Starting a Fundable Medical Device

CompanyChristopher PorterMedical Genesis

Christopher Porter, PhDn Chemical Engineer/Material Sciencen 40 yrs in Medical Industry in Product

Development and Managementn Serial Entrepreneur/Intrapreneur

• 6 Successful Startups• 2 Divisions (J & J and Pfizer)• Multiple exits through IPOs and Sale of Company

n 30 + Products on Marketn 50+ Patentsn Early Stage Life Science Company Advice

• LIFE SCIENCE WASH, COMOTION, WINGS, W-FUND, LSDF, COULTER

• Over 100 companies/year

BACKGROUND

Medical Product’s Characteristicsn Highly Regulatedn High Value/High Marginsn Different Types

• Drugs• Biologics• Diagnostics• Devices

n Third Party Payersn Medical IT has a different model

STARTING AN ENTERPRISE

Proxima-A catheter system to treat

brain and breast cancer with radiation

-Sold to Cytec in 2005

EXAMPLE

TUMOR

ResectedTumor

Cancerous Margins

EXTERNAL BEAM RADIATION

FROM DIFFERENT DIRECTIONS

Damage to Healthy Tissue

Missing theTarget

M

Balloon with Radioactive Fluid

Low Level-Localized

and Precise Radiation

Gliasite Clinical Data

ADVANTAGESn Less expensive than fractional

radiationn Does not need specialized and

expensive equipment n Faster Treatment Timen Easier on Patients n Less Healthy Tissue Damagen Arguably more effective treatmentn Can be adapted to other cancers

MAMOSITERadiation following a lumpectomy for

Breast Cancer

GOING FORWARD

GENESIS OF A MEDICAL PRODUCT COMPANY

CONCEPT

DEVELOPMENT AND CLINICALS

COMMERCIALIZATION

EXIT STRATEGY

IDEAFeasibility

Proof of Concept

FDA Approval

Sales and Profitability

IPO or Sale of Company

VALUE ADDER MILESTONESCOMPELLING

UNMET NEED

FUNDABLE STAGES OF A MEDICAL COMPANY

2. Proof of Concept

4. Commercialization

5. Liquidity (Exit Event)

3.Final Development and Regulatory Approval

1. Fundable Idea (Feasibility)

0. Initial Concept (IDEA)

$

$

$

EARLY STAGESPLANNING

Business Plan

LATER STAGESEXECUTION

COMMON MISTAKES

n Elegant solutions to non-problems• Technology in search of a need of a solution• Invented needs• Funding the lab instead of advancing the company

n Product, not an company• Small market• Evolutionary, not Revolutionary• Belongs with an Existing Company

n Wasting resources on overly complex products• Features that are not important• Increases cost, complexity and risk• In love with the technology

COMMON MISTAKESn Not doing enough upfront homework

• Not addressing critical items• Don’t talk to potential customers• Get far down the path before the mistake is

clearn Non-investable management pitching the

company• Better to have no CEO rather the wrong one

n Trying to raise investor money to soon• Have not fully addressed critical milestones• 10 resurrections to take care of one crucifixion

FUNDING

Staged Approach

FEASABILITY

OK

PROOF OF CONCEPT

OK

PRODUCT DEVELOPMENT

OK

IDEA

$

$

$TIME

$

$

Pro

bab

ility

of

Su

cces

s

VA

LUE

OF

CO

MP

AN

Y

LOW

HIGH

Value Increases Discreetly

TIME

CO

MPA

NY

VA

LUE

IDEA

PROOF OF CONCEPT

FDA APPROVAL

SIGNIFICANT SALES, POSITIVE CASH FLOW

$

LIQUIDITY

RIS

K

VALUE

RISK

HIGH

LOW

Value AddedMilestones

FUND RAISING AND DILUTION

FOUNDERS(Common)

5. PUBLIC OFFERING

4. COMMERCIALIZATION

3. FDA APPROVAL

2. PROOF OF CONCEPT

IDEA, KNOWHOW, IP

SWEAT-EQUITY

$

$

$

$

PUBLIC

FUNDING POINTVALUE RECEIVEDSTOCK IN COMPANY

1. FEASABILITY $INVESTORS(Preferred)

STAGES OF A COMPANYIDEA- (DEFINE A NEED

AND PRODUCT TO FILL IT)

DEMONSTRATE PROOF OF CONCEPT

COMPLETE DEVELOPMENT ANDOBTAIN REGULATORY APPROVAL

COMMERCIALIZATION

LIQUIDITY EVENT(IPO OR SELL IT)

START

6-18 Mo0.2-1.0 MM$

1-3 YR5-15 MM$

1-3 YR10-20 MM$

END

0.3-1.0 MM $

5-10 MM $

20-40 MM$

100-200 MM$

STAGETIME AND $s RAISED

PRE-MONEYVALUE

Value and Ownership

0

20

40

60

80

100

120

Start 1st 2nd 3rd Liquidity

Round

% o

r $M

M

% Ownership

Founders Value

Company Value

Sources of Fundingn NON DILUTIVE

• Government Grants• Foundations• Other Grants

n EARLY STAGES (DILUTIVE)• Sweat Equity• Self, Friends and Family• Angels• Seed Funds

n LATER STAGES• Existing Company (Strategic Investors)• Venture Capital

n LIQUIDITY• Public (IPO)• Sell the company

Venture and Angel Investorsn Good ones can add a lot of value to the

company • Connections and Networking• Know How and Advice• Credibility• Continued source of funding

n Their job is to maximize the return for themselves or their funds

n Want to structure as strong a company as possible -- even at the expense of the founders

n Will try and get control of the company

WHAT INVESTORS ARE LOOKING FOR

n A good Return on Investment• Liquidity Event

n Sell the Company or Idean Public Offering

• High Returnsn Initial value of the venturen Time it takes to get to liquidityn How much total money will go into it by that timen What will be worth at the liquidity event

n Is this worth it for investor to work on• Size of the fund• Other Opportunities they have to make an investment

POTENTIAL DEAL KILLERSn Bet People as Much as (more than)

Ideasn Evolutionary vs. Revolutionaryn Product vs. a Companyn Market Potential Too Low n No or Poor Patent Positionn Reimbursement is unlikely (Make it

and they will come fallacy) n Too high expectation of initial valuen Regulatory is too riskyn Overly optimistic projections

What I Have Learnedn Most excited about the things you

know the least about- do your homework

n You don’t know what you don’t know - find experienced help

n The last person you want to fool is your self – People fall in love with their own ideas and will not listen

n Invest in only things that create value

What I Have Learnedn Don’t be too valuation sensitive

• 100% of nothing is not as valuable of 25% of something

• Get good investorsn Always raise money before you need itn Raise enough money-It always takes

longer and cost more than you think

n The largest predictor of success are your expectations