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Please contact us if you have questions or comments about our successes to date. Financial inquiries are best directed to Eric Ott, David Buffenbarger, or Steven Smith. Any questions regarding the medical conditions being treated or the mechanism of action of a given company’s product is best answered by Dr. Peter Milner or Dr. Mark Midei.

Below is a brief description of the current companies, the status of their development, AshHill’s degree of ownership and a description of AshHill’s role.

Investor UpdateBackground on Current Investments

Winter 2014

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Self-expanding Device For Sinus Opening Dilation

Summary:

Sinusys is an advanced-stage company that makes a maxillary sinus dilator for the treatment of chronic sinusitis. AshHill owns 5% of the company and holds a Board of Directors seat.

Winter 2014

Background:

Chronic sinusitis affects more than 37 million Americans. It is characterized by frontal headaches and fever and can result in significant impairment in quality of life. Antibiotics are often prescribed to treat the condition, but studies have shown that they are ineffective and often lead to the development of antibiotic-resistant bacteria. This in turn may make subsequent treatment more challenging. Because the disorder is usually caused by a clogging of the passageway leading from the sinus to the nasal passage, antibiotics do not provide a definitive solution to the problem and may ultimately cause more harm than good.

Otolaryngologists have long recognized the effectiveness of improving ventilation and drainage of the sinuses in treating chronic sinusitis. Because surgery is invasive, painful, and costly, it is usually reserved for only the most advanced cases. Recently, enlargement of the sinus drainage pathway has been possible using a balloon dilation system. While less invasive than surgery, it remains sufficiently uncomfortable to require performance in a surgical center and some form of sedation or anesthesia is necessary. The rapid nature of the dilation (usually over a few seconds) is responsible for the discomfort and for a tendency of the dilation to recoil after the procedure.

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About Sinusys:

Sinusys has developed a self-expanding device that can be utilized in a physician’s office. It remains in place for a few

hours, during which time its diameter expands gradually. Because of the slow and gradual expansion of the device, pain is minimized and surgery center-based sedation is not necessary. The prolonged nature of the dilation assures a more complete process, which is less prone to recoil. The device is later removed in the physician’s office at which time its effectiveness can be assessed.

Because the device can be produced at less cost than a balloon dilator, and because the combined cost of sedation and the use of a surgical center can be avoided, this device is likely to become the preferred method for treatment of a large number of chronic sinusitis patients.

Winter 2014

Development stage:Sinusys is a mature company with broad patent protection for the self-expanding maxillary sinus dilator. During development of the current product, discoveries of the device’s ability to facilitate drug delivery were made. These intellectual properties were used to start another sister company in which former Sinusys investors (including AshHill) were given equity without additional investment.

The FDA cleared the Vent-Os Sinus Dilation System for dilation of the maxillary sinus ostia and associated spaces in adults for diagnostic and therapeutic procedures in January 2014. This was followed by rapid media coverage of the newly approved device (see page 4). U.S. sales and marketing initiatives have commenced. The Vent-Os System has also received the CE Mark, Health Canada license, and Australian Therapeutic Goods Administration (TGA) Certificate and is currently being commercialized in those regions.

Sales in other regions, including China, India, and Japan are being explored.

Several enhancements of the device are underway. A smaller, lower profile delivery system is being developed, and devices for other sinus applications are being explored. The drug delivery options are being developed in the sister company in which AshHill has additional equity.

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Winter 2014

Financing:

Sinusys completed Series B financing in September 2011. There have been two additional rounds of financing to facilitate sales and marketing. AshHill has participated in these rounds.

AshHill’s role:

AshHill has a 5% ownership of the company. Dr. Peter Milner serves as one of four members of the Board of Directors for Sinusys, as the company moves forward.

For more information, visit www.sinusys.com.

Media Coverage:• AdvaMed SmartBrief – Ran news in 1/9

daily e-newsletter, linked to a MedGadget story.

• Clinica – Plans to include in upcoming regulatory recap grid; we are also pursuing a news story.

• DeviceSpace – Ran news 1/7.• FDA News/Device Daily – Ran story

in 1/8 Device Daily e-newsletter, with news as subject line and lead story (next column).

• MassDevice – Podcast and short story scheduled.

• MedGadget – Ran story 1/8, with link to video from Web site.

• Medical Device Daily – Ran a front page, cover story on 1/7 (see page 5).

• MedLatest – Ran a feature story highlighted on home page 1/7.

• Medtech Insight – Pursuing a story.• San Francisco Business Times/Silicon

Valley Business Journal – Reporter conducted interview on 1/7, awaiting story.

FDA News:

FDA Clears Sinusys Vent-OS Sinus Dilation System

Sinusys plans to launch its Vent-OS two-step osmotic expansion sinus dilation system immediately in certain markets around the U.S., following receipt of FDA 510(k) clearance.

The system, which demonstrated 95 percent patency in a multicenter study, is inserted into the maxillary sinus opening with the device entered vertically and the tip superiorly. The device is then rotated posterior to the uncinate with the tip angled slightly inferiorly, according to the Palo Alto, Calif., company. Once engaged, the device expands by absorbing the moisture from the lining of the passage. After an hour, it can be removed.

Sinusys says the Vent-OS’s small, low-pressure and self-expanding insert opens the maxillary ostia more gently and gradually than balloon technology.

The sinus system is already marketed in the EU, Canada, and Australia. January 8, 2014

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Winter 2014

Medical Device Daily:

FDA clears Sinusys’ in-office sinus dilation system, Vent-Os By Amanda Pedersen, Senior Staff Writer January 7, 2014

A company that saw an opportunity to develop a gentler treatment option for patients suffering from chronic sinusitis, has recently received FDA clearance for its new device. Sinusys (Palo Alto, California) said the FDA has cleared its Vent-Os sinus dilation system, designed to resolve sinusitis symptoms in a simple, two-step interventional procedure in a doctor’s office.

Specifically, the new device is designed to enable low-pressure, gradual dilation of the maxillary sinus ostia, which is intended to maximize patient tolerability of the procedure in an office setting under local anesthesia. Sinusys says it plans to commercialize the device immediately in select U.S. markets.

“The opportunity arose really because we saw that the vast majority of patients have to undergo a surgery to take care of their sinusitis complications,” Sinusys CEO Tom Schreck told Medical Device Daily. He added that chronic sinusitis is one of the largest unmet medical needs “on the planet” and is considered as egregious as lower-back pain and asthma. “When you’ve got pain and congestion and pressure on your face, it really has an impact on your life,” Schreck said.

Roughly 20% of sinusitis patients do not experience adequate relief from current pharmaceutical treatments. For those patients, the most effective treatments to date have been functional endoscopic sinus surgery (FESS) and high-pressure balloon dilation, which can cause significant patient discomfort and are conducted in a surgical suite under general anesthesia or IV sedation, Sinusys said.

Schreck noted that one of the more recent advancements in the treatment of sinusitis, prior to his company’s device, came from Acclarent (Menlo Park, California), which was acquired a few years back by Johnson & Johnson’s (J&J; New Brunswick, New Jersey) surgical care company Ethicon(Somerville, New Jersey) for $785 million (Medical Device Daily, Jan. 25, 2010). Through

its FDA-cleared balloon sinuplasty technology and other products, Acclarent brought sinusitis sufferers an alternative to medical therapy and the conventional surgical approaches.

But Sinusys saw a need to take it one step further and offer an even less invasive treatment option than balloon sinuplasty.

Unlike balloon dilation devices that use rapid, high-pressure inflation, the Vent-Os sinus dilation system is a small, low-pressure, self-expanding insert designed to gently and gradually open the maxillary ostia, according to Sinusys. The Vent-Os System incorporates the company’s osmotic technology, which utilizes the body’s natural mucosal fluids to expand the insert before removal. In an office setting, patients can be comfortably relocated to the waiting room between insertion and removal of the device.

“While balloon sinuplasty is a very interesting advancement, we believe we will treat more patients because of the fact that it is yet another order of simplicity . . . for the patient and the physician, who may not have interventional cardiology training and techniques in their background,” Schreck said.

Continued on the next page >

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Winter 2014

Medical Device Daily Continued:

The two-step approach is designed to fit into a one-hour office-based visit, during which the physician would place the device in less than two minutes using a local anesthetic and then the patient would be asked to sit in the waiting room for the rest of the hour (MDD, April 17, 2013). Then the patient would be called back and the physician would remove the device.

“With the Vent-Os System, it was our intent to design a device that solved the current clinical challenges with treating sinus disease in a way that was easy for both physicians and their patients,” Schreck said. “Our maxillary sinus device is showing initial clinical success, and we look forward to developing the same simple, gentle technology for use in other sinus anatomy.”

The Vent-Os System achieved post-procedural patency in 95% of the sinus ostia treated in a multi-center study and submitted as part of the company’s FDA filing; 5% of the treated ostia could not be visualized. In the study, the Vent-Os device was inserted into the maxillary sinus opening at the beginning of the procedure and removed after 60 minutes. No adverse events occurred during insertion or removal of the

device. Three-month follow-up was completed in 33 patients (55 ostia), with 93% of the treated ostia remaining patent and seven percent that could not be visualized. No ostia were reported to be occluded.

The company reported that 15% of patients in the study were treated in an office setting after pre-procedural injection of anesthesia; no additional anesthesia or medication was required for these patients for the duration of the procedure. This is in contrast to balloon dilation devices, which often require administration of anxiolytics, analgesics and/or additional local injections of anesthetics during the procedure to increase patient tolerability. The remaining patients were treated in the operating room adjunctive to functional endoscopic sinus surgery (FESS).

“In my opinion, the Sinusys team has demonstrated that gradual, low pressure can dilate the maxillary sinus ostium,” said Peter Catalano, MD, a professor of otolaryngology at Tufts University and chief of otolaryngology at St. Elizabeth’s Medical Center (Boston) and an investigator in the Vent- Os study. “The Vent-Os system is very easy to deploy and is exceptionally well-tolerated by patients under local anesthesia.

Sinusys’ unique osmotic expansion technology appears to be an ideal intervention for patients requiring ventilation and drainage of the maxillary sinus, especially for procedures to be performed in an office setting.”

The FDA cleared the Vent-Os Sinus System for dilation of the maxillary sinus ostia and associated spaces in adults for diagnostic and therapeutic procedures. The Vent-Os System has also received the CE mark, Health Canada license, and Australian Therapeutic Goods Administration certificate and is currently being commercialized in those regions, the company noted.

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Winter 2014

Drug To Treat Hypertrophic Cardiomyopathy

Summary:

Heart Metabolics is developing a drug to treat Hypertrophic Cardiomyopathy, the most common hereditary cause of cardiomyopathy – a weakening of the heart’s force of contraction and the leading cause of sudden death in young people. An Orphan Drug Designation was awarded by the U.S. FDA for this purpose which will reduce regulatory costs and will extend patent protection.

Background:

Hypertrophic cardiomyopathy (HCM) is the most common inherited form of heart disease, affecting 1 in 500 people worldwide. It is becoming increasingly recognized as the leading cause of premature death in young athletes, and efforts to increase awareness of and screening for the condition are underway on many fronts. The condition was responsible for the untimely death of basketball star Hank Gathers. There are several more recent incidents of press coverage regarding individuals with this condition. Links to a well-known You Tube video made by Ben Breedlove and a report about a Cincinnati La Salle High School athlete who died from this condition are included at the end of this section.

The abnormality that causes HCM is a defective contractile element in heart muscle cells. Although these elements are able to contract, they do so inefficiently, requiring abnormally large amounts of energy relative to the amount needed by the contractile elements in normal patients to produce a functioning heartbeat.

The genetic predisposition for the condition has significant variability in the expression as a disease – some patients present with debilitating disease early in life, and others may live from normal to advanced age without symptoms.

About 20% of patients develop significant symptoms at some time during life and require treatment. Medications are notoriously limited in their benefit, and there are no drugs approved by the FDA specifically for this condition. Surgery is usually recommended only for the most advanced stages.

HEARTMETABOLICS

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Winter 2014

About Heart Metabolics:

Heart muscle is different from most tissues in the body in that it uses fatty acids preferentially over glucose as its primary fuel source for energy production. This is an inherently inefficient process in terms of the amount of oxygen that is required.

Perhexiline is a drug that has been tested extensively in patients since the 1970s. It causes the heart muscle cell to switch from fatty acids to glucose as its preferred source of fuel for energy production. This makes the heart muscle more efficient in its energy production, reducing the signs and symptoms of HCM.

Perhexiline is an old drug, having been developed by Merrill Laboratories in the 1970s. It was very effective in treating patients with coronary artery disease who had chest pain, because it improved energy production without the need for increased amounts of blood flow. Its use fell into disfavor, however, when a small percentage of patients developed nerve and liver toxicities.

Continued study of the drug led to an understanding of the mechanism of these toxicities. Some patients have a defective enzyme in their liver that is responsible for metabolizing and eliminating the drug from the body. This defect leads to an excessive accumulation of the drug in the body in a relatively small number of patients. These patients can be identified in two ways:

• Genetic testing of the enzyme responsible for metabolism can be performed, and susceptible patients identified.

• Blood levels of the drug can be measured, and dosing modified according to these levels.

Using these methodologies, the drug has been used safely in thousands of patients in Australia and New Zealand for nearly 20 years.

Perhexiline’s safety and effectiveness has led to its use on a limited basis in the United Kingdom. Although it has been shown to be effective for a number of conditions, there is perhaps no more clear an indication than its use in HCM, where energy production efficiency is the primary defect and where perhexiline acts specifically at correcting energy production inefficiency. In addition, the lack of effective medications specific for HCM means that there exists an unmet clinical need for perhexiline.

The genetic basis for HCM, and the relatively small percentage of patients with HCM likely to require treatment, makes the condition neglected by major pharmaceutical companies interested in developing blockbuster drugs for large populations of patients.

The FDA has designed a drug development track—Orphan Drug Designation—to address this issue specifically. This process requires significantly lower regulatory hurdles in order to accelerate and incentivize drug development for such conditions. It also extends the life of intellectual property protection for the drug.

Heart Metabolics seeks to develop Perhexiline for use in patients with HCM whose symptoms require additional therapy.

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Winter 2014

Development Stage:

Heart Metabolics is an early-stage company with broad worldwide data exclusivity protection for use of perhexiline in a variety of conditions. Because of the age of the drug, patents are largely expired in many parts of the world. After AshHill entered into an exclusive investment agreement with Heart Metabolics, we authored an application for Orphan Drug Designation to the U.S. FDA for perhexiline’s use in HCM. We have also negotiated a worldwide manufacturing deal with Sigma Pharmaceuticals, the current sole supplier of the drug.

Finally, a series of releases and licensing agreements have been achieved with Cardiff University (September 2005), the British Heart Foundation (April 2012), Birmingham University (May 2012), the University of Adelaide (July 2012), and the University of Aberdeen (July 2012).

As discussed above, an application for Orphan Drug Designation was filed with the U.S. FDA in late November 2011. This Designation was made official in June 2012 (See copy of FDA results on page 10).

In syndication with Australian Super (another venture fund), AshHill facilitated the writing and filing of a Briefing Document for a Pre-IND meeting with the FDA, held in September 2013. Guidance was received for design of a clinical trial that would lead to eventual FDA approval.

The information from this meeting allowed the company to pursue secure financing for a pivotal clinical trial. During this process, Heart Metabolics elected to sell the asset to a Venture syndicate led by VenBio, and the new company will be domiciled in Ireland.

In addition, an Orphan Product Designation is being sought in Europe (similar to the U.S. designation), and an isomer of the drug (a potentially safer and more effective version of the current drug with additional patent life) is being developed.

Financing:

AshHill led the Series A financing and were joined by Australian Super. We have loaned the company additional cash in return for preferred stock during the period just before asset transfer.

In the deal with VenBio, Heart Metabolics’ asset has been valued at $10M. They will continue to invest up to $35M for future development dependent on milestone attainment.

AshHill should see a return of about 2.6x its total investment of $515K. The first tranch of this return will occur in early 2014 and will assure a return of about 1.3x of initial investment. The second tranch of 1.3x will be dependent on the successful attainment of an Agreement Letter with the FDA on a Special Protocol Assessment (SPA). This document is being prepared at the present time.

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AshHill’s Role:

AshHill members have been actively involved in both the scientific advancements and business activities of HMB. Dr. Milner has assumed the role of CEO of HMB. Steven Smith serves as an additional member of the Board of Directors. Dr. Midei and Dr. Milner authored an application to the U.S. FDA, which led to a successful Orphan Drug Designation of perhexiline for the treatment of Hypertrophic Cardiomyopathy and a successful Pre-IND meeting with the FDA. We will continue to have a very active role in advancing perhexiline through the U.S. and European regulatory systems.

In the new company, Dr. Milner will continue to serve as CEO, but Steven Smith will be replaced at the Board level by members of the incoming syndicate of investors. AshHill will reinvest funds with the syndicate upon successful attainment of the SPA agreement.

Additional Information:

Hypertrophic Cardiomyopathy received a great deal of media attention recently when 18-year-old Ben Breedlove died from the disease shortly after producing a video. If you have time, his story is very moving.

A Cincinnati La Salle athlete, Reid Rizzo, died as a result of Hypertrophic Cardiomyopathy and was featured in a recent Cincinnati Enquirer article.

We are partnering with the Hypertrophic Cardiomyopathy Foundation as we move forward in trying to achieve FDA approval for the use of perhexiline in this condition. They are a very active advocacy group and they also have a wealth of information on their website.

For more information, visit www.heartmetabolics.com.

FDA Orphan Designation application results:

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Winter 2014

Seed stage developer of new drugs

a. Developer of antibiotics against resistant bacteria b. Developer of new anticoagulant (tecarfarin) c. Developer of an anti-arrhythmic (budiodarone) d. Developer of an anti-gastroparesis/anti-GERD agent (naronapride)

Summary:

Armetheon seeks to discover and develop drugs to fill unmet clinical needs. Though founded to develop antibiotics directed at antibiotic-resistant bacteria, opportunities to develop additional agents broadened initial goals.

AshHill has financed the seed stage of this company, written a White Paper in support of Congressional efforts to ease the regulatory pathway for antibiotic development, and is assisting in designing clinical trials to test new antibiotic compounds.

Armetheon has also acquired the rights to a new anticoagulant, tecarfarin. Armetheon authored a presentation on tecarfarin, is actively completing a manuscript for publication on the drug, and will assist in the design of clinical trials to obtain regulatory approval for this drug.

Armetheon has acquired the rights to a novel anti-arrhythmic, budiodarone. It is in the process of authoring a manuscript detailing the benefits of this agent over other existing anti-arrhythmics.

Armetheon has also acquired the rights to a novel anti-gastroparesis agent, naronapride. The company is exploring the licensing or sale of this compound to larger pharmaceutical companies as the clinical trials for this agent are complete.

Background on Antibiotics:

The widespread use (some would say misuse) of antibiotics worldwide has caused bacteria to evolve resistance mechanisms that make infections increasingly difficult and, at times, impossible to treat.

Antibiotics are a drug class in which the development of such obsolescence is inevitable, and development of new compounds is imperative for treatment of new infectious diseases. These drugs often become ineffective before they reach the end of their patent protection, and they are taken by a limited number of patients for relatively short periods of time. The development costs of these drugs, however, are similar to any other drugs, including those that are taken by large populations of patients for chronic conditions.

For these reasons, large pharmaceutical manufacturers have largely abandoned antibiotic discovery and development programs, and they have channeled resources into more predictably profitable areas.

Bacteria resist antibiotics in many ways. One of the most common mechanisms involves the secretion of an enzyme that degrades a vulnerable segment of the antibiotic molecule, rendering it inactive.

Continued on the next page >

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Continued from previous page

Background on Anticoagulants:

Patients with a variety of conditions require anti-coagulation (“blood thinning”) for prevention of the harmful effects of blood clots forming and traveling throughout the body. Approximately 40 million Americans are eligible for such therapy. Examples of conditions for which anti-coagulation is indicated include: chronic heart rhythm disturbances (such as atrial fibrillation), artificial heart valves, congestive heart failure, or a history of blood clots (such as DVT).

Traditionally, treatment has been done with warfarin (also known by its brand name “Coumadin”). Warfarin is notorious for its unpredictable and inconsistent effects in individual patients and between groups of patients. This erratic behavior is largely the result of its interaction with a large number of foods and drugs, and results in the need for monitoring of its effect in patients with regular, periodic blood testing.

Big Pharma has responded to this problem by developing alternative anticoagulants that do not require monitoring. These agents work through a different mechanism, and their behavior in patients appears to be more predictable. When they were first FDA-approved, these agents were expected to largely replace warfarin as the drug of choice for anticoagulation. This enthusiasm has been tempered, however, by some reports of bleeding complications in the real-world marketplace. As a result, they have acquired less than 10% of the U.S. anticoagulation market. In addition, it is now recognized that they cannot, and will not ever, replace warfarin for some conditions that require anticoagulation (such as artificial heart valves).

Tecarfarin is an anticoagulation agent that acts by a mechanism identical to warfarin. However, it is metabolized by the body by a different mechanism. This results in far fewer interactions with other drugs and a more predictable behavior in patients.

Background on Anti-arrhythmics:

Patients with atrial fibrillation are at risk of stroke. Suppression of atrial fibrillation reduces the risk of stroke. Existing agents for this condition have toxicities that increase the risk benefit ratio. Budiodarone seeks to improve upon the efficacy of existing anti-arrhythmic drugs in suppression of atrial fibrillation while reducing toxicities.

Background on Anti-gastroparesis:

Patients with many conditions have reduced motility of their intestinal transport mechanism, leading to debilitating constipation, or reflux. In critically ill patients, this can lead to more serious problems, such as intestinal ileus, malnutrition, or aspiration. Cisapride was a drug developed and later approved for use to treat this condition. It was a great success until problems related to its pro-arrhythmic effects were determined in small numbers of treated patients. For this reason it was withdrawn from the market. Naronapride is a drug similar to cisapride in effectiveness, but lacking pro-arrhythmic effects.

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About Armetheon:

Armetheon seeks to develop new antibiotic agents effective against multi-drug resistant organisms. Its lead candidate compounds take existing antibiotics and chemically bond them together. This chemical bond is susceptible to bacterial enzymes, which might ordinarily deactivate an antibiotic. The new compound are paradoxically activated by the bacterial enzyme, however, as active antibiotics are released when their chemical bond is degraded.

In addition, Armetheon acquired the rights to tecarfarin, budiodarone, and naronapride from ARYX Therapeutics. Armetheon seeks to obtain regulatory approval for the clinical use of these agents.

Development Stage:

Recognizing the opportunity afforded by tecarfarin, most of Armetheon’s efforts have been in tecarfarin’s further development. A Special Protocol Assessment was written and submitted to the FDA with a very favorable initial response. An Agreement letter is anticipated within a month. The Agreement letter will allow Armetheon to solicit funding through asset purchase or licensing of tecarfarin. A one-year 3000-patient clinical trial is the next step toward FDA approval.

Initial chemistry studies have identified promising compounds for testing antibiotic effectiveness against multi-drug resistant organisms. Approximately 10 compounds have been formulated, which have some antibacterial properties. Appropriate patents have been filed. Further testing is proceeding.

Formulations of budiodarone have been tested that show enhanced bioavailability. These formulations will extend patent protection, and industry partner targets have been identified.

Financing:

Armetheon has raised seed financing from AshHill and Atheneos Capital.

AshHill’s Role:

AshHill has been awarded one of three Board seats and will maintain an active role in management and direction as activities proceed. AshHill has 5% ownership in Armetheon. AshHill authored a White Paper for the California Healthcare Institute, which was presented to Congress by Dr. Milner in April 2012 (See page 14).

The GAIN Act was subsequently passed by an overwhelming majority of both Houses of Congress. The GAIN Act will streamline antibiotic development by compelling a relaxation of regulatory hurdles at the U.S. FDA, resulting in a quicker and less costly development pathway. In addition, patent life of new chemical entities is extended by the GAIN Act. AshHill’s contribution was chronicled in a Biocentury Report last month (See page 14).

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Additional information:

A recent NY Times article on the growing problem of antibiotic misuse in animal feed.

A recent Yahoo Finance report detailing the passage of the GAIN Act and its potential benefits for drug companies developing antibiotics.

AshHill’s authorship of a CHI White Paper, “Promoting Antibiotic Discovery and Development.”

A recent Reuters article on the tempered enthusiasm of U.S. physicians for new anticoagulant medications.

A recent Biocentury article on Armetheon that includes a reference to AshHill.

For more information, visit www.armetheon.com.