Consumer Digital Health - Silicon Valley Bank [PDF]

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Analyze broad consumer health trends and business models .... The number of deals with strategic investors participating has slowly increased over time, as tech, ... $1,200. $1,400. $1,600. $1,800. $2,000. 2011. 2012. 2013. 2014. 2015 2016.
Consumer Digital Health How Market Shift Is Leading to New Opportunities Written by SVB Analytics: Steve Allan CFA Head of SVB Analytics [email protected]

Scott Winder Director [email protected]

Alex Lee Manager [email protected]

Emily Wengel Associate [email protected]

Table of Contents 3 Consumer Digital Health: Introduction & Financing Trends Overview 9 Healthcare Consumers: Fundamental Needs of the User 13 Financing Trends: Shift Toward Clinically Driven Consumer Health 17 Fitness/Wellness: Adapting to the Market 22 Disease Management: Growth Opportunities 28 Market Outlook: Assessing Consumer Health Opportunities 30 About the Authors 31 About Silicon Valley Bank and SVB Analytics

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Consumer Digital Health: Market Shifts to Focus on Engagement and Improved Patient Outcomes Consumer Digital Health Companies address the needs of patients and healthcare consumers

Investment trends in digital health are shifting from consumer wellness applications to clinically driven solutions that drive better health outcomes at lower costs. This next wave of financing focuses on encouraging consumers and patients to change health-related behaviors, underscoring the greater opportunities for companies with solutions that create value for payers, providers, employers and consumers.

This is the second in a series of reports from SVB Analytics examining Digital Health. In this report we: • Analyze broad consumer health trends and business models • Examine the shift in investments from consumer wellness to clinically focused solutions • Describe adaptation strategies of consumer wellness and wearables companies • Explore potential areas of opportunity in disease management Consumer Digital Health

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Digital Health Landscape Genetic Screening

Social Support

Focus on Health Outcomes

Disease / Medication Management

Digital Therapeutics / Pill Plus

Employers / Payers

Professional Search

Insurance Search

Education

Fitness / Wellness / Wearables / Tracking

Enterprise Wellness

Enterprise Health Management

Patient Engagement / Benefits

Data Driven Payers

Focus on Healthcare Costs

Patients / Consumers

Risk Adjustment / Payer Administration Patient / Professional Interaction

Remote Monitoring

R&D

Telemedicine

Patient-Clinician Communication

Value Based Care

Clinical

Operations

Patient Surveillance

Electronic Medical Records

Image Management / Analytics

Decision Support & Analytics / Predictive Medicine

Population Health Management

Practice Management & Operational Workflows

Operational

Life Science / Other

Marketing / Customer Experience

Networking / Education

Care Coordination / Communication

Systems / Healthcare Professionals

In our first report, we provided a framework that landscaped the digital health sector. In this report, we focus on consumer digital health investment trends. Consumer Digital Health

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Focus on Consumer Health: Categorizations Patients / Consumers Genetic Screening

Social Support

Disease / Medication Management

Digital Therapeutics / Pill Plus

Professional Search

Education

Patient / Professional Interaction

Remote Monitoring

Insurance Search

Fitness / Wellness / Wearables / Tracking

Telemedicine

Patient-Clinician Communication

For our analysis, we looked at three key themes: clinical enablement, consumer activation and education and transparency. We also grouped consumer digital health into seven categories, and focused on fitness/wellness and disease management.

Clinical Enablement

Consumer Activation

Education and Transparency

• Disease Management

• Fitness / Wellness

• Medical Education

Disease/Medication Management Digital Therapeutics

• Monitoring

Remote Monitoring

• Communications

Telemedicine Patient-Clinician Communication

More Clinically Focused

Fitness Wellness Wearables Tracking

Education Social Support Genetic Screening

• Provider Search Professional Search

• Insurance

Insurance Search

Less Clinically Focused Consumer Digital Health

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Consumer Digital Health Financing Trends Overview

70%

$3,500

60%

$3,000

50%

$2,500

40%

$2,000

30%

$1,500

20%

$1,000

10%

$500

0%

Total Funding ($M)

Percentage of Total Funding

Investments in Consumer Health Companies as a Percentage of Total Digital Health Investments (2011 to Q2 2016)

$ (Consumer) Consumer Funding (%)

$0 2011

2012

2013

2014

2015

2016 (E)

About 55% of all digital health investments since 2011 have been in companies whose technologies interface with the consumer in some manner. This reflects the convergence of technologies to drive and measure improved health outcomes and cost savings, and funding is following. Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY

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Strategic Investors Actively Investing in Consumer Digital Health

Total Funding ($M)

Consumer Digital Health Investments (2011 to Q2 2016)

Top Strategic Investors Focused on Consumer Health

$3,000

60%

$2,500

50%

$2,000

40%

$1,500

30%

$1,000

20%

$500

10%

$0

0% 2011

2012

2013

2014

2015 2016 (E)

Crossover Investments Financings without Strategic Investor Financings with Strategic Investor % of Deal Count with Strategic Investors

1 2 3 4 5 6 7 8

The number of deals with strategic investors participating has slowly increased over time, as tech, life science, healthcare and insurance companies seek to partner and collaborate with startups. * Crossover investments represent investment rounds greater than $100M that are led by a crossover investor Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY

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Strategic Investors Shift to More Clinically Focused Investments Clinically Focused Consumer Digital Health Investments* (2011 to Q2 2016) $2,000

Other Consumer Digital Health Investments* (2011 to Q2 2016) $2,000

50%

$1,800

$1,800

$1,600

40%

$1,400 $1,200

30%

$1,000 $800

20%

$600 $400

10%

$200

Total Funding ($M)

$1,600 Total Funding ($M)

50%

40%

$1,400 $1,200

30%

$1,000 $800

20%

$600 $400

10%

$200

$0

0% 2011

2012

2013

2014

2015

2016 (E)

Crossover Investments Financings without Strategic Investors Financings with Strategic Investors % of Dollar Investments with Strategic Investors *Includes Clinical Enablement Companies

$0

0% 2011

2012

2013

2014

2015

2016 (E)

Crossover Investments Financings without Strategic Investors Financings with Strategic Investors % of Dollar Investments with Strategic Investors *Includes Consumer Activation and Education and Transparency Companies

Strategic investors have recently shifted their attention to clinically focused startups as they begin to see how technologies designed to affect patient behavior can generate better health outcomes and cost savings. * Crossover investments represent investment rounds greater than $100M that are led by a crossover investor Source: Rock Health Database; 2011-2016Q2 SVB Analytics Analysis 2016(E) is extrapolated based on 2016HY

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Healthcare Consumers:

Fundamental Needs of the User

Consumer Digital Health

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Overview:

Empowering Patients Is Key to Fixing Healthcare System Challenge

Fundamental Need

Lack of choice and price transparency

ConsumerFriendliness

Poor health literacy

Knowledge

Lack of tools to manage health and wellness

Engagement

Solution Improve consumers' access to healthcare and their user experience by making healthcare easier to use

Create access to education and relevant and personalized health information

Engage and affect behavioral change in healthcare consumers to better manage their own health

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Consumer Digital Health Framework Knowledge

Engagement

Genetic Screening

Disease / Medication Management (incl. Fitness/Wellness)

Social Support

Remote Monitoring Digital Therapeutics / Pill Plus

Education

Professional Search Insurance Search

Patient-Clinician Communication (incl. Telemedicine)

Consumer-Friendliness Challenge: Lack of choice and price transparency Solution: Improve consumers' access to healthcare and their user experience by making healthcare easier to use

Knowledge Challenge: Poor health literacy Solution: Create access to education and relevant and personalized health information

Engagement Fitness / Wellness / Wearables/ Tracking (for leisure)

Consumer-Friendliness

Challenge: Lack of tools to manage health and wellness Solution: Engage and affect behavioral change in healthcare consumers to better manage their own health

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Consumer Digital Health Framework Knowledge

Engagement

Consumer-Friendliness Challenge: Lack of choice and price transparency Solution: Improve consumers' access to healthcare and their user experience by making healthcare easier to use

Knowledge Challenge: Poor health literacy Solution: Create access to education and relevant and personalized health information

Engagement

Consumer-Friendliness

Challenge: Lack of tools to manage health and wellness Solution: Engage and affect behavioral change in healthcare consumers to better manage their own health

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Financing Trends:

Shift Toward Clinically Driven Consumer Health

Consumer Digital Health

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Financing Trends: Historic Investment Trends Weighted Toward Wellness Total Capital Invested by Category (2011 – Q2 2016) $3,000

Total Capital Invested ($M)

$2,500 Disease Management

$2,000

DiseaseMonitoring Management Remote Remote Monitoring Communications Communications

$1,500

Fitness / Wellness $1,000

Fitness / Wellness Medical Education

$500

Provider Search Medical Education

$0 2011

Provider Search Insurance Insurance Search 2012

2013

2014

2015

More Clinically Focused

Clinical Enablement

Consumer Activation

Education and Transparency

Less Clinically Focused

2016 (E)

The advent of the quantified self movement in the early 2010s attracted significant capital, especially in the fitness and wellness category. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016

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Financing Trends: Rise of Clinically Driven Consumer Health Percentage of Total Deal Count Over Time by Category (2011 – Q2 2016) 100% 90%

DiseaseManagement Disease Management

80%

Remote Monitoring Remote Monitoring

70%

Communications

60%

More Clinically Focused

Clinical Enablement

Communications Fitness / Wellness

50% 40%

Medical Education

30%

Fitness / Wellness Provider Search

20% Insurance Medical Education Provider Search Insurance Search

10% 0% 2011

2012

2013

2014

2015

More Consumer Focused Education and Transparency

Less Clinically Focused

2016 (E)

There has been a gradual shift toward increased investment activity in the more clinically focused categories of disease management, remote monitoring and communications. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016

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Financing Trends: More Clinically Focused Companies Receiving Early-Stage Funding Investment Amount by Stage of Development (2011 – Q2 2016) Clinical Enablement

Consumer Activation

Disease Management Monitoring Communications

100

$1,200

80 70 60

$600

50 40

$400

$200

30 20

0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late Total Deal Count

90 $1,000

80 70

$800

60 $600

50 40

$400

30 20

$200

10 $0

100

90 $1,000

Funding ($M)

Funding ($M)

$800

$1,200

100

90 $1,000

Medical Education Provider Search Insurance Search

80 70

$800 Funding ($M)

$1,200

Education and Transparency

Fitness/Wellness

60 $600

50 40

$400

30 20

$200

10

10 $0

0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late Total Deal Count

$0

0 2011 2012 2013 2014 2015 2016 (E) Early Mid Late

Total Deal Count

The clinically focused areas of disease management and patient-provider communications are seeing an increase in early-stage funding, indicating new startup formation; consumer activation and education and transparency companies are maturing, with fewer early-stage rounds raised. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016 Early – Seed and Series A, Mid – Series B and C, Late – Series D and later

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Fitness/Wellness: Adapting To The Market

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Fitness/Wellness: Decline in Valuations and Investment Size Median Pre-Money Valuation of Fitness/Wellness Companies (2011 – Q2 2016)

Median Invested Capital of Fitness/Wellness Companies (2011 – Q2 2016) $20

$40

$18 Median Invested Capital ($M)

Median Pre-Money Valuation ($M)

$35 $30 $25 $20 $15 $10 $5

$16 $14 $12 $10 $8 $6 $4 $2

$0 2011

2012

2013

2014

$0

2015 1H 2016

Series Seed

2011 Series A

2012

2013

2014

2015

1H 2016

Series B

Valuations and financing round sizes have declined in 2016 due to increased competition and shifting investor interest toward clinical applications, forcing wellness companies to adapt. Source: Pitchbook, 2011-2016Q2; SVB Analytics Analysis

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Fitness/Wellness: Companies Adapt to Changing Marketplace Strategy

Description

Strategic Exit

Sell business to strategic partners

Acquire

Acquire companies to build clinical programs

Partner

Partner with academic institutions to conduct clinical studies and provide ancillary data

Develop

Develop features or pivot business model in order to collect real world data or gather clinical-grade data

Examples

As investors move toward more clinically focused strategies, wearables and wellness companies are executing different strategies to adapt to this shifting landscape.

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Fitness/Wellness: Exit to Sports and Fashion Companies “If you don’t have a brand, it is hard to be legit in this space.” – Sonny Vu, Chief Executive and co-founder of Misfit

Sports Fitness Apparel

Fashion Tech

Date

Deal Value ($M)

Invested Capital (IC $M)

EV / IC Multiple

2/12/2016

$85M

$16M

7.4x

8/5/2015

$235M

NA

NA

2/4/2015

$474M

$18M

26.3x

2/4/2015

$85M

$6M

13.7x

12/6/2013

$150M

$24M

6.3

11/11/2015

$250M

$64M

3.9x

3/25/2014

$100M

$37M

2.7x

Software

Target

Hardware

Acquirer

Facing declining investor interest, companies that are not adopting clinical strategies are instead choosing to sell to sports and fashion retailers. Among those, software-focused firms are receiving the highest exit multiples. Source: Capital IQ SVB Analytics Analysis Wall Street Journal - Fossil Group to Buy Misfit for $260 Million

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Fitness/Wellness: Companies Partner, Acquire or Develop Clinical Technologies 2013

2014

2015

Consumer

Acquire

Acquisition

Clinical • Has “FDA approval… [and] understands how to run a clinical trial with hospitals and wellness providers.” • 87 patents, >500 trillion data points • “Partnered… for diabetes prevention”

Acquisition + Personnel

Partner $6.5B IPO

Develop

Kickstarter: Branded as DIY Vital Signs Device

2016

Regulatory: Announces Plans for 510K Submission

$10.5M Series A

• Forms clinical advisory board • Announces plans for clinical trials

• Two 510k approvals • Real-time patient monitoring on physician smartphone • CEO of Spectros becomes Chief Medical Officer of Jawbone

Partnership: Study on weightloss and breast cancer prevention Announcement: 200 clinical studies run on Fitbit / Fitabase App Hire: VP Digital Health from Walgreens

Used for clinical development $35M and regulatory approval in Series B U.S. and China

Jawbone, Fitbit, and Scanadu started in consumer wellness and have made acquisitions, formed partnerships and started internal developments to adapt to the changing marketplace. Source: Company Press Releases, Mobihealthnews, FastCompany, clinicaltrials.gov, Fitbit S-1 Consumer Digital Health

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Disease Management: Growth Opportunities

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Disease Management: Approaches to Engaging Patients Percentage of Total Capital Invested by Category* (2011 – Q2 2016)

30% 62%

General Disease Management and Vitals Monitoring

Solutions that help patients manage any type of disease

Medication Management

Solutions that help patients adhere to and manage their medications

Disease Specific

Solutions that help patients manage one specific type of disease or disorder

8%

Disease management and remote monitoring companies are shifting to focus on a specific disease to help patients and providers better manage the condition as opposed to providing general solutions aimed at patients facing different diseases. *Includes both Disease Management and Remote Monitoring companies and deals Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis

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“I don’t think you can scale a business in healthcare without working directly with the clinical entities like payers and providers.”

– TJ Parker, CEO

Source: Interview with TJ Parker, August 19, 2016 Consumer Digital Health

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How PillPack Is Taking on Medication Management: An Interview with TJ Parker, CEO, PillPack Operating in the Clinical Space

Problem

Online pharmacy that uses technology to help people take medication in a timely manner

Consumer health companies need to develop sound business models because the patient is not the only customer – the payer is also the customer.

Advice to Entrepreneurs

Most EXPENSIVE patients take 5+ prescriptions / day and have trouble coordinating their medication.





Spend time with your consumers: figure out their pain points and understand their core problems. And whether you can solve their problems with technology alone or if you need to become a provider. Know who your customers are and what they are willing to pay for.

Solution

Poor Adherence

Key Success Factors for Consumer-Centric Disease Management: Expertise in Both Healthcare and Technology | Patient-Centric Design Manage complexity for patients • Automated sign up and refills • Coordination with payers • Staff available 24/7

“The healthcare system is moving towards a pay for performance model. Pharmacy should do the same and no one is truly doing that today.” Source: Interview with TJ Parker, August 19, 2016 Consumer Digital Health

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Disease Management: Increasing Focus on Behavioral Change and Complex Disease Management Number of Investments in Disease Management and Remote Monitoring Sectors (2011 – Q2 2016) 25

Behavioral Change Psychiatry Metabolic

20

15

“Remote Monitoring 1.0”

Cardiovascular Respiratory

10

Degenerative and Complex Diseases

5

0 2011

2012

2013

2014

2015

2016 (E)

Orthopedic Oncology Neurology

There has been a steady rise in investments in companies aimed at behavioral change, while the niche targeting complex diseases is more nascent. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis 2016(E) is extrapolated based on 1H 2016

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Disease Management: Opportunities in Complex and Degenerative Diseases Total Medical Expenditure, by Chronic Conditions in U.S. 2013 ($B) $-

$50 $100 $150 $200 $250

Metabolic

24%

Psychiatric Cardiovascular

22% 11%

Orthopedic * Oncology Neurology

Difference

10%

$500 $400 $300 $200 $100

14% 10% 9%

-3% 1% -8% -8% -5%

$-

Metabolic

34%

6%

9%

Respiratory

Total Investments in Disease Management and Remote Monitoring Sectors by Chronic Conditions in U.S. 2011-Q2 2016 ($M)

Psychiatric

15%

Cardiovascular

19%

Respiratory

12%

Behavioral Change Psychiatry Metabolic

“Remote Monitoring 1.0”

Cardiovascular Respiratory

Orthopedic *

6% 2% 4%

Oncology Neurology

Degenerative and Complex Diseases Orthopedic Oncology Neurology

*Excludes trauma or injury-related conditions

Degenerative and complex diseases, which are difficult to manage and account for a significant portion of U.S. medical expenditures, have received comparatively lower digital health investments, signaling the space is ripe for disruption. Source: Rock Health Database Q2 2016, Pitchbook, 2011-2016 Q2; SVB Analytics Analysis AHRQ - Total Medical Expenditure by Conditions in US, 2013

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Market Outlook:

Assessing Consumer Health Opportunities

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High-Flyers

Progression to Clinically Driven Consumer Health Solutions 2016–20 Exits

2014–18 2012–16 2010–14 Remote Monitoring 1.0 • Led by the medtech sector • Point solutions • Rely on traditional reimbursement

Fitness/ Wellness • Rise of quantified self movement • Tech investors galvanize market with investments into consumer hardware and software • Focused on fitness and wellness

Disease Management • User-friendly cloud/mobile solutions, clinical-grade devices and data analytics • Engage patients to actively manage their health • Target financiers focused on controlling health benefit cost and improving outcomes

Digital Therapeutics • Predictive and personalized clinical intervention • FDA-regulated, providerprescribed, combination solutions • Demonstrate clinically proven efficacy and cost savings

We have seen the sector's focus move from traditional devices aimed at a specific solution to consumer devices. Now, the focus is on digital solutions for disease management. Going forward, clinically proven software and hardware will be integrated to drive better health outcomes and cost savings. Source: Pitchbook, Company websites SVB Analytics analysis

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About the Authors

Head of Analytics [email protected]

Steve Allan, CFA

Scott Winder

Steve Allan is the Head of SVB Analytics, responsible for the three areas of information services provided to the innovation economy: Strategic Advisory Services, Compliance Valuations, and Insights. Strategic Advisory Services provides consultative guidance around valuations, benchmarking and inorganic growth strategies. Compliance Valuations issues valuation opinions for private companies. Insight focuses on studying trends and opportunities in the private venture-backed innovation ecosystem. Steve brings a strong financial background and passion for entrepreneurship to his role at SVB Analytics.

Scott Winder is a Director at SVB Analytics, responsible for managing client valuation assignments and issuing valuation opinions. Prior to joining SVB Analytics, Scott was a manager in the Business Valuation practice of Deloitte Financial Advisory Services LLP based in San Francisco. While at Deloitte, Scott provided financial advisory services related to mergers and acquisitions, accounting compliance, tax reporting and strategic planning for clients in the technology and life sciences industries, with particular experience in the biotechnology and biopharmaceutical industry segments.

Director [email protected]

Scott holds a master's degree in business administration from the Haas School of Business (University of California at Berkeley), and a bachelor’s degree in human biology from Occidental College.

Steve earned a master’s in business administration from Duke University's Fuqua School of Business and a bachelor's degree in finance from the University of Notre Dame.

Manager [email protected]

Alex Lee

Emily Wengel

Alex Lee is a Valuation Manager at SVB Analytics, responsible for conducting due diligence and financial analysis on valuation engagements for venture-backed companies in the Life Science sectors.

Emily Wengel is a Valuation Associate with SVB Analytics, responsible for conducting due diligence and financial analysis on valuation engagements for early-stage, venture-backed life sciences companies.

Prior to joining SVB Analytics, Alex worked as a consultant for biopharmaceutical companies, diagnostic companies and medical research institutions, assisting in corporate development, product commercialization and strategic advisory activities. Alex holds a master’s of bioscience degree from Keck Graduate Institute and a bachelor’s of science degree in biochemistry from the University of Nebraska-Lincoln.

Associate [email protected]

Prior to joining SVB Analytics, Emily worked as a business analyst at BioMotiv, an early stage biotech accelerator. Emily graduated cum laude from University of Pennsylvania, where she earned a bachelor of science in economics and a bachelor of arts in biology.

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About Silicon Valley Bank

For more than 30 years, Silicon Valley Bank has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted financial services and expertise through its offices in innovation centers around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators.

About SVB Analytics

SVB Analytics, a non-bank affiliate of Silicon Valley Bank, serves the strategic business needs of entrepreneurs, corporates and investors in the global innovation economy. For more than a decade, SVB Analytics has helped global business leaders make informed decisions by providing market intelligence, research, and consulting services. Powered by proprietary data, SVB Analytics has a unique view into the technology and life science sectors.

This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. SVB Analytics is a member of SVB Financial Group and a non-bank affiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or other obligations of Silicon Valley Bank. SVB Analytics does not provide investment, tax, or legal advice. Please consult your investment, tax, or legal advisors for such guidance. ©2016 SVB Financial Group. All rights reserved. SVB>, SVB Financial Group, and Silicon Valley Bank are registered trademarks. 0916-232

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