MONTHLY HEALTHCARE M&A UPDATE SECTOR SPOTLIGHT: SPECIALTY TOXICOLOGY LAB SERVICES APRIL 2016 COKER CAPITAL ADVISORS APRIL 2016

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1 MONTHLY HEALTHCARE M&A UPDATE SECTOR SPOTLIGHT: SPECIALTY TOXICOLOGY LAB SERVICES APRIL 2016

2 Specialty Toxicology Lab Services Sector Overview Companies in the specialty toxicology lab services sector focus on science-driven drug testing through the analysis of samples of bodily fluids (urine, blood, and saliva). The most important application of this testing is for prescription pain medication monitoring ensuring that patients who are prescribed pain medications (typically opiates) are properly following the drug regimen ordered by their physician. Testing services are part of broader compliance programs implemented by healthcare providers to help identify potential abuse, misuse, or diversion of patient medication. Other services offered by specialty toxicology testing labs include workplace testing for drugs-of-abuse, post-mortem forensic testing for criminal investigations, implementation of sports anti-doping programs, and dietary supplement certification. Labs in this sector employ sophisticated technologies such as gas chromatography/mass spectrometry and liquid chromatography/tandem mass spectrometry confirmation under the guidance of toxicologists (PhDs) and pharmacists (PharmDs) in order to provide analytically based results to clients in a timely manner. Clients of specialty toxicology labs include healthcare professionals, medical examiners, Fortune 500 companies, sports organizations, college and university athletic programs, and government agencies. Industry Dynamics Specialty toxicology labs are experiencing a period of turbulent regulatory and reimbursement conditions that makes the sector challenging for investment. The most important factors influencing investment appetite for companies in this sector include the following: - Decreasing Reimbursement: In the past year, CMS has proposed large reductions in reimbursement for toxicology lab testing services, scheduled to begin in The CMS proposal (Protecting Access to Medicare Act of 2014 or PAMA ) stipulates that Medicare reimbursement will not decrease by more than 10% year over year between 2017 and 2019 and 15% year over year between 2020 and In addition, labs that fail to report their rates or misrepresent their rates will also face large fines. It is important to note that most hospital-based labs will be exempt from this proposal as it will apply only to entities with more than 50% of Medicare collections coming from lab fees. Although Congress is currently reviewing PAMA, all signs point to delayed ruling and postponement of the potential reductions in reimbursement that were scheduled to begin in January Expanding Market: The toxicology segment of lab testing is expected to grow at a faster rate than the overall laboratory market, driven largely by the rapid rise in the abuse of prescription drugs. It is estimated that approximately 100 million Americans suffer from chronic pain. Opioids sold per 10,000 people in the United States grew at 12.5% CAGR from 1999 to Further, it is estimated that one third of chronic pain patients may not use opioids as prescribed or may abuse them. Urine testing to monitor drug use is underutilized in clinical practice and has only recently become a standard of care for physicians who prescribe opiates. - Regulatory Pressures: State and federal lawmakers are placing intense pressure on healthcare providers to address the rampant problem of prescription drug abuse. As of 2015, 48 states have enacted legislation regarding the implementation and enforcement of prescription drug monitoring programs. The DEA is closely monitoring physicians, pharmacies, and even drug distributors for signs of misuse. Physicians are widely adopting urine testing as the cornerstone of their compliance programs.

3 Industry Snapshot The specialty toxicology lab services industry currently is a $3 billion industry that is expanding at a CAGR of 8%. The market is highly fragmented, with thousands of national and regional service providers competing for physician and clinic business. The companies compete based on a variety of factors, including breadth of testing capabilities, testing accuracy, rapid turnaround times, and specialist customer service and support. With investors reluctant to deploy capital in the industry amid threats of reduced reimbursement, the sector s landscape will continue to transform itself over the next three to five years. Several companies are undergoing restructuring (Millennium Laboratories, Calloway Labs) and others are moving into adjacent areas such as molecular diagnostics to reduce their reliance on pain medication monitoring revenues. We believe that there will be continued reshaping of the industry as companies of marginal quality exit. However, we expect that those companies who have restructured their businesses to be profitable with reasonable reimbursement rates and who are delivering the highest-quality science and customer service will continue to succeed and will be well positioned for future growth when the dust settles. Specialty Toxicology Lab Services Industry Snapshot Labbased urine testing 65.6% Other testing 3.1% Lab-based oral fluid testing 3.9% Services Segmentation Instant urine testing 18.8% Hair testing 4.7% Instant oral fluid testing 3.9% $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $ Industry Revenue Growth ($ in millions) '12 '13 '14 '15 '16 '17 '18 '19 '20 Specialty Toxicology Lab Facts 24.6 million Americans (9.4% of total adults aged 12 and older) used illicit drugs in 2013 The number of global illicit drug users is expected to rise 25% by 2050 Illicit drugs include marijuana, cocaine, hallucinogens, heroin, and misused prescription drugs (e.g., pain relievers) Of the 24.6 million users in 2013, only 2.5 million individuals actually received treatment at a specialty facility Competitive Landscape In the period from 2009 to 2012, there was a wave of private equity investment that created a group of leading companies in the sector. Although Quest and LabCorp are the leaders in the overall clinical lab market, their focus on high-volume testing and achievement of economies of scale through national payor contracting caused them to sit on the sidelines in the specialty toxicology segment. The fast-growing leaders who emerged were Millennium Laboratories and Ameritox. Millennium Laboratories successfully completed organizational and financial restructuring in 2015 in response to filing a number of prepackaged Chapter 11 cases the same year. Notable industry participants who benefited from sponsor investment during this period included Aegis Sciences (ABRY Partners), Sterling Labs (Waud Capital Partners), Calloway Labs (Ampersand Capital Partners), Millennium Health (TA Associates), Dominion Diagnostics (Riverside Partners), and Ameritox (Sterling Partners).

4 Sponsor-Backed Strategic APRIL 2016 Specialty Toxicology Lab Services Industry Leaders Aegis Sciences Sterling Labs Millennium Health Dominion Diagnostics Ameritox Asset: Sponsor: Investment Year: M&A Outlook Because of declining reimbursement, transaction activity in the sector has been limited in recent years following the initial investment period between 2009 and However, science-led companies with scale are repositioning and may be able to capitalize on opportunities to consolidate and gain market share as marginal companies exit. We expect that transaction activity over the next 12 months will be limited but may include the following: - Private Equity Sponsor Exits: Numerous sponsors are near the end of their typical investment horizon and are facing pressure to exit their specialty toxicology investments if possible. Many sponsors made these investments thinking Quest and LabCorp would provide their ultimate exits, but so far they have been reluctant to enter this market in a meaningful way. Their acquisition focus has historically been molecular diagnostics and pathology because urine drug screening is viewed as being more vulnerable to potential reimbursement cuts. However, we expect Quest and LabCorp to continue to review acquisition opportunities in the toxicology sector as a means of addressing their recent low growth rates that have resulted from competition from hospital-based labs, tighter reimbursement and sluggish volumes. - Targeted Strategic Acquisitions: PE platforms will continue to tuck in niche capabilities in adjacent markets to diversify away from pain testing and pick up additional revenue streams (e.g., expansion into workplace drug testing, food safety testing, and so on). - Attempts at Reinvention: Some of our clients have said you can t just be a tox lab anymore and are pursuing strategies to develop testing capabilities in gene-based molecular diagnostics. Others are focusing on moving into the hospital-based outreach lab segment.

5 Reimbursement Outlook Downward pressure on reimbursement for specialty toxicology lab services began in 2011 with Medicare s limitations on in-office screening and the establishment of G-codes. Although toxicology labs have shown an impressive ability to adjust cost structure to maintain margins amid significant downward pressure, the likelihood of steeper cuts (demonstrated through the proposal of PAMA) hovers on the horizon. A June 2013 report issued by the Office of the Inspector General estimated that Medicare s rates are 20 to 30% higher than private payors for laboratory testing. This discrepancy will likely continue to shrink because CMS s CPT panel recommended the introduction of new codes in November 2013 that were realized in In 2014 CMS reduced 63 drug testing CPT codes to two temporary G codes, one for initial screens and one for confirmation screens. Although these two codes continue to be used, a few scenarios remain possible for the future: - The probable scenario is the delay of a ruling on PAMA and a 10 to 15% cut in rates (whatever that future rate structure might be) in 2016 to reflect industry crosswalk recommendations, which CMS has historically accepted. - The most drastic situation would be Congress approval of PAMA and a 20 to 30% cut over the next five years, which would place Medicare s rates in congruence with those of private payors. There is a natural floor to reimbursement, as analytical testing and interpretation requires highly trained labor and sophisticated technology. Payors best defense against reimbursement cuts and thinning margins will be to demonstrate improved health outcomes as a result of testing. Notable Investments in Specialty Toxicology Lab Services ($ in millions) Enterprise EV / Date Target Acquiror Value Revenue EBITDA Feb-16 Alere Abbott Laboratories $8, x 15.2x Jul-15 USDiagnostics Alere $60 NA NA Mar-15 Scheduleadrugtest.com Accredited Drug Testing NA NA NA May-14 Precision Toxicology BelHealth Inverstment NA NA NA Mar-14 Aegis Sciences Corporation ABRY Partners $ x 10.6x Sep-12 Calloway Laboratories Ampersand Capital Partners NA NA NA Jul-12 Metametrix Genova Diagnostics NA NA NA Jun-12 MEDTOX Scientific LabCorp $ x 16.6x Feb-12 escreen Alere $ x NA Feb-12 Sterling Healthcare Services Waud Capital Partners NA NA NA Oct-11 Avee Laboratories, ScreenTox, and Global Analytical Development Alere $121 NA NA Dec-10 Dominion Diagnostics Riverside Partners NA NA NA Oct-10 Aegis Sciences Corporation Metalmark Capital NA NA NA Jan-07 Ameritox Sterling Partners, Bain Capital, et al. NA NA NA Mean $1, x 14.1x Median $ x 15.2x

6 Enterprise Value / 2015P EBITDA Transaction Volume Transaction Value APRIL 2016 Middle-Market Healthcare M&A Activity Middle-market healthcare transaction activity remains robust. Strategic acquirers continue to put cash reserves built up during the recession to work via acquisitions, and financial buyers continue to seek opportunities to put uninvested capital to work. Friendly credit conditions and leverage levels continue to drive valuations for both buyer types. Within healthcare, the services sector, including provider services and clinical support, remains the sector with the most transaction activity for strategic and financial investors alike. This ongoing deal activity reflects the fragmented nature of many services subsectors and the impact of legislative actions, both positive and negative. Middle-Market Healthcare M&A Volume by Deal Size Middle-Market Healthcare M&A Value by Deal Size $40.0 $30.0 $20.0 $10.0 $25.8 $36.3 $29.3 $23.4 $32.4 $32.6 $ YTD $ YTD $25-150m $ m $ m $25-150m $ m $ m Healthcare Public Equity Markets Update During the last 12 months, the S&P 500 outperformed the S&P Global Healthcare Index by 2.0%. Publicly Traded Healthcare Sector Valuations 18.0x 16.0x 16.0x 14.0x 13.2x 13.2x 13.2x 12.8x 12.0x 10.0x 8.0x 11.3x 11.2x 11.2x 11.1x 11.0x 10.6x 9.9x 9.6x 9.6x 9.3x 9.2x 9.1x 9.0x 8.8x 8.6x 7.8x 7.5x 6.9x 6.0x 4.9x 4.0x 2.0x 0.0x

7 ($ in millions) PUBLICLY-TRADED HEALTHCARE COMPANIES Market Data Financial Information Trading Multiples Price as of: % 52wk Market Enterprise Cash and Cash Total 2016P 2016P EV (P) / 2016 Company 04/28/16 High Cap Value Equivalents Debt Revenue EBITDA Revenue EBITDA Provider Services Acute-Care Hospitals HCA $ % $32,437.2 $63,797.2 $741.0 $30,598.0 $41,937.8 $8, x 7.7x Tenet % 3, , , , , x 8.1x Lifepoint % 3, , , , x 7.3x Community Health % 2, , , , , x 6.9x Weighted Average 1.4x 7.6x Median 1.0x 7.5x Assisted Living Brookdale Capital Senior % 3, , , , x 11.2x Capital Senior Living % , x 14.3x Five Star % , x 6.4x Weighted Average 2.0x 11.5x Median 1.9x 11.2x Ambulatory Surgery Centers Amsurg % 4, , , , x 12.6x SCAI % 1, , , x 15.9x Surgery Partners % , , , x 13.2x Weighted Average 2.5x 13.6x Median 2.4x 13.2x Behavioral Health UHS % 13, , , , , x 9.4x Acadia % 5, , , , x 12.0x AAC % x 11.1x Weighted Average 1.9x 10.2x Median 2.2x 11.1x Dialysis Fresenius % 23, , , , , x 9.3x DaVita Healthcare % 15, , , , , , x 9.3x Weighted Average 1.7x 9.3x Median 1.7x 9.3x Physician Services and Management Mednax % 6, , , , x 11.2x Team Health % 3, , , , x 10.8x Weighted Average 2.0x 11.0x Median 1.8x 11.2x Long Term Care and Rehab Healthsouth % 3, , , , x 9.0x Select Medical % 1, , , , x 8.8x Kindred % 1, , , , x 4.5x Ensign Group % 1, , , x 7.8x National Healthcare Group % N/A N/A US Physical Therapy % x 12.8x Weighted Average 1.3x 7.5x Median 1.1x 8.8x Hospice and Home Care Chemed % 2, , , x 9.5x Amedisys % 1, , , x 14.7x LHC Group % x 10.6x AFAM % x 10.9x Addus % x 7.0x Weighted Average 1.2x 11.4x Median 1.0x 10.6x Imaging Varian % 7, , , x 11.3x Radnet % x 6.7x Alliance Healthcare % N/A N/A Weighted Average 2.3x 11.1x Median 1.7x 9.0x

8 ($ in millions) PUBLICLY-TRADED HEALTHCARE COMPANIES Market Data Financial Information Trading Multiples Price as of: % 52wk Market Enterprise Cash and Cash Total 2015P 2015P EV (P) / 2015 Company 04/28/16 High Cap Value Equivalents Debt Revenue EBITDA Revenue EBITDA Products Medical Devices and Products JNJ $ % $310,258.1 $291,743.1 $0.0 $19,861.0 $71,747.0 $24, x 11.7x Medtronic % 111, , , , , , x 13.6x 3M % 101, , , , , , x 12.5x Danaher % 66, , , , , x 14.5x Abbott % 59, , , , , x 12.4x Stryker % 40, , , , , , x 13.4x Boston Scientific % 29, , , , , x 15.2x Baxter % 24, , , , , x 13.0x Zimmer % 22, , , , , x 11.3x CR Bard % 15, , , , , x 13.6x DENTSPLY % 14, , , , x 15.7x Hologic % 9, , , , , x 12.0x Teleflex % 6, , , , x 12.6x K2M Group % x 136.0x Hanger - #DIV/0! N/A N/A Weighted Average 3.9x 12.8x Median 3.9x 13.2x Durable Medical Equipment ResMed % 7, , , x 13.2x Hill-Rom % 3, , , , x 10.4x Invacare % , x 14.5x Weighted Average 3.2x 12.4x Median 2.0x 13.2x Distribution and Supplies McKesson % 38, , , , , , x 8.8x Cardinal Health % 25, , , , , , x 8.5x AmerisourceBergen % 19, , , , , x 9.7x HenrySchein % 14, , , , x 15.1x Patterson % 4, , , , x 11.3x Owens and Minor % 2, , , x 9.6x Weighted Average 0.4x 9.9x Median 0.3x 9.6x Information Technology and Solutions Enterprise Solutions McKesson % 38, , , , , , x 8.8x Cerner % 19, , , , x 11.5x Allscripts Healthcare % 2, , , x 11.0x Computer Programs and Systems % x 7.9x Weighted Average 1.5x 9.8x Median 2.2x 9.9x Ambulatory Solutions Athenahealth % 5, , , x 23.9x Quality Systems % x 8.2x Weighted Average 4.5x 21.7x Median 3.2x 16.0x RCM Solutions Accretive % x 5.3x Streamline % x 8.5x Weighted Average 0.4x 5.5x Median 0.7x 6.9x Data Analytics and ehealth Inovalon Holdings % 2, , x 12.4x WebMD % 2, , x 10.8x National Research Corp % x 11.0x Castlight Health % x N/A Weighted Average 3.9x 10.9x Median 3.5x 11.0x Other HCIT Services Medidata % 2, , x 23.6x Advisory Board % 1, , x 9.3x HMS Holdings % 1, , x 10.5x Omnicell % 1, , x 9.9x Healthstream % x 15.1x Vocera % x 176.1x Weighted Average 3.3x 22.8x Median 2.3x 12.8x

9 ($ in millions) PUBLICLY-TRADED HEALTHCARE COMPANIES Market Data Financial Information Trading Multiples Price as of: % 52wk Market Enterprise Cash and Cash Total 2015P 2015P EV (P) / 2015 Company 04/28/16 High Cap Value Equivalents Debt Revenue EBITDA Revenue EBITDA Clinical and Patient Support Services Clinical Laboratories Labcorp $ % $12,819.9 $18,534.3 $696.3 $6,394.9 $9,346.6 $1, x 9.6x Quest Diagnostics % 10, , , , , x 9.6x Alere % 3, , , , x 13.5x Weighted Average 2.1x 10.2x Median 2.0x 9.6x Contract Research Organizations Quintiles Transnational % 8, , , , x 11.3x Charles River % 3, , , x 11.4x Icon Public % 3, , , x 10.1x Parexel % 3, , , x 9.3x PRA Health % 2, , , x 13.2x INC Reaseach % 2, , , x 12.8x Albany Molecular % x 9.4x Weighted Average 2.3x 11.2x Median 2.3x 11.3x Disease Management Healthways % x 7.8x Weighted Average 0.9x 7.8x Median 0.9x 7.8x Staffing and Transportation Services Envision Healthcare % 4, , , , x 9.8x On Assignment % 1, , , x 8.9x AMN Health Services % 1, , , x 9.2x Airmethods % 1, , , x 6.4x Cross Country Healthcare % x 10.8x Weighted Average 1.2x 9.0x Median 1.1x 9.2x Commercial Payors United % 125, , , , , , x 10.0x Aetna % 40, , , , , x 7.7x Anthem % 37, , , , , , x 9.7x Cigna % 35, , , , , , x 8.8x Humana % 26, , , , , , x 9.1x Weighted Average 0.8x 9.3x Median 0.7x 9.1x Government Payors Centene % 10, , , , , , x 6.8x Wellcare % 4, , , , , x 4.9x Molina % 3, , , , , x 4.2x Weighted Average 0.3x 5.9x Median 0.2x 4.9x Specialty Pharmacy Services Expressscripts % 47, , , , , , x 8.5x Diplomat % 2, , , x 18.0x PharMerica % , , x 8.6x Weighted Average 0.6x 8.9x Median 0.5x 8.6x

10 ABOUT OUR FIRM CONTACT US Coker Capital Advisors is a healthcare-focused investment banking firm. With offices in Atlanta, Charlotte, and New York, we provide mergers and acquisitions, capital raising, and strategic advisory services to middle-market healthcare companies. Our team combines investment banking, private equity, legal, and management consulting experience within the healthcare industry. Our senior professionals average more than a decade of healthcare transaction experience and have completed over 200 transactions across a wide range of healthcare subsectors with an aggregate transaction value in excess of $25 billion. For more information on market activity throughout the healthcare industry, or to discuss how Coker Capital Advisors may be able to add value to your company, please contact any member of our team: Atlanta 2400 Lakeview Parkway, Suite 400 Alpharetta, GA (678) Charlotte 121 W. Trade Street, Suite 2175 Charlotte, NC (704) New York 125 Park Avenue, 25 th Floor New York, NY (212)