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1. Disclaimer
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tax-related penalties.
2. Equity market outlook
1
n๏ฎโฏ Equity markets in Q3โ14 closed largely flat on the previous quarter
n๏ฎโฏ From peak to trough, the S&P has fallen 7% from its all-time high on Sept 19 (2,019) to this past Tuesdayโs close
(1,877)
n๏ฎโฏ Despite all indices reaching new highs during the quarter, growing geopolitical tensions, and tapering fears muted
markets in September
n๏ฎโฏ It is difficult to attribute the recent pullback/volatility to specific fundamental drivers as the current trading dynamic
reflects a lack of conviction in an illiquid trading environment
n๏ฎโฏ The VIX is currently at 19 with 20+ believed to impact the equity new issue market
n๏ฎโฏ Although there are $22bn in equity inflows 2014YTD, flows have been consistently negative each month since June
n๏ฎโฏ Investors will be focused on the Q3โ14 earning season which officially kicked off this week
Summary
3. Equity market overview
2
13.4%
13.0%
8.7%
7.1%
6.3%
3.2%
0.8%
0.0%
(3.4%)
(4.1%)
(5.8%)
3.1%
Healthcare
Utilities
Transportation
Info. Technology
Consumer Staples
Financials
Telecom
Materials
Consumer Disc.
Industrials
Energy
S&P 500
10
12
14
16
18
20
22
24
Jan-14 Mar-14 May-14 Jul-14 Oct-14
VIX Volatility IndexMax 21.4 Feb 3rd
Last 21.2 Oct. 10th
Min 10.3 Jul 3rd
90%
95%
100%
105%
110%
1/1/14 3/12/14 5/22/14 7/31/14 10/10/14
Source: FactSet, as of 10/10/14 Source: FactSet, as of 10/10/14
Equity market performance, 2014YTD Market volatility, 2014YTD
S&P sector perf. 2014YTD and last
week
Domestic equity fund flows excl.
ETF ($bn)
Performance
Q3'14 2014YTD
Last
week
% of 52-
week high
Dow +1.3% -0.2% -2.7% 95.7%
S&P 500 +0.6% +3.1% -3.1% 94.8%
NASDAQ +1.9% +2.4% -4.5% 93.0%
Dow -0.2%
Nasdaq +2.4%
S&P +3.1%
($3)
$14
$19
$7
$40
$6
($22)
($6)
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14
Industrials
Q3โ14 corporate earnings
54%
25%
21%
66%
10%
24%
Above Meet Below
Revenue EPS
S&P 500 companies reported: 28/500Historical fund flows ($bn)
2008-2012 ($378)
2013 $37
2014YTD $18
Avg. of last 4 weeks ($2)
(2.2%)
0.9%
(6.6%)
(4.2%)
0.5%
(3.1%)
(2.6%)
(4.5%)
(3.6%)
(4.7%)
(5.0%)
(3.1%)
Source: Lipper (weekly and monthly data) as of 10/08/14 Source: FactSet, as of 10/10/14Source: Bloomberg, as of 10/10/14
4. Biotech and medtech trading performance
3
50%
100%
150%
200%
250%
300%
350%
400%
450%
2004 2006 2008 2010 2012 2014
10-year stock price performance
58%
297%
Source: FactSet as of 10/10/14
1 Medtech index consists of medical technology companies traded on North American exchanges with market capitalizations over $1bn
73%
Returns summary
10 yr 5 yr YTD
Medtech1
62%
Biotech
234%
S&P 500
77%
16%
16%
4%
5. Source: FactSet as of 10/10/14
1 Ophth index includes Thrombogenics, Santen, Ophthotech, Aerie, Cooper, Ista, STAAR, and Alimera
2 Diversified / Ophth includes Novartis, Abbott, Roche, Bayer, Regneron, Allergan, Valeant
2-year performance of ophthalmic sector participants
4
75%
100%
125%
150%
175%
200%
10/10/2012 3/5/2013 7/29/2013 12/22/2013 5/17/2014 10/10/2014
Relative stock price performance
+125% +30% +56% +71%
Ophth1
33.4%
S&P 500
33.1%
Diversified /
Ophth2
79.9%
Regeneron Santen
Cooper
Companies
Ophthotech
6. Biopharma and medtech M&A activity has converged
5
M&A transactions
Source: Dealogic, EvaluatePharma, press releases, public filings
Note: Based on US targets only and excludes deals <$50mm. Medtech category excludes diagnostics/tools
1Merckโs ophthalmology assets
10 12
5
9
14
19 18 20 19
16 16 18
23 15
23
18
23
13
31
35 37
25
29
22
18
27
20
24
12
18
0
10
20
30
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Biopharma Medtech
2014 ophthalmology M&A
July $120 million
June $1.2 billion
May $600 million
February $385 million
Aciex Therapeutics Nicox
Sauflon Cooper Companies
Merck1 Santen
Coastal Contacts Essilor
7. Ophthalmology has been an attractive area of investment among biotech IPOs
6
Number of IPOs since 2013 (>$40mm)
52%
26%
9%
78%
40%
9%
56%
16%
67%
39%
Ophthamology Oncology Specialty Anti-infectives Orphan Platform Hematology Cardiovascular Inflammation CNS
IPO performance by sector โ Mean offer / current
Source: Company filings, Dealogic, press releases, FactSet as of 10/10/14
6
8
16
6 6 6 5 5 4 4
Ophthamology Specialty Oncology Anti-infectives Orphan Platform Hematology Cardiovascular Inflammation CNS
1.2x1.4x1.8x 1.3x 2.0x 1.3x 1.5x 1.1x 1.9x 1.3x
$577
$468
$1,329
$479
$647
$485 $467 $376
$261 $295
Ophthamology Oncology Specialty Anti-infectives Orphan Platform Hematology Cardiovascular Inflammation CNS
Total $ invested
$83$58$96 $80 $108 $81 $93 $75 $65 $74Average
deal size
Average
step-up
Mean: $538
Median: $474
Mean: 39%
Median: 40%
10. Key success factors observed in recent lifescience IPOs
9
Valuable lead program, sufficiently de-risked with significant market opportunity and ownership retained
Products which also address cost to the system vs. efficacy
Strong management teams led by CEOs with prior public market success
Crossover investors to provide validation as well as support on IPO and in aftermarket
Near-term data / strategic catalysts to answer the โwhy buy nowโ question
Extensive interaction with public investors 6 months to 1 year before IPO org meeting
Critical to price appropriately for existing market to ensure strong deal and aftermarket performance
(prudent / attractive cover valuation range)
Potential for competitive M&A takeout
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