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Æsis Research Group

Ogan Gurel, MD MPHIL


Chairman

Excellerant - Life Sciences Accelerator


A combined real-estate, incubator and CRO deal

Executive Summary The opportunity exists to purchase a 70,000 sf high-end research facility (with a minimum of $20M replacement value and
capitalized to at least twice that amount) for an extremely low price of $3.3M. A contract research organization (CRO) that four years ago had
annual revenues of nearly $20M is presently in the building but requires restructuring. The business plan is to purchase the building and the CRO,
restructure the latter to function in about 10,000 sf and lease the remaining office and lab space to life sciences startups and development stage
companies. Because the rents offered can be extremely low (perhaps 75% off the going rate for such incubators which have to make up the full cost
of their capitalization) and the facilities are so high-end, demand for this space will be very high and only the very best companies will be permitted to
lease and stay within the building. Because the rent is subsidized, the holding company (which will own the property and the CRO) will also have
non-controlling equity stakes in the tenants. Unlike incubators – whose business model is limited to rental income – this unique facility will tie
tenancy to the achievement of development milestones and thus the value of each tenant will be accretive not only from a rental basis but also from
a the value-added equity position.

In short, the mission of this unique facility, the associated CRO and advanced incubator model is to be the leading Life Sciences Accelerator in the
nation. It’ll be a leading paradigm for a desperately needed new approach to accelerating biopharma and medical technology innovation.

The Building This single-story building is 70,000 sf with 63,400 under heat and air and the rest closed docks. Ample employee and visitor
parking spaces are also included and the total land space (included) is 130,680sf. The underlying land is also included in the title. A satellite photo
of the building and floor plan are shown below.

The building and accompanying infrastructure is extensively built out for chemical, biological microbiological and/or pharmaceutical work
with 35 separate air handling systems, over 40 labs, heavy duty ventilation, heating, electrical, generators, clean rooms (class 100, 1000
and 10000), etc. etc. The building was also structurally engineered for a possible 2nd floor expansion as well. Extensive conference room
space, office space, educational spaces, etc. are also included. Because of all the special lab and research based build-out the
replacement cost may be as high as $28M ($400/sf) (or even higher given that some construction is quoted at $600/sf and the building is
especially highly capitalized. Over capitalization is estimated at nearly $60M. The building is located in the Chicago suburbs with good
access to transportation (two miles west of IL-60).

Why this is such a low price The current tenant is a contract research organization (CRO) which reached a $19M topline with margins of
45%. It was a very successful player in the areas of stability, sterility, microbiological, GMP/GLP consulting and clinical trial consulting.
Unfortunately the former CEO had serious legal troubles (involving another company) which ended up with him being sentenced in June of
2006 to ten years in federal prison. His case is under appeal. Because of this, two things happened, the company had to be sold (the
FDA would not certify a company led by a convicted felon) and the U.S. government took a 50% interest in the building. The company was
sold to an investor group unfamiliar with the biotech industry. To make a long story short, they brought in another partner who had a
strong reputation in the clinical consulting arena who promised to bring in many clients. He ended not being able to spend time (he was

PO Box 578025 Chicago, IL 60657-8025 | Tel (312) 246-5160 | Fax (773) 409-5897 | gurel@aesisgroup.com
Providing investment intelligence and research services to healthcare investment decision makers
Æsis Research Group
based in Philadelphia) with the company (though he took out an $11,000/month salary much to the chagrin of the other principals) and did
not bring any clients. He has since resigned. About one month ago, the situation further deteriorated in which the company no longer
could pay rent and was essentially being closed down. In addition, the owners of the building were eager to sell the property with the
CEO’s family wanting $5.5M and the U.S. government being satisfied (with comparables on a tear-down or warehouse basis) with $3.3M.
Because the case is in appeal and there is no desire to be adversarial with the government, the $3.3M has been accepted under the terms
of a letter of intent between Aesis Group and the landlord. Based on average square foot for research lab buildout ($300 - $600 sf) the
approximate replacement value for the building ranges between $21M to $35M. Because the facilities are particularly built at the high end,
the total capitalization (including equipment) could be close to $60M. Hence the property can be acquired at roughly a 95% discount – an
extreme market inefficiency enabled apparently by all these tragic turn of events.

Business Plan The plan involves converting the facility into the leading life sciences “accelerator” facility in the world (and certainly the
Midwest). The concept of an “accelerator” represents a step beyond that of conventional business “incubators.” The reasons that will make this one
of the world’s leading facilities are:
1. It would be hands-down be able to provide the lowest rents to any startup or development stage company. Because of the unusually
discounted acquisition, we are able to effective “subsidize” any rent coming in. Absolutely no facility with anywhere near the capability
would be able to compete on price. Note that at an absurdly low monthly rent of $10/foot the mortgage can be easily covered and
then some with only half the building being rented out. Conventional incubator rents run at around $40/foot or more.
2. The lab facilities are absolutely first-rate and this is not simply an “incubator” with some slate lab tables scattered about. There are
32 separate air handling systems, most of the rooms are equipped with the highest end hoods, there are multiple “ultra-clean” rooms,
infrastructure is absolutely first rate, and so on and so,
3. The facility will have its own top flight CRO which can serve both the tenants as well as external customers. This CRO will be the
restructured successor to the current tenant and will occupy a smaller section of the building rather than the entire facility.
4. The facility will be run and be associated with absolutely world class staff. This ranges from the property management, to legal / IP
advisory all the way to Nobel Laureate advisors. It will be a venture capital firm in its own right but one that doesn’t necessarily need
to provide direct cash funding to its holdings.

Conventional incubators make money by charging rent to cash-strapped startups and development-stage companies. These incubators
actually are disincentivized to have their tenants rapidly succeed and move out. The “accelerator” concept here – of which this would be the
only one- would provide a combination of lower rents yet more capability. Because of the “subsidized” rent, non-controlling equity interests will
be taken in the tenant companies (depending on the space, the discount and so forth). Because of the unique combination of low rent and
greater capability, high demand for the space is anticipated. Tenant companies that do not meet milestones and judged to be unsuccessful will
not have their leases renewed. While the accelerator will not have equity control of the companies, they effectively have control over their
presence in the facility. It’ll be “UP or OUT.” That is ultimately the unique value proposition of an accelerator over an incubator.

Proposed O rganization for newly restructured Accelerator site

New
Investors Sterility M icrobiology

80% own

D ividend Stability Clinical


Building consulting Revenues
Partial
O wnership
Holding com pany / equity
Form er CRO
VC firm Outside
Lease +
equipm ent clients
Equipment rental
Contract research revenues
Revenue 65.5% own

Assets 20% own


Partial
equity
C om pany A Com pany C
34.5% own M anagem ent
Aesis com pany Lease +
Group, LLC equipm ent
Com pany B C om pany D
rental

“Other” tenants

Revenues Revenues to the management company and thus to the investors will accrue along several lines:
1. Rents from tenants (including the CRO)

PO Box 578025 Chicago, IL 60657-8025 | Tel (312) 246-5160 | Fax (773) 409-5897 | gurel@aesisgroup.com
Providing investment intelligence and research services to healthcare investment decision makers
Æsis Research Group
2. Equipment and other such fees.
3. Exit returns accruing from equity interests in tenants (yet another reason to accelerate their development and
commercialization)
4. Fees from the tenants for use of CRO services (the management company will own the CRO as well as the building)

It may also be anticipated down the line potentially that fees can be charged to venture capital firms and other investment firms for the
right to bring their portfolio company into the facility as tenants.

Financials The financials break down (referencing the organization chart above) into those relating to the holding company, the management
company and the successors to the current company.

Holding Company In order to capitalize the holding company (e.g. to acquire the assets), the total investment would be $3.3M (building
purchase), $900K (assumption of equipment bank loan) and $100K (incentive payment to CRO principals). The total is thus: $4,300,000.
If this were to be debt financed by a bank (because it is mostly real estate and physical assets), a down payment (20%) of approximately
$840,000 should suffice. This would result in monthly mortgage (at 7%) of $17.563. In order to comfortably cover one year’s mortgage
payments (conservatively estimated at $25,000/month to include tax, etc.) then we need 12 x $25,000 plus 12 x $15,000 (for the bank
loan) which is $480,000. Finally, I’ve put in a cushion of $200,000 in order to properly capitalize the restructured CRO (see below). Again,
the idea is that rentals should start to cover this (even from the very first months) and certainly fully covered by the end of the year.
Nonetheless a total capital outlay of $1,400,000 should suffice to secure this part of the deal.

Management Company In order to cover one year of operations, we need $15,000 x 12 = $360,000. I’ve also added a cushion of
$100,000 plus management company salary of $100,000. This makes $560,000 for total capitalization.

Restructured CRO These should not need to be capitalized any further (since they are getting revenue – particularly if we bring in the
Takeda deal into the mix). I have, however, put in $200,000 in “cushion” as above. The holding company will own the restructured CRO
and they will charge rent/equipment lease on a schedule based on their respective revenues.

Capitalization Summary Total capitalization would be:

Holding company = $4,980,000


Management company = $380,000
Aesis equity (forgone salary) $200,000
Total = $5,560,000

Of this, the amount that could be readily debt financed (e.g. collateralized against real assets) would be $4,200,000 so with a
20% downpayment that would imply cash of $840,000. Total cash investment required would thus (not including the Aesis
equity) be: $2M (e.g. $840,000 downpayment, + $380,000 management company + $100,000 incentive payment + $200,000
holding company cushion + $480,000 one year holding company monthly payments).

PO Box 578025 Chicago, IL 60657-8025 | Tel (312) 246-5160 | Fax (773) 409-5897 | gurel@aesisgroup.com
Providing investment intelligence and research services to healthcare investment decision makers