew can help in tailoring a growth strategy specific to your organization’s needs, please contact:

Joseph P. Flaherty Executive Vice President 617-330-8080 joe.flaherty@colliersmg.com

Tucker L. Hansen Vice President 617-330-8106 tucker.hansen@colliersmg.com

www.colliersmg.com

For further information on Colliers Meredith & Grew’s Life Science practice, please contact:Joseph P. Flaherty, Executive Vice President Phone: 617.330.8080 E-mail: joe.flaherty@colliersmg.com

For information on other Colliers Meredith & Grew Research publications, please contact:Mary Sullivan Kelly, Senior Vice President Phone: 617.330.8059 E-mail: mary.kelly@colliersmg.com

TENANT ADVISORY SERVICES LANDLORD REPRESENTATION RETAIL SERVICES

INVESTMENT SALES CAPITAL MARK ETS COUNSELING & VALUATION

DEVELOPMENT & ADVISORY SERVICES PROPERTY & ASSET MANAGEMENT SERVICES

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Lab Supply by Location

LAB MARKET STATISTICS – 4th Quarter 2007

Square Feet Square Feet VacancyMarket Supply Available Rate

Cambridge 8,258,374 1,128,329 13.7%

Suburbs 5,132,911 467,885 9.1%

Boston 2,673,157 26,402 1.0%

Total 16,064,442 1,622,616 10.1%