Strategic and funding outlook for growing healthcare companies

2008 Health Care Forecast Conference, University of California, IrvineFebruary 22, 2008

George Bickerstaff, Managing DirectorCRT Capital Group LLC

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Agenda

Situation overview

Key market drivers

Growth challenges

Financing alternatives

Company implications

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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

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

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Global pharmaceuticals: $700 billion market

Global Pharmaceutical Sales

$578$619

$663 $700$740

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CAGR 6.5%

* World-wide gross domestic product estimated at $50.4 trillion for 2007, a 5.7% increase over 2006.Source: IMS Health; CIA Fact Book

5% - 6%

Global pharma sales are growing at a rate faster than the growth rate of world-wide gross domestic product*, driven by the emerging markets.

Pharmaceutical market geography

2008 Estimated Market Size - $740 Billion

41%

20%9%

12%

18%

30%

USA Top 5 Europe Japan "Pharmerging" Market ROW

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Source: IMS Health

The smaller and emerging (“Pharmerging”) markets are expected to grow at nearly twice the rate (8% - 13%) of the larger countries (< 5%) in 2008.

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

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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

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Sources of capital for growth companies

Private EquityPrivate EquityVenture CapitalVenture Capital

Hedge FundsHedge Funds

Marketplace Evolution

Company MaturityCompany Maturity

~$1,810 billion

~$300 billion~$90 billion

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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

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$1,810

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Hedge fund growth

Source: Hedge Fund Research

Hedge fund assets have grown at a 17% CAGR over the past 10 years

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The initial public offering market (IPO) has changed significantly

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Initial public offering trends

Source: Securities Data Corporation and Thomson Financial

(1)

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The IPO market for small companies* is virtually closed

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Small company IPO trends

Source: Securities Data Corporation and Thomson Financial* IPOs for companies raising less than $50 million

(1)

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Number of Venture Backed IPOs Amount Raised

Venture backed exits

Venture backed companies have been forced to look for exit alternatives

Source: VentureOneNote: 2007 data is as of 6/30/07

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140

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Number of Venture Backed M&A Deals Amount Raised

Venture Backed IPOs Since 1997 Venture Backed M&A since 1997

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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

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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

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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

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

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CRT Overview and Healthcare Practice

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Overview of Capabilities

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

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

Founded in 1989

165 Fulltime Professionals

Stamford, CT & San Francisco, CA

Employee-owned

Corporate Finance• Convertible &

Preferred Securities

• PIPEs• Public Equity

Strategic Advisory

Mergers & Acquisitions

Restructuring

Investment Banking

New Issues• Common Equity• PIPEs• Convertible Debt• High Yield

Secondary Trading• Equity• Convertible Debt• High Yield

Market Making

Capital Markets

Published Research• Public Equity• Convertible Debt• High Yield• Special Situations

CRT BioMed Product Evaluations

• Development• Licensing• End-use

Opportunities

Research

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Comprehensive, Research-DrivenCoverage of the

Healthcare Sector

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

CRT BioMed

Stuart Mushlin, M.D.

Erik Alexander, M.D.

Jonathan Coblyn, M.D.

Wolfram Goessling, M.D., Ph. D.

Capital Markets

Michael Vaughn

Ray Rivers

John Ward

Evan Collins

Jed Stevens

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Representative Transaction Experience

Vion Pharmaceuticals, Inc.

$60,000,0003

Convertible Offering

The undersigned acted asSole Underwriter

Healthcare Investment Banking Team

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

George Bickerstaff

Managing Director Former CFO of Novartis Pharma Formerly with Workscape, IMS

Healthcare and GE Rutgers University, B.S., B.A.

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.

Rob Gibson

Associate Formerly in the Healthcare

Investment Banking Group at Bear Stearns

Amherst College, B.A.

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.

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”

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

American Oriental Bioengineering, Inc.

$60,000,000

Equity Offering

The undersigned acted asCo-Placement Agent

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.

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Healthcare Research Team

Independent

Exclusive attention to the company and the situation,

not CRT’s relationship with

the issuer

Deep experience in investment and scientific research

Leah Hartman

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

Selected CRT Healthcare Research Coverage Universe

Sheryl Skolnick

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

Joy Polefrone

Joined CRT in 2007

B.S. in Chemistry, James Madison University

Ph.D. in Chemistry, University of Virginia

Julie Chen

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

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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

CRT BioMed LLC Overview

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.

• Instructor in Medicine, Harvard Medical School

• Associate Physician in Endocrinology and Neuroendocrinology, Brigham and Women’s Hospital

Jonathan Coblyn, M.D.

• 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.

• 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

CRT Contact Information

George BickerstaffManaging Director

CRT Capital Group LLC252 Harbor DriveStamford, CT 06830

Tel: (203) 569-6826Fax: (203) 569- 6886

gbickerstaff@crtllc.com

www.crtllc.com