This document summarizes the history of Proteon Therapeutics, from its founding in 2001 through its IPO in 2014. It discusses the company's drug development efforts, its fundraising history including angel and venture capital rounds totaling over $126 million, and its IPO process and timeline. It also describes how analysts initially projected market valuations of $190-265 million but later lowered price targets to $3 per share due to regulatory uncertainty about the drug's approval path. The document aims to provide context for both the opportunities and risks of investing in development-stage biotech companies.

1. Proteon Therapeutics
Discovery > Angel > Venture > IPO
or
How I Lost a Big Pile of Money and Hope to Still Make it Back

2. Proteon Therapeutics
• Development-stage biotechnology company
• Founded in 2001, IPO’d in 2014
• PRT-201 or “Vonapanitase” designed to improve vascular
access for dialysis patients
• 400k patients in the US plus >500k patients in Japan &
Europe, 2 million globally
– Growing ~100k/patients a year
• Access failures cost >$1 billion/year in the US
• Projected $9,500/dose pricing with >90% margins suggests
>$150m in annual revenues by 2021 - if it works
2

3. Angel Funding
• >$2.7 million in capital raised over 4 years
• >40 angel investors
• Convertible preferred notes
• Key terms:
– 3 year term
– 4.25% interest, cumulative
– Converts to preferred stock
– Acceleration upon acquisition
– Discount to next round, steps up over time
3
Dr. Nicholas Franano
KU ‘89

4. Venture Funding
• $126.5m raised from 13 venture firms
• Notable life science investors
– TVM Capital
– Skyline Ventures
– Intersouth Partners
– Devon Park BioVentures
– Bessemer Venture Partners
– Abingworth
– MPM / Novartis Strategic Fund
• 8 years from Series A to Series D
• Funded the Company’s development from animal studies to
Phase II human trials
4

5. The Acquisition that Wasn’t
Note: Image simulated
5

6. IPO Timeline
6
Action Time
Underwriter selection varies
Create “the Book” 6-8 weeks
File prospectus & SEC comments 4 weeks
Road show (marketing & “book building”) 1-2 weeks
Finalize prospectus / pricing 1-2 weeks
Issue IPO 2 days
Finalize IPO 7 days
Analyst coverage begins 25-40 days after issuance
Lockup period 180 days after issuance

7. 7
Underwriter(s)
• Letter of intent between issuer and underwriter
– Underwriter’s firm commitment
– Cooperation by the company
– Releasing of all available relevant information
– Commitment by the private firm to grant 15% over-allotment
option to the underwriter (“green shoes”)
• Lead manager quarterbacks the process
– Scheduling
– Pricing
– Distribution of new issue
– Assembling a group of underwriters

8. 8
Analytical Inputs
Public comps and DCF: $190 to $265m market cap (~$17.50/share)
Source: JMP Securities

9. 9
Registration
• Required by the Securities Act of 1933 (Section 5)
• The registration statement consists of two parts
– The prospectus to be given to every purchaser of the
securities
– “Part II” which contains information that need not be
furnished to the public but is made available for public
inspection by the SEC
• The underwriter has a “due diligence” requirement to
verify the information
• SEC cannot block an offering based on the quality of the
securities -- only can require disclosure of material facts

10. S1 Filing
• General terms
• Prospectus summary
• Risk factors
• Use of proceeds
• Dividend policy
• Management discussion &
analysis (“MD&A”)
• Business plan
• Management
• Financial Statements
10

11. 11
Marketing
• Registration statement is transformed into the preliminary
prospectus or “Red Herring”
• Red herring is the basis for marketing the issuer’s shares
• The SEC has 20 days to declare an issue effective
• At that point the red herring becomes a prospectus
• The company and the underwriter promote the IPO through
the “road show”
• Road shows provide important monitoring for the underwriter
on investor demand

12. 12
Road Show
• Underwriter receives orders from individual and institutional
investors – “book building”
– Retail investors typically submit a “market order” in which
only the quantity desired is stated
– Institutions typically submit limit orders where the quantity
demanded is subject to a maximum price
– Retail orders are received earlier than institutional orders
– Institutions submit an order with a commitment to purchase
more shares in the open market if their order is fulfilled
• Rule of thumb: to be successful, issues need to be 3x over-
subscribed

13. Green Shoes
• Over-Allotment Option or “Green Shoe” provision
– Named for the Green Shoe Manufacturing Company in
1919 – now Stride Rite Corporation
– Option granted to an underwriter for a period of 15 to 45
days (usually 30) after the issue date to purchase
additional shares at the original offering price
– Typically, up to 15% of the shares being sold
– Designed to improve price stability for issuers: they can
buy and sell shares with reduced risk to help get an issuer
public and support its stock price
• Proteon’s underwriters had option to buy 916,500 shares

14. Lockup Agreements
• Restricts insiders from selling IPO shares for a specified time
period
• Common, but not legally required
• Stock price tends to drop when the lockup period expires
– Proteon gained 21.5% during first 180 days
– Gained 69% in first 210 days

15. IPO Day
15
Source: NASDAQ

16. Pre-Phase III Price Targets: $19 - $27
Market cap: $315 to $448m
16
Stifel’s Assumptions:
Probability 70%
Terminal Value $0
EPS in 2023 $4.71
Discount rate “30-35%”

17. 17

18. “Favorable Clarity on Regulatory Path
Forward”
New Price Target: $3
18
Stifel’s Assumptions:
Old New
Probability 70% 25%
EPS in 2023 $4.71 $2.18
Discount Rate “30-35%” “40-45%”

19. Parting Thought: Life Sciences Are Different
• The customer is not king
• Decade without revenue is normal
• Regulatory power
• Successful companies often increase costs
• There are no local markets
• IPOs often are for capital raising, not exits
19