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UCSF Lean Launchpad For Life Science and Healthcare Startups Medical Device Track Class 7 Resources, Activities and Costs November 12, 2013 Allan May Chairman, Life Science Angels [email protected] UCSF Lean Launchpad - Allan May ©

UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

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Page 1: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

UCSF Lean Launchpad For Life Science and Healthcare Startups

Medical Device TrackClass 7

Resources, Activities and CostsNovember 12, 2013

Allan MayChairman, Life Science [email protected]

UCSF Lean Launchpad - Allan May ©

Page 2: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

CRITICAL RESOURCES

Physical/Tangible Intangible Human Financial

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Page 3: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

PHYSICAL/TANGIBLE RESOURCES Research labs and manufacturing facilities

Federal and international laws strictly control and regulate medical device research and manufacturing

A number of submissions, approvals, and inspections are required Virtual medical device companies can sometimes

skirt the need for investment in physical infrastructure Management in separate locations Outsourced R&D Outsourced low volume manufacturing Outsourced clinical trial run by a CRO

Works best for “pure product” plays where company is “built to flip” Limits exit possibilities since essentially no Plan B

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Page 4: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

HUMAN RESOURCES Some resources focus on Personal Success

Mentors Teachers Coaches

Some resources focus on Business Success Clinical, Scientific and Business advisors Executive Chairpersons

Difference between investors and advisors The critical importance of an A Team

Includes Consultants and FTEs The critical importance of Company Culture

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Page 5: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

FINANCIAL RESOURCES

Self funding Non-dilutive financing

SBIR; STTR; SBA, etc Friends and Family Crowdfunding Angels and High Net Worth individuals Angel Groups Venture Capital Funds Corporate Venture Capital Groups Venture Debt Bank Financing Vendor Financing

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Page 6: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

MEDICAL DEVICES:

THE CRITICAL THREE ELEMENTS

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Page 7: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

INTELLECTUAL PROPERTY STRENGTH IS DIRECTLY CORRELATED TO EXIT VALUES

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Strategics want patent coverage, not just saleable products

Page 8: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

CLINICAL NEEDS ARE USUALLY ADDRESSABLE BY MULTIPLE TECHNOLOGIES

Don’t chase clinical needs with technology Be technology agnostic

Find the technology that best addresses the clinical need and has the best patent coverage A better clinical solution with weaker patent coverage will

have a harder time being commercialized than a less good clinical solution with stronger patent protection

Core patents can often be augmented with strong follow-on patents that enable the technology to better conform to the clinical need

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Page 9: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

TYPES OF INTELLECTUAL PROPERTY

Trademark Protect branding and marks Stronger if registered

Copyright Prevents duplication but not much else

Trade Secrets No registration; dependent on non disclosure

Contract - NDA Patent

Government monopoly

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Page 10: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

THE ROLE OF THE NDA Non-Disclosure Agreements or Confidential Disclosure

Agreements are critical for early stage companies Use them in hiring employees, consultants Raising capital (where possible)

These are contract rights, not intellectual property rights Your only recourse is damages for breach of contract

Never let an NDA take the place of a Provisional Patent filing Do not talk about the core of your IP unless and until your

patent(s) have been filed Talk about What you are doing; not How you are doing it

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Page 11: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

INTELLECTUAL PROPERTY CONTROLS RELATIONS WITH STRATEGICS

The intellectual property landscape in medical devices tends to be heavily patented

Major medical device companies have vast patent portfolios They tend to play hardball on IP Their basic approach will be to go around your IP if

reasonably possible Your IP needs to be thoroughly locked down before

you engage in any discussions with strategics Not just filed, but optimized to include all other alternative ways to

accomplish a similar result, and/or to block other appoaches

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Page 12: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

HOW TO PREPARE YOUR INTELLECTUAL PROPERTY

You can/should do much of the background work yourself You know your science or engineering better than any lawyer will Research all of the key words in your core technology concept Research papers and journals to find relevant articles and publications Keep detailed records of everything you looked at and your comments

and share these with your IP attorney

Patents of concern need to be thoroughly investigated Pull the file wrapper and investigate the prosecution history in the

patent office to understand how the claims were narrowed in order to obtain that patent

Drafting around existing patent claims is an art unto itself

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Page 13: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

CRITICAL ACTIVITIES FOR MEDICAL DEVICE COMPANIES

Generate Data Bench, Pre-Clinical and Clinical

Conduct a Clinical Trial Obtain Regulatory Approval Obtain Reimbursement [Conduct a Cost Outcomes Study]

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Page 14: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

MEDICAL DEVICE STARTUPS ARE DATA GENERATING MACHINES

The practice of medicine is “Evidence-based” Demonstrating Safety and Efficacy of medical devices requires

hard data with clear endpoints The highest level of evidence (and most expensive) is a

prospective, randomized, placebo-controlled, double blind study Lesser levels of evidence can be acceptable depending on the type of

device But the data generated in such trials will not be usable for regulatory

clearance The value of your company and technology will be bracketed by

the strength and clarity of your data Major risk to startups: Equivocal Data

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Page 15: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

MEDICAL DEVICE COMPANIES MUST DESIGN AND EXECUTE A CONVINCING

CLINICAL TRIAL Safety can be demonstrated with a pilot study Efficacy must be demonstrated via a pivotal study

It is possible to generate evidence of efficacy in humans in smaller, less rigorous studies, but such data will not count towards regulatory approval

FDA approval is required TO COMMENCE a human study on Significant Risk Devices in the US IDE = Investigational Device Exemption allows the collection of safety and

efficacy data under agreed study design protocols The clinical study must meet agreed primary endpoints with

statistical certainty 0.05%

Most clinical trials are inadequately designed and/or fail to meet their primary endpoints

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Page 16: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

CLINICAL TRIAL RESULTS CONTROL THE LABELING UNDER WHICH THE DEVICE

CAN BE SOLD The scope and specificity of the clinical trial

endpoints control the marketing and sale of the medical device Only what has been proven in the clinical trial can

be claimed The medical device will be labeled for use only as

supported by the proven claims Marketing and selling “off-label” is a

criminal offenseUCSF Lean Launchpad - Allan May ©

Page 17: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

FDA REGULATION OF MEDICAL DEVICES

FDA's Center for Devices and Radiological Health (CDRH) is responsible for regulating firms who manufacture, repackage, relabel, and/or import medical devices sold in the United States

Medical devices are classified into Class I, II, and III The basic regulatory requirements that manufacturers of

medical devices distributed in the U.S. must comply with are: Establishment registration, Medical Device Listing, Premarket Notification 510(k), unless exempt, or Premarket Approval (PMA), Investigational Device Exemption (IDE) for clinical studies Quality System (QS) regulation, Labeling requirements, and Medical Device Reporting (MDR)

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Page 18: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

FDA REGULATION OF MEDICAL DEVICES (2) The 3 categories of devices are NSE devices – Non-significant risk, which do not require

clinical trials and can be marketed with out approval 510k devices – Devices for which there is an existing

predicate and so can be approved with no, or lesser clinical trials Recently, due to highly publicized failures of some devices,

the FDA has begun to require more and more extensive clinical trials even of 510k devices

PMA devices – Novel devices for which no predicate exists and which require clinical trials

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Page 19: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

REIMBURSEMENT IS REQUIRED TO EFFECTIVELY SELL MEDICAL DEVICES

Reimbursement is the Number One concern of venture capital financiers

Both public payors (Medicare and Medicaid) and commercial payors (Blue Cross et al) have rules to control what is reimbursed at what rate

Coding, Coverage, Payment Reimbursement is also based on evidence and

data generated by clinical trials CPT = How the physician gets paid DRG = How the hospital gets paid

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Page 20: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

PCORI (Under Development) Patient Centered Outcomes Research Institute Known otherwise as Cost Effectiveness Studies, or

Comparative Effectiveness Studies, or Health Economics Studies, or “Death Panels”

Cost Outcomes studies are already required in many countries and so a fact of life

They will become increasingly required in the US in order to obtain reimbursement, and perhaps regulatory approval itself

Many medical device companies are already expanding clinical trial design endpoints to encompass cost outcomes data in order to avoid conducting a separate study

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Page 21: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

COSTS• Phases: Development, Product intro, Revenue ramp• Fixed Costs – capital, project expense, overhead

o Virtual model highly desirable

• Variable Costs – mostly applies to Revenue phase• Unit Economics – may be the simplest way to

evaluate the business (for you, investors and acquirers)

• Bottom-up analysis, not top-down• Specific to your proposal, not industry averages

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Page 22: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

COSTS

Metrics that matterCash to each major milestone – needs thorough

justificationCash to cash flow breakevenCash to exitMonthly or quarterly burn rate

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Page 23: UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

UCSF Lean Launchpad For Life Science and Healthcare Startups

Medical Device TrackClass 7

Resources, Activities and CostsNovember 12, 2013

Allan MayChairman, Life Science [email protected]

UCSF Lean Launchpad - Allan May ©