Divergence, Inc.

Enabling Innovation Through Entrepreneurship –Divergence, Inc. and Start-ups in St. Louis

James McCarter, M.D., Ph.D.Entrepreneur in Residence, Monsanto Growth Ventures & BioGenerator

Adjunct Professor of Genetics, Washington University

(Former President & CSO, Divergence, Inc.)

Washington University School of Medicine Reunions, April 25, 2014, St. Louis MO

Divergence, Inc.

• Accelerated innovation is needed to meet massive global

challenges in health, food & environment.

• Entrepreneurship is uniquely positioned to drive innovation

through creation of multidisciplinary teams with singular focus.

• The capital formation landscape is rapidly changing with the

rise of angel investors, crowd sourcing & corporate venture.

• After a decade of capacity building, St. Louis’ entrepreneurial

ecosystem is nearing critical mass.

• The mission & culture of WashU must expand from leading in

knowledge creation to embrace innovation for societal impact.

• Join in enabling WashU & St. Louis entrepreneurship by

identifying clinical needs, mentoring, giving, & investing.

Key Messages for Innovation & Entrepreneurship

Divergence, Inc.

Colleagues

Divergence: Derek Rapp, Jeremy Williams, Michelle Insco

Monsanto: Robb Fraley, Tom Adams, John Hamer

BioGenerator: Eric Gulve, Dan Broderick

Washington University: Jeff Milbrandt, Evan Kharasch

Slides

Cortex Innovation District: Dennis Lower

St. Louis Regional Chamber: Jay DeLong

Balsa and Idea Labs: Yinzi Liu, Avik Som

Thank You

Financial Disclosures: Monsanto, Cultivation Capital, Neurolutions, Mobius Therapeutics

Divergence, Inc.

Divergence – an “Overnight Success”

that was a Decade in the Making

• St. Louis biotech acquired by Monsanto in 2011

• 3 products in agriculture & veterinary medicine

• Team of 25 scientists, world-class SAB including a Nobel laureate & 4 HHMI Investigators

• Reputation for scientific-excellence with 80 patents & publications and leadership in RNA interference

• Venture & angel financing of $21M, Revenue of $22M from contracts & 33 grants

4

Divergence, Inc.

Trichinella

Whipworm

Plant Parasites

C. elegans

Hookworm

Ascaris

Filarial Worms

Heartworm

Pinworm

Livestock

Strongylids

• Apply the public

knowledge created by

WashU’s world-

leading effort in

nematode genomics (McCarter & Waterston,

Mitreva & Wilson)

Divergence Mission: Develop Safe & Effective Products for the

Control of Parasitic Nematodes in Humans, Animals, & Plants

Nematodes (roundworms) -

• Most abundant animals

• Infect 2 billion people

• Cause >$80 billion in crop

damage annually

Root-knot

Cyst

Lesion

Reniform

Divergence, Inc.

Soybeans damaged

by SCN

U.S. SCN distribution

Uptake of plant proteins

into the SCN intestine (B. Gao & M. Hresko, Divergence)

Soybean Cyst Nematode (SCN) is the Most

Important Disease of U.S. Soybeans

• Over $1 billion in lost yield annually in U.S. alone

• Yield losses of 30% without above ground symptoms

• Neurotoxic pesticides out of favor with growers & regulators

• Rapid breaking of genetic resistance in the field

Divergence, Inc.

Divergence – Genomics led to Superior Diagnostic Products that

Can Replace Microscopy in Veterinary & Human Medicine

Plate ELISA for detection of

hookworm, toxocara &

whipworm in dogs

IDEXX whipworm test, launched in

2014, detects infection a month

ahead of microscopy

Divergence achieved proof-of-concept for human Ascaris detection in Brazil

(M. Crawford, Divergence)

Divergence, Inc.Lee and Jez, Structure 21:1778-87, 2013.

• PEAMT: Divergence discovered a unique and essential enzymatic

pathway for nematode phosphocholine biosynthesis

• Partnered with Dr. Joe Jez at Danforth & WashU to characterize

enzyme structure and function

2005 - The Pivot: Genomics led to “Divergent” Molecular Targets

But Not Yet Pharmaceutical & Agrochemical Products

Divergence, Inc.

2005 - The Pivot: Divergence Leveraged its Strengths in

Informatics to Create a New Computational Chemistry Platform

The Harvest Chemical Discovery Platform• Broad R&D platform for rapid and cost-effective

agrochemical discovery

• Developed in collaboration with UK-based Cresset Biomolecular Discovery

• Able to search chemical structure space based on electron distributions rather than 2D structures

• Resulted in discovery of a molecular series with novel mode of action, high potency, and safety far superior to commercial nematicide standards

Jeremy Williams, PhD

Vice President,

Discovery Research

Matt Dimmic, PhD

Senior Director,

Computational

Discovery Research

Divergence, Inc.

2009 - Jason Bond – Southern Illinois Univ.,

Carmi IL, SCN Seed Treatment

Cysts Per Root at 5 weeks

0

10

20

30

40

DA-I DA-II oxamyl NT

1 mg/seed

2009 - Greg Tylka – Iowa State,

Nevada IA, SCN Seed Treatment

Hg Reproductive Factor

0

5

10

15

20

25

DA-I DA-II oxamyl NT

1 mg/seed

Divergence Nematicide – SCN Reproduction

Reduced at All Three Sites in Illinois and IowaSCN

Performance at 1 mg/seed comparable

to the carbamate oxamyl.

(B. Shortt, Divergence)

Divergence, Inc.

Divergence Nematicide - Outstanding Mammalian Safety

and Environmental Safety Profile

CompoundRat Oral LD50

(mg/kg)

Rat Dermal

LD50 (mg/kg)

Rabbit Dermal

Irritant

Rabbit Eye

Irritant

DA-I >5000 >5000 None Mild

DA-II >5000 >5000 Slight Mild

Abamectin 11 >330 Slight Mild

Terbufos 1.3 1.1 Lethal Lethal

CompoundQuail LD50

(mg/kg)

Bee LD50

(µg/bee)

Daphnia

EC50 (µg/L)

Earthworm

LD50

(mg/kg soil)

DA-I >500 >25 >100 >100

DA-II >500 >25 >100 >100

Abamectin >2000 0.002 0.37 33

Terbufos 29 4.1 0.31 4

Divergence, Inc.

Be ready for everything to take longer than you expect.Just because others aren’t doing it doesn’t mean it’s not

worth doing. Position yourself for exposure to smart

experienced people. Build a multidisciplinary and versatile

team. The best situation is being valued for products and

platform. Communicate fully with your team for

a shared vision. Create incentives for your team

including ownership. Things change when you accept

investors’ money. Make every decision with an eye

toward the liquidity event. Do not obsess about

valuation. Find non-dilutive sources of funding. Leading a

start-up company is an intensely personal experience.(Start-ups are risky but not starting is risky too.)

Paraphrasing a Dozen Start-up Lessons

from Divergence CEO Derek Rapp

Forward-Looking Statements

Certain statements contained in this presentation are "forward-looking statements," such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, business and financial plans and other non-historical facts. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: continued competition in seeds, traits and agricultural chemicals; the company's exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public acceptance of biotechnology products; the success of the company's research and development activities; the outcomes of major lawsuits and the previously announced SEC investigation; developments related to foreign currencies and economies; successful operation of recent acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company's estimates related to distribution inventory levels; the company's ability to fund its short-term financing needs and to obtain payment for the products that it sells; the effect of weather conditions, natural disasters and accidents on the agriculture business or the company's facilities; and other risks and factors detailed in the company's most recent periodic report to the SEC. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this presentation. The company disclaims any current intention or obligation to update any forward-looking statements or any of the factors that may affect actual results.

Trademarks

Trademarks owned by Monsanto Company and its wholly-owned subsidiaries are italicized in this presentation. All other trademarks are the property of their respective owners.

© 2014 Monsanto Company

SOYBEAN CYST NEMATODEMONSANTO RESEARCH, SUMMER 2011

New Generation of Nematicide Could Provide

Novel Formulations with Excellent Control

• Through the acquisition of Divergence, Monsanto has added a new nematicide to its pipeline

• Efficacy of new nematicide equal to competitive standards against multiple nematode species

• A variety of crops showing good results including corn, soy and cotton

• Regulatory submissions on track

EXPLORATORY

NEMATICIDE CHEMISTRY

UNTREATED

CONTROL

Phase 3Advanced Product

Development

Our Vision: Sustainable Agriculture

A Strong Vision That Guides All We Do

• Producing More

– We are committed to increasing yields to meet

the growing demand for food, fiber & fuel

• Conserving More

– We are committed to reducing the amount

of land, water and energy needed to

grow our crops

• Improving Lives

– We are committed to improving lives around

the world

Monsanto’s Goal: Double Yields with 1/3

Less Inputs by 2030 versus the year 2000

Headquarters: St. Louis, MO

Total employees: ~22,000

Global locations: >500

Net Sales (FY13) $14.9 billion

United States

Latin America North

Brazil

Argentina

EU 27

India

Australia

Corn Soybeans Cotton

Vegetables Roundup®

Primary Markets

Monsanto Company is a leading global provider of technology-based tools

and agricultural products that improve farm productivity and food quality.

Monsanto is 100% Focused on Agriculture

“We succeed when farmers succeed.”

-Hugh Grant, Monsanto CEO

Genetically Modified Crops

Produce Food That is as Safe and Nutritious as Conventional

USED FOR GMO CROPS SINCE 1996

ACRES OF FARMLAND3.95 Billion

SUPPORT THAT GMO CROPS ARE JUST AS SAFE AS THOSE DEVELOPED THROUGH TRADITIONAL BREEDING

ACADEMICSTUDIES1000+

THAT GMO CROPS HAVE BEEN RESEARCHED AND DEVELOPED

YEARS30

ON AVERAGE TO DEVELOP AND TEST GM SEEDSBEFORE THEY’RE GROWN COMMERCIALLY IN THE U.S.

YEARS13

WHERE GM CROPS HAVE BEEN APPROVED FOR CULTIVATION OR IMPORT

COUNTRIES63

www.gmoanswers.com

Agriculture is at the Center of Global Changes

1990 20121980 2050TODAY

4.4B

7.1B

9.6B+

1 ACREper person in

1961

less than

1/3 ACREper person in

2050 DIETARY PERCENTAGE OF MEAT

9%in 1965

14%in 2030

CHANGING

CHANGINGRISING

DECLINING

Challenges

Source: The World Bank, Food and Agriculture Organization of the United Nations (FAO-STAT), Monsanto Internal Calculations

Innovation

BIOLOGICALS

INTEGRATED FARMINGSYSTEMSSM

CROP PROTECTION

AGRONOMIC PRACTICES

Monsanto’s R&D Pipeline Builds

on a History of Innovation in Agriculture

2000s1990s1980s

BIOTECHNOLOGY

BREEDING

Growth Ventures Creates Transformative Business

and Technology Opportunities for Monsanto

Venture Capital - Gaining Earlier Access to External Innovation

• Sourcing from venture capital & entrepreneurial networks provides strategic

insights to areas of disruptive innovation

• Entrepreneurs bring ideas from other industries and syndication leverages

new capital to solve challenges in agriculture

SFO STL BOS

Innovation is concentrated in entrepreneurial ecosystems with leading

research centers, VCs, angel investors, incubators, accelerators, etc.

Venture Capital - Gaining Earlier Access to External Innovation

• Investment builds a portfolio of early-stage assets with opportunities for

partnering, licensing, talent, and M&A

• Monsanto Growth Ventures VC team has sourced investments and

additional deals (licenses, etc.) from hundreds of leads

Growth Ventures Creates Transformative Business

and Technology Opportunities for Monsanto

Doubling Yields with 1/3 Less Inputs by 2030 vs. 2000 –Farming in the Future Will Be Increasingly Information-Driven

General Farm Planning

Weed Control Program

Row Spacing

Variety/Hybrid

Selection

Refuge Options

Plant Population

Seed Treatment

Soil Insecticides

Pre-Plant Irrigation

Fertility Program

pH Management

Burn-Down Program

Tillage Level

Primary Tillage Program

Seed Depth

Planting Speed

Through the Field

Other Planting Operation

Decisions

Plant Population

Starter Fertilizer

Herbicide Application

Soil Insecticides

Fungicide Application –

In-Furrow

Variety/Hybrid

Selection In-Field

Keep Stand or Re-Plant

Post-Emergent Herbicide

Application

Foliar Insect Control

Fertility Program

Foliar Disease Control

Irrigation Application

In-Season

Equipment

Timing

Storage

Post-Harvest

Assessment

PLANTING IN-SEASONPRE-PLANTING HARVESTPLANNING

Grower Decisions Over the Year –Farming in the Future Will Be Increasingly Information-Driven

San Francisco Bay Area Dominants U.S. Venture Capital

Investments Followed by Boston

SFO

STL

BOS

Innovation is concentrated in entrepreneurial ecosystems with leading

research centers, VCs, angel investors, incubators, accelerators, etc.

PWC Moneytree Venture Capital Report, 2013.

St. Louis now has >$2B in

Venture CapitalUnder Management

the non-profit Venture Arm of BioSTL has…

• Created & funded 46 start-ups

• Invested $7.6 million, leveraged 20:1 with

over $156 million in additional investment

& revenue

• Funded WashU start-ups Cardialen,

Neurolutions & PixelEXX

• BioGenerator Accelerator Lab; 18,000

square feet of office & lab space, free for

start-ups

• Entrepreneur in Residence Program;

16 experienced EIRs mentoring over 100

companies

• Launched in 2012, Arch Grants is a non-profit creating a game-changing

entrepreneurial culture and infrastructure to create jobs & attract talent to St. Louis

• Arch Grants funded companies are winners of an international start-up competition

that has attracted 1,600 applications from 40 states and 20 countries

• 35 starts-up have been awarded $50K each in non-dilutive financing to launch in

St. Louis

• With $1.9M in grant funding, companies have generated $15M in revenue and

follow-on capital, 34 remain viable and St. Louis-based

Biotech Has Been Joined By a Thriving IT Start-up Scene That

Boosted St. Louis Capital Raised in 2013 to $380 Million

Transform a 200-acre midtown industrial neighborhood into a

vibrant, 24-7, live-work-play-learn innovation community

Transform a 200-acre midtown industrial neighborhood into a

vibrant, 24-7, live-work-play-learn innovation community

• $2 billion development

• 3.7 million square feet

• 13,000 permanent jobs

• 5 Innovation Centers

• Green space & transit

• Launched in 2010

• Consulting for Bioscience Companies

• 200 Student Participants

• 73 Consulting Projects for 37 clients

• 28 WashU OTM Technologies

• e.g. Business plans for start-ups

• Launched in 2013

• Biomedical Engineering Innovations

• 100 Student Participants

• 14 Teams with inventions based on

clinician-identified challenges

• e.g. Cursor control for locked-in patients

Student Groups Are Creating a Culture of

Entrepreneurship at Washington University

Divergence, Inc.

• Accelerated innovation is needed to meet massive global

challenges in health, food & environment.

• Entrepreneurship is uniquely positioned to drive innovation

through creation of multidisciplinary teams with singular focus.

• The capital formation landscape is rapidly changing with the

rise of angel investors, crowd sourcing & corporate venture.

• After a decade of capacity building, St. Louis’ entrepreneurial

ecosystem is nearing critical mass.

• The mission & culture of WashU must expand from leading in

knowledge creation to embrace innovation for societal impact.

• Join in enabling WashU & St. Louis entrepreneurship by

identifying clinical needs, mentoring, giving, & investing.

Key Messages for Innovation & Entrepreneurship

NEEDS: Successful exits

for repeat investments &

serial entrepreneurs.

NEEDS: Leadership for an

entrepreneurial culture

including alumni.

• Innovation requires a scientifically literate public & talented young scientists from

diverse backgrounds

• YSP was launched in 1991 to promote science literacy and attract high school

students from disadvantaged backgrounds into scientific careers through hands-on

research and contact with active scientists

• Each year more than 100 graduate student volunteers reach 1000 students in local

public schools

• More than 250 high school juniors have completed research internships at WashU

– the majority major in science in college and 1/3rd complete a graduate degree

• YSP is supported by the Endowment for Science Literacy at WashU

And One Last Message … The Importance of

Science Literacy

Thank you to Monsanto for support of St. Louis innovation & science education.