M&A International Inc. Global Consolidation Shaping the ...wesrespartners.com/wp-content/uploads/2011/10/MAI-Sector-Report_Healthcare1.pdf2.1 Rising Demand for Household Healthcare

M&A International Inc.Global Consolidation Shaping the Future of the Healthcare Industry

Fall 2009: Healthcare Industry M&A Overview

www.mergers.net

Overview of Western Reserve PartnersWestern Reserve Partners LLC, based in Cleveland, Ohio, is a leading investment banking firm dedicated to providing customized solutions andunparalleled results to the premier companies in the middle market.

Clients benefit from our focused approach to financial advisory services, including:

Sales and Divestitures

Acquisitions

Mergers, Joint Ventures and Strategic Partnerships

Operating Partnership (“O.P.”) Unit Exchanges

Refinancing and Recapitalization

Growth Capital and Acquisition Financing

Special Situation Financing

Credit Tenant Lease (“CTL”) Transactions

IPO Advisory

Identifying and Analyzing Strategic Alternatives

Refinancing or Replacement of Existing Indebtedness

Raising of Additional Capital

Out-of-Court and Section 363 Sales

Advisory Services in Chapter 11 Cases

Fairness Opinions

Solvency Opinions

ESOP Opinions

Valuation Opinions

Mergers & Acquisitions Capital Raising

Restructuring & Bankruptcy Financial Opinions & Valuation Services

For more information, please contact:

Western Reserve’s professionals have completed more than 35 corporate finance transactions involving non-U.S. companies, primarily fromEurope and Asia. Two of our managing directors have worked as expatriate executives, providing them direct understanding of the nuances ofinternational business practices. Furthermore, members of our staff speak French, German, Italian, Russian and Spanish.

Global Reach

Western Reserve believes that access to international purchasers, sellersand investors is fundamental to maximizing value for our clients. This iswhy we are members of M&A International Inc., the world’s premierinternational alliance of investment banking firms. This network provides uswith direct access to corporate buyers and investors outside the U.S., whereculture, language and time zone differences play significant roles intransaction processes and outcomes. M&A International is comprised ofmore than 500 M&A professionals working in 41 countries, and in 2010,M&A International’s 47 members completed more than 264 transactionscollectively worth $9.2 billion.

M&A International Member Offices

M&A International Inc. - the world's leading M&A allianceFall 2009

Ralph M. Della Ratta, Jr.

Managing Director

Phone: 216.589.9557

[email protected]

M&A International Inc. – the world's leading M&A allianceFall 2009

Global Consolidation Shaping the Future of the Healthcare IndustryIndustry M&A Overview1

Table of Contents

Introduction 2

Global Convergence Accelerating Healthcare M&A 2

Key Healthcare Industry Segments 3

Healthcare M&A Robust Despite Economic Downturn 4

Increasing Demand, R&D and Industry Competition Driving Deals 4

Healthcare Pharmaceuticals 5

Emerging Markets Key to Future Growth 5

Patent Expiries and the Need for Integrated Product Offerings Boosting M&A Activity 5

Cross-Border and Small Cap Deals Driving Volumes in Pharmaceuticals 6

Big Pharmaceuticals Eyeing Emerging Markets and Small Cap Targets 6

1. Specialty Pharmaceuticals 7

1.1 R&D Capabilities of Specialty Firms Attractive to Big Pharmaceuticals 7

1.2 Representative Transactions 8

1.3 Public Company Valuations 9

2. Over-the-Counter Pharmaceuticals 10

2.1 Rising Demand for Household Healthcare Products, a Prime M&A Driver 10



3. Contract Pharmaceuticals 13

3.1 Cost Efficiencies Pushing M&A Activity 13



Medical Devices 16

Ageing Population Fueling Growth and Product Standardization Leading to More M&A 16

Medical Devices M&A: Small Cap Deals Sustaining Deal Volumes 17

Higher Healthcare Spending and Favorable Regulations Spur M&A 17

Representative Transactions 18

Public Company Valuations 19

Going Forward 20

Low R&D Productivity and Potential Strain on Profitability Present Challenges 20

Global Convergence and Rise of Emerging Markets to Continue Driving Healthcare M&A 20

About M&A International Inc. 20

M&A International Inc. Healthcare Group Specialists 21

M&A International Inc. Representative Transactions 22


Global Consolidation Shaping the Future of the Healthcare Industry

Despite a greater awareness of healthcare priorities and continued market growth, the healthcare industry has faced serious challenges in recent years. In particular, the regulatory environment has become more demanding. Furthermore, R&D productivity has declined and patents continue to expire, leaving an increasing number of blockbuster drugs exposed to generic competition.

Such trends and challenges resulted in accelerated M&A activity within the sector as healthcare companies targeted growth opportunities in emerging markets, acquired small companies with advanced R&D capabilities in niche segments, and participated in mega-mergers to realize operational synergies including economies of scale. The specialty pharmaceuticals, OTC and contract pharmaceuticals sectors have been the most active, while emerging markets have proved the most popular target destinations during the recent period of high M&A activity.

According to Alain Lostis, Head of the M&A International Inc. Healthcare Group, “M&A activity in the sector will accelerate further. Healthcare sector M&A deal volume as a percentage of total M&A has grown from 5.8% in 2007 to 12.8% in the first nine months of the current year” (see Figure 2).

Healthcare ranked as one of the top four industries in terms of the total value of M&A transactions in the first nine months of 2009.

6.0%21.5%

12.8%

9.7%

5.3%

10.8%

13.5%

6.1%

14.3%

Financials Materials Energy & Pow erHealthcare Industrials High TechConsumer Staples Real Estate Others

Industry M&A Overview2

Figure 1: Global healthcare spending rising as a % of GDP

8.7%8.2%

0.0%

3.0%

6.0%

9.0%

12.0%

2000 2006

* YTD as of 30 September 2009

Source: Copal Analysis, Wall Street Research, WHO

IntroductionOver the past decade, the healthcare industry has experienced global convergence and witnessed the rise of emerging markets. This report covers M&A activities in two major sectors: pharmaceuticals (including specialty, over-the-counter and contract pharmaceuticals) and medical devices. It focuses on major trends and drivers influencing the sector and their impact on M&A activity. It also considers the role of emerging economies, both as manufacturing hubs and high growth potential markets. The report discusses the scale of M&A activity in these sectors, which have been highly resilient despite the current global economic slowdown, particularly in small cap and cross-border deals, with emerging markets driving a significant proportion of volume, both as targets and acquirors.

Global Convergence Accelerating Healthcare M&AGlobally, the healthcare industry has converged due to the sharing of best practices and blurring distinctions between pharmaceutical, medical equipment and medical service companies.

Globalization, together with the rising importance of emerging countries in the overall growth of the healthcare industry, has resulted in an increase in M&A activity in the industry.

During the past decade, healthcare expenditure as a percentage of GDP has increased in Organization for Economic Cooperation and Development (OECD) countries and is accelerating in developing countries, resulting in the emergence of new markets for healthcare products. The contribution of healthcare products and services to global GDP increased from 8.2% in 2000 to 8.7% in 2006 (see Figure 1).

Figure 2: Healthcare among top sectors in global M&A deals by value (YTD 2009)*



Pharmaceuticals Medical Equip. & Supplies Medical Services

M&A Statistics (to 3Q 2009)

– No. of deals: 444

– Cross-border: 30%

– Deals US$1–300mn: 90%



– Deals US$1–300mn: 90%



– Deals US$1–300mn: 97%

Key Characteristics

– Key players possessing powerful R&D and sales & marketing operations as well as strong pricing power

– Sector evolved from a traditional business model in which a single company controlled the entire Product Life Cycle (PLC) to one in which the PLC is now distributed among a wide range of companies

– Highly regulated industry

– Largely innovation-driven industry

– Diverse product range

– Equipment has short life span due to rapid technological advances

– Complex distribution and purchasing processes

– Highly regulated industry

– Emphasis on after-sales service

– Includes wide range of services

– Demand driven by demographics and advances in medical care and technology

– Prices vary depending on the service provided, length of patient stay and patient’s insurance policy

Products & Services

– Pharmaceuticals

– Specialty pharmaceuticals

– OTC/Drugstores

– Clinical specialties and patient care solutions

– Medical and imaging laboratories

– Hospitals and clinics

– Ambulant healthcare facilities

– Home healthcare services

Drivers for M&A

– Expiring drug patents

– Increasing demand for products, services and technology from emerging markets

– Global competition among drug researchers and developers

– Rise of emerging markets both as areas for growth and low cost manufacturing

– Acquisition of small and mid-size companies to extend core competencies

– Regional consolidation

– Increasing medical tourism

– Huge demand for quality healthcare and increased healthcare spending

Major Players

Level of Consolidation

– Highly concentrated with over 50% of the market held by 15 multinational companies

– The US, EU and Japan comprise 80% of the market

– Moderately fragmented with the 50 largest companies generating 60% of total market revenue

– Highly fragmented with the 50 largest companies generating only 15% of total market revenue

Source: Copal Analysis, Wall Street Research

Key Healthcare Industry Segments



Figure 3: Services led volumes, while biotech led deal value

Healthcare M&A Robust Despite Economic Downturn

The healthcare sector has attracted considerable attention in recent years due to consolidation by many of the world’s leading pharmaceutical companies. The impact of such activity is particularly apparent in terms of aggregate deal value in the current M&A market, where values have generally fallen across all industry sectors. Although we anticipate cross-border healthcare sector deals to be driven mainly by large cap consolidation, this process will increase competition among mid-market players.

While total M&A activity has fallen sharply this year, the healthcare sector has remained relatively strong .

The biotechnology, medical device and diagnostic sectors have been particularly robust. Although the medical services sector accounted for 47% of all deals by volume last year, it comprised only 8% in terms of value, suggesting a high proportion of small and mid cap deals. At the same time, the biotechnology sector reported the inverse (see Figure 3).

* Excludes deals with undisclosed prices

Total healthcare sector M&A transactions by volume fell from 1,074 in 2007 to 973 in 2008, while in dollar terms they decreased from US$248bn to US$207bn (see Figure 4).

So far this year the dollar value of deals has totaled US$182bn, significantly higher than in the same period last year .

Healthcare sector M&A transactions for the first nine months of 2009 account for 12.8% of all deals worldwide by value, higher than at any time this decade (see Figure 4). In the first quarter of 2009, the total value of M&A transactions significantly exceeded those recorded in the same period last year due to several high profile transactions, including Pfizer/Wyeth.

Increasing Demand, R&D and Industry Competition Driving Deals

We believe healthcare industry consolidation will continue to be driven by expiring patents, increasing demand for healthcare products and services, and global competition among drug researchers and developers.

Potential buyers attach considerable importance to the value of a possible target’s R&D resources, often including incentives in the deal based on the target’s future R&D success.

Moreover, competition created by recent consolidation of large cap industry leaders has already created interest among smaller companies seeking potential buyers. Such a trend already exists with the same global leaders involved in this year’s blockbuster transactions also being active in the mid-market segment. Since January 2008, Roche has made nine acquisitions in the UK, Canada, Germany and Japan, seven of which were valued at below US$160mn.

14991 103 100

168 175294 248 207 182

4.4% 5.4%8.5% 7.2%

8.8%6.3%

8.1%5.8%

7.8%12.8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009YTD*

Total healthcare deal value (US$bn) % of to tal M &A deals

Source: Copal Analysis, Wall Street Research, Thomson

Figure 4: Healthcare M&A deals (as a % of the total) have reached their highest levels this decade

* YTD as of 30 September 2009



0

2,500

5,000

7,500

To 2015 To 2020 To 2025 To 2030 To 2035 To 2040 To 2050

US Western Europe Japan E7 ROW

0

300

600

900

1,200

1,500

2004 2008 2012 2016 2020

US Western Europe Japan E7 ROW


* E7 countries are Brazil, Russia, India, China, South Korea, Mexico and Turkey** ROW countries include all other countries except the E7 countries, the USA, Western Europe and JapanSource: Copal Analysis, Wall Street Research

Healthcare PharmaceuticalsWe expect the global pharmaceutical industry revenues to increase at a CAGR of 4.5% from US$733bn in 2008 to US$1,244bn in 2020 (see Figure 5). The E7* and Rest of World (ROW)** countries are poised to account for most of this growth. We believe E7 and ROW combined sales will grow at a CAGR of 9.4% from US$188bn in 2008 to US$550bn in 2020 (see Figure 5), with China acting as a key component.

Emerging Markets Key to Future Growth

The E7 and ROW countries are becoming more important to growth in the pharmaceutical sector (see Figure 6). Emerging market growth is vital as companies can perform well in these regions without necessarily deploying their most innovative medicines.

Emerging markets, dominated by generics and OTC products, provide opportunities to reduce risk from the pharmaceutical business model by providing higher exposure to generics while maintaining a return on investment broadly in line with the ethical segment.

The generics business provides a bridgehead for marketing patented products at a later stage, a key rationale behind Sanofi-aventis’ move on Zentiva.

Patent Expiries and the Need for Integrated Product Offerings Boosting M&A Activity

Rising population and changing demographics are driving the pharmaceutical industry’s future growth and development. This, together with company integration targeting a more comprehensive offering, is driving M&A activity in the sector.

In order to capitalize on the exponential growth in emerging economies and counter the threat of patent expiry, the industry has substantially consolidated with 10 companies now active instead of 50 some 20 years ago .

Novartis offers a perfect example of investment in a broad range of pharmaceutical segments (ethical, generics, OTC, animal health). Japan’s Daiichi has shown interest with its acquisition of Ranbaxy. Given the success of such acquisitions, we believe pharmaceutical companies are likely to continue investing in emerging markets.

Increasing share of E7 and ROW in world markets to drive M&A activity in the region

Figure 6: Growth of pharmaceutical sales by region (US$bn)

Figure 5: World pharmaceuticals: market size by region (US$bn)

The E7 and ROW share is expected to increase significantly



0.0x

5.0x

10.0x

15.0x

20.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EV/EBITDA all deals EV/EBITDA cross-border

Figure 8: Small and mid cap deals constitute the bulk of pharmaceutical M&A (2009 YTD)

Figure 7: Pharmaceutical deals constitute over a quarter of healthcare deal volume (2009 YTD)

Approximately 30% of pharmaceutical M&A deals were cross-border (see Figure 9) .

The recent economic downturn has resulted in a more drastic reduction in cross-border target valuations. These are now comparable to those of their domestic counterparts (see Figure 10).

Big Pharmaceuticals Eyeing Emerging Markets and Small Cap Targets

Pharmaceutical companies face several challenges including the fact that very few new drugs are coming to market, existing drugs are losing patent protection and sales channels are becoming subject to tougher government regulations. With revenues from existing pharmaceuticals slowing and the number of approved new drugs in the pipeline decreasing, pharmaceutical companies are now focusing on acquiring smaller businesses to stimulate their drug pipelines. Those able to innovate successfully in R&D will be attractive acquisition targets .

A proactive acquisition strategy will enable companies to diversify business lines, access new markets and achieve economies of scale based on volume and low cost manufacturing.

In recent months, several large pharmaceutical companies have aggressively acquired both assets and expertise in emerging markets. With success in such areas dependent on local knowledge and distribution-based strategies, consolidation through acquisitions is expected to continue in these regions.

Note: YTD refers to the first nine months of 2009Source: Copal Analysis, Wall Street Research, Thomson

Figure 10: Recent downturn has resulted in a more drastic reduction in cross-border target valuations

Cross-Border and Small Cap Deals Driving Volumes in Pharmaceuticals

Pharmaceutical sector M&A activity increased sharply in the first quarter of this year, driven by Pfizer’s acquisition of Wyeth, and Merck’s purchase of Schering-Plough. Despite fewer deals in the first half compared to the same period last year, dollar volume was significantly higher due to several blockbuster deals. Currently, Pfizer, Merck and a number of other major pharmaceutical companies are seeking to expand their generic portfolios, an objective more rapidly achievable by outright acquisitions.

The sector has accounted for 27% of total healthcare M&A deal volume in the first nine months of 2009, around 90% of which has comprised small cap targets (see Figures 7 and 8).

Domestic70%

Cross-border30%

Figure 9: Cross-border deals constitute 30% of pharmaceutical deal volume (2009 YTD)



Figure 11: The specialty pharmaceuticals sector has evolved from niche focus to acquisitions of major brands

1. Specialty Pharmaceuticals

The specialty pharmaceuticals sector is engaged in arbitrage opportunities neglected by the larger pharmaceutical companies. The firms in this sector usually source products externally, have minimal drug discovery capabilities and focus on a few specialty therapeutic areas, targeting specialists rather than primary care physicians. We estimate the value of the specialty pharmaceutical market at US$70–80bn in terms of total global sales.

Specialty pharmaceutical market segments include companies in niche therapeutic areas (e.g. Lundbeck), portfolio adapters (Shire plc), licensing experts (Helsinn), drug delivery experts (Elan) and specialty generics players (Teva). We anticipate strong M&A activity within the sector due to growing competition and greater efforts to diversify business risk given that companies have moved from niche focus to acquisitions of major brands (see Figure 11).

The sector has experienced substantial deal flow largely due to the funding issues faced by smaller firms. While such companies possess viable products and technology, they are unable to fund the development and commercialization required to bring products to market and have therefore become key acquisition targets.

While pharmaceutical companies are more attracted by products with higher sales potential (i.e. >US$500mn), most specialty pharmaceutical products have lower sales possibilities (<US$300mn) making them ideal targets for specialty pharmaceutical companies .

Furthermore, large pharmaceutical companies are focusing more specifically on fewer therapeutic areas and divesting non-core (pre-clinical and clinical) development pipelines, creating acquisition opportunities for their specialty pharmaceutical counterparts.

1.1 R&D Capabilities of Specialty Firms Attractive to Big Pharmaceuticals

We expect the specialty pharmaceuticals sector to consolidate to enable companies to develop, license and acquire therapeutic products and processes vital to commercial success.

To enhance capabilities and increase market penetration, we foresee a more adventurous investment strategy from future players including acquisitions of early-stage pharmaceutical companies .

Specialty pharmaceutical companies need to improve their R&D facilities over the next few years in order to maintain and strengthen their market position. We believe this would result in further convergence through acquisitions between the specialty pharmaceuticals sector and its biotechnology counterpart based on its proactive involvement in R&D.

In demographic terms, we see significant commercial potential in the following therapeutic categories: pain, dermatology, oncology, ophthalmology, women’s health, urology, central nervous system and orphan drugs.


1980s 1990s 2000s

Niche focus Increased levels of M&A

Late-in-lifecycle products

Acquisition of capabilities inniche therapeutic areas

mitigating competition fromthe big pharmaceutical

companies

Opportunistic acquisition of capabilities in major

therapeutic areas and focus on specific target populations

Acquisition of major brandsprovides local opportunities

for revenue growth

Spe

cial

ty P

harm

aceu

tical

s S

trat

egy



1.2 Representative Transactions

Statistics indicate that previous mega-mergers are no longer an attractive strategy. Companies are now seeking to buy smaller firms at lower prices as Asian companies penetrate both European and US markets.

Due to fierce competition and saturation in the US, together with stronger emerging markets, generics companies in these countries have increasingly become acquirors rather than targets, either buying directly in the US or indirectly through acquiring a cheaper European firm .

Although the specialty pharmaceuticals sector has traditionally capitalized on opportunities presented by major pharmaceuticals, competitive pressure and an increasingly mature market is now forcing them to develop new specialization strategies. Such pressures, including commoditization of drug delivery technologies and competition from foreign bulk generics manufacturers, are driving new company growth models and concentration on targeted portfolios, stronger late-stage drug development capabilities, M&A and in-licensing activity.

M&A activity was the preferred growth strategy of most pharmaceutical companies before the recession. While mega-mergers certainly create economies of scale and expand pipelines, their long-term benefits may be less than expected.


Transactions featuring emerging economies

Date Announced

Target Acquiror Deal Synopsis Transaction Value ($mn)

EV/Rev

EV/EBITDA

5-Mar-09 BeximcoPharmaceuticals Ltd

(Bangladesh)

GEM Global Yield Fund Ltd

(USA)

The acquisition gave Beximo the option to work on expansion, diversification and modernization of its activities

73 N/A N/A

4-Apr-08 DRAXIS Health Inc

(Canada)

Jubilant OrganosysLtd

(India)

The deal gave Jubilant greater access to the North American market as well as DRAXIMAGE, Draxis' coveted radiopharmaceutical division

255 2.9x 64.5x

21-Dec-06 Matrix Laboratories

(India)

Mylan Laboratories

(USA)

The acquisition was a step forward for MylanLaboratories in furthering its global expansion, growth and anticipated leadership position

202 4.9x 42.2x

07-Nov-06 AmounPharmaceutical Co.

(Egypt)

Mercury Pharmaceutical

(Egypt)

The deal allowed the investor consortium to expand Amoun’s operations worldwide

494 4.5x N/A

Transactions featuring developed economies

Date Announced


EV/Rev

EV/EBITDA

12-May-09 Antisoma-Oral Fludarabine

(UK)

Sanofi-aventis(France)

Antisoma has increased its cash resources by selling its Oral Fludarabine product

65 N/A N/A

6-May-09 Wellbutrin XL US

(USA)

Biovail (Canada) The deal strengthened Biovail’s existing business with an expected increased cash inflow of US$80–90mn

510 5.1x N/A

21-Oct-08 Nektar Therapeutics-Pulmonary

(USA)

Novartis (Switzerland)

Novartis AG gained access to advanced proprietary technologies and an experienced R&D team while strengthening its drug delivery development capabilities, particularly in life-threatening respiratory diseases

115 3.0x N/A

17-Sep-08 Prestwick Pharmaceuticals (USA)

Biovail

(Canada)

The acquisition provided Biovail with other early-stage products

100 55.5x N/A

14-Jul-08 QLT-Aczone Product Line

(Canada)

Allergan

(USA)

Allergan added Aczone (an acne treatment) to its product portfolio. This drug was supposed to be launched in the fourth quarter of 2008 in the US and Canada

150 2.0x N/A



0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

yearEV/Revenue EV/EBITDA P/E

1.3 Public Company Valuations

Historical median valuation multiples indicate that these specialty companies traded at their lowest levels this decade in 2008, hampered by the broader economy (see Figure 12). Although valuations have recently improved, companies seeking to extend their portfolio can afford to remain opportunistic in acquiring niche pharmaceutical players.

The selected public specialty pharmaceutical companies currently trade at a forward median revenue multiple of 4.1x. However, large cap companies have generally traded at a premium compared to mid and small cap specialty pharmaceutical businesses. These multiples also suggest that most of these companies remain unprofitable, a fact supported by the substantial R&D spending required to successfully launch new products.

Source: Copal Analysis, Reuters

Figure 12: Specialty pharmaceutical companies traded at their lowest levels this decade in 2008

Specialty pharmaceuticals: selected trading comparables

Stock Price Market Enterprise EV / Revenue EV / EBITDA P/E

Company 7-Oct-09 Cap Value 2009 2010 2009 2010 2009 2010

(US$) (US$mn) (US$mn)

Alcon 139.12 41,557 39,812 6.3x 5.8x 16.6x 15.2x 21.5x 19.3x

Allergan 56.21 17,091 17,557 4.1x 3.8x 12.1x 11.1x 20.9x 18.1x

Endo Pharmaceuticals Holdings 23.64 2,770 2,810 1.9x 1.8x 5.4x 5.2x 8.9x 8.4x

Auxilium Pharmaceuticals 33.69 1,442 1,361 8.6x 5.9x NM NM NM NM

Salix Pharmaceuticals 23.71 1,158 1,134 4.9x 3.6x NM 57.4x NM NM

Savient Pharmaceuticals 15.07 929 852 NM 11.8x NM NM NM NM

Nektar Therapeutics 9.68 897 837 11.1x 9.2x NM NM NM NM

Vivus 9.88 780 558 11.2x 19.4x NM NM NM NM

Eurand 14.55 666 634 3.6x 2.5x 52.6x 11.9x NM 26.9x

Impax Laboratories 9.64 593 497 1.9x 1.4x 13.4x 7.6x 35.8x 18.6x

Enzon Pharmaceuticals 8.79 399 532 2.7x 2.6x 25.1x 18.8x NM NM

Inspire Pharmaceuticals 4.99 394 387 4.6x 3.8x NM NM NM NM

Cumberland Pharmaceuticals 15.50 309 306 7.1x 3.7x NM 14.5x NM 29.9x

POZEN 7.88 235 187 5.6x 3.9x NM NM NM NM

DURECT 2.44 201 166 7.1x 6.1x NM NM NM NM

Santarus 3.45 200 153 1.0x 0.9x 16.9x 10.0x 35.8x 17.2x

Supergen 2.66 157 70 1.9x 1.8x NM NM NM NM

K-V Pharmaceutical 3.10 155 289 N/A N/A N/A N/A N/A N/A

Ista Pharmaceuticals 4.53 150 226 2.2x 1.6x NM 10.1x NM 18.8x

Akorn 1.33 120 130 1.7x 1.5x NM NM NM NM

Columbia Laboratories 1.33 73 108 3.4x 2.7x NM NM NM NM

Mean 4.8x 4.7x 20.3x 16.2x 24.6x 19.7x

Median 4.1x 3.7x 16.6x 11.5x 21.5x 18.7x



Figure 14: China set to lead growth in per capital consumer healthcare spending

2. Over-the-Counter Pharmaceuticals

In 2007, sales in the global over-the-counter (OTC) segment of the consumer healthcare market were approximately US$107bn (see Figure 13). We forecast sales to grow by 5% annually going forward with well-positioned companies including GlaxoSmithKline and Reckitt Benckiser reporting annual growth of 5–10%.

In 2008, the six largest OTC companies worldwide were Bayer, GlaxoSmithKline, Merck, Novartis, Sanofi-aventis and Reckitt, jointly comprising around 18% of the total OTC market.

Consumer healthcare forecasts for this year issued by US pharmaceutical companies have been more cautious than in previous years due to greater exposure to a general market downturn than their European counterparts, which are more vulnerable to higher growth markets. However, both US and European companies continue to increase their exposure to emerging markets . Consumer healthcare spending in China and India is forecast to grow at a CAGR of 6.9% and 4.1% respectively between 2007 and 2012 compared to 2.1% globally (see Figure 14).

2.1 Rising Demand for Household Healthcare Products, a Prime M&A Driver

We anticipate the OTC market to grow based on key demographic and lifestyle changes including consumer empowerment, better education and the convenience of self-medication over doctor consultations.

In addition, ageing, obesity and longer working hours are leading to greater demand for self-administered healthcare products. This in turn is encouraging M&A activity, e.g. Merck’s acquisition of Bio-Fyt in 2008 .

Better brand management by pharmaceutical companies and direct-to-consumer advertising have also expanded the OTC segment. At the same time, widening distribution channels, especially in Europe and Japan, are improving consumer reach, resulting in a greater need for pharmaceutical companies in those regions to enhance their OTC product portfolios through strategic acquisitions.

High out-of-pocket healthcare payments, inadequate healthcare infrastructure and physician access, and brand loyalty promote OTC use in emerging economies. Furthermore, growing demand for household healthcare products in emerging markets provides an opportunity for global pharmaceutical players to capitalize on this demand by leveraging the OTC capabilities of local players through outright acquisition.

* EU-5 countries are France, Germany, Italy, Spain and the United KingdomSource: Copal Analysis, Wall Street Research

Figure 13: Global over-the-counter market is poised for consistent growth (US$bn)

0

50

100

150

2007 2008 2009 2010 2011 2012

Global total

CAGR = 5.0%

2.1%

1.2%

2.8% 2.6%

4.1%

2.5%

6.9%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

Global US Japan EU-5* China India ROW

Consumer healthcare spending per capita growth (2007–12)





Date Announced


EV/Rev

EV/EBITDA

16-Sep-09 Bristol-Myers Squibb Indonesia

(Indonesia)

Taisho Pharmaceutical Co Ltd

(Japan)

The deal will enable Taisho to enter into the Asian OTC drug business and use the strong sales network built by BMSI in Asia

310 7.3x 16.4x

28-Jul-09 NutritionBusiness of Wockhardt(India)

Abbott Laboratories(USA)

The acquisition will enable Abbott Laboratories to accelerate growth of its nutrition business in India

130 N/A N/A

20-Nov-07 Strides Latina (Brazil) Aspen PharmacareHoldings Ltd (South Africa)

The deal will enable Aspen to expand its geographic reach while using Strides Latina as a platform for its manufacturing and sales capabilities

153 N/A N/A

25-Oct-06 Qidong Gaitianli(China)

Bayer Healthcare(Germany)

The acquisition will substantially increase Bayer Consumer Care’s presence in China

160 3.8x N/A

29-Mar-06 Terapia(Romania)

Ranbaxy(India)

The deal will allow Ranbaxy to leverage its expanded base in the Romanian pharmaceutical market and across the European Union and CIS markets

324 N/A N/A


Date Announced


EV/Rev

EV/EBITDA

21-Aug-09 Patheon Inc.(USA)

Lonza Group Ltd(Switzerland)

The acquisition is consistent with Lonza's stated strategy to expand its offering across the pharmaceutical manufacturing value chain

326 1.0x 11.8x

2-Dec-08 Bio-Fyt(Belgium)

Merck(Germany)

The deal enabled Merck to expand its self-medication portfolio in Belgium

47 3.8x N/A

20-Nov-08 AZ Tika(Sweden)

GlaxoSmithKline(UK)

The acquisition will form a part of the company’s expansion strategy for the consumer healthcare business

215 5.4x N/A

21-Oct-08 Laclede –Biotene(USA)

GlaxoSmithKline(UK)

The acquisition will help the company to extend its oral healthcare portfolio to include a proven treatment for dry mouth

170 3.4x N/A

19-Dec-06 CNS(USA)

GlaxoSmithKline(UK)

The acquisition helped GlaxoSmithKline to geographically expand and to add CNS’ products to its portfolio

566 4.6x N/A

opportunities for larger OTC players to target possible regional OTC M&A opportunities including Dabur (India), Chattern (US) and Almirall (Spain).

Despite limited disclosure, OTC deals are apparently becoming more expensive based on EV/sales multiples. For example, the EV/sales multiple for GSK’s acquisition of Block Drug in 2001 was 1.6x compared with 4.4x for its acquisition of CNS in 2006. J&J paid a similar multiple of 4.3x to acquire Pfizer Consumer Health in 2006. Similar trends are occurring in the home and personal care sectors with Reckitt paying an EV/sales multiple of 6.0x for Adams Respiratory Therapeutics in 2008.

The OTC industry is becoming increasingly globalized, driven by recent industry consolidation and scale-based competitive advantages. Large OTC pharmaceutical companies have tried actively to expand their OTC portfolio and enhance geographical penetration through acquisitions. GlaxoSmithKline has developed a broad geographical OTC footprint covering 120 countries, largely as a result of strategic acquisitions in the OTC sector. Reckitt Benckiser has made opportune acquisitions in the OTC sector, completing its successful integration of both BHI and Adams.

However, the global OTC sector remains highly fragmented, despite recent consolidation, providing




0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year

EV/Revenue EV/EBITDA P/E


Figure 15: OTC pharmaceutical companies currently trading at lowest valuation levels since 2005



Historical median valuation multiples show that OTC companies reached their peak valuations in 2006–2007, with valuations falling in 2008 (see Figure 15). Given increasing demand for household healthcare products, we expect small and mid cap OTC companies to continue to attract interest from larger pharmaceutical companies and to demand a premium valuation for takeover bids.

The selected public OTC pharmaceutical companies currently trade at a forward median EBITDA multiple of 11.2x. Their lower cost structure and consequently higher EBITDA margins have resulted in these companies trading at higher multiples than companies in the specialty pharmaceuticals and contract pharmaceuticals segments. Dabur is trading above the median at a much higher multiple of 20.7x, while Prestige Brands is trading at a forward EBITDA multiple of 7.4x.

OTC pharmaceuticals: selected trading comparables




Reckitt Benckiser Group 49.25 35,203 36,013 3.0x 3.0x 11.7x 12.0x 16.2x 16.6x

Perrigo 35.10 3,236 3,812 1.8x 1.7x 10.9x 9.9x 18.1x 15.8x

Dabur India 2.99 2,586 2,608 3.8x 3.2x 20.7x 17.4x 26.8x 22.2x

SSL International 10.12 2,149 2,196 1.9x 1.7x 11.6x 10.2x 20.8x 16.9x

Chattem 65.13 1,240 1,581 3.4x 3.3x 9.3x 8.9x 14.0x 12.9x

Omega Pharma 44.12 1,030 1,544 1.3x 1.3x 8.3x 7.8x 10.6x 9.3x

Prestige Brands Holdings 7.14 357 682 2.2x 2.1x 7.4x 7.2x 9.9x 8.8x

Zandu Pharmaceutical Works 212.83 172 175 N/A N/A N/A N/A N/A N/A

BMP Sunstone 4.10 170 193 1.3x 1.0x 11.5x 11.3x NM 29.4x

Mean 2.3x 2.2x 11.4x 10.6x 16.6x 16.5x

Median 2.0x 1.9x 11.2x 10.0x 16.2x 16.2x



3. Contract Pharmaceuticals

The contract pharmaceuticals sector provides support services to the pharmaceutical industry at various stages of the healthcare value chain, from the development and manufacturing of drugs to the distribution and marketing of products.

Following recent strong growth, we forecast a robust CAGR of 11.4% from 2007 to 2011 (see Figure 16), with manufacturing in India and China set to increase at a CAGR of 20% over the same period. The market remains highly fragmented with the ten largest companies jointly accounting for less than 30% of the total market.

The contract pharmaceutical business has seen extensive offshoring of activities over the past decade. Large pharmaceutical companies are increasingly outsourcing manufacturing to low cost countries to benefit from the availability of skilled labor and a robust manufacturing infrastructure. With most emerging markets reporting strong GDP growth despite the global downturn, the number of M&A deals involving the contract pharmaceuticals industry within the region has gone up.

Indian companies including Dr. Reddy’s, Jubilant and Dishman have been particularly aggressive in making multi-region additions to their core capabilities.

3.1 Cost Efficiencies Pushing M&A Activity

Patent expiries have resulted in an increase in contract services driven by margin pressures. In 2006, over 90% of total pharmaceutical revenues forthe industry’s largest companies were from products over five years old. The imminent expiry of patents on many of these items will expose products worth an estimated US$157bn in annual sales (in 2005 terms) to generic competition.

Stringent quality control processes have improved confidence between contract pharmaceutical service providers and their clients. As a result, redefined mutual synergies could benefit the industry and drive M&A activities. Given increasing pressure on industry margins, outsourcing partners could help reduce costs and support clients’ focus on their core competencies.

Current relationships with regional companies should provide partners with a significant advantage in regional markets without the need to incur additional costs. This was the case with Perrigo’s acquisition of Galpharm Healthcare in 2008, where it sought to expand its global representation.

With growing accountability and transparency in healthcare, pharmaceutical companies are coming under pressure to demonstrate the value of their product and explore more cost efficient options in R&D, production and distribution. Given pre-existing strategic partnerships with contract pharmaceutical service providers in the region, the need for a cost efficient structure increases the attraction of investing in emerging markets.

However, standards for Intellectual Property Protection (IPP) in Asia are inferior to those in Western markets. While several countries, including India and China, have moved quickly to meet regulatory demands in mature markets, standards still fall well short of those in Western countries. This creates obstacles to outsourcing and exerts further pressure on pharmaceutical company cost structures.

Therefore, a proactive response to the industry’s demand for intellectual property safeguards could be a crucial M&A driver in the region .

Figure 16: Contract pharmaceuticals growth set to outpace pharmaceuticals market growth

0

10

20

30

40

50

60

2007 2011Global market (US$bn)

CAGR = 11.4%






Date Announced


EV/Rev

EV/EBITDA

6-Aug-09 Vedants Drugs & Fine Chemicals

(India)

Perrigo Co

(USA)

The deal enabled Perrigo to enter the Indian market and complemented its plan to make India a major production base for the company

12 N/A N/A

30-Apr-08 BASF pharmaceutical contract business

(USA)

Dr. Reddy’s

(India)

The acquisition helped Dr. Reddy’s to include relevant business, customer contracts, trademarks, facilities and assets of BASF in its portfolio

36 0.9X N/A

4-Apr-08 Draxis Health

(Canada)

Jubilant

(India)

The acquisition helped Jubilant to acquire DRAXIMAGE’s Sestamibi, a radiopharmaceutical used in the cardiac imaging market and also a multi-year $120mn contract for supplying multiple non-sterile specialty semi-solid products to J&J

255 N/A 127.5x

25-Apr-07 Hollister-Stier

(USA)

Jubilant

(India)

The acquisition provided Jubilant with a fast growing contract manufacturing business and a stable and profitable allergy business

123 2.2x 10.2x

23-Aug-06 Carbogen-Amcis

(UK)

Dishman

(India)

The acquisition helped Dishman become the only manufacturing organization in India with a high potency manufacturing capability. It will also acquire an established market through Carbogen’scustomers

75 1.1x 4.9x


Date Announced


EV/Rev

EV/EBITDA

14-Nov-08 Prevalere

(USA)

Icon

(Switzerland)

The acquisition strengthened Icon’s laboratory services and early phase clinical development services

43 N/A N/A

6-Feb-08 API Business of Alpharma

(USA)

3i

(UK)

The divestment helped Alpharma to secure funds for future growth and also helped to increase its focus and decrease complexity in its business mix

395 2.8x N/A

9-Jan-08 Galpharm Healthcare (UK)

Perrigo

(USA)

The deal allowed Perrigo to enhance its global presence

86 N/A N/A

10-Jul-06 Scirex Corp

(USA)

Premier Research Group PLC

(UK)

The deal provided Premier with a further opportunity to complement its organic growth by acquiring a large, well established full service US CRO working in the same therapeutic areas

37 0.8x N/A

17-Jan-06 UCB-Bioproducts

(Belgium)

Lonza Group Ltd.

(Switzerland)

The deal enabled Lonza to become the sole contract manufacturer with a historically successful track record of providing active pharmaceutical ingredients from any of the three peptide technologies

145 N/A N/A

have helped companies to focus on their core competence and simplify their business.

Small and mid cap companies in this sector have also become a target for financial buyers, such as 3i’s acquisition of Alpharma’s API business. The basic rationale behind this trend of go-private transactions is the positive growth in this sector from which financial buyers wish to benefit.

The sector has also reported an increasing number of acquisitions by companies in emerging markets, especially in India and China, including Dishman’sacquisition of Carbogen-Amcis and Dr. Reddy’s purchase of BASF’s contract pharmaceutical business.

The pharmaceutical contract management sector is experiencing a significant amount of M&A activity with both strategic and financial buyers showing considerable interest. The pace of M&A activity is expected to accelerate further as existing players consolidate their position in this highly fragmented market. We expect M&A growth to be driven by the acquisition of smaller companies through both domestic and cross-border transactions in order to add capabilities and gain access to new markets.

Furthermore, major pharmaceutical companies are divesting non-core activities in a bid to refine their strategies and reorganize their portfolios. These divestments, including BASF’s sales of its pharmaceutical contractor business to Dr. Reddy’s,




0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year




The contract pharmaceuticals sector valuation was severely impacted by the recent economic downturn, reaching its lowest levels in the decade in 2008 (see Figure 17). The valuations are still subdued, creating an attractively valued investment opportunity for willing buyers.

The selected public contract pharmaceutical companies are currently trading at a forward EBITDA multiple of 9.3x. However, large cap companies have generally traded at a premium relative to mid and small cap specialty pharmaceutical companies.


Figure 17: Contract pharmaceuticals’ valuations severely impacted by recent downturn

Contract pharmaceuticals: selected trading comparables




Hospira 44.22 7,123 8,623 2.3x 2.2x 9.5x 8.9x 15.5x 13.5x

Lonza Group 106.30 5,080 6,318 2.3x 2.1x 9.2x 8.0x 16.2x 13.2x

Piramal Healthcare 8.85 1,850 2,118 2.7x 2.4x 13.2x 11.3x 19.4x 15.5x

inVentiv Health 16.76 563 833 0.7x 0.7x 6.3x 5.9x 12.7x 11.3x

Enzon Pharmaceuticals 8.79 399 532 2.7x 2.6x 25.1x 18.8x NM NM

Cangene 4.04 281 277 1.2x 1.1x 3.3x 3.3x 5.6x 6.1x

Innodata Isogen 7.19 176 162 N/A N/A N/A N/A N/A N/A

Akorn 1.33 120 130 1.7x 1.5x NM NM NM NM

Mean 2.0x 1.8x 10.3x 8.8x 14.7x 12.7x

Median 2.3x 2.1x 9.3x 8.4x 15.5x 13.5x



Medical DevicesThe medical devices market is a relatively young industry offering strong growth prospects. The market is highly regulated and driven by constant technological innovation. We forecast its sales to increase at a CAGR of 9.3% from US$158bn in 2008 to US$286bn in 2015 (see Figure 18).

The three largest markets for medical devices are the US, the EU and Japan. We forecast attractive growth in the US with the country’s drug delivery devices segment expected to be the fastest growing market worldwide over the next seven years.

The US drug delivery segment is forecast to be the fastest growing medical devices market going forward, with sales growth accelerating from a CAGR of 5% between 2000 and 2008 to 18.6% between 2009 and 2015, increasing sales to US$26bn.

The European IVD market is the largest medical devices market in the world, generating US$16bn in revenue in 2008. Between 2009 and 2015, we forecast it to grow at a CAGR of 8% to US$27bn, driven by increasing use of Point of Care diagnostics together with growth in homecare, diagnostics and self-testing. In 2008, IVD held the highest share of the medical devices market at 20%, followed by cardiovascular with 18% (see Figure 19).

Figure 18: Global medical devices market growth set to accelerate*

* The market excludes the orthopedic segment, which reported sales of US$17.2bn in 2008

$0

$50

$100

$150

$200

$250

$300

$350

2000 2008 2015

Asia - Pacif ic EuropeMiddle East and Africa North AmericaSouth Central America

CAGR: 6.1%

CAGR: 9.3%

$98.7bn

$285.6bn

$158.0bn


Figure 19: Medical devices market driven by IVD and cardiovascular devices (2008)

Ageing Population Fueling Growth; Product Standardization Leading to More M&AA key growth driver for the medical devices market is the world’s ageing population. According to UN estimates, the proportion of the global population over 60 is projected to increase from currently 10% to 22% by 2050. As a result, growth in home-based and nursing home healthcare products will accelerate. In addition, escalating healthcare and specialist care costs are stimulating promotion of medical tourism in low cost countries. These factors have made medical device companies in such markets attractive acquisition candidates.

The medical devices industry is benefiting from global moves to harmonize regulations governing the whole product lifecycle including pre-market, post-launch and post-market phases. This is creating common standards across countries, in turn promoting cross-border M&A activity .

We anticipate emerging markets will increase demand for healthcare spending as well as for medical devices. Furthermore, cross-sector convergence is expected to transform the medical devices industry.

• Others includes surgical equipment, endoscopy devicesand neurology devices



>US$1,000mn2%

US$300-1,000mn8%

US$1-300mn90%


Figure 20: Medical device deals constitute over a quarter of healthcare deal volume (2009 YTD)

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EV/EBITDA all deals EV/EBITDA cross-border

Medical Devices M&A*: Small Cap Deals Sustaining Deal Volumes

There have been 437 M&A deals in the medical equipment and supplies sector so far this year, representing 26% of total healthcare deal volume (see Figure 20). This is slightly lower than in 2008 when 687 deals were signed, exceeding 27% of total healthcare deal volume.

The number of cross-border deals declined to 114, equal to 26% of the sector total (see Figure 22), compared to 37% in 2008. However, cross-border targets have tended to attract a higher valuation than their domestic counterparts (see Figure 23).

Higher Healthcare Spending and Favorable Regulations Spur M&A

Offshoring is becoming increasingly popular due to the availability of a qualified workforce and cost efficient operations in emerging Asian economies. This, together with favorable government policies including relaxed regulatory requirements and reduced import duties, has driven regional investments.

Rising per capita income and high healthcare spending have encouraged technological innovation in emerging markets, increasing the number of super-specialty hospitals and diagnostic centers in the region and stimulating demand for high-end medical devices.

The medical devices sector has weathered recent adverse economic conditions well despite the cautious investment environment. Going forward, we expect consolidation to improve access to emerging markets and extend core competencies.

* Medical devices is a sub-sector of the medical equipment & supplies sector. Deal volume statistics are for the medical equipment & supplies sector

Figure 21: Small and mid cap deals constitute the bulk of medical devices in the M&A pie (2009 YTD)

Note: YTD refers to the first nine months of 2009Source: Copal Analysis, Wall Street Research, Thomson

Once again, small cap companies were the key driver maintaining deal volumes, accounting for 90% of total transactions with only three deals exceeding US$1bn (see Figure 21) .

Figure 23: Cross-border targets acquired at a premium compared to their domestic counterparts

Figure 22: Cross-border deals constitute 26% of medical devices deal volume (2009 YTD)

Domestic74%

Cross-border26%



Representative Transactions


Date Announced


EV/Rev

EV/EBITDA

15-Oct-09 Primaeva Medical Inc

(USA)

Syneron Medical Ltd(Israel)

With the acquisition of Primaeva, Syneron will broaden its industry-leading portfolio of superior technologies and applications for aesthetic physicians

30 N/A N/A

9-Sep-09 Candela Corp(USA)

Syneron Medical Ltd(Israel)

The acquisition of Candela will enable Syneron to become a global leader in medical aesthetic devices

65 0.3x N/A

27-Nov-08 Golden Meditech Co Ltd.(China)

Atlantis Investment Management Ltd(Hong Kong)

The deal enabled Atlantis to utilize Golden’s in-depth knowledge of the healthcare industry in China to assess investment opportunities

8 2.0x 24.6x

10-Apr-08 Criticare Systems(USA)

Opto Circuits (India)

The deal expanded Opto Circuit’s presence in patient monitoring and will extend its reach to the US

69 1.8x 52.6x


Date Announced


EV/Rev

EV/EBITDA

23-Feb-09 CoreValve(USA)

Medtronic (USA)

The acquisition provides Medtronic with an opportunity to expand services in the aortic stenosissegment

700 N/A N/A

21-Dec-08 Radi Medical Systems(Sweden)

St Jude Medical(USA)

St. Jude added two niche cardiovascular segments to its capabilities: physiological assessment of coronary lesions and manual compression-assisted products for vascular closure

250 3.1x N/A

4-Aug-08 Theken(USA)

Integra Life Sciences Holding(USA)

The arrangement enhanced Integra’s position in the spinal surgery market through Theken’s novel implant products, pipeline and R&D capacity

200 N/A N/A

7-Jul-08 EP MedSystems(USA)

St. Jude Medical(USA)

St. Jude added atrial fibrillation and other electrophysiology catheterization procedures to its core competencies to expedite its entry into the high-growth intracardiac ultrasound echo-cardiography market

92 4.6x N/A

12-Mar-08 Tissue Science Laboratories(UK)

Covidien UK Holding(UK)

The deal provided Covidien with tissue repair technology and accelerated its entry into the biologic hernia repair market

97 2.9x N/A

11-Mar-08 BioArray Solutions (USA)

Immucor(USA)

The deal will enable Immucor to provide innovative molecular diagnostic solutions for blood transfusions that complement its current product line

117 N/A N/A

Large deals could return to the domain of the strategic buyers as we believe that the number of larger private equity buy-outs financed by syndicated loans will diminish substantially due to current credit market slowdown. However, there may still be smaller strategic deals in the industry in the future.

There are many attractive component companies reporting revenues between US$5–100mn with products or technologies rendering them attractive acquisition targets for many potential buyers , e.g. Medtronic’s US$700mn acquisition of CoreValve, the largest acquisition of a venture-backed medical device maker since at least 1998.

M&A activity in the medical devices sector is traditionally dominated by the larger players' demand for inorganic growth, with almost two thirds of company revenues from a typical device acquired through products launched in the last two years. The majority of the medical device industry’s transaction dollar volume is attributable to only a few large deals. In turn, most transaction volume results from deals in the mid to lower middle market (<US$500mn). Since 2008, there have only been a limited number of US$1bn+ deals, although historic volumes in small and mid-market deals have been largely maintained.




Figure 24: Medical devices currently trading at lowest valuation levels this decade

0.0x

10.0x

20.0x

30.0x

40.0x

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year


Public Company Valuations

Between 2000 and 2007, before being impacted by the recent economic downturn, the medical devices sector traded at fairly constant multiples. The valuation of these companies has reached its lowest levels since 2000 (see Figure 24). This creates an attractively valued investment opportunity for willing buyers.

The selected public medical device companies are trading at a forward EBITDA multiple of 8.6x. This sector is dominated by mid to large cap players due to the significant technology and R&D investments required in this area.


Medical devices: selected trading comparables




Johnson & Johnson 60.71 167,305 166,203 2.7x 2.6x 8.5x 8.0x 13.3x 12.4x

Abbott Laboratories 50.04 77,357 83,762 2.8x 2.5x 9.2x 8.3x 13.5x 12.2x

Alcon 139.12 41,557 39,812 6.3x 5.8x 16.6x 15.2x 21.5x 19.3x

Baxter International 57.58 34,704 36,956 3.0x 2.7x 10.1x 9.1x 14.9x 13.4x

Stryker 44.61 17,735 15,326 2.3x 2.2x 8.1x 7.5x 15.1x 13.6x

Becton Dickinson & Co 67.72 16,211 16,591 2.3x 2.2x 7.5x 7.2x 13.2x 12.8x

St Jude Medical 33.01 11,487 12,286 2.6x 2.3x 8.5x 7.5x 13.1x 11.4x

Zimmer Holdings 51.60 11,058 11,434 2.8x 2.7x 7.8x 7.3x 13.2x 12.3x

C.R. Bard 77.18 7,534 7,088 2.8x 2.6x 8.6x 7.9x 15.0x 13.4x

Beckman Coulter 67.02 4,594 5,285 1.7x 1.4x 7.7x 6.6x 18.2x 15.3x

Edwards Lifesciences 69.05 3,896 3,821 3.0x 2.7x 13.4x 11.9x 21.9x 19.1x

Kinetic Concepts 37.27 2,648 3,809 1.9x 1.8x 6.6x 6.3x 11.6x 9.8x

Gen Probe 43.69 2,199 1,976 4.0x 3.6x 11.9x 10.3x 22.7x 19.8x

Thoratec 30.30 1,714 1,592 4.4x 3.8x 20.7x 15.2x 36.0x 27.7x

Varian 51.07 1,476 1,329 1.6x 1.5x 10.1x 9.3x 21.5x 19.3x

Cooper Companies 29.46 1,331 2,166 2.0x 1.9x 8.6x 7.9x 12.7x 11.7x

Integra Lifesciences Holdings 32.40 921 1,239 1.8x 1.7x 8.5x 7.6x 15.4x 13.1x

Volcano 16.13 781 641 2.9x 2.4x NM 39.5x NM NM

Wright Medical Group 16.94 654 701 1.5x 1.4x 8.9x 8.0x 27.6x 21.4x

Accuray 6.63 376 274 1.2x 1.2x NM 28.9x NM 64.5x

Hansen Medical 3.74 140 100 4.3x 2.8x NM NM NM NM

Mean 2.7x 2.5x 10.1x 11.5x 17.8x 18.0x

Median 2.7x 2.4x 8.6x 8.0x 15.0x 13.4x



Going ForwardThe healthcare industry requires adequate regulation, which can in turn create many new commercial opportunities for companies operating within the sector by strengthening antitrust controls and dismantling regional monopolies.

Low R&D Productivity and Potential Strain on Profitability Present Challenges

Healthcare systems in all industrialized countries are under pressure. The challenge facing governments is to balance individual responsiveness with social solidarity and particularly fiscal sustainability.

With R&D productivity at historic lows, many products about to face extensive generic competition and the US (the most profitable market) set to experience major reforms, questions regarding a prolonged industry decline persist. The situation is further compounded by discussions concerning the possible emergence of a performance-based healthcare industry where patients pay for products and services based on their level of efficiency. These risks could drag down the profitability of healthcare companies and deplete their cash reserves, undermining their ability to effect acquisitions.

For all these reasons, and given the opportunity to enjoy a form of economic immunity in emerging Asian markets, the industry’s largest companies have refocused on exploiting commercial possibilities within the region. The industry’s M&A activity now reflects this. However, although emerging markets offer attractive investment opportunities, challenges are present in the form of political instability, strained relations with neighboring countries and unstable borders.

Overall, these considerations require the healthcare industry to reorganize and refocus, with new strategies and synergies to consolidate and expand into new markets.

Global Convergence and the Rise of Emerging Markets to Continue Driving Healthcare M&A

The healthcare industry requires information, metrics and transparency to support its decision-making processes. New standards need to be identified to measure performance and identify industry growth drivers. These measures will result in a more seamless post-merger integration process and

further incentivize healthcare companies to consolidate through acquisitions.

We believe demographic changes, including an ageing population and widespread lifestyle diseases (e.g. obesity and diabetes), will help shape healthcare demand going forward. Furthermore, with quality healthcare still unavailable to a large part of the world’s population, affordable solutions require concerted R&D and innovation initiatives.

Asia clearly offers extraordinary long-term opportunities for the healthcare industry which no company can afford to ignore .

Apart from its low cost skilled labor, the region’s healthcare industry suffers from substantial supply-demand gaps that offer significant commercial potential which could be realized through strategic acquisitions.

Consequently, we expect large healthcare companies to move beyond considering the region as merely an offshoring destination to regarding it as a major market for products and services, resulting in less resistance to takeover bids from foreign healthcare companies.

Given the increasingly homogeneous demands of the industry’s own regulatory systems, we believe the healthcare sector is set to become more local in operation and focus.

As a result, proactive government participation, redefined and more transparent systems, and fewer commercial and economic borders should continue to drive current, albeit early-stage, cross-border investment activities .

About M&A International Inc.M&A International Inc.’s members actively represent buyers and sellers in the healthcare M&A market as well as those seeking to raise private equity and debt capital. They possess significant healthcare domain expertise, industry relationships and experience in successfully executing complex transactions on behalf of our clients.

See page 21 for a comprehensive list of our healthcare specialists.


Alain Lostis

Head, M&A International Inc.'sHealthcare GroupEmail: [email protected]



M&A International Inc. Healthcare Group Specialists

Country City, State Contact Email

Americas

Argentina Buenos Aires Esteban Gutierrez [email protected]

Brazil São Paulo Bruna Riotto [email protected]

Brazil São Paulo Gianni Casanova [email protected]

Chile Santiago Guillermo Arnaiz [email protected]

Colombia Bogotá Mauricio Gomez [email protected]

United States Atlanta , GA Michael S. Goldman [email protected]

United States Boston, MA Michael S. Goldman [email protected]

United States Chicago, IL Arthur J. Lyman [email protected]

United States Cleveland, OH Kenneth A. Hirsch [email protected]

United States Dallas, TX Mike Stengle [email protected]

United States Jacksonville, FL C. Donald Wiggins [email protected]

United States Miami, FL James S. Cassel [email protected]

United States New York, NY Edwin Gordon [email protected]

United States New York, NY Michael S. Goldman [email protected]

United States Philadelphia, PA Patrick Hurley Jr. [email protected]

United States Seattle, WA Scott Hardman [email protected]

Europe

Belgium Antwerp Alex Vandekerckhove [email protected]

Bulgaria Sofia Dimitar Uzunov [email protected]

Czech Republic Prague Tomas Nespechal [email protected]

Denmark Copenhagen Frederik Aakard [email protected]

Estonia Tallinn Tomas Marcinkus [email protected]

Finland Helsinki Mikael Planting [email protected]

France Paris Alain Lostis [email protected]

Germany Hamburg Hans Bethge [email protected]

Germany Stuttgart Hans Bethge [email protected]

Hungary Budapest Kálmán Nagy [email protected]

Ireland Dublin Ger Heffernan [email protected]

Italy Turin Davide Eugenio Milano [email protected]

Latvia Riga Tomas Marcinkus [email protected]

Lithuania Vilnius Tomas Marcinkus [email protected]

Netherlands Amsterdam Robert Boersma [email protected]

Norway Bergen Odd Paulsen [email protected]

Norway Oslo Odd Paulsen [email protected]

Poland Warsaw Maciej Szalaj [email protected]

Slovakia Bratislava Michal Staron [email protected]

Slovenia Ljubljana Jure Jelerčič [email protected]

Spain Barcelona Javier Maciá [email protected]

Spain Madrid Javier Maciá [email protected]

Sweden Gothenburg Sven-Åke Lewin [email protected]

Sweden Stockholm Sven-Åke Lewin [email protected]

Switzerland Berne Peter M. Binder [email protected]

Turkey Istanbul Sinan Alpay Toksabay [email protected]

United Kingdom Belfast Russell Smyth [email protected]

United Kingdom London Brian Livingston [email protected]

United Kingdom London Michael Jewell [email protected]

Asia-Pacific

Australia Sydney Peter Fraser [email protected]

China Beijing Dr. Dana Schuppert [email protected]

China Hong Kong Adrian Bradbury [email protected]

India Mumbai Avinash Shejale [email protected]

Israel Tel Aviv Tomer Eblagon [email protected]

Africa

South Africa Johannesburg Yaron Zimbler [email protected]



M&A International Inc. Representative Transactions

has acquired

Specialty Pharmaceuticals Buy-Side Advisory

Specialty Pharmaceuticals Buy-Side Advisory

Specialty Pharmaceuticals Fundraising

Medical Devices Buy-Side Advisory *

Medical Devices Strategic Advisory

Medical Devices Buy-Side Advisory

OTC Pharmaceuticals Sell-Side Advisory

Contract Pharmaceuticals Sell-Side Advisory

Contract Pharmaceuticals Strategic Advisory

* Advisor to a leading shareholder

M&A International Inc. – the world's leading M&A alliance

M&A International Inc. offers the unparalleled resources of over 600 professionals in M&A advisory and investment banking firms operating around the globe.

M&A International Inc. www.mergers.net

Founders of:

the M&A Mid-Market Forum www.midmarketforum.com

the Strategic Acquirors Forum www.mergers.net/saf

© 2009 M&A International Inc. All rights reserved. M&A International Inc. refers to the alliance of member firms of M&A International Inc., each of which is a separate and independent legal entity.

Documents

M&A International Inc. Global Consolidation Shaping the ...wesrespartners.com/wp-content/uploads/2011/10/MAI-Sector-Report_Healthcare1.pdf2.1 Rising Demand for Household Healthcare