leading in turbulent times

MassMEDICLEADING IN TURBULENT TIMES

Mark Gallagher Senior Vice President Silicon Valley Bank March 5, 2009

Agenda

• Global Economy – The world is on fire!

• MedTech Economy – Doing ok?

• The Good News – sifting through the ashes

• Shamless Commerce!

How bad can it be?

Housing Bubble Articles at all-time high

>50 Mortgage Brokers Shut Down

First Extendible CP Extends

Fed Cuts 50 bps

Fed Cuts 25 bps

CDO-Backed ARS Fails

Fed Cuts 25 bps, Establishes TAF

Fed Cuts 125 bps

Majority of ARS FailBear Stearns Bailout

Fed Cuts 75 bps, Creates TSLF and PDCF

GSEs encouraged to expand /raise capital

Fed Cuts 25 bps

Oil peaks at $147

GSEs taken into conservatorship

Fed Leaves Rates Unchanged

FNM/FRE/Lehman/AIG

Fed Cuts Rates to 0-25 bp

Q207Q107 Q307 Q407 Q108 Q208 Q308 Q408 Q109

Negative Events Accelerated…Market-supporting events

above the timeline

Negative events below the timeline

Madoff

TARP Approved/Global Rate Cuts

Fed Begins Purchasing MBS

3.6 million jobs lost since 1/08

Stanford

…Convert to Daily in September…

9/8FNM/FRE Conservatorship

9/12Market expects Lehman Bailout

9/14Lehman to file BK, Merrill forced on BofA, Stocks fall most since 9/11

9/14 Fed injects $70B - most since 9/11

9/15Reserve fund "Breaks the Buck", Fed Leaves Funds rate at 2%

9/17 Paulson plans TARP

9/17Fed lends $28B to AIG

9/19 SEC bans Short Sales

9/20 TARP request finalized - $700B

9/21 Mitsubishi invests $8.4B in M Stanley

9/25WAMU Seized

9/29Citigroup to acquire Wachovia

9/26 Global Swap Lines Increased

September 2008

The Markets

Source: SNL Financial

Federal Funds Rate

Source: Federal Reserve Bank, St. Louis

Effective Federal Funds Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

(%)

Housing Prices Plunge…

Home Construction Plunges As Well

Auto Sales Drop

Manufacturing Drops

Labor Markets Deteriorate

Consumers Cut Back

Household Names Disappear

Market Values Plunge• A collective loss of over $1.1 trillion (or 82%) in Market Cap since 2007

• Over $400 billion in Market Cap lost since the start of Q4 2008

Source: SNL Financial; Yahoo Finance

Loss of $1.1 Trillion or 77% in Market Cap in 23 months ------ We saw erosion of $300 Billion in 45 days

New CEO

$49$45

$66

New CEO

$49$45

$66

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

$11

$13

$11

$13

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$15$10

$16

Converted to bank holding

company

$15$10

$16

New CEO; Sale to Wells Fargo

$11$25⁴

$97

New CEO; Sale to Wells Fargo

$11$25⁴

$97

Sold to

BofA

$30$25²

$56

Sold to

BofA

$30$25²

$56

Sold to

J PM

$12

NA

Sold to

J PM

$12

NA

Seized;Sold to

J PM

$12

$46

Seized;Sold to

J PM

$12

$46

Bankrupt; Sold to Barclays

$14

$14

Bankrupt; Sold to Barclays

$14

$14

Winners /Survivors

Sold / Buried

Loss of $1.1 Trillion or 77% in Market Cap in 23 months ------ We saw erosion of $300 Billion in 45 days

New CEO

$49$45

$66

New CEO

$49$45

$66

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

$11

$13

$11

$13

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$15$10

$16

Converted to bank holding

company

$15$10

$16

New CEO; Sale to Wells Fargo

$11$25⁴

$97

New CEO; Sale to Wells Fargo

$11$25⁴

$97

Sold to

BofA

$30$25²

$56

Sold to

BofA

$30$25²

$56

Sold to

JPM

$12

NA

Sold to

JPM

$12

NA

Seized;Sold to

J PM

$12

$46

Seized;Sold to

J PM

$12

$46

Bankrupt; Sold to

Barclays

$14

$14

Bankrupt; Sold to

Barclays

$14

$14

New CEO

$49$45

$66

New CEO

$49$45

$66

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

Acquired Countrywide

& Merrill Lynch

$31$25²

$27

$11

$13

$11

$13

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$11$10

$8

Converted to bank holding

company

$15$10

$16

Converted to bank holding

company

$15$10

$16

New CEO; Sale to Wells Fargo

$11$25⁴

$97

New CEO; Sale to Wells Fargo

$11$25⁴

$97

Sold to

BofA

$30$25²

$56

Sold to

BofA

$30$25²

$56

Sold to

J PM

$12

NA

Sold to

J PM

$12

NA

Seized;Sold to

J PM

$12

$46

Seized;Sold to

J PM

$12

$46

Bankrupt; Sold to Barclays

$14

$14

Bankrupt; Sold to Barclays

$14

$14

Winners /Survivors

Sold / Buried

$167 $74 $82 $238 $117 $85 $274

$37

In $ billions

Winners / Survivors

Sold / Buried

Market Cap 12/31/06

Market Cap 01/22/09

$81 $23 $12 $108 $43 $39 $18

$17$18$35$37$31$31$24$86

Volatility and Fear at an All-time High

VIX Index

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

CurrentCrisis

Accounting Scandals9/11

Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. A high valueof VIX corresponds to a more volatile market.Source: Chicago Board Options Exchange

Total medtech financing

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008

US$b

IPO Follow-on Convertible debt VentureWhile venture capital held up, total financing was down sharply …

Source: Ernst & Young, ThinkEquity Partners, Windhover, Dow Jones VentureSource and Jefferies & Co.

U.S. Fundraising Declines in 2008Commitments to Venture Capital Funds

$24.7$32.2$30.0

$25.6$17.3

$10.1$12.5

$50.7

$83.8

$57.5

$26.9

$17.5

$0

$20

$40

$60

$80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Fund

s Rai

sed

($B)

Source: Dow Jones VentureSource

$5.5

$7.6$8.1

$7.6$7.9$8.1$8.0$7.4

$6.7$7.5$7.6

$6.5$6.2

554620

687689718678

780

647636687707

632680

$0

$2

$4

$6

$8

$10

4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q080

150

300

450

600

750

Amount Invested ($B) Number of Deals

4Q ’08 Investment DropsDeal Flow and Equity into Venture-Backed Companies

Amou

nt I n

vest

ed ($

B)Num

ber of Deals

Source: Dow Jones VentureSource

Healthcare Investment Declines in 4Q ‘08Equity into Venture-Backed Healthcare Companies

Amou

nt I n

vest

ed ($

B) Number of Deals

$1.5

$2.1

$2.5

$2.0

$2.6$2.2

$2.7$3.0

$2.3$2.3$2.4

$1.8

$2.3137

154174

158

190

154

192173167170173

154

186

$0

$1

$2

$3

4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q080

25

50

75

100

125

150

175

200

Amount Invested ($B) Number of DealsSource: Dow Jones VentureSource

Medtech mergers & acquisitions

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008

US$

b

0

10

20

30

40

50

60

70

80

90

100

Num

ber o

f dea

ls

Value Number of deals2008 M&A activity fell to pre-2006 levels …

Source: Ernst & Young

Medtech mergers & acquisitions

0

3

6

9

12

15

Q1 08 Q2 08 Q3 08 Q4 08

US$

b

0

5

10

15

20

25

Num

ber o

f dea

ls

Value Number of deals… with most of the decline occurring in the second half of the year.

Source: Ernst & Young

Are Banks Pulling Their Weight?

Banks Do NOT Dominate the Credit Markets

• For better or worse, securitized markets dominate credit availability

• Securitized markets are shut due to investor fear

• Unrealistic to expect the banking sector to immediately replace this market

Source: Arbor Research

Obligatory Pie Chart

Fed Lowers Forecast Dramatically

Medtech Financials Net income of non-conglomerates is on pace to grow by 46%

Medtech market capitalization… but company valuations plummeted in the fourth quarter.

2008 Deal Allocation SteadyDeal Flow Allocation by Selected Groups (Annual)

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008

Energy &Utilities

BusinessServices

ConsumerServices

IT

Healthcare

% De

al F

low

Allo

cati o

n

20%

59%

5%

26%

51%

13%15%

5%13%

60%

26%

Source: Dow Jones VentureSource

4%

Medical Devices Investment Allocation Increases in 4Q ‘08

Healthcare Investment Allocation by Sector

0%

20%

40%

60%

80%

100%

4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08

Medical IS

MedicalDevices

HealthcareServices

Biopharm% of

Dol

l ars

Inve

sted

9%

32%

4%

41%

46%

6%48%

55%

16%

62%

Source: Dow Jones VentureSource

10%

Bay Area Draws Most Investment DollarsRegional Investment in the United States 4Q’08

Bay Area 35%

Southern California

8%

Texas9%

Washington2%

Potomac3%

New York Metro7%

Research Triangle

2%

All Other US21%

New England13%

Source: Dow Jones VentureSource

SVB Financial Group (SIVB – Nasdaq)

Commercial Banking

SVB Silicon Valley Bank

SVB Global

SVB Financial Group

SVB Analytics

Venture Capital & Private

Equity

SVB Capital

Global Networks

SVB Private Client Services

Private Banking

Funds Management

Valuations& Capitalization

Software-VC / PE Backed & Large Tech Cos.: Term Debt, Asset based lines, Cash Flow lending

-Total Loans $3.0 B

-Deposit & Cash Management Services

- Total Deposits: $4.0 Billion

-Private Equity Services: Lending and Cash Mgmt

-International: foreign exchange, letters of credit, etc.

-Private Co. Valuations (409A) – 30 people

-Cap Table management (eProsper) – 900 companies and 30,000 optionees

-Established in 2006

- Hundreds of engagements in first 12 months

-FAS 157 in 2008

-Relationship Mgmt with VC / PE for SVBFG

-Family of funds: VC fund of funds, Co-Investment Fund, Gold Hill venture debt, Partners for Growth

-LP Investments (parent company) since 1995

-London office: lending to emerging cos. in Europe

-Israel and Canada: commercial banking in ’07

-India & China: Consulting offices

- Assisted 450 clients and VC / PE firms overseas

$20 Billion of SVB client assets under management in:

REPOs: collateralized, overnight investments which generate interest income only

SVB Securities: self directed investment in money market mutual funds

SVB Asset Mgmt. managed accounts for greater performance, customization and reporting

-Personal loans to CEOs, CFOs, General Partners and extended SVB network.

SVB Securities/ SVB Asset Mgmt

It is a cycle!

Y