Life Sciences Venture Equity Market Review: The Evolving Role of Crossover Investors June 2021 Securities offered in the United States are offered through Torreya Capital LLC, Member FINRA/SIPC. In Europe such services are offered through Torreya Partners (Europe) LLP, which is authorized and regulated by the UK Financial Conduct Authority. The Market for Equity Privates in Life Sciences TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 2 Total Private Venture Financing Volume: 2000-2021 H1 Given volumes in the first half of this year, there is little doubt that 2021 will shape up to be the most active year in history for private financing activity in the life sciences sector. Total Volume of Private Biopharma, Diagnostics and Tools 50000 Financing Rounds by Year Jan 2000 - June 2021 600 (deals over $25mm, excluding medical devices, worldwide) 45000 523 500 40000 35000 373 400 356 30000 334 25000 300 20000 224 226 Transaction Transaction Count 184 200 15000 145 138 121 122 111 10000 109 88 97 96 81 72 100 Aggregate Aggregate Dollar Volume of Private Financings ($mm) 55 5000 40 35 23 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 Transaction Count Dollar Volume ($mm) Source: Torreya analysis and records, CapitalIQ and Crunchbase TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 3 Fresh Venture Capital Flowing into Life Science Sector We are on track to see record amount raised in life science venture capital in 2021. Life Sciences Venture Capital Funds – Raised, $Billions $35 $30 $28.9 $25 $20 $15.4 $15 $14.1 $10.3 $10 $9.1 $7.4 $7.5 $7.5 $7.2 $6.6 $6.8 New Capital New Capital Flowing into Venture Funds ($bn) $6.1 $5.5 $5.7 $5 $3.8 $3.6 $3.9 $2.8 $2.7 $2.6 $2.8 $1.8 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 H1 Source: Venture fund press releases, Torreya analysis and records, CapitalIQ TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 4 Fresh Venture Capital Flowing into Life Science Sector Over $10 billion flowed into life science venture capital funds in Q2 2021 – an all-time high Life Science Venture Capital Funds, Amounts Raised by Quarter ($millions) $12,000 $10,086 $10,000 $8,000 $7,796 $6,875 $6,467 $6,200 $6,000 $5,164 $4,000 $3,608 $2,412 $2,017 $2,180 $2,000 $1,582 $1,633 $1,564 $0 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Source: Venture fund press releases, Torreya analysis and records, CapitalIQ TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 5 The Role of Crossover Investors TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 6 The Role of Crossover Investors • We define crossover investors as late-stage investors that typically participate in the public equity markets but “cross over” to the private markets to gain exposure to attractive equity stories prior to an IPO. • In practice, the presence of crossover investors can be a major plus in structuring and executing a successful IPO. Often, they can reposition or even institutionalize the shareholder profile of a company. • “Cross-over” institutions offer implicit support for an IPO and often explicitly in the form of either insider commitments or anchor orders at the time of the IPO. • Hedge funds are the key drivers of the crossover market. Many of these funds have become large and are looking for new ways to deploy capital while earning a return, hence their increasing participation in privates. • Most hedge funds are allowed to put 5 - 10% of their capital into private investments. These investments are typically held in “side pockets” that are infrequently marked to market. There is substantial discretion on how and when such investments get marked to market. • Several hedge funds and mutual funds have created dedicated teams or subfunds just for crossover investments. For example, Perceptive, RA and RTW have created dedicated venture groups. • The crossover market is susceptible to closure in periods of financial uncertainty. Nevertheless, the crossover market reestablished itself in 2018. Since 2020 the market has taken off dramatically and activity thus far in 2021 is unabated. • Hedge fund managers in the life science sector are generally very strong scientifically and can often rival the in- depth knowledge of their counterparts in long-only funds. Some of the top life science hedge funds have substantially more highly qualified staff on hand than perhaps do the largest public funds. By way of example, Wellington Management (US) is the largest investor in biotechnology stocks with over $40 billion deployed. They have a handful of analysts (one with a Ph.D.). In contrast, Deerfield and Perceptive with less than $8 billion each, have far more analysts. RA Capital has an order of magnitude more analysts. TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 7 Investor Types Most Often Seen in Crossover Rounds Crossover Funds Venture Capital Private Equity China Investors Family Offices Selected ▪ Adage Capital ▪ Abingworth ▪ General Atlantic ▪ 6 Dimensions ▪ Emerson Collective Examples ▪ Perceptive ▪ ARCH Venture ▪ GTCR ▪ Decheng Capital (Laurene Powell Jobs) ▪ RA Capital ▪ Forbion ▪ KKR ▪ Legend Capital ▪ Founders Fund (Peter ▪ T. Rowe Price ▪ Orbimed ▪ MVM ▪ Qiming Thiel) ▪ Sofinnova ▪ Invus (Eric Wittouck) Pros ▪ Highly scientifically ▪ Willing to do mid-stage ▪ A commercial launch ▪ Attracted to very good ▪ Attracted to very good knowledgeable ▪ Sophisticated and story can work well for stories stories ▪ Less valuation sensitive medically savvy private equity investors ▪ Tend to be less ▪ Interested in financing ▪ Can dictate terms ▪ Can perform due that are at the borderline governance focused and projects that have ▪ Help get an IPO done diligence that others can of venture (pre- are typically constructive medical impact and ▪ Light hand on leverage near closing commercial) and on boards benefit humanity governance ▪ Many like to lead commercial. ▪ Chinese government ▪ A subset of super high ▪ Supportive and helpful ▪ Collaborative and value ▪ Tend to write larger committed to building net worth investors and add checks than venture out life sciences associated family offices ▪ Less valuation sensitive understanding can invest $50m or more than venture into life sciences companies Cons ▪ Need to be fairly IPO ▪ Valuation sensitive ▪ Can be distracted and ▪ All China investors are ▪ Not always scientifically ready (18 months out or ▪ Can be conflicted very busy government-linked to sophisticated and able to less) ▪ Can have agendas driven ▪ Will often be deep in a some degree. Impacts evaluate opportunities ▪ Distracted. Hard to get by fund life subsector but not as their behavior ▪ Often have idiosyncratic focused on a story ▪ Slow process scientifically strong as ▪ Negotiating with some taste for investment ▪ Not necessarily ▪ Like control and demand crossovers funds not easy opportunities committed to future board representation ▪ Don’t like small check ▪ Communication can be ▪ Relationships with rounds. Less patient. sizes. less direct investor partners ▪ Want to build. important Key Points ▪ Least valuation sensitive ▪ Gives strong syndicate, ▪ Less valuation sensitive ▪ Very interested in life ▪ Super high net worth investor type time to prep for IPO than venture but more science space investors play an ▪ Not governance focused ▪ Term sheets from VCs committed to the long ▪ Can be valuation friendly increasingly important ▪ Distracted and not are the easiest to run than crossovers. ▪ Very “brand sensitive” role in financing life necessarily in for the long generate and can help a ▪ Can be highly committed sciences companies run. financing process to build-out / add-on ▪ Can be valuation ▪ Does not always need a ▪ Can be tough on terms stories insensitive lead investor and governance ▪ Relationship focused TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 8 Review of Top Life Sciences Crossover Rounds YTD 2021 PreMoney Value Deal Size Lead Date Issuer Field Headquarters Series ($mm) ($mm) Investor(s) Investors Oncology May-21 Irving, TX -- $7,000 $830.0 Diagnostics Cell and Gene Tx Boston Mar-21 C -- $525.0 Companies Area, MA Low-cost cancer Boston Jan-21 B $1,070 $500.0 drugs Area, MA Bay Mar-21 AI drug discovery C $2,100 $400.0 Area, CA COVID-19 Boston Apr-21 C $1,400 $336.0 antibody Area, MA Sequencing May-21 Oxford, UK -- $2,500 $270.5 Tools 10 biotechs in Boston Feb-21 A $519 $250.0 one Area, MA Chengdu, Feb-21 Vaccines C $700 $230.0 China Boston Jan-21 MAPS Vaccines C $860 $226.0 Area, MA Apr-21 AI drug discovery Oxford, UK D $861 $225.0 In vivo cancer Jun-21 Seattle, WA B $450 $210.0 immunotherapy Bay Apr-21 Research Tools E $4,000 $200.0 Area, CA May-21 Research Tools Singapore A $600 $200.0 Difficult targets May-21 Delaware C $250 $200.0 in cancer Multicompany New May-21 -- $7,100 $200.0 Platform York, NY Jan-21 Cardiometabolic Netherlands A -- $196.0 TORREYA | PRIVATE LIFE SCIENCES VENTURE FINANCING MARKET REVIEW – JUNE 2021 Source: Torreya analysis and records, CapitalIQ, Pitchbook and Crunchbase 9 Crossover Venture Financing Volume in Life Sciences There were 123 crossover financings in biopharma, tools and diagnostics in the first half of 2021. If current trends persist to year-end, we are on track for $32 billion in crossover privates this year. Volume