students to start-ups

Students to Start-upsEntrepreneurial Skills Workshop Series

The Les Kilpatrick

How to Prepare Your Medical Device Company for Acquisition

Students to Start-upsThe Les Kilpatrick

Entrepreneurial Skills Workshop Series

February 17, 2009

Process Overview


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• Chance, Choice, Change and Challenge*• 5 “at-bats”• Combination of base hits, strike-outs and

homeruns– Change = demographics– Chance = personalities, priorities and interests– Choice = personal goals and ambition– Challenge = how to bring it all together

• How best to maximize your opportunity?

What Animates Your Career?

*Jonas Salk, Man Unfolding, 1972


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Why this Series?• Entrepreneurship is about making an impact• An acquisition might be your career highlight• Leveraging Orange County’s natural strengths

– Total estimated employment: 29,000– Total estimated wages and salaries paid: $2.2 billion– Average wage: Nearly $76,800– Percentage of total California– biomedical workforce: 11%– Statewide ranking: Third


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Medical Devices M&A2006 150 Deals $53.3B2007 191 Deals (+27%) $57.9B (+8.6%)

Aggregate 2007 M&A = 90x Aggregate 2007 IPOs

Source: Levin Associates Healthcare M&A Information Service, January 2008


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Your Game Plan for SuccessFebruary 17, 2009How to Prepare Your Medical Device Company for Acquisition: an Overview

February 24, 2009Envisioning Milestones and Achieving Them

March 3, 2009The Art of Valuation

March 10, 2009What Makes a Great Investor Pitch

April 8, 2009*Secrets to Presenting a Winning Investment Pitch

May 5, 2009Midcourse Corrections

May 12, 2009Executing the Exit


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Our Speakers Tonight

• Ray Cohen, CEO, Symphony Medical & Fjord Ventures

• Greg Ruehle, CEO of Orange Coast Medical Ventures


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Ray Cohen Slideshow


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Flaming enthusiasm, backed up by horse sense and persistence, is the quality that most frequently makes for success. – Dale Carnegie

Reasonable men adapt to the world around them; unreasonable men make the world adapt to them. The world is changed by unreasonable men. – Edwin Louis Cole


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How to Prepare Your Medical Device Company for Acquisition

• Is it really a well understood business methodology?• The secret is………positioning for sale requires the same basic effort and

elements• Financial Buyers vs Strategic Buyers• Strategic buyers acquire either (i) fully baked businesses that are accretive or

(ii) technology that fits with their product portfolio• What is most important to strategic buyers? – “proof”• Revenue is not a necessary element• You and your people are probably redundant


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Elements of a Successful Medtech Start-Up Company• A highly motivated, effective and dynamic leader(s) that understands the concept

of “enrollment” • Novel concept or technology• Experienced advisors from specific field of endeavor

– Physicians, Researchers, Executives with start up experience, Regulatory expertise

• Large under-served market and detailed market research & analysis– How big is the market? what is indication for use? competition? Incremental product improvements

create products not companies - there is a distinction btwn a “technology platform” and a “Product”

• Intellectual property protection– Initial landscape analysis, filing provisional patents, enablement of invention

• A well conceived FDA regulatory strategy - 510(k)?, PMA?, Clinical Studies?

• Pre-clinical safety & efficacy data (bench data if device)• A concise and easy to understand PowerPoint presentation

– No one reads business plans!, 5 yr projections are useless


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Investment Capital

• Yes, you need it. Capital is the life blood of early stage and growth companies• Rule – Things always take longer and cost more than you think• Sources of Investment Capital

– Friends & Family, high net worth individuals– Incubators - The new concept for start ups– Professional “Angel” investors– Venture Capital

• Not all VCs are created equal • How do you get an introduction?

• The dilution dilemma – They don’t teach you in B-School is how 100% can turn into 1%

• Preferred Shares, Common Shares, Stock Options


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Growth Phase - Positioning the Company• Enroll the right people• Be lean, fast and capital efficient • Good science is critical – don’t take shortcuts• Focus on establishing proof that the product works• Focus on filing patents• Understand how and by whom similar products are sold to end users• Most early stage companies only prove that adoption is hard and devalue opportunity.• Hence, what are you alternatives?

• Consider an early sale of the Company!!!!• Consider a strategic partner to take product to market• Consider distributors (US vs Intl)• Consider direct sales to a limited market or geography

• If you plan on taking product to market, Revenue is the key value creator. Profit is not


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Critical Exit Elements Size of market must be clear Marketing survey of likely end users Proof of safety and efficacy Third party validation by key opinion leaders Intellectual property is protected

• issued patents are much more valuable than pending patents. If you have to buy someone’s issued patent that’s better than dancing around it

Bill of materials must be well understood Gross margin of product will drive the exit price


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Greg Ruehle Slideshow


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Orange Coast Medical Ventures


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OverviewOverview



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Orange Coast Medical Ventures Overview

– OCMV was the first incubator to be facilitated by

OCBIN*, a public benefit initiative of the University of

California at Irvine.

– OCMV was established to commercialize the inventions

of the faculty and researchers of UCI's Medical School

and the Southern California Medical Community.

* Orange County Business Incubation Network www.ocbin.org


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Board of Advisors– Greg Ruehle CEO – Orange Coast Medical Ventures

– Paul DeRidder, M.D. Tech Coast Angels

– Shiv Grewal Partner - Stradling, Yocca, Carlson & Rauth

– Jim Armstrong Managing Director, Clearstone Venture Partners

– Steve Wilson Finance

– James Hill, M.D. J.D. Partner – McDermott Will & Emery LLP

– Doug Bennett Oversight Committee Chair


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Media Coverage• Getting Ready to Launch

The Orange County RegisterMay 10, 2007

• The New Device IncubatorsStart-Up MagazineJune, 2007

• Incubator InnovatorsThe Frank Peters ShowOct. 1, 2007


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About UC Irvine and UCI Medical Center


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UC Irvine Facts & Figures• U.S. News and World Report: 13th Best Public University

in U.S.• 4 Nobel Laureates• $3.6 Billion Annual Economic Impact on OC• 27,000 Students• 1,900 Faculty• 8,800 Staff• Founded in 1965


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$0

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Income Invention Disclosures

UCI Invention Productivity


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The OCMV Ecosystem


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The OCMV Ecosystem

ServiceProviders

CorporatePartners Mentors

Investors

EconomicDevelopment

U.C.Irvine

OCMV

PortfolioCompany


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Corporate Partner Program

• Participate in OCMV ecosystem– Benefits from relationships with all

constituencies– Interact with UCI faculty & researchers


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Preferred Provider Program• Preferred provider to portfolio companies

• Limited # of preferred providers per category

• Participate in OCMV ecosystem – Gain leads from other OCMV participants


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Mentor Program• Consists of Experienced Executives

– Investors– Service Providers– Corporate Partners– Individuals

• Pro Bono Guidance During Incubation• Potential for Employment or Contracts


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Paths to CommercializationIndependentEntrepreneur Other OCMV

Incubation

Management Entrepreneur Entrepreneur with Mentoring

Recruited/Entrepreneur

Funding Entrepreneur Introductions Provided Provided by Incubator

Providers Entrepreneur Introductions Provided Preferred Providers

Business Plan Entrepreneur Plan Review Process Co-developed with Incubator

Dilution No Yes Yes


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Investing In OCMV


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Investment Overview• OCMV is a Limited Partnership

– Invests in UCI and community inventions

• Investors Own shares in OCMV’s LP– Fund life: 3 years

• Share price: $125K– Variable discount for founding partners

• Participation in OCMV ecosystem


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Investors

Investment Allocation and Return

OCMV L.P.Portfolio

Companies

Investment

Returns

Seed Capital

Returns

Inventors Shareof License Fees

Salary

GovernmentAgencies

CorporatePartners

U.C. Irvine InventorsSalary

Grants

License andContractFees

Normal FlowOptional Flow

Returns

Series A, B…

Inventors Shareof License FeesInventors Shareof License Fees

GrantsInventors Shareof License Fees





License andContractFees



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Two Portfolio ModelsVirtual Company

No payrollPossible equity for contractors

No office/lab needsIT equipment & hostingPrimary expense is T&ETransactional legal expensesMarketing expensesBudget up to $10K/quarter

Traditional Company2-3 paid staff

May be directed research grant

May need offices/lab spaceIT equipment and hostingT&ETransactional legal expensesMarketing expensesBudget up to $75K/quarter


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Vetting Process• Admission Criteria

– Intellectual property– Market size and growth rate– Scalability of company and technology– Sustainability– Key individuals - experience and skills

• Evaluation Process– Committee member becomes sponsor– Sponsor works with company to create pitch– Pitch delivered to full committee– Committee accepts, rejects or defers


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Greg Ruehle, CEOc/o Office of Technology Alliances380 University TowerUniversity of California, IrvineIrvine, CA. 92697-7700Office: 949-824-7295Cell: 949-212-1983Fax: 949-824-2899E-mail: [email protected]

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