A List of Pegasus Biologics Assets and Bidding Details

SALE OF PEGASUS BIOLOGICS, INC.
June 1, 2009 by Patric Carlsson

Gerbsman Partners www.gerbsmanpartners.com has been retained by Pegasus Biologics, Inc. www.pegasusbio.com to solicit interest for the acquisition of all, or substantially all, Pegasus Biologics Inc.’s (“Pegasus”) assets.

Pegasus Biologics, headquartered in Irvine, California, is an emerging growth regenerative medicine company focused on the manufacturing and commercialization of advanced bio-surgical solutions for soft tissue repair and regeneration.

IMPORTANT LEGAL NOTICE
The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to Pegasus Biologics’ Assets has been supplied by Pegasus. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Pegasus’ or Gerbsman Partners’ negligence or otherwise.

Any sale of the Pegasus Biologics’ Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Pegasus Biologics and Gerbsman Partners. Without limiting the generality of the foregoing, Pegasus and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Pegasus Biologics’ Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

Pegasus believes its assets are attractive for a number of reasons

· Privately-held regenerative medicine, medical device company – capitalized in Jan 2005.

· $31.8MM raised through Three Arch Partners, Onset Ventures, Frazier Healthcare Partners, Affinity Capital and others.

· Has developed and is commercializing a revolutionary bioscaffold comprised of highly organized collagen, sourced from equine pericardium that encourages the healing process by addressing the demands of a challenging biological environment.

· Core product technology is based on a proprietary processing and sterilization method resulting in a sterile, structurally sound, biologically conductive scaffold that complements soft tissue repair and adds strength to the repair over time. .

· Known as “flexible crosslinking”, the technology maintains the native collagen architecture, which supports cellular ingrowth and resists enzymatic degradation – ideal for both soft tissue reinforcement as well as chronic wounds.

· Has obtained exclusive worldwide licenses for the processing and sterilization of biological tissue for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications.

· Technology has 6 issued US patents, 5 pending US patent applications and associated International filings.

· A revenue model consistent with other medical devices that are invoiced at the time of application (surgery). Current ASP holding at $2200 with attractive gross margins
· To date, over 10,000 patients have been treated with Pegasus’ products in various orthopaedic and chronic, complex wound applications

· Received four FDA 510(k) approvals: For Unite® Biomatrix as a collagen wound dressing (Sept. 26, 2007), for Orthadapt® as a surgical mesh for the repair, reinforcement and augmentation of soft tissues repaired by sutures or suture anchors during tendon repair surgery (Aug 5, 2005 and May 4, 2007), for Duradapt ® as a dural substitute under an IDE, and for Orthadapt® PR (Peek Reinforced), also for the repair, reinforcement and augmentation of soft tissues repaired by sutures or suture anchors during tendon repair surgery (May 5, 2009).

· Received 1 FDA Investigational Device Exemption (IDE) to evaluate the safety and procedural success of a product called Duradapt® (a version of Orthadapt) for the repair/replacement of cranial dura mater.

· Inventory of 4000 units valued at $667K based on cost of goods.

Revenue Summary–

Pegasus has been generating revenue since mid 2006 with both Orthadapt and Unite products. Total revenue summary is as follows:
· 2006 – $2,958,113
· 2007 – $7,323,429
· 2008 – $9,147,515
· Q1, 2009 – $2,479,987
Pegasus Key Accounts –
· UCSD Medical Center – San Diego, CA
· Alexian Brothers Hospital – Arlington Heights, IL
· Wellstar Cobb Hospital – Marietta, GA
· Westchester General Hospital – Miami, FL
· Memorial Hospital of Rhode Island – Pawtucket, RI

Pegasus Biologics Company Profile

Founded in June, 2004, Pegasus is a California based, revenue stage medical device company. Over the last 4 years, the company has raised $32MM in equity and debt from leading capital venture firms such as Onset Ventures, Frazier Healthcare Partners, Three Arch Partners and Affinity Capital.

Pegasus is becoming recognized as a global leader in bio-surgical solutions for soft tissue repair. With thousands of successful clinical outcomes, current applications range from the repair, reinforcement and reconstruction of tendons to limb preservation and advanced wound management.

Impact of Technology on the Market
With the growing demand for advanced biologics, Pegasus is well positioned for the future. An estimated 850,000 orthopedic soft tissue repairs and over 365,000 chronic complex wounds performed annually worldwide support this theory, and the high failure rates of tendon repair reported in the literature indicate an unmet clinical need. The OrthADAPT® Bioimplant and Unite® Biomatrix collagen-based products are both FDA cleared and CE Marked.

Pegasus Biologics has obtained exclusive worldwide licenses for the revolutionary bio-platform technology developed for the processing and sterilization of biological tissue for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications.

Pegasus Biologics’ Assets
Pegasus Biologics has developed a portfolio of assets critical to the repair and reinforcement of soft tissues and the treatment of chronic, complex wounds. These assets fall into a variety of categories, including:
· Patents
· Product
· Product designs and prototype
· Software and control algorithms
· Manufacturing equipment and fixtures
· One (1) prospective, multi-center, clinical trial under an FDA investigational device exemption. (Dura)
· Three (3) prospective, multi-center clinical studies for marketing purposes (Achilles tendon, arthroscopic rotator cuff, wound)
· One (1) retrospective study for marketing purposes (open rotator cuff)
· Current FDA regulatory clearances and CE marks
· Data from human clinical trials/studies
· Intellectual capital and expertise
· Trademarks
· Domain names

The assets of Pegasus Biologics will be sold in whole or in part (collectively, the “Pegasus Assets”). The sale of these assets is being conducted with the cooperation of Pegasus. Pegasus and its employees may be available to assist purchasers with due diligence. Notwithstanding the foregoing, Pegasus Biologics should not be contacted directly without the prior consent of Gerbsman Partners.

The Bidding Process for Interested Buyers
Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Pegasus Biologics’ Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Pegasus Biologics’ Assets. Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than Friday, June 26, 2009 at 3:00 p.m. Pacific Standard Time (the “Bid Deadline”) at Pegasus’ office, located at 6 Jenner Dr, Suite 150 Irvine, CA. 92618. Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. The attached Pegasus fixed asset list may not be complete and Bidders interested in the Pegasus Biologics Equipment must submit a separate bid for such assets. Be specific as to the assets desired.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Pegasus Biologics, Inc.). The winning bidder will be notified within 3 business days after the Bid Deadline. Non-successful bidders will have their deposit returned to them. Pegasus Biologics reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.

Pegasus will require the successful bidder to close within 7 business days. Any or all of the assets of Pegasus will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Pegasus Biologics Assets shall be the sole responsibility of the successful bidder and shall be paid to Pegasus at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com