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1DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 1

A New Venture Partnership:

Morgenthaler and The Foundry

Robert (Robin) Bellas General Partner, Morgenthaler Ventures

Hanson GiffordPresident & CEO, The Foundry

DFJ Entrepreneurial Thought Leaders ForumStanford University

October 6, 2004

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2DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 2

• Investors focused on generatingexcellent returns for our LPs

- Long-term top quartile returns

• Business strategists operating infocused responsive teams

- Diversified by industry, technology,maturity and geography (N. America)

• Company builders with 35years of building industry leaders

- Operating experience helps us recognize and maximize opportunities

- Partnering skills – key to success

• $2 Billion Under Management

Morgenthaler

Life Sciences

Team

Information Technology

Team

BuyoutTeam

BUYOUTHEADQUARTERS

VENTUREHEADQUARTERS

EXPANDING

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3DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 3

Venture Capital Life Sciences Team

Robin Bellas

1983

Medical Devices, Services

Harshaw, Acurex, EMI

Robin Bellas

1983

Medical Devices, Services

Harshaw, Acurex, EMI

Chris Christoffersen, PhD

2001

Biotech

Ribozyme, SmithKline

Chris Christoffersen, PhD

2001

Biotech

Ribozyme, SmithKline

Gary Shaffer

1987

Medical Devices,Drug Delivery

Spectra-Physics

Gary Shaffer

1987

Medical Devices,Drug Delivery

Spectra-Physics

Jim Broderick, MD

1998

Biotech, Medical Devices

Kauffman, Mercer

Jim Broderick, MD

1998

Biotech, Medical Devices

Kauffman, Mercer

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4DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 4

Investment Themes

• Biopharmaceuticals

- Multi-product platforms

- Clinical stage pharmaceuticals

• Health Care Services

- Revenue management services

- Novel health care delivery services

• Medical Devices

- Surgery without knives

- Implantable devices

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5DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 5

What is “Surgery Without Knives”?

• Technically: The absence of an incision with a scalpel.

• Involves creative use of existing lumens.

• Alternatives to physical cutting (RF, lasers, stapling, etc.)

SURGERY WITHOUT KNIVES

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6DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 6

Surgery Has Become Less Invasive Over Time

Emphasys

Thermage

Satiety

“Lap Choly”

Coronary Stents

Neothermia

“Beating Heart”Surgery

Hernia Repair

ConventionalSurgery

No Cuttingor

Punctures

Percutaneous or

Endoluminal Access

Short IncisionsLong Incisions

Non-SurgicalTherapy

Luminal“Surgery”

Less InvasiveSurgery

OpenSurgery

More Invasive Less Invasive

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7DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 7

Advantages to Surgery Without Knives

- Emphasys vs. LVRS- Satiety vs. Gastric Bypass

- Thermage vs. Plastic Surgery(E.G. Neck)

- Neothermia vs. Mammotome

- Reduced Morbidity- Saves Lives- Faster Recovery

- Greater Efficacy

- Comparable or Lower Cost

ExampleMajor Benefit

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8DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 8

Why Now?

-Materials Science, Microfabrication, Energy Delivery

-Media Coverage, Word of Mouth

-Including Physicians, Hospitals andPayers

-Cardiologist vs. Cardiac Surgeons

-Supported by Controlled Clinical Studies

-Advances in Technology

-Better Informed Patients

-Cost Containment Pressures

-Exploitation of InterpracticeRivalries

-Better Clinical Outcomes

CommentsTrend

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9DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 9

Why Foundry?

• Respected Thought Leaders in Medical Devices.

• Creative Engineers Addressing Unmet Clinical Needs.

• Experienced Operating Executives.

THE FOUNDRY TRANSFORMS CONCEPTS

INTO COMPANIES

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10DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 10

Investments in Major Themes

Medical DevicesMedical Devices

Surgery Without Knives

Implantable Devices

BiopharmaceuticalsBiopharmaceuticals

Multi-Product Platforms

Multi-Product Platforms

Late Stage ProductsLate Stage Products

•Pre-clinical•Morphotek•Trellis

•Clinical•Bayhill•GlobeImmune

•Cierra•Emphasys Medical•LuMend•Neothermia•Satiety•Spine Wave•Thermage

•CardioMind•Xtent

•Threshold•Replidyne

HC ServicesHC Services

Revenue Management

Revenue Management

Novel DeliveryNovel Delivery

•Third Millennium Healthcare Systems

•IPC

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11DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 11

Example: Thermage – Non-Surgical Tissue Tightening

6 Wks Post TreatmentSingle Treatment Tx level :12 with three passesTreatment area: cheeks, chin

Pre Treatment

Mid/Lower Face Treatment

Patient Treatment by Bob Weiss, MD

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12DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 12

Thermage is a Value Driver

Cosmetic “surgery without knives”(Move over BoTox!)

RF technology for cosmetic surgery

Building Value:• Blocking patent position.

• Strong revenue growth.

• Non-invasive tissue tightening(unique!)

• “Platform” applies to entire body.

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13DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 13

Mid/Lower Face and Neck Single Treatment

Pre Treatment Post Treatment2 Months

Treatment by Kim Schuchardt, PA (Richard Niles, MD)

Thermage

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14DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 14

Pre-Treatment 4 days Post Treatment

Patient treated by Dr. Linda Livingston

Arm Treatment

Thermage

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15DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 15

Abdomen

Pre Treatment: October 21, 2003 Post Treatment2 Months

Treatment by Dale Isaacson, M.D.

Thermage

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16DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 16

0

0.2

0.4

0.6

0.8

1

0 0.2 0.4 0.6 0.8 1

Current StentApprovals

Example: Xtent Will Expand Stent Market

Spectrum of Coronary Artery Disease Addressed by Stents

Source: Bram D. Zuckerman, MD, FDA Director, Division of Cardiovascular Device

Patient Risk

Lesi

on R

isk

Long stent length In-stent Restenosis

Long lesions BifurcationsDiffuse Disease

Multi-vessel Treatment

Small vesselsLAD location

Prior Restenosis

Diabetes

Single lesion treatment

<15-33 mm lesion

RCA De novo

Implications:

Largest market in the medical device industry just got larger

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17DFJ Entrepreneurial Thought Leaders Program 2004 Fall Quarter October 6, 2004 Morgenthaler Ventures 17

Next generation delivery system for custom length stenting in complex coronary artery disease.

Xtent is a Value Driver

Building Value:• Approved stents serve small portion

of total market.

• Needed variables include length and diameter.

• FDA looking for new solutions.

• New delivery system as basis for competition.

Building Value:• Approved stents serve small portion

of total market.

• Needed variables include length and diameter.

• FDA looking for new solutions.

• New delivery system as basis for competition.

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The FoundryTransforming Concepts into Companies

DFJ Entrepreneurial Thought Leaders ForumStanford University

October 6, 2004

The Foundry, Inc19

The Foundry’s Founding PremiseThe Bar is High

Huge Markets…Solid IP…Reimbursement…Earlier Proof“Complete Package” is needed

Proven Leaders are ScarceCEO recruitmentLeadership pool

Venture Fund Profiles Have EvolvedLarger fundsPressure on later rounds….Financings Are More Demanding…

The Foundry, Inc20

Founding Premise, cont.

Individual Entrepreneurs are ChallengedTypically a physician or engineer with an idea

Preparation not as thoroughTeam not as carefully selectedMistakes of inexperienceExecution takes longer

Incubators Can Increase the Probability and Magnitude of Success

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The FoundryCONCEPT SOURCES

Foundry Team

Outside Inventors

Investors

Business RationaleDevelopment & Proof of Principle

IP Filings & StrategyInitial R&D Team, CEO

Financing & Liquidity Strategy

NEWCO

Founders:InventorFoundry

Employees

Series A Investors

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The Foundry Track RecordEight Companies in 6 Years:

Evalve – Percutaneous Heart Valve RepairConcentric – Percutaneous Stroke TherapyEmphasys – Transbronchial Emphysema TherapyFirst to File – Online Intellectual Property ManagementSatiety – Trans-Oral Obesity TherapyXtent – Simple Solutions for Complex StentingCierra – Percutaneous Structural Heart Disease TherapyFoundry Newco 8 – (Still Confidential)

The Foundry, Inc23

What Drives Surgery without Knives?

Patient Benefit“First, do no harm”

Non-surgical solutions offer similar results without incisions, providing a faster recovery

with less mortality and morbidity

Patients Seek Out and Demand New Procedures

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Surgery Without Knives is Also Driven by:

A New Class of Physicians- InterventionalistsAggressive young physicians see the future comingThey don’t want to end up as prestigious, underemployed surgeons

Providers and PayersHospitals make tactical decisions regarding cost vs. reimbursementCompanies have learned to drive reimbursement early in development

New TechnologiesWe define a physiologic goal, then design the simplest way to accomplish it non-surgicallyTypically applying technologies which have become well-understood, versatile, and commercially available

This Trend Continues to Gain Momentum

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Why Does The Foundry Work?Medical Devices Have Favorable Characteristics:

Billion-dollar market opportunitiesPotential for early proof of principleRepeated application of common technologies and business processesThe first years of each company are focused on R&D and clinical trials

We Have Extensive Operating ExperienceAn average of eighteen years in medical devicesFrom early concept through profitability and liquidity

We Can Rapidly Reduce Risk and Build Value

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Why Does The Foundry Work?

The Foundry Team Works Well TogetherTrust and Respect, Creativity and CriticismAlignment of interestsIdentifying the best opportunities through intensive interactionHaving Fun

A Partnership is always stronger than Individuals

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Why Does The Foundry Work?(The REAL Secret of our Success)

Outstanding Leadership & Teams at each Company

Project selection and incubation is only 10% of the process Focused, consistent execution over 5 – 7 years is needed to achieve successWe recruit people we have known a long time

It’s not just The Foundry

The Foundry, Inc28

The Foundry

The Future:Significant clinical opportunities remainExternal deal flow increasingSignificant financial returns are availableCareful project selection and efficient, expert execution are essential

Improving Investor Returns by Maximizing Success

The Foundry, Inc29

The Foundry

“The Quintessential Incubator” – David Cassak, Windhover