EFTA00617635.pdf

DRAFT DATED 9/17/14 Copy No. BIOSYS CAPITAL PARTNERS, LP Confidential Private Placement Memorandum September __, 2014 STRICTLY CONFIDENTIAL DRAFT - Jeffery Epstein EFTA00617635 THE LIMITED PARTNERSHIP INTERESTS IN THE FUND DESCRIBED HEREIN (THE "INTERESTS") HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT') OF THE UNITED STATES OF AMERICA (THE "U.S.") OR THE SECURITIES LAWS OF ANY OTHER COUNTRY OR JURISDICTION. THE ISSUER IS RELYING ON EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION. INVESTORS MAY BE REQUIRED TO HOLD THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. OTHER IMPORTANT RISK FACTORS ARE EXPLAINED IN DETAIL IN THIS DOCUMENT. NO GOVERNMENTAL AUTHORITY HAS APPROVED, DISAPPROVED, ENDORSED, OR RECOMMENDED THIS OFFERING. NO INDEPENDENT PERSON HAS CONFIRMED THE ACCURACY OR TRUTHFULNESS OF THIS DISCLOSURE, NOR WHETHER IT IS COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL. SEE APPENDIX A - CERTAIN SECURITIES LAW MATTERS FOR INVESTORS. THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THIS "MEMORANDUM") DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE INTERESTS AS TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. WITHIN THE U.S. THIS OFFERING IS MADE AS A PRIVATE PLACEMENT PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT, AND ONLY TO PARTIES THAT ARE "ACCREDITED INVESTORS" AS DEFINED IN RULE 501(A) OF REGULATION D UNDER THE SECURITIES ACT. OUTSIDE THE U.S., THIS OFFERING IS MADE PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, ONLY TO PARTIES THAT ARE NOT "U.S. PERSONS" AS DEFINED IN SUCH REGULATION, AND PURSUANT TO EXEMPTIONS FROM APPLICABLE SECURITIES LAWS OF OTHER COUNTRIES ("NON-U.S. SECURITIES LAWS"). SEE APPENDIX A - CERTAIN SECURITIES LAW MATTERS FOR INVESTORS. THIS MEMORANDUM IS NOT A PROSPECTUS OR AN ADVERTISEMENT, AND THE OFFERING IS NOT BEING MADE TO THE PUBLIC. THIS OFFERING IS MADE IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND NON-U.S. SECURITIES LAWS AS DESCRIBED ABOVE. THE FUND DOES NOT INTEND TO REGISTER THE INTERESTS UNDER THE SECURITIES ACT OR ANY NON-U.S. SECURITIES LAWS IN THE FUTURE. THERE CURRENTLY IS NO PUBLIC OR OTHER MARKET FOR THE INTERESTS AND THE GENERAL PARTNER OF THE FUND (THE "GENERAL PARTNER") DOES NOT EXPECT THAT ANY SUCH MARKET WILL DEVELOP. ALL OF THE INTERESTS, WHETHER ACQUIRED WITHIN THE U.S. OR OUTSIDE THE U.S. WILL BE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT AND THEREFORE MAY NOT BE TRANSFERRED BY A HOLDER THEREOF WITHIN THE U.S. OR TO A "U.S. PERSON" UNLESS SUCH TRANSFER IS MADE PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, PURSUANT TO AN EXEMPTION THEREFROM, OR IN A TRANSACTION OUTSIDE THE U.S. PURSUANT TO THE RESALE PROVISIONS OF REGULATION S. MOREOVER, THE INTERESTS MAY BE TRANSFERRED ONLY WITH THE CONSENT OF THE GENERAL PARTNER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. THE INTERESTS ARE SPECULATIVE AND PRESENT A HIGH DEGREE OF RISK. SEE SECTION VII - CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS. INVESTORS IN THE FUND ('INVESTORS") MUST BE PREPARED TO BEAR SUCH RISK FOR AN INDEFINITE PERIOD OF TIME AND ABLE TO WITHSTAND A TOTAL LOSS OF THE AMOUNT INVESTED. THE FUND IS EXPECTED AND INTENDED TO PURSUE A VENTURE CAPITAL STRATEGY. SEE SECTION VII - CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS. THE INTERESTS ARE BEING OFFERED SUBJECT TO VARIOUS CONDITIONS, INCLUDING: (A) WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFER WITHOUT NOTICE; (B) THE RIGHT OF THE GENERAL PARTNER TO REJECT ANY SUBSCRIPTION FOR AN INTEREST, IN WHOLE OR IN PART, FOR ANY REASON; AND (C) THE APPROVAL OF CERTAIN MATTERS STRICTLY CONFIDENTIAL DRAFT - Jeffery Epstein EFTA00617636 BY LEGAL COUNSEL. EACH PROSPECTIVE INVESTOR IS RESPONSIBLE FOR ITS OWN COSTS IN CONSIDERING AN INVESTMENT IN AN INTEREST. NEITHER THE GENERAL PARTNER NOR THE FUND SHALL HAVE ANY LIABILITY TO A PROSPECTIVE INVESTOR WHOSE SUBSCRIPTION IS REJECTED IN WHOLE OR IN PART. THE INFORMATION SET FORTH IN THIS MEMORANDUM IS CONFIDENTIAL AND INCLUDES TRADE SECRETS THE DISCLOSURE OF WHICH WOULD CAUSE HARM TO THE FUND, THE GENERAL PARTNER AND OTHER PARTIES. RECEIPT AND ACCEPTANCE OF THIS MEMORANDUM SHALL CONSTITUTE AN AGREEMENT BY THE RECIPIENT THAT THIS MEMORANDUM SHALL NOT BE REPRODUCED OR USED FOR ANY PURPOSE OTHER THAN IN CONNECTION WITH THE RECIPIENT'S EVALUATION OF AN INVESTMENT IN AN INTEREST. THIS MEMORANDUM IS THE PROPERTY OF THE GENERAL PARTNER AND, EXCEPT AS HELD BY A LIMITED PARTNER OF THE FUND, MUST BE RETURNED UPON REQUEST. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR TO GIVE ANY INFORMATION WITH RESPECT TO THE FUND, THE GENERAL PARTNER, OR THE INTERESTS, OTHER THAN AS CONTAINED IN THIS MEMORANDUM, THE FUND'S AGREEMENT OF LIMITED PARTNERSHIP (THE "PARTNERSHIP AGREEMENT'), THE SUBSCRIPTION AGREEMENT TO BE EXECUTED BY EACH INVESTOR, OR AN OFFICIAL WRITTEN SUPPLEMENT TO THIS MEMORANDUM APPROVED BY THE GENERAL PARTNER. PROSPECTIVE INVESTORS ARE CAUTIONED AGAINST RELYING UPON INFORMATION OR REPRESENTATIONS FROM ANY OTHER SOURCE. NOTWITHSTANDING THE FOREGOING, A PROSPECTIVE INVESTOR MAY RELY UPON WRITTEN RESPONSES TO ITS INQUIRIES THAT ARE CLEARLY MARKED BY AN OFFICER OF THE GENERAL PARTNER AS INTENDED TO BE RELIED UPON BY SUCH PROSPECTIVE INVESTOR. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THIS MEMORANDUM AS INVESTMENT, LEGAL OR TAX ADVICE AND THIS MEMORANDUM IS NOT INTENDED TO PROVIDE THE SOLE BASIS FOR ANY EVALUATION OF AN INVESTMENT IN AN INTEREST. PRIOR TO ACQUIRING AN INTEREST, A PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN LEGAL, INVESTMENT, TAX, ACCOUNTING, AND OTHER ADVISORS TO DETERMINE THE POTENTIAL BENEFITS, BURDENS AND OTHER CONSEQUENCES OF SUCH INVESTMENT. IN PARTICULAR, IT IS THE RESPONSIBILITY OF EACH INVESTOR TO ENSURE THAT THE LEGAL AND REGULATORY REQUIREMENTS OF ANY RELEVANT JURISDICTION OUTSIDE THE U.S. ARE SATISFIED IN CONNECTION WITH SUCH INVESTOR'S ACQUISITION OF AN INTEREST. EXCEPT AS OTHERWISE DETERMINED BY THE GENERAL PARTNER OR ITS AFFILIATES, NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES THAT WOULD PERMIT AN OFFERING OF THESE SECURITIES, OR POSSESSION OR DISTRIBUTION OF OFFERING MATERIAL IN CONNECTION WITH THE ISSUE OF THESE SECURITIES, IN ANY COUNTRY OR JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. IT IS THE RESPONSIBILITY OF ANY PERSON WISHING TO PURCHASE THESE SECURITIES TO SATISFY ITSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNITED STATES IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES. CERTAIN DOCUMENTS RELATING TO THE FUND WILL BE COMPLEX OR TECHNICAL IN NATURE, AND PROSPECTIVE INVESTORS MAY REQUIRE THE ASSISTANCE OF LEGAL COUNSEL TO PROPERLY ASSESS THE IMPLICATIONS OF THE TERMS AND CONDITIONS SET FORTH THEREIN. LEGAL COUNSEL TO THE FUND AND THE GENERAL PARTNER WILL REPRESENT THE INTERESTS SOLELY OF THE FUND AND THE GENERAL PARTNER. NO LEGAL COUNSEL HAS BEEN ENGAGED BY THE FUND OR THE GENERAL PARTNER TO REPRESENT THE INTERESTS OF PROSPECTIVE INVESTORS. EACH PROSPECTIVE INVESTOR IS URGED TO ENGAGE AND CONSULT WITH ITS OWN LEGAL COUNSEL IN REVIEWING DOCUMENTS RELATING TO THE FUND. STRICTLY CONFIDENTIAL DRAFT - Jeffery Epstein EFTA00617637 EXCEPT WHERE OTHERWISE SPECIFICALLY INDICATED, THIS MEMORANDUM SPEAKS AS OF THE DATE HEREOF. NEITHER THE SUBSEQUENT DELIVERY OF THIS MEMORANDUM NOR ANY SALE OF INTERESTS SHALL BE DEEMED A REPRESENTATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS, PROSPECTS OR ATTRIBUTES OF THE FUND SINCE THE DATE HEREOF. ALL DUTIES TO UPDATE THIS MEMORANDUM ARE HEREBY DISCLAIMED. EXCEPT AS EXPRESSLY STATED TO THE CONTRARY THEREIN, ANY OFFICIAL SUPPLEMENT OR UPDATE TO THIS MEMORANDUM SHALL BE DEEMED TO ADDRESS ONLY THE SPECIFIC SUBJECT MATTER THEREOF AND SHALL NOT BE DEEMED A REPRESENTATION THAT THERE HAS BEEN NO OTHER CHANGE IN THE AFFAIRS, PROSPECTS OR ATTRIBUTES OF THE FUND SINCE THE DATE HEREOF. THIS MEMORANDUM SUPERSEDES ALL PRIOR VERSIONS. FROM AND AFTER THE DATE OF THIS MEMORANDUM, PRIOR VERSIONS OF THIS MEMORANDUM MAY NOT BE RELIED UPON. NOTHING CONTAINED HEREIN IS, OR SHOULD BE RELIED UPON AS, A PROMISE OR REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE FUND. STATEMENTS, ESTIMATES, TARGETS AND PROJECTIONS WITH RESPECT TO SUCH FUTURE PERFORMANCE SET FORTH IN THIS MEMORANDUM ARE BASED UPON ASSUMPTIONS MADE BY THE GENERAL PARTNER WHICH MAY OR MAY NOT PROVE TO BE CORRECT. NO REPRESENTATION IS MADE AS TO THE ACCURACY OF SUCH STATEMENTS, ESTIMATES, TARGETS AND PROJECTIONS. SIMILARLY, NOTHING CONTAINED HEREIN IS, OR SHOULD BE RELIED UPON AS, A PROMISE OR REPRESENTATION AS TO THE EXTERNAL CONDITIONS AND CIRCUMSTANCES UNDER WHICH THE FUND WILL OPERATE (INCLUDING, WITHOUT LIMITATION, OVERALL MARKET CONDITIONS, TECHNOLOGY DEVELOPMENTS AND OTHER MATTERS OUTSIDE THE CONTROL OF THE GENERAL PARTNER). OVERALL, PROSPECTIVE INVESTORS MUST NOT RELY UPON ANY MATTERS DESCRIBED IN THIS MEMORANDUM THAT ARE NOT WHOLLY WITHIN THE CONTROL OF THE GENERAL PARTNER. EVEN WITH REGARD TO MATTERS WHOLLY WITHIN THE CONTROL OF THE GENERAL PARTNER, THE ACTIVITIES UNDERTAKEN BY THE GENERAL PARTNER IN MANAGING THE FUND MAY DIFFER FROM THOSE DESCRIBED IN THIS MEMORANDUM DUE TO UNEXPECTED EXTERNAL CONDITIONS OR OTHERWISE. THIS MEMORANDUM DOES NOT SUBJECT THE GENERAL PARTNER TO BINDING OBLIGATIONS. ONLY THOSE OBLIGATIONS EXPRESSLY SET FORTH IN A DEFINITIVE AGREEMENT EXECUTED BY THE GENERAL PARTNER SHALL BE BINDING UPON THE GENERAL PARTNER. PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION IN THIS MEMORANDUM REGARDING THE PAST PERFORMANCE OF THE GENERAL PARTNER, ITS MEMBERS OR THEIR RESPECTIVE AFFILIATES AS INDICATIVE OF THE FUTURE PERFORMANCE OF THE FUND. PAST PERFORMANCE DOES NOT ENSURE FUTURE PERFORMANCE. CERTAIN OF THE FACTUAL STATEMENTS MADE IN THIS MEMORANDUM ARE BASED UPON INFORMATION FROM VARIOUS SOURCES BELIEVED BY THE GENERAL PARTNER TO BE RELIABLE. THE GENERAL PARTNER, ITS OFFICERS, THE FUND AND THEIR RESPECTIVE AFFILIATES HAVE NOT INDEPENDENTLY VERIFIED ANY OF SUCH INFORMATION AND SHALL HAVE NO LIABILITY ASSOCIATED WITH THE INACCURACY OR INADEQUACY THEREOF. EACH INVESTOR THAT ACQUIRES AN INTEREST WILL BECOME SUBJECT TO THE FUND'S PARTNERSHIP AGREEMENT AND AN APPLICABLE SUBSCRIPTION AGREEMENT. IN THE EVENT ANY TERMS OR PROVISIONS OF SUCH PARTNERSHIP AGREEMENT OR SUBSCRIPTION AGREEMENT CONFLICT WITH THE INFORMATION CONTAINED IN THIS MEMORANDUM, SUCH PARTNERSHIP AGREEMENT OR SUBSCRIPTION AGREEMENT SHALL CONTROL. THIS MEMORANDUM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE STRICTLY CONFIDENTIAL iii DRAFT - Jeffery Epstein EFTA00617638 MEANING OF SECTION 27A OF THE SECURITIES ACT. THESE STATEMENTS INCLUDE THE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO FUTURE GROWTH OF THE FUND. THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS THAT INVOLVE NUMEROUS RISKS AND UNCERTAINTIES IDENTIFIED IN THIS MEMORANDUM. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE FUND'S CONTROL. ALTHOUGH THE FUND BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS MEMORANDUM WILL PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE FUND OR ANY OTHER PERSON THAT THE FUND'S OBJECTIVES AND PROJECTIONS WILL BE ACHIEVED. STRICTLY CONFIDENTIAL iv DRAFT - Jeffery Epstein EFTA00617639  TABLE OF CONTENTS I. EXECUTIVE SUMMARY 2 IL MARKET OPPORTUNITY AND ENVIRONMENT 4 III. INVESTMENT STRATEGY 15 IV. INVESTMENT PROCESS 17 V. INVESTMENT COMMITTEE 19 VI. SUMMARY OF PRINCIPAL TERMS OF THE FUND 23 VII. CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS 34 VIII. CERTAIN TAX AND ERISA CONSIDERATIONS 54 IX. ADDITIONAL INFORMATION 64 Appendix A — Certain Securities Law Matters for Investors DRAFT - Jeffery Epstein EFTA00617640  Copy No. I. EXECUTIVE SUMMARY' Biosys Capital Partners, LP (the "Fund" or "Biosys") is a venture capital fund formed to make non- controlling investments in growth-stage companies in the healthcare and life sciences sectors. The Fund combines the investment experience of Boris Nikolic in the technology and healthcare sectors with several anticipated unique features, including: • Access to a broad network of scientists within universities such as Harvard, Stanford and MIT. • Access to industry experts and venture capitalists including, for example, close cooperative relationships with Khosla Ventures and ARCH Venture Partners. • Support from Bill Gates, who we expect to be a significant investor through associated entities which have already provided funding for the first warehoused investment of Biosys. The Fund is offering its limited partnership interests for investment. The minimum capital commitment is $10 million, subject to the right of the General Partner (as hereinafter defined) to waive this minimum for qualified investors. Subject to the right of the Fund to extend this offering, this offering will terminate eighteen (18) months from the date of the initial closing of the Fund, or on such earlier date as all of the limited partnership interests offered hereby are sold. The Fund has invested and intends to continue investing primarily in private companies at the intersection of technology and life sciences and does not plan to invest in traditional drug-discovery, diagnostic, and medical-device companies. At $7 trillion, health care represents one of the largest segments of global GDP. In the United States, health care is a $2.8 trillion industry, comprising 17 percent of GDP, and one that continues to face tremendous challenges. Expenditures have grown at an unsustainable rate of 3.5 times GDP growth since 1960, yet these high healthcare expenditures have not led to better outcomes when compared to other developed countries. There are enormous levels of waste and fraud with some estimated annual waste of $600 billion. Regulatory changes are creating new markets but also leading to costly administrative and technology hurdles. New technologies are opening up the availability of medical information to both medical providers and consumers. These changes and challenges have resulted in an industry that is focused on cost-containment, quality of outcomes, and patient experience with an unprecedented level of intensity. In this environment, there are enormous opportunities for new products and businesses. Specifically, technology will fundamentally change the way medicine is practiced, by both generating additional data as well as analyzing existing data. A few key trends are leading this change: • Low-cost DNA sequencing that enables better diagnostics and personalized treatment. The cost of sequencing a human genome has declined faster than Moore's law, going from $10 million in 2007 to $10,000 in 2011 and $1,000 in 2014. Illumina, the leader in next-generation I LL Note to Draft: The Fund will provide attributions/citations for the currently unattributed facts and figures in the final turn of the Memorandum. STRICTLY CONFIDENTIAL 2 DRAFT - Jeffery Epstein EFTA00617641  DNA sequencing, estimates a $20 billion addressable market for sequencing technology and applications. McKinsey & Company estimates that genomics will have an economic impact of up to $1.6 trillion on global GDP by 2025. • Smart sensors and remote-monitoring technologies that enable health and disease management as well as efficient healthcare delivery. In 2013, 45 million health-and-fitness- oriented wearable devices were shipped, and mobile health is already an $8 billion market. 170 million health-and-fitness-oriented devices are expected to be shipped in 2017, and the global mobile health market is expected to be worth $59 billion by 2020. This is an opportunity not just for consumer-oriented devices but also for transformative technologies for monitoring patients and practicing medicine. • Digitization of medical records, as well as other investment in healthcare information technology (IT), that enables the development of new digital-health platforms. More than 50 percent of doctors' offices and 80 percent of hospitals now have electronic health records (EHRs). The U.S. healthcare IT market is expected to be worth $23 billion by 2017. The combination of new technologies, inefficient markets, and other market dynamics — such as an additional 25 million people entering the U.S. healthcare system as a result of the Affordable Care Act, consumerization of healthcare, prevalence of high deductible plans and promotion of accountable-care organizations (ACOs) — creates a unique opportunity for a new generation of companies with transformative technologies and business models to generate significant financial value. These companies have the potential to change the practice of medicine from being focused on treatment to being focused on prevention and detection, as well as becoming increasingly personalized. The Fund is seeking capital commitments from qualified investors. The Fund is being organized to continue the already successful investment strategy of Boris Nikolic, David Schwarz, Peter Corsell and Hayes Nuss (the "Principals") by: • Focusing exclusively on breakthrough technology ideas with applications in the healthcare industry. • Tracking evolving trends in the industry through research and meetings with key industry participants. • Being a leading authority in the sector, with an informed view of companies that meet the Fund's investment criteria. The Principals bring together unique and complementary skill sets in technology and healthcare, which positions the Fund to leverage the trends noted above for making investments. The Fund's competitive strengths include access to the highest quality companies and experts, solid investment experience in the technology and healthcare sectors, and both scientific and financial expertise. The strategies and resources that the Principals have used to make investments in the past will be directed in an effort to achieve superior returns for investors in the Fund. STRICTLY CONFIDENTIAL 3 DRAFT - Jeffery Epstein EFTA00617642  II. MARKET OPPORTUNITY AND ENVIRONMENT In the past ten years technology and big data have profoundly affected multiple industries, such as retail, finance, communication, and entertainment. The impact has been especially acute in complex industries with inefficiencies driven by either a historic lack of data or fragmentation of data in multiple silos. The healthcare sector, however, has thus far been largely unaffected by this technology and big-data revolution. Recent advances in DNA sequencing, sensor and communication technology as well as digitization of health data have created an opportunity for technology to penetrate the healthcare sector. Technology adoption in the U.S. healthcare system is further supported by dynamics such as spiraling healthcare costs, high level of inefficiencies and an improving regulatory and reimbursement landscape. Innovative technologies and tools will fundamentally change the way medicine is practiced either by generating additional data or by helping to structure and analyze existing data. The availability of data and tools to analyze data should lead to the practice of medicine moving from being treatment oriented to being prevention and detection oriented, while becoming increasingly personalized. Transformation of Medicine' New Medicine C Mobile Cd Wireless Connectivity Sensors • Bandvadth .0,0/ GenornIcs Stipa Internet Convergence = CO Imaging •••••"..... Social Networking Information a Computing Systems Power • Data Old Medicine Universe Although in an early stage, this transformation of healthcare is already under way. Global digital healthcare data is expected to increase 50 times, from 500 petabytes in 2012 to 25,000 petabytes by 2020.3 McKinsey & Company estimates that big-data solutions could lead to up to $450 billion in reduced healthcare spending in the United States. Oliver Wyman estimates that the emergence of new patient-centered healthcare delivery models will eliminate $500 billion in spending and shift $1 trillion in value to such new models. 2 Source: Eric Topol - Creative Destruction of Medicine 3 Source: IBM STRICTLY CONFIDENTIAL 4 DRAFT - Jeffery Epstein EFTA00617643 Key Emereing Technology Trends in Healthcare A few key trends will enable companies to build successful businesses by leveraging technology and big data in healthcare and life sciences: 1. Costs and Speed of DNA Sequencing The Human Genome Project began in 1990 and took 13 years and approximately $3 billion to map the first human genome. Since then there has been significant improvement in both speed as well as cost of DNA sequencing. Today a human genome can be sequenced in a day for $1,000. The rise of molecular medicine is a classic technology-based transformation similar to the advent of the digital information era. Advances in semiconductor technology drove down the cost of computing, which allowed a growing number of users to apply powerful computing technology to routine activities. This growing user base attracted innovators to create additional applications and uses, which further expanded the applicable user population, creating a virtuous cycle. In the case of DNA sequencing, technology improvements are occurring at an even faster rate. Fast and affordable DNA sequencing will lead to fundamental changes in disease diagnosis and treatment. DNA sequencing will allow better diagnosis of underlying molecular causes of diseases and also over time lead to personalized treatment. DNA Sequencing Cost per Human Genome (30x coverage Cost pct G0/101114` 5100M 510M SIM 5100K 510K sIK T —I— —I— T —I— —I— —I— T —I— —I— —I— —I— —I- 2001 2002 2003 2004 2005 2006 2007 2006 2009 2010 2011 2012 2013 Illumina estimates a $20 billion addressable market for sequencing technology and applications. McKinsey & Company estimates that genomics will have a positive economic impact of up to $1.6 trillion on global GDP by 2025. 4 Source: National Institute of Health STRICTLY CONFIDENTIAL 5 DRAFT - Jeffery Epstein EFTA00617644  Economic Impact of Genomics in 2025 ($ 9 1.6 0.2 1.2 0.2 Healthcare Substance Agriculture Others Total production Molecular Diagnostics Scientists have already discovered molecular causes/links to a number of diseases over the past 20 years. The Online Mendelian Inheritance in Man (OMIM) database contains more than 5,000 conditions with known associations to genomic factors. Similarly, the Catalogue of Somatic Mutations in Cancer (COSMIC) database has information on 1.6 million mutations in 522 genes that are associated with various forms of cancer. As researchers continue to find the molecular basis for various rare and common diseases, DNA sequencing is expected to enable a new disease taxonomy whereby diseases are characterized based on cell biology rather than the traditional system of diagnosis via symptoms or point of origin. Molecular profiling based on this taxonomy will allow for highly precise and accurate diagnostics. Molecular diagnostics has seen initial success in the fields of cancer as well as pre-natal diagnostics, and was already a $511 million market in 2013. The sequencing-based molecular-diagnostics market is expected to grow at a compound annual growth rate of 72 percent to reach $7.6 billion in 2018. Clinical Next-Generation Sequencing Market ($ million)6 5 McKinsey & Company: Disruptive technologies 6 Source: BCC research, July 2013 STRICTLY CONFIDENTIAL 6 DRAFT - Jeffery Epstein EFTA00617645 Molecular profiling will also enable better prognosis and risk predictions with the highest impact in cancer, a disease that is driven entirely by complex DNA changes. Next Generation Drug Development and Personalized Medicine As research leads to the creation of large data sets linking molecular profiles to diseases, drug discovery and development is expected to also undergo a dramatic change. Better understanding of diseases and their progressions, based on molecular information, should lead to many more drug targets. These drugs may have smaller addressable markets, given that they will be targeted at patients with particular molecular profiles. However, molecular profiling should also make it easier to select patients for clinical trials and to prove the efficacy of drugs in the target market at lower cost. As a result, drug discovery and development will change from an expensive process relying on blockbuster drugs to a more efficient process, with lower development costs, focused on smaller patient populations where the drugs will be more effective. Together, these changes have the potential to reduce drug-development capital requirements and allow start-up companies to engage in drug discovery. Although personalized medicine is in the early stages of development, impressive initial successes have been reported, particularly in the field of cancer. More than 800 targeted therapies are either available or in the pipeline to target specific cancers.' 2. Smart Sensors and Remote-Monitoring Devices Smart sensors and remote-monitoring devices allow the collection of data for applications such as health management, as well as better healthcare delivery. These devices now enable the monitoring of numerous health parameters in ways that were not possible before. Not only is it possible to monitor various health parameters much faster and cheaper, it can be done more frequently, which can provide more accurate and reliable insight. We see the first wave of these devices in the form of various fitness devices directed at consumers that allow them to better manage their health through continuous tracking and analysis. Such devices have the potential to lead to a reduction in long-term health complications and associated costs. Remote-monitoring systems, on the other hand, make healthcare delivery more efficient by reducing patients' in-hospital bed days, improving the targeting of nursing-home care and outpatients' physician appointments and cutting visits to the emergency department. Real-time monitoring helps healthcare providers identify who is at risk and what can be done to prevent more serious conditions from developing. Several trends have converged leading to an explosive growth in sensors for healthcare applications: • Increased smartphone penetration. 148 million people (62 percent of mobile-phone users) in 7 STRICTLY CONFIDENTIAL 7 DRAFT - Jeffery Epstein EFTA00617646  the United States owned a smartphone as of November 2013.8 This new tool has led to a rapid increase in people who monitor their health and access health-related information. • Technology advancements. Sensors are becoming smaller, affordable, and more accessible. Material science has advanced to create wearable sensors that can take measurements passively. Wireless communication allows data to be transmitted securely and accessed globally. Data storage is cheap and secure. Increased computing power with cloud computing enables data analysis where previously impossible, providing medical practitioners and consumers with more accurate and reliable insight. • Chronic diseases. An aging population in the United States has led to more than 130 million patients suffering from chronic diseases such as diabetes, congestive heart failure, and hypertension. Treatment for such chronic diseases accounts for more than 75 percent of health- system costs. Remote-monitoring systems can be highly useful to manage patients who suffer from such chronic diseases'. Health and Fitness Oriented Wearable Devices Shipped (millions)1° The market is not limited to wearable devices alone. Increasing penetration and the computation capabilities of smartphones have led to rapid development in the number of health-and-fitness-oriented applications and devices that reside within or connect to smartphones. 8 Source: Comscore 9 Source: CDC I° Source: BCC research, February 2014 STRICTLY CONFIDENTIAL 8 DRAFT - Jeffery Epstein EFTA00617647  Global Mobile Health Market (Devices. Applications. Services, and Therapeutics: $ 3. Digital Health Platforms The past three to four years have seen a rapid increase in IT penetration in doctors' offices and hospitals. The progress has been most significant in the field of electronic health records (EHRs), with more than 50 percent of doctors' offices and 80 percent of hospitals now having EHRs.12 Physicians/other providers with basic EFIR" Eligible hospitals with basic EHR" l:// s t i en .,:// 44.41 0 .44. 0 0.044, 4,7/4", Government policy and reform has been one of the key drivers behind this adoption. Some of the policies adopted in the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 have played an important role in the creation of a digital-health ecosystem by accelerating the development of necessary healthcare IT infrastructure: • More than $17 billion of incentives for hospitals and providers to use electronic health records. • Another $2 billion to support healthcare IT infrastructure as well as other training and research. " Source: Allied market research Nov-2013 12 Source: htlp://www.hhs.govinews/press/2013pres/05/20130522a.Mml STRICTLY CONFIDENTIAL 9 DRAFT - Jeffery Epstein EFTA00617648 This continued digitization of medical and other health data has led to an opportunity for companies to use this data for various applications: • Providing real-time data access to doctors as well as patients. • Assisting patients in managing their health. • Connecting doctors and patients. • Monitoring things like epidemics and adverse events. • Improving clinical trials. • Streamlining processes and reducing administrative costs. Healthcare IT is expected to be a $23 billion market in the United States by 2017.13 Trends Supporting Adoption of Technology in Healthcare Additional market dynamics have created an environment that is expected to support the adoption of innovative solutions in the U.S. healthcare market: 1. Large and Unsustainable Healthcare Spending in the United States According to the World Health Organization, about $7 trillion was spent on global healthcare in 2011. At more than 10 percent, this represents one of the largest sectors of global GDP." At $2.8 trillion in 2012, healthcare spending in the United States is the highest of any country globally and represents 17.2 percent of U.S. GDP." Moreover, healthcare expenditures have been growing consistently and grew faster than GDP in 44 of the 52 years since 1960. During this period, healthcare expenditures grew cumulatively by 103 times compared with GDP growth of 30 times. 13 Source: Research and Markets' North American Healthcare IT Market Report 2013.2017 14 Source: World Health Organization Global Health Expenditure Database Is Source: CMS NHE data for 2012 STRICTLY CONFIDENTIAL 10 DRAFT - Jeffery Epstein EFTA00617649  US Healthcare Spending ($ billion) and Share of GDP (%)16 —NHE ($ bn) —NHE / GDP (%) 2,793 2,599 2,693 14.9 15.4 15.5 15.5 17.4 14.1 17.3 17.2 13.4 12.1 1,906 1,778 1,638 1,377 1,493 8.9 7.0 5.0 724 256 27 75 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2010 2011 2012 Despite a modest decline in the growth rate in recent years, healthcare continues to account for a very high portion of U.S. GDP. The Centers for Medicare and Medicaid (CMS) estimates healthcare spending in the United States will reach $5 trillion in 2022 and represent about 20 percent of GDP. Long term CMS expects healthcare costs could reach 35-40 percent of GDP. U.S. Healthcare Spending as % of GDP" 40% ?ME Napa MO 35% S0% NUE 0444bana) 25% 20% NNE - limit 15% 10% - 0% nm 1510 1990 MOD m10 mm m30 2040 2050 2060 2070 2040 C44444t The high level of healthcare spending and its seemingly relentless growth are problematic for the United States. Public spending on healthcare—primarily through the Medicare and Medicaid 16 Source: CMS NHE data for 2012 17 Source: CMS — June 2013 STRICTLY CONFIDENTIAL 11 DRAFT - Jeffery Epstein EFTA00617650 programs-is crowding out other state and national priorities, including education, social security, national defense, and deficit reduction. High healthcare costs for private employers inhibit the hiring of workers and add upward pressure on the prices of goods and services. Similar problems associated with rising healthcare costs may also be observed in other developed countries. 2. Inefficiencies in U.S. Healthcare The United States spends more money on healthcare than any other nation, whether measured in terms of per-capita spending or spending as a percentage of GDP. McKinsey & Company estimates that the U.S. expenditure on healthcare is $600 billion (or 3.7 percent of GDP) more than the expected benchmark for a nation of its size and wealth. Healthcare Expenditure / GDP To": Healthcare expenditure per capita ($ ppp)I8: OECD Average 9.3 OECD Average USA 17.2 USA UK 9.4 UK Sweden 9.5 Sweden Spain 9.3 Spain Portugal 10.2 Portugal Norway 9.3 Norway Netherlands 11.9 Netherlands Japan 9.6 Japan Italy 9.2 Italy Germany 11.3 Germany France 11.6 France Finland 9.0 Finland Canada 11.2 Canada Belgium 10.5 Belgium Australia 8.9 Australia However, high healthcare spending has not ranslated into better outcomes, with Americans having a lower life expectancy than the OECD average. 18 Source: CMS 2012 data for US, OECD 2011 data for rest STRICTLY CONFIDENTIAL 12 DRAFT - Jeffery Epstein EFTA00617651  Healthcare Spending Per Capita vs. Life Expectancy at Birth19 MOOD OECD AVERAGE 19.000 Un4ed States • $8.030 17.000 I 56.000 Svntradara • • I Norway Canada 9,n Dennis' • Frame k scoot) United Ir4ngdom • 0 If S.3COD t New Zealand ;.:. 6 52033 • • g 4.14° 494131 Pciand Korea I•441 51.030 444,440 • / 0 73 • • 74 %hey 75 76 77 78 79 80 81 82 83 Average life expectancy at birth 3. Regulatory and Reimbursement Progress Regulation and reimbursement will continue to be important drivers in the success of healthcare companies. In the past few years, the Food and Drug Administration (FDA) and insurance companies have supported technology-based innovation in the healthcare space. On the regulatory front, the FDA has shown its support for technology-based innovation through various actions: • Granting de-novo 510(k) approval20 to Illumina's Miseq next-generation sequencing platform. • Granting 510(k) approval to the iPhone-based ECG-monitoring devices • Laying out clear guidelines for the categories of mobile applications that it would seek to regulate (the FDA has already approved more than 100 health applications).21 • Having extensive dialog with industry on the regulation of molecular tests while allowing them to operate as Laboratory Developed Tests (LDTs). • Starting an expedited Program for Serious Conditions (17 breakthrough therapy designations have been granted already). 19 OECD 2011 data 20 510(k) approval is the FDA section that allows for the approval of Class II medical devices. Class II devices are medical devices that require approval but unlike Class III devices are not required to sustain life or implanted within the human body. 21 Source: STRICTLY CONFIDENTIAL 13 DRAFT - Jeffery Epstein EFTA00617652 In addition, other governmental agencies are also increasingly working with the FDA. The National Institutes of Health (NIH) created the Accelerating Medicines Partnership (AMP) as a new model for spurring development of drugs toward FDA approval. On the reimbursement front, several factors favor companies providing innovative healthcare solutions: • Consumerization of healthcare means that patients play an increasingly important role in their treatment. Patients pay $328 billion (11.7 percent) of healthcare expenditures out-of-pocket. Private health insurance provided an additional $917 billion: initiatives such as high-deductible health plans are increasingly shifting the burden of healthcare costs onto consumers. • New models such as ACOs reward providers for positive patient outcomes and give providers incentives to use the most cost-effective solutions. • Value-based payments for specific health outcomes are helping to align incentives among providers, consumers, and health plans. Some outcomes, such as prevention of hospital re-admissions and shortening of sick time, demonstrate cost effectiveness and the justification to invest in the future of sensor-based technologies. STRICTLY CONFIDENTIAL 14 DRAFT - Jeffery Epstein EFTA00617653  III. INVESTMENT STRATEGY Philosophy The Fund has invested and intends to continue investing in companies at the intersection of technology, medicine, and life sciences. Technology and big data will play a major role in resolving inefficiencies in the health care system. Recent advances in DNA sequencing, sensor and communication technology, and the digitization of health data create an opportunity to dramatically reduce inefficiencies in diagnosis, treatment, and the delivery of health care. These advances will provide opportunities for companies with transformative technologies and business models to create significant financial value. The Fund aims to achieve superior, risk-adjusted returns by targeting and investing in companies with proven technology and low regulatory and reimbursement risks. Typical investments are expected to be approximately $10 million in primary, secondary and tertiary offering rounds of companies based primarily in the United States. The Fund intends that its exits will take the form of initial public offerings or mergers and acquisitions and will be timed to maximize investor returns with expected holding periods of five (5) to seven (7) years. Investment Criteria The Fund will typically look for the following key characteristics in target companies while considering an investment: 1. Strong Chief Executive Officer and Team The primary and most important asset of a company is its people. In particular, strong and capable leadership is essential not only for retaining and motivating key employees but also for turning good ideas and products into profitable enterprises. The Fund places considerable emphasis on the chief executive officer (CEO) and the senior management team with a focused analysis of their ability to manage people, background, integrity, underlying motivations, and overall ambitions and vision. 2. Significant and Proven Technolog