Strategic Financing in Biotechnology

strategy execution success Strategic Financing in Biotechnology MaRS BioEntrepreneurship Lecture Series May 14th, 2007 Roman Masley, P.Eng MBA Masley, Managing Director SHI Capital Private & Confidential 1

strategy execution Agenda success Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGY 1. About SHI Capital 2. Success Factors in Biotech Financing 3. Different Sources of Capital in Biotechnology Part II: STRATEGIC FINANCING MODELS 1. Venture Philanthropy, Gov. Grants and Tech. Transfer 2. Angels 3. Venture Capital 4. Venture Debt and Royalty Financing 5. Funding a Public Company: a) Initial Public Offering (IPO) b) Private Placement in Public Entities (PIPE) c) Follow-On Public Offering (FOPO) 6. Strategic Alliances Private & Confidential 2

strategy execution Agenda success Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGY 1. About SHI Capital 2. Success Factors in Biotech Financing 3. Different Sources of Capital in Biotechnology Part II: STRATEGIC FINANCING MODELS 1. Venture Philanthropy, Gov. Grants and Tech. Transfer 2. Angels 3. Venture Capital 4. Venture Debt and Royalty Financing 5. Funding a Public Company: a) Initial Public Offering (IPO) b) Private Placement in Public Entities (PIPE) c) Follow-On Public Offering (FOPO) 6. Strategic Alliances Private & Confidential 3

strategy execution Agenda success Part III: Case Studies 1. KuDOS Pharmaceuticals: Success Story of a Drug Discovery Company Presented by Frédéric Sweeney, SHI Capital 2. Chlorion Pharma: Seed and Start-up Financing Pharma: Presented by Dr. Jeff Coull, SHI Capital and CEO Chlorion Pharma Coull, Private & Confidential 4

strategy execution SHI Group Company Business Model success SHI Group combines multidisciplinary expertise and perspectives through a group of interlinked companies SHI Link Strategy through Implementation • Consulting services Portfolio • Transactional services Company/ Client • Operational services SHI SHI Consulting Capital Private & Confidential 5

strategy execution SHI Capital success SHI Capital addresses a key unmet need in the life science industry Strategy Oriented Value Added Value Added Traditional Traditional SHI Capital •Due Diligence •Financial Consulting firms Investment Banks •Management •Deep Network •Strategy •Transactional Transaction oriented Private & Confidential 6

strategy execution SHI Capital Track Record success Selected SHI Capital completed and current deals Business and Strategic Advisor Neuropathic pain company in Vienna, Austria Capital Sourcing $5M capital sourcing for a medical device company, San Francisco, U.S. International Capital Sourcing $20M capital sourcing for a diagnostics company, New Jersey, U.S. Capital Sourcing $5M capital sourcing for a nutraceutical company, Florida, U.S. Capital Sourcing $5M capital sourcing for a vaccine company, Singapore Venture Capital sourcing Advisor in a 9.5M$ venture Funding financing round for a Québec Advisor for an Ontario oncology company imaging facility. Equity financing Venture Capital Sourcing Advisor in a $750k placement 2M$ source financing for a in a private nutraceutical Québec AgBio company Ontario company. Equity financing Private Placement Advisor in a $400k placement Advisor in a $22.5M private in a public mAb oncology placement for a public mAb company oncology company Private & Confidential 7

strategy execution The Value of a Biotechnology Company success “There are too many science projects masquerading as companies…” -Karen Bernstein, Ph.D., Chairman & Editor-in-Chief, BioCentury Magazine Great Science Great Biotech REAL Unmet Need Projects Companies Biotech Bubble Generic Companies Companies Value to Patient Population Private & Confidential 8

strategy execution Essential Elements for Successful Biotechnology Companies success Successful biotechs possess an impressively diverse skill set Innovative Science • Milestone focused, do not reinvent itself every 6 months! • Deep network with the top scientists in the field (academia and industry) Solid Management Team • “Infectious” people with a deep knowledge of their respective area • Complementary skills, “in” for the long-run • Deep network in their respective area of expertise Strong Intellectual Protection • IP is not an asset anymore, it’s a necessity • Innate corporate culture of promoting and protecting intellectual property Ingenious Financial Strategies • Flexible, open-minded financial strategies: Think beyond “Angels --> VC --> IPO” • Comfortable with strategic alliances (“letting go” and seeing the big picture) Private & Confidential 9

strategy execution Essential Elements for Successful Biotechnology Companies success Failure to Communicate = Failure of the Company • Respect of each others expertise Science Management • Efficient communication * ** * (Good AND BAD news) • Ability to “let go” sometimes Financing Science Management Science Management Financing Financing COMMUNICATION MICRO-MANAGEMENT DEFICIENT Private & Confidential 10

strategy execution Financing a Biotechnology Company success A thorough knowledge of all financing opportunities is critical to succeed ! Who are they? ! How much do they give? Financing How much do they take? Partners ! When/How to approach them? ! Current Trends Private & Confidential 11

strategy execution Different Sources of Financing in Biotechnology success Strategic Alliances Initial Public Offering (IPO) Amount ($) e) FOPO anin z Mez --> eed (S l a a p it C e r e n tu V lties PIPEs oya Angels t and R Deb Venture Grants/T.T/ Philantro. Stage Private & Confidential 12

strategy execution The (multi)Million Dollar Question success How to define a clear and efficient strategic financing plan for a biotechnology company ? “Life science startups are the only companies that are forced to define their corporate strategy as a function of their financing rather than to gather financing in accordance to a previously well-defined corporate strategy.” -Steven G. Burrill, Stanford Technology Ventures Lecture Series Private & Confidential

strategy execution Philanthropy, Government Grants and Tech. Transfer Offices success Strategic Alliances Venture Philanthropists Initial Public Offering (IPO) Amount ($) e) They are: anin FOPO ezz >M d -- See ( • Network of wealthy individuals al apit eC tur Ven • Non-For-Profit foundations yalties and Ro PIPEs Angels re Debt Ventu Grants/T. T/ Philantro. They provide: Stage • Capital (non-dilutive) • Expertise, access to patients • Network • Mentorship “Non-profit organizations' growing support for the industry of drug development does more than fill a funding gap. It brings disease knowledge, patient access and an understanding of the end market that few traditional VCs can offer.” -Start-Up Magazine, Windhover Business Intelligence Private & Confidential 14

strategy execution General Trends: Venture Philanthropy success Venture Philanthropy is now filling an important seed-funding gap Source: Windhover Business Intelligence Private & Confidential

strategy execution Philanthropy, Government Grants and Tech. Transfer Offices success Strategic Alliances Initial Public Offering (IPO) Amount ($) Government Grants e) They provide: anin FOPO ezz >M d -- See ( • Small amount of $ (non-dilutive) al apit eC tur Ven oyalties However: PIPEs bt and R Angels ture De Ven Grants/T. T/ • Available VERY early (still in the lab) Philantro. Stage e.g.: CIHR POP grants Private & Confidential 16

strategy execution Philanthropy, Government Grants and Tech. Transfer Offices success Strategic Alliances Technology Transfer Offices Initial Public Offering (IPO) Amount ($) They are: e) • Part of academic institutions anin FOPO ezz >M d -- See ( al apit eC tur They provide: Ven oyalties PIPEs bt and R Angels ture De Ven • Small amount of seed $ (non-dilutive) Grants/T. T/ Philantro. • Help with the IP process Stage However: • Not always efficient • Use with caution Private & Confidential 17

strategy execution Technology Transfer Offices success How to approach your technology transfer office • Have a general idea of what you intend to do with your technology. (start-up, out-license, etc..) • Look at the track-record of your technology officer. • Carefully weight-in the pros and cons of dealing with your tech. transfer. Things to look out for: • Are there more attractive options in order to get IP protection? • Do you have a good relationship with your tech. transfer officer? (You need things to move…quickly) • What are the other advantages of going through tech transfer? (IP matching, seed $, etc.) • What is the credibility/expertise of your tech transfer officer in the field? Private & Confidential 18

strategy execution General Trends: University/Tech Transfer success Recent University/Tech Transfer Alliances (U.S. -- June ‘05-June’06) 05-June’ Source: Windhover’s Pharmaceutical Strategic Alliances, Vol XVII Windhover’ Private & Confidential

strategy execution Angel Investors success Angel Investors Strategic Alliances Initial Public Offering (IPO) Amount ($) They are: • Wealthy individuals (or groups) e) anin FOPO • Interested in high returns ezz >M d -- See ( al apit • Usually, they are from the industry eC tur Ven yalties and Ro PIPEs Angels They provide: re Debt Ventu Grants/T. T/ • Small to Serious $ Philantro. Stage • Mentorship • Deep Network • Credibility However: • Closed circle, hard to reach • Conflicts between Angels • Too involved in the Company Private & Confidential 20

strategy execution Angel Investors success Angel Investors Seed $ Angel Capital Fund Actively Involved Serious $ Regional Angel Groups Formal Organization Start-up $ Small Angel Groups Community decisions Give-it-a-try $ Individual Angels More involved than you wish! Private & Confidential 21

strategy execution Angel Investors success Angel Investors 1. How to get in touch with them ? • Boutique Investment Banking and NETWORK • Business plan competition 2. How much do they give? • Typically from $15,000-$1,000,000 • Geographical restrictions 3. How much do they want? • Be actively involved, e.g.: seat on the Board • Equity in the company Private & Confidential 22

strategy execution General Trends: Angel Investors success Angel investment is strong in the life science sectors (U.S. Data) Quick Facts: Facts: \" Founded 51,000 entrepreneurial ventures \" 7.5% increase in average # of deals from 2005 \" 10.8% increase in disbursements from 2005 \" 26.5B $ in disbursements in 2006 Yield Rate Source: Centre for Venture Research Analysis: SHI Capital Private & Confidential

strategy execution General Trends: Angel Investors success Angel investors demand (and obtain) high return on investment Angel Capital Fund Regional Angel groups Small Angel groups Individual Angels Source: Chart from Ottawa Angel Alliance Presentation Private & Confidential

strategy execution Venture Capital success Strategic Alliances Venture Capital Initial Public Offering (IPO) Amount ($) They are: e) anin FOPO ezz • Investors for a group of Limited Partners >M d -- See ( al (LPs) apit eC tur Ven oyalties • Most common way to finance biotech PIPEs bt and R Angels ture De Ven Grants/T. • Often have an industry background T/ Philantro. Stage They provide: • Various amount of $ ($0.5M-$20M+) • Management expertise • Credibility However: • Finance 1:100 opportunities • Very “exit-oriented” Private & Confidential 25

strategy execution Stages of Venture Capital Financing success Seed Funding < $500,000 • Clinical discovery stage, strong IP • Solid science combined with a compelling business plan (maybe an angel on board) Start-up or Series A $500,000-$1,000,000 • Demonstrated efficiency, business driven, strong management team • Significant progress since inception of the company • e.g..: Discovery --> Lead Optimization or first molecules from a technology platform Expansion or Series B $2,000,000-$15,000,000 • Demonstrated significant milestone achievements • Close to generating revenues (out-licensing, partnering) • e.g.: IND filed, ready to go to clinical trials or already in Phase I Mezzanine or Series C $2,000,000-$20,000,000+ • Demonstrated excellent milestone achievements • Completed some strategic alliances with a clear exit strategy • e.g.: a couple of pre-IND, IND and Phase I/II compounds, close to acquisition or IPO Bridge $2,000,000-$20,000,000+ • Provide some cash before an IPO (in 6-12 months) Private & Confidential 26

strategy execution Getting a meeting with VCs success Getting a meeting with a VC • Credibility + Network • Talk about your technology, create curiosity around your product • Be politely persistent Getting a Getting $ Strategy Meeting (assuming you did a GREAT pitch) Unsolicited Submissions 100:1 1000:1 Unknown/Unlicensed Agents (i.e.: POSERS) 50:1 100:1 Venture Fairs, Financing Forums, and other 20:1 15:1 Industry Events (MUCH higher if you win a prize) if Professionals with Fund Relationships (SHI Capital) 3:1 5:1 Current and Future Investors 2:1 3:1 Stakeholder to the Fund (LPs or Portfolio CEOs) 1:1 3:1 Source: Sean Wise, ReportonBusiness.com ReportonBusiness.com Private & Confidential 27

strategy execution The Pitch to VCs success The Pitch: Guy Kawasaki’s 10/20/30 Rule 10 Slides 20 Minutes Title Problem 30pt Fonts Solution More doesn!t mean better Business model Underlying magic Leave time for chatting Not 12pt fonts Marketing/sales and questions Competition It demonstrates that you Team are clear and concise Projections Status and timeline Source: Guy Kawasaki, The Art of the Start Private & Confidential 28

strategy execution Common Mistakes when Talking to VCs success DON’T DO Ignore the red flags Compelling idea that you already fell in love with! Underestimate the time it takes to raise capital Strong team that you have worked with previously Go to a meeting alone Clear market opportunity Target the wrong audience (know your investors, do your homework) Great science Poor understanding of the financials Significant competitive advantage Underestimate the value of a great Credible financial projections management team Follow-up, ask for feedback Be NDA-obsessed Private & Confidential 29

strategy execution Final thoughts: Venture Capital success The Entrepreneur-VC Dating Game First Date • Make sure that you know the investor and vice versa (no blind dates!) • Be clear about your intentions • Establish trust • Follow-up Dating • Work together • Share the good and most importantly the bad news (no surprises) • Discuss about future plans often • Accept feedback and be ready to compromise Long Term Relationship • Plan for an exit strategy, be open-mind about it • Share the good and most importantly the bad news (no surprises) • Remember: You are together ‘till M&A or IPO Private & Confidential

strategy execution General Trends: The Situation in Canada success “Unlike other countries, which have built vital and growing biotech sectors, the down cycle for Canadian!s industry has remained in effect since 2002.” -Burrill & Co, 2007 Annual Report on the Life Science Industry Source: CVCA, NVCA and PwC MoneyTree Analysis: SHI Capital Private & Confidential

strategy execution General Trends: The Situation in Canada success Canadian VCs disburse significantly less on a deal-per-deal basis Source: CVCA, NVCA and PwC MoneyTree Analysis: SHI Capital Private & Confidential

strategy execution General Trends: The Situation in Canada success Canadian VCs close more deals than they can afford to Canadian VCs are closing a disproportionate amount of deals relatively to U.S. VCs Source: CVCA, NVCA and PwC MoneyTree Analysis: SHI Capital Private & Confidential

strategy execution General Trends: The Situation in Canada success Poor Performance for the Canadian VCs (Net IRR as of Q3 2006) (Net Source: CVCA, NVCA Analysis: SHI Capital Private & Confidential

strategy execution Venture Debt success Venture Leasing/Lending Strategic Alliances Initial Public Offering (IPO) Amount ($) •Venture Leasing provides financing in return for equipment lease payments e) anin FOPO ezz -> M •Venture Lending is an alternative to ed - (Se al apit traditional lending from financing eC tur Ven institutions s Royaltie PIPEs Angels ebt and D Venture Grants/T. T/ Why get Venture Debt? Philantro. Stage • Enhance existing funding round (no equity dilution) • Bridge between financial rounds (may improve the terms) • Financial “Buffer” • Financial credibility Private & Confidential 35

strategy execution Venture Debt success Venture debt can extend cash runaway without eating-up equity 4M $ Venture Debt 16M $ Series C 6 Months Cash Runway Private & Confidential 36

strategy execution Venture Leasing and Venture Lending success Venture debt are available at every stage of the company’s growth company’ Venture Leasing Who: • Start-up and Series A companies: VC-backed, need $ to buy large assets What: • Lease payment on fixed assets • Collateral: The asset Venture Lending Who: • Large companies: Close to raising capital, strong management, supportive investors What: • Credit Line: $1-$10 Millions • Collateral: Variable and fixed asset (IP, receivables, etc…) Private & Confidential 37

strategy execution Royalty Financing success Royalty Financing Strategic Alliances Initial Public Offering (IPO) Amount ($) They are: e) anin FOPO • Investors offering cash in ezz -> M ed - (Se exchange for license royalty al apit eC tur Ven payments s Royaltie PIPEs Angels ebt and D Venture Grants/T. T/ Philantro. They offer: Stage • Fund future product development, product acquisition, product launch costs • Minimizes dilution • Transactions may also be customized • Delays out-licensing • Diversify risk • Offer matching grants for research Private & Confidential 38

strategy execution Initial Public Offering (IPO) success Strategic Alliances Initial Public Offering Initial Public Offering (IPO) Amount ($) They are: e) • A regulated process by which a public anin FOPO ezz >M d -- company issues public shares for the See ( al apit eC tur first time Ven oyalties PIPEs bt and R Angels ture De Ven Grants/T. They provide: T/ Philantro. • Capital Stage • Alternative to acquisition • Reimbursement of venture debt • Major shareholders control the company However: • Very sensitive to market conditions • Stock price is VERY milestone sensitive Private & Confidential 39

strategy execution General Trends: IPOs success The IPO market is slowly recovering from the 2000-2001 bubble bust Source: Burril & Co, 2007 Private & Confidential

strategy execution Private Investment in Public Entities (PIPEs) success Private Placement in Public Entities Strategic Alliances Initial Public Offering (IPO) Amount ($) They are: • Small group of investors buying e) anin FOPO ezz common shares of a public company >M d -- See al ( at discounted price apit eC tur Ven They provide: s Royaltie PIPEs Angels ebt and d Venture Grants/T. • Capital T/ Philantro. • Not a lengthy process like IPO or FOPO Stage • Can be done quickly by Investment Banks • Not market sensitive However: • A large amount of securities are being offered to a limited number of investors --> Investors might want to play an active role in the company Private & Confidential 41

strategy execution Follow-On Public Offering (FOPO) success Follow-On Public Offering (FOPO) Strategic Alliances Initial Public Offering (IPO) Amount ($) They are: • An offering of shares to the public e) anin FOPO ezz after the company has already gone >M d -- See ( al through an IPO. apit eC tur Ven s Royaltie PIPEs Angels ebt and d Venture They provide: Grants/T. T/ Philantro. • Capital Stage However: • Can be interpreted as a “red flag” indicating that the company is strapped for cash. Private & Confidential 42

strategy execution Strategic Alliances success Strategic Alliances Strategic Alliances Initial Public Offering (IPO) Amount ($) They are: • Variation of different deals in order to ) nine FOPO zza Me in/out-license, co-developed or co- -> ed - (Se ital Cap market products ture Ven ies) d Royalt PIPEs Angels debt an Venture They provide: Grants/T. T/ Philantro. • Capital Stage • Products • Access to expertise (CRO, sales, marketing, etc…) However: • Requires planning, vision and a detailed strategic approach Private & Confidential 43

strategy execution The Innovation Gap success Low drug approval rates create an innovation gap for Big Pharma Source: Burril & Co, 2007 Private & Confidential

strategy execution Current Trends: Buying Discovery (late) success Big Pharma is breaking the bank to fuel their clinical pipelines Source: Burrill & Co, 2007 Source: Windhover’s Strategic Intelligence System Windhover’ Private & Confidential 45

strategy execution General Trends: Mergers/Acquisitions success Recent industry M&A activity statistics Source: Burril & Co, 2007 Private & Confidential

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS at a glance UK Oncology drug discovery company Founded in December 1997 (3 people) Raised over 40 Million £ in venture capital Brought 3 drugs to clinical trials Acquired for $210M US (cash) by AstraZeneca in December 2005 (75 people) Private & Confidential 48

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS Pharmaceuticals relied on strong and stable management team J. Barrie Ward PhD, CEO (1999-2005) • Former senior head scientist at GSK • Deep network in Big Pharma combined with proven managerial experience Prof. Stephen Jackson PhD, CSO/Founder (1997-2005) • World expert on DNA repair with deep network in the scientific community Graeme Smith PhD, Research Director (1999-2005) • Post Doctoral fellow in Steve Jackson Lab • Extensive experience in pharmacology and small molecule drug discovery Richard Onyett, Commercial Director (2002-2005) • Past life in marketing as well as very experienced in business development • Deep experience and network with small biotechs Peter Harris MD, Technical Director (2001-2005) • Ex, Amgen, AstraZeneca, Cobra Therapeutics • Experienced oncology drug developer within Big Pharma and Biotech Private & Confidential 49

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS Pharmaceuticals relied on innovative science to build the company Science The inhibition of DNA repair as an innovative cancer therapy Prior knowledge: Classical cancer chemotherapy involves using DNA damaging agents to kill rapidly dividing cells (like cancer cells) The problem --unmet need: Cancer cells quickly gain genotypic variations increasing DNA repair efficiency RESITANCE TO CHEMOTHERAPY Long term exposure to chemotherapy (long and repeated sessions) are have DEBILITATING SIDE EFFECTS Private & Confidential 50

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS Pharmaceuticals relied on innovative science to build the company KuDOS is developing small molecule inhibitors of the cellular DNA repair response DNA repair inhibitors given as first line therapy: 1. Increase efficiency of chemotherapy CANCER CELLS CAN’T REPAIR DNA 2. Require shorter chemo. treatment LESS SIDE EFFECTS Source: GenEngNews.com “KuDOS’ novel scientific approach to cancer therapy will prove to be paramount in its success” Private & Confidential 51

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS Pharmaceuticals relied on flexible financing strategies to build the company Initial Strategy • Already dominate the DNA repair scientific field • Develop small molecules and out-license • Get venture capital financing Developing Strategy • In-licensed pre-clinical compounds to “get on the map” (help of the CRT) • Acquired a medicinal chemistry unit instead of starting from scratch • Maintain same investors throughout the life of the company (relationships) Significant Milestones • Brought 2 in-licensed compounds to clinical trials • Out-licensed one of these compounds • Brought a first in-house product to clinical trial Private & Confidential 52

strategy execution Case Study: KuDOS Pharmaceuticals success Exclusive rights to Steve Jackson (CSO) Cancer Research UK funded research Owned by Cancer Research UK (World’s largest independent cancer fund) Provided KuDOS with: 1. Seed Funding Dec 1997 2. IP Protection 3. “IP matching” to enhance KuDOS Portfolio (in- licensing) Source: www.cancertechnology.co.uk 53 Private & Confidential

strategy execution Case Study: KuDOS Pharmaceuticals success 210M USD AstraZeneca 29.5M£ CRT Euclid SR Cash deals 3i CRT CRT Advent 3i 3i SV Life Sciences Advent Advent SV Life Sciences 8M£ SV Life Sciences BankInvest 5M£ CRT LSP 350k £ J&J 1998 2006 Acquisition of Med. Out-Licensing Chem. Unit AQ4N to Novacea In-Licensing In-Licensing of Strategic Deals PaTrin-2 from CRT AQ4N from BTG Pharma Private & Confidential 54

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS Pharmaceuticals now have a diverse pipeline of in-house and acquired products KuDOS pipeline (at time of acquisition) Private & Confidential 55

strategy execution Case Study: KuDOS Pharmaceuticals success KuDOS scientific competitive advantages Strong scientific expertise and great network Novel therapeutic approach vs. platform of “me too” compounds Very focused, goals and milestones oriented, didn’t reinvent itself KuDOS business competitive advantage Long and stable relationship with investors Strong and stable management team Key strategic moves in tech transfer, licensing, alliances Private & Confidential 56

strategy execution The value of a Biotechnology Company success KuDOS is bridging the gap between great science and commercial success The Study of DNA Repair Great Science Great Biotech REAL Unmet Need Projects Companies Biotech Bubble Generic Companies Companies Value to Patient Population Private & Confidential 57

strategy execution Case Study: KuDOS Pharmaceuticals success Special thanks to Dr. Graeme Smith for sharing the history, trial and tribulations of KuDOS Pharmaceuticals Private & Confidential 58

strategy execution Case Study 2: Chlorion Pharma success Overview of Company and Financing \" Chlorion Pharma is a start-up drug discovery company that focuses on the advancement of novel therapeutics for the treatment of pain and epilepsy. \" Chlorion was founded in 2004 and is currently based in Quebec City. \" From the summer of 2005 until now, Chlorion’s R&D operations were supported wholly by grants – for the most part from a $150K CIHR POP grant. \" Recently, Chlorion secured a series A investment of >$5M from a syndicate of Quebec-based venture capital firms. Proceeds from this equity investment will be used to progress one small-molecule compound through phase I development. \" Chlorion worked for three years to secure this capital, and approached over 40 venture capital firms. Private & Confidential 60

strategy execution Case Study 2: Chlorion Pharma success The Top Ten Facts I Wish I had Known Three Years Ago… Ago… 10. Expect the quest for capital to take 2-3 times longer than you think it will. 9. A start-up biotechnology company will rarely fetch a valuation greater than $2 to $3M, regardless of the base technology. 8. To a VC, “pre-money valuation” is effectively defined as the total value of all outstanding shares + total value of all stock options. Hence, on paper all non-investors will hold $2M worth of shares only at the end of the financing period. 7. Sourcing capital is a time-consuming exercise that can not be performed only during evenings and weekends. 6. Your chances of finding a VC that will be interested in your technology (and to seriously considering an investment) are about 1 in 20. Private & Confidential 61

strategy execution Case Study 2: Chlorion Pharma success The Top Ten Facts I Wish I had Known Three Years Ago… Ago… 5. Know the “right” answers to questions posed by VCs, even if these are not necessarily the “true” answers. 4. If you are able to identify a VC that is truly interested in your project, spend 80% of your time trying to secure a commitment from this VC, and 20% of your time identifying other VCs that might be truly interested in your company. 3. Be optimistic about your timelines, but never deceitful. Understand that VCs don’t typically want to invest in a drug discovery company unless it “12 months from the clinic”. 2. VCs want to invest in start-ups with a straightforward, single R&D program – not multiple programs. 1. When a VC says “no” to you, what they really mean is “not now”. Truly. Private & Confidential 62

strategy execution SHI Capital, Team success The SHI Capital team combines strong finance and scientific experience Roman Masley, P.Eng MBA Masley, Managing Director Jeffrey Coull, PhD Coull, Senior Associate John McGraw, PhD 162 Cumberland Street, Suite 310 Associate Toronto, Ontario, M5R 3N5 Canada Frédéric Sweeney, PhD Candidate Tel: 416.236.1054 Analyst www.shicapital.com Private & Confidential 63

Strategic Financing in Biotechnology

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