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ASSEMBLY:

Jerry Hill, Chair

Nathan Fletcher, Vice Chair

Tom Ammiano

Joel Anderson

Marty Block

Anna Caballero

Joe Coto

Paul Fong

Cathleen Galgiani

Diane Harkey

Mary Hayashi

Audra Strickland

Sandr SwansonAlberto Torrico

Michael Villines

SENATE:

Ellen Corbett, Chair

Tom Harman

Loni Hancock

Christine Kehoe

Alex PadillaLois Wolk

Mark Wyland

Leland Yee

MedicalDeviceEntrepreneurship:

VentureCapitalPerspective

JohnOnopchenko

ManagingDirector,SynergyLifeSciencePartners

1. Medicaldevicemarket industrydynamics.

2. Factorsinfluencingventurecapitalbehaviorinmedicaldevices.

3. Policiesandincentives:impactonVCinvestmentdecisions.

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OverviewofmajorMedicalDevicesectorsandgrowthrates

Selected medical technology U.S. market sizes, growth rates ($ millions)

Selected medical technology U.S. market sizes, growth rates ($ millions)

Source: Frost and Sull ivan, FactSet, Equit y research

Note: Growth measured by 3-year forward revenue CAGR, calculated on companies that have projected forward revenue

10%

20%

30%

40%

0% 5% 10% 15% 20%

Expected growth

EBITDAmargin

(%)

= Fragment ed

= Matur ing

= Consolidat ed

Neurology$2,264

Moleculardiagnostics$3,231

Aesthetics$1,255

Urology$2,393

General surgery$9,366

Disinfection$284

Mobil i ty aids$1,975

Cardiovascular$21,302

Orthopedic

$25,563

Opthalmology$8,916

Wound care$5,662

Infusion pum ps$2,257

Diagnosticimaging$8,207

Respiratory andAnesthesia

$1,527

In-vitr o diagnosti cs$39,103

Hearing and

Audiology$4,521

= denot es tot al market size

7/30/2019 Device Enterpreneurship

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Publicmarketstamina&creditmarketheadwind

Devicesector

lagged

S&P

500

index

from

March

lows,

and

sector

valuations

based

on

expectedearningstrailtheS&Paverageforthefirsttimeindecades.

Peoplelostinsuranceandcutbackonelectivesurgeryinlarge numbers.

IPOmarkettookits2nd yearoff.Durable,substantialrevenuesarerequiredwDevices.

Economic

pressure

on

hospitals

tighter

inventory

management,

pressure

on

device

pricesandslowedsalesofexpensivecapitalequipment

HealthCare/Insurancereform

Recordnumberofunandunderinsured

Tightfederal&statebudgets deficitsarelarge,spendinggapsaplenty.

HouseandSenateappearreadytotaxdevicemakersatacollective$2B/yr

withtheSenateaimingtostarttwoyearsearlierin2011.

ChallengestotheUSSupremeCourtrulingthatshieldsdevicemakersafterFDA

clearance. Costvs.Value.Errorasa%ofcost.Fraudasa%ofcost.

Negativepresscoverage(1)Recalls

(2)Triggerhappy approvals/sloppyoftenincompletetrials.ComparativeAssessments.

(3)Cozy

physician

&

company relationships

(DOJ

/Orthopedics)

MedicalDeviceSectorDynamics:KeySystemicVariables

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MedicalDeviceSectorDynamics:EmergingDevelopment&

FundingModels

Academic/

EconDevelopmentVenturePaired CompanyImbedded

Stanford BiodesignUCI OCTANeHarvardMITCCF - BioEnterprise Corp

GIT / Emory - ATDCU of Penn - MentorTech

Engage sourceofdealflow

&IPopportunity

JNJGSKGEGenentechMicrosoft

IBMIntelCisco

Watch forsignsof

fatigue,IP&Spinout

opportunity

Accelerated Tech PartnersMedFocus / BiostarCoronis Med VenturesExploraMed, Inc.Fjord Ventures

Intersect PartnersSynecorThe Innovation Factory

The Foundry

Engage sourceofdealflow

andexperiencedearlystage

entrepreneurs

EstablishingInnovationEcosystems

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U.S.MedicalDeviceInvestmentsbyRegion:throughQ32009

2009totalestimatedventurecapitalinvestmentinCalifornia

medicaldevicecompanies:~$1.0billionvs~$1.5in2008.(averageinvestment:$4.7MM)

OrangeCounty:

agreat

legacy

in

cardiovascular

and

ophthalmology

effectivelybeingleveragedintootherlargetherapeuticareas

PricewaterhouseCoopers/NationalVentureCapitalAssociationMoneyTree ReportbasedondatafromThomsonReuters

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7/30/2019 Device Enterpreneurship

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WhatDrivestheVentureCommunity?

Liquidity Predictability

f: Teams,Txarea,Technology,BusinessModel,Regulations,Reimbursement

CapitalEfficiency

Cashon

Cash

Returns

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Whatisthetypical,positiveliquiditypathforventure

backeddevicefirms?M&A

CAGR%

z 10largestmedicaldevicecompanieshavestrongcashbalancesandhavebeengeneratingmultibilliondollar

cashflows

each

year.

z Largefirms,drivenbyshorttermrequirements,commonlyallocateresourcestoproximate,incremental

improvementstoexistinglinesofbusinessandoftenunderfundtransformationalinnovationinternally.

z Venturebackedfirmsarerequiredtogeneratehighmultiplesofinvested capitalthroughthedevelopmentof

transformationalinnovation. Synergisticrelationshipsformwithemergingcompaniesfillingsignificant

growthneeds

in

return

for

arisk

adjusted

rate

of

return.

z Largeandmidcapplayersmustproducehigherrevenuegrowththantheyhavein therecentpastinorderto

attractcapitalandpositivelyinfluencestockvalue.

Thebasisforalongstandingcodependency

19972002

CAGR

20072008

Rev.Growth

15%

10%

5%

10.25%

4.2%

CashonHandat12/31/08

$31.3B

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Whilepublicmarketswaned,selectacquirersmadeindustrychanginginvestments

Liquiditydrivesventurebehavior.

MedicalDeviceM&ATransactions

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Policiesandincentives:impactonventure

capitalinvestment

decisions.

MedicalDeviceEntrepreneurship:

VentureCapitalPerspective

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CapitalSupply

to

Venture

Firms Demand

for

Capital

from

Venture

Firms

InnovationFunds

PensionAllocations

ToAlternative

Assets

Commercial

Preclinicaltesting

Establish

HumanTrials

UCTechTransfer

FacultyIncentives

to

Collaborate

IndustrySabbaticals

SeedGrants/MatchingFunds

StateR&Dtaxcredits

Animallabtestingregs

EnvironmentalRegulations

Radiation

Treatmentofmedicalwaste

ManufacturingAttractiveness

TaxLegislation

ProductLiability/Litigationcosts

AfterChange

OfControlLocationofacquiredfirm

HowStatepolicies/legislationimpactsinvestmentandlocation decisions

FavorableBusinessClimate

Statesthatcreateincentivesandpoliciesthatincreasepredictabilityand

capitalefficiencywilldrawdisproportionateventurecapitalinvestment

Predictability&CapitalEfficiencydrivesventurebehavior..

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ClosingThoughtsonsecuringourleadershippositionintheentrepreneurialeconomy

FixcurrentCAStatetaxsystemCaliforniastaxesareoutofstepwiththegoalofeconomicgrowthandefficiencyandarean

impedimenttothestatesabilitytocompetewithotherstatesforjobsandinvestment.

ReportoftheCommissiononthe21st Economy

SupportMedDevicemanufacturinginCA.1. in2008,56%surveyrespondentsdisclosedexpansionplansoutsideofCalifornia

2. 34%expectedtoexpandmanufacturingoutsidethestateinthenexttwoyears

California

Biomedical

Industry

2009

Report

EliminatetheDevicefee/tax.Ataminimum,delaystart(2013),providereliefforsmallercos.

Preventreactionary

changes

to

FDA

approval

processes.

UpholdPreemption. StopStatedriventortsuitsagainstmeddevicemanufacturers.

Helpto

create

accountability

and

transparency

to

the

process

of

securing

reimbursement.