TRENDS IN PRIVATE COMPANY FINANCING & EXITS IN OPHTHALMOLOGY

Healthcare
Investments and Exits
Mid-Year 2016 Report – OIS August 8, 2016
Prepared by:
Jonathan Norris
Managing Director
Silicon Valley Bank

Venture Healthcare Topics:
Healthcare Investments and Exits, Mid-Year 2016 Report 2
Key Highlights 1H 2016
Healthcare Investments and Fundraising
Healthcare Big Exit M&A and IPO
Cover Photo: Cytotoxic T lymphocytes attacking cancer cell

Key Highlights 1H 2016: New Patterns Emerge
as Investor Confidence Drives Deals
Like investing and exits overall, healthcare experienced a bumpy start
in 2016 — but also had some surprising highlights.
• Venture fundraising declines, but Series A investment is up in all sectors.
• We expect healthcare investment to reach $9B-$9.5B for full-year 2016, down
slightly from 2015.
• Crossover investment slows, but newly raised funds, corporate venture and
family offices are largely filling the gap. Crossover investors are instead focusing
on
getting biopharma portfolio companies to an IPO.
• Biopharma round sizes are skyrocketing, while exits focus on early-stage
companies.
• Device remains healthy, as M&A big exits are on pace to meet full-year 2015.
• Diagnostics (dx) has experienced exit pullback due to regulatory and
reimbursement uncertainty. However, investment has picked up and M&A activity
should increase.

Healthcare Investments and
Fundraising:
Series A Activity Booms

With very healthy funding over
the last few years, we continue
to see strong investment into
companies and expect it to
continue for at least the next two
years.
Based on Q1 2016 data, we think
investment into companies will
reach $9-$9.5B for the full year,
down slightly from 2015. This
reflects less crossover activity.
Fundraising in 1H 2016 is down
compared to 1H 2015, driven
primarily by the closing of three
big funds ($2.75B total) in 2015.
But we continue to see LP
interest in investing into
healthcare.
Investors See Strong Future in Healthcare
U.S. Healthcare: Capital Invested and VC Dollars Raised
Capital Flow
Ratio
127% 368% 207% 189% 175% 149% 141%
HC $ Invested into Companies HC VC $ Fundraised Gap in Funding
0
1
2
3
4
5
6
7
8
9
10
11
2009 2010 2011 2012 2013 2014 2015
$Billions
Source: PricewaterhouseCoopers, Thomson Reuters and SVB proprietary data
$7.5B
$10.5B

Series A Activity Is Strong across All Sectors
Total Series A ($M) $1,107 $862 $1,843 $994
CVC Deals % / # 28% / 17 27% / 20 26% / 23 33% / 19
BIOPHARMA
Biopharma is on pace in 2016 for
100+ Series A deals (up 30%
over 2015) with $2B in invested
capital. Both would be record
highs, if investment velocity
continues.
• Significant pre-clinical focus,
especially in platform,
oncology, anti-infective,
neurology and orphan/rare
disease companies
Device deals already have
eclipsed 2015 totals, driven by
angel activity.
• Significant investment activity
in neurology, cardiovascular
and surgical companies
Dx/tools deals and dollars in 1H
2016 have exceeded 2015 totals,
despite an M&A pullback.
• Grail raised $125M in Series
A, accounting for almost half
of dollars raised in 1H 2016
DEVICE
DX/TOOLS
Total Series A ($M) $227 $337 $92 $104
CVC Deals % / # 18% / 7 14% / 6 22% / 4 4% / 1
Total Series A ($M) $234 $252 $165 $263
CVC Deals % / # 10% / 4 12% / 4 24% / 4 21% / 5
60
75
87
58
0
40
80
120
2013 2014 2015 1H 2016
#ofDeals
38 42
18 24
0
40
80
120
#ofDeals
39 34
17 24
0
40
80
120
#ofDeals
Source: CB Insights, PitchBook, press releases and SVB proprietary data
U.S. Company Formation: Deals and Investments in Series A

Venture and Corporate Investors Keep Active
Trends suggest the number of
deals by the most active
investors will increase 30% over
2015.
Pfizer, a corporate investor,
leads all investors with 9 new
deals in 1H 2016.
The majority of the most active
VCs in 1H 2016 have raised new
funds between January 2015 and
June 2016.
Active crossover investors
include Deerfield Management
(7), Fidelity Investors (4) and
Cormorant Asset Management
(4). See page 13.
Top 2015 VC+CVC Biopharma
INVESTOR DEALS TYPE
OrbiMed Advisors 16 VC
New Enterprise
Associates
9 VC
Novartis Venture
Funds
9 Corporate
ARCH Venture
Partners
8 VC
Sofinnova Ventures 8 VC
Novo 7 VC
Pfizer Venture
Investments
7 Corporate
Versant Ventures 7 VC
Celgene 6 Corporate
Johnson & Johnson
Innovation
6 Corporate
SR One 6 Corporate
Top 1H 2016 VC+CVC Biopharma
INVESTOR DEALS TYPE
Pfizer Venture
Investments
9 Corporate
OrbiMed Advisors 8 VC
Frazier Healthcare 6 VC
Novo 6 VC
AbbVie Biotech
Ventures
5 Corporate
ARCH Venture
Partners
5 VC
New Enterprise
Associates
5 VC
Canaan Partners 4 VC
MPM Capital 4 VC
Johnson & Johnson
Innovation
3 Corporate
Roche Venture Fund 3 Corporate
Most Active* New Investors in Biopharma 2015 versus 1H 2016
*Most active is defined as top 60 investors based on new investments.

Oncology Leads New Biopharma Investments
Oncology has almost three times the number of deals compared to any other category.
Anti-infective, ranked ninth in number of deals in our 2014 analysis, is now tied for second.
Platform, orphan/rare disease and neurology continue to receive significant investment.
Oncology
62 deals
$2,419M
Anti-Infective
22 deals
$686M
Platform
22 deals
$914M
Neurology
22 deals
$816M
Orphan/Rare
Disease
19 deals
$749M
Auto-
Immune
6 deals
$232M
Metabolic
9 deals
$243M
Cardiovascular
5 deals
$109M
Gastrointestina
l
6 deals
$128M
Respiratory
4 deals
$155M
Ophthalmology
5 deals
$201M
Most Active* New VC Investments in Biopharma by Indication 2015–1H 2016
*Most active is defined as top 60 investors based on new investments.

Biopharma Deal Size Increases
Median investment round size
from most active investors has
increased 40% over 2015.
The median deal size has almost
tripled since 2013.
Recent larger equity raises in
biopharma could compress M&A
multiples down the road,
especially as IPO optionality
declines.
$15.3
$23.0
$30.0
$42.8
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2013 2014 2015 1H 2016
MedianDealSize($Millions)
Median Deal Size by Top 60 VC and Corporate Investors

Device Gains Traction in Large Late-Stage
Deals
Active* Investors
INVESTOR TYPE INVESTOR TYPE
Action Potential Venture
Capital
Corporate Lightstone Ventures VC
Aisling Capital VC Longitude Capital VC
BioStar Ventures VC Medtronic Corporate
Deerfield Management Crossover New Enterprise Associates VC
Edwards Lifesciences Corporate OrbiMed Advisors VC
Endeavour Vision VC Sante Ventures VC
GE Ventures Corporate Sofinnova Partners VC
HealthQuest Capital VC SV Life Sciences Advisers VC
Johnson & Johnson
Innovation
Corporate Venrock VC
KCK Group Family Office Vertex Healthcare VC
Analysis of the top 10 1H 2016
device deals:
• The median deal size jumped
to $46M in Q2 2016 — the
largest median round size in
two years.
• The increased deal sizes
underscore the funding of
late-stage pivotal trial and/or
commercialization rounds.
• Cardiovascular received the
most investments in 1H 2016;
this indication requires
significant clinical trial
investment. We also saw
recent big exit M&A activity in
this indication, with 8 of 17
device big exits in 2015.
Active* Investors in Device 1H 2016
*Active defined as investors that are actively investing or actively looking at deals.

Healthcare Big Exit M&A and IPO:
Robust M&A Activity
Continues as IPOs Slow

Strong Biopharma Big Exit M&A Continues,
while IPO Market Slows
Q1 Q2 Q3 Q4 Total
2013
IPO 3 10 13 8 34
M&A 3 3 3 3 12
2014
IPO 24 12 17 13 66
M&A 3 4 6 1 14
2015
IPO 11 12 9 10 42
M&A 7 4 6 4 21
2016
IPO 7 8 15
M&A 5 4 9
Healthcare Investments and Exits, Mid-Year 2016 Report 12Source: CB Insights, PitchBook, press releases and SVB proprietary data
VC-backed Biopharma Exits by Quarter 2013–1H 2016
Full-year 2016 biopharma IPOs
are estimated to come close to
the 2013 total.
Of the 15 IPOs in 1H 2016, 7
companies were trading above
their IPO price and 8 trading
below at the end of the first half
of 2016.
We anticipate M&A big exits to
pick up in 2H 2016 and exceed
the 2015 total.

Early-Stage Companies Dominate
Biopharma IPOs
Stage 2012 2013 2014 2015 1H 2016
Pre-Clinical /
Phase I
1 9 29 18 9
Total Biopharma
IPOs
10 34 66 41 15
% Early-Stage IPOs 10% 26% 44% 44% 60%
Biopharma IPOs were focused predominantly on early-stage companies in 1H 2016.
In 1H 2016, median IPO dollars raised was $53M, down from $75M in 2H 2015. Median pre-money valuation in 1H 2016
of $176M is healthy, but below the 2H 2015 median of $233M.
Following a strong 2015 for neurology and anti-infective IPOs, these indications had none in 1H 2016. This may be
related to recent clinical setbacks at newly public companies.
VC-backed Biopharma IPOs by Stage 2012–1H 2016

Biopharma M&A Big Exit Multiples Surge;
Early-Stage Focus Continues
Healthcare Investments and Exits, Mid-Year 2016 Report
Pre-Clinical Phase I Phase II Phase III Commercial
14
0
2
4
6
8
10
12
14
16
18
20
2012 2013 2014 2015 1H 2016
#ofBigExits
VC-backed Biopharma Big Exit M&A by Stage 2012–1H 2016
Biopharma deals in 1H 2016 had
a strong median upfront multiple
of 4.7X. Even more impressive,
the median all-in multiple
reached 14X, up significantly
from 2014 and 2015.
7 of 9 M&A big exits were pre-
clinical or Phase I:
• Pre-clinical deals were in
neurology, auto-immune and
orphan/rare disease.
• Phase I deals were in
oncology (2 deals), metabolic
and aesthetics/dermatology.

Early-Stage Biopharma M&A Remains Strong,
while Exit Time Decreases
$325M
$500M
$413M
$600M
$600M
5.0
4.1
5.3 5.6
4.7
2012 2013 2014 2015 1H 2016
Median Total Deal Size and Time to Exit (Pre-Clinical &
Phase I)
Median Total Deal Size Median Time to Exit (years)
n=5 n=3 n=8 n=11 n=7
31.8%
51.7%
74.0%
36.9%
51.2%
68.2%
48.3%
26.0%
63.1%
48.8%
2012 2013 2014 2015 1H 2016
Median Total Deal Size (Pre-Clinical & Phase I)
Upfront % Milestone %
$325M $500M $413M $600M $600M
M&A median total deal size
remains at record high, even as
IPO optionality is decreasing.
This suggests competition
among acquirers, which is
leading them to pay more at deal
close to acquire early-stage
assets.
Biopharma M&A continues to
show a quick time to exit.

Device Big Exit M&A Charges On
as IPOs Disappear
Q1 Q2 Q3 Q4 Total
2013
IPO 0 0 0 2 2
M&A 2 2 6 2 12
2014
IPO 1 5 1 3 10
M&A 2 9 5 2 18
2015
IPO 3 4 3 1 11
M&A 0 4 9 4 17
2016
IPO 0 0 0
M&A 5 4 9
VC-backed Device Exits by Quarter 2013–1H 2016
In 1H 2016 there were no device
IPOs, but we did see some
reverse merger activity.
At the same time, there were
9 M&A big exits — on pace to
match the 2015 total.
In each of the past five quarters,
there have been at least four
M&A device big exits.

Device Big Exit M&A Trends to Later Stage
Non-Approved CE Mark U.S. Commercial
Represents # of IPOs Represents Big Exits
0
2
4
6
8
10
12
14
16
18
2012 2013 2014 2015 1H 2016
#ofBigExits
1 2
7
1
2
8
1
2
The orthopedic indication leads
with three deals in 1H 2016.
There were no Medtronic
venture-backed acquisitions in
1H 2016 (13 big exit acquisitions
in 2014-2015). However, we
expect Medtronic activity in 2H
2016.
Discussions with investors
suggest that the next flurry of
early stage acquisitions could
focus on atrial fibrillation, heart
failure, stroke or
neurostimulation.
VC-backed Device Big Exit M&A by Stage 2012–1H 2016

Device Big Exit M&A Propels Higher
Median Values
Median
Upfront ($M) $95 $127 $180 $150 $120
Median
Total Deal ($M) $195 $175 $185 $219 $300
Median
Years to Exit 7.0 6.6 6.9 5.5 9.2
# of Structured Deals # of All-In Deals
0
2
4
6
8
10
12
14
16
18
20
2012 2013 2014 2015 1H 2016
#ofBigExits
In 1H 2016, 7 of 9 M&A device
big exits were structured. There
have never been more than 50%
structured deals in any year.
Looking at regulatory pathways
in 1H 2016, the majority of deals
(6 of 9) are 510k pathway. These
companies typically require
revenue ramp-up prior to
acquisition. This helps to
explain the longer time to exit
and later-stage focus.
VC-backed Device Big Exit M&A Deal Structure 2012–1H 2016

Ophthalmology #4 Indication in Device and
Biopharma Exits since 2013
In venture-backed Big Exit M&A
and IPOs Ophthalmology is in
the top 5 and top 6 in IPOs and
M&A
In overall exits (M&A + IPO),
Ophthalmology ties for #4
VC-backed Big Exit M&A and IPO by Indication 2013 – 1H 2016
IPO Big Exit M&A
Oncology 36
Cardiovascular 18
Neurology 23 Oncology
15
Orphan/Rare 15 Neurology 12
Anti-Infective 12 Vascular 10
Ophthalmology 11 Surgical 10
Ophthalmology 8

Glossary
Big Exit
Big Exits are defined as private, venture-backed merger and
acquisition transactions in which the upfront payment is $75 million or
more for biopharma deals and $50 million or more for device and
dx/tools deals.
Initial Public Offering
IPO is defined as a venture-backed company raising IPO proceeds
more than $25 million.
Deal Descriptions
Structured Deal
This is a pay-for-performance system that pays some of the
consideration upfront, but sets milestones in development that must
be achieved before the full value of the transaction will be realized.
All-in Deal
All consideration for the deal is paid when the deal closes.
Big Exit Upfront Payments
The upfront payment refers to payments in a structured deal that are
made at the close of the deal; it does not include milestones.
Big Exit Milestones to be Earned
The milestones to be earned refer to payments in a structured deal
that are made after the pre-determined goals are met.
Total Deal Value
The total deal value of a structured deal includes both the upfront
payment and the milestones to be earned.
Regulatory Definitions
Non-approved
Non-approved refers to a device company that has no regulatory
approval for its product.
CE Mark
CE Mark refers to a device company that has a CE Mark-only product.
CE Mark is a European Union designation that is less difficult to obtain
than FDA approval, and the approval process typically has a faster
timeline.
U.S. Commercial
Commercial refers to a device company that has an FDA-approved
product, and typically is in commercial stage.
Series A
Series A companies are defined as U.S. companies raising their first
round greater than $2 million in equity or backed by institutional or
corporate venture capital.
Indication Definition
Neurology
CNS, pain, and psychology comprise neurology.

About the Author
21
Jonathan Norris
Jonathan Norris is a managing director for SVB's Life Science and Healthcare practice. Norris
oversees business development efforts for banking and lending opportunities as well as
spearheading strategic relationships with many healthcare venture capital firms. He also helps SVB
Capital through sourcing and advising on limited partnership allocations.
In addition, he speaks at major investor and industry conferences and authors widely cited analyses
of healthcare venture capital trends. Norris has more than sixteen years of banking experience
working with healthcare companies and venture capital firms. Norris earned a bachelor's degree in
business administration from the University of California, Riverside and a juris doctorate from
Santa Clara University.
Managing Director
Silicon Valley Bank
jnorris@svb.com

About Silicon Valley Bank
For more than 30 years, Silicon Valley Bank has helped
innovative companies and their investors move bold ideas
forward, fast. SVB provides targeted financial services and
expertise through its offices in innovation centers around the
world. With commercial, international and private banking
services, SVB helps address the unique needs of innovators.
22
This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on
information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not
represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied
on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision.
Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any
other transaction.
©2016 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB Financial Group,
and Silicon Valley Bank are registered trademarks. 0716-160

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