Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com SEE PAGES 24 - 26 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS EQUITY RESEARCH INITIATION Biotechnology Closing Price 7/24/2012 $3.18 12-Month Target Price: $8.00 52-Week Range: $1.98-$3.85 Market Cap (M): $139 Shares O/S (M): 43,713 Float (M): 39,342 Avg. Vol. (000) 223 Cash & Cash Equivilents (M) Q1-2012 38,629 Debt (M) $0 Dividend/Yield: $0.00/0.00% Risk Profile: Speculative Revenues 2017 2018 CLI $181 $347 FYE: December GAAP EPS P/E 2011A (0.35) $ nm 2012E (0.31) $ nm 2013E (0.42) $ nm 2014E (0.43) $ nm 2015E (0.31) $ nm 2016E 0.04 $ 71.4 2017E 1.66 $ 1.9 2018E 3.30 $ 1.0 Source: Edgar as of 07/24/2012 Jason Kolbert (212) 895-3516 [email protected]July 24, 2012 Initiation Buy Pluristem Therapeutics Inc. (PSTI – NASDAQ – $3.18) Pluristem: A Unique Allogeneic Product We are initiating coverage of Pluristem Therapeutics Inc. with a Buy rating and $8.00 price target. We believe that PSTI is a well-positioned company with a unique product and a strong SWOT (strengths, weaknesses, opportunities, and threats) product analysis that we expect to progress solidly over the next year as a global phase II trial begins in intermittent claudication (IC). United Therapeutics has opted in. In June 2011, Pluristem signed a license with United Therapeutics (UTHR, $49.87, Not Rated) for the development of PLX cells in pulmonary disorders. The license agreement initiated at $7M and includes an additional $37.5M in regulatory milestones, as well as other attractive elements. We believe this could be one of many therapeutically focused deals to come. Clinical programs are getting ready to begin. In July, Pluristem announced (in anticipation of the start of the phase II study in IC) that the company has selected CPC Clinical Research for trial support services related to enrolling and sustaining clinical sites. The IC study population will be comprised of ~150 patients (Fontaine class IIb/Rutherford category 2-3) in a dose-escalation, placebo-controlled, double- blinded study. Great manufacturing system. Pluristem utilizes Placental eXpanded (PLX cells) in the treatment of a variety of inflammatory and ischemic conditions. The company has developed a manufacturing system which utilizes a bioreactor that allows the growth of cells in a 3D culturing methodology and the process is designed to simulate a range of ischemic conditions which allows the product to be tailored for specific indications (such as PAD, CLI, ARS, PAH, and even orthopedics). The system itself is designed to be very efficient translating into high manufacturing margins. Model assumptions. We assume Pluristem enters the critical limb ischemia (CLI) market in 2016. We are not assuming any other revenues as part of our model; however, we believe that it is extremely likely that Pluristem will advance multiple programs into the clinic later this year and next. Compelling valuation. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and are modeling PSTI out to 2018. We only assume success in CLI and have not included milestones or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% and equallyweight the three metrics to derive an $8.00 price target.
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Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com
SEE PAGES 24 - 26 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS
We are initiating coverage of Pluristem Therapeutics Inc. with a Buy rating and $8.00 price target. We believe that PSTI is a well-positioned company with a unique product and a strong SWOT (strengths, weaknesses, opportunities, and threats) product analysis that we expect to progress solidly over the next year as a global phase II trial begins in intermittent claudication (IC).
United Therapeutics has opted in. In June 2011, Pluristem signed a license with United Therapeutics (UTHR, $49.87, Not Rated) for the development of PLX cells in pulmonary disorders. The license agreement initiated at $7M and includes an additional $37.5M in regulatory milestones, as well as other attractive elements. We believe this could be one of many therapeutically focused deals to come.
Clinical programs are getting ready to begin. In July, Pluristem announced (in anticipation of the start of the phase II study in IC) that the company has selected CPC Clinical Research for trial support services related to enrolling and sustaining clinical sites. The IC study population will be comprised of ~150 patients (Fontaine class IIb/Rutherford category 2-3) in a dose-escalation, placebo-controlled, double-blinded study.
Great manufacturing system. Pluristem utilizes Placental eXpanded (PLX cells) in the treatment of a variety of inflammatory and ischemic conditions. The company has developed a manufacturing system which utilizes a bioreactor that allows the growth of cells in a 3D culturing methodology and the process is designed to simulate a range of ischemic conditions which allows the product to be tailored for specific indications (such as PAD, CLI, ARS, PAH, and even orthopedics). The system itself is designed to be very efficient translating into high manufacturing margins.
Model assumptions. We assume Pluristem enters the critical limb ischemia (CLI) market in 2016. We are not assuming any other revenues as part of our model; however, we believe that it is extremely likely that Pluristem will advance multiple programs into the clinic later this year and next.
Compelling valuation. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and are modeling PSTI out to 2018. We only assume success in CLI and have not included milestones or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% and equallyweight the three metrics to derive an $8.00 price target.
Pluristem Therapeutics (PSTI)
Maxim Group LLC 2
CORPORATE PROFILE
Pluristem Therapeutics (PSTI) MATAM Advanced Technology Park #20
Haifa 31905 Israel
Phone: (972) 74-710+7171
Web site: www.pluristem.com
Senior Management:
Zami Aberman, President and CEO. Mr. Aberman,
“Zami,” joined Pluristem in September 2005 and
changed the company’s strategy towards cellular
therapeutics. Mr. Aberman’s vision to use the maternal
section of the placenta (decidua) as a source for cell
therapy, combined with Pluristem’s 3D culturing
technology, led to the development of company-unique
products. Mr. Aberman brings to Pluristem a keen sense
of business and entrepreneurship.
Yaky Yanay, Chief Financial Officer, Prior to joining
Pluristem, Mr. Yanay was the Chief Financial Officer of
Elbit Vision Systems Ltd., before which he served as
manager of audit groups of the technology sector at Ernst
& Young Israel. He holds a bachelor's degree with
honors in business administration and accounting and is a
Certified Public Accountant in Israel.
Company Background. Pluristem Therapeutics Inc.
(PSTI) is a leading developer of placenta-based cell
therapies. The company's patented PLX (PLacental
eXpanded) cells drug delivery platform releases a
cocktail of therapeutic proteins in response to a variety of
local and systemic inflammatory diseases. PLX cells are
grown using the company’s proprietary 3D micro-
environmental technology and are an off-the-shelf
product that require no tissue matching or immune-
suppression treatment prior to administration. The PLX-
PAD comprehensive clinical development plan has been
recognized by both the EMA and FDA, targeting a sub-
population of 20-million patients of the peripheral artery
disease (PAD) market.
Data from two Phase I clinical trials indicate that
Pluristem’s first PLX product, PLX-PAD, is safe and
potentially effective for the treatment of end-stage PAD.
Pluristem’s pre-clinical animal models have
demonstrated that PLX cells are also potentially effective
in nerve pain and muscle damage when administered
locally and in inflammatory bowel disease, MS, and
stroke when administered systemically. Pluristem has a
Secretion of VEGF by PLX under normoxia (green) and hypoxia: Different placenta-derived
adherent cells were cultured for 24 hours under normal or hypoxic conditions.
Source: Pluristem
Exhibit 15. HUVEC Proliferation and PlGF Secretion
HUVEC
HUVEC+ PLX
PlGF
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
PLX HUVEC HUVEC+ PLX HUVEC HUVEC + PLX
HUVEC 10, 000 HUVEC 50, 000
0
100
200
300
400
500
Noof Cells
PlG
F (
pg/m
l)
Source: Pluristem
What do the results mean? The results suggest that PLX cells are safe and show an efficacy
signal. The trials pave the way for a larger Phase II proof-of-concept study. The company now
intends to pursue a larger study with both the U.S. Food and Drug Administration (FDA) and
European Medicines Agency (EMA). We know that active discussions are ongoing to determine
the optimal study design. We also see the potential for the company to design a Phase II study
that can be expanded to a registrational study. As such, Pluristem can try to close the gap on the
competitive field with Aastrom (now in a pivotal trial in CLI).
What kind of size and power is needed for the Phase II program? We know that the phase II
trial in IC will be in 132 patients. For CLI, we expect a larger trial that can be expanded to a
pivotal one. If the CLI study generates positive results, we would look for the expansion to a
registrational design (n=600) pivotal trial.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 14
Exhibit 16. CLI Phase I/II Approved by the FDA and EMA Prior data suggests that PLX-PAD is safe, improves quality of life, and is a potentially effective
treatment for limb ischemia. Phase I/II results demonstrated an 85% AFS (amputation-free
survival rate). The planned next-generation trial (n=132) is approved by the FDA, and the
company is planning to pursue a SPA (special protocol assessment) for the pivotal trial in CLI
and Buerger’s disease.
Source: Pluristem
Financial modeling assumptions – IC & CLI. According to the company, the phase II IC trial
(n=132) should begin soon (2H12), and we expect the start of the PII/III trial in 1H13, depending
on how quickly the new manufacturing facility is operational and validated. If this is the case, we
could see a product approval and launch by 2016. Based on the cost of other biologics and an
understanding of the cost saving of preventing some of the downstream complications related to
CLI, we would assume pricing in the $30,000 range.
Exhibit 17. CLI Market Model U.S. PAD, CLI, Target Market 2012 2013 2014 2015 2016 2017 2018
14 MLN "PAD " at baseline '000: 14,235 14,455 14,669 14,878 15,082 15,280 15,473
Exhibit 18.Other Possible Indications: The Field Could Be Unlimited
Source: Pluristem
Exhibit 19. PLX’s Therapeutic Effect
PLX’s therapeutic effect relates to the cell’s capability to respond to environmental signals within
the patient’s body by secretion of different proteins. PLX cell do not engraft and gradually
disappear from the patient’s body within a few weeks
Source: Maxim
On June 19, 2011, Pluristem entered into an exclusive license agreement with United
Therapeutics for the use of its PLX cells to develop and commercialize a cell-based product for
the treatment of pulmonary hypertension (PAH). The license agreement provides that United
Therapeutics will receive exclusive worldwide license rights for the development and
commercialization of Pluristem’s PLX cell-based product to treat PAH.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 16
The license agreement provides for the following consideration payable to Pluristem: (1) an
upfront payment of $7M (paid in August 2011, which includes a $5M non-refundable upfront
payment and $2M refundable advance payment on the development); (2) up to $37.5M upon
reaching certain regulatory milestones with respect to the development of a product to treat PAH;
(3) reimbursement of up to $10M of certain company expenses if the company establishes a
manufacturing facility in North America upon meeting certain milestones; (4) reimbursement of
all costs in connection with the development of the product; and (5) following commercialization
of the product, royalties and the purchase of commercial supplies of the developed product from
the company at a specified margin over the company’s cost.
Exhibit 20. PSTI-UTHR Economic Collaboration
Source: Pluristem
Exhibit 21. Case Study: Pluristem announced earlier this year that its PLX cells had saved the
life of a seven year-old girl suffering from aplastic bone marrow and who had undergone two
failed bone marrow transplants. With her condition rapidly deteriorating her doctors injected
Pluristem's PLX cells intramuscularly, following which the girl experienced a reversal of her
condition with a significant increase in her red blood cells, white blood cells and platelets.
Source: Pluristem
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 17
As a result of this experience, Pluristem announced that it is now preparing to apply to the U.S.
Food and Drug Administration for approval of its PLacentaleXpanded (PLX) cells for the
treatment of aplastic bone marrow as an Orphan Drug. Gaining Orphan Drug status approval is
part of Pluristem's strategy for penetrating the bone marrow recovery market, starting with
treatment of aplastic anemia, a disease in which bone marrow greatly decreases or stops
production of blood cells and strikes five to ten people in every million. Orphan Drug Status in
the U.S. helps the company to accelerate the path to full FDA approval. Pluristem is also planning
to file for a similar designation in Europe and global territories.
A note on Orphan status: Gaining Orphan Drug Status carries multiple potential benefits,
including the possibility of an expedited regulatory process, availability of grant money, certain
tax credits and seven years of market exclusivity. In August 2011, Pluristem successfully applied
for, and received, Orphan Drug Status from the FDA for its PLX cell therapy in the treatment of
Buerger's disease.
Exhibit 22. Product Differentiation Message: It’s important for us to understand that Pluristem
sees its PLX allogeneic cells as being able to be modified (based on various manufacturing
criteria) and, as such, translate into multiple products in multiple indications. The company
presents this in the graphic below.
Source: Pluristem
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 18
VALUATION
We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and model PSTI out to 2018. We only assume success in CLI and have not included milestone or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% (large) and equally weight the three metrics to derive an $8.00 price target.
Exhibit 23. FCF Model: Assume a 30% Discount Factor and Include Future CLI Revenues
Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119
Stem Cells STEM $1.40 $39 $11 $28
Average (s) $4.03 $226 $32 $195
Pluristem Therapeutics, Inc. PSTI $3.20 $157 $38 $119
Share price as of 7.19.2012 Source: Maxim and Thomson Reuters
The competitive landscape. For the most part, the regenerative medicine side of the stem cell
space is a micro-capitalized group of companies with early-stage products. Overall, the space is
undercapitalized, with a few noted exceptions: This includes Australian stem cell company
Mesoblast, with $240 million on the balance sheet and multiple late-stage programs. Most of the
companies on this list have Phase I programs or are just beginning Phase II. The noted exceptions
include Aastrom (now in Phase III), Osiris (failed prior Phase III trials in GvHD and currently in
a Phase III trial in Crohn’s disease), Mesoblast (about to begin Phase III trials in cardiac
indications), and Baxter (BAX, $54.96, NR), also in a Phase III cell therapy trial for angina, or
heart pain.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 20
Mesoblast is highly valued versus the pack, likely a result of the Cephalon partnership deal. Note
that Cephalon has since been acquired by Teva Pharmaceuticals (TEVA, $40.49, NR). In 2010,
Cephalon executed a partnership with Mesoblast, in which the company received $130 million
from Cephalon for certain therapy rights. In addition, Cephalon agreed to pay for all the clinical
trials while Mesoblast retains the rights to manufacturing commercial supplies of the stem-cell
products to be marketed by Cephalon.
Osiris has a partnership with Genzyme, which has been acquired by Sanofi-Aventis. Under the
terms of the original agreement, Genzyme made a $130 million up-front payment (two in
sequence). Osiris also had the potential to receive a total of up to $1.25 billion in milestone
payments from Genzyme. The status of the partnership is currently in dispute.
We believe the stem cell space holds great potential and is highly undervalued, and that we could
see valuations rise as some of the companies commercialize products over the next few years. We
believe Pluristem could be one of the leaders.
FUNDAMENTAL RISKS
Data risk. The outcome of current clinical trials in critical limb ischemia and other indications
could fail to demonstrate efficacy or could show a safety (toxicity) risk, halting clinical
development.
Developmental risk. Successfully managing multiple clinical trials is a risk. Trials can take
longer than expected to enroll. Trial costs often exceed budgets. Standards of care can change,
rendering a great trial design obsolete.
Regulatory risk. Pluristem must be able to obtain the approval of the FDA and other external
bodies (EMA) before commercial sales of the product candidates commence in the United States.
Solid trial results are critical, but so is proper filing and interaction with the regulatory agencies
such as the FDA, EMA, or Koseisho (Japan).
Commercial risk. Pluristem has no commercial infrastructure and will need to develop one or
partner prior to commercialization.
Competitive landscape. Pluristem is not alone its current indications in critical limb ischemia or
PAD.
IP risk. Pluristem has a strong patent portfolio but still faces many challenges from a wide range
of competitors.
Financing risk. Pluristem is not yet a profitable company. As such, it will need to raise
additional capital or partner to complete clinical trials and commercialize its product portfolio.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 21
Pluristem Therapeutics
Income Statements (In thousands, except per share data)
Pluristem Income Statement ($ '000) June 2009 June 2010 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 June 2015 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 Sept 2017 Dec 2017 March 2018 June 2018 June 2018 Sept 2018 Dec 2018 March 2019 June 2019 June 2019
Statements of Cash Flow (In thousands, except per share data)
June 2009 June 2010 Sept 2010 Dec 2010 March 2011 June 2011 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 Sept 2014 Dec 2014 March 2015 June 2015 June 2015 Sept 2015 Dec 2015 March 2016 June 2016 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 Sept 2017 Dec 2017 March 2018 June 2018 June 2018 Sept 2018 Dec 2018 March 2019 June 2019 June 2018
Source: Company reports and Maxim Source: Company reports and Maxim Group LLC estimates.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 23
Pluristem Therapeutics
Balance Sheet (In thousands, except per share data)
Pluristem Balance Sheet ($ Thousands) June 2009 June 2010 Sept 2010 Dec 2010 March 2011 June 2011 June 2011 Sept 2011 Dec 2011 March 2012 June 2012 June 2012 Sept 2013 Dec 2013 March 2014 June 2014 June 2014 Sept 2014 Dec 2014 March 2015 June 2015 June 2015 Sept 2015 Dec 2015 March 2016 June 2016 June 2016 Sept 2016 Dec 2016 March 2017 June 2017 June 2017 June 2018 June 2019
Source: Company reports and Maxim Source: Company reports and Maxim Group LLC estimates.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 24
DISCLOSURES
Maxim Group LLC Stock Rating System As of: 7/24/2012
% of Coverage % of Ratings
Universe for which Firm provided
Expected Performance* with Rating Banking Services in the last 12 months
Buy Expected total return of 15% or more over next 12 months 70.6% 13.5%
Hold Expected total return of plus or minus 14% over next 12 months 20.6% 3.6%
Sell Expected total negative return of at least 15% over next 12 months 8.1% 0.0%
* Relative to Nasdaq Composite.
An Under Review (UR) rating represents a stock that the Firm has temporarily placed under review due to a material change.
Maxim Group makes a market in Pluristem Therapeutics, Inc. and Aastrom BioSciences,
Maxim Group expects to receive or intends to seek compensation for investment banking services
from the subject company in the next 3 months.
In addition Maxim Group expects to receive or intends to seek compensation for investment banking
services from Athersys Corporation, Aastrom Biosciences and Mesoblast Limited in the next 3
months.
I, Jason Kolbert, attest that the views expressed in this research report accurately reflect my personal views
about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or
indirectly related to the specific recommendation or views expressed in this research report.
The research analyst(s) primarily responsible for the preparation of this research report have received
compensation based upon various factors, including the firm’s total revenues, a portion of which is generated
by investment banking activities.
Valuation Methods: We provide detailed market models and assumptions around Pluristem Therapeutics. We provide three valuation metrics – FCF, discounted EPS, and sum of the parts – and model PSTI out to 2018. We only assume success in CLI and have not included milestone or deal revenues related to United Therapeutics or other new partners. This derives a 2018 EPS number of $3.30, which we discount at 30% (large) and equally weight the three metrics to derive a $8.00 price target.
Price target and investment risks: Aside from general market and other economic risks, risks particular to our price target and rating for Pluristem Therapeutics include: 1) The regulatory and clinical risk associated with pivotal trials in CLI and other indications the company is pursuing; 2) the rate and degree of progress of product development; 3) the rate of regulatory approval to proceed with clinical trial programs; 4) the level of success achieved in clinical trials; 5) the requirements for marketing authorization from regulatory bodies in the United States and other countries; 6) the liquidity and market volatility of Pluristem’s equity securities; 7) regulatory and manufacturing requirements and uncertainties; 8) technological developments by competitors; and 9) the financials (capital structure) of the company.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 25
RISK RATINGS
Risk ratings take into account both fundamental criteria and price volatility.
Speculative –
Fundamental Criteria: This is a risk rating assigned to early-stage companies with minimal to no revenues,
lack of earnings, balance sheet concerns, and/or a short operating history. Accordingly, fundamental risk is
expected to be significantly above the industry.
Price Volatility: Because of the inherent fundamental criteria of the companies falling within this risk
category, the price volatility is expected to be significant with the possibility that the investment could
eventually be worthless.
Speculative stocks may not be suitable for a significant class of individual investors.
High –
Fundamental Criteria: This is a risk rating assigned to companies having below-average revenue and
earnings visibility, negative cash flow, and low market cap or public float. Accordingly, fundamental risk is
expected to be above the industry.
Price volatility: The price volatility of companies falling within this category is expected to be above the
industry.
High-risk stocks may not be suitable for a significant class of individual investors.
Medium –
Fundamental Criteria: This is a risk rating assigned to companies that may have average revenue and
earnings visibility, positive cash flow, and is fairly liquid.
Accordingly, both price volatility and fundamental risk are expected to approximate the industry average.
Low –
Fundamental Criteria: This is a risk rating assigned to companies that may have above-average revenue and
earnings visibility, positive cash flow, and is fairly liquid.
Accordingly, both price volatility and fundamental risk are expected to be below the industry.
Pluristem Therapeutics, Inc. (PSTI)
Maxim Group LLC 26
DISCLAIMERS
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involve a higher degree of risk and more volatility than the securities of more established companies. The
securities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investors
must make their own determination as to the appropriateness of an investment in any securities referred to
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This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned
herein. This publication is confidential for the information of the addressee only and may not be reproduced
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Maxim Group, LLC (“Maxim”).
Information and opinions presented in this report have been obtained or derived from sources believed by
Maxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. The
aforementioned sentence does not apply to the disclosures required by NASD Rule 2711. Maxim accepts no
liability for loss arising from the use of the material presented in this report, except that this exclusion of
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Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reach
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Maxim Group LLC 405 Lexington Avenue New York, NY 10174 – www.maximgrp.com
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