Life Sciences & Med Tech

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February 2013

Confidential to CEO-CF 2

Agenda

1. US: Obamacare Impacts begin2. Presentation from Antonio Murta of

Pathena Investments3. Update on 2013 Pan Euro Life Sciences

sector

Confidential to CEO-CF 3

Updates on the Market Place: USAs 2013 Begins, Get Ready For An ObamaCare Tax Onslaught

The most controversial of the latest ObamaCare taxes is the Medical Device Tax that hits entrepreneurial firms making equipment such as heart valves and hip replacement parts. They face a 2.3% profit on gross sales – a tax they must pay even if they have no profit at all.  Many firms say this tax – slated to collect $29 billion over 10 years – will soak up virtually all of their research budgets

The medical device industry employs more than 400,000 people in 12,000 factories across the country, often small, entrepreneurial firms with a small product line.  Many say that to survive, they will have no choice but to relocate abroad – taking much-needed, high-tech jobs with them.  These lost jobs will be more casualties of ObamaCare.  And the tax means that medical devices will be more expensive, driving up health cost even further.The Avalanche Of New Obamacare Rules Will Come In January, 2013

Confidential to CEO-CF 4

Updates on the Market Place US

ObamaCare’s $1 trillion in total tax increase hit everything from health insurers, drug companies, and tanning salons to Health Saving Accounts and – eventually – high-cost employer-based

health insurance.

• All of this will prove that the more people learn about what is actually in the health overhaul law, the more unpopular it will become.

• A new Medicare Tax adds to ObamaCare’s pain.  These same high-earners must pay an additional .9% Medicare payroll tax on wages above $200,000 for individuals and $250,000 for couples.  This means the current 2.9% Medicare payroll tax will be increased to a total of 3.8% — a big hit especially for the self-employed.

• The new Flexible Spending Account Tax limits the amount of money that workers can set aside tax-free for medical costs.  ObamaCare sets the cap at $2,500 in order to collect another $13 billion from taxpayers. 

• Beginning January 1, ObamaCare also tightens the screws on Itemized Medical Deductions.   The law raises the threshold for allowed deductions from 7.5% of adjusted gross income to 10%, further burdening those with the largest medical expenses by limiting how much of these costs they can deduct on their taxes.  Hit to these taxpayers:  $19 billion

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Confidential to CEO-CF 5

Updates on the Market Place US

The new taxes are complex and escalate depending upon a person or family’s income. They have basically three tiers:

• Flat fee: The first tier for lower income taxpayers is fixed, starting at $95 for calendar year 2014 (the first year the mandate is effective), $325 in 2015, and $695 in 2016 and beyond. The total family penalty is capped at 300% of this flat dollar tax — $2,085 in 2016 – for those earning less than about $110,000, according to the CRS.

• Percentage of income: The next tier is based upon a percentage of income: 1.0% in 2014, 2.0% in 2015, and 2.5% thereafter. (This matches the HOSPITAL PENALTIES, effectively double dipping)

• Cost of a basic health plan: However, as household income increases, eventually the percentage tax will rise to equal the cost of the national average premium for a “bronze-level health plan,” where it is capped. (The bronze plan is expected to be the least expensive plan in the line-up of policies that will be offered through the ObamaCare health insurance exchanges. The Congressional Budget Office estimates that in 2016 the cost of a bronze-level plan for a family would be between $12,000 and $12,500 a year.)

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Confidential to CEO-CF 6

Updates on the Market Place US

Chief Justice John Roberts who wrote in his majority opinion “…imposition of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice.”• Buy health insurance or pay a tax. Your choice.• For example, a family earning $120,000 will face a tax of $3,000 a year if

they don’t buy health insurance with the government’s stamp of approval• The Congressional Budget Office estimates that in 2016 the cost of a bronze-

level plan for a family would be between $12,000 and $12,500 a year.• Remember that the government will determine what health insurance

policies meet its approval to satisfy the individual mandate. If citizens decide they prefer a different health plan, they would have to pay for that insurance as well as pay the new tax.

• The tax penalty will be collected by the IRS and extracted from any income tax refund due.

• McKinsey & Company has reported that as many as 30 to 40 million Americans could forgo health insurance. Number uninsured at the time of interview: 48.2 million

Who thinks this will stand?6

The Intersection of Information Technology and Medicine, Trends and Directions in 2013 Most

investors are in one camp, very few are in both.

Antonio Murta Pathena Investments

The problemHealthcare Spending is Unsustainable.

Greenspan, HIMSS2009 Annual Conference & Exhibition•“Healthcare spending is unsustainable in the current economic climate”•“If you cannot solve the overall funding problem, the [global] competitive issue will be quite secondary”•"There's going to be a clash invariably because resources are not going to be as ample as they have been."

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The Problemin 2040!

This is Unbearable!

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The ProblemCause of Death: 1900 vs 2010.

Diabetes22.3

and increasing...

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The ProblemWorldwide Causes of Death.

• Cancer• Chronic Diseases

• 4% Preventive Medicine

• 96% Curative Medicine

Disease

Treatment

Strong Inconsistence!

Paradigm Shift

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Concluding Remarks.

We are enabling the medicine paradigm shift

We are focusing in the masses (middle class)

We are creating an Healthcare Information Play

①②

③

We are implementing ERIC TOPOL’s vision

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1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

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Recent FDA Product Approvals (CDER Only) - Before and After Vioxx

BLA Approvals

NME Approvals

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The chart at left displays the number of approvals of new molecular entities (NMEs) and biologic license applications (BLAs) from 1996 to 2011 and estimated for 2012.

HISTORICAL FDA APPROVALS: BEFORE AND AFTER VIOXXDoes the increase in 2011 and estimated 2012 approvals point to an increase in future CDER approvals?

The chart above shows the clear difference in the number of approvals before the withdrawal of Vioxx by Merck in September 2004.

The level of approvals in 2011 and estimated level for 2012 looks to have reversed a trend that hopefully indicates a higher rate of approvals in the future matching more closely pre-Vioxx levels.

Source: Ernst and Young and US FDA

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Historical Review of Private Investment in U.S. Private Biotechnology Companies

Total Quarterly Amount Invested

Percent of Total U.S. Investments- 3 Quarter Moving Average

PR

IVATE E

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ITY M

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HISTORICAL REVIEW OF U.S. PRIVATE MEDTECH/PLATFORM FINANCINGSU.S. medtech/platform financings have also shown tremendous volatility in the last two years

Data on private financings in U.S. medical device/diagnostic companies, as tracked by PriceWaterhouse, is shown at left. The chart includes the quarterly amount raised (in blue) and the three quarter moving average of the percent invested in this sector as a percentage of all U.S. private investments in all sectors.

The amounts invested in this sector in 2012 have continued to fluctuate like they have the last three years. The amount invested in the third quarter of $441 million and the fourth quarter of $581 million, which are significantly less than the quarterly mean for the last ten years of $648 million per quarter (purple line).

The percentage invested in this sector in Q4 was 9.1%, which is above the current three quarter moving average of 8.5%.

Source: Pricewaterhouse

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Historical Comparison of the Percent Invested in Private U.S. Technology and Healthcare Companies

Healthcare

Technology

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COMPARING TECHNOLOGY AND HEALTHCARE PRIVATE FINANCINGSThe percentages invested in private Healthcare companies has seen a recent recovery

Using the same Pricewaterhouse data shown on the previous slides, the chart at left compares the percentages invested in private U.S. Technology companies and private U.S. Healthcare companies since 1995.

The percent of investment in private U.S. Healthcare companies as a percentage of all private U.S. company investment has recently rebounded from an overall downward trend since early 2009.

Healthcare funding has recovered from early 2012 when private financing of software companies reached $2.3 billion in Q2 2012. That figure was the largest percentage going to software since 1995 and accounted for 33% of all U.S. private financings in that quarter across all sectors.

Source: Pricewaterhouse

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Ratio of Venture Backed IPOs to Total Harvest Transactions (IPOs + M&A Transcations)

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COMPARISON OF VENTURE BACKED IPO/M&A RATIO TO VENTURE RETURNSThere appears to be a correlation to the IPO/harvest transaction ratio and venture returns

The ratio of IPOs to total harvest transactions for U.S. venture backed companies showed a significant decline that started in the mid 1990s. Comparison of the IPO/harvest transaction ratio appears to have a significant correlation with historic venture capital returns.

We have other analyses comparing venture returns to other parameters, most of which indicate significant structural deficiencies with the past venture model for Healthcare and Life sciences.

The chart compares the historical data since 1985 for the ratio of IPOs to the total number of harvest transactions (IPOs plus M&A) for offerings and transactions for U.S. venture-backed companies.

Source: NVCA and Cambridge Associates

25 Year Venture Return (18.7%)

20 Year Venture Return (27.9%)

15 Year Venture Return (27.5%)

10 Year Return (5.3%)

5 Year (4.9%)

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Recent Historical Data - Percent of Partnering Transactions Ascribed to Upfront Payment

U.S. Company Transactions - Percent of Total Transaction

European Company Transactions - Percent of Total Transaction

PARTN

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RECENT HISTORICAL TRENDS FOR UPFRONT PAYMENTSThe percentage attributed to upfront payments for U.S. and European companies continues to trend downward

The downward trend in the percent attributable for both U.S. and European partnering transactions is consistent with the current risk averse environment. In addition to more option types of transactions getting completed, more companies are interested in rear loading their transactions and reducing the upfront commitment.

The chart to the left shows the recent trends in upfront payments, as a percentage of total transaction value, for U.S. companies involved in partnering (blue) and for European companies involved in partnering (orange).

Source: Ernst & Young

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Confidential to CEO-CF 23

This Way Up 10-11June 2013

A mix of speakers and panels for learning enhancement

• Chris Llwellyn: Senior Partner for McKinsey Healthcare practice: Trends in healthcare as we evolve in 2013 and beyond (invited)

• Esther Dyson: ED Investments on the “Waves of Disruption” hitting healthcare and the expected outcomes. (invited)

• Michael Onuscheck President EMEA BSC : Growing Boston Scientific in a crowded and hostile space (invited)

Confidential to CEO-CF 24

Key Learnings

• Please take a moment to write down your key learnings and discoveries

• Thank you and see you in Spain in June