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reducing clinic visits and hospital admissions and by controlling or curing disease so that the patient can return to a fully productive life. At the same time as this revolution in the biological sciences is unfolding, exponential increases in the ability to manage, process, and store information at low cost are coming out of the information technology (IT) industry. This rapid technological progress in IT is allowing the creation of entirely new systems and applications that will fundamentally improve how healthcare systems monitor and manage patients across the full range of care settings. The Fund Managers believe the massive expansion and integration of capabilities occurring in biology and information technology is enabling a period of innovation in healthcare that sets a uniquely positive environment for the investment of NLV-III.

• More Favorable Regulatory Environment For New Drug Approvals: Increasing numbers of FDA drug approvals and recently passed U.S. regulatory legislation are reflective of a more favorable regulatory environment. The number of new drug approvals by FDA in both 2012 (39 NDAs) and 2013 (27 NDAs) trended meaningfully higher compared to the previous 6 years and versus historic averages¹⁰. In addition, the Food and Drug Administration Safety and Innovation Act (FDASIA) was signed into law on July 9, 2012, providing for additional tools to enable the FDA to promote innovation by streamlining parts of the approval process and improving communication and administrative processes between the agency and pharmaceutical and biotech companies. Chief among these new tools is the "Breakthrough Therapy" designation. This new designation helps the FDA assist drug developers to expedite the development and review of new drugs with preliminary clinical evidence that indicates the drug may offer a substantial improvement over available therapies for patients with serious or life-threatening diseases. Overall, these initiatives and others, both in the U.S. and abroad (e.g., E.U. and Japan), have made the regulatory environment more favorable for investors in the biopharmaceutical sector, and have reduced some of the uncertainty and risk in a critical aspect of drug development.

• Capital Markets And Industry Dynamics Are Favorable For New Investments & Exits: Since the most recent peak in fundraising in 2008, it has been estimated that the life sciences venture capital fundraising has contracted by 68%, from $7.8 billion in 2008 to $2.5 billion in 2012¹¹. The Fund Managers believe that there has been a corresponding decline in the number of active venture capital firms investing into life sciences companies (especially earlier stage), resulting in fewer investors competing for new deals. At the same time, large and mid-sized biopharmaceutical companies have become increasingly dependent on development stage companies as the source of innovation and new products to supplement R&D pipelines and stimulate future growth. Most of these big companies are committing a large and growing portion of their R&D budgets to external facing search and evaluation efforts that have the goal of obtaining assets through high value mergers, acquisitions, and partnerships, which disproportionally benefit smaller, venture-backed, development stage companies. In the years ahead, we believe that this trend is likely to continue, and possibly accelerate, driven by expected patent expirations on commercial products and continued low productivity of pharma R&D. The Fund Managers believe these dynamics offer venture

10 Food and Drug Administration. Center For Drug Evaluation and Research
11 Dow Jones; Fenwick & West Analysis in 2012 Trends in Terms of Life Science Venture Financings

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