Transcript
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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

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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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    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.


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