Part of the MaRS BioEntrepreneurship series Topics Addressed: * Do’s and don’ts in biotech fundraising * The importance of the pitch * Formulating a strategic funding plan that encompasses all financing opportunities * Understanding the angel investor and what type of investment they are looking for * Knowing the key issues, pitfalls, and hot buttons when approaching venture capitalist * Matching the company's needs with the appropriate types of funding opportunities. * Exploring strategic financing alternatives such as monetizing royalty streams, risk-sharing structure financings, PIPEs and collaborations. * Understanding venture debt and when it is best used in financing a startup. More information on this presentation: http://www.marsdd.com/bioent/may14

1. strategy
execution
success
Strategic Financing in Biotechnology
MaRS BioEntrepreneurship Lecture Series
May 14th, 2007
Roman Masley, P.Eng MBA
Masley,
Managing Director
SHI Capital
Private & Confidential 1

2. strategy
execution
Agenda
success
Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGY
1. About SHI Capital
2. Success Factors in Biotech Financing
3. Different Sources of Capital in Biotechnology
Part II: STRATEGIC FINANCING MODELS
1. Venture Philanthropy, Gov. Grants and Tech. Transfer
2. Angels
3. Venture Capital
4. Venture Debt and Royalty Financing
5. Funding a Public Company:
a) Initial Public Offering (IPO)
b) Private Placement in Public Entities (PIPE)
c) Follow-On Public Offering (FOPO)
6. Strategic Alliances
Private & Confidential 2

3. strategy
execution
Agenda
success
Part I: INTRODUCTION TO FINANCING BIOTECHNOLOGY
1. About SHI Capital
2. Success Factors in Biotech Financing
3. Different Sources of Capital in Biotechnology
Part II: STRATEGIC FINANCING MODELS
1. Venture Philanthropy, Gov. Grants and Tech. Transfer
2. Angels
3. Venture Capital
4. Venture Debt and Royalty Financing
5. Funding a Public Company:
a) Initial Public Offering (IPO)
b) Private Placement in Public Entities (PIPE)
c) Follow-On Public Offering (FOPO)
6. Strategic Alliances
Private & Confidential 3

4. strategy
execution
Agenda
success
Part III: Case Studies
1. KuDOS Pharmaceuticals: Success Story of a Drug Discovery Company
Presented by Frédéric Sweeney, SHI Capital
2. Chlorion Pharma: Seed and Start-up Financing
Pharma:
Presented by Dr. Jeff Coull, SHI Capital and CEO Chlorion Pharma
Coull,
Private & Confidential 4

5. strategy
execution
SHI Group Company Business Model
success
SHI Group combines multidisciplinary expertise and perspectives
through a group of interlinked companies
SHI Link
Strategy through Implementation
• Consulting services
Portfolio
• Transactional services
Company/
Client
• Operational services
SHI SHI
Consulting Capital
Private & Confidential 5

6. strategy
execution
SHI Capital
success
SHI Capital addresses a key unmet need in the life science industry
Strategy Oriented
Value Added Value Added
Traditional Traditional
SHI Capital
•Due Diligence •Financial
Consulting firms Investment Banks
•Management •Deep Network
•Strategy •Transactional
Transaction oriented
Private & Confidential 6

7. strategy
execution
SHI Capital Track Record
success
Selected SHI Capital completed and current deals
Business and Strategic Advisor
Neuropathic pain company in Vienna,
Austria
Capital Sourcing
$5M capital sourcing for a medical device
company, San Francisco, U.S.
International Capital Sourcing
$20M capital sourcing for a diagnostics
company, New Jersey, U.S.
Capital Sourcing
$5M capital sourcing for a nutraceutical
company, Florida, U.S.
Capital Sourcing
$5M capital sourcing for a vaccine
company, Singapore
Venture Capital sourcing
Advisor in a 9.5M$ venture
Funding financing round for a Québec
Advisor for an Ontario oncology company
imaging facility.
Equity financing Venture Capital Sourcing
Advisor in a $750k placement 2M$ source financing for a
in a private nutraceutical Québec AgBio company
Ontario company.
Equity financing
Private Placement Advisor in a $400k placement
Advisor in a $22.5M private in a public mAb oncology
placement for a public mAb company
oncology company
Private & Confidential 7

8. strategy
execution
The Value of a Biotechnology Company
success
“There are too many science projects masquerading as companies…”
-Karen Bernstein, Ph.D., Chairman & Editor-in-Chief, BioCentury Magazine
Great Science Great Biotech
REAL Unmet Need
Projects Companies
Biotech Bubble Generic
Companies Companies
Value to Patient Population
Private & Confidential 8

9. strategy
execution
Essential Elements for Successful Biotechnology Companies
success
Successful biotechs possess an impressively diverse skill set
Innovative Science
• Milestone focused, do not reinvent itself every 6 months!
• Deep network with the top scientists in the field (academia and industry)
Solid Management Team
• “Infectious” people with a deep knowledge of their respective area
• Complementary skills, “in” for the long-run
• Deep network in their respective area of expertise
Strong Intellectual Protection
• IP is not an asset anymore, it’s a necessity
• Innate corporate culture of promoting and protecting intellectual property
Ingenious Financial Strategies
• Flexible, open-minded financial strategies: Think beyond “Angels --> VC --> IPO”
• Comfortable with strategic alliances (“letting go” and seeing the big picture)
Private & Confidential 9

10. strategy
execution
Essential Elements for Successful Biotechnology Companies
success
Failure to Communicate = Failure of the Company
• Respect of each others
expertise
Science Management
• Efficient communication
*
** *
(Good AND BAD news)
• Ability to “let go” sometimes
Financing
Science Management
Science
Management
Financing
Financing
COMMUNICATION MICRO-MANAGEMENT
DEFICIENT
Private & Confidential 10

11. strategy
execution
Financing a Biotechnology Company
success
A thorough knowledge of all financing opportunities is critical to succeed
! Who are they?
! How much do they give?
Financing
How much do they take?
Partners
! When/How to approach them?
! Current Trends
Private & Confidential 11

12. strategy
execution
Different Sources of Financing in Biotechnology
success
Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
e)
FOPO
anin
z
Mez
-->
eed
(S
l
a
a p it
C
e
r
e n tu
V
lties PIPEs
oya
Angels
t and R
Deb
Venture
Grants/T.T/
Philantro.
Stage
Private & Confidential 12

13. strategy
execution
The (multi)Million Dollar Question
success
How to define a clear and efficient
strategic financing plan for a
biotechnology company ?
“Life science startups are the only companies that are
forced to define their corporate strategy as a function
of their financing rather than to gather financing in
accordance to a previously well-defined corporate
strategy.”
-Steven G. Burrill, Stanford Technology Ventures Lecture Series
Private & Confidential

14. strategy
execution
Philanthropy, Government Grants and Tech. Transfer Offices
success
Strategic Alliances
Venture Philanthropists
Initial Public Offering (IPO)
Amount ($)
e)
They are: anin
FOPO
ezz
>M
d --
See
(
• Network of wealthy individuals al
apit
eC
tur
Ven
• Non-For-Profit foundations yalties
and Ro PIPEs
Angels
re Debt
Ventu
Grants/T.
T/
Philantro.
They provide: Stage
• Capital (non-dilutive)
• Expertise, access to patients
• Network
• Mentorship
“Non-profit organizations' growing support for the industry of drug development does
more than fill a funding gap. It brings disease knowledge, patient access and an
understanding of the end market that few traditional VCs can offer.”
-Start-Up Magazine, Windhover Business Intelligence
Private & Confidential 14

15. strategy
execution
General Trends: Venture Philanthropy
success
Venture Philanthropy is now filling an important seed-funding gap
Source: Windhover Business Intelligence
Private & Confidential

16. strategy
execution
Philanthropy, Government Grants and Tech. Transfer Offices
success
Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
Government Grants
e)
They provide: anin
FOPO
ezz
>M
d --
See
(
• Small amount of $ (non-dilutive) al
apit
eC
tur
Ven
oyalties
However: PIPEs
bt and R
Angels
ture De
Ven
Grants/T.
T/
• Available VERY early (still in the lab) Philantro.
Stage
e.g.: CIHR POP grants
Private & Confidential 16

17. strategy
execution
Philanthropy, Government Grants and Tech. Transfer Offices
success
Strategic Alliances
Technology Transfer Offices
Initial Public Offering (IPO)
Amount ($)
They are:
e)
• Part of academic institutions anin
FOPO
ezz
>M
d --
See
(
al
apit
eC
tur
They provide: Ven
oyalties PIPEs
bt and R
Angels
ture De
Ven
• Small amount of seed $ (non-dilutive) Grants/T.
T/
Philantro.
• Help with the IP process Stage
However:
• Not always efficient
• Use with caution
Private & Confidential 17

18. strategy
execution
Technology Transfer Offices
success
How to approach your technology transfer office
• Have a general idea of what you intend to do with your technology.
(start-up, out-license, etc..)
• Look at the track-record of your technology officer.
• Carefully weight-in the pros and cons of dealing with your tech. transfer.
Things to look out for:
• Are there more attractive options in order to get IP protection?
• Do you have a good relationship with your tech. transfer officer?
(You need things to move…quickly)
• What are the other advantages of going through tech transfer?
(IP matching, seed $, etc.)
• What is the credibility/expertise of your tech transfer officer in the field?
Private & Confidential 18

19. strategy
execution
General Trends: University/Tech Transfer
success
Recent University/Tech Transfer Alliances (U.S. -- June ‘05-June’06)
05-June’
Source: Windhover’s Pharmaceutical Strategic Alliances, Vol XVII
Windhover’
Private & Confidential

20. strategy
execution
Angel Investors
success
Angel Investors
Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
They are:
• Wealthy individuals (or groups)
e)
anin
FOPO
• Interested in high returns ezz
>M
d --
See
(
al
apit
• Usually, they are from the industry eC
tur
Ven
yalties
and Ro PIPEs
Angels
They provide: re Debt
Ventu
Grants/T.
T/
• Small to Serious $ Philantro.
Stage
• Mentorship
• Deep Network
• Credibility
However:
• Closed circle, hard to reach
• Conflicts between Angels
• Too involved in the Company
Private & Confidential 20

21. strategy
execution
Angel Investors
success
Angel Investors
Seed $
Angel Capital Fund
Actively Involved
Serious $
Regional Angel Groups
Formal Organization
Start-up $
Small Angel Groups
Community decisions
Give-it-a-try $
Individual Angels
More involved than you wish!
Private & Confidential 21

22. strategy
execution
Angel Investors
success
Angel Investors
1. How to get in touch with them ?
• Boutique Investment Banking and NETWORK
• Business plan competition
2. How much do they give?
• Typically from $15,000-$1,000,000
• Geographical restrictions
3. How much do they want?
• Be actively involved, e.g.: seat on the Board
• Equity in the company
Private & Confidential 22

23. strategy
execution
General Trends: Angel Investors
success
Angel investment is strong in the life science sectors (U.S. Data)
Quick Facts:
Facts:
quot; Founded 51,000 entrepreneurial ventures quot; 7.5% increase in average # of deals from 2005
quot; 10.8% increase in disbursements from 2005
quot; 26.5B $ in disbursements in 2006
Yield
Rate
Source: Centre for Venture Research
Analysis: SHI Capital
Private & Confidential

24. strategy
execution
General Trends: Angel Investors
success
Angel investors demand (and obtain) high return on investment
Angel Capital Fund
Regional Angel groups
Small Angel groups
Individual Angels
Source: Chart from Ottawa Angel Alliance Presentation
Private & Confidential

25. strategy
execution
Venture Capital
success
Strategic Alliances
Venture Capital
Initial Public Offering (IPO)
Amount ($)
They are:
e)
anin
FOPO
ezz
• Investors for a group of Limited Partners >M
d --
See
(
al
(LPs) apit
eC
tur
Ven
oyalties
• Most common way to finance biotech PIPEs
bt and R
Angels
ture De
Ven
Grants/T.
• Often have an industry background T/
Philantro.
Stage
They provide:
• Various amount of $ ($0.5M-$20M+)
• Management expertise
• Credibility
However:
• Finance 1:100 opportunities
• Very “exit-oriented”
Private & Confidential 25

26. strategy
execution
Stages of Venture Capital Financing
success
Seed Funding < $500,000
• Clinical discovery stage, strong IP
• Solid science combined with a compelling business plan (maybe an angel on board)
Start-up or Series A $500,000-$1,000,000
• Demonstrated efficiency, business driven, strong management team
• Significant progress since inception of the company
• e.g..: Discovery --> Lead Optimization or first molecules from a technology platform
Expansion or Series B $2,000,000-$15,000,000
• Demonstrated significant milestone achievements
• Close to generating revenues (out-licensing, partnering)
• e.g.: IND filed, ready to go to clinical trials or already in Phase I
Mezzanine or Series C $2,000,000-$20,000,000+
• Demonstrated excellent milestone achievements
• Completed some strategic alliances with a clear exit strategy
• e.g.: a couple of pre-IND, IND and Phase I/II compounds, close to acquisition or IPO
Bridge $2,000,000-$20,000,000+
• Provide some cash before an IPO (in 6-12 months)
Private & Confidential 26

27. strategy
execution
Getting a meeting with VCs
success
Getting a meeting with a VC
• Credibility + Network
• Talk about your technology, create curiosity around your product
• Be politely persistent
Getting a Getting $
Strategy
Meeting (assuming you did a GREAT pitch)
Unsolicited Submissions 100:1 1000:1
Unknown/Unlicensed Agents (i.e.: POSERS) 50:1 100:1
Venture Fairs, Financing Forums, and other 20:1
15:1
Industry Events (MUCH higher if you win a prize)
if
Professionals with Fund Relationships (SHI Capital) 3:1 5:1
Current and Future Investors 2:1 3:1
Stakeholder to the Fund (LPs or Portfolio CEOs) 1:1 3:1
Source: Sean Wise, ReportonBusiness.com
ReportonBusiness.com
Private & Confidential 27

28. strategy
execution
The Pitch to VCs
success
The Pitch: Guy Kawasaki’s 10/20/30 Rule
10 Slides
20 Minutes
Title
Problem
30pt Fonts
Solution More doesn!t mean better
Business model
Underlying magic Leave time for chatting Not 12pt fonts
Marketing/sales and questions
Competition
It demonstrates that you
Team
are clear and concise
Projections
Status and timeline
Source: Guy Kawasaki, The Art of the Start
Private & Confidential 28

29. strategy
execution
Common Mistakes when Talking to VCs
success
DON’T
DO
Ignore the red flags
Compelling idea that you already fell
in love with! Underestimate the time it takes to
raise capital
Strong team that you have worked
with previously Go to a meeting alone
Clear market opportunity Target the wrong audience
(know your investors, do your homework)
Great science
Poor understanding of the financials
Significant competitive advantage
Underestimate the value of a great
Credible financial projections
management team
Follow-up, ask for feedback
Be NDA-obsessed
Private & Confidential 29

30. strategy
execution
Final thoughts: Venture Capital
success
The Entrepreneur-VC Dating Game
First Date
• Make sure that you know the investor and vice versa (no blind dates!)
• Be clear about your intentions
• Establish trust
• Follow-up
Dating
• Work together
• Share the good and most importantly the bad news (no surprises)
• Discuss about future plans often
• Accept feedback and be ready to compromise
Long Term
Relationship • Plan for an exit strategy, be open-mind about it
• Share the good and most importantly the bad news (no surprises)
• Remember: You are together ‘till M&A or IPO
Private & Confidential

31. strategy
execution
General Trends: The Situation in Canada
success
“Unlike other countries, which have built vital and growing biotech sectors,
the down cycle for Canadian!s industry has remained in effect since 2002.”
-Burrill & Co, 2007 Annual Report on the Life Science Industry
Source: CVCA, NVCA and PwC MoneyTree
Analysis: SHI Capital
Private & Confidential

32. strategy
execution
General Trends: The Situation in Canada
success
Canadian VCs disburse significantly less on a deal-per-deal basis
Source: CVCA, NVCA and PwC MoneyTree
Analysis: SHI Capital
Private & Confidential

33. strategy
execution
General Trends: The Situation in Canada
success
Canadian VCs close more deals than they can afford to
Canadian VCs are closing a disproportionate amount
of deals relatively to U.S. VCs
Source: CVCA, NVCA and PwC MoneyTree
Analysis: SHI Capital
Private & Confidential

34. strategy
execution
General Trends: The Situation in Canada
success
Poor Performance for the Canadian VCs (Net IRR as of Q3 2006)
(Net
Source: CVCA, NVCA
Analysis: SHI Capital
Private & Confidential

35. strategy
execution
Venture Debt
success
Venture Leasing/Lending Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
•Venture Leasing provides financing in
return for equipment lease payments
e)
anin
FOPO
ezz
-> M
•Venture Lending is an alternative to ed -
(Se
al
apit
traditional lending from financing eC
tur
Ven
institutions s
Royaltie PIPEs
Angels ebt and
D
Venture
Grants/T.
T/
Why get Venture Debt? Philantro.
Stage
• Enhance existing funding round
(no equity dilution)
• Bridge between financial rounds
(may improve the terms)
• Financial “Buffer”
• Financial credibility
Private & Confidential 35

36. strategy
execution
Venture Debt
success
Venture debt can extend cash runaway without eating-up equity
4M $
Venture
Debt
16M $
Series C
6 Months
Cash
Runway
Private & Confidential 36

37. strategy
execution
Venture Leasing and Venture Lending
success
Venture debt are available at every stage of the company’s growth
company’
Venture Leasing
Who:
• Start-up and Series A companies: VC-backed, need $ to buy large assets
What:
• Lease payment on fixed assets
• Collateral: The asset
Venture Lending
Who:
• Large companies: Close to raising capital, strong management, supportive investors
What:
• Credit Line: $1-$10 Millions
• Collateral: Variable and fixed asset (IP, receivables, etc…)
Private & Confidential 37

38. strategy
execution
Royalty Financing
success
Royalty Financing Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
They are:
e)
anin
FOPO
• Investors offering cash in ezz
-> M
ed -
(Se
exchange for license royalty al
apit
eC
tur
Ven
payments s
Royaltie PIPEs
Angels ebt and
D
Venture
Grants/T.
T/
Philantro.
They offer: Stage
• Fund future product development,
product acquisition, product launch costs
• Minimizes dilution
• Transactions may also be customized
• Delays out-licensing
• Diversify risk
• Offer matching grants for research
Private & Confidential 38

39. strategy
execution
Initial Public Offering (IPO)
success
Strategic Alliances
Initial Public Offering
Initial Public Offering (IPO)
Amount ($)
They are:
e)
• A regulated process by which a public anin
FOPO
ezz
>M
d --
company issues public shares for the See
(
al
apit
eC
tur
first time Ven
oyalties PIPEs
bt and R
Angels
ture De
Ven
Grants/T.
They provide: T/
Philantro.
• Capital Stage
• Alternative to acquisition
• Reimbursement of venture debt
• Major shareholders control the company
However:
• Very sensitive to market conditions
• Stock price is VERY milestone sensitive
Private & Confidential 39

40. strategy
execution
General Trends: IPOs
success
The IPO market is slowly recovering from the 2000-2001 bubble bust
Source: Burril & Co, 2007
Private & Confidential

41. strategy
execution
Private Investment in Public Entities (PIPEs)
success
Private Placement in Public Entities Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
They are:
• Small group of investors buying e)
anin
FOPO
ezz
common shares of a public company >M
d --
See
al (
at discounted price apit
eC
tur
Ven
They provide: s
Royaltie PIPEs
Angels
ebt and
d
Venture Grants/T.
• Capital T/
Philantro.
• Not a lengthy process like IPO or FOPO Stage
• Can be done quickly by Investment Banks
• Not market sensitive
However:
• A large amount of securities are being offered to a limited
number of investors
--> Investors might want to play an active role in the company
Private & Confidential 41

42. strategy
execution
Follow-On Public Offering (FOPO)
success
Follow-On Public Offering (FOPO) Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
They are:
• An offering of shares to the public e)
anin
FOPO
ezz
after the company has already gone >M
d --
See
(
al
through an IPO. apit
eC
tur
Ven
s
Royaltie PIPEs
Angels
ebt and
d
Venture
They provide:
Grants/T.
T/
Philantro.
• Capital Stage
However:
• Can be interpreted as a “red flag” indicating that
the company is strapped for cash.
Private & Confidential 42

43. strategy
execution
Strategic Alliances
success
Strategic Alliances
Strategic Alliances
Initial Public Offering (IPO)
Amount ($)
They are:
• Variation of different deals in order to )
nine
FOPO
zza
Me
in/out-license, co-developed or co- ->
ed -
(Se
ital
Cap
market products ture
Ven
ies)
d Royalt PIPEs
Angels
debt an
Venture
They provide: Grants/T.
T/
Philantro.
• Capital Stage
• Products
• Access to expertise (CRO, sales, marketing, etc…)
However:
• Requires planning, vision and a detailed
strategic approach
Private & Confidential 43

44. strategy
execution
The Innovation Gap
success
Low drug approval rates create an innovation gap for Big Pharma
Source: Burril & Co, 2007
Private & Confidential

45. strategy
execution
Current Trends: Buying Discovery (late)
success
Big Pharma is breaking the bank to fuel their clinical pipelines
Source: Burrill & Co, 2007
Source: Windhover’s Strategic Intelligence System
Windhover’
Private & Confidential 45

46. strategy
execution
General Trends: Mergers/Acquisitions
success
Recent industry M&A activity statistics
Source: Burril & Co, 2007
Private & Confidential

47. strategy
execution
Agenda
success
Part III: Case Studies
1. KuDOS Pharmaceuticals: Success Story of a Drug Discovery Company
Presented by Frédéric Sweeney, SHI Capital
2. Chlorion Pharma: Seed and Start-up Financing
Pharma:
Presented by Dr. Jeff Coull, SHI Capital and CEO Chlorion Pharma
Coull,
Private & Confidential 47

48. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS at a glance
UK Oncology drug discovery company
Founded in December 1997 (3 people)
Raised over 40 Million £ in venture capital
Brought 3 drugs to clinical trials
Acquired for $210M US (cash) by AstraZeneca in December 2005 (75 people)
Private & Confidential 48

49. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS Pharmaceuticals relied on strong and stable management team
J. Barrie Ward PhD, CEO (1999-2005)
• Former senior head scientist at GSK
• Deep network in Big Pharma combined with proven managerial experience
Prof. Stephen Jackson PhD, CSO/Founder (1997-2005)
• World expert on DNA repair with deep network in the scientific community
Graeme Smith PhD, Research Director (1999-2005)
• Post Doctoral fellow in Steve Jackson Lab
• Extensive experience in pharmacology and small molecule drug discovery
Richard Onyett, Commercial Director (2002-2005)
• Past life in marketing as well as very experienced in business development
• Deep experience and network with small biotechs
Peter Harris MD, Technical Director (2001-2005)
• Ex, Amgen, AstraZeneca, Cobra Therapeutics
• Experienced oncology drug developer within Big Pharma and Biotech
Private & Confidential 49

50. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS Pharmaceuticals relied on innovative science to build the company
Science
The inhibition of DNA repair as an innovative cancer therapy
Prior knowledge:
Classical cancer chemotherapy involves using DNA damaging agents to kill
rapidly dividing cells (like cancer cells)
The problem --unmet need:
Cancer cells quickly gain genotypic variations increasing DNA repair efficiency
RESITANCE TO CHEMOTHERAPY
Long term exposure to chemotherapy (long and repeated sessions) are have
DEBILITATING SIDE EFFECTS
Private & Confidential 50

51. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS Pharmaceuticals relied on innovative science to build the company
KuDOS is developing small molecule inhibitors of the
cellular DNA repair response
DNA repair inhibitors given as first line therapy:
1. Increase efficiency of chemotherapy
CANCER CELLS CAN’T REPAIR DNA
2. Require shorter chemo. treatment
LESS SIDE EFFECTS
Source: GenEngNews.com
“KuDOS’ novel scientific approach to cancer therapy will
prove to be paramount in its success”
Private & Confidential 51

52. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS Pharmaceuticals relied on flexible financing strategies to build the company
Initial Strategy
• Already dominate the DNA repair scientific field
• Develop small molecules and out-license
• Get venture capital financing
Developing Strategy
• In-licensed pre-clinical compounds to “get on the map” (help of the CRT)
• Acquired a medicinal chemistry unit instead of starting from scratch
• Maintain same investors throughout the life of the company (relationships)
Significant Milestones
• Brought 2 in-licensed compounds to clinical trials
• Out-licensed one of these compounds
• Brought a first in-house product to clinical trial
Private & Confidential 52

53. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
Exclusive rights to Steve Jackson (CSO)
Cancer Research UK funded research
Owned by Cancer Research UK
(World’s largest independent cancer fund)
Provided KuDOS with:
1. Seed Funding Dec 1997
2. IP Protection
3. “IP matching” to enhance
KuDOS Portfolio (in-
licensing)
Source: www.cancertechnology.co.uk 53
Private & Confidential

54. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
210M USD
AstraZeneca
29.5M£
CRT
Euclid SR
Cash deals 3i
CRT
CRT
Advent
3i
3i
SV Life Sciences
Advent
Advent
SV Life Sciences
8M£ SV Life Sciences
BankInvest
5M£
CRT
LSP
350k £
J&J
1998 2006
Acquisition of Med. Out-Licensing
Chem. Unit AQ4N to Novacea
In-Licensing In-Licensing of
Strategic Deals
PaTrin-2 from CRT AQ4N from BTG
Pharma
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55. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS Pharmaceuticals now have a diverse pipeline of in-house and acquired products
KuDOS pipeline (at time of acquisition)
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56. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
KuDOS scientific competitive advantages
Strong scientific expertise and great network
Novel therapeutic approach vs. platform of “me too” compounds
Very focused, goals and milestones oriented, didn’t reinvent itself
KuDOS business competitive advantage
Long and stable relationship with investors
Strong and stable management team
Key strategic moves in tech transfer, licensing, alliances
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57. strategy
execution
The value of a Biotechnology Company
success
KuDOS is bridging the gap between great
science and commercial success
The Study of DNA Repair
Great Science Great Biotech
REAL Unmet Need
Projects Companies
Biotech Bubble Generic
Companies Companies
Value to Patient Population Private & Confidential 57

58. strategy
execution
Case Study: KuDOS Pharmaceuticals
success
Special thanks to
Dr. Graeme Smith for sharing the
history, trial and tribulations of
KuDOS Pharmaceuticals
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59. strategy
execution
Agenda
success
Part III: Case Studies
1. KuDOS Pharmaceuticals: Success Story of a Drug Discovery Company
Presented by Frédéric Sweeney, SHI Capital
2. Chlorion Pharma: Seed and Start-up Financing
Pharma:
Presented by Dr. Jeff Coull, SHI Capital and CEO Chlorion Pharma
Coull,
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60. strategy
execution
Case Study 2: Chlorion Pharma
success
Overview of Company and Financing
quot; Chlorion Pharma is a start-up drug discovery company that focuses
on the advancement of novel therapeutics for the treatment of pain
and epilepsy.
quot; Chlorion was founded in 2004 and is currently based in Quebec City.
quot; From the summer of 2005 until now, Chlorion’s R&D operations
were supported wholly by grants – for the most part from a $150K
CIHR POP grant.
quot; Recently, Chlorion secured a series A investment of >$5M from a
syndicate of Quebec-based venture capital firms. Proceeds from
this equity investment will be used to progress one small-molecule
compound through phase I development.
quot; Chlorion worked for three years to secure this capital, and
approached over 40 venture capital firms.
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61. strategy
execution
Case Study 2: Chlorion Pharma
success
The Top Ten Facts I Wish I had Known Three Years Ago…
Ago…
10. Expect the quest for capital to take 2-3 times longer than you think
it will.
9. A start-up biotechnology company will rarely fetch a valuation
greater than $2 to $3M, regardless of the base technology.
8. To a VC, “pre-money valuation” is effectively defined as the total
value of all outstanding shares + total value of all stock options.
Hence, on paper all non-investors will hold $2M worth of shares
only at the end of the financing period.
7. Sourcing capital is a time-consuming exercise that can not be
performed only during evenings and weekends.
6. Your chances of finding a VC that will be interested in your
technology (and to seriously considering an investment) are about
1 in 20.
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62. strategy
execution
Case Study 2: Chlorion Pharma
success
The Top Ten Facts I Wish I had Known Three Years Ago…
Ago…
5. Know the “right” answers to questions posed by VCs, even if these are
not necessarily the “true” answers.
4. If you are able to identify a VC that is truly interested in your project,
spend 80% of your time trying to secure a commitment from this VC,
and 20% of your time identifying other VCs that might be truly interested
in your company.
3. Be optimistic about your timelines, but never deceitful. Understand that
VCs don’t typically want to invest in a drug discovery company unless it
“12 months from the clinic”.
2. VCs want to invest in start-ups with a straightforward, single R&D
program – not multiple programs.
1. When a VC says “no” to you, what they really mean is “not now”. Truly.
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63. strategy
execution
SHI Capital, Team
success
The SHI Capital team combines strong finance and scientific experience
Roman Masley, P.Eng MBA
Masley,
Managing Director
Jeffrey Coull, PhD
Coull,
Senior Associate
John McGraw, PhD
162 Cumberland Street, Suite 310
Associate
Toronto, Ontario, M5R 3N5
Canada
Frédéric Sweeney, PhD Candidate
Tel: 416.236.1054
Analyst
www.shicapital.com
Private & Confidential 63