Pulse of the industry US medical technology report 2008

1. Pulse of the industry US medical technology report 2008

2. Transactions

3. Medtech industry overview – September 2008 • Medtech M&As are faring much better than overall M&A market • Total dollars: $19.1B for H1 2008 vs. $21.3B for H1 2007 • Deal volume: 31 deals in H1 2008 vs. 34 deals in H1 2007 • M&A industry participants continue to expand and diversify • More diverse industry participants • More diverse group of buyer/acquirers • Medtech IPO volume is virtually non-existent in 2008 • Medtech VC financing has remained stable and on a consistent pace with the record 2007 amount • Several public to private attempts • ArthroCare • AngioTech • Datascope

4. Medtech M&A activity begins to slow… Source: Ernst & Young, Windhover, Jefferies & Co.

5. …but average deal size increases Source: Ernst & Young, Windhover, Jefferies & Co.

6. The top M&A deals of 2007 & H1 2008 2007 H1 2008 Source: Ernst & Young, Windhover, Jefferies & Co.

7. Medtech buyers by sector market Source: Ernst & Young, Windhover, Jefferies & Co.

8. Emerging players in the M&A market: deal activity in 2007 & H1 2008 Source: Ernst & Young, Windhover, Jefferies & Co. *Cytyc was later acquired by Hologic

9. Non-imaging diagnostics were a hot commodity in 2007… Source: Ernst & Young, Windhover, Jefferies & Co.

10. …and continued to be a target in H1 2008 Source: Ernst & Young, Windhover, Jefferies & Co.

11. Top non-imaging diagnostic deals 2007 H1 2008 Source: Ernst & Young, Windhover, Jefferies & Co.

12. Current perspective on private equity healthcare investing • Private equity is targeting the healthcare sector to seek protection from the economic slowdown.¹ • In Europe, total private equity deals in the sector jumped to first place from third place, in part as the result of an aging population in Europe; a growing demand for private healthcare and the prospect of big contracts from the UK government as it outsources more health services to the private sector.¹ • US healthcare private equity deals have also seen an 85% increase from 1H2007 to 1H2008.² ³ • In the mid-market, the healthcare sector is expected to produce the highest returns for its investors among all sectors. A survey by UK mid-market buyout firm August Equity LLP in April 2008 revealed that 17% of respondents think the healthcare sector will perform the best in terms of private equity deals, ahead of energy, mining and utilities.¹ • Private equity firms are also looking beyond traditional healthcare for opportunities. One of the areas is home healthcare. There have been five home healthcare private equity deals so far in 2008, leading by Blackstone’s $1.6 billion acquisition of Apria Healthcare Group.⁴ • Other sub-sectors that are of particular interest to PE’s include medical and information technology, healthcare services and pharmaceuticals. • Other noteworthy deals in the healthcare space include: • ConvaTec, one of Bristol-Myers Squibb’s three divisions, was sold in May to a PE consorttium led by Avista Capital Partners ($4.1bn).⁵ • Apax’s acquisition of TriZetto Group, a US-based healthcare software company ($1.4bn, April 2008). • In the largest deal in Russia to date, TPG paid $800m for a 50% stake in SIA International, a company that distributes pharmaceuticals in Russia (April 2008).⁶ Sources: (1)”Health care as a haven - sector finds favor among buyout firms during slowdown,” The Wall Street Journal Europe, May 14, 2008 via Dow Jones Factiva; (2) “Buyout shops get creative in slow deal market, “Buyouts, pg. 40, July 7, 2008; (3) “Risk of Slowdown Rises Toward End of Busy Q2,” Buyouts, pg. 22, July 9, 2007; (4) “Firms look beyond hospitals for healthcare deals” Buyouts, pg. 4, July 7, 2008; (5) The Health Care M&A Monthly, June 2008; (6) the Health Care M&A Monthly, May 2008.

13. The emergence of private equity No private equity deals Source: Ernst & Young, Windhover, Jefferies & Co.

14. Top private equity acquirers: 2006-H1 2008 Proposed deal in Q3 2008 • Completed deal with Goldman Sachs & KKR • **Completed deal with Nordic Capital Source: Ernst & Young, Windhover, Jefferies & Co.

15. What will the future bring?

16. Outlook for the rest of 2008 • IPO backlog finding extreme difficulty in the public markets • Public investors will continue to be choosy, seeking companies with predictive revenues and profitability • Companies and investors will have to fund and nourish companies for longer periods of time • Market volatility will result in delays – for how long is anyone’s guess • M&A’s will continue to be the exit of choice for most private companies • 3 IPOs ($114.7 million raised) in H1 2008 vs. 7 IPOs ($712 million) in H1 2007 • VCs stay at the table • Look for VCs to increase focus on aesthetics, neuro, surgical tools, ortho (spine) and ophthalmics • Biotech investors will increasingly look to medtech companies to balance their biopharma portfolios • Investors must plan exits more carefully to create maximum valuations…are there enough exits? • Continuation of strategic consolidations and increased carve-outs • Ample supply of willing buyers…more activity from non-traditional players (mid-tiers, PE) • Large medtech companies have businesses that don’t meet their core goals…profitability or product • PE will remain an active participant, but large club deals will be limited • Biomet club deals will be limited - expect to see more single-sponsor acquisitions below $1.5B • Alternative financing may become more prevalent • Hedge funds, institutional private equity, and insurance companies may be new sources of equity • Increased regulatory and legal scrutiny • Product safety, longer approvals, global expansion, reimbursement, sales & marketing practices, etc. • Next generation of technologies • Large caps will limit R&D programs - more focus on M&As and outsourcing of early-stage R&D to fill pipeline • Neuromodulation, orthopedic repair, remote sensors, minimally invasive surgery, drug-device combinations

17. Thank you! • John Babitt • 212.773.0912 • john.babitt@ey.com • Ernst & Young Global Biotechnology and Medical Technology Center – Boston • +1.617.585.1800 • globalbiotechcenter@ey.com • www.ey.com