ANNUAL

INVESTMENT

REPORT2015

2015 was a great year for

investment in Minnesota

Sponsored by

Key Findings

+ Minnesota health technology investment reaches record $434.9M in 2015, the second consecutive year over

$430M (2014 $430.9M)

+ 101 companies secure investment in 2015, a record high - up from 87 in 2014

+ $189M invested in Q4 2015 surpassing the previous quarter high in Q2 2009 by 35% ($140.3M)

+ Medical device has third consecutive year of investment over $300M ($300.3M, $322.4M, and $302M)

+ Digital health investment reaches $67.1M, up 59% from 2014

2015 Reaches Record Investment High

2015: Strong Q4 brings health technology

investments to $434.9M, up $4M from 2014

+ $865.8M invested in Minnesota health technology

companies in 2014-2015 up 44% from 2012-2013 ($600.5M)

+ Major raises include:

+ NX Thera ($43M)

+ Enteromedics ($41M)

+ Cardionomic ($21.8M)

+ Conventus Orthopaedics ($23.4M)

+ Novu ($20M)

+ Ativa Medical ($15.2M)

+ $189M invested in Q4 2015 surpasses previous

quarter high by 35% ($140.3M Q2 2009)

+ Q4 2015 up 59% over Q4 2014 ($119M), up 120%

over Q3 2015

Q4 2015 Best Quarter On Record

Record Number of Companies Raise Money In 2015

2015 Best Year for Large Deals

+ 18 companies raise $7M+ in 2015, highest on record

+ Deal size composition remains consistent with 2014: 47% of

deals less than $1M

+ On average, 2014-2015 companies raising $7M+ up 59%

from 2011-2013

+ 72% of firms raising $7M+ are medical device: digital health is

second with 17%

+ 2015 reaches new high in dollars ($91.2M) going to companies

securing first investment

+ Companies receiving first financing in 2015 (44) more than

doubles, up 132% from 2014 (19)

+ 21% of 2015 investment dollars go to companies receiving first

financing, up from 7.6% in 2014, an increase of 177%

+ 39% of companies securing first-raise funds are medical device

followed by digital health (23%), pharmaceuticals (16%), and

diagnostics (7%)

MN Replenishes the Pipeline of NewCos

SUBSECTORS

Medical Device and Digital Health Lead in Dollars and Companies

Investment in life sciences remains robust and it’s very encouraging to see the

increase in the number of companies receiving their first round of funding. It is

this activity that contributed to Square 1 opening a new office in Minneapolis a

year ago, expanding our footprint in the life sciences and venture capital

communities in the Midwest.

“

” - Jay McNeilManaging Director, Life Sciences

Square 1 Bank

A Division of Pacific Western Bank

When it comes to cardiac and neuromodulation therapies, Minnesota is a global leader. Steve Goedeke, CEO and President of

Cardionomic, sees the capabilities of Minnesota’s companies and individuals as important factors of Cardionomic’s success in raising

a $20M A Round.

While Cardionomic’s top-tier backers include NEA, The Cleveland Clinic and Greatbatch Medical, raising funds for the company was

still very challenging. “It’s a difficult funding environment for early stage companies. Industry mergers, evolving VC strategies and the

vagaries of timing can result in a small number of potential funding sources at any given moment. Strong clinical evidence, issued

patents, well respected advisors and most importantly, persistence, were vital to our success," said Goedeke.

2015 Investment Profile: Cardionomic

Steve Goedeke

CEO & President

Virtually everything we need to be successful can be found in the local

ecosystem. The pool of talented people, vendors and partners is among

the best in the world which significantly reduces execution risk.

“

”

“Minnesota has a deep medtech bench,” commented Goedeke. “Virtually everything we need to be successful can be found in the local ecosystem. The pool of

talented people, vendors and partners is among the best in the world which significantly reduces execution risk.”

Cardionomic’s neuromodulation technology targets improved cardiac output to treat acute decompensated heart failure. As the President of Denali Medical II, a

venture-backed incubator, Goedeke knew that investors would want to see a compelling market, talented team, reasonable mechanism of action (MOA) and

clinical evidence before funding the program. With that criteria in mind, “We made an early strategic decision to focus on the creation of clinical evidence that

demonstrated the MOA. Towards that end, we created a 19 patient human data set for about $2M. This demonstrated capital efficiency to our current and potential

investors while creating a compelling and fundable story,” said Goedeke.

2015 Investment Profile: Cardionomic

Medical Device

Medical Device Investment Tops $300M for Third

Consecutive Year

+ In the last 3 years, medical device firms secure $924.7M in

investment

+ 2013 - 2015 average investment ($308.2M), up 47% over 2011-

2012 ($209.6M)

+ 46 companies secure investment, up from 43 in 2014

+ 2015 medical device median deal size is $1M

2015 Investment Profile: Pursuit Vascular

Doug Killion

President & CEO

Pursuit Vascular closed on $5.1M Series B from Angel Investors: Funds used to complete large scale clinical studies, ramp up

manufacturing 100-fold and launch its first product.

Managing over 30 individual investors is no problem for Pursuit Vascular, a medical device firm developing a family of single-use

products that protect patients from costly and deadly infections associated with long-term catheters.

“Securing initial funding for new ideas has become harder,” commented Doug Killion, President and CEO of Pursuit Vascular. “To

attract investors, target a big clinical problem with a product that provides better quality of care and lowers cost. It also helps if the

technology is easy to understand when working with angel investors.”

“If you do what you say you are going to do and achieve your milestones, then securing follow-on funding is much easier,” said Killion.

As evidence of this, Killion closed on a $5.1M Series B round in March 2015.

…the cost of doing business is a better value in Minnesota. We would

likely have needed substantially more if we were located on the coasts. “

”

2015 Investment Profile: Pursuit Vascular

The funds were used in part to complete large-scale randomized clinical studies. “The data for the first study is in and the results are outstanding,” commented

Killion. “A study done in collaboration with Fresenius Medical Care found clear and significant reductions in both bloodstream infections and hospitalizations due to

infection with use of ClearGuard HD antimicrobial barrier caps in patients undergoing dialysis treatment.”

The positive clinical data is fueling the need to ramp up manufacturing capacity 100-fold in advance of launch. “The novel ClearGuard HD Antimicrobial Barrier Cap

is a first-of-its-kind device, and has already been cleared for sale in the U.S. Indicative of the clinical need, the approval of the device triggered the creation of a new

Product Code by the FDA,” Killion said.

Being located in Minnesota helped contribute to Pursuit Vascular’s success. “Our angel investors know the medical device space. In terms of talent, everything you

need is here – research & development, regulatory, clinical, quality and manufacturing. Finally, the cost of doing business is a better value in Minnesota. We would

likely have needed substantially more if we were located on the coasts.”

Securing initial funding for new ideas has become harder. To attract investors,

target a big clinical problem with a product that provides better quality of care

and lowers cost.

“

”

Medical Device

2015 Sees Highest Number of

$3M+ Investments

+ 20 companies raise $3M+, an 18% increase

over 2014 (17)

+ Notable raises include:

+ NX Thera ($43M)

+ Enteromedics ($41M)

+ Conventus Orthopedics ($23.4M)

+ Zyga Technology ($20M)

+ Skyline Medical ($13.5M)

+ Sunshine Heart ($10.3M)

Medical Device

732% Increase in First-Time Financing Dollars for

Medical Device Firms

+ 20% of medical device investment dollars in 2015 are going to initial

raise, up from 4.9%, 3.7% and 2.3% in 2012-2014 respectively

+ 63% of companies in 2015 are securing follow-on funding, down from

88% in 2014

+ Median deal size for first raise is $1M, $1.4M, $0.44M, and $0.31M from

2015 to 2012 respectively

Digital Health

Digital Health Investment Continues to Rise, Up 59%

+ Digital health investment reaches record high at $67.1M

+ 2015 up $24.8M over 2014 (59%)

+ 2014 up $13.4M over 2013 (46%)

+ 2013 up $14.2M over 2012 (97%)

+ Second year in a row with 22 companies funded

Digital Health

2015 Continues Digital Health Trend to

Larger Deal Size

+ In 2015, 10 companies raise $1M+, up 43% from

2014 and 100% from 2013

+ Notable raises include

+ Novu ($20M)

+ Zipnosis ($17M)

+ Gravie ($12.5M)

+ Oneome ($3.4M)

Personalized medicine company, Oneome, secured $3.3M in funding to expand offering to include comprehensive dynamic

pharmacogenomics analysis and clinical decision support at the point of care.

Although this is the company’s first funding round, they have already come a long way. Oneome, a spin out from Invenshure, a digital

health incubator and the Mayo Clinic’s Ventures and Center for Individualized Medicine, is rapidly developing and deploying the

pharmacogenomics platform and clinical decision support.

2015 Investment Profile: Oneome

Troy KopischkeCEO

Resources in MN tend to be more loyal and committed to seeing

projects through to completion. In fact, there are many examples of

technologies that would have been very difficult to build on either

coast due to the loss of domain knowledge in talent transition.

“

”

“The technology is already live at Mayo Clinic through the Center for Individualized Medicine,” said Troy Kopischke, Oneome CEO.

“Our current platform uses patient genetic profiles to determine the safety and metabolic uptake of the top 230 drugs, and by the end

of Q1 2016 we anticipate being able to provide information on the top 350. The second component is dynamic integration of patient

information including existing prescriptions, allergies, and drug-to-drug interactions to deliver timely evidence-based decisions at the

point of care.”

Securing the $3.3M was not difficult. “Within the digital health sector, we’ve been successful securing over $20M from the local angel

community for Oneome and other companies in the Invenshure portfolio,” commented Kopischke. “Although money flows differently

in Minnesota compared to the Bay area, Minnesota has a robust angel network and strategics willing to back good ideas with strong

management teams. Regional funding sources are less likely to get distracted by the next flashy thing.”

Kopischke notes that in Minnesota, both investors and talent have more aligned core values. “Resources in Minnesota tend to be

more loyal and committed to seeing projects through to completion. In fact, there are many examples of technologies that would have

been very difficult to build on either coast due to the loss of domain knowledge in talent transition.”

When it comes to offering advice to other entrepreneurs, Kopischke states, “It’s a lot of what you already know; a well thought out

idea, a management team with a good track record, hiring people smarter than yourself and finding mentors that share your passion

during the various stages of growing companies. There are a lot of great ideas out there but it takes hard work, financial backing and

execution to successfully bring them to market.”

2015 Investment Profile continued: Oneome

Digital Health

Digital Health Follow-on Investment Up from 2014

+ Digital health follow-on funding dollars up 65% in 2015

+ Digital health first-raise dollars up 24% however 2015 continues trend

of decreasing percent of total dollars (33.3%, 22.5%, 15.6%, 12.2% in

2012-2015 respectively)

+ Median deal size of first-raise continues to increase ($0.2M, 0.3M,

0.4M, and 0.5M in 2012-2015 respectively)

Diagnostics

Diagnostics Investment Reaches High with $27.2M

+ Diagnostics investment up 253% over 2014 and tops previous high

(2012 $25.3M) by 8%

+ Companies securing funds in 2015 up 167% from 2014

+ Increase in dollars driven by raises from Ativa Medical ($15.2M), AUM

Cardiovascular ($5M) and Rapid Diagnostek

2015 Investment Profile: Osprey Medical

Mike McCormick

President & CEO

Osprey Medical, a Minnesota company committed to protecting patients from the harmful effects of contrast dye, raised $14M USD of

development capital in Q1 of 2015 on the Australian Stock Exchange (ASX).

Mike McCormick, President and CEO of Osprey Medical, became acutely aware of the need for technology that would reduce the

amount of dye used in angiographic procedures after he lost his father-in-law to a contrast dye event. These routine procedures can

result in death of up to 20% of patients who develop contrast-induced acute kidney injury.

McCormick is proud to say they have the only FDA-approved system to reduce the amount of contrast media required in heart

procedures without impacting image quality. In March of 2015 they raised $14M USD to generate data to expand marketing claims and

initiate US sales for the device.

First and foremost, focus on patient benefit and generating tier one

scientific evidence that supports those patient benefits. If you do

that, funding will follow.

“

”

2015 Investment Profile: Osprey Medical

“Although our technology came from Australia, we were always headquartered in the US with 19 full-time employees in Minnesota.” commented McCormick.

However, he is quick to acknowledge that both Australia and Minnesota have offered benefits to Osprey.

“In Minnesota we have access to engineering talent, quality suppliers, and a wealth of service providers that allow us to operate virtually. In Australia, we had a

syndicate of VC investors and in 2012 we went public on the ASX which has been a great funding source for Osprey to get through early clinical and early

commercialization efforts.”

In regard to advice for other entrepreneurs, McCormick offers “First and foremost, focus on patient benefit and generating tier one scientific evidence that supports

those patient benefits. If you do that, funding will follow.”

Diagnostics

Diagnostic Firms See Boost in

Investment in 2015

+ 167% increase from 2014 in the number

of diagnostic companies receiving

investment

+ 38% of investments $3M+

+ Notable raises include:

+ Ativa Medical ($15.1M)

+ Aum Cardiovascular ($5M)+ Rapid Diagnostek

Pharmaceuticals

Pharmaceutical Investment Second Highest in Seven

Years

+ In 2015, pharmaceutical firms raise $28.2M, second only to 2014

+ Record number of companies raise funds in 2015 (13), up 18% from

previous high in 2014

+ 2014-2015 investment average $38.7M, up 590% over 2011-2013

average $5.6M

Pharmaceuticals

Early-Stage Investments Spike in

MN Pharmaceuticals Sector

+ Early-stage investments (<$1M) up 60% from

2014 and 167% from 2013

+ 2015 sees most diversity in deal size

+ Notable raises include

+ Minnesota Medical Solutions ($16.6M)

+ Spine Thera ($3.5M)

+ Aurora Pharmaceuticals ($2.4M)

Stemonix has made significant progress in forming a world-class team, scaling manufacturing techniques and meeting key milestones

in less than two years. StemoniX is an early-stage regenerative medicine diagnostic company focused on producing high-volume 2D

and 3D stem cell-derived human tissue for custom drug discovery and personalized medicine applications.

“A critical thing to do as an entrepreneur is to really discover your company's product market fit and lean startup methods are quite

effective at that. By talking to customers early we were able to pivot before expending capital” offered Ping Yeh, the founder and CEO

of StemoniX . Yeh's approach translated to $3M of funding and partnerships to achieve their mission of accelerating the discovery of

new cures.

2015 Investment Profile: Stemonix

Ping YehCEO

A critical thing to do as an entrepreneur is to really discover your

company's product market fit and lean startup methods are quite effective

at that. By talking to customers early we were able to pivot before

expending capital.

“

”

“We vaulted Stemonix forward by partnering with the best expertise - regardless of geography” commented Yeh. “We are a Minnesota company with R&D in San

Diego. In the next 6 months, we are going to be scaling our manufacturing and there are few places better to do that than MN.” Yeh continues, “There is great value

in being able to take the knowledge and connections we've established and merge them with the medical manufacturing expertise that exists locally.”

“Minnesota has an underappreciated regenerative medicine ecosystem,” said Yeh, explaining his reasoning for establishing the company in Minnesota. “There is a

strong commitment from the state to invest in building out an ecosystem that supports the diversity of technologies and business models. Additionally, there is talent

coming out of the University of Minnesota and it’s home to leading organizations in transplant medicine such as Be the Match.”

2015 Investment Profile: Stemonix

Medical Alley Association’s intelligence and research work is generously

supported by our Foundational and Sustaining Members.

FOUNDATIONAL MEMBERS

SUSTAINING MEMBERS

Medical Alley Association would like to thank Square 1 Bank

for their sponsorship of the 2015 Annual Report

Although we monitor a variety of sources for investment activity, we

believe there is more to capture.

Please help us by reporting your company's fundraising events as

they happen.

Anything shared with us is confidential and will be deidentified before

being incorporated into aggregate data for our reports.

To share information, please contact Cheryl Matter, PhD, VP of

Intelligence & Research, at cmatter@medicalalley.org or 952.746.3817

Report Your Investment

METHODSInvestment data was collected from a variety of sources including:

• Minnesota Angel Investment Tax Credit program

• SEC filings

• Company press releases

• News publications

• Company Reporting

• Evaluate MedTech

• CB Insights

Duplicate data has been removed to arrive at the investment numbers.

While most data is available in public sources, Medical Alley Association does not

release the list of companies that have raised money unless an individual firm has first

made its own public announcement.

For this report, the health technology is defined as medical device, pharmaceutical,

biotechnology, diagnostic, and digital health technologies.

Contact UsCheryl Matter, PhD

VP, Intelligence & Research

Medical Alley Association

4150 Olson Memorial Hwy, Suite 430

Golden Valley, MN 55422

Email: cmatter@MedicalAlley.org

Phone: 952.746.3817

MedicalAlley.org