NEW LEAF VENTURES III, L.P.
– $375 MILLION LIMITED PARTNER INTERESTS –
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
APRIL, 2014
Control No. 257
NEW LEAF VENTURES III, L.P.
– $375 MILLION LIMITED PARTNER INTERESTS –
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
APRIL, 2014
NEW LEAF VENTURE PARTNERS
Times Square Tower
7 Times Square, Suite 3502
New York, NY 10036
646.871-6400
1200 Park Place
Suite 300
San Mateo, CA 94403
650.234.2700
Statement of Conditions
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THIS “MEMORANDUM”) IS
BEING FURNISHED TO CERTAIN SOPHISTICATED INVESTORS ON A CONFIDENTIAL BASIS BY
OR ON BEHALF OF NEW LEAF VENTURES III, L.P., A DELAWARE LIMITED PARTNERSHIP (“NLV-
III” OR THE “FUND”), SO THAT EACH MAY CONSIDER AN INVESTMENT IN THE FUND.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE LIMITED PARTNER
INTERESTS (THE “INTERESTS”) OFFERED HEREBY HAVE NOT BEEN APPROVED, DISAPPROVED,
ENDORSED OR RECOMMENDED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE
“SEC”) OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY U.S. STATE OR NON-U.S.
JURISDICTION, AND NEITHER THE SEC NOR ANY SUCH AUTHORITY HAS REVIEWED THIS
MEMORANDUM NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
MEMORANDUM, NOR IS IT INTENDED THAT THE SEC OR ANY SUCH AUTHORITY WILL DO SO.
NO INDEPENDENT PERSON HAS CONFIRMED THE ACCURACY OR TRUTHFULNESS OF THIS
DISCLOSURE OR WHETHER IT IS COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
ILLEGAL.
THE INTERESTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY U.S. STATE SECURITIES LAWS OR
THE LAWS OF ANY NON-U.S. JURISDICTION. IT IS ANTICIPATED THAT THE OFFERING AND
SALE OF THE INTERESTS IN THE U.S. WILL BE EXEMPT FROM REGISTRATION PURSUANT TO
SECTION 4(2) AND REGULATION D AND REGULATION S PROMULGATED UNDER THE
SECURITIES ACT AND OTHER EXEMPTIONS OF SIMILAR IMPORT UNDER THE LAWS OF THE
STATES AND OTHER JURISDICTIONS WHERE THE OFFERING WILL BE MADE. THE FUND WILL
NOT BE REGISTERED AS AN INVESTMENT COMPANY UNDER THE U.S. INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY ACT”).
THE INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE
OFFERED OR SOLD IN THE U.S. OR TO U.S. PERSONS (AS DEFINED IN RULE 902(K) OF THE
SECURITIES ACT) UNLESS THE INTERESTS ARE REGISTERED UNDER THE SECURITIES ACT, OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE. HEDGING TRANSACTIONS INVOLVING THE INTERESTS MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
THE FUND AND ITS GENERAL PARTNER ARE NEWLY FORMED ENTITIES. THERE IS NO PUBLIC
MARKET FOR THE INTERESTS, AND NO SUCH MARKET IS EXPECTED TO DEVELOP. EACH
PURCHASER WILL BE REQUIRED TO REPRESENT, AMONG OTHER THINGS, THAT IT IS AN
“ACCREDITED INVESTOR” WITHIN THE MEANING OF REGULATION D OF THE SECURITIES ACT
AND THAT IT IS ACQUIRING THE INTERESTS PURCHASED BY IT FOR INVESTMENT AND NOT
WITH A VIEW FOR RESALE OR DISTRIBUTION. THE INTERESTS ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE FUND’S AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT (AS AMENDED FROM TIME TO TIME, THE “PARTNERSHIP AGREEMENT”) AND
UNLESS THE INTERESTS ARE REGISTERED UNDER THE SECURITIES ACT OR EXEMPTED FROM
SUCH REGISTRATION AND REGISTRATION UNDER ANY OTHER APPLICABLE SECURITIES LAW
REQUIREMENTS.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR GIVE ANY
INFORMATION WITH RESPECT TO THE INTERESTS EXCEPT THE INFORMATION CONTAINED IN
THIS MEMORANDUM, AND ANY REPRESENTATION OR INFORMATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, ITS
GENERAL PARTNER, OR ANY OF THEIR RESPECTIVE PARTNERS, EMPLOYEES, OFFICERS,
i
CONTROL NUMBER 257 - CONFIDENTIAL
DIRECTORS OR AFFILIATES. THE DISTRIBUTION OF THIS MEMORANDUM AND THE OFFER
AND SALE OF THE INTERESTS IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. FOR
INFORMATION REQUIRED BY THE SECURITIES LAWS OF CERTAIN U.S. STATES AND CERTAIN
JURISDICTIONS OUTSIDE OF THE U.S., PLEASE SEE THE OFFERING NOTICES BEGINNING IN
SECTION XIV. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE INTERESTS IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
THIS MEMORANDUM IS NOT, AND UNDER NO CIRCUMSTANCES IS IT TO BE CONSTRUED AS, A
PROSPECTUS OR ADVERTISEMENT, AND THE OFFERING CONTEMPLATED IN THIS
MEMORANDUM IS NOT, AND UNDER NO CIRCUMSTANCES IS IT TO BE CONSTRUED AS, A
PUBLIC OFFERING OF THE INTERESTS.
THIS MEMORANDUM IS FOR THE CONFIDENTIAL USE OF ONLY THOSE PERSONS TO WHOM IT
IS TRANSMITTED IN CONNECTION WITH THIS OFFERING. EACH RECIPIENT ACKNOWLEDGES
AND AGREES THAT THE CONTENTS OF THIS MEMORANDUM AND RELATED
DOCUMENTATION CONSTITUTE PROPRIETARY AND CONFIDENTIAL INFORMATION, THAT
NEW LEAF VENTURE PARTNERS, L.L.C. (“NEW LEAF” OR THE “MANAGEMENT COMPANY”)
AND THE FUND DERIVE INDEPENDENT ECONOMIC VALUE FROM THEIR CONTENTS NOT
BEING GENERALLY KNOWN, AND THAT THE MANAGEMENT COMPANY TAKES REASONABLE
EFFORTS TO MAINTAIN THEIR SECRECY. IN ADDITION, EACH PERSON WHO RECEIVES THIS
MEMORANDUM AGREES THAT ITS CONTENTS ARE A TRADE SECRET, THE DISCLOSURE OF
WHICH IS LIKELY TO CAUSE SUBSTANTIAL AND IRREPARABLE COMPETITIVE HARM TO THE
MANAGEMENT COMPANY AND THE FUND. BY ACCEPTANCE HEREOF, EACH RECIPIENT
AGREES NOT TO TRANSMIT, REPRODUCE OR MAKE AVAILABLE TO ANYONE, IN WHOLE OR IN
PART, THIS MEMORANDUM, ANY SUPPLEMENT HERETO OR ANY INFORMATION CONTAINED
HEREIN OR THEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF NEW LEAF VENTURE
ASSOCIATES III, L.P. (THE “GENERAL PARTNER”), OR TO USE IT FOR ANY PURPOSE OTHER
THAN EVALUATING A POSSIBLE INVESTMENT IN THE FUND. EACH PERSON WHO HAS
RECEIVED A COPY OF THIS MEMORANDUM (WHETHER OR NOT SUCH PERSON PURCHASES
ANY INTERESTS) IS DEEMED TO HAVE AGREED (I) TO RETURN THIS MEMORANDUM AND ANY
SUPPLEMENT HERETO TO THE MANAGEMENT COMPANY UPON REQUEST IF SUCH PERSON
HAS NOT PURCHASED AN INTEREST, (II) NOT TO DISCLOSE ANY INFORMATION CONTAINED
IN THIS MEMORANDUM OR ANY SUPPLEMENT HERETO EXCEPT TO THE EXTENT THAT SUCH
INFORMATION WAS (A) PREVIOUSLY KNOWN BY SUCH PERSON THROUGH A SOURCE (OTHER
THAN THE FUND, ITS PARTNERS OR ANY AFFILIATES OR AGENTS THERETO) NOT BOUND BY
ANY OBLIGATION TO KEEP CONFIDENTIAL SUCH INFORMATION, (B) IN THE PUBLIC DOMAIN
THROUGH NO FAULT OF SUCH PERSON OR (C) LATER LAWFULLY OBTAINED BY SUCH
PERSON FROM SOURCES (OTHER THAN THE FUND, ITS PARTNERS OR ANY AFFILIATES OR
AGENTS THERETO) NOT BOUND BY ANY OBLIGATION TO KEEP SUCH INFORMATION
CONFIDENTIAL AND (III) TO BE RESPONSIBLE FOR ANY DISCLOSURE OF THIS MEMORANDUM,
ANY SUPPLEMENT HERETO, OR THE INFORMATION CONTAINED HEREIN OR THEREIN, BY
SUCH PERSON OR ANY OF ITS EMPLOYEES, AGENTS OR REPRESENTATIVES.
PROSPECTIVE INVESTORS ARE URGED TO REQUEST ANY ADDITIONAL INFORMATION THEY
MAY CONSIDER NECESSARY OR DESIRABLE IN MAKING AN INFORMED INVESTMENT
DECISION. EACH PROSPECTIVE PURCHASER IS INVITED, PRIOR TO THE CONSUMMATION OF
A SALE OF ANY INTERESTS TO SUCH PURCHASER, TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE MANAGEMENT COMPANY CONCERNING THE FUND AND THIS
OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION TO THE EXTENT THE
MANAGEMENT COMPANY POSSESSES THE SAME OR CAN ACQUIRE IT WITHOUT
UNREASONABLE EFFORT OR EXPENSE, IN ORDER TO VERIFY THE ACCURACY OF THE
INFORMATION CONTAINED IN THIS MEMORANDUM OR OTHERWISE.
ii
CONTROL NUMBER 257 - CONFIDENTIAL
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO RELY ON THE PRIOR RETURNS SET FORTH
HEREIN IN MAKING A DECISION WHETHER OR NOT TO PURCHASE THE INTERESTS OFFERED
HEREBY. AN INVESTMENT IN THE FUND DOES NOT REPRESENT AN INTEREST IN ANY
INDICATED INVESTMENT OR ANY INVESTMENT PORTFOLIO OF ANY RELATED OR OTHER
INVESTMENT FUND, INCLUDING ANY INVESTMENT FUND MANAGED BY THE MANAGEMENT
COMPANY OR ITS AFFILIATES. WHILE THIS MEMORANDUM INCLUDES REFERENCES TO A
NUMBER OF RELATED AND AFFILIATED ENTITIES, INCLUDING CERTAIN AFFILIATED
INVESTMENT POOLS AND VEHICLES, AN INVESTMENT IN THE FUND AS CONTEMPLATED
HEREIN IS SEPARATE AND DISCRETE FROM ALL SUCH OTHER AFFILIATED INVESTMENT
VEHICLES. FURTHER, ALTHOUGH THE PERFORMANCE OF SUCH OTHER AFFILIATED
INVESTMENT VEHICLES MAY BE RELEVANT TO A GENERAL UNDERSTANDING OF THE
GENERAL INVESTMENT EXPERIENCE AND PHILOSOPHY OF THE MANAGEMENT COMPANY
AND ITS AFFILIATES, SUCH PERFORMANCE IS NOT AN INDICATOR OF THE RESULTS TO BE
ACHIEVED BY THE FUND.
THE RETURN INFORMATION CONTAINED HEREIN HAS NOT BEEN AUDITED OR VERIFIED BY
ANY INDEPENDENT PARTY AND SHOULD NOT BE CONSIDERED REPRESENTATIVE OF THE
RETURNS THAT MAY BE RECEIVED BY AN INVESTOR IN THE FUND. CERTAIN FACTORS EXIST
THAT MAY AFFECT COMPARABILITY INCLUDING, AMONG OTHERS, THE DEDUCTION OF FEES
AND EXPENSES AND THE PAYMENT OF CARRIED INTEREST (WHICH MAY BE DIFFERENT FOR
THE FUND) AS WELL AS OTHER FACTORS AS NOTED WITH SUCH INFORMATION. FURTHER,
CERTAIN INFORMATION RESPECTING UNREALIZED RETURNS IS BASED ON PUBLIC MARKET
VALUATIONS THAT, AMONG OTHER THINGS, HAVE BECOME INCREASINGLY VOLATILE AND
AS A RESULT MAY NOT BE INDICATIVE OF THE CURRENT VALUE OR THE ACTUAL VALUE TO
BE REALIZED FROM ANY PARTICULAR PORTFOLIO INVESTMENT.
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THE MEMORANDUM
AS LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE. EACH
PROSPECTIVE INVESTOR SHOULD MAKE ITS OWN INVESTIGATION AND CONSULT ITS OWN
ADVISORS AS TO THE LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING AND RELATED
MATTERS CONCERNING THE FUND, THE OFFERING AND AN INVESTMENT IN THE INTERESTS.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR
INVESTORS WHO ARE SOPHISTICATED WITH FINANCIAL MATTERS AND FAMILIAR WITH THE
RISKS ASSOCIATED WITH INVESTMENTS SIMILAR TO THE ONES DESCRIBED HEREIN. NONE OF
THE FUND, THE GENERAL PARTNER, THE MANAGEMENT COMPANY OR ANY OF THEIR
AFFILIATES IS MAKING ANY REPRESENTATION OR WARRANTY TO AN INVESTOR REGARDING
THE LEGALITY OF AN INVESTMENT IN THE FUND BY SUCH INVESTOR OR ABOUT THE
INCOME AND OTHER TAX CONSEQUENCES TO IT OF SUCH AN INVESTMENT.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED HEREIN RESPECTING
RATES OF RETURN OR OTHER PERFORMANCE DATA, WHETHER REALIZED OR UNREALIZED,
IS QUALIFIED BY THE RELEVANT APPENDICES, FOOTNOTES, AND ENDNOTES HEREIN AND IS
ON A GROSS RETURN BASIS BEFORE GIVING EFFECT TO MANAGEMENT FEES, CARRIED
INTEREST, OTHER EXPENSES AND TAXES, WHICH, IF GIVEN EFFECT TO, WOULD REDUCE SUCH
RETURNS AND, IN THE AGGREGATE, ARE EXPECTED TO BE SUBSTANTIAL. WHERE NET
RETURNS ARE PROVIDED, SUCH RETURNS GIVE EFFECT TO MANAGEMENT FEES, CARRIED
INTEREST AND OTHER EXPENSES. FURTHER, INFORMATION RESPECTING INVESTMENT
PERFORMANCE IS BASED ON CERTAIN INVESTMENT POSITIONS SELECTED AS
REPRESENTATIVE AND ANALOGOUS TO THE TARGETED INVESTMENT CATEGORIES FOR THE
FUND. SUCH INVESTMENT PERFORMANCE INFORMATION IS NOT REPRESENTATIVE OF
INVESTMENT PERFORMANCE BY NEW LEAF AND ITS AFFILIATED INVESTMENT MANAGERS IN
OTHER INVESTMENT ACTIVITIES, WHICH HAVE NOT BEEN INCLUDED HEREIN.
iii
CONTROL NUMBER 257 - CONFIDENTIAL
INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED IN THIS
MEMORANDUM IN SECTION IX, “CERTAIN INVESTMENT CONSIDERATIONS,” AND SECTION X,
“CERTAIN TAX AND ERISA CONSIDERATIONS.” INVESTMENT IN THE INTERESTS IS SUITABLE
ONLY FOR SOPHISTICATED INVESTORS AND REQUIRES THE FINANCIAL ABILITY AND
WILLINGNESS TO ACCEPT THE RISKS AND LACK OF LIQUIDITY INHERENT IN AN INVESTMENT
IN THE INTERESTS. IN PARTICULAR, ONE OR MORE SUBSIDIARIES OF THE FUND OR OTHER
ENTITIES IN WHICH THE FUND INVESTS DIRECTLY OR INDIRECTLY MAY QUALIFY AS
“PASSIVE FOREIGN INVESTMENT COMPANIES” OR “CONTROLLED FOREIGN CORPORATIONS”
FOR U.S. FEDERAL INCOME TAX PURPOSES, WHICH COULD RESULT IN ADVERSE TAX
CONSEQUENCES TO INVESTORS THAT ARE U.S. PERSONS.
THIS MEMORANDUM CONTAINS A SUMMARY OF THE PARTNERSHIP AGREEMENT AND
CERTAIN OTHER DOCUMENTS REFERRED TO HEREIN. HOWEVER, THE SUMMARIES IN THIS
MEMORANDUM DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO AND QUALIFIED
IN THEIR ENTIRETY BY REFERENCE TO THE ACTUAL TEXT OF THE RELEVANT DOCUMENT,
COPIES OF WHICH WILL BE PROVIDED TO EACH PROSPECTIVE INVESTOR UPON REQUEST.
EACH PROSPECTIVE INVESTOR SHOULD REVIEW THE PARTNERSHIP AGREEMENT, THE
SUBSCRIPTION AGREEMENT AND SUCH OTHER DOCUMENTS FOR COMPLETE INFORMATION
CONCERNING THE RIGHTS, PRIVILEGES AND OBLIGATIONS OF INVESTORS IN THE FUND. IN
THE EVENT THAT THE DESCRIPTIONS OR TERMS OF THE MEMORANDUM ARE INCONSISTENT
WITH OR CONTRARY TO THE DESCRIPTIONS OR TERMS OF THE PARTNERSHIP AGREEMENT,
THE SUBSCRIPTION AGREEMENT OR OTHER DOCUMENTS, THE PARTNERSHIP AGREEMENT,
THE SUBSCRIPTION AGREEMENT OR SUCH OTHER DOCUMENTS SHALL CONTROL. THE
GENERAL PARTNER AND ITS AFFILIATES RESERVE THE RIGHT TO MODIFY THE TERMS OF THE
OFFERING AND THE INTERESTS DESCRIBED IN THIS MEMORANDUM, AND THE INTERESTS
ARE OFFERED SUBJECT TO THE GENERAL PARTNER’S ABILITY TO REJECT ANY COMMITMENT
IN WHOLE OR IN PART.
CERTAIN INFORMATION IN THIS MEMORANDUM HAS BEEN OBTAINED FROM SOURCES
BELIEVED TO BE RELIABLE ALTHOUGH NONE OF THE FUND, GENERAL PARTNER, THE
MANAGEMENT COMPANY OR THEIR RESPECTIVE AFFILIATES GUARANTEE ITS ACCURACY,
COMPLETENESS OR FAIRNESS. OPINIONS AND ESTIMATES MAY BE CHANGED WITHOUT
NOTICE.
THE FUND IS OFFERING INTERESTS TO U.S. PERSONS THAT ARE “QUALIFIED PURCHASERS” AS
DEFINED IN THE INVESTMENT COMPANY ACT AND “ACCREDITED INVESTORS” AS DEFINED
IN THE SECURITIES ACT.
AN INVESTMENT IN THE FUND MAY BE SUBJECT TO INCREASING REGULATIONS AND
GOVERNMENTAL OVERSIGHT, INCLUDING, FOR EXAMPLE, THE BANK SECRECY ACT AND THE
USA PATRIOT ACT OF 2001, INCLUDING THEIR RESPECTIVE IMPLEMENTING REGULATIONS
WHICH, AMONG OTHER THINGS, CONSTITUTE THE ANTI-MONEY LAUNDERING
REGULATIONS. THERE CAN BE NO ASSURANCE THAT SUCH RULES WILL NOT REQUIRE
VARIOUS INVESTOR DISCLOSURES TO, AMONG OTHERS, DOMESTIC AND FOREIGN
GOVERNMENT AUTHORITIES.
YOUR INVESTMENT WILL BE DENOMINATED IN UNITED STATES DOLLARS ($) AND,
THEREFORE, WILL BE SUBJECT TO ANY FLUCTUATION IN THE RATE OF EXCHANGE BETWEEN
U.S. DOLLARS ($) AND THE CURRENCY OF YOUR OWN JURISDICTION. SUCH FLUCTUATIONS
MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF YOUR INVESTMENT.
ALL SECURITIES INVESTMENTS RISK THE LOSS OF CAPITAL. NO GUARANTEE OR
REPRESENTATION IS MADE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. AN
INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES CERTAIN CONSIDERATIONS AND
iv
CONTROL NUMBER 257 - CONFIDENTIAL
CERTAIN INVESTMENT CONSIDERATIONS. PAST PERFORMANCE IS NOT INDICATIVE OF
FUTURE RESULTS.
THE FUND INTENDS TO CONDUCT ITS INVESTMENT ACTIVITIES THROUGH A NUMBER OF
SUBSIDIARIES AND AFFILIATES THAT MAY BE ESTABLISHED FROM TIME TO TIME IN ONE OR
MORE JURISDICTIONS, EACH OF WHICH MAY HAVE VARYING TAX EFFECTS ON THE FUND
AND PARTNERS. AS SUCH THERE CAN BE NO ASSURANCE AS TO THE CONSEQUENCES OF
SUCH ACTIVITIES. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE RISK
OF AN INVESTMENT IN THE FUND. SEE ALSO SECTION X, “CERTAIN TAX AND ERISA
CONSIDERATIONS.”
PROSPECTIVE INVESTORS SHOULD REVIEW THE OFFERING NOTICES BEGINNING IN SECTION
XIV FOR INFORMATION RELATING TO THE OFFERING AND SALES OF THE INTERESTS TO
INVESTORS IN VARIOUS STATES OF THE U.S. AS WELL AS CERTAIN NON-U.S. JURISDICTIONS.
IN ACCORDANCE WITH U.S. TREASURY REGULATIONS GOVERNING PRACTICE BEFORE THE
INTERNAL REVENUE SERVICE (CIRCULAR 230), THE FUND HEREBY INFORMS THE INVESTORS
THAT (A) THE INFORMATION BELOW (OR OTHERWISE CONTAINED IN THIS DOCUMENT) IS
NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY THE INVESTORS FOR
THE PURPOSE OF AVOIDING PENALTIES THAT THE U.S. INTERNAL REVENUE SERVICE MAY
ATTEMPT TO IMPOSE ON AN INVESTOR, (B) THE INFORMATION WAS WRITTEN TO SUPPORT
THE PROMOTION OR MARKETING OF THE TRANSACTION OR MATTERS ADDRESSED BY THE
WRITTEN INFORMATION AND (C) INVESTORS SHOULD SEEK TAX ADVICE BASED ON THEIR
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
Forward-Looking Statements
CERTAIN INFORMATION CONTAINED IN THIS MEMORANDUM CONSTITUTES “FORWARD-
LOOKING STATEMENTS,” WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “ANTICIPATE,” “PROJECT,”
“ESTIMATE,” “INTEND,” “CONTINUE,” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO VARIOUS RISKS AND
UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN SECTION IX
“CERTAIN INVESTMENT CONSIDERATIONS”, ACTUAL EVENTS OR RESULTS OR THE ACTUAL
PERFORMANCE OF THE FUND MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. WHILE ASSUMPTIONS
UNDERLYING VARIOUS STATEMENTS AS TO FUTURE PERFORMANCE ARE BELIEVED TO BE
REASONABLE IN NATURE, EXISTING AND PROSPECTIVE INVESTORS SHOULD MAKE THEIR
OWN ASSESSMENTS AS TO SUCH ASSUMPTIONS AND THE ASSOCIATED RISKS, INCLUDING
THE LIKELIHOOD OF THE FUND ACHIEVING CORRESPONDING RESULTS, ALL OF WHICH ARE
SUBJECT TO RISKS AND UNCERTAINTIES MANY OF WHICH ARE BEYOND THE CONTROL OF
THE FUND (SEE SECTION IX “CERTAIN INVESTMENT CONSIDERATIONS”). AS SUCH, NO
ASSURANCE IS GIVEN AS TO THE REALIZATION OF ANY SUCH FUTURE PERFORMANCE. NO
REPRESENTATION OR WARRANTY IS MADE AS TO FUTURE PERFORMANCE OR SUCH
FORWARD-LOOKING STATEMENTS. UNLESS OTHERWISE INDICATED, INFORMATION
CONTAINED HEREIN IS AS OF MARCH 31, 2014. THE DELIVERY OF THIS MEMORANDUM DOES
NOT IMPLY THAT ANY OTHER INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO MARCH 31, 2014.
None of New Leaf Ventures I, L.P., New Leaf Ventures II, L.P., NLV-III, the Management Company or any of their
affiliates have any affiliation with Credit Suisse nor any its affiliates (collectively, “Credit Suisse”). Credit Suisse
has not compiled, reviewed or participated in the preparation of any of the performance or other information
contained in this Memorandum and assumes no responsibility therefor. Consequently, in no respects should
Credit Suisse be considered to have approved or disapproved of any of the information set forth in this
Memorandum. “Sprout”, “Sprout Group” and the symbols associated therewith are registered trademarks of Credit
v
CONTROL NUMBER 257 - CONFIDENTIAL
Suisse. These trademarks remain the exclusive property of Credit Suisse. The Interests being offered by NLV-III are
not sponsored, endorsed, promoted, offered or sold by Credit Suisse, and Credit Suisse makes no representation
regarding the advisability of investing in NLV-III.
vi
CONTROL NUMBER 257 - CONFIDENTIAL
TABLE OF CONTENTS
I. Executive Summary ......................................................................................................................... 1
II. The Team ....................................................................................................................................... 11
III. Summary of Historical Investment Performance ................................................................. 18
IV. Opportunity In The Healthcare Sector ................................................................................... 24
V. New Leaf Venture Partners Investment Strategy .................................................................. 31
VI. Deal Sourcing & Investment Process ..................................................................................... 43
VII. Ongoing Relationship With Sprout Funds .......................................................................... 45
VIII. Summary of Partnership Terms ........................................................................................... 46
IX. Certain Investment Considerations ........................................................................................ 58
X. Certain Tax and ERISA Considerations ................................................................................... 73
XI. Certain Legal & Regulatory Considerations .......................................................................... 85
XII. Additional Information ............................................................................................................ 88
XIII. Appendices ............................................................................................................................... 89
XIV. Certain Offering Notices ...................................................................................................... 100
vii
CONTROL NUMBER 257 - CONFIDENTIAL
I. EXECUTIVE SUMMARY
FUND OVERVIEW
New Leaf Ventures III, L.P. (“NLV-III” or the “Fund”) is being formed by New Leaf Venture
Partners, L.L.C. (“New Leaf” or the “Management Company”), an established and proven
leader in health care technology investing. NLV-III will be the seventh private equity fund
focused on venture and growth stage investments in healthcare and life sciences companies
raised by the partners of New Leaf. NLV-III is the successor fund to New Leaf Ventures I, L.P.
(“NLV-I”) and New Leaf Ventures II, L.P. (“NLV-II”), which raised capital commitments of
$310 million and $450 million respectively. The New Leaf funds follow four Sprout Capital
funds that included over $1.0 billion of investments in healthcare technology companies. 1 In
total, the New Leaf team has invested over $1.6 billion and have generated one of the industry’s
leading track records by consistently outperforming their peers in the healthcare venture capital
market (based on Cambridge Associates benchmarks 2 ) and exceeding relevant public market
indices by substantial margins. 3,4
The Fund will seek to invest in a diversified portfolio composed of an estimated 24 to 28
healthcare technology companies, most of which will be U.S. based and at the product
development or commercialization phase. Fund investments will typically take the form of
venture capital or growth capital transactions in private companies, or as structured
transactions in small capitalization public companies. The Fund will establish meaningful
ownership positions and in most cases will actively manage the investments with
representation on the boards of directors. The Fund will seek to generate returns that
significantly outperform relevant public market equity indices by creating a portfolio that
optimally balances the risks, timelines, and capital intensity associated with developing and
commercializing innovative healthcare technologies with the financial market realities that are
the backdrop for a venture capital fund focused on this sector.
The Fund is targeting aggregate capital commitments from limited partners of
$375 million.
THE NEW LEAF TEAM
New Leaf is one of the most respected, successful, and established brands in healthcare
technology investing, a reputation built over the last 18 years by a highly experienced and
stable team of partners. NLV-III will be managed by this team of 6 senior partners, 5 of whom
have worked together continuously for a decade or more. These partners bring a strong
combination of significant and relevant industry operating experience and successful venture
capital investment experience to NLV-III.
The Managing Directors of NLV-III are Philippe Chambon MD PhD, Jeani Delagardelle, Ron
Hunt, Vijay Lathi, and Liam Ratcliffe MD PhD. Philippe, Jeani, Ron, and Vijay have worked
together for 15 years over six prior funds at New Leaf and the Sprout Group. Liam joined the
1 Sprout Group is a venture capital affiliate of Credit Suisse
2 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices” including endnote C
in Appendix 4 regarding information provided by Cambridge Associates.
3 S&P500, S&P Healthcare, NASDAQ Composite, and Russell 3000. See endnote F in Appendix 4.
4 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices; Appendix 3”
(regarding the PME+ methodology) including endnotes B, D, E and F in Appendix 4.
1
CONTROL NUMBER 257 - CONFIDENTIAL
New Leaf team five years ago and has made significant contributions to the NLV-II portfolio.
Jim Niedel MD PhD has worked with the team continuously for over twelve years and will
continue to be a senior member of the NLV investment team for NLV-III, but will change his
status to Venture Partner with the closing of NLV-III. In this role, Jim will work full-time with
NLV during the NLV-III investment period in building and managing the NLV-III portfolio,
and he will continue with full oversight and portfolio management responsibilities for NLV-I
and NLV-II. With 80+ years of venture investing experience and decades of operating
experience in the industries in which they invest, this 6 member senior team (the “Fund
Managers”) brings highly relevant and complementary experience to bear on this Fund. This
team of partners is further strengthened by a group of additional investment professionals who
add highly relevant scientific and life sciences investment experience and have made significant
contributions to the NLV-II portfolio.
The New Leaf team is distinctive in that its members have played a leadership role in the
healthcare venture capital industry over the last two decades. During this time, the Fund
Managers have demonstrated the ability to source high quality investments at all stages,
including start-ups, follow-on private investments, company restructurings, and structured
public investments. The Fund Managers source deals through a range of activities that rely on
their deep relationships in academia, industry, and the investment community (private and
public), resulting in differentiated and, in many cases, proprietary deal flow. Once initial
investments are made, the Fund Managers are focused on building value in technology based
healthcare companies by creating strong management teams and then collaborating with them
to develop, manage, and execute capital efficient business plans. Through these efforts, the
Fund Managers have earned a reputation as value-added investors and have created some of
the best performing portfolios of healthcare technology investments in the industry.
LONG TERM TRACK RECORD
Over an 18 year period and across the portfolios of 6 distinct venture funds focused on
healthcare technology investments, the Fund Managers have delivered net performance that
has consistently outperformed venture industry benchmarks and relevant public equity market
indices 5,6 . The Fund Managers’ track record is notable for the following reasons:
�
Performance has been consistently top-quartile since the mid-1990s:
NLV-I, NLV-II and the healthcare technology portfolios in the Sprout Capital funds
have invested over $1.6 billion in healthcare technology companies since 1995. Over
nearly two decades, returns have consistently exceeded Cambridge Associates’ top-
5 Except as otherwise expressly noted, all performance information contained herein, including rates of return, is as of March 31,
2014 and is unaudited. The performance information is based on the cumulative invested capital, cumulative cash dividends and
realized and unrealized sales proceeds in portfolio companies. Where designated as “gross”, the performance information is
presented on a gross basis with regard to expenses and does not reflect deductions for any management fees, the general partner’s
carried interest or other expenses. Where designated as “net”, the performance information is presented on a net basis after giving
effect to management fees, the general partner’s carried interest and other expenses. Please refer to Section III: “Summary of
Historical Investment Performance” and Section XIII: “Appendices” and the endnotes in Appendix 4 for a more detailed description
of the performance of the NLV-I, NLV-II and the Sprout Funds. An investment in the Fund does not represent an interest in any
indicated investment or any investment portfolio of any related or other investment fund, including any investment or fund
managed by the Fund Managers. Disclosure of past performance herein is for informational purposes only and is not indicative of
future results.
6 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices; Appendix 3”
including endnote C (regarding information provided by Cambridge Associates).
2
CONTROL NUMBER 257 - CONFIDENTIAL
quartile benchmarks for U.S. venture capital healthcare and/or U.S. total venture
capital. 7
�
Exceeded relevant public equity indices by substantial margins on all realized funds:
Members of the New Leaf team invested $1.02 billion in the portfolios of healthcare
technology investments in four Sprout Capital funds (Sprout Capital IX, L.P., Sprout
Capital VIII, L.P., Sprout Capital VII, L.P. and Sprout Growth II, L.P.), and these are now
fully realized (or near fully realized in the case of Sprout Capital IX, L.P.). The net
annual IRR’s on the healthcare technology portfolios in these funds outperformed the
S&P 500 (568 – 2,258 bps), S&P Healthcare (302 – 2,064 bps), NASDAQ Composite (451 –
2,125 bps), and the Russell 3000 (502 – 2,215 bps) using the Public Market Equivalent
Plus (PME+) methodology 8 . Although PME+ methodology is most informative when
used to analyze funds whose returns are mature, the PME+ methodology shows that
NLV-I is outperforming these same indices, and shows encouraging results for NLV-II
despite its relative immaturity.
It is this consistently high level of return over an 18 year period, spanning several challenging
investment cycles, that creates a truly unique track record within the venture capital sector.
The chart below illustrates details of the gross and net performance by fund.
Chart 1: Returns by Fund
As of March 31, 2014
($ in millions)
Fund:
Fund Size:
Growth II
HCT
*
$15M Fund
Sprout VII
HCT
*
$95M Fund
Sprout VIII
HCT
*
$147M Fund
Sprout IX
HCT
*
$690M Fund
NLV-I
$310M Fund
NLV-II
$450M Fund
Paid-In Capital $15M $95M $147M $690M $303M $407M
Vintage Year: (1993 - 2007) (1995 - 2011) (1998 - 2012) (2000) (2005) (2008)
First Investment 1995 1995 1998 2000 2005 2008
Gross Fund Returns
N
Total Multiple
N
Realized Multiple
4.4x
4.4x
2.6x
2.6x
1.7x
1.7x
2.0x
2.2x
2.1x
1.7x
1.8x
2.0x
D
Total IRR
D
Realized IRR
44%
44%
19%
19%
10%
10%
15%
17%
19%
23%
30%
33%
Net Fund Returns
N
Net Total Multiple
D
Net Total IRR
*
3.69x
*
28.9%
*
2.17x
*
12.0%
*
1.49x
*
6.0%
*
1.66x
*
9.3%
1.75x
12.0%
1.45x
16.7%
Net Distributed / Paid-In Multiple
F
*
3.69x
*
2.17x
*
1.49x 1.55x * 0.51x 0.50x
Net Distributed $s to LPs $56.3 $207.0 $218.7 $1,071.5 $154.7 $204.2
Interim Fund Liquidity Metrics
G
(Distributed + Public) / Paid-In Multiple -- -- -- 1.62x 0.74x 1.18x
H
(Distributed + Liquid Public) / Paid-In Multiple -- -- -- 1.58x 0.57x 0.75x
IRR Outperformance Versus Public Indices
**
PME+ (Basis Points over S&P 500 Healthcare Sector) +2,064 bps +302 bps +441 bps +776 bps +201 bps -187 bps
**
PME+ (Basis Points over S&P 500) +2,258 bps +568 bps +587 bps +638 bps +496 bps +275 bps
PME+ (Basis Points over Russell 3000)
**
+2,215 bps +554 bps +502 bps +565 bps +446 bps +218 bps
PME+ (Basis Points over Nasdaq Composite)
**
+2,125 bps +554 bps +725 bps +451 bps +181 bps -21 bps
NLV and Sprout fund data as of March 31, 2014. Sprout fund statistics computed based on healthcare portfolio within Sprout.
* See Appendix 2 and endnotes A and E in Appendix 4. Based on synthetic funds with assumptions around recycling and fee structure.
** Based on Public Market Equivalent (PME+) methodology. See Appendix 3 and endnotes A, B, E and G in Appendix 4.
Please Section XIII: “Appendices” for definitions of terms and/or methodology.
7 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices” and endnotes B
(regarding public indices) and C (regarding information provided by Cambridge Associates) in Appendix 4.
8 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices”, Appendix 3
(regarding the PME+ methodology) and to endnotes B, D, E and F in Appendix 4.
3
CONTROL NUMBER 257 - CONFIDENTIAL
For a full overview of investment performance, please refer to Section III: Summary of
Historical Investment Performance.
OPPORTUNITY IN THE HEALTHCARE SECTOR
The Fund Managers believe a number of macro market factors have aligned to create attractive
and lasting conditions for NLV-III’s targeted investment strategy in healthcare technology.
These macro market factors include the following:
�
�
�
Strong and Sustained Growth in Global Healthcare Markets: Healthcare is one of the
strongest and most dynamic markets within the global economy, with powerful
demographic forces expected to drive growth at rates that will outpace GDP in major
economies for at least the next decade. 9 This steady and sustained market growth
creates a positive macro environment for investment in the sector.
Significant Opportunity Created By Healthcare Reform & Restructuring: Through at
least the next decade, the healthcare industry will be going through a period of
significant restructuring as government, private insurance companies, and employers
implement broad reform initiatives that seek to slow the growth of healthcare spending
and limit the threat this burden creates to their long term fiscal viability. In the U.S., the
federal government laid the foundation for these changes with two key pieces of
legislation: the Patient Protection and Affordable Care Act (“ACA”) and the Health
Information Technology for Economic and Clinical Health Act (“HITECH Act”), which are
designed to reduce costs, improve quality, and significantly expand the percentage of
the population with access to healthcare services. Importantly, a component of the
legislation sets aside funding in the form of direct incentives to healthcare providers to
be used to purchase technologies needed to meet the legislation’s requirements. As part
of healthcare reform, government and private payers will need to migrate their
traditional fee-for-service reimbursement models towards more value-centered
approaches that reward outcomes, efficiency, and reduction in waste. Payers are
approaching this goal by slashing costs in areas where viable lower cost solutions are
available, while at the same time investing much more in the adoption of innovative
new products and solutions which can improve outcomes and deliver quantifiable
value, even when considering their additional costs and premium pricing. During this
period of substantial change in the healthcare system, the Fund Managers expect to see
an unusually large number of opportunities to fund companies developing innovative
and impactful new therapeutic products as well as tools and applications that enable the
implementation and realization of healthcare reform’s goals and objectives.
Rapid Acceleration in Innovation: The Fund Managers believe an unprecedented
period of medical innovation is emerging as decades of research into molecular
mechanisms of disease is being translated into a steady stream of safer and more
effective medicines and the biomarkers to guide their use. Importantly, these products
are providing enormous improvements in both life expectancy and quality of life for
patients with many serious, life-threatening diseases. Although they will come with
premium pricing, these products can decrease the overall costs to the healthcare system
by reducing reliance on equally costly, but less effective and more toxic treatments, by
9 CMS, OECD, Eurostat
4
CONTROL NUMBER 257 - CONFIDENTIAL
reducing clinic visits and hospital admissions and by controlling or curing disease so
that the patient can return to a fully productive life. At the same time as this revolution
in the biological sciences is unfolding, exponential increases in the ability to manage,
process, and store information at low cost are coming out of the information technology
(IT) industry. This rapid technological progress in IT is allowing the creation of entirely
new systems and applications that will fundamentally improve how healthcare systems
monitor and manage patients across the full range of care settings. The Fund Managers
believe the massive expansion and integration of capabilities occurring in biology and
information technology is enabling a period of innovation in healthcare that sets a
uniquely positive environment for the investment of NLV-III.
�
�
More Favorable Regulatory Environment For New Drug Approvals: Increasing
numbers of FDA drug approvals and recently passed U.S. regulatory legislation are
reflective of a more favorable regulatory environment. The number of new drug
approvals by FDA in both 2012 (39 NDAs) and 2013 (27 NDAs) trended meaningfully
higher compared to the previous 6 years and versus historic averages 10 . In addition, the
Food and Drug Administration Safety and Innovation Act (FDASIA) was signed into law on
July 9, 2012, providing for additional tools to enable the FDA to promote innovation by
streamlining parts of the approval process and improving communication and
administrative processes between the agency and pharmaceutical and biotech
companies. Chief among these new tools is the “Breakthrough Therapy” designation.
This new designation helps the FDA assist drug developers to expedite the development
and review of new drugs with preliminary clinical evidence that indicates the drug may
offer a substantial improvement over available therapies for patients with serious or lifethreatening
diseases. Overall, these initiatives and others, both in the U.S. and abroad
(e.g., E.U. and Japan), have made the regulatory environment more favorable for
investors in the biopharmaceutical sector, and have reduced some of the uncertainty and
risk in a critical aspect of drug development.
Capital Markets And Industry Dynamics Are Favorable For New Investments & Exits:
Since the most recent peak in fundraising in 2008, it has been estimated that the life
sciences venture capital fundraising has contracted by 68%, from $7.8 billion in 2008 to
$2.5 billion in 2012 11 . The Fund Managers believe that there has been a corresponding
decline in the number of active venture capital firms investing into life sciences
companies (especially earlier stage), resulting in fewer investors competing for new
deals. At the same time, large and mid-sized biopharmaceutical companies have
become increasingly dependent on development stage companies as the source of
innovation and new products to supplement R&D pipelines and stimulate future
growth. Most of these big companies are committing a large and growing portion of
their R&D budgets to external facing search and evaluation efforts that have the goal of
obtaining assets through high value mergers, acquisitions, and partnerships, which
disproportionally benefit smaller, venture-backed, development stage companies. In
the years ahead, we believe that this trend is likely to continue, and possibly accelerate,
driven by expected patent expirations on commercial products and continued low
productivity of pharma R&D. The Fund Managers believe these dynamics offer venture
10 Food and Drug Administration. Center For Drug Evaluation and Research
11 Dow Jones; Fenwick & West Analysis in 2012 Trends in Terms of Life Science Venture Financings
5
CONTROL NUMBER 257 - CONFIDENTIAL
and growth stage investors attractive conditions for both new investments and exits
from existing investments for the foreseeable future.
The Fund Managers view this alignment of critical market factors as unprecedented. Each of
these factors individually has a direct impact on the level of risk and the potential for returns in
the healthcare technology sector. However, the positive trends in all of them occurring at the
same time should create a uniquely positive environment to execute NLV-III’s targeted strategy
within the sector.
INVESTMENT STRATEGY
New Leaf’s investment strategy is differentiated in the venture capital industry in terms of its
sector focus, specific approaches within each sector, and the depth of experience and long-term
track record that supports each element of the strategy. The Fund’s primary focus will be on
investments in the Biopharmaceutical and Information Convergence sectors, with a secondary
focus on Medical Devices and Biological Research Tools & Infrastructure. Investments will
be predominantly in the U.S., but could include a small number of investments in other parts of
the world (e.g., Western Europe or Canada). The focus within each sector will be the following:
Biopharmaceuticals: As in NLV-I and NLV-II, biopharmaceutical investments will be the core
focus for NLV-III and will comprise approximately 50% - 60% of the Fund. The Fund will
typically invest in development stage and commercial stage private companies and in publicly
traded small capitalization companies where the investments will be made mostly through
structured transactions. The portfolio will emphasize companies developing targeted
therapeutics that address molecular mechanisms of disease, where validated biomarkers can be
utilized to positively bias probabilities of success and reduce time and cost of development
compared to historical averages. These companies exemplify some of the key characteristics the
Fund Managers seek across the portfolio - namely large, unmet medical needs, strong science,
well differentiated technologies and high quality pre-clinical and clinical development
programs led by experienced management teams.
The Fund Managers believe that NLV-III will have the opportunity to invest in compelling
biopharmaceutical opportunities and that these will have attractive risk-return profiles for a
number of reasons, including the following:
�
�
For the past decade, biopharmaceutical companies have been shifting their research and
development focus towards products that target mechanisms of disease at the molecular
level. Clinical programs for these types of products are typically smaller, more capital
efficient and have higher probabilities of success. These improvements are achievable
because precise biomarker testing enables a focus on only those patients where the
specific molecular mechanism is known to play an important role in the disease process.
By including only these patients in the clinical programs for these targeted products, the
probability of detecting critical efficacy signals is significantly increased, even with
relatively small numbers of patients;
Targeted development programs are benefiting from an improving regulatory
environment, as the FDA is demonstrating clear interest in working constructively with
companies to bring these types of high-impact therapeutics to market more quickly and
efficiently. This spirit of cooperation was covered thoughtfully in a recent New England
6
CONTROL NUMBER 257 - CONFIDENTIAL
Journal of Medicine editorial (November 2013), where Janet Woodcock, MD, the FDA’s
Director of the Center for Drug Evaluation and Research and other senior FDA staff
members as co-authors, discussed the FDA’s new breakthrough therapy designation
that can be granted to expedite the review and approval of new therapies to treat people
with serious or life threatening illnesses where inadequate treatment options exist. They
state that “The genesis of the new designation can be traced to several emerging trends
in drug discovery and development. Most notable is the rise of molecularly targeted
therapies, often paired with companion diagnostics”. The editorial goes on to say that
“Once a drug is designated as a breakthrough therapy, the FDA commits to working
particularly closely with the drug sponsor to devise the most efficient pathway for
generating additional evidence needed about safety and efficacy”. The breakthrough
therapy designation was created under FDASIA in 2012, and since that time 26
breakthrough therapy designations have been granted on 80 requests; 12
�
�
The pharmaceutical industry’s commercial model is also improving with the shift in
focus to targeted therapeutics, as these therapies can: (a) provide significant
improvements in efficacy and safety over current standards of care; (b) offer important
clinical benefits in terms of increased life expectancy and improved quality of life; (c)
positively impact high morbidity diseases, many of which have primarily expensive, but
inadequate treatments available (e.g., cancer and autoimmune diseases); and (d)
generate compelling economic benefits to payers, even when they carry premium
pricing;
Finally, large and mid-sized biopharmaceutical companies have recognized the
inefficiency of their internal R&D efforts and have deemphasized many of their own
expensive, high risk, “blockbuster” programs. Increasingly, these companies are
“externalizing” a large portion of their R&D activity by acquiring, licensing, or
partnering with smaller biotech companies that are focused on developing the novel
targeted therapeutics mentioned above.
The Fund Managers believe the net result for investors is an improving risk-return equation for
biopharmaceutical investments, which should translate into higher returns in the sector.
Information Convergence: Information convergence investments will be the second core focus
for NLV-III, expected to comprise up to 25% of the Fund. Building on the leadership
established during the NLV-II investment period along with significant experience from past
Sprout funds, the Fund Managers will invest NLV-III in companies seeking to improve
efficiency and reduce overall costs to the healthcare system through the generation, analysis,
and application of information from research to diagnosis and delivery of care. Investments in
this sector will be at the commercial stage at the time of initial investment, or will be expected to
reach the commercial stage during the projected timeline of the investment.
Central to this opportunity is the acute structural deficit in the U.S., with healthcare liabilities
the single largest contributor and the healthcare reform initiatives that were designed in part to
address these critical fiscal issues. Broad scale deployment of new information technology will
12 New England Journal of Medicine, November 14, 2013: Expediting Drug Development – The FDA’s New “Breakthrough
Therapy” Designation
7
CONTROL NUMBER 257 - CONFIDENTIAL
play a critical role in enabling the necessary structural changes to the healthcare system. The
HITECH Act created a $25.9 billion 13 Federal Government funded catalyst for the adoption of
information technology in healthcare in the U.S., and this is stimulating significant investment
in upgrading the information infrastructure at the provider level. This industry-wide
technology upgrade moves the vast majority of providers onto electronic systems, which offers
immediate efficiencies to their businesses and lays the foundation for the adoption of new
targeted information based applications in the future. These investments and legislative actions
by the U.S. government, and the subsequent response by insurers, providers and patients, are
driving a dramatic increase in spending on healthcare information technology (HIT), benefitting
the companies providing technology solutions that reduce cost and waste, drive efficiency, and
improve the quality of patient care.
The opportunity in information convergence also benefits significantly from the technologies
and infrastructure that have been developed and implemented outside of healthcare, such as
cloud computing, wireless communications, web-delivered software-as-a-service, and sensor
technology. Small companies drawing heavily off these existing technologies are able to
optimize their product through rapid iterations driven by user feedback, thereby reducing risk
and capital requirements, and leading to more predictable timelines, similar to what has been
seen in the broader information technology arena. The Fund Managers believe that smaller,
focused companies will play a key role in developing and deploying information based
products that address discrete problems within the U.S. healthcare market, and that a large
number of these will be compelling investment opportunities for NLV-III.
Medical Devices: Given the Fund Managers’ view that the operating and exit environment for
companies in this sector will be more challenging due to increased regulatory and
reimbursement uncertainty, NLV-III will have somewhat less exposure to this sector than
previous funds. The Fund will focus on investments in companies that are developing
innovative and differentiated medical devices, targeting large market opportunities that offer
the potential to meaningfully reduce overall patient treatment costs in high morbidity disease
settings through substantial efficacy and safety benefits versus existing standards of care.
Importantly, the focus will be on opportunities that have established regulatory approval
pathways and clear regulatory precedents, or are already at the commercial stage at the time of
initial investment. The objective will be to identify investment opportunities with later stage
risk profiles that can be expected to thrive in the current environment. Although the number of
deals in this sector is likely to be somewhat lower than in previous funds, with the later stage
focus, it is likely that the size of investments in this sector will be larger.
Biological Research Tools & Infrastructure: The rapid growth of this sector is being fuelled by
many of the same biomedical advances that are impacting health care more broadly, such as
personalized medicine and DNA sequencing. Smaller companies have always been a prolific
source of innovative new research tools, leading to high M&A interest among the large
commercial players in this sector. Moreover, because new reagents and research tools are not
subject to the risks of clinical trials, regulatory approvals or payer reimbursement it is possible
to build high-gross margins businesses that reach break-even on manageable timelines and
budgets. The Fund will approach this sector opportunistically and will seek to invest in a small
13 U.S. Department of Health and Human Services. Actuarial estimate as of January 2012.
8
CONTROL NUMBER 257 - CONFIDENTIAL
number of commercial stage companies with novel and clearly differentiated products targeting
defined and established high growth market segments.
DEAL FLOW AND INVESTMENT PROCESS
The Fund Managers have a proactive approach to deal sourcing, which targets both private and
public opportunities. The established and proven sourcing activities rely on diverse networks
of deal sources that have been built and cultivated over two decades and focus on identifying
compelling healthcare technology investment opportunities, at attractive time points for
investment. These efforts balance the inherent attractiveness of an innovative technology with
the selection of the appropriate investment stage, offering an optimal risk-adjusted return
potential and multiple paths to realization and liquidity.
The Fund Managers have refined and successfully executed this investment process over many
years, and it is an integral part of the firm’s culture. New Leaf’s investment philosophy and
process emphasize a team approach to maximizing investment returns, focusing the most
appropriate resources within the firm to deal sourcing, rigorous investment analysis, deep
involvement with portfolio companies and active management of financings and exits.
DISTINCTIVE FEATURES OF NEW LEAF
Over the last two decades, New Leaf has established itself as one of the premier brands in
healthcare technology investing as a result of a powerful combination of:
�
�
�
�
�
one of the most established and stable teams in the venture capital industry with deep
and complementary operating and investing experience;
a long term track record across portfolios of healthcare technology investments in six
distinct venture funds and over $1.6 billion in total invested capital that has
demonstrated consistent outperformance versus venture industry peers and relevant
public market indices (S&P 500, S&P Healthcare, NASDAQ Composite, and Russell
3000) 14 ;
an evolving investment strategy, focused on a diversified portfolio of investments across
sectors, stages (start-ups to growth equity), and therapeutic areas that has proven to
generate returns through both up and down phases of macro investment cycles;
a hands-on approach to working with management teams as board members to
optimize corporate strategy, develop and refine clinical, regulatory, and operating plans,
recruit world-class talent, and drive business development activities that lead to valuemaximizing
follow-on financings, partnerships, and M&A transactions; and
a reputation for intellectual rigor, hard work, value added contributions, and
constructive collaboration that makes New Leaf a sought after lead investor by
outstanding entrepreneurs and a preferred co-investor amongst a broad range of top
quality investors.
14 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices” including endnotes
B, C, F and G in Appendix 4.
9
CONTROL NUMBER 257 - CONFIDENTIAL
NLV-III Investment Opportunity
The objective of NLV-III is to invest in a portfolio of healthcare technology companies that offer
attractive risk-adjusted returns. The companies that comprise the portfolio will be selected and
managed by a team of highly experienced senior partners who have developed and proven
their investment process over many years and multiple funds. The investment strategy for
NLV-III is similar to the strategies pursued in prior funds, in that it will have a core focus on
biopharmaceutical investments with a balance of investments across other healthcare
technology sectors. Given the strength and stability of the team, the consistency and the depth
of the track record, and the positive market forces and investment conditions that are expected
to be in place during the life of the Fund, the Fund Managers believe NLV-III offers investors an
opportunity for attractive returns.
10
CONTROL NUMBER 257 - CONFIDENTIAL
II. THE TEAM
NLV-III will be managed by the New Leaf team, which currently manages NLV-I, NLV-II, and
provides sub-advisory services managing the remaining healthcare technology investments in
the Sprout Funds. The team of six senior partners, five of whom have worked together
continuously for over a decade, stands out in the industry for its depth of accomplishments,
track record of consistent investment success, and its organizational stability. Each of the senior
partners has a strong combination of significant and relevant industry operating experience and
venture capital investment experience from one or more of the Fund’s targeted sectors. The
New Leaf team is further strengthened by a group of experienced investment professionals who
add highly relevant scientific backgrounds and investment experience.
The following timeline shows the history and progression of the New Leaf team:
History and Progression of New Leaf Team
SENIOR TEAM
Philippe Chambon, MD, Ph.D., (55), Managing Director, helped found New Leaf in 2005.
Philippe joined Sprout in 1995 and since that time has been an active investor in all three sectors
of interest for NLV-III. His investments have spanned all stages including six start ups and
several later stage growth equity investments and one buy-out. Philippe is currently focused on
New Leaf’s Information Convergence sector and late stage biopharmaceutical investments.
Philippe is currently on the boards of directors of Treato, Truveris, Karos Pharmaceuticals,
Principia BioPharma and VaxInnate. He was previously on the boards of NxStage Medical
(NASDAQ: NXTM), Auxilium (NASDAQ: AUXL), ePocrates (NASDAQ: EPOC, acquired by
athenahealth), Nuvelo (NASDAQ: NUVO), Sapient Health Network (acquired by WebMD),
Spotfire (acquired by Tibco Software), and Combichem (acquired by DuPont). He also led our
investment in, and was a board observer at, Audax Health (acquired by UnitedHealth/Optum).
Immediately prior to joining Sprout, Philippe was a Manager in the healthcare practice of the
Boston Consulting Group. In that capacity, he managed strategy and business re-engineering
assignments with clients in the pharmaceutical, biotech and insurance industry. Previously,
Philippe was an executive with Sandoz Pharmaceutical for seven years, where he built and led
an organization responsible for late stage clinical project management, portfolio management,
and pre-marketing and pharmacoeconomics activities. He conducted graduate research in
11
CONTROL NUMBER 257 - CONFIDENTIAL
molecular immunology at The Pasteur Institute and earned an M.D. and Ph.D. from the
University of Paris, and an M.B.A. from Columbia University.
Jeani Delagardelle, (57), Managing Director, helped found New Leaf in 2005. She joined Sprout
in 2000. At New Leaf, Jeani leads the Medical Device investment effort. Jeani is currently on the
boards of directors of Access Closure, Altura, Cardiokinetix, Direct Flow Medical, Intrinsic
Therapeutics, ReShape Medical, and Spiracur. She was previously on the boards of directors of
Interlace (NLV-I company acquired by Hologic), Epicor (acquired by St. Jude), Visiogen
(acquired by Abbott), PercuSurge (acquired by Medtronic), and NxStage Medical (NASDAQ:
NXTM). Prior to joining the healthcare investment team at Sprout, Jeani was a General Partner
at Weiss, Peck & Greer Venture Partners (“WPGVP”) where she focused on healthcare
investments. Before joining the venture industry, Jeani spent 16 years in senior marketing and
general management positions in both the medical device and pharmaceutical industries. She
was Vice President of Global Marketing for Target Therapeutics, held several senior
management positions within the Medi-tech division of Boston Scientific, and served as the
Director of Business operations for Roche Pharmaceuticals. Jeani earned an A.B. in Clinical
Psychology from Occidental College and an M.B.A. from the University of California at Irvine.
Ron Hunt, (49), Managing Director, joined Sprout in 1998 and helped found New Leaf in 2005.
He has played significant role in the firm’s investment activities in later stage
biopharmaceuticals and has also contributed to the activities in each of the other sectors. Ron is
currently on the boards of Durata Therapeutics (NASDAQ: DRTX), IlluminOss Medical,
Relypsa (NASDAQ: RLYP), and SpineWave. Ron was previously on the boards of Cerexa
(NLV-I company acquired by Forest Laboratories), Stromedix, Inc. (NLV-I company acquired
by Biogen Idec), Aspreva Pharmaceuticals (NASDAQ: ASPV, acquired by Galenica, Inc.), Phase
Forward (NASDAQ: PFWD, acquired by Oracle), and Pathology Partners (acquired by Caris
Group). Before joining Sprout, he spent a combined 12 years in the pharmaceutical industry in
operating roles and as a management consultant with The Healthcare Group (a division of the
Interpublic Group of Companies) and Coopers & Lybrand Consulting. He gained eight years of
operating experience in various commercial roles working for SmithKline Beecham and Johnson
& Johnson. Ron earned a B.S. from Cornell University and an M.B.A. from The Wharton School
of the University of Pennsylvania.
Vijay Lathi, (41), Managing Director, helped found New Leaf in 2005 and joined Sprout in 1998.
Vijay’s activities are focused primarily on information convergence, although historically he has
been involved in investments across all sectors. He is currently on the boards of directors of
AwarePoint, Oxford Immunotech (NASDAQ: OXFP), iRhythm Technologies, Kit Check,
TigerText and XDx, while maintaining board observer status with Labcyte. Vijay was
previously on the boards of Advanced Cell Diagnostics, Ilypsa (acquired by Amgen) and
Relypsa (NASDAQ: RLYP). Prior to joining Sprout, Vijay spent one year as an analyst in the
healthcare venture capital group at Robertson Stephens where he reviewed investments
spanning medical devices, therapeutics and healthcare information technology. Prior to
Robertson Stephens, Vijay spent approximately one and a half years as an analyst at
Cornerstone Research, a business consulting firm focused on financial and econometric
analysis. He earned an M.S. in Chemical Engineering from Stanford University and a B.S. in
Chemical Engineering from MIT, with a focus on applications of engineering to the life sciences.
12
CONTROL NUMBER 257 - CONFIDENTIAL
James Niedel, MD, Ph.D., (70), Venture Partner, joined Sprout in May 2002 and helped found
New Leaf in 2005. Jim will change his status to Venture Partner in NLV-III with the closing of
the new fund. In this role, Jim will work full-time as a senior member of the NLV investment
team working on new investments, and he will continue with full oversight and portfolio
management responsibilities for NLV-I and NLV-II. Jim is currently on the boards of directors
of Chimerix (NASDAQ: CMRX, former Chairman) and Tioga. He was previously on the boards
of Intarcia Therapuetics (now currently a Board observer), Sirna Therapeutics (NASDAQ:
RNAI, acquired by Merck in 2006 for $1.1 billion), where he served as Chairman; Oriel
Therapeutics (acquired by Novartis in 2010), where he served as Executive Chairman, and Pearl
Therapeutics (acquired by AstraZeneca in 2012). Prior to joining Sprout, Jim was Chief Science
and Technology Officer for GlaxoSmithKline (“GSK”). From 1995 to 2001, he led Global
Research and Development, Information Technology and Product Strategy and was a member
of the board of directors of Glaxo Wellcome plc. From 1988 to 1995 Jim was Vice President,
Research and Senior Vice-President R & D for the U.S. subsidiary of Glaxo. During his nearly
13 years with the Company, he oversaw the discovery, development and/or registration of over
20 products marketed by GSK, including those for: HIV, hepatitis B, asthma/COPD, migraine,
BPH, irritable bowel syndrome, smoking cessation, depression, chemotherapy-induced nausea
and vomiting, breast cancer, herpes and malaria. Prior to GSK, Jim was Professor of Medicine,
Chief of the Division of Clinical Pharmacology and Principal Investigator on studies of
mechanisms of cancer and inflammation at Duke Medical School, where he had completed an
Internal Medicine residency and a Hematology-Medical Oncology fellowship. Jim received his
M.D. and Ph.D. (Biochemistry) degrees from the University of Miami, was selected a Searle
Scholar and is a Fellow of the Royal College of Physicians (London).
Liam Ratcliffe, MD, Ph.D., (50), Managing Director, joined New Leaf in September 2008 and
concentrates on biopharmaceutical investing. He is currently on the boards of directors of
Array BioPharma (NASDAQ: ARRY), Neuronetics, Karus Therapeutics, Afferent, Calchan and
Convergence, the latter three investments resulting from spin-outs from Roche (Afferent) and
GSK (Calchan & Convergence), respectively. Prior to joining New Leaf, Liam previously served
as Senior Vice President and Development Head for Pfizer Neuroscience, as well as Worldwide
Head of Clinical Research and Development. Additional positions during his 12 years at Pfizer
included Vice President of Exploratory Development for the Mid West region, and Head of
Experimental Medicine at Pfizer’s Sandwich, UK Laboratories. As Head of Neurosciences, Liam
was responsible for the development of several successful late-stage projects and marketed
products, including Lyrica, Chantix and Geodon. In previous roles, he gained extensive
experience in early drug development and translational research across multiple therapeutic
areas, including inflammation, pain, cardiovascular disease, infectious diseases and genitorurinary
medicine. Liam began his career in the pharmaceutical industry in a medical marketing
role at Roche in South Africa. He received his M.D. degree and Ph.D. degree in immunology
from the University of Cape Town and his M.B.A. degree from the University of Michigan.
Liam completed his internal medicine training and fellowship in Immunology at Groote Schuur
Hospital and associated teaching hospitals in Cape Town, South Africa.
13
CONTROL NUMBER 257 - CONFIDENTIAL
OTHER INVESTMENT PROFESSIONALS
Kathy LaPorte, (52), Venture Partner, is an angel investor in the Digital Health space focusing
on evaluating and mentoring start-ups developing digital technology solutions for healthcare
consumers, providers, payers and the pharmaceutical/medical device industries. Kathy is
affiliated with Health Tech Capital and is a Venture Partner with New Leaf, collaborating on
sourcing of opportunities with an emphasis on the Information Convergence sector. Kathy was
one of the founders of New Leaf upon its spin out from the Sprout Group in 2005. Kathy joined
the Sprout Group in 1993 and became a General Partner in 1994. Between 1987 and 1993, she
was a Principal at Asset Management Company, a venture capital firm focused on early stage
investments. Kathy received an M.B.A. from Stanford University Graduate School of Business
(Arjay Miller Scholar), and a B.S., summa cum laude, Phi Beta Kappa from Yale University.
Mark Charest, Ph.D., (36), Portfolio Manager, joined New Leaf in 2012. Previously, Mark was
an Associate and Kauffman Fellow at Panorama Capital (2010-2012) focused on life sciences
investments. Mark previously worked as a Consultant at ZS Associates (2009) and as an
Associate at Great Point Partners (2007-2009), a healthcare-focused public and private equity
investment firm. Prior to that, Mark held an operating role as a Medicinal Chemistry Lab
Manager at Novartis Institutes for BioMedical Research (2004-2007). Mark received his Ph.D. in
Chemistry and Chemical Biology from Harvard University as a National Science Foundation
Graduate Research Fellow.
Mike Dybbs, Ph.D., (39), Principal, joined New Leaf in 2009 and was promoted to Principal in
2012. Mike is currently on the boards of directors of Advanced Cellular Diagnostics and
Versartis. Prior to joining New Leaf, Mike was a Principal at the Boston Consulting Group
(BCG) where he was a core member of their Health Care practice. Mike graduated magna cum
laude from Harvard University with an AB in biochemical sciences and received his Ph.D. in
molecular biology and genetics from UC Berkeley, where he was awarded a Howard Hughes
Medical Institute fellowship. His research had been published in peer-reviewed journals,
including Neuron, Science and Nature.
Eric Kim, (28), Associate, joined New Leaf in December 2013. From 2011 through 2013, Eric was
a Private Equity Associate at Francisco Partners, where he focused on diligence and company
oversight efforts on the firm’s healthcare information technology portfolio. Prior to joining
Francisco Partners, Eric worked for three years at McKinsey & Company as a Senior Business
Analyst in their Corporate Finance Practice. Eric received his dual B.A. in Mathematical
Methods in the Social Sciences and Economics from Northwestern University.
Isaac Manke, Ph.D., (37), Portfolio Manager, joined New Leaf in 2009 as an Associate and was
promoted to Public Investment Director in 2012. Prior to joining New Leaf, Isaac was an
Associate in the Global Biotechnology Equity Research group at Sanford C. Bernstein.
Previously, Isaac worked as an Associate in the Biotechnology Equity Research group at
Deutsche Bank and was a Senior Analyst at Health Advances, a biopharmaceutical and medical
device strategy consulting firm. Isaac received a B.A. in Biology and a B.A. in Chemistry at
Minnesota State University (Moorhead), and a Ph.D. in Biophysical Chemistry and Molecular
Structure at the Massachusetts Institute of Technology (MIT). Isaac’s discoveries led to several
publications in top journals, including Science and Cell, and were selected by Science as one of
14
CONTROL NUMBER 257 - CONFIDENTIAL
the “2003: Signaling Breakthroughs of the Year”. These discoveries also resulted in four issued
patents.
FINANCE AND OPERATIONS
Craig L. Slutzkin, (39), is Chief Financial Officer and manages the back office, compliance and
administrative functions for New Leaf. Craig joined Sprout as Vice President and the head of
its back office operations in August 2002 and transitioned to New Leaf at the time of the spinout.
Prior to joining Sprout, he spent over seven years in the audit and assurance practices of
Arthur Andersen and Ernst & Young in New York, attaining the position of Senior
Manager. While at Andersen and Ernst & Young, clientele included various multi-strategy
private equity and venture capital fund firms as well as top tier investment banks. Craig
received his M.B.A. in finance from Columbia Business School and received a B.A. in
Accounting and Information Systems from Queens College. He is a certified public accountant
and a member of the American Institute of Certified Public Accountants.
INDUSTRY ADVISORS
The Fund Managers work closely with industry professionals who are experts in New Leaf’s
fields of interest and are willing to work closely with the Fund Managers on an as needed basis
to provide their perspectives on topics and issues that are relevant to due diligence on new
investments, on-going issues that arise in the management of existing portfolio companies, and
longer term fund strategy. New Leaf’s advisors are all prominent in their fields, and hold
senior positions within leading corporations and academic institutions. These experts provide
New Leaf and its portfolio companies with their own invaluable insights, but equally
importantly open up their networks of contacts in ways that vastly expand and strengthen New
Leaf’s own network.
Therapeutics Advisors
New Leaf works with a broad range of industry advisors to support its investment activities in
therapeutics. The Fund Managers work on an as needed basis with a large group of advisors
that includes contacts from industry and academia that each of the investment professionals
within the firm has cultivated through their own professional and academic experiences. The
Fund Managers solicit input from advisors on an as needed basis to get valuable input on
specific scientific, clinical, and commercial issues and topics relevant to diligence on new
investment opportunities, and to the management of existing portfolio companies. This
network gives New Leaf timely and valuable access to some of the world’s leading academic
scientists and experienced practitioners/executives from industry, and brings their subject
matter expertise to bear across the myriad of topics that are critical to New Leaf’s decision
making in the therapeutics sectors. Because of the breadth of topics where this type of outside
input is required, and due to the fact that the science and technology is evolving rapidly in most
of these fields, New Leaf has not created a formal advisory board for therapeutics
Information Convergence Advisory Board
The Fund Managers have assembled an additional advisory board to support activities in
Information Convergence. This group of advisors has a breadth of experience in the
development and deployment of new information technologies that are reshaping healthcare.
15
CONTROL NUMBER 257 - CONFIDENTIAL
Their collective experience is from industry, including leading large and entrepreneurial
corporations, as well as from the provider side, including senior administration of one of the
world’s most prominent and forward-thinking teaching hospitals. These professionals include
the following:
John Halamka, M.D., is a physician and technology leader who focuses on electronic health
records as well as secure sharing of healthcare data for care coordination, population health,
and quality improvement. He is currently Chief Information Officer of Beth Israel Deaconess
Medical Center and also a practicing Emergency Physician and Professor at Harvard Medical
School. He is current Chairman of the New England Healthcare Exchange Network (NEHEN),
co-chair of the national HIT Standards Committee, and co-Chair of the Massachusetts HIT
Advisory Committee.
Lee Newcomer, M.D., Senior Vice President, UnitedHealthcare with strategic responsibility for
Oncology, Genetics and Women’s Health. Dr. Newcomer returned to UnitedHealthcare in
2006 to focus on combining clinical, financial and administrative incentives for improved and
affordable cancer care. From 1991 to 2000, Dr. Newcomer was the chief medical officer at
UnitedHealthcare. He is a board certified medical oncologist and former chairman of Park
Nicollet Health Services and was previously a medical director for CIGNA Health Care of
Kansas City. Dr. Newcomer was a founding executive of Vivius, a consumer directed venture
that allowed consumers to create their own personalized health plans.
Stephen Oesterle, M.D., Senior Vice President for Medicine and Technology, Medtronic Inc. Dr.
Oesterle is focused on the formation of technological strategies and continued development of
relationships with the world’s medical communities. He previously served as an Associate
Professor of Medicine at the Harvard University Medical School and as Director of Invasive
Cardiology Services at Massachusetts General Hospital.
Marcia Radosevich, Founder and CEO of HPR, a HCIT company that was sold to McKesson.
Her prior experience was with Managed Health Care Services, The Travelers Insurance
Companies, and Health Data Institute (a healthcare consulting firm).
Anand Shroff, Chief Technology and Product Officer and Co-Founder, Health Fidelity, Inc.
Prior to joining Health Fidelity, Mr. Shroff was VP of HIE and EHR Products at Optum (a
division of UnitedHealthcare). He came to Optum by way of acquisition of Axolotl Corporation,
a leader in the health information exchange (HIE) space. Anand was also a founding member of
the Oracle Healthcare team, and was responsible for Oracle’s healthcare product portfolio that
included healthcare analytics, clinical data management, and terminology mediation solutions.
David Watson, Vice President of Healthcare Product Strategy, Oracle. Previously he was the
Chief Operating Officer of MedeAnalytics, and prior to that was Senior Vice President and
Chief Technology Officer of Kaiser Permanente. Prior to Kaiser, Mr. Watson served in a variety
of executive IT roles at Baxter Healthcare, Allergan, Northrup Grumman, and Mattel. He is a
senior HCIT executive with 25 years of experience delivering client facing solutions in the broad
areas of application development, infrastructure engineering, business consulting, strategy,
architecture and operations.
16
CONTROL NUMBER 257 - CONFIDENTIAL
David Whittlinger, Executive Director, New York eHealth Collaborative. Prior to working with
NYeC, served as the Director of Healthcare Device Standards and Interoperability for the Intel
Corporation in its Digital Health Group. Mr. Whitlinger was responsible for Intel’s healthcare
device interoperability strategies and standards development. He has also led a large, crossindustry
consortium, the Continua Health Alliance, focused on the establishment of an
ecosystem of interoperable, personal telehealth systems. Prior to establishing the Healthcare
Device Standards Group, he worked on a wide variety of wireless standards within Intel.
17
CONTROL NUMBER 257 - CONFIDENTIAL
III. SUMMARY OF HISTORICAL INVESTMENT PERFORMANCE
The Fund Managers’ long term track record in healthcare technology investing clearly
establishes the team as one of the most successful in the venture capital industry over the last
two decades. Over an 18 year period and across the portfolios of six distinct venture funds
focused on healthcare technology investments, the Fund Managers have delivered net
performance that has consistently outperformed venture industry benchmarks and relevant
public equity market indices 15,16 . The Fund Managers’ track record is notable for the following
reasons:
� Performance has been consistently top-quartile since the mid-1990s:
NLV-I, NLV-II and the healthcare technology portfolios in the Sprout Capital funds
have invested over $1.6 billion in healthcare technology companies since 1995. Over this
time, The Fund Managers’ returns have consistently exceeded Cambridge Associates’
top-quartile benchmarks for U.S. venture capital healthcare and/or U.S. total venture
capital. 16
�
Exceeded relevant public equity indices by substantial margins on all realized funds:
The Fund Managers invested $1.02 billion in the portfolios of healthcare technology
investments in four Sprout Capital funds (Sprout Capital IX, L.P., Sprout Capital VIII,
L.P., Sprout Capital VII, L.P. and Sprout Growth II, L.P.), and these are now fully
realized (or near fully realized in the case of Sprout Capital IX). The net annual IRR’s on
these four funds outperformed the S&P 500 (568 – 2,259 bps), S&P Healthcare (302 –
2,066 bps), NASDAQ Composite (451 – 2,125 bps), and the Russell 3000 (502 – 2,215 bps)
using the Public Market Equivalent Plus (PME+) methodology 17 . Although PME+
methodology is most informative when used to analyze funds whose returns are
mature, the PME+ methodology shows that NLV-I is outperforming these same indices,
and shows encouraging results for NLV-II despite its relative immaturity.
It is this consistently high level of return over an 18 year period, spanning several challenging
investment cycles, that creates a truly unique track record within the venture capital sector.
INVESTMENT PERFORMANCE WITHIN INDIVIDUAL FUNDS
The New Leaf team has invested over $1.67 billion in 126 healthcare technology companies
within 6 distinct funds since 1995. These funds included NLV-I and NLV-II and the healthcare
technology investments in four Sprout Capital funds (Sprout Capital IX, L.P., Sprout Capital
VIII, L.P., Sprout Capital VII, L.P., and Sprout Growth II, L.P., together the “Sprout Funds”). In
aggregate, the team has exited or partially exited investments in 92 companies, generating gross
realizations of over $2.6 billion and a gross realized cash-on-cash return and internal rate of
return (IRR) of 2.1x and 17%, respectively. Corresponding net returns on the portfolios in each
of these funds are provided in Appendix 2.
15 Please see Section XIII: “Appendices” and the endnotes in Appendix 4. Disclosure of past performance herein is for
informational purposes only and is not indicative of future results.
16 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices” and endnote C
(regarding information provided by Cambridge Associates) in Appendix 4.
17 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices; Appendix 3”
(regarding the PME+ methodology) and endnotes B, D E and F in Appendix 4.
18
CONTROL NUMBER 257 - CONFIDENTIAL
New Leaf Funds
NLV-I has capital commitments of $310 million, and the Fund Managers began investing in
mid-2005. The fund completed its new investment period in early 2008 with a portfolio of 22
companies. NLV-I has fully realized 13 investments, and there are nine active investments in
companies and contingent value rights (CVRs) from three of the realized investments remaining
in the fund. NLV-I is a relatively young fund, with the majority of the cost basis still at work,
and to date has generated a gross realized IRR of 23%, and a gross total IRR of 19%. NLV-I has
a net total multiple of 1.76x and a net IRR of 12.1%. NLV-I has a distributed to paid-in-capital
ratio of 0.51x, and the Fund Managers believe the fund has significant future returns potential
from the remaining active investments in the portfolio as well as from potential payments from
CVRs on three realized investments. NLV-I is in the top quartile of funds tracked by
Cambridge Associates for U.S. healthcare venture capital in the 2005 vintage year.
NLV-II has capital commitments of $450 million, and the Fund Managers began investing in
2008. The fund will complete its new investment period by mid-2014. NLV-II currently has a
portfolio consisting of 35 companies. NLV-II has realized or partially realized 13 investments,
and there are 22 other active investments and a small public portfolio remaining in the fund.
NLV-II is still an immature fund in terms of level of realizations, and to date has generated a
gross realized IRR of 34%, and a gross total IRR of 30%. NLV-II has a net total multiple of 1.44x
and a net IRR of 16.4%. NLV-II has a distributed to paid-in-capital ratio of 0.50x, and the Fund
Managers believe the fund has significant future returns potential from the remaining active
investments in the portfolio. The Fund Managers believe that NLV-II has unusually positive
liquidity characteristics for a life sciences focused venture capital fund of its age, with just over
65% of the fund’s current carrying value in the form of public securities (as of March 31, 2014).
NLV-II’s current performance places the fund in the top quartile of funds tracked by Cambridge
Associates for U.S. venture capital in the 2008 vintage year.
Additionally, over the investment period of NLV-I, the net annual IRR is outperforming
relevant public market indices when compared on a public market equivalent basis (PME+).
NLV-II’s net annual IRR shows encouraging results thus far for a relatively immature fund 18 .
The range of outperformance for each of these portfolios versus the S&P 500, S&P Healthcare,
NASDAQ Composite, and the Russell 3000 through March 31, 2014 is the following:
Net IRR Outperformance vs. Public Indices (PME+ Methodology)
S&P
500
S&P
Healthcare
NASDAQ
Composite
Russell
3000
New Leaf Ventures I, L.P. +496 bps +201 bps +181 bps +446 bps
New Leaf Ventures II, L.P. +275 bps -187 bps -21 bps +218 bps
18 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices; Appendix 3” and the
endnotes thereto (regarding the PME+ methodology).
19
CONTROL NUMBER 257 - CONFIDENTIAL
Sprout Capital Healthcare Technology Portfolios:
Since 1995, members of the New Leaf team made all of the healthcare technology investments in
the Sprout Funds while they were part of the investing team at the Sprout Group. The Sprout
Funds were venture capital funds that were diversified across several sectors including
information technology, communications, services, and healthcare technology. The healthcare
technology investments in the four Sprout Funds included $1.019 billion in total cost, which
was invested in new and follow-on investments in 69 companies from 1995 to 2013. The
healthcare technology investments in the first three of these funds are now fully realized, and
those in Sprout IX are nearly fully realized. To date, across these four funds, the New Leaf team
has generated $1.997 billion of realizations in the aggregate (63 realized investments), and there
is $68 million in unrealized value in six unrealized investments.
The net annual IRR performance on the healthcare technology portfolios in each of the Sprout
Funds would place them in the top quartile of all healthcare venture capital funds tracked by
Cambridge Associates in each of the vintage years for which they have established a
benchmark 19 . Additionally, over an 18 year period the net annual IRR on these portfolios
outperformed relevant public market indices when compared on a public market equivalent
basis (PME+) 20 . The range of outperformance for each of these portfolios versus the S&P 500,
S&P Healthcare, NASDAQ Composite, and the Russell 3000 through March 31, 2014 is the
following:
Net IRR Outperformance vs. Public Indices (PME+ Methodology)
S&P
500
S&P
Healthcare
NASDAQ
Composite
Russell
3000
Sprout Capital IX, L.P. * +638 bps +776 bps +451 bps +565 bps
Sprout Capital VIII, L.P. * +587 bps +441 bps +725 bps +502 bps
Sprout Capital VII, L.P. * +568 bps +302 bps +554 bps +554 bps
Sprout Growth II, L.P. * +2,258 bps +2,064 bps +2,125 bps +2,215 bps
*Healthcare Technology Portfolios
19 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices” and the endnote C in
Appendix 4 regarding information provided by Cambridge Associates.
20 Please refer to Section III: “Summary of Historical Investment Performance” and Section XIII: “Appendices; Appendix 3” and the
endnotes thereto (regarding the PME+ methodology).
20
CONTROL NUMBER 257 - CONFIDENTIAL
Current gross and net portfolio returns for the New Leaf funds and for the healthcare
technology portfolios in the Sprout Funds are detailed in the following chart:
Chart 1: Returns by Fund
As of March 31, 2014
($ in millions)
Fund:
Fund Size:
Growth II
HCT
*
$15M Fund
Sprout VII
HCT
*
$95M Fund
Sprout VIII
HCT
*
$147M Fund
Sprout IX
HCT
*
$690M Fund
NLV-I
$310M Fund
NLV-II
$450M Fund
Paid-In Capital $15M $95M $147M $690M $303M $407M
Vintage Year: (1993 - 2007) (1995 - 2011) (1998 - 2012) (2000) (2005) (2008)
First Investment 1995 1995 1998 2000 2005 2008
Gross Fund Returns
N
Total Multiple
N
Realized Multiple
4.4x
4.4x
2.6x
2.6x
1.7x
1.7x
2.0x
2.2x
2.1x
1.7x
1.8x
2.0x
D
Total IRR
D
Realized IRR
44%
44%
19%
19%
10%
10%
15%
17%
19%
23%
30%
33%
Net Fund Returns
N
Net Total Multiple
D
Net Total IRR
*
3.69x
*
28.9%
*
2.17x
*
12.0%
*
1.49x
*
6.0%
*
1.66x
*
9.3%
1.75x
12.0%
1.45x
16.7%
Net Distributed / Paid-In Multiple
F
*
3.69x
*
2.17x
*
1.49x 1.55x * 0.51x 0.50x
Net Distributed $s to LPs $56.3 $207.0 $218.7 $1,071.5 $154.7 $204.2
Interim Fund Liquidity Metrics
G
(Distributed + Public) / Paid-In Multiple -- -- -- 1.62x 0.74x 1.18x
H
(Distributed + Liquid Public) / Paid-In Multiple -- -- -- 1.58x 0.57x 0.75x
IRR Outperformance Versus Public Indices
**
PME+ (Basis Points over S&P 500 Healthcare Sector) +2,064 bps +302 bps +441 bps +776 bps +201 bps -187 bps
**
PME+ (Basis Points over S&P 500) +2,258 bps +568 bps +587 bps +638 bps +496 bps +275 bps
PME+ (Basis Points over Russell 3000)
**
+2,215 bps +554 bps +502 bps +565 bps +446 bps +218 bps
PME+ (Basis Points over Nasdaq Composite)
**
+2,125 bps +554 bps +725 bps +451 bps +181 bps -21 bps
NLV and Sprout fund data as of March 31, 2014. Sprout fund statistics computed based on healthcare portfolio within Sprout.
* See Appendix 2 and endnotes A and E in Appendix 4. Based on synthetic funds with assumptions around recycling and fee structure.
** Based on Public Market Equivalent (PME+) methodology. See Appendix 3 and endnotes A, B, E and G in Appendix 4.
Please Section XIII: “Appendices” for definitions of terms and/or methodology.
21
CONTROL NUMBER 257 - CONFIDENTIAL
INVESTMENT PERFORMANCE BY SECTOR
BIOPHARMACEUTICAL RETURNS SUMMARY:
The New Leaf team’s biopharmaceutical investment performance has been strong in all funds.
In aggregate, the New Leaf team has invested $945 million in 64 biopharmaceutical
investments, and the historic realized biopharmaceutical results are 2.29x gross realized cashon-cash
return (“Multiple”) and a 21.4% gross realized IRR. These realized returns have been
driven by successful early and later stage investments. Table 1 summarizes the gross realized
and unrealized returns from biopharmaceutical investments in each New Leaf fund and the
Sprout Funds.
Table 1: Gross Biopharmaceutical Performance by Fund Group
$ amounts in millions, as of March 31, 2014
Gross Value Gross Multiple Gross IRR
Deals Total Cost Total Realized Unrealized Realized Overall Realized Overall
New Leaf Ventures II, L.P. (2008) 20 $209.0 $508.5 $218.0 $290.4 2.59x 2.43x 67.5% 58.3%
New Leaf Ventures I, L.P. (2005) 14 $205.6 $501.6 $167.3 $334.4 1.68x 2.44x 22.8% 23.5%
All Sprout Funds (1993, 1995, 1998, 2000) 30 $533.5 $1,217.0 $1,163.9 $53.1 2.37x 2.28x 20.6% 20.0%
Total 64 $948.2 $2,227.1 $1,549.2 $677.9 2.29x 2.35x 21.4% 21.6%
Please see the endnotes in Appendix 4 for definitions of terms and/or methodology. Note that these gross returns are for portions of each fund,
broken out by investment sector subfocus. Management fees, the general partner’s carried interest and other expenses are applied on a fund level
and not based on individual investments or a portion of the investment portfolio. For net returns on each fund which would include these items,
please see Appendix 2.
INFORMATION CONVERGENCE RETURNS SUMMARY:
While New Leaf restarted new investment activity in information convergence opportunities in
NLV-II, the Fund Managers already had an established track record in this sector from 9
investments in the Sprout Funds. In total, the Fund Managers have made 17 investments in
this sector, for a combined total of $142 million of invested capital. The team has realized or
partially realized nine investments for combined gross realizations of $262 million and a 2.62x
gross realized Multiple and 18.8% gross realized IRR. Table 2 summarizes the gross realized
and unrealized returns from information convergence investments in each New Leaf fund and
the Sprout Funds:
Table 2: Gross Information Convergence Performance by Fund Group
$ amounts in millions, as of March 31, 2014
Gross Value Gross Multiple Gross IRR
Deals Total Cost Total Realized Unrealized Realized Overall Realized Overall
New Leaf Ventures II, L.P. (2008) 8 $46.0 $59.0 $12.5 $46.5 3.44x 1.28x 95.5% 16.0%
New Leaf Ventures I, L.P. (2005) 0 $0.0 $0.0 $0.0 $0.0 N/A N/A N/A N/A
All Sprout Funds (1993, 1995, 1998, 2000) 9 $96.2 $249.2 $249.2 $0.0 2.59x 2.59x 18.6% 18.6%
Total 17 $142.1 $308.2 $261.7 $46.5 2.62x 2.17x 18.8% 18.5%
Please see the endnotes in Appendix 4 for definitions of terms and/or methodology. Note that these gross returns are for portions of each fund,
broken out by investment sector subfocus. Management fees, the general partner’s carried interest and other expenses are applied on a fund level
and not based on individual investments or a portion of the investment portfolio. For net returns on each fund which would include these items,
please see Appendix 2.
22
CONTROL NUMBER 257 - CONFIDENTIAL
MEDICAL DEVICES RETURNS SUMMARY:
The Fund Managers have been an active investor in the medical device sector across the New
Leaf and Sprout Funds. Combined, the Fund Managers have invested $371 million in 29
medical device companies, and have gross realizations of $394 million and a 1.82x gross realized
Multiple and 9.4% gross realized IRR. Table 3 summarizes the gross realized and unrealized
returns from medical device investments in each New Leaf fund and the Sprout Funds:
Table 3: Gross Medical Device Performance by Fund Group
$ amounts in millions, as of March 31, 2014
Gross Value Gross Multiple Gross IRR
Deals Total Cost Total Realized Unrealized Realized Overall Realized Overall
New Leaf Ventures II, L.P. (2008) 5 $72.0 $52.5 $1.8 $50.6 0.11x 0.73x N/A -9.2%
New Leaf Ventures I, L.P. (2005) 6 $73.3 $146.4 $67.3 $79.2 5.64x 2.00x 58.8% 15.5%
All Sprout Funds (1993, 1995, 1998, 2000) 18 $225.2 $328.9 $325.1 $3.7 1.73x 1.46x 8.3% 6.1%
Total 29 $370.5 $527.8 $394.2 $133.5 1.82x 1.42x 9.4% 6.6%
Please see the endnotes in Appendix 4 for definitions of terms and/or methodology. Note that these gross returns are for portions of each fund,
broken out by investment sector subfocus. Management fees, the general partner’s carried interest and other expenses are applied on a fund level
and not based on individual investments or a portion of the investment portfolio. For net returns on each fund which would include these items,
please see Appendix 2.
TOOLS, DIAGNOSTICS, & INFRASTRUCTURE RETURNS SUMMARY:
The Fund Managers have made investments in the tools, diagnostics, and infrastructure sector
across the New Leaf and Sprout Group funds. The strategy has included predominantly
later/commercial stage tools and infrastructure investments and a mix of early/development
stage and later/commercial stage diagnostics companies over time. Combined, the Fund
Managers have invested in 17 companies, for a total $221 million in cost. The Fund Managers
have generated gross realizations of $261 million, for a 1.50x gross realized Multiple and 14.2%
gross realized IRR. Table 4 summarizes the gross realized and unrealized returns from tools,
diagnostics, and infrastructure investments in each New Leaf fund and the Sprout Funds:
Table 4: Gross Tools, Diagnostics, & Infrastructure Performance by Fund Group
$ amounts in millions, as of March 31, 2014
Gross Value Gross Multiple Gross IRR
Deals Total Cost Total Realized Unrealized Realized Overall Realized Overall
New Leaf Ventures II, L.P. (2008) 3 $31.0 $36.1 $0.0 $36.1 0.00x 1.16x N/A 4.8%
New Leaf Ventures I, L.P. (2005) 2 $25.7 $1.7 $1.7 $0.0 0.06x 0.06x N/A N/A
All Sprout Funds (1993, 1995, 1998, 2000) 12 $164.0 $273.1 $258.8 $14.3 1.88x 1.67x 16.4% 13.9%
Total 17 $220.7 $310.9 $260.5 $50.4 1.50x 1.41x 14.2% 11.9%
Please see the endnotes in Appendix 4 for definitions of terms and/or methodology. Note that these gross returns are for portions of each fund,
broken out by investment sector subfocus. Management fees, the general partner’s carried interest and other expenses are applied on a fund level
and not based on individual investments or a portion of the investment portfolio. For net returns on each fund which would include these items,
please see Appendix 2.
For further detail on prior performance, please refer to the Appendices and endnotes hereto.
23
CONTROL NUMBER 257 - CONFIDENTIAL
IV. OPPORTUNITY IN THE HEALTHCARE SECTOR
The Fund Managers believe a number of macro market factors have aligned to create attractive
and lasting conditions for NLV-III’s targeted investment strategy in healthcare technology.
Each of these market factors individually would have a direct positive impact on the level of
risk and the potential for returns from investments in the healthcare technology sector. The fact
that there are positive trends in all of them occurring simultaneously is unprecedented, and the
Fund Managers expect that this will create a uniquely positive environment for NLV-III’s
investments in the healthcare technology sector. These macro market factors include the
following:
STRONG GROWTH IN GLOBAL HEALTHCARE MARKETS
Healthcare is one of the largest and most dynamic segments of the global economy, and its
growth is projected to continue the well-established historical trend of outpacing GDP growth
in major economies for at least the next decade. 21 In the U.S., since 1970, health care spending
per capita has grown at an average annual rate of 8.2% or 2.4 percentage points faster than
nominal GDP. The persistence of this trend suggests systematic differences between health care
and other economic sectors where growth rates are typically more in line with the overall
economy. A smaller difference is projected over the 2011 to 2020 period, where the average
annual growth in per capita health spending (5.3%) is projected to be about 140 basis points
higher than the growth in GDP (3.9%) 22 . This powerful and sustained growth differentiates
healthcare from many other large industrial and technology sectors, and it creates a positive
backdrop for investment in certain areas within the sector.
The drivers of healthcare market growth vary between mature and emerging economies, but in
both cases the shifts are resulting in significant increases in per capita health care consumption
and predictable increases in spending to meet the rising demand. In developed economies,
growth is being driven primarily by an aging population coupled with a continued willingness
of payers to cover the costs for new therapeutics and interventions that meaningfully extend or
improve the quality of patients’ lives. In the U.S., which is representative of the demographic
shifts in other major economies, the number of people over 65 is expected to double over the
next three decades, reaching 70 million by 2030 or roughly 20% of the total U.S. population. 23
This aging demographic has a higher prevalence of disease and the cost of delivering care to
treat the diseases of this older demographic is rising steadily. For example, in 2009, the per
capita health care cost for a person 65 – 74 years old was approximately $14,000, but it was more
than double that ($33,000) for those over 85. Before the end of this decade, the projected per
capita annual cost to care for these same two groups is expected to rise to $22,000 (+57%) for 65
– 74 year olds and $55,000 (+67%) for those 85+ 24 .
Emerging markets such as Brazil, Russia, India and China (BRICs) are also contributing to the
growth in health care spending globally, as these emerging markets mature and begin moving
towards the standards of their counterparts in developed economies. The size of the middle
21 CMS, OECD, Eurostat
22 Historical data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group
23 U.S. Census Bureau
24 Alvarez & Marsal healthcare, getting much closer to the cost precipice
24
CONTROL NUMBER 257 - CONFIDENTIAL
and upper classes in these countries is growing rapidly, and the spending power of these
groups is becoming important to the global economy in many sectors. As the populations of
these countries become more affluent, a greater proportion of their GDP is being spent on health
care, and this is leading to rapid growth in many different healthcare product sectors in these
countries. For example, China’s prescription drug market, which is projected to be the world’s
second largest by 2020, is projected to grow to more than $110 billion by 2015 – up from $50
billion in 2010. 25 The medical device market in China is showing a similar growth pattern, with
the current $17 billion medtech market (world’s fourth largest) projected to more than double
within the next five years. 26 This growth in emerging economies is expected to continue for the
foreseeable future, and as it does, it will open vast new markets for established healthcare
products companies in more developed countries, and will become increasingly important as a
percentage of sales of global brands. At the same time, it will create opportunities for smaller,
U.S. based companies to partner with large multinationals and domestic companies in the
BRICs that have established distribution channels in these markets.
SIGNIFICANT OPPORTUNITY CREATED BY HEALTHCARE REFORM &
RESTRUCTURING
As a result of the strong growth in healthcare expenditures, for at least the next decade, and
likely much longer, the healthcare industry in the U.S. will be going through a period of
significant reform and restructuring as the increasing healthcare costs place unsustainable fiscal
burdens on government programs. After years of dire predictions and endless debate amongst
elected officials, pundits, corporate leaders, and patient advocacy groups, there is recognition
that long term healthcare liabilities are a critical issue and require broad reform to control their
growth before they lead to irreparable fiscal harm. While much of the attention in these
initiatives is focused on identifying opportunities to cut costs, the silver lining in them for
investors is that their objectives also seek to improve the quality of healthcare and to
substantially broaden the population that has access to healthcare services covered by third
party payment.
In the U.S., the Federal Government has laid the foundations for restructuring the healthcare
system through two key pieces of legislation. First, the HITECH Act provides large government
subsidies for the adoption of IT tools by healthcare providers. The Federal Government has
recognized that a fundamental underpinning of healthcare reform is a massive upgrade of the
information technology infrastructure at all levels of the industry, and through this legislation
has earmarked $26 billion dollars in direct subsidies to catalyze investment in this area.
The second key piece of legislation is the ACA, which is being implemented as a first step in the
overhaul of the U.S. healthcare system. The ACA was signed into law in the U.S. in 2010 and