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Life Science VC Gap in Missouri

          July 17, 2012
2012 BIO Benchmarking Class
    Senator S. Kiki Curls         Representative Sue Allen
  Kansas City - Democrat 
      Town & Country - Republican
                                 Majority Caucus Secretary



  Representative Anne Zerr       Representative Mike Kelley
  St. Charles - Republican 
       Lamar - Republican 




                                Representative Casey Guernsey
Representative Shelley Keeney
                                   Bethany - Republican 

   Marble Hill - Republican
   
Majority Caucus Chair

                                 Representative Gail McCann
Representative Marsha Haefner
                                           Beatty
    St. Louis - Republican 

                                   Kansas City - Democrat

2012 BIO Benchmarking Class
Representative Margo McNeil      Representative Pat Conway
   Florissant - Democrat 
         St. Joseph - Democrat 




Representative Jeanne Kirkton   Representative Steve Cookson
Webster Groves - Democrat 
       Fairdealing - Republican 




                                Representative Bart Korman
                                  High Hill - Republican 

Announcements
July 19, 2012 -    The JOBS Act, Reg A, Small Cap IPO and Crowdfunding
                   The Federal Reserve Bank of St. Louis
                   Information about the event is available as you exit.

Sept. 13, 2012 -   Next PLSN Meeting
                   Details coming soon!
Panel
Dan Broderick –            Senior Fellow, BioGenerator and
                           Vice President, BioSTL

Karen Spilizewski –        Vice President, RiverVest Venture
                           Partners

J. Joseph Schlafly III –   Senior V.P. & Director of Public Finance,
                           Stifel Nicolaus and Co.
The Venture Capital Industry and How it Affects BioSTL

DAN BRODERICK
Plant and Life Science Network
July, 2012
D. J. Broderick
   NYSE.com
   Investment Company Institute (12/31/2010)
   Hedge Fund Reports (12/31/2010)
   Thomson Reuters (12/31/2010)
   PWC MoneyTree (12/31/11)
   NVCA
   Angel Capital Association

   Thanks to John Taylor, V.P Research, NVCA
$16,700
   $18,000
   $16,000
   $14,000
   $12,000
   $10,000                                                      Venture capital
    $8,000                 $5,666                              = 0.2% of US GDP
    $6,000
    $4,000                             $1,917        $800
    $2,000                                                     $177
        $0
              NYSE Mkt Equity Mutual Hedge Funds   Buyout      Venture
               Value      Funds                  Funds (Est)   Capital

US GDP is $12.5 Trillion
1,200                                                    $1,200

1,000                                                    $1,000

 800                                                     $800

 600                                                     $600

# 400
  Firms                                                  $400

 200                                                     $200
                                                                  $B Assets Un
   0                                                     $0



          1985 1988 1991 1994 1997 2000 2003 2006 2009
            1986 1989 1992 1995 1998 2001 2004 2007 2010
              1987 1990 1993 1996 1999 2002 2005 2008
                       # Firms   AUM $B   Active Firms
120


100


 80


 60


 40


 20


  0  1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  $B 10    12   18   31   58   107  38    4   11   19   31   32   31   26   16   14   18
300


 250


 200


 150


 100


  50


   0    1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
# LS FF 153  192  202  166  192  167  173  165  185  206  268  259  242  157  188  153
180%
  170%
  160%
  150%
  140%
  130%
  120%
  110%
  100%
 2003 = 100%
   90%
   80%
          2003 2004 2005 2006 2007 2008 2009 2010 2011E
US All FF 100% 123% 138% 163% 176% 166% 103% 135% 155%
US LS FF 100% 112% 124% 159% 152% 139% 94% 113% 91%
   Uncertain regulatory environment – FDA
   Higher cost of development
    ◦ Due to regulatory
      Cost of pre-IND/IDE studies
      Cost of human trials
        Increased numbers, tests and length of follow up
   “Allowing” Angels to “de-risk” the deal
    ◦ To raise money today most companies need…
      at least drug safety data – or
      first in man device studies
60%

   50%

   40%

   30%

   20%

   10%

% of0%
     total VC investment $

         1981 1984 1987 1990 1993incl. Pharma 2001 2004 2007 2010
          1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
            1983 1986 1989 1992 1995 1998 2002 2005 2008 1H11
         % Disk Drive
                    % Cln Tch % Bio 1996 1999 % Software
   Iowa, Indiana, Illinois, Kansas, Kentucky,
    Michigan, Minnesota, Missouri, North Dakota,
    Nebraska, Ohio, Oklahoma, South Dakota,
    Wisconsin
% of Deals Done 4Q 2009 through 3Q 2011

                          Healthcare
                         Services, 11,
                             5%

                                     Biotech, 118,
                                         49%
        Medical
      Devices, 110,
          46%


# of Deals roughly even between devices and biotech,
$ Invested 4Q 2009 through 3Q 2011

           OK,KY,ND,NE
      IN KS MO 3%
   MI       2%                MN
WI 6% 3% 2%                   27%
9%



IA
9%    OH                     IL
      15%                   24%
$7,000                                                                                                                            700

$6,000                                                                                                                            600

$5,000                                                                                                                            500

$4,000                                                                                                                            400

$3,000                                                                                                                            300

$2,000                                                                                                                            200

$1,000                                                                                                                            100

    $0      1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   9M
                                                                                                                                  0
  $M Inv    673    931    1,186 2,009 3,222 5,970 2,310 1,248 1,053 1,091 1,203 1,169 1,645 1,756 1,197 1,692 1,362
  # Deals   204    263    341    340    407    611    364    285    224    231    212    249    314    340    261    300    266
$ Invested 4Q 2009 through 3Q 2011
            HC Services
                4%      Other
                        10%                       Bio
  Bus Products                                    26%
       5%
            IT Svcs
              8%

       Ind/Energy                                       Devices
           8%                                            15%
                 Media/Ent           SW
                   10%               14%

41% of $ invested in life science related companies
Ag not a category by itself – yet!
   With R$D budgets being cut corporations are
    turning to alternative sources for new
    products like start-up companies

   Corporate VC will be a more important source
    of funding

   Need to understand strategic needs of the
    investing corporation
20%
       18%
       16%
       14%
       12%
       10%
        8%
        6%
        4%
        2%
        0%                                                                             Q1     Q2     Q3
                2002   2003   2004   2005   2006   2007   2008   2009   2010   2011
                                                                                      2011   2011   2011
% Deals w/CVC $ 17.3% 14.9% 16.5% 16.3% 16.5% 18.1% 18.8% 12.8% 13.6% 15.1%           14.4% 15.6% 15.2%
% of Ttl $ from CVC 9.1% 6.9% 6.9% 6.7% 7.6% 8.1% 7.7% 7.3% 8.4% 8.6%                 9.4% 9.2% 7.3%
Source – Angel Capital Association
Life Sciences




Life science investing is popular with Angels
Percentage
of Groups




  Angels clearly like investing at the stages
  important to BioGenerator
   Angel investors are an increasingly important
    source of capital for start up companies
    ◦ Amount of invested capital in 2011 about 21 billion
      dollars!*
    ◦ Almost equal to Venture Capital Firms

   This is not going to change in foreseeable
    future

        * Burrill and Associates
   Existing
    ◦ VC
      MHIN, NVCA, Past co-investors
    ◦ Angels
      Arch, FTL Capital
   Emerging
    ◦ Other VC’s – new relationships developing
    ◦ New Angels
      M-COIN, Hyde Park – Many more
      Seek new Angels – Locally – most important
    ◦ Corporate investors
   Careful evaluation of financing risks
   Thoughtful, (expert) design of seed funding
    milestones – value drivers
   Deal selection – needs to be “special”
    ◦   Solve a big problem
    ◦   Extraordinary team
    ◦   Reduced financing risk – quick to human data
    ◦   Pre-series A value proposition
         Data, fill out team, human data, IDE/IND (or equiv.)
    ◦ Some deals requiring VC funding will not be done
   BG is a credible source of deals – life blood of VC’s
   Amount of NIH and other Government sources of grants
    (RO1 and SBIR/STTR)
    ◦ Washington University, St. Louis University, UMSL,
      Donald Danforth Plant Science Center
   Infrastructure – existing and emerging
    ◦ Bio STL – very impressive, momentum builder
    ◦ BAL – best in class, nothing else like it
    ◦ Deal pace – 26 deals, ~30 months
    ◦ i6, EDA grants, local cooperation/coordination
    ◦ BG, TREX, ITEN, Helix, Arch Grants etc.
Venture Capital in the Midwest. What Works?

KAREN SPILIZEWSKI
Plant and Life Sciences Network
July 17, 2012
Karen Spilizewski
2011 US Venture Investing




       Total VC investment in 2011 = $32.5 billion
       VC investment in Healthcare = $9.1 billion
Total US Healthcare Financings
                                  $M invested
$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

   $-
             2005       2006       2007        2008       2009          2010        2011

         Medical Devices and Equipment    Biopharmaceuticals     Healthcare Services & IT
Midwest Health Care Venture Investment (By State)
State              2011                 2010                  2009                 2008                2007
           $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos.
Minnesota      223.3         24      138.7        20         199       23     318.9         22     296.1         25
Ohio           177.8         67      147.2        47     105.4         40     189.1         43     295.5         44
Missouri       168.7           9       19.9        9        65.8        8        50.2       11        69.6        7
Western PA          67       25        86.2       20        37.8       24     126.2         33     101.4         17
Wisconsin         53.8         9       51.3        9        16.2       10        48.5        8        56.2       12
Illinois          44.2         9     160.9        11        38.9        8        97.3       13     125.5          7
Michigan          30.8       16        76.3       12     102.2         14         105       12        56.2        5
Kansas            18.5         2       14.5       13         4.3        5        16.9        9        56.6        6
Indiana           14.1         9     25.05        16        76.3       14        75.4        7     135.6         10
Kentucky          11.5         7       11.4        4        97.3        7        19.2        6          32        4
Iowa                 -         -        7.3        1        36.8        3           4        1           -         -
Total          809.6        178      738.9       161         780      156 1,050.5          165 1,224.7          137
  Data compiled by BioEnterprise from various sources
2011 Missouri Healthcare Deals
•   Advanced ICU Care - $8 million
•   Cardialen – $0.74 million
•   Endostim - $5.55 million
•   Essence Group Holdings - $61 million
•   Nawgan - $6 million
•   Pulse Therapeutics - $1.33 million
•   Venti - $15.1 million
•   Veran Medical Technologies - $15 million
•   HealthMEDX - $56 million
Midwest Health Care Venture Investment
                (2011 - By Sector)

      $251
                                                      $295
                                                             Medical device

                                                             Health care IT and
                                                             service
                                                             Biopharmaceutical
                          $259


Data compiled by BioEnterprise from various sources
How Ohio Started in 2002
• Private/Institutions
   – Focus on entrepreneurs and innovation
   – Technology transfer
   – Venture firms and professional services
• Philanthropy
   – Fund For Our Economic Future: $90 million
   – Investments for capital formation
• Public
   – State of Ohio: $2.3 Billion+ Capital, Operating Support, Business
     Attraction
2002: Ohio Commitment

• $1.3 Billion, 10-Year Technology Initiative – Ohio Third Frontier
   – Funding for:
         • Research distinctiveness and translation
         • Capital formation and attraction
           (seed and venture)
         • Entrepreneurial infrastructure (inc. BioEnterprise)
         • Company acceleration
   – Collaboration required, nationally assessed
• Capital – Ohio Capital Fund
   – $250 million to invest as LP
   – High-tech growth loan fund
• Annual general operating support
• Plus related business attraction and physical development
Result: Growth in Innovation
Cleveland Healthcare Equity Investments
$ Millions
                                                    Avg.142




COMPANIES FUNDED:
 5   6     13    21   16    22    28      26   21   33    35
MOBIO Plans and Studies

J. JOSEPH SCHLAFLY III
PANEL DISCUSSION AND Q&A

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July 2012 plsn pdf

  • 1. Life Science VC Gap in Missouri July 17, 2012
  • 2. 2012 BIO Benchmarking Class Senator S. Kiki Curls Representative Sue Allen Kansas City - Democrat 
 Town & Country - Republican Majority Caucus Secretary
 Representative Anne Zerr Representative Mike Kelley St. Charles - Republican 
 Lamar - Republican 
 Representative Casey Guernsey Representative Shelley Keeney Bethany - Republican 
 Marble Hill - Republican 
Majority Caucus Chair Representative Gail McCann Representative Marsha Haefner Beatty St. Louis - Republican 
 Kansas City - Democrat

  • 3. 2012 BIO Benchmarking Class Representative Margo McNeil Representative Pat Conway Florissant - Democrat 
 St. Joseph - Democrat 
 Representative Jeanne Kirkton Representative Steve Cookson Webster Groves - Democrat 
 Fairdealing - Republican 
 Representative Bart Korman High Hill - Republican 

  • 4. Announcements July 19, 2012 - The JOBS Act, Reg A, Small Cap IPO and Crowdfunding The Federal Reserve Bank of St. Louis Information about the event is available as you exit. Sept. 13, 2012 - Next PLSN Meeting Details coming soon!
  • 5. Panel Dan Broderick – Senior Fellow, BioGenerator and Vice President, BioSTL Karen Spilizewski – Vice President, RiverVest Venture Partners J. Joseph Schlafly III – Senior V.P. & Director of Public Finance, Stifel Nicolaus and Co.
  • 6. The Venture Capital Industry and How it Affects BioSTL DAN BRODERICK
  • 7. Plant and Life Science Network July, 2012 D. J. Broderick
  • 8. NYSE.com  Investment Company Institute (12/31/2010)  Hedge Fund Reports (12/31/2010)  Thomson Reuters (12/31/2010)  PWC MoneyTree (12/31/11)  NVCA  Angel Capital Association  Thanks to John Taylor, V.P Research, NVCA
  • 9. $16,700 $18,000 $16,000 $14,000 $12,000 $10,000 Venture capital $8,000 $5,666 = 0.2% of US GDP $6,000 $4,000 $1,917 $800 $2,000 $177 $0 NYSE Mkt Equity Mutual Hedge Funds Buyout Venture Value Funds Funds (Est) Capital US GDP is $12.5 Trillion
  • 10. 1,200 $1,200 1,000 $1,000 800 $800 600 $600 # 400 Firms $400 200 $200 $B Assets Un 0 $0 1985 1988 1991 1994 1997 2000 2003 2006 2009 1986 1989 1992 1995 1998 2001 2004 2007 2010 1987 1990 1993 1996 1999 2002 2005 2008 # Firms AUM $B Active Firms
  • 11. 120 100 80 60 40 20 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $B 10 12 18 31 58 107 38 4 11 19 31 32 31 26 16 14 18
  • 12. 300 250 200 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 # LS FF 153 192 202 166 192 167 173 165 185 206 268 259 242 157 188 153
  • 13. 180% 170% 160% 150% 140% 130% 120% 110% 100% 2003 = 100% 90% 80% 2003 2004 2005 2006 2007 2008 2009 2010 2011E US All FF 100% 123% 138% 163% 176% 166% 103% 135% 155% US LS FF 100% 112% 124% 159% 152% 139% 94% 113% 91%
  • 14. Uncertain regulatory environment – FDA  Higher cost of development ◦ Due to regulatory  Cost of pre-IND/IDE studies  Cost of human trials  Increased numbers, tests and length of follow up  “Allowing” Angels to “de-risk” the deal ◦ To raise money today most companies need…  at least drug safety data – or  first in man device studies
  • 15. 60% 50% 40% 30% 20% 10% % of0% total VC investment $ 1981 1984 1987 1990 1993incl. Pharma 2001 2004 2007 2010 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 1983 1986 1989 1992 1995 1998 2002 2005 2008 1H11 % Disk Drive % Cln Tch % Bio 1996 1999 % Software
  • 16. Iowa, Indiana, Illinois, Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, Oklahoma, South Dakota, Wisconsin
  • 17. % of Deals Done 4Q 2009 through 3Q 2011 Healthcare Services, 11, 5% Biotech, 118, 49% Medical Devices, 110, 46% # of Deals roughly even between devices and biotech,
  • 18. $ Invested 4Q 2009 through 3Q 2011 OK,KY,ND,NE IN KS MO 3% MI 2% MN WI 6% 3% 2% 27% 9% IA 9% OH IL 15% 24%
  • 19. $7,000 700 $6,000 600 $5,000 500 $4,000 400 $3,000 300 $2,000 200 $1,000 100 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M 0 $M Inv 673 931 1,186 2,009 3,222 5,970 2,310 1,248 1,053 1,091 1,203 1,169 1,645 1,756 1,197 1,692 1,362 # Deals 204 263 341 340 407 611 364 285 224 231 212 249 314 340 261 300 266
  • 20. $ Invested 4Q 2009 through 3Q 2011 HC Services 4% Other 10% Bio Bus Products 26% 5% IT Svcs 8% Ind/Energy Devices 8% 15% Media/Ent SW 10% 14% 41% of $ invested in life science related companies Ag not a category by itself – yet!
  • 21. With R$D budgets being cut corporations are turning to alternative sources for new products like start-up companies  Corporate VC will be a more important source of funding  Need to understand strategic needs of the investing corporation
  • 22. 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Q1 Q2 Q3 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 2011 2011 % Deals w/CVC $ 17.3% 14.9% 16.5% 16.3% 16.5% 18.1% 18.8% 12.8% 13.6% 15.1% 14.4% 15.6% 15.2% % of Ttl $ from CVC 9.1% 6.9% 6.9% 6.7% 7.6% 8.1% 7.7% 7.3% 8.4% 8.6% 9.4% 9.2% 7.3%
  • 23. Source – Angel Capital Association
  • 24. Life Sciences Life science investing is popular with Angels
  • 25. Percentage of Groups Angels clearly like investing at the stages important to BioGenerator
  • 26. Angel investors are an increasingly important source of capital for start up companies ◦ Amount of invested capital in 2011 about 21 billion dollars!* ◦ Almost equal to Venture Capital Firms  This is not going to change in foreseeable future * Burrill and Associates
  • 27. Existing ◦ VC  MHIN, NVCA, Past co-investors ◦ Angels  Arch, FTL Capital  Emerging ◦ Other VC’s – new relationships developing ◦ New Angels  M-COIN, Hyde Park – Many more  Seek new Angels – Locally – most important ◦ Corporate investors
  • 28. Careful evaluation of financing risks  Thoughtful, (expert) design of seed funding milestones – value drivers  Deal selection – needs to be “special” ◦ Solve a big problem ◦ Extraordinary team ◦ Reduced financing risk – quick to human data ◦ Pre-series A value proposition  Data, fill out team, human data, IDE/IND (or equiv.) ◦ Some deals requiring VC funding will not be done
  • 29. BG is a credible source of deals – life blood of VC’s  Amount of NIH and other Government sources of grants (RO1 and SBIR/STTR) ◦ Washington University, St. Louis University, UMSL, Donald Danforth Plant Science Center  Infrastructure – existing and emerging ◦ Bio STL – very impressive, momentum builder ◦ BAL – best in class, nothing else like it ◦ Deal pace – 26 deals, ~30 months ◦ i6, EDA grants, local cooperation/coordination ◦ BG, TREX, ITEN, Helix, Arch Grants etc.
  • 30. Venture Capital in the Midwest. What Works? KAREN SPILIZEWSKI
  • 31. Plant and Life Sciences Network July 17, 2012 Karen Spilizewski
  • 32. 2011 US Venture Investing Total VC investment in 2011 = $32.5 billion VC investment in Healthcare = $9.1 billion
  • 33. Total US Healthcare Financings $M invested $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- 2005 2006 2007 2008 2009 2010 2011 Medical Devices and Equipment Biopharmaceuticals Healthcare Services & IT
  • 34. Midwest Health Care Venture Investment (By State) State 2011 2010 2009 2008 2007 $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. $ Millions # of Cos. Minnesota 223.3 24 138.7 20 199 23 318.9 22 296.1 25 Ohio 177.8 67 147.2 47 105.4 40 189.1 43 295.5 44 Missouri 168.7 9 19.9 9 65.8 8 50.2 11 69.6 7 Western PA 67 25 86.2 20 37.8 24 126.2 33 101.4 17 Wisconsin 53.8 9 51.3 9 16.2 10 48.5 8 56.2 12 Illinois 44.2 9 160.9 11 38.9 8 97.3 13 125.5 7 Michigan 30.8 16 76.3 12 102.2 14 105 12 56.2 5 Kansas 18.5 2 14.5 13 4.3 5 16.9 9 56.6 6 Indiana 14.1 9 25.05 16 76.3 14 75.4 7 135.6 10 Kentucky 11.5 7 11.4 4 97.3 7 19.2 6 32 4 Iowa - - 7.3 1 36.8 3 4 1 - - Total 809.6 178 738.9 161 780 156 1,050.5 165 1,224.7 137 Data compiled by BioEnterprise from various sources
  • 35. 2011 Missouri Healthcare Deals • Advanced ICU Care - $8 million • Cardialen – $0.74 million • Endostim - $5.55 million • Essence Group Holdings - $61 million • Nawgan - $6 million • Pulse Therapeutics - $1.33 million • Venti - $15.1 million • Veran Medical Technologies - $15 million • HealthMEDX - $56 million
  • 36. Midwest Health Care Venture Investment (2011 - By Sector) $251 $295 Medical device Health care IT and service Biopharmaceutical $259 Data compiled by BioEnterprise from various sources
  • 37. How Ohio Started in 2002 • Private/Institutions – Focus on entrepreneurs and innovation – Technology transfer – Venture firms and professional services • Philanthropy – Fund For Our Economic Future: $90 million – Investments for capital formation • Public – State of Ohio: $2.3 Billion+ Capital, Operating Support, Business Attraction
  • 38. 2002: Ohio Commitment • $1.3 Billion, 10-Year Technology Initiative – Ohio Third Frontier – Funding for: • Research distinctiveness and translation • Capital formation and attraction (seed and venture) • Entrepreneurial infrastructure (inc. BioEnterprise) • Company acceleration – Collaboration required, nationally assessed • Capital – Ohio Capital Fund – $250 million to invest as LP – High-tech growth loan fund • Annual general operating support • Plus related business attraction and physical development
  • 39. Result: Growth in Innovation Cleveland Healthcare Equity Investments $ Millions Avg.142 COMPANIES FUNDED: 5 6 13 21 16 22 28 26 21 33 35
  • 40. MOBIO Plans and Studies J. JOSEPH SCHLAFLY III