Transcript Pitchbook Title Goes Here

The Diagnostics Investment Landscape
Surviving the Challenging Climate in 2008-09
Roopom Banerjee
Director, Investment Banking
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
1
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)
2
Today: Matching Patients with Best Treatments
Market Expansion
Market Forces
Emergence of novel, high cost
therapies and procedures to treat
serious diseases
Market Size ($ Billion)
$92.1
$100
$73.7
80
Diagnostics that match patients
and treatments to provide
more effective, less costly
and safer therapies
$55.7
66%
60
62%
$32.4
40
$20.8
$17.9
20
18%
58%
40%
22%
0
Higher safety and efficacy
thresholds for approval
and reimbursement
2006
2008
2010
Disease Diagnostics
2012
2014
2016
Predictive Drug Response
$20 billion market today growing to $60 billion by 2016
3
Source: Kalorama 2006
3
Significant Value Creation Excites Investors!
Largest M&A Transactions 2003-08
Prominent IPO's Since 2000(1)
IPO
Ticker
ILMN
CPHD
LMNX
SQNM
GHDX
TWTI
GXDX
GMNI
NSPH
MGRM
(1)
(2)
Company
Illumina
Cepheid
Luminex
Sequenom
Genomic Health
Third Wave Technologies
Genoptix
Gemini Genomics
Nanosphere
Monogram
Mkt Cap
(2)
Date
Jul-00
Jun-00
Mar-00
Jan-00
Sep-05
Feb-01
Oct-07
Jul-00
Oct-07
May-00
$
$
$
$
$
$
$
$
$
$
Companies with >$100mm market cap today
Current market cap or value at time of sale
Today
4,457.5
1,494.9
819.9
678.4
594.3
493.4
469.2
232.3
214.2
143.6
Target
Acquiror
Date
Value
Dade 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
Whatman plc
Inverness Medical Innovations
GE Healthcare Ltd.
Jan-08
Feb-08
$ 1,155.8
$ 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
• 18 IPO's since 2000
• 135 M&A transactions since 2003
4
Diagnostics M&A Activity is Accelerating
M&A Transaction Value
$ Millions
• 135 transactions since 2003
$15,134
$16,000
$14,000
$12,000
$9,712
$10,000
$8,000
$6,128
• Acquired companies had
median of $33.4 mm LTM
revenues at time of sale
$6,038
$6,000
$4,000
$2,000
$2,150
$1,579
$0
Number
of Deals
• Median acquisition multiple
4.2x on an EV/ LTM sales basis
2003
2004
2005
2006
2007
2008 YTD
10
21
21
30
43
10
• Consolidation even amongst
largest players
– Siemens / Bayer / Dade
– Invitrogen / ABI
Deal Size ($ Millions)
Mean
$159
$372
$115
$523
$600
$1416
Median
$130
$154
$95
$70
$184
$378
– Hologic / Cytyc
5
Top Buyers of Diagnostics Assets
Number of Diagnostics Acquisitions, 2003-08 YTD
Largest Acquisition
$ 4,543 mm
Inverness M edical Inno vatio ns
• Biosite ($1.4B)
$ 7,152 mm
Invitro gen
• ABI ($6.4B)
$ 1,636 mm
Qiagen NV
• Digene ($1.5B)
Quest Diagno stics
$2,502 mm
• AmeriPath ($1.9B)
Ro che
$3,936 mm
• Ventana ($2.8B)
Thermo Fisher Scientific
$4,623 mm
• Apogent ($4.0B)
B ecto n Dickinso n
$616 mm
• TriPath ($348M)
B eckman Co ulter
$473 mm
• Lumigen ($185M)
ABI
$423 mm
• Ambion ($273M)
B io -Rad Labo rato ries
$423 mm
• Diamed ($392M)
• Serologicals ($1.1B)
$1,348 mm
M illipo re
P erkinElmer
Siemens M edical So lutio ns
0
$80 mm
• NTD ($49M)
$14,189 mm
• Dade ($7.1B)
2
4
6
8
10
12
14
16
6
Why are Novel Diagnostics Hot? Is it Sustainable?
•
Rapidly growing commercial opportunities
•
Economics favorable to key constituents: patients, physicians, hospitals, payors
•
Disruptive new technologies – small companies can play and succeed!
•
Sector has created significant shareholder value
–
Several proven paths to success
–
Attractive risk reward: biotech upside without biotech risk
•
Suited to investor demands for predictable revenues and earnings
•
Several questions loom on the horizon…
–
How do you pick the winners?
–
Does the market need an nth breast cancer test?
–
When will reimbursement and pricing come under pressure?
–
What is the FDA going to do?
7
Investors Bias Shifting To “Best-in-Class”

Targeting a large, established market with clear unmet medical needs

Disruptive technology that drives a new standard of care

Compelling safety and efficacy data – established development pathway

Attractive, established reimbursement and strong economic justification

Benefits to key constituents: patients, physicians, hospitals, payors

Rapid commercial adoption with referencable customers

Attractive gross margins, capital efficiency and clear path to profitability

Strong IP and other barriers to entry

Proven management team
8
Even the Most Successful Companies Need to
Contend with Challenging Global Economy
Market Performance (Jan 2008 – Feb 2009)
110
105
100
2007
2008
2009
DJIA
6.4%
-33.8%
-44.5%
S&P 500
3.5%
-38.5%
-47.6%
9.8%
-40.5%
-45.7%
-2.8%
-34.8%
-46.4%
4.6%
-12.6%
-11.2%
2007
2008
2009
AMEX Pharma.
-1.9%
-19.4%
-17.0%
MS HC Providers
-6.8%
-32.1%
-11.6%
DJ/W Medical Equip.
10.2%
-37.0%
-8.4%
16.2%
-54.8%
-14.7%
95
NASDAQ Composite
90
Russell 2000
85
80
NBI
75
70
65
60
55
50
45
MS HC Payors
40
Jan-08
Feb-08 Mar-08 Apr-08 May-08 Jun-08
Jul-08
Aug-08 Sep-08
Oct-08 Nov-08 Dec-08 Jan-09 Feb-09
U.S. Equity Mutual Fund Flows (Jan 2006 – Jan 2009)
• Worst capital markets since 1930’s
(US$ in billions)
• Market stabilization efforts stalled in face of
global deleveraging and credit crisis
$35.0
$25.0
$15.0
$5.0
$(5.0)
• Healthcare initially trailed market decline
due to defensiveness; no safe haven today
$(15.0)
$(25.0)
$(35.0)
$(45.0)
$(55.0)
$(65.0)
p-0
6
No
v-0
6
Ja
n-0
7
Ma
r-0
7
Ma
y-0
7
Ju
l-0
7
Se
p-0
7
No
v-0
7
Ja
n-0
8
Ma
r-0
8
Ma
y-0
8
Ju
l-0
8
Se
p-0
8
No
v-0
8
Ja
n-0
9
l-0
6
• Small cap healthcare hardest hit – majority
trading at or below current cash levels
Se
y-0
6
r-0
6
Ju
Ma
Ma
Ja
n-0
6
$(75.0)
Source: FactSet, Placement Tracker, ici.org, sec.gov, company press releases
9
Healthcare Financing Market Has Contracted
Healthcare Financing 2008-09 YTD vs. 2007
($ in millions)
$10,000
$9,000
$8,000
$7,000
$8,890
$6,667
$6,000
$5,901
$5,000
$4,000
$3,000
$2,384
$2,806
$2,000
$935
$1,699
$1,000
$1,928
$851
$132
$0
Private
IPOs
Follow-ons
2007
PIPE
RDO
2008-2009 YTD
• 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 ($65 million)
• Total private and public equity raised in healthcare since 2008 is 48% below 2007 levels
– Private financings are 25% below 2007; public equity financings (excluding IPOs) are down 56% vs. 2007
10
VCs Highly Selective in Diagnostics
2008-09YTD
($ in millions)
Series F+
Series E $611
9%
$689
10%
Series A
$1,427
20%
4,256
CAGR
Biotech
-21.5%
Medtech
-1.7%
HCIT
14.1%
Services
-8.7%
2,763
3,313
Series D
$964
14%
Series B
$1,628
23%
4,127
3,445
2,644
Series C
$1,667
24%
• VCs highly selective in new investments
Number of
Investments
Average size
Source: VentureSource.
210
417
145
421
202
257
2006
2007
2008
577
436
351
$10.4
$17.5
$18.3
– Priority #1: support current portfolio
– Market is getting cheaper – realism setting in
• Later-stage assets are more de-risked; less
attractive risk-reward for earlier-stage
• VCs seeking “fallen angels” in public market
11
A Silver Lining in Diagnostics?
1.
More investors adding novel diagnostics to mandate



2.
The “A-list” companies are getting funded


3.
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
Strong demand and premium pricing for the right profile
Bulletproof business case for each MDx test – compelling IP alone is not enough
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
12