June 8, 2012

Wide Aperture Ultrasonic

Imaging Opportunity
Presented by
Kim Bui

Key Investment Highlights

Game changing technology enabling high resolution portable medical imaging

Differentiated wide aperture adaptive beam forming technology delivered by a world class
engineering and management team

Deep domain expertise and extensive R&D commitment

Significant contribution to overall market value through monetization of core IP

High barriers to entry in the form of defensible patent portfolio, access to funding, higher regulation,
and changing FDA reforms

Over 9 patents pending

Focus on large and high growth target markets including emerging economies and partnerships with
local OEMs

Capitalefficient license model emphasizing high margins and cash generation

Recurring licensing/royalty revenues command higher valuation multiples at time of exit

Patents, as an asset class, and licensing, as a business model, are attractive long term investment
opportunities

Experienced management team with proven track record of successful execution and OEM centric go
to market strategies

Market Overview

Overview
Structural 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 of
lifestyle diseases

US is the largest healthcare market globally (16% of GDP on healthcare increasing to 20% in
2020)

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 help
radiologists and clinicians collect diagnostic data

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

points

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

Global medical device market

US, 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 several
years

Recent FDA reforms will shift supplier focus towards non US markets to drive and sustain growth
Worldwide medical device market by segment
Total market size in 2009: US$234bn

Worldwide medical device market by geography

(market size and growth)

China Medical Device & Equipment market expected to

grow 20%

China is strengthening its position in the

international market
Low cost and improved R&D accelerating
manufacturing relocation to China.

Chinese firms actively involved in contract

manufacturing

MNCs expanding presence with JVs.

Chinas medical device exports totaled $12.2

bn, up 10.4% YoY despite 13.9% decline of
overall 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 of

black and white ultrasound equipment with
higher-priced color ultrasound systems

The Brazilian Medical Market is projected to grow to $3.6

billion by 2014
Demographics

Medical Market by Category (2009)

Population:

193 million

Annual GDP growth:

6%

Health Service Coverage:

100% of
population

Population Forecast 2050:

233 million

Life expectancy:

M: 69 F: 76

Current Situation

Continued government efforts to widen

public 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

Opportunities:

Increased cost-consciousness within the

public health system to improve foreign
access to the domestic market

Growing market for preventive health

programs and products combating noncommunicable diseases

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

Ultrasound Imaging Industry Background

Ultrasound is radiation-free, patient-friendly and less-expensive than CT and MRI

Less invasive diagnostics driving broader adoption and usage uptake

Replacing more invasive, time consuming, unhealthy and costly MRI and CT scans

Ultrasound have become conventional in the practice of cardiology, obstetric, surgery and urology

Use in research, diagnosis and guidance of noninvasive surgery

Emerging applications in regional anesthesia, emergency medicine, critical care and vascular
access

Technological advancements are driving future growth

portable ultrasound devices, vascular ultrasound, and

cardiology ultrasound

Portable devices are the fastest growing category in ultrasound

Problem Statement/ Immediacy of Market Demand

Ability to provide increasingly subtle information, such as the internal architecture of complex cysts,
improves with its ability to resolve smaller and smaller areas
U.S. still majority of the market followed by
Western Europe
Asian economies (China and India), East
European nations, MENA, and Brazil represents
high growth regions
Aging population and increase chronic disease
driving imaging market growth
GE Healthcare, Philips, and Siemens constitute
the market

Philips market share equaled to GE due to

increased focus in emerging markets
Other players include Toshiba (Japan),
Hitachi (Japan), and Mindray (China)

Market sizing
Stand-alone and portable ultrasound machines
was worth $3.19 billion globally and forecast to
reach $6.27 billion in 2017

European market represents $1.53 billion

and 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

Source: Trimark Research, 2011

Impact to Middle East North

Africa Regions

MENA Healthcare At a Glance

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

Underinvestment in Healthcare provides opportunities to

drive growth
Healthcare infrastructure far below the developed economies
Ratio of hospital beds (per 10,000 people) and number of physicians (per Healthcare market is
10,000 people) are poor compared to the US
relatively small and
underdeveloped
Country

US

MENA

GCC

Total healthcare spending as a %

of GDP

16.2%

4.3%

3.8%

Total healthcare spending, on a

per capita basis (USD)

7,410

31.5

91.3

No. of Hospital Beds per 10,000

people

31.0

21.6

20.2

No. of Physicians per 10,000

people

26.7

18.3

13.0

Spent 4.3% of GDP

(about $66 billion) on
healthcare or $315 per
person
Healthcare spending in
the Gulf Cooperation
Council was at 3.8% of
the GDP (about $35
billion) or $913 per
person in 2009

Ultrasound Markets in MENA

High demand for sophisticated medical equipment driving high imports of medical
equipment, including MRI and ultrasound
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 lines
and creating sales channels

Little option but to import medical equipment and supplies due to limited production capability and
lack of technical know-how
Opportunities to establish technology centers of excellence in the GCC for advance imaging
research 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 value
chain
Source: TriMark, UltraSound Markets, 2011.

Company Profile

Company Overview
Hana Research is an intellectual property licensing company that designs, develops, licenses and
markets innovative solutions used in high resolution and small form factor clinical ultrasound
The Company provides specific innovation, patent development, and licensing around wide aperture
ultrasound technologies

Wide aperture probe enables ultrasound anywhere

Core IP

Radiology
Probes

Cardiac
Probes

Intra cavity
Probes

4D Imaging

Increased
safety/
Reliability

Proprietary technology Strong patent portfolio

Highly experienced management team,

strategic advisors and technical teams

Superior
investment
returns

Business Model
Built around three core functions of technology development, out-licensing to partners, and systems
integration

Patents

Branded Systems
(Siemens, GE,
Philips)

Licensing
(Solutions &
Patents)

Hana Research

Medical Imaging
Device
Manufacturers

Engineering
and Design
Know How
Manufacturing
Agreements

Integration
Expertise

Contract
Manufacturer
(Flextronics/
Celestica)

Components
(Texas
Instruments/
Freescale)

End Users

Hospitals/
Doctors office

Universities/
Research
Facilities

Imaging Clinics

Equipment
Leasing
Companies

Innovation and Licensing Model

WAAB
Wide aperture adaptive beam
forming algorithms to provide
high image resolution for
ultrasound systems

Ultrasonic Test
Equipment
Industrial
Application

Licensing
Patent Development
Innovation

Field Programmable
Gate Array containing
algorithm and code can
be incorporated into a
licensees system
Allows Company to
protect the IP that
lives on the chip

Hana Research licenses the right to use wide aperture ultrasound and associated software to its
OEM/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 sales
growth without increasing investment/cost

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

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

Technology/Product
Overview

High end systems performance at fraction of cost and size

Existing Technology

Next Generation Hand Carried Ultrasound

Systems

Large and expensive

High-quality handheld systems enable routine

bedside scanning and emergency medicine

More practical to bring patients to the

ultrasound machine

Portable ultrasound technologies emerged, but

achieving image quality on a par with the larger
devices proved to be a challenge
Physicians see ultrasound as cost effective and
mobile alternative to CT and MRI scanners

Innovations in software and miniaturization of

components enable high performance HCU
systems

Relatively cheaper and more flexible

Replacing cart-based systems

Improves patient access to safe, noninvasive

diagnostic medicine

Reduces time and costs

Wide Aperture Ultrasound enables:

High level of reliability and stability in

diagnostics

High-resolution images

Technology Comparisons
Testing on Wide aperture ultrasound has shown to be broadly effective
Image on the left was taken by a Philips cardiac system (best cardiac
imaging systems on the market)
Image on the right created using WAAB technology through a process
called sequential compounding

Combined the image using proprietary algorithms in real time

Demonstrates better discrimination of small voids (the smallest voids are

2mm in diameter)

Traditional B-Mode Image

Improved Image
The resulting images
have:

Improved
visualization of
subtle anatomical
structures

Improved contrast
resolution and
tissue differentiation

Finer dot size and

tissue rendition

Financial Overview

Financial Highlights
$ Million

300
200
100
0

Test and Industrial

60

Core Wide Aperature

Ultrasound

0
$1
2011

0
$2
2012

0.5
$7
2013

100
$ Million

Revenues

1
$24
2014

4
$55
2015

30

10
$100

$130

$165

$185

2016

2017

2018

2019

$87
2019

EBITDA

50
0
-50

80

-$2
2011

-$2
2012

$1
2013

$7
2014

$21

$33

$47

$68

2015

2016

2017

2018

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

Financial Projections
DCF Assumptions
Risk Free Rate
Market Risk Premium
Beta
Capex/Cyclical risk Premium
Cost of Equity
Perpetuity Growth Rate
Period
In $ Millions
Core Wide Aperature Ultrasound
Test and Industrial
Total Revenues
Y/Y Growth
Gross Margins $
Opex
R&D
SG&A
Total Opex
EBITDA
EBITDA
Capex
Cash Taxes
Free Cash Flow
% Growth FCF
PV Cash Flow
PV (FCFF)
Terminal value
PV (Terminal value)

Firm Value

2.15%
8.09%
1.20
0.00%
12%
4%

$
$
$

2011
0.5 $
$
0.5 $

0 $

$
$
$
$
$

2
1
3
(2)
-405%
(1)

(3) $
($3)

$
$

$
$
$
$

1
2012
2.0
2.0
300%
2
3
1
4
(2)
-105%
(1)

Debt Spread (bps)

Cost of Debt
D/V
WACC

285
5.0%
23.0%
10.2%

WACC Used

10.2%

$
$
$
$
$
$
$
$
$

(3) $
2%
($3)

2
2013
7
0.50
8
275%
7
4
2
6
1
9%
(2)

$
$
$
$
$
$
$
$
$
$

(1) $
-56%
($1)

3
2014
24
1
25
233%
24
6
8
14
10
38%
(3)
(2)

$
$
$
$
$
$
$
$
$
$

5 $
-441%
$3

4
2015
55
4
59
136%
56
6
19
25
31
52%
(3)
(6)

$
$
$
$
$
$
$
$
$
$

21 $
367%
$15

5
2016
100
10
110
86%
105
17
36
53
52
47%
(3)
(10)

$
$
$
$
$
$
$
$
$
$

6
2017
130
30
160
45%
152
24
48
72
80
50%
(3)
(24)

$
$
$
$
$
$
$
$
$
$

7
2018
165
60
225
41%
214
34
68
101
113
50%
(3)
(34)

$
$
$
$
$
$
$
$
$
$

8
2019
185
80
265
18%
252
40
80
119
133
50%
(3)
(40)

$
$
$
$
$
$
$
$

9
2020
200
120
320
21%
304

$
$

48
86
134
170
53%
(3)
(51)

38 $
79%

53 $
38%

76 $
43%

90 $
18%

116
29%

$24

$30

$38

$41

$48

$192 sum of PV payments

779 Stable Growth and Terminal Value = Expected cash flow at end of next period/ (WACC - Estimated Terminal Growth)
325 Implied Terminal Value /(1+ WACC)^N period

$517

Exit Strategy/ M&A Environment in Medical Devices

Exit Strategy

M&A Catalyst

Meaningful acceleration of acquisition activity as

big companies seek growth in medical device
market

M&A activity has heated up across several

healthcare subsectors with significant value
creation

Half of Medical device deals involve private

companies

Premiums on companies with well developed

FDA process

Lack of innovation and scarcity of

breakthrough technologies

Expect significant acceleration in acquisition

activity

Slowing growth rates and cash-rich balance

sheets at larger cap companies

More difficult FDA approval process

Deep pocketed large caps medical device

suppliers placing premium valuation on
companies with technology already through
or nearly through the FDA process

Exit with enterprise value of $500-$600M by

2014-2015
Represents ~12x TTM revenues by 2014-15

Summary
Wide aperture ultrasound is a core technology enabling broad adoption of hand-carried ultrasound
systems 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 many
channels 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, portable
imaging to the world
Vast population base, urbanization process and an aging population should boost demand for next
generation ultrasound devices in emerging markets

As the US regulatory environment becomes more challenging with FDA reforms, emerging markets
are preferred market for medical device companies to launch new products
We expect high exit value due to premium valuation on companies with capital efficient licensing
model and technology already through or nearly through the FDA process

Back Up

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 increasing

demand 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

Healthcare spending in the MENA and the GCC

Healthcare 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 in
the MENA region to
reach $125 billion by
2015
Large population and
growing middle class
(100 million people)
who can afford modern
healthcare

Remaining
population are
provided with
healthcare by
government funded
hospitals

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 below
developed countries such as the US ($7,410),
Canada ($4,380), and the UK ($3,285)

Healthcare as % of GDP
USA
France
Germany
Canada
UK
Brazil
Australia
Japan
Russia
China
MENA
India
GCC

Per Capita Healthcare Spend

USA
France
Germany
Canada
Australia
Japan
UK
GCC
Brazil
Russia
MENA
China
India

16.2%
11.7%
11.4%
10.9%
9.4%
9.1%
8.5%
8.3%
5.4%
4.6%
4.3%
4.2%
3.8%

0%

5%

10%

15%

20%

$7,410
$4,798
$4,629
$4,380
$3,867
$3,321
$3,285
$913
$734
$475
$315
$169
$45

0%

200000% 400000% 600000% 800000%

Healthcare sector in the MENA is likely to grow

significantly
Saudi Arabia is the largest healthcare market in the GCC ($18.5 Billion) followed by Egypt ($9.0
Billion)
Top six countries represent more than three-quarters of the total healthcare market in MENA

Healthcare spending in
the MENA region stands
at $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

region
Healthcare infrastructure worth $14 billion are underway in the GCC supporting healthy pipeline for
innovation 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
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

Wide aperture technology enables ultrasound anywhere

Capable of simultaneous imaging of a region-of-interest from separate physical apertures
Patented algorithms solve for variations in tissue, speed of sound and allow the probe to be used
anywhere in or on the body
The resulting images have:

Improved visualization of subtle anatomical structures

Improved contrast resolution and tissue differentiation

Finer dot size and tissue rendition

The probe construction varies by medical application:

General radiology
probe

Cardiac probe

Intra-cavity Probe

Contain multiple transducers

that maintain separate
physical points of contact with
the patient's skin, allowing
multiple physical apertures

Contain only two transmitters

and receivers, where the
probe fits simultaneously
between two or more intracostal spaces

Space transmit and receive

transducers along the length
of the wand, while an
intravenous version allows
transducers to be located on
the distal length of the
catheter and separated by just
millimeters

Strategic Priorities
Intellectual
property

Product
Proof of
Concept

Regulatory
Approval

Partners

Launch and
Support

Intellectual property

Fortifying patent assets around ultrasonic imaging technology using Wide Aperture Adaptive
Beam 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 insurance

coverage