| | IMI International Medical Innovations | | | |

TABLE OF CONTENTS
Executive Summary.........................................................................................................................2
Problem Statement...........................................................................................................................3
Methodology....................................................................................................................................3
General Assumptions.......................................................................................................................3
Qualitative Analysis.........................................................................................................................4
Quantitative Analysis.......................................................................................................................5
Option 1 - Complete further Testing Alone.....................................................................................6
Option 2 - Complete Studies with Government...............................................................................6
Option 3 - Co-Develop with Another Company..............................................................................7
Option 4 - Fully Out-License...........................................................................................................8
Option 5 - Seek "Home Brew" Status..............................................................................................8
Conclusion.......................................................................................................................................9
Bibliography..................................................................................................................................10
Appendix
Exhibit 1: Cash Flow Analysis..........................................................................................11 Exhibit 2: Option Cash Flows............................................................................................12 Exhibit 3: Demographics & Growth Rates........................................................................13 Exhibit 4: Data & Quantitative Assumptions....................................................................14
Exhibit 5: Pharmaceutical Industry Analysis.....................................................................15
Exhibit 6: Pharmaceutical Industry Analysis.....................................................................16 Exhibit 7: IMI Product Pipeline.........................................................................................17 Exhibit 8: Porter's Five Competitive Forces......................................................................18 Exhibit 9: SWOT Analysis on CRA (vs FOBT)................................................................19 Exhibit 10: Option Pros & Cons........................................................................................20

EXECUTIVE SUMMARY
IMI is a small Toronto based biotechnology company that specializes in developing tests for the early detection of life-threatening diseases. Currently, IMI is focusing on a new non-invasive test, ColorectAlert™ (CRA), intended to detect colorectal cancer, the third most common cancer. If discovered early, colorectal cancer could be cured 90% of the time.
The development process of any diagnostic medical device must go through five steps: Management of Intellectual Property, Make a Prototype of Medical Device, Pilot Clinical Trial, Screening Clinical Trial and Regulatory Approval. IMI has just finished the Pilot Clinical Trial phase and is facing five major alternatives for taking CRA through the screening trial and regulatory approval: complete the phase alone, complete it in conjunction with the government, co-develop it, fully out-license it or go forward using “Home Brew Status”.
In order to reach a sound business decision, the analysis was broken down into two separate analysis of each option, quantitative and qualitative. The quantitative analysis was based on projected cash flows, Net Present Value (NPV) calculations, Expected Value (EV), Internal Rate of Return (IRR), Scenario Analysis, Discounted Payback Period (DPP) and Profitability Index (PI) calculations, while the qualitative analysis was based on the Industry Outlook, SWOT Analysis and Porter’s Five Forces.
After reviewing all the relevant data and based on the NPV and expected value approach, Option 2, which is completing the screening trial and regulatory phases in conjunction with the government is the best choice both strategically and financially for IMI. Developing CRA by piggy backing onto the government studies will increase IMI’s brand equity and give the product a competitive edge over similar tests in the market.
PROBLEM STATEMENT * Taking ColorectAlert™ through the Screening Trials and FDA Approval; making the best decision strategically and financially.
METHODOLOGY
An industry outlook was first assessed. The SWOT environmental analysis of IMI was made to identify the business strengths, weaknesses, opportunities and threats while Porter’s Five Forces was performed to determine the intensity of the competition and attractiveness of CRA product. Each option was then evaluated based on the financial aspect with its pros & cons.
In order to compare the options financially, the cash flows of each option were required to derive investment decision criteria methods such as NPV, IRR, DPP and PI. To project the cash flows (Exhibit 2), the size of the population over 50 in the world was determined (Exhibit 3). Then using this value and the percentage of test takers (based on the estimate of FOBT test takers), the total amount of tests conducted was projected. The initial market penetration was ascertained as a percentage of the market potential. The sales of ColorectAlert™ were forecasted until 2011 based on the two compounded average growth rates (CAGR) provided in the case report, which take into consideration all factors of the population such as demographics and technological improvements. From the sales forecast, the milestone and royalty revenues of IMI were calculated until 2011 due to the uncertainty of the patent protection. The discount rate used for each option was determined by taking into consideration the company’s capital structure, financial situation and specific risks. With the schedule of projected cash flows and the appropriate discount rate for each option, the NPV, IRR, DPP and PI were calculated (Exhibit 1). Based on the probability of success of CRA, the EV was calculated for each option.
Industry Outlook
The pharmaceutical market is stable and at its mature phase of the business life cycle since the overall demand does not change greatly from year to year although population of developed countries is aging, affecting positively the demand in general. This industry is an oligopoly, dominated by major companies and consolidation via mega-mergers, but market shares shift quickly as new drugs are commercialized and gain acceptance or lose patent protection. Prices are primarily driven by the cost of research and development. Government and regulatory influences are also very high in this field as all drugs must comply and go through an extensive review and approval process. Therefore, entry and exit barriers are extremely high, making successful businesses ventures very profitable but also causing current competitors to hustle to stay in the market. IMI's strategic business is to develop rapid, non-invasive tests, mainly screening tests for life-threatening diseases and cancer. IMI is an embryonic biotechnology company that has not yet introduced a product on the market and has no revenues to date. But the company has licensed technologies that are being turned into high profitable revolutionary products. IMI has a high growth potential if it can financially sustain its activities.
Product Opportunity
The prospect of CRA breaking through the market with soaring profits was high mainly due to both the lack of a cost effective test, and the increased awareness of screening for colorectal cancer. When benchmarked against the current standard FOBT, CRA performed better in assessing specificity that would result in large savings to health care systems. It was also less invasive than FOBT as it did not require any dietary restrictions prior to the test nor a stool sample.

Porter’s Five Forces
Porter’s five forces will be used to determine the intensity of competition and attractiveness of IMI’s market segment (Exhibit 8). * Threat of Industry Competitors (Low): Only a small number of screening and diagnostic devices are available to the market. * Threat of New Entrants (Low): Entry and exit barriers are very high in this industry, causing potential profit to be high, but also expected retaliation from current competitors to stay in market. * Threat of Substitutes Products (Moderate) There are few substitute products currently available. * Threat of customer's growing bargaining power (Moderate): There is not much customer bargaining power, since there are not many available options to them. * Threat of supplier's growing bargaining power (Low): CRA patent is assumed to be protected until 2011. Although possibility of protection until 2018 due to significance of handheld spectrophotometer (protected until 2018).

SWOT Analysis * Strength: Effective at evaluating scientific. Experienced in developing a commercially viable product from an underlying concept. * Weaknesses: Company in the developmental stage, has no brand identity, and been suffering of financial distress (losses of $8 million since inception) * Opportunities: Colorectal cancer could be cured up to 90% of the time if detected early. IMI has the opportunity of gaining substantial market share due to the lack of other viable tests. * Threats: CRA patent is protected until 2011, might cause a threat of new entrants. Current competitors might develop superior lower cost tests.

General Assumptions
The main assumption was that CRA could be used on un-prepped bowels. This was reflected in the calculations by taking a probability of success between 40 and 70%.
To establish the discount rates for each case, it was assumed that the company will liquidate at most 1.5 million dollars of its short-term investments to maintain liquidity and its ability to pay short-term bills. Each option will have a different WACC depending on the chosen capital structure. It is assumed that 1) the cost of capital for self-financing will be of 7.55% (based on the firm’s WACC), 2) the venture capitalist’s required return on investment will vary between 30 and 40% based on the different scenarios, and 3) the cost of capital of the partner company (if applicable) is assumed to be similar to IMI’s WACC (7.55%). For instance, the WACC obtained for option 1 is 31.08, 30.88 and 30.67% for worst, optimal and best case scenarios respectively. Similarly for option 3 a WACC of 27.16, 26.33 and 25.31% was calculated for worst, optimal and best case scenarios respectively. For options 2, 4 and 5, a WACC of 7.55% was used as the discount rate as the options’ risk is similar to the company’s overall risk. The market penetration rate and effective tax rate were found through research on the biotechnology industry (Exhibit 4). Milestone payments were calculated as a percentage of sales, where the company will receive at least 3 payments (Exhibit 5). When it came for the initial costs it was assumed that they were spread throughout the screening trial phase period, whereas the regulatory costs would occur at the end of that phase.

Option 1 – Complete Further Testing Alone
Despite the fact that this option will give IMI full control over the product development direction, the cost burden of pursuing it has a huge impact on the company’s financial sustainability. This will entail IMI to incur all costs affiliated with conducting the screening trials and regulatory approval (between 9.5 and $10.5 million). Since, the company currently has only $1.2 million of cash and cash equivalents on hand, and short-term investments of $8.2 million, this option would drain the financial resources of IMI, and it is therefore not financially viable. Thus, a mixed capital structure of internal and external (venture capitalist) financing is one way to go forward. The most probable scenario of this option has an NPV of $38 million and an EV of $21 million (Exhibit 1).
Option 2 – Complete Studies with Government
Piggy-backing onto government studies has two main advantages, 1) it will drastically reduce the cost of the screening trial due to the fact that the government already has colonoscopies integrated in its studies, and 2) it has the greatest potential of market penetration. The downside of this option is the delay in revenues, since IMI would need to comply with the government’s timeline. The question is whether IMI could or could not afford these delays. As new products or substitutes were expected to enter the market in only 6 to 8 years, IMI should profit from their competitive advantage. EXACT Sciences, a competitor of IMI, was also developing a similar test detecting colorectal cancer based on genomic-markers presence. Moreover, it was expected to cost several hundred dollars while CRA costs only 10$. Based on the stated above assumptions, this option has an NPV of $336 million and an EV of $185 million (Exhibit 1).
Option 3 – Co-develop with Another Company
Co-developing with an established company recognized in marketing and distributing of health care products can increase its penetration to the market and will decrease the initial costs in half. Though, IMI could lose some control over the product specifics and will have to make its decisions in coordination with the partner company. No delay is expected in IMI’s projected revenue stream since it is a benefit to the partnering company to get this product out into the market quickly. Working with a marketing and distributing partner is a required strategic step to penetrate in this oligopoly market dominated by mega mergers and acquisitions. Nevertheless, IMI can gain valuable knowledge from a partner specializing in diagnostic testing that can take the product through the screening trials and regulatory process. On the other hand, it might not be the right timing at this stage of the product development as IMI will have to considerably lower its royalty revenues. In addition, venture capitalists will typically require a 30% to 40% return on investment to undertake the product with its associated risks at this stage. This option has an NPV of $66 million and an EV of $36 million (Exhibit 1).
Option 4 – Fully Out-License
CRA is well positioned in IMI’s patents and products development process. By out-licensing the development of CRA, IMI will not incur any further costs, which will allow it to focus its efforts on the development of new products. For this case IMI will benefit from the same market penetration rate as in Option 3. However revenues from royalties will be diminished and pushed back until 2005-2006. By forgoing CRA, it could deploy some efforts in extrapolating the color measurement to detect other type of cancers, but the patent is protected until 2018, while the license behind CRA technology is valid until 2011. However, IMI will no longer have any input in the development of CRA, which is a strategic platform for the rest of its products pipeline based on the spectrophotometer such as LungAlert™. IMI will also miss the opportunity of developing its brand and miss the boat on the potential increase of the market as population is aging and awareness is increasing. This option has a calculated NPV of $102 million and an EV of $56 million (Exhibit 1).
Option 5 – Seek “Home Brew Status”
This option allows IMI to start generating revenue while conducting the screening tests, by making CRA available to the public through an FDA approved laboratory. However the longer period of screening trial and the exclusivity retained by this laboratory will have tremendous negative impact on market shares. Not only will it restrict market penetration to the domestic country during the exclusivity period estimated between 6 to 8 years, but, hold up the entry of CRA in foreign markets by 4 to 5 years, allowing time for new screening tests to enter the competition. In contrast, CRA can be sold for a double the price than all the other options. An NPV of $67 million and an EV of around $37 million (Exhibit 1). RECOMMENDATION
In order to make a decision as to which is the best course of action, IMI’s team of analysts considered several criteria for each option. The first option had many advantages when it came to the strategic aspect of the product. However, this option was disregarded due to its financial downside.
The third and fourth options were disregarded because IMI did not have many products in its pipeline. Giving up a platform product for a lower EV was not an option.
The fifth and last options were attractive in the sense that IMI could start generating profits in the early years of the product’s lifecycle. However it had to be discarded, due to lower market penetration rates in the early years and as a result a lower NPV and EV compared to some of the other options.
The second option made business sense on every level. It allowed IMI to develop the product at very low costs, while increasing their brand equity and keeping full control of the product’s future direction. Keeping ownership of CRA was strategically vital for IMI, as the product is a platform technology upon which other screening tests could be and were being built.
PLAN OF ACTION
IMI had to follow specific steps in the future to meet its strategic goals: * Short-run (0 to 12 months): Based on the analysis above, IMI’s first step is to take ColorectAlertTM through the screening trials with the government. * Medium-run (1 to 5 years): Given that the unprepped bowel results were positive, IMI will generate revenues to finish developing LungAlertTM, the leading cause of death related to cancer in North America. * Long-run (Strategic Plan): Develop rapid, non-invasive tests for the detection of other types of cancer, such as stomach, liver and chest.

BIBLIOGRAPHY
1. Marketing Management by Philip Kotler, Peggy Cunningham - Canadian 11th ed. (ISBN 0-13-039713-X), pages 104-106, 247-248, 334-336.

2. Equity and Fixed Income, CFA program curriculum, Volume 5, Level 1 2011, Reading 59, pages 223-243.

Europeans >50
3. European Communities, 2004, Population Statistics, page 57 <http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BP-04-001/EN/KS-BP-04-001-EN.PDF>, (September 19th, 2011)
Canadians >50
4. Demographics of the Canadian Population, <http://www.ccsd.ca/factsheets/demographics/>, (September 19th, 2011)
US > 50
5. SSDAN, Age Distribution, <http://www.censusscope.org/us/chart_age.html>, (September 19th, 2011)
World Population
6. UN Population Policies, World Demographics, Job Fatalities and the Extermination of Men<http://fathersforlife.org/population_politics/world_population_policies_demographics.htm#World>, (September 19th, 2011)
Milestone Payments in Biotech
7. Mark Edwards, How Elephants Dance Part 2 <http://www.recap.com/signalsmag.nsf/00000000000000000000000000000000/9b9c7598fdc3fdd2882567290060ff35?OpenDocument>, (September 19th, 2011)
8. Effective Tax Rates for Biotech http://www.biotech-now.org/business-and-investments/inside-bio-ia/2011/01/effective-tax-rates-for-biotech, (January 31st, 2011)

APPENDIX
EXHIBIT 1: CASH FLOW ANALYSIS | | | | | | | OPT 1 | OPT 2 | OPT 3 | OPT 4 | OPT 5 | | ALONE | w/GOV'T | CO-DEVELOP | OUT LICENSE | HOME BREW | NET PRESENT VALUE(1,000s) | Worst | 13,352 | 163,109 | 28,881 | 41,483 | 31,915 | Probable | 37,984 | 335,987 | 65,769 | 102,309 | 66,748 | Best | 72,943 | 516,297 | 124,174 | 174,164 | 119,868 | | | | | | | EXPECTED VALUE(1,000s) | Worst | 5,341 | 65,244 | 11,552 | 16,593 | 12,766 | Probable | 20,891 | 184,793 | 36,173 | 56,270 | 36,711 | Best | 51,060 | 361,408 | 86,922 | 121,915 | 83,908 | Project EV | 23,768 | 193,082 | 41,474 | 60,778 | 41,327 | | | | | | | DISCOUNTED PAYBACK PERIOD | Worst | 2.77 | 3.04 | 1.40 | 0 | 0 | Probable | 1.47 | 2.02 | 1.18 | 0 | 0 | Best | 1.43 | 2.01 | 1.09 | 0 | 0 | | | | | | | PROFITABILITY INDEX | Worst | 1.27 | 108.74 | 5.50 | 0 | 0 | Probable | 3.80 | 268.79 | 13.85 | 0 | 0 | Best | 7.68 | 516.30 | 29.22 | 0 | 0 | | | | | | | IRR | Worst | 63.81% | 215.52% | 135.62% | N/A | N/A | Probable | 107.77% | 405.14% | 214.45% | N/A | N/A | Best | 154.91% | 517.72% | 309.67% | N/A | N/A |

EXHIBIT 2: OPTION CASH FLOWS | | | | | | | | | | | | | | | | | | | PROJECTED CASH FLOWS (1,000s) OF ColorectAlert PRODUCT | | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | OPTION 1: ALONE | Worst | -10,500 | -100 | 11,470 | 11,396 | 11,323 | 11,452 | 11,567 | 8,762 | 8,850 | 8,938 | Probable | -10,000 | -100 | 23,077 | 21,732 | 22,409 | 23,108 | 23,585 | 18,053 | 18,426 | 18,793 | Best | -9,500 | -100 | 37,898 | 36,465 | 38,325 | 40,282 | 41,535 | 32,121 | 33,121 | 34,110 | | | | | | | | | | | | OPTION 2: W/ GOVERNMENT | Worst | -500 | -500,000 | -500,000 | -100 | 48,569 | 48,515 | 49,000 | 37,118 | 37,489 | 37,864 | Probable | -625 | -625,000 | -100 | 77,660 | 78,014 | 80,444 | 82,102 | 62,846 | 64,142 | 65,464 | Best | -500 | -500,000 | -100 | 114,730 | 117,211 | 123,188 | 127,019 | 98,227 | 101,283 | 104,436 | | | | | | | | | | | | OPTION 3: CO-DEVELOPMENT | Worst | -5,250 | 1,950 | 14,915 | 13,062 | 13,211 | 13,661 | 13,595 | 10,222 | 10,525 | 10,428 | Probable | -4,750 | 1,950 | 27,940 | 27,498 | 27,831 | 28,941 | 29,527 | 22,219 | 22,678 | 23,145 | Best | -4,250 | 1,950 | 47,812 | 47,284 | 50,075 | 52,591 | 53,403 | 41,299 | 42,584 | 43,911 | | | | | | | | | | | | OPTION 4: OUT LICENSE | Worst | 0 | 0 | 0 | 0 | 12,592 | 12,129 | 12,250 | 9,279 | 9,372 | 9,466 | Probable | 0 | 0 | 0 | 24,698 | 23,404 | 24,133 | 24,631 | 18,854 | 19,243 | 19,639 | Best | 0 | 0 | 0 | 40,377 | 39,070 | 41,063 | 42,340 | 32,742 | 33,761 | 34,812 | | | | | | | | | | | | OPTION 5: HOME BREW | Worst | 0 | 1,218 | 1,243 | 1,567 | 3,393 | 9,863 | 9,875 | 7,480 | 7,555 | 7,630 | Probable | 0 | 2,059 | 2,902 | 2,499 | 4,850 | 21,293 | 21,343 | 16,415 | 16,754 | 17,100 | Best | 0 | 3,067 | 4,882 | 4,311 | 4,557 | 38,050 | 40,005 | 31,017 | 31,984 | 32,982 |

EXHIBIT 3: DEMOGRAPHICS & GROWTH RATES | CAN | USA | EUROPE | ASIA | ROW2 | POPULATION 1 | Total | 31,946,3004 | 281,421,9065 | 453,685,0003 | 3,721,000,000 | 1,936,000,0006 | Over Age 50 | 9,930,6504 | 76,851,9855 | 154,141,0003 | 651,200,000 | 188,000,0006 | | | | | | | % OF POPULATION >50 TESTED | Worst | 20.00% | 40.00% | 15.00% | 25.00% | 10.00% | Probable | 25.00% | 40.00% | 20.00% | 30.00% | 10.00% | Best | 30.00% | 40.00% | 25.00% | 35.00% | 10.00% | | | | | | | MARKET GROWTH RATES 2001-2007 | Worst | 2.00% | 2.00% | 1.00% | 1.00% | 1.00% | Probable | 4.50% | 4.50% | 3.00% | 3.00% | 2.00% | Best | 7.00% | 7.00% | 5.00% | 5.00% | 3.00% | | | | | | | MARKET GROWTH RATES AFTER 2007 | Worst | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | Probable | 2.50% | 2.50% | 2.00% | 2.00% | 2.00% | Best | 4.00% | 4.00% | 3.00% | 3.00% | 3.00% |

EXHIBIT 4: DATA & QUANTITATIVE ASSUMPTIONS

| OPT 1 | OPT 2 | OPT 3 | OPT 4 | OPT 5 | | ALONE | w/ GOV'T | CO-DEVELOP | OUT LICENSE | HOME BREW | REVENUE PER TEST | (1,000s) | $0.010 | $0.010 | $0.010 | $0.010 | $0.020 | | | | | | | GENERAL ASSUMPTIONS | Effective Tax Rate | 22.30% | 22.30% | 22.30% | 22.30% | 22.30% | | | | | | | ROYALTY RATES | Worst | 12.00% | 13.00% | 7.00% | 6.50% | 5.00% | Probable | 13.00% | 14.00% | 8.00% | 7.00% | 5.50% | Best | 14.00% | 15.00% | 9.00% | 7.50% | 6.00% | | | | | | | MARKET PENETRATION RATES* BEFORE 2009 | Worst | 5.00% | 20.00% | 10.00% | 10.00% | 5.00% | Probable | 7.50% | 25.00% | 15.00% | 15.00% | 7.50% | Best | 10.00% | 30.00% | 20.00% | 20.00% | 10.00% | *Based on the fact that there is already FOBT being used in the market | | | | | | | MARKET PENETRATION RATES**AFTER 2009 | Worst | 3.75% | 15.00% | 7.50% | 7.50% | 3.75% | Probable | 5.63% | 18.75% | 11.25% | 11.25% | 5.63% | Best | 7.50% | 22.50% | 15.00% | 15.00% | 7.50% | **Based on the fact that there is another product entering the market after 7 years | | | | | | | SCREENING TRIAL PERIOD (YEARS) | Worst | 2 | 3 | 2 | 4 | 5 | Normal | 2 | 3 | 2 | 3 | 5 | Best | 2 | 3 | 2 | 3 | 5 | | | | | | | REGULATORY APPROVAL PERIOD | in years | 1 | 1 | 1 | 1 | 1 | EXHIBIT 5: MILESTONE PAYMENTS

MILESTONE PAYMENTS (1,000s) | | | Worst | Probable | Best | Screening Trial Completion | | $2,000 | $2,000 | 2,000 | FDA Approval | | $2,000 | $2,000 | $2,000 | AS A % OF SALES | 0.50% | 1.25% | 2.00% | 1 | 60,000 | $300.00 | $750.00 | $1,200.00 | 2 | 80,000 | $100.00 | $250.00 | $400.00 | 3 | 120,000 | $200.00 | $500.00 | $800.00 | 4 | 160,000 | $0.00 | $500.00 | $800.00 |

Calculation of Milestone Payments
Milestone payments as a percentage of sales were estimated to guarantee that the option with the smallest revenues would receive at least 3 milestone payments before 2011.
For Example,
The second milestone payment at 0.5%, at a milestone of $80 million would be
= (80 – 60) x 1,000,000 x 0.005
It was assumed that milestone payments are paid only on the incremental sales up to the next milestone.

EXHIBIT 6: PHARMACEUTICAL INDUSTRY ANALYSIS
Industry Stability
The market is stable, dominated by major companies and consolidation via mega-mergers. Market shares shift quickly, however, as new drugs are approved and gain acceptance or lose patent protection. Pricing is primarily determined by patent protection and cost of product R&D and regulatory approval process.
Business Life Cycle
The pharmaceutical industry in general is at a mature stage since overall demand does not change greatly from year to year. But because nearly half of those newly diagnosed with colorectal cancer were expected to die within five years due to late-stage detection of the disease and because colorectal cancer was curable more than 90% of the time when detected in early stages, therefore momentum was growing for general population screening.
Demographic & Technological Influences
Population of developed markets are aging, this increases demand. Advancements in biotechnology improve the development of new revolutionary products. Therefore both demographic and technological have positive influence on the pharmaceutical industry in general.
Government & Regulatory Influences
This is very high since all drugs must go thru a regulatory approval process. Health care is heavily regulated in most countries. Also pigging-backing onto government studies can significantly reduces R&D costs and increase market penetration since it could gain a higher profile by being under scrutiny of principal investigators and leading institutions who could support the product if they recognized the value of it.
IMI Company Fit in the Industry
IMI strategic business is to develop rapid, non-invasive tests, primarily screening tests for detection and monitoring of life-threatening diseases, particularly in cardiovascular disease and cancer. IMI is small biotechnology company at its development (embryonic) stage. IMI has high growth potential if it can sustain its activities.

EXHIBIT 7: IMI PRODUCT PIPELINE Development Process of a Diagnostic Medical Device | IMI’s patents & products | Management of Intellectual Property | -right of first refusal on certain genomics-related technologies form McMaster University | Make a Prototype of Medical Device | Patented technology that identified a marker in prostate cancer | Pilot Clinical Trial | LungAlert™ has just begun a larger pilot clinical trial on high risk persons, ie smokers | Screening Clinical Trial (Product Trial) | -ColorectAlert™ ready to start screening clinical trial-patent on color measurement (spectrophotometer used in LungAlert™ in ColorectAlert) | Regulatory Approval Process | Cholesterol 1,2,3 |

IMI's other products 1. Cholesterol 1,2,3 a. IMI's lead product, screening and monitoring test b. non-invasive, 3-minutes skin to detect cholesterol c. better predictor than current blood cholesterol levels d. do not require blood letting or fasting e. cleared by Health Canada in Jan 2001 f. expected clearance by FDA 510(k) in March 2001 * Enormous market potential, final stage of product development, ready to be marketed and sold. Thus expecting revenue streams very soon, “cash cow”

2. LungAlertTM g. screening test to identify patient at risk of lung cancer h. larger pilot clinical trial phase just begun technology revolutionary since no effective method currently available to screen population at risk of lung cancer

EHXIBIT 8: PORTER'S FIVE COMPETITIVE FORCES
Michael Porter has identified five forces that determine the intensity of competition and attractiveness of a market segment. We will apply this to determine IMI’s competition, in particular in colorectal cancer detection tests.
1. Threat of Industry Competitors * Only a small number of screening and diagnostic devices are available to the market. * Currently 2 competitors in the market * FOBT (fecal occult blood test), current standard of screening colorectal cancer risk, cost is 15$ per test, diet restriction prior to stool sample collection, annual test. * Sigmoidoscopy, cost is 610$ per test, enema preparation, uncomfortable and possible cramping during test, mild abdominal pains afterwards. * CRA is designed to compete directly with FOBT.
2. Threat of New Entrants * Entry and exit barriers are very high in this industry, causing potential profit to be high, but also expected fight back from current competitors to stay in market. * EXACT Sciences of Maynard, Massachusetts has designed proprietary methods for detecting and identifying genomic markers associated with colorectal cancer. * Entering screening trial phase, same phase as CRA is ready to enter * Expected to facilitate routine screening and early detection of colorectal and other common cancers * Expected very high specificity but still not enough evidence if effective screening * Expected to be commercially available in 2004-2005 * Expected to cost several hundred of US to end payer
3. Threat of Substitutes Products * There are few substitute products currently available. * Digital rectal examination and CEA Assay are either not effective or not specifically to detect colorectal cancer. * Double-Contrast Barium Enema (X-ray, 115$ cost) and Colonoscopy (tube camera, 1150$ cost, gold standard) can accurately diagnose colorectal cancer but are expensive and therefore not for screening purposes. * Technology advancement may improve accuracy or decrease cost of these substitute products, increasing competition rivalry.
4. Threat of customer's growing bargaining power * There is not much customer bargaining power, since there are not many available options to them. However, they can decide whether or not to take the test.
5. Threat of supplier's growing bargaining power * CRA patent is assumed to be protected until 2011. Although possibility of protection until 2018 due to significance of handheld spectrophotometer (protected until 2018).
EXHIBIT 9: SWOT ANALYSIS
Strength
* Effective at evaluation of scientific concepts (number of concepts, market size estimation) * Creative working environment that benefit both parties * Competent at building a diversified intellectual property portfolio * Experience in developing a commercially viable product from an underlying concept * Effective communication strategy with regulatory bodies, thus efficient approval process
Weaknesses
* Company in the developmental stage, with no brand identity developed on the market yet * Financial distress since 8$ millions of losses have incurred since it’s inception and no revenues to date * Uncertainty of the company’s ability in funding its operations
Opportunities
* Nearly half of those newly diagnosed with colorectal cancer were expected to die within 5 years due to late detection. Yet, it was curable 90% of the time when detected at early stage. Momentum is growing due to an increase in both awareness and general population screening. * While some tests like FOBT and CEA Assay were low cost, they did not accurately screen for colorectal cancer. Others, such as sigmoidoscopy, colonoscopy and barium enema, were far more accurate in diagnosis, yet were expensive (and therefore not feasible as screening tests for the general population), uncomfortable, and the correct diagnosis highly dependent on the experience of the test administrator there is great market potential for screening test like CRA.
Threats
* CRA patent is assumed to be protected until 2011. Although, possibility of protection until 2018 due to the significance of the handheld spectrophotometer (protected until 2018). * Current and potential competitors like FOBT may work at creating a superior lower cost test or like EXACT Sciences, who is developing a technology to detect a genomic marker associated with colorectal cancer.

EXHIBIT 10: OPTION PROS & CONS

OPTIONS | PROS | CONS | Option 1: Complete the Phases Alone | -full control over trial and regulatory process-no delay in screening trial -royalties revenues expected in 2004 | -most costly (screening trial between $9M & $10.5M, regulatory approval 100K)-low market penetration | Option 2: Complete with Government Studies | -cost greatly reduced (screening trial between $1M & $1.5M, regulatory approval 100K)-highest profile, highest market penetration | -work with government’s timeline, delay in screening trial but faster regulatory process-royalties revenues expected in 2005 or 2006 | Option 3: Co-Develop with Another Company | -half cost ($4.5M & $5.75M for screening, 50K for regulatory process)-market penetration higher than option 1 but lower than option 2-expect to launch in 2004-gain valuable learning from established company | -lower royalties rates | Option 4: Fully Out-license | -no further costs incurred-same market penetration as option 3-focus its efforts on other company’s products | -royalties revenues expected in 2005 or 2006-giving up valuable royalties percentage points | Option 5: Seek “Home Brew” Status | -generate revenues during screening trial phase, in 2002-higher price per test | -exclusivity of lab during screening trial & 2-3yrs after-longer screening trial phase (5 years instead of 3)-royalties revenues expected in 2007 (2002 + 5yrs trial + 1yr regulatory)-limited market penetration in US during lab exclusivity (ie until 2009-2010) |

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