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Transcript of MEDICAL DEVICE DEVELOPMENT_0327
1
Raising Capital for �Medical Device Development
Challenges for Inventors and Investors
Presented by !Robert Stathopulos!
!President, Product Development Technology, Inc.!
Sponsor & Advisor, Entrepreneurs University!!
02 April 2013!
Raising Capital for Medical Device Development
2 © 2013 Product Development Technology, Inc.
• Established companies develop existing device iterations • Start-up companies develop most new devices categories
• Innovation has outstripped ability to assess performance
• Dissemination of innovation delayed by outcomes validation
Product Innovation
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
Low Impacton Clinical Utility
High Impacton Clinical Utility
MARGINALINNOVATION
'Existing' Technology applied to 'Existing' Medical Use
LOWEST UNCERTAINTY
THERAPEUTICINNOVATION
'Existing' Technology applied to 'New' Medical Use
MEDIUM to HIGH UNCERTAINTY
High Impacton Technology-in-Use
Low Impacton Technology-in-Use
TECHNOLOGICALINNOVATION
'New' Technology applied to 'Existing' Medical Use
LOW to MEDIUM UNCERTAINTY
RADICALINNOVATION
'New' Technology applied to 'New' Medical Use
HIGHEST UNCERTAINTY
© 2013 Product Development Technology, Inc.
MODEL OF PRODUCT INNOVATION
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
"New" MedicalTechnology
"Existing" Clinical Use
"Existing" MedicalTechnology
"Existing" Clinical Use
"Existing" MedicalTechnology
"New" Clinical Use
"New" MedicalTechnology
"New" Clinical Use
HIGH
LOW
UNCERTAINTYSCALE
"EXISTING"CLINICAL USE
Domain
"NEW"CLINICAL USE
Domain
LEVELS OF DEVELOPMENT RISK
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
LEVELS OF DEVELOPMENT RISK
HIGH
LOW
UNCERTAINTYSCALE
Plateau ofStatus Quo
(We do not wishto change anything)
Plateau ofUtility Promotion
(We find new meansfor old ways)
Plateau ofEverything Changes
(We find new meanswith new ways)
"EXISTING"CLINICAL USE
Domain
"NEW"CLINICAL USE
Domain
Plateau ofTechnology Promotion
(We do itSmaller-Better-Faster-Cheaper)
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
LEVELS OF TECHNOLOGY READINESS
Basic PrinciplesObserved
SpeculativeApplicationFormulated
Critical FunctionProof-of-Concept
BreadboardVerification
in Laboratory
BreadboardVerification
in Simulated Use
System PrototypeVerification
in Simulated Use
System PrototypeVerification
in Actual Use
Final ProductValidation
in Actual Use
Final ProductValidation
in MarketplaceSTEP #9
STEP #8
STEP #7
STEP #6
STEP #5
STEP #4
STEP #3
STEP #2
STEP #1
VERIFICATIONPHASE
FEASIBILITYPHASE
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
Inventor VentureTeam
SeedInvestors
ComplianceOfficers
DeviceUsers
PatentAttorneys
KeySuppliers
FamilyMembers
AngelInvestors
WHAT KEEPS THE INVENTOR UP AT NIGHT?
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
WHAT KEEPS THE INVESTOR UP AT NIGHT?
Inventor
AngelInvestors
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
INVENTOR PERSPECTIVE
Compelling Product Concept
Imperative: “Do It Right”
Goal: “Get Product to Market”
Supplies Vision and Perspiration
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
INVESTOR PERSPECTIVE
Compelling Investment Opportunity!!
Imperative: “Get It Done”!"
Goal: “Move Venture to Exit”""
Supplies Cash and Credibility"
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
INVENTOR + INVESTOR as
THE ODD COUPLE
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
• Evidence – Product Functions as Intended • Evidence – Product has Clinical Utility • Evidence – Product can be Profitable • Evidence – Business Model is Scalable • Evidence – Product has Proprietary Barrier • Evidence – Development Path is Viable • Evidence – Regulatory Path is Viable • Evidence – Reimbursement Path is Viable • Evidence – Venture Team is Competent • Evidence – Venture Team has Skin-in-the-Game • Evidence – Use of Proceeds will be Effective • Evidence – Investor Exit is Plausible • Evidence – Seed Stage Funding is Clean • Evidence – Product Design is Documented
© 2013 Product Development Technology, Inc.
INVENTOR CHALLENGES
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
• Will this Venture FIT into my PORTFOLIO? • Are the Product and its Market REAL? • Is the Technology behind the Product READY? • Will the Product have the Cache to WIN? • Is the Expected Return WORTH the Investment? • Will the Venture Team meet its COMMITMENTS? • Is there a viable path to US Market CLEARANCE? • Is there a viable path to US REIMBURSEMENT? • Will Due Diligence confirm the Inventor CLAIMS?
© 2013 Product Development Technology, Inc.
INVESTOR CHALLENGES
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
INVESTOR MINEFIELD
• Return on Investment based on liquidity event
• Novel Products tied to emerging or untried markets
• Venture is pre-revenue with no customer history
• Products in Development susceptible to market changes
• Product Knowledge held by very few
• Further Funding limited if key milestones missed
• Development Cycle has high cash-burn rate
• Venture Valuations are speculative or intuitive
• Minority Shareholders have little control
• Entrepreneurs poor at anticipating future problems
© 2013 Product Development Technology, Inc.
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
INVENTOR MINEFIELD
• PATENT CLAIMS disallowance
• MARKET LANDSCAPE change
• REGULATORY LANDSCAPE change
• REIMBURSEMENT LANDSCAPE change
• PRODUCT COST escalation
• CLINICAL CLAIMS disallowance
• KEY SUPPLIER bankruptcy
• VENTURE FUNDING difficulties
© 2013 Product Development Technology, Inc.
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
TYPES OF MEDICAL DEVICES
© 2013 Product Development Technology, Inc.
In-VitroDiagnosticDevice
MedicalCapital
Equipment
MedicalDeviceSoftware
ActiveMedicalDevice
DisposableMedicalDevice
Device Electronics Software
Software
Disposable Hardware SoftwareElectronics
Disposable
DisposableAssay SoftwareInstrument
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
DEVICE DEVELOPMENT PROCESS
© 2013 Product Development Technology, Inc.
CONCEPTDEVELOPMENT
INVESTMENTGATE #2
INVESTMENTGATE #1
SEEDROUND
FOUNDERSROUND
CONCEPTDEVELOPMENT
PROTOTYPEDEVELOPMENT
INVESTMENTGATE #2
INVESTMENTGATE #3
INVESTMENTGATE #1
SEEDROUND
ANGELROUND 1
ANGELROUND 2
FOUNDERSROUND
CLASS IIMEDICALDEVICE
CLASS IIIMEDICALDEVICE
12 to 24 Months 12 to 24 Months
12 to 24 Months
$250,000 $250,000
PRE-CLINICALDEVELOPMENT
ANGELROUND 2
ANGELEXIT
ANGELROUND 3
CORPORATEACQUISITION
12 to 24 Months 24 to 48 Months
PROTOTYPEDEVELOPMENT
TECHNOLOGYDEVELOPMENT
INVESTMENTGATE #3
12 to 24 Months12 to 24 Months
GOVERNMENTGRANTS
ANGELROUND 1
12 to 24 Months
ANGELEXIT
CORPORATEACQUISITION
36 to 72 Months(3 to 6 Years)
72 to 144 Months(6 to 12 Years)
$2,000,000to
$3,000,000
$2,000,000to
$3,000,000
$250,000$250,000
INVESTMENTGATE #4
INVESTMENTGATE #5
$3,000,000to
$4,000,000
$3,500,000to $5,000,000
CLINICALDEVELOPMENT
CLINICALDEVELOPMENT
$7,000,000to
$10,500,000
$1,000,000to
$2,000,000
$500,000to
$1,000,000
$1,000,000to
$1,500,000
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
DEVICE DEVELOPMENT PROCESS
© 2013 Product Development Technology, Inc.
CLINICALDEVELOPMENT
MANUFACTURINGDEVELOPMENT
MARKETDEVELOPMENT
CORPORATEACQUISITION
PRODUCTINTRODUCTION
INVESTOREXITVC
ROUND 1VC
ROUND 2VC
ROUND 3
12 to 24 Months 12 to 24 Months 12 to 24 Months
External vs. InternalManufacturing
$2,000,000to
$5,000,000
$1,000,000to
$3,000,000
$1,000,000to
$3,000,000
External vs. InternalSales Team
Not Reimbursedto Reimbursed
FundingSourceSwitch
VENTURE CAPITALIST FUNDING> Later Stage Venture> Lower Risk Investment> Larger Investments
ANGEL INVESTOR FUNDING> Early Stage Venture> Higher Risk Investment> Smaller Investments
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
PRE-MONEY VALUATION for
EARLY STAGE VENTURE
EXECUTIONSTRATEGY=
=
PRODUCTIDEA
PRE-MONEYVALUATION
$750,000 to $1,500,000 (Typically)
Weak Idea 1 Fair Idea 5 Good Idea 10 Great Idea 15 Brillant Idea 20
Weak Execution $1,000 Fair Execution $10,000 Good Execution $100,000 Great Execution $1,000,000 Brillant Execution $10,000,000
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
CORPORATE ATTRACTION to EARLY STAGE VENTURE
• Exposure to emerging technology
• Access to specialized knowledge
• Understanding of emerging market
• Access to entrepreneurial talent
• Investment in potential acquisition
• Blocking competitor acquisition
• Access to new customer or distributor
• Access to complementary technology
© 2013 Product Development Technology, Inc.
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
FINANCIAL VENTURE • Exit Value based on ‘future
profit generation’
• Use Proceeds to drive growth
• Venture has revenue, profit, growth
• Profitability-Driven Acquisition
• Sale limited by profit-generating capability
STRATEGIC VENTURE
• Exit Value based on ‘asset or capability’
• Use Proceeds to build asset or capability
• Venture leverages acquirer’s operation; too costly or time-consuming to copy
• Synergy-Driven Acquisition
• Sale limited by business synergy effect
CORPORATE VALUATION of EARLY STAGE VENTURE
© 2013 Product Development Technology, Inc.
Raising Capital for Medical Device Development
22 © 2013 Product Development Technology, Inc.
The Drama of !REGULATORY APPROVAL !
& INSURANCE REIMBURSEMENT!
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
US REGULATORY PATHWAY
PROTOTYPEDEVELOPMENT
BENCHTESTING
ANIMALTESTING
PRE-SUBMISSIONMEETING
PILOTCLINICAL
US MARKETCLEARANCE
IDESUBMISSION
IDESUBMISSION
PIVOTALCLINICAL
APPLICATIONREVIEW
US MARKETCLEARANCE
APPLICATIONREVIEW
US MARKETAPPROVAL
> Traditional 510(k)> Special 510(k)> Abbreviated 510(k)
> Traditional PMA> Modular PMA> Streamlined PMA> Product Development Protocol> Humanitarian Device Exemption> De Novo 510(k)
CLASS IDEVICE
CLASS IIDEVICE
(Not Significant Risk)
CLASS IIDEVICE
(Significant Risk)
CLASS IIIDEVICE
510(K)APPLICATION
PMAAPPLICATION
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
© 2013 Product Development Technology, Inc.
EU REGULATORY PATHWAY
SelectEC Directive
ClassifyMedical Device
SelectISO CertifiedManufacturer
PrepareTechnical File
or Design Dossier
SelectNotified Body
AuditTechnical File
or Design Dossier
PrepareDeclaration
of Conformity
AffixCE Mark
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
CMSScrutiny
CLINICALOUTCOME
MEDICALSAFETY
ECONOMICOUTCOME
FDAScrutiny
MEDICALSAFETY
CLINICALEFFICACY
• FDA validates safety and efficacy of new device
• CMS considers patient need and medical necessity
• CMS will not approve new costly procedure or device if current treatment gives similar outcome
• CMS will approve new device with demonstrably superior results
• CMS will approve new procedure if greatly needed and no current alternatives
• Health economics must justify more costly device with better patient outcome
© 2013 Product Development Technology, Inc.
INSURANCE REIMBURSEMENT
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
• FDA Clearance insufficient for Reimbursement • Reimbursement is success driver for new technology • Medicine-Based Evidence ranks Quality of Evidence • Clinical effectiveness of device for Patients • Cost effectiveness of device for Stakeholders • No guarantee for Coverage or sufficient Payment
© 2013 Product Development Technology, Inc.
INSURANCE REIMBURSEMENT
BENEFITCOST
TECHNOLOGYASSESSMENT
• PATIENT• PROVIDER• PURCHASER• PAYER• REGULATOR• SOCIETY
• PATIENT• PROVIDER• PURCHASER• PAYER• REGULATOR• SOCIETY
Raising Capital for Medical Device Development
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MEDICAL DEVICE DEVELOPMENT
• Device receiving 510(k) Clearance is substantially equivalent to currently marketed product
• Device would fall under current reimbursement coverage, code and payment constraints
• Argument for higher payment for Device is illogical
© 2013 Product Development Technology, Inc.
INSURANCE REIMBURSEMENT
REGULATORYPATHWAY
REIMBURSEMENTPATHWAY
PathwaySynchronization