04/20/23

Valuing Early Stage Medical Technology

Stephen T. Parente, Ph.D.Minnesota Insurance Industry Chair of Health Finance

Professor, Finance, University of MinnesotaDirector, Medical Industry Leadership Institute

April, 2012

Agenda

• What’s the problem (and gamble)?• Can research universities serve as medical

technology incubators?• One university solution:

A Medical Innovation Valuation Laboratory• Valuation overview• Critical ingredients• Case example• Strategic metrics of success

What’s the Problem?

• Medical Technology pipeline is not optimal at present.

• Investors look to universities to be a possible channel for medical technology pipeline.

• Investors frustrated by slow and diffuse innovation generation process at universities.

• Universities (private/public) frustrated by budget challenges and prefer secure, diffuse funding sources.

Universities as Medical Technology Incubators? Past- Yes; Future- Gamble• University Defined:

– An institution for higher learning with teaching and research facilities constituting a graduate school and professional schools that award master's degrees and doctorates and an undergraduate division that awards bachelor's degrees.

• ‘First’ American University candidates– Harvard University: Medical school in 1780 gave it University status in 1781– William and Mary College: Law school in 1779 and first chairs in Medicine &

Chemistry– University of Pennsylvania: Pennsylvania state charter with University in its

name 1765– Yale University: First doctoral degree granted in 1861 (though the dissertation

was 6 pages long)– Georgetown University: First graduate degree in 1821.– Johns Hopkins University: First ‘research university’ .

First American Research University Transplant: Johns Hopkins University

Transplanted from Who

University of Bologna, 1088 University of Berlin, 1810

What is the Purpose of a Research University Then &

Now? Government and Philanthropic resources provided

for:A. EducationB. Economic developmentC. Societal wealth creationD. All of the Above

A 21st Century Opportunity for Economic Development

• The modern University Production Function– Education– Knowledge creation– Intellectual property (IP) and innovation for

sale, license or use

• Squaring with research university intent:– Revenue from IP and innovations permits tuition

to be kept at a level affordable to all.– Students gain knowledge through coursework

and creation of new knowledge & products

Knowledge Creation / Revenue Competition beyond University

Walls• Common economic challenges

– Revenues tied to fiscal health of region/state/nation– Workforce expenses hire than general inflation

• Common solutions– University/corporate business park(s)

• Bio-business parks galore

– Executive/continue education– Activist philanthropic ‘sharp shooters’– Global outreach / revenue seeking– ‘Soft money’ funding of research positions that are

underfunded without continued funding

Land Rush for ‘Public’ Bio Science Parks

U of M(N)

Other U of M(I)

Other other U of M(D)Wisconsin

Private University Competition

Harvard

U Penn

Yale

Northwestern

Gloves are Off: High Risk/Reward

• National Institute of Health $$ to fund salaries and indirect fees.

• Look for spin-offs from grant research.• Use ‘Technology Commercialization’ to

sell/license for revenues.• Balance research/discovery/peer review

against projection of IP• Incubator $$ can be tough. • Competition from corporate labs as well.

All Looking for a Prize in Crowded New Medical Technology

Market

Want this

Probably not this

Q: Why a Medical Innovation Value Laboratory? A: Hedge the Gamble

• What a quick way to validate early medical technology that is University based or related.

• The Valuation Lab initiative revisits this original conception of the Publicly Research University – economic opportunity - where the combined talents of several separate colleges at the University would provide the human intellectual capital to identify opportunities in medical innovation that advantage economic development.

Medical Valuation Laboratory (MVL) Research University Core Parts

• Signed memorandum of agreement from 8 colleges to engage students in their schools including:

1. B-School: Carlson School of Management2. College of Liberal Arts3. Institute of Technology4. Law School5. School of Medicine6. School of Nursing7. School of Pharmacy8. School of Public Health

• Full-time Laboratory managing director• Faculty co-directors• University faculty/expertise through ad hoc market rate contract

consulting agreements

It only took 5 months to sign….

Laboratory’s customers

• University scientists, physicians, engineers with new ideas for an innovation or a process.

• Service/technology innovators, including:• Mayo clinic telehealth program to extend specialist consults• Insurer telehealth to provide cost avoiding dx management.• iPhone medical applications and services• Jacksonville engineer with a new polymer to reduce rate of

tissue rejection of implantable medical devices• Since 2008, 95 laboratory projects have been completed• Current product rate is 30 valuations per year.

Range of Valuation Projects

:

From Hypothetical to Real in 1 Year

Valuation “why does it matter”?

“Absence of sufficient financial means will relegate the most promising business concept to the category of “great unrealized ideas”

Definitions

• Value: An amount considered to be a suitable equivalent for something else.

• Valuation: The process or method for assessing the value of something.

Current Medical Technology Trends

Money is hard to raise Valuations are lower Terms sheets are more complex Expectations on “time to market” and “time to exit”

are considerably longer Exit options are essentially limited to M/A______________________________________________ Good ideas will get funded Innovation increases during difficult economic

times

Seed Seed StageStage

Early StageEarly Stage

Expansion StageExpansion Stage

Late StageLate Stage

Early Adopter Customers

Early Majority CustomersEarly Majority Customers

Late Majority Customers

Innovation Customers

Friends & Family

Angels

Institutional - VCs

Public Market

Emerging Business “Blueprint”Emerging Business “Blueprint”Based on “Crossing The Chasm”

By: Geoffrey Moore

Medical Industry Valuation

Example

NeoChordAmy Raatikka

Andrew Senn

Ilya Pekurovsky

Kimberly Beyer

Kristen Spargo

Obvious Cautions from Lab

• Intellectual property rights are not the same throughout the world.

• Capital cost and investment has potential unfair subsidy in different countries.

• Human capital exchange could leave some countries winners and some losers.

• BUT, the humanity always benefits from competitive innovation.

Lab Strategic Metrics of Success

• Human capital to create extraordinary disruptive innovations increases

• Worldwide patents on extraordinary innovations increase

• Medical innovations that are not only cost-effective, but cost-saving

• Medical innovations that not only increase the longevity of life, but the quality of that longevity as well