Chiron SC 13E3/A Going private transaction (amended) | SEC 11 Jan 06

Exhibit 99.(c)(5)

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Project Heron

Presentation to the Board of Directors

PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION

September 4, 2005

THESE MATERIALS MAY NOT BE USED OR RELIED UPON FOR ANY PURPOSE OTHER THAN AS SPECIFICALLY CONTEMPLATED BY A WRITTEN AGREEMENT WITH CREDIT SUISSE FIRST BOSTON AND MORGAN STANLEY.

Table of Contents

1.	Situation Overview

2.	Overview of Heron
	A.	Update on Heron Business Situation
	B.	Overview of Trading Performance

3.	Preliminary Financial Analysis

Appendix
•	WACC
•	Other Financial Analysis
•	Business Unit P&Ls

1. Situation Overview

Transaction Summary

• On September 1, 2005, the Neptune CEO transmitted a written letter to the chair of the independent committee of the Heron Board

• $40 per share in cash via merger

• No diligence or financing contingencies

• Willing to condition merger on approval of a majority of the public shares

• Body of offer letter:

“In connection with the Heron Board's consideration of the serious issues Heron faces, you inquired of our plans for our investment in the Company, including specifically whether we had any interest at this time in acquiring the outstanding shares in the Company that we do not already own. We advised you that absent additional due diligence we would not be able to assess any potential change in our position in the Company but that we would be willing to undertake such due diligence if that were acceptable to the Independent Directors. With your agreement we have conducted our due diligence and we now have a deeper understanding of the Company and the pending situation. As Heron's largest shareholder, Heron's current situation is naturally a matter of concern to us, and so we have considered how we can best protect our investment in the Company. As is evident from Neptune's long history with Heron, we have no intention of selling our interest.

Based on our due diligence review, we have concluded that the best result for all concerned, including Heron, its shareholders and Neptune, would be for Neptune to acquire the shares in Heron that it does not already own. We believe that Heron, as a wholly-owned subsidiary of Neptune, would be better positioned to deal with the legal, regulatory and business issues that it is facing. Despite the challenges facing Heron's vaccine business today, the acquisition would enable us to build a strategic platform in vaccines. Heron's public shareholders would benefit from such a transaction as it would provide them with an immediate premium for their shares and eliminate their investment risk.

Accordingly, we are pleased to propose a transaction in which Neptune would enter into a cash merger agreement pursuant to which the public shareholders of Heron would receive $40.00 per share in cash. This price represents a 12% premium to Heron's one week weighted average closing price. As an indication of our confidence that this transaction will be well received by Heron's public shareholders, Neptune is willing to condition the merger on the approval of a majority of the public shares.

Of course, our proposal is subject to the approval of the Independent Directors and to the execution of definitive documentation. We are prepared to move quickly and to negotiate a customary merger agreement with Heron's Independent Directors and its advisors. We have substantially completed our due diligence work and our merger terms will not include any due diligence or financing conditions, but only customary and usual closing conditions. We do not anticipate any significant obstacles to negotiating and consummating a mutually beneficial transaction promptly.

As I am sure you appreciate, consistent with our obligations under the U.S. federal securities laws, this letter will become publicly available when we forthwith file it with an amendment to our Schedule 13D.”

Key Terms of Offer

($MM, except per share amounts)

			Unaffected			Neptune
			Price			Offer

Share Price			$	36.44		$	40.00
Premium to Share Price Prior to Announcement	$	36.44	0		%	10		%
Premium to 5-Day Average Share Price	35.90		2		%	11		%
Premium to 10-Day Average Share Price	35.71		2		%	12		%
Premium to 30-Day Average Share Price	36.12		1		%	11		%
Premium to 60-Day Average Share Price	36.04		1		%	11		%
Premium to 180-Day Average Share Price	35.46		3		%	13		%

CALCULATION OF EQUITY AND AGGREGATE VALUE

Shares Outstanding (MM) (1)	187.9			187.9
“In the Money” Options/Warrants Outstanding (MM) (2)	9.9			9.9
WAEP of “In the Money” Options/Warrants (2)	$	29.88		$	29.88
Fully-Diluted Shares Outstanding (MM)	189.7			190.4

Fully-Diluted Equity Value	$	6,911		$	7,616
+ Debt (3)	1,107			1,107
- Cash (3)	(1,019		)	(1,019		)
Fully-Diluted Aggregate Value	6,999			7,703

Value of Non-Neptune Equity	$	4,021		$	4,443

IMPLIED VALUATION MULTIPLES (4)

Statistic

Market Multiple

Offer Multiple

Mgmt.

Street

Mgmt.

Street

Mgmt.

Street

Revenue

CY2006E

2,222

2,185

3.1

3.2

3.5

Earnings

CY2006E

1.58

1.81

23.1

20.1

25.3

22.1

CY2007E

1.91

2.00

19.1

18.2

20.9

20.0

PEG (5)

CY2006E

15.1

1.53

1.33

1.68

1.46

Note: Unaffected price as of August 31, 2005, the day prior to public announcement of the Neptune letter.

(1) Based on Heron primary shares of 187.9MM from 10-Q for the period ended June 30, 2005.

(2) Based on Heron options schedule from 10-K for the period ended December 31, 2004.

(3) Based on Heron 10-Q for the period ended June 30, 2005.

(4) Heron estimates based upon First Call consensus and Heron Management Forecast as of August 2005.

(5) Based on an IBES LTGR of 15.1%.

Heron's Valuation Parameters

Assessment of Valuation (1)

[CHART]

(1) As of August 2005, unaffected price the day immediately prior to announcement

(2) Discounted at 12.0%

(3) Assumes perpetual growth rate of 1.0% – 3.0% for BioPharma (LTM NOPAT multiple of 12.4x), 2.0% – 4.0% for Vaccines (LTM NOPAT multiple of 15.4x), 2.0% – 4.0% for Blood Testing (LTM NOPAT multiple of 13.3x) and (2.0)% – 0.0% for Corporate Royalties (LTM NOPAT multiple of 8.7x); derived from Heron Management Projections

2. Overview of Heron

A. Update on Heron Business Situation

Heron Business and Financial Update - 1st Half 2005

Business Review

• On 8/30, Heron announces favorable results from FDA inspection of Liverpool manufacturing facilities: FDA found Heron's responses and corrective actions to be “generally acceptable” - stock increased $0.31 from $36.16 to $36.44 on the

• Subject to supplemental approvals from the FDA and MHRA, Heron expects to be able to supply the U.S. market with flu vaccine for the 2005/06 season

• Management had previously guided the street to 18-26M doses for the 2005/06 season

• The MHRA had lifted its manufacturing suspension of the Liverpool facility in 3/05

• On 7/20, Heron withdrew all 12 million planned doses of Begrivac (influenza vaccine commercialized in Germany and distributed into Europe) from the 2005-06 EU flu vaccine supply after detecting contamination

• Incurred $15M in inventory write-downs and expects to reallocate certain ex-U.S. vaccine into Germany, a relatively higher profit-margin market

• Management anticipates Begrivac will return to market for the 2006-07 flu season

• On 7/15, Heron received an approvable letter from the FDA for PULMUNIQ, an inhalation solution to increase survival and prevent chronic rejection in patients receiving allogeneic lung transplants, requesting an additional pre-approval study prior to approval

• Heron is evaluating the cost feasibility of the request prior to continued development of PULMINIQ (although approval will have been delayed by up to 2 years due to the new requests from the FDA)

• In 1H:05, Heron advanced both CHIR 258 for multiple myeloma and CHIR 12.12 for CLL into phase I trials and filed a BLA application for PROCLEIX West Nile Virus Assay

• During this time period, CUBICIN also met its phase III primary endpoints in the treatment of S.Aureus endocarditis and bacteremia

Financial Review

• Biopharma: After a disappointing first quarter in which net product sales dropped 6% from the comparable year-ago period to $119M, net product sales increased 4% in the second quarter from the comparable year-ago period to $132M

• Betaseron sales in the MS market strengthened along with biopharma royalties offset by lower Proleukin sales

• Vaccines: Net product sales were generally lower than Street expectations. Net product sales were $87M and $97M in the first and second quarters, respectively, representing an increase of 1% and 12% compared to their respective year-ago periods

• Costs from remediation and legal for the influenza remediation effort were generally higher than expected by the Street

• Blood Testing: Generally in-line with guidance and expectations. First and second quarter revenues were $134M and $133M, respectively, representing a 14% and 16% increase over their respective year-ago periods

Heron - Historical Financial Performance

Total Revenue

[CHART]

EBIT

[CHART]

Net Income

[CHART]

Source: Historical public filings

Financial Projection Overview

• Heron management's forecast methodology is based on customary biotechnology financial analysis providing for probabilities of success based on stage of development of individual product candidates

• Only product candidates in clinical development were modeled

• In 1H:05, CSFB and Morgan Stanley conducted a series of meetings with Heron management to review projections for Heron and its major lines of business

• The assumptions underlying the management forecast were challenged and stress tested with management in numerous meetings

• The forecast was approved by Heron management and presented to the Board of Heron

• Since then, Heron's business forecast has changed and accordingly additional changes to the management forecast were provided to CSFB and Morgan Stanley

• Revenues from the vaccines business were further reduced due to Begrivac vaccine contamination issues in the summer 2005

• Overall forecast for biopharma were further reduced due to PULMUNIQ setback and increased competition against Proleukin

Heron Management Forecast - Revenue Contribution

Total Revenue

2006

$2,222MM

[CHART]

2006 Revenues

Biopharma:	$	612	MM
Vaccines:	$	920	MM
Blood Testing:	$	609	MM
Corporate:	$	81	MM

2009

$3,184MM

[CHART]

2009 Revenues

Biopharma:	$	852	MM
Vaccines:	$	1,340	MM
Blood Testing:	$	887	MM
Corporate:	$	105	MM

2012

$4,254MM

[CHART]

2012 Revenues

Biopharma:	$	1,451	MM
Vaccines:	$	1,710	MM
Blood Testing:	$	1,008	MM
Corporate:	$	85	MM

Source: Heron Management Forecast as of August 2005.

Heron Management Forecast - Operating Income Contribution

Operating Income (excludes Corporate & Other)

2006

$427MM(1)

[CHART]

Operating Margins

VX1 -	29.1	%
BT2 -	40.8	%
BT1 -	75.9	%

Total Vx -	17.3	%
Total BT -	49.5	%

2009

$892MM (3)

[CHART]

Operating Margins

BP2 -	52.0	%
BP3 -	75.1	%
BP4 -	49.2	%
BP5 -	19.7	%
VX1 -	32.9	%
VX2 -	24.7	%
BT1 -	43.4	%
BT2 -	74.3	%

Total BioPharma -	7.9	%
Total Vx -	29.4	%
Total BT -	48.5	%

2012

$1,473MM (4)

[CHART]

Operating Margins

BP2 -	54.5	%
BP3 -	72.0	%
BP4 -	46.4	%
BP5 -	64.0	%
VX1 -	33.4	%
VX2 -	42.2	%
BT1 -	37.7	%
BT2 -	71.6	%

Total BioPharma -	28.0	%
Total Vx -	37.5	%
Total BT -	42.2	%

Source: Heron Management Forecast as of August 2005.

(1) Includes operating loss of ($33MM) from Biopharma, which is comprised of operating incomes of $59MM, $164MM, $77MM, ($56MM), and ($211MM) for Proleukin, TOBI, Betaseron, TFPI, and BioPharma (Remaining), respectively

(2) Comprised of operating incomes of $158MM, ($30MM), and $31MM for Egg Flu, Cell Culture and Vx (Remaining), respectively

(3) Total operating income includes ($199MM) of BioPharma (Remaining)

(4) Total operating income includes ($175MM) of BioPharma (Remaining)

Heron – Forecasted Revenue and Operating Profile

Total Revenue

[CHART]

EBIT

[CHART]

Net Income

[CHART]

Source: Heron Management Forecast as of August 2005.

Heron Management Forecast - Consolidated Income Statement

Heron Income Statement

	Fiscal Year Ending December 31
	2006E			2007E			2008E			2009E			2010E			2011E			2012E			2013E			2014E			2015E
Total Revenue	$	2,222.2		$	2,436.6		$	2,675.3		$	3,183.9		$	3,663.4		$	4,010.1		$	4,254.1		$	4,080.7		$	4,161.4		$	4,211.1
% Growth	11.9		%	9.6		%	9.8		%	19.0		%	15.1		%	9.5		%	6.1		%	-4.1		%	2.0		%	1.2		%

COGS	833.8			891.9			971.4			1,132.4			1,221.6			1,345.5			1,417.5			1,446.4			1,483.7			1,405.2
% Growth	15.2		%	7.0		%	8.9		%	16.6		%	7.9		%	10.1		%	5.3		%	2.0		%	2.6		%	-5.3		%

Gross Profit	1,388.5			1,544.7			1,703.9			2,051.5			2,441.8			2,664.5			2,836.6			2,634.4			2,677.7			2,805.9
% Margin	62.5		%	63.4		%	63.7		%	64.4		%	66.7		%	66.4		%	66.7		%	64.6		%	64.3		%	66.6		%

R&D	482.2			503.9			537.7			502.9			514.2			556.1			601.4			603.2			613.7			627.8
% Margin	21.7		%	20.7		%	20.1		%	15.8		%	14.0		%	13.9		%	14.1		%	14.8		%	14.7		%	14.9		%
% Growth	11.0		%	4.5		%	6.7		%	-6.5		%	2.2		%	8.1		%	8.2		%	0.3		%	1.7		%	2.3		%

S&M	300.8			326.1			395.8			439.4			471.8			502.8			509.6			498.0			512.6			526.8
% Margin	13.5		%	13.4		%	14.8		%	13.8		%	12.9		%	12.5		%	12.0		%	12.2		%	12.3		%	12.5		%
% Growth	6.0		%	8.4		%	21.4		%	11.0		%	7.4		%	6.6		%	1.3		%	-2.3		%	2.9		%	2.8		%

G&A	202.0			210.5			223.3			244.9			267.2			290.4			316.2			315.7			328.4			339.7
% Margin	9.1		%	8.6		%	8.3		%	7.7		%	7.3		%	7.2		%	7.4		%	7.7		%	7.9		%	8.1		%
% Growth	-9.7		%	4.2		%	6.1		%	9.7		%	9.1		%	8.7		%	8.9		%	-0.2		%	4.0		%	3.5		%

Other Expenses	14.1			14.5			9.6			1.3			0.4			0.4			0.4			0.4			0.4			0.4
% Growth	40.7		%	2.5		%	-33.5		%	-86.7		%	-66.5		%	-0.6		%	0.0		%	0.0		%	0.0		%	0.0		%

EBITDA	546.8			649.0			701.9			1,048.5			1,367.7			1,515.8			1,621.4			1,435.5			1,432.6			1,535.5
% Margin	24.6		%	26.6		%	26.2		%	32.9		%	37.3		%	37.8		%	38.1		%	35.2		%	34.4		%	36.5		%
Depreciation	127.2			129.8			136.6			159.7			167.0			190.8			205.3			212.1			205.5			220.3
Amortization	30.2			29.5			27.8			25.8			12.4			10.3			7.2			6.3			4.5			4.1

Operating Income	389.4			489.7			537.5			863.1			1,188.2			1,314.8			1,408.9			1,217.1			1,222.5			1,311.1
% Margin	17.5		%	20.1		%	20.1		%	27.1		%	32.4		%	32.8		%	33.1		%	29.8		%	29.4		%	31.1		%
% Growth	25.3		%	25.8		%	9.7		%	60.6		%	37.7		%	10.7		%	7.2		%	-13.6		%	0.4		%	7.2		%

Net Other Income (Expense)	29.1			19.6			11.6			10.1			15.7			41.8			64.8			81.9			89.0			89.0
Minority Interest	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)	(3.0		)

Pre-tax Income	415.5			506.3			546.0			870.1			1,200.9			1,353.6			1,470.7			1,296.0			1,308.6			1,397.1
% Margin	18.7		%	20.8		%	20.4		%	27.3		%	32.8		%	33.8		%	34.6		%	31.8		%	31.4		%	33.2		%

Income Tax Expense	(103.9		)	(126.6		)	(136.5		)	(217.5		)	(300.2		)	(338.4		)	(367.7		)	(324.0		)	(327.1		)	(349.3		)
Effective Tax Rate	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%	25.0		%

Net Income	311.6			379.8			409.5			652.6			900.7			1,015.2			1,103.1			972.0			981.4			1,047.8
Share Outstanding	197.5			198.7			199.5			200.4			202.1			203.5			204.5			205.5			206.4			207.4
EPS	$	1.58		$	1.91		$	2.05		$	3.26		$	4.46		$	4.99		$	5.39		$	4.73		$	4.75		$	5.05

Note: Heron consolidated income statement includes corporate royalties and expenses

Source: Heron Management Forecast as of August 2005.

Street versus Heron Management Forecast

Total Revenues

($ in millions)	2005E				2006E				2007E				2008E			2009E				2010E
Piper Jaffray (07/20/05)	$	1,949.2			$	2,196.5			$	2,395.7			$	2,731.2
Morgan Stanley (07/27/05)	1,939.5				2,129.9				2,250.0				2,633.0			2,977.0				3,299.0
UBS (07/28/05)	1,929.0				2,134.0				2,339.0
Deutsche Bank (07/27/05)	1,928.9				2,205.5
JP Morgan (07/27/05)	1,928.0				2,040.0
Goldman Sachs (07/27/05)	1,927.0				2,135.0				2,266.0
CSFB (07/27/05)	1,906.2				2,378.0				2,661.1				2,846.3
Merrill Lynch (07/28/05)	1,896.6				2,084.1				2,192.8				2,288.6

Average	$	1,925.5			$	2,162.9			$	2,350.8			$	2,624.8		$	2,977.0			$		3,299.0
% Growth	11.7			%	12.3			%	8.7			%	11.7		%	13.4			%	10.8			%

Forecast	$	1,986.2			$	2,222.2			$	2,436.6			$	2,675.3		$	3,183.9			$	3,663.4
% Growth	15.2			%	11.9			%	9.6			%	9.8		%	19.0			%	15.1			%

Variance	$		60.7		$		59.3		$		85.8		$	50.5		$		206.9		$	364.4
% Difference	3.1			%	2.7			%	3.7			%	1.9		%	6.9			%	11.0			%

Operating Income

($ in millions)	2005E			2006E			2007E			2008E			2009E			2010E
Piper Jaffray (07/20/05)	$	269.2		$	440.2		$	520.9		$	629.4
CSFB (07/27/05)	255.1			451.6			583.6			672.6
Morgan Stanley (07/27/05)	251.7			406.7			446.0			528.7			589.1			641.5
UBS (07/28/05)	248.0			379.0			454.0
Merrill Lynch (07/28/05)	231.4			376.5			372.0			374.8
JP Morgan (07/27/05)	199.0			407.0

Average	$	242.4		$	410.2		$	475.3		$	551.4		$	589.1		$	641.5
% Growth	—			69.2		%	15.9		%	16.0		%	6.8		%	8.9		%

Forecast	$	310.9		$	389.4		$	489.7		$	537.5		$	863.1		$	1,188.2
% Growth	—			25.2		%	25.8		%	9.8		%	60.6		%	37.7		%

Variance	$	68.5		$	(20.8	)	$	14.4		$	(13.9	)	$	274.0		$	546.7
% Difference	28.3		%	(5.1		)%	3.0		%	(2.5		)%	46.5		%	85.2		%

EPS(2)

	2005E			2006E			2007E			2008E			2009E			2010E
Deutsche Bank (07/27/05)	$	1.39		$	2.74
CSFB (07/27/05)	1.25			1.95			2.48			2.84
Morgan Stanley (07/27/05)	1.23			1.78			1.96			2.27			2.52			2.64
UBS (07/28/05)	1.23			1.58			1.89
Prudential (07/27/05)	1.23			1.80			2.21
Goldman Sachs (07/28/05)	1.21			1.89			2.09
Merrill Lynch (07/28/05)	1.20			1.70			1.71			1.72
Piper Jaffray (07/20/05)	1.20			1.76			2.11			2.57
Citigroup (07/27/05)	1.20			1.80			1.90
JP Morgan (07/27/05)	1.15			1.75			1.70

Average (2)	$	1.21		$	1.78		$	2.01		$	2.35		$	2.52		$	2.64
% Growth	—			46.9		%	12.7		%	17.2		%	7.2		%	4.8		%

Forecast (1)	$	1.39		$	1.58		$	1.91		$	2.05		$	3.26		$	4.46
% Growth	—			13.7		%	20.9		%	7.3		%	59.0		%	36.8		%

Variance	$	0.18		$	(0.20	)	$	(0.10	)	$	(0.30	)	$	0.74		$	1.82
% Difference	14.8		%	(11.2		)%	(4.8		)%	(12.8		)%	29.4		%	68.9		%

Revenues

BioPharma

($ in millions)	2005E			2006E			2007E			2008E			2009E			2010E
Merrill Lynch (07/28/05)	$	572.8		$	587.9		$	606.5		$	615.8
Piper Jaffray (07/20/05)	545.3			563.8			592.8			833.1
UBS (07/28/05)	530.0			578.0			659.0
CSFB (07/27/05)	527.3			567.2			591.1			615.3
JP Morgan (07/27/05)	527.0			555.0
Morgan Stanley (07/27/05)	521.8			568.4			609.2			660.7			710.6			771.0

*Average*	$	537.4		$	570.1		$	611.7		$	681.2		$	710.6		$	771.0	%
% Growth	—			6.1		%	7.3		%	11.4		%	4.3		%	8.5		%

Forecast(1)	$	548.0		$	549.5		$	606.4		$	651.6		$	811.7		$	1,047.8
% Growth	—			0.3		%	10.4		%	7.5		%	24.6		%	29.1		%

Variance	$	10.6		$	(20.6	)	$	(5.3	)	$	(29.6	)	$	101.1		$	276.8
% Difference	2.0		%	(3.6		)%	(0.9		)%	(4.3		)%	14.2		%	35.9		%

Vaccines

($ in millions)	2005E			2006E			2007E			2008E			2009E			2010E
Morgan Stanley (07/27/05)	$	648.9		$	701.9		$	714.4		$	1,002.8		$	1,263.9		$	1,494.7
Piper Jaffray (07/20/05)	629.3			753.5			882.4			971.4
JP Morgan (07/27/05)	624.0			710.0
UBS (07/28/05)	621.0			798.0			874.0
Merrill Lynch (07/28/05)	604.6			701.3			744.7			791.3
CSFB (07/27/05)	572.2			886.8			1,090.0			1,195.0

Average	$	616.7		$	758.6		$	861.1		$	990.1		$	1,263.9		$	1,494.7
% Growth	—			23.0		%	13.5		%	15.0		%	27.7		%	18.3		%

Forecast(1)	$	659.7		$	904.6		$	980.8		$	1,077.4		$	1,324.7		$	1,564.7
% Growth	—			37.1		%	8.4		%	9.8		%	23.0		%	18.1		%

Variance	$	43.0		$	146.0		$	119.7		$	87.3		$	60.8		$	70.0
% Difference	7.0		%	19.2		%	13.9		%	8.8		%	4.8		%	4.7		%

Blood Testing

($ in millions)	2005E			2006E			2007E			2008E			2009E			2010E
Morgan Stanley (07/27/05)	$	311.9		$	400.0		$	484.8		$	517.6		$	540.2		$	560.3
CSFB (07/27/05)	311.4			390.0			420.0			455.0
Piper Jaffray (07/20/05)	311.4			418.0			468.0			511.4
Merrill Lynch (07/28/05)	308.1			360.2			428.5			473.7
JP Morgan (07/27/05)	304.0			360.0
UBS (07/28/05)	302.0			348.0			394.0

Average	$	308.1		$	379.4		$	439.1		$	489.4		$	540.2		$	560.3
% Growth	—			23.1		%	15.7		%	11.5		%	10.4		%	3.7		%

Forecast(1)	$	309.9		$	391.0		$	489.3		$	568.1		$	674.9		$	750.6
% Growth	—			26.2		%	25.1		%	16.1		%	18.8		%	11.2		%

Variance	$	1.8		$	11.6		$	50.2		$	78.7		$	134.7		$	190.3
% Difference	0.6		%	3.1		%	11.4		%	16.1		%	24.9		%	34.0		%

Source: Heron Management Forecast as of August 2005 and Street analyst forecasts as indicated

(1) Forecast represents only net product sales and blood testing revenues exclude NAT royalties and Ortho Joint Business profits, royalties and contract revenues.

(2) Average EPS excludes Deutsche Bank estimates.

2. Overview of Heron

B. Overview of Trading Performance

Heron Stock Price Performance – Long Term Perspective

Stock Price Performance - August 31, 2000 - August 31, 2005

[CHART]

Heron Stock Price Performance

Stock Price Performance - August 31, 2004 - August 31, 2005

[CHART]

Current Share Price	$	36.44
52-Week High	$	46.00
52-Week Low	$	29.00
52-Week Avg.	$	35.73
3 Months Avg.	$	36.16

Despite greater visibility on a successful Fluvirin remediation, Heron's share price recovery has been limited as investors take a “wait and see” approach

Heron Stock Price Performance Compared to Relevant Indices

Stock Price Performance - August 31, 2000 - August 31, 2005

[CHART]

	Performance Since
Stock Price Performance	1/1/2004		3/31/2004		6/30/2004		12/31/2004		3/31/2005		6/30/2005

Heron	(36.0	)%	(17.2	)%	(18.4	)%	9.3	%	3.9	%	4.4	%
AMEX Biotech Index	28.0	%	19.1	%	20.1	%	15.2	%	27.2	%	11.1	%
NASDAQ	7.0	%	(0.4	)%	2.1	%	0.8	%	19.1	%	12.3	%
Large Cap Biotech	51.2	%	45.6	%	42.0	%	30.9	%	42.9	%	20.7	%
Large Cap Biotech (excl. DNA)	(11.2	)%	(5.7	)%	(7.3	)%	0.9	%	4.1	%	(0.4	)%
Large Pharma	30.8	%	30.8	%	29.7	%	13.5	%	31.3	%	23.2	%

Large Cap Biotech includes AMGN, BIIB, DNA, GENZ, GILD, MEDI

Large Pharma includes AZN, BMY, GSK, LLY, MRK, NVS, PFE, RHHBY

92% of Heron Shares Traded Over the Past Year Have Traded Below $40

August 31, 2004 to August 31, 2005 (Last Twelve Months)

Volume Traded

[CHART]

	$30.00 - $33.00		$33.00 - $36.00		$36.00 - $39.00		$39.00 - $42.00		$42.00 - $45.00		$45.00 - $48.00
Volume	108,449,920		173,688,768		137,625,856		0		27,976,354		7,314,170
% of Shares Traded	23.8	%	38.2	%	30.2	%	0.0	%	6.1	%	1.6	%
Cumulative % Traded	23.8	%	62.0	%	92.2	%	92.2	%	98.4	%	100.0	%
% of Shares Outstanding (1)	99.9	%	160.0	%	126.8	%	0.0	%	25.8	%	6.7	%

Cumulative Volume	108,449,920		282,138,688		419,764,544		419,764,544		447,740,898		455,055,068
Multiple of Shares Outstanding (1)	1.0x		2.6x		3.9x		3.9x		4.1x		4.2x

(1) Excludes shares held by Neptune. Assumes a total of 187,879,648 shares outstanding less 79,320,078 shares held by Neptune. Neptune share ownership information is from Proxy as of March 1, 2005.

Heron Shareholder Analysis

Institutions (1)

	Primary	% of		% of
Holder	Shares	Primary		Non-Neptune (5)
Citigroup Global Markets Inc.	15,618,506	8.3	%	14.4	%
Citigroup Gbl Mkts Hldgs Inc	8,868,581	4.7	%	8.2	%
Valueact Cap Partners, L.P.	5,145,947	2.7	%	4.7	%
Van Kampen	5,033,554	2.7	%	4.6	%
Barclays Gbl Investors, N.A.	4,847,419	2.6	%	4.5	%
Sound Shore Management, Inc.	4,137,525	2.2	%	3.8	%
State Str Global Advr (Us)	3,582,537	1.9	%	3.3	%
Vanguard Group, Inc.	3,146,559	1.7	%	2.9	%
T. Rowe Price Associates, Inc.	2,700,778	1.4	%	2.5	%
Morgan Stanley Inv Mgmt Inc.(U	1,969,443	1.0	%	1.8	%
Fidelity Management & Research	1,677,690	0.9	%	1.5	%
Northern Trust Global Invts	1,586,220	0.8	%	1.5	%
Sectoral Asset Management Inc.	1,518,000	0.8	%	1.4	%
Citigroup Gbl Asset Mgmt(U.S.)	1,396,976	0.7	%	1.3	%
Deutsche Asset Mgmt Americas	1,337,249	0.7	%	1.2	%
Wells Capital Management	1,168,242	0.6	%	1.1	%
Primecap Management Company	1,065,200	0.6	%	1.0	%
Putnam Investment Mgmt, L.L.C.	1,034,602	0.6	%	1.0	%
Oppenheimerfunds, Inc.	1,003,219	0.5	%	0.9	%
Empyrean Cap Partners, L.P.	1,000,000	0.5	%	0.9	%
Wells Capital Mgmt (Strong)	890,560	0.5	%	0.8	%
Mellon Private Wealth Mgmt	864,186	0.5	%	0.8	%
California Public Emp' Ret Sys	778,624	0.4	%	0.7	%
Dws Investment Gmbh	675,812	0.4	%	0.6	%
New York State Common Ret Sys	606,536	0.3	%	0.6	%
Top 25 Institutions	71,653,965	38.1	%	66.0	%
Remaining Institutional Holders	18,546,930	9.9	%	17.1	%
Total Institutional Holdings	90,200,895	48.0	%	83.1	%

(1) Based on CDA Spectrum as of July 31, 2005.
(2) Based on Proxy dated May 25, 2005.
(3) Based on 10-Q for the period ended June 30, 2005.
(4) Based on 10-K for the period ended December 31, 2004.
(5) Excludes 79,320,078 primary shares held by Neptune.

Insiders & Neptune

	Primary (2)	% of		% of
Holder	Shares	Primary		Non-Neptune (5)		Options (2)	FC Total	% of FC
Neptune	79,320,078	42.2	%	—		0	79,320,078	36.9	%
Directors as a Group	292,781	0.2	%	0.3	%	799,211	1,091,992	0.5	%
Executive Officers as a Group	8,462	0.0	%	0.0	%	963,193	971,655	0.5	%
Others	96,390	0.1	%	0.1	%	25,494,888	25,591,278	11.9	%
Total Insiders & Neptune	79,717,711	42.4	%	0.4	%	27,257,292	106,975,003	49.7	%

Summary of Holdings

	Primary (3)	% of		% of
Holder	Shares	Primary		Non-Neptune (5)		Options (4)	FC Total	% of FC
Institutions	90,200,895	48.0	%	83.1	%	0	90,200,895	41.9	%
Insiders & Neptune	79,717,711	42.4	%	0.4	%	27,257,292	106,975,003	49.7	%
Other Holders	17,961,042	9.6	%	16.5	%	0	17,961,042	8.3	%
Total Shares Outstanding	187,879,648	100.0	%	100.0	%	27,257,292	215,136,940	100.0	%

Wall Street Perspective

Research		Target
Company	Recommendation	Price
A.G. Edwards	Hold

Citigroup	Hold	$	42.00

CSFB	Underperform	$	34.00

Deutsche Bank	Buy	$	38.00

Goldman Sachs	In-line

Harris Nesbitt	Neutral	$	44.00

JP Morgan	Underweight

Lehman Brothers	Equal Weight / Neutral	$	36.00

Merrill Lynch	Sell

Morgan Stanley	Equal Weight / In Line	$	34.00

Piper Jaffray	Market Perform	$	35.00

Prudential Equity	Underweight	$	37.00

Robert W. Baird	Neutral	$	37.00

Sanford C. Bernstein	Market Perform	$	44.00

SG Cowen	No Rating System

Thomas Weisel	Peer Perform

UBS	Reduce 2	$	32.00

Ratings

[CHART]

Source: Based on IBES, includes analysts for whom no report was available

	Citigroup	Goldman Sachs	JP Morgan	Merrill Lynch

Analyst	Elise Wang	May-Kin Ho, Ph.D.	Ronald Renaud, Jr.	Eric J. Ende

Latest Report	July 27, 2005	July 27, 2005	July 27, 2005	July 28, 2005

Comments	“In our opinion, Heron should trade at a discount as the company lacks depth in comparison to its peer group of large cap biotechnology companies in regards to a product pipeline.” “Its key revenue growth drivers remain sales of vaccines and the Procleix eSAS system for blood screening. Given the seasonality of the company's business, flu vaccines have become a significant portion of revenues (estimated to be 30% of revenues and 50% of product sales)”	“Despite the setback in vaccines, blood testing and pharmaceuticals continue to be solid. ...we have reduced our [2005, 2006 and 2007 estimates] due to recent manufacturing issues with Begrivac, another flu vaccine and competition for Proleukin.” “...With an intrinsic value of $31/sh, we expect the shares to have limited downside at current levels. Major catalyst is the shipment of 18- 26MM doses of Fluvirin in the U.S. for this winter”	“Despite the less expensive valuation at 31.7x our 2005E EPS of $1.15 and 21.4x 2006E EPS estimates, we believe enough uncertainty remains and investor confidence remains somewhat dented. While we believe that Fluvirin will return to the US market in 2005/2006, it is going to take some time to regain investor enthusiasm about the stock”	“...until Heron resolves manufacturing issues and increases output from the biopharmaceuti cal pipeline, we continue to believe the company will be a chronic underperformer” “...based on recent issues at other Heron vaccine plants, we believe the risk remains that Fluvirin may not be supplied in the US market in the '05/'06 flu season”

Rating	Hold	In-Line	Underweight	Sell

Investor community concerned over Heron operations over the last twelve months, with a particular focus on vaccines manufacturing issues.

3. Preliminary Financial Analysis

Heron's Valuation Parameters

Assessment of Valuation (1)

[CHART]

(1) As of August 2005, unaffected price the day immediately prior to announcement

(2) Discounted at 12.0%

Illustrative Valuation Multiples

($MM, except per share amounts)

Illustrative

Premium

Agg.

Equity Val.

Aggregate Value/

Price/Earnings (4)

Price per

Unaffected

30-Days

Equity

Trans.

Excluding

2006E Revenues (4)

2006E

2007E

2006E PEG (6)

share (1)

Price (1)

Price

Value (2)

Value (3)

Neptune (5)

Street

Mgmt.

Street

Mgmt.

Street

Mgmt.

Street

Mgmt.

36.44

35.75

2,185

2,222

1.81

1.58

2.00

1.91

$	36.44		0.0	%	1.9	%	$	6,911		$	6,999		$	4,021		3.2	x	3.1	x	20.1	x	23.1	x	18.2	x	19.1	x	1.33	x	1.53	x
40.00		**	9.8	**	11.9	**	7,616		**	7,703		**	4,443		**	3.5	**	3.5	**	22.1	**	25.3	**	20.0	**	20.9	**	1.46	**	1.68	**
41.00			12.5		14.7		7,813			7,901			4,561			3.6		3.6		22.7		26.0		20.5		21.5		1.50		1.72
42.00			15.3		17.5		8,011			8,099			4,680			3.7		3.6		23.2		26.6		21.0		22.0		1.54		1.76
43.00			18.0		20.3		8,212			8,300			4,801			3.8		3.7		23.8		27.2		21.5		22.5		1.57		1.80
44.00			20.7		23.1		8,416			8,504			4,926			3.9		3.8		24.3		27.9		22.0		23.0		1.61		1.85
45.00			23.5		25.9		8,620			8,708			5,051			4.0		3.9		24.9		28.5		22.5		23.5		1.65		1.89
46.00			26.2		28.7		8,824			8,912			5,176			4.1		4.0		25.4		29.1		23.0		24.1		1.68		1.93
47.00			29.0		31.5		9,028			9,116			5,300			4.2		4.1		26.0		29.8		23.5		24.6		1.72		1.97
48.00			31.7		34.3		9,232			9,320			5,425			4.3		4.2		26.5		30.4		24.0		25.1		1.75		2.01
49.00			34.5		37.1		9,443			9,531			5,557			4.4		4.3		27.1		31.0		24.5		25.6		1.79		2.05
50.00			37.2		39.9		9,655			9,742			5,689			4.5		4.4		27.6		31.7		25.0		26.2		1.83		2.10

Implied Value Based on Reference P/E Multiples
$	36.20		(0.7	)%	1.3	%	$	6,864		$	6,952		$	3,993		3.2	x	3.1	x	20.0	x*	22.9	x	18.1	x	18.9	x	1.32	x	1.52	x
45.25			24.2		26.6		8,671			8,759			5,082			4.0		3.9		25.0	*	28.7		22.6		23.7		1.65		1.90
31.60			(13.3	)	(11.6	)	5,954			6,042			3,448			2.8		2.7		17.5		20.0	*	15.8		16.5		1.16		1.33
39.50			8.4		10.5		7,517			7,604			4,383			3.5		3.4		21.8		25.0	*	19.8		20.7		1.44		1.66

(1) Heron stock price as of August 31, 2005, the day immediately prior to announcement, was $36.44.

(2) Based on Heron primary shares of 187.9MM from 10-Q for the period ended June 30, 2005, and options schedule from 10-K for the period ended December 31, 2004.

(3) Defined as Equity Value plus net debt (cash) of Heron, which was $87.6MM based on 10-Q for the period ended June 30, 2005. Includes marketable debt securities.

(4) Heron estimates based upon First Call consensus and Heron Management Forecast as of August 2005.

(5) Excludes 79.3MM primary shares held by Neptune.

(6) Based on an IBES LTGR of 15.1%.

[GRAPHIC]

Implied Price based on 2007E P/E

	Street		Mgmt.

17.0x	$	34.00	$	32.47
22.0x	44.00		42.02

* Denotes Driver

** Current Offer

Heron Trading Multiples Relative to its Peers

2006 P/E Multiples		2006 P/E/G Multiples

[CHART]		[CHART]

As of 8/31/05.

EPS and long-term growth rates per First Call.

Heron 2006 P/E based on EPS of $1.81.

Heron Trading Multiples Relative to its Peers Over Time

NTM Forward P/E Since 01/01/03		NTM Forward P/E/G Since 01/01/03

[CHART]		[CHART]

Source: FirstCall estimates

As of 08/31/05.

Large Cap Biotech includes AMGN, BIIB, DNA, GENZ, GILD, MEDI

On a NTM P/E basis, Heron has historically traded at a discount to its biotech peers.

Selected Companies Analysis

(in millions, except per share amounts)

	Stock		% Of										NOPAT						Long-
	Price		52-Week		Equity		Enterprise		Revenue Multiple				Multiple		P/E				Term		PEG
Company	8/31/2005		High		Value		Value		CY 2006E		CY 2007E		LTM		CY 2006E		CY 2007E		EPS Grw.		CY 2006E		CY 2007E
Large Cap Biotech
Amgen	$	79.90	95.1	%	$	100,222	$	99,729	6.9	x	6.3	x	19.9	x	22.0	x	19.5	x	15.9	%	1.38	x	1.22	x
Biogen Idec	42.14		60.2	%	14,442		12,684		4.8		4.4		25.8		21.8		19.6		14.8	%	1.47		1.32
Celgene	50.19		100.0	%	10,115		9,391		12.6		9.7		NM		51.2		33.9		46.7	%	1.10		0.73
Genentech	93.94		100.0	%	103,177		102,750		12.4		9.6		NM		54.9		39.8		33.8	%	1.62		1.18
Genzyme	71.17		93.4	%	18,978		18,529		5.8		5.3		35.3		26.2		23.1		20.0	%	1.31		1.16
Gilead Sciences	43.00		89.6	%	20,317		18,529		8.4		7.4		33.1		25.2		22.1		19.5	%	1.30		1.13
MedImmune	29.93		99.6	%	7,475		6,209		4.5		3.9		NM		65.8		42.1		28.0	%	2.35		1.50
					Mean				7.9	x	6.6	x	28.5	x	38.2	x	28.6	x	25.5	%	1.51	x	1.18	x
					Median				6.9		6.3		29.5		26.2		23.1		20.0	%	1.38		1.18
					High				12.6		9.7		35.3		65.8		42.1		46.7	%	2.35		1.50
					Low				4.5		3.9		19.9		21.8		19.5		14.8	%	1.10		0.73

(in millions, except per share amounts)

	Stock		% Of										NOPAT						Long-
	Price		52-Week		Equity		Enterprise		Revenue Multiple				Multiple		P/E				Term		PEG
Company	8/31/2005		High		Value		Value		CY 2006E		CY 2007E		LTM		CY 2006E		CY 2007E		EPS Grw.		CY 2006E		CY 2007E
BioPharma & Bloodtesting
Abbott Laboratories	$	45.13	90.3	%	$	70,625	$	74,827	3.2	x	3.0	x	21.4	x	16.5	x	14.8	x	9.9	%	1.67	x	1.50	x
Bayer AG	35.19		94.0	%	25,697		34,387		1.0		1.0		24.7		12.7		15.6		7.0	%	1.82		2.23
Johnson & Johnson	63.39		90.6	%	190,790		180,213		3.3		3.1		18.6		16.8		15.3		10.8	%	1.56		1.42
Roche Holdings	137.62		94.3	%	118,861		117,512		4.0		3.6		23.2		23.3		18.2		16.5	%	1.41		1.10
BioPharma & Vaccines
GlaxoSmithKline	$	24.08	96.4	%	$	138,142	$	140,854	3.6		3.3		15.9		15.7		14.2		6.4	%	2.45		2.21
MedImmune	29.93		99.6	%	7,475		6,209		4.5		3.9		NM		65.8		42.1		28.0	%	2.35		1.50
Merck & Co.	28.23		61.4	%	62,061		58,606		2.7		2.7		12.9		11.7		11.7		4.3	%	2.76		2.76
Sanofi Aventis	85.11		93.4	%	116,448		132,685		3.7		3.6		NM		14.1		12.6		9.5	%	1.49		1.33
Wyeth	45.79		98.4	%	61,720		63,907		3.1		2.9		17.0		14.7		13.7		7.6	%	1.95		1.81
					Mean				3.2	x	3.0	x	19.1	x	21.3	x	17.6	x	11.1	%	1.94	x	1.76	x
					Median				3.3		3.1		18.6		15.7		14.8		9.5	%	1.82		1.50
					High				4.5		3.9		24.7		65.8		42.1		28.0	%	2.76		2.76
					Low				1.0		1.0		12.9		11.7		11.7		4.3	%	1.41		1.10

(in millions, except per share amounts)

	Stock		% Of										NOPAT						Long-
	Price		52-Week		Equity		Enterprise		Revenue Multiple				Multiple		P/E				Term		PEG
Company	8/31/2005		High		Value		Value		CY 2006E		CY 2007E		LTM		CY 2006E		CY 2007E		EPS Grw.		CY 2006E		CY 2007E
Blood Testing
Beckman Coulter	$	55.79	76.1	%	$	3,564	$	4,241	1.7	x	1.6	x	17.6	x	18.2	x	15.6	x	14.0	%	1.30	x	1.12	x
Bio-Rad Laboratories	55.20		88.2	%	1,475		1,569		1.3		NA		18.0		15.4		NM		10.0	%	1.54		NM
Biosite	59.79		88.6	%	1,125		1,005		3.2		2.9		20.8		19.3		18.4		15.6	%	1.24		1.18
Cytyc	24.95		85.9	%	2,874		3,029		5.0		4.2		27.9		20.8		16.9		18.6	%	1.12		0.91
Dade Behring Holdings	36.59		94.5	%	1,675		2,032		1.2		1.1		14.7		25.4		24.1		18.0	%	1.41		1.34
Digene	28.92		90.0	%	588		543		3.0		2.6		57.7		38.7		19.7		30.0	%	1.29		0.66
Diagnostic Products	54.00		93.5	%	1,613		1,540		NM		2.6		24.7		18.0		16.3		17.8	%	1.01		0.92
Gen-Probe	45.52		85.7	%	2,371		2,168		6.3		5.5		45.3		30.2		25.6		21.3	%	1.41		1.20
Immucor	23.67		65.8	%	1,104		1,081		4.5		NA		39.6		20.3		NM		23.3	%	0.87		NM
Tripath Imaging	7.89		82.9	%	308		287		2.5		1.6		NM		29.2		11.1		33.3	%	0.88		0.33
Ventana Medical System	40.49		90.1	%	1,589		1,523		6.3		NM		68.1		38.7		27.8		24.7	%	1.57		1.13

					Mean				3.5	x	2.7	x	33.5	x	24.9	x	19.5	x	20.6	%	1.24	x	0.98	x
					Median				3.1		2.6		26.3		20.8		18.4		18.6	%	1.29		1.12
					High				6.3		5.5		68.1		38.7		27.8		33.3	%	1.57		1.34
					Low				1.2		1.1		14.7		15.4		11.1		10.0	%	0.87		0.33

Note: Calendarized P/E Multiples and Long-Term EPS Growth Rates are based on I/B/E/S estimates; Projections from Wall Street Equity Research.

(in millions, except per share amounts)

	Stock		% Of										NOPAT					Long-
	Price		52-Week		Equity		Enterprise		Revenue Multiple				Multiple		P/E			Term		PEG
Company	8/31/2005		High		Value		Value		CY 2006E		CY 2007E		LTM		CY 2006E		CY 2007E	EPS Grw.		CY 2006E		CY 2007E
Vaccines
Acambis	$	4.46	74.5	%	$	478	$	331	2.0	x	NM		42.8	x	NM		NM	—		NM		NM
Berna Biotech AG	8.94		98.3	%	336		254		1.3		1.1		NM		53.6		NM	3.0	%	NM		NM
CSL Limited	25.74		91.8	%	4,770		4,980		2.3		2.3		7.4		19.9		NM	10.1	%	1.98		NM
ID Biomedical	24.22		95.9	%	1,050		1,074		5.8		3.0		NM		NM		NM	NM		NM		NM
Nabi Biopharmaceuticals	13.47		84.2	%	823		790		4.6		3.3		NM		NM		NM	NM		NM		NM

					Mean				3.2	x	2.4	x	25.1	x	36.8	x	NM	4.4	%	1.98	x	NM
					Median				2.3		2.7		25.1		36.8		NM	3.0	%	1.98		NM
					High				5.8		3.3		42.8		53.6		—	10.1	%	1.98		—
					Low				1.3		1.1		7.4		19.9		—	—		1.98		—

(in millions, except per share amounts)

	Stock		% Of										NOPAT						Long-
	Price		52-Week		Equity		Enterprise		Revenue Multiple				Multiple		P/E				Term		PEG
Company	8/31/2005		High		Value		Value		CY 2006E		CY 2007E		LTM		CY 2006E		CY 2007E		EPS Grw.		CY 2006E		CY 2007E
Biotech
Allergan	$	92.05	97.6	%	$	13,081	$	12,265	5.0	x	4.5	x	29.9	x	24.5	x	20.9	x	17.6	%	1.39	x	1.19	x
Biogen Idec	42.14		60.2	%	14,442		12,684		4.8		4.4		25.8		21.8		19.6		14.8	%	1.47		1.32
Celgene	50.19		100.0	%	10,115		9,391		12.6		9.7		NM		51.2		33.9		46.7	%	1.10		0.73
Cephalon	40.52		77.6	%	2,375		5,295		3.7		3.9		32.0		13.0		11.8		19.0	%	0.68		0.62
Elan	8.91		29.3	%	3,889		4,455		8.2		7.8		NM		NM		NM		10.5	%	NM		NM
Forest Laboratories	44.40		90.4	%	15,451		13,619		3.9		3.7		13.1		17.0		14.7		14.4	%	1.18		1.02
Genzyme	71.17		93.4	%	18,978		18,529		5.8		5.3		35.3		26.2		23.1		20.0	%	1.31		1.16
Gilead Sciences	43.00		89.6	%	20,317		18,529		8.4		7.4		33.1		25.2		22.1		19.5	%	1.30		1.13
MedImmune	29.93		99.6	%	7,475		6,209		4.5		3.9		NM		65.8		42.1		28.0	%	2.35		1.50
Millennium Pharmaceuticals	9.99		71.1	%	3,104		2,704		5.3		4.6		NM		NM		NM		15.0	%	NM		NM
Serono	16.72		85.3	%	7,396		6,699		2.3		2.1		12.1		16.2		14.0		18.0	%	0.90		0.78

					Mean				5.9	x	5.2	x	25.9	x	29.0	x	22.5	x	20.3	%	1.30	x	1.05	x
					Median				5.0		4.5		29.9		24.5		20.9		18.0	%	1.30		1.13
					High				12.6		9.7		35.3		65.8		42.1		46.7	%	2.35		1.50
					Low				2.3		2.1		12.1		13.0		11.8		10.5	%	0.68		0.62

Note: Calendarized P/E Multiples and Long-Term EPS Growth Rates are based on I/B/E/S estimates; Projections from Wall Street Equity Research.

Heron Consolidated Discounted Cash Flow Analysis – Summary

[CHART]

Heron Consolidated Discounted Cash Flow Analysis

Long-Term Discounted Cash Flow Analysis
Heron
Perpetual Growth Rate (%)	2.0									3.0									4.0
Discount Rate	10.0 %			11.0 %			12.0 %			10.0 %			11.0 %			12.0 %			10.0 %			11.0 %			12.0 %

Present Value of (1)
Cash Flows - Year 1	$	72		$	71		$	71		$	72		$	71		$	71		$	72		$	71		$	71
Cash Flows - Year 2-11	3,663			3,458			3,268			3,663			3,458			3,268			3,663			3,458			3,268
Terminus	5,094			4,136			3,403			5,878			4,698			3,818			6,925			5,422			4,337
Aggregate Value	$	8,828		$	7,665		$	6,742		$	9,612		$	8,228		$	7,157		$	10,659		$	8,951		$	7,676

Equity Value (3)	$	8,740		$	7,578		$	6,654		$	9,525		$	8,140		$	7,070		$	10,571		$	8,864		$	7,589
Implied Share Price(2)	$	45.59		$	39.81		$	35.14		$	49.38		$	42.65		$	37.24		$	54.31		$	46.19		$	39.86
Premium over Pre-Announcement	25.1		%	9.2		%	(3.6		)%	35.5		%	17.0		%	2.2		%	49.0		%	26.8		%	9.4		%

Terminal Value Analysis
% Value in Terminus	57.7		%	54.0		%	50.5		%	61.2		%	57.1		%	53.3		%	65.0		%	60.6		%	56.5		%
% Value in Cash Flows	42.3		%	46.0		%	49.5		%	38.8		%	42.9		%	46.7		%	35.0		%	39.4		%	43.5		%

Implied Terminal Multiples
LTM Sales Multiple	3.3		x	2.9		x	2.7		x	3.8		x	3.3		x	3.0		x	4.5		x	3.9		x	3.4		x
LTM EBITDA Multiple	9.0			8.1			7.3			10.4			9.2			8.2			12.3			10.6			9.3
LTM NOPAT Multiple	14.1			12.6			11.4			16.3			14.3			12.8			19.2			16.5			14.5

Source: Heron Management Forecast as of August 2005

(1) Valuation as of 6/30/05 assuming mid-period convention

(2) Based on fully diluted share count and pre-announcement share price of $36.44 as of 8/31/05

(3) Assumes current net debt of $86.7MM

Discounted Cash Flow Sensitivity Analysis

Deviation from Midpoint Valuation (1)
$

[CHART]

(1) Base DCF value of $42.65 assumes a discount rate of 11.0% and a perpetual growth rate of 3.0%

Source: Heron Management Forecast as of August 2005

Heron Sum-of-the-Parts Analysis

Perpetual Growth Methodology (1)

Sum-of-the-Parts Valuation

[CHART]

(1) Assumes a discount rate of 11.0%

(2) As of August 31, 2005

(3) Assumes perpetual growth rate of 2.0% for BioPharma, 3.0% for Vaccines, 3.0% for Blood Testing and (1.0)% for Corporate Royalties

Source: Heron Management Forecast as of August 2005

Appendix

WACC

Weighted Average Cost of Capital

($MM, except per share amounts)

Stock

WACC Assuming Varying Levels

Price

FD Capitalization (1)

Beta (2)

Cost of (4)

Current

of Debt/Total Cap (3),(4),(5)

Company

8/31/05

Equity

Equity%

Debt

Debt%

Equity

Asset (3)

Equity

Asset

WACC (3),(4),(5)

0.0%

13.8%

20.0%

Heron	$	36.44	$	6,911	86.2	%	$	1,107	13.8	%	1.012	0.917	11.6	%	10.9	%	10.5	%	10.9	%	10.5	%	10.3	%

*Biotech*
Allergan Inc	$	92.05	$	13,081	99.6	%	$	57	0.4	%	0.764	0.762	9.8	%	9.8	%	9.8	%	9.8	%	9.5	%	9.3	%
Biogen Idec Inc	42.14		14,442		99.7	%	42		0.3	%	1.611	1.608	15.9	%	15.9	%	15.8	%	15.9	%	15.2	%	15.0	%
Celgene Corp	50.19		10,115		100.0	%	0		0.0	%	1.447	1.447	14.7	%	14.7	%	14.7	%	14.7	%	14.1	%	13.9	%
Cephalon Inc	40.52		2,375		53.2	%	2,090		46.8	%	1.205	0.767	13.0	%	9.8	%	8.7	%	9.8	%	9.5	%	9.3	%
Elan Corp Plc -Adr	8.91		3,889		68.8	%	1,763		31.2	%	2.193	1.694	20.1	%	16.5	%	15.0	%	16.5	%	15.8	%	15.5	%
Forest Laboratories -Cl A	44.40		15,451		100.0	%	0		0.0	%	0.987	0.987	11.4	%	11.4	%	11.4	%	11.4	%	11.0	%	10.8	%
Genzyme Corp	71.17		18,978		94.1	%	1,189		5.9	%	1.194	1.147	12.9	%	12.5	%	12.4	%	12.5	%	12.1	%	11.9	%
Gilead Sciences Inc	43.00		20,317		100.0	%	0		0.0	%	1.090	1.090	12.1	%	12.1	%	12.1	%	12.1	%	11.7	%	11.5	%
Medimmune Inc	29.93		7,475		93.7	%	506		6.3	%	0.989	0.947	11.4	%	11.1	%	10.9	%	11.1	%	10.7	%	10.6	%
Millennium Pharmaceuticals	9.99		3,104		94.2	%	189		5.8	%	1.949	1.875	18.3	%	17.8	%	17.5	%	17.8	%	17.1	%	16.8	%
Serono Sa -Adr	16.72		7,396		92.1	%	632		7.9	%	0.755	0.715	9.7	%	9.4	%	9.3	%	9.4	%	9.1	%	9.0	%

Median					94.2	%			5.8	%	1.194	1.090	12.9	%	12.1	%	12.1	%	12.1	%	11.7	%	11.5	%
Mean					90.5	%			9.5	%	1.289	1.185	13.6	%	12.8	%	12.5	%	12.8	%	12.4	%	12.1	%

*BioPharma & Blood Testing*
Johnson & Johnson	$	63.39	$	190,790	98.6	%	$	2,633	1.4	%	0.562	0.557	8.3	%	8.3	%	8.3	%	8.3	%	8.0	%	7.9	%
Abbott Laboratories	45.13		70,625		92.5	%	5,737		7.5	%	0.628	0.597	8.8	%	8.6	%	8.4	%	8.6	%	8.3	%	8.2	%
Bayer Ag	35.19		25,697		74.7	%	8,692		25.3	%	1.024	0.839	11.7	%	10.3	%	9.7	%	10.3	%	10.0	%	9.8	%
Roche Holdings Ltd -Adr	68.81		118,861		89.0	%	14,705		11.0	%	0.657	0.608	9.0	%	8.7	%	8.5	%	8.7	%	8.4	%	8.3	%

Median					90.7	%			9.3	%	0.643	0.602	8.9	%	8.6	%	8.4	%	8.6	%	8.4	%	8.2	%
Mean					88.7	%			11.3	%	0.718	0.650	9.5	%	9.0	%	8.7	%	9.0	%	8.7	%	8.6	%

*BioPharma & Vaccines*
Glaxosmithkline Plc -Adr	$	48.17	$	138,142	95.2	%	$	6,920	4.8	%	0.428	0.415	7.4	%	7.3	%	7.2	%	7.3	%	7.1	%	7.0	%
Medimmune Inc	29.93		7,475		93.7	%	506		6.3	%	0.989	0.947	11.4	%	11.1	%	10.9	%	11.1	%	10.7	%	10.6	%
Merck & Co	28.23		62,061		89.6	%	7,167		10.4	%	1.008	0.938	11.5	%	11.0	%	10.8	%	11.0	%	10.7	%	10.5	%
Sanofi-Aventis -Adr	42.55		116,448		88.6	%	15,044		11.4	%	0.586	0.541	8.5	%	8.2	%	8.0	%	8.2	%	7.9	%	7.8	%
Wyeth	45.79		61,720		88.6	%	7,956		11.4	%	0.685	0.632	9.2	%	8.8	%	8.6	%	8.8	%	8.6	%	8.4	%

Median					89.6	%			10.4	%	0.685	0.632	9.2	%	8.8	%	8.6	%	8.8	%	8.6	%	8.4	%
Mean					91.1	%			8.9	%	0.739	0.694	9.6	%	9.3	%	9.1	%	9.3	%	9.0	%	8.9	%

*Large Cap Biotech*
Amgen Inc	$	79.90	$	100,222	96.2	%	$	3,947	3.8	%	1.244	1.213	13.2	%	13.0	%	12.9	%	13.0	%	12.5	%	12.3	%
Biogen Idec Inc	42.14		14,442		99.7	%	42		0.3	%	1.611	1.608	15.9	%	15.9	%	15.8	%	15.9	%	15.2	%	15.0	%
Celgene Corp	50.19		10,115		100.0	%	0		0.0	%	1.447	1.447	14.7	%	14.7	%	14.7	%	14.7	%	14.1	%	13.9	%
Genentech Inc	93.94		103,177		97.6	%	2,485		2.4	%	1.092	1.075	12.1	%	12.0	%	12.0	%	12.0	%	11.6	%	11.4	%
Genzyme Corp	71.17		18,978		94.1	%	1,189		5.9	%	1.194	1.147	12.9	%	12.5	%	12.4	%	12.5	%	12.1	%	11.9	%
Gilead Sciences Inc	43.00		20,317		100.0	%	0		0.0	%	1.090	1.090	12.1	%	12.1	%	12.1	%	12.1	%	11.7	%	11.5	%
Medimmune Inc	29.93		7,475		93.7	%	506		6.3	%	0.989	0.947	11.4	%	11.1	%	10.9	%	11.1	%	10.7	%	10.6	%

Median					97.6	%			2.4	%	1.194	1.147	12.9	%	12.5	%	12.4	%	12.5	%	12.1	%	11.9	%
Mean					97.3	%			2.7	%	1.238	1.218	13.2	%	13.1	%	13.0	%	13.1	%	12.6	%	12.4	%

Overall Median					94.1	%			5.9	%	1.024	0.947	11.7	%	11.1	%	10.9	%	11.1	%	10.7	%	10.6	%
Overall Mean					92.1	%			7.9	%	1.090	1.024	12.1	%	11.7	%	11.4	%	11.7	%	11.2	%	11.1	%

(1) Converts treated as debt.

(2) Based on BARRA research dated July 29, 2005.

(3) Based on marginal tax rate of 35%.

(4) Based on a 20-Year Interpolated U.S. Treasury yield of 4.28% as of August 24, 2005, and equity market risk premium of 7.20%. (Source: Bloomberg and Ibbotson)

(5) Based on 6.0% cost of debt.

Other Financial Analysis

Select Biotechnology Precedent Acquisitions

Biotechnology Precedent Transactions

			Offer
Date			Price		Transaction Value				% Premium from						Aggregate Value / Revenue						Implied P/E
Ann.	Acquiror	Target	Per Share		Equity		Aggregate		1 Day Prior		1 Month Prior		3 Month Prior		LTM		1-yr. Fwd.		2-yr. Fwd.		1-yr. Fwd.		2-yr. Fwd.
8/22/2005	OSI Pharma	Eyetech	$	20.00	$	935	$	673	43.0	%	63.3	%	(15.8	)%	5.8	x	2.7	x	1.6	x	NM		21.7	x
7/21/2005	MGI Pharma	Guilford	3.80		177		251		57.5	%	41.1	%	53.6	%	5.1	x	5.2	x	5.3	x	NM		NM
6/15/2005	Pfizer	Vicuron	29.10		1,925		1,817		84.2	%	67.2	%	72.0	%	NM		NM		17.6	x	NM		NM
5/4/2005	Genzyme	Bone Care International	33.00		725		606		38.5	%	26.5	%	11.8	%	8.2	x	6.1	x	5.0	x	46.2	x	29.9	x
4/29/2005	GlaxoSmithKline	Corixa Corp	4.40		300		333		47.7	%	37.5	%	19.9	%	13.3	x	9.9	x	8.8	x	NM		NM
4/21/2005	Shire Pharmaceuticals	Transkaryotic Therapies	37.00		1,570		1,509		13.4	%	54.5	%	43.8	%	19.3	x	15.8	x	14.1	x	NM		NM
4/19/2005	Jazz Pharmaceuticals	Orphan Medical	10.75		125		112		25.7	%	8.8	%	26.3	%	4.7	x	3.3	x	2.5	x	NM		44.8	x
6/14/2004	QLT	Atrix	38.50		787		683		27.2	%	27.9	%	38.8	%	13.6	x	10.0	x	7.3	x	60.0	x	26.8	x
5/18/2004	UCB	Celltech	19.44		2,687		2,413		27.9	%	20.2	%	20.1	%	3.9	x	NA		NA		NM		NM
3/29/2004	Amgen	Tularik	25.00		1,457		1,285		47.1	%	35.9	%	47.1	%	41.9	x	37.7	x	33.4	x	NM		NM
2/26/2004	Genzyme Corp.	Ilex Oncology	26.00		1,050		889		22.0	%	9.0	%	26.3	%	25.6	x	23.8	x	12.8	x	NM		NM
12/21/2003	Pfizer	Esperion	35.00		1,281		1,198		54.2	%	57.6	%	70.6	%	NM		NA		NA		NM		NM
8/4/2003	Genzyme	Sangstat	22.50		611		532		45.4	%	59.0	%	86.1	%	4.2	x	NA		NA		NM		NM
5/19/2003	Chiron	PowderJect	9.00		878		789		6.5	%	32.5	%	40.1	%	3.0	x	3.0	x	2.6	x	21.4	x	15.4	x
2/10/2003	Johnson & Johnson	Scios	45.00		2,351		2,356		6.6	%	25.4	%	52.5	%	30.5	x	12.1	x	8.7	x	NM		NM
12/17/2001	Amgen	Immunex	29.15		16,677		15,660		13.8	%	12.0	%	70.6	%	16.3	x	12.5	x	8.5	x	NM		NM
12/6/2001	Millennium	COR Therapeutics	35.00		2,102		2,069		77.3	%	64.0	%	29.0	%	16.5	x	10.7	x	9.2	x	NM		48.6	x
12/3/2001	MedImmune	Aviron	47.41		1,607		1,392		28.0	%	47.9	%	95.1	%	41.2	x	93.3	x	11.5	x	NM		NM
3/27/2001	Johnson & Johnson	Alza	41.83		12,004		11,000		8.0	%	1.4	%	(3.0	)%	11.1	x	5.7	x	8.1	x	42.3	x	34.0	x
12/11/2000	Shire	BioChem Pharma	37.00		4,004		3,732		39.6	%	52.1	%	89.6	%	17.2	x	16.9	x	18.3	x	NM		NM
9/11/2000	Elan	Dura	35.00		1,757		1,820		22.3	%	49.3	%	155.7	%	5.5	x	5.7	x	5.7	x	53.0	x	47.9	x
9/11/2000	Genzyme General	GelTex	47.50		1,050		938		27.1	%	33.8	%	122.2	%	NM		NM		NM		NM		NM
8/14/2000	Chiron	Pathogenesis	38.50		697		660		17.6	%	38.7	%	96.8	%	8.7	x	7.7	x	6.3	x	NM		60.2	x
3/6/2000	Elan	Liposome Comp.	15.28		742		679		6.3	%	20.4	%	42.1	%	7.6	x	6.8	x	6.5	x	50.2	x	46.9	x
							Mean:		32.8	%	36.9	%	53.8	%	14.4	x	15.2	x	9.7	x	45.5	x	37.6	x
							Median:		27.6	%	36.7	%	45.4	%	11.1	x	9.9	x	8.3	x	48.2	x	39.4	x

Source: FactSet and company filings

Premiums Paid Analysis - Minority Squeeze Out

1-Day Premiums Paid in Precedent Squeeze Out Transactions

[CHART]

Note: Total number of deals includes some squeeze outs where pre-transaction ownership was not disclosed

	Spot Price Premiums (1)
	All Transactions (1)				<60% Ownership				60-70% Ownership				70-80% Ownership				>80% Ownership
	1-Day		1-Month		1-Day		1-Month		1-Day		1-Month		1-Day		1-Month		1-Day		1-Month
75th Percentile	35	%	42	%	42	%	34	%	26	%	42	%	46	%	52	%	27	%	51	%
Mean	25	%	30	%	34	%	27	%	22	%	33	%	30	%	38	%	21	%	28	%
Median	20	%	25	%	25	%	19	%	20	%	29	%	27	%	27	%	15	%	24	%
25th Percentile	10	%	12	%	18	%	16	%	13	%	19	%	11	%	16	%	4	%	7	%

Note: Boxed items are represented in graph.

(1) Represents acquiror's pre-transaction ownership in target.

Illustrative Future Trading - Heron Management Forecast

Illustrative Share Price - Assumes a Constant P/E of 20x

[CHART]

Note: This page illustrates an arithmetic exercise, prepared at your request, expressing certain hypothetical stock trading prices assuming Heron's forecasts are realized and the application of a fixed future earnings multiple and various discount rates. Accordingly, this exercise is not intended to, and does not, reflect CSFB or Morgan Stanley's view as to any future trading values of Heron's common stock. Future stock trading prices are affected by many factors, many of which are beyond the control of Heron and are difficult to predict.

Business Unit P&Ls

BioPharma Segment P&L

BioPharma

PROJECT HERON P&L

$MM

	POS		2006		2007		2008		2009		2010		2011		2012		2013		2014		2015

REVENUE (Pos-Adj.)
Proleukin	100	%	107.0		95.1		87.4		83.6		80.5		78.5		77.2		76.2		76.0		75.5
TOBI	100	%	229.2		239.5		175.7		137.0		96.2		83.3		80.9		79.0		77.6		76.6
Betaseron	100	%	150.8		182.9		180.9		187.2		177.0		177.5		165.5		113.3		86.0		68.4
TFPI	61	%	0.0		0.0		23.5		141.1		356.0		465.2		633.7		635.5		673.7		727.4
258	15	%	0.0		0.0		0.0		0.0		3.9		12.3		35.9		54.3		67.5		78.5
12.12	17	%	0.0		0.0		0.0		0.0		0.0		8.9		30.1		60.6		84.3		95.1
TIP	75	%	0.0		0.0		71.9		120.0		170.7		192.8		205.1		220.4		234.7		256.4
CSI	NA		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Other Products			62.6		88.9		112.3		142.9		163.6		176.2		194.1		206.2		239.1		273.2
Net Product Sales			549.5		606.4		651.6		811.7		1,047.8		1,194.7		1,422.4		1,445.4		1,538.8		1,651.3
Joint Business			0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Collaborative Agreements			1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0
Royalties			52.2		35.0		37.9		39.4		35.0		26.4		26.6		26.8		22.5		22.6
Other Revenues			9.2		9.6		9.3		0.3		0.3		0.3		0.3		0.3		0.3		0.3

TOTAL BioPharma REVENUE (Pos-Adj)			612.0		652.0		699.9		852.4		1,084.1		1,222.5		1,450.3		1,473.4		1,562.7		1,675.2
% Growth			-5.2	%	6.5	%	7.3	%	21.8	%	27.2	%	12.8	%	18.6	%	1.6	%	6.1	%	7.2	%

TOTAL BioPharma COGS (Pos-Adj)			158.5		177.3		207.5		235.0		261.2		310.5		359.7		380.6		387.1		396.1
% Growth			3.9	%	11.9	%	17.0	%	13.2	%	11.1	%	18.9	%	15.9	%	5.8	%	1.7	%	2.3	%

TOTAL BioPharma GROSS PROFIT (Pos-Adj.)			453.4		474.6		492.4		617.5		823.0		912.0		1,090.6		1,092.8		1,175.6		1,279.1
% Margin			74.1	%	72.8	%	70.3	%	72.4	%	75.9	%	74.6	%	75.2	%	74.2	%	75.2	%	76.4	%

TOTAL BioPharma Research & Development (Pos-Adj			297.2		305.1		337.6		290.7		287.3		330.5		372.8		389.1		401.3		425.2
% Margin			48.6	%	46.8	%	48.2	%	34.1	%	26.5	%	27.0	%	25.7	%	26.4	%	25.7	%	25.4	%
% Growth			10.7	%	2.6	%	10.7	%	-13.9	%	-1.2	%	15.0	%	12.8	%	4.4	%	3.1	%	5.9	%

TOTAL BioPharma S&M (Pos-Adj)			144.9		162.7		206.9		216.3		222.5		227.6		241.2		253.4		269.6		291.3
% Margin			23.7	%	25.0	%	29.6	%	25.4	%	20.5	%	18.6	%	16.6	%	17.2	%	17.3	%	17.4	%
% Growth			0.4	%	12.3	%	27.2	%	4.5	%	2.9	%	2.3	%	6.0	%	5.1	%	6.4	%	8.0	%

TOTAL BioPharma G&A (Pos-Adj)			31.3		32.3		37.0		42.7		53.6		60.0		69.8		73.5		77.9		82.7
% Margin			5.1	%	5.0	%	5.3	%	5.0	%	4.9	%	4.9	%	4.8	%	5.0	%	5.0	%	4.9	%
% Growth			5.6	%	3.1	%	14.5	%	15.4	%	25.5	%	11.9	%	16.4	%	5.3	%	6.0	%	6.1	%

Other Operating Expenses			12.9		13.3		8.5		0.2		0.2		0.2		0.2		0.2		0.2		0.2

Biopharma Corporate Overhead Allocation			0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0

TOTAL BioPharma OPERATING EXPENSES			486.4		513.4		590.0		549.9		563.6		618.2		684.0		716.3		749.1		799.4

TOTAL BioPharma EXPENSES			644.9		690.7		797.6		784.9		824.8		928.7		1,043.7		1,096.9		1,136.2		1,195.5

BioPharma OPERATING INCOME (LOSS)			(32.9	)	(38.7	)	(97.7	)	67.5		259.4		293.7		406.6		376.5		426.5		479.7
% Margin			NM		NM		NM		7.9	%	23.9	%	24.0	%	28.0	%	25.6	%	27.3	%	28.6	%
% Growth			-173.8	%	17.6	%	152.1	%	-169.2	%	284.0	%	13.2	%	38.4	%	-7.4	%	13.3	%	12.5	%

Source: Heron Management Forecast as of August 2005

Vaccines Segment P&L

Vaccines

PROJECT HERON P&L

$MM

	POS	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015

REVENUE (Pos-Adj.)
Egg Flu	10%	545.2		588.3		659.7		598.3		618.3		598.3		476.9		394.0		255.5		116.8
WW Flu Cell Culture	30 US / 75% EU	0.0		0.0		0.0		92.7		125.5		150.3		209.8		253.4		326.6		397.0
Men B NZ	100%	3.0		2.4		2.4		2.4		2.4		2.4		2.4		2.4		2.4		2.4
Men B EU	25%	0.0		0.0		0.0		31.9		100.4		8.1		6.6		5.7		4.9		4.2
Men B US	25%	0.0		0.0		0.0		169.6		276.0		32.9		34.3		19.3		16.6		14.3
Men ABCYW	15%	0.0		0.0		0.0		0.0		0.0		477.9		483.7		283.6		248.4		215.2
Men ABCYW-HIB	NA	0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
HCV Therapeutic	11%	0.0		0.0		0.0		0.0		0.0		0.0		54.2		60.5		63.6		66.6
HCV Prophylactic	19%	0.0		0.0		0.0		0.0		0.0		0.0		8.6		17.0		65.8		62.5
Other Products		356.4		390.1		415.3		429.8		442.1		416.6		413.0		412.5		415.1		420.2
Net Product Sales		904.6		980.8		1,077.4		1,324.7		1,564.7		1,686.7		1,689.5		1,448.4		1,398.9		1,299.3

Collaborative Agreements		0.0		1.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Royalties		3.9		3.4		2.9		1.4		1.4		1.0		0.0		0.0		0.0		0.0
Other Revenue		12.1		13.1		14.1		13.9		16.4		20.8		20.8		25.8		25.8		30.2
Other Revenues		15.9		17.5		17.0		15.2		17.7		21.8		20.8		25.8		25.8		30.2

TOTAL VACCINES REVENUE (Pos-Adj)		920.5		998.3		1,094.4		1,339.9		1,582.4		1,708.4		1,710.2		1,474.1		1,424.7		1,329.5
% Growth		19.0	%	8.4	%	9.6	%	22.4	%	18.1	%	8.0	%	0.1	%	-13.8	%	-3.4	%	-6.7	%

TOTAL VACCINES COGS (Pos-Adj)		450.2		450.8		467.4		549.3		571.8		600.1		610.7		594.2		599.9		488.4
% Margin		48.9	%	45.2	%	42.7	%	41.0	%	36.1	%	35.1	%	35.7	%	40.3	%	42.1	%	36.7	%
% Growth		15.5	%	0.1	%	3.7	%	17.5	%	4.1	%	4.9	%	1.8	%	-2.7	%	1.0	%	-18.6	%

TOTAL VACCINES GROSS PROFIT (Pos-Adj.)		470.4		547.5		627.0		790.6		1,010.6		1,108.3		1,099.5		879.9		824.8		841.0
% Margin		51.1	%	54.8	%	57.3	%	59.0	%	63.9	%	64.9	%	64.3	%	59.7	%	57.9	%	63.3	%
TOTAL VACCINES Research & Development (Pos-Adj)		150.1		151.5		159.0		169.0		170.2		165.0		167.3		150.8		147.1		136.3
R&D as% of Total Revenue		16.3	%	15.2	%	14.5	%	12.6	%	10.8	%	9.7	%	9.8	%	10.2	%	10.3	%	10.3	%
% Growth		6.0	%	0.9	%	5.0	%	6.2	%	0.7	%	-3.1	%	1.4	%	-9.9	%	-2.5	%	-7.3	%

TOTAL VACCINES S&M (Pos-Adj)		110.7		114.7		133.6		160.4		183.2		206.5		197.8		169.6		163.8		152.2
S&M as% of Product Sales		12.2	%	11.7	%	12.4	%	12.1	%	11.7	%	12.2	%	11.7	%	11.7	%	11.7	%	11.7	%
% Growth		-0.9	%	3.6	%	16.5	%	20.1	%	14.2	%	12.7	%	-4.2	%	-14.3	%	-3.4	%	-7.1	%

TOTAL VACCINES G&A (Pos-Adj)		50.3		53.7		56.3		66.7		73.0		83.9		93.7		83.2		84.7		83.8
G&A as % Total Revenue		5.5	%	5.4	%	5.1	%	5.0	%	4.6	%	4.9	%	5.5	%	5.6	%	5.9	%	6.3	%
% Growth		-6.8	%	6.8	%	4.9	%	18.5	%	9.5	%	14.9	%	11.7	%	-11.3	%	1.9	%	-1.1	%

Other Operating Expenses		0.2		0.2		0.1		0.1		0.0		0.0		0.0		0.0		0.0		0.0

Vaccines Corporate Overhead Allocation		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0

TOTAL VACCINES OPERATING EXPENSES		311.3		320.0		349.1		396.2		426.5		455.4		458.9		403.6		395.6		372.2

TOTAL VACCINES EXPENSES		761.4		770.8		816.5		945.5		998.3		1,055.4		1,069.6		997.8		995.6		860.6

VACCINES OPERATING INCOME (LOSS)		159.1		227.5		277.9		394.4		584.1		653.0		640.6		476.3		429.1		468.8
% Margin		17.3	%	22.8	%	25.4	%	29.4	%	36.9	%	38.2	%	37.5	%	32.3	%	30.1	%	35.3	%
% Growth		112.3	%	43.0	%	22.2	%	41.9	%	48.1	%	11.8	%	-1.9	%	-25.7	%	-9.9	%	9.3	%

Source: Heron Management Forecast as of August 2005

Blood Testing Segment P&L

BLOOD TESTING

PROJECT HERON P&L

$MM

	POS		2006		2007		2008		2009		2010		2011		2012		2013		2014		2015

REVENUE (Pos-Adj.)
NAT
Current Products
Duplex	100	%	89.2		23.9		25.6		25.6		23.1		20.6		18.2		15.7		13.2		10.8
dHBV	100	%	1.3		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Ultrio	100	%	229.0		353.5		380.7		383.4		353.8		318.4		271.8		231.1		190.9		151.5
WNV	100	%	43.3		57.6		57.6		57.6		53.7		48.0		42.2		36.5		30.8		25.1
Total Current Products Revenue			362.8		435.0		463.9		466.5		430.6		386.9		332.2		283.4		234.9		187.3

New Products
Blood Type Conversion	35	%	0.0		0.0		12.7		33.2		61.9		85.7		99.4		111.9		116.1		117.3
Bacterial Detection	NA		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Parvo	75	%	0.0		0.3		3.0		13.2		11.8		10.5		9.1		7.7		6.4		5.1
Prion	50	%	0.0		37.7		68.8		74.1		83.7		90.5		89.4		90.6		90.6		90.6
Next Generation NAT	100	%	0.0		0.0		0.0		74.1		153.2		253.2		308.8		381.9		465.0		548.1
Total New Products Revenue			0.0		38.0		84.5		194.6		310.6		439.9		506.6		592.1		678.1		761.0

Total Instrument & Service Revenue			28.2		16.3		19.7		13.8		9.4		8.3		7.7		6.8		6.0		4.5

Other Plasma Sales			0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0

Total NAT Product Revenue			391.0		489.3		568.1		674.9		750.6		835.1		846.5		882.3		919.0		952.9

Plasma Royalties (Homebrew)			11.0		11.0		18.8		8.3		6.6		6.0		6.0		6.0		6.0		6.0

Whole Blood and Plasma Royalties (Roche)			54.4		50.2		46.0		56.8		18.8		18.8		18.9		18.9		19.0		19.1

Total NAT Royalty Revenue			65.4		61.1		64.8		65.1		25.4		24.8		24.9		24.9		25.0		25.1

Grants for R&D (Other)			1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0		1.0

TOTAL NAT REVENUE			457.4		551.5		634.0		741.0		777.0		860.9		872.4		908.2		945.0		979.0
% Growth			26.5	%	20.6	%	15.0	%	16.9	%	4.9	%	10.8	%	1.3	%	4.1	%	4.0	%	3.6	%

ORTHO JOINT BUSINESS
Product Sales			26.3		26.5		26.8		27.1		27.3		27.6		27.9		28.2		28.4		28.7
Hep Retro Amortization (Royalty)			5.0		5.0		5.0		5.0		2.5		0.0		0.0		0.0		0.0		0.0
Contract Revenues			10.1		10.2		10.3		10.4		10.5		10.6		10.7		10.8		10.9		11.0
Joint Business Profits			109.8		107.6		105.4		103.3		101.2		99.2		97.2		95.3		93.4		91.5
TOTAL ORTHO REVENUE			151.2		149.3		147.5		145.8		141.6		137.4		135.8		134.3		132.8		131.3

TOTAL BLOOD TESTING REVENUE			608.6		700.8		781.5		886.8		918.6		998.4		1,008.2		1,042.5		1,077.7		1,110.2
% Growth			13.6	%	15.2	%	11.5	%	13.5	%	3.6	%	8.7	%	1.0	%	3.4	%	3.4	%	3.0	%

TOTAL BLOOD TESTING COGS			225.1		263.8		296.4		348.1		388.6		435.0		447.1		471.5		496.7		520.7
% Growth			23.7	%	17.2	%	12.4	%	17.4	%	11.6	%	11.9	%	2.8	%	5.5	%	5.3	%	4.8	%

TOTAL BLOOD TESTING GROSS PROFIT (Pos-Adj.)			383.5		437.1		485.1		538.7		530.0		563.4		561.1		571.0		581.1		589.5
% Margin			63.0	%	62.4	%	62.1	%	60.7	%	57.7	%	56.4	%	55.7	%	54.8	%	53.9	%	53.1	%

TOTAL BLOOD TESTING R&D			32.1		44.6		38.2		40.3		53.7		57.5		58.2		59.9		61.9		62.7
% Margin			5.3	%	6.4	%	4.9	%	4.5	%	5.8	%	5.8	%	5.8	%	5.7	%	5.7	%	5.6	%
% Growth			2.0	%	39.0	%	-14.4	%	5.4	%	33.2	%	7.1	%	1.2	%	3.0	%	3.2	%	1.3	%

TOTAL BLOOD TESTING S&M			45.2		48.7		55.3		62.6		66.1		68.8		70.5		74.9		79.2		83.4
% Margin			7.4	%	6.9	%	7.1	%	7.1	%	7.2	%	6.9	%	7.0	%	7.2	%	7.3	%	7.5	%
% Growth			7.8	%	7.7	%	13.6	%	13.3	%	5.5	%	4.1	%	2.5	%	6.2	%	5.7	%	5.3	%

TOTAL BLOOD TESTING G&A			4.9		5.2		5.4		5.7		6.0		6.3		6.6		7.0		7.3		7.7
% Margin			0.8	%	0.7	%	0.7	%	0.6	%	0.7	%	0.6	%	0.7	%	0.7	%	0.7	%	0.7	%
% Growth			-2.8	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%

Blood Testing Corporate Overhead Allocation			0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0

TOTAL OPERATING EXPENSES			82.2		98.5		98.9		108.6		125.8		132.6		135.3		141.8		148.4		153.7

TOTAL EXPENSES			307.3		362.2		395.4		456.8		514.4		567.6		582.4		613.3		645.0		674.5

BLOOD TESTING OPERATING INCOME (LOSS)			301.2		338.6		386.1		430.0		404.2		430.8		425.8		429.1		432.7		435.8
% Margin			49.5	%	48.3	%	49.4	%	48.5	%	44.0	%	43.1	%	42.2	%	41.2	%	40.1	%	39.2	%
% Growth			9.5	%	12.4	%	14.1	%	11.4	%	-6.0	%	6.6	%	-1.2	%	0.8	%	0.8	%	0.7	%

Source: Heron Management Forecast as of August 2005

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