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Opportunity Quest Presentation January 17, 2009

Opportunity Quest Presentation January 17, 2009. Removing/replacing bone during surgery interferes with local blood supply Bone healing problems Increased risk of infection. Opportunity: Optimize Outcomes of Baby Boomer Orthopedic Surgeries. Blood Vessels. Total Hip Implant.

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Opportunity Quest Presentation January 17, 2009

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  1. Opportunity Quest Presentation January 17, 2009

  2. Removing/replacing bone during surgery interferes with local blood supply Bone healing problems Increased risk of infection Opportunity: Optimize Outcomes of Baby Boomer Orthopedic Surgeries Blood Vessels Total Hip Implant

  3. The Infection Problem • Joint reconstruction: ~2% infection rate • >$1B USA system cost • Revision surgery: >$50,000 per patient3-4% infection rate Sources: M.B. Gallazzi, R. Chiapparino, P.G. Garbagna, “Early Radiological Diagnosis and Differential Diagnosis of Infection in Orthopaedic Surgery” in Infection and Local Treatment in Orthopedic Surgery, Springer 2007, pg. 20 E. Witso, “Antibiotic Impregnated Bone Grafts—What Do We Know?” in Infection and Local Treatment in Orthopedic Surgery, Springer 2007, pg. 156

  4. Solution: ElutiBone Drug Eluting Bone Grafts • Combination of products already in use • Provisional utility patent filed • Core technology  portfolio of implantable products

  5. ElutiBone: Improvement of Already-Used Bone Graft Chips • Bone graft chips used as fillers in orthopedic surgery • ElutiBone improves upon existing bone graft chips Femoral Head Bone Cement Thin Bone Wall Impacted Bone Graft Chips

  6. ElutiBone: Consistently Hitting the Infection Kill Sweet Spot

  7. Competition: Only ElutiBone Has Targeted & Controlled Release

  8. Market Opportunity: >$5 Billion • Orthopedic biomaterials: $5.2 B, 14% growth • Bone grafts segment: $1.3 B, 8% growth Source: Kalorama Information Market Intelligence Report, Orthopedic Biomaterials: World Market, September 2007. Kurtz S, Projections of primary and revision hip and knee arthroplasty in the United States from 2005 to 2030, J Bone Joint Surg Am 2007 Apr ;89(4):780-5.

  9. Market Strategy: Capital Efficient Phased Approach Year 1 Year 2 Year 3 Year 4 YR 5 YR 6 YR 7 Expand Sales & Marketing Team, Begin Ceramic ElutiBone Development Antibiotic ElutiBone In-vitro & Animal Testing In-vivo Testing,Open Facility, 510k Enter into Marketing & Distribution Agreement Continue Ceramic ElutiBone Development Milestones Net Income ($0.6 M) ($1.4 M) ($1.4 M) ($0.5 M) $2.5 M $12 M $27 M Grant & Angel Funding Strategic Buy Out Fund Raising Series A Series B Series C

  10. Management: Successful Operating Team Charity Williams, JD Candidate, President & CEO >10 years experience in medical device development and marketing Sean Mills, MBA Candidate, CFO & VP Marketing >4 years financial management experience & former USTAR analyst Justin Baker, Bioengineering PhD Candidate, VP Operations >6 years lab research experience and orthopedic device development

  11. Management: Expert Science Team David Grainger, PhD, Chief Science Officer World-renown biomaterials thought leader Amanda Brooks, PhD, VP R&D >10 years lab experience and biomaterials production process Paul Hogrebe, Bioengineering PhD Candidate, VP Product Development >6 years lab experience and EultiBone co-inventor

  12. Total equity investment: $6 M Average acquisition: 4.2x revenue and 24x EBITDA Returns > 60% at 3x revenue and 14x EBITDA Proforma Income Statement (millions) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Net Sales Revenue $ - $ - $ 7 $ 15 $ 33 $ 75 $ 128 market capture rate 0.5% 1% 2% 4% 6% Cost of Goods Sold $ - $ - $ 5 $ 9 $ 18 $ 37 $ 58 Gross Margin $ - $ - $ 2 $ 6 $ 15 $ 37 $ 70 gross margin % of sales 35% 40% 45% 50% 55% Operating Expenses $ 0.6 $ 1.4 $ 4 $ 7 $ 12 $ 26 $ 43 EBITDA $ (0.6) $ (1.4) $ (1.4) $ (0.5) $ 2.5 $ 12 $ 27 EBITDA as % of sales -20% -3% 8% 15% 21% Financial & Investment Summary: Investment Return > 60%

  13. Summary • Portfolio of drug eluting implantable orthopedic devices • Low technical risk with early data demonstrating efficacy • Proprietary, patentable intellectual property • >$5B market opportunity • Capital efficient development and market entry • $6M equity investment, returns >60% • Experienced, success-proven management team

  14. “Give me a way to help bone heal more reliably.” — Dr. Charles Saltzman Chairman, University of Utah Orthopaedic Center, Vice President, American Orthopaedic Foot and Ankle Society

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