Divergence, Inc.

Enabling Innovation Through Entrepreneurship –Divergence, Inc. and Start-ups in St. Louis

James McCarter, M.D., Ph.D.Senior Entrepreneur in Residence, BioGenerator

Adjunct Professor of Genetics, Washington University

Washington University Monsanto Graduate Fellows Symposium,

November 7, 2014

Divergence, Inc.

• Venture Café at Cambridge Innovation Center in CORTEX Every Thursday from 3-8pm –

Building a More Inclusive Innovation Economy –

www.vencafstl.org

• Quantified Self St. Louis – Self-Knowledge Through Numbers –

www.quantifiedstl.com

www.meetup.com/QS-STL

Entrepreneurship is a Contact Sport –Two Fun Ways to Dive Right In

Divergence, Inc.

• Accelerated innovation is needed to meet massive global challenges in health, food & environment.

• Entrepreneurship is uniquely positioned to drive innovation through creation of multidisciplinary teams with singular focus.

• The capital formation landscape is rapidly changing with the rise of angel investors, crowd sourcing & corporate venture.

• After a decade of capacity building, St. Louis’ entrepreneurial ecosystem is nearing critical mass.

• The mission & culture of WashU must expand from leading in knowledge creation to embrace innovation for societal impact.

• Students are leading WashU’s expansion into entrepreneurship.

Key Messages for Innovation & Entrepreneurship

Divergence, Inc.

ColleaguesDivergence: Derek Rapp, Jeremy Williams, Michelle Insco

Monsanto: Robb Fraley, Tom Adams, John HamerBioGenerator: Eric Gulve, Dan Broderick

Washington University: Jeff Milbrandt, Evan Kharasch

SlidesCortex Innovation District: Dennis Lower

St. Louis Regional Chamber: Jay DeLongBalsa and Idea Labs: Yinzi Liu, Avik Som

Thank You

Financial Disclosures: Cultivation Capital, Neurolutions, Mobius Therapeutics

Divergence, Inc.

Divergence – an “Overnight Success” that was a Decade in the Making

• St. Louis biotech acquired by Monsanto in 2011

• 3 products in agriculture & veterinary medicine

• Team of 25 scientists, world-class SAB including a Nobel laureate & 4 HHMI Investigators

• Reputation for scientific-excellence with 80 patents & publications and leadership in RNA interference

• Venture & angel financing of $21M, Revenue of $22M from contracts & 33 grants

5

Divergence, Inc.

TrichinellaWhipworm

Plant Parasites

C. elegans

Hookworm

AscarisFilarial WormsHeartwormPinworm

Livestock Strongylids

• Apply the public knowledge created by

WashU’s world-leading effort in

nematode genomics (McCarter & Waterston,

Mitreva & Wilson)

Divergence Mission: Develop Safe & Effective Products for the Control of Parasitic Nematodes in Humans, Animals, & Plants

Nematodes (roundworms) -• Most abundant animals• Infect 2 billion people• Cause >$80 billion in crop damage annually

Root-knotCystLesionReniform

Divergence, Inc.

Divergence – Genomics led to Superior Diagnostic Products that Can Replace Microscopy in Veterinary & Human Medicine

Plate ELISA for detection of hookworm, toxocara &

whipworm in dogs

IDEXX whipworm test, launched in 2014, detects infection a month

ahead of microscopy

Divergence achieved proof-of-concept for human Ascaris detection in Brazil(M. Crawford, Divergence)

Divergence, Inc.Lee and Jez, Structure 21:1778-87, 2013.

• PEAMT: Divergence discovered a unique and essential enzymatic pathway for nematode phosphocholine biosynthesis

• Partnered with Dr. Joe Jez at Danforth & WashU to characterize enzyme structure and function

2005 - The Pivot: Genomics led to “Divergent” Molecular Targets But Not Yet Pharmaceutical & Agrochemical Products

Divergence, Inc.

2005 - The Pivot: Divergence Leveraged its Strengths in Informatics to Create a New Computational Chemistry Platform

The Harvest Chemical Discovery Platform• Broad R&D platform for rapid and cost-effective

agrochemical discovery• Developed in collaboration with UK-based

Cresset Biomolecular Discovery• Able to search chemical structure space based

on electron distributions rather than 2D structures

• Resulted in discovery of a molecular series with novel mode of action, high potency, and safety far superior to commercial nematicide standards

Jeremy Williams, PhD Vice President,Discovery Research

Matt Dimmic, PhD Senior Director,ComputationalDiscovery Research

Divergence, Inc.

2009 - Jason Bond – Southern Illinois Univ.,Carmi IL, SCN Seed Treatment

Cysts Per Root at 5 weeks

0

10

20

30

40

DA-I DA-II oxamyl NT

1 mg/seed

2009 - Greg Tylka – Iowa State,Nevada IA, SCN Seed Treatment

Hg Reproductive Factor

0

5

10

15

20

25

DA-I DA-II oxamyl NT

1 mg/seed

Divergence Nematicide – SCN Reproduction Reduced at All Three Sites in Illinois and Iowa

SCN

Performance at 1 mg/seed comparable to the carbamate oxamyl.

(B. Shortt, Divergence)

Divergence, Inc.

Divergence Nematicide - Outstanding Mammalian Safety and Environmental Safety Profile

Compound Rat Oral LD50 (mg/kg)

Rat Dermal LD50 (mg/kg)

Rabbit Dermal Irritant

Rabbit Eye Irritant

DA-I >5000 >5000 None MildDA-II >5000 >5000 Slight Mild

Abamectin 11 >330 Slight Mild

Terbufos 1.3 1.1 Lethal Lethal

CompoundQuail LD50

(mg/kg)Bee LD50 (µg/bee)

Daphnia EC50 (µg/L)

Earthworm LD50

(mg/kg soil)DA-I >500 >25 >100 >100 DA-II >500 >25 >100 >100

Abamectin >2000 0.002 0.37 33

Terbufos 29 4.1 0.31 4

Divergence, Inc.

Be ready for everything to take longer than you expect.Just because others aren’t doing it doesn’t mean it’s notworth doing. Position yourself for exposure to smartexperienced people. Build a multidisciplinary and versatileteam. The best situation is being valued for products andplatform. Communicate fully with your team fora shared vision. Create incentives for your teamincluding ownership. Things change when you acceptinvestors’ money. Make every decision with an eyetoward the liquidity event. Do not obsess aboutvaluation. Find non-dilutive sources of funding. Leading astart-up company is an intensely personal experience.(Start-ups are risky but not starting is risky too.)

Paraphrasing a Dozen Start-up Lessons from Divergence CEO Derek Rapp

Forward-Looking StatementsCertain statements contained in this presentation are "forward-looking statements," such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, business and financial plans and other non-historical facts. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: continued competition in seeds, traits and agricultural chemicals; the company's exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public acceptance of biotechnology products; the success of the company's research and development activities; the outcomes of major lawsuits and the previously announced SEC investigation; developments related to foreign currencies and economies; successful operation of recent acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company's estimates related to distribution inventory levels; the company's ability to fund its short-term financing needs and to obtain payment for the products that it sells; the effect of weather conditions, natural disasters and accidents on the agriculture business or the company's facilities; and other risks and factors detailed in the company's most recent periodic report to the SEC. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this presentation. The company disclaims any current intention or obligation to update any forward-looking statements or any of the factors that may affect actual results.

Trademarks

Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. All other trademarks are the property of their respective owners.

© 2014 Monsanto Company

SOYBEAN CYST NEMATODEMONSANTO RESEARCH, SUMMER 2011

New Generation of Nematicide Could Provide Novel Formulations with Excellent Control

• Through the acquisition of Divergence, Monsanto has added a new nematicide to its pipeline

• Efficacy of new nematicide equal to competitive standards against multiple nematode species

• A variety of crops showing good results including corn, soy and cotton

• Regulatory submissions on track

EXPLORATORY NEMATICIDE CHEMISTRY

UNTREATED CONTROL

Phase 3Advanced Product

Development

Growth Ventures Creates Transformative Business and Technology Opportunities for Monsanto

Venture Capital - Gaining Earlier Access to External Innovation

• Sourcing from venture capital & entrepreneurial networks provides strategic insights to areas of disruptive innovation

• Entrepreneurs bring ideas from other industries and syndication leverages new capital to solve challenges in agriculture

SFO STL BOS

Innovation is concentrated in entrepreneurial ecosystems with leading research centers, VCs, angel investors, incubators, accelerators, etc.

Venture Capital - Gaining Earlier Access to External Innovation

• Investment builds a portfolio of early-stage assets with opportunities for partnering, licensing, talent, and M&A

• Monsanto Growth Ventures VC team has sourced investments and additional deals (licenses, etc.) from hundreds of leads

Growth Ventures Creates Transformative Business and Technology Opportunities for Monsanto

Doubling Yields with 1/3 Less Inputs by 2030 vs. 2000 –Farming in the Future Will Be Increasingly Information-Driven

San Francisco Bay Area Dominants U.S. Venture Capital Investments Followed by Boston

SFO

STL

BOS

Innovation is concentrated in entrepreneurial ecosystems with leading research centers, VCs, angel investors, incubators, accelerators, etc.

PWC Moneytree Venture Capital Report, 2013.

Wash UStart-up

OlinCup

BioGenerator Arch Grants

Arch Angels

Cultivation Capital

Missouri Technology Corporation

Cardialen

(A-fib device)

Sparo Labs

(Asthma device)

( )

St. Louis now has >$2B in

Venture CapitalUnder Management

the non-profit Venture Arm of BioSTL has…• Created & funded 50 start-ups

• Invested $8 million, leveraged 20:1 with over $170 million in additional investment & revenue

• BioGenerator Accelerator Lab; 18,000 square feet of office & lab space, free for start-ups

• Entrepreneur in Residence Program; 16 experienced EIRs have mentored over 100 companies

• Funded WashU start-ups Cardialen, Neurolutions & PixelEXX

• Launched in 2012, Arch Grants is a non-profit creating a game-changing entrepreneurial culture and infrastructure to create jobs & attract talent to St. Louis

• Arch Grants funded companies are winners of an international start-up competition that has attracted 1,600 applications from 40 states and 20 countries

• 55 starts-up have been awarded $50K each in non-dilutive financing to launch in St. Louis

• With $3M in grant funding, companies have generated $50M in revenue & follow-on capital, 53 remain viable and St. Louis-based

• Funded WashU start-ups Sparo Labs, MagBiosense, NanoDx

Biotech Has Been Joined By a Thriving IT Start-up Scene That Boosted St. Louis Capital Raised in 2013 to $380 Million

Transform a 200-acre midtown industrial neighborhood into a vibrant, 24-7, live-work-play-learn innovation community

Transform a 200-acre midtown industrial neighborhood into a vibrant, 24-7, live-work-play-learn innovation community

• $2 billion development • 3.7 million square feet • 13,000 permanent jobs• 5 Innovation Centers • Green space & transit

• Launched in 2010• Consulting for Bioscience Companies• 200 Student Participants• 73 Consulting Projects for 37 clients• 28 WashU OTM Technologies• e.g. Business plans for start-ups

• Launched in 2013• Biomedical Engineering Innovations• 100 Student Participants• 14 Teams with inventions based on clinician-identified challenges• e.g. Cursor control for locked-in patients

Student Groups Are Creating a Culture of Entrepreneurship at Washington University

Divergence, Inc.

• Accelerated innovation is needed to meet massive global challenges in health, food & environment.

• Entrepreneurship is uniquely positioned to drive innovation through creation of multidisciplinary teams with singular focus.

• The capital formation landscape is rapidly changing with the rise of angel investors, crowd sourcing & corporate venture.

• After a decade of capacity building, St. Louis’ entrepreneurial ecosystem is nearing critical mass.

• The mission & culture of WashU must expand from leading in knowledge creation to embrace innovation for societal impact.

• Students are leading WashU’s expansion into entrepreneurship.

Key Messages for Innovation & Entrepreneurship

NEEDS: Successful exits for repeat investments &

serial entrepreneurs.

NEEDS: Leadership for an entrepreneurial culture

Thank you to Monsanto for support of St. Louis innovation & science education.

Appendix

Divergence, Inc.

Soybeans damaged by SCN

U.S. SCN distribution

Uptake of plant proteins into the SCN intestine

(B. Gao & M. Hresko, Divergence)

Soybean Cyst Nematode (SCN) is the Most Important Disease of U.S. Soybeans

• Over $1 billion in lost yield annually in U.S. alone• Yield losses of 30% without above ground symptoms• Neurotoxic pesticides out of favor with growers & regulators• Rapid breaking of genetic resistance in the field

Our Vision: Sustainable AgricultureA Strong Vision That Guides All We Do

• Producing More– We are committed to increasing yields to meet

the growing demand for food, fiber & fuel

• Conserving More– We are committed to reducing the amount

of land, water and energy needed to grow our crops

• Improving Lives– We are committed to improving lives around

the world

Monsanto’s Goal: Double Yields with 1/3 Less Inputs by 2030 versus the year 2000

Headquarters: St. Louis, MOTotal employees: ~22,000Global locations: >500Net Sales (FY13) $14.9 billion

United States

Latin America North

Brazil

Argentina

EU 27

India

Australia

Corn Soybeans Cotton

Vegetables Roundup®

Primary Markets

Monsanto Company is a leading global provider of technology-based tools and agricultural products that improve farm productivity and food quality.

Monsanto is 100% Focused on Agriculture

“We succeed when farmers succeed.”-Hugh Grant, Monsanto CEO

Genetically Modified Crops Produce Food That is as Safe and Nutritious as Conventional

USED FOR GMO CROPS SINCE 1996

ACRES OF FARMLAND3.95 Billion

SUPPORT THAT GMO CROPS ARE JUST AS SAFE AS THOSE DEVELOPED THROUGH TRADITIONAL BREEDING

ACADEMICSTUDIES1000+

THAT GMO CROPS HAVE BEEN RESEARCHED AND DEVELOPED

YEARS30

ON AVERAGE TO DEVELOP AND TEST GM SEEDSBEFORE THEY’RE GROWN COMMERCIALLY IN THE U.S.

YEARS13

WHERE GM CROPS HAVE BEEN APPROVED FOR CULTIVATION OR IMPORT

COUNTRIES63

www.gmoanswers.com

Agriculture is at the Center of Global Changes

1990 20121980 2050TODAY

4.4B

7.1B9.6B+

1 ACREper person in

1961

less than1/3 ACRE

per person in

2050 DIETARY PERCENTAGE OF MEAT

9%in 1965

14%in 2030

CHANGING

CHANGINGRISING

DECLINING

Challenges

Source: The World Bank, Food and Agriculture Organization of the United Nations (FAO-STAT), Monsanto Internal Calculations

Innovation

BIOLOGICALS

INTEGRATED FARMINGSYSTEMSSM

CROP PROTECTION

AGRONOMIC PRACTICES

Monsanto’s R&D Pipeline Builds on a History of Innovation in Agriculture

2000s1990s1980s

BIOTECHNOLOGY

BREEDING

General Farm Planning

Weed Control Program

Row Spacing

Variety/HybridSelection

Refuge Options

Plant Population

Seed Treatment

Soil Insecticides

Pre-Plant Irrigation

Fertility Program

pH Management

Burn-Down Program

Tillage Level

Primary Tillage Program

Seed Depth

Planting SpeedThrough the Field

Other Planting Operation Decisions

Plant Population

Starter Fertilizer

Herbicide Application

Soil Insecticides

Fungicide Application –In-Furrow

Variety/HybridSelection In-Field

Keep Stand or Re-Plant

Post-Emergent Herbicide Application

Foliar Insect Control

Fertility Program

Foliar Disease Control

Irrigation Application In-Season

Equipment

Timing

Storage

Post-HarvestAssessment

PLANTING IN-SEASONPRE-PLANTING HARVESTPLANNING

Grower Decisions Over the Year –Farming in the Future Will Be Increasingly Information-Driven

• Innovation requires a scientifically literate public & talented young scientists from diverse backgrounds• YSP was launched in 1991 to promote science literacy and attract high school students from disadvantaged backgrounds into scientific careers through hands-on research and contact with active scientists• Each year more than 100 graduate student volunteers reach 1000 students in local public schools• More than 250 high school juniors have completed research internships at WashU – the majority major in science in college and 1/3rd complete a graduate degree• YSP is supported by the Endowment for Science Literacy at WashU

And One Last Message … The Importance of Science Literacy