Micromedic Oct 17 final 18.10 · 2009. 10. 19. · Source: MoneyTree Report 2009: Thomson Reuters...

Valuation & Strategy

October 2009

Valuation of Micromedic Technologies Ltd.

Kesselman Finance

Table of Contents

Page

1 Executive summary 1

2 Introduction 3

3 Industry overview 6

4 Regulatory overview 27

5 Company overview 35

6 Financial Performance 52

7 Valuation Analysis Methodology 54

8 Summary of Key Assumptions and Forecasts 65

9 Valuation Analysis 73

Appendix

1 Colorectal - Current testing and Micromedic’s Solution 93

2 Information sources 95

3 Procedures 97

4 Excerpts from the Letter of Engagement 99

5 Information regarding the appraiser 102

Table of Contents

Page

6 Contact information 104

Term Definition

Glossary of Terms and Abbreviations

Term Definition

Subsidiary companies Micro-Rap Ltd, Bio-Gene Ltd, Bio Mark Ltd and Bio Med Ltd and Microvascular Eye Technology Ltd

The Company Micromedic Technologies Ltd

MET Microvascular Eye Technology Ltd

Management Mr David Solomon, CEO of the Company; Mr. Avi Ben-David, CFO

Comparable Companies Myriad Genetics & Laboratories, QIAGEN - Sample & Assay Technologies, Becton Dickinson and Company, Gen-Probe, Medarex, Inovio Biomedical Corp, Electro-Optical Sciences and Delcath Systems

Target Market USA, Europe, Japan and part of India and China (top percentiles)

PwC Israel Kesselman Finance PricewaterhouseCoopers

Valuation Date June 30, 2009

Projection Period H2 2009 - 2029

DCF Discounted cash flow

EBIT Earnings Before Interest and Tax

Term Definition


Term Definition

FCF Free cash flow

IP Intellectual property

IFRS International Financial Reporting Standards

Rd Cost of debt

Re Cost of equity

CAGR Compound annual growth rate

Rf Risk-free rate

US The United States

EU European Union

EDCF Enhance Discounted Cash Flow

WACC Weighted average cost of capital

IVD In vitro diagnostics

Term Definition


Term Definition

Personalized Medicine Medicine that are closely matched to a patient's genetic profile

Biomarkers A substance used as an indicator of a biologic state.

MDx Molecular Diagnostics

Pharmacogenetic The study of how the actions of and reactions to drugs vary with the patient's genes

PGx Pharmacogenetic diagnostic

OECD Organisation for Economic Co-operation and Development

BRCA Human gene, some mutations of which are associated with a significant increase in the risk of breast cancer, as wellas other cancers.

EMEA European Medicines Agency

PCT Patent Cooperation Treaty

FDA Food and Drug Administration

CE Mandatory on many products placed on the single market in the European Economic Area. The CE marking certifiesthat a product has met EU consumer safety, health or environmental requirements

BONJ A disease of bone which ultimately leads to collapse of the articulating joints

Term Definition


Term Definition

Notified Body An organization that has been nominated by a member of Government and Notified by the European Commission.

Onco-gene An onco-gene is a gene that, when mutated or expressed at high levels, helps turn a normal cell into a cancer cell


Section 1Executive summary

• Valuation of Micromedic Technologies Ltd.

Executive Summary

2

• To value Micromedic, we applied the Income Approach, utilizingthe EDCF model.

• To apply the Income Approach, the annual free cash flow ofMicromedic was forecasted for the entire Projection Period, thiswas then subsequently discounted to present value through theapplication of a discount rate that reflects the WACC forMicromedic. The present value of aggregate annual free cashflows represents the total capital or the net asset value of theoperating entity, which equals the combined debt and equitycapital or enterprise value of the subject enterprise.

• To estimate the value for Micromedic’s equity, we have adjustedthe enterprise value by adding non-operating assets, andsubtracting financial liabilities.

• In our view, based on the Valuation Analysis, the Fair MarketValue range of Micromedic’s equity as of the Valuation Date isbetween USD 57.0 - 74.3 million.

Income Approach Valuation .

Discounted CF Lower Range Upper Range

Enterprise Value 56,315 73,613Non operating assets - -

Cash and cash equivalents (*) 142 142Holdings of MET Ltd 570 570Total non-operating assets: 712 712Financial liabilities - -Equity Value 57,027 74,326

Section 1 - Executive summary


Section 2Introduction


Limitations in Scope

4

• The procedures and enquiries undertaken by us in preparing thisdocument do not include any due diligence, verification work and taxreviews, nor do they constitute an examination made in accordance withgenerally accepted auditing standards.

• To the best of our knowledge and belief, the statements of facts containedin our work, upon which our analyses and conclusions expressed arebased, are true and correct. Information, estimates, and opinionsfurnished to us and contained in this report or utilised in the formation ofour value conclusion have been obtained from sources consideredreliable and believed to be true and correct. However, no representation,liability or warranty for the accuracy of such items is assumed by orimposed on us, and is subject to corrections, errors, omissions andwithdrawal without notice.

• Your use of our work and analysis shall not supplant other analysis whichyou should conduct before making any business investment or divestmentdecisions.

• The valuation of the Company has primarily be dependent on thereasonableness of the financial projections provided by Management andultimately the achievability of the projected results, which we take noresponsibility for.

• We have made observations regarding the market size, market share,capital expenditure, and capital structure assumed by Management Anychanges to the key underlying assumptions which may subsequently befound to be necessary will have consequential effects on the financialprojections and also the results of the valuation procedures.

• It should be noted that our work relies extensively on the financialprojections provided by Management. We have not performed an audit ofthe information to ensure that the assumptions reflected in the projectionsare consistently applied throughout Management’s projections. In theevent that actual events do not accord with Management’s assumptions inthe projections, the range of results attributable to the products may varyfrom the figures set out herein.

• No responsibility is taken for changes in market conditions, and noobligation is assumed to revise this document to reflect events orconditions which occur subsequent to the date thereof.

• By its very nature, valuation work cannot be regarded as an exact scienceand the conclusions arrived at in many cases will of necessity besubjective and dependent on the exercise of individual judgement. Thereis, therefore, no indisputable single value and we normally express ouranalysis as falling within a likely range.

Section 2 - Introduction


Introduction

5

Introduction

• Micromedic is a publicly traded company listed on the Tel Aviv StockExchange (symbol MCTC). The Company's main business is licensing,translating and commercializing new early-detection and monitoringbiomarkers for various autoimmune clinical conditions.

• Micromedic has developed collaborations and strategic alliances withmedical research institutes in Israel and in the US, to develop medicalindicators for various disease.

• The Company’s business model is based on the licensing of exclusive IPrights of research, translating it into a saleable product and sublicensing itto a major player in the pharmaceutical marketplace.

Purpose and Scope of Service

• PwC Israel has been engaged by the Company to estimate the FairMarket Value, as defined on the right column, of Micromedic’s equity as ofthe Valuation Date.

• In performing the Valuation Analysis we have;

– placed substantial reliance upon the information provided to us bythe Company, and have only undertaken limited cross-checks onthe values derived.

Basis of Valuation

• We define Fair Market Value as the price at which property would changehands between a willing buyer and a willing seller, neither being underany compulsion to buy or to sell, and both having reasonable knowledgeof relevant facts.

• We assume that Micromedic will continue to operate as a going concernunder present Management.

• Following Management, we assume that Micromedic will be able toachieve the funding to make the investments required to realise its plans.

Major Risk Factors

• Failure to achieve the needed funding.

• Failure to complete the necessary research, achieve FDA/CE approval and bringthe product to the market.

• Failure or delay during product development or at approval

• Top advisors might leave the subsidiaries

• Failure to attract companies to sign royalty agreements with the Company

• Each subsidiary currently holds the patent licence for the products which they aredeveloping, there is a risk that the subsidiary might lose the patent rights.

• Other technology can reach the market before the Company launch their products

• We have ignored the investigation against Mr Solomon, CEO. During May, 2007the Israeli Securities Association engaged in an investigation regardingMicromedic. As part of the investigation executives from the Company wereinvestigated. According to the Company request, the Israeli SecuritiesAssociation announced (02/08) that the above investigation was mainly focusedon the alleged misconduct of Mr David Solomon, of trading using insideinformation.

Section 2 - Introduction


Section 3Industry overview


Healthcare Overview

7

• Beginning in 1997, health spending has been accelerating as a percent ofGDP among OECD countries. In 2002, the cumulative health spending of24 OECD countries was $2.7 trillion. PricewaterhouseCoopers estimatesthat health spending for OECD countries will more than triple to $10trillion by 2020.

• Healthcare organizations and governments around the world are urgentlyseeking solutions to temper costs while balancing the need to provideaccess to safe, quality care. Yet, conventional approaches are failing,even in the most advanced nations of the world – throughout Europe,Asia, the Middle East, Australia, Canada and the United States.

• Future health spending is expected to increase at a much higher level ofgrowth than in the past. By 2020, healthcare spending will consume 21%of GDP in the U.S. and 16% of GDP in other OECD countries.

• There is growing evidence that the current health systems of nationsaround the world will be unsustainable if unchanged over the next 15years. Globally, healthcare is threatened by a confluence of powerfultrends – increasing demand, rising costs, uneven quality, misalignedincentives. If ignored, they will overwhelm health systems, creatingmassive financial burdens for individual countries and devastating healthproblems for the individuals who live in them.

• Globalization has radically altered the business model for service andmanufacturing industries. Health, traditionally regarded as a localindustry, is becoming global as well. It’s changing the way the Chinesethink about financing hospitals, Americans recruit physicians, Australiansreimburse providers for care, Europeans embrace competition, andMiddle Eastern governments build for future generations.

Projected Health Spending as Percent of GDP

5.00%

10.00%

15.00%

20.00%

25.00%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US Other OECD Countries

Source: "HealthCast 2020, Creating a sustainable Future”, PwC 2008

Section 3 - Industry overview


Medical Devices: The Third Most Invested Industry in Q2 2009

8

Source: MoneyTree Report 2009: Thomson Reuters 2009: PwC analysis 2009.

• Venture capitalists invested $3.7 billion in 612 deals in thesecond quarter of 2009, according to the MoneyTree Reportfrom PricewaterhouseCoopers and the National VentureCapital Association

• Quarterly investment activity increased 15 percent andremained essentially flat in number of deals as compared tothe first quarter of 2009 when $3.2 billion was invested in 603deals. Based upon the $6.9 billion invested during the first halfof 2009, the annual total for the full year will most likely mirrorthe venture investing levels seen in 1996 and 1997 whenannual investment levels ranged from $11 billion to $14 billion.

• The Life Sciences sector (Biotechnology and Medical Deviceindustries combined) experienced a significant rebound overthe prior quarter, jumping 47 percent to $1.5 billion going into160 deals during the second quarter. The increase in LifeSciences can be attributed to a number of large dealscompleted in the quarter, including four of the top 10 deals.Investments in Life Sciences companies represented 41percent of all investment dollars and 26 percent of all deals inthe second quarter, which is high compared to historicalnorms.

OtherRetailing/DistributionSemiconductors

Investment by Industry Q2 2009

0 200 400 600 800 1000

Industry

($M

)

Biotechnology Softw are

Medical Devices and Equipment IT Services

Industrial/Energy Netw orking and Equipment

Semiconductors Computers and Peripherals

Media and Entertainment Telecommunications

Medicaldevices



Cancer

9

What is Cancer ?

• Cancer is a group of diseases characterized by uncontrolled growth andspread of abnormal cells. If the spread is not controlled, it can result indeath.

• Cancer is caused by both external factors (tobacco, chemicals, radiation,and infectious organisms) and internal factors (inherited mutations,hormones, immune conditions, and mutations that occur frommetabolism). These causal factors may act together or in sequence toinitiate or promote carcinogenesis. Ten or more years often pass betweenexposure to external factors and detectable cancer. Cancer is treated withsurgery, radiation, chemotherapy, hormone therapy, biological therapy,and targeted therapy.

• The global burden of cancer has more than doubled during the past 30years. In 2008, it is estimated that there were over 12 million new casesof cancer diagnosed, 7 million deaths from cancer and 25 million personsalive with cancer. The continued growth and ageing of the world’spopulation will greatly affect the cancer burden. By 2030, it could beexpected that there could be 27 million incident cases of cancer, 17million cancer deaths annually and 75 million persons alive with cancerwithin five years of diagnosis.

Estimated New Cancer Cases (2007)

-

100,000

200,000

300,000

400,000

500,000

USA Europe Asia

Breast Colon and Rectum Oral cavity and Phyrax

Sources : European Cancer Observatory (ECO) affiliated with the International Agency for Research on Cancer website 2009: American Cancer Society website 2009.



Breast cancer

10

• Excluding skin cancer, breast cancer is the most frequently diagnosedcancer in women.

• Risk of breast cancer is increase by inherited genetic mutations of theBRCA1 and BRAC 2 genes.

• Currently, there is no guaranteed way to prevent breast cancer. Atpresent preventive health strategy is the only solution.

• Increased risk of breast cancer is associated with hormone replacementtreatment use when evaluating treatment options for menopausalsymptoms. Treatment with tamoxifen or raloxifene can also reduce therisk of breast cancer among women at high risk.

• Early-stage breast cancer typically produces no symptoms when thetumour is small and most treatable. It is therefore recommended forwomen to follow detailed guidelines for detecting breast cancer at anearly stage, before symptoms develop.

• American Cancer Society guidelines for early detection of breast canerare:

– Ages 40 and older:

> Annual mammogram;

> Annual clinical breast examination;

> Monthly breast self examination (optional).

– Ages 20-39:

> Clinical breast exanimation every three years;

> Monthly breast self examination (optional).

Estimated New Female Breast Cancer Cases (USA 2008)

-

10,000

20,000

30,000

40,000

50,000

Deaths

Younger than 45 45 and older Younger than 55 55 and older

Younger than 56 56 and older All ages

Sources: American Cancer Society "Breast cancer facts and figures 2007-2008", 2009: Company Presentation 2009.



Colorectal cancer

11

• Colorectal cancer is the third most commonly diagnosed cancer and thethird leading cause of cancer death in both men and women in the US.

• The American Cancer Society estimated that in 2008 roughly 149,000people were diagnosed with colorectal cancer and that roughly 50,000people died of the disease.

• Despite the evidence supporting the effectiveness of colorectal screeningand the availability of various screening tests, half of the US populationaged 50 and older has not been tested.

• Barriers to colorectal cancer screening include:

– Lack of knowledge about testing options, the importance ofscreening, and the treatability of colorectal cancer when it isdetected early is common among individuals who have not beenscreened for colorectal cancer;

– Lack of patient time;

– Inconvenience to the patient;

– Lack of patient interest;

– Cost to the patient;

– Patient fear of being diagnosed with cancer;

– General embarrassment, and unpleasantness of the test to thepatient.

• Current treatment of colorectal cancer is aimed at reducing the growth ofthe cancer cells.

Colorectal Cancer Incidence and Mortality Rates USA 2008 (per 100,000)

0

20

40

60

80

Incidence Mortality

Male Female

% of peopleperforming afecel OccultBlood Test

% of peopleperforming asigmoidoscopy orcolonoscopy

% of peopleperforming aCombinedEndoscopy/FOBT

Male 12.70% 44.60% 48.20%Female 11.70% 42.00% 45.80%

Colorectal Cancer Screening Methods Among Adults Aged50 and Older (USA, 2005)

Sources: Company presentation 2009: American Cancer Society, " Colorectal Cancer Facts & Figures 2008-2010" 2008.



Head and Neck* cancer

12

• The American Cancer Society estimates that roughly 36,000 new cases(25,240 in men and 10,480 in women) of oral cavity and oropharyngeal(the section of the alimentary canal that extends from the mouth andnasal cavities to the larynx) cancer will be diagnosed in the United Statesin 2009. An estimated 7,600 people (5,240 men and 2,360 women) willdie from these cancers in 2009.

• The average age of being diagnosed with these cancers is 62, howeverthey can occur in younger people. Although they occur rarely in children,about one-third of the cancers occur in patients younger than 55

• Oral cavity cancers occur most commonly in the following sites:10% 15% 20% 25%

20% - 25%

15%

Tongue

Lip

Minor salivaryglands

Floor of the mouth

10% - 15%

10% - 15%

• Variations of oral and pharynx caner:

– Squamous Cell Carcinomas;

– Verrucous Carcinoma;

– Minor Salivary Gland Carcinomas;

– Lymphomas.

• Treatment of these cancers includes:

– Surgery;

– Dental Extraction and Implants;

– Radiation Therapy;

– Chemotherapy.

*Also known as Oral and Pharynx cancer

Sources: Company Presentation 2009: American Cancer Society website 2009.



Osteonencrosis

13

What is Osteonencrosis ?

• Osteonecrosis is a disease of the bone which ultimately leads to thecollapse of the articulating joints such as the jaw or hip joint.

• Up to 13% of patients treated with bisphosphonate drugs can developosteonecrosis of the jaw. The condition may involve the loss, orbreakdown, of the jaw bone.

• Symptoms of osteonecrosis include, but are not limited to:

– Pain, swelling, or infection of the gums;

– Loosening of teeth;

– Poor healing of the gums;

– Numbness or the feeling of heaviness in the jaw.

• As a result of the possible side affects mentioned above, the drugdeveloper Novartis, now print a warning on the labels of some cancerrelated drugs (Aredia and Zometa) about possible “uncommon” sideaffects. Even though the relationship between the bisphophonate and theside effect are unknown.

Osteonencrosis of thejaw bone and teeth

Sources: Company Reports 2009: Novartis website 2009: Centre for Ostenonecrosis Research and Education website 2009: Company Presentation 2009.



Diabetes

14

What Is Diabetes?

• Diabetes is a group of diseases marked by high levels of blood glucoseresulting from defects in insulin production, insulin action, or both.Diabetes can lead to serious complications and premature death, butpeople with diabetes can take steps to control the disease and lower therisk of complications.

• Diabetes was expected to cause 3.8 million deaths worldwide in 2007,about 6% of total global mortality, roughly the same as HIV/AIDS. UsingWorld Health Organization figures on years of life lost per person dying ofdiabetes, this translates into more than 25 million years of life lost eachyear.

Number of People Affected with Diabetes 2008 (million)

0

10

20

30

40

50

USA India China EU

Type 1Previously called insulin-dependent diabetes mellitus (IDDM) or juvenile-onset diabetes. Type 1 diabetes develops when thebody's immune system destroys pancreatic beta cells, the only cells in the body that make the hormone insulin that regulates bloodglucose.

Previously called non–insulin-dependent diabetes mellitus (NIDDM) or adult onset diabetes. In adults, type 2 diabetes accounts forabout 90% to 95% of all diagnosed cases of diabetes. It usually begins as insulin resistance, a disorder in which the cells do not useinsulin properly.

Result from specific genetic conditions (such as maturity-onset diabetes of youth, surgery, medications, infections, pancreatic disease,and other illnesses. Such types of diabetes account for 1% to 5% of all diagnosed cases.

Source: World Health Organization website 2009.

Type 2

Other types



In vitro diagnostics (IVD)

15

The Food and Drug Administration defines in vitro diagnostics as;

“Those reagents, instruments and systems intended for use in diagnosis of disease or other conditions, including a determination of the stateof health in order to cure, mitigate, treat or prevent disease or its sequelae. Such products are intended for use in the collection, preparationand examination of specimens taken from the human body.”

IVD can be described as reagents, instruments and systems used to test specimens taken from the body, which hold a broad range ofapplications.

Sources: Datamonitor,” PharmaVitae Molecular Diagnostics: a Primer on an Emerging Sector” 2008.

To generate risk-relatedmedical information thatinforms clinical actions.

To identify or quantify medicationas well as identifying alternative

treatment and the risks associated.

To diagnose a specific disease(confirm symptoms – usually late

stage).

To estimate patient prognosis.

Evaluate an individual’s riskfor developing a specific

disease or condition.

To monitor treatmenteffectiveness.

To stratify patient populationsand to identify environmental

risks to patients.

To detect early-stage disease andconditions.



IVD Market Players

16

1 Roche 1 Roche2 Abbott 2 Siemens3 Johnson & Johnson 3 Johnson & Johnson4 Bayer 4 Abbott5 Beckman Coulter 5 Beckman Coulter6 Dade Behring 6 bioMerieux7 bioMerieuw 7 Bayer8 Becton Dickinson 8 Inverness9 Bio-Rad 9 Bio -Rad10 Sysmex 10 Becton Dickinson

2004 2008

• The industry in the diagnostics sector is more concentrated than inthe pharmaceutical sector with the ten largest IVD playersrepresenting approximately 75% of the market in 2007, comparedwith 45% for the top ten pharmaceutical companies. Roche is thelargest IVD business with a 20% market share; Beckman Coulter, thelargest pure play company with a 6% market share; and InvernessMedical Innovations, the most acquisitive player in recent years, witha 3% market share.

• 2006 and 2007 saw a major change at the top of the league table ofthe largest in vitro diagnostics companies by sales following theacquisition of three leading IVD businesses by Siemens, who did nothave a significant presence in this sector prior 2006

– The $5.3B acquisition of Bayer’s IVD business, which excludingthe diabetes care, which stayed with Bayer, announced in 2006;

– The $1.8B acquisition diagnostics products corporation,announced in 2006;

– The $7.1B take over of Dade Behring announced in 2007.

Source: 2009:PwC "Diagnostics 2009 Moving towards personalized medicine

The league table of the ten largest IVD suppliersby sales.



IVD Market

17

Global Historical IVD market ($M)

-

10,000

20,000

30,000

40,000

50,000

2001 2002 2003 2004 2005 2006 2007 2008

Year

$(M

)

• The total global IVD market was valued at roughly $39 billion in 2007, withthe total market growing between the years 2001–07 at a six-year CAGRof 9.4%, from a figure of $23b in 2001.

• The total IVD market is forecasted to increase between the year 2007–13with a CAGR of 5.0%, with the total market expected to increase from $39billion in 2007 to a figure in excess of $52 billion by 2013.

Source: Datamonitor,” PharmaVitae Molecular Diagnostics: a Primer on an Emerging Sector”, 2008.

Global Forecast IVD market ($M)

-10,00020,00030,00040,00050,00060,000

2007 2008 2009 2010 2011 2012 2013

Year

$(M

)



Classification of MDx

Medicine

In vivo diagnostics In vitro diagnostics

Routine IVD Esoteric IVD

Haematology & cytology General chemistry Microbiology Immuno chemistry

Genomic proteomic&

metabolomic

Therapeutics Surgery OtherDiagnosticsProphylactics

Moleculardiagnostics

18

Source: Datamonitor,” PharmaVitae Molecular Diagnostics: a Primer on an Emerging Sector” 2008.

Micromedic’s area of operation



MDx Sub-classification

19

Like traditional chemistrytesting, molecular analysisof human DNA can be usedto confirm the presence ofexisting disease. The majoradvantage of genetic testing(in a broad sense) is itsspeed and accuracy.

Source: Datamonitor,” PharmaVitae Molecular Diagnostics: a primer on an emerging Sector” 2008.

MDx

Nucleic acidtesting blood

banking

Viral load/genotype testing

STD/infectiousdisease testing Genetic testing Industrial testing

Diagnosis andmonitoring Prognostics Parmacogenetics

Micromedic’sarea of research.



MDx

20

• MDx tests investigate the link between genes and function of metabolicpathways, drug metabolism and disease development with a primaryfocus on the study of DNA, RNA and proteins. The study of proteins alsoprovides a link to immunochemistry (the other component of MDx alongwith genomic, proteomic and metabolomic), which is a branch ofimmunology that focuses on the chemical and biochemical detection ofimmune reactions. Tests in this category measure the body’santigen/antibody reaction. Immunochemistry tests can be used in testingfor cancer, allergies and a range of infectious diseases.

• The MDx portion of the IVD market was valued at $1,619m from 2001–07,or 10.0% of the total IVD growth.

• From 2001–07 the MDx market was calculated at a six-year CAGRgrowth rate of 16.9%. Over the coming years, the forecast performance isexpected to remain double-digit, with a 2007–13 projected CAGR of14.0%.

• MDx research and development is heavily dependant on advancement inthe biomarker industry.

Global forecast MDx Market ($M)

-

2,000

4,000

6,000

8,000

2007 2008 2009 2010 2011 2012 2013

Year

$(M

)

MDx market share within the IVD market

0%

20%

40%

60%

80%

100%

2007 2013

Year

IVD MDx

10%7%

Global Historical MDx market ($M)

-

1,000

2,000

3,000

4,000

2001 2002 2003 2004 2005 2006 2007 2008

Years

$(M

)

Sources: Standard & Poor’s " Biomarkers" Steven Silver February 2009:PwC "Diagnostics 2009 Moving towards personalized medicine", 2009: Company Presentation 2009:World Health Organization “Cancer report 2008”, 2008.



Biomarkers

21

• A biomarker is a substance used as an indicator of a biologic state. It is acharacteristic that is objectively measured and evaluated as an indicatorof normal biologic processes, pathogenic processes, or pharmacologicresponses to a therapeutic intervention.

• The expanding use of biomarkers to better determine patient response isin contrast to the former "blockbuster" approach to treating disease thathas been prevalent over the past few decades. Under the latter approach,drugs were tested and approved for broad patient populations, whileactually benefiting a small percentage of patients.

• Drug approval agencies for example, FDA and EMEA, are encouraginggreater use of biomarkers and diagnostics in drug development andprescribing decisions.

• Recent advances in mapping the human genome have made possible thedevelopment of a new generation of advanced biomarkers.

• The market for molecular biomarkers is growing at a rate of 15% perannum

• The market for biomarkers for early cancer detection has the largestgrowth potential: roughly 34% p.a.

Biomarker Market Componants

0

1

2

3

4

5

6

2005 2010

Year

$(B

)

Infectious Blood Screening Genetic Oncology

$2.5B

$5.0B

Sources: Standard & Poor’s " Biomarkers" Steven Silver February 2009:PwC "Diagnostics 2009 Moving towards personalized medicine", 2009: Company Presentation 2009:World Health Organization “Cancer report 2008”, 2008.



Biomarkers (Cont.)

22

• In 2004, researchers from the International Human Genome SequencingConsortium of the US government-sponsored Human Genome Projectannounced a new estimate of 20,000 to 25,000 genes in the humangenome. Previously, 30,000 to 40,000 had been predicted, whileestimates at the start of the project reached as high as two million

• In 2006, scientists at the Johns Hopkins Kimmel Cancer Centresequenced all of the genes involved in breast and colon cancers, andfound 189 mutations that help tumours grow and spread. The mutationswere almost entirely different for the two cancer types and differedsomewhat by individual. Standard & Poor's views this discovery assignals of increased use of genetic testing and biomarkers to developfuture treatments.

• In the context of cancer biomarker testing, the sensitivity of a biomarkerrefers to the proportion of case subjects (individuals with confirmeddisease) who test positive for the biomarker. Specificity refers to theproportion of control subjects (individuals without disease) who testnegative for the biomarker.

• An ideal biomarker test would have 100% sensitivity and specificity; thatis, everyone with cancer would have a positive test, and everyone withoutcancer would have a negative test. The lower the sensitivity, the moreoften individuals with cancer will not be detected. The lower thespecificity, the more often someone without cancer will test positive. Noneof the currently available biomarkers achieve 100% sensitivity andspecificity.

• The practical application of biomarkers within pharmaceuticaldevelopment is known as Personalized Medicine.

Growth of Products with Biomarkers in Phase II and Phase III

0%

20%

40%

60%

80%

2001 2005 2010

YearSources: Standard & Poor’s " Biomarkers" Steven Silver February 2009: World Health Organization “Cancer Report 2008”, 2008.

• The US National Cancer Institute’s Early Detection Research Networkhas five-phase approach, for developing, evaluating and validatingbiomarkers. These guidelines are used to facilitate the transition ofbiomarkers toward clinical applications. The five phases provide theprinciples and study design foundations for validating biomarkers headedfor clinical use in risk assessment and early detection of cancer.

• Phase 1, the discovery phase, includes exploratory study to identifypotentially useful biomarkers. Phase 2, the validation phase, biomarkersare thoroughly analysed and verified to determine their capacity fordistinguishing between people with cancer and those without. Phase 3focuses on the capacity of a biomarker to detect preclinical disease bytesting the marker against tissues collected longitudinally over time fromvarious research cohorts. Phase 4 comprises prospective screeningstudies. Phase 5, large-scale population studies that evaluate both therole of the biomarker for detection of cancer, and the overall impact ofscreening on the population are conducted



Personalized Medicine

23

• The premise of Personalized Medicine is that developing medicines thatare closely matched to a patient's genetic profile is likely to improve thebenefits to the patient and minimize adverse reactions.

• Currently there are four main applications for Personalized Medicinediagnostics:

1. To identify and select those patients that will benefit from a specifictreatment;

2. To identify those at risk for atypical adverse reaction;

3. To identify biomarkers for specific therapies;

4. To determine the optimal dosage of a treatment.

• The above four factors can be considered to be the major components ofa term that is being increasingly used within the healthcare community —Personalized Medicine.

• Standard & Poor's economists believe that the migration towardPersonalized Medicine is poised to become more prevalent in the drugdevelopment process and holds the promise of radically altering thelandscape of future treatment options.

The Connection of Diagnostics with Prescription Pharmaceuticals

Primary riskassessment Diagnosis Prognosis Drug selection Disease monitoring and

managementPre-disease/

Diseasedevelopment

Health outcomes

Utilization of diagnostics tools for drugselection and disease monitoring/

management

= Personalized Medicine

Sources: Standard & Poor’s " Biomarkers" Steven Silver February 2009: FSG Future Medicine Ltd, “Integration and use of biomarkers in drug development, regulation and clinical practice:a US regulatory perspective” 2008: Datamonitor,” PharmaVitae Molecular Diagnostics: a primer on an emerging Sector”, 2008.



Genentech submits aCitizen Petition asking

FDA that all IVD test fortherapeutic decision

making be held to thesame standards

(December 5, 2008)

deCode launchesdeCode PrCa, a DNAtest to assess prostate

cancer risk(February 20, 2008)

International Milestones in the Personalized Medicine Market

Luxembourggovernment commits€140 million to thedevelopment of a

biobank, a lung cancertest and systemsbiology research

(June 5, 2008)

Dutch governmentcommits €150 million to

fund personalizedmedicine projects

alongside industry andacademic

(April 7, 2008)

US Genetic InformationNon-discrimination Act(GINA) signed (May 21,2008) Council of Europe

signs similar protocol(May 7, 2008)

Source: PwC "Diagnostics 2009 Moving Towards Personalized Medicine", 2009.

24

FDA considerscollaboration with

Centers for Medicareand Medicaid Services

on diagnostics(December 25, 2008)

Gene-guided warfarindosing to be tested in a

large scale trial(February 20, 2009)

Agendia’s breast cancertest MannaPrint

standard of care atNetherlands Cancer

Institute(February 4, 2009)

EU funds project todevelop SMART-BIOMEMS DNA

diagnostic device fordoctor’s desktop

(December 10, 2008)

US Governmentprovides funding to

compare theeffectiveness of medicaltreatments for a given

illness(February 16, 2009)



Medical Devices in China

25

• The medical device industry in China has seen double-digit growth overrecent years, and has become a viable market opportunity for bothmultinational and domestic companies. In 2007, the market size formedical devices in China was estimated at US$11.2 billion, and wasforecast to reach US$20.6 billion by 2012.

• The market for medical devices is still highly fragmented and lackingmajor domestic industry players.

• According to the General Administration of Customs of China, in 2007,China’s total trade volume for medical devices reached US$12.7 billion.Meanwhile, imports are still showing strong growth at a compound annualgrowth rate (CAGR) of 18.4% from 2000 to 2007, reaching US$4.3 billionin 2007, with an increasing number of domestic companies (includingMNCs’ China-based subsidiaries) manufacturing for export markets.

• In light of strong economic growth, an aging population, and strong,government - supported growth in both the pharmaceutical andhealthcare sectors, the medical device industry is expected to continue itscurrent growth pattern. Even today, about 75% of medical devicescurrently used in Chinese medical and healthcare institutions wereproduced before 1980. This further emphasizes both the need andpotential for future growth in the domestic market, as old devices areincreasingly being replaced by new ones.

Source: PwC, Investing in China’s Pharmaceutical Industry – 2nd Edition, 2009

China Medical Devices Market Size (in US$ billion)

0

5

10

15

20

25

2006 2007 2008F 2009F 2010F 2011F 2012F

US$ billion

Yea

r



IVD - India

26

Indian Healthcare

• India, with a healthcare market standing nearly at US$ 38 Billion in 2007,represents one of the most emerging healthcare products and servicesmarket in the world.

• India represents the world's second largest populated country. With arapidly expanding economy and increasing urbanization, the prevalenceof a number of chronic diseases, such as cardiovascular, diabetes,arthritis and cancer, has increased rapidly in India. So the country isbecoming a source of opportunities for players operating in thesesegments.

• When it comes to healthcare, there are two Indias: the country with thatprovides high-quality medical care to middle-class Indians and medicaltourists, and the India in which the majority of the population lives - acountry whose residents have limited or no access to quality care. Todayonly 25% of the Indian population has access to Western (allopathic)medicine, which is practiced mainly in urban areas, where two-thirds ofIndia’s hospitals and health centers are located. Many of the rural poormust rely on alternative forms of treatment.

• The federal government has begun taking steps to improve ruralhealthcare. Among other things, the government launched the NationalRural Health Mission 2005-2012 in April 2005. The aim of the Mission isto provide effective healthcare to India’s rural population.

Source:”India: In Vitro Diagnostic Market to Grow 15% by 2012 says New Report”, Joe Walsh, August 2009; Piribo.com website; Healthcare in India, Emerging market report 2007, PwC.

Indian IVD Market

• The Indian IVD market is anticipated to grow at a CAGR of around 15%during 2009-2012, emerging as Asia's third largest IVD market afterJapan and China.

• Although Indian IVD market is very small compared to the global IVDmarket, it is growing at a rapid pace and is expected to outperform othermajor markets in the near future. Various factors, such as increasingurbanization, unhealthy diets and growing sedentary lifestyle, havestrongly boosted the prevalence of lifestyle-related diseases such asdiabetes and cardiovascular diseases in the country.

• Growing health consciousness among middle- and high-income familiesin India is heralding a new business opportunity. This has shifted focusfrom in-patient treatment to a regular preventive health check. Forexample, corporate companies offer an annual health check for theiremployees, insurance companies conduct pre-insurance policy check,and self paid health checks also give out a potential business opportunity.



Section 4Regulatory overview


The Food and Drug Administration

28

• The FDA is responsible for protecting the public health of America, byassuring the safety, efficacy, and security of human and veterinary drugs,biological products, medical devices, food supply, cosmetics, andproducts that emit radiation.

• The FDA is also responsible for advancing the public health by helping tospeed innovations that make medicines and foods more effective, safer,and more affordable; and helping the public get the accurate, science-based information they need to use medicines and foods to improve theirhealth.

• Overall, Standard & Poor's economists expect that the regulatory processwill remain tough, as the FDA focuses on drug clinical safety, and expectthe FDA will bolster vigilance regarding manufacturing practices.

• In 2008, the FDA approved 24 new drugs, called new molecular entities(NMEs, a category that excludes new indications for existing products),up from 18 in 2007. In 1983, pharmaceutical R&D spending was $3.2billion. In 2007, the figure was $43 billion, according to industryintelligence provider IN VIVO: The RPM Report.

The drug istested in anumber ofhealthyvolunteers todetermine if it isacutely toxic.

Various doses ofthe drug aretried todetermine therequired dosageneeded formaximumresults.

“Double-blind”,placebocontrolled trialsto demonstratetheeffectiveness.

“Post-approval”trials aresometimes aconditionattached by theFDA to theapproval.

Phase 1 Phase 2 Phase 3 Phase 4

Prior to FDA Approval the Following 4 Test Phases need to be Completed:

FDA New Drug Approvals

-

10

20

30

40

2004 2005 2006 2007 2008

YearDrug Development Cost ($B)

-

20

40

60

80

2004 2005 2006 2007

YearSource: Standard & Poor’s " Biomarkers" Steven Silver February 2009: FDA website 2009

Section 4 - Regulatory overview


The Food and Drug Administration Risk Classification

29

• The Centre for Devices and Radiological Health, a department within the FDA, has categorized medical devices into three classes, within each class thereare different criteria to receive approval. Most medical devices reach the market through either the pre-market approval process or the pre-marketnotification process (510K).

• The 510k process applies to nearly all Class 2 medical device in the U.S. and a small number of specific Class 1 devices as well, low and medium riskmedical device which pass the substantial equivalence tests for existing products. It is a relatively short and simple course.

• The 510k process has an FDA average response time of roughly 75 days.

Products with a high safety profile and clear efficiency. Theseproducts usually require only general controls, including meetingquality targets, standards etc. Most Class I products are 510Kexempt.

Given to low and medium risk products, such as diagnostic kits, non-invasive ultrasound devices, unique needles, surgical scalpels,diagnostic lasers etc. These products are approved via the 510K course.

Class 1 -General Controls

Given to potentially risky and/or inefficient products, such asinvasive surgical laser devices, artificial hearts, life supportdevices etc. These products receive marketing approval throughthe pre market approval course.

Class 2 -Special Controls

Class 3 -Pre-Market Approval

Micromedic

Low

High

Risk

The approval p

rocess

inthe FDA relie

s on productris

k class

ificatio

n

Source: Biomedical From Research to Market, David Solomon 2009



The European Medicines Agency

30

• EMEA is a decentralized body of the European Union whoseheadquarters are in London. Their main responsibility is the protectionand promotion of public and animal health, through the evaluation andsupervision of medicines for human and veterinary use.

• In the EU, a company that wishes to bring a medicine to market maysubmit a single application to the EMEA for a 'marketing authorization'(license) that is valid simultaneously in all EU Member States.

• The EMEA assesses every medicine for which a marketing-authorizationapplication has been submitted (in accordance with the centralizedprocedure), and prepares a recommendation (called an 'opinion') that isthen relayed to the European Commission, which has the ultimateresponsibility for taking decisions on granting, refusing, revoking orsuspending marketing authorizations.

Sources: The European Medicines Agency website 2009: Biomedical From Research to Market, David Solomon 2009.



The European Medicines Agency Risk Classifications

31

• The approval allows the supplier to mark the product with the CE mark, a real door opener in EU countries. The approval process involves the followingbodies:

– The EU commission;

– The Notified Body, responsible for trials;

– The manufacturers and their representatives.

The approval process in the EU relies on product risk classification

Source: Biomedical From Research to Market, David Solomon 2009.

This classification includes wheelchairs, dentist drills,gauze and bandages, tweezers etc.

This classification includes operating roommonitoring equipment, needles, ultrasounddevices, diagnostic kits etc.

This classification includes laser baseddevices, intrusive diagnostic devices,manual OR accessories, implants etc.

This classification includes artificial hearts,heart valves, laser-based operating devices

etc.

Class 2a

Risk

Class 1

Class 2b

Class 3

Micromedic

This classification includes artificial hearts,heart valves, laser-based operating devicesetc.



Japan’s Medical Device Approval Process

32

• Manufacturing and marketing medical devices are regulated by the Pharmaceutical Affairs Law (PAL). In accordance with the PAL, manufacturers shouldobtain a license for manufacturing medical devices from the Ministry of Health, Labour and Welfare (MHLW). The license shall be granted to eachmanufacturing plant specified by MHLW Ministerial Ordinance.

• A licensed manufacturer is only responsible for manufacturing medical devices. As for marketing medical devices, the PAL specifies that a MarketingAuthorization Holder (MAH) licensed by MHLW is responsible for putting medical devices into marketplace. License for marketing medical devices isdivided into the following 3 types, which correspond to the classification (see chart above):

– No. 1 type license for marketing --- Specially controlled medical devices (Class III, IV)

– No. 2 type license for marketing --- Controlled medical devices (Class II)

– No. 3 type license for marketing --- General medical devices (Class I)

Source: “Entry to Medical Device Market in Japan”, Motoharu Taga, December 2008

This classification includes extremely low riskdevices, such as: X-ray film, dental Accessories etc.

Controlled Medical Devices: This classificationincludes low risk devices, such as: MRI,

Ultrasound etc.

Specially Controlled Medical Devices:This classification includes moderate to high

risk devices, such as: Dialyzers, artificialrespirators, catheters etc.

This classification includes artificial hearts,heart valves, laser-based operating devices

etc.

Class II

Risk

Class I

Class III

Class IV

Specially Controlled Medical Devices: Thisclassification includes moderate to high risk

devices, such as: Pacemakers, artificialcardiac valves, stents etc.

General Medical Devices: This classificationincludes extremely low risk devices, such as:

X-ray film, dental Accessories etc.



• Regulatory Approvals by Device Classification

In China, review and approval of Medical Devices (MD) are under the jurisdiction of the Central State Food and Drug Administration Bureau (SFDA) as wellas the other municipal branches that are subsidiaries of the central SFDA. Registration of Medical Devices requires both the Import Device license approvaland the Local Manufacturing Devices license approval. Class I,II and III devices that are imported and Class III devices that are manufactured locally aresubject to direct review by the central SFDA, whereas Class I and II devices manufactured locally are reviewed and approved by the relevant branch of themunicipal bureau.

There are three key steps in the Medical Devices approval process: Product Technical Specification Establishment, Product Testing Completion, DossierReview and Approval

• Medical Devices Classification

• Registration Timeline

– Class 1: Between 5 to 6 months.

– Class 2 & 3 without clinical tests: Between 7 to 8 months - Only if marketed in country of origin, non-implants, no radioactive sources.

– Class 2 & 3 with clinical tests: Between 12 to 14 months.

China’s Medical Device Approval Process

33

Sources: “Overview of the China’s Medical Device Approval Process”, Janice Ma, ChinaGate - from “Asia on the mark”, Issue 27, Fall 2008;The Regulation of Medical Devices in China, Wang Lanming, Department of Medical Devices State Food and Drug Administration, China; China Medical Doctor’s Association website.

Class II: middle risk, relativesafety, special control furthercontrol is required to ensuretheir safety and effectiveness

Class I: Low risk, consideredsafety, general control safety and

effectiveness can be ensuredthrough routine administration

Class III: high risk, highly specialcontrol implanted into the humanbody, or used for life support or

sustenance, or pose potential riskto the human body and thus mustbe strictly controlled in respect to

safety and effectiveness



Patents

34

• In order to ensure intellectual rights over a product, a company is able topurchase the patent rights.

• The primary test for patent protection eligibility includes three criteria:

1. Novelty;

2. Non-obviousness;

3. Usefulness.

• The PCT enables international patent filing in the member countries,currently numbering more than a hundred countries. This route iseconomical, short and easy comparing to filing separate applications foreach country.

• There are two major phases of filing:

1. PCT filing phase – filing the international patent application. Theapplication is written in one language, and undergoes registrationand preliminary examination regarding all PCT member states.Finally, at 30 months from the filing date of the internationalapplication or from the earliest priority date of the application if apriority is claimed, the international phase ends and theinternational application enters the national and regional phase.However, any national law may fix time limits which expire laterthan 30 months.

2. PCT national phase – the final examination and approval of eachmember state according to its intellectual property laws. This phaseis prolonged, and divides into several stages involving the localpatent registrar and translation to local languages. The filing date isthat of the PCT filing phase.

Month 0 Month 12 Month 16 Month 18 Month 22 Month28 Month 30

File PCT application

File Patent application

(optional) International preliminary report on patentability

(optional) File demand for internationalpreliminary examination Enter national

phase

Internationalsearch report &written opinion International publication

Source: Biomedical From Research to Market, David Solomon 2009.



Section 5Company overview


Micromedic

36

• Micromedic is a publicly traded company listed on the Tel Aviv StockExchange (symbol MCTC).

• The Company's main business is licensing, translating andcommercializing new early-detection and monitoring biomarkers forvarious autoimmune clinical conditions.

• Micromedic has created collaborations and strategic alliances withresearch and clinical institutes in Israel and in the US.

• Micromedic's main business aim is to bridge the gap between preliminaryclinical study and clinical needs, in order to create sensitive and reliablediagnostic tests, approved by the FDA and ready for commercialization.

• The Company’s business model is based on the licensing of exclusive IPrights of promising research, developing them into saleable products andsublicensing them to major player’s in the market.

• The Company’s market cap as of June 30, 2009 was NIS 43 million,roughly $11 million.

Source: Company Presentation 2009.

David Solomon Avi Ben David Reuven Kuvent10.34% 2.51% 0.20%

Major Shareholders

Division of Ownership

13%

87%

Controling Shareholdres Institutional Investors Holdings

Section 5 - Company overview


Micromedic and Subsidiaries

37

• Micromedic has five subsidiaries(*) each of which focuses on developing a specific marker or group of markers. Additionally, the Company holds 20% inMicrovascular Eye Technology Ltd. a micro drug delivery company with products which have been FDA and CE approved.

MicromedicTechnologies Ltd

Bio-Med Ltd.

100%

Oral and Pharynxcancer

Bio-Mark Ltd.

90%

Colorectalcancer

Bio-Gene Ltd.

95%

Breast andovariancancer

Micro-Rap

85%

Diabetes

PGx

BONJ

M.E.T

20%

Micro-vascular

(*)Currentlynot a separate

entity

Was externally valued bya third party in November2008 between $2.6 - $3.1

million




Company overview - Organizational structure

38

Prof. Nathan Karin

Mr. Reuven Kuvent

Chairman of the Board

Mr. David Solomon

CEO

Dr Asher SalmonProf. Nadir Arber Prof. Naim ShehadehProf. Tamar Peretz Prof. Joseph Katz Prof. Edward Chan

Key Scientists

Prof. Israel Vlodavsky Prof. Arie Durst Prof. Bernard Levin Dr Izak Lifshiz Mr.Rami Guzman

Advisory Board

Source: Company Presentation 2009



Review of Operational Breakdown

39

Bio Gene Ltd Bio Mark Ltd Bio Med Ltd

Breast and ovarian cancer Colorectal cancer Head and neck cancer

Biomarker kit forpredicting high geneticrisk for breast cancer.

Biomarker for earlydetection of colorectalcancer

Drug therapy

Biomarker kit for earlydetection of Oro-Digestive cancer

Cancer and pre-cancerbiopsy.

Diabetes

PGx Micro-Rap Ltd

BONJ

3 kits for diagnosis of:

• Type 1,

• Pre-type 1

• Pre-type 2.

A genetic test whichwould identify individualswho are at risk ofdeveloping BONJ

Micromedic




Company Value Chain

40

• Based on Micromedic’s business plan the main source of Company revenue is realized after the Company has successfully sold a product toa large pharmaceutical manufacture. Below is the value chain from conception to market.

Primary scientificresearch

Sign agreement betweenMicromedic and researchinstitution

Successfully developproduct

Receive regulatoryapproval

Engage pharmaceuticalcompany

Launch product andreceive royalties

Micromedic funds the research and offers a percentage of ownership in a subsidiary

FDA and/or CE

Source: Discussion with Management



Patents overview

41

Bio Gene Ltd

Breast Cancer

• Patent title: Compositions, method and kits for the diagnosis of carriersof mutations on the BRCA 1 and BRCA 2 genes and early diagnosis ofcancerous disorders associated with mutations in BRCA 1 and BRCA 2gene.

• Filing date: 2008

• Applicants: A.Salmon and T.Peretz

• Expiration date: July 8, 2023

Bio Mark Ltd

Colorectal Cancer

• Patent title: Methods and kits for early detection of cancer orpredisposition thereto.


• Applicant: N.Arber

• Expiration date: January 31, 2022

Micro Rap Ltd

Diabetes

• Patent title: Methods and kit for diagnosing type 1 diabetes.


• Applicants: N.Karin, N.Shehadeh and G.Wildbaum.

• Expiration date: February 6, 2022

Bio Med Ltd

Oral Cancer

• Patent title: Composition and methods for detecting oral and pharynxcancer.


• Applicants: J.Katz and E.Chan

• Expiration date: January 31, 2023

Source: World Patent website 2009, Company Management



Micromedic Joint Ventures

42

• Micromedic’s business plan calls for the development of professional relationships with major health research institutions and companies. Todate the Company is collaborating with the following institutions and or companies:

The Technion - Israel Institute of Technology in Haifa - Diabetes

University of Florida - Head and neck cancer early detection.

Hadassah Medical Center in Jerusalem - Breast cancer

Tel Aviv Medical Center - Colorectal cancer

Axela - Development and commercialization of biomarkers adapted toAlexla’s diagnostic platform.

Patho-Lab - Development and commercialization of colorectal and headand neck detection products.

Clalit Health CareSource: Company Presentation 2009



Selected recent Company Milestones

43

Subject

• Micromedic and Clalit health carehave signed a memorandum ofunderstanding

• Micromedic and Patho-LabDiagnostics Ltd have signed amemorandum of understanding

• Micromedic and Axela Inc., havesigned a memorandum ofunderstanding

23.09.2009

10.05.2009

23.04.2009

Date Content

• Micromedic and Clalit health care have signed a memorandum ofunderstanding which would obligate Clalit to suplly Micromedicblood samples for testing and Micromedic would be obligated tosupply kits to Clalit.

• Micromedic and Patho-Lab, a company giving medical diagnosisservices for numerous medical institutions and companies in Israeland the world, have signed a memorandum of understandingregarding the development and commercializing of Micromedic‘santibody-based products, mainly those based on the P90 andCD24 antigens.

• Micromedic and Axela Inc., a Canadian company developingdiagnostic systems for the research market, have signed amemorandum of understanding regarding the development andcommercializing of biomarkers that would be adapted to Axela‘sunique diagnostic platform.




Selected recent Company milestones (Cont.)

44

Subject

• A novel pharmacogeneticbiomarker for Aredia and Zometa

• Successful results of MicroRap‘sdiabetes diagnostic kit

• A novel immunohistochemicalbiomarker for early carcinomadetection

29.03.2009

28.01.2009

18.01.2009

Date Content

• Success in a preliminary trial aimed at recognizing those at risk indeveloping a side effect of Aredia and Zometa and other drugs ofthe bisphosphonate family.

• MicroRap successfully produce a kit for diabetes diagnosis. Thenew kit test validated the ability of radio Immuno assay kit todiagnose type 1 diabetes.

• A preliminary trial of a novel immunohistochemical marker fordetection of cancerous and pre-cancerous cells of epithelial origin.The results indicate 100% ability to detect cancer and 85% abilityto detect pre-cancer.




Genetic Risk Assessments for Breast Cancer - Current testing and Micromedic’sSolution

45

Current Solution

• There is currently a BRCA gene test which is available and has beenpatented. The BRCA gene test is a blood test that uses DNA analysis toidentify changes (mutations) in either one of two breast cancersusceptibility genes — known as BRCA1 or BRCA2. Genetic counsellingalso is part of the BRCA gene test process. After having a BRCA genetest performed, one learns whether they carry an inherited BRCA genemutation and receive an estimate of the personal risk of breast cancerand ovarian cancer.

• The current cost for BRCA1 and BRCA2 mutation testing usually rangesfrom several hundred to several thousand dollars.

Weaknesses of the Current Solutions

• Long period from testing to results.

• High costs.

Micromedic’s Solution

• Since BRCA genetic mapping as a marker for breast and ovarian riskassessment is defended by patent, Micromedic’s Bio Gene's scientistsdeveloped a method of detecting defective mutations in BRCA genes thatmay lead to breast or ovarian cancer (meaning only mutations that arecancer predisposition mutations are taken into account, excludingmeaningless mutations). Bio Gene identified 21 genes whose expressionis elevated or lowered by a defective mutation in a BRCA gene.

Benefits of the Solution

• Ability to identity “at risk” patients.

• Quick results.

• Reliable results.

• Costs only $100

The Marker Genetic Risk Assessments for Breast Cancer

Stage R&D stage, validation clinical trials

Investigators Prof. Tamar Peretz, Head of the Oncology Center, Hadassah University Hospital in Jerusalem.

Dr. Asher Y. Salmon, MD, PhD, Oncology Center, Hadassah University Hospital in Jerusalem

Source: Mayoclinic webpage, Company Presentation 2009.



Colorectal - Current testing and Micromedic’s Solution

46

Current Solution

• Currently there are a number of tests for colorectal cancer: (see appendixfor comparison list)

– Colonoscopy. The inspection of the rectum to find any abnormalgrowths.

– FOBT (Feccal Occult Blood Test). This test detects hidden (occult)blood in the stool as a warning sign that a person has colorectaldisease including CRC.

– Stool DNA. A stool is inspected for blood..

Weaknesses of Current Solutions

• Large amount of discomfort to the patient.

• Highly level of inconvenience to the patient.

• Average price over $150


• A new non invasive [In - vitro] blood test based on a new biomarker - theCD 24 onco-gene. The test is able to detect early stage colorectal cancerincluding adenomas. The test is aimed to be used as a reliable largescale screening tool. Based on initial test results, Micromedic believe thatthe new method can compete with the current non invasive screeningmethod [FOBT] and increase dramatically the ability for reliable pre-colonoscopy screening. The test is not aimed to replace colonoscopy, butto be a preliminary tool that will give the physician an indication to those inneed of colonoscopy, reducing the number of unnecessary invasiveexaminations.


• Minimal discomfort to the patient.

• High level of accuracy.

• Micromedic price $25.

The Marker Biomarker for early detection of colorectal cancer.

Stage R&D stage, validation clinical trials

Investigator Prof Nadir Arber, Professor of medicine and gastroenterology at Tel Aviv University and director of the Integrated Cancer PreventionCenter in Tel Aviv Medical Center, and serves as the head of the GI Oncology unit in the Department of Gastroenterology in the TelAviv Medical Center.

Source: : Company Presentation 2009



Head and Neck - Current testing and Micromedic’s Solution

47

Current Solution

• Currently there are a number of tests for head and neck cancer:

– Mirror test: Traditionally the laryngeal mirror has been used forexamining the hypopharynx and larynx

– Fibre optic: The nasal cavity, nasopharynx, a portion of theoropharynx, hypopharynx, and larynx can all be thoroughlyinspected with the help of a flexible fibre optic scope.

– Nose test: Anterior rhinoscopy can be performed with an externallight source, otoscope or even a penlight to evaluate for lesions ofthe anterior septum, columella, nasal vestibule and nasal floor.

Weaknesses of Current Solutions.

• High level of discomfort to the patient

• Late stage detection.

• Needs to be performed by a physician .


• A new test based on a new biomarker - the P90 ongo-gene. The test isable to detect early stage oral cancer and even premalignant lesions.

• The test is based on an antibody raised against the P90 protein, and itcan be utilized in staining of tissue sections.

• The Company believes the new biomarker will revolutionize oral cancerdiagnosis methods, giving, for the first time, dentists and oral clinicians adefinitive tool for identifying the disease.


• Minimal discomfort to the patient

• High level of accuracy.

• Can be performed by either a dentist or oral clinician.

• Test costing only $20.

The Marker Biopsy-based kit for premalignant and pre-cancer detection

Stage Clinical trials

Investigator Prof Joseph Katz- head of the Department of Oral Maxillofacial Surgery and Diagnostic Sciences at the University ofFlorida college of Dentistry and Prof. Edward Chan, University of Florida, Department of Oral Biology.

Sources: Oral Cancer Foundation webpage 2009: Company Presentation 2009



BONJ - Current solutions and Micromedic’s Solution

48

Current Solution

• As explained above osteonecrosis is a disease of the bone whichultimately leads to the collapse of the articulating joints such as the jaw orhip joint.

• Patients who are prescribed cancer drugs which contain bisphosphonatecan develop osteonecrosis

• There currently exists no way of identifying the potential individuals atrisk of BONJ.


• A biomarker which predicts if a patient would have adverse reaction to acancer drug.

• A genetic test will identify those who are at risk of developing BONJ.These patients may receive alternative therapy


• Significantly higher safety in taking the drugs

• Increasing patient and physician satisfaction

• Significant positioning improvement for pharmaceutical companies [higherdrug efficiency]


The Marker A genetic risk assessment for BONJ

Stage R&D stage, clinical trials

Investigator Prof Joseph Katz- head of the Department of Oral Maxillofacial Surgery and Diagnostic Sciences at the University ofFlorida (UF) college of Dentistry, and Prof Taimour Langaee, Director of the UF center for Pharmacogenomics, UF



Diabetes - Current testing and Micromedic’s Solution

49

Current Solution

Current testing for diabetes include;

• The fasting plasma glucose test is the preferred method for diagnosingdiabetes because it is easy to do, convenient, and less expensive thanother tests. The test screens for diabetes by measuring the level ofglucose in a person’s blood plasma after a period of fasting

• The casual plasma glucose test is a method of diagnosing diabetes.During the test, blood sugar is tested without regard to the time since theperson's last meal. A glucose level greater than 200 mg/dL may indicatediabetes, especially if the test is repeated at a later time and showssimilar results.

Weaknesses of the Current Solutions

• Inconvenience to the patient.

• Ability to indentify only one type of diabetes.

• Low level of sensitivity and specificity.


• The development of the CCL3 autoantibody test. Which will be able todetect 3 different forms of diabetes.

• The development of 3 different kits is targeting for the following goals:

1) Diagnosis of new onset type 1 diabetes:

2) Diagnosis of pre type 1 diabetes:

3) Pre type 2 diabetes in adults.


• Early detection of diabetes.

• Ability to indentify type 1 and type 2 diabetes.

• High level of sensitivity and specificity.

The Marker Identification of new onset type 1 diabetes, based on auto antibodies to CCL3. Possible additional markets: Pre type1detection and Pre type 2

Stage Type 1 diabetes kit received CE approval to be marketed in Europe.

Investigators Prof Nathan Karin – Faculty of medicine , the Technion

Prof Naim Shehadeh – Director of Paediatrics A and head of the Paediatric diabetes clinic at Meyer Children'sHospital




Current stage of development

FDACE

ValidationClinical Trial

PreClinical

SmallClinical Trial

DiabetesDiagnostics(Micro Rap Ltd.)

Products Pipeline - Current Status

50

Source: Company Presentation 2009. The assumptions solely based on Management and were not checked by PwC Israel

Breast CancerRisk Assessment(Bio Gene Ltd.)

Current stage of developmentColorectalCancerScreening(Bio Mark Ltd) Current stage of development

Head and NeckCancer(Bio Med Ltd.)

Current stage of developmentBONJ(PGx.)

Current stage of development



SWOT Analysis

51

• Strengths

– Patented technology, focused business model, developmentof own tests.

– Highly experienced advisory team, including professors andpersonalities with business experience.

– A number of products at a pre-FDA stage.

– Patient registry of a number of products.

– Signed memorandum of agreements with a number ofcompanies

• Weaknesses

– To date no recorded revenue.

– The earliest market launch date 2012.

– Large amount of money needs to be raised to ensureproducts reach market.

• Opportunities

– The need for early-stage diagnosis of cancer and diabetes.

– Approval procedure is shorter and simpler than in “classical”pharmaceuticals.

– Biomarkers can be developed as companion diagnosticssupporting the growing market of personalized medicine.

• Threats

– Failure or delay during product development or at approval.

– Cash burn eats up all capital prior to product launch.

– Failure to attract companies to sign royalty agreements withthe Company.

– Top advisor might leave the Company.

– Other technology will reach the market before the Companylaunch their products.



Section 6Financial Performance


Historical financial performance

53

Historical financial performance

• The Company at present does not record any revenue as allproducts are still in the development stage.

Source: Company Financial Reports

Summary Income Statement

Audited Audited UnauditedUSD 000's 2007 2008 Jun-09Revenue - - -Research and Development (586) (431) (216)General and Administrative (1,255) (889) (401)Other income 347 - -

Total Operational expenses (1,494) (1,320) (617)- -

Financial expenses (25) (10) (2)Financial income 11 31 52Other expenses (102)Company's share in net loss of investees (21) (34) (14)

- -Income/Loss before tax (1,530) (1,334) (684)Tax - -Income/Loss after tax (1,530) (1,334) (684)

Section 6 - Financial Performance


Section 7Valuation Analysis Methodology


General Overview of Valuation Methodologies

55

• Fair Market Value is defined as the price at which property would changehands between a willing buyer and a willing seller, neither being underany compulsion to buy or to sell, and both having reasonable knowledgeof relevant facts.

• In general, three valuation methodologies are available to determine theFair Market Value of a business: the Income Approach, the MarketApproach and the Cost Approach. A brief discussion of eachmethodology follows.

Section 7 - Valuation Analysis Methodology


Income Approach

56

• The Income Approach utilizes a procedure generally known as theDiscounted Cash Flow (“DCF”) method of valuation. Currently in wide useto quantitatively analyze capital stocks, acquisition candidates and capitalprojects, the DCF method measures value by reference to an enterprise’sexpected future debt-free cash flows from business operations.

• This typically involves a projection of income and expenses and othersources and uses of cash, the assignment of a terminal (or residual) valueat the end of the Projection Period that is reasonably consistent with thekey assumptions and long-term growth potential of the business, and adetermination of an appropriate discount rate that reflects the risk ofachieving the projections. Factors that form the basis for expected futurefinancial performance include:

– Historical and projected growth rates;

– Business plans or operating budgets for the enterprise in question;

– Prevailing relevant business conditions and industry trends,including growth expectations in light of general market growth,competitive environment and market position;

– Anticipated needs for working and fixed capital;

– Historical and expected levels and trends of operating profitability.

• Typically, a five- to ten-year Projection Period of annual free cash flowsplus an estimated terminal value, which represents the value of thebusiness enterprise beyond the Projection Period, are discounted topresent value through the application of a discount rate that reflects theweighted average cost of capital for the subject enterprise.

• The present value of aggregate annual free cash flows plus the terminalvalue represents the total capital or the net asset value of the operatingentity, which equals the combined debt and equity capital or enterprisevalue of the subject enterprise.



Income Approach: Enhanced DCF

57

• The traditional DCF technique uses a single path analysis to determinecash flow and net present value. In reality any business will have multiplepaths that it could track.

• Uncertainty about situations (e.g. ability to grab market share) can oftennot be modelled fully within the DCF method.

• Management has flexibility over how it determines the course of events. Itcan, for example, delay the opening of an additional plant should theeconomic conditions not be conducive currently. The DCF method doesnot account for such flexibility.

• Enhance DCF (“EDCF”) uses tools that allow it to formulate the differentpaths that the business may take as determined by the uncertainties itfaces and management options it can exercise. Each path has anassociated probability which is accounted for.

• The outputs of this approach include a probability weighted range ofvalues that the business may have along with an expected value. Inaddition, a sensitivity analysis of the key drivers can be obtained.



EDCF ranges from simple sensitivity and risk analysis to option evaluation

Yes

No

Yes

Yes

NoNo Uncertainty node

Decision Node

Simple model with four uncertainty states

Advanced model with three options thatmanagement can exercise and a numberof uncertainties

DCF:

EDCF:

58



Market Approach Cost Approach

59

• The Market Approach is a generally accepted valuation techniqueused in evaluating a privately held business entity, or a division orsubsidiary of a publicly traded corporation.

• This approach examines either publicly traded companies oracquisitions of privately held companies within the same industryas the subject business entity.

• Market-derived multiples based on such measures as earnings,book value, cash flow and turnover are typically applied to theappropriate financial indicators of the subject entity to determine arange of total capital values for the business.

• Companies might typically be considered comparable even thoughtheir product mixes or corporate sizes differ, so long as valuationranges are rationalized in terms of relative financial performanceand capital structure considerations such as:

– Historical and prospective growth;

– Absolute and relative profit margins and cost determinants;

– Capital structure (leverage);

– Liquidity.

• The underlying premise when using the cost approach is that thebook value or cost of an asset is equal to its Fair Market Value.

• Certain adjustments are made to assets on a case-by-case basis ifthis premise does not hold true.

• For example, in determining the value of a company’s assets,appreciated land held for investment purposes would be carried at itsFair Market Value and not its cost basis.

• This approach is an important tool for determining the Fair MarketValue of property, particularly when reliable data relating to sales ofcomparable companies are not available and when the subjectcompany has not been historically profitable and future profitability ishighly uncertain.

• For the purpose of this Valuation Analysis, we have employedthe Income Approach that is based on the EDCF method ofvaluation, which we found to be the most appropriate in thiscase.



Weighted Average Cost of Capital (WACC) Calculation

Required Rate of Return

60

Source: PwC Analysis, Public Information, Ibbotson, Federal Reserve website, Bloomberg.

• When applying the Income Approach, the cash flows expected to be generatedby a business are discounted to their present value equivalent using a rate ofreturn that reflects the relative risk of the investment, as well as the time valueof money. This return, which is known as the weighted average cost of capital(“WACC”), is calculated by weighting the required returns on interest-bearingdebt and common equity capital in proportion to their estimated percentages inan expected industry capital structure.

• The general formula for calculating the WACC is:

– WACC = Kd(gearing)(1-Tc) + Ke(1-gearing)

where:

– WACC = Weighted average rate of return on invested capital;

– Kd = After-tax rate of return on debt capital;

– Tc = Tax shield corresponding to the Company's long term corporationtax rate;

– gearing = Debt capital as a percentage of the sum of the debt, preferredand common equity capital (“Total Invested Capital”);

– Ke = Rate of return on common equity capital;

– 1-gearing = Common equity capital as a percentage of the TotalInvested Capital.



Weighted Average Cost of Capital (WACC) Calculation (cont.)

Cost of Equity

61

• We estimated the required rate of return on capital of Micromedic usingthe Capital Asset Pricing Model (“CAPM”). CAPM has been empiricallytested and is widely accepted for the purpose of estimating a company’srequired return on capital.

• In applying the CAPM, the rate of return on capital is estimated as thecurrent risk-free rate of return on government treasury bonds, plus amarket risk premium expected over the risk-free rate of return, multipliedby the “beta” for the valued company.

• Beta is defined as a risk measure that reflects the sensitivity of acompany’s stock (or capital) price to the movements of the stock marketas a whole.

• The rate of return on capital is calculated using the CAPM formula:

Ke = Rf + β(Rm - Rf) + Sfrp

Where:

> Ke = Rate of return on capital;

> Rf = Risk-free rate of return;

> β = Beta or systematic risk for this type of capital investment;

> Rm - Rf = Market risk premium; the expected return on abroad portfolio of stocks in the market (Rm) less the risk freerate (Rf);

> Sfrp = small-firm risk premium.

• Beta is a statistical measure of the volatility of the price of a specificinvestment relative to the movement of a general group. Generally, betais considered to be indicative of the market’s perception of the relative riskof the specific investment. For unlisted firms, practical application of theCAPM is dependent upon the ability to identify publicly traded companiesthat have similar risk characteristics as these firms, in order to derivemeaningful measures of the subject firm’s beta.

• Betas reported in public sources are levered, which incorporates theadded risk to a stockholder due to the debt financing of a company.

• To derive a beta applicable to Micromedic based on ComparableCompanies, the capital structure of Micromedic was assumed to equal tothe average mix between debt and equity of the Comparable Companies.

• The equity betas of the Comparable Companies were then unlevered toasset betas, based on the capital structure of each ComparableCompany.

• The arithmetic average of the asset betas was then calculated to obtain arepresentative industry-wide asset beta.

• Finally, the calculated industry average asset beta was re-levered toequity beta using the median capital structure of the ComparableCompanies.




Cost of Equity (cont.)

62

• The market risk premium is the expected return in excess of the risk-freerate that an international investor, with a globally diversified portfolio,generally requires for investing in stocks.

• Based on the calculation described above, the required rate of return oncapital for a large firm can be estimated. Micromedic, however, is a smalloperation relative to the average publicly traded firm.

• Since small firms entail greater risk than large firms, investors expect ahigher rate of return on their stocks. Hence, the CAPM rate of return wasadjusted by a premium, which reflects the extra risk of an investment in asmall company. This premium is derived from historical differences inreturns between small companies and large companies.

• In accordance with the above, the following pages describes the WACCcalculation.



Comparable Companies Beta Analysis

63

All data are as of March 31, 2009.

• Equity betas were calculated based on historical prices taken from Bloomberg.

• Equity betas were unlevered using the formula for un-levering equity betas: equity betas/ (1+D/E)

• Comparable Companies were chosen on basis of industry sector.

Guideline Public Company Net Interest-Bearing Debt ($'000) Market Capitalization ($'000) Net Debt / Equity Beta equity 2-Year Weekly Beta assets Unlevered BetaMicromedic 0 6,593 0.00% 0.36 0.36Myriad 0 3,237,484 0.00% 0.42 0.42Qiagen 607,964 3,622,576 16.78% (0.17) (0.15)Becton Dickenson 610,512 17,081,098 3.57% 0.43 0.41Gen-Probe 0 3,464,884 0.00% 0.84 0.84Medarex 101,014 715,685 14.11% 1.42 1.24Inovio Biomedical Corp 300 17,148 1.75% 0.81 0.80Electro-Optical Sciences 0 76,730 0.00% 1.25 1.25Delcath Systems 0 46,907 0.00% 0.93 0.93

Average 146,643 5,482,527 4.02% 0.70 0.68




64

Source: PwC Israel Analysis

1. Long term nominal risk-free rate for USA derived from the yield on 30-year US governmental bonds as of June 30, 2009 (source - FederalReserve website).

2. Equity Market Risk Premium, source Damodaran Online – SternSchool of Business, New York.

3. Equity beta selected based on an analysis of comparator data.4. Based on data published by the Ibbotson Associates, Inc. [2008]

Valuation Edition Yearbook.5. Derived from Micromedic cost of debt data based on Management.6. Represents the average long-term effective tax rate of comparable

companies.7. Debt/Equity ratio based on an analysis of comparable data8. Cost of Equity from CAPM formula = [Rf+(Equity Beta * EMRP)] +

(Small Firm Risk Premium).9. (Rf + Debt Margin) x (1 - Tax Shield).10. WACC formula =[(Ke * (1-gearing)] + [Kd *gearing].

Assumptions Micromedic

(1) Risk-free rate (Rf) 4.3%

(2) Equity risk premium (Rm- Rf) 5.0%(3) Selected relevered beta (B) 0.7(4) Small- firm risk premium (Sfrp) 9.7%

Company-specific risk premium 0.0%(2) Country risk premium 2.1%

Cost of equity (Re) 19.7%(5) Pretax cost of debt 5.0%(6) Effective tax rate 18.0%

Cost of debt (Rd) 4.1%(7) Target industry debt as % of total capitalization [D/(E+D)] 3.5%(7) Target industry mkt. cap. as % of total cap. [E/(E+D)] 96.5%(7) Target industry debt/equity 4.0%

(8) Cost of equity (Re) 19.0%(9) Cost of debt (Rd) 0.1%

(10) Weighted average cost of capital 19.1%Weighted average cost of capital, rounded 19.1%



Section 8Summary of Key Assumptions and Forecasts


Key Assumptions

66

• Below is an explanation of the general assumptions and parameters usedin the Valuation Analysis.

– All financial figures are presented are in nominal USD thousands.

– The EDCF forecast is for 20 years, to allow full completion of aproduct life cycle for each product.

– Each product has a unique time to market factor based on thecurrent stage of development.

– It was assumed that after the patent expiration date, a genericproduct would reach the market and challenge market share.

– No terminal value was calculated due to each product having aunique life cycle which does not call for a residual value.

– The market share was based on the Logistic growth curve. Thepeak market share assumptions are solely based on Company’sestimations.

– Projected prices were based on Company’s estimation.

b)a(te1M

n(t)

Logistic growth curve

• n(t) -market share t

• M -peak market share

• a -growth rate parameter (for a<0 decline)

• b -time shift parameter

• The Management has earmarked the Colorectal detection as a dominateproduct within the Company, we therefore, have presented two differentscenarios for the peak market share, based on direction fromManagement. The upper range was calculated with a peak penetration of33% and the lower range was calculated with a 20% peak penetration.

• Please note that an essential underlying assumption for our assessmentis that the financial projections prepared by Management will beachievable

• PwC Israel solely relied on Management assumptions for the followingparameters, and consequently takes no responsibility for the accuracy ofthe values.

– Prevalence rate;

– Product price;

– Peak market share;

– R&D, G&A and other expenses.

• Probabilities of success used in the calculations are based on generalindustry figures which may not necessary represent the actualprobabilities of Company products.

Section 8 - Summary of Key Assumptions and Forecasts


Overview

67

• The Valuation Analysis is based on separate revenue forecasts for eachof the Company’s subsidiaries:

– Bio Gene Ltd: Genetic Risk Assessments for Breast Cancer;

– Bio Mark Ltd: Colorectal Cancer - Detection;

– Bio Mark Ltd: Colorectal Cancer - Treatment;

– Bio Med Ltd: Head and Neck Cancer - Biopsy Detection;

– Bio Med Ltd: Head and Neck Cancer - Early Detection:

– BONJ Genetic Risk Assessments :

– Micro Rap Ltd: New onset of diabetes type 1 Diagnostics

– Micro Rap Ltd: Diabetes Pre- type 1 Detection;

– Micro Rap Ltd: Diabetes Pre-type 2 Detection:

• The separate revenue forecasts were then combined to derive theCompany’s revenue, as detailed below.

• Our scope of work does not include, a separate valuation analyse foreach of the Company subsidiaries.



1. Market potential: The potential number of patients within the TargetMarket, as determined by Management. Any major changes in themarket potential will have consequential effects on the results of ourvaluation analysis.

2. Market Size: Annual number of patients who will undergo screening/diagnostics procedure. as determined by Management. Any majorchanges in the market size will have consequential effects on theresults of our valuation analysis.

3. Sales (in units): Actual number of units sold. as determined byManagement. Any major changes in the number of units sold willhave consequential effects on the results of our valuation analysis.

4. Total revenues: Annual revenues.

5. Subsidiary revenues: The royalties that a subsidiary is entitled to.

6. Micromedic revenues: Micromedic share of the subsidiaryrevenues. as determined by Management.

7. Valuation revenue: Micromedic revenues adjusted for risk factor(estimated probability of successful launch excluding probability ofachieving funding ).

Revenue Model - a Top Down Approach

1. Market potential

2. Market size

3. Sales

68

5. Subsidiaryrevenues

4. Total Revenues

X Prevalence rate

X Market share curve

X Price

X Royalties rate

X % of Holdings6. Micromedic

revenuesX Risk factor

7. Valuationrevenues



We explicitly modelled technical success and failure using empirical regularities ofdevelopment phases

69

Initialinvestment atYear 0

Success

Failure

44%

56%

Success

68%

Failure32%

Engagement withpharmaceuticalcompany

NPV

Moving from Phase 2 toPhase 3

Moving from Phase 3 toFDA approval

Initial investment intoa Phase 2 diagnostic

Source: Abbott, T.A. and J. A. Vernon, 2007, Cost of Pharmaceutical Price Regulation, in: Managerial and Decision Economics; PwC analysis.

A pictorial illustration ofthe breakdown ofprobabilities used in thevaluation.

Probabilityof success

Mean time tonext phase

Phase I

71.0%

12.3months

Phase II

44.2%

26.0months

Phase III

68.5%

33.8months

Empirical probabilities ofsuccess of development phases

Probability ofreaching FDA 21.0% 30.0% 68.0%



Key Cost Parameters

70

• Below is a explanation of the general assumptions and parameters usedto calculate the costs in the model;

– Cost of revenue consists of :

> 1/3 of received royalties will be transferred to the researchinstitutions.

– General & Administrative expenses were assumed to be 5% ofrevenues.

– Based on the Company’s financial historical records, research anddevelopment and others expenses were assumed to be 10% ofrevenues.

– The Company does not have material financial expenses orincome.

– Working capital was calculated using an 8% ( 30 days out of 365) ofEBIT.

– The Company has not invested and does not plan to invest anymaterial amounts in property, plant or equipment. Accordingly,depreciation and amortization expenses are also not material.

• Taxes on income - the relevant Israeli statutory tax rates applied forMicromedic are:

> 2009- 26%

> 2010 - 25%

> 2011 -24%

> 2012 - 23%

> 2013 - 22%

> 2014 - 21%

> 2015 - 20%

> 2016 onwards-18%



Combined Financial Forecast - Upper Range

71

Dollars in thousands2009Half Year

2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

Genetic Risk Assessments for Breast Cancer - - - - 264 1,384 3,114 4,239 4,546 4,628 4,675Colorectal Cancer - Detection - - - 426 3,359 15,658 36,053 50,207 55,057 57,307 59,178Colorectal Cancer - Drug - - - - - - 1,270 3,830 5,642 6,050 6,159Oral and Pharynx Caner - Detection - - - 226 1,183 2,662 3,624 3,885 3,955 3,996 4,032Oral and Pharynx Caner - Biopsy - - - 386 2,022 4,549 6,192 6,639 6,759 6,828 6,890BONJ - - - 441 2,310 5,199 7,076 7,588 7,724 7,803 7,875New onset of diabetes type 1 Diagnostics - - - 42 223 501 682 731 744 752 759Diabetes Pre-type 1 - - - - 317 884 1,203 1,290 1,313 1,327 1,339Diabetes Pre-type 2 - - - - - 96 738 3,362 7,565 10,298 11,042Revenues - - - 1,521 9,678 30,932 59,953 81,771 93,306 98,988 101,949Cost of revenues - - - 507 3,226 10,311 19,984 27,257 31,102 32,996 33,983Gross Profit - - - 1,014 6,452 20,622 39,969 54,514 62,204 65,992 67,966Research and Development and Others 500 1,000 1,000 1,000 1,000 3,093 5,995 8,177 9,331 9,899 10,195General and Administrative 500 1,000 1,000 1,000 1,000 1,547 2,998 4,089 4,665 4,949 5,097Earnings before interest and tax (1,000) (2,000) (2,000) (986) 4,452 15,982 30,976 42,249 48,208 51,144 52,673

Dollars in thousands2020Forecast

2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

Genetic Risk Assessments for Breast Cancer 4,718 4,760 4,803 4,846 4,598 3,406 1,541 345 52 7Colorectal Cancer - Detection 61,031 62,918 64,846 62,835 47,522 21,949 5,008 769 109 15Colorectal Cancer - Drug 6,222 6,279 6,335 6,392 6,450 6,508 6,567 6,626 6,287 4,657Oral and Pharynx Caner - Detection 4,069 4,105 4,142 4,179 3,966 2,938 1,329 297 45 6Oral and Pharynx Caner - Biopsy 6,953 7,015 7,078 7,142 6,777 5,020 2,271 508 76 11BONJ 7,946 8,017 8,089 8,162 8,236 8,310 7,885 5,841 2,643 591New onset of diabetes type 1 Diagnostics 765 772 779 739 548 248 55 8 1 0Diabetes Pre-type 1 1,351 1,363 1,375 1,305 967 437 98 15 2 0Diabetes Pre-type 2 11,241 11,356 11,460 11,563 11,667 11,772 11,170 8,274 3,744 837Revenues 104,294 106,585 108,908 107,165 90,731 60,588 35,924 22,682 12,959 6,124Cost of revenues 34,765 35,528 36,303 35,722 30,243 20,196 11,975 7,561 4,319 2,041Gross Profit 69,530 71,057 72,606 71,443 60,487 40,392 23,950 15,122 8,639 4,083Research and Development and Others 10,429 10,659 10,891 10,716 9,073 6,059 3,592 2,268 1,296 1,000General and Administrative 5,215 5,329 5,445 5,358 4,537 3,029 1,796 1,134 1,000 1,000Earnings before interest and tax 53,885 55,069 56,269 55,368 46,877 31,304 18,561 11,719 6,343 2,083



Combined Financial Forecast - Lower Range

72


2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

Genetic Risk Assessments for Breast Cancer - - - - 264 1,384 3,114 4,239 4,546 4,628 4,675Colorectal Cancer - Detection - - - 258 2,036 9,490 21,850 30,428 33,368 34,732 35,866Colorectal Cancer - Drug - - - - - - 1,270 3,830 5,642 6,050 6,159Oral and Pharynx Caner - Detection - - - 226 1,183 2,662 3,624 3,885 3,955 3,996 4,032Oral and Pharynx Caner - Biopsy - - - 386 2,022 4,549 6,192 6,639 6,759 6,828 6,890BONJ - - - 441 2,310 5,199 7,076 7,588 7,724 7,803 7,875New onset of diabetes type 1 Diagnostics - - - 42 223 501 682 731 744 752 759Diabetes Pre-type 1 - - - - 317 884 1,203 1,290 1,313 1,327 1,339Diabetes Pre-type 2 - - - - - 96 738 3,362 7,565 10,298 11,042Revenues - - - 1,353 8,355 24,764 45,750 61,993 71,617 76,412 78,636Cost of revenues - - - 451 2,785 8,255 15,250 20,664 23,872 25,471 26,212Gross Profit - - - 902 5,570 16,509 30,500 41,329 47,744 50,941 52,424Research and Development and Others 500 1,000 1,000 1,000 1,000 2,476 4,575 6,199 7,162 7,641 7,864General and Administrative 500 1,000 1,000 1,000 1,000 1,238 2,287 3,100 3,581 3,821 3,932Earnings before interest and tax (1,000) (2,000) (2,000) (1,098) 3,570 12,795 23,637 32,030 37,002 39,480 40,629


2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

Genetic Risk Assessments for Breast Cancer 4,718 4,760 4,803 4,846 4,598 3,406 1,541 345 52 7Colorectal Cancer - Detection 36,989 38,132 39,300 38,082 28,801 13,302 3,035 466 66 9Colorectal Cancer - Drug 6,222 6,279 6,335 6,392 6,450 6,508 6,567 6,626 6,287 4,657Oral and Pharynx Caner - Detection 4,069 4,105 4,142 4,179 3,966 2,938 1,329 297 45 6Oral and Pharynx Caner - Biopsy 6,953 7,015 7,078 7,142 6,777 5,020 2,271 508 76 11BONJ 7,946 8,017 8,089 8,162 8,236 8,310 7,885 5,841 2,643 591New onset of diabetes type 1 Diagnostics 765 772 779 739 548 248 55 8 1 0Diabetes Pre-type 1 1,351 1,363 1,375 1,305 967 437 98 15 2 0Diabetes Pre-type 2 11,241 11,356 11,460 11,563 11,667 11,772 11,170 8,274 3,744 837Revenues 80,252 81,799 83,363 82,412 72,010 51,942 33,952 22,380 12,916 6,118Cost of revenues 26,751 27,266 27,788 27,470 24,003 17,314 11,317 7,460 4,305 2,039Gross Profit 53,501 54,533 55,575 54,941 48,006 34,628 22,635 14,920 8,610 4,079Research and Development and Others 8,025 8,180 8,336 8,241 7,201 5,194 3,395 2,238 1,292 1,000General and Administrative 4,013 4,090 4,168 4,121 3,600 2,597 1,698 1,119 1,000 1,000Earnings before interest and tax 41,463 42,263 43,071 42,579 37,205 26,837 17,542 11,563 6,319 2,079



Section 9Valuation Analysis


Valuation Analysis – Income Approach

74

Income approach

• As discussed in Section 7 above, we have applied the Income Approachusing the EDCF method for estimating the enterprise value of Micromedic

• In deriving the enterprise value of Micromedic, as of the Valuation Date,we have used available data and financial projections for the ProjectionPeriod provided by Management, to which we have made certainadjustments for valuation purposes, as set out in Section 8.

• The EDCF approach encompasses the following key steps:

– determining an appropriate discount rate (weighted average cost ofcapital)

– estimating future cash flow for a certain discrete projection period

– discounting the cash flows - at the relevant discount rate todetermine the stand alone enterprise value, and

– adding non-operating assets and deducting financial liabilities toarrive at the equity value of Micromedic.

– A probability weighted range of values that the business may havealong with an expected value. In addition, a sensitivity analysis ofthe key drivers can be obtained

Section 9 - Valuation Analysis


Genetic Risk Assessments for Breast Cancer

75

• According to the American Cancer Society women over the age of 40 should have some form of breast screening to test for cancer. The recorded number ofwomen who are between 40 and 65 in the Target Market and have either first or second degree relatives with breast cancer is ~5 million.

• The CAGR was calculated to be 0.9% based on population growth.

• The risk factor was based on the phase of product development which is currently at phase 2, therefore the risk test has a risk factor of 30%

• The price of the kit was determined in relation to comparable kits which are currently sold, these kits cost between $250-$360.

2009 market size (thousand) 5,000Market CAGR 0.9%Prevalence rate 50%Peak market share 50%Adjusted risk factor 30%Product price [$] 150Time to market 2013Patent expiration 2023

Product FactorsGenetic Risk Assessments for Breast Cancer 2009F-2029F

01,000

2,0003,0004,000

5,0006,000

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%10%

20%30%40%

50%60%

%M

arke

tS

har

e

Revenues Market Share



Colorectal Cancer - Detection (Upper range)

76

• According to the American Cancer Society people over the age of 50 should have some form of colorectal screening to test for cancer. The target population (overthe age of 50) consist of US, Japan and EU (~308M) and growing percentage (from 15% in 2009 to 50% in 2029) of China and India population (50+).

• The CAGR was calculated to be 1.5% based on population growth of those over 50 years old.

• The risk factor was based on the phase of product development which is between phase 2 3, therefore the colorectal cancer kit has a risk factor of 49% (theaverage between 30% and 68%, according to the Company the product is closer to phase 3 than phase 2).

• The price of the kit was determined in relation to comparable kits which are currently sold, these kits cost between $100 -$150.


Product Factors

Sources (Market Potential): U.S. Census Bureau website; Eurostat website; Japan Statistics Bureau and the Director-General for Policy Planning website; Wolfram Alpha website; Company Management.Sources (Prevalence Rate): Center for Disease Control website; LSE Health, “Colorectal Cancer in Europe and Australia: Challenges and Opportunities for the Future”, June 2008; Company Management;Barriers to colorectal cancer screening: A case-control study, Shan-Rong Cai, Su-Zhan Zhang, Hong-Hong Zhu, and Shu Zheng, April 2009.

Colorectum Cancer Biomarker 2009F-2029F

-10,000.020,000.030,000.040,000.050,000.060,000.070,000.0

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%5%10%15%20%25%30%35%

%M

arke

tS

har

e




Colorectal Cancer - Detection (Lower range)

77

• According to the American Cancer Society people over the age of 50 should have some form of colorectal screening to test for cancer. The target population (overthe age of 50) consist of US, Japan and EU (~308M) and growing percentage (from 15% in 2009 to 50% in 2029) of China and India population (50+).

• The CAGR was calculated to be 1.5% based on population growth of those over 50 years old.

• The risk factor was based on the phase of product development which is between phase 2 3, therefore the colorectal cancer kit has a risk factor of 49% (theaverage between 30% and 68%, according to the Company the product is closer to phase 3 than phase 2).

• The price of the kit was determined in relation to comparable kits which are currently sold, these kits cost $25.


Product Factors

Sources (Market Potential): U.S. Census Bureau website; Eurostat website; Japan Statistics Bureau and the Director-General for Policy Planning website; Wolfram Alpha website; Company Management.Sources (Prevalence Rate): Center for Disease Control website; LSE Health, “Colorectal Cancer in Europe and Australia: Challenges and Opportunities for the Future”, June 2008; Company Management;Barriers to colorectal cancer screening: A case-control study, Shan-Rong Cai, Su-Zhan Zhang, Hong-Hong Zhu, and Shu Zheng, April 2009.

Colorectum Cancer Biomarker 2009F-2029F

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%

5%

10%

15%

20%

25%%

Mar

ket

Sh

are




Colorectal Cancer - Drug Therapy

78

• The figures for the colorectal drug are based on sales of Erbitux, which inhibits cancer growth, and is currently in the market (Market value ~ $1.5B).

• The risk factor was based on the phase of product development which is very early pre- phase 1, therefore a risk factor of 5% was used.

Colorectal Cancer - Drug

-1,0002,0003,0004,0005,0006,0007,000

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%

10%20%

30%

40%50%

60%%

Mar

ket

Sh

are

Revenues % Market Share


Sources Datamonitor, Bristol Myers Squibb website, Company management

2009 market size (thousand) 1,500,000Peak market share 50%Adjusted risk factor 5%Time to market 2015Patent expiration 2027

Product Factors


Head and Neck Caner - Early Detection

79

• The number of people who are within the Target Market, who smoke is roughly 133 million people.


• The risk factor was based on the phase of product development, currently phase 1, therefore the detection test has a risk factor of 21%.

• As there are no comparable kits which are currently available, the price of the kit was determined in relation to kits which detects oral and pharynx cancer througha saliva analysis, an average of $32 per test.


Product FactorsOral and Pharynx (Early Dection) 2009F-2029F

-

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%5%10%15%20%25%30%35%

%M

arke

tS

har

e




Head and Neck Cancer - Biopsy Detection

80

• There are roughly 30 million people within the Target Market who have oral lesions, either Leukoplakia or Erythroplakia.


• The risk factor was based on the stage of product development, currently stage 1, therefore the detection test has a risk factor of 21%.

• The price of the kit was determined in relation to comparable kits which are currently sold, these kits cost between $200 - $300.


Product FactorsOral and Pharynx Cancer (Biopsy) 2009F-2029F

-

2,000.0

4,000.0

6,000.0

8,000.0

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%10%20%30%40%50%60%

%M

arke

tS

har

e




BONJ - Genetic Risk Assessments

81

• According to Novartis there are roughly 3 million uses of Aredia and Zometa globally.


• The risk factor was based on the stage of product development which is currently at phase 2, therefore the detection test has a risk factor of 30%.

• There are no comparable test currently available for price comparison.


Product FactorsBONJ Biomarker- Drug Therapy

-

2,000

4,000

6,000

8,000

10,000

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%

20%40%

60%

80%100%

120%%

Mar

ket

Sh

are

Revenues % Market Share



New onset of Diabetes Type 1 Diagnosis

82

• According to the International Diabetes Federation there are roughly 1 million new cases of type 1 diabetes every year.


• The risk factor was based on the stage of product development which is currently at stage 3, therefore the detection test has a risk factor of 68%.

• The price of the test was determined in relation to comparable tests which are currently sold, these tests cost $30.


Product FactorsDiabetes Type 1 Biomarker 2009F-2029F

-

200.0

400.0

600.0

800.0

1,000.0

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%10%20%30%40%50%60%70%80%

%M

arke

tS

har

e




Diabetes Pre-type 1 Detection

83

• According to the International Diabetes Federation there are roughly 6 million people who are at risk of contracting pre-type 1 diabetes every year. (Those whohave first and second relative aged 15 or less).


• The risk factor was based on the stage of product development which is stage 2, therefore the detection test has a risk factor of 30%.



Product FactorsDiabetes Pre Type 1 Biomarker 2009F-2029F

-200400600800

1,0001,2001,4001,600

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%

10%20%

30%

40%50%

60%%

Mar

ket

Sh

are




Diabetes Pre-type 2 Detection

84

• According to the International Diabetes Federation there are roughly 300 million people globally (69 million people in the Target Market) who have an impairedglucose tolerance or impaired fasting glucose.


• The risk factor was based on the stage of product development which early stage 1, therefore the detection test has a risk factor of 10%.



Product FactorsDiabetes Pre Type 2 Biomarker 2009F-2029F

-2,0004,0006,0008,000

10,00012,00014,000

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Rev

enu

e

0%

5%10%

15%

20%25%

30%%

Mar

ket

Sh

are




Free Cash Flows Forecast (cont.) (Upper range)

85

Free cash flows forecast

• The table below presents Micromedic’s free cash flow forecast for the Projection Period:


2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

Earnings before interest and tax (1,000) (2,000) (2,000) (986) 4,452 15,982 30,976 42,249 48,208 51,144 52,673Change in working capital - 82 - (83) (447) (948) (1,232) (927) (490) (241) (126)Change in capital expenditure - 5 5 10 10 20 20 20 20 20 20Depreciation - 5 5 10 10 20 20 20 20 20 20FCF (1,000) (1,918) (2,000) (1,069) 4,005 13,731 23,548 33,717 39,041 41,696 43,067


2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

Earnings before interest and tax 53,885 55,069 56,269 55,368 46,877 31,304 18,561 11,719 6,343 2,083Change in working capital (100) (97) (99) 74 698 1,280 1,047 562 442 350Change in capital expenditure 20 20 20 20 20 20 20 20 20 20Depreciation 20 20 20 20 20 20 20 20 20 20FCF 44,086 45,059 46,042 45,476 39,137 26,949 16,267 10,172 5,643 2,058



Valuation Analysis – Income Approach (Upper range)

86


• The free cash flow and assumptions are set out in Section 8.

Calculation of the WACC

• We have applied a WACC for the Company of 19.1%. This has beendetermined by reference to the CAPM and details of the inputs are set outin Section 7.

Derived Upper Range Enterprise Value (USD 000’s) is 73,613


2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

FCF (1,000) (1,918) (2,000) (1,069) 4,005 13,731 23,548 33,717 39,041 41,696 43,067Discounted CF (957) (1,610) (1,409) (633) 1,989 5,724 8,241 9,906 9,628 8,633 7,485


2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

FCF 44,086 45,059 46,042 45,476 39,137 26,949 16,267 10,172 5,643 2,058Discounted CF 6,432 5,519 4,734 3,925 2,836 1,639 831 436 203 62



Free Cash Flows Forecast (cont.) (Lower range)

87


• The table below presents Micromedic’s free cash flow forecast for theProjection Period:


2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

Earnings before interest and tax (1,000) (2,000) (2,000) (1,098) 3,570 12,795 23,637 32,030 37,002 39,480 40,629Change in working capital - 82 - (74) (384) (758) (891) (690) (409) (204) (94)Change in capital expenditure - 5 5 10 10 20 20 20 20 20 20Depreciation - 5 5 10 10 20 20 20 20 20 20FCF (1,000) (1,918) (2,000) (1,172) 3,186 11,611 18,019 25,575 29,933 32,170 33,221


2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

Earnings before interest and tax 41,463 42,263 43,071 42,579 37,205 26,837 17,542 11,563 6,319 2,079Change in working capital (69) (66) (66) 40 442 852 764 491 431 348Change in capital expenditure 20 20 20 20 20 20 20 20 20 20Depreciation 20 20 20 20 20 20 20 20 20 20FCF 33,931 34,590 35,252 34,955 30,950 22,858 15,148 9,973 5,613 2,053



Valuation Analysis – Income Approach (Lower range)

88


• The free cash flow and assumptions are set out in Section 8.

Calculation of the WACC

• We have applied a WACC for the Company of 19.1%. This has beendetermined by reference to the CAPM and details of the inputs are set outin Section 7.

Derived Lower Range Enterprise Value (USD 000’s) is 56,315


2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015Forecast

2016Forecast

2017Forecast

2018Forecast

2019Forecast

FCF (1,000) (1,918) (2,000) (1,172) 3,186 11,611 18,019 25,575 29,933 32,170 33,221Discounted CF (957) (1,610) (1,409) (693) 1,582 4,841 6,306 7,513 7,382 6,660 5,774


2021Forecast

2022Forecast

2023Forecast

2024Forecast

2025Forecast

2026Forecast

2027Forecast

2028Forecast

2029Forecast

FCF 33,931 34,590 35,252 34,955 30,950 22,858 15,148 9,973 5,613 2,053Discounted CF 4,951 4,236 3,624 3,017 2,242 1,390 773 427 202 62



Valuation Analysis – Income Approach

89

Calculation of Enterprise Value

• Discounting the forecasted free cash flow for the Projection Period and theterminal value calculated above at the calculated WACC of 19.1% gives anenterprise value for Micromedic in the range of USD 56.3 million to USD73.6 million as detailed below.

• This enterprise value represents the value of the business on a financialcontrolling basis.

Calculation of a 100% interest in Micromedic’s equity

• To estimate the value for Micromedic’s equity, we have adjusted theenterprise value calculated above by adding non-operating assets of USD0.7million. On this basis the value of a 100% interest in Micromedic’s equityis estimated to be in the range of USD 57.0 million to USD 74.3 million.

• By its very nature, the valuation process cannot be regarded asan exact science and the conclusions arrived at in many cases,will of necessity be subjective and dependent on the exercise ofindividual judgement. Given the same set of facts and using thesame assumptions, expert opinions may differ due to differencesin subjective judgemental decisions which may have to be made.There can be therefore no standard formulae to establish anindisputable value although certain appropriate formulae areuseful in establishing reasonableness.

• You should be aware that a valuation made by ourselves is onlyone of several factors to be considered in arriving at a final value,which is essentially determinable only by negotiation between awilling buyer and a willing seller.

Income Approach Valuation (USD 000’s).Discounted CF Lower Range Upper Range

Enterprise Value 56,315 73,613Non operating assets - -

Cash and cash equivalents (*) 142 142Holdings of MET Ltd 570 570Total non-operating assets: 712 712Financial liabilities - -Equity Value 57,027 74,326



Valuation Analysis – Sensitivity

90

• The following table presents a sensitivity analysis of the FairMarket Value of Micromedic relative to the discount rate.

Upper range Scenario .

Lower range Scenario .

74325.5954 Equity Value

15.0% 105,45117.0% 88,74519.1% 74,32620.0% 69,18922.0% 58,962

WA

CC

57027.1482 Equity Value

15.0% 81,34417.0% 68,28119.1% 57,02720.0% 53,02322.0% 45,060

WA

CC



Valuation Analysis – Comparison in Relation to the Market Cap

91

• The table on the right presents the market cap of Micromedic asderived from the share price on the TASE.

• The following chart presents the change in stock price ofMicromedic in the 6 month before the Analysis Date (January 1,2009 to June 30, 2009) .

• The discrepancy between the fair market value of Micromedicand its market cap may be explained by either:

– Investors probably consider only a pre-money value takinginto account a possible risk of fundraising failure

– Investors probably do not take into account the entire rangeof parameters and factors that influence the value of theCompany.

43,93291,81661,73630/6/09 - 14/10/09

17,76235,58028,0001/1/09 - 30/6/09

Market Cap - Low(NIS in thousands)

Market Cap - High(NIS in thousands)

Market Cap -Average

(NIS in thousands)

Source: TASE, Management1 NIS=100 Ag’

150

200

250

300

350

400

450

500

01/01/09 31/01/09 02/03/09 01/04/09 01/05/09 31/05/09 30/06/09

Historical Stock Price Chart (Ag’).



Valuation Analysis – Comparison in Relation to Previous Investment Rounds

92

• In July 2007 the Company raised ~NIS 8.0 million from privateinvestors. The price per share was ~NIS 5.0. According toManagement, from July 2007 till today there was a significantprogress in all aspects of product development such as clinicaltrials, regulation, commercial agreements etc.

• During July and August 2009 the Company raised ~NIS 8.3million at a share price of ~NIS 2.9. According to Management,the low price per share could be explained by the following;

> The Company was under pressure to fundraise as ithad no more sources for financing Company (and itssubsidiaries) activities

> Going concern warning in the financial statement,due to lack of resources.

> The global economic down turn.

Source: Management



Appendix 1Colorectal - Current testing and Micromedic’sSolution


75-85%

92.3%

86.8%

Indevelopment

20

Blood

High

MicromedicCD24 test

Colorectal - Current testing and Micromedic’s Solution

94

Colonsentry

(Genenews)

No

56%

96%

Lab test

100-150

Blood

High

No

79%

66%

Lab test (onlyin Canada)

800

Blood

High

FOBT

No

37%

98%

IVD test kit

5

Stool

Low

Yes

97%

98%

Gastrologist

Screen:400

Treat:1,600

Invasivevisualinspection

Very low

Ability todetectadenoma

Sensitivity

Specificity

Availability

Price (US$)

Sample

Convenience

No

52%

94%

Lab test

600-700

Stool

Low

Stool DNAEpigenomics

blood test


Colonoscopy

Appendix 1 - Colorectal - Current testing and Micromedic’s Solution


Appendix 2Information sources


Information sources

96

• In the course of the Valuation Analysis, we relied upon financial and otherinformation, including prospective financial information, obtained fromMicromedic’s Management, and from various public, financial, andindustry sources. Our conclusion is dependent on such information beingcomplete and accurate in all material respects

• The principal sources of information used in performing our valuationinclude but were not limited to, the following::

– Micromedic’s audited financial statements for the fiscal years 2007and 2008 and unaudited financial statements for Q2 2009;

– Micromedic’s financial forecast;

– Micromedic’s company presentation;

– Discussion with Management;

– PwC Knowledge network.

– Publicly available information (articles, websites etc) regardingMicromedic and the industry as a whole;

– Bloomberg’s on-line database covering financial markets,commodities and news.

– Damodaran on-line and other relevant financial web sites.

Appendix 2 - Information sources


Appendix 3Procedures


Procedures

98

• In general, our procedures included, but were not limited to, thefollowing:

– Analysis of the global economic outlook;

– Analysis of conditions in, and the outlook for biomarkers andpersonalized medicine;

– Discussions with Management concerning the history,current state, and future operations of Micromedic;

– Discussions with Management to obtain explanation andclarification of data provided;

– Analysis of the operating and financial results of Micromedic;

– Analysis of operating and financial projections of Micromedic,which form the basis for the Income Approach;

– Analysis of other facts and data considered pertinent to theValuation Analysis to arrive at a conclusion of Fair MarketValue.

Appendix 3 - Procedures


Appendix 4Excerpts from the Letter of Engagement


Excerpts from the Letter of Engagement

100

Liability Limitation

Our liability to pay damages for all losses, including consequentialdamages, economic loss or failure to realize anticipated profits,savings or other benefits, incurred by you as a direct result of breachof contract or negligence or any other tort by us in connection with orarising out of the Engagement or any addition or variation thereto shallbe limited to that proportion only of your actual loss which was directlyand solely caused by us and in any event our liability shall in nocircumstances exceed in the aggregate the amount of our fees for thisEngagement.

Notwithstanding the paragraph above, in no circumstances shall we beliable to pay any damages to you for losses arising out of or in anyway connected with the provision of information to us by you or yourfailure to provide information to us either punctually or at all or anyfraudulent act, misrepresentation or willful default on your part.

Notwithstanding our liability for the acts and omissions of our partners,principles, directors, staff and employees, you accept andacknowledge that no legal proceedings arising from or in connectionwith the Engagement (or any variation or addition thereto) will becommenced against any of our partners, principals, directors, staff oremployees personally.

You accept and acknowledge that any legal proceedings arising fromor in connection with the Engagement (or any variation or additionthereto) must be commenced within 2 years from the date when youbecome aware of or ought reasonably to have become aware of thefacts which give rise to our alleged liability and in any event not laterthan 4 years after any alleged breach of contract or act of negligenceor commission of any other tort.

Appendix 4 - Excerpts from the Letter of Engagement


Excerpts from the Letter of Engagement

101

Indemnity against Third Party Liability

Except for any willful misconduct by us, you agree to indemnify us tothe fullest extent permitted by law against all liabilities, losses, claims,demands and reasonable expenses, including but not limited to legalfees and expenses and internal management time and administrativecosts, brought against us by any party or person whatsoever, otherthan you, in connection with or arising out of the Engagement.

The results of our valuation do not constitute a Solvency Opinion or aFairness Opinion and should not be relied upon as such. Furthermore,the analysis we perform should not be taken to supplant anyprocedures that you should undertake in your consideration of atransaction.

It is understood and agreed that all work products resulting from thisengagement shall remain the exclusive property of PwC Israel. To theextent that PwC Israel utilizes any of its property (including, withoutlimitation, any hardware or software) in connection with theEngagement, such property shall remain the property of PwC Israel,and you shall not acquire any right or interest in such property. PwCIsrael shall have ownership (including, without limitation, copyrightownership) and all rights to use and disclose its ideas, concepts,know-how, methods, techniques, processes and skills, andadaptations thereof (including, without limitation, generalized featuresof the sequence, structure and organization of any works ofauthorship) in conducting its business, and you shall not assert orcause to be asserted against PwC Israel or its personnel anyprohibition or restraint from so doing.

The Engagement shall be governed by and interpreted in accordancewith the laws of the State of Israel.

Appendix 4 - Excerpts from the Letter of Engagement


Appendix 5Information regarding the appraiser


Information regarding the appraiser

103

• Tzur Fenigstein is a Partner and Valuations & Strategy PracticeLeader at PwC Israel

• Tzur is the head of Valuations & Strategy team, directly responsible forFinancial and Economic Consulting. He has 20 years of experience inleading strategic and financial consulting projects, including businessvaluation, business planning, financial instruments and valuations andfeasibility studies.

• Tzur received a BA in Accounting and Economics and an MBA (Magnacum Laude) from the Tel-Aviv University. Tzur is a Certified PublicAccountant in Israel (with distinguishing award).

Appendix 5 - Information regarding the appraiser


Appendix 6Contact information

• Valuation of Micromedic Technologies Ltd. 105

For further information please contact:

Name: Tzur Fenigstein, Partner Name: Michael Sorin, Manager

Tel. no. +972-3-7954588 Tel. no. +972-3-7955079

e-mail: [email protected] e-mail: [email protected]

© 2009 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity. All rights reserved.

Appendix 6 - Contact information

Micromedic Oct 17 final 18.10 · 2009. 10. 19. · Source: MoneyTree Report 2009: Thomson Reuters...

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