State of the Life Sciences Mergers and Acquisitions Market Brian Miller, Managing Partner and Co-Founder, Linden Partners Rich Fante, RF Consulting LLC, Formerly with AstraZeneca Americas Mark Nicholson, Baxter Healthcare Corporation Daniel Weintraub, Audax Group Moderator: John Soden, Houlihan Lokey OCTOBER 3, 213
Recent M&A Themes Low Cost Overhang Fund Pressures Limited Top-line Growth Anemic Product Pipelines Carve-outs of Non-Core Assets Creative Deal Structuring Arbitrage ROIC & WACC Optimize Structure Diverse Sources Use It or Lose It for PE Corp Cash Build-up OUS Trapped Cash $ Looking for Deals 2+ HC PE, 4+ HC VC Funds 5-1 Year Life Cycles LPs Want Shorter Holding Periods Few IPOs Fund-to-Fund Deals Increasing More Mature Targets Big Markets Accretive to Long-Term Growth Outsource R&D Acquire Innovation Portfolio Management Sell Under- Performers Big Mergers Prompt Redundancy + Regulatory Sales Contingent Payouts/ CVRs Staged Buyouts Strategic Investments Put/Call Rights Warrants TRANSACTION VELOCITY? 2
M&A Deal Flow is Stagnant M&A Transactions Announced by Sector: Q1 211 August 213 125 1 75 5 25 88 9 84 85 87 88 21 34 24 18 32 27 24 12 26 2 19 19 43 36 48 34 43 42 56 2 19 17 91 28 3 33 74 56 3 46 25 19 17 11 14 2 25 15 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 July-August 213 Medical Device Biotechnology Pharmaceutical M&A Transactions Announced by Sector: 26 August 213 6 45 3 15 41 136 115 1. Through August 3, 213. Source: Irving Levin. 483 458 147 142 144 15 511 14 195 15 192 166 176 17 161 135 412 127 115 347 322 111 93 75 94 26 27 28 29 21 211 212 YTD 213 Medical Device Biotechnology Pharmaceutical 176 72 44 6 (1) 3
Global Healthcare M&A Activity Annual Global HC M&A Volume (<$5 million) Annual Global HC M&A Volume ($5 25 million) 7 6 5 4 3 2 1 64 61 511 468 376 188 29 21 211 212 1H 213 2 15 1 5 153 127 111 11 75 55 29 21 211 212 1H 213 Annual Global HC M&A Volume ($25 5 million) Annual Global HC M&A Volume ($5+ million) 6 5 4 3 2 1 45 5 35 25 34 17 29 21 211 212 1H 213 7 6 5 4 3 2 1 57 63 32 35 32 16 29 21 211 212 1H 213 Source: HCIT data from IQ. All other data from Thomson Reuters. Note: Transaction data as of 6/3/13, based on closing date. Excludes deals where transaction value was undisclosed. 4
Little Change Within Size Brackets U.S. Med-Tech and Life Science Tools Transactions by Size 21 211 212 YTD 213 Undisclosed 68 96 87 8 $-$5mm 51 36 4 21 $5-$1mm 1 1 1 5 $1-$25mm 11 13 14 5 $25-$5mm 1 1 1 8 $5-$1.bn 3 5 2 >$1.bn 5 6 3 3 Total 158 176 166 122 PE Buyers Moving Upstream 1. YTD through September 3, 213. Note: Med-Tech Transactions defined as medical devices, medical supplies, and medical equipment. Exclude pharma. Source: IQ. Data as of September 3, 213. 5
Biotech M&A Activity +575 biotech transactions since 21, with an average premium in excess of 3% Large companies under pressure to replace well-selling drugs coming off patent Structured deals continue to dominate, with ~75% containing milestones in the last year 2 15 1 5 ($ bn) $8 $6 $4 $2 $ 199 Source: IQ. Note: Data as of October 2, 213. Biotech M&A Transaction Volume: 28 213 YTD 155 17 177 165 28 29 21 211 212 213 YTD $64 Biotech M&A Transaction Value: 28 213 YTD $14 $34 134 $23 $26 $25 28 29 21 211 212 213 YTD 6
Global Healthcare M&A Activity 2,5 Annual Global HC M&A Volume by Sector Annual Global HC M&A Volume by Country 2,5 2, 1,5 1, 5 1,784 45 65 5 45 68 166 116 134 1,953 27 87 41 66 74 175 183 157 422 457 65 648 1,844 64 88 56 49 59 15 26 157 418 565 1,683 45 56 61 62 65 157 169 187 395 459 744 48 86 71 156 29 21 211 212 1H 213 Pharma Med Tech. and Device HCIT Acute Care Misc. Homecare Other Post Acute Facilities Physician Labs LTC Dental Dialysis Behavioral Source: HCIT data from IQ. All other data from Thomson Reuters. Note: Transaction data as of 6/3/13, based on closing date. 223 1,953 2, 25 1,844 1,784 32 17 63 1,683 42 38 57 337 1,5 314 37 292 262 629 55 574 1, 499 744 124 5 789 847 864 81 217 363 29 21 211 212 1H 213 North America Europe Asia Oceania South America na Africa 7
Growing Corporate Cash Balances Corporations continue to stockpile cash, resulting in record cash balances Significant portion of cash maintained overseas in excess of 5% according to Moody s Med-Tech Corporate Cash Build-Up 29 - Current $8 $6 $56.2 $61.5 ($ bn) $4 $4.6 $41.6 $47.2 $2 $ 29 21 211 212 Current Source: IQ. Note: Figures represent aggregate cash on hand for the 5 largest Med-Tech companies by revenue. 8
Excess Private Equity Dry Powder Improvements in fundraising over past few quarters Q2 213 was the most active quarter since 28 Private equity funds have over $1.tn of dry powder available Potentially too many dollars chasing too few deals Private Equity Dry Powder by Fund Type Private Equity Dry Powder by Primary Geographic Focus Dry Powder ($bn) $1,2 $9 $6 $3 $ 87 15 133 34 24 37 137 125 167 35 37 61 145 138 125 119 171 181 43 41 43 45 56 56 136 147 112 116 154 167 39 52 46 68 68 72 149 112 157 39 68 65 177 113 175 43 7 76 38 442 485 484 426 391 355 393 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Aug-13 Buyout Distressed Private Equity Growth Mezzanine Real Estate Venture Other Source: Preqin Private Equity Spotlight - September 213. Dry Powder ($bn) 7 6 5 4 3 2 1 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Aug-13 North America Europe ROW 9
IPO Market Trends 12 Med-Tech IPOs from July 12 June 13 Biopharma IPO market surged in H1 213, with 14 venture-backed companies going public Venture-Backed IPO Activity 35 32 3 25 2 15 24 23 25 21 18 27 15 Total VC Backed IPOs Life Sciences IPOs 1 5 5 7 7 6 5 5 $1.1B $413M $464M $338M $389M $382M $363M H1 '1 H2 '1 H1 '11 H2 '11 H1 '12 H2 '12 H1 '13 Dollars Raised in Life Sciences IPOs Source: Fenwick & West LLP. 1
IPO Market Trends (Cont.) U.S. and European IPOs, July 212 June 213 Company Ticker Location Product type (disease) Gross raised (U.S. $m) Quarter NanoString Technologies NSTG U.S. Washington Research and other equipment 54 Q2 213 LipoScience LPDX U.S. North Carolina Non-imaging diagnostics 52 Q1 213 Globus Medical GMED U.S. Pennsylvania Therapeutic devices (orthopedic) 25 Q2 212 Electrical Geodesics EGI U.S. Oregon Non-imaging diagnostics 12 Q2 213 NanoBiotix NANO France Therapeutic devices (oncology) 18 Q4 212 TheraDiag ALTER France Non-imaging diagnostics 11 Q4 212 SpineGuard ALSGD France Therapeutic devices (orthopedic) 11 Q2 213 Cancer Genetics CGIX U.S. New Jersey Non-imaging diagnostics 7 Q2 213 Atossa Genetics ATOS U.S. Washington Non-imaging diagnostics 5 Q4 212 Novacyt ALNOV France Non-imaging diagnostics 3 Q4 212 Spago Imaging SPAG Sweden Imaging 3 Q4 212 Vivoline Medical VIVO Sweden Non-imaging diagnostics 2 Q2 213 Source: Ernst & Young, BMO Markets, Dow Jones, VentureSource, IQ. IPO Performance, July 212 June 213 6/3/13 Closing Price Relative to Offering Price 5% 25% % -25% -5% -75% GMED ATOS LPDX EGI NSTG ALNOV NANO SPAG ALTER VINO ALSGD NSTG Source: Ernst & Young, IQ. 11
Med-Tech Venture Financing Environment Med-Tech venture capital fundraising activity remains slow Only stronger players continue to actively invest Decline largely mirrors reduction in total VC investing across all industries VCs increasingly directing investment at revenue generating companies Early stage companies must have a novel technology with clear clinical and economic benefits More frequently corporates are investing in and acquiring venture-backed companies U.S. Med-Tech Financing U.S. Venture Investment U.S. and Europe Venture Funding $3. $5. $15. 1% $bn $25. $2. $15. $1. $5. $bn $4. $3. $2. $1. $12. $9. $6. $3. Average deal size ($mm) $bn 8% 6% 4% 2% $. Jul 26- Jul 27- Jul 28- Jul 29- Jul 21- Jul 211- Jul 212- Jun 27 Jun 28 Jun 29 Jun 21 Jun 211 Jun 212 Jun 213 $. Jul 26-Jul 27-Jul 28-Jul 29-Jul 21-Jul 211-Jul 212- Jun 27Jun 28Jun 29Jun 21Jun 211Jun 212Jun 213 $. % Jul 26- Jul 27- Jul 28- Jul 29- Jul 21- Jul 211- Jul 212- Jun 27 Jun 28 Jun 29 Jun 21 Jun 211 Jun 212 Jun 213 Venture IPO Follow-on and other Debt Total amount raised Average deal size Early-stage Later-stage Source: Ernst & Young, BMO Markets, Dow Jones VentureSource, IQ. 12
Transactions with Milestone Payments Use of milestone-based payments has increased following the global financial crisis Milestones give acquirers a way to purse M&A while simultaneously containing the risk The Use of Milestone Payments Remains Robust Number of M&As 4 3 2 1 Jul 28-Jun 29 Jul 29-Jun 21 Jul 21-Jun 211 Jul 211-Jun 212 Jul 212-Jun 213 Number of M&As with milestones Percentage of M&As with milestone payments 4% 3% 2% 1% % Percentage of M&As with milestone payments Milestone Payments Continue to Make up More than One-Third of Total Deal Value Total deal value ($bn) $2.5 $2. $1.5 $1. $.5 $. Jul 28-Jun 29 Jul 29-Jun 21 Jul 21-Jun 211 Jul 211-Jun 212 Jul 212-Jun 213 5% 4% 3% 2% 1% % Share of total value Total value of milestones Total value of milestones/total value of all M&As with milestones Source: Ernst & Young, IQ, Thomson ONE. Note: Med-Tech Transactions defined as medical devices, medical supplies, medical equipment, and life science tools. Exclude pharma. 13
Recent M&A Themes Low Cost Overhang Fund Pressures Limited Top-line Growth Anemic Product Pipelines Carve-outs of Non-Core Assets Creative Deal Structuring Arbitrage ROIC & WACC Optimize Structure Diverse Sources Use It or Lose It for PE Corp Cash Build-up OUS Trapped Cash $ Looking for Deals 2+ HC PE, 4+ HC VC Funds 5-1 Year Life Cycles LPs Want Shorter Holding Periods Few IPOs Fund-to-Fund Deals Increasing More Mature Targets Big Markets Accretive to Long-Term Growth Outsource R&D Acquire Innovation Portfolio Management Sell Under- Performers Big Mergers Prompt Redundancy + Regulatory Sales Contingent Payouts/ CVRs Staged Buyouts Strategic Investments Put/Call Rights Warrants TRANSACTION VELOCITY? 14
State of the Life Sciences Mergers and Acquisitions Market Brian Miller, Managing Partner and Co-Founder, Linden Partners Rich Fante, RF Consulting LLC, Formerly with AstraZeneca Americas Mark Nicholson, Baxter Healthcare Corporation Daniel Weintraub, Audax Group Moderator: John Soden, Houlihan Lokey OCTOBER 3, 213