Overview of the commercial translation of cell therapies and regenerative medicine by Greg Bonfiglio, Proteus Venture Partners

1. Funding & Commercialization Strategies for
Regenerative Medicine Companies
Gregory A. Bonfiglio
Proteus Venture Partners"
November 15, 2011 "

2. Agenda
I. The RM Market Is Entering A New Era
§ RM Has Made Great Progress
§ But Serious Commercialization Challenges Remain
II. New Economic Realties
§ A Fundamental Shift in Biotech Economics
§ The Valley of Death Is Expanding
§ A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers
§ Enabling Capital Efficient RM Technology Development
§ Facilitating Collaborations in RM Technology Development
§ The RMC: An International Coalition of RMTCs
CONFIDENTIAL 2

3. Gartner’s Hype Cycle of Emerging Technologies
Visibility"
Technology Peak of Inflated Trough of Slope of Plateau of Productivity
Trigger Expectations Disillusionment Enlightment
Time"
CONFIDENTIAL 3

4. RM Market: On 2nd Half of the Gartner Curve
Visibility" Peak of Inflated Trough of Slope of Plateau of
Expectations" Disillusionment" Enlightment" Productivity"
2001: 3300 jobs, 73 firms, mkt cap > $2.5B"
2011 Shire Acquires ABH -$750M "
2001 Ortec FDA approved"
2000 Time Magazine: 2010 Cephalon & Mesoblast $2B Deal"
TE No. 1 job"
2001 Dermagraft FDA approved"
2010 Dendreon’s Provenge Approved"
1999 TE bladders in clinic" 2001 Bush “partial ban” on HESCs"
1999 First FDA approved 2009 Obama Ends Ban on hESCs"
TE product (Apligraf)"
1998 Human ESCs first derived" Nov 2008 Genzyme-Osiris $1.25B Deal"
1997 Dolly the sheep" 2007 iPS Technology Developed "
1997 First FDA approved cell
therapy (Carticel)" 2007 Apligraf - 200,000 Patients Treated"
2006 Carticel - 10,000 Patients Treated"
2002 ISSCR Founded"
1992 Geron founded"
2005 CIRM Founded"
1988 SyStemix founded"
1986 ATS and Organogenesis founded" 2003 UK Stem Cell Bank Formed"
1980 Early TE research (MIT)" 2002 ATS + Organogenesis file"
Chapter 11"
Technology Trigger"
Stage of Development" Time"
CONFIDENTIAL 4

5. RM Is Entering A New ERA
RM Market is Maturing: Key Metrics
Rapidly Expanding Market: Commercial Products
• $1.6B in 2010 • 400 on Market (Mostly Skin, Tools
Media, & Devices);
• $20.0B in 2025 – 900+ in Development
• CAGR of 18.34% • 44 Cell Therapies on Market
– $1B Revenues
Dramatic Revenue Growth – 400 in Development
• $130M in 2001 – 28 in PIII/Pivotal Trials
• $1.6B+ in 2010
1.2M+ Patients Treated with RM
Products.
Worldwide funding for research
Increasing • 320K+ Cell Therapy Patients
• $2.5B Now RM Companies
• $14B in 10 Years • 600+ Co’s involved in RM
• 50+ Public Co’s;
Clinical Programs
• Over 3600 Clinical Trials
– $8.7B Total Market Cap
• Over 400 ex-Oncology • 225+ Private Co’s
CONFIDENTIAL 5

6. RM Market: Expanding Rapidly
Dramatic Cell Therapy Revenue Growth
CTI Revenues: $410M (2008) - $5.1B (2014)"
Cell Therapy Industry: Billion Dollar Global Business With Unlimited Potential; "
Regenerative Medicine; Chris Mason, David Brindley, Emily J Culme-Seymour & Natasha L Davie"
CONFIDENTIAL 6

7. Global Company Distribution
Canada UK
24 firms 133 firms Europe
(ex. UK)
3% 19%
14% 93 firms
Asia
56% 2% 32 firms
5%
Middle East
17 firms
USA
386 firms
600+ RM companies worldwide!"
CONFIDENTIAL 7

8. RM Has Made Great Progress, but…
….Challenges Remain
R&D Manufacturing
§ Creation And Characterization Of § Technologies For Scale-up
Optimal Cells For Therapy - Safe & Reliable Expansion
– Controlling Differentiation Pathways
- Sterility Testing & Validation
§ Standards For The Field - Process Control & Reproducibility;
– What is an iPS Cell? …or MSC? Consistent Lots
- Closed Systems
§ Contaminant Free Cell Lines
§ Product Characterization
§ Safe & Reliable Expansion
– Safety; Identify; Potency
§ Track Cell Migration & Engraftment
§ Process Control : Process Is The
- Imaging Technology And Product
Biological Markers
– COGS; QC; & cGMP
§ Immune Modulation
§ Centralized Vs. Point Of Care
CONFIDENTIAL 8

9. …A Few More Challenges
Regulatory& IP Landscape Business Issues
§ Regulatory Environment Needs § Business Model Questions
Clarity - Capital Efficient R&D
- Standards & Guidelines Are Evolving
- Product V. Service Models
- Characterization
- Autologous V. Allogeneic
- Safety / Efficacy / Consistency
- Cross Border Inconsistencies
§ Reimbursement Issues
- Cost Savings Justification
§ IP Landscape Is Treacherous :
“Patent Thicket” § Sales & Marketing
- Fragmented Ownership; - Complex Channel Arrangements
- Patents Proliferating Rapidly : 25% GAGR
- Define Marketable “Product”
- Inconsistent & Competing Patents: Invites
Litigation - Educate Consumers Re: New Treatment
Paradigms
- Need “Freedom To Operate” Opinions
CONFIDENTIAL 9

10. RM Business Models: Autologous v. Allogeneic
Autologous Model Allogeneic Model
Patients Own Cells/Tissue Universal Cells in a Bottle
• Personalized Medicine • Big Pharma “Drug Model”
Advantages:
• Autologous Treatment for Prostate
Advantages:
Cancer Using Dendritic Cells
• Easier Regulatory Path • Scalable
(GTP) -Centralized Processing
• Low COGS
• No Immune Response
• $93K per Treatment Challenges:
Challenges:
-$1B+ Projected Revenues Regulatory
• More Difficult
• Difficult to Scale Path
• High COGS• $5.0B Market Cap (Until Aug 3,Response
• Immune
2011)
Service vs. Product"
CONFIDENTIAL 10

11. Agenda
I. The RM Market Is Entering A New Era
§ RM Has Made Great Progress
§ But Serious Commercialization Challenges Remain
II. New Economic Realties
§ A Fundamental Shift in Biotech Economics
§ The Valley of Death Is Expanding
§ A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers
§ Enabling Capital Efficient RM Technology Development
§ Facilitating Collaborations in RM Technology Development
§ The RMC: An International Coalition of RMTCs
CONFIDENTIAL 11

12. New Economic Reality"
Coming Out (?) of the Worst Financial Crisis in 75+ Years
CONFIDENTIAL 12

13. Dendreon is a Success Story, But….
…Also a Cautionary Tale
August 3, 2011 "
"
"
Dendreon plunges 67% on slow sales, plans 'across the board'
layoffs"
"
Dendreon slashed its sales forecast for 2011 Wednesday "
after reporting lower than expected second-quarter net revenue of $49.6 million."
August 18, 2011 "
"
"
Biotech Stocks Battle The ‘Dendreon Effect’"
Company’s Troubles With Provenge Chill Fellow Drug Makers"
"
CONFIDENTIAL 13

14. Biotech Product Development Is
"Dependent on External Funding "
Probability: Probability: Probability:
Probability" 66%" 70%" 40%"
of success"
Steps Basic & Discovery Preclinical" Preclinical" Clinical" Clinical" Clinical"
Market"
" Research" Research" Development" Phase I" Phase II" Phase III"
1-3 years" 1.4-1.8 year" 2.5-3.8 years"
Outcome" Proof of Concept." Therapeutic IND" Safety" Efficacy" Product
Candidate" Release"
Investment"
PI" PII" PIII" $75=100MM"
Amount" $5-10MM"
$10-15MM" $20-25MM" $50-75MM"
Actors" Grants to Universities & Venture Investments" IPO & Partnering Deals"
Research Institutes,"
• Average Time to Market: 10-15 Years"
• Average Costs: $1B"
Key Metrics:" • Failure Rate: @90%"
• Less than 30% of approved drugs recoup
development costs"
CONFIDENTIAL 14

15. Venture Capital:
VCs Want “Pristine Deals”
Proprietary Commercial Technology Defensible Business Model
§ Great Science ≠ Great Business § Capital Efficient Tech Development
§ Proof Of Concept Established § Application Engines
§ Phase II Clinical Data § Project Based Models
§ Virtual Operations
Strong Management Team
§ Board Differentiation
§ SAB § How Is Your Approach Different?
§ Why Is It Better?
Solid Intellectual Property Position
§ Freedom To Operate Exit Strategy
§ Defensible IP (Patents & Trade § M&A: Attractive Products For Acquirer
Secrets) § Realistic Timeframe
Large Market Opportunity
Acceptable Risk/Return Profile
§ Target markets > $1B/year
§ Multiple Chances To Win
CONFIDENTIAL 15

16. Public Capital Markets:
Financing Alternatives
Key Strategies: IPO - 2ndary - Shelf Registration - PIPE
Company sells registered shares under an effective shelf registration statement (or a
Follow-On
specific registration statement) to public investors after a traditional 2 to 5 day
(Fully Marketed)
roadshow
At-the-Market Company sells registered shares under an effective shelf registration statement to
(ATM) investors into the general trading market over an extended period of time
SEC Registration
Required Upfront
Underwritten
Company sells registered shares under an effective shelf registration statement to
Equity Registered Direct
public investors after a 1 to 3 day confidential roadshow
(URD)
Registered Direct Company sells registered securities under an effective shelf registration statement to
(RD) a targeted group of institutional investors on a confidential basis
Company sells unregistered shares to a targeted group of institutional investors in a
Common Stock
private placement and files to register the securities typically within 30 days after the
PIPE
offering
No Upfront SEC Company sells unregistered convertible preferred stock/convertible debt to a
Convertible
Registration targeted group of institutional investors in a private placement and files to register
PIPE
Required the securities typically within 30 days after the offering
Convertible
Preferred/Debt
Company sells unregistered convertible debt securities to institutional investors in a
Rule 144A
Rule 144A offering and files to register the securities typically within 90 days after the
Convertible Debt
offering (public style execution)
[Source: Robin Smith – NeoStem]"
Public Transactions Private/Quasi-Public Transactions
8
CONFIDENTIAL 16

17. The Old “Relay” Model Is Very Capital
Intensive
Strategy: Build Company Toward An IPO
Business Models:
• “Platform” Company
• Develop technology horizontally across many therapeutic applications
• High research cash burn
• Large R&D staff
• “Product” Company (Specialty Pharma)
• Apply technology to specific therapeutic applications
• Multiple clinical programs
• Large clinical trial burn rate
Pre-IPO Capital: @
$90M"
IPO Metrics:
• Lead Program in late stage development
• Additional “shots on goal” (earlier clinical programs, or platform technologies)
• Substantial infrastructure (“bricks & mortar” & staff)
CONFIDENTIAL 17

18. The New Economic Reality
Traditional Capital Sources Are Unavailable
Public Markets: Closed?
• Biotech IPO Performance: Very Poor
• 2003-2007 Window: 77 Companies
• Average VC Return = 1.9X
• Oct 2007 (Market Peak): 59% trading below initial PPS
• June 2009: 79% trading below initial PPS
• 69% Trading Below Total Invested Capital
• Only 13 Biotech IPOs in the last 24 months; All Performed Poorly* (Reduced
Capital Raised; Reduced Offering Price; Trading Below IPO price)
Private Equity: Dramatically Reduced
• Venture Investments in Biotech are Down 45+%
• Back to pre=1990s level of capital (PWC Survey)
• VCs have fled Early Stage investments
• First-Time Financings at Some of the Lowest Levels in 40 Years
CONFIDENTIAL 18

19. Global Biotech IPOs: 2002 - 2010
Source: Nature Biotechnology 29, 585–591 (2011)"
CONFIDENTIAL 19

20. GLOBAL BIOTECH FINANCING
Source: Nature Biotechnology 29, 585–591 (2011)"
CONFIDENTIAL 20

21. Funding Sources: Government Funds
UK & EU Development Funds: MRC; Framework 7; European Research
Council
Traditional US Government Funding Increasing
§ NIH Funding & DARPA
Non-Traditional US Government Funding Is Available
§ DoD RM Initiate: AFIRM (Armed Forces Institute of Regenerative
Medicine)
§ HHS Initiative: BARDA (Biomedical Advanced Research and
Development Authority)
State RM Funds: CIRM Actively Funding ($1.2BM); Many Other US States
Other Regional Development Funds: Singapore EDB/Bio*One Fund; UK
Matching Grants; Gulf; India
§ Tech Transfer; Develop Biotech Industry
CONFIDENTIAL 21

22. The Valley of Death Is Expanding
Institutional Funding Is Not Readily Available
Until Phase 2 Trials
2-3 years 2-3 years 3-4 years
RESEARCH DEVELOPMENT CLINICAL TRIALS
(Phase 1 and 2)
“Valley of Death”
VC Investments
Grants & Seed
Available
Money
CONFIDENTIAL 22

23. “It’s a Very Tough Environment”
Many Biotech Companies in Peril
25% of All Biotech Companies have Failed since 2007
Delistings & Bankruptcies in 2008
• 22 Public Companies were Delisted from NASDAQ
• 214% increase over 2007 (7 Companies)
• 6 Public Companies filed for Bankruptcy Future Losses: "
• 200% increase over 2007 ( 2) @5% will Fail in Next
12-18 months "
Biotech Casualties in 2009:
• 44 Public Companies Lost (Delistings; M&A; BKs)
Cash Shortfalls (Oct 2010)
• 25% (73) Public Companies have less than 6 months cash
• Better than Dec 2008: 45% of Public Co’s Had Cash
Shortfall
CONFIDENTIAL 23

24. “It’s a Very Tough Environment”
" " " " " " November 14, 2011!
"
"
Geron Halting Stem Cell Research, Laying Off
"
Staff, Stem Cell Pioneer Exits Field
Geron exiting such research, laying off staff, to focus on
cancer drug tests!
!
MENLO PARK, Calif. (AP) -- Money troubles have forced the first company doing a government-
approved test of embryonic stem cell therapy to discontinue further stem cell programs and lay off much
of its staff. "
" " " ">>>>>>>"
In a statement, the company said the decision to narrow its focus "was made after a strategic review of
the costs, ... timelines and clinical, manufacturing and regulatory complexities associated with the
company's research and clinical-stage assets.". "
!
"
CONFIDENTIAL 24

25. GERON hESC Program:
“POST-MORTUM”

26. WHAT CAN WE LEARN FROM GERON?

27. A New Model Is Required:
Capital Efficiency Is Critical
CAPITAL EFFICIENCY: DO MORE WITH LESS
Extend Technology Development In Academic Setting
• Thru Phase II
Pursue Alternate Funding Sources
• Government Grants (NIH, DARPA, BARDA; Regional Development Funds;
Foundations & Disease Advocacy Groups; Partner with Pharma/Big Bio
Focus & Conserve Resources
• Focus On Core Business & Projects
• Reduce Infrastructure & Staffing
• Outsource Clinical Development (CRO; RMTs) & Manufacturing (CMO )
Collaborate & Share Resources
• Open Innovation Model
• Share Facilities, Technologies, Staff & IP Resources
CONFIDENTIAL 27

28. A New Model Is Required:
Capital Efficiency Is Critical
CAPITAL EFFICIENT BUSINESS MODELS
Virtual Company
• Outsource Clinical Development To RMTC or CRO
• Outsource Manufacturing To CMO
• Reduce Infrastructure & Staffing
• Project Based - POC Model
• Fund Specific Projects/Clinical Programs - Focus On Most
Compelling Therapeutic Application
• Create & Fund Company Post-POC Data
• Partnering Model
• Collaborative R&D
• Shared Facilities, Staff, IP, and Other Resources
CONFIDENTIAL 28

29. Agenda
I. The RM Market Is Entering A New Era
§ RM Has Made Great Progress
§ But Serious Commercialization Challenges Remain
II. New Economic Realties
§ A Fundamental Shift in Biotech Economics
§ The Valley of Death Is Expanding
§ A New Capital Efficient Model Is Required
II. The Role of RM Translation Centers
§ Enabling Capital Efficient RM Technology Development
§ Facilitating Collaborations in RM Technology Development
§ The RMC: An International Coalition of RMTCs
CONFIDENTIAL 29

30. The Role of RM Translation Centers:
Enabling Capital Efficient Technology Development
RM Translation Centers Offer
• State of the Art Facilities
- cGLP & cGMP Compliant
- Focused on Specific RM Technologies
• Access Deep Domain Knowledge in RM
– Core Expertise in Associated Academic Institution
– History of Collaboration
• Clinical Development Expertise
– Preclinical Thru Phase II
• Experienced Support Services
– Incubator/Accelerator
CONFIDENTIAL 30

31. The Role of RM Translation Centers:
Enabling Capital Efficient Technology Development
Collaborative Research Leveraging Shared Resources
RM Translation
Centers
• GLP/GMP Facilities
• RM Expertise
• Clinical Development
Experience
Pharma
Funding Sources
New RM Venture • Clinical
• Profit - Virtual Co Development
• Non-Profit • Manufacturing
- POC Project
• Marketing
• Government - Application Engine
• Reimbursement
Open Innovation, Henry Chesbrough ,
CONFIDENTIAL 31 Harvard Business School Press, 2006 "

32. The Role of RM Translation Centers:
Enabling Capital Efficient Technology Development
RM Translation Centers
CONFIDENTIAL 32

33. The Role of RM Translation Centers:
Enabling Capital Efficient Technology Development
RM Translation Centers
UCI Stem Cell Research Center"
Clinical Cell and Vaccine
Production Facility"
USC & UCSF RM Centers "
CONFIDENTIAL 33

34. Regenerative Medicine Coalition:
A Coalition of RM Translation Centers
Mission of the RMC

35. Regenerative Medicine Coalition:
A Coalition of RM Translation Centers
RMC
Core Members:
RM Translation Centers
Associate Members:
-Pharma
-Biotech
-Emerging RM Companies
-Funding Agencies
CONFIDENTIAL 35

36. Regenerative Medicine Coalition:
Charter Members
CONFIDENTIAL 36

37. Regenerative Medicine Coalition:
Finance & Industry Support
CONFIDENTIAL 37

38. The Final Word
CONFIDENTIAL 38

39. APPENDIX
CONFIDENTIAL 39

40. Proteus: An Investment and Advisory
Firm Focused on RM
Proteus, Inc."
Proteus Proteus Proteus
Management, LLC" Insights, LLC" Advisors, LLC"
" " "
(Fund Management) " (Consulting Services) " (Investment
Banking Services)"
CONFIDENTIAL 40

41. Funding Sources: Corporate & Non-Profit
Philanthropic Foundations & Disease Advocacy Groups Provide Funding
§ JDRF; Michael J. Fox Foundation, CNS Foundation
§ Stowers Institute
Corporate Venture Groups
§ JJDC (Tengion; NovoCell)
§ Pfizer; NovoNordisk; GE Healthcare; Genzyme
Creative Sources of Funds:
§ Out license non-core technology
§ Provide consulting or lab services to generate cash flow
§ Work with a strategic partner
§ Biotech, Pharma & Device Companies
§ Merge with a cash rich company that is tech poor
CONFIDENTIAL 41

42. RM IP Landscape: A Patent Thicket
Key Patent Metrics (1980-2005)
Substantial Activity RM
Patents
Granted
• Patent Applications: 10,000+
• Patents Granted: 2,200+
US:
51%
Dramatic Increase in Filings Since 2000
• Over 25% Annual Growth Rate UK:
4%
Geographic Patent Distribution: US Dominates Canada:
4%
• US: Over 50% of Patents
• UK, Canada, Germany: @4% Each Germany:
• Australia, Japan, China, Israel: @3% 4%
Each Australia:
3%
Top 50 Patents Cover Core Technologies
• Cell Lines; Media; Differentiation
CONFIDENTIAL 42

43. RM IP Landscape: A Patent Thicket
Key US RM Patent Metrics
"
§ Unusual Patent Distribution"
- 44% Public Sector Entities "
- 56% Private Sector"
"
§ Fragmented Ownership"
- No Company Owns More Than
3% of Granted Patents "
§ Pharma & Big Bio Are Key Holders "
- Amgen, Novartis, Pfizer &
GSK "
§ Osiris, STEM, & Geron Have Large
Estates" *Only 3% of All USPTO Patents
" Are Held By Public Entities"
"
CONFIDENTIAL 43

44. Funding & Commercialization Strategies for
Regenerative Medicine Companies
Gregory A. Bonfiglio
Proteus Venture Partners"
November 15, 2011 "