EFTA00586852.pdf

Copy No. PRIVATE PLACEMENT MEMORANDUM [DST] [DST Healthcare ITO BE REVIEED BY LEGAL TEAMI THE LIMITED PARTNERSHIP INTERESTS IN THE FUND DESCRIBED HEREIN (THE "INTERESTS") HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT') OF THE UNITED STATES OF AMERICA (THE "U.S.') OR THE SECURITIES LAWS OF ANY OTHER COUNTRY OR JURISDICTION. THE ISSUER IS RELYING ON EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION. INVESTORS MAY BE REQUIRED TO HOLD THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. OTHER IMPORTANT RISK FACTORS ARE EXPLAINED IN DETAIL IN THIS DOCUMENT. NO GOVERNMENTAL AUTHORITY HAS APPROVED, DISAPPROVED, ENDORSED, OR RECOMMENDED THIS OFFERING. NO INDEPENDENT PERSON HAS CONFIRMED THE ACCURACY OR TRUTHFULNESS OF THIS DISCLOSURE, NOR WHETHER IT IS COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL. SEE APPENDIX A - CERTAIN SECURITIES LAW MATTERS FOR INVESTORS. (JANUARY 2014] STRICTLY CONFIDENTIAL EFTA00586852 THIS DOCUMENT IS A PRELIMINARY DOCUMENT BEING ISSUED IN DRAFT FORM FOR INFORMATION ONLY. THIS PRELIMINARY PRIVATE PLACEMENT MEMORANDUM (THE "MEMORANDUM") DOES NOT CONSTITUTE AN OFFER TO ACQUIRE ANY INTERESTS IN DST GLOBAL III, "FUND"). AN INVESTOR WHO SUBSEQUENTLY ACQUIRES INTERESTS `(THE IN THE FUND MUST RELY ON THE TERMS OF AND DISCLOSURE IN THE LIMITED PARTNERSHIP AGREEMENT AND SUBSCRIPTION AGREEMENTS FOR THE FUND. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE INTERESTS AS TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. WITHIN THE US. THIS OFFERING IS MADE AS A PRIVATE PLACEMENT PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT, AND ONLY TO PARTIES THAT ARE "ACCREDITED INVESTORS" AS U.S. DEFINED IN RULE 501(A) OF REGULATION D UNDER THE SECURITIES ACT. OUTSIDE THE U.S., THIS OFFERING IS MADE PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, ONLY TO PARTIES THAT ARE NOT "U.S. PERSONS" AS DEFINED IN SUCH REGULATION, AND PURSUANT TO EXEMPTIONS FROM APPLICABLE SECURITIES LAWS OF OTHER COUNTRIES ("NON-US. SECURITIES LAWS"). SEE APPENDIX A - CERTAIN SECURITIES LAW MATTERS FOR INVESTORS. THIS MEMORANDUM IS NOT A PROSPECTUS OR AN ADVERTISEMENT, AND THE OFFERING IS NOT BEING MADE TO THE PUBLIC. THIS OFFERING IS MADE IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND NON-U.S. SECURITIES LAWS AS DESCRIBED ABOVE. THE FUND WILL NOT BE OBLIGATED TO REGISTER THE INTERESTS UNDER THE SECURITIES ACT OR ANY NON-U.S. SECURITIES LAWS IN THE FUTURE. THERE CURRENTLY IS NO PUBLIC OR OTHER MARKET FOR THE INTERESTS AND THE GENERAL PARTNER OF THE FUND (THE "GENERAL PARTNER") DOES NOT EXPECT THAT ANY SUCH MARKET WILL DEVELOP. ALL OF THE INTERESTS, WHETHER ACQUIRED WITHIN THE U.S. OR OUTSIDE THE U.S. WILL BE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT AND THEREFORE MAY NOT BE TRANSFERRED BY A HOLDER THEREOF WITHIN THE U.S. OR TO A "U.S. PERSON" UNLESS SUCH TRANSFER IS MADE PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, PURSUANT TO AN EXEMPTION THEREFROM, OR IN A TRANSACTION OUTSIDE THE U.S. PURSUANT TO THE RESALE PROVISIONS OF REGULATION S. MOREOVER, THE INTERESTS MAY BE TRANSFERRED ONLY WITH THE CONSENT OF THE GENERAL PARTNER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. THE INTERESTS ARE SPECULATIVE AND PRESENT A HIGH DEGREE OF RISK. SEE SECTION VIII - CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS. INVESTORS IN THE FUND ("INVESTORS') MUST BE PREPARED TO BEAR SUCH RISK FOR AN INDEFINITE PERIOD OF TIME AND ABLE TO WITHSTAND A TOTAL LOSS OF THE AMOUNT INVESTED. THE INTERESTS ARE BEING OFFERED SUBJECT TO VARIOUS CONDITIONS, INCLUDING: (A) WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFER WITHOUT NOTICE; (B) THE RIGHT OF THE GENERAL PARTNER TO REJECT ANY SUBSCRIPTION FOR AN INTEREST, IN WHOLE OR IN PART, FOR ANY REASON; AND (C) THE APPROVAL OF CERTAIN MATTERS BY LEGAL COUNSEL. EACH PROSPECTIVE INVESTOR IS RESPONSIBLE FOR ITS OWN COSTS IN CONSIDERING AN INVESTMENT IN AN INTEREST. NEITHER THE GENERAL PARTNER NOR THE FUND SHALL HAVE ANY LIABILITY TO A PROSPECTIVE INVESTOR WHOSE SUBSCRIPTION IS REJECTED OR PREEMPTED. THE INFORMATION SET FORTH IN THIS MEMORANDUM IS CONFIDENTIAL AND INCLUDES TRADE SECRETS THE DISCLOSURE OF WHICH WOULD CAUSE HARM TO THE GENERAL PARTNER AND OTHER PARTIES. RECEIPT AND ACCEPTANCE OF THIS MEMORANDUM STRICTLY CONFIDENTIAL EFTA00586853 SHALL CONSTITUTE AN AGREEMENT BY THE RECIPIENT THAT THIS MEMORANDUM SHALL NOT BE REPRODUCED OR USED FOR ANY PURPOSE OTHER THAN IN CONNECTION WITH THE RECIPIENT'S EVALUATION OF AN INVESTMENT IN AN INTEREST. THIS MEMORANDUM IS THE PROPERTY OF THE GENERAL PARTNER AND, EXCEPT AS HELD BY A LIMITED PARTNER OF THE FUND, MUST BE RETURNED UPON REQUEST. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR TO GIVE ANY INFORMATION WITH RESPECT TO THE FUND, THE GENERAL PARTNER, OR THE INTERESTS, OTHER THAN AS CONTAINED IN THIS MEMORANDUM, THE FUND'S PARTNERSHIP AGREEMENT, THE SUBSCRIPTION AGREEMENT TO BE EXECUTED BY EACH INVESTOR, OR AN OFFICIAL WRITTEN SUPPLEMENT TO THIS MEMORANDUM APPROVED BY THE GENERAL PARTNER PROSPECTIVE INVESTORS ARE CAUTIONED AGAINST RELYING UPON INFORMATION OR REPRESENTATIONS FROM ANY OTHER SOURCE. NOTWITHSTANDING THE FOREGOING, A PROSPECTIVE INVESTOR MAY RELY UPON WRITTEN RESPONSES TO ITS INQUIRIES THAT ARE CLEARLY MARKED BY AN OFFICER OF THE GENERAL PARTNER AS INTENDED TO BE RELIED UPON BY SUCH PROSPECTIVE INVESTOR. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THIS MEMORANDUM AS INVESTMENT, LEGAL OR TAX ADVICE AND THIS MEMORANDUM IS NOT INTENDED TO PROVIDE THE SOLE BASIS FOR ANY EVALUATION OF AN INVESTMENT IN AN INTEREST. PRIOR TO ACQUIRING AN INTEREST, A PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN LEGAL, INVESTMENT, TAX, ACCOUNTING, AND OTHER ADVISORS TO DETERMINE THE POTENTIAL BENEFITS, BURDENS AND OTHER CONSEQUENCES OF SUCH INVESTMENT. IN PARTICULAR, IT IS THE RESPONSIBILITY OF EACH INVESTOR TO ENSURE THAT THE LEGAL AND REGULATORY REQUIREMENTS OF ANY RELEVANT JURISDICTION OUTSIDE THE U.S. ARE SATISFIED IN CONNECTION WITH SUCH INVESTOR'S ACQUISITION OF AN INTEREST. CERTAIN DOCUMENTS RELATING TO THE FUND WILL BE COMPLEX OR TECHNICAL IN NATURE, AND PROSPECTIVE INVESTORS MAY REQUIRE THE ASSISTANCE OF LEGAL COUNSEL TO PROPERLY ASSESS THE IMPLICATIONS OF THE TERMS AND CONDITIONS SET FORTH THEREIN. LEGAL COUNSEL TO THE FUND AND THE GENERAL PARTNER WILL REPRESENT THE. INTERESTS SOLELY OF THE FUND AND THE GENERAL PARTNER NO LEGAL COUNSEL HAS BEEN ENGAGED BY THE FUND OR THE GENERAL PARTNER TO REPRESENT THE INTERESTS OF PROSPECTIVE INVESTORS. EACH PROSPECTIVE INVESTOR IS URGED TO ENGAGE AND CONSULT WITH ITS OWN LEGAL COUNSEL IN REVIEWING DOCUMENTS RELATING TO THE FUND. TO ENSURE COMPLIANCE WITH U.S. INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY ANY PERSON FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON UNDER THE U.S. INTERNAL REVENUE CODE OF 1986. AS AMENDED (THE 'CODE"), (B) SUCH DISCUSSION IS INCLUDED IN THIS MEMORANDUM IN CONNECTION WITH THE PROMOTION OR MARKETING OF INTERESTS IN THE FUND, AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR EXCEPT WHERE OTHERWISE SPECIFICALLY INDICATED, THIS MEMORANDUM SPEAKS AS OF THE DATE HEREOF. NEITHER THE SUBSEQUENT DELIVERY OF THIS MEMORANDUM NOR ANY SALE OF INTERESTS SHALL BE DEEMED A REPRESENTATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS, PROSPECTS OR ATTRIBUTES OF THE FUND SINCE THE DATE HEREOF. ALL DUTIES TO UPDATE THIS MEMORANDUM ARE HEREBY DISCLAIMED. EXCEPT AS EXPRESSLY STATED TO THE CONTRARY THEREIN, ANY OFFICIAL SUPPLEMENT OR UPDATE TO THIS MEMORANDUM SHALL BE DEEMED TO ADDRESS ONLY STRICTLY CONFIDENTIAL ii EFTA00586854 THE SPECIFIC SUBJECT MATTER THEREOF AND SHALL NOT BE DEEMED A REPRESENTATION THAT THERE HAS BEEN NO OTHER CHANGE IN THE AFFAIRS, PROSPECTS OR ATTRIBUTES OF THE FUND SINCE THE DATE HEREOF. THIS MEMORANDUM SUPERSEDES ALL PRIOR VERSIONS. FROM AND AFTER THE DATE OF THIS MEMORANDUM, PRIOR VERSIONS OF THIS MEMORANDUM MAY NOT BE RELIED UPON. NOTHING CONTAINED HEREIN IS, OR SHOULD BE RELIED UPON AS, A PROMISE OR REPRESENTATION AS TO THE FUTURE PERFORMANCE OF THE FUND. STATEMENTS, ESTIMATES, TARGETS AND PROJECTIONS WITH RESPECT TO SUCH FUTURE PERFORMANCE SET FORTH IN THIS MEMORANDUM ARE BASED UPON ASSUMPTIONS MADE BY THE GENERAL PARTNER WHICH MAY OR MAY NOT PROVE TO BE CORRECT. NO REPRESENTATION IS MADE AS TO THE ACCURACY OF SUCH STATEMENTS, ESTIMATES, TARGETS AND PROJECTIONS. SIMILARLY, NOTHING CONTAINED HEREIN IS, OR SHOULD BE RELIED UPON AS, A PROMISE OR REPRESENTATION AS TO THE EXTERNAL CONDITIONS AND CIRCUMSTANCES UNDER WHICH THE FUND WILL OPERATE (INCLUDING, WITHOUT LIMITATION, OVERALL MARKET CONDITIONS, TECHNOLOGY DEVELOPMENTS AND OTHER MATTERS OUTSIDE THE CONTROL OF THE GENERAL PARTNER). OVERALL, PROSPECTIVE INVESTORS MUST NOT RELY UPON ANY MATTERS DESCRIBED IN THIS MEMORANDUM THAT ARE NOT WHOLLY WITHIN THE CONTROL OF THE GENERAL PARTNER. EVEN WITH REGARD TO MATTERS WHOLLY WITHIN THE CONTROL OF THE GENERAL PARTNER, THE ACTIVITIES UNDERTAKEN BY THE GENERAL PARTNER IN MANAGING THE FUND MAY DIFFER FROM THOSE DESCRIBED IN THIS MEMORANDUM DUE TO UNEXPECTED EXTERNAL CONDITIONS OR OTHERWISE. THIS MEMORANDUM DOES NOT SUBJECT THE GENERAL PARTNER TO BINDING OBLIGATIONS. ONLY THOSE OBLIGATIONS EXPRESSLY SET FORTH IN A DEFINITIVE AGREEMENT EXECUTED BY THE GENERAL PARTNER SHALL BE BINDING UPON THE GENERAL PARTNER. PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION IN THIS MEMORANDUM REGARDING THE PAST PERFORMANCE OF THE GENERAL PARTNER, ITS MEMBERS OR THEIR RESPECTIVE AFFILIATES AS INDICATIVE OF THE FUTURE PERFORMANCE OF THE FUND. PAST PERFORMANCE DOES NOT ENSURE FUTURE PERFORMANCE. CERTAIN OF THE FACTUAL STATEMENTS MADE IN THIS MEMORANDUM ARE BASED UPON INFORMATION FROM VARIOUS SOURCES BELIEVED BY THE GENERAL PARTNER TO BE RELIABLE. THE GENERAL PARTNER. ITS OFFICERS, THE FUND AND THEIR RESPECTIVE AFFILIATES HAVE NOT INDEPENDENTLY VERIFIED ANY OF SUCH INFORMATION AND SHALL HAVE NO LIABILITY ASSOCIATED WITH THE INACCURACY OR INADEQUACY THEREOF. EACH INVESTOR THAT ACQUIRES AN INTEREST WILL BECOME SUBJECT TO THE FUND'S PARTNERSHIP AGREEMENT AND AN APPLICABLE SUBSCRIPTION AGREEMENT. IN THE EVENT ANY TERMS OR PROVISIONS OF SUCH PARTNERSHIP AGREEMENT OR SUBSCRIPTION AGREEMENT CONFLICT WITH THE INFORMATION CONTAINED IN THIS MEMORANDUM, SUCH PARTNERSHIP AGREEMENT OR SUBSCRIPTION AGREEMENT SHALL CONTROL. FOR CAYMAN ISLANDS INVESTORS: THIS IS NOT AN OFFER OR INVITATION TO THE PUBLIC IN THE CAYMAN ISLANDS TO SUBSCRIBE FOR LIMITED PARTNERSHIP INTERESTS. STRICTLY CONFIDENTIAL iii EFTA00586855 NEITHER DST GLOBAL ADVISORS LIMITED NOR DIGITAL SKY FINANCE, LLP CURRENTLY HAS AUTHORISATION BY THE UK FINANCIAL SERVICES AUTHORITY rFSA") UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000 (UK). DIGITAL SKY FINANCE LLP HAS BEEN APPROVED TO ACT AS AN APPOINTED REPRESENTATIVE OF HUTCHINSON LILLEY INVESTMENTS LIMITED, WHO ARE AUTHORISED AND REGULATED BY THE FSA (FRN 192402). THIS DOCUMENT HAS BEEN APPROVED, FOR DISTRIBUTION TO PERMITTED RECIPIENTS ONLY, BY HUTCHINSON LILLEY INVESTMENTS LIMITED. The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested. Copyright lb 2011 DST Global Advisory Limited. -inv. is a trademark and service mark of DST Global Advisors Limited. STRICTLY CONFIDENTIAL iv EFTA00586856  TABLE OF CONTENTS I. EXECUTIVE SUMMARY 2 II. MARKET OPPORTUNITY AND ENVIRONMENT 3 III. INVESTMENT STRATEGY IV. INVESTMENT PROCESS I) V. INVESTMENT TEAM 16 VI. INVESTMENT HISTORY AND PERFORMANCE 17 VII. SUMMARY OF PRINCIPAL TERMS OF TILE FUND 21 VIII. CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS 27 IX. CERTAIN TAX, ERISA AND REGULATORY CONSIDERATIONS 45 X. ADDITIONAL INFORMATION 60 Appendix A — Certain Securities Law Matters for Investors Appendix B— Valuation Methodology and IRR Calculation Appendix C — Legal Structure of the Fund EFTA00586857  I. EXECUTIVE SUMMARY The US healthcare sector, comprising 17% of US GDP, faces tremendous productivity challenges. Driven by an aging population and the emergence of new, more expensive treatments, the rate of growth of healthcare expenditures is unsustainable. Furthermore, healthcare lags other industries in adopting technology-enabled process improvements and improving operational performance. These dynamics create opportunities for new disruptive technologies aimed at increasing efficiency and cutting cost. Information technology (IT) applied to biology and medicine has the potential to drive a technological revolution in the health care sector. This IT-bio-medecine revolution has similar characteristics to the most transformative technological revolutions in history: linking of new and old industries to create networks and transfonnative business models. This type of revolution occurred with the advent of the steam engine, transforming the industrial revolution by carrying coal and iron into the motive revolution of steam ships and railways. It happened again when cheap microprocessors, which combined ubiquitous electricity and mass production, led us into the information age. And it is now occurring as digital "big data" transforms health care and life sciences. In the healthcare and life sciences industries, the emerging digital big data revolution is being stimulated by a number of new technologies: low cost next-generation DNA sequencing instruments, wearable data-generating sensors, and electronic medical records/provider clinical data. Large amounts of data are being generated - and increasingly digitized - through payor activity (claims), patient behavior/tracking and sentiment data. Furthermore, advances in IT, hardware and software technology are increasing the ability to generate, store, visualize, analyze and apply these data and changing how medicine is practiced. This new wave of innovation creates investment opportunities with a more favorable investment profile then the typical health care investment: less regulated, more capital efficient and with a shorter time to commercialization. At the institutional level, we see opportunities to dramatically reduce inefficiencies in the diagnosis, treatment and delivery of health care at the convergence of molecular medicine, electronic sensor technology and communication platforms. On the other end of the spectrum, the evolution of the technologies related to personalized medicine are creating alternative channels to go direct to newly empowered patient/consumers. Finally, advances in drug research and development will have major implications for patient diagnosis and treatment touching all aspects of the health care sector. We are already seeing a wave of initial applications, products and pioneering companies, some of which we have co-funded. The DST Healthcare Fund (the "Fund") is not funding traditional drug, diagnostic and device discovery and development opportunities. Instead, the Fund is focused on actively seeking out the most interesting opportunities in a few strategic areas at the intersection of life science and digital technology that are relevant to generation and application of big data to healthcare. In an environment of healthcare reform requiring quality, affordable care, the DST Healthcare Fund will invest in companies with transfommtive technologies and business models that create financial value either through making healthcare more efficient and/or serving consumers directly. STRICTLY CONFIDENTIAL 2 EFTA00586858  II. MARKET OPPORTUNITY AND ENVIRONMENT Lame and unsustainable healthcare spend in US According to World Health Organization c. S7 trillion was spent on global health expenditure in 2011. At 10%+' this represents, one of the largest sectors of global GDP. At $2.82 trillion, healthcare spend in Unites States is the largest globally and represents 172% of the US GDP. Moreover, the expenditure on healthcare has grown significantly faster than GDP in 44 of the 52 years since 1960. Healthcare expenditure cumulatively grew by 103x during that time period vs. GDP growth of 30x. VS Healthcare spend ($bn) and share of GDP 1%). Despite a modest decline in healthcare spend growth rate in recent years, the level of healthcare spend in US is unsustainable. According to CMS estimates, healthcare spend in US is expected to grow at a CAGR of 6% to $5 trillion in 2022 and represent c. 20% ofGDP. According to a report published by the White House in 2009, US healthcare spend could be up to 34% of GDP by 2040. US Healthcare spend as % ofGDP: I Source: World Health Organization Global Health Expenditure Database 2 Source: CMS NIIE data for 2012 STRICTLY CONFIDENTIAL 3 EFTA00586859  40% Pennant or GDP 35% Prep.: t 30% 25% 20% IS% 10% 5% 0% 1990 1964 196$ 1992 1996 2000 2004 2006 2012 2016 2020 2024 2028 2032 2036 2040 The high levels of healthcare spending and its seemingly relentless growth are problematic for the US. Public spending on healthcare—primarily through the Medicare and Medicaid programs—is crowding out other state and national priorities, including education, social security, national defense, and deficit eduction. High healthcare costs for private employers inhibits the hiring of workers and puts upward pressure on the prices of goods and services. Private health care spending has also taken a large bite out of the discretionary spending of US families, leaving the average middle-income family worse off financially than a decade ago. This aapid growth in US healthcare spending is attributable to numerous factors, including: an aging population, the prevalence of chronic diseases, and the use of expensive advanced medical technology. Similar problems associated with rising healthcare costs can be observed in other developed countries. I neffecietteies in US Healthcare The US spends more money on health than any other nation, whether measured in terms of spending per capita or spending as a percentage of GDP. Mckinsey estimates that US spends $600bn (3.7% of GDP) on healthcare, more than the expected benchmark for a nation of the US's size and wealth. Healthcare Expenditure / GDP 9:3: Healthcare expenditure per capita ($ PPPP: 3 Source: CMS 2012 data for US, OECD 2011 data for rest STRICTLY CONFIDENTIAL 4 EFTA00586860 The high healthcare spend has not translated into better outcomes with Americans having a lower life expectancy than the OECD average. Iti lthcarc spending per capita vs. life expectancy at birth': $10,C00 01: 0 AVIRAGI t 19603 Unstrd Sue.. • 1 WM g s1 .5 S61:03 • 56666tord • 55.000 4"+1 Drew* ••••10 0 • % WOO • Un661148.0:88 i 131:03 % ns...4 ' Ow I S2J:03 • • t :WIWI( Pdird Kona ••• ." 1 SI J:03Mingo • • 0 0 Twin 13 78 75 76 11 111 19 SO al at al Move* 14 apeasacy at be* Potential of technology and big data in healthcare and life sciences OECD 2011 data STRICTLY CONFIDENTIAL EFTA00586861 We believe that technology and big data can play a major role in helping resolve some of the inefficiencies in the US healthcare system. Other industries such as retail, banking, etc. have successfully employed technology and big data to increase sales and reduce costs. The big data opportunity is especially compelling in complex business environments experiencing an explosion in the types and volumes of available data. In the healthcare and life sciences industries, data growth is generated from several sources, including the R&D process itself, retailers, patients, and caregivers. Oliver Wyman estimates that more than SI trillion in value will move from old to new healthcare service models. MGI estimates that applying big data solutions could lead to $300-450 billion in reduced health-care spending. Emerging Trends leading to value creation potential We believe that a few key trends will enable companies to build successful businesses by leveraging technology and big data in healthcare and life sciences. Costs and speed of DNA sequencing The human Genome Project began in 1990 and took over 13 years and 53 billion to map the first human genome. Since then there has been monumental imporovement in both speed as well as cost of DNA sequencing. Today a human genome can be sequenced at 30x coverage in a day for SI,000. The rise of molecular medicine is a classic technology-based transformation similar to the advent of the digital information era. Advances in semiconductor technology drove down the cost of computing, which allowed a growing number of users to apply powerful computing technology to routine activities. The growing user base attracted more innovators to create applications and uses, which then expanded the applicable user population yet again, creating a virtuous cycle. In the case of DNA sequencing, technology improvements are occurring at an even faster rate. Cost per Genotm. S1OM SIM tinny, 510K Si KT T - I- T - I- - I- - I- - I- - I- - I- - I- - I- - I- 2001 2002 2003 2004 2006 2006 2007 2000 2008 2010 2011 2012 2013 STRICTLY CONFIDENTIAL 6 EFTA00586862 Mckinsey estimates that genomics will have an economic impact of up to $1.6 trillion by 2025. Fast and cheap DNA sequencing will lead to fundamental changes and revolution in disease diagnosis and treatment, as well as drug discovery. Afolecidar diagnostics DNA sequencing enables a new disease taxonomy where diseases are characterized based on cell biology rather than symptoms or point of origin. Molecular profiling based on this taxonomy will allow for highly accurate and differentiated diagnostics. The sequencing-based molecular diagnostics market is expected to grow at a CAGR of 72% from 5511m in 2013 to 57.6bn in 20185. Molecular profiling will also enable better risk prediction and prognosis. Genomics will have the highest impact on cancer prediction and prognosis. Cancer is a disease that is driven entirely by complex and highly individual DNA changes. Most current treatments are indiscriminate, extremely costly, and often ineffective. ClialgAIOalai rjagOlathilkOlnk t 7,620 2013 •1018 Personalised medicine The practice of medicine will undergo a fundamental revolution in the next decade, becoming increasingly more data and computation intensive. Ongoing research will lead to creatiuon of large data sets linking molecular profile to diseases. Armed with this information as well as the patient's DNA sequence, doctors will tailor treatments for individual patients based on their molecular signature. Although personalized medicine is in the early stages of development, impressive initial successes have been reported, particularly in the field of cancer. More than 800 targeted therapies are either available or in the pipeline to target cancer.. 5 Source: BCC research, July 2013 6 httplAvvv.businessweek.com/magazine/content./11_26/b4234024330707.hun STRICTLY CONFIDENTIAL 7 EFTA00586863 Wert Generation Drug Development The use of molecular information will radically improve the efficiency and productivity of drug discovery and development. As molecular information leads to better understanding of disease and its progression, many more drug targets will arise. Meanwhile, using molecular information to select patients for clinical trials should accelerate drug development timelines and improve the probability of drug approval. Together, these changes will likely improve the return on invested capital of pharmaceutical and biotechnology companies. At the same time, drugs will likely be increasingly applicable to smaller subsets of diseases, improving their effectiveness but shrinking their addressable markets. Drug companies will need to adapt their marketing strategies accordingly. Novartis CEO Joe Jimenez called out the explosion in DNA sequencing as a driver for R&D productivity "allowing new areas of discovery that have never been possible before." For example, molecular strategies aided in the development of Gleevec, Novanis's blockbuster treatment for certain forms of chronic myeloid leukemia with annual revenues ofS4 billion. Smart sensors and remote monitoring Smart sensors allow for the collection and analysis of data for a number of areas such as health and lifestyle management, early detection and diagnosis, disease monitoring and treatment adherence. The use of data from remote monitoring systems can reduce patient in-hospital bed days, cut emergency department visits, improve the targeting of nursing home care and outpatient physician appointments, and reduce long-teen health complications and costs. Several trends have converged leading to an expectation of explosive growth in remote monitoring and other healthcare applications: • Increasing smanphone penetration: 148m people (62% of mobile phone users) in US owned a smanphone as of November 20137. Increasing smanphone penetration has led to an explosion in people both monitoring their healthlifestyle as well as accessing health-related information on the go. • Technology advancements: Sensors are becoming smaller, affordable, and more accessible. Material science has advanced to create wearable sensors that can take measurements passively. Wireless communication allows data to be transmitted securely. Data storage is cheap and secure. Increased computing power with cloud computing enables data analysis and access to data globally. • Chronic diseases: An aging population has led to more than 130 million patients in the US suffering from chronic diseases such as diabetes, congestive heart failure, and hypertension. Treatment for such chronic diseases accounts for more than 75% of health system costs. Remote patient monitoring systems can be highly useful for treating such patients. Wireless health, including fitness as well as health-oriented devices and applications, is globally a 7 Source: Comscore STRICTLY CONFIDENTIAL EFTA00586864  $8bn market in 2013 and expected to grow to S59bn by 20202. AIM research expects the market for wearable health and fitness devices to grow from 30m in 2012 to 170m in 2017 . Digital Health Platforms Digitisation of medical and other health data has led to a proliferation of companies utilizing technology and big data for better diagnosis, monitoring, efficient healthcare delivery, disease management and treatment. At the same time, patients ability to access their own medical and health data has led to emergence of business models targeting patients as consumers of healthcare services. Government policy and reform is also emerging as an important driver for change. Some of the policies adopted in the FIITECH act of 2009 are likely to play an important role in the creation of a digital health ecosystem by accelerating the development of necessary healthcare IT infrastructure: • More than S17bn will be spent to incentivize hospitals and providers to use electronic health records. • Another $2bn will be spent to support healthcare IT infrastructure as well as other training and research. More than 50% of doctor offices and 80% of hospitals now have electronic health records9. Physiciarpfother providers with basic EHR": Elieible hospitals with basic EHR": ,./08 • MI • Ina • dieotetteflettietioteetn.44',/,...t.tee Regulatory and reimbursement progress Regulation and reimbursement will continue to be important drivers in the success of healthcare companies. There is evidence to suggest that both FDA policies and insurance company policies are evolving to support rather than hinder technology-based innovation in the healthcare space. FDA has shown its support for technology-based innovation through various actions such as: • Granting de-novo 510(k) approval to Illumina's Miseq next generation sequencing platform 8 Source: Allied market research Nov-2013 9 Source: httpliwww.hlis.govinews/press/2013pres/05/20130522a.html STRICTLY CONFIDENTIAL 9 EFTA00586865  • Granting 510(k) approval to iPhone based ECG monitoring device Alivecor • Laid out clear guidelines for the categories of mobile apps that it would seek to regulate — the FDA has already approved more than 100 health apps10 • having extensive dialogue with industry on regulation of molecular tests while allowing them to operate as LDTs Several factors on the reimbursement front favor companies providing innovative healthcare solutions: • Consumerization of healthcare as patients play an increasingly important role in their treatment — 4328bn or 11.7% of the healthcare expenditure is paid out-of-pocket by patients • New models such as Accountable Care Organizations reward providers for positive patient outcomes and incentivize them to use the most cost effective solutions 10 Source: httplimobihealthnews.com/27645/analysis-103-fda-regulated-mobile-tnedical-apps/ STRICTLY CONFIDENTIAL 10 EFTA00586866  III. INVESTMENT STRATEGY Philosophy DST healthcare Fund will invest in companies at the intersection of life sciences and digital technology. We believe that technology and big data can play a major role in helping resolve inefficiencies in the healthcare system. The Fund does not plan on investing in traditional drug discovery, diagnostic and device development companies. Recent advances in DNA sequencing, sensor and communication technology and digitization of health records create an opportunity to dramatically reduce inefficiencies in the diagnosis, treatment and delivery of healthcare. Similar to other industries, the life sciences and healthcare sectors are ready to be transformed by new business models enabled by disruptive technology. In an environment of health care reform requiring quality, affordable care, the DST Healthcare Fund will invest in companies with transfommtive technologies and business models that create financial value either through making healthcare more efficient and/or serving consumers directly. Commer•ted Reramve of pic-nouu IWO% Authui We seek superior risk-adjusted returns by targeting and investing in later stage companies with proven technology and low regulatory and reimbursement risks. We seek to invest $10-15 million of growth capital in companies and will target exits in the form of IPO or M&A in a 3-5 year titnefraine. Investment Criteria The Fund typically looks for the following key characteristics in target companies before considering an investment: 1. Strong CEO and Team The primary and most important asset of a company is its people. In particular, strong and capable leadership is essential for retention and motivation of key employees. DST places considerable emphasis on the CEO and senior management team. We focus our analysis on understanding the ability, background, integrity, underlying motivations and overall ambitions of the CEO of any company in which we invest. 2. Significant and proven technology advantage within few well-defined strategic areas We seek to invest in companies with transformational technology representing a new diagnostic or therapeutic approach or innovative service delivery capabilities, rather than incremental improvements to existing products or technologies. We invest in companies where the underlying technology and its superiority has been established, rather than conceptual technologies. 3. Commercial or clear path to commercialisation A large number of healthcare companies struggle with regulation and reimbursement which can have significant negative impact on returns. We focus on companies that are already generating commercial sales or have a clear path to commercialization with limited regulatory and STRICTLY CONFIDENTIAL II EFTA00586867 reimbursement risks. We work to minimize traditional healthcare risks of clinical efficacy, regulatory approval and reimbursements. 4. Large addressable market We seek companies that are targeting large markets in terms of number of people that can be impacted by the technology whether through physicians or consumers directly. We also seek companies preparing to launch already successful products or services to the global healthcare market. STRICTLY CONFIDENTIAL 12 EFTA00586868  IV. INVESTMENT PROCESS Deal Sourcine Deal sourcing is a strategic focus for the Fund which includes identifying the right companies and creating the opportunity to invest in them. We believe that access to the highest-quality and well- differentiated deal flow is one of our key strengths. Principals of the Fund have a unique set of long-standing relationships with leading entrepreneurs, inventors, scientists & academicians, pharmaceutical and biotech company executives and physicians. We have strong relationships with entities such as public and global health organizations, foundations, national scientific bodies and organizations, insurers and other corporate payers. These networks not only provide access to the highest quality entrepreneurs and early stage companies, but also provides unique insights for investment decisions. Our past experience of co- investing and relationship-building with some of the top-tier venture investors will allow for joint exposure to promising portfolio companies. We receive insights and referrals from several unique sources including: founders of technology and healthcare companies that we have invested in or know; Breakthrough Life Sciences Prize recipients; DST technology investment team, and; entities associated with our anchor investor Bill Gates, such as Bill Gates Ventures and the Bill and Melinda Gates Foundation. We are in the process of entering into an agreement with illumine, the leading DNA sequencing vendor globally, that would provide us unique access to sequencing application start-ups that join their incubator program. We receive inbound interest from inventors, company founders, management teams and shareholders who are looking for high quality knowledgeable investors. Our intematiol network brings together valuable flows of information, perspective on opportunities, and resources that is highly benefecial to portfolio companies. We research the target industry sectors extensively, and closely track private companies that fit our investment criteria. We strive to maintain very close relationships with key decision makers for the companies that we track. Due Diligence We apply a rigorous due diligence process to each potential investment as we believe that detailed and well executed due diligence of critical risks is key to investment success. We believe that the complementary skillsets and backgrounds of the Principals will allow for the identification of critical issues and risks. We work closely with our network of founders, scientists & academicians, pharmaceutical and biotech company executives and physicians to evaluate investment opportunities. In our due diligence process, we emphasize understanding and evaluating the following: STRICTLY CONFIDENTIAL 13 EFTA00586869  1) Management: We place key emphasis on the quality of people. We believe that a strong and experienced management team is key to the success of a company. We spend considerable time and energy on referencing management. We are biased toward portfolio company teams with whom we have previous experience. 2) Underlying science and technology: We spend considerable time understanding the underlying science of the potential investment and the resulting technical advantage. We reach out to our extensive network of science and domain experts to better understand the technology advantage and risks. [Where needed we will also enagage consultants to help us evaluate the underlying science and technology) 3) Market potential, business model and competition: We leverage our network of experts to understand and test the market potential, the company's business model, and its ability to capture the market. We perform extensive research into the size and growth prospects of a company's target market and conduct extensive interviews with existing or potential customers to understand their perspective. Given our extensive network, we can often also speak to most of the competitors in a particular space before deciding upon an investment. In order to evaluate threats front existing or new competition 4) Intellectual Property: We engage experienced attorneys in specific fields to validate freedom- to-operate, validate exclusivity position and identifying blocking IP. The investment team will discuss potential investments on a weekly basis to enable various team members to provide input on direction of diligence and raise potential concerns. While each prospective investment will be led by one of the Principals, no potential investment will proceed to in-depth due diligence without all Principals having met the key management team to help evaluate the quality of people. Once due diligence has been satisfactorily completed, the investment opportunity will be submitted for approval of the Investment Committee of the General Partner. The Investment Committee is expected to meet on an ad-hoc basis when required to discuss a potential investment opportunity. The Investment Committee will make the detemtination on all investments. While we will strive for consensus in the Investment Committee, a transaction can be approved by any two Principals unless one of the Principals decide to veto based on a strong objection. Portfolio Management The Fund will actively engags in frequent dialogue with top management of our portfolio companies. We have historically dedicated, and expect to continue to dedicate, time to develop deep relationships with key decision makers in our portfolio companies. Our portfolio companies also appreciate our previous experience in investing and monitoring the industry, as well as our strong connections globally. Where appropriate, we provide advice and introductions to our portfolio companies. STRICTLY CONFIDENTIAL 14 EFTA00586870 We typically take a Board Observer seat and/or ask for regular updates on business progress from our portfolio companies. Our Board participation, regular updates and active monitoring of other available information regarding our portfolio companies and their competitors allow us to remain up-to-date on the growth and competitive environment of our investments. We will seek to increase our stake in a portfolio company if the asset is performing at or above our expectations, and if the valuation is consistent with our return expectations. Our strategy for exiting an investment is expected to be an IPO or sale to a strategic buyer. In case we receive public securities in an IPO, the Investment Committee will decide on timing of their sale or distribution. STRICTLY CONFIDENTIAL 15 EFTA00586871  V. INVESTMENT TEAM Yuri Milner Yuri started investing in technology companies in 1999. In 2005, he founded Mail.ru Group to focus on technology investments in the Russian speaking world. Under his leadership, Mail.ru Group built what is now the leading Russian language website in terms of users. Core assets of Mail.ru Group are the seventh most popular web destination globally in terms of page views. In September 2009, Yuri launched DSTG I as a vehicle for international Internet investments, followed by DSTG II in December 2010 and DSTG III in November 2011. Across various vehicles, DSTG and its affiliates have invested approx. $3.5 billion in leading global technology companies. In June 2011, Yuri started investing in healthcare companies and has invested over 450 million in personal capital in several promising early stage companies. During his career, Yuri held a number of management positions in Russia, including CEO of the main operating company (or subsidiary) of Malin Group between 2001 and 2003. Currently, Yuri serves on the board of directors of Telecominvest. Yuri also serves as a member of the Presidential Commission for Modernisation and Technological Development ofRussia's Economy. Yuri graduated from Moscow State University in 1985 with an advanced degree in theoretical physics and subsequently conducted research at the Institute of Physics in the Russian Academy of Sciences between 1985 and 1989. lie attended the Wharton Business School MBA program between 1990 and 1992 and subsequently joined the World Bank where he was involved in the development of the financial sector in Russia. Boris Nlkolk Dr. Boris Nikolic is a Chief Advisor for Science and Technology to Bill Gates at Bill Gates Catalyst 3 (bgc3), Bill Gates Ventures (BGV) and at the Bill & Melinda Gates Foundation (BMGF). Boris has led investment activities at these Gates-affiliated organizations on both the for-profit and non-for-profit aspects of Bill Gates' activities. On the for-profit side, Boris led investments in various life science/health care companies such as Foundation Medicine, Research Gate, Schrodinger and Nimbus through Bill Gates Ventures. On the non-for profit side, Boris co-managed BMGF's $1.5 billion strategic investment pool focused on program-related investments in global health, as well as in other program areas (agriculture, digital payments and US education). Boris focused on biotech investments specifically, and pioneered direct equity investments by a US foundation in companies with platform technologies applicable to global health. BMGF's biotech portfolio includes five biotech companies: Liquidia, Genocea, Vistena, Atn.va and Anacor. At BMGF, Boris also led discovery program of novel diagnostics platform technologies, molecular diagnostics point-of-care applications, novel STRICTLY CONFIDENTIAL 16 EFTA00586872 immunological detection systems, vaccination and surveillance technologies. Boris Nikolic received his MD from Zagreb Medical School and his clinical training from the University's Medical Center, University of Zagreb, Croatia. In 1994, Dr. Nikolic joined the Harvard Graduate Program in Immunology. Subsequently, Boris continued to serve in roles of increasing authority including postdoctoral fellowship in transplantation immunology, Instructor in Surgery, Instructor in Medicine to Assistant Professor in Medicine at Harvard Medical School. Between 2002 and 2010, he led an advanced immunology laboratory for tolerance induction/stem cell transplantation in the Renal Unit, Department of Medicine, Massachusetts General Hospital/Harvard Medical School. In October 2007, Boris joined Bill and Melinda Gates Foundation and in April 2010, he joined bgC3. Boris is the author of over 70 articles, patents and patent applications and co-founder of three biotechnology companies. Boris co-founded IMDx, Inc., which is focused on developing and distributing FDA approved rapid molecular and serological diagnostic products and services that link diagnostics with therapeutics; emphasis on developing multiplexed diagnostic tests capable of diagnosing complex syndromes and providing therapeutic guidance. Boris is inventor of the "symptom-based" diagnostic methodology based on nucleic acid and antibody testing for major medical conditions (e.g. pneumonia, meningitis, septicemia, diarrhea). Boris co-founded Aquatrove, Inc., a biotechnology company focused on developing unique conception-promoting and infertility diagnostics products. He invented and developed novel therapeutic agents, designed to increase sperm and tissue viability. The current product, Conceive Plus, a proprietary fertilization-enhancing personal lubricant, was launched on 2008 year and currently distributed to most large retail chains. His Academic research at Harvard focused on the area of immunogenetics and translational immunology, investigating immunological tolerance induction for transplantation and a therapy of autoimmunity.