Gregory A. BonfiglioProteus Venture PartnersApril 8, 2011

Regenerative Medicine Coalition:An International Coalition of RM Translation Centers

Agenda

I. New Economic Realties A Fundamental Shift in Biotech Economics The Valley of Death Is Expanding A New Capital Efficient Model Is Required

II. The Role of RM Translation Centers Enabling Capital Efficient RM Technology Development Facilitating Collaborations in RM Technology

Development

III. The RMC: An International Coalition of RMTCs

CONFIDENTIAL 2

New Economic Reality

Coming Out of the Worst Financial Crisis in 75+ Years

CONFIDENTIAL 3

Basic & DiscoveryResearch

Preclinical Research

Venture InvestmentsGrants to Universities & Research Institutes,

IPO & Partnering Deals

TherapeuticCandidate

Product Release

Proof of Concept.

PI$10-15MM

Probability: 66%

Probability: 70%

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 4

Key Metrics:

• Average Time to Market: 10-15 Years• Average Costs: $1B• Failure Rate: @90%• Less than 30% of approved drugs recoup

development costs

The New Economic Reality

Public Markets: Closed? • Biotech IPO Performance: Very Poor

• 2003-2007 Window: 77 Companies• Average VC Return = 1.9X • Oct 2007 (Market Peak): 59% trading below initial PPS • June 2009: 79% trading below initial PPS• 69% Trading Below Total Invested Capital

• Only 13 Biotech IPOs in the last 24 months; All Performed Poorly* (Reduced Capital Raised; Reduced Offering Price; Trading Below IPO price)

Private Equity: Dramatically Reduced • Venture Investments in Biotech are Down 45+%

• Back to pre=1990s level of capital (PWC Survey)• VCs have fled Early Stage investments • First-Time financings at lowest level in history (down 95%; 3 deals; $1M)

CONFIDENTIAL 5

Traditional Capital Sources Are Unavailable

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

6CONFIDENTIAL

“It’s a Very Tough Environment”

25% of All Biotech Companies have Failed since 2007

Delistings & Bankruptcies in 2008 • 22 Public Companies were Delisted from NASDAQ

• 214% increase over 2007 (7 Companies) • 6 Public Companies filed for Bankruptcy

• 200% increase over 2007 ( 2)

Biotech Casualties in 2009: • 44 Public Companies Lost (Delistings; M&A; BKs)

Cash Shortfalls (Oct 2010) • 25% (73) Public Companies have less than 6 months cash

• Better than Dec 2008: 45% of Public Co’s Had Cash Shortfall

CONFIDENTIAL 7

Many Biotech Companies in Peril

Future Losses: @5% will Fail in Next 12-18 months

A New Model Is Required: Capital Efficiency Is Critical

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 8

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 9

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 10

The Role of RM Translation Centers: Enabling Capital Efficient Technology Development

New RM Venture- Virtual Co

- POC Project- Application Engine

Funding Sources

• Profit• Non-Profit• Government

RM Translation Centers

• GLP/GMP Facilities• RM Expertise • Clinical Development

Experience

Pharma• Clinical

Development • Manufacturing• Marketing• Reimbursement

CONFIDENTIAL 11

Collaborative Research Leveraging Shared Resources

Open Innovation, Henry Chesbrough , Harvard Business School Press, 2006

RM Translation Centers

The Role of RM Translation Centers: Enabling Capital Efficient Technology Development

CONFIDENTIAL 12

RM Translation Centers

The Role of RM Translation Centers: Enabling Capital Efficient Technology Development

CONFIDENTIAL 13

UCI Stem Cell Research Center

Clinical Cell and Vaccine Production Facility

USC & UCSF RM Centers

Regenerative Medicine Coalition: A Coalition of RM Translation Centers

Mission of the RMC • Accelerate The Commercialization of Regenerative

Medicine Technologies• Enable the Capital Efficient Development of RM

Technologies• Facilitate Collaborative Development Projects• Reduce by the Costs and Time Involved in Early

Stage Clinical Development of RM Technologies• Share Advances in Enabling/“Platform Technologies”:

o Scale-Up, Controlling Lot-Lot Variations; Safety & Efficacy Standards; Delivery Mechanisms; etc

CONFIDENTIAL 14

Regenerative Medicine Coalition: A Coalition of RM Translation Centers

RMC

Core Members: RM Translation Centers

Associate Members: -Pharma -Biotech -Emerging RM Companies -Funding Agencies

CONFIDENTIAL 15

Regenerative Medicine Coalition: Charter Members

CONFIDENTIAL 16

Regenerative Medicine Coalition: Finance & Industry Support

CONFIDENTIAL 17

Regenerative Medicine Coalition: A Coalition of RM Translation Centers

RMC Panelist

• Tony Atala (WFIRM)• Arnie Caplan (NCRM) • John Murphy (McGowan/UPMC) • Michael May (CCRM)• Frank Roman-Lauter (BCRT)

CONFIDENTIAL 18

CONFIDENTIAL 19

The Final Word

CONFIDENTIAL 20

APPENDIX

CONFIDENTIAL 21

Proteus: An Investment and Advisory Firm Focused on RM

Proteus, Inc.

Proteus Management, LLC

(Fund Management)

Proteus Insights, LLC

(Consulting Services)

Proteus Advisors, LLC

(Investment Banking Services)

RM Market: On 2nd Half of the Gartner Curve

Stage of Development

Visibility

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightment

Plateau of Productivity

1980 Early TE research (MIT)

1986 ATS and Organogenesis founded

1988 SyStemix 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

2007 40 Public Companies: $4.7B Mrkt Cap2007 800 FDA Clinical Trials Ongoing 2007 $1.5B RM Product Revenues2007 1.2M+ Patients Treated 2007 Apligraf - 200,000 Patients Treated2006 Carticel - 10,000 Patients Treated2006 hESl s Derived From Blastomeres

Time

2009 Obama Ends Ban on hESCs

2007 iPS Technology Developed

2005 CIRM Founded

2003 UK Stem Cell Bank Formed

CONFIDENTIAL 22

2010 Dendreon’s ProvengeApproved for Prostate Cancer

2010 Cephalon & Mesoblast: $2B Deal Re MSC Technologies

RM Is Entering A New ERA

RM Market is Maturing: Key Metrics Rapidly Expanding Market:• $1.6B in 2009• $20.0B in 2014 • CAGR of 18.34%

Dramatic Revenue Growth• $130M in 2001• $1.6B+ in 2009

Worldwide funding for research Increasing• $2.5B Now• $14B in 10 Years

Clinical Programs • Over 3200 Clinical Trials• Over 400 ex-Oncology

Commercial Products • 400 on Market (Mostly Skin, Tools

Media, & Devices); – 900+ in Development

• 44 Cell Therapies on Market– 400 in Development– 28 in PIII/Pivotal Trials

1.2M+ Patients Treated with RM Products.

• 320K+ Cell Therapy Patients

RM Companies• 700+ Co’s involved in RM • 50+ Public Co’s;

– $10.0+B Total Market Cap • 250+ Private Co’s

CONFIDENTIAL 23

Big Pharma is Actively Engaged

GSK & HSCI: $25M Deal Merck, Pfizer & Lily Launch Enlight

Pfizer Forms $100M RM Division; Deals: Athersys (IBD); UCL (RPE); ViaCyte (Diabetes)

GSK, AZN & Roche Help Launch Stem Cells for Safer Medicine in UK

Johnson & Johnson Invests in Tengion & ViaCyte (NovoCell)Genzyme & Osiris: $1.25B Deal

CONFIDENTIAL 24

GE & Cytori: StemSource Cephalon & Mesoblast: $2.0B Deal

RM Has Made Great Progress, but… ….Challenges Remain

R&D Creation And Characterization Of

Optimal Cells For Therapy– Controlling Differentiation Pathways

Standards For The Field– What is an iPS Cell?

Contaminant Free Cell Lines Safe & Reliable Expansion Track Cell Migration & Engraftment

- Imaging Technology And Biological Markers

Immune Modulation

Manufacturing Technologies For Scale-up

- Safe & Reliable Expansion - Sterility Testing & Validation - Process Control & Reproducibility;

Consistent Lots- Closed Systems

Product Characterization– Safety; Identify; Potency

Process Control : Process Is The Product – COGS; QC; & cGMP

Centralized Vs. Point Of Care

CONFIDENTIAL 25

…A Few More Challenges

Regulatory& IP Landscape Regulatory Environment Needs Clarity

- Standards & Guidelines Are Evolving

- Characterization

- Safety / Efficacy / Consistency

- Cross Border Inconsistencies

IP Landscape Is Treacherous : “Patent Thicket”

- Fragmented Ownership;

- Patents Proliferating Rapidly : 25% GAGR

- Inconsistent & Competing Patents: Invites Litigation

- Need “Freedom To Operate” Opinions

Business Issues Business Model Questions

- Capital Efficient R&D- Product V. Service Models- Autologous V. Allogeneic

Reimbursement Issues- Cost Savings Justification

Sales & Marketing- Complex Channel Arrangements- Define Marketable “Product”- Educate Consumers Re: New Treatment

Paradigms

CONFIDENTIAL 26

Global Biotech IPOs: 2002 - 2009

CONFIDENTIAL 27

Source: Nature Biotechnology Volume 28, Number 8; August 2010

What Do VCs Want? “Pristine Deals”

Proprietary Commercial Technology Great Science ≠ Great Business Proof Of Concept Established Phase II Clinical Data

Strong Management Team Board SAB

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

Secrets)

Large Market Opportunity Target markets > $1B/year

Defensible Business Model Capital Efficient Tech Development Application Engines Project Based Models Virtual Operations

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

Exit Strategy M&A: Attractive Products For Acquirer Realistic Timeframe

Acceptable Risk/Return Profile Multiple Chances To Win

CONFIDENTIAL 28

Funding Sources: Government Funds

UK & EU Development Funds: MRC; Framework 7; European Research Council

Traditional US Government Funding Increasing NIH Funding & DARPA

Non-Traditional US Government Funding Is Available DoD RM Initiate: AFIRM (Armed Forces Institute of Regenerative

Medicine) HHS Initiative: BARDA (Biomedical Advanced Research and

Development Authority)

State RM Funds: CIRM Actively Funding ($1.2BM); Many Other US States

Other Regional Development Funds: Singapore EDB/Bio*One Fund; UK Matching Grants; Gulf; India Tech Transfer; Develop Biotech Industry

CONFIDENTIAL 29

Funding Sources: Corporate & Non-Profit

Philanthropic Foundations & Disease Advocacy Groups Provide Funding JDRF; Michael J. Fox Foundation, CNS Foundation Stowers Institute

Corporate Venture Groups

JJDC (Tengion; NovoCell) Pfizer; NovoNordisk; GE Healthcare; Genzyme

Creative Sources of Funds: Out license non-core technology Provide consulting or lab services to generate cash flow Work with a strategic partner

Biotech, Pharma & Device Companies Merge with a cash rich company that is tech poor

CONFIDENTIAL 30

The Old “Relay” Model Is Very Capital Intensive

Business Models: • “Platform” Company

• Develop technology horizontally across many therapeutic applications• High research cash burn • Large R&D staff

• “Product” Company (Specialty Pharma)• Apply technology to specific therapeutic applications• Multiple clinical programs• Large clinical trial burn rate

IPO Metrics: • Lead Program in late stage development • Additional “shots on goal” (earlier clinical programs, or platform technologies) • Substantial infrastructure (“bricks & mortar” & staff)

CONFIDENTIAL 31

Strategy: Build Company Toward An IPO

Pre-IPO Capital: @$90M