Q&A with John Slump & Kent Smith

I (John Slump) founded Corvida Medical in 2010 after my sister was diagnosed with cancer, which is when I learned, first-hand, that healthcare professionals are being exposed to the chemotherapy and other potent IV medications that they prepare and deliver to patients each day and are suffering from cancers, infertility, miscarriages, birth defects, and genetic mutations as a result. We launched Corvida with a passion to make cancer care safer and more efficient for healthcare providers and patients, and I have served as CFO of the corporation since inception. To date, we have sourced over $25 million of total funding for the business, including $5 million of National Cancer Institute (NCI) Small Business Innovation Research (SBIR) grants and $20 million of private investment, and the funding has been used to launch initial manufacturing, achieve FDA 510(k) clearance, and to secure initial U.S. sales, with a growing roster of impressive hospital customers. My prior work experience includes starting and selling TranslaCare, Inc., a health IT start-up company that developed technology to help victims of stroke who were suffering from aphasia and dyspraxia. Previously, I served as Director of Finance of a medical device manufacturing business, Advanced Cooling Therapy, where I had controller responsibilities and also sourced the initial $10 million to advance the company from an idea stage through regulatory approval, initial sales, and commercial scale-up. Prior to that, in partnership with a cardiac electro physiologist, I co-founded a medical device start-up that developed a proprietary atrial fibrillation ablation procedure and medical device technology. As founders, we recruited the Board Chairman as well as the CEO/President and garnered investment from Boston Scientific at the pre-clinical stage; the company subsequently raised an undisclosed Series A, and more recently, completed successful first-in-man studies in South America. I met Kent Smith, CEO/President of Corvida Medical, through a personal referral from an early mentor, Bill Moffitt, who led a prior medical device company, i-Stat, through an IPO and $480 million acquisition by Abbott. Kent shares our passion for making cancer care safer for all the right reasons and has served as CEO/President of Corvida for just over 5 years, leading the company from the idea stage through FDA approval and commercial launch.

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As President and CEO of Corvida Medical, I [Kent Smith] bring over 30 years of medical device sales and general management experience. Upon graduating from the University of North Carolina’s Kenan-Flagler Business School, I was recruited by American Hospital Supply Corporation to join their management intern program in 1980, eventually becoming VP of Operations for the $2 billion AHS division within six years. With the acquisition by Baxter Travenol in 1986, I transitioned into a VP/GM role for the IV Systems Interlink Business, where we pioneered the use of the first “needleless” products in tandem with Becton Dickinson, Inc. Thereafter, I headed up the newly formed Hospital Business for Baxter Japan before being promoted to President of the Cardiovascular Business for Baxter Japan with sales of more than $200 million. I returned to Baxter USA in 1998 where I worked in various roles that included the Health Industry Manufacturers’ Association representative for the Congressional hearings on Y2K. In 1999, I left Baxter Healthcare to pursue a start-up role in San Diego and have since worked in senior roles for several successful medical device start-ups. Most notably, I was SVP of Sales at Suros Surgical, responsible for growing sales to $30 million in less than three years, which resulted in the sale of the business to Hologic, Inc. for over $300 million (10x sales). In 2012, I met John Slump and Jared Garfield, the co-founders of Corvida Medical, through one of their business advisors/mentors, and I joined the company as President/CEO in April of 2012.

Corvida Medical is a medical device company committed to making cancer care safer and more efficient for healthcare providers and patients. We provide intelligent technologies that are designed to represent smarter

solutions for the safe handling of hazardous drugs and excellence in design. We address the problems inherent in current methods and develop smarter, simpler solutions to improve safety, productivity and quality for providers
and patients. According to the Occupational Safety and Health Administration (OSHA), National Institute for Occupational Safety and Health (NIOSH), and a multitude of peer-reviewed publications, 8 million U.S. healthcare workers are exposed to chemotherapy and other hazardous drugs annually, with the most common routes of exposure resulting from liquid spills, vapor leaks, and/or needle sticks that in turn cause contamination via inhalation, ingestion, dermal contact, and/or injection. It is generally accepted and well substantiated that this low-dose, chronic exposure to chemotherapy and other hazardous IV medications causes serious adverse events including cancers, genetic mutations, and other reproductive/developmental problems.

Our technology – a patented Closed System Transfer Device (CSTD) called Halo® – mechanically prohibits the transfer of environmental contaminants into the system and the escape of hazardous drug or vapor concentrations out of the system. The three main highlights of Halo® are 1) it is an airtight and leak-proof product; 2) it features an intuitive and user-friendly design; and 3) it is compatible with all drug types, vial types, IV bags, and infusion sets. The Corvida Medical Halo® is FDA approved and cleared with 43 patents awarded to date, 19 additional patents pending, and 4 registers/allowed trademarks. Our core manufacturing operation is currently located in Minneapolis, Minnesota, and we are proud that our product is engineered, manufactured, and assembled right here in the USA.

Corvida targets hospitals, and specifically, hospital pharmacists, pharmacy technicians, and oncology nurses who are directly preparing and/or delivering chemotherapy medications. Although healthcare professionals have medical attire and personal protective equipment such as gloves, masks, and enclosed hoods to prepare the chemotherapy regimens, studies have shown that chemotherapy drug residue is consistently found on keyboards, elevator buttons, hospital walls, floors, etc. and even in the urine of administration staff nowhere near the preparation/delivery area. Many nurses and technicians have found incumbent products and devices to be difficult to use and handle, causing carpal tunnel syndrome resulting in surgery and other issues. The Halo® device, with its more elegant and ergonomic design, is easier to use with a snap-on vial adaptor that requires minimal force to apply, and the system also has fewer pieces and parts, which makes the product user-friendly and more efficient.

We are thrilled with the positive feedback that we have received on the Corvida Medical Halo® system to date, with customer testimonials as follows:

“Comparison with the published results of two large, multi-site studies of another CSTD, PhaSeal, indicates that Halo is superior in reducing surface contamination with marker antineoplastic hazardous drugs (AHDs), as determined by wipe sampling of similar surfaces. The results of this study demonstrate that the new CSTD will significantly reduce AHD surface contamination in compounding and administration, thereby providing a safer workplace.” -Director of Pharmacy (PharmD, BCOP)

“We were very impressed by your team! Things were a little chaotic due to some unforeseen circumstances, but they were able to flex, and get everyone trained in the end. You can definitely tell everyone is passionate about this product and we are too. We appreciate the time and efforts spent with us and look forward to working with you.

I definitely think you have the best product and best team available, and plan on sharing that information with my colleagues.” -Pharmacy Manager

“A sincere thank you to your team for the excellent experience you provided to us. I am very proud to have our center serve as a pilot site for your product in our health system. Your passion and commitment to safety and customer service is very apparent. You were truly a great group to work with, and you made our week fun! Thanks so much for your help!” -Oncology Infusion Manager (RN, BSN, OCN)

In general, the medical device industry is a highly regulated market, and the time to advance from design conception to product engineering and low-volume production to high-volume manufacturing is a long and tedious process. Depending on the class of your medical device, gaining FDA approval and/or clearance takes several years and many millions of dollars. Manufacturing a product is not for the faint of heart. We have a lot of capital-intensive injection molds, specialized tools, and assembly fixtures that are required to produce and assemble our device perfectly, every single time.

There are 3 classes of devices; Halo is a ‘Class 2’ device, which took us several years and over $10 million – culminating in a 1000-page FDA application – to get cleared for sale in the U.S. In late 2015, we obtained FDA 510(k) clearance enabling the company to market and sell our Halo® device, and we also gained approval of superior safety and ease of use labeling claims as part of the FDA’s ONB Product Code classification, demonstrating no escape of hazardous drug or vapor concentration, no transfer of environmental contaminants, and also successfully prevents microbial ingress. We commercially launched the product in Q2 2016 and have seen sales within 3-6 months of market launch, closing 12 U.S. hospital customers, where other devices/products in this industry can take at minimum, a year, or more to see first sales.

During our limited 2016 regional launch, we did $200K sales with 12 smaller community hospitals. More recently, we’ve had a large academic/National Cancer Institute-designated Comprehensive Cancer Center commit to implementing the Halo® later this summer who generates $1M/year in sales, and we are on the home stretch with 2-3 others who we expect to convert later this year. Now that we have some sales under our belt, we are in a place to raise capital to scale manufacturing such that we can continue to aggressively grow sales revenues in 2018 and beyond. We are poised to grow to $2 million of 2017 sales, $10-15 million of 2018 sales, and $25-30 million of 2019 sales. We project positive cash flow by mid-2019 on $1.5M in monthly sales, and we have an internal goal of growing to $3M/month by end of 2019! Due to our initial success in the market, we need to invest in higher cavity injection molds and additional assembly equipment in order to be able to manufacture more devices at a quicker rate to have the ability to meet projected demand. We literally cannot make enough product to grow beyond the $500k/month in sales that we are projecting by end of 2017 until we bring online more manufacturing capacity; thus, the Series C Financing.

Currently, the market leader providing a Closed System Transfer Device is Becton Dickinson (NYSE: BDX), who manufactures, markets and sells the PhaSeal® system. The FDA has approved marketing and labeling claims that enable Corvida to market the Halo® device as providing superior fluid and vapor containment as compared to the market-leading PhaSeal® system in addition to enabling Corvida to advertise the Halo® as being easier to use.

The Halo® seal system has been designed to assure a high level of liquid and vapor containment, even when challenged to extreme conditions, and is ergonomically designed to be more user-friendly and generally easier-to-use. This is especially important in protecting clinicians when chemotherapy regimens that require multiple vial accesses and drug transfers are involved.

Under the new USP <800> – a new requirement and standard for the safe handling of hazardous drugs put forth by United States Pharmacopeia – there will be stricter guidelines on safe handling recommendations for the industry. This applies to the handling of hazardous drugs during receipt, storage, compounding, dispensing, administrating, and disposal by the healthcare workers who perform these duties. Amongst these is the requirement to use closed system drug transfer devices (CSTD’s) effective by the end of 2018. This means that state boards of pharmacy and other regulatory entities can require U.S. cancer centers to comply with USP <800> and CMS reimbursement is ‘at-risk’ for facilities who are non-compliant and who are cited during Joint Commission audits. This is beneficial to us because the USP <800> directly addresses the need for a Closed System Transfer Device like Halo®. As the landscape of our industry shifts towards safer regulations, Corvida’s state of the art technology and innovation moves us ahead of the curve.

We are helping to pioneer a safer line of personal protective equipment. We are making the industry better by upping the standard of care and competition and providing an added layer of protection above and beyond hoods, gloves, gowns, and biological safety cabinets. There are many sub-standard vial access devices out there that fail to stop leaks and vapor spills. We believe with the new USP <800> standard, those sub-par devices reliant on vents, valves and filters will go away as they do not meet the performance requirements associated with true CSTD’s, leaving the market with only the best by changing the competitive landscape. At Corvida, we expect rapid growth in 2018-2019 and beyond due to the implementation of USP <800>.

Since we started Corvida Medical in 2010, we have raised about $25 million. This includes a $5 million grant from the National Cancer Institute as part of a series of Small Business Innovation Research (SBIR) grants, and $20 million from Family Offices and angel investors. We are seeking $10-15 million for our Series C. Currently, we already have $3-5 million committed from new and existing investors. This final round of funding is projected to close in 2017 and will fund investments in additional manufacturing capacity and product supply capabilities as

well as the necessary human resources to fuel sales growth. There are 20 million chemotherapy infusions in the US every year. This is a multi-million dollar market that is growing rapidly, and we have a wonderful opportunity to enter a market with limited competition and to grow as the market grows. We have robust Intellectual Property and a ‘next generation’ product, high margins, and a unique access to a large and growing sales pipeline. Applying the 6.5x multiple that Becton Dickinson acquired the Carmel Pharma PhaSeal® business in December 2011 to the $3 million in monthly sales revenue that we envision Corvida Medical can grow to by end of 2019, this infers that Corvida Medical could easily be a $200 million business by the end of 2019. Unlike Carmel Pharma, which was a one-product company, Corvida also has additional products in the pipeline being incubated by NCI SBIR grants, and we have also identified a number of peripheral markets above and beyond the initial chemotherapy IV business where we believe our current CSTD technology could also be applied to further expand sales, both of which should strengthen enterprise value at exit.

We are looking for investors or groups who are interested in either leading the round, or joining a growing syndicate of impressive co-investors.

Our mission at Corvida Medical is to make cancer care safer and more efficient for patients and healthcare providers.

Our goal is to grow to $2 million in 2017 sales, $10-15 million of 2018 sales, and $25-30 million of 2019, sales, with an internal goal of growing to $3 million in monthly sales revenue by the end of 2019. We believe that a strategic acquisition in the next 2-3 years is likely for Corvida; we feel that the Halo® device is the perfect acquisition opportunity for multi-national medical device manufacturers like Baxter Healthcare, Cardinal Health, or several other multi-national medical device corporations. Our imminent focus is on scaling and producing enough Halo® devices to supply the demand that is out there in the market and is accelerating per the USP <800> standard. That said, given Kent’s history growing and selling another medical device manufacturing business, our belief is that a competitive process in the midst of rapidly growing sales revenues could yield a $200-300 million acquisition within 2-3 years, providing an attractive return on investment to Series C investors.