Ultrasound Imaging Opportunity June 6 2012 Ver 2

8/10/2019 Ultrasound Imaging Opportunity June 6 2012 Ver 2

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Wide Aperture UltrasonicImaging Opportunity

Presented byKim Bui

June 8, 2012


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Market Overview


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OverviewStructural shifts in global consumption and key macro trends create long-term growth opportunities

Aging population in developed world

Accelerating healthcare spending from emerging markets

Healthcare is a large and growing market globally

Expenditure driven by demographic factors: Rising income levels and increasing instances oflifestyle diseases

US is the largest healthcare market globally (16% of GDP on healthcare increasing to 20% in2020)

Medical device market expected to grow in proportion with living standards, healthcare systems,and medical insurance

Fastest growing global markets in healthcare today

Ultrasound imaging represents a low cost and effective technology that continues to helpradiologists and clinicians collect diagnostic data

Advancements in imaging technology capable of producing high-quality images at lower pricepoints

Flexibility, ease of use, relative lower cost, trend to miniaturization and wide adoption of portableultrasound equipment represents key accelerators


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Global medical device marketUS, Japan, and five major European countries (Germany, France, Italy UK and Spain) account for 14%of the global population and 70% of global medical device use today

Emerging markets (including BRIC) account for half the world population but only 7% of the global

medical device market

Developed markets delivering mid single-digit rates of growth

Emerging markets (including China and MENA) delivering 15~25% growth in the past severalyears

Recent FDA reforms will shift supplier focus towards non US markets to drive and sustain growth

.

Worldwide medical device market by segmentTotal market size in 2009: US$234bn

Worldwide medical device market by geography(market size and growth)


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China Medical Device & Equipment market expected togrow 20%

China is strengthening its position in theinternational market

Low cost and improved R&D acceleratingmanufacturing relocation to China.

Chinese firms actively involved in contractmanufacturing

MNCs expanding presence with JVs.

Chinas medical device exports totaled $12.2bn, up 10.4% YoY despite 13.9% decline ofoverall foreign trade in 2009.

Ultrasound Market in China

Valued at around $589 million(~RMB4.0bn)in 2009

13% of the global ultrasound market

expected to grow 15-20% over the medium term

Long term growth driven by replacement ofblack and white ultrasound equipment withhigher-priced color ultrasound systems


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The Brazilian Medical Market is projected to grow to $3.6billion by 2014Demographics

Population: 193 million

Annual GDP growth: 6%

Health Service Coverage: 100% ofpopulation

Population Forecast 2050: 233 million

Life expectancy: M: 69 F: 76

Current Situation

Continued government efforts to widenpublic access to health care

Increasing cardiovascular disease, cancer,respiratory diseases and diabetes

Continued government spending to improve

public health. Public health expenditures of $116 billions

in 2011

Health Tourism expected to grow further

Medical Market by Category (2009)

Opportunities:

Increased cost-consciousness within thepublic health system to improve foreignaccess to the domestic market

Growing market for preventive healthprograms and products combating non-communicable diseases

Source: Source: BMI; Brazil Pharmaceuticals & Healthcare Report Q3 2010, WHO Health and SocialDeterminants Brazil, Health Affairs no.4 2007, Hospitialar.com,Health-tourism


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Problem Statement/ Immediacy of Market Demand

U.S. still majority of the market followed byWestern Europe

Asian economies (China and India), EastEuropean nations, MENA, and Brazil representshigh growth regions

Aging population and increase chronic diseasedriving imaging market growth

GE Healthcare, Philips, and Siemens constitutethe market

Philips market share equaled to GE due toincreased focus in emerging markets

Other players include Toshiba (Japan),Hitachi (Japan), and Mindray (China)

Market sizingStand-alone and portable ultrasound machineswas worth $3.19 billion globally and forecast toreach $6.27 billion in 2017

European market represents $1.53 billionand forecast to reach $3.2 billion by 2017

Chinese market will be more than $1.29

billion by 2017, growing of 9% CAGR MENA is currently $120 million and

predicted to reach $264.14 million by 2017

Compact ultrasound imaging systems was worth$908.72 million in 2010 and estimated to reach$1.6 billion in 2017

U.S. market was $276 million in 2010 and

expected to reach $828 million in 2017

Ability to provide increasingly subtle information, such as the internal architecture of complex cysts,improves with its ability to resolve smaller and smaller areas

Source: Trimark Research, 2011


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Impact to Middle East NorthAfrica Regions


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The MENA region spent $65.6 billion (4.3% of GDP) on healthcare in 2009

Estimated to reach $125 billion by 2015

Key Demand Drivers

High population growth: 214 million people projected to reach 233 million by 2015 and 272 million

by 2025 (much higher than the global average)

Increased life expectancy: 71 years in 2009 compared to 59 years in 1980 (elderly population

increase to 20 million by 2025)

Lower mortality: 26 per 1,000 live births compared to 90

Prevalence lifestyle diseases such as diabetes, cardiovascular ailments and certain forms of cancer

Growing awareness of health insurance: adopting insurance to finance medical expenditure.

Introduction of mandatory health insurance Saudi Arabia, Abu Dhabi and Kuwait

Insufficient healthcare infrastructure

Diagnostic and Imaging centers offer growth opportunities for healthcare and medical technology

investments going forward

MENA Healthcare At a Glance


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Underinvestment in Healthcare provides opportunities todrive growth

Healthcare infrastructure far below the developed economies

Ratio of hospital beds (per 10,000 people) and number of physicians (per10,000 people) are poor compared to the US

Healthcare market isrelatively small andunderdeveloped

Spent 4.3% of GDP(about $66 billion) onhealthcare or $315 perperson

Healthcare spending in

the Gulf CooperationCouncil was at 3.8% ofthe GDP (about $35billion) or $913 perperson in 2009

Country US MENA GCC

Total healthcare spending as a %of GDP

16.2% 4.3% 3.8%

Total healthcare spending, on aper capita basis (USD)

7,410 31.5 91.3

No. of Hospital Beds per 10,000people

31.0 21.6 20.2

No. of Physicians per 10,000people

26.7 18.3 13.0


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Ultrasound Markets in MENA

Keeping pace with the developed world in acquiring and applying new technologies in healthcare

X-ray machine introduced in 1902

CT scanner installed in 1978

Ultrasound in 1975, MRI in 1983 and PET in 1996

Ultrasound imaging market estimated to be $119.5 million in 2010

Predicted to reach $264.14 million in 2017

Entry of multinational companies addressing low-end of the market, expanding product linesand creating sales channels

Little option but to import medical equipment and supplies due to limited production capability andlack of technical know-how

Opportunities to establish technology centers of excellence in the GCC for advance imagingresearch and development

Create new knowledge based industries and skill jobs in MENA regions

Emphasis on R&D and high profit margin industries

Leveraging long term investment horizons and move upstream along the Medical device valuechain

High demand for sophisticated medical equipment driving high imports of medicalequipment, including MRI and ultrasound

Source: TriMark, UltraSound Markets, 2011.


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Company Profile


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Company Overview

Hana Research is an intellectual property licensing company that designs, develops, licenses andmarkets innovative solutions used in high resolution and small form factor clinical ultrasound

The Company provides specific innovation, patent development, and licensing around wide apertureultrasound technologies

RadiologyProbes

CardiacProbes

Intra cavityProbes

4D Imaging

Wide aperture probe enables ultrasound anywhere

Superiorinvestment

returnsCore IP

Highly experienced management team,strategic advisors and technical teams

Increasedsafety/Reliability

Proprietary technology Strong patent portfolio


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Business Model

Built around three core functions of technology development, out-licensing to partners, and systemsintegration

Patents

Engineeringand DesignKnow How

IntegrationExpertise

Branded Systems(Siemens, GE,

Philips)

ContractManufacturer(Flextronics/

Celestica)

Components(Texas

Instruments/Freescale)

Hospitals/Doctors office

Imaging Clinics

Universities/ResearchFacilities

Hana Research

Medical ImagingDevice

ManufacturersEnd Users

Manufacturing

Agreements

Licensing

(Solutio

ns&

Patents)

EquipmentLeasing

Companies


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Innovation and Licensing Model

Hana Research licenses the right to use wide aperture ultrasound and associated software to itsOEM/ODM partners

Patents will continue to be relevant in future products and modalities

Coupled with standard components from partners FPGA suppliers, these licenses enable a

complete wide aperture ultrasound solution

Licensing technology rather than taking on internal product/device development allows salesgrowth without increasing investment/cost

OEM/ODM clients are responsible for product manufacture, including the costs and logisticsand support

Direct resources toward the development of innovative new solutions for ultrasound testequipment and industrial applications

WAAB Wide aperture adaptive beam

forming algorithms to provide

high image resolution forultrasound systems

Ultrasonic TestEquipment

IndustrialApplication

Licensing

Patent Development

Innovation

Field ProgrammableGate Array containingalgorithm and code canbe incorporated into alicensees system

Allows Company toprotect the IP thatlives on the chip


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Technology/ProductOverview


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High end systems performance at fraction of cost and size

Large and expensive

More practical to bring patients to theultrasound machine

Portable ultrasound technologies emerged, butachieving image quality on a par with the largerdevices proved to be a challenge

Physicians see ultrasound as cost effective andmobile alternative to CT and MRI scanners

High-quality handheld systems enable routinebedside scanning and emergency medicine

Innovations in software and miniaturization ofcomponents enable high performance HCUsystems

Relatively cheaper and more flexible

Replacing cart-based systems

Improves patient access to safe, noninvasivediagnostic medicine

Reduces time and costs

Wide Aperture Ultrasound enables:

High level of reliability and stability indiagnostics

High-resolution images

Existing TechnologyNext Generation Hand Carried UltrasoundSystems


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Financial Overview


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Financial Highlights

Remain focused on overall operations profitability and maintaining control of working capital Growth of annuity income stream and support revenues

Maintaining strong margins (GM% 95, EBITDA +47%)

Continued investment in Sales & Marketing and R&D (33% and 14% of revenues)

On going recruitment in key growth segments and regions

$1 $2 $7 $24$55

$100 $130$165 $185

0 0 0.51

410

30 60

80

0

100

200

300

2011 2012 2013 2014 2015 2016 2017 2018 2019

$Milli

on

RevenuesTest and Industrial

Core Wide AperatureUltrasound

-$2 -$2 $1 $7$21 $33

$47$68 $87

-50

0

50

100

2011 2012 2013 2014 2015 2016 2017 2018 2019$Million EBITDA


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Financial ProjectionsDCF Assumptions

Risk Free Rate 2.15% Debt Spread (bps) 285

Market Risk Premium 8.09% Cost of Debt 5.0%

Beta 1.20 D/V 23.0%

Capex/Cyclical risk Premium 0.00% WACC 10.2%Cost of Equity 12%

Perpetuity Growth Rate 4% WACC Used 10.2%

Period - 1 2 3 4 5 6 7 8 9

In $ Millions 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Core Wide Aperature Ultrasound 0.5$ 2.0$ 7$ 24$ 55$ 100$ 130$ 165$ 185$ 200$

Test and Industrial -$ -$ 0.50$ 1$ 4$ 10$ 30$ 60$ 80$ 120$

Total Revenues 0.5$ 2.0$ 8$ 25$ 59$ 110$ 160$ 225$ 265$ 320$

Y/Y Growth 300% 275% 233% 136% 86% 45% 41% 18% 21%

Gross Margins $ 0$ 2$ 7$ 24$ 56$ 105$ 152$ 214$ 252$ 304$

Opex

R&D 2$ 3$ 4$ 6$ 6$ 17$ 24$ 34$ 40$ 48$

SG&A 1$ 1$ 2$ 8$ 19$ 36$ 48$ 68$ 80$ 86$

Total Opex 3$ 4$ 6$ 14$ 25$ 53$ 72$ 101$ 119$ 134$

EBITDA (2)$ (2)$ 1$ 10$ 31$ 52$ 80$ 113$ 133$ 170$

EBITDA -405% -105% 9% 38% 52% 47% 50% 50% 50% 53%

Capex (1)$ (1)$ (2)$ (3)$ (3)$ (3)$ (3)$ (3)$ (3)$ (3)$

Cash Taxes (2)$ (6)$ (10)$ (24)$ (34)$ (40)$ (51)$

Free Cash Flow (3)$ (3)$ (1)$ 5$ 21$ 38$ 53$ 76$ 90$ 116$

% Growth FCF 2% -56% -441% 367% 79% 38% 43% 18% 29%

PV Cash Flow ($3) ($3) ($1) $3 $15 $24 $30 $38 $41 $48

PV (FCFF) $192 sum of PV payments

Terminal value 779$ Stable Growth and Terminal Value = Expected cash flow at end of next period/ (WACC - Estimated Terminal Grow

PV (Terminal value) 325$ Implied Terminal Value /(1+ WACC)^N period

Firm Value $517


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Exit Strategy/ M&A Environment in Medical Devices

Meaningful acceleration of acquisition activity as

big companies seek growth in medical devicemarket

Half of Medical device deals involve privatecompanies

Lack of innovation and scarcity ofbreakthrough technologies

Expect significant acceleration in acquisitionactivity

Slowing growth rates and cash-rich balancesheets at larger cap companies

More difficult FDA approval process

M&A activity has heated up across several

healthcare subsectors with significant valuecreation

Premiums on companies with well developedFDA process

Deep pocketed large caps medical devicesuppliers placing premium valuation oncompanies with technology already through

or nearly through the FDA process

Exit Strategy M&A Catalyst

Exit with enterprise value of $500-$600M by2014-2015

Represents ~12x TTM revenues by 2014-15


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Summary

Wide aperture ultrasound is a core technology enabling broad adoption of hand-carried ultrasoundsystems and will play a vital role in fueling the overall market growth for medical imaging devices

Ultrasound scanners undergoing rapid evolution as integration makes it possible to use manychannels in parallel for greater resolution and usability

Wide adoption by healthcare institutions give rise to new market opportunities for manufacturers

Hana Research is uniquely positioned to bring high resolution, low cost, patient safe, portableimaging to the world

Vast population base, urbanization process and an aging population should boost demand for nextgeneration ultrasound devices in emerging markets

As the US regulatory environment becomes more challenging with FDA reforms, emerging marketsare preferred market for medical device companies to launch new products

We expect high exit value due to premium valuation on companies with capital efficient licensingmodel and technology already through or nearly through the FDA process


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Back Up


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Ultrasound Imaging Highlight

Criteria Ultrasound Imaging Devices

Investment Highlights New use cases in ER medicine and battlefield medicine Growth driven by mid/low-end product Demands in the short-term and by product replacement and

upgrading needs in the long-term

Development Trends Intensified information processing in medical imaging center Integrated solutions/ Portable devices Advanced IT technology and services

Development Strategy Upgrade to an integrated solution provider amid increasingdemand in emerging markets

Benefit from domestic hospital medical equipment upgrading,Medical equipment platform consolidation

Keys to success Technology, R&D, comprehensive service ability

2009-2017 CAGR 10% (0~2% for advanced market,7~9% for emerging markets)

Leading Companies GE, Siemen, Philips, Mindray, Hitachi, Toshiba


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Healthcare spending in the MENA and the GCCHealthcare spending in the MENA region to reach $125 billion by 2015

Assumed per capita spending on healthcare through 2015 would mirror the growth of 9.0%CAGR achieved between 2000 and 2009.

Healthcare spending inthe MENA region toreach $125 billion by2015

Large population andgrowing middle class(100 million people)who can afford modernhealthcare

Remainingpopulation areprovided withhealthcare bygovernment funded

hospitals


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Healthcare Spending

Healthcare expenditure is low both in terms of

percentage of GDP and on a per capita basis.

Spends 4.3% of the GDP on healthcare

Per capita healthcare spend stands at $315.

Lower than GCC of $913 and much belowdeveloped countries such as the US ($7,410),Canada ($4,380), and the UK ($3,285)

3.8%

4.2%

4.3%

4.6%

5.4%

8.3%

8.5%

9.1%

9.4%

10.9%

11.4%

11.7%

16.2%

0% 5% 10% 15% 20%

GCC

India

MENA

China

Russia

Japan

Australia

Brazil

UK

Canada

Germany

France

USA

Healthcare as % of GDP

$45

$169

$315

$475

$734

$913

$3,285

$3,321

$3,867

$4,380

$4,629

$4,798

$7,410

0% 200000% 400000% 600000% 800000%

India

China

MENA

Russia

Brazil

GCC

UK

Japan

Australia

Canada

Germany

France

USA

Per Capita Healthcare Spend

Healthcare sector in the MENA is likely to grow


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Healthcare sector in the MENA is likely to growsignificantlySaudi Arabia is the largest healthcare market in the GCC ($18.5 Billion) followed by Egypt ($9.0Billion)

Top six countries represent more than three-quarters of the total healthcare market in MENA

Healthcare spending inthe MENA region standsat $65.6 billion

UAE: $7.5 billion

Algeria: $6.3 billion

Morocco:$5.0 billion

Kuwait: $4.3 billion

Major healthcare projects underway across the GCC


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Major healthcare projects underway across the GCCregion

Projects Country Value (Million)

Sidra Medical and Research Centre Qatar $2,300

Al-Wakra Hospital Qatar $500

Cleveland Clinic Hospital UAE $1,900

Al Mafraq Hospital UAE $871

Mohammed bin Rashid al Maktoum AMC UAE $572

Danat Al Emarat Women & Childrens Hospital UAE $200

Jaber Al Ahmed Al Sabah Hospital Kuwait $1,200

Sabah Medical Area in Shuwaikh Kuwait $270

Bahrain Health Oasis Bahrain $1,000

King Hamad General Hospital Bahrain $130

MDC Healthcare City Oman $800

Jalan Bani Bu Hassan Hospital Oman N/A

Ajyad General Hospital Development Saudi Arabia $600

King Saud University Medical City Saudi Arabia $400

Healthcare infrastructure worth $14 billion are underway in the GCC supporting healthy pipeline forinnovation and investment growth

109 active healthcare projects in the region according to the Middle East Economic Digest (MEED)

Saudi Arabia accounts for 56, UAE 24, Kuwait 17, and Qatar, Oman and Bahrain 12


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Strategic Priorities

Intellectual property

Fortifying patent assets around ultrasonic imaging technology using Wide Aperture AdaptiveBeam forming

Product Development

Prioritize R&D investment to meet new product launch target

Transition from proof of concept to customer wins

Actively explore external opportunities for technologies and products

Regulatory Approval

Anticipate and plan for potential FDA reform on approval process

Partners Increase investment and direct sales to capture early OEM design wins

Focus on emerging markets (China, India, and MENA Region)

Capitalize on government focus on upgrading hospitals and increasing healthcare insurancecoverage

Intellectualproperty

ProductProof of

Concept

RegulatoryApproval

PartnersLaunch and

Support

Ultrasound Imaging Opportunity June 6 2012 Ver 2

Documents

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