Transcript Title

Strategic and funding outlook for growing healthcare companies
2008 Health Care Forecast Conference, University of California, Irvine
February 22, 2008
George Bickerstaff, Managing Director
CRT Capital Group LLC
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Page 2
Agenda
 Situation overview
 Key market drivers
 Growth challenges
 Financing alternatives
 Company implications
Page 3
Situation Overview
 The aging population, higher disposable incomes and improved technologies are
driving the demand for healthcare products and services
 This accelerating demand has resulted in the rapid creation of new healthcare
companies domestically and abroad, particularly in the biotechnology and medical
device fields
 Many emerging and developing companies lack the necessary capital to respond
quickly in this dynamic marketplace
 The global capital markets, and particularly the US capital markets, are providing
financial support for these companies through a variety of funding alternatives
Page 4
Key market drivers
 Aging and older population
 Increased access to healthcare services
 Improved economic standards and ability to pay
 Scientific and medical innovation
 Consumer and patient targeting
 International expansion
 Access to global capital
Page 5
Global pharmaceuticals: $700 billion market
Global Pharmaceutical Sales
Sales in $ Billions
$800
$700
$600
$500
$400
$300
$578
$619
$663
$700
$740
5% - 6%
CAGR
6.5%
$200
$100
$0
2004
2005
2006
2007E
2008E
Global pharma sales are growing at a rate faster than the growth rate of world-wide gross domestic
product*, driven by the emerging markets.
* World-wide gross domestic product estimated at $50.4 trillion for 2007, a 5.7% increase over 2006.
Source: IMS Health; CIA Fact Book
Page 6
Pharmaceutical market geography
2008 Estimated Market Size - $740 Billion
USA
Top 5 Europe
Japan
"Pharmerging" Market
ROW
9%
20%
12%
30%
18%
41%
The smaller and emerging (“Pharmerging”) markets are expected to grow at nearly twice the rate (8% 13%) of the larger countries (< 5%) in 2008.
Source: IMS Health
Page 7
Key growth areas
 Specialist driven products (~ 15% growth)
•
•
•
•
Oncology
Anti-Diabetes
Anti-Psychotics
Respiratory agents
 Biotechnology (~ 10% growth)
 Generics (~ 15% growth)
 Traditional medicines
• China
• India
• Indonesia
Page 8
Growth challenges
 Generics, price competition and cost containment
• Generics are generally 25% to 75% less expensive than branded products
 Products coming off patent, coupled with intellectual property challenges
• On average $20 billion of big pharmaceutical revenue needs to be replaced every year as old products
come off patent
• This accelerates in the next few years (e.g., Lipitor)
 Slow down in innovation and timing of regulatory approvals
• The number of new chemical entities (NCE) launched globally has declined 27% in the past five years to
an average of 33 per year from 44 per year during the prior five years
 Increasing costs for product development and distribution
 Access to affordable capital
Page 9
Sources of capital for growth companies
~$90 billion
~$300 billion
Venture Capital
Private Equity
Company Maturity
Marketplace Evolution
Hedge Funds
~$1,810 billion
Page 10
Pro and cons of funding sources
 Venture capital and private equity are one source of capital
• Often has stringent management and board controls
• Relatively high cost of capital (generally 25% to 50% IRR target)
• Lacks the public currency for growth
 Hedge funds provide an alternative source
• Generally a lower cost of capital (typically 15% to 25% IRR target)
• Provide greater liquidity and investor base
• Broader range of financing tools
 Strategic partners
• Provides management resources in addition to capital
• Generally offers highest return to sellers
• Often slow in negotiating and closing deals
Page 11
Hedge fund growth
 Hedge fund assets have grown at a 17% CAGR over the past 10 years
$2,000
Assets Under Management ($bn)
$1,810
$1,600
$1,460
$1,200
$1,105
$973
$820
$800
$626
$400
$368
$375
'97
'98
$456
$491
'99
'00
$539
$0
'01
'02
'03
'04
'05
'06
'07
Source: Hedge Fund Research
Page 12
Initial public offering trends
$400
700
$350
600
$300
500
Number of IPOs
Avg. Gross Proceeds ($mm)
 The initial public offering market (IPO) has changed significantly
$250
400
$200
300
$150
200
$100
100
$50
0
$0
'97
'98
'99
'00
'01
'02
Avg. Gross Proceeds ($mm)
'03
'04
'05
'06
'07
Number of IPOs
(1)
Source: Securities Data Corporation and Thomson Financial
Page 13
Small company IPO trends
$10
450
$9
400
$8
350
$7
300
$6
250
$5
200
$4
150
$3
$2
100
$1
50
$0
0
'97
'98
'99
'00
'01
Gross Proceeds ($bn)
'02
'03
'04
'05
Number of IPOs < $50mm
'06
Number of IPOs
Gross Proceeds ($bn)
 The IPO market for small companies* is virtually closed
'07
(1)
Source: Securities Data Corporation and Thomson Financial
* IPOs for companies raising less than $50 million
Page 14
Venture backed exits
 Venture backed companies have been forced to look for exit alternatives
Venture Backed M&A since 1997
490
$105
240
$18
420
$90
200
$15
350
$75
160
$12
280
$60
120
$9
210
$45
80
$6
140
$30
40
$3
70
$15
0
$0
0
$0
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
Number of Venture Backed IPOs
Amount Raised
Number of Venture Backed M&A Deals
$21
Amount Raised ($bn)
280
Amount Raised ($bn)
Number of Venture Backed IPOs
Venture Backed IPOs Since 1997
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
Number of Venture Backed M&A Deals
Amount Raised
Source: VentureOne
Note: 2007 data is as of 6/30/07
Page 15
Financing considerations
 Cost of capital
•
•
•
Interest rate
Equity
Terms
 Operating flexibility and covenants
•
•
•
Management and boards
Measurement hurdles
Governance
 Other
•
•
•
Execution risks
Timing
Follow-on deals
Page 16
Some financing tools
 Private equity and venture capital
 Public offerings
• Initial and secondary public offerings
• Reverse mergers and special purpose acquisition companies (SPACs)
 Private offerings
• Private investments in public entities (PIPE)
• Rule 144a transactions
 Other
•
•
•
•
•
Debt and high yield
Convertible securities
Royalty buy-outs
Licensing and milestones
Acquisitions/divestitures
Page 17
Financing implications
 Position the company operationally
• Innovation, operational excellence, and talent
• Sustainable advantage – “better, quicker, cheaper”
 Ensure good governance and financial controls
• Qualified, independent board of directors
• Accurate, timely and transparent reporting
• Full disclosure
 Hire, retain or develop access to the best talent
• Board of directors and advisors
• Accounting, audit, consulting and legal
• Investment banking and investor relations
 Look for and evaluate all the alternatives
Page 18
Summary
 Healthcare markets should continue to grow ahead of GDP
• Demographics
• Access and affordability
 Competitive advantages can be achieved
• Innovation, speed and quality
• Cost of capital
 Capital markets play an important role
• Venture capital and private equity
• Hedge funds and public markets
 Know your alternatives
Page 19
CRT Overview and Healthcare Practice
Overview of Capabilities
 One of the largest
employee-owned
investment banks in
the United States
focusing on middle
market transactions
 Has the experience
and the scale to
provide value-added
financial services to
the healthcare sector
 Operates on the
leading edge of the
financial markets,
with the capability to
structure and trade
the latest, most
innovative financial
instruments
 Unparalleled
relationships with the
hedge fund
community


CRT Capital Group is a client-focused investment bank and securities
trading firm that provides creative, idea-driven advice and solutions
delivered by experienced professionals
Serving the middle market in healthcare by providing tailored advice and
capital solutions to companies and investors
Founded in 1989
Stamford, CT & San Francisco, CA
165 Fulltime Professionals
Employee-owned
Investment Banking
 Corporate Finance
• Convertible &
Preferred
Securities
• PIPEs
• Public Equity
Capital Markets
Research
 New Issues
• Common Equity
• PIPEs
• Convertible Debt
• High Yield
 Published Research
• Public Equity
• Convertible Debt
• High Yield
• Special Situations
 Mergers &
Acquisitions
 Secondary Trading
• Equity
• Convertible Debt
• High Yield
 Restructuring
 Market Making
 CRT BioMed Product
Evaluations
• Development
• Licensing
• End-use
Opportunities
 Strategic Advisory
Page 21
CRT’s Dedicated Healthcare Client Team
 Firmwide commitment to the biotech sector with 19 dedicated senior professionals
Investment Banking
Research
Charles Baltic
George Bickerstaff
Christopher Young
Jim Hesburgh
Leah Hartman
Michiel McCarty
Sheryl Skolnick
Olivier Saidi
Joy Polefrone
Rob Gibson
Capital Markets
Comprehensive,
Research-Driven
Coverage of the
Healthcare Sector
CRT BioMed
Michael Vaughn
Stuart Mushlin, M.D.
Ray Rivers
Erik Alexander, M.D.
John Ward
Jonathan Coblyn, M.D.
Evan Collins
Wolfram Goessling, M.D., Ph. D.
Jed Stevens
Page 22
Healthcare Investment Banking Team
Representative
Transaction
Experience

CRT’s healthcare investment banking team has deep experience in the
sector and is dedicated to providing high quality advisory and capital
raising services to healthcare companies and their investors
Vion
Pharmaceuticals, Inc.
$60,000,000
Convertible Offering
3
The undersigned acted as
Sole Underwriter
American Oriental
Bioengineering, Inc.
$60,000,000
Equity Offering
The undersigned acted as
Co-Placement Agent
Charles Baltic
 Managing Director
 Formerly with Wachovia
Securities, Cowen & Company
and Dewey Ballantine LLC
 Georgetown University, B.A., J.D.
 University of Pennsylvania,
M.B.A.
George Bickerstaff
 Managing Director
 Former CFO of Novartis Pharma
 Formerly with Workscape, IMS
Healthcare and GE
 Rutgers University, B.S., B.A.
Jim Hesburgh
 Managing Director
 Formerly head of Healthcare
Services banking at Cowen &
Company with additional coverage
responsibilities in Healthcare
Information, Medical Technology,
Biotechnology and
Pharmaceuticals
 University of Notre Dame, B.A.
 UCLA, M.B.A.
Cell Therapeutics, Inc.
$82,000,000
Convertible Offering
The undersigned acted as Sole
Manager
Oracle Healthcare Acquisition
Corp.
$120,000,000
Initial Public Offering
The undersigned acted as Sole
Manager
Michiel McCarty
 Managing Director, Head of
Investment Banking Group
 28 years of investment banking
experience
 Formerly with Gleacher Partners,
SG Warburg and Dillon Read
 Vanderbilt University, B.A.
 University of Pennsylvania,
M.B.A.
Olivier Saidi
 Advisory Director
 Formerly CEO 5 Gems Strategic
Advisory
 Co-Founder Aureon Labs
 Worldwide CTO of JCDecaux
 La Sorbonne, Masters in
Econometrics
 La Sorbonne, Doctorate degree in
“Patterns, Optimixation and
Algorithmic Complexity”
Rob Gibson
 Associate
 Formerly in the Healthcare
Investment Banking Group at
Bear Stearns
 Amherst College, B.A.
Page 23
Healthcare Research Team
 Deep experience in investment and scientific research
Leah Hartman
Sheryl Skolnick
Joy Polefrone
Julie Chen
 Joined CRT in 1991
 Joined CRT in 2006
 Joined CRT in 2007
 Joined CRT in 2007
 Formerly with SBCI Swiss
Bank Corporation and Drexel
Burnham Lambert in
corporate finance and M&A
 Formerly with Fulcrum Global
Partners and Head of
Healthcare Research at
Robertson Stephens
 B.S. in Chemistry, James
Madison University
 Ph.D. in Chemistry, University
of Virginia
 Formerly with Brean Murray
Carret & Co., New York
Global Securities, and C.E.
Unterberg Towbin.
 B.S., in Economics and
Finance, Indiana University
 J.D., Indiana University
School of Law
 M.B.A., University of Chicago
 Masters in Economics,
Washington University
 Ph. D. in Economics,
Washington University
 B.A. in Mathematics,
California State University
 Masters in mathematics,
Claremont Graduate School
 M.B.A., Fordham University
Selected CRT Healthcare Research Coverage Universe
Independent
Exclusive attention
to the company and
the situation, not
CRT’s relationship
with the issuer
Page 24
CRT BioMed LLC Overview
 CRT believes that
investment research
in healthcare often
requires experience
and expertise not
generally available in
institutional securities
firms
 CRT BioMed brings
the ability to analyze
biomed and
pharmaceutical
products with unique
insight and deep
comprehension,
including:

Relationship with CRT BioMed was established to broaden the reach of
CRT’s investment research efforts into companies active in biotechnology,
pharmacology and related areas
Erik Alexander, M.D.
Jonathan Coblyn, M.D.
•
Instructor in Medicine,
Harvard Medical School
•
Associate Prof. of Medicine,
Harvard Medical School
•
Associate Physician in
Endocrinology and
Neuroendocrinology,
Brigham and Women’s
Hospital
•
Senior Physician in
Rheumatology, Immunology
and Allergy, Brigham and
Women’s Hospital
• Development
• Licensing
• End-use
opportunities
Wolfram Goessling,M.D.,Ph. D.
•
•
•
Instructor in Medicine,
Harvard Medical School
Fellow in Gastroenterology,
Mass. General Hospital
Fellow in Hematology /
Oncology, Dana-Farber
Cancer Institute
Stuart Mushlin, M.D.
•
CRT BioMed Team Leader
•
Assistant Prof. of Medicine,
Harvard Medical School
•
Senior Physician in
Rheumatology and Internal
Medicine, Brigham and
Women’s Hospital
BIOMED LLC
Page 25
CRT Contact Information
George Bickerstaff
Managing Director
CRT Capital Group LLC
252 Harbor Drive
Stamford, CT 06830
Tel: (203) 569-6826
Fax: (203) 569- 6886
[email protected]
www.crtllc.com