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LEADING IN TURBULENT TIMES

MassMEDIC. LEADING IN TURBULENT TIMES. Mark Gallagher Senior Vice President Silicon Valley Bank March 5, 2009. Agenda. Global Economy – The world is on fire! MedTech Economy – Doing ok? The Good News – sifting through the ashes

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LEADING IN TURBULENT TIMES

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  1. MassMEDIC LEADING IN TURBULENT TIMES Mark Gallagher Senior Vice President Silicon Valley Bank March 5, 2009

  2. Agenda • Global Economy – The world is on fire! • MedTech Economy – Doing ok? • The Good News – sifting through the ashes • Shamless Commerce!

  3. How bad can it be?

  4. Negative Events Accelerated… Fed Cuts 25 bps, Establishes TAF Fed Begins Purchasing MBS Market-supporting events above the timeline Fed Cuts 75 bps, Creates TSLF and PDCF GSEs taken into conservatorship TARP Approved/Global Rate Cuts Fed Cuts 50 bps Fed Cuts 125 bps Fed Cuts Rates to 0-25 bp Fed Cuts 25 bps Fed Cuts 25 bps Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Madoff FNM/FRE/Lehman/AIG >50 Mortgage Brokers Shut Down CDO-Backed ARS Fails Stanford Fed Leaves Rates Unchanged First Extendible CP Extends Housing Bubble Articles at all-time high 3.6 million jobs lost since 1/08 Oil peaks at $147 GSEs encouraged to expand /raise capital Negative events below the timeline Bear Stearns Bailout Majority of ARS Fail

  5. …Convert to Daily in September… 9/14 Fed injects $70B - most since 9/11 9/17 Paulson plans TARP 9/19 SEC bans Short Sales 9/20 TARP request finalized - $700B 9/21 Mitsubishi invests $8.4B in M Stanley 9/26 Global Swap Lines Increased September 2008 9/8FNM/FRE Conservatorship 9/17Fed lends $28B to AIG 9/15Reserve fund "Breaks the Buck", Fed Leaves Funds rate at 2% 9/29Citigroup to acquire Wachovia 9/14Lehman to file BK, Merrill forced on BofA, Stocks fall most since 9/11 9/25WAMU Seized 9/12Market expects Lehman Bailout

  6. The Markets Source: SNL Financial

  7. Federal Funds Rate Source: Federal Reserve Bank, St. Louis

  8. Housing Prices Plunge…

  9. Home Construction Plunges As Well

  10. Auto Sales Drop

  11. Manufacturing Drops

  12. Labor Markets Deteriorate

  13. Consumers Cut Back

  14. Household Names Disappear

  15. Market Values Plunge • A collective loss of over $1.1 trillion (or 82%) in Market Cap since 2007 • Over $400 billion in Market Cap lost since the start of Q4 2008 In $ billions $167 $74 $82 $238 $117 $85 $274 Winners / Survivors $24 $31 $86 $35 $18 $37 $17 $31 $37 $81 $23 $12 $108 $43 $39 $18 Sold / Buried Market Cap 12/31/06 Market Cap 01/22/09 Source: SNL Financial; Yahoo Finance

  16. Current Crisis Accounting Scandals 9/11 Volatility and Fear at an All-time High Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. A high value of VIX corresponds to a more volatile market. Source: Chicago Board Options Exchange

  17. Total medtech financing While venture capital held up, total financing was down sharply … Source: Ernst & Young, ThinkEquity Partners, Windhover, Dow Jones VentureSource and Jefferies & Co.

  18. Medtech mergers & acquisitions 2008 M&A activity fell to pre-2006 levels … Source: Ernst & Young

  19. Medtech mergers & acquisitions … with most of the decline occurring in the second half of the year. Source: Ernst & Young

  20. Are Banks Pulling Their Weight?

  21. Banks Do NOT Dominate the Credit Markets Source: Arbor Research • For better or worse, securitized markets dominate credit availability • Securitized markets are shut due to investor fear • Unrealistic to expect the banking sector to immediately replace this market

  22. Obligatory Pie Chart

  23. Fed Lowers Forecast Dramatically

  24. Medtech Financials Net income of non-conglomerates is on pace to grow by 46%

  25. Medtech market capitalization … but company valuations plummeted in the fourth quarter.

  26. SVB Financial Group (SIVB – Nasdaq) SVB Financial Group SVB Silicon Valley Bank SVB Private Client Services SVB Analytics SVB Capital SVB Global SVB Securities/ SVB Asset Mgmt Private Banking Commercial Banking Valuations & Capitalization Software Venture Capital & Private Equity Funds Management GlobalNetworks • VC / PE Backed & Large Tech Cos.: Term Debt, Asset based lines, Cash Flow lending • Total Loans $3.0 B • Deposit & Cash Management Services • Total Deposits: $4.0 Billion • Private Equity Services: Lending and Cash Mgmt • International: foreign exchange, letters of credit, etc. • Private Co. Valuations (409A) – 30 people • Cap Table management (eProsper) – 900 companies and 30,000 optionees • Established in 2006 • Hundreds of engagements in first 12 months • FAS 157 in 2008 • Relationship Mgmt with VC / PE for SVBFG • Family of funds: VC fund of funds, Co-Investment Fund, Gold Hill venture debt, Partners for Growth • LP Investments (parent company) since 1995 • Personal loans to CEOs, CFOs, General Partners and extended SVB network. $20 Billion of SVB client assets under management in: REPOs: collateralized, overnight investments which generate interest income only SVB Securities: self directed investment in money market mutual funds SVB Asset Mgmt. managed accounts for greater performance, customization and reporting • London office: lending to emerging cos. in Europe • Israel and Canada: commercial banking in ’07 • India & China: Consulting offices • Assisted 450 clients and VC / PE firms overseas

  27. It is a cycle! Y

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