Life Science VC Gap in Missouri

July 17, 2012

2012 BIO Benchmarking Class

Representative Shelley Keeney Marble Hill - Republican Majority Caucus Chair

Representative Anne Zerr St. Charles - Republican

Senator S. Kiki Curls Kansas City - Democrat

Representative Sue Allen Town & Country - Republican Majority Caucus Secretary

Representative Mike Kelley Lamar - Republican

Representative Casey Guernsey Bethany - Republican

Representative Gail McCann Beatty

Kansas City - Democrat

Representative Marsha Haefner St. Louis - Republican

2012 BIO Benchmarking Class

Representative Pat Conway St. Joseph - Democrat

Representative Margo McNeil Florissant - Democrat

Representative Steve Cookson Fairdealing - Republican

Representative Jeanne Kirkton Webster Groves - Democrat

Representative Bart Korman High Hill - Republican

Announcements

July 19, 2012 - The JOBS Act, Reg A, Small Cap IPO and Crowdfunding The Federal Reserve Bank of St. Louis Information about the event is available as you exit. Sept. 13, 2012 - Next PLSN Meeting Details coming soon!

Panel

Dan Broderick – Senior Fellow, BioGenerator and Vice President, BioSTL Karen Spilizewski – Vice President, RiverVest Venture Partners J. Joseph Schlafly III – Senior V.P. & Director of Public Finance, Stifel Nicolaus and Co.

DAN BRODERICK The Venture Capital Industry and How it Affects BioSTL

Plant and Life Science Network July, 2012 D. J. Broderick

NYSE.com

Investment Company Institute (12/31/2010)

Hedge Fund Reports (12/31/2010)

Thomson Reuters (12/31/2010)

PWC MoneyTree (12/31/11)

NVCA

Angel Capital Association

Thanks to John Taylor, V.P Research, NVCA

Venture capital

= 0.2% of US GDP

US GDP is $12.5 Trillion

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

NYSE Mkt Value

Equity Mutual Funds

Hedge Funds Buyout Funds (Est)

Venture Capital

$16,700

$5,666

$1,917 $800

$177

$0

$200

$400

$600

$800

$1,000

$1,200

0

200

400

600

800

1,000

1,200

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$B Assets Under Mgt

# Firms

# Firms AUM $B Active Firms

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$B 10 12 18 31 58 107 38 4 11 19 31 32 31 26 16 14 18

0

20

40

60

80

100

120

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

# LS FF 153 192 202 166 192 167 173 165 185 206 268 259 242 157 188 153

0

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011E

US All FF 100% 123% 138% 163% 176% 166% 103% 135% 155%

US LS FF 100% 112% 124% 159% 152% 139% 94% 113% 91%

80% 90%

100% 110% 120% 130% 140% 150% 160% 170% 180%

2003 = 100%

Uncertain regulatory environment – FDA

Higher cost of development ◦ Due to regulatory

Cost of pre-IND/IDE studies

Cost of human trials

Increased numbers, tests and length of follow up

“Allowing” Angels to “de-risk” the deal ◦ To raise money today most companies need…

at least drug safety data – or

first in man device studies

0%

10%

20%

30%

40%

50%

60%

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H11

% of total VC investment $

% Disk Drive % Cln Tch % Bio incl. Pharma % Software

Iowa, Indiana, Illinois, Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, Oklahoma, South Dakota, Wisconsin

% of Deals Done 4Q 2009 through 3Q 2011

# of Deals roughly even between devices and biotech,

Biotech, 118, 49%

Medical Devices, 110,

46%

Healthcare Services, 11,

5%

$ Invested 4Q 2009 through 3Q 2011

MN 27%

IL 24%

OH 15%

IA 9%

WI 9%

MI 6%

IN 3%

KS 2%

MO 2%

OK,KY,ND,NE 3%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M

$M Inv 673 931 1,186 2,009 3,222 5,970 2,310 1,248 1,053 1,091 1,203 1,169 1,645 1,756 1,197 1,692 1,362

# Deals 204 263 341 340 407 611 364 285 224 231 212 249 314 340 261 300 266

0

100

200

300

400

500

600

700

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$ Invested 4Q 2009 through 3Q 2011

41% of $ invested in life science related companies

Ag not a category by itself – yet!

Bio 26%

Devices 15%

SW 14%

Media/Ent 10%

Ind/Energy 8%

IT Svcs 8%

Bus Products 5%

HC Services 4% Other

10%

With R$D budgets being cut corporations are turning to alternative sources for new products like start-up companies

Corporate VC will be a more important source of funding

Need to understand strategic needs of the investing corporation

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1

2011 Q2

2011 Q3

2011

% Deals w/CVC $ 17.3% 14.9% 16.5% 16.3% 16.5% 18.1% 18.8% 12.8% 13.6% 15.1% 14.4% 15.6% 15.2%

% of Ttl $ from CVC 9.1% 6.9% 6.9% 6.7% 7.6% 8.1% 7.7% 7.3% 8.4% 8.6% 9.4% 9.2% 7.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Source – Angel Capital Association

Life Sciences

Life science investing is popular with Angels

Percentage

of Groups

Angels clearly like investing at the stages

important to BioGenerator

Angel investors are an increasingly important source of capital for start up companies ◦ Amount of invested capital in 2011 about 21 billion

dollars!*

◦ Almost equal to Venture Capital Firms

This is not going to change in foreseeable future

* Burrill and Associates

Existing ◦ VC

MHIN, NVCA, Past co-investors

◦ Angels

Arch, FTL Capital

Emerging ◦ Other VC’s – new relationships developing

◦ New Angels

M-COIN, Hyde Park – Many more

Seek new Angels – Locally – most important

◦ Corporate investors

Careful evaluation of financing risks

Thoughtful, (expert) design of seed funding milestones – value drivers

Deal selection – needs to be “special” ◦ Solve a big problem

◦ Extraordinary team

◦ Reduced financing risk – quick to human data

◦ Pre-series A value proposition

Data, fill out team, human data, IDE/IND (or equiv.)

◦ Some deals requiring VC funding will not be done

BG is a credible source of deals – life blood of VC’s

Amount of NIH and other Government sources of grants (RO1 and SBIR/STTR)

◦ Washington University, St. Louis University, UMSL, Donald Danforth Plant Science Center

Infrastructure – existing and emerging

◦ Bio STL – very impressive, momentum builder

◦ BAL – best in class, nothing else like it

◦ Deal pace – 26 deals, ~30 months

◦ i6, EDA grants, local cooperation/coordination

◦ BG, TREX, ITEN, Helix, Arch Grants etc.

KAREN SPILIZEWSKI Venture Capital in the Midwest. What Works?

Plant and Life Sciences Network

July 17, 2012

Karen Spilizewski

2011 US Venture Investing

Total VC investment in 2011 = $32.5 billion VC investment in Healthcare = $9.1 billion

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2005 2006 2007 2008 2009 2010 2011

Total US Healthcare Financings $M invested

Medical Devices and Equipment Biopharmaceuticals Healthcare Services & IT

State 2011 2010 2009 2008 2007

$ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos.

Minnesota 223.3 24 138.7 20 199 23 318.9 22 296.1 25

Ohio 177.8 67 147.2 47 105.4 40 189.1 43 295.5 44

Missouri 168.7 9 19.9 9 65.8 8 50.2 11 69.6 7

Western PA 67 25 86.2 20 37.8 24 126.2 33 101.4 17

Wisconsin 53.8 9 51.3 9 16.2 10 48.5 8 56.2 12

Illinois 44.2 9 160.9 11 38.9 8 97.3 13 125.5 7

Michigan 30.8 16 76.3 12 102.2 14 105 12 56.2 5

Kansas 18.5 2 14.5 13 4.3 5 16.9 9 56.6 6

Indiana 14.1 9 25.05 16 76.3 14 75.4 7 135.6 10

Kentucky 11.5 7 11.4 4 97.3 7 19.2 6 32 4

Iowa - - 7.3 1 36.8 3 4 1 - -

Total 809.6 178 738.9 161 780 156 1,050.5 165 1,224.7 137

Midwest Health Care Venture Investment (By State)

Data compiled by BioEnterprise from various sources

2011 Missouri Healthcare Deals

• Advanced ICU Care - $8 million • Cardialen – $0.74 million • Endostim - $5.55 million • Essence Group Holdings - $61 million • Nawgan - $6 million • Pulse Therapeutics - $1.33 million • Venti - $15.1 million • Veran Medical Technologies - $15 million • HealthMEDX - $56 million

Midwest Health Care Venture Investment (2011 - By Sector)

$295

$259

$251

Medical device

Health care IT and service

Biopharmaceutical

Data compiled by BioEnterprise from various sources

How Ohio Started in 2002

• Private/Institutions – Focus on entrepreneurs and innovation

– Technology transfer

– Venture firms and professional services

• Philanthropy – Fund For Our Economic Future: $90 million

– Investments for capital formation

• Public – State of Ohio: $2.3 Billion+ Capital, Operating Support, Business

Attraction

2002: Ohio Commitment

• $1.3 Billion, 10-Year Technology Initiative – Ohio Third Frontier

– Funding for: • Research distinctiveness and translation • Capital formation and attraction

(seed and venture) • Entrepreneurial infrastructure (inc. BioEnterprise) • Company acceleration

– Collaboration required, nationally assessed • Capital – Ohio Capital Fund

– $250 million to invest as LP – High-tech growth loan fund

• Annual general operating support

• Plus related business attraction and physical development

Result: Growth in Innovation Cleveland Healthcare Equity Investments

$ Millions

COMPANIES FUNDED:

5 6 13 21 16 22 28 26 21

Avg.142

33 35

J. JOSEPH SCHLAFLY III MOBIO Plans and Studies

PANEL DISCUSSION AND Q&A