February 13th, 2008

Budgeting for Life Science Companies

Owen Gordon, Axela Inc.

| 1

MaRS www.marsdd.com

Budgeting for Life Science Overview

Why budget?

Who should be involved in the budgeting process?

How frequently should I update my budget?

What should be included in my budget?

| 2

MaRS www.marsdd.com

Why Budget?

Cash flow planning

Grant submissions/reporting

Shareholder Agreement/board requirement

Investor Due Diligence

Bank/lender requirements

Strategic Alliance negotiations/monitoring

Other regulatory compliance (CRA, etc.)

| 3

MaRS www.marsdd.com

Who Should be involved?

Those most closely involved with the underlying activities

Scientist

CRO/consultant liaison

Collaborator

Business development personnel

Finance

| 4

MaRS www.marsdd.com

What should be included?

Assumptions Headcount/FTE’s

Benefits, bonuses, recruitment fees, tax equalizationpayments, relocation of non-residents

Occupancy costs

Machine rental (Mass Spectrometers, NMR’s, etc.)

Capital Expenditures (wet/dry lab build-out, chemistryhoods)

Tax credits (SR&ED, GST input credits)

Professional Fees (Legal corporate and IP-related, audit);patent costs

Insurance (Key person, D&O, etc.)

Board/SAB member fees

| 5

MaRS www.marsdd.com

What should be included (cont’d)?

Assumptions (cont’d) Exchange rate

Conferences

Travel & Entertainment (T&E) Fundraising (CEO/CFO/CTO, etc.)

Board/SAB/Clinical Advisory Board meetings

Development driven (clinical trials, etc.)

Regular

Profit & Loss/Income Statement on cash basis

| 6

MaRS www.marsdd.com

Select Items – Therapeutics Co.

(assuming no CRO)

Number of planned trial sites

Protocol/trial design fees

Patient recruitment fees

Sample collections

Statistical data analysis fees

Regulatory fees

CRA T&E

| 7

MaRS www.marsdd.com

Select Items – Research Tools Company

Instrument development phases

Tooling

Consulting

Outside engineering resources

Software development

Assay development

Alpha/Beta testing

Instrument compliance costs (CSA, CE, ROHS, etc.)

| 8

MaRS www.marsdd.com

Budgeting Fundamentals

Annual Strategic Plan

Objectives

Activities

Budgets

| 9

MaRS www.marsdd.com

Budgeting Fundamentals (cont’d)

Annual Strategic Plan

An operating plan of your major deliverables for the year (orwhatever planning cycle makes sense)

e.g. Complete a Phase I trial, have a successful product launchfor a medical device.

| 10

MaRS www.marsdd.com

Budgeting Fundamentals (cont’d)

Annual Strategic Plan

Objectives

The 3 – 6 major milestones or goals you will measure to see ifyou are on track to meet your Strategic Plan

e.g. select CRO by X date, complete patient recruitment by Ydate

e.g. have product launch collateral completed by Z date

| 11

MaRS www.marsdd.com

Budgeting Fundamentals (cont’d)

Annual Strategic Plan

Objectives

Activities

e.g. Interview 3 CRO’s in Q2 including T&E to visit HQ’s

Select graphic designer; Spend $X on mock-ups andmasters; Print batches by Y date in advance of launch

| 12

MaRS www.marsdd.com

Budgeting Fundamentals (cont’d)

Annual Strategic Plan

Objectives

Activities

Budgets

| 13

MaRS www.marsdd.com

Assumptions – Chart of Accounts

Financial/Statutory

1 Financing - Gross Proceeds

2 GST Refund

3 Scientific Research and Experimental Development (Investment Tax Credit)

4 Investment Income

Corporate Payroll

5 Corporate Salaries

6 Employee Benefits - Corporate

7 Performance Bonus - Corporate

8 Recruiting Fees - Corporate

9 Employee Relocation - Corporate

10 Training - Corporate and R&D (50%/50%)

Professional Fees

11 Legal - Corporate

12 Accounting/Audit - Corporate

13 SR&ED Tax Consultants - R&D

14 MIS/IT - Corporate

| 14

MaRS www.marsdd.com

Assumptions – Chart of Accounts (cont’d)

Office, General & Admin

15 Bank Interest & Charges - Corporate 25 Building Mtce - Corporate & R&D (25%/75%)

16 Postage/Courier/Ship-Corporate & R&D (25%/75%)26 Director/Committee Fees - Corporate

17 Telecomm/Security - Corporate & R&D (25%/75%) 27 Board/Audit/Comp Cttee Meetings - Corporate

18 Office Costs - Corporate & R&D (25%/75%) 28 Insurance - D&O - Corporate

19 Printing/Advertising - Corporate 29 Insurance - Keyman - Corporate

20 Communications/PR - Corporate 30 Insurance-Building-Corporate & R&D (25%/75%)

21 Subscriptions/Dues/Memberships - Corporate 31 Telephone Equip Lease - Corporate & R&D (25%/75%)

22 Conferences - Corporate 32 Photocopier lease-Corporate & R&D (25%/75%)

23 Meals/Entertainment/Travel - Corporate 33 Miscellaneous

24 Building Lease-Miss-Corporate & RD(25%/75%) 34 Financing fees

| 15

MaRS www.marsdd.com

Assumptions – Chart of Accounts (cont’d)

Research & Development

35 R&D Salaries 46 Subscriptions/Dues/Memberships - R&D

36 Employee Benefits - R&D 47 Conferences - R&D

37 Performance Bonus - R&D 48 Meals/Entertainment/Travel - R&D

38 Recruiting fees - R&D 49 Scientific Advisory Board fees

39 Employee Relocation - R&D 50 Clinical Advisory Board fees

40 Consultants - R&D 51 SAB Meeting - R&D

41 Other Research Agreements 52 CAB Meetings - R&D

42 Project II Research Agreement 54 Insurance - Keyman - RD

43 Lab Supplies - R&D 55 Insurance - Clinical Trials

44 Legal - Patents - Spinout 56 Miscellaneous

45 Legal - Patents - Collaborator A

| 16

MaRS www.marsdd.com

Assumptions – Chart of Accounts (cont’d)

Business Development

57 BD Salary

58 Employee Benefits - BD

59 Performance Bonus - R&D

60 Consultants

61 Meals/Entertainment/Travel - BD

62 Conferences - BD

63 Research Reports - BD

CAPEX

64 Capital Expenditures

| 17

MaRS www.marsdd.com

January February March October November December Total

Net cash, beginning of period 1,656,712 1,124,697 813,584 (61,797) 20,604,426 373,688

Inflows:

Financing 2,503 - - 21,500,000 - 27,470,898

GST refund 12,441 - 43,337 5,053 3,681 118,885

SR&ED ITC - Federal & Provincial - - - - - 1,283,077

Investment income 779 1,194 2,136 - - 7,671

Other - - - - -

Total inflows 15,723 1,194 45,473 21,505,053 3,681 28,880,531

Outflows:

Corporate

Salaries 52,598 36,085 34,273 31,538 31,538 430,505

Employee benefits - - - 4,725 4,725 28,369

Performance bonus - 12,875 - - - 25,750

Recruiting fees - - - - - -

Employee relocation - - - - - -

Training - - - 500 500 3,000

Legal - Corporate - 225 - 6,250 6,250 42,958

Accounting/audit 11,931 - 14,317 - - 61,997

MIS/IT 3,732 1,913 2,004 3,167 3,167 39,040

Interest and bank charges 106 88 55 100 100 6,156

Sample Budget Format

~//~

Capital expenditures

Computer - network - - -

Computer equipment 4,108 - -

Leasehold improvements - - -

R&D equipment - - -

Office equipment 1,459 - -

Office furniture - - -

Total capital expenditures 5,567 775 -

Total outflows 547,737 312,307 1,014,062

Net cash, end of period 1,124,697 813,584 19,594,044

Headcount 6 7 9

/========/

| 18

MaRS www.marsdd.com

Sample Budget – Clinical Trial Phase I

January February November December Total

Phase 1 program

Research 64,400 49,595 68,000 372,244

CMC development - - 40,000 200,000

Preclinical development - - 80,000 1,235,000

Clinical development - - - 400,000

Regulatory - - 25,000 50,000

Project management - - 12,000 78,000

Pharmacology-biology 43,387 15,044 - 173,100

Analytical chemistry 96,962 - - 562,825

Toxicology 29,641 35,407 - 101,801

Genotoxicology - - - -

Reprotoxicology - - - -

Safety/Pharmacology - - - 72,995

Metabolism - - - 80,000

Clinical Subproject - - - 2,766

CMC Subproject 85,000 - - 116,881

Regulatory Subproject - - - 12,216

Consultant - 150 - 6,618

Consultant - - - -

Consultant - - - -

Consultant - - - 4,708

Other Clinical Consultants - - - 1,000

Founders - 3,210 - 9,095

~//~

| 19

MaRS www.marsdd.com

Sample Budget – Clinical Trial Phase II

~//~January February November December Total

Phase 2 program

License fee - - - 1,500,000

Research - - - -

CMC development - - 100,000 600,000

Preclinical development - - - 30,000

Clinical development - - 500,000 800,000

Regulatory development - - 5,000 85,000

Project management - - 10,000 60,000

Consultat - - - -

Consultant 11,195 - - 16,331

Consultant - - - 14,733

Consultant - - - 88,755

Other Consultants - - - 9,565

| 20

MaRS www.marsdd.com

Sample Budget – other examples

Total

Q3 Q4 2007KEY EQUIPMENT

Core chemistry apparatus -$ -$ -$

Core pharmacology apparatus (Laval CRULRG) -$ -$ -$

PROGRAM 1

Pharmacophore analysis of preleads -$ -$ -$

Lead optimization -$ -$ -$

Post-IND candidate declaration chemistry -$ -$ -$

HPLC methods -$ -$ -$

Process research for API -$ -$ -$

Formulation research for drug product -$ -$ -$

GMP production of API -$ -$ -$

GMP production of drug product -$ -$ -$

Genotoxicology -$ -$ -$

Pre-IND meeting -$ -$ -$

In vivo toxicology -$ -$ -$

Ancillary assays -$ -$ -$

Preparation of IND and CMC -$ -$ -$

Phase IA (SAD) study -$ -$ -$

GMP production of drug product (for phase II) -$ -$ -$

Post-study (biostatistical) analyses -$ -$ -$

In vivo GLP toxicology studies -$ -$ -$

Phase IB (MAD) study -$ -$ -$

Phase IIA study -$ -$ -$

TOTAL -$ -$ -$

ACTIVITY2007

| 21

MaRS www.marsdd.com

Sample Budget Roll-up example

Q3 Q4Rent & Research Contracts

Partner 1 -$ 5.8$

Partner 2 -$ 25.0$

Partner 3 10.0$ 15.0$

Partner 4 -$ 55.0$

Office Supplies & Equipment 25.0$ 2.0$

Insurance

Key man -$ 0.6$

Directors' and Officers' -$ 6.0$

Telephone / Internet 1.5$ 1.5$

Legal

Corporate 120.0$ 80.0$

Intellectual Property 10.0$ 5.0$

Advisors

Executive Chairman -$ -$

BOD -$ -$

SAB -$ -$

Others -$ 25.0$

Payments to Licensors 120.0$ -$

Accounting 3.0$ -$

Closing Costs

First Closing 58.0$ -$

Second Closing -$ -$

Meetings -$ 5.0$

Travel & Entertainment -$ 7.0$

Dues & Subscriptions 1.0$ 1.0$

Repairs & Maintenance 6.5$ 6.5$

Miscellaneous 2.5$ 2.5$

TOTAL 357.5$ 242.9$

ACTIVITY2007