2014 MN Investment Report - Life Sciences

Minnesota Life Science
Investment Activity:
2014 Annual Report

© LifeScience Alley 2015
Key Findings
• 2014 MN LS Investment Surpasses Previous High Reaching
$430.4M
• MN LS Investment Continues to Rise
2013: $348.7M - up $96.8M from 2012
2014: $ 430.4M - up $81.8M from 2013
• Medical Devices at a 6 Year High for Investment ($322M)
• Health IT Continues Trend of Increasing Companies and
Dollars Going into Sector
• Pharmaceuticals/Biotech See a Spike in Investment
Dollars and Number of Companies Securing Funds in 2014
2

2014 Exceeds 5
Year Investing High
• 2014: LS Investments Reach
Record High Point of $430.4M
• 2014 Continues Trend of Rising
Investment
• 2013 up 38% over 2012
• 2014 up 23% over 2013
• Major Raises include:
• HealthSense ($12M)
• Holaira ($42M)
• Inspire Medical Systems ($40M)
• Leafline Labs ($12.4M)
• Monteris Medical ($30M)
Life Science Investments
3
$326.9
$213.1
$269.5
$251.8
$348.7
$430.4
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2009 2010 2011 2012 2013 2014
Millions
Q1 Q2 Q3 Q4

2014: 86 Companies
Raise Funds
• 86 companies raised money in
2014, down from the high of 97 in
2013
• 2012-2014: 53% increase in
number of companies receiving
investment as compared to 2009 -
2011
• 2012 -2014 rise likely due to
improved reporting from Angel
Investor Tax Credit
Life Science Investments
4
63
58
60
94
97
86
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014

2014: 6 Year High in
Number of Companies
Raising $3M or More
• 26 companies raise $3M or more in
2014, an 18% increase over 2013
(22), and a 13% increase over the
previous high in 2009 (23)
• 2014: 6 Year High in the number of
companies (17) that raised $7M or
more – a 55% increase over 2013
• Medical device companies make up
71% of the companies raising $7M+
and 65% of those raising $3M+
Investment Composition
5
24 26
22
59 56
40
16 12
16
14 19
20
7 11 10
10
11
9
16 9 12
11
11
17
2009 2010 2011 2012 2013 2014
Deal Size (Millions)
0-1 1-3 3-7 7+

© LifeScience Alley 2015 6
Investment Composition
38%
45%
37%
63%
58%
47%
25%
21%
27%
15%
20%
23%
11%
19%
17%
11% 11%
10%
25%
16%
20%
12% 11%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014
0-1 1-3 3-7 7+
2014: 30% of
Companies Raise
$3M+
• 2014: 53% of deals greater than
$1M up from 42% in 2013 and
38% in 2012
• 2012 increase in percentage of
deals $1M or less likely due to
improved reporting through
Angel Investor Tax Credit
Program

Life Science Investment: 2010-2014
2014: Q4 Bucks 5
Year Trend Posting
Increase Over Q3
• 2014: first Q3-Q4 $ increase
on record
• 2014: Q2-Q4 highest
3-quarter run on record
• $119M raised in Q4 2014, up
17% from Q4 2013 ($102M)
7
$0
$20
$40
$60
$80
$100
$120
$140
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014
Millions
Quarterly Amount

2014: Q4 Median
Deal Size Remains
High
• 2014: Q3 ($3.9M) & Q4
($2.4M) record median deal
size highs
• Q1 & Q2 median deal size
lows in 2012, 2013, and 2014
likely influenced by
increased reporting of early
stage investments via Angel
Investor Tax Credit
• 2014 annual median deal
size ($1.36M) down 9% from
2013 ($1.5M)
Median Deal Size
8
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014
Quarterly Median Deal Size (M)
$0.95
$0.64
$2.01
$1.50
$1.36
$-
$0.5
$1.0
$1.5
$2.0
$2.5
2010 2011 2012 2013 2014
Annual Median Deal Size (M)

9© LifeScience Alley 2015
Sector Analysis: Dollars
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2009 2010 2011 2012 2013 2014
Millions
MD HIT P D RT OHC
2014: Medical
Device Dominates
but Health IT and
Pharma/Biotech
Post Gains
• 2014: Medical device posts
gains in total dollars invested
(up $19M) over 2013
• Funding increases to
emerging HIT (up $12M) and
pharma/biotech sector (up
$45M)

2014: Increased
Diversification of
Companies Securing
Investment
• Composition of LS companies
shifts to include larger numbers
of HIT (21) and Pharma/Biotech
(11)
• Medical device companies make
up 50% of funded companies in
2014 followed by HIT (24%) and
Pharma/ Biotech (13%)
Sector Analysis: Company Number
0
20
40
60
80
100
120
2009 2010 2011 2012 2013 2014
CompanyNumber
MD HIT P D RT OHC

Holaira
11
All images courtesy of Holaira.
Dennis Wahr’s success in Minnesota began with an eleventh hour phone call. Wahr was a
cardiologist embarking on his first entrepreneurial endeavor when Dale Spencer, a mentor and
serial entrepreneur, called to endorse Minnesota’s medical device community and tell Wahr
that this was the place to build a device company. This conversation convinced Wahr to pull
out of a mortgage and planned launch in California, and come to Minneapolis.
“This is my third company in 15 years of
experience,” said Wahr. His first two
companies, Velocimed and Lutonix, both had
successful exits. He is the current president
and CEO of Holaira, a medical device company
developing treatments for COPD. “Practically
speaking, medical device start-ups can’t be
Now, Wahr’s track-record easily attracts investors. Holaira’s
$42 million raise in 2014 was led by a sovereign fund and backed
by several U.S.-based VCs. “Investors invest when you have a
compelling idea, a highly qualified team, an excellent board of
directors, and confidence that a solid financial syndicate can be
put together,” Wahr explained.
Practically speaking,
medical device start-ups
can’t be done by five guys
in a dorm room; you need
experience to know the
nuances of this industry.
“
”
done by five guys in a dorm room; you need experience to know the
nuances of this industry,” said Wahr, explaining his move to
Minneapolis. “I was fortunate to have had great access to and support
from people highly experienced in the medical device industry.”

Holaira
12
All images courtesy of Holaira.
Holaira prides itself on being upfront about the realities of long-term capital needs to develop truly novel,
game-changing medical products and gathering rigorous clinical data. “Simply achieving FDA approval is not
sufficient. Success in today’s world requires an even higher bar of clinical evidence,” said Wahr. “Investors are
looking for companies who have proven a ‘value proposition’ that meets the stringent requirements of
professional medical societies and reimbursement authorities such as CMS and large insurance companies.”
Even with a history of fundraising success, Wahr
acknowledges the challenges start-ups face. “Getting a list
of active VCs isn’t easy, but that’s where experienced
mentors can help: to lend their credibility and to provide
introductions to investors,” said Wahr. “The board should
be more than just your investors; your company benefits
from the input of people with deep knowledge of the
industry and business strategy.”
Being direct about financial needs is key to attracting realistic investors and building credibility. Wahr commented on
the overall fundraising climate saying, “While investors would love to have a situation where a product could be
brought fast-to-market, have low capital requirements, and a steep revenue ramp, that’s not the reality of this
industry. There’s an illusion that things happen that way but virtually all meaningful advances in life science have
had a more realistic timeline. The days of easy were not easy at the time,” said Wahr. “It’s never been easy to do
what hasn’t been done before.”
Despite these challenges, Wahr believes medical advances are occurring at an accelerated pace. Most importantly,
these inventions will benefit patients and be financially rewarding for investors.
The days of easy were
not easy at the time.
It’s never been easy
to do what hasn’t
been done before.
“
”

2014: Medical
Device Investment
at 6 Year High
• 2014: $322M invested in
medical device companies,
up 6.3% from 2013
• 2014: Medical device median
deal size is $1.6M
Sector Analysis: Medical Device
13
44
40
36
55
58
43
0
10
20
30
40
50
60
70
$-
$50
$100
$150
$200
$250
$300
$350
2009 2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4 Company Number
$295
$180
$211 $206
$303
$322

2014: 40% of
Medical Device
Investments $3M+
• 2014: 28% (12) of MD companies
raise more than $7M – a 6 year
high
• Notable Raises include:
• Holaira ($42M)
• Inspire Medical Systems ($40M)
• Interrad ($7.5M)
• Monteris Medical ($30M)
• NxThera ($7.4M)
• Rotation Medical ($27.2M)
• Tendyne ($26M)
• Zyga Technology ($12M)
Sector Analysis: Medical Device
14
39%
43%
19%
55%
50%
40%
23% 18%
33%
18%
17%
21%
11%
20%
22%
11%
16%
12%
27%
20%
25%
16% 17%
28%
2009 2010 2011 2012 2013 2014
0-1 1-3 3-7 7+

Herbert believes Minnesota can attract money to the state by highlighting its critical
differentiator from other markets – the talent. “In Minnesota, you’re not fighting with other
start-ups for the same limited pool of qualified employees experienced in medical device
technology; you’re recruiting directly from established companies. Furthermore, these are
individuals who want the opportunity to work for an emerging
company,” said Herbert.
Inspire Medical Systems
15
Inspire Medical Systems is one example of the many promising start-ups in
Minnesota. In Herbert’s words, “We’re a PMA company, but in Minnesota we
are familiar with the PMA pathway, and that doesn’t intimidate those who
want to support us or finance us. We have the talent, experience, know-how
and ability to generate new ideas. That’s the environment here.”
“Don’t wait until you’re thirsty to dig a well,” Tim Herbert, president and CEO of Inspire
Medical Systems, says this mantra sums up his success at building relationships with investors.
Herbert leveraged connections, such as board members, for initial introductions to potential
investors and then kept in touch, continuing to inform those he met on company progress.
Inspire successfully raised $40 million in 2014 from
investors on both coasts. Its new implantable device
treats obstructive sleep apnea by detecting breathing
patterns and stimulating the upper airway to keep it
open during sleep. The company just celebrated their
100th commercial implant in December 2014.
Given the quality of companies and talent that exist in Minnesota, Herbert believes
there is an opportunity to elevate Minnesota’s health technology community by
raising awareness of the talent and experience and by facilitating introductions
with active medical device VCs.
All images courtesy of Inspire Medical Systems.
We’re a PMA company,
but in Minnesota we are
familiar with the PMA
pathway, and that
doesn’t intimidate those
who want to support us
or finance us.
”
“

HIT 2014: Number of
Companies &
Investment Amount
Rises
• 2014: HIT funded companies
increase 10% from 2013 to 21
• Dollars Invested up 41% in 2014
from $29M to $41M
• Major 2014 Raises Include:
• Gravie ($10.4M)
• Healthsense ($12M)
• MedNet Solutions ($4M)
• Red Brick Health ($7.5)
Sector Analysis: Health IT
16
$26
$19
$41
$15
$29
$41
8
7
8
16
19
21
0
5
10
15
20
25
0
5
10
15
20
25
30
35
40
45
2009 2010 2011 2012 2013 2014
CompanyNumber
Millions
Company Number

Rotation Medical
17
Rotation Medical was founded in 2009 as a spin-out from Denali Medical, a medical device
incubator. The company addresses tendon tears through a unique bioinductive implant,
which will first be applied to the management of rotator cuff injuries. The implant
enables the body’s healing process rather than providing a traditional mechanical fix.
At the company’s helm is President and CEO Martha Shadan, a seasoned medical device
executive with experience at Covidien and Zimmer. As a first time CEO, Shadan networked
with other CEOs to learn best practices and get introductions to VCs.
Rotation Medical successfully raised $27.2 million in 2014 through VC investments from
throughout the United States.
“Fundraising is a journey, not a sprint,” said Shadan. “If you think you need money in a year start now and turn over
every rock: VCs, sovereign funds, family-owned investing, strategics, investment conferences, trench selling, etc.”
Shadan credits leveraging her board with helping her identify warm leads, but also recommends doing your
homework before and after meeting with potential investors.
“Investors are betting on you, so show them as much as you can that the opportunity has been de-risked,” said
Shadan. “Investors need more information as time goes on about the market, the unmet clinical need, and the
product’s effectiveness.” Shadan explained that cultivating relationships with physician consultants is also important
at this stage. “Demonstrating that the biggest thought leaders in a space are using your product adds credibility and
shows that the clinical need is there,” said Shadan.
All images courtesy of Rotation Medical.
Article is continued on the next slide.

Rotation Medical
18
“You should be targeting and screening investors,” said Shadan. “One mistake entrepreneurs make is
spending time with a potential investor who is not a good fit. Ask the VCs questions about where they
are in the fund, the potential slots to be filled, the general profile of the fund, and at what business
stage they usually invest.”
An investor who declines can still help you get to the next investment.
“I would pitch to an investor and get a ‘no’. So I would ask to set up a
debrief call about what they had heard and how the pitch worked for
them,” said Shadan. “It is rare for CEOs to ask for feedback, but it gave
me another opportunity to educate the investor and refine my pitch so
that it was more effective. I always gained insight, from every single call.”
All images courtesy of Rotation Medical.
I would ask to set up a debrief call about what they
had heard and how the pitch worked for them. It
gave me another opportunity to educate the
investor and refine my pitch.
“
”

© LifeScience Alley 2015 19
Sector Analysis: Pharma/Biotech
$11
$6
$11
$1
$4
$49
5 5
4 4
5
11
0
2
4
6
8
10
12
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2009 2010 2011 2012 2013 2014
CompanyNumber
Millions
Company Number
2014: Investment in
Pharma/Biotech
Rises Dramatically
• 2014: 10 Fold increase over
2013 in investment amount;
More than 2X as many
companies received investment
• Rise in investment amount
driven by raises from Leafline
Labs ($12.4M) and Rebiotix
($25M)

Rebiotix
20
Jones’ advice to other start-ups is to assemble a top-tier team. “Have the right network, the right people. Having
recognizable people on your board and on your team is important because it can be difficult to get your foot in
the door,” Jones said, explaining how a diverse management team and board of directors open up a broader network
of potential investors.
Rebiotix is a unique company. It uses donor fecal matter to introduce good bacteria into sick
patients for the treatment of multi-recurrent clostridium difficile infections. This is a first-in-
class product pursuing a Biologics License Application through the FDA.
“It is such an interesting company and so different than what I have worked on before,” said
Lee Jones, founder, president, and CEO of Rebiotix.
Given its unique market position, the company’s
fundraising methods and success – $25 million raised in
2014 – were also unique. “We didn’t meet the standard
criteria for many of the VC funds. A typical VC is looking
for a low risk investment with a clear or predetermined
All images courtesy of Rebiotix.
“Many of our investors are familiar with investing in medical technology and
they put their own money on the line because they know the medical
industry and the inherent opportunities,” said Jones. “One of the reasons
Rebiotix has been so successful at continuing to raise funds is by taking the
initial investment and hitting all the milestones we said we would.”
Have the right network,
the right people.
Having recognizable
people on your board
and on your team is
important.
“
”
exit plan. It’s hard for them to put money into a technology that has no precedence
because the risks are unknown in a new therapeutic space,” said Jones. “We went
with private money because those investors are willing to take more risks and place
value on the basis of relationships, where they believe in the management team
and know its track record.”

2014: Investment
Up from 2013
• 2014: Investment ($18M) up
125% over 2013 ($8M)
• Celcuity LLC, a cell-based
diagnostic company, raises $4M
• Exosome Diagnostics, a non-MN
firm with significant operations
in MN, raised $27M in 2014. If
included, it would bring the
2014 total to $45M, a 6 year
high
Sector Analysis: Diagnostics & Tools
21
$15
$7
$6
$30
$8
$18
4
6
9
17
11
9
0
2
4
6
8
10
12
14
16
18
$0
$5
$10
$15
$20
$25
$30
$35
2009 2010 2011 2012 2013 2014
CompanyNumber
Millions
Company Number

Major Raises
22
• Sunshine Heart
($56M)
• CVRx ($41M)
Medical
Device
• Diamedica ($2.6M)
Pharma/
Biotech
• RedBrick Health
($14M)
• HealthSense ($4.6M)
HIT
• 11 Companies raised
$7M+Notable
•Holaira ($42M)
•Inspire Medical ($40M)
•Tendyne ($25M)
Medical
Device
•Rebiotix ($25M)
•Leafline Labs ($12.4M)
Pharma/
Biotech
•Gravie ($10.5M)
•RedBrick Health ($7.5M)
•Mednet Solutions ($4M)
HIT
•17 Companies raised $7M+:
12 are medical device, 50%
are pursing PMA products
Notable
2013 2014

2014 Liquidity Events
Target
Company
Purchasing
Entity
$ (M) Industry
Apothecary Norwest Equity
Partners
N/A Pharma
Lake Region
Manufacturing
Accellent Inc. $390 Medical
Device
Fast Forward
Medical
Vention
Medical
N/A Medical
Device
Gel-Del
Technologies
PetVivo
Holdings
$40 Medical
Device
Corventis Medtronic N/A Medical
Device
Ability
Network
Summit
Partners
$550 HIT
Preventice eCardio $230 HIT
23
HIT Cashes Out
$780M Dollars in
2014
• MN companies saw over $1B
in exits in 2014
• Transactions for Preventice
and Ability Network are
Valued at $780M

Methods
Investment data was collected from a variety of sources including:
• Evaluate Medtech’s Venture Capital Financing Report
• PWC's MoneyTree™ Report
• BioEnterprise’s Midwest Healthcare Finance Report
• Minnesota Angel Investment Tax Credit program
• SEC filings
• Company press releases
• News publications
• LSA Investment Survey
Duplicate data has been removed to arrive at the investment numbers.
While all data is available in public sources, LifeScience Alley does not
release the list of companies that have raised money unless an individual
firm has first made its own public announcement.
For this report, the life science sector is defined as medical device,
pharmaceutical, biotechnology, diagnostic, and health information
technologies.
24

Get Engaged
Report your investment
Although we monitor a variety of sources for investment activity,
we believe there is more to capture. Please help us by reporting
your company's fundraising events as they happen.
Anything shared with us is confidential and will be de-
identified before being incorporated into aggregate data for
our reports.
To share information, please contact Cheryl Matter, PhD, Director
of Intelligence & Research, at cmatter@lifesciencealley.org or
952.746.3817.
25

LifeScience Alley Support
26
LifeScience Alley and its member firms are invested in building a strong
ecosystem to support the formation and development of new ventures
through:
Bipartisan Policy Development and Advocacy
• Angel Investor Tax Credit
• Increasing R&D Tax Credit and making it refundable
• Matching Funds Program for SBIR grant recipients
Research & Intelligence on Issues that Impact Startups
• Comprehensive financing analysis
• Capability briefs to highlight and characterize strong and emerging sub-
sectors in the state
Member Services that Connect, Support, and Promote MN Organizations
• Referrals to partners, talent, consultants, advisors, and investors
• SBIR Submission Program
• Build global relationships to promote the region to investors

Abbreviations
MD: Medical Device
D: Diagnostic
HIT: Health Information Technology
RT: Research Tools
P: Pharmaceuticals & Biotechnology
O: Other Healthcare
LS: Life Science

CONTACT US
952.542.3077
www.LifeScienceAlley.org

2014 MN Investment Report - Life Sciences

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Editor's Notes