scholarship & research

Washington Research Foundat ion

ANNUAL REPORT2009

Partnering in

table of contents

Record licensing revenue and strategic investments led to a successful 2009 for WRF despite the tough economic climate. Supporting research and enhancing the value of intellectual property continue to drive us, and we are fortunate to work in partnership with some of the finest organizations and individuals in their fields to help us achieve these goals. ronalD S. HoWell CEO, Washington Research Foundation

WRF CAPITAL SUmmARy 1

PORTFOLIO COmPANIES 2-3

GIFT PROGRAm 4

GIFT PROFILES 5-6

LICENSING 7

VENTURE CENTER & RESEARCH SERVICES 8

TRIBUTE TO CAL KNUDSEN 9

WRF STAFF 10

WRF BOARD OF DIRECTORS 11

FINANCIALS 12-13

As a leading early-stage investor, WRF Capital partners with entrepreneurs,

local universities, research institutions and other investors to develop new

technology-based companies. Proceeds generated from investments are used

to support philanthropic activities focusing on scholarship and research. WRF

Capital currently manages an active portfolio of 28 companies at varying stages

of development. This portfolio is managed by a team of seasoned professionals

who are passionately committed to helping these companies succeed.

Highlights from WRF Capital’s portfolio in 2009 include the following:

HaloSource• , based in Bothell, WA, registered their revolutionary low-cost

drinking water purification technology HaloPure BR with the EPA, expanding

the opportunities to provide point-of-use water disinfection in both developed

and developing countries;

Hyperion therapeutics• began Phase III clinical trials for glycerol phenylbutyrate

(HPN-100) to treat patients with urea cycle disorders, and Phase II studies for use

of HPN-100 in treating those with cirrhosis and episodic hepatic encephalopathy;

Seattle-based biopharmaceutical company • omeros, which focuses on discovering,

developing and commercializing products to treat disorders of the central nervous

system, completed its $68.2m initial public offering and plans to use proceeds

to fund Phase III clinical trials of its lead arthroscopy product OmS103HP;

Pathway Medical• , a Kirkland, WA company specializing in medical devices for

the treatment of arterial disease, closed a $42.5m Series D financing round and

received FDA approval for its Jetstream G2 peripheral atherectomy catheter;

Skytap• (formerly illumita), a leading self-service cloud automation solutions

provider located in Seattle, completed a $7m Series B round and exceeded

revenue forecasts for the year.

Profiles of other WRF Capital investments achieving notable success in 2009 follow

on pages 2 and 3.

Wrf CaPital summary rePreSentative Portfolio CoMPanieS Accium BioSciences, Inc.

Alder Biopharmaceuticals, Inc.

Amnis Corp.

Arzeda Corp.

Ekos Corp.

EnerG2, Inc.

GlobeImmune, Inc.

Halosource, Inc.

Hyperion Therapeutics, Inc.

Ikaria, Inc.

mirina Corp.

modumetal, Inc.

nLight Photonics, Inc.

Pacific Bioscience Laboratories, Inc. / CLARISONIC

Pathway medical Technologies, Inc.

PetraVm, Inc.

PharmSelex Corp. (formerly known as GPC-Rx)

Physware, Inc. (formerly known as CmT)

Skytap (formerly known as illumita, Inc.)

Targeted Growth, Inc.

TeachTown, Inc.

Teranode Corp.

Trace Detect, Inc.

Uptake medical Corp.

VLST Corp.

Xori Corp.

1

portfolio CoMPanieS

alDer bioPHarMaCeutiCalS

The potential shown during Alder Biopharmaceuticals’ Phase I and II

trials for its monoclonal antibody candidate ALD518, a drug designed to

treat rheumatoid arthritis and the cachexia associated with non-small cell

lung cancer, played a pivotal role in striking a licensing deal potentially

worth over $1.3 billion between the Bothell, WA-based life-science

company and global biopharmaceutical giant Bristol-myers Squibb.

Alder’s yeast-based production technology is considerably quicker

and less expensive than the Chinese hamster ovary cell-based method

typically favored by its competitors, and research has indicated that

Alder has found a way to manufacture ALD518 in a manner that will

make it safer and more efficacious than competing drugs.

arzeDa CorP.

Arzeda combines green chemistry and computational biology to

create novel, reaction-specific enzymes essential to the conversion of

plants and plant-derived materials as alternatives to petroleum-based

chemicals and fuels. Founded on technology developed in Dr. David

Baker’s laboratory at the University of Washington, this emerging

startup received a prestigious NSF grant totaling $149,000 in 2009 to

further their research into butadiene production based on plant-derived

materials. The company also announced a partnership with the Pioneer

Hi-Bred division of DuPont, a collaboration that will enable Arzeda to

benefit from the resources and experience offered by a global leader

in advanced plant genetics while furthering development of their own

innovative technologies.

energ2

EnerG2’s high-efficiency, environmentally friendly energy storage technologies

continue to move forward, and a $21.3m award from the U.S. Department

of Energy in 2009 will enable the Seattle company to build the world’s first

commercial-scale production site specializing in nano-engineered synthetic

high-performance carbon electrode materials. These are essential components

in the ultracapacitor energy-storage devices used in electric and hybrid cars

and in a variety of industrial energy storage applications. Ultracapacitors

are advantageous in that they store and release energy more quickly and

efficiently than conventional batteries while providing a virtually limitless

cycle life in the application. In addition to the funding from the Department

of Energy, EnerG2 successfully completed a $2.5m investment round

during the year.

2

MiCrogreen PolyMerS

Located in Arlington, WA, microGREEN Polymers produces cost-efficient,

environmentally sound plastics based on research initially conducted at

the University of Washington. Its patented Ad-air technology, which is

used in a range of products including wall panels, food and beverage

packaging, and printable materials, was key in securing a National

Science Foundation grant totaling almost $150,000 in 2009. In addition

to winning the ZINO Zillionaire Best Non-Technology award, a $3.5m

Series B investment round completed during the year—involving WRF

Capital and Waste management, among others—recently increased to

$6.9m and is enabling microGREEN to build its first Ad-air production

plant in order to increase production levels.

MoDuMetal

modumetal’s revolutionary approach to laminating metals at the nanoscale

to influence performance has enabled the company to target industries

and applications where structural, corrosion-resistant and thermal-barrier

materials are needed. Its efficient, green manufacturing process reduces

the carbon footprint of materials production while realizing unprecedented

performance. An $850,000 research and development contract with the

U.S. Defense Logistics Agency was secured in 2009 and modumetal is

presently developing advanced structural materials for military protection

and vehicle applications. U.S. Department of Energy contracts are

progressing the company’s design of thermal barrier coatings to enable

more efficient propulsion systems and energy generation turbines,

while commercial contracts in the aerospace, mobile device, and oil

and gas sectors are utilizing nanolaminated materials for industrial

and consumer applications.

targeteD groWtH

Crop biotechnology company Targeted Growth, Inc. (TGI) develops

products with improved quality and enhanced yield for the agriculture

and energy industries. The company has developed and licensed novel

methods of increasing yield in canola, soybean and corn, and is leveraging

this expertise to produce optimized algae strains for use in biofuel

production. TGI, in conjunction with Inventure Chemical and Washington

State University, secured $2m in federal funding for the Washington

State Algae Alliance. Other successes during the year include contracts

with the U.S. Navy and Air Force through TGI affiliate Sustainable

Oils to deliver camelina-derived jet fuel for testing in F-18 aircraft.

Camelina-based fuel has been shown to reduce CO2 emissions by up

to 80% over conventional jet fuel and does not compete with food crops.

3

gift program

WRF-provided gifts often play a significant role in

supporting research and technologies identified as

having commercial potential.

4

Washington Research Foundation’s gift program has created over 100 endowments for

chairs, professorships, research fellowships and graduate stipends in science, medicine

and engineering. The Foundation supports research, educational and recruitment programs,

including the WRF Research Advancement Program (WRAP) and the Seattle chapter

of the Achievement Rewards for College Scientists (ARCS) Foundation. At 74 fellows,

WRF is the largest donor to the Seattle chapter, which helps to bring many of the

country’s top graduate students to the University of Washington (UW) and Washington

State University.

WRF was a founding partner of UW’s Creating Futures fundraising campaign, helping

to ensure the university has the necessary funds to remain competitive among the

world’s top research institutions. The Foundation’s contributions resulted in more than

80 endowments, and the campaign vastly exceeded its goal upon completion in 2008

by bringing in over $2.5 billion. Additionally, WRF supports

“gap” funding programs at UW and Fred Hutchinson Cancer

Research Center. WRF-provided gifts often play a significant

role in supporting research and technologies identified as

having commercial potential, prior to investment by venture

capitalists. The organization plays an active and often independent

role in identifying projects with such potential, assisting through

funding and guidance.

The first WRF-APL (Applied Physics Laboratory at UW) Graduate Fellowships in Innovative

measurement Technologies were awarded during the year, providing stipends for select

graduate students who have demonstrated outstanding academic achievement and are

developing applications with the potential for commercialization. Other new programs

implemented during the year and assisted through WRF funding include the UW Center

for Commercialization’s Entrepreneur-in-Residence and LaunchPad Entrepreneur Advisor

services. These programs partner UW researchers with experienced entrepreneurs and

business executives to help promising technologies reach startup stage. Alongside the

long-established WRF Fellowship, these exemplify the commitment of UW and WRF

in encouraging entrepreneurship at the university level.

Examples of gifts given to support University of Washington research projects during

2009 are featured on pages 5 and 6.

uW genome Sciences – Project award: Dr. robert Waterston $500,000

uW Commercialization gap fund (formerly tgif): $247,018

uW arts and Sciences – benjamin Hall endowment: $200,000

achievement rewards for College Scientists (arCS) fellowships: $65,200

uW electrical engineering – Project award: Dr. vikram Jandhyala $41,000

WSu institute of biological Chemistry – Project award: Dr. Mark lange $33,000

exaMPleS of giftS given in 2009

5

Dr. robert WaterSton

In the Department of Genome Sciences at the University of Washington,

professor and William H. Gates Endowed Chair Dr. Robert Waterston

and his faculty are working on ways to further the understanding of,

and interpret stored information relating to, genome sequences in

human beings. Their goal is to identify gene variation that makes

certain people susceptible to particular diseases.

Dr. Waterston’s outstanding reputation and accomplishments in his

field, which include constructing the map that provided the framework

for the Human Genome Project and contributing 20 percent of the entire

sequence, were decisive factors in the Washington Research Foundation’s

commitment to award up to $2.5m over the next five years for the purchase

of new high-thoughput DNA sequencers and computers to assist in the

department’s research.

The initial installments of the gift from WRF allowed the purchase of two

Illumina GAII sequencers, which were leveraged to raise a total approaching

$30m through grants from the National Institutes of Health ARRA funds

(“stimulus package”) and the Washington-based Life Sciences Discovery

Fund, among others. These funds have enabled UW to create the new

Northwest Genomics Center which, in conjunction with the Broad Institute

of mIT and Harvard, will concentrate on identifying the genetic contributors

to three leading causes of death in the country: heart, lung and blood

diseases. The center is headed by professor Dr. Deborah Nickerson. The

Illumina GAII sequencers and other tools at the center will be able to analyze

around one billion A, C, G and T chemical base pairs per day, which will go

a long way toward providing the information required to identify links between

genetic variation and disease, paving the way for better diagnosis and the

discovery of drugs that will improve the outlook for people having genetic

variants that make them prone to serious conditions.

SPotligHt on

genetic conditions

tranSforMing toMorroW WitH

applied research

6

Dr. brian SCHoWengerDt

Dr. Brian Schowengerdt is a senior research

scientist at the University of Washington. His primary

field of interest lies in using his extensive knowledge

of the human visual system to develop displays

that are more natural and comfortable to use than

existing technologies.

A gift of $50,000 from WRF is helping Dr. Schowengerdt

and his team in the university’s Department of mechanical

Engineering to develop a miniature projection display

module (or “pico” projector) that measures only 1mm

by 9mm, making it ideal for a wide range of compact

mobile devices including cameras, smart phones and

laptops. The module will utilize a vibrating fiber optic

to project light, enabling full motion video playback

rather than the commonly used system of a series of

static images loaded into a memory buffer within the

device. When completed, the projector will enable

larger images to be projected from shorter distances

than at present, and the material costs will be lower

than those of devices currently on the market.

Dr. KriSten Helton

A gift of $49,525 from WRF is assisting University of

Washington researcher Dr. Kristen Helton in developing

a new generation of implantable biosensors to monitor

glucose levels in diabetes patients. Her approach embeds

sensors in porous hydrogel scaffolds developed in the

lab of Dr. Buddy Ratner. These scaffolds have been

successful as tissue engineering constructs, as they

vascularize following implantation, assist with tissue

regeneration and reduce the risk of rejection.

Dr. Helton’s research presents a novel approach to

circumventing the body’s assault on implants by using

a tissue-integrating scaffold as the sensor itself. Devoid

of electronics, it consists instead of glucose-sensitive

nanospheres embedded in a hydrogel with similar

properties to those of the surrounding tissue. These

nanospheres emit a fluorescent signal indicating glucose

concentration, readable through the skin using a

comfortable and discrete thin-film patch. This should

offer a system of monitoring that is more accurate and

stable than is currently possible, with clinical translation

of this technology enabling diabetic patients to more

tightly control their glucose levels.

licensing

WRF focuses on a small number of highly valuable biomedical and engineering technologies which it protects with patents

7

Founded in 1981 to commercialize technologies developed at the University of Washington

(UW) and other research institutions in the state, the non-profit Washington Research

Foundation has since become one of the most successful technology transfer groups

in the country. Income from more than 70 licenses provides an ongoing revenue stream

to support gifts and scholarships for researchers in Washington state, and more than

$250 million has been returned to UW from WRF’s licensing activities to date.

WRF focuses on a small number of highly valuable biomedical

and engineering technologies which it protects with patents

before licensing them to startups and established companies.

The Foundation’s licensing team diligently tracks product

development and sales relating to the technologies it manages,

to ensure accurate royalty payments from its licensees and

maximize the funds available to assist in further research.

Such meticulousness resulted in the Foundation recovering an additional $12.9m

in 2009 from undeclared stores of recombinant Factor IX—used to treat Hemophilia

B—developed from research originally conducted by Drs. Earl Davie and Ko Kurachi.

Additionally, this attention to detail helps to identify potential infringers, protecting the

interests of the technologies’ inventors and originating institutions.

Further licensing highlights in 2009 include the continued success of the yeast expression

technology invented by University of Washington researchers Drs. Benjamin Hall and

Gustav Ammerer in collaboration with Genentech, Inc., due largely to its use in the

manufacturing of merck & Co’s human papillomavirus (HPV) vaccine Gardasil, Novo

Nordisk’s insulins, and merck & Co’s and GlaxoSmithKline’s Hepatitis B vaccines.

A financial summary, which includes licensing revenue details, follows on pages 12 and 13.

Located on Lake Union within minutes of downtown Seattle,

I-5 and SR 520, the 15,000-square-foot WRF Venture Center

provides office space with flexible leases, conference rooms

and administrative support to entrepreneurs from a number

of industries. WRF Research Services, the Venture Center’s

full-time on-site information specialist, offers expertise in patent

and trademark research, competitive intelligence, and valuation

of technologies and companies. Utilizing an array of research

tools and industry knowledge, the department provides valuable

support to Washington Research Foundation and WRF Capital,

and its services are available at highly competitive rates to

Venture Center tenants, WRF Capital portfolio companies

and technology transfer offices throughout the state.

Venture Center tenants are often companies in which WRF

Capital has an active investment, and in keeping with the

Foundation’s focus on innovation, precedence is given to

startups commercializing new technologies.

Arrowsmith Technologies

BECAUZ

CG Therapeutics

CPC Capital management

Findood

Hydrovolts

mirador

Revitalization Partners

Targeted Growth

TeachTown

Ultreo

UW Entrepreneurial Law Clinic

Current tenantS

venture Center

notable aluMni

aquaStasis manufacturer of innovative chemical-testing sensor technologies

life Sciences Discovery fund Organization created by Governor Chris Gregoire and the Washington State Legislature to promote life-science research and improve health and healthcare in the state

nlight Photonics Industry-leading high-power semiconductor laser manufacturer

PhysioSonics (formerly known as allez Physionics) medical device developer with origins based on research undertaken at the University of Washington

Skytap (formerly known as illumita, inc.) Leading self-service cloud automation solutions provider

WonderChess multiple-award-winning educational board games manufacturer

8

In April 2009, we sadly said goodbye to Cal Knudsen, a trusted friend and colleague.

Cal’s dedication and optimism brought him a great deal of success and respect regarding

both his personal life and business endeavors. His involvement with WRF began when he

joined the board in 1990; the objective and enthusiastic manner with which he approached

his Foundation work, coupled with an enviable knowledge of multiple industries, played

an invaluable role in helping the organization further its mission.

Following Army national service, Cal trained as a lawyer.

Graduation from the University of Washington School of Law

led to postgraduate studies at Columbia Law School and ten

years as a practicing attorney in the Seattle area. Cal then

worked as a member of president-elect Richard Nixon’s

transition team before his career moved to industry with executive roles at Aberdeen

Plywood, Evans Products Company and the Weyerhaeuser Company. Becoming chairman

and CEO of macmillan Bloedel was one of many career highlights, as he reversed the

forestry giant’s ill fortunes and led them to success during difficult economic times in

the early 1980s.

Wine was a major passion in Cal’s life. He and his wife, Julia Lee, purchased land

in 1971 establishing what continues to be one of the largest vineyards in Oregon.

Today, a thriving Knudsen Vineyards remains family-owned and operated. Additionally,

Cal was a founder of Argyle Winery, serving as its board chair until 2007.

We miss Cal tremendously and are grateful for the privilege of having known and

worked with him.

C. Calvert “Cal” Knudsen (1923-2009)

in tribute

9

We miss Cal tremendously and are grateful for the privilege of having known and worked with him.

Wrf staffWashington Research Foundation’s staff consists of a team of highly

talented, experienced professionals in collaboration with an accomplished

and accessible board of directors. This collective expertise in licensing,

science and medicine, startup operations and venture funding has been

a principal component in the Foundation’s success through the years.

Additionally, many of WRF’s personnel are active in the advancement

of entrepreneurship, life sciences and intellectual property in Washington

state through board and advisory roles which include the University of

Washington’s Center for Innovation and Entrepreneurship, the Washington

Biotechnology & Biomedical Association (WBBA) and the Licensing

Executives Society (LES).ronald S. Howell Chief Executive Officer

loretta little managing Director

Jeff eby Chief Financial Officer

thong Q. le managing Director

beth g. etscheid Ph.D. Director of Licensing

John reagh managing Director

luciana Simoncini Ph.D. Director of Research Commercialization

Kim emmons manager of Research and Information Services

Morgan Hellar Venture Center manager

Dale Wadman Executive Assistant

britt redick Administrative Assistant

10

board of DireCtorS

thomas J. Cable

Chairman of the Board, Washington Research Foundation

Private Investor

barry forman

President, American Paradigm Corporation

C. Kent Carlson

Partner, K&L Gates LLP

emer Dooley Ph.D.

Faculty, University of Washington

ronald S. Howell

CEO, Washington Research Foundation

Sally narodick

Retired Chairman and CEO, Edmark Corporation and Apex Learning, Inc.

brooks Simpson

President, Pacific Rim medical Systems

James r. uhlir

Partner, Christensen O’Connor Johnson Kindness PLLC

george i. thomas M.D.

Thoracic and Vascular Surgeon

Clinical Professor Emeritus, University of Washington School of medicine

Jamie D. Pedersen

Board Secretary, Washington Research Foundation

Of Counsel, K&L Gates LLP

11

2005 2006 2007 2008 2009

ASSETS

Current Assets 16,395,490 29,658,042 53,685,787 66,002,495 63,719,593

Long Term Assets 48,514,015 54,624,528 73,606,561 90,854,420 96,419,572

Total Assets 64,909,505 84,282,570 127,292,348 156,856,915 160,139,165

LIABILITIES AND EQUITy

Liabilities 15,638,601 25,684,055 41,375,345 48,781,054 50,346,816

Unrestricted Net Assets 49,270,904 58,598,515 85,917,003 108,075,862 109,792,349

Total Liabilities/Net Assets 64,909,505 84,282,570 127,292,348 156,856,915 160,139,165

2005 2006 2007 2008 2009

OPERATING

Total Royalties and Licensing Revenue 21,489,737 34,667,853 68,032,258 75,823,239 77,147,429

Total Royalty Costs 14,469,744 24,215,754 46,937,962 48,673,360 50,432,928

Net Licensing Income 7,019,993 10,452,099 21,094,296 27,149,879 26,714,501

Operating Expenses 6,771,998 4,369,869 4,396,566 4,827,322 9,941,352

Grants and Distributions Expense 4,065,592 1,280,664 967,735 1,016,112 5,983,817

Change in Unrestricted Net Assets from Operating Activities

(3,817,597) 4,801,566 15,729,996 21,306,445 10,789,333

NON-OPERATING

Net Investment (Loss) Income 1,177,153 3,245,381 10,620,757 (163,698) (15,056,662)

Change in Unrestricted Net Assets (2,640,444) 8,046,948 26,350,754 21,142,746 (4,267,330)

OTHER INFORmATION

Licensing Fees Paid to UW 11,181,355 12,398,392 26,558,720 38,231,089 42,833,575

Grants Paid 5,016,142 1,102,163 1,589,163 935,362 1,991,067

12

StateMent of financial position

StateMent of activities

2005 2006 2007 2008 2009

ASSETS

Current Assets 16,395,490 29,658,042 53,685,787 66,002,495 63,719,593

Long Term Assets 48,514,015 54,624,528 73,606,561 90,854,420 96,419,572

Total Assets 64,909,505 84,282,570 127,292,348 156,856,915 160,139,165

LIABILITIES AND EQUITy

Liabilities 15,638,601 25,684,055 41,375,345 48,781,054 50,346,816

Unrestricted Net Assets 49,270,904 58,598,515 85,917,003 108,075,862 109,792,349

Total Liabilities/Net Assets 64,909,505 84,282,570 127,292,348 156,856,915 160,139,165

2005 2006 2007 2008 2009

OPERATING

Total Royalties and Licensing Revenue 21,489,737 34,667,853 68,032,258 75,823,239 77,147,429

Total Royalty Costs 14,469,744 24,215,754 46,937,962 48,673,360 50,432,928

Net Licensing Income 7,019,993 10,452,099 21,094,296 27,149,879 26,714,501

Operating Expenses 6,771,998 4,369,869 4,396,566 4,827,322 9,941,352

Grants and Distributions Expense 4,065,592 1,280,664 967,735 1,016,112 5,983,817

Change in Unrestricted Net Assets from Operating Activities

(3,817,597) 4,801,566 15,729,996 21,306,445 10,789,333

NON-OPERATING

Net Investment (Loss) Income 1,177,153 3,245,381 10,620,757 (163,698) (15,056,662)

Change in Unrestricted Net Assets (2,640,444) 8,046,948 26,350,754 21,142,746 (4,267,330)

OTHER INFORmATION

Licensing Fees Paid to UW 11,181,355 12,398,392 26,558,720 38,231,089 42,833,575

Grants Paid 5,016,142 1,102,163 1,589,163 935,362 1,991,067

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COmmERCIALIZATION $2,133,425

BUILDING $2,100,000

Licensing Fee

Gift

FACULTy $9,111,621

PROJECTS $2,696,008

GENERAL $363,000

STUDENTS $3,954,779

TEACHING $1,677,800

13

WaSHington reSearCH founDation giftS 1994-2009 totaleD $22 million

Wrf SuPPort to univerSity of WaSHington

CuMulative SuPPort to univerSity of WaSHington

In addition, UW received stock in Numinous, Ostex and Immersion worth approximately $10 million as a result of WRF license agreements.

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