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Strategic and funding outlook for growing healthcare companies

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. Legal Disclosure.

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Strategic and funding outlook for growing healthcare companies

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  1. 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

  2. Legal Disclosure This material has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This material is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This material is based on information obtained from sources believed to be reliable but is neither guaranteed to be accurate nor intended to be a complete statement or summary of the securities, markets or developments referred to in the material. Recipients should not use this material as a substitute for the prudent exercise of their own judgment. Any opinions expressed in this material are subject to change without notice and CRT is under no obligation to update or keep current the information contained herein. CRT and/or its directors, officers and employees may have or may have had interests or long or short positions in, and may at any time make purchases and/or sales as principal or agent, or may have acted or may act in the future as market maker in the relevant securities or related financial instruments discussed in this material. CRT may rely on informational barriers such as “Chinese Walls” to control the flow of information situated in one or more areas within CRT into other units, divisions or groups within CRT. Past performance is not necessarily indicative of future results. Options, derivative products and futures are not suitable for all investors due to the high degree of risk associated with trading these instruments. Foreign currency rates of exchange may adversely effect the value, price or income of any security or related instrument described in this material. CRT accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. CRT specifically prohibits the re-distribution of this material by third parties, via the internet or otherwise, and accepts no liability whatsoever for the actions of such third parties in this respect. Additional information is available upon request. Clients who wish to effect transactions should contact their CRT sales representative.

  3. Agenda • Situation overview • Key market drivers • Growth challenges • Financing alternatives • Company implications

  4. 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

  5. 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

  6. Global pharmaceuticals: $700 billion market 5% - 6% CAGR 6.5% 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

  7. Pharmaceutical market geography 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

  8. 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

  9. 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

  10. Sources of capital for growth companies ~$90 billion ~$300 billion Private Equity Venture Capital Company Maturity Marketplace Evolution Hedge Funds ~$1,810 billion

  11. 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

  12. Hedge fund growth • Hedge fund assets have grown at a 17% CAGR over the past 10 years Source: Hedge Fund Research

  13. Initial public offering trends • The initial public offering market (IPO) has changed significantly (1) Source: Securities Data Corporation and Thomson Financial

  14. Small companyIPO trends • The IPO market for small companies* is virtually closed (1) Source: Securities Data Corporation and Thomson Financial * IPOs for companies raising less than $50 million

  15. Venture backed exits • Venture backed companies have been forced to look for exit alternatives Venture Backed IPOs Since 1997 Venture Backed M&A since 1997 Source: VentureOne Note: 2007 data is as of 6/30/07

  16. 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

  17. 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

  18. 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

  19. 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

  20. CRT Overview and Healthcare Practice

  21. Stamford, CT & San Francisco, CA Employee-owned Founded in 1989 165 Fulltime Professionals Investment Banking Capital Markets Research • Corporate Finance • Convertible & Preferred Securities • PIPEs • Public Equity • Strategic Advisory • Mergers & Acquisitions • Restructuring • New Issues • Common Equity • PIPEs • Convertible Debt • High Yield • Secondary Trading • Equity • Convertible Debt • High Yield • Market Making • Published Research • Public Equity • Convertible Debt • High Yield • Special Situations • CRT BioMed Product Evaluations • Development • Licensing • End-use Opportunities 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

  22. CRT’s Dedicated Healthcare Client Team • Firmwide commitment to the biotech sector with 19 dedicated senior professionals Investment Banking Charles Baltic George Bickerstaff Jim Hesburgh Michiel McCarty Olivier Saidi Rob Gibson Research Christopher Young Leah Hartman Sheryl Skolnick Joy Polefrone Comprehensive, Research-DrivenCoverage of the Healthcare Sector Capital Markets Michael Vaughn Ray Rivers John Ward Evan Collins Jed Stevens CRT BioMed Stuart Mushlin, M.D. Erik Alexander, M.D. Jonathan Coblyn, M.D. Wolfram Goessling, M.D., Ph. D.

  23. Olivier Saidi Rob Gibson • 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” • Associate • Formerly in the Healthcare Investment Banking Group at Bear Stearns • Amherst College, B.A. 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 3 Convertible Offering The undersigned acted as Sole Underwriter Charles Baltic George Bickerstaff Jim Hesburgh • Managing Director • Formerly with Wachovia Securities, Cowen & Company and Dewey Ballantine LLC • Georgetown University, B.A., J.D. • University of Pennsylvania, M.B.A. • Managing Director • Former CFO of Novartis Pharma • Formerly with Workscape, IMS Healthcare and GE • Rutgers University, B.S., B.A. • 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. American Oriental Bioengineering, Inc. $60,000,000 Equity Offering The undersigned acted as Co-Placement Agent Cell Therapeutics, Inc. $82,000,000 Convertible 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. Oracle Healthcare Acquisition Corp. $120,000,000 Initial Public Offering The undersigned acted as Sole Manager

  24. Healthcare Research Team • Deep experience in investment and scientific research Leah Hartman Sheryl Skolnick Joy Polefrone Julie Chen • Joined CRT in 1991 • Formerly with SBCI Swiss Bank Corporation and Drexel Burnham Lambert in corporate finance and M&A • B.S., in Economics and Finance, Indiana University • J.D., Indiana University School of Law • M.B.A., University of Chicago • Joined CRT in 2006 • Formerly with Fulcrum Global Partners and Head of Healthcare Research at Robertson Stephens • Masters in Economics, Washington University • Ph. D. in Economics, Washington University • Joined CRT in 2007 • B.S. in Chemistry, James Madison University • Ph.D. in Chemistry, University of Virginia • Joined CRT in 2007 • Formerly with Brean Murray Carret & Co., New York Global Securities, and C.E. Unterberg Towbin. • 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

  25. 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: • Development • Licensing • End-use opportunities • 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 Physician in Endocrinology and Neuroendocrinology, Brigham and Women’s Hospital • Associate Prof. of Medicine, Harvard Medical School • Senior Physician in Rheumatology, Immunology and Allergy, Brigham and Women’s Hospital Wolfram Goessling,M.D.,Ph. D. Stuart Mushlin, M.D. • Instructor in Medicine, Harvard Medical School • Fellow in Gastroenterology, Mass. General Hospital • Fellow in Hematology / Oncology, Dana-Farber Cancer Institute • CRT BioMed Team Leader • Assistant Prof. of Medicine, Harvard Medical School • Senior Physician in Rheumatology and Internal Medicine, Brigham and Women’s Hospital

  26. 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 gbickerstaff@crtllc.com www.crtllc.com

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