Corporate Investment in Start-Ups Rachael Scherer

Vice President, MarketingMedtronic, Inc.

“To contribute to human welfare by application of biomedical engineering in the research,

design, manufacture and sale of instruments or appliances

that alleviate pain, restore health and extend life.”

Medtronic Mission

Medtronic: the Company

Founded in 1949 as a medical equipment

service company

Medtronic History

Heart Valve Disease

Heart Failure

Enlarged Prostate

SpasticityDiabetes

Hydrocephalus

Atrial Arrhythmias

ScoliosisTachyarrhythmia

Incontinence

Acid Reflux

Chronic Pain

Sinusitis

Bradyarrhythmia

Unexplained Syncope (Fainting)

Peripheral Vascular Disease

Degenerative Disc DiseaseParkinson’s DiseaseCoronary Vascular Disease

Dystonia

Essential Tremor

Medtronic Solutions Restore Health

Balanced GrowthUS$12.3 Billion Net Sales (Fiscal Year 2007)

We Diversified Into Attractive Markets

Neurological9%

Vascular8%

Diabetes6%

ENT4%

Cardiac Surgery6%

CRDM47%

Spine/Navigation20%

Medtronic Global Reach

• Salesin 120 Countries

• Offices in 44 Countries

• 36,000 employees world wide

USA

CanadaEurope

LatinAmerica

Middle East/ Africa/India

Eastern EuropeCentral Asia

Asia Pacific

International Western Europe Canada Emerging Markets Latin America Eastern Europe Middle East/Africa/India

Asia-Pacific Japan Australia China ASEAN Korea

$4

$8

$12

$16

$20

$24

$28

FY07 Revenue MarketDevelopment

IndicationExpansion

New Markets Market Share ASP FY12 Revenue

Ingredients to Drive Growth are in Place

In billions

US INT’L

$12B +

$22B - $24B

R&D Spending Continues To Increase

FY95 FY07

$1Billion +

$191 Million

Productive R&D = New Products

2/3 of revenues are from products introduced within the past 2 years

“To contribute to human welfare by application of biomedical engineering in the research,

design, manufacture and sale of instruments or appliances

that alleviate pain, restore health and extend life.”

Medtronic Mission

Medtronic: the Investor

FY '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

($ in Billions)

$1.3

$2.7$3.1

$3.5$4.1

$4.7

$2.0$2.3

$1.5 $1.8

What is Required to Sustain Growth?Annual Incremental Revenue Required to Sustain 15% Growth

Where Does This Growth Come From?

We Have Ample Financial Flexibility

Free Cash Flow (Operating Cash Flow less Cap Ex)Cumulative Cash Balance

Cash A

vailable for Investment

(Billions)

Free

Cas

h Fl

ow

(Bill

ions

)

Free Cash Flow and Cash Available for Investment

-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

FY06 FY07 FY08 FY09 FY10 FY11 FY12-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

$20.0

Balanced GrowthUS$12.3 Billion Net Sales (Fiscal Year 2007)

We Diversified Into Attractive Markets

Neurological9%

Vascular8%

Diabetes6%

ENT4%

Cardiac Surgery6%

CRDM47%

Spine/Navigation20%

• “White Space” will augment top growth, diversify business, geographic and payor mix

• Aggressive global scouting efforts continue to identify new technologies

• Minority investment portfolio provides early access to new technology

• We will identify new business platforms where we add value and leverage Medtronic strengths

Evaluating New Growth Platforms, Strengthening Existing Growth Platforms

Market DevelopmentMarket Development Indication ExpansionIndication Expansion Market ShareMarket Share Geographic ExpansionGeographic Expansion New MarketsNew Markets

Business Development Strategy

• Disruptive technologies in therapeutic areas of interest• Extension of existing technologies into new

therapeutic areas• Drug partnering• Procedure solutions (how do we make therapies more

efficacious, safer, less invasive and more convenient)• Sensors and closed loop systems• Miniaturization

• Extend eyes and ears for key emerging technologies

– Board seat or board observer seat

– Membership on scientific advisory board

• Create bonds to enhance ability to negotiate future investments

– Development agreements

– Distribution rights

• Gain certain option rights

– Right of first offer

– Right of first refusal

Medtronic currently has ~$200M in active

investments in over 70 companies

Minority Investment Strategy

Minority Investment ExamplesPast & Present

Equity Investments:• Volcano / IVUS

First investment in 2002, Licensing agreement in 2003Equity financing used to develop IVUS productsUp-front payment for technologies used in Medtronic productsVolcano completed successful IPO in mid-2006; Medtronic still a shareholder.

• CardioMEMS / Wireless Sensing & CommunicationsIn 2005, Medtronic made entered into a license and joint product development program.Equity investment and series of milestone paymentsMedtronic has overall responsibility & bears cost for clinical and regulatoryCardioMEMS began IPO process, but has opted to remain private, for now

• Spinal Dynamics / Artificial DiskInitial investment in 2001, Medtronic became exclusive OUS distributor of Bryant discIn 2003, Medtronic acquired Spinal Dynamics for $270MBryant disc expected to go to FDA Panel this Fall

Case study: Neurologix Collaboration

Neurologix, Inc. And Medtronic, Inc. Agree To Develop Gene Therapy Infusion Catheters; Medtronic Makes A

Further $2 Million Equity Investment In Neurologix

– Medtronic will manufacture, delivery devices for Neurologix's Parkinson's disease and temporal lobe epilepsy clinical programs

– Two companies will have a revenue-sharing arrangement

– Medtronic increased its equity investment in Neurologix by $2.0

Case study: Alnylam Collaboration

•Scope– Collaboration to develop novel siRNA-device treatments for

neurodegenerative diseases• Begin with exploration of one target/disease: huntington in Huntington’s

Disease (HD)•Roles

• Discovery and early development of siRNA component – To “Clinical Proof of Concept” ≈ completion of Phase IIa

• Late-stage development of siRNA component• All development of Device component• Commercialization of siRNA-Device combination

Alnylam

Medtronic

Minority Investment ExamplesPast & Present

Equity Investments:• Volcano• CardioMEMS• Spinal Dynamics• Neurologix Collaboration (case study)• Alnylam Collaboration (case study)

“Larger than Life” deals:• Minimed• Vidamed

Investment Committee

Medtronic Business Units

Corporate Development

Ideas

Opportunitie

s

Ideas

Opportunitie

s

Investment Committee

Several Sources

Strategy Committee

Ideas

Opportunitie

s

Ideas

Opportunitie

s

Clear fit with MDT business White Space Opportunities

Process

Acquire new strategic platforms focused on treatment of chronic disease

and

Acquire businesses or product lines complimenting or supplementing existing businesses

Enhance Revenues!

Acquisition Goals

• BioMedicus 1990

• DLP 1994

• Avalon 1994

• Electromedics 1994

• Carbon Implants 1994

• Avecor 1999

• Coalescent 2004

• Instent 1996

• AVE 1999

• PercuSurge 2001

• TVI2003

• Radius2004

• AngioLink2004

• Vitatron

1986

Cardiac Surgery Vascular CRDM

• Midas Rex 1998

• Intelex 2000

• Odin 2005

• PaceArt

2001

Neuro Surgery

Patient Mgmt

Surgical Navigation

Acquisitions Strengthen/Broaden Existing Business

Heart Valves – J&J’s Tissue Valve Business (1988)

Cardiopulmonary – J&J’s Oxygenator Business (1988)

Coronary Vascular – Versaflex (1989) / IMI (1989)Neuro/Gastro/Uro Diagnostics – Synectics/Dantec

(1994)Peripheral Vascular/AAA – MIS (1995); AneuRx

(1997) External Defibrillators – Physio Control (1998)Spinal – Sofamor Danek (1999)Neurosurgery – PS Medical (1995), SNT (1999)ENT – Xomed (1999)Diabetes – MiniMed/MRG (2002)BPH – VidaMed (2002)GERD – Endonetics (2002)Artificial Discs – Spinal Dynamics (2003)

Prior Acquisitions Current Interests Biotechnology

Cancer

Dental

Hearing

Hypertension

Obesity

Ophthalmology

Orthopedics

Urology/Gynecology

Stroke

Acquisitions Expand into New Strategic Platforms

Why Would You Want Medtronic as an Investor?

• Expertise of entire Medtronic science organization available to our partners (with/without CDAs)

• Medtronic will keep ownership below control position (unless investment moves to acquisition)

• Medtronic invests for strategic reasons. We don’t like to lose $$, but generally run our portfolio to learn about technology and markets

• Medtronic won’t tell you how to run your business; generally looks to be Board observer, not Board member