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April 12, 2011 Dear Investors and Friends, Below please find the results of Aquilo Capital, L.P.

for the quarter ended March 31, 2011.


Mo n th to D a te Ma rch 3 1 , 2 0 1 1 Aq u i l o C a p i ta l , L .P. Nasdaq Biotech Index (NBI) Standard & Poor's 500 Index (SPX) Aq u i l o C a p i ta l , L .P. Gro ss Exp o su re Aq u i l o C a p i ta l , L .P. N e t Exp o su re -2 .3 2 % 5.84% 0.04% 6 9 .1 9 % 5 3 .8 7 % Ye a r to D a te Ma rch 3 1 , 2 0 1 1 -1 .6 5 % 7.34% 5.92% In ce p ti o n to D a te (Octo b e r 1 , 2 0 1 0 ) 1 .2 8 % 16.34% 17.32%

The returns listed above for Aquilo Capital, L.P. are unaudited estimates generated by Aquilo Capital Management, LLC, ("ACM") which are subject to modification by our independent administrators and/or auditors. Aquilo Capital, L.P. per for manc e figur es ar e net of all ex pens es , inc luding management fees , ( 2.0% ) and per for manc e alloc ations ( 20% ) , if any ar e due to ACM. All figures have been calculated for the fund as a whole, individual returns may vary. Please note that this email contains unverified performance estimates and may be subject to change. Past performance is not a guarantee of future returns. This is not an offer or a solicitation to invest in Aquilo Capital, L.P. Net return is calculated assuming no intra-year contributions or withdrawals. All indices comparison returns are shown with dividends reinvested.

Our returns in the first quarter of 2011 were not attractive on a relative or absolute basis. The S&P 500 and the Nasdaq Biotech Index (NBI) had a good quarter, appreciating nearly 7% and 6% respectively in three months. While we are not benchmark-driven, we think its natural to ask: Why the discrepancy between Aquilo Capitals returns and the NBI? Here are a few thoughts as we enter our third quarter of operation. Most of you are probably aware of the general market volatility experienced this past quarter. Much of the move in the broader indexes was driven by a narrow rally in energy and industrials. Looking deeper, the quarter signaled several early signs of a broader move in healthcare and biotech specifically. The first quarter performance in the NBI came mostly in the larger cap stocks. Much of the capital and liquidity has not yet spread to the sub-billion market cap companies we focus on. Given the size and liquidity of the companies we own, when it does, it will happen in a big way. The events that drove the NBI, in my opinion, are another reminder that the macro trends we have identified in the biopharma space are beginning to unfold. Valeant's pending takeover of Cephalon, the long-awaited consummation of Sanofi's acquisition of Genzyme, and Novartis's purchase of Genoptix illustrated the strong appetite among pharma to grow or replace revenues by external sourcing. As the NBI is a market cap-weighted index, the take-out premiums of these large cap names boosted the index, while also fueling speculation of acquisitions of other large caps, further strengthening the NBI. Some of these names are now quite overheated, and we aim to capitalize on this in our hedging strategy. But while the large caps had a good quarter, these companies are not in our investment universe. However, we are confident this is one leading indicator, our overall investment thesis may be about to play out. In the first quarter of 2011, we saw additional reductions in Big Pharmas R&D infrastructure. Pfizer closure of its renowned Sandwich, UK Research facility, GlaxoSmithKlines elimination of over 4,500

researchers and AstraZeneca slashing 8,000 additional workers ahead of it predicted sales shortfall has lend each company to become greater acquirers of external innovation. The big pharmaceutical companies are looking to transform their research organizations to more quickly and efficiently develop innovative medicine by reducing their internal R&D footprints and focusing on external discovery and development. Our portfolio today is continuing to take shape. We have successfully identified ten long positions in which we have acquired and will continue to acquire stock. In each company we have identified all the requisite hallmarks of a great investment: a solid balance sheet, strong science, a mix of partnered and proprietary drugs, and numerous catalysts which could drive shareholder value in the next 12 months. The combined product portfolio includes over 170 drug discovery and development programs, 116 of which (65%) are partnered. A closer look at our meta-pipeline reveals two marketed products, six Phase 3 programs, thirty one Phase 2 programs and thirty seven Phase 1 programs, with the rest being preclinical. Applying even conservative industry success rates in drug development, one would expect ten or more new drugs to emerge from this pipeline. On average, our long positions each have over $150M in cash at the end of FY2010 and have runways of over three and half years at current burn rates. As I look at our current portfolio, I see a list of high quality companies for which important value driving events are drawing nearer. We continue to conduct diligence on several potential new investments that may fit our stringent criteria for being undervalued at entry with significant upside in the future. The companies in our portfolio now have little downside risk while retaining extraordinary upside potential, creating some of the most compelling risk/reward investment opportunities I have seen in my fifteen years of life science investment experience. Although we are steadfast in avoiding companies approaching discreet binary events, we do seek companies with multiple near term meaningful catalysts. Rather than increase gradually over time, these stocks tend to remain flat and then spike dramatically as the value is realized by the market. We refer to these as asymmetric catalysts and they are important hallmarks of all our investments. On the short side, we seek companies that are approaching binary events and those with significantly flawed fundamental underpinnings, where the premium valuations are not sustainable. We have found shorting a stock based on excessive valuation alone is not enough to ensure success, and instead look for a combination of over valuation, poor business model and bad management. We pay close attention to which way the business or products are trending, and are hesitant to short a stock if the products are doing well. Just how attractive are the current opportunities? Several of the long positions we are acquiring have fallen more than 50% from their 2007 highs. Despite the dramatic depreciation in share price, in most cases, these same companies have dramatically increased their true values through scientific advances, clinical progress and validating partnerships. In that sense, the discrepancy between value and stock price is even wider. We are spending considerable time ensuring that Aquilos portfolio is concentrated in the strongest, most valuable companies a defense against a sustained bear market. Thank you for your trust and confidence, and as always, please contact me with any questions. Sincerely,

Marc R. Schneidman 2