Innovations In The New Environment Challenges and

Innovations In The New Environment – Challenges and Opportunities

What is going on in the World? A Personal, Somewhat Pessimistic Observations by Yuval Binur, Ph. D. Orchestra Medical Ventures

Innovations – The Key to our Business. Successful Innovations require: • Entrepreneurial spirit and culture: allow risk taking • Industrial and academic infrastructure: provide trained management and research support • Understanding market unmet needs: ensure the right product solutions • Active and growing local capital market: provide the FUEL that move the innovation vehicle to success

Let’s focus on the Fuel… What has changed that affects our ability to raise capital for medical companies? and what opportunities arise?

These are the main factors that have changed and affect our ability to finance companies: • The depressed world economy • Shifting global markets • Health care reform (US) and similar • • global H/C system problems Difficult regulatory environment The changes in H/C unmet needs The state of large corporations The failure of the VC model

Thunderstorms over the world’s economy – how long they will last? DJIA 2010 “Today, the only trades that can make some money to investors last on the average 11 minutes from buy to sell. . . ” SJP, a NY investment banker

Wow! my family $194, 132. 24 owes to U. S. NATIONAL DEBT CLOCK The Outstanding Public Debt as of 07 Feb 2012 at 08: 52 PM GMT is: The estimated population of the United States is 309, 059, 262 so each citizen's share of this debt is $43, 533. 06. The National Debt has continued to increase an average of $3. 98 billion per day!

Shifting Global Markets ”Empires don’t lose power overnight , they fade away”… and markets follow

We have been slow to recognize the emerging new world order: Our maps still place the Atlantic in the center…

Unmet Needs and H/C reform • Remaining unmet clinical needs that • can be addressed by current technologies are fewer and difficult The #1 killer in the industrial world is being shifted from CV to Cancer, followed by Obesity/Diabetes • A new family of unmet needs surfaced: Cost-cutting therapies to replace more expensive ones

Regulatory processes are becoming more difficult and costly • The US • • becomes more restrictive – they operate from fear Costs of meeting regulatory requirements are skyrocketing We as an industry need to understand better the regulatory processes in the emerging markets

The State of Large Corporations: • With disappearing IPO markets, • • corporations are the only exit to full liquidity but they are under pressure too EPS Organic R&D is largely dead despite huge mergers in the pharma industry However, to be attractive for acquisition, strong IP, proof of concept, advanced clinical data and in many cases revenues are required.

Now we come to the core: The failure of the current VC model: the venture capital model was developed in the late ‘ 50 s and was based on a supercharged IPO market fueled by the emergence of new technologies. …”Just place your B/P and shake the money tree…” Business plan

“My portfolio of venture funds is mostly under water, depends only how deep. They all live on oxygen that is diminishing in their tanks…” A large institutional manager Lacking IPO exits, most of the VC funds cannot show returns that compensate for the risk taken by the institutional investors

So what the VCs do? • To address lack of returns, venture capitalists selected a strategy of : “Invest only in late stage companies” But With no flow of early stage there will be no late stage companies for them to invest in…

A few of the pitfalls of the VC Industry: • In today’s changing world, it takes $80 m to $200 m from inception to commercialization of a CV product • These sums are beyond the typical VC capabilities – their answer is syndication • Syndications create boards of directors with conflicting interests, usually all VCs In the last 5 years, incompetent boards killed more companies than failed technologies

So what do we do?

Optimists, Pessimists Let’s be realists…

A laundry list for financing medical companies today (I) (a) Before starting a Company: • Focus on strategic as well as clinical unmet needs rather than on technology • Plan a long term budget to cash break -even point • Talk to the regulatory and reimbursement advisors to get ideas as to what the barriers are • Review IP and Ft. O carefully

A laundry list for financing medical companies today (II) (b) Preparing to raise funds: • Remember that the value is in the equity – try to keep as much of it as long as possible • Do thorough DD on your funding sources as much as they do on your business • Think out of the box on funding sources – do not rush to the VC community: – Angles (covered by my colleague in this conference – Grants and government support (NIH, EU) – Early corporate money – Friends and family – New World money

A laundry list for financing medical companies today (III) • Establish relations with the BD guys in the relevant corporations • Maintain control within the Board, either • • through majority or through protective provisions in the investment agreement Plan exit on day one based on M&A, not IPO. Build and maintain a capital efficient company

In Summary: Be realistic Be focused Be flexible Be resilient Think out of the box

It is all about people… “…with the world becoming this flat – with so many distributed tools of innovation empowering individuals to compete, connect and collaborate, the most important competition is between you and your imagination. . . ” – Tom Friedman

As a final note I am a realist: ♥I ♥I recognize the trends ahead believe in people’s abilities believe that crisis brings opportunities believe in early stage innovative ideas that can grow to impact how we live ♥ I look every morning in the mirror and try to see the reality

And, when time comes to cast your vote: Elect the politicians who understand the need to support innovations and has realistic plans to address the problem because innovations are key to our survival, to improve Qo. L and to advance humanity