Health Care M&A

Volume 16, Issue 4 THE April 2011 Health Care M&A MONTHLY Inside the Health Care M&A Market

INSIDE THIS ISSUE The Hospital M&A Market Activity Spikes, Pricing Remains Steady...For Now The Hospital M&A Market

Merger and acquisition activity in the 2010 hospital market showed he results are in! The 2010 measured by certain multiples, held marked increases over the previous Hospital M&A market reported steady during 2010. two years. Despite the upsurge in activity, acquisition pricing remains Tstrong activity and posted ro- relatively stable. Page 1 bust numbers. A total of 73 domestic Buyers committed approximately deals were announced involving 175 $12.8 billion to carry out this activ- hospitals and 29,294 acute care beds. ity, the highest level since 2006 when ... This level of activity shows a marked HCA was privatized by a consortium of First Quarter 2011 Results increase over 2009 when 52 deals were private equity groups for $33.0 billion. announced involving 80 hospitals with Our 2010 data does include Commu- The health care M&A market for the first quarter of 2011 posted a total 10,064 beds. The hospital M&A mar- nity Health Systems’ (NYSE: CYH) of 209 transactions worth a combined ket thus continues to climb out of the proposed $7.3 billion acquisition of $55.45 billion. The market continues the growth trends from the previous depths of the Great Recession, which Tenet HealthCare Corp. (NYSE: quarter. Page 1 bottomed in late 2008 and early 2009. THC), a hostile bid announced late in But even though the pace and scope of 2010. While Tenet has demurred so ... all this deal making continues to grow, far, Community Health’s leadership acquisition pricing for hospitals, as (continued on page 9)

In The Departments Services First Quarter 2011 Results Health Care Services Page 2 209 Deals Announced Worth $55.45 Billion Deal Summaries Page 5 Additional Transactions Page 7 Transaction Updates Page 8 ased on data gathered so far, with 37 deals, Long-Term Care with the health care industry posted 27 and Biotechnology with 23 (as we Financing Ba total of 209 mergers and ac- note on page 2, the tie with Hospitals Venture Capital Page 10 quisitions in the first quarter of 2011. for third place is only apparent). The Private Placements Page 12 Overall, deal volume dropped 16% number of deals posted in each of the The Public Markets Page 12 from the previous quarter and 8% from 13 sectors, along with comparisons to the year-ago quarter. The nine sectors the previous and year-ago quarters, Technology of the health care services segment ac- appears in the table on page 3. Deal Summaries Page 13 counted for 117 deals, or 56% of the Additional Transactions Page 15 total while the four sectors of the health To date, a total of $55.45 billion Transaction Updates Page 15 care technology segment accounted for has been committed to finance the first Health Care Technology Page 16 the remaining 92 deals. quarter’s acquisition activity. When annualized, the current dollar volume The three most active sectors com- implies that well over $200.0 billion will bined represent 87 deals, or 42% of the be spent on health care M&A in 2011. total deal volume: Medical Devices (continued on page 2)

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of February by itself accounted for $32.0 billion, or more First Quarter 2011 Results than $1.0 billion spent on health care M&A each day. (continued from page 1) That heady pace ended in March with the onset of diverse geopolitical events (Japan, Libya) and rising commodity In terms of dollar volume, the top three sectors are prices, which tended to spook investors in the financial Pharmaceuticals, Long-Term Care and Biotechnology, markets. As painful as these macro events are, particularly with $13.5 billion, $12.6 billion and $11.7 billion, respec- in the loss of human life, a direct connection between tively, or 24.8%, 23.2% and 21.5% of all health care M&A them and the fundamentals of the M&A market is very dollars spent in the first quarter. The percentage contribu- hard to establish. It’s not that the M&A market is wholly tion of each sector is shown in the chart on page 20. The insulated from these larger trends, but that it responds to results for four of the services sectors, each individually more local and, well, market forces, such as the need for negligible, have been aggregated. cost containment, the drive to increase market share and the development of accountable care organizations. The first quarter produced a total of 12 separate billion-dollar deals worth a combined total of $35.3 bil- Our data for the first quarter includes certain deals that lion. The five deals in the services segment captured $15.4 are not yet carved in stone. For example, Steward Health billion while the seven in the technology segment captured Care System made an unsolicited offer to buy Jackson $19.9 billion. As we remarked in our last issue, the month Health System (JHS) in Miami-Dade County, Florida for $1.1 billion. JHS has not replied directly to Steward, let- ting certain deadlines lapse, and Steward has since moved The Health Care M&A Monthly on to announce other acquisitions closer to its home in ISSN#: 1091-9716 Boston. Still, we have included the deal here for the time Published Monthly by: Irving Levin Associates, Inc. being to give something of the flavor and ambitions of 268-1/2 Main Avenue this robust market. Norwalk, CT 06851 800-248-1668 (Phone) Overall, the Q1:11 M&A market in the health care 203-846-8300 (Fax) [email protected] industry appears to be an extension and continuation of www.healthcaremanda.com the 2010 market. 

Publisher: Eleanor B. Meredith Health Care Services Managing Editor: Stephen M. Monroe Editor: Sanford B. Steever Advertising: Karen Pujol Behavioral Health

Annual Subscription Rate: $2,497 Three deals were announced in the Behavioral Health (Includes 50 Weekly Email Bulletins, Four Quarterly Supplements And Special Database Access) sector. In the largest one with a price, Universal Health © Copyright 2011 Irving Levin Associates, Inc. Services (NYSE: UHS) is selling MeadowWood Behav- All rights reserved. Reproduction or quotation in whole ioral Health, a 58-bed acute care psychiatric facility in or part without permission is forbidden. Delaware, to Pioneer Behavioral Health (AMEX: PHC) for $21.5 million. The sale came about as a requirement This publication is not a complete analysis of every material fact imposed on UHS in connection with its $3.1 billion regarding any company, industry or security. Opinions expressed are subject to change without notice. Statements of fact have been acquisition of Psychiatric Solutions, which closed last obtained from sources considered reliable but no representation is November. The transaction is valued at 1.4x revenue. made as to their completeness or accuracy. This Firm or persons To fund this deal, PHC received a funding commitment associated with it may at any time be long or short any securities of up to $23.5 million of senior secured term debt and a mentioned in the publication and may from time to time sell or buy such securities. This Firm or one of its affiliates may from $3.0 million senior secured revolving credit facility from time to time perform investment banking or other services for, or Jefferies Finance, LLC. Further divestments will follow. solicit investment banking or other business from, any company mentioned in the publication. POSTMASTER: Please send address In South Bend, Indiana, Memorial Health System changes to The Health Care M&A Monthly, 268-1/2 Main Avenue, Norwalk, CT 06851. is paying $3.0 million to acquire the inpatient hospital and physician services assets of The Madison Center, www.healthcaremanda.com April 2011 The Health Care M&A Monthly Page 3

which is undergoing bankruptcy reorganization. The assets primarily include three buildings; a fourth building on the campus was acquired by The Health Care M&A Market Saint Vincent de Paul Society. Madison Center Q4:10 Q1:10 defaulted on $58.0 million in bonds, and was Q1:11 % % propelled into bankruptcy in October 2010. Sector Deals* Deals Change Deals Change Services Segment: Oglethorpe, LLC also bid for the facility, but Long-Term Care 27 35 -23% 20 35% would not commit to providing mental health Hospitals 23 24 -4% 9 156% services to the indigent. Physician Groups 18 29 -38% 12 50% Labs, MRI, Dialysis 11 7 57% 8 38% In what may ultimately prove to be the larg- Home Health Care 5 7 -29% 14 -64% Behavioral Health Care 4 2 100% 0 NM est behavioral health deal of the month, Sequel Rehabilitation 2 5 -60% 2 0% Youth and Family, a Levine Leichtman portfolio Managed Care 1 1 0% 2 -50% company, acquired Camelot System of Care, Other 26 24 8% 26 0% a company that serves at-risk youth and has Services Subtotal 117 134 -13% 93 26% developed residential programs that focus on Technology Segment: autism and autism-related disorders. With this Medical Devices 37 42 -12% 41 -10% acquisition, Sequel now operates 31 programs in Biotechnology 23 26 -12% 30 -23% 16 states. Camelot was advised by Cain Broth- Pharmaceuticals 20 27 -26% 39 -49% ers. Senior debt financing was provided byFifth e-Health 12 19 -37% 23 -48% Technology Subtotal 92 114 -19% 133 -31% Third Bank and MidCap Financial, LLC. Grand Total 209 248 -16% 226 -8% Even though Psychiatric Solutions is now *Preliminary figures a part of Universal Health Services, its former management team is already saddling up to $20.0 million in Acadia Healthcare, and joined its man- pursue further opportunities in behavioral health. Joseph agement team. Backed by Waud Capital Partners, Acadia Jacobs and four other PSYS team members have invested operates six facilities. As CEO, Jacobs is spearheading

www.healthcaremanda.com Page 4 The Health Care M&A Monthly April 2011 a drive to expand the company’s portfolio by acquiring Youth & Family Centers Services, based in Austin, Texas. The Month in M&A at a Glance: Once the deal closes, Acadia will have 19 facilities in 13 Health Care Services, March 2011 states, 1,700 beds and $260.0 million in revenue. The non- compete clause seems to have had a very short horizon. Sector Deal Volume Combined Price Hospitals 11 $ 675,700,000 Hospitals Labs, MRI & Dialysis 4 431,100,000 Long-Term Care 12 400,521,000 Connecticut may be getting its second for-profit hos- Behavioral Health 3 24,500,000 pital. LHP Hospital Group of Plano, Texas is forming a Physician Medical Groups 3 — joint venture with St. Mary’s Hospital in Waterbury to Home Health 1 — own and operate the 175-bed acute care facility. LHP plans Managed Care 0 — to invest approximately $200.0 million in the venture to Rehabilitation 0 — Other Services 7 1,213,000,000 eliminate debt, secure pensions, establish a foundation Total 41 $ 2,744,821,000 and make capital expenditures. Taking this figure as the effective purchase price, the deal is worth 1.0x 2009 revenue and 10.9x EBITDA. Under terms of the deal, while LHP will own a majority of the joint venture, governance ing 21.8% interest in the hospital. An auction will be held of the JV is to be split 50-50. St. Mary’s will continue to in mid-April to finalize this deal, and it is possible that abide by Roman Catholic ethical and religious directives. another buyer could enter the picture; private equity firm St. Mary’s had approached 16 potential capital partners McVey & Co. Investments of Houston has also expressed before deciding on LHP. an interest in the facility.

Boston’s Steward Health Care, which had been Sabra Health Care REIT (NASDAQ: SBRA) made scouting in Florida for deals, recently announced a deal its first acquisition outside of seniors housing. To diversify to acquire Morton Hospital and Medical Center, a 153- its portfolio, it acquired Texas Regional Medical Center, a bed acute care facility in Taunton, Massachusetts, for 70-bed hospital that opened in Sunnyvale, Texas in 2009, $148.0 million. This deal, valued at 1.2x 2009 revenue, in a sale-leaseback valued at $62.7 million. The deal is to enlarges the buyer’s growing hospital network in eastern be funded from SBRA’s available cash and is expected to Massachusetts, and will result in the target becoming a provide an initial yield of 9.25% from cash rent. for-profit. In the end, Morton Hospital decided to sell to Steward Health rather than to Southcoast Health System. Memorial Health System of South Bend (see “Be- havioral Health Care” on page 2), is not just expanding Back in Connecticut, The Hospital of Saint Rapha- its behavioral health services, but its acute care services el (HSR), a 591-bed acute care facility in New Haven, is as well. It has signed a memorandum of understanding to merging with the larger Yale-New Haven Hospital. Under merge with nearby 297-bed Elkhart Memorial Hospital. terms of the deal, Saint Raphael will receive $135.0 mil- The two organizations plan to merge under a new board lion for capital improvements. HSR is to retain its Roman created from an equal number of board members from Catholic identity. each side. The two parties are considering this merger to recruit physicians and meet the challenges of the health Iasis Healthcare is close to acquiring a 78.2% interest care reform law. in St. Joseph Medical Center, a 792-bed hospital in Hous- ton, for approximately $130.0 million. (The purchase RegionalCare, based in Brentwood, Tennessee has price is based on an enterprise value of $165.0 million.) made an unsolicited bid of $181.5 million to acquire 377- This gives Iasis Houston’s oldest hospital, and expands its bed Cheyenne Regional Medical Center in Wyoming, presence in the Lone Star State to five hospitals. While the a state we rarely get to write about. The offer consists majority owner of the hospital, HPA of Charlotte, North of $80.0 million to Laramie County for a 50-year lease, Carolina, is in Chapter 7 bankruptcy proceedings, the $100.0 million to complete construction of a planned hos- hospital itself is profitable and is not directly part of the pital expansion, $1.0 million to the County for economic bankruptcy proceedings. A group of independent inves- development and $500,000 for a program called People tors, mostly physicians on staff, would retain the remain- (continued on page 8)

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Deal Summaries—Services Behavioral Health Care

Target Listing Acquirer Listing Date Price Madison Center Private Memorial Health System Nonprofit 3/1/2011 $3,000,000 South Bend, Indiana South Bend, Indiana

In Brief: Memorial Health System is paying $3.0 million to acquire certain behavioral health care assets from The Madison Center. The assets primarily include three buildings. The Madison Center was being reorganized under bankruptcy protection.

MeadowWood Behavioral Health NYSE: Pioneer Behavioral Health AMEX: 3/16/2011 $21,500,000 New Castle, Delaware UHS Peabody, Massachusetts PHC

In Brief: Universal Health Services is selling MeadowWood Behavioral Health, an acute psychiatric hospital with 58 beds, to Pioneer Behav- ioral Health for $21.5 million. The divestiture was required by Universal Health’s acquisition of Psychiatric Services.

Deal Summaries—Services hospitals

Target Listing Acquirer Listing Date Price St. Joseph Medical Center Nonprofit Iasis Healthcare, LLC Private 3/18/2011 $130,000,000 Houston, Texas Franklin, Tennessee

In Brief: Iasis Healthcare is paying $130.0 million for a 78.2% interest in St. Joseph Medical Center, a 792-bed acute care facility. St. Joseph’s majority owner, but not the hospital itself, is in Chapter 7 bankruptcy proceedings.

St. Mary’s Hospital Nonprofit LHP Hospital Group, Inc. Private 3/22/2011 $200,000,000 Waterbury, Connecticut Plano, Texas

In Brief: In a transaction that is worth approximately $200.0 million, LHP Hospital Group is forming a joint venture with St. Mary’s Hospital, a 175-bed acute care facility. While LHP will own a majority of the joint venture, governance of the JV is to be 50-50.

Hospital of Saint Raphael Nonprofit Yale-New Haven Hospital Nonprofit 3/25/2011 $135,000,000 New Haven, Connecticut New Haven, Connecticut

In Brief: The Hospital of Saint Raphael, a 591-bed acute care facility, is merging with Yale-New Haven Hospital. As part of the deal, Saint Raphael will receive $135.0 million for capital improvements.

Morton Hospital Nonprofit Steward Health Care System Private 3/31/2011 $148,000,000 Taunton, Massachusetts Boston, Massachusetts

In Brief: Steward Health Care is offering as much as $148.0 million to buy Morton Hospital and Medical Center, a 153-bed acute care facility, to bolster its Massachusetts hospital network.

Texas Regional Medical Center Private Sabra Health Care REIT NASDAQ: 3/31/2011 $62,700,000 Sunnyvale, Texas Irvine, California SBRA

In Brief: In a sale-leaseback transaction that is worth $62.7 million, Sabra Health Care REIT is acquiring Texas Regional Medical Center, a 70- bed acute care facility which opened in 2009.

Deal Summaries—Services laboratories, MRI & Dialysis

Target Listing Acquirer Listing Date Price Medical Developers, LLC Private Radiation Therapy Services Private 3/2/2011 $80,000,000 Buenos Aires, Argentina Fort Myers, Florida

In Brief: Radiation Therapy Services Holdings is paying $80.0 million, or 1.5x revenue, to acquire Medical Developers, a developer and operator of cancer treatment facilities in Latin America.

Five imaging centers Private RadNet, Inc. NASDAQ: 3/7/2011 $7,100,000 Bowie, Maryland Los Angeles, California RDNT

In Brief: Diagnostic Health Corporation is selling five multi-modality diagnostic imaging centers in Maryland to RadNet for $7.1 million.

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Deal Summaries—Services Laboratories, MRI & Dialysis (cont.)

Target Listing Acquirer Listing Date Price Celera Corporation NASDAQ: Quest Diagnostics, Inc. NASDAQ: 3/18/2011 $344,000,000 Alameda, California CRA Madison, New Jersey DGX

In Brief: Quest Diagnostics is paying $344.0 million, or approximately 2.7x revenue, to acquire Celera Corp., a company that offers personalized disease management through clinical laboratory tests and disease management services.

Deal Summaries—Services long-Term Care

Target Listing Acquirer Listing Date Price Danby House Private Not disclosed Private 3/1/2011 $4,050,000 Winston Salem, North Carolina North Carolina

In Brief: Senior Living Communities is selling Danby House, a 52-unit assisted living facility, to a North Carolina-based operator of seniors housing facilities, for $4.05 million, or 1.7x revenue.

Two assisted living facilities Private Harvard Management Companies Private 3/4/2011 $25,100,000 Austell, Georgia

In Brief: Carlyle Realty Partners is selling Arbor Terrace of Cobb and Arbor Terrace of Tucker, two 60-unit assisted living facilities, to Harvard Management Companies for $25.1 million.

Twenty ILFs and ALFs Private Senior Housing Properties Trust NYSE: 3/8/2011 $304,000,000 Five States Newton, Massachusetts SNH

In Brief: Steven D. Bell & Co. is selling a portfolio of 20 independent and assisted living facilities with 2,111 units in five states to the REIT Senior Housing Properties Trust for $304.0 million.

Five skilled nursing facilities Private AdCare Health Systems, Inc. AMEX: 3/15/2011 $20,000,000 Arkansas and Missouri Springfield, Ohio ADK

In Brief: AdCare Health Systems is paying $20.0 million for a portfolio of four skilled nursing facilities in Arkansas with 416 beds and one in Missouri with 90 beds. The price to revenue multiple is 0.8x.

Kenwell Assisted Living Nonprofit Not disclosed Private 3/22/2011 $4,000,000 Kenmore, New York

In Brief: A not-for-profit is selling Kenwell Assisted Living, a 76-unit assisted living facility, to an undisclosed buyer for $4.0 million.

Elk Run Assisted Living Private Not disclosed Nonprofit 3/31/2011 $7,000,000 Evergreen, Colorado Minnesota

In Brief: A local partnership developed and is selling Elk Run Assisted Living, a 62-unit assisted living facility, to a Minnesota-based not-for- profit organization for $7.0 million.

Golden Living Centers of Kenosha Private Platinum Health Care, LLC Private 3/31/2011 $3,950,000 Kenosha, Wisconsin Skokie, Illinois

In Brief: Platinum Healthcare is paying $3.95 million, or 0.7x revenue, for Golden Living Centers of Kenosha, a 97-bed skilled nursing facility.

Good Neighbor Care Center Private Not disclosed Private 3/31/2011 $11,800,000 Eugene, Oregon Washington State

In Brief: A national company is selling Good Neighbor Care Center of Eugene, a 49-unit assisted living facility, to a regional operator for $11.8 million, or 3.0x revenue.

The Health Care M&A Monthly has a quarterly supplement which details all publicly announced health care services mergers and acquisitions. Because many companies do not reveal details of their acquisitions, especially price and terms, at the time of the announcement, those details, when available, and additional information about the target company and acquirer are provided in the quarterly report after researching SEC documents and other primary sources.

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Deal Summaries—Services Long-Term Care (cont.)

Target Listing Acquirer Listing Date Price Mount Saint Francis Health Center Private American Senior Living Private 3/31/2011 $4,971,000 Woonsocket, Rhode Island East Greenwich, Rhode Island

In Brief: A receiver is selling Mount Saint Francis Health Center, a 158-bed skilled nursing facility, to American Senior Living Communities for $4,971,000, or 0.52x revenue.

Sanctuary at St. Joseph’s Nonprofit Not disclosed Private 3/31/2011 $5,250,000 South Bend, Indiana

In Brief: Trinity Health is selling Sanctuary at St. Joseph’s, a 177-bed skilled nursing facility, to an undisclosed buyer for $5.25 million.

Wynwood Mandeville NYSE: Emeritus Corporation NYSE: 3/31/2011 $10,400,000 Mandeville, Louisiana BKD Seattle, Washington ESC

In Brief: Brookdale Senior Living is selling Wynwood Mandeville, an 84-unit assisted living facility, to Emeritus Corp. for $10.4 million.

Deal Summaries—Services other

Target Listing Acquirer Listing Date Price America Service Group, Inc. NASDAQ: Valitas Health Services Private 3/3/2011 $250,000,000 Brentwood, Tennessee ASGR St. Louis, Missouri

In Brief: In a transaction that is worth approximately 0.4x revenue, Valitas Health Services is paying $250.0 million to acquire America Service Group, a company that provides managed health care services to correctional facilities.

Walgreen Health Initiatives NYSE: Catalyst Health Solutions, Inc. NASDAQ: 3/9/2011 $525,000,000 Deerfield, Illinois WAG Rockville, Maryland CHSI

In Brief: Walgreen Cos. is selling Walgreen Health Initiatives, its pharmacy benefit manager subsidiary, to Catalyst Health Solutions for $525.0 million in cash. Going forward, Catalyst will provide PBM services to Walgreen.

Rural/Metro Corporation NASDAQ: Warburg Pincus, LLC Private 3/28/2011 $438,000,000 Scottsdale, Arizona RURL New York, New York

In Brief: Warburg Pincus is paying $438.0 million, or 0.8x revenue, to acquire Rural/Metro Corp., a company that provides medical transport and ambulance response services.

Additional Transactions—Services

Sector Target Acquirer Date BEHAVIORAL HEALTH Camelot System of Care Sequel Youth and Family Services, LLC 3/4/2011 HOME HEALTH Caregivers Health Network, Inc. Almost Family, Inc. 3/29/2011 HOSPITALS Loyola University Health System Trinity Health 3/7/2011 St. Joseph’s Health Services Gundersen Lutheran Health Systems 3/7/2011 Twin City Hospital Trinity Hospital Twin City 3/9/2011 Hoopeston Regional Health Center Carle Foundation Hospital 3/11/2011 Elkhart General Healthcare System Memorial Health System 3/17/2011 Coast Plaza Hospital Avanti Hospitals, LLC 3/25/2011 LABS, MRI & DIALYSIS Seven imaging centers Outpatient Imaging Affiliates, LLC 3/14/2011 LONG-TERM CARE The Lexington, Victoria Care Center The Ensign Group, Inc. 3/18/2011 PHYSICIAN MEDICAL Three radiology groups Radiology Associates of North Texas, P.A. 3/5/2011 GROUPS Sutter Emergency Medical Associates CEP America 3/22/2011 Mid-Michigan Hospitalist Group, PC IPC-The Hospitalist Co. 3/23/2011 OTHER Regulus Pharmaceutical Consulting, Inc. Clinipace Worldwide 3/1/2011 Qualitix Clinical Research QPS, LLC 3/8/2011 Cascade Occupational Medicine Physicians, Inc. Humana, Inc. 3/22/2011 On.Site Advanced Medical Services Total Safety 3/29/2011

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Transaction Updates—Services

Sector Target Acquirer Announced Update HOSPITALS Bert Fish Medical Center Adventist Health Systems, Inc. 6/4/2010 3/15/2011 New Smyrna Beach, Florida Winter Park, Florida

Recent Developments: A judge cancelled the merger between the two parties, saying that the two had not followed Florida’s sunshine laws.

MANAGED CARE Tufts Health Plan Harvard Pilgrim Health Care 1/26/2011 3/4/2011 Watertown, Massachusetts Wellesley, Massachusetts

Recent Developments: This merger, which was first announced on January 26, 2011, was called off on March 4, 2011.

(continued from page 4) Medical Developers, a developer and operator of 29 can- First. At this level, the price to revenue multiple would cer treatment facilities in six countries in Latin America. be about 0.73x. So far, the hospital board has responded Consideration includes $47.5 million in cash, $16.25 mil- by forming a committee to consider the offer. lion in notes and $16.25 million in equity.

RegionalCare, our readers will recall, has also ex- Long-Term Care pressed an interest in acquiring Landmark Medical Center in Woonsocket, Rhode Island. It is not alone. Senior Housing Properties Trust (NYSE: SNH) is Capella Healthcare and Transition Healthcare, two other acquiring a portfolio of 20 assisted and independent living Tennessee-based companies, have also voiced an interest facilities from Stephen D. Bell & Co. for $304.0 million. in acquiring Landmark. Located in North Carolina (7), South Carolina (5), Florida (4), Virginia (2) and Georgia (2), they have a combined The Hoboken Municipal Hospital Authority in New total of 814 independent living units, 939 assisted living Jersey keeps dithering on the sale of Hoboken University units, 311 Alzheimer’s units and 47 skilled nursing beds. Medical Center, and extending deadlines to consider Fifteen communities are to be owned by SNH and man- proposals. Last month, Paradigm Physician Partners aged by Five Star Quality Care (NYSE: FVE) while the of Easton, Connecticut had offered $77.0 million for the facility, consisting of $52.0 million to pay off debt and an additional $25.0 million for operational upgrades. But for now, the Authority has decided to hear out HUMC Holdco LLC, a private entity which owns Bayonne Medical Cen- ter. Keep ‘em guessing, that’s their motto.

Laboratories, MRI & Dialysis

Quest Diagnostics (NYSE: DGX) is offering $8.00 per share to buy Celera Corporation (NASDAQ: CRA), a company that offers personalized disease management through clinical laboratory tests and disease management services. The deal offers CRA shareholders a 28% premium to the stock’s prior-day price. After taking CRA’s $327.0 million in cash and short-term investments into account, the effective purchase price is $344.0 million. This purchase, valued at 2.68x revenue, gives the buyer immediate access to a large range of proprietary tests and products, as well as a strong line of biomarkers.

With the backing of Vestar Capital and RT Invest- ments, Florida-based Radiation Therapy Services paid $80.0 million to acquire an additional 72% interest in

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Average And Median Price-To-Revenue And Price-To-EBITDA Multiples For Hospital Transactions, 2006 Through 2010 1.00 16.0

14.0 toPrice EBITDA 0.80 12.0 0.60 10.0 8.0 0.40 6.0 4.0 Price to Revenue Priceto 0.20 2.0 0.00 0.0 2006 2007 2008 2009 2010

Average P/R 0.75 0.74 0.84 0.78 0.70 Median P/R 0.73 0.60 0.70 0.77 0.65 Average P/EBITDA 11.2 8.3 14.2 9.3 9.1 Median P/EBITDA 8.5 8.9 6.4 8.6 7.4

remaining five communities are to be owned by SNH and million, or 0.8x revenue, to buy Rural/Metro Corp. leased to Five Star. (NASDAQ: RURL), which provides medical transport and ambulance response services. This deal offers RURL Carlyle Realty Partners is selling two Georgia 60- shareholders a 37% premium to the stock’s prior-day unit assisted living facilities, Arbor Terrace of Cobb price; it is valued at 0.8x revenue and 6.2x EBITDA. in Austell and Arbor Terrace of Tucker in Tucker, to Harvard Management Companies for $25.1 million. Pharmacy Benefits Manager. Walgreen Cos. (NYSE: The two were built in 1999-2000, and were purchased by WAG) is selling Walgreen Health Initiatives, its phar- Carlyle Realty in 2005 for $15.3 million at a cap rate of macy benefit manager subsidiary, toCatalyst Health Solu- 6.2%. Even after $2.0 million to $3.0 million was spent tions (NASDAQ: CHSI) for $525.0 million in cash. This on capital expenditures over the years, there was a good acquisition expands the buyer’s core business; as a part of return. The Arbor Company will remain as the manager. the agreement, CHSI will provide PBM services for WAG. Citi, Goldman Sachs and Jefferies & Co. provided WAG Other with financial advice whileBofA Merrill Lynch provided CHSI with similar advice.  Correctional Health Care Services. Valitas Health Ser- vices is paying $250.0 million for America Service Group The Hospital M&A Market (NASDAQ: ASGR), which provides managed health care (continued from page 1) services to correctional facilities. The merger of these two companies creates an organization providing health care appears strongly committed to seeing this deal through. to inmates at 400 prisons; combined revenue for 2011 Even if we omit this transaction, the 2010 Hospital market is expected to be $1.4 billion. The deal offers ASGR still has 72 domestic transactions involving a total of 125 shareholders a 48.7% premium to the stock’s prior-day hospitals with 15,864 beds for a combined price of $5.4 price, but a relatively low P/R multiple of 0.4x may have billion, all well above the comparable 2008 and 2009 prompted the shareholder lawsuits that ensued. levels. The Community-Tenet deal took an ugly turn in early April, and the market punished them both by sending Medical Transport. Warburg Pincus is paying $438.0 their stock prices down.

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Activity in the 2010 market was lackluster until ranged from $165,500 in 2008 to $412,600 in 2010 for a federal health care reform was passed in March. Once it wider spread of $247,100. The rise in price per bed in 2010 became law, the pace of M&A accelerated. With passage as the price to revenue multiple fell is somewhat counterin- of the law and its effects on government reimbursement of tuitive; it could reflect the belief that, going forward, more hospital services, buyers and sellers could more accurately revenue can be derived from individual beds. So while pencil out future levels of revenue and cash flow, putting the price-to-revenue and price-to-EBITDA multiples them in a better position to negotiate a valuation of the indicate that pricing relaxed during 2010, the evidence facilities they wished to buy or sell. This appears to have from price-per-bed and price-to-revenue for bankrupt released a pent-up backlog of deal making. facilities—both somewhat peripheral measures—might suggest some potential for pricing to heat up. So far, The 2010 data includes nine deals involving the sale of however, the 2011 market appears to be a continuation of 16 bankrupt or otherwise financially distressed facilities; 2010, and pricing is holding steady for now. their combined value is approximately $600.0 million. This represents a dramatic increase over 2009, when just Further analysis of the 2011 Hospital market and one such sale was announced. The evaporation of credit seven related health care services sectors is now available from the markets beginning in 2007, which weakened in our Health Care Services Acquisition Report, Seven- and propelled many hospitals toward bankruptcy, also teenth Edition. These additional sectors include Behav- emptied the coffers of potential buyers for them during ioral Health Care, Home Health Care, Laboratories, MRI 2008 and 2009. Once the tide of capital began flowing & Dialysis, Managed Care, Physician Medical Groups, back in, buyers could again access the funds to buy these Rehabilitation and Other Services.  troubled facilities. There appears, in fact, to have been a degree of competition for these distressed facilities, driv- Health Care Financing ing the price to revenue multiple up to 0.4x in 2010 from the more usual range of 0.2x to 0.3x. This is a slight tell that pricing for hospitals may be poised to rise. In general, venture Capital however, distressed sales are excluded from our calcula- tions of acquisition multiples in the chart on page 9. Omthera Pharmaceuticals, a specialty pharma based in Bedminster, New Jersey, recently raised $33.9 million Based on transactions with the requisite figures, the in a Series B funding round, which was led by New En- average price/revenue multiple for all hospitals (except terprise Associates. Existing investor Sofinnova Partners the bankrupt group) in 2010 was 0.70x; the corresponding also took part in the round. Proceeds will be used to fund median was 0.65x. Despite the year-over-year changes phase 3 clinical development of Omthera’s omega-3 fatty recorded in the chart on page 9, experience has shown acid compound, Epanova, a candidate for treating patients that the median figure tends to fluctuate less over time suffering from very high trigylcerides. than the average does, and may in fact represent the more compelling industry multiple. BioNanomatrix, a Philadelphia-based developer of nanoscale, single-molecule imaging and analysis plat- Many buyers, and the analysts who follow them, forms, closed a $23.3 million Series B round of equity consider the price/EBITDA ratio to be a key measure for financing. Domain Associates led the round, and was valuing an acquisition. The chart on page 9 shows that the joined by new investor Gund Investment Corporation 2010 average and median multiples of 9.1x and 7.4x, re- and existing investors Battelle Ventures, Innovation Val- spectively, fall well within the range of values established ley Partners and KT Venture Group. Proceeds will help during the five-year period, 2006-2010. in the commercialization of the company’s nanoAnalyzer 1000 System for whole genome analysis. Many observers also like to know the price per (staffed) bed as well, because if an acquisition can be Los Angeles-based Kite Pharma, a biopharma fo- completed at a lower per-bed value, there may be more cused on immunotherapies for cancer, raised $15.0 million upside for the buyer, especially since capital costs will be in an initial round through a syndicate of venture and quali- lower. The average price per bed has fluctuated between fied investors, such as TPG Capital. Riverbank Capital $297,200 in 2007 and $427,000 in 2010 for a spread of Securities served as placement agent for the financing. The nearly $130,000; the median price per bed, however, has (continued on page 12)

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www.healthcaremanda.com Page 12 The Health Care M&A Monthly April 2011 funds will allow Kite Pharma to develop its business and advance its products into clinical development. The Month in M&A at a Glance: Health Care Technology, March 2011 Anergis SA, a biopharma based in Lausanne, Switzer- land and focused on immunotherapies against allergies, Sector Deal Volume Combined Price raised CHF 18.0 million ($13.2 million). Vinci Capital- Pharmaceuticals 5 $ 6,225,000,000 Medical Devices 18 3,876,600,000 Renaissance PME, BioMedInvest and Sunstone Capital Biotechnology 9 2,276,200,000 co-led the investment; they were joined by Esperante, e-Health 3 12,000,000 Initiative Capital Romandie and private investors. The Total 35 $ 12,389,800,000 proceeds should cover Anergis’s financial requirements for two years and allow the company to conduct a large phase 2 multicenter trials with AllerT, its lead product for mune disease, closed on a $24.0 million private placement patients allergic to birch pollen. Gesundheit. of Series E common stock, led by two existing shareholders, Cephalon (NASDAQ: CEPH) and JAFCO Co., Ltd., Cincinnati-based AssureRX Health, a personalized a leading private equity firm in Japan. Proceeds will be medicine company, closed on $11.0 million in Series B used to accelerate the development of additional hema- financing, led byClaremont Creek Ventures and Sequoia tological indications for bendamustine and to in-license Capital. Also included in the round were Cincinnati Chil- other new drug candidates, among other uses. SymBio’s dren’s Hospital Medical Center, Mayo Clinic and Cin- lead candidate, SyB L-0501, or bendamustine HCI, received cyTech, along with new investor Allos Ventures. Funds Japan market approval in October 2010 for treating refrac- from the round are to be used to expand direct sales and tory/relapsed low-grade non-Hodgkin’s lymphoma. marketing for the company’s GeneSightRx, a decision support product for matching the right drug and right dose the Public Markets for neuropsychiatric patients. Hospital operator HCA Holdings (NYSE: HCA) private Placements completed its IPO in early March, raising $3.79 billion by selling over 126.0 million shares at $30.00 each. This MethylGene (TSX: MYG) recently announced plans constitutes a record for a private-equity backed IPO. Since to complete a private placement of $34.5 million. Inves- going public, HCA’s price has ranged between $30.36 and tors taking part in the offering include a fund managed by $34.57 per share, and the company has a market cap in the Baker Bros. Advisors, LLC, Tavistock Life Sciences, a neighborhood of $16.3 billion. fund managed by OrbiMed Advisors, LLC, a fund managed by QVT Financial LP and Tang Capital Partners, Exelixis (NASDAQ: EXEL) completed its under- LP. Current shareholders ProQuest Investments III and written public offering of 17.25 million shares of com- Fond de solidarité FTQ are also participating in the offer- mon stock, raising approximately $179.4 million after ing. The proceeds are to be used to advance the company’s deducting the underwriting costs and offering expenses. MGCD290 into phase 2 clinical trials in vulvovaginal Goldman Sachs and Cowan and Company acted as the candidiasis. joint book-running managers. Citi and Lazard Capital Markets acted as co-managers. Synageva BioPharma Corp., a biopharma based in Lexington, Massachusetts and focused on therapeutic BioSante Pharmaceuticals (NASDAQ: BPAX) re- products for rare disorders, closed on a $25.0 million pri- ceived commitments from several institutional investors vate equity financing. All of the company’s lead investors to purchase $25.1 million of securities in a registered took part in the funding. The proceeds strengthen Syna- direct offering. BPAX expects to net $23.8 million. The geva’s financial position and provide additional resources proceeds provide the company with additional power to to advance its clinical program for SBC-102, an enzyme continue its ongoing phase 3 trial for LibiGel, for the treat- replacement therapy for lysosomal acid lipase deficiency, ment of hypoactive sexual desire disorder in menopausal a rare disease. women. Rodman & Renshaw, LLC acted as the exclusive placement agent for the deal. Oppenheimer & Co., Roth Tokyo-based SymBio Pharmaceuticals, a specialty Capital Partners, JMP Securities and Trout Capital acted pharma focused on oncology, hematology and autoim- as financial advisors.

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Deal Summaries—Technology Biotechnology

Target Listing Acquirer Listing Date Price Autoimmune disease collaboration Private Merck & Co., Inc. NYSE: 3/3/2011 $307,000,000 Plymouth, Michigan Whitehouse Station, New Jersey MRK

In Brief: In a deal worth $307.0 million, Lycera Corp. is entering into a research collaboration with Merck & Co. to discover, develop and commercialize small molecules that target T-helper cells, key mediators of inflammation.

Schizophrenia collaboration Private Takeda Pharmaceutical Co. Ltd. T: 3/3/2011 $750,000,000 New York, New York Osaka, Japan 4502

In Brief: In a transaction that is worth as much as $750.0 million, Intra-Cellular Therapies is entering into a collaboration with Takeda Pharmaceutical Co. to develop and commercialize certain schizophrenia treatments.

Under terms of the agreement, Takeda is to make an upfront cash payment. The company will also make up to $500.0 million in development milestones and up to $250.0 million in sales-based milestones. Tiered royalties on net sales are also covered in the terms.

License for perifosine in Japan NASDAQ: Yakult Honsha Co., Ltd. T: 3/9/2011 $69,200,000 Quebec City, Quebec AEZS Tokyo, Japan 2267

In Brief: In a deal worth $69.2 million, Aeterna Zentaris signed an agreement with Yakult Honsha to develop, register and market perifosine in Japan. Perifosine is in clinical trials for the treatment of colorectal cancer and multiple myeloma.

Cancer therapeutics partnership Private Eisai Co. Ltd. T: 3/10/2011 $206,000,000 Cambridge, Massachusetts Tokyo, Japan 4523

In Brief: In a transaction which is worth up to $206.0 million, Epizyme is entering into a partnership with Eisai Co. to discover, develop and commercialize therapeutics for the treatment of lymphoma and other cancers in genetically defined patients.

Rights to Tosedostat Private Cell Therapeutics, Inc. NASDAQ: 3/14/2011 $10,000,000 Oxford, England Seattle, Washington CTIC

In Brief: In a deal worth $10.0 million, Chroma Therapeutics Ltd. is granting Cell Therapeutics the marketing and co-development rights for Tosedostat in the North, Central and South American markets.

Oncology collaboration Private Human Genome Sciences, Inc. NYSE: 3/17/2011 $495,000,000 S. San Francisco, California Rockville, Maryland HGSI

In Brief: In a deal worth up to $495.0 million, FivePrime Therapeutics is entering into a collaboration agreement with Human Genome Sci- ences to develop and commercialize a candidate for treating various forms of cancer.

Antibody-drug conjugate NASDAQ: Abbott Laboratories NYSE: 3/22/2011 $208,000,000 Bothell, Washington SGEN Abbott Park, Illinois ABT

In Brief: In a transaction that is worth as much as $208.0 million, Seattle Genetics is entering into a collaboration agreement with Abbott Labo- ratories to utilize SGEN’s antibody-drug conjugate technology with antibodies for a single oncology target.

Chemgenex Pharmaceuticals, Ltd. ASX: Cephalon, Inc. NASDAQ: 3/28/2011 $231,000,000 Australia CXS Frazer, Pennsylvania CEPH

In Brief: Cephalon is offering $231.0 million to acquire Chemgenex, a biopharmaceutical company that is focused on hematology.

Deal Summaries—Technology e-Health

Target Listing Acquirer Listing Date Price DTS America, Inc. Private Transcend Services, Inc. NASDAQ: 3/3/2011 $12,100,000 Nashville, Tennessee Atlanta, Georgia TRCR

In Brief: Transcend Services is paying $12.1 million, or 1.0x revenue, to purchase DTS America, a medical transcription company that serves 30 hospitals plus several surgery centers in 13 states.

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Deal Summaries—Technology Medical Devices

Target Listing Acquirer Listing Date Price Jolife Private Medtronic, Inc. NYSE: 3/1/2011 $53,000,000 Lund, Sweden Minneapolis, Minnesota MDT

In Brief: Medtronic is paying $53.0 million to acquire Jolife, a Swedish company that develops, manufactures and sells the LUCAS Chest Compression System, together with complementary technologies.

O.R. Solutions, Inc. Private Ecolab, Inc. NYSE: 3/4/2011 $260,000,000 Chantilly, Virginia St. Paul, Minnesota ECL

In Brief: In a transaction that is valued at 4.7x revenue, Ecolab is paying $260.0 million to acquire O.R. Solutions, a firm that develops and markets surgical fluid warming and cooling systems for use in acute care settings.

CaridianBCT Private Terumo Corporation T: 3/7/2011 $2,600,000,000 Lakewood, Colorado Tokyo, Japan 4543

In Brief: Gambro is selling CaridianBCT, a Colorado-based subsidiary, to Terumo Corp. for $2.6 billion, or nearly 5.0x revenue. CaridianBCT is a company that specializes in equipment used in blood banks and other disposable medical devices.

TomoTherapy, Inc. NASDAQ: Accuray, Inc. NASDAQ: 3/7/2011 $277,000,000 Madison, Wisconsin TOMO Sunnyvale, California ARAY

In Brief: Accuray is offering $277.0 million, or 1.4x revenue, to acquire TomoTherapy, a company that develops, manufactures, markets and sells radiation therapy solutions for cancer treatment.

Circle City Medical, Inc. Private DJO Global, Inc. Private 3/10/2011 $15,000,000 Carmel, Indiana Vista, California

In Brief: DJO Global is paying as much as $15.0 million to acquire Circle City Medical, a wholesaler of orthopedic devices to retail stores, including surgical implants and biopsy instruments.

Embrella Cardiovascular, Inc. Private Edwards Lifesciences Corp. NYSE: 3/11/2011 $43,000,000 Wayne, Pennsylvania Irvine, California EW

In Brief: Edwards Lifesciences is paying $43.0 million in cash for Embrella Cardiovascular, the developer of the Embrella Embolic Deflector System which is used during transcatheter heart value procedures.

PVT Private Roche Holding AG VX: 3/15/2011 $119,000,000 Waiblingen, Germany Basel, Switzerland ROG

In Brief: Roche is paying up to $119.0 million to acquire PVT, a clinical lab automation firm that operates in Germany as PVT Probenver- teiltechnik GmbH and in the United States as PVT Labs Systems, LLC.

Rikco International, LLC Private DJO Global, Inc. Private 3/15/2011 $254,600,000 Mequon, Wisconsin Vista, California

In Brief: DJO Global is paying $254.6 million in cash, or approximately 3.6x revenue, for Rikco International (dba Dr. Comfort), a company that develops, manufactures and markets therapeutic footwear and related medical and comfort products.

Femcare Holdings Limited Private Utah Medical Products, Inc. NASDAQ: 3/18/2011 $41,000,000 Southhampton, England Midvale, Utah UTMD

In Brief: In a deal worth 2.6x revenue, Utah Medical Products is paying $41.0 million to buy Femcare Holdings, which manufactures and distributes the Filshie Clip System, a female surgical contraceptive device used in tubal ligation.

Cadent Holdings, Inc. Private Align Technology, Inc. NASDAQ: 3/29/2011 $190,000,000 Carlstadt, New Jersey San Jose, California ALGN

In Brief: Align Technology is paying $190.0 million in cash to acquire Cadent Holdings, a medical device company that provides 3D digital scanning solutions for the orthodontics and dentistry markets.

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Deal Summaries—Technology Medical Devices (cont.)

Target Listing Acquirer Listing Date Price Cardiogenesis Corporation OTCBB: CryoLife, Inc. NYSE: 3/29/2011 $22,000,000 Irvine, California CGCP Kennesaw, Georgia CRY

In Brief: CryoLife is paying $22.0 million, or 1.9x revenue, to acquire Cardiogenesis Corp., a company that designs, develops and distributes laser-based surgical products and accessories for treating cardiovascular disease.

Deal Summaries—Technology pharmaceuticals

Target Listing Acquirer Listing Date Price Gemin X Pharmaceuticals Private Cephalon, Inc. NASDAQ: 3/21/2011 $525,000,000 Malvern, Pennsylvania Frazer, Pennsylvania CEPH

In Brief: Cephalon is offering up to $525.0 million in upfront and milestone payments to acquire Gemin X Pharmaceuticals, a company that is involved in developing novel cancer treatments.

Cephalon, Inc. NASDAQ: Valeant Pharmaceuticals Intl. NYSE: 3/29/2011 $5,700,000,000 Frazer, Pennsylvania CEPH Mississauga, Ontario VRX

In Brief: In a hostile bid, Valeant Pharmaceuticals International is offering $73.00 per share, or $5.7 billion, to acquire Cephalon, a company that discovers, develops and commercializes products for CNS, inflammatory disease, pain and oncology therapeutic areas.

Additional Transactions—Technology

Sector Target Acquirer Date BIOTECHNOLOGY Anti-cancer monoclonal antibody Biothera 3/10/2011 E-HEALTH Health Ware Concepts, Inc. Med-Metrix, LLC 3/7/2011 CareCentric assets Mediware Information Systems, Inc. 3/31/2011 MEDICAL DEVICES Dameca Royal Philips Electronics 3/10/2011 Star Infusion and Compression Therapies InfuSystem Holdings, Inc. 3/10/2011 Robinson MedSurg, LLC Bacterin International Holdings, Inc. 3/18/2011 ArtusLabs, Inc. PerkinElmer, Inc. 3/24/2011 CambridgeSoft Corp. PerkinElmer, Inc. 3/24/2011 Rights to skin products Mylan Laboratories, Inc. 3/25/2011 Chameleon BioSurfaces assets Biotectix, LLC 3/28/2011 PHARMACEUTICALS OraVerse Septodont 3/18/2011 Pain patent portfolio Gruenenthal GmbH 3/22/2011 Solabegron AltheRx, Inc. 3/25/2011

Transaction Updates—Technology

Sector Target Acquirer Announced Update BIOTECH Rights to Maxy-4 lead candidates Astellas Pharma, Inc. 9/19/2008 3/17/2011 Redwood City, California Tokyo, Japan

Recent Developments: Astellas exercised its option to acquire Maxygen’s interest in this joint venture, called Perseid, for $76.0 million.

BIOTECH Zhejiang Tianyuan Novartis AG 11/9/2009 3/22/2011 Shenzhen, China Basel, Switzerland

Recent Developments: The $125.0 million deal for Novartis to acquire an 85% interest in Zhejiang Tianyuan Bio-Pharmaceutical Co. closed on March 22, 2011. The operations are now to be called Novartis Tianyuan.

MEDICAL Empi Therapy Solutions Patterson Companies, Inc. 6/15/2009 3/16/2011 DEVICES New York, New York St. Paul, Minnesota

Recent Developments: It was recently revealed that Empi Therapy Solutions was sold for $21.8 million, or 0.7x 2008 revenue.

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Health Care Technology net sales of FP-1039 are also stipulated. This agreement gives HGSI exclusive development and commercialization rights to the drug in the U.S., Canada and the European Biotechnology Union. FivePrime has co-promotion rights in the U.S. and retains full rights to the drug in the rest of the world Takeda Pharmaceutical Co. (T: 4502) and Intra- not covered by the HGSI deal. This transaction enlarges Cellular Therapies are entering into a collaboration to HGSI’s cancer drug development pipeline. develop and commercialize selective phosphodiesterae type 1 inhibitors for the treatment of cognitive impairment Plymouth, Michigan-based Lycera Corp. is entering associated with schizophrenia. Under terms of the deal, into a research collaboration with Merck & Co. (NYSE: Takeda will make an undisclosed upfront payment, which MRK) to discover, develop and commercialize small is to be followed by up to $500.0 million in development molecules that target T-helper cells, key mediators of in- milestones and up to $250.0 million in sales-based mile- flammation. The focus is on drug candidates to treat a host stones. Tiered royalties on sales are also contemplated in of conditions, including rheumatoid arthritis, psoriasis, the transaction. This collaboration enlarges Takeda’s pipe- inflammatory bowel syndrome and multiple sclerosis. The line of CNS drug candidates, one of its core therapeutic deal is worth approximately $307.0 million for Lycera. areas. Intra-Cellular is based in New York City. The consideration consists of $12.0 million in upfront cash payments and research funding, and up to $295.0 million San Francisco-based FivePrime Therapeutics is in milestone payments if multiple major indications are entering into a collaboration agreement with Human approved. Low double-digit tiered royalties on global Genome Sciences (NASDAQ: HGSI) to develop and sales of products derived from this collaboration are also commercialize FP-1039, a drug candidate for treating covered in the agreement. This deal enlarges MRK’s pipe- various forms of cancer. Under terms of the agreement, line of autoimmune disease drug candidates. It is believed HGSI will pay an upfront license fee of $50.0 million and that MRK’s participation will expedite Lycera’s discovery up to $445.0 million in milestone payments. Royalties on efforts and its ability to enter the clinic.

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Cephalon (NASDAQ: CEPH) has appeared in M&A develop, register and market perifosine in Japan. Perifo- news during March as an investor, an acquirer and a target. sine is an oral PI3K/Akt inhibitor that is in clinical trials In its role as a buyer, CEPH is offering to acquire Chem- for treating colorectal cancer and multiple myeloma. This genex (ASX: CXS), an Australian biopharma focused partnership is worth about $69.2 million to AESZ, and on hematology, for an enterprise value of approximately consists of an upfront payment of €6.0 million by Yakult $231.0 million. Under terms of the deal, CEPH will offer Honsha and up to €44.0 million in certain milestone pay- A$0.70 for each CXS share and A$0.20 for each ASX- ments. (Why the parties denominated the deal in terms listed option. This bid offers CXS shareholders a 59% pre- of euros rather than yen or Canadian dollars is unclear, mium to the stock’s prior-day price. The acquisition would but both appear to have extensive European operations.) expand the buyer’s oncology drug pipeline. CXS’s lead This is AEZS’s third out-licensing program for this drug; candidate just finished a phase 3 trial, and the company it has already out-licensed it to Keryx Pharmaceuticals in expects to file an NDA with the U.S. FDA in the second North America and to Handok in Korea. The deal expands half of 2011. As part of the deal, CEPH is converting notes Yakult Honsha’s oncology drug pipeline. and exercising call options to acquire a 27.57% interest in CXS; thus, the final cost to CEPH for stock and options Chroma Therapeutics Ltd. is granting Cell Thera- is approximately $163.0 million. BofA Merrill Lynch peutics (NASDAQ: CTIC) marketing and co-develop- and Canaccord Genuity are providing CEPH and CXS, ment rights for Tosedostat in North, Central and South respectively, with financial advice on this deal. America. Tosedostat is an oral, aminopeptidase inhibitor that has demonstrated significant response in blood- Seattle Genetics (NASDAQ: SGEN) is entering into related cancers and solid tumors. CTIC is to pay $5.0 a collaboration agreement with Abbott Laboratories million in cash upfront, and an additional $5.0 million in (NYSE: ABT) to utilize SGEN’s antibody-drug conjugate milestone payments when a pivotal trial is initiated, for a (ADC) technology with antibodies for a single oncology provisional value of $10.0 million. Further, undisclosed target. ADCs are monoclonal antibodies that selectively development-based milestones were also announced in deliver potent anti-cancer agents to tumor cells. Under the agreement. The two companies plan to start a phase 3 terms of the agreement, ABT will make an $8.0 million clinical trial for certain kinds of acute myeloid leukemia. upfront payment, and pay up to $200.0 million in certain The drug candidate is a departure from cytotoxic chemo- milestone payments. Royalties on worldwide sales of therapy toward more tumor-selective targeted therapy relevant ADC products are also covered in the deal. This that interferes with cellular pathways for tumor survival. collaboration thus expands ABT’s pipeline of cancer treat- Subject to a funding cap of $50.0 million for the first three ments. It is also SGEN’s second collaboration with a big years, CTIC and Chroma will be responsible for 75% and pharma company this year. 25%, respectively, of the development costs.

Cambridge, Massachusetts-based Epizyme is enter- Actelion has hired Goldman Sachs to help it review ing into a partnership with Eisai Co. (T: 4523) to discover, strategic alternatives. The company would go so far as to develop and commercialize therapeutics targeting EZH2, be sold to an acquirer who was willing to pay up for the an epigenetic enzyme, for the treatment of lymphoma and company’s pipeline of experimental drugs. The hiring is other cancers in genetically defined patients. Under terms in reaction to a proposal made by Elliott Advisers, Ltd., of the agreement, Eisai is to make $6.0 million in upfront a U.K. hedge fund that owns 6% of Actelion (making it and initial milestone payments, and up to $200.0 million the largest single shareholder) and that has recently called in other milestones. It will also make up to double-digit on shareholders to oust the board and sell the company. royalties on sales of products developed from the part- Goldman will likely be looking for a white knight. nership. Further, Eisai is to fund 100% of R&D through human proof of concept, at which point Epizyme has the E-Health right to opt into a profit share and co-commercialization arrangement for the United States. This deal enlarges In the only e-Health deal to come with a price tag, Eisai’s oncology therapies pipeline. Atlanta-based Transcend Services (NASDAQ: TRCR) is acquiring DTS America in Nashville, Tennessee for In the third Japan-North America biotech tie-up of $12.1 million. DTS is a medical transcription company March, Canada’s Aeterna Zentaris (NASDAQ: AEZS) that serves 30 hospitals plus several surgery centers in signed an agreement with Yakult Honsha (T: 2267) to 13 states, and generates approximately $12.0 million in

www.healthcaremanda.com Page 18 The Health Care M&A Monthly April 2011 24/7 access to more than 16,000 health care M&A deals INCLUDED IN YOUR SUBSCRIPTION www.DealSearchOnline.com Health Care M&A Database

over 16,000 health care M&A deals Search your analysis with deal updates; closing dates, changes in price or term Check to friendly and accessible customer service for help with any questions Speak sector specific data for the best insight to the M&A market Find Satisfaction Guarantee 100% Need data? We’ve got it. Call 1-800-248-1668 to speak with an in-house representative today! annual revenue. Under terms of the deal, TRCR will pay The next deal is smaller by nearly one-tenth. Accuray $7.9 million in cash, and commit to an earnout of up to (NASDAQ: ARAY) is offering to acquire TomoTherapy $4.2 million in cash in 2012. No debt is to be assumed. The (NASDAQ: TOMO) for approximately $277.0 million. acquisition increases TRCR’s penetration of the medical Based in Wisconsin, TOMO develops, manufactures, transcription market, and will increase its annual revenue markets and sells radiation therapy solutions for cancer run rate to $124.0 million. Suender M&A Advisors initi- treatment. Under terms of the offer, each share of TOMO ated the transaction and is advisor to DTS. common stock is to be exchanged for $3.15 in cash and 0.1648 shares of ARAY stock. This values TOMO at $4.80 Medical Devices per share, thus offering shareholders a 31% premium to the stock’s prior-day price. Valued at 1.4x revenue, this In March’s largest Medical Device deal, Sweden’s combination would create a leading radiation oncology Gambro AB is selling CaridianBCT, a company based in company with annual revenue of about $400.0 million. Lakewood, Colorado that specializes in equipment used UBS Investment Bank and BofA Merrill Lynch provided in blood banks and other disposable medical devices, to ARAY and TOMO, respectively, with financial advice on Terumo Corporation (T: 4543) for $2.6 billion. This this transaction. acquisition, valued at nearly 5.0x revenue, expands the buyer’s blood transfusion-related operations. After the Ecolab (NYSE: ECL) is acquiring O.R. Solutions for deal is complete, Terumo will generate revenue of $850.0 approximately $260.0 million. Based in Virginia, O.R. So- million from these operations. Investor AB and EQT IV, lutions develops and markets surgical fluid warming and the seller’s financial backers, hired the ubiquitous Gold- cooling systems for use in acute care settings. Of its $55.0 man Sachs to provide financial advice on this deal. million in annual revenue, 85% comes from custom fit

www.healthcaremanda.com April 2011 The Health Care M&A Monthly Page 19

sterile drapes. Valued at 4.7x revenue, this acquisition ex- for $190.0 million in cash. This acquisition expands the pands the buyer’s presence in the U.S. health care industry, buyer’s presence in the restorative industry. The two com- specifically in the acute care market. The deal, originally panies have an existing relationship: they have partnered announced in November 2010, closed on March 4, 2011. before on developing certain product lines. Cadent’s services allow for digital records storage and digital impres- Blackstone portfolio company DJO Global is acquir- sions for making crowns and bridges, veneers, implants ing Rikco International, LLC for $254.0 million in cash. and other restorative dental procedures. Doing business as Dr. Comfort, Rikco develops, manufactures and markets therapeutic footwear and related On The Prowl. With $940.0 million in its war chest, medical and comfort products. This acquisition, valued Qiagen NV (NASDAQ: QGEN) is in the market for new at 3.6x revenue, allows DJO to tap into the rapidly grow- acquisitions. The company hopes to add more tests to its ing diabetes care market in podiatry practices, orthotic machines in the field of molecular diagnostics. and prosthetic centers, HME providers and independent pharmacies. The buyer entered into a financing commit- pharmaceuticals ment with Credit Suisse to provide up to $260.0 million of senior unsecured financing for this deal. DJO also an- In the largest deal in the health care industry during nounced acquiring Circle City Medical, an Indiana-based March, Valeant Pharmaceuticals International (NYSE: wholesaler of orthopedic devices to retail stores, including VRX) made an unsolicited bid to acquire Cephalon for surgical implants and biopsy instruments, for up to $15.0 $5.7 billion. VRX is offering to pay $73.00 per share, million. DJO will pay $13.0 million, subject to a post- which gives CEPH shareholders a 24% premium to the closing adjustment, and up to an additional $2.0 million stock’s prior-day price and a 29% premium to its 30-day as a royalty payment based on future sales of a specific trading average. This deal to enlarge VRX’s operations product line over the next six years. and expand its presence in the United States is valued at 2.0x revenue and 5.2x EBITDA. VRX plans to finance Align Technology (NASDAQ: ALGN) is acquiring this offer through debt, and already has a commitment Cadent Holdings, a New Jersey-based provider of 3D from its advisor, Goldman Sachs. Unfortunately for VRX, digital scanning solutions for orthodontics and dentistry, CEPH is disinclined to accept this offer, claiming that it

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www.healthcaremanda.com Page 20 The Health Care M&A Monthly April 2011

Where The Health Care M&A Dollars Went In The First Quarter, 2011 Biotechnology 12.4% Medical Devices Rehabilitation 21.5% Other Services 2.4% Hospitals 9.0% 1.5%

e-Health 0.3%

Behavioral, Home, Managed Care, PMG Long-Term Care 0.2% 23.2% Pharmaceuticals Labs, MRI & Dialysis 24.8% 4.7%

undervalues the company, its key assets and prospects. So (heartburn). The plan is to bolster sales in such key mar- CEPH is behaving as if the deal really doesn’t exist, going kets as Germany, Russia and Brazil, while positioning about its way and announcing acquisitions of its own. We the companies for growth in emerging markets. Teva is to have already noted its proposed acquisition of Chemgenix provide manufacturing and other infrastructure to supply for $163.0 million (see “Biotechnology”). the JV markets and to PG’s North American markets. It will also use its commercial and legal expertise in transi- Toward the end of March, CEPH announced another tioning prescription drugs into generic equivalents to build deal, much to the dismay of VRX. It is offering to buy Ge- up the JV’s OTC portfolio. The JV’s combined sales are min X Pharmaceuticals in a deal worth as much as $525.0 currently $1.0 billion per year, and are expected to reach million. Based in Malvern, Pennsylvania with research $4.0 billion within the next few years. PG is to own 51% operations in Montreal (and in VRX’s backyard), Gemin X of the JV, and will contribute from its staff both a CEO is involved in developing novel cancer treatments. Under and CFO for the JV while Teva will contribute a COO. terms of the deal, CEPH will pay $225.0 million in cash Other details are being hammered out; forward motion upfront and commit to making up to $300.0 million in now depends on clearing regulatory hurdles. regulatory and sales milestones. This acquisition broadens the buyer’s oncology drug development pipeline. Gemin Forbes recently reported an analyst’s reverie about X’s obatoclax is in a mid-stage trial for small-cell lung how pharma giant Pfizer (NYSE: PFE) might reorganize cancer. VRX is shocked, shocked that CEPH is carrying itself into a pure pharmaceutical research company. All on as if its offer didn’t exist, and went so far as to issue the company needs to do, the analyst opines, is divest a press release claiming that the two acquisitions would itself of businesses that account for $32.0 billion, or 40% dilute the value of CEPH. VRX has indicated that if it of the company’s annual revenue. But elimination of could get a look at CEPH’s books, it would be in a better these extraneous divisions rests on the premise that the position to raise its offer. Good luck with that. core Pfizer that remained would reveal itself as a major innovator of new drugs. Problem is, as anyone following On The Radar. Consumer products firm Procter & the pharma news over the past few years will realize, PFE Gamble (NYSE: PG) and generic pharma Teva Phar- has been struggling to develop new drugs, often turning maceutical (NASDAQ: TEVA), both giants in their re- to acquisitions of biotech and others with promising drug spective industries, are teaming up to expand the global candidates. Also, while the analyst had met with PFE reach of OTC brands such as Vicks (cold), Pepto-Bismol CEO Ian Read, there is no indication that Mr. Read has (indigestion), Metamucil (fiber supplement) andPrilosec any intention of undertaking such a move. 