The Diagnostics Investment Landscape

Surviving the Challenging Climate in 2008-09

Roopom BanerjeeDirector, Investment Banking

2

Leerink Swann – Who We Are

• The Healthcare Investment Bank

• Full-service investment bank – Corporate Finance, M&A, Institutional Sales & Trading, Venture Services, Consulting

• Powered by MEDACorp – global network of 27,000 clinical experts, academic thought leaders, business leaders

• Most healthcare transactions of any bank on Wall St since 2007

– 75 completed financing deals since 2007

– 20+ announced/closed M&A deals in last 12 months

• 230 employees – Boston, New York, San Francisco

3

Investors’ View of Diagnostics – Circa 2000

• Mature, slow growth industry

• Mediocre margins and cost pressures

• Fragmented product landscape, starting to consolidate

• Led by large diversified companies – few successful pure-play startups

• For many big companies, a “cash cow” business

• Limited upside or alpha in risk-reward profile

• Other life sciences sectors more exciting, e.g., novel biologics, devices

• Secular belief that newer, better, safer therapies would eschew the need for targeted diagnostics (clinical and research markets)

4

Today: Matching Patients with Best Treatments

Emergence of novel, high cost therapies and procedures to

treat serious diseases

Higher safety and efficacythresholds for approval

and reimbursement

Diagnostics that match patientsand treatments to providemore effective, less costly

and safer therapies

Market Forces Market Expansion

Source: Kalorama 20064

$20 billion market today growing to $60 billion by 2016

5

Significant Value Creation Excites Investors!

Prominent IPO's Since 2000(1) Largest M&A Transactions 2003-08

(1) Companies with >$100mm market cap today(2) Current market cap or value at time of sale

• 18 IPO's since 2000

• 135 M&A transactions since 2003

IPO Mkt Cap

Ticker Company Date Today(2)

ILMN Illumina Jul-00 4,457.5$ CPHD Cepheid Jun-00 1,494.9$ LMNX Luminex Mar-00 819.9$ SQNM Sequenom Jan-00 678.4$ GHDX Genomic Health Sep-05 594.3$ TWTI Third Wave Technologies Feb-01 493.4$ GXDX Genoptix Oct-07 469.2$ GMNI Gemini Genomics Jul-00 232.3$ NSPH Nanosphere Oct-07 214.2$ MGRM Monogram May-00 143.6$

Target Acquiror Date ValueDade Behring Holdings Siemens Medical Jul-07 7,171.8$

Applied Biosystems Invitrogen Corp. Jun-08 6,365.0$

CYTYC Corp. Hologic Inc. May-07 5,942.4$

Bayer Diagnostics Siemens Medical Jun-06 5,276.3$

Apogent Technologies Fisher Scientific International Mar-04 3,960.9$

Ventana Medical Systems Roche Holding AG Jun-07 2,828.2$

AmeriPath Quest Diagnostics Apr-07 1,853.6$

Biosite Incorporated Inverness Medical Innovations Apr-07 1,807.0$

Diagnostic Products Siemens Medical Apr-06 1,741.9$

Digene Qiagen NV Jun-07 1,496.7$

Matria Healthcare Inverness Medical Innovations Jan-08 1,155.8$

Whatman plc GE Healthcare Ltd. Feb-08 753.1$

Molecular Devices MDS Inc. Jan-07 616.0$

Solexa Illumina Nov-06 599.2$

BioVeris Corp. Roche Holding AG Apr-07 595.7$

Third Wave Technologies Hologic Inc. Jun-08 580.0$

Adeza Biomedical CYTYC Feb-07 447.0$

HemoCue AB Quest Diagnostics Feb-07 420.0$

TriPath Becton Dickinson Sep-06 347.6$

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Diagnostics M&A Activity is Accelerating

$1,579

$6,128 $6,038

$15,134

$9,712

$2,150

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

2003 2004 2005 2006 2007 2008 YTD

M&A Transaction Value$ Millions

Number of Deals

10 21 21 30 43 10

Deal Size ($ Millions)

Mean $159 $372 $115 $523 $600 $1416

Median $130 $154 $95 $70 $184 $378

• 135 transactions since 2003

• Median acquisition multiple 4.2x on an EV/ LTM sales basis

• Acquired companies had median of $33.4 mm LTM revenues at time of sale

• Consolidation even amongst largest players

– Siemens / Bayer / Dade

– Invitrogen / ABI

– Hologic / Cytyc

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Top Buyers of Diagnostics Assets

0 2 4 6 8 10 12 14 16

Siemens Medical Solutions

P erkinElmer

Millipore

Bio-Rad Laboratories

ABI

Beckman Coulter

Becton Dickinson

Thermo Fisher Scientific

Roche

Quest Diagnostics

Qiagen NV

Invitrogen

Inverness Medical Innovations

Number of Diagnostics Acquisitions, 2003-08 YTD Largest Acquisition

• Biosite ($1.4B)

• ABI ($6.4B)

• Digene ($1.5B)

• AmeriPath ($1.9B)

• Ventana ($2.8B)

• Apogent ($4.0B)

• TriPath ($348M)

• Lumigen ($185M)

• Ambion ($273M)

• Diamed ($392M)

• Serologicals ($1.1B)

• NTD ($49M)

• Dade ($7.1B)

$ 4,543 mm

$ 7,152 mm

$ 1,636 mm

$2,502 mm

$3,936 mm

$4,623 mm

$616 mm

$473 mm

$423 mm

$423 mm

$1,348 mm

$80 mm

$14,189 mm

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Why are Novel Diagnostics Hot? Is it Sustainable?

• Rapidly growing commercial opportunities

• Economics favorable to key constituents: patients, physicians, hospitals, payors

• Disruptive new technologies – small companies can play and succeed!

• Sector has created significant shareholder value

– Several proven paths to success

– Attractive risk reward: biotech upside without biotech risk

• Suited to investor demands for predictable revenues and earnings

• Several questions loom on the horizon…

– How do you pick the winners?

– Does the market need an nth breast cancer test?

– When will reimbursement and pricing come under pressure?

– What is the FDA going to do?

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Investors Bias Shifting To “Best-in-Class”

Targeting a large, established market with clear unmet medical needs

Disruptive technology that drives a new standard of care

Compelling safety and efficacy data – established development pathway

Attractive, established reimbursement and strong economic justification

Benefits to key constituents: patients, physicians, hospitals, payors

Rapid commercial adoption with referencable customers

Attractive gross margins, capital efficiency and clear path to profitability

Strong IP and other barriers to entry

Proven management team

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Even the Most Successful Companies Need to Contend with Challenging Global Economy

(US$ in billions)

Source: FactSet, Placement Tracker, ici.org, sec.gov, company press releases

$(75.0)

$(65.0)

$(55.0)

$(45.0)

$(35.0)

$(25.0)

$(15.0)

$(5.0)

$5.0

$15.0

$25.0

$35.0

Jan-

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Sep

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Nov

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Jan-

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Sep

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Nov

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Jan-

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Market Performance (Jan 2008 – Feb 2009)

U.S. Equity Mutual Fund Flows (Jan 2006 – Jan 2009) • Worst capital markets since 1930’s

• Market stabilization efforts stalled in face of global deleveraging and credit crisis

• Healthcare initially trailed market decline due to defensiveness; no safe haven today

• Small cap healthcare hardest hit – majority trading at or below current cash levels

DJIA

S&P 500

NASDAQ Composite

Russell 2000

2008

-33.8%

-38.5%

-40.5%

-34.8%

NBI -12.6%

2009

-47.6%

-45.7%

-46.4%

-11.2%

-44.5%

2007

6.4%

3.5%

9.8%

-2.8%

4.6%

2008

-19.4%

-32.1%

-37.0%

-54.8%

2009

-11.6%

-8.4%

-14.7%

-17.0%

2007

-1.9%

-6.8%

10.2%

16.2%

DJ/W Medical Equip.

MS HC Providers

AMEX Pharma.

MS HC Payors

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Healthcare Financing Market Has Contracted

($ in millions)

• In 2008, the largest healthcare financings were:

– IPO: CardioNet in March 2008 ($81 million)– Follow-On: Illumina in August 2008 ($352 million)– PIPE: Middlebrook Pharmaceuticals in July 2008 ($100 million)– Registered Direct: VIVUS in August 2008 ($65 million)

$2,806

$1,699 $1,928

$6,667

$132

$2,384

$935 $851

$8,890

$5,901

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Private IPOs Follow-ons PIPE RDO

2007 2008-2009 YTD

Healthcare Financing 2008-09 YTD vs. 2007

• Total private and public equity raised in healthcare since 2008 is 48% below 2007 levels

– Private financings are 25% below 2007; public equity financings (excluding IPOs) are down 56% vs. 2007

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417 421 257

210 145 202

2,644

4,127

3,445

3,313

4,256

2,763

2006 2007 2008

Biotech

Medtech

HCIT

Services

VCs Highly Selective in Diagnostics

Source: VentureSource.

($ in millions)

CAGR

-21.5%

-1.7%

14.1%

-8.7%

• VCs highly selective in new investments– Priority #1: support current portfolio

– Market is getting cheaper – realism setting in

Number of Investments 577 436 351

Average size $10.4 $17.5 $18.3

2008-09YTD

Series B$1,628 23%

Series C$1,667 24%

Series D$964 14%

Series E$689 10%

Series A$1,427 20%

Series F+$611 9%

• Later-stage assets are more de-risked; less attractive risk-reward for earlier-stage

• VCs seeking “fallen angels” in public market

13

A Silver Lining in Diagnostics?

1. More investors adding novel diagnostics to mandate Traditional VC powerhouses continue to invest: Kleiner Perkins, TPG, Mohr Davidow, New Leaf New VC entrants: SVLS, Prospect, Radius, Venrock Growth equity also taking notice: Perseus, Abingworth, Ampersand

2. The “A-list” companies are getting funded Strong demand and premium pricing for the right profile Bulletproof business case for each MDx test – compelling IP alone is not enough

3. Companies taking portfolio view of MDx to diversify risk Are the days of “one-hit wonders” gone (e.g., Digene, Biosite, etc.)?

4. Evolving definitions: “diagnostic” vs. “prognostic” vs. “predictive”

5. Specific TAs in focus – autoimmune, neurological, cancers, infectious disease

6. All companies – no matter big or small – are managing cash