1. F LETCHER S PAGHT, I NC. Focused Growth FLETCHER SPAGHT, INC. 222 BERKELEY ST, 20 th FL BOSTON, MA 02116 P: 617-247-6700 F : 617-247-7757 WWW.FLETCHERSPAGHT.COM October 2016 Idea Validation: Market Size, Demand, Landscape Class of 2016 R. John Fletcher Founder, Managing Partner

2. 1 HMS HC Innov – October F LETCHER S PAGHT, I NC. Fletcher Spaght Technology Commercialization since 1983 All FSI senior staff lead consulting projects, make investments and have fiduciary responsibility as Board Directors for portfolio companies; we understand the implications of client’s business decisions. Fletcher Spaght, Inc.  Founded 1983  Market strategy consulting  Data, analysis and frameworks to aid in making critical business decisions  >3,000 client assignments Fletcher Spaght Ventures  Founded 2001  Deep understanding of how capital needs influence commercialization strategy  Invested in 33 companies  Diligence on >1,000 companies Deep Industry knowledge Board-level strategic perspective Business Analysts & Capitalists See future competition early via deal review Understand data needed for critical decisions

3. 2 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI develops strategies for biotech, life sciences, healthcare and high technology companies and their investors Proprietary Analysis Tools - Database of physicians, PhDs and industry leaders - Adoption analog database - Case studies of performance measures In-depth Market Research - Penetrating market interviews, with clinical and business perspective - Quantitative and qualitative questions - Rigorous, pragmatic analysis Investor Perspective - Focus on achievable financial returns - Goal is value creation - Context of real world successes Strategy Know-how - All senior staff hold Board positions - Pragmatism on what can be achieved - Experience to make plans actionable Strategy Development for Companies and Investors

4. 3 HMS HC Innov – October F LETCHER S PAGHT, I NC. Fletcher Spaght Experience: Decades of working and investing in these sectors HealthcareHigh Technology Healthcare/Provider Services Medical Devices Pharmaceuticals Diagnostics Dental Healthcare IT Life Science tools/services Veterinary Software and SaaS Networking Computing Cloud services Information services IT Security Mobile services Telecommunication Fletcher Spaght’s deep market knowledge and experience reduce our “learning curve” so we can efficiently address client needs Fletcher Spaght’s deep market knowledge and experience reduce our “learning curve” so we can efficiently address client needs

5. 4 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI Consulting’s Unique Capabilities FSI staff is comprised of: Strategy consultants from premier firms Individuals with expertise in high technology and healthcare Staff with commercialization experience from concept through exit More senior staff mix than other firms F LETCHER S PAGHT, I NC. Strategy Expertise Healthcare/Tech Expertise Senior, Experienced Professionals Relationships with Sources, Funders & Acquirers of Innovations

6. 5 HMS HC Innov – October F LETCHER S PAGHT, I NC. Why wasn’t the product adopted? How to leverage corporate strengths to create value? Key questions vary by type of engagement Who are prospective investors and/or partners? What is the value proposition? Which indications and applications are the most promising for our technology? How can value of a therapeutic segment, or the company, be maximized? What are the trends in patient and procedure volume, and in reimbursement? What is the competitive landscape and which targets are most attractive? Which segments are most receptive to the product(s)? How to enter the market? What is the optimal price? What is needed to achieve attractive reimbursement? What are the adoption requirements? How quickly might usage ramp? What are customers’ economics of use? What are the purchasing dynamics? What proof points do clinicians require?

7. 6 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI projects are customized to our client’s needs; most include primary research and analysis Analysis Market structure/trends Market segments size /growth Product receptivity, pricing Competitive landscape Revenue analysis and forecasting Valuation Resource prioritization Secondary research, typical sources: Company websites and financials Equity analyst reports Clinicaltrials.gov and private databases –e.g., EvaluatePharma, IMS Procedure and reimbursement data Payer coverage decisions Medical literature, etc. Proprietary physician and expert contact database Proprietary adoption analog database Interviews with decision makers, most frequently physicians and researchers, and administrators segmented by Type of physician (KOL vs. community) Type of practice and patient volume Geography Customer/ lost or competitor customer/ prospective customer Interviews with industry and area experts (e.g., IP, regulatory), as appropriate Quantitative surveys when confidence of larger sample is warranted

8. 7 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI has extensive experience and a track record in early stage commercialization Over 31 years, completed over 3,000 assignments for over 2,000 clients Our clients’ successes include: –nearly 500 equity financings –more than 250 acquisitions –> 50 IPOs Corporate development assignments Over 300 licensing deals 74 major corporate partnerships > 150 major equity financings Incubated, de novo, > 27 major companies 5 completed IPOs 12 were acquired 18 received significant corporate funding Beth Israel Hospital, Boston Brigham and Women’s Hospital Children’s Hospital Boston Dartmouth Medical School Harvard Medical School John Hopkins Medical School Joslin Diabetes Center Massachusetts General Hospital New England Medical Center Tufts University Medical School Rhode Island Hospital Univ of Michigan Medical School Univ of Pittsburgh Medical Center Battelle Memorial Institute Cancer Research Laboratories Idaho National Energy Laboratory Lincoln Laboratories Pacific Northwest National Laboratory Boston University Brown University Dartmouth College New York University University of Arkansas University of Chicago Yale University Medical Schools Universities Government Funded R&D Labs Corporations AGFA Alcan Avery Dennison Bell Labs Canon Research Center Digital Equipment Corporation DuPont Dynamic Research Corporation EGG EPRI GTE Honeywell Hughes Electronics IBM ITT Motorola Raytheon SmithKline Beecham Wang

9. 8 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI regularly conducts market research and market assessments across the globe Nearly one quarter of our strategic research is non-US/non-EU markets and half our studies include these markets

10. 9 HMS HC Innov – October F LETCHER S PAGHT, I NC. Examples of FSI Healthcare Clients Note that additional large clients restrict use of their names

11. 10 HMS HC Innov – October F LETCHER S PAGHT, I NC. Fletcher Spaght Philosophy: These values are responsible for years of repeat clients INTEGRITY: We hold client data confidential and actively identify, review and manage conflicts RESPONSIVENESS: We listen to client needs and tailor our approach; we deliver our studies on time and on budget COLLABORATION: We work as a team that includes our clients and involves frequent updates OBJECTIVITY: We report the facts based on our analysis, even when it challenges clients’ perspectives QUALITY: We focus on generating high quality, actionable recommendations based on thorough and thoughtful analysis

12. 11 HMS HC Innov – October F LETCHER S PAGHT, I NC. Perspective on Healthcare Innovation Huge opportunity for healthcare innovation $Billions annual funding Large number high IQ’s involved Many unmet/poorly-met needs Research advances/clinical experiences vast, well known Observations after 31 years of commercializing innovations Technical/scientific breakthrough not sufficient Novel ≠ essential Want ≠ will buy Many business challenges must be overcome; most can be fatal Capital is scarce Externalities  headwind/tailwind Commercializing HC innovations a worthy effort Success  better care, more resources Journey is valuable too, more knowledge Commercializing HC innovations a worthy effort Success  better care, more resources Journey is valuable too, more knowledge Large number innovations/year Few commercial success/year

13. 12 HMS HC Innov – October F LETCHER S PAGHT, I NC. Healthcare Businesses Opportunity Assessment Competitive Advantage Innovative Solution Market Fit Market Entry Requirements Profitable Business Model Attractive Market Segment Cost Effective Marketing/ Distribution Promising Business Concept Quality Management Adequate Capital Attractive Valuations Promising Investment IPOM&A

14. 13 HMS HC Innov – October F LETCHER S PAGHT, I NC. Market Potential Key Considerations Time Patients ? X ??? Clinical Value Economic Value Current Segment TAM SAM Relevant Segments Price Level Reimbursement level Economic Value Competitive Pricing Substitute Pricing “Cost” Incidence Symptomatic Diagnosis Treatable Treated Compliant TAM SAM 1°, 2°, ?

15. 14 HMS HC Innov – October F LETCHER S PAGHT, I NC. Market size and growth, market shares What is the current market size and growth rate? Unit volume, dollar volume Market shares of top competitors, if established What are the relevant segmentations? What are the price levels, trends? How are customer needs evolving? Sources: Data from publicly available sources, research reports, etc. Data established internally Estimates based on markets for closely related products Primary market research

16. 15 HMS HC Innov – October F LETCHER S PAGHT, I NC. Market research and analysis Most convincing about the future success of a venture is positive market response Customer perspectives on the product or service –testimonials, focus groups, etc. Orders to date, pipeline of prospective business Beta sites and reference installations What are the purchasing behaviors and purchasing cycles? What are the externalities or contingencies? What are the market trends? What are prerequisites to adoption?

17. 16 HMS HC Innov – October F LETCHER S PAGHT, I NC. Two General Approaches: Top Down and Bottom-Up Top DownBottom Up Typically works well for markets that already exist Typically best for summary, or to sell an idea Begins with the highest level of aggregation of information about the market Known product sales in dollars or units Often simply asserts a “percentage of” aspirational goal Typically better for new markets and new products Typically best for attracting investors or planning product launch Begins with detailed understanding of market in terms of users and their segmentation Reasons for adopting/ not adopting figure prominently Usually involves building a complex model “TAM” “SAM” “SOM” ??

18. 17 HMS HC Innov – October F LETCHER S PAGHT, I NC. Market size and growth, market shares What is the current market size and growth rate? Unit volume, dollar volume Market shares of top competitors, if established What are the relevant segmentations? What are the price levels, trends? How are customer needs evolving? Sources: Data from publicly available sources, research reports, etc. Data established internally Estimates based on markets for closely related products Primary market research

19. 18 HMS HC Innov – October F LETCHER S PAGHT, I NC. Parkinson’s example: Set up A company is interested in servicing the patient community with Parkinson’s Disease New product would be an infusion to substitute for current oral drugs Parkinson’s is a syndrome of progressive neurologic deterioration Loss of dopaminergic cells in subtantia nigra causing loss of corpus striatum function Symptoms include pill-rolling resting tremor, cogwheel rigidity, postural imbalance, masked faces, fenestrated gate

20. 19 HMS HC Innov – October F LETCHER S PAGHT, I NC. -- What not to do -- “According to the Parkinson’s Action Network, drugs commonly used to treat Parkinson’s disease cost between $1,000 and $6,000 per year per patient.” “The number of people in the United States with Parkinson’s disease is estimated to be between 500,000 and one million” http://parkinsoninfo.org/more_info.asp “Drug therapy for Parkinson's disease costs more than $6 billion a year.” Mayo Clinic, College of Medicine. "Parkinson's Disease Information“Parkinson's Disease Information Ergo, the Total Available Market A “top down” assessment At the highest level of aggregation Seems to be between $1 – 6Bn The TAM Question: What is the Total Achievable Sales Amount incorporating all market players together?

21. 20 HMS HC Innov – October F LETCHER S PAGHT, I NC. One step Better: the SAM Question SAM: Served/ Serviceable Available Market (Focus on your own technology/ services) The SAM Question: What share can the market leader achieve in sales? In your particular product class? Orion has 27% market share, Of the $1Bn agonist segment, Of the $4Bn US Parkinson’s drug market. Which equates to a Serviceable Available Market of $270M Very helpful if Orion is your closest competitor * Estimated class shares *

22. 21 HMS HC Innov – October F LETCHER S PAGHT, I NC. The SOM Question: What can I (as company XYZ) achieve in 2011 selling to the market? SOM: Serviceable Obtainable Market (Which realistic market share can be obtained by us, considering competition, countries, our sales/distribution channels and other market influences? ) If the top competitor in an industry, after many years has attained 27% market share, what can you anticipate after 1, 3, 5 years of launch? Cuts to the market here are estimates, but can be confirmed by primary research with Disease affinity groups, and/or Doctors/nurses, and/or Patients Although they seem aggressive, if you do not take these cuts, rest assured, the VC will !

23. 22 HMS HC Innov – October F LETCHER S PAGHT, I NC. Other Factors: Hardware versus consumables is key BioProcessors was a company in Boston that invented a way to run “full-factorial” cell culture experiments in a four-well culture plate (3” x 5”) The system was highly automated with robotic pickers, an incubator, and scores of probes and feed At a price point of $1M per system, how many did they sell? At a price point of $250k for a scaled down version, how many could be sold? What would make investors “OK” with stripping price downward by 3/4ths? * Best recollections; for educational purposes only Note the small difference in “box” sales, but a three-fold increase in consumables revenues

24. 23 HMS HC Innov – October F LETCHER S PAGHT, I NC. …but don’t forget license fees, service, and software upgrades The point during market sizing is to understand, by customer segment, if there are additional pockets of cash you can count on the market paying for your goods and services. In many life sciences businesses, the addition of license fees, service contracts, and software upgrade fees amount to up to 25% of revenues Service alone can account for 8 – 12% Product design should bear service needs and limits in mind Commercial and academic customers have different views of fees Commercial firms see these as the cost of doing business Academic customers do not understand license fees and resent them Difficult to maintain an economic advantage, but could be competitive barrier

25. 24 HMS HC Innov – October F LETCHER S PAGHT, I NC. Other considerations Units vs. Revenue (and ASP) It is OK to estimate the market size in units, but eventually your audience needs to hear dollars Have a basis for your ASP and multiply through Regulatory approvals: when/where While time to market through the FDA is an issue in the US UK has the NICE commission which may essentially ban products as not cost-effective Market penetration must allow for ramp Transformational changes like horse to car, or typewriter to word processor still take 13 years Never assume huge revenues in 4 years. At best, you get to 15% penetration Growth rates Market growth can be fast, in- line, slow, or even negative Know which grow rate applies Have back-up to justify Reimbursement The bane of all drugs, devices and diagnostics in the land of HC reform

26. 25 HMS HC Innov – October F LETCHER S PAGHT, I NC. Detailed example: FSI modeled the pre-clinical oncology market size for DBI using a bottom-up approach Annual sample number Labs with in house only Labs which contract out Samples contracted out Samples done in house Done with AVANTRA Annual chip needs Number of machines placed Machine market Annual chip market Machine volume Annual chip volume Example

27. 26 HMS HC Innov – October F LETCHER S PAGHT, I NC. The average lab analyzes nearly 100 samples per week or 5,000 samples per year 1 Three interviewees reported sample volumes of over 1K per week “We run thousands of samples; we have 40 FTEs and 8 robots who run our ELISAs.” Wong, “Big Biotech” “About 1K per week.” Zhu, “Traditional Pharma” “Our group runs a couple thousand samples per week. On my team there are 5 people running 1,000 samples a week.” Wegrzyn, “Top Pharma” 1 Assuming 50 working weeks per year 2 One individual was excluded whose volume was so high because he was in a somewhat academic setting (Shapira, Broad Institute). 2 Median: 100 n=19 Translational Focus Drug Discovery Focus Example

28. 27 HMS HC Innov – October F LETCHER S PAGHT, I NC. 21% of interviewees’ labs outsource analysis, accounting for nearly 25% of their total sample assay analysis Where are your samples typically analyzed? 10-20% If you utilize an outside laboratory for sample analysis, would you do it yourself with AVANTRA? “Yes, I think we could stop sending them out. It would halve our needs. Maybe 50% we would start doing in house.” Harding, “Small Biotech” “We would probably not stop outsourcing some of our work. We purposely outsource some because there are other factors, like relationships with certain parties, general direction we’re going, and clinical outsourcing relationships. So there’s a certain percent that won’t be changing soon.” Chen, “Global Pharma” “We outsource because some companies are dedicated to some immunoassays. So they have the technology to look at certain pathways. If we did those assays routinely ourselves, it would make sense to have this instrument. To be clear, these people we outsource to really multiplex”. Hart, “Small Pharmaceutical” Percent Samples run at outside labs? ~50% Number of Responses Number of Responses Average: 24% 21% of labs outsource Example

29. 28 HMS HC Innov – October F LETCHER S PAGHT, I NC. Market estimates for comparable laboratory devices support FSI’s bottom-up market estimates Luminex offers a multiplex system that is competitive with DBI’s AVANTRA machine Lehman Brothers analysts estimated that Luminex had 3,000 total installed systems, representing 3% penetration 1 –suggests total market for Luminex of 100K device placements 10.7% of clinical trials are oncology related 2 – percentage of oncology research labs at pre-clinical level is likely similar FSI estimates the oncology market for multiplex devices at 10K units Assuming academic labs represent ~2/3 of the market, the industry market for multiplex devices in commercial oncology is ~3,000 units Parexel reports that there are 1231 pre-clinical anti-neoplastic drugs in the WW pharma pipeline 3 FSI estimates that the ~1/2 of these drugs (~600) are in development in the US FSI analysis of Parexel data suggests that the number of oncology pharma labs to support a drug is 2-3x the number of pre-clinical oncology drugs in the pipeline, suggesting a market of 1,200- 1,800 US oncology pharma labs Xenogen offers a real-time biophotonic imaging system to academic and industry researchers Lehman analysts expect Xenogen to install 17 imaging systems in each large pharma company 4 –Devices cost ~$200 K each and are focused in oncology and infectious disease DBI is likely to place more units than Xenogen; FSI estimated 20-30 placements of the AVANTRA system at the largest pharma companies 1 Lehman Brothers, 2 Parexel, 3 Parexel, 4 CIBC World Markets, 5 FSI analysis Total Number of Device Placements Device Placements Per Company Example

30. 29 HMS HC Innov – October F LETCHER S PAGHT, I NC. FSI estimates pre-clinical oncology market for DBI at $53 - $84 M for the AVANTRA system and $160 - $260 M for chips 950 (20%) 3,950 (79%) $160 – $260M ($100 per chip) 800 (76%) 1,500 – 2,400 $53 – $84M ($35K per machine) Annual sample number 5,000 250 (24%) 1,050 (21%) Labs with in house only 3,950 (100%) Labs which contract out Samples contracted out Samples done in house 135 (54%) Done with AVANTRA 1,085 Annual chip needs Number of machines placed Machine market Annual chip market 1.6 – 2.6M 1.5 – 2.4K Machine volume Annual chip volume Example

31. 30 HMS HC Innov – October F LETCHER S PAGHT, I NC. Summary First rule of market sizing: Do your homework: TAM SAM SOM –there is no excuse for not doing it –if you are getting an audience with a funder, it is likely because they already have an interest and are knowledgeable in the area Second rule: Make explicit your assumptions Have good justification for what values you have chosen Third rule: Wherever possible, triangulate with other data Last rule: Remember, the only thing you can be certain of is that the number you land on is probably wrong Do not get over-invested in it: listen, learn, adapt

32. 31 HMS HC Innov – October F LETCHER S PAGHT, I NC. R. John Fletcher is a Founding Partner of Fletcher Spaght Ventures. He also the founder and Managing Partner of Fletcher Spaght Inc., a management consulting firm that provides strategy and financing assistance to new companies. John has over thirty years providing strategy and financing assistance to new companies. Prior to launching FSI in 1983, John was a Senior Manager at The Boston Consulting Group, managing client relationships in healthcare and high technology companies. Previously, John was a Ph.D. candidate and instructor in International Business at the Wharton School, University of Pennsylvania. Prior to Wharton, John was a Captain and jet pilot in the U.S. Air Force. John holds an MA in Finance from the Wharton School, an MBA from Southern Illinois University, and a BA from George Washington University. John is a current or past board member for many companies, including Axcelis, AutoImmune, GlycoFi, NMT Medical, Quick Study Radiology, Spectranetics and Panacos Pharmaceuticals. John also serves on the Board of Overseers and Cardiology Council of Children's Hospital of Boston, the Board of Advisors of the Boston University Photonics Center, the Whitehead Institute at MIT, the Thayer School of Engineering at Dartmouth College, and the School of Government and Business at George Washington University.

33. 222 BERKELEY STREET BOSTON, MASSACHUSETTS 02116-3761 617-247-6700 617-247-7757 (FACSIMILES) Focused Growth Innovate ! Rejuvenate ! Accelerate ! Fletcher Spaght, Inc.