This year’s conference confirmed there is great momentum in the healthcare arena, following a recent run-up in biotech. In 2016, pricing and other concerns dominated the headlines and created volatility. Those issues now appear to be in the rearview mirror, and tailwinds seem to be creating a pro-capital-and-liquidity sentiment in the market.

A big factor in these tailwinds is the new administration that, rightly or wrongly, is being viewed as more anti-regulatory and pro-business. There may be a new window for healthcare and life sciences companies to raise private and public capital. Some upcoming FDA decisions around approval timelines will help confirm the validity of these speculations. Will we ever return to the banner year of 2014 into 2015 for biotech IPOs? That is also TBD… but positive political/regulatory momentum, combined with upcoming human trials around CRISPR and the promise of that technology and others, could make this year very interesting. In my opinion, the atmosphere is cautious but optimistic.

Taking a closer perspective, most of my clients are pre-revenue or smaller life sciences companies, and they wonder how changes in regulatory policies will affect the two things that most concern them. The first is raising capital. It typically takes $150 to $200 million to move a drug from pre-FDA approval to market. The

J.P. MORGAN PRIVATE BANK

Insights & Implications from the J.P. Morgan Healthcare Conference

Josh Moradfar Healthcare Investment Banking

J.P. Morgan Corporate & Investment Bank

Cautious optimism

“ The overall tone of dialogue and sentiment with clients was quite positive—especially when compared to last year. While there are pockets of uncertainty and near-term hesitation to make bold moves across various sub-sectors driven by potential changes in the regulatory landscape, companies continue to have interest in executing acquisitions and financings.”

On behalf of J.P. Morgan Private Bank’s U.S. healthcare practice, we are delighted to bring you highlights and takeaways from the recent J.P. Morgan Healthcare Conference. More than 300 industry leaders and CEOs spoke about the exciting progress they are making in innovative therapies, diagnostic breakthroughs and data collaboration.

We certainly expect challenges from potential policy changes but, as you will discover—with notes from our colleagues across J.P. Morgan—we believe the future of this industry is bright, and we look forward to serving your business and personal needs.

Christine Leong Connors Head of Northern California J.P. Morgan Private Bank

second is how best to exit the market while returning equity or providing liquidity for their shareholders. Both are tied to the binary nature of the business and, regardless of positive tailwinds, investors will not forget that fact.

Peter Meath Industry Head, Life Sciences J.P. Morgan Commercial Bank

3 5 T H A N N U A L

J . P . M O R G A N

HEALTHCARE CONFERENCE

Please read Important Information at the end of the presentation.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

“ We are on the precipice of change in fighting the battle against cancer. People from all walks of life have joined Moonshot and taken up the challenge to innovate and fight cancer.” Joe Biden

Former Vice President of the United States Chair, Cancer Moonshot Task Force

Our bankers weigh in:Key impressions and takeaways

UNPRECEDENTED INNOVATION It was incredibly exciting to hear about the amount of innovation currently going on in the industry. More transformational drugs are coming to market than in the last 20 years. In particular, we can expect innovations in cell and immune therapies. Furthermore, there has been a wholesale disruption in the way we do diagnostics.

From my perspective, the most exciting developments are in genomics. The cost of sequencing the genome is expected to be much lower with time and, as a result, will usher in an era of personalized medicine. Numerous business models exist on how to best monetize this reduction in the cost curve. Collaboration around data is at the heart of this, including health systems coming together. A key challenge to achieve reach is drug pricing—how do we continue to reward and foster innovation without breaking the bank? That said, genomics is at the forefront of positive change in the industry.

Ro MehrotraBanker, J.P. Morgan Private Bank

KEEP YOUR EYE ON THE PIPELINE Optimism was renewed for this year’s public deal calendar. Attendees expressed confidence that the pipeline backlog the sector experienced during most of last year would begin to clear in the coming months.

As always, several transactions were announced during the conference, and the sentiment was that this signals a revived interest in dealmaking (of course pending policy guidance from the new administration). There was lively discussion regarding an increased appetite for partnerships, particularly for early-to-mid-stage companies. With growing interest in commercializing combination therapies, we could also see an uptick in both M&A and partnership activity as well. In recent years, companies have shown a slight preference for acquisitions of later-stage assets, but I think we may see much more in the way of development deals in 2017.

Sam QuinnBanker, J.P. Morgan Private Bank

FACTORS DRIVING DRUG PRICING Drug pricing was a prominent topic among several of the speakers who presented and attendees with whom I spoke. That wasn’t surprising, given the media coverage of the issue over the last year. In particular, there was a great deal of conversation about the Trump administration’s rhetoric regarding potential changes in government regulation of drug development and pricing.

While biopharma is delivering more transformational drugs to market today than in recent memory, managing drug costs for patients across the pharmaceutical supply chain from the laboratory to their doctors’ offices is critical. In addition, an aging population is putting increased demands on

2 | INSIGHTS & IMPLICATIONS FROM THE J.P. MORGAN HEALTHCARE CONFERENCE

the system. This all demonstrates the importance of value-based pricing.

For many patients, the stakes can’t get any higher.

Angela ColombaniSenior Investment Specialist, J.P. Morgan Private Bank

IMPLICATIONS OF PENDING POLICY CHANGES

If one theme dominated the conference this year, it was the industry’s uncertainty around the new administration’s potential policy changes. Top areas of interest included the possible repeal and replace measures of the Affordable Care Act, modification of corporate tax rates and repatriation of overseas cash holdings.

While there was much discussion on these broad themes, the new administration has not revealed a detailed plan for the ACA’s replacement. Given the degree of uncertainty, U.S. healthcare reform will remain under the microscope and keep leading industry executives fully engaged as the landscape continues to evolve. Healthcare reform and fiscal policy are front and center. As the global healthcare industry is transforming through technology and innovation, it faces cost trajectory, increased demands for healthcare services by an aging population, and growth in chronic disease management.

Steve Van BesienBanker, J.P. Morgan Private Bank

“ It is amazing what’s happening in healthcare and the great minds gathered here at this conference. You are uplifting the future of America.”Jamie Dimon

Chairman and Chief Executive OfficerJPMorgan Chase & Co.

M&A in 2017Preparing for a successful sale

3

Steve Faulkner Head of Private Business AdvisoryJ.P. Morgan Private Bank

Over the last few years, the M&A market for life science companies has been especially resilient. However, not all business owners who wanted to sell were able to capitalize on the strength of the markets.

In our experience, business owners who complete the most successful M&A transactions generally share three traits:

Vigorously prepare their business to go to market

Have a clear conviction to sell

Move expeditiously to get a deal done

Poised for action It’s often said that you can’t time the M&A markets. True. But you can position your business to go to market when the time is right by focusing on two important factors: assembling the right deal team—accountant, attorney, investment banker, private banker, and others—and addressing any red flags with the business proactively rather than reactively during buyer due diligence.

“ You can’t time the M&A markets… but you can position your business to go to market when the time is right.”

A cautionary taleFor example, we worked with the owner of a healthcare-related business who had passed on several above-market offers from potential buyers, reasoning that they would always be there. He subsequently received an offer that was double other market comparable offers. The owner delayed the deal; he wanted to take the summer off due to deal fatigue, and he believed increased revenues and earnings over three months would command increased value. At the end of the summer, the strategic buyer missed his earnings and decided to walk away from the deal. It was only then that the seller realized how much he had wanted to sell his business.

Hedging your betsAs an alternative to a control sale transaction, partnership or joint venture arrangements appear to be trending in the life sciences space. For these transactions, the devil is in the details. Although often seen as synergistic and complementary, they can be far more complex both at inception and conclusion. Therefore, careful attention to partner selection, desired outcomes and structure is paramount to long-term mutual success.

2

1

3

Managing concentration risk

There are many Horatio Alger stories in the corporate world in which an entrepreneur or CEO has the right idea at the right time and executes brilliantly on a business plan. But history also shows that forces both within and outside management control led many of their businesses to suffer serious reversals of fortune. As a result, many individuals are known not just for the wealth they created through a concentrated position, but also for the decisions they made to sell, hedge or otherwise take some chips off the table.

We first analyzed this topic several years ago, and again in 2014; while some things will continue to change, the overall song remains the same: Empirical analysis and case studies across nearly every sector show that no matter how well a business owner or CEO may know their industry and company, their ultimate success and wealth can be profoundly affected by forces beyond their control:

Technological innovation—New products or processes can disrupt existing markets, create new forms of competition or eliminate middlemen

4 | INSIGHTS & IMPLICATIONS FROM THE J.P. MORGAN HEALTHCARE CONFERENCE

Michael Cembalest Chairman of Market and Investment StrategyJ.P. Morgan Asset Management

Government policy—Changes in U.S. or foreign government tariff or trade policies or slowdowns in FDA approval patterns

Employee fraud—According to SEC investigations from 1997 to 2007, fraud by non-executive employees, accounted for ~30% of all instances

Even the best management team is hard-pressed to cope with these types of unforeseeable challenges.

COMPANY PRODUCT / TREATMENT DISEASE / CONDITION

Affymax Omontys Chronic kidney disease

Anthera Varesplaib, Blisibimod Heart disease, lupus

AVEO Tivozanib Kidney cancer

BG Medicine Galectin-3 Test Heart failure

Bluebird LentiGlobin BB305 Beta thalassemia

Chimerix Brincidofovir Antiviral for infections

Coronado TSO Crohn's disease

Cytori Athena Coronary heart disease

Dynavax Heplisav Hepatitis B

Infinity IPI-145 Blood cancer

Myrexis Azixa Brain cancer

Puma Neratinib Breast cancer

Source: FactSet, J.P.Morgan Asset Management, August 2016. The table shows some of the more recent catastrophic losses (companies reaching the 70% decline threshold from 2012 to 2016; it does not represent a final assessment of each firm’s future prospects. All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

A partial list of Russell 3000 Index biotech and life science companies reaching catastrophic loss thresholds from 2012 to 2016

“ While the risks of concentration are well publicized, we feel they are still underappreciated.”

DISCOVER WHAT WE CAN DO TOGETHER

Connect with your banker to discuss how current trends could impact your wealth planning. For a healthcare practice banker near you, please contact Christine Leong Connors at PB.Healthcare@jpmorgan.com.

“ This year’s conference was charged with a greater sense of optimism for a return to growth. Headline risk may continue to drive volatility in the near term, but attractive sector fundamentals, more measured capital-raising activity pre-conference and early signs of M&A activity have set the stage for 2017 to be a constructive year for biopharma.” Josh Bleharski

Healthcare Investment BankingJ.P. Morgan Corporate & Investment Bank

A steady drumbeatOver the long run, some companies substantially outperform the broad market and maintain their value. However, the odds are stacked against the average concentrated holder. Between 1980 and 2014, over 320 companies were deleted from the S&P 500 for business distress reasons, which implies a lot of turnover. There is a steady drumbeat of business failures even during periods of economic expansion.

Our analysis also included the Russell 3000 Index, a listing of the 3,000 largest U.S. companies. About 40% of all stocks suffered serious declines of more than 70% from their peak value. Some sectors —like telecom, biotech and energy—saw higher-than-average loss rates.

Many ways to diversifyWith perfect hindsight, some of these declines may seem inevitable. But in all likelihood, the company’s management, board of directors and employees—as well as research analysts, credit rating agencies and vendors—all firmly believed in its long-term success.

Contrary to what many believe, “diversification” does not have to translate into selling the business or concentrated stock, in all or even in part. The first step is to look at your personal choices about risk and what you want to achieve with your wealth in the long run, and for future generations.

5

IMPORTANT INFORMATION

Purpose of this materialThis material is for information purposes only, and not an offer or solicitation to enter into a transaction. The information provided may inform you of certain investment products and services offered by J.P. Morgan’s private banking business, part of JPMorgan Chase & Co. The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. ConfidentialityThis material is confidential and intended for your personal use. It should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission.

Regulatory statusIn the United States, Bank products and services, including certain discretionary investment management products and services, are offered by JPMorgan Chase Bank, N.A. and its affiliates. Securities products and services are offered in the U.S. by J.P. Morgan Securities LLC, an affiliate of JPMCB, and outside of the U.S. by other global affiliates. J.P. Morgan Securities LLC, member FINRA and SIPC.“J.P. Morgan Private Bank” is a marketing name for private banking business conducted by JPMorgan Chase & Co. and its subsidiaries worldwide.

Non-relianceWe believe the information contained in this material to be reliable and have sought to take reasonable care in its preparation; however, we do not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. We do not make any representation or warranty with regard to any computations, graphs, tables, diagrams or commentary in this material which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in it constitute the identified authors’ views based on current market conditions and are subject to change without notice. We assume no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of J.P. Morgan, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward looking statements should not be considered as guarantees or predictions of future events. Investors may get back less than they invested, and past performance is not a reliable indicator of future results.

Risks, considerations and additional informationThere may be different or additional factors which are not reflected in this material, but which may impact on a client’s portfolio or investment decision. The information contained in this material is intended as general market commentary and should not be relied upon in isolation for the purpose of making an investment decision. Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document is intended to constitute a representation that any investment strategy or product is suitable for you. You should consider carefully whether any products and strategies discussed are suitable for your needs, and to obtain additional information prior to making an investment decision. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions. Contact your J.P. Morgan representative for additional information concerning your personal investment goals. You should be aware of the general and specific risks relevant to the matters discussed in the material. You will independently, without any reliance on J.P. Morgan, make your own judgment and decision with respect to any investment referenced in this material.The price of equity securities may rise or fall due to the changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time. Any companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.References in this report to “J.P. Morgan” are to JPMorgan Chase & Co., its subsidiaries and affiliates worldwide. “J.P. Morgan Private Bank” is the marketing name for the private banking business conducted by J.P. Morgan.If you have any questions or no longer wish to receive these communications, please contact your usual J.P. Morgan representative.

© 2017 JPMorgan Chase & Co. All rights reserved.

Ro Mehrotra Banker, J.P. Morgan Private BankPhiladelphia, PA

Steve Van Besien Banker, J.P. Morgan Private BankSummit, NJ

Sam Quinn Banker, J.P. Morgan Private BankBoston, MA

Angela Colombani Senior Investment Specialist, J.P. Morgan Private BankPalo Alto, CA

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

Private Banker Contributors

6 | INSIGHTS & IMPLICATIONS FROM THE J.P. MORGAN HEALTHCARE CONFERENCE