© 2008 Morrison & Foerster LLP All Rights Reserved Attorney Advertising The Global Law Firm for Israeli Companies PUBLIC AND PRIVATE FINANCING ALTERNATIVES FOR LIFE SCIENCE COMPANIES Bruce Mann June 12, 2008

The Global Law Firm for Israeli Companies Public Financing Alternatives The U.S. IPO Market is closed for most life science companies Through June 1, Medical/Healthcare and 1 Biotech/Pharmaceutical U.S. IPOs compared to 7 Medical/Healthcare and 17 Biotech/Pharmaceutical IPOs through June 1, 2007 Factors influencing current conditions include generally negative IPO market conditions, difficult FDA environment, and clinical setbacks

The Global Law Firm for Israeli Companies Public Financing Alternatives Those U.S. IPOs that were completed did so because of realistic pricing – 60% of all IPOs in first five months of 2008 were priced within the initial filing range Insiders can not expect to sell shares as part of the IPO – All of the 38 total U.S. IPOs required insiders to enter lockup agreements, of which 92.5% lasted 180 days or longer Only 7 of the 38 IPOs permitted selling shareholders to participate Novel structures are not possible – remember the “biobundle” and the special purpose entity?

The Global Law Firm for Israeli Companies Public Financing Alternatives These factors have resulted in biotech IPOs performing poorly since 2005 Price Change, Offer to 30 Days Price Change, Offer to Current

The Global Law Firm for Israeli Companies Public Financing Alternatives The “back door” IPO using the SPAC Alternative - SPACs have grown in popularity and have money that must be invested During 2007 SPACs raised over $12 billion in 66 offerings in the U.S. Under proposed NYSE and NASDAQ rules for listing, SPACs must invest 80% of the amount raised within 36 months, although by contract the time period for investment has been between 18 and 24 months

The Global Law Firm for Israeli Companies The M&A Alternative Less M&A Activity in biopharma deals involving $13.1 billion in 2008 to date compared to 47 deals involving $61.1 billion in 2007 Global M&A volume dropped 22% in Q compared to the same quarter in 2007, the lowest volume since the first quarter of 2005 Total M&A activity is expected to drop this year – Lehman Brothers predicts an 80% drop in sponsor driven transactions and a 33% drop in strategic deals

The Global Law Firm for Israeli Companies The M&A Alternative Strategic life science deals are still being done Don’t judge solely by comparing 2008 to 2007 – 2007 was a peak year with biopharma M&A activity over $60 billion compared to $37 billion in 2006 Industry consolidation is continuing as companies realize that their niche is too small for long term growth Acquisitions by large pharmaceutical companies to refill or expand their product lines are continuing

The Global Law Firm for Israeli Companies The M&A Alternative Large cash balances and depressed market prices have resulted in large pharma shifting to cash as the primary acquisition currency Most life science acquisitions involve targets with late stage or marketed products – in of 27 acquisitions involved companies with lead products in Phase III trial or that had already submitted an NDA Acquisitions of med tech companies reached record levels in 2007, with most of the growth coming from acquisitions by mid-cap buyers – 39 acquisitions were by companies with a market cap below $5 billion and only 3 by traditional large-cap acquirors

The Global Law Firm for Israeli Companies Partnering as an Alternative Partnering activity continues to grow – Amount Raised from Partnering 1991 to 2007 (amounts include upfront payments and all milestone payments) $0 $2 $4 $6 $8 $10 $12 $14 $16 $ ($ in BN)

The Global Law Firm for Israeli Companies The Venture Capital Alternative Venture investing in biotech companies has dropped substantially in 2008 – Through April, 2008, $1.49 billion invested compared to $2.713 billion in same period of 2007 Allocation of venture dollars to medical devices has grown to 50% of total Focus has been on safe bet drugs – new formulations or delivery methods for products with approved active ingredients and known delivery methods Allocation of venture capital to healthcare dropped to 25% of total dollars invested by VCs in 1Q 08 from over 30% in each of 5 prior years – the lowest amount and number of investments since 1Q 05

The Global Law Firm for Israeli Companies What Are Investors And Acquirors Seeking? What’s Hot Large potential markets Easy path to regulatory approval Limited need for further capital infusions High chance of market success What’s Not Me too products in highly competitive markets Lengthy time trials before marketing may commence Significant unfunded costs for development and marketing Products and technologies with a history of failure

The Global Law Firm for Israeli Companies What Lies Ahead? More exit opportunities during the last half of 2008 and 2009 No one can be certain what will happen, but stock markets tend to lead recovery of the economy Desire for liquidity by VCs with funds nearing termination, cash burn, and recalibration of what market valuations can be expected will result in an increase in IPOs Performance driven hedge funds and mutual funds will be pressured by their investors to invest idle cash

The Global Law Firm for Israeli Companies What Lies Ahead? Strategic acquisitions will continue to be the primary M&A exit The weak dollar, strong Euro, and growing strength of China will result in an increase in cross-border activity The number of busted deals will increase, particularly mergers with SPACs where shareholder rejection has become more common

The Global Law Firm for Israeli Companies Be Ready For What Lies Ahead Identify your team and have them ready to go A team captain who can devote the time needed to run the process is crucial Be ready for due diligence – your lawyers should be sure your corporate house is in order Be ready to provide GAAP or IFRS financials and work with your auditors to make sure your internal controls are adequate Become familiar with the investment bankers that cover your business

The Global Law Firm for Israeli Companies Be Ready For What Lies Ahead Discuss the process with your Board and Venture Investors so you know what they will agree to Are their price expectations realistic? Do they have a strong preference for an IPO or a merger? Will they want to take an active role in the process? Do they have strong views on the professional advisors you should use? If you are going public, will they want to remain involved or in control after the IPO?

The Global Law Firm for Israeli Companies Be Ready For What Lies Ahead Be pro-active – meet with the potential financial advisors that know your space, not just those who happen to call on you Be flexible – understand the advantages of pursuing a two- track approach and be prepared to switch if appropriate

The Global Law Firm for Israeli Companies Be Ready For What Lies Ahead IPOs and mergers are expensive – the biggest risk is financial vulnerability before completion that can result in deal renegotiation Build a “war chest” – capital raised before starting the process to bridge the transaction is generally less expensive than cash raised when you’re desperate Don’t be overly optimistic on how long it will take to complete the transaction or what impact the diversion will have on your revenues during the process Have a clear understanding with your professional advisors as to the timing and terms of their billings

The Global Law Firm for Israeli Companies Bruce Mann, Partner MORRISON & FOERSTER LLP Phone: (Hebrew) Contact Information