Horizon Scoping: Why Invest In Stem Cells And Regenerative Medicine

Investor Forum Workshop

Gregory A. BonfiglioProteus Venture PartnersMay 22, 2015

Agenda

I. A Brief Look At The RM Market The RM Field Has Made Great Progress

II. The Current Funding Environment The IPO Window Is Open Strategies for Accessing The Public Markets VCs Are Back…But 1st Time Financings Remain Very Challenging

III. The Role of RM Translation Centers Enabling Collaborative, Capital Efficient RM Technology Development The CCRM: A Model RMT In Toronto, Ontario The RMIF – A New RM Fund Leveraging the Ontario RM

Infrastructure

CONFIDENTIAL 2

The RM Field Is At A Key Inflection Point

RM Market : Key Metrics

Rapidly Expanding Market:• $16.4B in 2013• $67.5B in 2020 • CAGR of 23.2%

Increased Funding in 2014: $8B+• VC, PIPEs, IPOs, Deals: $6.2B+• Governments (NIH, CIRM, etc.): $2B+

Clinical Programs • 4300+ Clinical Trials• 1800+ “New” RM Technologies• 200+ in Late Stage (PIII/PIV)

Commercial Products • 40+ Cell Therapies/TE Products on

Market• 1st Approved Gene Therapy (2014)

1.4M+ Patients Treated with RM Products. • 60K+ Stem Cell Transplants/Year

RM Companies• 700+ Co’s involved in RM • “Pure” RM Co's

– 300+ Private Co's– 100+ Public Co’s with $40B+ Total

Market Cap– Gene & Immunotherapy Co’s

Leading

CONFIDENTIAL 3 Sources: Proteus Data; ARM 2014 RM Industry Report; FDA www.clinicaltrials.gov

The RM Market Is Growing Rapidly: 23.2% CAGR

CONFIDENTIAL 4

Over 4300 Clinical Trials Worldwide Involving Stem Cells

CONFIDENTIAL 5 Source: ClinicalTrials.gov

Global Company Distribution

5%

Asia32 firms

3%

Canada24 firms

56%

USA386 firms

14%

Europe (ex. UK)93 firms

UK133 firms

19%

2%

Middle East17 firms

700+ RM companies worldwide!

CONFIDENTIAL 6

RM Regulatory Environment: Multiple Agencies

CONFIDENTIAL 7

RM Regulatory Process

CONFIDENTIAL 8

FDA Clinical Trials: Key Metrics (2012)

Size (# Pts.) Length Purpose Failure

Rate

Phase I 20–100 6-9 Months Primarily Safety 53%

Phase IIUp To

Several 100

9 Months -2 Years

Short Term Safety; Mainly Effectiveness

77%

Phase III100s –

Several 1000

1-4 Years Safety, Dosage & Effectiveness 41%

CONFIDENTIAL

Overall Failure Rate (2012): 84.7%

9

Source: PARAXEL Biopharmaceutical R&D Statistical Sourcebook (2012/2013); Tufts Center for the Study of Drug Development, http://csdd.tufts.edu (Tufts CSDD)

Large Molecule Approval Rates Are @3X Higher Than Small Molecules

CONFIDENTIAL 10

Overall Success Rate (1993-2004): 32%

Trends in Risks Associated With New Drug Development: Success Rates for Investigational Drugs; J A DiMasi1; Clinical Pharmacology & Therapeutics (2010) 87 3, 272–277. doi:10.1038/clpt.2009.295

Japan’s New Regulatory Regime For Cell Therapies

CONFIDENTIAL 11

Agenda

I. A Brief Look At The RM Market The RM Field Has Made Great Progress

II. The Current Funding Environment The IPO Window Is Open Strategies for Accessing The Public Markets VCs Are Back…But 1st Time Financings Remain Very Challenging

III. The Role of RM Translation Centers Enabling Collaborative, Capital Efficient RM Technology Development The CCRM: A Model RMT In Toronto, Ontario The RMIF – A New RM Fund Leveraging the Ontario RM

Infrastructure

CONFIDENTIAL 12

Basic & DiscoveryResearch

Preclinical Research

Venture InvestmentsGrants to Universities & Research Institutes,

IPO & Partnering Deals

TherapeuticCandidate

Product Release

Proof of Concept.

PI$10-15MM

Probability: 51%

Probability: 71%

Probability: 40%

Preclinical Development

Clinical Phase I

Clinical Phase II

Clinical Phase III Market

1-3 years 1.4-1.8 year 2.5-3.8 years

PII$20-25MM

PIII$50-75MM

IND Safety Efficacy

Biotech Product Development IsDependent on External Funding

Probabilityof success

Steps

Outcome

InvestmentAmount

Actors

$5-10MM $75=100MM

CONFIDENTIAL 13

Key Metrics:

• Average Time to Market: 10-15 Years• Average Costs: $1B+• Failure Rate: @85%• Less than 30% of approved drugs recoup

development costs

The RM Funding Environment

The Markets Have Recovered And Investors Are Interested in RM

CONFIDENTIAL 14

CONFIDENTIAL 15

RM Technologies Are Beginning To Realize Their Promise

CONFIDENTIAL 16 Source: Price $US as of 2/20/2015; Public Records; Proteus Company Database (2015)

The Public Markets Are Rewarding The Remarkable Clinical Progress Made By RM Cos

bluebird bio (BLUE)

Juno (JUNO)

Kite Pharma (KITE)

Avalanche (AAVL)

• Gene Therapies for ALD, Sickle Cell & Thalassemia

• Phase I/II (4/7 Pts)

• Pre-IPO Raised: $110M• IPO Timing: 06/2013• IPO Price: $17.00• Current Price: $92.52 • Market Cap $2.67B• Investor Return: 24x

• Immunotherapy for Leukemia & Lymphoma

• Phase I/II Data (61 Pts) • Response Rates: 60-

100%

• Pre-IPO Raised: $254M• IPO Timing 12/2014• IPO Price: $24.00• Current Price: $45.56 • Market Cap $4.1B• Investor Return: 14x

• Gene Therapies for Leukemia, and Lymphoma

• Phase I/II Data (24 Pts)• Response Rate: 85%+

• Pre-IPO Raised: $85M• IPO Timing: 06/2014• IPO Price: $17.00• Current Price: $63.22 • Market Cap: $2.65B• Investor Return: 31x

• Gene Therapy for Wet AMD

• Phase I Data (8 Pts)• Initiated Phase II (32

Pts)

• Pre-IPO Raised: $64.9M• IPO Timing: 07/2014• IPO Price: $25.00• Current Price: $39.95• Market Cap: $1.02B• Investor Return: 14x

RM Business Models: Autologous v. Allogeneic

Autologous ModelPatients Own Cells/Tissue• Personalized Medicine

Advantages: • Easier Regulatory Path

(GTP)• No Immune Response

Challenges: • Difficult to Scale • High COGS

Allogeneic ModelUniversal Cells in a Bottle• Big Pharma “Drug Model”

Advantages: • Scalable • Low COGS

Challenges: • More Difficult Regulatory

Path• Immune Response

CONFIDENTIAL 17

Service vs. Product

Autologous Treatments

CONFIDENTIAL 18

Capital Is Flowing Into The Field: 2013/2014 Total RM Financings

Venture Capital / Private Equity / M&A

IPOs

Follow-ons / PIPES

Partnership Upfront Payments

Partnership Announced Milestones

Source: Informa - A.R.M. Industry Briefing 11/01/2015

CONFIDENTIAL 19

The Biotech “Window” Is Open

• 108 New Biotech Offerings (37 & 71)o @25% of IPOs Were Immunotherapy Co’s

• More Than $7.9B Raised

o Far Exceeded Total Raised By Biotech Companies in Previous 5 Years Combined

• The Best Biotech IPO Market Since 2000o The Busiest IPO Year In The 40+ Year History Of Biotecho Bigger Than Both The 1991 And 1996 Windows In Terms Of Number Of New Offerings &

Money Raised

• Biotech IPOs Performed Very Well in 2013 & 2104 o Average Biotech IPOs Were Up 70%+ From Their Initial Offering Priceo One of the Best Performing Sectors in Both 2013 & 2014

• Pace Slowed In Q1 2015 – “Only” 12 Biotech IPOs

2013 & 2014 Were Record Years for Biotech IPOs

Sources: Bruce Booth, LifeSCiVC, April 2015; PwC/NVCA MoneyTree Report (February 2015); Renaissance Capital – 2014 US IPO Annual Review

CONFIDENTIAL 20

2014 Biotech IPOs: 71+ Offerings, Raised $5.2B

Since 2010 the NBI Has Outperformed the Major Indices – By 2X

Source: Forbes, Pharma & Healthcare, Bruce Booth, September 23, 2013

CONFIDENTIAL 21

The Cell & Immune Therapy Indices Have Outperformed the DJIA, Nasdaq, BTK & NBI

CONFIDENTIAL 22

Cell & Immune Therapy Indices

Sources: Cell Therapy Industry Report, Cell Stem Cell, Mason, et al. (2013); Proteus Database (2015); Public Company Data (2015)

The Public Markets: Financing Alternatives

Discussion Materials8

Equity

SEC Registration

Required Upfront

Follow-On(Fully

Marketed)

Company sells registered shares under an effective shelf registration statement (or a specific registration statement) to public investors after a traditional 2 to 5 day roadshow

At-the-Market(ATM)

Company sells registered shares under an effective shelf registration statement to investors into the general trading market over an extended period of time

Underwritten Registered

Direct(URD)

Company sells registered shares under an effective shelf registration statement to public investors after a 1 to 3 day confidential roadshow

Registered Direct(RD)

Company sells registered securities under an effective shelf registration statement to a targeted group of institutional investors on a confidential basis

No Upfront SEC

RegistrationRequired

Common StockPIPE

Company sells unregistered shares to a targeted group of institutional investors in a private placement and files to register the securities typically within 30 days after the offering

ConvertiblePreferred/

Debt

ConvertiblePIPE

Company sells unregistered convertible preferred stock/convertible debt to a targeted group of institutional investors in a private placement and files to register the securities typically within 30 days after the offering

Rule 144AConvertible

Debt

Company sells unregistered convertible debt securities to institutional investors in a Rule 144A offering and files to register the securities typically within 90 days after the offering (public style execution)

Public Transactions

Private/Quasi-Public Transactions

CONFIDENTIAL 23

Key Strategies: IPO - 2ndary - Shelf Registration - PIPE

[Source: Robin Smith – NeoStem]

Public RM Companies Also Raised Capital In This Cycle

CONFIDENTIAL 24

Follow-On Financings: PIPEs; Secondary Offerings; Debt

NeoStem (NBS) • Secondary Offering on

October 9, 2013• Priced at $7.00 Share • Raised $40.2M• Current Stock Price: $6.08

• Market Cap: $128.8M

Athersys (ATHX) • Equity Facility (Registered

Direct) Put In Place in October 2013

• Allows ATHX to Draw Up to $25M

• Price: Average Stock Price Over 10 Day Period

• Market Cap: $116.4M

Cytori (CYTX) • $27M Term Loan on

June 28, 2013• 9.75% Interest • 596K Warrants at $2.26 • Stock Price: $2.47 • Total Raised Since

Inception $350M

• Market Cap: $166.1M

Source: Public Records; Proteus Company Database (2014)

Many RM Companies Have Filed Shelf Registrations

CONFIDENTIAL 25

Shelf Registrations and Registered Directs

Source: Public Records; Proteus Company Database (2014)

August 2013

January 2013

September 2012; Raised $9M in RD in June 2013

July 2008 July 2008September 2012

Will The Public Markets Remain Open?

Evidence Of A Biotech Bubble: • The NBI Is More Than Double Since Its March 2000 Peak• The Average Biotech From 2013-2014 Trades At More Than 70% Above Its Offer Price, Over

3X That Of Non-Biotech• 2014 Saw The Largest Number Of Biotech IPOs In History (71)• @40% Of 2014 Biotech IPOs Were Based on Preclinical Data • @25% Of Biotech IPOs Were Immunotherapy Co’s.

Arguments Against A Biotech Bubble:• Better Science: Harnessing Human Genome Data (i.e. Gene & Immunotherapies); Improved

Clinical Trial Designs (Targeted Patient opulations) • Rapidly Maturing Industry, Supported By Extensive Academic Research • Improving Regulatory Environment: Breakthrough & Orphan Designations, SPAs Are

Accelerating Approvals• More Sophisticated Investors: Specialty Biotech Venture Funds Are Leading The Financings • Insider Support: Insiders Buying More Shares On The IPO

CONFIDENTIAL 26

Are We In A Biotech Bubble?

Venture Funding for Biotech: VCs Are Back…

CONFIDENTIAL 27Sources: Bruce Booth, LifeSCiVC (April 21, 2015); PwC/NVCA 1Q 2015 MoneyTree Report (April 2015)

Q4 2014 & Q1 2015: Biotech Venture Funding Was At Record Levels

Venture Funding for Biotech: VCs Are Back…

CONFIDENTIAL 28

• Venture Investments In Biotech Are At Historic Levels o 2014: The Best Year in History: $6.0B Raised; 470 Dealso Q1 2015: 3rd Best Quarter in History: $1.7B Raised; 174 Deals

• But Still Very Difficult to Raise Capital for New Deals o Most Financings Were Follow-On or Late Stage Deals o Seed Round Financings Were Down 32% in Q1 2015 - to the Lowest

Point In 20+ Years. o First Time Financings Hit Historic Lows in 2014, but Recovered In

Q1 2015

• Bottom Line: VC Funding of Biotech Has Improved Substantially, But It Still Remains Very Challenging for New Companies To Raise Capital

Sources: Bruce Booth, LifeSCiVC (January 22, 2015); PwC/NVCA MoneyTree Reports (October 2014; February 2015)

…But First Time Investments Are Very Challenging

Venture Financing For New RM Companies Is Very Challenging

CONFIDENTIAL 29Source: Bruce Booth, LifeSCiVC (April 21, 2015); PwC/NVCA Q1 2015

MoneyTree Report (April 2015)

First Time Investments Are Limited

Many Investors Have Left Biotech: Only @25 Venture Firms Are Investing Actively

Total Investors: Down 40% Active VCs: Down 27%

CONFIDENTIAL 30

Early Stage Biotech Venture Scarcity: Fitness, Fear, and Greed (Bruce Booth, Atlas Ventures; September 22, 2014)

Key Investment Criteria: VCs Want Pristine Deals…

Proprietary Commercial Technology Great Science ≠ Great Business Proof Of Concept Established

Robust Clinical Data Solid Phase II Data Compelling Safety & Efficacy Data (70%+

Response Rates)

Strong Management Team Board & SAB

Solid Intellectual Property Position Freedom To Operate Defensible IP (Patents & Trade Secrets)

Large Market Opportunity Target markets > $1B/year

Commercialization Issues Addressed Capital Efficient Business Model Manufacturing Processes Optimized Reimbursement Strategy & Data

Differentiation How Is Your Approach Different? Why Is It Better?

Exit Strategy M&A or IPO Realistic Timeframe

Acceptable Risk/Return Profile Need 10X Return for 20% IRR

CONFIDENTIAL 31

RESEARCH DEVELOPMENT CLINICAL TRIALS(Phase 1 and 2)

2-3 years 2-3 years 3-4 years

Institutional Funding Is Not Readily Available Until Phase 2 Trials

“Valley of Death”Grants & Seed Money

VC InvestmentsAvailable

The Valley of Death Is Expanding

CONFIDENTIAL 32

Agenda

I. A Brief Look At The RM Market The RM Field Has Made Great Progress

II. The Current Funding Environment The IPO Window Is Open Strategies for Accessing The Public Markets VCs Are Back…But 1st Time Financings Remain Very Challenging

III. The Role of RM Translation Centers Enabling Collaborative, Capital Efficient RM Technology Development The CCRM: A Model RMT In Toronto, Ontario The RMIF – A New RM Fund Leveraging the Ontario RM

Infrastructure

CONFIDENTIAL 33

A New Capital Efficient Model Is Required

CAPITAL EFFICIENCY: DO MORE WITH LESSExtend 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 34

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 35

RM Translation Centers

Enabling Collaborative, Capital Efficient Technology Development

CONFIDENTIAL 36

CCRM: A Premier RM Translation Centre

RM Translation Centre Founded In 2011 with $30M $15M in Federal Funding, and $15M from Industry & Institutions Leveraging $100M+ Investment In Collaborative Academic Research and RM Infrastructure Based in Toronto, in the heart of the MaRS Discovery District

World Class Translation Team & Facilities 10,000 sq ft Core Development/Wet Lab and Office Facilities (UT) 20,000 sq ft GMP Cell Manufacturing Facility (2015) 40 Employees: 90% Masters & PhDs; 15+ Product Development Scientists

6 Founding Institutional Members The Leading RM Research Centers in Ontario

Industry Consortium of 40+ Members Commercialization Committee Investment Committee 20+ Development Projects

Worldwide Network Collaboration Agreements

CONFIDENTIAL 37

CONFIDENTIAL 38

Premier RM Translation

Center

Favorable RM Regulatory

Environment

EstablishedRM Clinical Trials

Network

World Class RM Process

Development & Cell Manufacturing

Facility

Ontario’s Unique Infrastructure: Enables Rapid,Capital Efficient Development of RM Technologies

Leading RM Research

Community

CONFIDENTIAL 39

APPENDIX

CCRM Mission: Bridge the RM Commercialization Gap

CONFIDENTIAL 40

Industry Consortium: Engaging Strategic Partners

DEVICES

REAGENTS

CELLS AS TOOLS

THERAPEUTICS

CONFIDENTIAL 41

CONFIDENTIAL 42

CCRM/UHN cGMP Facility: World Class Cell Manufacturing Capabilities

Enables:- Ability To Optimize Manufacturing Processes- Control Over Production of Cells for PI & PII Trials - High Quality, Low Cost Manufacturing

CONFIDENTIAL 43

UHN’s Superb Clinical Trials Network Enables Accelerated Clinical Development

UHN: Canada’s Top Research Hospital• $300M+/yr Research Funding; 800K+sqft;

17,000 Patients/yr; 1,000+ Ongoing Clinical Trials

Full In-House CRO Services• Vivarium; Biobanks; cGMP Facility• IRB; Ethics Review; Adaptive Trial Design• Data Capture & Management• Patient Enrollment

High Speed & Low Cost• Ave. Time FPFV: 29 Days• Ave. Time to Open Trial: 129 Days• Ave. Time To Completion: 18 Months • Phase I Cost: $6K-$60K per patient• Phase II Cost: $2K-$40K per patient

Immunotherapy: Harnessing The Immune System to Fight Cancer

Dendritic Cell Therapy(DCs Trained to Recognize

Cancer Antigens)Adoptive T-Cell Therapy

(Genetically Engineered T-Cells)

CONFIDENTIAL 44

Checkpoint Inhibitors(Monoclonal Antibody Blocks

Checkpoint Proteins)

Immunotherapy: Harnessing The Immune System to Fight Cancer

Dendritic Cell Therapy(DCs Trained to Recognize

Cancer Antigens)Adoptive T-Cell Therapy

(Genetically Engineered T-Cells)

CONFIDENTIAL 45

Checkpoint Inhibitors(Monoclonal Antibody Blocks

Checkpoint Proteins)

Gartner’s Hype Cycle of Emerging Technologies

CONFIDENTIAL 46

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightment

Plateau of Productivity

Time

Visibility

Regenerative Medicines: On the 2nd Half of the Gartner Curve

Visibility

1963 Till & McColluch Discover Stem Cells

1980 Early TE research (MIT)

1986 ATS and Organogenesis founded

1992 Geron founded

1997 First FDA approved cell therapy (Carticel)

1997 Dolly the sheep

1998 Human ESCs first derived

1999 First FDA approved TE product (Apligraf)

1999 TE bladders in clinic

2000 Time Magazine:TE No. 1 job

2001 Bush “partial ban” on HESCs

2001 Dermagraft FDA approved

2001 Ortec FDA approved

2001: 3300 jobs, 73 firms, mkt cap > $2.5B

2002 ISSCR Founded

2002 ATS + Organogenesis file Chapter 11

Time

2009 Obama Ends Ban on hESCs

2007 iPS Technology Developed

2005 CIRM Founded

2003 UK Stem Cell Bank Formed

CONFIDENTIAL 47

2010 Dendreon’s Provenge Approved

2010 Cephalon & Mesoblast $2B Deal

Nov 2008 Genzyme-Osiris $1.25B Deal

2011 CCRM Established

2007 Apligraf - 200,000 Patients Treated2006 Carticel - 10,000 Patients Treated

2013 Cancer Immunotherapy Is Breakthrough of the Year

RM IP Landscape: A Patent Thicket

Key RM Patent Metrics

CONFIDENTIAL 48

• Substantial Activity • Patent Applications: 10,000+• Patents Granted: 2,200+

• Dramatic Increase in Filings Since 2000

• Over 25% Annual Growth Rate

Unusual Patent Distribution• 44% Public Sector Entities • 56% Private Sector

Fragmented Ownership• No Company Owns More Than

3% of Granted Patents

*Only 3% of All USPTO Patents Are Held By Public Entities

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 49

Regenerative Medicine Innovations Fund:A New Venture Fund Focused on RM

CONFIDENTIAL 50

RMIF Fund Overview

• Early Stage RM Fund: The RMIF will be an early stage, venture capital fund, headquartered in Toronto, that is focused exclusively on RM.

• Target Fund Size: $100M• Target Portfolio: 10-12 RM Companies• Typical Investment: $5M-$10M • Anticipated Close: Q4 2014 • Partner With CCRM: RMIF will utilize the CCRM staff and

infrastructure, including its wet lab and cell manufacturing facilities, to generate deal flow, conduct diligence, and commercialize RM technologies.

• Leverage Ontario RM Infrastructure: RMIF will leverage the established, robust Ontario RM infrastructure toward the rapid, capital efficient development of RM technologies.