Healthcare & Life Sciences Industry Update August 2013 Member FINRA/SIPC www.harriswilliams.com What We’ve Been Reading August 2013 • According to an article in The Wall Street Journal, the state health insurance exchanges being implemented as part of the Patient Protection and Affordable Care Act (“PPACA”) will likely restrict patients’ access to physicians and providers. According to the article, most of the health insurance plans offered on the state health exchanges will be structured as health maintenance organizations (“HMOs”). These plans are characterized by relatively few choices of healthcare providers and impose systems of approvals and referrals before a patient can access more expensive forms of care. Furthermore, the plans often do not include some of the largest hospitals and health systems, who often cost more than smaller healthcare providers. As a result, many patients who elect to purchase health insurance on state exchanges will experience a significant change in access. (A subscription to The Wall Street Journal Online may be required) • On July 30, Community Health Systems (NYSE:CYH) announced that it would acquire Health Management Associates (HMA) for approximately $3.9 billion, offering $10.50 in cash and 0.0692 CYH shares for each HMA share. The combination would generate one of the largest U.S. hospital companies with 206 locations. The deal is expected to create $150 to $180 million in annual synergies. Health reform has driven a number of large, recent M&A transactions in the hospital sector, including the purchase of Vanguard Health by Tenet in late June for $1.7 billion, reflecting an effort by acquirors to gain scale. The press release, dated July 30th, announcing the HMA acquisition can be found here. 1 HW&Co. HCLS Group Insight August 2013 Dermatology Overview 2 Equity Trading Overview August 2013 Median TEV/ Median TEV/ Key Trading Number of Average Sector Enterprise Change in Stock Price LTM Multiples Forward Mulitples Companies Statistics Value ($ mm) 3 mos. 12 mos. Revenue EBITDA Revenue EBITDA (detail begins Clinical Laboratories 3 $8,047 3.6% 8.1% 1.7x 7.8x 1.7x 8.1x Contract Pharma Manufacturing 5 1,216 15.5% 48.2% 1.7x 11.9x 1.8x 10.5x on page 7) Contract Research Organizations 5 2,546 10.6% 75.8% 1.8x 12.8x 1.6x 11.3x Disease Management 2 3,562 26.8% 65.0% 1.7x 14.3x 1.6x 9.7x Emergency Services 1 1,958 (8.2%) (7.6%) 2.3x 8.4x 2.2x 8.9x Health Care Staffing 4 1,547 10.3% 73.2% 1.0x 13.2x 1.0x 12.6x HMO - Medical 10 20,979 14.6% 47.0% 0.5x 7.6x 0.4x 7.7x Support Services Information Services 11 2,934 14.2% 32.6% 2.9x 21.7x 3.0x 11.7x Specialty Managed Care 2 2,621 28.4% 48.2% 1.1x 8.4x 1.0x NA Payer, Provider, & Pharmacy Specialty Pharmacy Management 5 18,832 13.6% 42.3% 0.9x 10.0x 0.9x 9.9x Dental Products 3 31,189 1.3% 28.7% 2.7x 14.5x 2.6x 13.0x Durable Medical Equipment 5 1,938 (0.8%) 10.8% 1.1x 10.5x 1.1x 7.8x Life Sciences Tools 3 17,317 7.9% 37.0% 2.8x 10.9x 2.7x 10.4x Devices Medical Devices and Products 14 41,866 11.0% 31.3% 2.9x 11.1x 2.8x 10.5x Products & Medical / Surgical / Dental Supplies 6 13,117 11.8% 31.3% 0.2x 10.1x 0.2x 9.1x Acute-Care Hospitals 6 15,470 1.7% 83.1% 1.2x 8.0x 1.0x 7.5x Assisted Living 6 2,326 (2.3%) 51.3% 1.8x 11.9x 2.2x 13.3x Diagnostic Imaging 3 2,891 11.3% 32.8% 1.7x 6.5x 1.7x 5.9x Dialysis Services 2 21,059 (5.5%) (0.6%) 2.1x 10.3x 1.6x 8.1x Home Care / Hospice 6 617 4.0% 20.3% 0.7x 6.7x 0.7x 6.8x Long-Term Care 3 1,357 9.7% 36.3% 0.9x 6.0x 0.8x 6.6x Physician Practice Management 3 2,166 9.8% 17.1% 2.0x 9.8x 1.8x 11.3x Psychiatric Hospitals / Management 3 3,092 11.7% 79.0% 0.4x 6.6x 0.4x 7.3x Provider-Based Services Provider-Based Surgicenters / Rehabilitation 4 2,516 17.5% 21.9% 1.8x 7.8x 1.7x 7.9x Payer, Provider, & Pharmacy Support Services 48 $6,424 12.9% 43.3% 1.6x 11.6x 1.5x 10.0x Products & Devices 31 $21,085 6.2% 27.8% 1.9x 11.4x 1.9x 10.2x Provider-Based Services 36 $5,721 6.4% 37.9% 1.4x 8.2x 1.3x 8.3x HW&Co. HCLS Composite Index 115 $9,215 9.1% 38.1% 1.6x 10.3x 1.5x 9.4x S&P 500 5.5% 22.2% Public Company Acute-Care Hospitals Sector Psychiatric Hospitals / Management Contract Research Organizations Performance Health Care Staffing (12-month % Disease Management Assisted Living change in stock Specialty Managed Care price) Contract Pharma Manufacturing HMO - Medical Specialty Pharmacy Management HW&Co. HCLS Composite Index Life Sciences Tools Long-Term Care Diagnostic Imaging Information Services Medical / Surgical / Dental Supplies Medical Devices and Products Dental Products S&P 500 Surgicenters / Rehabilitation Home Care / Hospice Physician Practice Management Durable Medical Equipment Clinical Laboratories Dialysis Services Emergency Services (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% 120.0% 3 Equity Markets Overview August 2013 Healthcare & 200 Life Sciences Industry Stock 180 79.5% Performance 160 57.0% 49.7% 140 120 100 80 60 40 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 S&P 500 Dow Jones U.S. Health Care Index HW&Co. HCLS Index Top 25 Equity Gross Proceeds Closing Date Filing Date Issuer Ticker Transaction Type ($mm) Offerings 07/23/13 07/23/13 Agios Pharmaceuticals Inc AGIO IPO $134.7 (by proceeds) 07/30/13 07/30/13 Theravance Inc THRX Follow-On 111.9 07/17/13 07/17/13 OncoMed Pharmaceuticals Inc OMED IPO 93.8 07/24/13 07/24/13 Onconova Therapeutics Inc ONTX IPO 89.1 07/29/13 07/29/13 Foundation Medicine Inc FMI IPO 86.3 07/19/13 07/19/13 MannKind Corp MNKD Follow-On 83.0 07/24/13 07/24/13 Conatus Pharmaceuticals Inc CNAT IPO 66.0 07/26/13 07/26/13 Five Prime Therapeutics Inc FPRX IPO 60.0 07/26/13 07/26/13 GI Dynamics Inc GID Follow-On 54.6 07/24/13 07/24/13 Cellular Dynamics Intl Inc ICEL IPO 46.2 07/24/13 07/24/13 TearLab Corp TLB Follow-On 40.4 07/18/13 07/18/13 TG Therapeutics Inc TGTX Follow-On 40.3 07/26/13 07/26/13 Lipocine Inc MBARD Follow-On 38.0 07/23/13 07/23/13 Heat Biologics Inc HTBX IPO 26.0 07/31/13 07/31/13 BioCryst Pharmaceuticals Inc BCRX Follow-On 20.2 07/31/13 07/31/13 EnteroMedics Inc ETRM Follow-On 20.0 07/31/13 07/31/13 TrovaGene Inc TROV Follow-On 15.0 07/18/13 07/18/13 pSiVida Corp PSDV Follow-On 10.8 07/23/13 07/23/13 Rexahn Pharmaceuticals Inc RNN Follow-On 5.7 07/19/13 04/04/13 Cardium Therapeutics Inc CXM Convertible 4.0 07/26/13 07/26/13 Genufood Energy Enzymes Corp N/A Follow-On 3.0 07/19/13 07/19/13 International Stem Cell Corp ISCO Follow-On 3.0 07/23/13 07/23/13 Boston Therapeutics Inc BTHE Follow-On 2.0 07/26/13 07/26/13 CorMedix Inc CRMD.U Convertible 0.5 07/22/13 07/22/13 CNS Response Inc CNSO Follow-On 0.1 4 M&A Overview August 2013 Announced Quarterly M&A Activity Middle Market Healthcare Transaction Highlights 350 Healthcare & Announced Target Buyer 7/31/2013 ReSearch Pharmaceutical Services, Inc. Kohlberg Kravis Roberts & Co. 7/31/2013 Restat, LLC Catamaran Corporation 22 Life Sciences 300 7/25/2013 Denison Pharmaceuticals, Inc. Brookstone Partners 16 7/24/2013 American Eldercare, Inc. Humana Inc. 7/19/2013 Roscoe Medical, Inc. Tenex Capital Management M&A __ 18 13 7/17/2013 InfuSystem Holdings, Inc. Meson Capital Partners LLC 250 13 18 17 20 7/17/2013 Indiana HomeCare Network LLC Almost Family Inc. 11 12 7/15/2013 IDEV Technologies, Inc. Abbott Laboratories (NYSE:ABT) 12 16 7/11/2013 Platinum Health Services, LLC Healthcare Services Group Inc. 200 7/2/2013 Zest Anchors LLC Avista Capital Holdings, L.P. 150 291 267 256 242 245 236 LTM Deal Statistics 225 229 221 Number Number Transactionsof 219 7 100 200 209 Aggregate Number Median Transaction Multiples Value ($bn) of Deals TEV/Rev TEV/EBITDA $110.3 1,096 2.18x 10.1x 50 106 Note: Transactions based on publicly available information 0 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 PEG Acquirer Strategic Acquirer Healthcare & Announced Healthcare & Life Sciences Transactions Median Healthcare & Life Sciences Transaction Multiples Life Sciences $500 1200 21x 4.0x M&A Trends $450 1000 18x 3.5x $400 EV /LTM EV Revenue Multiple Number Number Transactionsof __ $350 15.2x 3.0x 800 15x $300 12.8x 2.5x 10.9x 12x 11.1x $250 600 2.0x 9.0x $200 $194.1 9x $174.6 7.7x 1.5x $141.4 400 $150 6x $110.6 $101.6 1.0x $100 __ 200 $65.0 __ EV /LTM EV EBITDA Multiple 3x $50 0.5x AggregateTransaction Value in($ billions) $0 0 0x 0.0x 2008 2009 2010 2011 2012 2013 YTD 2008 2009 2010 2011 2012 2013 YTD Aggregate Deal Value # of deals TEV / LTM EBITDA TEV / LTM Sales Announced PEG Investments by Segment (Last 3 Years) PEG Investments and Exits Private Equity HC&LS Industry Number of 160 Segment Companies M&A Activity 139 Biotechnology 5 140 Healthcare Technology 19 ' 120 120 Healthcare Distributors 7 113 Healthcare Equipment 28 100 94 95 Healthcare Facilities 31 Healthcare Services 59 79 80 79 80 69 71 Healthcare Supplies 8 65 65 60 62 TransactionVolume 58 Life Sciences Tools & Services 17 60 50 Managed Healthcare 6 49 40 40 42 Pharmaceuticals 17 40 35 27 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Number of Investments Number of Exits 5 Debt Markets Overview August 2013 Key Credit Quarterly Healthcare Loan Volume Average Spread on Healthcare Loans $24 Statistics L + 500 ___ $21 __ L + 400 $18 $15 L + 300 $12 $9 L + 200 $6 Average Spread Over LIBOR Over Spread Average L + 100 $3 Loan VolumeLoan Quarterby ($ billions)in $0 L + 0 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 2007 2008 2009 2010 2011 2012 2013YTD Pro Rata Institutional Revolving Credit / Term Loan A Weighted-Average Institutional Credit Statistics Average Secondary Spread L + 1000 6.0x 2007 2008 2009 2010 2011 2012 2013YTD __ L + 800 __ 4.0x L + 600 L + 400 2.0x EBITDA Multiple EBITDA L + 200 Average Spread Over Over LIBOR Spread Average 0.0x L + 0 Debt/EBITDA Senior Debt/EBITDA EBITDA/Cash Interest EBITDA - Capex/Cash Interest1 (1) Not available for 2013YTD.