Leerink research report

Dec Yr 1Q 2Q 3Q 4Q FY Rev 1Q 2Q 3Q 4Q FY EPS P/E2010A -- -- -- -- $0.0 -- -- -- -- ($24.67) NM2011E $0.0A -- -- -- $0.0 ($0.38)A ($0.48) ($0.54) ($1.59) ($3.32) NM2012E -- -- -- -- $0.0 ($0.59) ($0.58) ($0.58) ($0.59) ($2.33) NM

Source: Company Information and Leerink Swann LLC ResearchQuarterly figures may not add to annual total due to rounding and/or change in shares out.

July 25, 2011

OUTPERFORM

Reason for report:

INITIATION

Joshua Schimmer, [email protected]

Steve Y. [email protected]

VENTRUS BIOSCIENCESMultiple Late Stage, Lower GI Programs and Attractive Value:Initiating at OP

• Bottom Line: We are initiating coverage of VTUS with an Outperformrating and $24-26 valuation. The company is addressing an overlookedtherapeutic area of lower GI diseases, and has two programs with PhaseIII data expected to read out in 1H12 with a third strong candidate movinginto Phase IIb. We believe the current valuation represents an attractiverisk-reward given the available clinical data for the compounds and theirrespective market opportunities. Our valuation is based on our DCFanalysis using a premium 14% discount rate to reflect clinical trial risks.

• VEN 309 for Hemorrhoids Entering Phase III Study: VEN 309 is a5HT2a antagonist designed to increase blood flow and shrink the size ofhemorrhoids resulting in less pain and bleeding. Following positiveplacebo-controlled Phase II results, a Phase III study is expected to startsoon with top-line data in 1H12. Peak global sales for VEN 309 couldapproach $600M.

• VEN 307 for Anal Fissures May Reach Market in 2014: VEN 307 is atopical diltiazem cream to treat anal fissures. The recent FDA approval ofRectiv (topical nitroglycerin) bodes well for topical diltiazem prospects,although VEN 307 still needs to successfully complete Phase III studies.A Phase III study of VEN 307 is underway in the EU, being conducted byS.L.A. Pharma, the company that licensed U.S. rights of the compound toVTUS. We believe peak sales in the U.S. could reach ~$55M.

• VEN 308 for Fecal Incontinence Is Also Attractive: VEN 308 is aPhase II topical phenylephrine for the treatment of fecal incontinence thathas been put on developmental hold so that the company can manage itscash burn. The company has obtained an Orphan Drug designation,which helps with market exclusivity. We believe that this programrepresents an underappreciated asset and we look forward to itadvancing into a Phase IIb study. We estimate peak sales could reach~$75M.

Key Stats: (NASDAQ:VTUS)

S&P 600 Health Care Index: 781.13Price: $11.89

52 Week High: $21.00

52 Week Low: $5.75

Shares Outstanding (mil): 12.2

Market Capitalization (mil): $145.1

Book Value/Share: NM

Cash Per Share: $4.18

Net Debt to Total Capital: 0%

Dividend (ann): $0.00

Valuation: $24-26 on DCF

Q3 Q1 Q2 Q30

5

10

15

20

25

2011

1 Year Price History/Ave. Daily Vol. (mil) for VTUS

Created by BlueMatrix

0

0.2

0.4

0.6

0.8

Please refer to pages 61 - 65 for Important Disclosures, Price Charts and Analyst Certification.Rx trends derived from IMS Health.

Ventrus Biosciences (VTUS): Multiple Late Stage GI Assets and Attractive Valuation

Joshua Schimmer, M.D., Biotechnology Analyst212-277-6116; [email protected]

Steve Yoo, Biotechnology VP212-277-6065; [email protected]

2

VENTRUS BIOSCIENCES July 25, 2011

Investment Thesis

• We are initiating coverage of VTUS with an Outperform rating and $24-$26/share valuation

• The company has 2 Phase III compounds and a Phase II compound all focused on distal GI tract disorders, each addressing a meaningful unmet need

• Lean operations that could translate to good operating leverage

• Attractive valuation: ~$150M market cap, with ~$4/share in cash and ~$100M enterprise value are quite modest, in our view, given multiple shots on goal

• We believe the VEN 307 (anal fissures) and VEN 308 (fecal incontinence) programs alone support upside to the current valuation, yielding attractive risk-reward on the lead VEN 309 (hemorrhoids) program

3


3 Attractive GI Programs

• Phase III- VEN 309 (topical 5HT2a antagonist) for hemorrhoids

• Placebo-controlled Phase II study demonstrated reductions in both pain and bleeding

• No drug therapy currently approved for hemorrhoids; unmet need for a medical therapy to follow standard OTC regimens and before intervention with banding or hemorrhoidectomy

• We model peak global sales approaching $600M, peak U.S. sales approaching $400M

• Phase III- VEN 307 (topical diltiazem) for anal fissures

• Painful condition, inadequate treatments; surgical correction an option but risks fecal incontinence

• Small studies suggest VEN 307 is as efficacious as recently approved Rectiv, but without side effect of headaches. MEDACorp specialists note positive anecdotal experience with topical diltiazem

• We model peak U.S. sales >$50M, could be higher if additional patent protection procured

• Phase II- VEN 308 (topical phenylephrine) for fecal incontinence

• Very high unmet medical need with inadequate treatment options

• Development on hold due to finite resources, but should move into Phase IIb studies in 2H12; we are very eager to see this program advance

• We model peak U.S. sales of ~$75M

4


Key VTUS Risks

• Clinical data risk:

• VEN 309 (hemorrhoids): We estimate 65% probability of success in Phase III. VEN 309 must also successfully complete tQTc study (see later in report)

• VEN 307 (anal fissures): Topical diltiazem is used in the GI community, but the clinical evidence for activity is mixed. We estimate 50% probability of success in Phase III

• VEN 308 (fecal incontinence): Topical phenylephrine has shown mixed results in small clinical trials. Selecting the ideal patient population to show benefit may be key to clinical success. We estimate 55% probability of success in Phase III

• IP risk:

• VEN 309 (hemorrhoids) composition of matter expires 2015; new method of use IP to 2030 should issue

• VEN 307 (anal fissures) method of use IP to 2018, but additional formulation work may generate new IP

• VEN 308 (fecal incontinence) method of use IP to 2017 but also has Orphan Drug Designation

• As topical drugs, Citizen’s Petitions could be used to buy additional time before entry of generic challenges

• Commercial risk:

• All 3 indications may best be served with a primary care sales force, although a targeted commercial effort toward GI specialists and colorectal surgeons could claim decent market share

5


VEN 309 for Hemorrhoids

6


Hemorrhoids

• Inflammation and swelling of veins around the anus or lower rectum

• Can cause bleeding, itching, pain and difficulty defecating

• Estimated prevalence in U.S. is ~12.5M; 1M new cases/year

• About 3.5M seek medical treatment

• Present in 4% of U.S. population and 50% of over-50 population

7


Hemorrhoids – Classification

Stage 0 Stage 1 Stage 2 Stage 3 Stage 4Morphology Anal cushion Small hemorrhoids Intermediate hemorrhoids Large hemorrhoids Very large hemorrhoids

Symptoms Very rare bleeding, no prolapse

Intermittent bleeding, no prolapse

Prolapse during straining but spontaneously return;

frequent bleeding, sometimes profusely

Prolapse, need manual aid to put back in anal

canal, bleed frequently & often profusely.

Permanent prolapse, bleed profusely, blood

stains on underwear even without bowel movement

Additional features None None, with exception of some pain

Anal itching (pruritus ani), and sometimes skin tags

Anal itching (pruritus ani), discomfort, skin tags

Severe pain, anal itching, severe discomfort, soilings, skin tags

Visual No increase Minor, but definite increase as can be

observed by proctoscopy

Moderate increase of individual masses that

prolapse during straining

Major increase in size, prolapse

Extreme increase in size, visible skin tags,

secondary hemorrhoids may develop

Age group All ages, <20 if symptomatic

20 - 45 >30 > 40 > 50

Treatment Change in bowel habit & diet, sclerotherapy /

infrared coagulation for stubborn cases

Sclerotherapy & Infrared coagulation. Rubber band

ligation & surgery for certain cases.

Rubber band ligation & stapling. Surgery in some

cases.

Hemorrhoidectomy Hemorrhoidectomy, sometimes with anoplasty

Source: http://www.hemorrhoidsinplainenglish.com/hemorrhoid/classification.htm

Majority of patients fall into Stages I-III, which is the population that VEN 309 would address

8


Characteristics of the Hemorrhoid Market

• Patients reticent to broach topic with doctors

• May be due to lack of approved products or embarrassment of topic

• Patients more likely to approach doctors for bleeding or pain

• Bleeding and pain are the major source of discomfort (or anxiety) for patients

• Primary care doctors may refer patients to GI specialists to screen for colorectal cancer (more so than for therapeutic intervention)

• Increases the likelihood of GI specialists seeing these patients, which is important if considering a targeted commercial effort

9


Hemorrhoids – Current Treatment Options

• High fiber/high fluids diet or stool softener to lessen straining during defecation

• Preparation H – generally regarded as ineffective. Primary agent is shark liver oil

• Sitz baths (shallow tub of warm water) for 10-15min mitigates symptoms

• OTC corticosteroid/lidocaine creams reduce pain and swelling

• Anusol (hydrocortisone cream) – Used off label. Approved for relief of dermatoses

• Roughly 4M scripts/year for anorectal steroids, of which >3M are likely for hemorrhoids

• Translates to over $1B potential market for hemorrhoids using VEN 309 price assumption

• Rubber band ligation – 60-80% success rate. New CHR Medical Products banding procedure offers even higher success rates with reduced discomfort versus traditional banding with forceps

• >50M hemorrhoid banding procedures globally each year, according to CRH Medical Products (makers of a new banding device)

• Infrared coagulation – about 70% success rate but effects may not last

• Hemorrhoidectomy – saved for stage III, IV patients. Long-term symptom resolution of 95%. Recovery time could be a week. Reserved for most severe/refractory cases

10


VEN 309 – Iferanserin Ointment for Hemorrhoids

• Serotonin 5-HT2A receptor antagonist S-isomer acts as vasodilator and antiplatelet agent, helping to increase blood flow out of dilated rectal venous plexus veins that are characteristic of hemorrhoidal tissue

• Administered as ointment for topical administration

• Limits systemic exposure and therefore AE risk profile

• Composition of matter patent expires in August 2015 but patent applications for method of dosing (through 2030) under review

• SPA pursued for Phase III trial but will advance without formalizing agreement after sufficient progress made

• We do not view this as a concern or regulatory risk

11


Development History of VEN 309

• Proof of concept established by Sam Amer, former director of R&D at BMY

• Patent filed for method of use in 1992

• Product licensed to Tsumura in 1998 but returned to Amer when Tsumura ran into financial difficulties

• Product licensed to NVS in 2003 but returned to Amer in 2005 when NVS shifted focus away from GI drugs

• Product licensed to VTUS in 2008 after end of Phase II meeting with FDA

• VTUS concluded $12.5M deal in June 2011 to reduce payments to Amer by about 66%

• Amer now will receive 3-4% royalty on US sales, 1-1.3% royalty on OUS sales

12


VEN 309 – Preclinical Safety

• The dosing range that produces preclinical toxicity is 17-88x the Phase III dose of 0.5% applied topically 2x daily

• The range that produces QTc prolongation effects in animals is 45-85x the Phase III dose of 0.5% applied topically 2x daily

• The range that produces QTc prolongation effects in vitro is 60-100x the Phase III dose of 0.5% applied topically 2x daily

• Therefore, despite Herg channel inhibition seen in vitro, topical administration is unlikely to result in serum concentrations high enough for this to be a concern

13


VEN 309 QTc Prolongation Risk Appears Small

• A thorough QTc prolongation study (TQT) for VEN 309 will be run in parallel with the Phase III study

• VEN309 is metabolized by CYP2D6; some patients can have inactive CYP2D6 enzymes and therefore risk relative accumulation of VEN 309 in serum

• 1 patient in an earlier trial had lower expression of CYP2D6, which resulted in Cmax blood levels of VEN 309 3x higher compared to other patients

• No other adverse events noted for the patient

• In preclinical hERG channel studies, doses representing 60-100x the human dose resulted in potential QTc elongation

• In Phase III trial, may limit use of drugs that are metabolized through CYP2D6, but risk will be fully characterized in the tQTc study

14


Early VEN 309 Trials

• 7 clinical trials completed to date (1993-2003) by Tsumura and Amer

• 220 patients dose; No SAE noted so far

• Clinical results have not been formally published, which clouds visibility on Phase III studies and leads to our ~65% estimated probability of success

• Because some trials were done in Japanese patients, can be used for Japanese approval

15


VEN 309 Trial Summary

Phase I Phase I Phase I proof of concept

Phase II dose-ranging

Phase IIb Phase Iib (German study)

Date 1998 1999 1992 N/A 2002 2004Patients 18 6 26 72 104 121Duration (days) 1 6 5 14 28 14Geography Japan Japan US Japan Japan EUSponsor Tsumura Tsumura Amer Tsumura Tsumura AmerDose strength 1% racemic 1% racemic 1% racemic 0.25%, 0.5%, 1.0% 0.25%, 0.5%, 1.0% 0.5%Frequency single dose bid tid bid bid bid

Efficacy Significant improvement in defecation, throbbing,

fullness, bleeding, tenderness

Significant improvement in ease of defecation at day 7

0.5% and 1.0% dose showed most

consistent improvements in

symptoms

Significant improvement in bleeding, pain,

itching and proposed Phase III

endpoint

Safety 3 mild AE where drug couldn't be ruled out

4 mild AE where drug couldn't be ruled out

N/A 5 VEN 309 related events

N/A Similar to previous trials

1 patient with low CYP2D6 activity mild diarrhea

lower abdominal discomfort

mild elevation of of total bilirubin

Note half life is 1.6 hours no accumulation with bid dosing Rapid onset of benefit The 0.5% dose unexpectedly

provided the best results

Rapid onset of signficant symptom

relief (1-3 days)

Source: VTUS S-1, Leerink Swann analysis

16


Phase IIb German Trial

• Phase IIb German trial is largest trial to date -- 110 evaluable patients. Twice-daily 0.5% VEN 309 versus placebo for 14 days

Daily Bleeding

Statistically significant improvement in the 2 key complaints for hemorrhoid patients. Rapid separation between drug and placebo

Daily Pain

Source: Ventrus S1

17


Phase IIb German Trial – cont’d

Proposed endpoint for Phase III trial – No bleeding between days 7-14

Itching

FDA has agreed in principle to the proposed endpoint. Patients in the German trial showed statistically significant efficacy signal

Bleeding response

Source: Ventrus S1

FDA has agreed in principle to the proposed endpoint. Patients in the German trial showed statistically significant efficacy signal

18


Development Plan for VEN 309

• FDA agreed on primary endpoint during SPA discussions

• Company will proceed with Phase III before finalizing SPA on basis of fundamental agreement with FDA on appropriate trial design. We do not view this as a concern.

• Phase III trial design

• 600 patients in 3 arms: b.i.d. VEN 309 for 2 weeks, b.i.d. VEN 309 for 1 week followed by 1 week of placebo, placebo for 2 weeks. Randomized 1:1:1

• Include grades I-III hemorrhoids. Need to bleed from hemorrhoids and have pain/itching for 2 consecutive days prior to randomization

• Primary endpoint: No bleeding days during 2nd week of treatment

• After randomized phase, patients eligible for active treatment for up to 12 months in case of recurrence

• Second Phase III trial will be designed based on results of the first study

• 2 year, 2 species carcinogenicity study required – rate limiting step

• 1,500-patient safety database required

19


Other Commercial Avenues To Explore

• Chronic versus acute population

• Generally, patients who have hemorrhoids are likely to have recurrence of symptoms

• Phase III study will have 12-month open-label extension that will generate useful real-world treatment data. FDA asked for this data because it believed the drug could potentially be used as a chronic therapy

• If there is a sizable recurrent hemorrhoids population, the 2nd Phase III trial may include a repeat dosing arm for chronic patients, especially if they respond to VEN 309 therapy better than the acute hemorrhoids patients

• VTUS may conduct a separate chronic use study if incorporating into the 2nd Phase III study becomes too cumbersome or significantly delays the completion of the trial

• Because VEN 309 is likely to be used intermittently, even if use is frequent, a single arm long-term extension study has the benefit of numerous “off” periods of drug that can be used to scrutinize any spurious safety signals that may emerge

20


MEDACorp Specialist Comments – VEN 309

• Preparation H not effective, majority of patients have tried it before coming to see doctor

• About 75% of current patients can be treated with non-surgical treatment (high fiber diet, stool softeners) with symptom alleviation within couple weeks

• Stage IV patients are rare (around 10% of patients or less). These patients are directly referred over to colorectal surgeons for repair

• Banding is effective and safe but would prefer to use topical therapy prior to banding

• Important role seen for VEN 309 in management of hemorrhoids if Phase III results are positive

21


VEN 309 Market Assumptions

• U.S. hemorrhoid population – 12M, growing 1.5% y/y

• Estimate 33% of patients seek treatment

• May increase if patients find out about effective FDA-approved therapy

• Market penetration for VEN 309 – gradually rises to 16% of patients seeking treatment

• Revenue per patient – $425, growing at 2% y/y

• VTUS plans to focus commercialization efforts on the 4M anorectal steroid prescriptions per year

• Can promote with modest-sized sales force and supplement with commercial agreement with a pharma company targeting the broad PCP market, although our model only assumes ex-U.S. agreement

22


CRH Medical (CRM:TSX-V) Banding Procedure Highlights Commercial Opportunity

• An improved hemorrhoid banding device using syringe for suction instead of using forceps to grab hemorrhoidal tissue. Lowers the pain complication rate

• Unique sales approach of using KOL/physician trainers and no salesforce to promote the technique

• Estimated 10% share of the banding procedures done in U.S., annualizing at $5M revenue; $65/procedure implies $50M banding market or greater if this device can expand the market

• We believe this technology could overtake the banding market in the future. However, doctors indicate they will be willing to try topical therapy before opting for rubber band ligation

Source: CRH

Building up from banding procedure market (and adjusting for price) also suggests peak U.S. sales of $400M for VEN 309 is achievable 23


VEN 309 Revenue Projections

Source: Leerink Swann estimates

We expect that extended patent protection with method of dosing will be achieved (note recent experience with ACOR’s Ampyra

helps support ability to delineate novel dosing IP)

VEN 309 Sales

035

73113

156202

251

0

0

0

25

51

79

109

0

50

100

150

200

250

300

350

400

2014 2015 2016 2017 2018 2019 2020

OUS

US

24


Timeline for VEN 309

• Summer 2011 – Start Phase III trial, start LT carcinogenicity study

• 1H12 – Phase III results

• 2012 – Start second Phase III trial in recurrent hemorrhoids patients

• Mid-2014 – NDA expected to be filed after second Phase III trial results

• 2015 – Launch

• August 2015 – Composition of matter patent expiration

• 2030 – Potential patent protection if concentration range patent granted

25


VEN 307 for Anal Fissures

26


Anal Fissures

• Small tears or cuts in the distal anal canal anoderm

• Results in severe anal pain and bleeding with or after bowel movements

• Thought to be caused by increased internal anal sphincter (IAS) tone and poor flood flow to anal epithelium

• Estimated 4.3M cases in the U.S. with 1.1M office visits in the U.S.

• Verispan Physician Drug and Diagnosis Audit at Cellegy FDA Advisory meeting in April 2006 estimated 84K compounded nitroglycerin ointment uses from Oct. 2003 to Sept. 2004

• Conservative therapy consists of diet modification, fiber, sitz baths and stool softeners, which are often ineffective

• Most fissures heal over several weeks, but discomfort over this time can be substantial

• More aggressive therapies include topical calcium channel blockers or nitrates

• Surgery can be performed for severe or refractory cases

• Healing is a difficult endpoint for registration studies

27


Current Anal Fissure Treatments

• Compounded nitroglycerin or compounded diltiazem

• Pro – Widely used so doctors are familiar

• Con – Need to be made by a compounding pharmacy so potential variability in strength and geographic availability

• Rectiv - Nitroglycerin 0.4% ointment – first approved therapy for this indication

• Prostrakan (subsidiary of Kyowa Hakko Kirin) acquired from Cellegy after prolonged registration course

• Finally approved in June 2011, 1Q12 launch expected

• Pro – FDA approved product. Doctors familiar with use. Easy to use for patients

• Con – May cause headaches, dizziness. Efficacy modest at best

• Botox injection into anal sphincter

• Pro – Effect lasts for 3-8 months

• Con – Invasive, usually not reimbursed

• Surgery – most often lateral sphincterectomy, which relaxes the muscle

• Pro – highly effective in alleviating pain

• Con – Invasive. Can result in fecal incontinence in up to 10%, although fewer have QOL impacted by this complication

28


VEN 307 – Diltiazem Cream for Anal Fissures

• Reduces maximal resting pressure (MRP) of anal sphincter, to improve blood supply and reduce pain

• Daily doses for fissures range from 15-45mg

• Vs. cardiovascular applications, which require doses up to 240-360mg/d

• Currently diltiazem cream is available through compounding pharmacies

• Diltiazem cream is listed as a preferred agent prior to surgery in anal fissure treatment guidelines

• Nifedipine topical products also available for treatment of fissure

• MEDACorp specialists note preference to prescribe approved product given variability of compounding formulations and erratic availability of cream from compounding pharmacies

29


Development Status of VEN 307

• Diltiazem use for anal fissures identified in 1997 at St. Mark hospital in London (Kamm, Phillips) with IP filed then

• Method of use patent protection until 2018

• Patents assigned to S.L.A. Pharma in 1997

• Patents licensed to Solvay in 2001, which improved the manufacturing and formulation process and conducted PK studies

• License returned to S.L.A. in 2004 after Solvay exited GI and women’s health development

• North American rights licensed by VTUS in Aug. 2007 (via Paramount Biosciences)

• Phase III EU trial started by S.L.A. in Nov. 2010

• 2Q12 finish expected

• 505b2 pathway being pursued in U.S.

• NDA filing could happen in 2013

• VTUS plans for internal GI specialty salesforce to commercialize the product

30


VEN 307 Results From S.L.A. Pharma Mixed, But Small Studies and Did Not Use Optimal Endpoints

• S.L.A. Pharma 4-day PK study in anal fissure patients

• 8 doses of 2%, 4%, 8% cream single dose on d1 then t.i.d. doses on d2, 3, then single dose on d4

• Side effects (anal irritation, headache, nausea) were mild

• 4-8 mmHg SBP (blood pressure) decline by day 4; transient, asymptomatic and returned to normal by next reading with no clear dose related effects; comparable with blood pressure declines reported in placebo subjects of HTN trials

• S.L.A. Pharma clinical study in anal fissure patients

• 2% diltiazem cream versus 0.2% glyceryltrinitrate (GTN) cream; b.i.d. application in and around anus x 6 weeks

• 60 patients: 26% healed and 52% improved with diltiazem, versus 41% healed and 45% improved with GTN group; no recurrences after 4 weeks post therapy.

• 42% treatment-related AE with diltiazem, 72% with GTN; headaches in 26% of diltiazem, 59% in GTN

• S.L.A. Pharma healing endpoint exploratory trial

• 2% diltiazem cream vs. placebo; 31 patients randomized. Creams applied b.i.d. x 8 weeks

• Healing rates were 10% diltiazem, 19% placebo; no difference in pain at end of study or daily pain

• Highlights challenges of using a healing study over 8 weeks

31


Previous VEN 307 Clinical Trial Results

Publication Patients Indication Drug Design Duration Results Side effects

Kocher, Br J Surg 2002 61

Chronic anal fissures

Diltiazem 2% cream vs GTN 0.2% bid to anal verge Double blind 6 weeks

26% healed, 51% improved with diltiazem, 41% healed, 45% improved with GTN

59% headache with GTN vs 26% with diltiazem

Jonas, Dis Col Rec 2001 50

Chronic anal fissures Diltiazem, oral or 2% gel bid

Open label, randomized 8 weeks

Mean anal resting pressure reduction of 23% with topical, 15% with oral. Complete fissure healing in 65% topical versus 38% oral, p=0.09. Among prior GTN failures,

healing in 78% of topical versus 11% of oral.

None with topical; oral had headaches, GI side

effectsBielecki, Colorectal Dis 2003 43


Diltiazem 2% ointment vs GTN 0.5% ointment bid

Open label, randomized 8 weeks Healing in 85.7% of GTN patients versus 90% of diltiazem

Headaches with GTN (33%)

Shrivastava, Surg Today 2007 90


Diltiazem 2% ointment versus GTN 0.2% ointment

vs controlOpen label, randomized 6 weeks

Complete healing in 80% of diltiazem, 73% of GTN and 33% of control. Mean decrease in pain of 75% with

diltiazem, 59% with GTN and 29% with control67% headaches with

GTN

Carapeti, Dis Col Rect 2000 15


Diltiazem 2% gel tid versus 0.1T bethanechol gel tid

Open label, randomized 8 weeks 67% healed with diltiazem gel, 60% with bethanechol. Well tolerated

Bhardwaj, 2000 44Chronic anal

fissures Diltiazem 2% gel tid Single arm 8 weeks

Complete pain relief in 88%; complete rectal bleeding cessation in 92%; fissure healed in 56%. Mean resting

anal sphincter pressure fell 24% Well toleratedKnight, Br J Surg 2001 71

Chronic anal fissures Diltiazem 2% gel bid Single arm 8 weeks

73% healed; 47% healed after additional course of therapy 6% with perianal itching

DasGupta, Col Dis 2002 23

Chronic anal fissures Diltiazem gel tid Single arm 8 weeks 48% healed, including 6/8 who previously failed GTN Well tolerated

Nash, Int J Clin Pract 2006 112

Chronic anal fissures Diltiazem 2% cream bid Single arm 6 weeks

68% considered initial treatment a success in resolving pain and bleeding. 77% of prior GTN failures had success Well tolerated

Griffin, Col Dis 2002 47

Chronic anal fissures, failed

GTNDiltiazem 2% cream to anal

verge bid Single arm 8 weeks 48% healed; 42% of the remainder were improved25% had perianal itching

with prolonged use

Jonas 39

Chronic anal fissures, failed

GTNDiltiazem 2% ointment bid

to distal anal canal Single arm 8 weeks 58% healed

10% with side effects, including mild perianal

itching

Source: VTUS S-1

Despite mixed clinical results, MEDACorp specialists believe that topical diltiazem does benefit patients with anal fissures 32


VEN 307 Ongoing Phase III EU Study

• Being conducted in Europe by S.L.A. Pharma

• 465 patients, 30 sites

• Started Nov. 2010

• 2-month treatment, 1:1:1 double blind study versus fiber + 2% VEN 207 versus fiber + 4% VEN 207 versus placebo

• Primary endpoint is pain reduction upon defecation at 1 month

• Daily diaries

• VTUS has an opportunity to learn from this study before launching its own U.S. Phase III study in 2012

33


VEN 307 Development

• VTUS will conduct 3 short-term dermal tox studies and file IND

• VTUS then plans to conduct its own U.S. Phase III study shortly after the end of the S.L.A. Phase III study results in 2Q12

• May compare to Rectiv in the Phase III study or in a separate Phase IV study

• Likely to show similar efficacy to Rectiv but much better tolerability and lower discontinuation

• NDA filing expected 2013

34


Rectiv Sets Approval Precedent for Anal Fissures

• 0.4% nitroglycerin ointment, b.i.d. application

• Originally developed by Cellegy, filed with FDA in 2004 on basis of 3 Phase III studies (3rd was under SPA) and approved in June 2011

• Not approvable letter issued Dec. 2004

• Approvable letter issued Jan. 2006

• April 2006 FDA Advisory Panel split 6:6 on approvability

• Approved June 22, 2011

• Expected launch 1H12; price has not yet been announced

• Registration-enabling Phase III study was 3-week, placebo-controlled for patients with moderate or severe pain

• Primary endpoint: Rate of change in the 24-hour pain intensity during the first 21 days of treatment

35


Rectiv Clinical Trial Results

Primary endpoint analysis. Note that the data for studies 1, 2 were retrospective analysis

Source: FDA briefing documents, 4/26/06

36


Rectiv Discontinuation Due to Adverse Events

23 patients out of 304 withdrew due to adverse event. Most

common adverse event cited was headaches (10

patients), which is to be expected with

nitroglycerin therapy

Source: FDA briefing document, 4/26/0637


Rectiv Difficulty With FDA

Data analysis disagreement stemmed from how to address patients who dropped out due to adverse events, primarily

headaches. Shouldn’t be a problem with VEN 309

Different p-values depending on

analytical method used

Source: FDA briefing document, 4/26/06

38


MEDACorp Specialist Comments – VEN 307

• Will try Rectiv in patients that would normally consider for nitroglycerin therapy

• Topical diltiazem more appealing since it doesn’t cause headaches

• Would prefer that any new therapy includes lidocaine to help with pain management

• Could be a franchise-extension strategy for VEN 307

• FDA-approved product would make prescribing diltiazem much easier

• Compounding pharmacies are slowly disappearing as big pharmacy chains consolidate the industry

39



• U.S. anal fissure population – 750k, growing 1.5% y/y

• Estimate 50% of patients seek treatment

• Market penetration for VEN 307 – rising to 18% in 2020, assuming Citizen’s Petition challenge buys a couple of extra years beyond patent expiry

• Will compete against Rectiv, compounded nitroglycerin and compounded diltiazem

• Revenue per patient - $650 per year, growing at 2% y/y

40




U.S. sales only, as S.L.A. has ex-U.S. rights. Could get patent protection extended into early 2030’s if new formulation patents issued

VEN 307 Sales

510

18

27

3744

55

0

10

20

30

40

50

60

2014 2015 2016 2017 2018 2019 2020

VEN 307

41


VEN 308 for Fecal Incontinence

42


Fecal Incontinence

• Inability to control defecation resulting from inadequate anal sphincter function, and can be caused by muscle/sphincter weakness, neurologic impairment, physical trauma or surgery

• Conservative therapy includes:

• Diet modification

• Sitz baths

• OTC antidiarrheal medications

• Medical therapy:

• Solesta: Injectable inert bulking agent product for patients who have failed conservative therapy; injected submucosally around the sphincter

• Administered in outpatient setting

• Surgical therapy:

• Sphincteroplasty for physical injury – success rates are low

• Colostomy – extreme

• Other:

• Sacral nerve stimulation; direct sphincter electrical stimulation

43


VEN 308 Profile

• Topically applied phenylephrine gel

• Increases anal sphincter tone, improves fecal continence

• Internal sphincter receives sympathetic innervation to maintain resting sphincter tone

• Phenylephrine is a1 adrenergic agonist that can increase anal sphincter pressure and contract the internal sphincter muscle

• Phenylephrine is available as OTC meds but not as a gel, doses typically 40-60mg/d

• Use for this indication identified in 1996 at St. Mark hospital in London (Kamm, Phillips) with IP filed then

• Patents assigned to S.L.A. Pharma in 1997

• Patents licensed to Solvay in 2001, which improved the manufacturing and formulation process and conducted PK studies

• License returned to S.L.A. in 2004 after Solvay exited GI and women’s health development

44


VEN 308 – Development Status

• In-licensed from S.L.A. Pharma for North American rights (via Paramount BioCapital)

• Part of same agreement that brought in VEN 307

• Not actively developing at this time due to resource limitations but Phase IIb ready

• Likely to advance this product in 2012 and could be submitted for approval by 2015

• Although VEN 308 trails in development, we still see this as a very attractive opportunity

• High unmet medical need

• Focused commercial effort

• Plausible clinical mechanism

45


Fecal Incontinence Is a Common Disorder

• Medical literature suggests 7M patients in U.S. with any form of fecal incontinence

• Ascertainment bias makes the true prevalence extremely difficult to discern; household survey by Nelson, JAMA 1995 found 2.2% prevalence among 6,959 households. Other estimates tend to range from 1-3%

• No good treatment options currently, high unmet medical need based on social aspects of the disease

• Estimated >$400M spent per year for adult diapers for incontinence

• Fecal incontinence is 2nd leading cause for nursing home placement in U.S., may affect 30% of institutionalized patients

46


But VEN 308 Is Being Developed for Orphan Indication

• Company pursuing an Orphan indication of fecal incontinence due to ileal pouch anal anastomosis (IPAA)

• Surgical procedure, part of colectomy to restore rectal function and eliminate need for an ostomy bag

• Represents more homogeneous patient population and enables Orphan designation for market exclusivity

• Fecal incontinence is a common consequence in up to 40% of patients; estimated 50-100K patients in the U.S. with incontinence resulting from this condition

• Intrinsic neural control to internal anal sphincter is lost due to division of GI tract at anorectal junction; the neural connection can be re-established in some patients (evidence by return of the rectoanal inhibitor reflex) but in most patients it remains absent or is only partially restored

47


Cause of Fecal Incontinence Is Important for Considering Role of Phenylephrine

• Fecal incontinence can be to stool, diarrhea or flatus, all are meaningfully troubling to patients and can lead to social isolation or even cause entry into extended care facility

• Most common cause of fecal incontinence appears to be muscular or structural damage to the external sphincter or internal sphincter

• Functional (fecal impaction, diarrhea, cognitive)

• Sphincter weakness (muscle injury, pudendal nerve injury. CNS injury)

• Sensory loss (afferent nerve injury)

• Smaller population with nerve innovation damage

• Ileal pouch-anal anastomosis (IPAA) – about 30% of patients suffer seepage or incontinence

• Can also be seen in neurologic deterioration such as MS, spinal cord injury, congenital disorders such as spina bifida

We believe phenylephrine should have best activity in patients with neurologic defects as opposed to structural damage

48


Phenylephrine Gel Investigator Initiated Studies

Publication Patients Indication Drug Design DurationBaseline incontinence Results

Carapeti, Dis Col Rec 2000

12Fecal incontinence for IPAA

10% gel or placebo, 0.5mL topically to anal margin bid

Double-blind, placebo-controlled cross-over

4 weeks17 (on 0-24 scale)

40% improvement in incontinence score vs 0% for placebo; 33% complete response versus 0% for placebo

Carapeti, Br J Surg 2000

36Fecal incontinence with normal sphincter structure

10% cream or placebo; 0.5mL topically to anus bid

Double-blind, placebo-controlled cross-over

4 weeks14 (on 0-24 scale)

Negative; although 75% improvement noted in 17% of treated and 6% of untreated

Cheetham, Gut 2000

30Fecal incontinence with normal sphincter structure

20% cream applied to anal canal bid

Double blind, placebo-controlled

4 weeks No clinical efficacy

Badvie, 2005 15Fecal incontinence post pelvic radiotherapy

10% gel applied to mucosa of anal canal bid

Open label 4 weeks17 (on 0-24 scale)

17% improvement in incontinence score; 50% considered the gel helpful

McCune, 2003 21Fecal incontinence post-hemorrhoidectomy

20% gel applied bid, 0.5ml

Placebo-controlled 4 weeks9 (on 0-24 scale)

34% improvement in incontinence score vs 18% for placebo. QOL improvement also seen

Mutch, 2002 26Anal seepage with intact sphincter; multiple causes

10% cream applied to anus tid

Open labal 30 days9.5 (on 0-24 scale)

38% improvement in incontinence score, but 1/3 of patients with improvement did not have increased resting sphincter pressure

Results in IPAA are strongest; other studies have not clearly defined a homogeneous patient population for evaluation. We believe etiology of incontinence is important for

predicting phenylephrine clinical success

Source: VTUS S-1

49


Why We See Meaningful Value In VEN 308

• Orphan drug indication provides 7+ years of protection against generics

• May be able to identify novel dosing or method of use IP for further patent protection

• Citizen’s Petition as a topical therapy may be able to buy an additional year

• Extremely high unmet medical need

• Prospects for success comparable to VEN 307 but commercial opportunity/market exclusivity more compelling

• Potential to identify additional Orphan indications for incontinence

• Individual neurologic conditions with associated fecal incontinence, such as MS

• The Makena experience highlights the limitations on pricing, but even modest commercial opportunity is compelling relative to current valuation

• Makena’s original price point was $20K, causing outrage in the ob/gyn and patient communities and among politicians

• Less attention paid to pricing of AVNR’s Neudexta at ~$5K/treatment (although still a focal point for some Senators)

• We doubt a $2.5k/year price point would attract much attention and would be sufficient to drive VEN 308 to >$75M/year in peak revenue

50



• US fecal incontinence population due to IPAA – 100k, growing 1.5% y/y

• 60% of patients seeking treatment or actively followed by specialist

• Market penetration for VEN 308 – rising to 35% until 7-year orphan drug protection runs out in 2024 with an extra year of exclusivity driven by Citizen’s Petition

• Revenue per patient – $2,500 per year, growing at 2% y/y

51




VTUS only has U.S. rights; could identify novel dosing or method of use IP to extend market exclusivity

VEN 308 Sales

05

919

29

40

52

64

0

10

20

30

40

50

60

70

2017 2018 2019 2020 2021 2022 2023 2024

VEN 308

52


S.L.A. Pharma Agreement

• Covers VEN 307 and VEN 308

• Signed in March 2007 between Paramount and S.L.A.

• Paramount was required to form a company to develop the programs and issued 5% ownership to S.L.A. Future milestone payments up to $20M for regulatory events for the 2 products

• Total payment obligation to S.L.A. for clinical development costs for VEN 308 will not exceed $1.2M; already paid $974k. Total payment obligation for clinical development costs for VEN 307 of up to $4M; has already paid $3.2M

• Originally owed $800k for S.L.A. completing enrollment in EU Phase III study of VEN 307 and could terminate the agreement if VTUS failed to make a required payment and 3rd party wanted to enter an agreement for 307 and 308

• These terms were eliminated as part of a June 2011 amendment; in return, VTUS owes up to $1M milestones over 4 equal installments for progress in the EU Phase III study of VEN 307 and $400k upon receipt of the EU Phase III study results (in addition to the $4M obligation)

• Owe mid- to high-single-digit royalty for VEN 307

• Owe mid-single-digit royalty for VEN 308

53


Financials at a Glance

• Sufficient cash through 2014 when the second Phase III trial for VEN 309 should end

• Sufficient cash to develop VEN 309 and VEN 307

• If receive upfront from a potential partner for VEN 309, then could move forward with VEN 308 without requiring raising additional capital

• Estimated development cost until approval

• VEN 309 - $40M

• VEN 307 - $20M

• VEN 308 - $15M

• Diluted shares after recent financing – 15.2M

• Expect minimum spend outside of clinical trials as headcount unlikely to exceed 15-20 in the near term

54


Upcoming Catalysts

• 3Q11 – VEN 309 hemorrhoids Phase III trial start

• 1Q12 – VEN 309 hemorrhoids Phase III results

• 2Q12 – VEN 307 anal fissure EU Phase III trial results (S.L.A. trial)

• 2H12 – VEN 307 anal fissure U.S. Phase III trial start

• 2013 – NDA filing for VEN 307

• Mid-2014 – NDA filing for VEN 309

55


VTUS DCF Base Valuation: $24-26 per share

• Downside Scenario Valuation: $2/share

• Residual cash if all 3 programs fail

• Base Scenario Valuation: $24-26/share

• VEN 309 U.S. sales peak at ~$400M in 2025 with patent expiry in 2030

• VEN 307 U.S. sales peak at ~$55M in 2020

• VEN 308 U.S. sales peak at ~$75M in 2025

• Given clinical trial (and some IP) uncertainty, we use a premium 14% discount rate versus the standard 10% for biotech peers (roughly comparable to assuming 50% chance of successfully reaching our projections). We use a terminal multiple on 2025E earnings of 5-6x to reflect patent expiry for VEN 309 in 2030

• Upside Scenario Valuation: $70-75/share

• VEN 309 U.S. sales peak at $1B in 2025; other assumptions unchanged, use 10% discount rate to reflect clinical and commercial success

26$ 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0%

4 $31 $28 $25 $22 $19 $17 $15

5 $34 $30 $27 $24 $21 $19 $17

6 $37 $33 $29 $26 $23 $20 $18

7 $40 $35 $31 $27 $24 $22 $19

8 $43 $38 $33 $29 $26 $23 $20


Term

inal

Mu

ltip

le

VTUS DCF BASE VALUATION ANALYSIS

Discount Rate

56


1Q11A 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E

Net Product Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Rev (MM) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Y/Y N/M N/M N/M N/M N/M N/M N/M N/M N/M N/M

COGS - - - - - - - - - -

% product sales 0% 0% 0% 0% N/M 0% 0% 0% 0% N/M0 0 0 0 0 0 0 0 0 0 0

R&D 1.0 1.6 5.0 18.0 25.6 6.0 6.0 6.0 6.0 24.0

% Rev N/M N/M N/M N/M N/M 0% 0% 0% 0% N/M

SG&A 1.7 1.8 1.7 1.7 6.9 1.7 1.7 1.7 1.7 6.8

% Rev N/M N/M N/M N/M N/M 0% 0% 0% 0% N/M

Total operating expenses 2.7 3.4 6.7 19.7 32.5 7.7 7.7 7.7 7.7 30.8

Operating (loss)/gain -3 -3 -7 -20 -32 -8 -8 -8 -8 -31

Investment & other income (expense)

Interest income $0.01 $0.0 $0.1 $0.1 $0.2 $0.5 $0.5 $0.5 $0.3 $1.8

Intererest expense ($0.07) $0 $0 $0 ($0) $0 $0 $0 $0 $0

Pre-tax Income ($2.7) ($3.4) ($6.6) ($19.6) ($32.3) ($7.2) ($7.2) ($7.2) ($7.4) ($29.0)

Taxes (benefit) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Tax rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Net Income/(loss) (MM) ($2.7) ($3.4) ($6.6) ($19.6) ($32.3) ($7.2) ($7.2) ($7.2) ($7.4) ($29.0)0 0 0 0 0 0 0 0 0 0 0

Diluted EPS ($0.38) ($0.48) ($0.54) ($1.59) ($3.32) ($0.59) ($0.58) ($0.58) ($0.59) ($2.33)

Y/Y N/M N/M N/M N/M NM N/M N/M N/M N/M NM0 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Basic shares 7.1 7.1 12.3 12.3 9.7 12.3 12.4 12.5 12.6 12.5

Diluted shares 9.9 9.9 15.2 15.2 12.6 15.0 15.4 15.4 15.4 15.4

Source: Company reports and Leerink Swann estimates

VTUS QUARTERLY P&L ($MM except per share data)

57


2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

VEN 309 (hemorrhoids)

US hemorrhoids prevalence (000s) 12000 12000 12180 12363 12548 12736 12927 13121 13318

% seeking treatment 33% 33% 33% 33% 33% 33% 33% 33% 33%

# seeking treatment (000s) 3960 3960 4019 4080 4141 4203 4266 4330 4395

% on VEN 309 0 0% 0% 0% 2% 4% 6% 8% 10%

# on VEN 309 (000s) 0 0 0 0 83 168 256 346 439

Revenue per patient ($) 425 425 425 434 442 451 460

US VEN 309 sales (mm) $0 $0 $0 $0 $35 $73 $113 $156 $202

OUS VEN 309 sales (mm) $25 $51 $79

VEN 307 (anal fissures)

US anal fissure prevalence (000s) 750 750 761 773 784 796 808 820 832

% seeking treatment 0 50% 50% 50% 50% 50% 50% 50% 50%


% on VEN 307 0 0% 0% 2% 4% 7% 10% 13% 15%

# on VEN 307 (000s) 0 0 0 8 16 28 40 53 62


US VEN 307 sales (mm) $0 $0 $0 $5 $10 $18 $27 $37 $44

VEN 308 (fecal incontinence) - orphan

US fecal incontinence prevalence (000s) 100 100 102 103 105 106 108 109 111

% seeking treatment 0 60% 60% 60% 60% 60% 60% 60% 60%


% on VEN 308 0 0% 0% 0% 0% 0% 0% 3% 5%

# on VEN 308 (000s) 0 0 0 0 0 0 0 2 3


US VEN 308 sales (mm) $0 $0 $0 $0 $0 $0 $0 $5 $9


VTUS MARKET MODEL ($MM except per share data)

58


2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Net Product Revenue $0 $0 $0 $5 $45 $91 $140 $198 $255Royalty/Milestone $0 $0 $0 $50 $0 $0 $5 $10 $16

Total Rev (MM) $0 $0 $0 $55 $45 $91 $145 $208 $271

Y/Y N/M N/M N/M N/M -18% 101% 59% 43% 30%

COGS 0 0 0 1 5 10 15 21 24

% product sales N/M N/M N/M 14% 11% 11% 11% 11% 9%

R&D 26 24 27 26 22 30 31 31 32

% Rev N/M N/M N/M N/M 48% 33% 21% 15% 12%

SG&A 7 7 7 32 65 70 80 90 100

% Rev N/M N/M N/M N/M 143% 77% 55% 43% 37%

Total operating expenses 32 31 34 59 92 110 126 143 156

Operating (loss)/gain -32 -31 -34 -4 -47 -19 20 66 115

Interest income 0 2 2 2 2 2 4 6 8

Intererest expense 0 0 $0 $0 $0 $0 $0 $0 $0

Pre-tax Income ($32) ($29) ($32) ($2) ($45) ($17) $24 $72 $123

Taxes (benefit) 0 $0 $0 $0 $0 ($4) $8 $25 $43Tax rate 0% 0% 0% 0% 0% 25% 35% 35% 35%

Net Income/(loss) (MM) ($32) ($29) ($32) ($2) ($45) ($12) $15 $47 $80

Diluted EPS ($3.32) ($2.33) ($2.21) ($0.10) ($2.65) ($0.73) $0.80 $2.42 $4.11

Y/Y NM NM NM NM NM NM -210% 201% 70%

Basic shares 9.7 12.5 14.5 16.7 16.8 17.0 17.2 17.3 17.5

Diluted shares 13 15 18 19 19 19 19 19 20


VTUS ANNUAL P&L ($MM except per share data)

59


Cash Flows 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Net Income/Loss -32.3 -29.0 -32.0 -1.7 -44.6 -12.4 15.4 46.7 80.2

Use of NOLs 0 0 0 0 0 0 8 25 22

Deferred revenue (milestone/upfront adjustments) 0 0 0 0 0 0 0 0 0

Stock based comp 4 5 5 7 10 12 13 14 15

Depreciation/amortization 0 1 1 1 1 1 1 1 1

Change in operating assets and liabilities

Accounts receivable 0 0 0 -2 -5 -5 0 0 0

Inventory 0 0 0 -10 -5 0 0 0 0

Accounts payable -1 -1 -1 -2 -5 -5 0 0 0

Other 0 0 0 0 0 0 0 0 0

Cash from operations -29 -24 -27 -8 -49 -9 38 87 118

PP&E $0 2 5 5 5 5 5 5 5

Other $0 0 0 0 0 0 0 0 0

FCF ($29) ($26) ($32) ($13) ($54) ($14) $33 $82 $113

FCF/share ($2.33) ($1.70) ($1.75) ($0.68) ($2.86) ($0.76) $1.71 $4.24 $5.78Y/Y NM NM NM NM NM N/M N/M 148% 36%

Common stock sale, options 50.0 2 50 75 3 3 3 3 3

Debt sale 0.0 0 0 0 0 0 0 0 0

Repayment of notes -2.5 0 0 0 0 0 0 0 0

Other financing 0.1 0 0 0 0 0 0 0 0

Cash from financing 48 2 50 75 3 3 3 3 3

Debt $0 $0 $0 $0 $0 $0 $0 $0 $0Cash (MM) $33 $9 $27 $89 $38 $27 $63 $148 $263


26$ 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0%

4 $31 $28 $25 $22 $19 $17 $15

5 $34 $30 $27 $24 $21 $19 $17

6 $37 $33 $29 $26 $23 $20 $18

7 $40 $35 $31 $27 $24 $22 $19

8 $43 $38 $33 $29 $26 $23 $20


Term

inal M

ult

iple

VTUS DCF BASE VALUATION ANALYSIS

VTUS ANNUAL CASH FLOWS ($MM except per share data)

Discount Rate

60


Disclosures AppendixAnalyst CertificationI, Joshua Schimmer, M.D., certify that the views expressed in this report accurately reflect my views and that no partof my compensation was, is, or will be directly related to the specific recommendation or views contained in thisreport.

ValuationOur valuation range for VTUS is $24-26 based on our DCF calculations. Due to uncertainty surrounding the clinicalsuccess, regulatory success and duration of the patent protection, we use a higher discount rate of 14% versus ourusual 10-12%. We model revenues of VEN309, VEN307 and VEN308 until the end of the patent or data exclusivityprotection and assign only minimal sales beyond that time attributable to potential Citizen's Petitions against genericversions of topical drugs.

Risks to Valuation• Poor efficacy or safety results in clinical trials for VEN309, VEN307, VEN308.

• Regulatory setbacks from the FDA or EMA.

• Inability to obtain favorable drug pricing and reimbursement for VEN309, VEN307, VEN308.

• Difficulty competing against compounded generic drugs and/or OTC medication.

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

5

10

15

20

25

2009 2010 2011

Rating and Price Target History for: Ventrus Biosciences (VTUS) as of 07-22-2011

OP=Outperform MP=Market Perform UP=Underperform D=Drop Coverage I=Initiate SC=Suspend Coverage



61

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q38

16

24

32

40

48

2009 2010 2011

04/27/09I:UP

07/02/09OP

02/18/10MP

04/15/10OP

10/21/10MP

01/05/11OP

Rating and Price Target History for: Acorda Therapeutics (ACOR) as of 07-22-2011



Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q312

16

20

24

28

32

2009 2010 2011

06/11/10OP

Rating and Price Target History for: Bristol-Myers Squibb (BMY) as of 07-22-2011



On July 15, 2004 Leerink Swann placed a Market Perform rating on BMY.


62

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

3

6

9

12

2009 2010 2011

01/18/11I:OP

Rating and Price Target History for: NPS Pharmaceuticals (NPSP) as of 07-22-2011



Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q320

30

40

50

60

70

2009 2010 2011

11/09/10I:OP

Rating and Price Target History for: Novartis AG (NVS) as of 07-22-2011




63

Distribution of Ratings/Investment Banking Services (IB) as of 06/30/11IB Serv./Past 12

Mos.

Rating Count Percent Count Percent

BUY [OP] 94 57.7 19 20.2HOLD [MP] 65 39.9 3 4.6SELL [UP] 4 2.5 0 0.0

Explanation of RatingsOutperform (Buy): We expect this stock to outperform its benchmark over the next 12 months.

Market Perform (Hold/Neutral): We expect this stock to perform in line with its benchmark over the next 12months.

Underperform (Sell): We expect this stock to underperform its benchmark over the next 12 months.

The degree of outperformance or underperformance required to warrant an Outperform or an Underperformrating should be commensurate with the risk profile of the company

For the purposes of these definitions the relevant benchmark will be the S&P 600® Health Care Index forissuers with a market capitalization of less than $2 billion and the S&P 500® Health Care Index for issuerswith a market capitalization over $2 billion.

From October 1, 2006 through January 8, 2009, the relevant bencharks for the above definitions were theRussell 2000® Health Care Index for issuers with a market capitalization of less than $2 billion and the S&P500® Health Care Index for issuers with a market capitalization over $2 billion.

Definitions of Leerink Swann Ratings prior to October 1, 2006 are shown below:

Outperform (Buy): We expect this stock to outperform its benchmark by more than 10 percentage pointsover the next 12 months.

Market Perform (Hold/Neutral): We expect this stock to perform within a range of plus or minus 10percentage points of its benchmark over the next 12 months.

Underperform (Sell): We expect this stock to underperform its benchmark by more than 10 percentagepoints over the next 12 months.

For the purposes of these definitions, the relevant benchmark were the Russell 2000® Health Care Index forissuers with a market capitalization of less than $2 billion and the S&P 500® Index for issuers with a marketcapitalization over $2 billion.

Important Disclosures

This information (including, but not limited to, prices, quotes and statistics) has been obtained from sourcesthat we believe reliable, but we do not represent that it is accurate or complete and it should not be reliedupon as such. All information is subject to change without notice. This is provided for information purposesonly and should not be regarded as an offer to sell or as a solicitation of an offer to buy any product to


64

which this information relates. The Firm, its officers, directors, employees, proprietary accounts andaffiliates may have a position, long or short, in the securities referred to in this report, and/or other relatedsecurities, and from time to time may increase or decrease the position or express a view that is contrary tothat contained in this report. The Firm's salespeople, traders and other professionals may provide oral orwritten market commentary or trading strategies that are contrary to opinions expressed in this report. TheFirm's asset management group and proprietary accounts may make investment decisions that areinconsistent with the opinions expressed in this report. The past performance of securities does notguarantee or predict future performance. Transaction strategies described herein may not be suitable for allinvestors. Additional information is available upon request by contacting the Publishing Department at OneFederal Street, 37th Floor, Boston, MA 02110.

Like all Firm employees, analysts receive compensation that is impacted by, among other factors, overallfirm profitability, which includes revenues from, among other business units, the Private Client Division,Institutional Equities, and Investment Banking. Analysts, however, are not compensated for a specificinvestment banking services transaction.

Leerink Swann Consulting LLC, an affiliate of Leerink Swann LLC, is a provider of evidence-based strategyand consulting to the healthcare industry.

In the past 12 months, the Firm has received compensation for providing investment banking services toNPS Pharmaceuticals.

In the past 12 months, the Firm has received compensation for providing investment banking services toVentrus Biosciences.

Leerink Swann LLC makes a market in Ventrus Biosciences, Acorda Therapeutics, and NPSPharmaceuticals.

Leerink Swann LLC is willing to sell to, or buy from, clients the common stock of Bristol-Myers Squibb on aprincipal basis.

Leerink Swann LLC is willing to sell to, or buy from, clients the common stock of Novartis AG on a principalbasis.

Leerink Swann LLC has acted as a co-manager for a public offering of NPS Pharmaceuticals in the past 12months.

Leerink Swann LLC has acted as a co-manager for a public offering of Ventrus Biosciences in the past 12months.

While IMS Health has been used as a source, the analysis contained herein has been arrived atindependently by the firm and IMS is not responsible for the analysis or use of the data.

©2011 Leerink Swann LLC. All rights reserved. This document may not be reproduced or circulated withoutour written authority.


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Leerink Swann LLC Equity Research Director of Equity Research John L. Sullivan, CFA (617) 918-4875 [email protected] Associate Director of Research Alice C. Avanian, CFA (617) 918-4544 [email protected] Healthcare Strategy John L. Sullivan, CFA (617) 918-4875 [email protected] Alice C. Avanian, CFA (617) 918-4544 [email protected] Biotechnology Howard Liang, Ph.D. (617) 918-4857 [email protected] Joshua Schimmer, M.D. (212) 277-6116 [email protected] Joseph P. Schwartz (617) 918-4575 [email protected] Jonathan Eckard, Ph.D. (617) 918-4844 [email protected] Michael Schmidt, Ph.D. (617) 918-4588 [email protected] Steve Y. Yoo (212) 277-6065 [email protected] Life Science Tools & Dan Leonard (617) 918-4507 [email protected] Diagnostics John L. Sullivan, CFA (617) 918-4875 [email protected] Julian Cochran (212) 277-6209 [email protected] Pharmaceuticals/Major Seamus Fernandez (617) 918-4011 [email protected] Kathryn C. Alexander (617) 918-4568 [email protected] Jason M. Gerberry, JD/MBA (617) 918-4549 [email protected] Medical Devices, Cardiology & Rick Wise, CFA (212) 277-6085 [email protected] Orthopedics Danielle Antalffy (212) 277-6044 [email protected] Miroslava Minkova (212) 277-6043 [email protected] Richard Newitter (212) 277-6088 [email protected] Healthcare Services Jason Gurda, CFA (212) 277-6023 [email protected] Michael Newshel, CFA (212) 277-6049 [email protected] George Villarina (212) 277-6012 [email protected] Healthcare Technology David Larsen (617) 918-4502 [email protected] & Distribution Christopher Abbott (617) 918-4010 [email protected] Sr. Editor/Supervisory Analyst Mary Ellen Eagan, CFA (617) 918-4837 [email protected] Supervisory Analysts Robert Egan [email protected] Amy N. Sonne [email protected] Equity Research Assistant Franklin Wood (617) 918-4539 [email protected]

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