Biotech Company Medgenics Initiating Coverage with Buy Rating

EQUITY RESEARCH
COMPANY REPORT

Biotechnology Initiation Buy
August 23, 2011
Medgenics, Inc.
Closing Price (8/22/11): $4.00 (MDGN –– AMEX –– $4.00)
12-Month Target Price: $8.00
Potential game-changing novel platform technology for
52-Week Range: $2.85 - $5.50
protein-based therapeutics; Initiating coverage with a Buy
Market Cap (MM): $38 rating and a 12-month price target of $8
Shares O/S (MM): 9.6
Float (MM): 2.6 Medgenics, Inc. (MDGN) is an emerging bio-therapeutic company focusing on
Avg. Vol. (000) 17 the development of its Biopump Platform Technology, which provides
Book Value/Share: $0.81 sustained released therapeutic protein. The company’’s lead developing
products treat anemia, hemophilia, and HCV infection. Based on the
Dividend/Yield: NA
company’’s substantial commercial potential, a potential novel game-changing
Risk Profile: Speculative technology, significant near-term milestone events, and what we believe to be
underexposed and undervalued shares, we are recommending MDGN with a
FYE: December EPS P/E Buy rating and a 12-month target price of $8.00 for long-term investors that
2010A GAAP ($0.95) N.A. can tolerate speculative risk.
2011E GAAP ($0.71) N.A.
Investment Thesis:
2012E GAAP ($0.57) N.A.
Biopump: Potential game-changing technology with substantial
LT Earnings Growth N.A. commercial potential. Based on encouraging pre-clinical and clinical
results, mainly from EPODURE, we believe the Biopump has the potential
to be a cost-effective and game-changing technology that delivers biologics
in a continuous and autologous manner, revolutionizing the way patients
receive drugs (currently, it’’s via repeated injections).
INSERT PRICE CHART
Promising EPODURE clinical results a major proof-of-concept. As a
treatment for anemia, EPODURE continuously delivers erythropoietin
(EPO) to end-stage renal disease (ESRD) patients, as well as to advanced
stage chronic kidney disease (CKD) patients. Robust interim results
presented at the 2010 ASN meeting were encouraging; full results should be
reported in 4Q11. We believe these results could be an important catalyst for
MDGN’’s share value. The potential cost-effectiveness of EPODURE
should align well with the interests of patients and payers.
Source: bigcharts.com
Biopump pipeline has the potential to address a large market and
partnership prospects. Other Biopumps under development include one for
Yale Jen, Ph.D. (212) 895-3516 the treatment of HCV (INFRADURE for INF- ) and another for hemophilia
A [HEMODURE for factor VIII in collaboration with Baxter (BAX –– NR)].
yjen@maximgrp.com
The HCV Biopump Phase I/II trial should initiate in 1H12, and Baxter’’s
decision is expected in late 3Q11. Biopumps may also be used in many
biologic therapeutics, with a multi-billion dollar market potential.

Undervalued and underexposed. Based on our probability-adjusted sum-
of-the-parts and comparable analyses (and the fact that the company just
went public in the U.S.), we believe that MDGN shares are undervalued and
underexposed. We believe MDGN is a potentially high-growth biotech story
with speculative risk, but has a possible inflection point in 2011 or 2012.

Maxim Group LLC –– 405 Lexington Avenue –– New York, NY 10174 –– www.maximgrp.com

SEE PAGES 29 TO 31 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS

MEDGENICS, INC. (MDGN)
CORPORATE PROFILE

Medgenics, Inc. (MDGN) Institutional Ownership: 20%
8000 Towers Crescent Drive, Suite 1300 Insider Ownership: 40%
Vienna, VA 22182 Shares Short (000): 2.27
(212) 838-3777
http://www.medgenics.com
Balance Sheet Summary: $MM
Senior Management (As of June 30, 2011)
Andrew Leonard Pearlman, Ph.D. Founder and CEO Equity: $7.31
Clarence L. Dellio, Chief Operating Officer Assets: $11.92
Baruch Stern, Ph.D. Chief Scientific Officer Long-term Debt: $0
Phyllis Bellin, Director of Finance and Administration

Incorporated: January 27, 2000 Quarterly EPS
Initial Public Offering: April 2011 2010 2010E 2012E
1Q $0.28 ($0.06)A --
Employees: 28 full-time employees 2Q ($0.42) ($0.26)A --
3Q ($0.79) ($0.02) --
Company Description. Medgenics, Inc. (MDGN) is an emerging 4Q $0.00 ($0.32) --
bio-therapeutic company developing its novel Biopump platform
FY ($0.95) ($0.71) ($0.57)
technology, which is a continued, autologous delivering system for
supplying biologics (and could be a cost-effective alternative for
treating multiple diseases). Its lead product EPODURE, which
delivers erythropoietin (EPO), is completing a Phase I/II trial as an Quarterly Revenue ($MM)
anemia treatment in advanced stage chronic kidney disease (CKD) 2010 2011E 2012E
patients and end-stage renal disease (ESRD) patients. The company 1Q $0 $0A --
is scheduled to commence a Phase I/II trial for its second product, 2Q $0 $0A --
INFRADURE (which delivers interferon-alpha or INF- as a 3Q $0 $2.5 --
potential treatment for hepatitis C infection), in 1H12. 4Q $0 $0 --
FY $0 $2.5 $10
Investment Risks. Aside from general market and economic risks, Fiscal Year Ends December 31
key investment risks for MDGN include: 1) the Biopump platform
is a novel but nascent-stage technology with very limited clinical Analysts Following the Co.: 0
validation; 2) Clinical studies might not reach their anticipated (excluding Maxim Group)
outcomes; 3) Sales potential for any in-development products could
be significantly different than expected; 4) Biopump being the only Consensus Estimates (GAAP):
product offering could potentially increase risk due to a less Current Year: ($0.71)
diversified portfolio; 5) With major operations outside of the U.S., Next Year: ($0.57)
country-specific activities could affect share value; 6) Lack of cash
could impede corporate development; and 7) Thinly traded stock
limits shareholder options. Investor Relations Contact:
Anne Marie Fields
Lippert/Heilshorn & Associates, Inc.
(212) 838-3777
afields@lhai.com

Maxim Group LLC 2


TABLE OF CONTENTS

CORPORATE PROFILE …………………………………………………………………………………………………………………………………………………………………………...2

SUMMARY AND INVESTMENT CONCLUSION……………………………………………………………………………………………………………….…….4

COMPANY OVERVIEW………………………………………………………………………………………………………………………………………………………………………………6

VALUATION…………………………………………………………………………………………………………………………………………………………………………………………………………7

ANTICIPATED MILESTONES FOR 2011 AND BEYOND …………………………………………………………………………...……………………8

PIPELINE OVERVIEW ………………………………………………………………………………………………………………………………………………………….……………………9

DISCUSSIONS ON BIOPUMP TECHNOLOGY………………...………………………………………………………………………………………………....10

DISCUSSIONS ON EPODURE…………………………………………………….…………………………………………………………………………..……..…………...……12

DISCUSSIONS ON INFRADURE…………………………………………………….……………………………………………………………………..……..…………...……18

DISCUSSIONS ON HEMODURE AND OTHER PIPELINE DEVELOPMENTS……………………………………....…….21

RISKS……………………………………………………………………………………………………………………………………………………………………………………………………………………..24

MANAGEMENT ………………………………………………………………………………...…………………………………………………………………………………………………………25

FINANCIAL MODELS………………………………………………………………………………………………………………………………………………………………………………..26

Maxim Group LLC 3


SUMMARY AND INVESTMENT CONCLUSION

We are initiating coverage of Medgenics, Inc. (MDGN) with a Buy rating and a 12-month price target of
$8.00

Medgenics, Inc. is emerging bio-therapeutic company that leverages its proprietary Biopump platform
technology to deliver therapeutic protein continuously as a new treatment modality. The company’’s lead
products are EPODURE (erythropoietin or EPO), HEMODURE (Factor VIII), and INFRADURE (interferon-
alpha or INF- ) –– potential treatments for anemia, hemophilia, and hepatitis C, respectively.

Biopump is a novel platform technology with substantial commercial potential. Biopump is a proprietary
and unconventional gene therapy platform that genetically manipulates patients’’ own excised dermal tissues
via an ex vivo process; the modified tissue, or so-called micro-organ (MO), is subsequently implanted back to
patient to continuously produce and deliver therapeutic protein. The company developed a proprietary device
called the DermaVac to facilitate a more reliable and straightforward removal of MOs and implantation of
Biopumps. The procedure is quick (it takes 10 to 14 days to generate therapeutic proteins) and only requires
local anesthesia. Patient dosing can be flexible and can be customized with potential additions or ablation of
the number of MOs in order to achieve desired therapeutic effect. The major advantage of the Biopump is
avoiding the shortcomings of the current protein bolus injection methods, which include 1) frequent injections;
2) higher costs; and 3) varying adverse effects and sub-optimal effectiveness due to the changing peak and
trough drug levels in plasma. Further, the Biopump’’s potential personalized therapeutic benefits and cost
advantages would appeal not only to the patient and physician, but also to the payers. The Biopump platform
could also potentially be used for a broad range of therapeutic proteins and, therefore, possibly be a game-
changer in the current treatment paradigm, in our opinion.

Promising EPODURE clinical results demonstrated first proof-of-concept, boding well for a potential
positive upcoming data release. The lead Biopump product, EPODURE, continuously delivers erythropoietin
(EPO) to treat or prevent anemia in patients suffering from advanced stage (III and IV) chronic kidney disease
(CKD). The global sales of erythropoiesis-stimulating agents (ESAs) used in nephrology (which include EPO)
was approximately $5.4+ billions in 2010, but the dollar value of this market is expected to decline over the
next few years, due to several negative developments in the U.S. These developments include: a) the
implementation of reimbursement bundling by Medicare and Medicaid Services (CMS), which started on
January 1, 2011; and b) FDA’’s tightening of the hemoglobin (Hb) range allowed in patients with end-stage
renal disease (ESRD) and in advanced CKD patients (to 10-11g/dL, from the prior 10-12 g/dL); hence, a
potential reduction of ESAs uses. Given that the number of ESRD and advanced CKD patients is expected to
increase going forward due to aging demographics across the globe, we believe that a better and cost-effective
hemoglobin management approach could gain market share, potentially at the cost of the bolus-delivered ESA
market. Medgenics has demonstrated encouraging interim results from an ongoing Phase I/II trial evaluating
EPODURE in anemia prevention in anemic CKD patients. In 12 treated patients, hemoglobin levels were
controlled within the 10-12 g/dL range for varying lengths of time. We believe the company will present top-
line results for all patients in 4Q11. If positive, these results could be a substantial catalyst for MDGN
shareholders, in our opinion. The company could also commence a Phase IIb trial in ESRD patients in 2012.

The Biopump pipeline has the potential to address a large market and spark partnership interest. In
addition to EPODURE, two Biopumps in development include INFRADURE (interferon or IFN for hepatitis
C infection) and HEMODURE (factor VIII for hemophilia A). Preclinical results of INFRADURE are
encouraging and show clinical validity for the modality of continuously delivered IFN as Medtronic (NTD ––
NR) conducts a Phase II study for delivering Intron A via its insulin pump as a treatment for HCV infection.
INFRADURE could potentially be even more cost-effective. Medgenics is planning to initiate a Phase I/II trial
in 1H12 to evaluate INFRADURE as a potential HCV treatment. Baxter (BAX –– NR) is in collaboration with
Medgenics for a development of HEMODURE as a potential treatment or prophylactic for hemophilia A. We
believe Baxter will make a go/no-go decision in late 3Q11, and if positive, will continue negotiations with
Medgenics to possibly advance the program into human clinical studies. Based on the continued delivery, self
supply, and possible lower cost nature of the Biopump platform, many protein-based (biologics) therapies

Maxim Group LLC 4

could benefit from this novel alternative delivery system. Together, they potentially represent multiple billion
dollar markets, and we believe the company is actively seeking additional opportunities going forward.

Undervalued and underexposed shares provide upside, and timing is favorable. Based on our probability-
adjusted sum-of-the-parts and comparable analyses (and the fact that the company just went public in the U.S.),
we believe that MDGN shares are currently undervalued and underexposed. As such, we believe that MDGN
is a potentially high-growth biotech story with speculative risk, but has a possible inflection point in 2011
or 2012.

Maxim Group LLC 5


COMPANY OVERVIEW

Medgenics was incorporated as a Delaware corporation on January 27, 2000. The company’’s principal
executive offices are located at 8000 Towers Crescent Drive, Suite 1300, Vienna, Virginia 22182; however, the
company conducts research and development activities primarily at its Israeli location in Misgav Business
Park, Misgav, Israel.

Medgenics is a developmental-stage, bio-therapeutic company initially listed and traded on the AIM Market in
the U.K. in December 2007, and the volumes and trading of its common stock has been relatively sporadic. In
April 2011, the company issued an initial public offering in the U.S with net proceeds of approximately
$10.6MM. The company is developing a novel platform technology, Biopump, as a continuous and autologous
delivering system for supplying therapeutic biologics as a potentially cost effective alternative treatment
modality. Its lead product, EPODURE, delivers erythropoietin (EPO) and is completing a Phase I/II trial as an
anemia treatment in advanced stage chronic kidney disease (CKD) or in end-stage renal disease (ESRD)
patients. The second product, INFRADURE, delivers interferon-alpha or INF- and is scheduled to commence
a Phase I/II trial, possibly in 1H12 as a potential treatment in hepatitis C (HCV) infection. The company is
also in collaboration with Baxter (BAX –– NR) for the evaluation of a pre-clinical stage HEMODURE, which
should deliver factor VIII continuously as a potential treatment for hemophilia A (with a decision potentially in
late September 2011).

Maxim Group LLC 6


VALUATION

We have elected to use sum-of-the-parts and comparable analyses as the two major valuation metrics to derive
our valuation for Medgenics. Together, we are recommending MDGN shares with a Buy rating and a 12-
month target price of $8 for long-term-oriented investors that can tolerate speculative risk.

Based on our probability-adjusted sum-of-the-parts analyses, our 12-month fair value for MDGN shares is
$7.89 (Figure 1). Without insight as to whether the company will establish its own marketing and sales teams,
we assume the company will partner out all current in-development programs with milestone payments and
royalties as its major method for generating revenue.

Figure 1: Sum-of-the-parts analysis
EPODURE Anemia
Total NPV = 194.4
Probability = 37%
Prob. Adj. NPV = 72.7
Value per share = $5.68 72%
INFRADURE HCV
Total NPV = 57.9
Probability = 21%
HEMODURE hemophilia A
Total NPV = 34.4
Probability = 21%
Other Biopump pipeline

Debt-free cash
Value in Mid-2012 = 0.0

Total = $7.89 100%

Source: Maxim Group LLC research

For our comparable analysis, we have used a peer group comprised of mid-stage cell therapy and anemia
product development companies, especially given that Medgenics remains in a relatively early stage of
development. Judged from an on par enterprise value (technology value), MDGN could trade at $8.20 as a fair
value.

Figure 2: Comparable peer analysis
Shares Stage of Most
Share Price Market Cap Cash Debt Tech Value Major Indication of Advanced
Company Ticker Outstanding Advanced
($) (8/2/11) ($ MM) ($ MM) ($ MM) ($ MM) Products
(MM) Product
Stem cell in cardio and
Pluristem Therapeutics PSTI 3.34 42 140 45 0 95 Phase III
orthopediatric

Affymax AFFY 6.59 35 233 142 0 91 Filed NDA Anemia in ESRD patients

Stem cells in cardiovascular,
Athersys ATHX 2.60 24 61 25 0 36 Phase II
CNS and inflammation

Stem cells in cardiovascular
Neostem NBS 0.81 80 65 32 0 33 Phase II
and orthopedatric in China

Aastrom ASTM 2.62 39 101 15 0 87 Phase II Stem cells in cardiovascular

Average 165 47 0 68

Medgenics MDGN 4.80 10 46 10 0 36 Phase II Anemia

MDGN per share fair value matching its cell therapy and anemia peers = $8
Potential upside = 71%

Source: Bloomberg, Thomson Analytics and Maxim Group LLC research

Maxim Group LLC 7


ANTICIPATED MILESTONES FOR 2011 AND BEYOND

Program Indication Event Timing

Possible release Phase I/II trial top-line results Nov. '11

Chronic kidney
EPODURE disease (CKD) with Potential partnership 2011 / 2012
anemia

Potential commence Phase IIb trial on ESRD patients 2012

Potential Baxter decision on option for 6-month negotiation with
HEMODURE Hemophilia Sep. 30, 2011
MDGN

INFRADURE HCV infection Potential commence Phase I/II trial 1H12

Source: Company reports and Maxim Group LLC research

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PIPELINE OVERVIEW

MDGN has a broad Biopump product pipeline, covering several disease indications. These products are lead
by EPODURE for anemia in patients suffering from advanced stages of chronic kidney disease (CKD), as well
as INFRADURE for hepatitis C infection and HEMODURE for hemophilia A. Figure 5 details the
development pipeline.

Figure 5: MDGN Pipeline Overview
Product Indication Preclinical Phase I Phase II Phase III Filing Launched Partnered

EPODURE CKD patients with anemia

INFRADURE Hepatitis C infection

HEMODURE Hemophilia A Baxter

Source: Company data and Maxim Group LLC

Maxim Group LLC 9


DISCUSSIONS ON BIOPUMP TECHNOLOGY

Biopump could be a paradigm-changing technology for biologics-relevant therapeutics

Biopump technology is a novel and unconventional gene therapy that utilizes toothpick-size slivers of the
patient’’s dermal tissue, transfected with an engineered gene to produce and secrete a therapeutic protein
continuously. The transfected tissue is called the micro-organ (MO), since it acts as a basis of the biological
pump to supply therapeutic protein. Medgenics has developed a proprietary device called DermaVac to
facilitate removal of MOs and the implantation of Biopumps. The process starts with harvesting a patient’’s
dermis tissues under local anesthesia and is followed by transfection of the Adenoviral gutless vector-carrying
gene for the desired protein ex vivo for 10 to 14 days. After determining the level of protein expressed in each
Biopump, each MO will be washed for several days to remove excess viral vector. Based on each patient’’s
particular dosage need, the company would determine the number of Biopumps needed to be inserted under the
patient’’s skin (Figure 1 and 2). After the initial implant, the protein dosages can be further adjusted by adding
or ablating Biopumps to provide personalized dosing requirements for each patient. The expected life of a
Biopump may exceed six months, with sustained local delivery of protein. Further, Medgenics has
demonstrated that Biopumps can be transported over long distances with maintained viability, and the company
is developing devices to automate and scale up the cost-effective production of Biopumps in local or regional
processing centers.

Figure 1: The process of generating Biopump

b
a
a – Harvest dermis tissue
(“micro-organs”) from patient.
d c
b – Transfer to processing station. i
c – Adenoviral gutless vector carrying h
gene for desired protein. e
d – Process each micro-organ into f
Biopump.
g
e – Biopump producing protein.
f – Measure daily protein production
per Biopump for dosing.
g – Wash several days to remove
vector.
h – Re-implant Biopumps
subcutaneously per dosing.
i – Sustained local delivery of protein for
life of cells in Biopump (> 6 months).
BioCryo

Source: Company reports

Figure 2: The size of a Biopump (left) and example of the sites of tissue harvest and implantation (right)


Maxim Group LLC 10


Well protected intellectual property estate for Biopump technology. Medgenics owns and licenses the
Biopump Platform Technology patent portfolio, which contains 10 issued patents and 53 pending U.S. and
international patent applications.

With a continuous, autonomously produced therapeutic protein, Biopump’’s value proposition could be realized
on several fronts (Figure 3):

Lower treatment costs —— Given the autonomous and continuous nature of Biopumps, the system
could incur lower costs for developers (and could potentially be transferred to patients and payers)
compared to the conventional cost structure of biologics production, which incurs fixed (such as
capital manufacture equipments) and variable (production and operational) expenses. Per-patient cost
of the Biopump could be even further reduced if the company scales up and automates the
manufacturing of Biopumps in regional centers.

Reduced side effects and improved safety —— The Biopump can potentially deliver therapeutic
protein within a pre-determined, narrow, and relatively steady dose range. Compared to repeated bolus
delivery, this could potentially reduce adverse effects due to the transient peak level of the
conventional injection administration (Figure 3). Therapeutic protein from the Biopump would be
similar to the patient’’s endogenous counterpart, since it is produced by the patient’’s own protein
production machinery and therefore, would be potentially safer and trigger less of an adverse immune
response.

Figure 3: Major benefits of Biopump vs. repeated bolus injections
Protein
Injection overshoot – Adverse side effects
concentration
EPO: Cardiovascular Risk
in serum
IFN-a: Severe flu symptoms

Therapeutic
.. window

Biopump Sustained Clinical Dose

# of Days
Injection
undershoot Missed
injection
Injected dose in range (No Effect)


Improved patient compliance and increased chronic disease management efficacy —— With only
two visits to the clinic typically needed for Biopump procedure (one for MO harvesting and the second
for Biopump implantation), we believe that patient treatment compliance would be better than having
frequent injections over an extended period. In addition, with a more consistent and sustained
production and delivery of therapeutic protein (over six months via a single administration), Biopump
could potentially reduce a shortcoming of the bolus injection as the serum protein concentration at the
trough level could exhibit insufficient therapeutic impact. As such, Biopump could potentially be a
more efficacious treatment than the current method of repeated bolus injections.

Flexible dosing and the personalization of medicine —— One major differences between conventional
gene therapy and the Biopump is that Biopump treatment is reversible; it can be ablated by a laser,
radiofrequency needle, or local surgical removal to reduce or halt protein production and secretion.
With such versatility, it is possible that Biopump would be customized as ““personalized medicine.””

Maxim Group LLC 11


DISCUSSIONS ON EPODURE

MDGN’’s lead product, EPODURE, has exhibited promising (though still early) clinical results

Medgenics’’ lead product, the EPODURE Biopump, is designed to deliver erythropoietin (Epoetin alfa, or EPO)
to prevent anemia in both end-stage renal disease (ESRD) patients and advanced stage (III and IV) chronic
kidney disease (CKD) patients. EPO belongs to a class called erythropoiesis-stimulating agents (or ESAs),
which interact directly with the EPO receptor on the red blood cell (RBC) surface, triggering activation of
several signal transduction pathways, resulting in the proliferation and terminal differentiation of erythroid
precursor cells. Advanced CKD and ESRD patients suffer from anemia since they have experienced
endogenous erythropoietin production insufficiency, caused by a decrease in red blood cells production in the
bone marrow –– one of results from their damaged kidney. The United States’’ current standard of therapy for
anemia management in ESRD patients is to inject Epogen three times per week or once a week with Aranesp to
maintain hemoglobin (Hb) levels exceeding 10 g/dL. Both products are developed by Amgen (AMGN –– NR);
and Epogen has a half-life of approximately eight hours, while Aranesp has a half-life of 25 hours.

In Israel, Medgenics is conducting a Phase I/II proof-of-concept, dose-ranging trial to evaluate EPODURE for
the management of anemia in anemic CKD patients. The study should enroll 18 anemia CKD stage III and IV
patients with estimated GFR of 15-60 ml/min, assigning patients to one of the three dose cohorts: low (18-25
IU/kg/day), intermediate (35-45 IU/kg/day), or high (55-65 IU/kg/day). EPODURE is produced by ex vivo
transduction of MOs, with helper dependent Adenoviral EPO vectors (HDAd-EPO) that express and secret
EPO. Patients will undergo six months of treatment, followed by a six-month observation and possibly non-
trial extension. The trial’’s primary endpoint is safety (including adverse events, immune response determined
by the presence of anti-EPO antibodies, and dermal safety outcomes). Secondary endpoints include elevation
of serum EPO levels: at least 10 mU/ml above the baseline for a duration of at least six weeks following
implantation.

At the annual American Society of Nephrology (ASN) meeting in November 2010, Medgenics reported
encouraging interim results, suggesting that EPODURE is safe and doseable –– and that it doesn’’t generate an
antigenic response. Further, clinical feasibility has been demonstrated with a single EPODURE administration;
it raised and maintained hemoglobin levels for up to 24 months (29 months after the most recent update)
without further ESA injection. Figure 4 illustrates the results in 12 patients (six receiving low doses and six
receiving intermediate doses), with Hb reaching and maintaining the pre-determined 10-12 mg/dL range. The
observation period of sustained hemoglobin elevation in most patients (10 out of 12) exceeded three months;
five exceeded five months. Patients were both injected-EPO naïve and experienced (Figure 5) and have
retained a stabilized Hb levels within the accepted range. Figure 6 illustrates the patient demographic
presented at the 2010 ASN meeting.

Figure 4: Interim results from the low (left) and intermediate (right) dose groups of the EPODURE
Phase I/II study in anemic CKD


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Figure 5: Interim results from individual patients in the EPODURE Phase I/II study in anemic CKD

Estimated baseline
100 days after last
injection

EPO Injections EPODURE EPO Injections EPODURE

EPODURE EPODURE


It should be noted that these encouraging interim results were based on a sub-optimal trial protocol, as patients
could only be assigned a fixed dose of EPODURE (low or intermediate), instead of customized and
subsequently adjustable doses (which could potentially better meet the needs of each patient). A recent update
indicated that the study has recruited 14 patients –– six to receive low doses, seven to receive mid-range doses,
and one to receive high doses of EPODURE. Recruitment is ongoing.

Figure 6: Patient demographics of the Phase I/II trial

Source: Besarab, A., et.al., ASN 2010 presentation

We anticipate the company to provide additional updates on the Phase I/II trial in 2H11, possibly at the annual
meeting of American Society of Nephrology in November 2011. We believe the company will provide results
from all patients, as well as treatment effect durations reported last year. Should the outcome be robust, we
would view it as a pivotal event for MDGN’’s share value appreciation.

We also believe that positive Phase I/II trial results could lead to a commencement of a Phase IIb trial
(potentially in 2012) to evaluate EPODURE’’s ability to manage anemia in ESRD patients by maintaining Hb

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levels. We believe the company is currently preparing for an Investigational New Drug (IND) discussion with
the FDA to launch a Phase IIb trial in the U.S. Several modifications might be in place:

Based on recently issued guidance by the FDA (in June 2011), the target Hb range would likely be
between slightly lower than 10 gm/dL to up to 11 gm/dL, instead of the prior 10 gm/dL to 12 gm/dL.
EPODURE dosing may be more flexible, allowing optimization for each patient’’s needs, instead of a
fixed dose regimen.
Patients may mainly be ESRD (stage V CKD), instead of stage III or IV CKD.

Major benefits of EPODURE compare to the current standard of care in anemia management

Compared to the current standard of care, we believe the EPODURE Biopump could exhibit the following
advantages:

Better safety and efficacy: With the potential for Hb levels to be stabilized at a more narrow range
over a longer period, patients could potentially avoid hemoglobin cycling (which is often experienced
in patients with periodic injections of EPO). Further, more consistent and durable delivered Epogen
could also prevent potential adverse effects, such as hypertension or emboli (which can occur from
overshooting EPO during repeated injections). In addition, a more reliable and sustained EPO could
potentially prevent trough EPO levels, with sub-par efficacy and better compliance compared to repeat
visits to clinics for injections.

Cost savings: With a continuous, self-supplied EPO potentially exceeding six months, the costs of
EPODURE could be lower than repeated injections of ESAs (based on high-fixed and continued
variable costs of biologics facility construction and operations). Further, it could potentially reduce
the frequent clinic visits needed. Cost savings could become increasingly more important under the
current financially challenging healthcare system in the U.S. As such, dialysis service reimbursement
offered by the Centers for Medicare & Medicaid Services (CMS) is under a bundling structure, instead
of the prior separated billing system, as ESAs has accounted for $2 billion per year as a major drug
expense for dialysis payment –– a circumstance that could potentially bode well for the outlook of
EPODURE, in our opinion.

Anemia in nephrology market landscape:

According to the United States Renal Data System (USRDS), there were approximately 550,000 patients
suffering from ESRD (Figure 7) with annual incidences exceed 100,000 (Figure 8) in 2008 in the U.S.,. With
an aging demographic in the U.S., USRDS estimates that the prevalence could reach 800,000 by 2020, and
annual incidences could reach 143,000 (Figure 9).

Figure 7: The U.S. ESRD prevalence and Y/Y growth rate

ESRD prevalence and Y/Y grow th rates in the U.S.
600,000 20%

450,000 15%
Patient Size

300,000 10%

150,000 5%

0 0%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Sources: USRDS, the U.S. Census and Maxim Group LLC

Maxim Group LLC 14


Figure 8: The U.S. ESRD annual incidences and Y/Y growth rate

ESRD incidences and Y/Y grow th rates in the U.S.
120,000 16%

100,000 13%
Patient Size

80,000 10%

60,000 7%

40,000 4%

20,000 1%

0 -2%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Sources: USRDS, the U.S. Census and Maxim Group LLC

Figure 9: Projected U.S. ESRD prevalence (left) and annual incidences (right) by 2020

Sources: USRDS and Maxim Group LLC

Anemia is a common complication of ESRD patients who undergo dialysis (approximately 70%), mainly due
to the fact that their kidneys no longer produce adequate amounts of erythropoietin (EPO) –– a principal factor
that stimulates red blood cell production in bone marrow. The major treatment is to supplement patients with
ESAs. The same types of agents are also used for anemia resulting from cancer, HIV infection, and other
causes. However, some cardiovascular adverse effects from ESAs were recently identified, and reimbursement
is increasingly being tightened, so sales of ESAs have been in decline over the last two years –– and we believe
this trend could continue near term. The global sales for ESAs were approximately $5 billion in 2010, and we
estimate three-quarters of sales might come from nephrology use (Figure 10) –– the majority of which are ESRD
(dialysis) patients, while a much smaller portion are advanced CKD (pre-dialysis) patients. Amgen (AMGN ––
NR), Johnson and Johnson (JNJ –– NR), and Roche (RHHBY –– NR) are major players in the ESAs market, with
biosimilars in Europe accounting for a minor position. Further, an NDA for Hematide from Affymax (AFFY ––
NR) and Takeda (4502 –– NR) was recently filed (with a potential FDA decision in 2012).

Figure 10: Global anemia in nephrology market in 2010
Company Product Global nephrology sales ($)
EPOGEN 2.5 B
Amgen
Aranesp ~500 MM

Johnson and Johnson Procrit / Eprex ~400 MM
NeoRecormon /
Roche ~200 MM
Mircera
Biosimilars < 100 MM

Total global ESAs in nephrology ~3.7 B

Sources: Amgen presentation, SEC filings and Maxim Group LLC

Maxim Group LLC 15


Payment bundling and narrowed therapeutically-benefited Hb levels should have near-term impacts

Bundling payment. In the United States, it is estimated that the vast majority (about 60% to 65%) of ESRD-
related management, particularly dialysis and accompanied treatments, are paid for by the CMS. The initial
Medicare payment method includes a flat rate dialysis associated service (which accounted for nearly 60% of
expenses, or $4.8 billion, in 2005) and a separate bill for certain Part B drugs (EPO, IV iron, and vitamin D)
and lab tests (which accounted for 40%, or approximately $3.2 billion, in 2005 –– and of which ESAs accounted
for more than $2 billion). In 2008, the total combined ESRD-related related services (CMS and private health
plans), including hospitalization, were $39.5 billion. With continued increases in use of ESAs, the payment
method has created an incentive to potentially over-utilize those drugs for many dialysis providers, and
Congress has called upon CMS to develop a plan to bundle ESAs and other separately billable drugs into a
single case-mix adjusted payment to dialysis facilities.

As of January 2011, CMS started to implement a bundled ESRD payment system. The base payment rate per
patient is $230 per treatment, compared to the prior dialysis portion rate of approximately $130. The industry
(dialysis center) has the option to phase-in the bundling system over a four-year period till January 1, 2014 and
for each year, 25% of the total industry needs to adapt. A current survey suggested that the majority of
facilities might immediately adapt to the bundling payment system instead of going through a more gradual
transition. Overall, the implementation of the bundling payment system is likely to continue to reduce the use
of ESAs over the next few years. Further, dialysis providers are likely to seek more cost-effective ESA
alternatives to replace the current standard of care. As such, we believe this landscape should bode well for
EPODURE, given its potential cost and efficacy advantages.

Therapeutically benefited Hb level narrowed. In June 2011, the FDA changed the label for Epogen and
Aranesp and narrowed the desired hemoglobin (Hb) range for chronic renal failure patients to 10-11g/dL, from
the prior range of 10-12 g/dL, due to clinical studies that demonstrated that patients risked experiencing death
or sAE of cardiovascular reaction and stroke if they were administrated ESAs to target Hb levels of greater
than 11g/gL. Although the new guidelines also potentially would like to reduce the use of conventional ESAs,
we believe this could also potentially provide additional opportunities for EPODURE, given that its
preliminary data has demonstrated that it can deliver EPO of a narrowed range over a long period of time.

The global market for anemia treatment in nephrology is also substantial, in our opinion. According to a report
by Fesenius Medical (FNEG –– NR), the global dialysis population in 2008 was 1.76 million, with the top five
countries (the U.S., Japan, China, Brazil, and Germany) accounting for 52% (916,000) and the top 15 countries
accounting for 75% (approximately 1.3 million) (Figure 11). The dialysis process also can be divided into two
types: hemodialysis (HD) and peritoneal dialysis (PD). HD removes waste from the blood through a
hemodialysis machine, usually three times per week for about 3 to 4 hours for each treatment (which typically
occurs in dialysis center). More infrequently, HD can be carried out at home (the patient might own the
machine and do procedures on a daily basis, typically for 2 hours six days a week). Peritoneal dialysis uses the
patient's peritoneum in the abdomen as a membrane to remove waste from the blood. PD is frequently
conducted at home as well as other locations, such as the workplace. HD accounts for the dominant majority of
dialysis in most countries (Figure 11).

Emerging home dialysis trends could bode well for EPODURE. With increased pressure from healthcare
cost reductions for renal failure patients, a growing trend is emerging: Patients are seeking ways to get dialysis
treatment at home, instead of in the dialysis clinics (or to at least reduce the visits). One of the major challenges
for home dialysis practice is for patient to receive needed medications, especially for anemia management
given self administration of EPO safely and appropriately is more difficult to accomplish.

As such, we believe that EPODURE could potentially overcome some hurdles in home anemia management
for ESRD patients, given that patients could potentially maintain sufficient EPO without repeated dosing, either
through visiting clinics or by self-administration. Lower costs could be another big advantage.

Maxim Group LLC 16


Figure 11: Global anemia market in nephrology (2010)

Sources: Fresenius Medical Care 2009 presentation

Maxim Group LLC 17


DISCUSSION ON INFRADURE

INFRADURE Biopump development

INFRADURE is a Biopump that continuously produces interferon as a potential treatment for hepatitis C virus
(HCV) infection. Interferon-based therapies have been the mainstay of HSV treatment, and its use is expected
to continue going forward.

The company presented two posters at the 2010 European Association for the Study of the Liver (EASL)
annual meeting, highlighting results from INFRADURE pre-clinical in vitro and SCID animal model studies.
Based on the Intron-A package insert, daily need for interferon (IFN ) is 5 g/day; however, the current
INFRADURE has demonstrated that it could secrete IFN at approximately 1 g/day. In an in vitro study,
researchers could generate adjusted levels of INFRADURE potency based on titration of vector concentration
(Figure 12, left) and exhibited sustained IFN production over an eight-month period (Figure 12, right).

Figure 12: In vitro INFRADURE expression levels can be adjusted through varying vector
concentration (left), and sustained IFN production (right)

INFRADURE Long term in-vitro production
10000

1000
IFN ng/Biopump/day

100

10

1
6 9 16 27 37 48 62 76 97 118 139 160 181 202 223 244
Days from harvesting

Ti
Time to Implant
in Patient


From a SCID mouse animal model study, two different doses that anticipated expressing 1300ng/day and
4000ng/day of human IFN have demonstrated continued expression, with declines exceeding 100 days
(Figure 13). Continued decreased protein production over time was also observed in prior EPODURE SCID
animal model studies, but appropriate levels of EPO production were accomplished in patients. The reduced
and declined production of human protein in the animal models could be due to the mouse’’s ability to reduce
the exogenous protein to diminish the negative impact of these proteins on its normal functions. Further, a
dose-dependent relationship between expression levels and bio-activities was also demonstrated in the animal
model (Figure 14).

Figure 13: In animal model, INFRADURE demonstrated sustained expression of human IFN


Maxim Group LLC 18


Figure 14: Dose-dependent relationship between expression level and bio-activities


The company is planning to commence a Phase I/IIa trial (possibly in 1H12) to evaluate INFRADURE’’s
potential as an alternative to the weekly injection of interferon as a HCV treatment. We anticipate that the
company will provide more details going forward.

Continuously delivered interferon could be more beneficial in HCV treatment

The major value proposition for delivering interferon continuously over the treatment period in HCV therapy is
to reduce some of the adverse effects, which have been major obstacles for patients taking treatment due to
serious intolerability. Two developments have provided validity for this thesis: 1) Research conducted by Dr.
Steve Schenker and colleagues 1 demonstrated that patients reported better tolerability via continuous
subcutaneous infusion of IFN b compare to three times weekly injection of Intron A and with similar
efficacy between the two methods; and 2) Metronic’’s (MDT –– NR) current development for delivered
interferon continuously via the company’’s insulin pump.

Medtronic’’s COPE-HCV Phase II trial underway

Medtronic is conducting a Phase II trial (COPE-HCV or COntinuous Interferon Delivery via the Medtronic
Paradigm Pump Infusion System Clinical Evaluation for Chronic HCV) that evaluates interferon delivered via
an external pump infusion system to treat patients with hepatitis C virus (HCV) infection. Medtronic
commenced the study in September 2009. This trial is a single blind, 250+ patient study designed to evaluate
Intron A delivered in one of three doses via continuous subcutaneous infusion through the MiniMe Paradigm
Insulin Pump Infusion System for 48 weeks. All patients will also concurrently receive oral ribavirin
(Rebetol). The comparator should be patients receiving the standard of care of 1.5 g/kg PegIntron
subcutaneous weekly plus oral ribavirin (Rebetol) for 48 weeks. The study is designed as a first line treatment
for hepatitis C genotype 1 patients. The primary endpoint is the incidence of sustained virologic response
(SVR) at 24 weeks after treatment is completed, as well as safety and tolerability. Secondary endpoints include
rapid virologic response (RVR), early virologic response (EVR), end-of-treatment response (EOT), PK, PD and
functional health, depression score, and fatigue level. We estimate that the top-line results potentially could be
available in late 2011 or early 2012. We believe a positive outcome from the COPE-HCV trial could afford a
substantial validation of continuously delivered interferon –– a better modality for HCV treatment, in our
opinion.

Commencement of the COPE-HCV trial is on the heel of a completed European SCIN-C Phase II study. This
is a randomized, open label, and 30-patient study to evaluate three doses (12, 9, or 3 MU) of IFN 2b delivered
daily via an insulin pump in hepatitis C genotype 1 patients unresponsive to (peg) interferon/ribavirin therapy.
The treatment duration lasts 48 weeks, and patients also take ribavirin (15 mg/kg/day). Primary endpoints are

1
Schenker, S., et. al., J of Interferon and Cytokine Research, 17:665 –– 670 (1997)

Maxim Group LLC 19

safety and tolerability of high-dose continuously, subcutaneously infused IFN- 2b. Secondary endpoints
include 1) HCV RNA negativity at week 48, as well as 24 weeks after end of treatment; 2) biological activity
of IFN-a2b; 3) PK; 4) HCV-specific immune responses; and 5) quality of life assessment.

Hepatitis C virus (HCV) treatment market landscape:

Hepatitis C virus (HCV) is a RNA-based virus that targets liver cells. According to the Centers for Disease
Control and Prevention (CDC) analysis, HCV infection incidences were high before early 1990 due to
contamination from blood transfusions prior to well established blood screenings. Annual incidences have
since been in decline over the subsequent years, with estimated incidences of 18,000 in 2008. The majority of
infected patients (>70%) has developed chronic infection with a propensity causing varying levels of scarring
of the liver (fibrosis and cirrhosis) (Figure 15). The CDC estimated that the prevalence of chronic HCV
infection in the U.S. is 3.1 million. According to World Health Organization (WHO), global prevalence for
chronic HCV infection is 130 to 170 million, with an estimated 3 to 4 million annual incidences and 350,000
deaths due to HCV-related liver diseases each year. With an asymptomatic and chronic nature of the disease,
HCV infection is substantially under-diagnosed.

Figure 15: Natural history of HCV infection

Sources: CDC and Maxim Group LLC

The current standard of treatment for HCV is a combination of pegylated interferon and orally administrated
ribavirin (PEG/RBV). Treatment duration for patients diagnosed with genotype 1 (approximately >70% of
total HCV infections in the U.S.) was up to 48 weeks, with only of 50% success (determined by SVR or
sustained virologic response, which is a measure for eradication of the virus at 24 weeks after the completion of
treatment). Treatment duration for patients infected with genotypes 2 and 3 HCV was usually 24 weeks, with
cure rates of 70-90%. Two newly approved protease inhibitor based medications –– Victelis [boceprevir from
Merck (MRK –– NR)] and Incivek [telaprevir from Vertex (VRTX –– NR)] –– will be administrated concurrently
with PEG/RBV, with potentially overall shorter treatment duration. HCV infection is under-treated, not only
due to modest treatment efficacy and its asymptomatic nature, but mainly due to poor tolerability of the current
standard of care (PEG/RBV). Despite current developments of various oral medications and the speculation of
future all-oral medication (interferon sparing) HCV treatment, we believe that interferon-containing regimens
could remain the backbone for HCV therapy (especially if adverse effects can be improved). As such, we are
encouraged by the potential represented by continuously delivered interferon –– and even more interested in
INFRADURE Biopump, as it could potentially be more cost effective.

The current pegylated interferon market is dominated by two products: Peg-Intron of Merck and Pegasys from
Roche –– with total 2010 sales of $2.7 billion (Figure 16).

Figure 16: Global interferon sales in 2010
Product Company 2010 Sales ($ MM)
Pegasys Roche 2,007
PegIntron Merck 737
Total 2,744
Sources: Amgen presentation, SEC filings and Maxim Group LLC

Maxim Group LLC 20


DISCUSSION ON HEMODURE AND OTHER PROSPECTS

HEMODURE Biopump development

HEMODURE is a Biopump that continuously produces factor VIII as a potential treatment for hemophilia A.
Baxter (BAX –– NR), the market leader in hemophilia treatments, approached Medgenics in October 2009 to
form a collaboration requesting the latter to develop HEMODURE. Medgenics has received $3.9MM in R&D
funding and standstill fees as a result of this collaboration. Although MDGN has successfully created
HEMODURE over the initial 12-month period, the amounts of protein were below the level necessary to
provide effective treatment of hemophilia. Both companies have subsequently extended the collaboration
agreement, and with additional inputs from licensing with the University of Michigan in February 2011,
Medgenics believes it can overcome this hurdle. Baxter announced in July 2011 that the company will further
validate HEMODURE Biopumps through tests in mice, with a potential go/no go decision toward the end of
September 2011. Medgenics is eligible for a $2.5MM in option fees, allowing Baxter to gain a six-month
period to further negotiate with Medgenics for a deal to advance HEMODURE into clinical development.

Although it is unclear which criteria Baxter might employ to determine whether it wants to advance the
HEMODURE Biopump program, our analysis suggests that an early report could provide some insight as to the
level of factor VIII activities needed for prophylactic use in severe hemophilia A patients 2 . The report
indicated that 1 to 2 percent of normal levels of factor VIII activities would be sufficient to protect severe
hemophilia A patients (defined as having >1% of factor VIII activity remaining) from spontaneous bleeding.

Hemophilia A market landscape:

Hemophilia A is a hereditary disorder (linked to the X chromosome) due to defects in producing functional
factor VIII (FVIII) protein. As such, patients have damaging or fatal bleeding episodes because of their
diminished clotting ability. Hemophilia A is an orphan disease, with more than 25,000 patients in the U.S.
Based on levels of FVIII, hemophilia A can be categorized into three levels: severe, moderate, and mild –– and
more than 50% of patients are categorized as severe.

Treatment for hemophilia A is mainly through the replacement of FVIII protein via injection. In the 1950s,
patients were treated with a frozen blood plasma transfusion to supply FVIII. In the 70s, treatment advanced as
plasma derived FVIII (pd-FVIII) were collected from a more complex fractionation process from plasma,
which became a major product with substantial improvements in patient life expectancy. In the early 80s,
during the first breakout of HIV infections, a significant portion of hemophilia patients were infected by the
virus due to pd-FVIII products getting contaminated. A strong push for the development of recombinant FVIII
(rFVIII) in order to mitigate viral infection led to the successful development and commercialization of rFVIII
in the 90s. The current global hemophilia A treatment market is comprised of both pd-FVIII and rFVIII
(Figure 17). Based on its better safety profile and more generous reimbursement systems, rFVIII use has
accounted for more than 80% of shares in the developed markets, but accounted for less than 20% in
developing markets due to rFVIII’’s higher price tag.

The hemophilia A treatment market is relatively mature, with an estimated single digit annual growth going
forward. We estimate the global hemophilia A treatment market is approximately $5.5 billion, with rFVIII
accounting for $4.45 billion. Approximately half a dozen companies dominate the market, with Baxter
accounting for nearly half of the market (Figure 17), followed by Bayer AG (BAYN –– NR), CSL Behring,
Pfizer (PFE –– NR), Grifols (GRLS –– NR), and Octapharma. Bexter’’s Advate –– a third generation of rFVIII –– is
the market leader, with annual sales of $1.7 billion in 2010.

Two major trends for the future development of the hemophilia A treatment market are increased prophylaxis
therapy and development of longer-acting rFVIII.

2
Roth, D.A., et. al., NEJM, 344: 1735 –– 1742 (2001)

Maxim Group LLC 21

In the developed market, particularly in the U.S., patients with severe hemophilia A receive rFVIII
prophylatically every two to three days in order to prevent future bleeding episodes (instead of on-demand use
after a bleeding incidence). Severe patients are very likely to bleed up to 30-40 times per year. In the U.S., it
is estimated that nearly 40% of the severe hemophilia A patients use rFVIII prophylatically. With an improved
quality of life and appropriate reimbursement, prophylactic rFVIII use is increasing, especially in children and
new patients. Prophylactic rFVIII use outside of the U.S. remains more challenging because reluctant
reimbursement by payers due to high costs.

Figure 17: Global hemophilia A (Factor VIII) market landscape

Company Product Type 2010 sales ($)

Advate 3rd generation recombinant 1.7 B

Baxter Recombinate 1st generation recombinant 400MM

Hemofil M Plasma-derived ~ 315MM

Kogenate / Kogenate
Bayer 1st and 2nd generation recombinant 1.4 B
FS
Helixate / Helixate
1st and 2nd generation recombinant 544MM
FS
CSL Behring
Monoclate-P Plasma-derived ~100+MM

ReFacto 1st generation recombinant
Pfizer 404MM
Xyntha 4th generation recombinant

Koate DVI /
Grifols / Talecris Plasma-derived ~ 255MM
Alphanate

Octapharma Plasma-derived ~ 320MM

Total recombinant factor VIII 4.45 B

Total plasma-derived factor VIII ~1.00 B

Total global factor VIII market 5.50 B

Sources: SEC filings and Maxim Group LLC

There are about a half-dozen treatments in development for hemophilia A (Figure 18). Some are more
advanced generations of rFVIII (which is third generation), and others are more differentiated, longer-acting
rFVIII products. Longer-acting rFVIII products could require less frequent dosing, which would be more user-
friendly as a prophylactic, as well as the potential for less inhibitor formation. We also believe that
HEMODURE could be even more user friendly and, if successful, could be substantially better than the longer-
acting rFVIII products in development. Further, with increased competition of the hemophilia A treatment
market (and Baxter having the most to lose), it is no surprise that the company would like to catch the
potentially leading technology for FVIII product development.

Figure 18: Selected hemophilia A development pipeline

Company Product Development Stage Type Potential Launch

Bayer BAY81-8973 Kogenate PF Phase III 3rd Generation rFVIII 2014

Novo Nordisk NN7008 (N8) Phase III 3rd Generation rFVIII 2013

Octapharma Human-cl rhFVIII Phase II/III 2013

Baxter BAX 513 Phase I Longer Acting rFVIII 2015

Biogen Idec / Biovitrum rFVIIIFc Phase II/III Longer Acting rFVIII 2014

Sources: SEC filings and Maxim Group LLC

Maxim Group LLC 22


Other prospects for the Biopump platform

Based on continuous delivery, self supply, and the potentially lower cost nature of the Biopump platform, many
protein-(biologics)-based therapies could benefit from this novel alternative delivery system. Figure 19
illustrates some therapeutics that could be replaced by the Biopump. Together, they represent a multi-billion
dollar market potential, and we believe the company will actively seek additional opportunities going forward.

Figure 19: Selected hemophilia A development pipeline

Disease Indication Protein 2009 sales ($B)
Growth Retardation Growth hormone 2.9
Multiple Sclerosis Interferon Beta 5.2
Diabetes Insulin 13.3
Arthritis IL-1Ra 18.1
Cancer Recovery G-CSF 5.2
Wound Healing PDGF-BB NA
Obesity Peptide YY3-36 NA
Chronic Pain IL-10 NA

Sources: Company report and Maxim Group LLC

Maxim Group LLC 23


RISKS

The Biopump platform is a novel but nascent-stage technology with limited clinical validation. Despite
the Biopump platform exhibiting the potential to express functional proteins of different therapeutic biologics
in animal models (with a good safety profile), the actual clinical practice has only been realized experimentally
via EPODURE with very limited patient sizes over short periods of time. As such, risks remain as to whether
any products developed based on the Biopump platform could have real-world utility and would be approved
by regulatory agencies.

Clinical studies might not accomplish the anticipated outcome. The company is completing an ongoing
EPODURE Phase I/II trial, with the potential to report top-line results in 4Q11. Significant risks exist if the
results from the current or any future trials might not be successful, and such outcomes could have significant
negative impact on the MDGN share value.

Sales potential for any in-development products could be significantly different than expected. Although
several in-development disease markets, such as anemia, hemophilia A, and HCV infection, represent
substantial unmet medical needs and market potential, it is possible that the future market dynamic and patient
needs might not align with current projections. As such, the future market potential could be substantially
different than anticipated (despite a successful product development and approval by regulatory agencies in the
U.S. and other territories).

With Biopump being the only product offering, this could potentially increase risk due to a less
diversified portfolio. All products currently offered by Medgenics are based on the Biopump platform. With a
more nascent nature of the platform and lack of pipeline products derived from other sources, potential risks
exist for MDGN investors: Concentrated portfolios afford less diversity if Biopump products do not realize
their commercial value.

As a company with major operations outside of the U.S., country-specific activities could affect share
value. With most of the key operations outside of the U.S., Medgenics could face greater risks of disrupted
operations due to the instability of the Middle East region (with Israel being a constant attack target by Hamas
and other Islamist terrorist groups). Further, foreign currency exchange risks could be another factor affecting
the non-U.S.-based company.

Lack of cash could impede corporate development. If the company cannot generate sufficient financial
support to advance its pipeline development from either financial markets or non-dilutive sources, MDGN’’s
shareholder value could be impaired. In addition, future equity offerings could dilute the value of existing
shareholders.

Thinly traded stock limits shareholder options. The stock just started getting traded in the U.S. exchanges
and are currently thinly traded, which results in low liquidity. Shareholders could have limited options in
changing their positions in a volatile stock market.

Maxim Group LLC 24


MANAGEMENT

Andrew Leonard Pearlman, Ph.D., is the founder and CEO of Medgenics. Prior to Medgenics, Dr. Pearlman
served as CEO and chief scientist for TransScan Research & Development Co., Limited, developing the T-scan
2000 breast impedance scanner, which was the first new medical imaging method for cancer detection to
receive FDA pre-market approval in over 20 years. Prior, Dr. Pearlman also founded or co-founded several
other companies in the fields of diagnosis and patient monitoring. He has more than 25 years experience
founding and managing biotechnology and medical device companies and holds a Ph.D. in biophysics from the
University of California, Berkley.

Clarence L. Dellio rejoined Medgenics as COO in June 2011. Prior, he was a consultant to a variety of
emerging biotechnology and medical technology companies since 2008. From 2004 to 2008, Mr. Dellio served
as President and Chief Operating Officer of Neosil, Inc., a venture-backed dermatology company that
subsequently merged with Peplin, Inc. Prior to Neosil, Mr. Dellio was the Chief Operating Officer and Senior
Vice President-Operations for XOMA Ltd., from 1984 to 2004. Previously, Mr. Dellio was VP of
manufacturing/new product development manager at Becton-Dickinson & Company for 11 years. Mr. Dellio
earned his B.S. in accounting from Bentley College.

Baruch Stern, Ph.D. joined Medgenics as Chief Scientific Officer in 2006. Prior to Medgenics, Dr. Stern
served as tissue engineering project manager at ProChon Biotech Limited, a company developing cell therapy
solutions to damaged cartilage from 2004 to 2006. Prior, he served as a group development leader of the
microbiology section at Medgenics, where he spearheaded tissue engineering and development of the Biopump
Platform Technology, including viral vector and assay development, implementing GMP production and
standard operating procedures for the company’’s phase I clinical trial, as well as assisting the development of
its skin harvesting, handling, and implantation devices from 2001 to 2004. He received a Ph.D. in molecular
biology and biotechnology from Tel Aviv University in 1994 and completed a postdoctoral fellowship at the
NIH.

Phyllis Bellin joined Medgenics as Director of Finance and Administration in November 2005. Prior, she was
a founder and vice president of Gintec Active Safety Limited and was responsible for finance and
administration of its subsidiaries, including RoadEye Limited. She has managed finance and administration for
several early stage, high-tech ventures in Israel since 1980. She received an MBA from Columbia University.

Maxim Group LLC 25

FINANCIAL MODELS

MEDGENICS INC. INCOME STATEMENT
($ MM)
2009 2010 2011E 2012E 2013E
1Q11 2Q11 3Q11E 4Q11E

Total Revenue 0.0 0.0 - 0.0 2.5 - 2.5 10.0 10.0
Cost of goods sold 0.0 0.0 - - - - 0.0 0.0 0.0
Gross profit 0.0 0.0 - 0.0 2.5 - 2.5 10.0 10.0
Research and development expenses 2.3 3.4 1.2 1.5 1.6 1.9 6.2 12.1 18.2
Less-Participation by the Office of the Chief Scientist (0.5) (0.7) 0.0 (0.5) 0.0 0.0 (0.5) 0.0 0.0
US government grant (0.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Participation by third party (0.1) (0.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Research and development expenses, net 1.7 1.5 1.2 1.0 1.6 1.9 5.7 12.1 18.2
General and administrative expenses 2.5 4.4 0.8 1.1 1.0 1.0 3.8 4.5 5.4
Operaing expense 4.2 5.9 2.0 2.1 2.6 2.9 9.5 16.6 23.6
Excess amount of participation in research and development fro (0.3) (2.6) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating income (3.9) (3.4) (2.0) (2.1) (0.1) (2.9) (7.0) (6.6) (13.6)
Financial expenses 3.1 0.8 0.1 0.2 0.1 0.1 0.5 0.6 0.7
Financial income (0.0) (0.1) (1.7) (0.0) (0.0) (0.0) (1.7) 0.0 0.0
Income (loss) before taxes (6.9) (4.1) (0.3) (2.3) (0.2) (3.0) (5.8) (7.3) (14.3)
Income tax expense (0.0) (0.0) 0.0 (0.0) 0.0 0.0 (0.0) 0.0 0.0
Net income (6.9) (4.1) (0.3) (2.3) (0.2) (3.0) (5.8) (7.3) (14.3)
Dividend in respect of reduction in exercise price of certain Warr 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net income attributable to common shareholders ($6.9) ($4.1) ($0.3) ($2.3) ($0.2) ($3.0) ($5.8) ($7.3) ($14.3)
Net Earnings (Losses) Per Share—Basic ($2.06) ($0.95) ($0.06) ($0.26) ($0.02) ($0.32) ($0.71) ($0.57) ($1.07)
Net Earnings (Losses) Per Share—Diluted ($2.06) ($0.95) ($0.06) ($0.26) ($0.02) ($0.32) ($0.71) ($0.57) ($1.07)
Shares outstanding—basic 3,367 4,375 5,370 9,034 9,134 9,234 8,193 12,805 13,405
Shares outstanding—diluted 3,367 4,375 5,370 9,034 9,134 9,234 8,193 12,805 13,405

Margin Analysis (% of Sales/Revenue)
COGS NA NA NA NA 0% NA 0 0 0
R&D NA NA NA NA 64% NA 229% 121% 182%
MG&A NA NA NA NA 39% NA 151% 45% 54%
Operating Income (loss) NA NA NA NA -3% NA -279% -66% -136%
Pretax NA NA NA NA -7% NA -231% -73% -143%
Tax Rate NA NA NA NA NA NA 0% NA NA
Net Income NA NA NA NA -7% NA -232% -73% -143%

Financial Indicator Growth Analysis (YoY%)
Total Revenue NA NA NA NA NA NA 300% 0%
Cost of goods sold N.A. N.A. N.A. N.A. N.A. N.A. N.A.
R&D expenses 49% 112% 90% 58% 90% 84% 15% 15%
Less-Participation by the Office of the Chief Scientist 44% NA 242% -100% -100% -29% 15% 15%
US government grant NA N.A. N.A. -100% -100% 15% 15%
Participation by third party 902% NA -100% -100% -100% -100% 15% 15%
G&A 74% 16% 139% -63% 43% -14% 20% 20%
Other income 688% -100% -100% -100% -100% -100% 15% 15%
Operating Incomes (Losses) -14% 438% 1281% -97% 449% 108% -5% 105%
Financial expenses -72% 194% 225% -92% -119% -36% 15% 15%
Financial income 450% -36% -100% -131% -200% 3053% 15% 15%
Pretax Income -40% -115% -19% -95% -29738% 40% 26% 96%
Net Income -40% -115% -19% -95% -37148% 40% 26% 96%
EPS - Basic -54% -110% -63% -98% -20872% -25% -19% 88%
EPS - Diluted -54% -123% -38% -98% -20872% -25% -19% 88%

Source: Maxim Group LLC research and SEC filing

Maxim Group LLC 26

MEDGENICS INC. CASH FLOW STATEMENT
(in millions)
($ MM)
2009 2010 2011E 2012E 2013E
Cash Flows From Operating Activities: 1Q11 2Q11 3Q11E 4Q11E
Net profit (loss) (6.94) (4.15) (0.34) (2.32) (0.16) (2.96) (5.79) (7.29) (14.32)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 0.12 0.12 0.02 0.02 0.10 0.10 0.24 0.22 0.19
Loss from disposal of property and equipment 0.00 0.00 0.00 0.00 0.00
Issuance of shares as consideration for providing security for letter of credit 0.00 0.00 0.00
Stock based compensation related to options and warrants granted to employees 0.52 1.83 0.09 0.12 0.05 0.05 0.30 0.55 0.98
Interest and amortization of beneficial conversation feature of Convertible note 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Change in fair value of convertible debentures and warrants 2.95 0.63 (1.69) 0.21 0.21 0.21 (1.07) (1.07) (1.07)
Accrued severance pay, net 0.08 0.04 0.05 (0.02) (0.04) 0.06 0.05 0.22 0.15
Exchange differences on a restricted lease deposit (0.00) 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00)
Exchange differences on a long term loan 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Changes in operating assets and liabilities:
Increase (decrease) in trade payables 0.07 (0.20) 0.28 (0.15) 0.62 0.33 1.07 0.72 0.70
Decrease (increase) in accounts receivables, prepaid expenses and deferred issu 0.11 (1.64) (0.03) 0.66 0.13 (0.83) (0.07) (0.87) (0.65)
Increase (decrease) in other accounts payable, accrued expenses and advance p 1.41 (0.79) 0.09 0.03 (0.12) 0.27 0.27 0.24 0.70
Net Cash Used In Operating Activities (1.69) (4.15) (1.53) (1.47) 0.78 (2.78) (4.99) (7.29) (13.33)
Cash Flows From Investing Activities:
Proceeds from disposal of property and equipment 0.00 0.000 0.00 0.00 0.00 0.00 0.00
Decrease (increase) in restricted lease deposit and prepaid lease payments 0.01 (0.01) - (0.00) (0.00) (0.00) (0.01) (0.01) (0.01)
Purchases of property and equipment (0.03) (0.06) (0.05) (0.13) (0.05) (0.05) (0.27) (0.33) (0.39)
Net Cash Used in Investing Activities (0.03) (0.07) (0.05) (0.13) (0.05) (0.05) (0.28) (0.33) (0.40)
Cash Flows From Financing Activities:
Proceeds from issuance of shares, net 0.36 2.08 10.39 0.00 0.00 10.39 23.25 0.00
Proceeds from exercise of options and warrants, net 0.26 0.53 0.04 0.00 0.00 0.00 0.04 0.04 0.04
Repayment of a long - term loan 0.00 0.00 0.00 0.00 0.00
Proceeds from long term loan 0.00 0.00 0.00 0.00 0.00
Issuance of a convertible debenture and warrants 0.57 4.00 0.00 0.00 0.00 0.00 0.00
Increase (decrease) in short-term bank credit (0.05) 0.03 (0.03) 0.10 0.20 0.30 0.20 0.20
Net Cash Provided by Financing Activities 1.15 6.61 0.06 10.36 0.10 0.20 10.73 23.49 0.24

Net increase (decrease) in cash (0.57) 2.39 (1.51) 8.77 0.83 (2.63) 5.46 15.87 (13.49)
Cash at beginning of period 1.04 0.47 2.86 1.35 10.12 10.95 2.86 8.32 24.19
Cash at end of period 0.47 2.86 1.35 10.12 10.95 8.32 8.32 24.19 10.70
Source: Maxim Group LLC research and SEC filings

Maxim Group LLC 27

MEDGENICS INC. BALANCE SHEET
(in millions)
($ 000)
2009 2010 2011E 2012E 2013E
1Q11 2Q11 3Q11E 4Q11E
Assets
Cash and cash equivalents 0.5 2.9 1.3 10.1 10.9 8.3 8.3 24.2 10.7
Accounts receivable and prepaid expenses 0.0 1.0 0.6 1.0 0.9 1.7 1.7 2.6 3.2
Total Current Assets 0.5 3.8 1.9 11.1 11.8 10.0 10.0 26.8 13.9
Restricted lease deposit and prepaid expen 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1
Severance pay fund 0.3 0.3 0.3 0.4 0.3 0.4 0.4 0.6 0.7
Property and equipment, net 0.3 0.2 0.3 0.4 0.3 0.3 0.3 0.4 0.6
Deferred issuance expenses - 0.7 1.1 0.0 0.0 0.0 0.0 0.0 0.0
Total Assets 1.1 5.1 3.7 11.9 12.5 10.8 10.8 27.8 15.3
Liabilities and Stockholders’ Equity
Short-term bank credit 0.0 0.9 1.0 1.2 1.2 1.4 1.6
Trade payables 0.9 0.7 1.0 0.0 0.6 0.9 0.9 1.7 2.4
Advance payment 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other accounts payable and accrued expe 1.7 1.2 1.3 1.3 1.2 1.4 1.4 1.7 2.4
Convertible debentures 5.5 5.5 0.0 0.0 0.0 0.0 0.0 0.0
Total Current Liabilities 3.4 7.4 7.9 2.1 2.7 3.5 3.5 4.7 6.3
Accrued severance pay 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.0 1.0
Convertible debentures 1.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Liability in respect of warrants 3.4 3.7 1.2 1.3 1.4 1.6 1.6 1.4 1.4
Total long-term Liabilities 5.4 4.8 2.4 2.5 2.5 2.7 2.7 2.4 2.4
Total Liabilities 8.8 12.2 10.2 4.6 5.3 6.3 6.3 7.1 8.7
Common stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additional paid-in capital 29.5 34.3 35.2 51.4 51.5 51.7 51.7 75.2 75.4
Receipts on account of shares 0.0 -
Deficit accumulated during the developmen (37.3) (41.4) (41.7) (44.1) (44.2) (47.2) (47.2) (54.5) (68.8)
Total Stockholders’ Equity (Deficits) (7.7) (7.1) (6.6) 7.3 7.3 4.5 4.5 20.7 6.6
Total Liabilities and Stockholders’ Defic 1.1 5.1 3.7 11.9 12.5 10.8 10.8 27.8 15.3

Source: Maxim Group LLC research and SEC filings

Maxim Group LLC 28

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