Trending or here to stay?The impact of innovation on the future of in vitro diagnostics (IVD) Kristin Pothier, Head of Life Sciences Parthenon-EY

27 July 2015

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M&A environment for global IVD/LS tools: annuallyM&A activity in 2014 was dynamic, with more IVD transactions compared to the previous two years combined; 2015 is on par with 2014 to date

2010 2011 2012 2013 2014 2015E*0

102030405060708090 Historical transactions

Forecast transactions (based on H1:15)

Num

ber o

f M&A

tran

sact

ions

2010 2011 2012 2013 2014 2015*

Total transaction value (US$b)^ US$10.2 US$17.5 US$7.6 US$18.4 US$25.8 US$5.5

Exampletransactions

(Alphabetical)

► Clarient (GE)► EMD Millipore

(Merck KGaA)► Ion Torrent (Life

Technologies)

► Axis-Shield (Alere)

► Beckman Coulter (Danaher)

► Phadia (Thermo Fisher)

► BlueGnome (Illumina)

► Dako (Agilent)► Gen-Probe

(Hologic)► IRIS (Danaher)

► BioFire (bioMerieux)

► Ingenuity Systems (QIAGEN)

► Life Technologies (Thermo Fisher)

► Crescendo (Myriad)

► OCD (Carlyle)► Siemens Micro.

(Danaher)

► BRLI (OPKO)► Foundation

Medicine (Roche)

Worldwide IVD transactions (instrument/reagent manufacturers, genome informatics and reference labs), 2010-15

Sources: EY analysis, Capital IQ. *Includes transactions in H1:15 ^Note: transaction values available for 54% of total transactions

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Global medtech financial environmentThe EY Medtech Firepower Index has grown steadily since 2011, indicating high borrowing capacity and the potential for future transaction execution

Firepower (and change) of large-cap medtech* companies (US$10b market cap as of 17 July 2015)

Sources: Capital IQ, EY analysis. *Large-cap medtech includes N=26 medtech companies with 17 July 2015 market values >US$10b; does not include Baxter due to change in valuation following major divestitures in 2014-15.

2007 2008 2009 2010 2011 2012 2013 2014 20150

50,000

100,000

150,000

200,000

250,000

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Firepower Change in firepower

EY Firepower► A company’s ability to do M&A based on the strength of its balance sheet► Market capitalization, cash equivalents and debt capacity provide this firepower

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Global IVD partnership environment: key trendsThe diagnostics market has seen an emergence of creative deal making between nontraditional partners specifically within oncology, NIPT and MRSA

Sources: Company press releases, GenomeWeb, Capital IQ, Cowen, Forbes, Fierce Biotech. *Flatiron acquired Altos outright.

3 key trends in 2014-15 IVD partnerships

Deals were largely focused in oncology, NIPT and infectious disease (including MRSA)

Some deals incorporated multiple pharma companies with the same IVD partner

Nontraditional stakeholders are starting to become more involved

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International perspective: M&A environmentDeal activity in 2015 is comparable to 2014; however, there has been a sharp decline in acquisitions in China

Sources: EY analysis, Capital IQ. *Includes transactions in H1:15 (n=40); Other includes Latin America, Middle East and Africa.

Worldwide IVD transactions by target company headquarters, Jan 2010-Jun 2015

2010 2011 2012 2013 2014 2015*0

10

20

30

40

50

60

70

80

90

Europe United States and Canada Asia/Pacific Other

Num

ber o

f M&A

tran

sact

ions

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International Firepower IndexThe Firepower Index grew across all regions from 2013-15, but the proportion of firepower is growing in emerging markets (BRIC) at the expense of the US.

Medtech firepower by country/region (2011-15)

Sources: Capital IQ, EY analysis. Index includes N=325 medtech companies across select geographies

EY Firepower► A company’s ability to do M&A based on the strength of its balance sheet► Market capitalization, cash equivalents and debt capacity provide this firepower

2011 2012 2013 2014 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

61% 56%

18%20%

6% 9%

9% 8%5% 5%

US/CAN EU BRIC JP APAC EMEA LATAMTotal global firepower

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For more information:Kristin Pothier, Head of Life Sciences

Kristin Ciriello PothierPartner and Managing DirectorParthenon-EY

Tel: +1 617 375 1384/+1 617 549 2779 (Mobile)Email: kristin.pothier@ey.com

Education► Kristin earned a BA in Biochemistry from Smith College and an MS in Epidemiology,

Health Management, and Maternal and Child Health from the Harvard School of Public Health

Areas of focus► Kristin has extensive experience in commercial and clinical strategy and due

diligence for both strategics and investors► Core areas of focus include commercial and operational strategy and M&A diligence

in the clinical core laboratory, molecular diagnostics, life sciences tools and services, reference lab strategy, point of care, and personalized medicine from a diagnostics and a pharmaceutical perspective

► Kristin serves clients in all sectors of the global life sciences industry including ► Pharmaceutical and precision/personalized medicine access strategy► Core clinical diagnostics and innovative diagnostics, including molecular, POC

and NGS► Reference lab strategy including hospital lab, global core reference labs,

specialty labs, anatomical pathology, clinical trials, and personalized medicine► Life sciences tools and lab services, including sample prep, biorepositories, MS,

sequencing and translational platforms► Health IT strategies, including middleware development, digital pathology

incorporation, biomarker algorithms and patient journey development, for institutions and companies

► Extensive clinical knowledge in oncology, cardiovascular, global health, prenatal and infectious disease across the globe

EY experience► Kristin has 20 years of experience in the life sciences industry

► Kristin leads the life sciences sector of Parthenon-EY serving clients in pharma, biotech, diagnostics and life science tools, with a focus on company and investor commercial strategy and M&A support for diagnostics, life science research and pharmaceutical companies

► She is also the creator and leader of EY Precision Medicine™, and specializes in diagnostics clinical laboratories, the developing platform and reference lab strategies worldwide with on-the-ground experience in North America, South America, EU, Asia and the Caribbean

► Kristin is a co-founder and leader of DxInsights, a nonprofit organization designed to educate on the impact of diagnostics and precision medicine in improving health care outcomes to the nation's health care communities

► Kristin is a noted speaker, workshop leader and writer with a strong industry following. She develops numerous publications and delivers speaking engagements at the most prolific industry meetings and symposia

Previous professional experience► Prior to EY, Kristin was a partner and owner of Health Advances, where she

owned and managed the firm with four other partners. She developed and led the Diagnostics and Life Sciences practice, a global practice focused on product and service strategy, corporate strategy, health economics and deal diligence

► Kristin is also a founder of DxInsights, a nonprofit organization designed to educate the nation's health care communities on the impact of diagnostics in improving health care outcomes

► Earlier in her career, Kristin was a research scientist at Genome Therapeutics, at the time the only commercial entity sequencing for the Human Genome Project, and at Genzyme, as part of the technology development team developing prenatal and cancer diagnostics for the Genzyme Genetics clinical laboratory

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Parthenon-EY Life Sciences Strategy ServicesWe are global strategy consultants with focus on commercial and growth strategy across the life sciences continuum

Commercial brand strategyGrowth strategy

DiligencePipeline strategy

Proprietary databases | Global primary research | Dedicated life sciences teams | Life sciences thought leadership

Life Sciences Strategy Services

► Portfolio optimization ► Acquisition target identification

► Early-stage asset development strategy► Market opportunity assessment

► Commercial launch strategy► Market development strategy

and execution

► Focused, issues-based commercial diligence

► Forecast achievability

Regional Variations Necessitate Diverse Testing and Partner Options

• LDTs• Sample exchange

• Cepheid V1• Genoptix

• LDTs• Ipsogen

• ELITech• Cepheid V1

• Cepheid V1• Ipsogen• Asuragen

• Genoptix• MMD• LDTs• Ipsogen

• LDTs• Sample exchange

FM Patient Flow: Pre-Presentation to Treatment

FM Society

Presents toPhysician Diagnosed

with FM -12%

Treatment -78%

204K 159KFM Suff1.7M

Specialist*

Internist&

Ortho

Tx

Diagnosing

Cycling

FM not fully understood

Refer to Alt. HCP

Suspicion of Alt. Conditions

Inappropriate Tx

Referred to Alt. HCP

Switch HCPDrops Out System

Symptoms not

ControlledCycling

Alt. Tx / OTC

Pain Persists

Research Symptoms

Suspicion of Condition

Patient ActionsPhysician Actions

Patient Actions

Hospital or

Clinic

From Patient Perspective

From Physician Perspective

Market Overview & Competitive LandscapeTarget competes both with basic “do-all” labs, as well as other small independents with similar test offerings.

Basic “Do -all” Labs Esoteric Hospital / Academic Labs

Small Independents and Local Hospitals

Highly Specialized Labs

Volu

me

& D

iver

sity

of T

ests

Scientific Expertise & Capabilities

Competitive Landscape Key Segments► Basic “Do-all” Labs

– Offer test menu of >1,000 tests, with revenue and volume focused on routine tests.

– Serve as reference labs for institutions with no or limited lab capabilities.

– Largest players, however, are increasing focus on esoteric tests (e.g., LabCorp , Quest).

► Esoteric Hospital / Academic Labs– Offer >1,000 tests, with core business

focused on highly complex esoteric tests.– Also serve as reference laboratories for

smaller institutions.► Highly Specialized Labs

– Typically focus on a low to moderate number of esoteric tests requiring scientific expertise.

– May be focused on one specific therapeutic area (e.g., Myriad in oncology).

► Small Independents and Local Hospitals– Includes small independent labs with

limited menus of tests and local hospital labs that only do routine tests and send out more complex tests.

Target

Primary Competition

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