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The impact of innovation on the future of IVD

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M&A activity in 2014 was dynamic, with more in vitro diagnostics (IVD) transactions compared to the previous two years combined. For 2015 to date, Worldwide IVD transactions (including instrument/reagent manufacturers, genome informatics and reference labs) are on par with 2014 activity although there has been a sharp decline in acquisitions in China. Also, EY’s Medtech Firepower Index shows steady growth in “firepower” – which EY defines as a company’s ability to do M&A based on the strength of its balance sheet -- since 2011, indicating high borrowing capacity and the potential for future transaction execution. In particular, the diagnostics market has seen an emergence of creative deal making between nontraditional partners specifically within oncology, NIPT and MRSA.

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The impact of innovation on the future of IVD

  1. 1. Trending or here to stay? The impact of innovation on the future of in vitro diagnostics (IVD) Kristin Pothier, Head of Life Sciences Parthenon-EY 27 July 2015
  2. 2. Page 2 M&A environment for global IVD/LS tools: annually M&A activity in 2014 was dynamic, with more IVD transactions compared to the previous two years combined; 2015 is on par with 2014 to date 0 10 20 30 40 50 60 70 80 90 2010 2011 2012 2013 2014 2015E* NumberofM&Atransactions Historical transactions Forecast transactions (based on H1:15) 2010 2011 2012 2013 2014 2015* Total transaction value (US$b)^ US$10.2 US$17.5 US$7.6 US$18.4 US$25.8 US$5.5 Example transactions (Alphabetical) ► Clarient (GE) ► EMD Millipore (Merck KGaA) ► Ion Torrent (Life Technologies) ► Axis-Shield (Alere) ► Beckman Coulter (Danaher) ► Phadia (Thermo Fisher) ► BlueGnome (Illumina) ► Dako (Agilent) ► Gen-Probe (Hologic) ► IRIS (Danaher) ► BioFire (bioMerieux) ► Ingenuity Systems (QIAGEN) ► Life Technologies (Thermo Fisher) ► Crescendo (Myriad) ► OCD (Carlyle) ► Siemens Micro. (Danaher) ► BRLI (OPKO) ► Foundation Medicine (Roche) Worldwide IVD transactions (instrument/reagent manufacturers, genome informatics and reference labs), 2010-15 Sources: EY analysis, Capital IQ. *Includes transactions in H1:15 ^Note: transaction values available for 54% of total transactions
  3. 3. Page 3 Global medtech financial environment The EY Medtech Firepower Index has grown steadily since 2011, indicating high borrowing capacity and the potential for future transaction execution Firepower (and change) of large-cap medtech* companies (US$10b market cap as of 17 July 2015) Sources: Capital IQ, EY analysis. *Large-cap medtech includes N=26 medtech companies with 17 July 2015 market values >US$10b; does not include Baxter due to change in valuation following major divestitures in 2014-15. -40% -30% -20% -10% 0% 10% 20% 30% 40% 0 50 100 150 200 250 2007 2008 2009 2010 2011 2012 2013 2014 2015 Large-capmedtechfirepower(US$b) Firepower Change in firepower EY Firepower ► A company’s ability to do M&A based on the strength of its balance sheet ► Market capitalization, cash equivalents and debt capacity provide this firepower
  4. 4. Page 4 Global IVD partnership environment: key trends The diagnostics market has seen an emergence of creative deal making between nontraditional partners specifically within oncology, NIPT and MRSA Sources: Company press releases, GenomeWeb, Capital IQ, Cowen, Forbes, Fierce Biotech. *Flatiron acquired Altos outright. 3 key trends in 2014-15 IVD partnerships Deals were largely focused in oncology, NIPT and infectious disease (including MRSA) Some deals incorporated multiple pharma companies with the same IVD partner Nontraditional stakeholders are starting to become more involved
  5. 5. Page 5 International perspective: M&A environment Deal activity in 2015 is comparable to 2014; however, there has been a sharp decline in acquisitions in China Sources: EY analysis, Capital IQ. *Includes transactions in H1:15 (n=40); Other includes Latin America, Middle East and Africa. Worldwide IVD transactions by target company headquarters, Jan 2010-Jun 2015 0 10 20 30 40 50 60 70 80 90 2010 2011 2012 2013 2014 2015* NumberofM&Atransactions Europe United States and Canada Asia/Pacific Other
  6. 6. Page 6 International Firepower Index The Firepower Index grew across all regions from 2013-15, but the proportion of firepower is growing in emerging markets (BRIC) at the expense of the US. Medtech firepower by country/region (2011-15) Sources: Capital IQ, EY analysis. Index includes N=325 medtech companies across select geographies EY Firepower ► A company’s ability to do M&A based on the strength of its balance sheet ► Market capitalization, cash equivalents and debt capacity provide this firepower 61% 56% 18% 20% 6% 9% 9% 8% 5% 5% 0 50 100 150 200 250 300 350 400 450 500 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015 Globalmedtechfirepower(US$b) US/CAN EU BRIC JP APAC EMEA LATAM Total global firepower
  7. 7. Page 7 For more information: Kristin Pothier, Head of Life Sciences Kristin Ciriello Pothier Partner and Managing Director Parthenon-EY Tel: +1 617 375 1384/+1 617 549 2779 (Mobile) Email: kristin.pothier@ey.com Education ► Kristin earned a BA in Biochemistry from Smith College and an MS in Epidemiology, Health Management, and Maternal and Child Health from the Harvard School of Public Health Areas of focus ► Kristin has extensive experience in commercial and clinical strategy and due diligence for both strategics and investors ► Core areas of focus include commercial and operational strategy and M&A diligence in the clinical core laboratory, molecular diagnostics, life sciences tools and services, reference lab strategy, point of care, and personalized medicine from a diagnostics and a pharmaceutical perspective ► Kristin serves clients in all sectors of the global life sciences industry including ► Pharmaceutical and precision/personalized medicine access strategy ► Core clinical diagnostics and innovative diagnostics, including molecular, POC and NGS ► Reference lab strategy including hospital lab, global core reference labs, specialty labs, anatomical pathology, clinical trials, and personalized medicine ► Life sciences tools and lab services, including sample prep, biorepositories, MS, sequencing and translational platforms ► Health IT strategies, including middleware development, digital pathology incorporation, biomarker algorithms and patient journey development, for institutions and companies ► Extensive clinical knowledge in oncology, cardiovascular, global health, prenatal and infectious disease across the globe EY experience ► Kristin has 20 years of experience in the life sciences industry ► Kristin leads the life sciences sector of Parthenon-EY serving clients in pharma, biotech, diagnostics and life science tools, with a focus on company and investor commercial strategy and M&A support for diagnostics, life science research and pharmaceutical companies ► She is also the creator and leader of EY Precision Medicine™, and specializes in diagnostics clinical laboratories, the developing platform and reference lab strategies worldwide with on-the-ground experience in North America, South America, EU, Asia and the Caribbean ► Kristin is a co-founder and leader of DxInsights, a nonprofit organization designed to educate on the impact of diagnostics and precision medicine in improving health care outcomes to the nation's health care communities ► Kristin is a noted speaker, workshop leader and writer with a strong industry following. She develops numerous publications and delivers speaking engagements at the most prolific industry meetings and symposia Previous professional experience ► Prior to EY, Kristin was a partner and owner of Health Advances, where she owned and managed the firm with four other partners. She developed and led the Diagnostics and Life Sciences practice, a global practice focused on product and service strategy, corporate strategy, health economics and deal diligence ► Kristin is also a founder of DxInsights, a nonprofit organization designed to educate the nation's health care communities on the impact of diagnostics in improving health care outcomes ► Earlier in her career, Kristin was a research scientist at Genome Therapeutics, at the time the only commercial entity sequencing for the Human Genome Project, and at Genzyme, as part of the technology development team developing prenatal and cancer diagnostics for the Genzyme Genetics clinical laboratory
  8. 8. Page 8 Parthenon-EY Life Sciences Strategy Services We are global strategy consultants with focus on commercial and growth strategy across the life sciences continuum Commercial brand strategyGrowth strategy DiligencePipeline strategy Proprietary databases | Global primary research | Dedicated life sciences teams | Life sciences thought leadership Life Sciences Strategy Services ► Portfolio optimization ► Acquisition target identification ► Early-stage asset development strategy ► Market opportunity assessment ► Commercial launch strategy ► Market development strategy and execution ► Focused, issues-based commercial diligence ► Forecast achievability Regional Variations Necessitate Diverse Testing and Partner Options • LDTs • Sample exchange • Cepheid V1 • Genoptix • LDTs • Ipsogen • ELITech • Cepheid V1 • Cepheid V1 • Ipsogen • Asuragen • Genoptix • MMD • LDTs • Ipsogen • LDTs • Sample exchange FM Patient Flow: Pre-Presentation to Treatment FM Society Presents to Physician Diagnosed with FM - 12% Treatment - 78% 204K 159K FM Suff 1.7M Specialist* Internist & Ortho Tx Diagnosing Cycling FM not fully understood Refer to Alt. HCP Suspicion of Alt. Conditions Inappropriate Tx Referred to Alt. HCP Switch HCPDrops Out System Symptoms not ControlledCycling Alt. Tx / OTC Pain Persists Research Symptoms Suspicion of Condition Patient Actions Physician Actions Patient Actions Hospital or Clinic From Patient Perspective From Physician Perspective Market Overview & Competitive Landscape Target competes both with basic “do-all” labs, as well as other small independents with similar test offerings. Basic “Do-all” Labs Esoteric Hospital / Academic Labs Small Independents and Local Hospitals Highly Specialized Labs Volume&DiversityofTests Scientific Expertise & Capabilities Competitive Landscape Key Segments ► Basic “Do-all” Labs – Offer test menu of >1,000 tests, with revenue and volume focused on routine tests. – Serve as reference labs for institutions with no or limited lab capabilities. – Largest players, however, are increasing focus on esoteric tests (e.g., LabCorp , Quest). ► Esoteric Hospital / Academic Labs – Offer >1,000 tests, with core business focused on highly complex esoteric tests. – Also serve as reference laboratories for smaller institutions. ► Highly Specialized Labs – Typically focus on a low to moderate number of esoteric tests requiring scientific expertise. – May be focused on one specific therapeutic area (e.g., Myriad in oncology). ► Small Independents and Local Hospitals – Includes small independent labs with limited menus of tests and local hospital labs that only do routine tests and send out more complex tests. Target Primary Competition
  9. 9. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2015 Ernst & Young LLP. All Rights Reserved. 1508-1599827 EYG No. FN0225 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com

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