BEC2016_AAvanian_3_9_16

FOR INSTITUTIONAL USE ONLY
A Roadmap for Investing in Healthcare
Alice Avanian, CFA, Managing Director, Leerink Partners
March 9, 2016
Please refer to the Disclosure Appendix for Analyst Certification. To access Price Charts and Disclosures specific to Covered Companies,
please refer to https://leerink.bluematrix.com/bluematrix/Disclosure2 or send a request to Leerink Partners Editorial Department, One
Federal Street, 37th Floor, Boston, MA 02110.
The description of Leerink Partners benchmarks is available by contacting the Leerink Partners Editorial Department.
Rx trends derived from IMS Health.

• Alice Avanian, CFA, Managing Director
- Associate Director of Equity Research
- Past Chair and current Board member, Boston Security Analysts Society
- Executive Committee member, Boston Economic Club
• Leerink Partners LLC
- Leading investment bank specializing in healthcare
- Focus on companies which are developing and commercializing innovative
products and services, defining the future of healthcare
Source: Leerink Partners Equity Research, unless otherwise specified
INTRODUCTION
2

• Secular Trends: Positive
- Durable Demand, Innovation
• Regulatory, Public Policy: Positive
• Cyclical View: Improving
- Recent Performance
- Financings
- Valuation
• What to watch:
- Reimbursement/ Price
- Binary Events
- Competition
- Cash Runway
• Outlook for each Sub-sector
2016 HEALTHCARE ROADMAP: AGENDA
3

• Secular Trend #1 – Durable Demand: Demographics
- Aging population globally
- In a century (1960-2060), the number of senior citizens will grow over 5x, with
a higher growth rate 2020-2040
• Older folks spend more on healthcare
- The most rapidly aging countries are wealthier
- Three leading killers involve long periods of decline - heart, cancer, dementia
Dementia has the highest cost with the most uncovered costs (not including
opportunity cost to caregivers)
SECULAR TRENDS POSITIVE FOR HEALTHCARE
4
Source: U.S. Census Bureau, Population Estimates and Projections, 2014; NY Times 10/26/2015

Source: U.S. Census Bureau, Population Estimates and Projections, 2014
SECULAR TREND #1 – DURABLE DEMAND: DEMOGRAPHICS
5
3.1 4.9
9
16.6
25.5
35
44.7
56.4
82.3
98.2
0
20
40
60
80
100
120
1900 1920 1940 1960 1980 2000 2013 2020 2040 2060
Year (as of July 1, 2014)
Number of Persons 65+, 1900 to 2060
(numbers in millions)

• Secular Trend #1 – Durable Demand: Growing Affluence
- Healthcare becomes a right not a privilege
Many countries in Latin America have written a right to healthcare into their
constitutions
- Healthcare spending as a percentage of GDP for OECD countries now in the
9-10% range
- U.S. the outlier at 17.5% of 2014 GDP (although more is not necessarily
better!) and rising
SECULAR TREND #1 – DURABLE DEMAND: GROWING AFFLUENCE
6
Source: Leerink Partners Equity Research, The Economist 2/13/2016

SECULAR TREND #1 – DURABLE DEMAND: GROWING AFFLUENCE
7
Source: OECD Health Data, 2013

• Secular Trend #1 – Durable Demand: Export of Western Diet and Diseases
- Looking at rates of obesity among children points to a ticking time bomb
- As formerly poor countries become richer, children may be stunted in height
from poor nutrition and yet obese (BMI)
Examples: Brazil, Vietnam, S. Africa, India, Mexico
SECULAR TREND #1 – DURABLE DEMAND: EXPORTING OUR DIET
8
Source: “Child and adolescent obesity: part of a bigger picture,” The Lancet 2015

Source: The Lancet, World Obesity Federation 2015
Prevalence trends for child overweight and obesity in the USA and with
low-income and middle-income countries.
9

Source: Immunological complications of obesity. TD Kanneganti, VD Dixit - Nature Immunology, 2012 - nature.com
10

• Secular Trend #1 – Durable Demand: Shift from Acute to Chronic Diseases
- Acute/infectious diseases (viruses, malaria) have shorter durations of therapy
- Chronic diseases (diabetes, cancer) are treated for years
- Already 75% of annual deaths globally are in low & middle income countries
SECULAR TREND #1 – DURABLE DEMAND: SHIFT TO CHRONIC
11
Source: Novartis, 2/24/16, https://www.novartis.com/news/news-archive

SECULAR TREND #1 – DURABLE DEMAND: SHIFT TO CHRONIC
Source: cms.gov
12

• Genomic Revolution
- Personalized medicine is revolutionizing drug development and treatment
• Drug Development cycle shortening for Targeted Therapeutics – Higher
likelihood of regulatory success
- Cos. can enrich their studies to better select patients who will benefit
- Orphan is “the golden child of biotech”
• Immuno-oncology vs. Cancer, “The Emperor of All Maladies”
- Policy including the new, national “Moonshot” initiative
• More Innovation to come – Combo therapies, Anemia, Neurology, Microbiome,
and Retinal Disease, and more
• Big Data providing new insights through patient records (EHR, wearable
sensors, and even smartphones)
SECULAR TREND #2 – INNOVATION ABOUNDS
13
Source: Leerink Partners Equity Research, The Economist 2/27/16, Siddhartha Mukherjee

TIDAL WAVE FOR IMMUNO-ONCOLOGY – EST. $34B MARKET BY 2025
14
-
10,000
20,000
30,000
40,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Sales(milUSD)
WW Total Immuno-Oncology Market - By Tumor
(Discounted based on probability of success)
Myeloma
Leukemia
Hodgkins
FL
DLBCL
TNBC
ER+/ HER2- BC
HER2+ BC
Prostate
Colorectal
Cervical
Liver
Gastroesophageal
Pancreatic
Ovarian
Bladder
Glioblastoma
Head/Neck
Small Cell Lung Cancer
Renal Cancer
Squamous NSCLC
Non-Squamous NSCLC
Melanoma
Source: Leerink Partners Equity Research

• More visible Regulation
- Greater transparency, communication.
- More receptive to patient advocacy groups.
- FDA approvals have speeded up.
First cycle approvals at CDER at an all-time high of 95% vs. 50% in ’07-08
- Four mechanisms:
Accelerated Approval
Priority Review
Fast Track
Breakthrough Therapy Designation (began 7/9/12)
- Rare Is Better – Regulators and payers remain accommodating to orphans
Source: Leerink Partners Equity Research, CDER=Center for Drug Evaluation & Research
REGULATORY TRENDS – POSITIVE FOR HEALTHCARE PRODUCTS
15

REGULATORY TREND IMPROVING
16
Source: BloombergView 3/16/2015, 45 Approved New Drugs in 2015 (www.fda.gov)

Sources: 2016, EvaluatePharma®, Evaluate Ltd.
REGULATORY TREND REWARDING INNOVATION
17

• Affordable Care Act (ACA, Obamacare) and Medicaid expansion increased
coverage
- 10M adults on Public Exchanges
- 31 states expanded Medicaid, 3 more under discussion
• Most likely election outcome is Clinton = status quo
• What to watch:
- Cadillac tax delayed and Medical Device and MCO tax holidays for 2 years &
1 yr., respectively
- Major losses on Public Exchanges indicate rates will rise sharply in 2017,
economic model remains unstable
- The Election! If Republicans win White House & Congress, more efforts to
repeal Obamacare
PUBLIC POLICY TRENDS – POSITIVE FOR HEALTHCARE
18

PUBLIC POLICY TRENDS – POSITIVE FOR HEALTHCARE
19
Source: “Status of State Action on the Medicaid Expansion Decision,” KFF State Health Facts, updated 1/12/2016

CYCLICAL VIEW – OUTPERFORMANCE MAY BE POISED TO RESUME
20
Source: FactSet, S&P Indices, Percentage point outperformance versus indicated index, 3/4/16
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2011 2012 2013 2014 2015 2016 YTD
Outperformance of Healthcare
Large Caps
(v S&P 500)
Mid Caps
(v S&P 400)
Small Caps
(v S&P 600)

Source: FactSet, S&P Indices, Percentage point outperformance versus indicated index, 3/4/16
21
POSSIBLY EVEN FOR BIOTECH…
-30%
-20%
-10%
0%
10%
20%
30%
40%
2011 2012 2013 2014 2015 2016 YTD
Outperformance of Biotech (NBI)
Large Caps
(v S&P 500)
Mid Caps
(v S&P 400)
Small Caps
(v S&P 600)

BIOTECH UNDERPERFORMED BY A WIDE MARGIN SINCE MID-2015
22
Source: FactSet, 2/27/16, Leerink Partners Equity Research

CYCLICAL VIEW – RECORD CAPITAL INFLOWS
Source: FactSet, Leerink Partners Equity Research, FO=Follow-ons, IPO=Initial Public Offerings, P=Peak, T=Trough
23
• The trailing 12-month capital inflow peaked at more than $40B in late 2015,
almost double the peak of late 2000

CYCLICAL VIEW – RETURNS NEGATIVELY CORRELATED TO FINANCINGS
24
Source: FactSet, Leerink Partners Equity Research; NBI represents $698B in Total Mkt. Cap, 190 Stocks, mkt. cap weighted; BTK represents $2B in Total Mkt.
Cap, 30 Stocks, equal weighted

CYCLICAL VIEW – VALUATIONS BACK TO AN ATTRACTIVE RANGE
Source: FactSet, 3/4/16
25

• HC as % of GDP expected to continue rising
• Market forces driving Price Pressure throughout the industry
• At the margin, we expect reimbursement hurdles to rise
- Switch to value-based pricing vs. volume-based
- Ongoing privatization of Medicare/ Medicaid (60% of Medicaid spending is still
fee-for-service)
- MCO/PBM bargaining power rising, including MCO mega-mergers
• Headline Risk at least through the election
• But we see little appetite for cost containment legislation
WHAT TO WATCH: REIMBURSEMENT/ PRICE
26
Source: Leerink Partners Equity Research; MCO=Managed Care Organizations, PBM=Pharmacy Benefit Managers

HEADLINE RISK
27

WHAT TO WATCH: REIMBURSEMENT/ PRICE MORE THAN HEADLINE RISK
• Relentless focus on price of products and services growing
• Increasing sophistication & cost management by payers
- Payers working faster and cooperating with drs.
- Accelerating shift to closed formulary, tiers, controlling access, cost-shifting,
pricing models may be indication-specific
- Availability of Big Data on outcomes & patient data to target usage
- Protecting Access to Medicare Act (PAMA) aims to move diagnostics to mkt
prices – implementation expected Jan. 2017
• But legislation to impose drug price controls unlikely
• Orphan drugs remain a safe haven
• Oncology costs a concern, management growing slowly
• Biosimilar industry still in infancy: pricing and adoption unknown until ’17-20
28

CERTAIN THERAPEUTIC CATEGORIES MORE IMMUNE THAN OTHERS
29
Source: Leerink Partners Equity Research, Company Information, IMS, BiotechNow.org, EvauatePharmaWorldPreview2014

WHAT TO WATCH: RISING COMPETITION
30
Source: 2016, EvaluatePharma®, Evaluate Ltd.

July ’15 – February ’16 Biotech Stock Impact by Profitability and Cash Availability
WHAT TO WATCH: BIOTECH CASH AFFECTING PERFORMANCE
31
Source: FactSet, Leerink Partners Equity Research; Years of Cash calculation: (Cash & ST Investments) / (Net Income of trailing 4 quarters). NBI components,
excluding n=2 companies with insufficient market data. Prices 7/16/15 – 3/2/16.

• Healthcare investing is uniquely characterized by Binary Events
• Investors can take positions and/or hedge ahead of time
• Data releases, particularly at medical meetings
Example: Intra-Cellular Therapies (ITCI, $31.42) second Ph III schizophrenia
data mid-2016. Up/down: +$15-20/shr; -$10-15/shr
• FDA approvals open the door to commercialization, watch launch trajectory
• Legal decisions
• Reimbursement decisions
WHAT TO WATCH: BINARY EVENTS: CATALYST TRACKER
32
Source: Leerink Partners Equity Research, Catalyst Tracker, Price as of 3/7/16

• Major Pharma
• Biotech
• Specialty Pharma
• Life Science Tools & Diagnostics
• Medical Technology
• Managed Care
• Facilities
• HCIT (Healthcare Information Technology)
• PBMs & Distributors
• Digital Health
INDUSTRY SECTORS
33

• Companies can enjoy competitive advantages for years:
• Real Intellectual Property
- Product Patents run 20 years
- Orphan Diseases have 7 years of exclusivity (Orphan Drug Act of 1983)
- Biologic data exclusivity is 12 yrs., NCE (New Chemical Entity) is 5 yrs.
• Barriers to Entry
- FDA and EU regulatory authorities
• To minimize risk, investors can wait until after Ph III data to invest in Biopharma
- Probability of success for Ph III is 62%
BIOPHARMA IS INHERENTLY ATTRACTIVE
34
Source: Tufts University Center for the Study of Drug Development, 11/18/14

PROBABILITIES OF SUCCESS FOR PRODUCTS IN DEVELOPMENT
Permission for use of Cost of Developing a New Drug November 18, 2014, provided by Joseph A. DiMasi, Tufts Univ.
35

1-2 years 2-3 years 3-4 years 1-2 years 12-14 years
2x
6-8x
12-24x
Scientific
insight /
promise
Proof of
concept –
phase Ib/II
Confirmation
of efficacy /
expansion of
indications
Peak
expected
value
Erosion of expected value
+100% +2-300% +1-200%
Approval / launch
Product profile
limitations
• Efficacy
• Side effects emerge
Competitors
emerge
• Same target or
pathway
• New target or
pathway
Generic threat
looms
Indication expansion
STOCK SELECTION STRATEGY: Biopharma Product Value Begins to Be Eroded
Shortly After First Commercialization in Many Cases; New Indications Can Offset Erosion
Source: Leerink Partners Equity Research, FactSet

• Description of Sector:
- Emerging from patent cliffs, in transition from small molecule drugs to biologics
with more innovation and faster growth; attractive dividends
• Outlook: Mixed
- Tailwinds from demographics & higher utilization of drugs
- Pharma & Biotech are melding as new therapeutic categories emerge:
Examples: Immuno-Oncology (I-O), Gene Therapy
- Operating leverage grows after initial product launch, especially if a “pipeline
in a product”
- Headwinds: Price/ Payer Pressure, competition, patent expirations, Fx –
consensus estimates have trended slightly downward since mid-2015
MAJOR PHARMA: OUTLOOK
37

FOR INSTITUTIONAL USE ONLY 38
2016 ESTIMATES TREND SLIGHTLY DOWNWARD SINCE MID-2015
Source: FactSet, Leerink Partners Equity Research
2016 EPS Consensus Estimate Change From 7/31/2015
2016 Sales Consensus Estimate Change From 7/31/2015
PFE
SNY
MRK
NVS
AZN
GSK
LLY
NVO
BMY
-15%
-10%
-5%
0%
5%
7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016
PFE
SNY
MRK
NVS
AZN
GSK
LLY
NVO
BMY
-10%
-5%
0%
5%
7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016
Mean
Mean
• BMY is an
outlier to the
downward
trend
• PFE upward
revision
reflects AGN
transaction

- Transition from internal innovation to line extensions & acquisitions
• Outlook: Cautious Near Term, Positive Long Term
- Headwinds: Product launches slower & lower, price scrutiny, FX
- Mid-2016 and beyond: Reaccelerating growth
Fundamentals of drug profitability unchanged, high Returns on Capital
Scientific breakthroughs leading to higher success rates
Major medical & societal needs still to be addressed
Regulators & payers accommodating to genuine breakthroughs
- Valuations have fallen sharply
- Sector corrections typically last 2-3 Qs, but can persist for 18-24 months
LARGE CAP BIOTECH: OUTLOOK
39

HISTORIC SECTOR CORRECTIONS
40
-30%
-20%
-10%
0%
10%
20%
30%
40%
Quarterly Performance of NBI vs. S&P 500
+164%+32%+290%
2-3 quarter period of
12-22%
underperformance
before recovery

- Smid cap Biotech drives much of industry’s innovation
• Outlook: Selectivity Near Term, Positive Long Term
- Tailwinds: FDA’s commitment toward increased transparency, receptiveness to
patient advocacy groups and accelerated approval timelines
- Pricing power for innovation in the US still appears robust, esp. Orphan
- Unmet needs to be met by innovation in anemia, neurology, gene therapy, etc.
- What to watch:
Reimbursement headwinds in EU, US
Cash runway
SMID CAP BIOTECH: OUTLOOK
41

ORPHAN DRUG STOCKS HAVE OUTPERFORMED THE REST OF BIOTECH
42
Orphan drug index constituents: AMAG, BMRN, CYTK, SRPT, IONS, ALNY, PTCT, AEGR, FBIO, ALXN, SHPG, FOLD, GENTY, HPTX, INSM, JAZZ, NPSP, QCOR, RPTP, UTHR, VPHM, PBT-ASX, ORPH, DSCO, BLUE,
PRQR, SAGE, GWPH, QURE, ONCE, RTRX, ZFGN
Source: FactSet, 2/19/16

- In transition: Legacy cos. focused on drug delivery & generics, now moving to
a hybrid model including brands and orphan diseases (e.g., SHPG).
- Not the same as “specialty drugs”
• Outlook: Mixed
- Tailwinds: Demographics & higher utilization of drugs
- Low cost of debt & lower tax domiciles have led to accretive M&A, but supply
of targets is shrinking due to sector consolidation
- Headwinds: Reimbursement pressure for undifferentiated brands, but some
categories are more insulated (orphan diseases)
- Timeline for Biosimilars unpredictable. Less competition but greater
development risk, legal, and regulatory uncertainties
SPECIALTY PHARMA & GENERICS: OUTLOOK
43

LARGE MARKET POTENTIAL FOR BIOSIMILARS
44

- Providing the tools for the genomic revolution or “precision medicine.” To help
with risk assessment, diagnosis, to guide therapy, and measure progression
• Outlook: Mixed
- Genomics becoming prevalent throughout Healthcare
- Biomedical research funding poised to improve
- Many new product cycles in diagnostics
- Underleveraged balance sheets and asset scarcity
- What to watch:
Reimbursement pressure in diagnostics.
Regulatory clarity on FDA regulation of lab-developed tests
China macro growth slowing, but structural reforms benefit scientific
development, HC, testing for environment, food safety
LS TOOLS & DIAGNOSTICS: OUTLOOK
45

BIOMEDICAL RESEARCH FUNDING POISED TO IMPROVE
Source: Leerink Partners Equity Research; Chart represents y/y change in research funding
46
IMPROVEMENT IN U.S. ACADEMIC/GOV’T, PHARMA/BIOTECH DRIVE THE DELTA

- Med Tech cos. develop and manufacture devices and supplies sold to
hospitals, physician groups or patients (example of latter: insulin pumps)
- Many small innovative cos., which are frequently acquired by large caps
• Outlook: Positive
- Positive view with improving utilization trends, stable pricing
- Strong balance sheets provide significant financial flexibility & M&A potential
- What to watch:
Shift to value-based system / bundled payments / vendor consolidation –
requires alignment with drs.
Pricing pressure in some segments
MEDICAL TECHNOLOGY: OUTLOOK
47

• Implication: Implant price remains the highest priority in vendor selection for hospital admins, highlighting a commoditized
large joint product category. Differentiation going forward will likely require increased investment in technologies that can
increase procedure efficiency or in manufacturers offering solutions across multiple product lines.
BUNDLED PAYMENTS: VALUE OF INNOVATION IS CHANGING
Source: Leerink Partners Equity Research, MEDACorp Survey, “Bundled Payments,” February 2016
53%
23%
13%
5% 5%
3%
0%
10%
20%
30%
40%
50%
60%
Implant Price Services/Technologies that
Increase Procedure
Standardization/Efficiency
Breadth of Product Offering
Across Multiple Service Lines
OR Rep Service Availability of New
Technologies
Breadth of Product Offering
within Service Line
%ofrespondentsrankingfactorhighest
Which factor is most important when considering a vendor for bundled payments? (n=40)

- MCOs are insurance cos. that manage healthcare costs, & provide and
finance these services to patients
- Bullish with a favorable policy outlook
- Ongoing privatization of Medicaid and Medicare
- Losses on public exchanges likely to stabilize
- Commercial margins poised to expand as pricing hardens and costs muted
(value-based care, growth in high-deductible plans)
- Mega mergers offer a meaningful call option to the upside, in our view
- Benefit from rising interest rates with strong balance sheets, cash flow
MANAGED CARE (MCO): OUTLOOK
49

SECULAR TAILWINDS SHOULD CONTINUE TO FUEL MEMBERSHIP
GROWTH IN MEDICARE ADVANTAGE
Source: CMS, Kaiser, MedPac, Leerink Partners Equity Research
We Expect 50% Penetration of Medicare Advantage by 2019 in the Base Case
No
Suppleme
ntal
Coverage,
10%
Medigap,
16%
MA, 28%
Employer
Sponsored
, 24%
Medicaid,
21%
Other
Public
Coverage,
1%
Under 1/3rd of Seniors Covered By
Employers
As Employers Continue To Drop Retiree Coverage
Starting 2011, Baby Boomers Start Aging Into Medicare Eligibility At The Rate Of 10K Per Day
Under 1/3rd of Seniors Covered By Employers
0
10
20
30
40
50
60
70
80
90
MedicareEnrollment(MM)
Starting 2011, Baby Boomers Start Aging Into Medicaire Eligibiility
First Baby Boomer Turns 65
Last Baby Boomer Turns 65 and
First Reaches Life Expectancy
66%
46%
36%
40% 40% 40%
35% 36% 35%
32%
34%
32%
29% 28%
26% 26% 25%
28%
25%
23%
0%
10%
20%
30%
40%
50%
60%
70%
1988 1991 1993 1995 1998 1999 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percentage of Employers (200 + EES) Offering Retiree Health Benefits

PRIVATIZATION OF 60% of MEDICAID, A $500+B ENTITLEMENT
51

- Hospitals, mental health facilities.
• Outlook: Bearish
- Bearish on acute hospitals, positive on behavioral health, outsourcing,
outpatient care
- Headwinds: worsening bad debt, tough volume comps, wage inflation,
contract labor rates, drug cost spend
- Medium-term pressure from Medicare privatization & value-based care
- Behavioral care growth faster with unmet need for mental health treatment,
roll-up of fragmented marketplace
HEALTHCARE FACILITIES: OUTLOOK
52

CMS HAS AN AGGRESSIVE GOAL OF 50% OF PAYMENTS LINKED
TO VALUE-BASED CARE BY 2018
Source: CBO; Leerink Partners Equity Research & Estimates

Source: U.S. BLS, AHA, S&P Healthcare, Leerink Partners Equity Research & Estimates
PRIVATIZATION OF MEDICARE PRESSURING INPATIENT ADMISSIONS
79%
73%
76%
83%
80%
72%
Aggregate Medicare, only Employer-Sponsored Medicare Advantage Medigap Medicare Cost
%RespondentNot Hospitalized In LastTwo Years
Per our MEDACorp survey of American Seniors in Nov. 2015, we
observed the lower utilization of services and procedures by MA
enrollees versus traditional Medicare. While this may be partly
driven by self-selection, we believe tighter control by private
MCOs is a contributor.

- HCIT is hospital-based (in-patient) and office-based (ambulatory) systems.
- Positive but divergence between winners & losers
- Meaningful use incentive program continues to drive adoption of EHR
(Electronic Health Records), but market more penetrated
- Shift to value-based HC leading to adoption of Population Health Mgt.
technologies (data exchange, patient engagement tools)
- Hospital consolidation a positive for top vendors to gain share
- Shift toward cloud-based solutions benefits recurring revenues
- What to watch:
Market share shifts in a more mature market
HCIT (Healthcare Information Technology): OUTLOOK
55

GROWTH IN HCIT SPENDING SLOWING, BUT TOTAL HCIT $ SPEND STABLE
56
Vendor
Allscripts
Athena
Cerner
DocuTap
eClinical
Epic
GE
Greenway
McKesson
QSII
Practice Fusion
Grand Total
Source: MEDACorp Survey, "Ambulatory EMR Purchasing Trends," March 2015
If your practice
purchase more
No - We will
not purchase
any more
licenses, 41.0%
Yes - We will
buy 5-10%
more licenses,
38.5%
Yes - We will
buy 11-20%
more licenses,
17.9%
Yes - We will
buy 21%+
more licenses,
2.6%
Do you plan to purchase more licenses either due to
growth or expansion or any other reason? n=39
Source: CDC/NCHS National Ambulatory Medical Care Survey January 2014, Leerink Partners Equity Research
PERCENTAGE OF OFFICE-BASED DRS. WITH AN EHR 41% WILL NOT PURCHASE ANY MORE LICENSES

- The convergence of the healthcare system with digital technology leading to
“Digital Disruption”
The largest community for physicians is online (WBMD), physician services
has no clinics (TDOC), repository of data has no patients (FIT)
- Demand-pull: Consumer Empowerment, high deductible plans, drive need for
cost tools and access to their data
- Supply-push: As consumers & drs. have shifted time on-line, ads will follow
- Employers spending more on Digital Health benefits
- Big data will optimize care with next-generation analytics
DIGITAL HEALTH: OUTLOOK
57

DIGITAL HEALTH LIFECYCLES
58

- Supply chain for drugs. Distributors sell to hospitals, retail. PBM (Pharmacy
Benefit Managers) process and pay Rx claims, manage formularies, negotiate
discounts & rebates.
• Outlook: Mixed with a positive bias
- Aging demographics favorable for drug usage
- Specialty drug spending growing +15% annually, a tailwind
- Generic drug launches benefit the supply chain
- What to watch:
Tailwinds from generic launches and inflation now slowing
PBMs & DRUG DISTRIBUTORS: OUTLOOK
59

GENERIC LAUNCHES SLOWING
60
Source: CVS, Investor day presentation, December, 2015

GENERIC PRICE INFLATION SLOWING
61
Source: IMS health, Leerink Partners LLC
Note: The quarterly weighted average generic price inflation was calculated by weighting each drug based on its mix of sales for a given calendar year.
Only drugs that were available in the year ago period are included in a given quarter's inflation calculation.
IMS Health quarterly WAC pricing and sales figures were pulled by NDC code which distinguished each drug by dosage
1.2% 1.2%
-3.0%
-18.1%
-3.2%
-5.0%
-2.1%
-12.4%
-2.2%
1.0% 0.9%
5.2%
12.2%
13.5%
11.8%
4.6% 5.4%
8.1%
5.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15
Weighted Average y/y WAC Generic Price Inflation by Quarter

ACKNOWLEDGEMENT:
Tessa Romero of Leerink Partners Equity Research contributed to this
report. Her contribution is greatly appreciated.

HEALTHCARE March 7, 2016
Disclosures Appendix
Analyst Certification
I, Alice C. Avanian, CFA, certify that the views expressed in this report accurately reflect my views and that no part of
my compensation was, is, or will be directly related to the specific recommendation or views contained in this report.

Distribution of Ratings/Investment Banking Services (IB) as of 12/31/15
IB Serv./Past 12
Mos.
Rating Count Percent Count Percent
BUY [OP] 161 73.20 63 39.10
HOLD [MP] 59 26.80 4 6.80
SELL [UP] 0 0.00 0 0.00
Explanation of Ratings
Outperform (Buy): We expect this stock to outperform its benchmark over the next 12 months.
Market Perform (Hold/Neutral): We expect this stock to perform in line with its benchmark over the next 12
months.
Underperform (Sell): We expect this stock to underperform its benchmark over the next 12 months.The degree
of outperformance or underperformance required to warrant an Outperform or an Underperform rating should
be commensurate with the risk profile of the company.
For the purposes of these definitions the relevant benchmark will be the S&P 600® Health Care Index for
issuers with a market capitalization of less than $2 billion and the S&P 500® Health Care Index for issuers with
a market capitalization over $2 billion.

Important Disclosures
This information (including, but not limited to, prices, quotes and statistics) has been obtained from sources
that we believe reliable, but we do not represent that it is accurate or complete and it should not be relied
upon as such. All information is subject to change without notice. This is provided for information purposes
only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any product to which
this information relates. The Firm, its officers, directors, employees, proprietary accounts and affiliates may
have a position, long or short, in the securities referred to in this report, and/or other related securities, and
from time to time may increase or decrease the position or express a view that is contrary to that contained
in this report. The Firm's salespeople, traders and other professionals may provide oral or written market
commentary or trading strategies that are contrary to opinions expressed in this report. The Firm's proprietary
accounts may make investment decisions that are inconsistent with the opinions expressed in this report.
The past performance of securities does not guarantee or predict future performance. Transaction strategies
described herein may not be suitable for all investors. Additional information is available upon request by
contacting the Editorial Department at One Federal Street, 37th Floor, Boston, MA 02110.
Like all Firm employees, analysts receive compensation that is impacted by, among other factors, overall firm
profitability, which includes revenues from, among other business units, Institutional Equities, and Investment
Banking. Analysts, however, are not compensated for a specific investment banking services transaction or
contributions to the Firm's investment banking activities.
MEDACorp is a network of healthcare professionals, attorneys, physicians, key opinion leaders and other
specialists accessed by Leerink and it provides information used by its analysts in preparing research.
For price charts, statements of valuation and risk, as well as the specific disclosures for covered companies,
client should refer to https://leerink2.bluematrix.com/bluematrix/Disclosure2 or send a request to Leerink
Partners Editorial Department, One Federal Street, 37th Floor, Boston, MA 02110.
While IMS Health has been used as a source, the analysis contained herein has been arrived at independently
by the firm and IMS is not responsible for the analysis or use of the data.
The S&P Health Care Claims Index™ is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been
licensed for use by Leerink Partners LLC. Standard & Poor's® and S&P® are registered trademarks of Standard
& Poor’s Financial Services LLC (“S&P”) Dow Jones® is a registered trademark of Dow Jones Trademark
Holdings LLC (“Dow Jones”); [Trademarks] are trademarks of the [Licensor]; and these trademarks have been
licensed for use by SPDJI and sublicensed for certain purposes by Leerink Partners LLC. Leerink Partners
research is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates
and none of such parties make any representation regarding the advisability of investing in such product(s)
nor do they have any liability for any errors, omissions, or interruptions of the S&P Health Care Claims Index™
Member FINRA/SIPC. ©2016 Leerink Partners LLC. All rights reserved. This document may not be reproduced
or circulated without our written authority.

LEERINK PARTNERS LLC EQUITY RESEARCH
Director of Equity Research John L. Sullivan, CFA (617) 918-4875 john.sullivan@leerink.com
Associate Director of Research Alice C. Avanian, CFA (617) 918-4544 alice.avanian@leerink.com
Associate Director of Research James Kelly (212) 277-6096 jim.kelly@leerink.com
Director of Therapeutic Research Geoffrey C. Porges, MBBS (212) 277-6092 geoffrey.porges@leerink.com
Major Pharmaceuticals Seamus Fernandez (617) 918-4011 seamus.fernandez@leerink.com
Le-Yi Wang, Ph.D. (617) 918-4568 leyi.wang@leerink.com
Specialty Pharmaceuticals Jason M. Gerberry, JD (617) 918-4549 jason.gerberry@leerink.com
Derek C. Archila (617) 918-4851 derek.archila@leerink.com
Etzer Darout, Ph.D. (617) 918-4020 etzer.darout@leerink.com
Large Cap Biotechnology Geoffrey C. Porges, MBBS (212) 277-6092 geoffrey.porges@leerink.com
Mid and Small Cap Biotechnology Joseph P. Schwartz (617) 918-4575 joseph.schwartz@leerink.com
Seamus Fernandez (617) 918-4011 seamus.fernandez@leerink.com
Michael Schmidt, Ph.D. (617) 918-4588 michael.schmidt@leerink.com
Paul Matteis (617) 918-4585 paul.matteis@leerink.com
Jonathan Chang, Ph.D. (617) 918-4015 jonathan.chang@leerink.com
Richard Goss (617) 918-4059 richard.goss@leerink.com
Dae Gon Ha, Ph.D. (617) 918-4093 daegon.ha@leerink.com
Mayank Mamtani, MSc. (617) 918-4887 mayank.mamtani@leerink.com
Mark Sevecka, Ph.D. (617) 918-4022 mark.sevecka@leerink.com
Life Science Tools & Diagnostics Dan Leonard (212) 277-6116 dan.leonard@leerink.com
Kevin C. Chen (212) 277-6045 kevin.chen@leerink.com
Michael A. Sarcone, CFA (212) 277-6013 michael.sarcone@leerink.com
Medical Devices, Cardiology Danielle Antalffy (212) 277-6044 danielle.antalffy@leerink.com
Puneet Souda (212) 277-6091 puneet.souda@leerink.com
Medical Devices, Orthopedics Richard Newitter (212) 277-6088 richard.newitter@leerink.com
Ravi Misra (212) 277-6049 ravi.misra@leerink.com
Healthcare Services, Managed Ana Gupte, Ph.D. (212) 277-6040 ana.gupte@leerink.com
Care & Facilities
Healthcare Technology David Larsen, CFA (617) 918-4502 david.larsen@leerink.com
& Distribution Christopher Abbott (617) 918-4010 chris.abbott@leerink.com
Digital Health Steven Wardell (617) 918-4097 steven.wardell@leerink.com
Matt Dellelo, CFA (617) 918-4812 matt.dellelo@leerink.com
Sr. Editor/Supervisory Analyst Mary Ellen Eagan, CFA (617) 918-4837 maryellen.eagan@leerink.com
Supervisory Analysts Randy Brougher randy.brougher@leerink.com
Robert Egan bob.egan@leerink.com
Amy N. Sonne amy.sonne@leerink.com
New York
299 Park Avenue, 21st floor
New York, NY 10171
(888) 778-1653
Boston
One Federal Street, 37th
Floor
Boston, MA 02110
(800) 808-7525
San Francisco
255 California Street, 12th Floor
San Francisco, CA 94111
(415) 905-7200

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