Jeremy Halpern Partner, Nutter McClennen & Fish LLP

1. MTTC Early-Stage Life Sciences Technology Conference IX Life Science Venture Investing Trends and Thoughts Jeremy Halpern Partner, Nutter McClennen & Fish LLP

2. Jeremy HalpernBiography • Nutter, McClennen & Fish, LLP - Partner; Director of Biz Dev, Emerging Companies Team • Full service law firm • Top tier life science practice • MTDC– Director & Investment Committee Member • The Venture Arm of the Commonwealth-- catalyzing innovation in Massachusetts by providing seed and early stage venture funding to high growth technology startups. • The Capital Network – Director; Past Chairman • Providing education, resources and community to high growth entrepreneurs and angel investors as they navigate the early stage capital process. • Tufts University; Adjunct Professor of Entrepreneurial Leadership • Educating students in the art and science of leading ventures with limited resources. • Entrepreneurial Experience • UC Berkeley, B.A. (Go Bears!); UCLA School of Law, J.D.

3. Nutter’s Emerging Companies Group

4. Numbers that matter: National 2012 VCs invested $26.5b into 3,698 deals = 10% decrease in $; 6% decrease in deals VCs invested $4.1b into 466 deals in Biotech = 15% decrease in $; flat on volume VCs invested $2.4b into 313 deals in Medical Devices = 13% decrease in $; 15% decrease in deals VCs invested into 135 new companies in 2012 = lowest level since 2005

5. Numbers that matter: New England Q4 2012 • Seed: $16m in 7 deals (all verticals) • Early Stage: 339m in 54 deals (all verticals) • Biotech: $207m in 28 deals (down from $386m in 28 deals) • MedDevice: $138m in 11 deals

6. National Trends: 2012 • Seed stage deals declined 31% in $ and 38% in deals • Early stage deals decreased 11% in $; but increased 5% in deals = more deals with less capital per deal coming at a later stage

7. Contributing Factors - Biotech • Gross revenues and margins are declining on products • Development costs for biotech/pharma continue to rise – Average cost = $1b • Phase II success rate declined to 22% for trailing 5 years (a 12% drop) • Increased pressure from generic therapeutics • Increased regulatory pressure from FDA around comparative effectiveness • 2nd and 3rd world markets declining to protect patent status thereby reducing margins and penetration • Uncertainty around ObamaCare impact and implementation

8. Contributing Factors - MedTech • Continued regulatory uncertainty from FDA around comparative effectiveness (2012: 48 devices approved; a 5% decline from 2011) • Uncertainty around ObamaCare impact and implementation • Acquisitions happening later in venture life cycle (post market adoption and sales traction) • Reduces exit volumes • Reduces capital efficiency and creates the assumption of capital compression • Increases execution risks • Fewer acquirers reduces auction environment which depresses exit prices – lowering ROI expectations for investors

9. Is there Hope – Biotech? • FDA product approvals for biotech at 16 year high: 39 new molecular entities • Most venture deals were uprounds in 2012 • iShares Dow Jones U.S. Medical index continued to climb from ~$34 in 2009 to $76 in 2013 • Increased price pressure for therapeutics will drive acquirers to favor cost saving technologies • Acquirers looking to fill pipeline and stay competitive

10. Is there Hope – MedTech? • Big Data + Health IT + MedTech producing an entirely new category of diagnostic and data products • Companies using new business models to increase adoption and create early and recurring revenues. • Costs of building MedTech infrastructure continue to decline (incubators, IT infrastructure, prototyping, talent etc.) • Existing mobile platform technologies are decreasing costs and increasing adoption • Overhang from 2008 VC investments may be ending • Acquirers looking for high margin products that will still save payers long term costs

11. Investment Trends: Biotech – Single Asset • Supporting single asset virtual development with a capped investment amount • Typically not more than $20m (thinly capitalized at all moments) • Outsourced talent and CROs • Red Light/Green Light milestones: Research, In-Vitro POC, In Vivo, (Veterinary), Preclinical, Phase Trials • 2011: Exit at Phase II (or IIb) for Upfront + Milestone payments • 2012: Some appetite for earlier exists at lower prices (allowing investors to distribute upfront $ and “play with house money”) • Unclear if this will replace robust B rounds

12. Investment Trends: Biotech – Platform • Platform Development • Repeatable and scalable ability to produce drug candidates • Larger infrastructure including full management team • Disruptive technology • Larger and unfixed capital raising strategies • First product identified and in progress to market

13. Investment Trends: Terms • Fewer deals tranched to milestones • Nearly all lifesci deals have weighted average anti-dilution rather than full-ratchet • Participating preferred is on the rise, but many deals have caps resulting in an effective price adjustment • Lower Seed/A Round Values may better position a company for success

14. Investment Trends: Crowdfunding… sigh • Crowdfunding may supplement seed/angel/micro VC deals • Cause Marketing tie-in (“finding a cure for ________”) • Cannot replicate or replace the experience, judgment and relationships brought by traditional angel investors. • May damage ability to get follow on financing • Massive risk of lifesci investing may not be a good fit for crowd • Increased risks of litigation • Even worse ability of investors to diligence LifeSci investments • Mechanisms and Portals still not approved

15. MTTC Early-Stage Life Sciences Technology Conference VIII: Life Science Venture Investing Trends and Thoughts Jeremy Halpern Partner Director of Business Development Emerging Companies Team Nutter McClennen & Fish LLP T: (617) 439-2943 M: (617) 905-1893 jhalpern@nutter.com @startupbostonwww.linkedin.com/in/jdhalpern