Building the Next Generation MedTech Companies - Partsch ... · 6/19/2014 1 Building the Next Generation Innovative MedTech Companies Michael J. Partsch AcceleMed Management Inc CONFIDENTIAL

6/19/2014

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Building the Next Generation Innovative

iMedTech Companies

Michael J. Partsch

AcceleMed Management Inc

1CONFIDENTIAL

AcceleMed Management, Inc.

© 2014 Michael J. Partsch

Agenda• Background on the Industry• Current Statistics• Observations (Disruptions, Challenges)• Regional Responses• Company Responses• Models of Innovation

2CONFIDENTIAL© 2014 Michael J. Partsch

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My Background• University of Pennsylvania – BioChem• Carnegie Mellon – MBA• Kauffman Fellow• 23 years Healthcare VC (10) and Start-ups (13)• Founded 5 MedTech Cos & Key Player in 4• 2 IPOs. 1 M&A

CONFIDENTIAL 3© 2014 Michael J. Partsch

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MedTech Segments

• Diagnostics/Monitoring: g g

• Imaging Devices:

• Drug-Device Combinations:

• Drug Delivery Systems:

• Therapeutic Devices:


MedTech Segments







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MedTech Segments







MedTech Segments

• Diagnostics/Monitoring:g g






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MedTech Segments







Technological Innovation

• Historical key to MedTech industryy y

• Define the problem

• Create a solution

• Drive adoptionp

• Get paid


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Small Steps & Great Leaps

• Incremental

• Some were revolutionary paradigm shifts


One Face of MedTech


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Rank Company Name Total Rev. ($B) Market Cap. ($B)1 Johnson & Johnson $ 28.60 $ 258.20 2 Siemens AG $ 18.70 $ 104.60 3 General Electric Co. $ 18.30 $ 260.20 4 Medtronic Inc. $ 16.70 $ 56.40 5 Baxter International Inc. $ 14.30 $ 35.80 6 Fresenius Medical Care $ 14.20 $ 30.60 7 Koninklijke Philips $ 13.50 $ 29.10 8 Covidien plc $ 12.10 $ 29.10 9 Novartis AG $ 10.40 $ 183.50

10 Cardinal Health Inc. $ 10.10 $ 19.00 11 Stryker Corp. $ 8.80 $ 27.80 12 Becton, Dickinson $ 7.90 $ 20.40 13 Boston Scientific Corp. $ 7.10 $ 16.50 14 Essilor International SA $ 6.50 $ 22.90

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15 Allergan Inc. $ 6.10 $ 26.90 16 St. Jude Medical Inc. $ 5.50 $ 16.30 17 3M Co. $ 5.30 $ 16.30 18 Zimmer Holdings Inc. $ 4.50 $ 15.10 19 Terumo Corp. $ 4.20 $ 9.40 20 Smith & Nephew plc $ 4.20 $ 11.40


Another Face of MedTech

• 80+% of companies have < 50 employeesp p y


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Traditional Adoption of Innovation

• Big Strategicsg g– Innovate a little, sell a lot, make a lot of money

• Small Companies– Identify gaps in technology, needs in the market

– Innovate technological solutions

– Sell out to Big Strategics


The MedTech Industry• Global: 27,000 companies, $330B• US: 6,500 companies, $119B

400,000 employees32 of 46 (70%) companies $1B+

• China: Est. AGR of 15% for next 5 years


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Top MedTech Markets (2012)Rank Country

Estimated Sales

(US$ Billion)

Market Share

(%)

1 US 118.9 36.3

2 Japan 32.4 9.9

3 Germany 23.1 7.0

4 China 14.1 4.3

5 France 13.5 4.1

6 UK 9.9 3.0

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7 Italy 8.6 2.6

8 Russia 6.8 2.1

8 Canada 6.8 2.1

10 Brazil 5.3 1.6


Sutton’s Law


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Was It Worth It?

• Unsustainable

• Wide-ranging repercussions and changes

• Questionable benefits



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Current Observations

• Rapid succession of impactful events and trends

• Created three fundamental disruptions

• Forcing MedTech innovators to address new challenges


Events & Trends

• Reimbursement • FDA

• Comparative effectiveness

• Group purchasing

• VC dwindling

• Medical device tax

• Rise of HIT• Industry consolidation

• Changing demographics

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• Product convergence

• ObamaCare


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Perfect Storm• Value-based Healthcare

• Regulatory Pressure

• Tighter Financial ResourcesCONFIDENTIAL 23


Value-Based Healthcare

• No more incremental improvementsp

• Comparative effectiveness

• Industry consolidation & group purchasing decisions

• Customer base shifting


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Customer Base Shifting

• Payersy

• Hospital systems & ACOs

• Patients

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Results in longer adoption times, and lower prices


Regulatory Pressure

• Tougher 510K and PMA processg p– Approvals down 44%

– Adds years and $$$ to dev process

– EU looking to follow suit

• Sunshine Act (aka – No more free lunches!)


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Tighter Financial Resources

• Venture Droughtg

• Strategics building g gcash


Venture Funding Drought

• US VC lowest in 10 years

• EU lowest in 7

• Shifted focus or went out of business


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Causes of VC Exodus• Regulatory delays• Slow adoption curves• Downward pricing

pressures• Smaller and later exitsSmaller and later exits

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Better money to be made elsewhere


What Many VCs Want Now• Capital efficiency• No clinical risk• No regulatory risk• No reimbursement risk• Multi-billion $ markets in their back yard• Rock bottom pre-money valuation


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Strategic Industry Leaders• Sitting on cash

D i– Device tax, ObamaCare, fear….

• Growth rate down ~50%

• Lost $131B in new• Lost $131B in new revenue ($12B in R&D)


Innovation Capital

• 82% of MedTechfinancing went to Strategics

• Mostly debt


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MedTech M&A

• Strategics starting to open purse stringsg g p p g

• High profile clinical busts

• Demanding more clinical date

• Smaller exit values

• Back-end loaded, Earn outs


What About IPOs??• Never a common exit

for MedTech• US IPOs down

50%+ since economic downturneconomic downturn

• Some glimmers of hope for 2014???


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What’s a MedTechEntrepreneur To Do?


Challenges for MedTech

• Create new opportunitiespp

• Somehow find a way to get funding

• Be capital efficient when you do


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Create New Opportunities

• Consider the customer base

• Fit in the new, shifting paradigm

• Find better ways to use data & technology

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INNOVATE© 2014 Michael J. Partsch

Need to go Beyond• Linear progression

of technology doesn’t cut it anymore

• Other dimensions of innovation

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Technology


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Broaden Scope of Devices

• We live in a

Con

connected world

• Our devices need

nnectivity

to also

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Technology


The Payer is Evolving

• Who has the

Con

money?

• What are their

nnectivity

needs?

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Technology


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Survival Funding is Critical

• All of this ties to

Con

your ability to get funded

Funding Strategy

nnectivity

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Technology


4 Dimensional Innovation• Traditional innovation along technology line

}

PR

O

• Connectivity innovation with externalities

• Business model innovation }}

OD

UC

TC

• Existential innovation for funding survival

CONFIDENTIAL 42

}

CO

MPA

NY


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Technical Innovation

• Faster, Better, Cheaperp

• Brave new World

You must provide better outcomes pand reduce costs in the system


Connectivity Innovation

• 2 Components:p

– Digital Connectivity

– Systemic Connectivity


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Digital Connectivity


Digital Connectivity• Big Data• Patient training• New delivery systems• ID appropriate patients

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• Preventative actions• Less errors


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Systemic Connectivity

• Address broad cycle of care vs. point of carey p

• Deliver a broader definition of value to a wider audience

• Shift of healthcare intervention from traditional providers


Shifting Healthcare

• Doctor Nurse

• Specialist Generalist

• Tertiary setting Primary setting

• Physician control Patient controly


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Broad Cycle of Care

• No longer just acute point of careg j p

• Patient selection, training, biofeedback

• Interaction with other caregivers, family

• Monitoring compliance, data managementg p , g

• Migrate from product to service / solution


Business Model Innovation• Build for shifting healthcare interventions• M Health – Caters to self-pay• Big Data – Caters to payers• Incorporate preventative medicine, disease

tmgmt • Large companies are slow to change


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Shift to Self Pay

• Aesthetic proceduresp

• Lens replacement

• Minute clinics

• M Health

• What’s next?


Responses to Challenges

• Regionsg

• Incubators

• VCs

• Universities

• Companies


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Regional Responses

• Cities, States or countries

• Create jobs

• Spur economies

• Develop or leverage resourcesp g


Israel

• >700 MedTech companiesp

• VC investments on the rise in dollars and number of deals

• Leads the world in medical device patents per capita


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Israel – Military Roots

• Begins with billions in defense spendingg p g– R&D spending

– Mandatory military service

– Education of engineers

• Technology translates to healthcare


Israel – Other Efforts

• Educated immigrants in the 90sg

• Business incubators & financial aid

• Next step: Transition effort from Innovation to pDevelopment, Sales & Marketing


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Ireland

• Business/tax incentives led growthg

• Significant R&D and manufacturing operations

• 24,000 jobs (90% in foreign owned companies)

• Covidien strong playerg p y

• Significant capital being generated there


Ireland – Next Steps

• Focus now on:– Lowering costs of manufacturing to compete

with developing nations

– Increasing high end R&D g g

– Developing more of their own entrepreneurs


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Other Countries

• South Korea – Leverage electronics industry to g ydevelop a cluster of expertise in medical imaging

• Denmark – Long history of hearing aid i i b d dinnovation based on government support and intervention


US Clusters• San Francisco – Combined strong universities with

i ifi t VC d i d t i f t tsignificant VC and semiconductor infrastructure• Minneapolis – Built a world class MedTech cluster due

to local presence of Medtronic, Boston Scientific and St. Jude

• Orange County Success in ophthalmology has• Orange County – Success in ophthalmology has sprouted strong synergistic efforts across companies and academia


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Models/Examples

• Venture Funds

• Universities

• Incubators

• Companiesp


Venture Funds

• Many moving to M health or HCIT to some y gextent

• Shift from technology products to solution products

• Many syndicate all required capital up front to remove financing risk


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Canaan Partners• Capital efficiency - $10-12M to clinical data• Expert teams/outsource models• Direct gov’t sponsorship• Partnering with Strategics, healthcare systems• License off products, markets, regions

– Focus on core


Research Corp. Technologies (RCT)

• Single product focusSingle product focus• Capital efficiency• Leverage distributors where possible• Single financing opportunitiesg g pp

– Syndicate where needed

• 510k only


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Cato Bioventures

• VC fund as part of an Int’l CROp– Med device and Pharma expertise

• Multiple investment models

• Provides CRO services and capital

• Will work directly with universities or create new entities


Artiman Ventures• Still focused on early stage• EIR programs to so rce opport nities• EIR programs to source opportunities• Global approach

– Low cost delivery to emerging markets• Shifting healthcare dynamics

– Doctor Nurse– Specialist Generalist– Tertiary setting Primary setting– Physician control Patient control


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DiNoVa Capital

• China based fund– Investing in innovation in US and elsewhere

– Leverage R&D, manufacturing, clinical connections in China

Chi i i d f h d d i• China is primed for growth and devices are under-represented


Incubators

• Follow a regular process (Danny Sachs, Minn)g p ( y )

• Partner with funding (ExploraMed - NEA)

• Create or in-license innovation

• Translational Approach (AcceleMed)pp ( )

• Expert teams/engineering (Seedling)


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TheraNova

• Lean opportunities / Capital efficientpp p

• Alternate funding sources

• Recently crowd sourced $4M

• Generate early human datay


The Foundry

• Develops only 1 company at a timep y p y

• Raise big Series A when selecting clinical focus

• Internal mgmt through 1st round

• Recent company – Fire1 – Relocated to Ireland


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Rich Ferrari - CITG

• New era of how to fund early stage companiesy g p– Int’l, family funds, angels, hybrid incubators

• Raise small dollar amounts ($1-2.5M)

• Reach significant milestones early– OUS launch, 510K

• Outsourced vendors CONFIDENTIAL 71


Universities

• Johns Hopkins (CBID)p ( )

• UCSF (Rosenman Institute)

• Harvard (Wyss Institute)

• Coulter Foundation

• Stanford (BioDesign)


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Johns Hopkins

• Center for Bioengineering Innovation & g gDesign (CBID)

• Year long graduate education program

• ‘Spiral Innovation’ approach– Early, staged examination of all key elements of a

medical device


UCSF – Rosenman Inst.

• Launched 2014

• UCSF, UC Berkeley, UCSC collaboration

• Brings industry experts across all aspects of medical device innovation to assist with device development


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Harvard - Wyss Institute• Launched in 2009 with $250M• Focus on high risk R&D • Spans academia and industry

– Broad alliances across Boston hospitals and universities

• Lab facilities with staff of 350• Executive management & seed funding


Coulter Foundation

• Reduce risk/Bridge ggap

• Bring business resources

• Fund ‘killer’ expts

• Managed progress


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Coulter Foundation

• 2005 Program initiatedg

• 18 universities

• 200+ funded projects

• 1 in 3 = licensed out to corporationsp

• $350 M in follow-on funding


Company Responses

• Go very leany– Outsource to expert teams, vendors

• Go overseas early

• Partner earlier

• Niche markets


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Roxwood Medical• MultiCross catheter to address Chronic

Total Occl sions (CTOs)Total Occlusions (CTOs)• Series A = $2.75M• 4 FTEs• FDA submission within 12 months• FIM within 12 months• FDA Clearance within 18 months


Big Opportunities Exist

• E.g. - Metabolic Syndromeg y


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Exporting Western Lifestyle

• Developing countries p ghave epidemic future

• Less financial resources

• Lower regulatory barriers

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• Less competition


The Opportunity

• A low cost solution developed for and plaunched in a developing region

• Generate revenues

• Create record of device performance

• Transfer technology to developed markets


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Summary

• MedTech is a large and meaningful segment of our healthcare economy

• Disruptions are creating fear and chaos

• Opportunities exist for those who can innovate

• Standard models are out the window….

…..Welcome to the Wild West!


Akhil Saklecha Artiman VenturesAndy Levine SeedlingBrent Ahrens Canaan PartnersChristine Matheson USC, Coulter ProgramDaniel Burnett TheraNovaD S h E t

Acknowledgements& Thanks!

Danny Sachs EntrepreneurErnst & Young, Pulse of the IndustryHanson Gifford The FoundryJames Logan CatoBioVenturesJosh Makower ExploraMedMark Maciejewski DiNoVa CapitalMehrdad Farhangnia Roxwood MedicalPaul Grand RCTRich Ferrari CITG, De Novo VenturesRosenman institute UCSFRoss Jaffe Versant VenturesWyss Institute Harvard UniversityYouseph Yazdi Johns Hopkins


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Building the Next Generation MedTech Companies - Partsch ... · 6/19/2014 1 Building the Next Generation Innovative MedTech Companies Michael J. Partsch AcceleMed Management Inc CONFIDENTIAL