White Pine Medical, Inc.
4th Annual Translational Medicine Symposium
FEBRUARY 11 & 12, 2014
Dan Lemaitre
Dan@whitepinemedical.com
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Agenda
• Medical Device Retrospect and Prognosis
• The Demise of Traditional Venture Capital
• What is An Innovator to Do?
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Executive Summary
• Medical device industry revenue growth will remain tepid
• Emerging market focus will siphon R&D spending required
to fund new products
• Traditional venture capital market is dead, hurt by
prolonged development and approval cycles
• Innovator options:
• Run lean, particularly early-on
• Strategics, although fraught with peril
• Private company platforms that have scale/cash flow
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A Brief History of, and the Outlook for,
the Medical Device Industry
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“Cost Plus” Reimbursement Prior to 1983
Industry revenue
growth ~20%
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Prospective Payment System Launched in 1983
Diagnostic Related
Group slows industry
growth to ~10%
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“Failed” Clinton Reform Led to “Managed Care”
Industry
growth slowed
to ~3% in part
because….
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FDA Raised the Regulatory Hurdle Bar
…David Kessler
effectively
“shutdown” the
FDA by demanding
randomized
prospective clinical
trials for PMA
devices
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Industry Growth Peaked in 2003-2005
Cardiac
Resynchronization
Therapy (CRT) and
Drug Eluting Stents
(DES) lift industry
growth to ~15%
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Recalls, Safety Concerns Stymie Growth
Industry growth now in
the 2-4% vicinity
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Disintermediation of Physicians & Vendors
Traditional source of
medical device
innovation is
Bedside to Bench
which is now being
disrupted by hefty
scrutiny i.e. The
Sunshine Act
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Evidence Based (i.e. Cookbook Medicine)…
Accountable Care
Organizations will
likely result in more
“conservative” care
under the guise of
“patient safety”
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…Where Less is More
Surgeons, historically
incentived to do more,
will be motivated to do
“better” with less
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Physicians Staff Models Further Align Interests
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Companies Shifting Focus to Emerging Markets
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Which Is Apt to Be Profitless Prosperity
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Medical Device Industry Summary
• Industry growth will continue to be lethargic due to:
• More conservative, evidence-based care
• Alignment of physician and payers interests
• Disintermediation of physician/vendor relationships
• Emerging market focus will syphon R&D spending
• Developed markets will further atrophy given lack of new
products, pricing will worsen
• Industry will eventually need to return to “new product
roots”
• Hence, a superb time to be developing new products
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Developing Products in a Brave New World
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Traditional Venture Model is Broken
• Historically, highest returns went to Series A investors:
• Logical given higher risk profile of early stage
• Series B investors provided “tasteful” step-up
• Exit in 3-5 years with ~$50MM in total invested
• Regulatory cycles lengthening, requiring higher levels of
funding and multiple rounds
• Inability to capture higher investment in pricing, hence
returns have dwindled
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Requisite FDA Bashing Slide
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PMA Development Times > Than VC Fund Cycle
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Returns Improving Mostly Due to Technology
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Now in a “Vulture Capital” Climate Where…
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…Liquidity Preferences Dictate Returns
Last money in
typically get a 2x
return before earlier
investors participate
in an exit
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As Such, Even the “Angels” are Late Stage
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So What Is An Innovator To Do?
It’s not enough to
know which way the
wind is blowing, you
need to know what
difference it makes
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Option 1: Run Lean By Outsourcing
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Option 2: Partner With Strategics
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Strategics Not The Best “Early” Investors
• Strategics don’t have
ability to call “audibles”
• Often don’t participate in
follow-on rounds
• Orphan deals created by
senior executive turnover
• Exit complicated if rights
have been granted
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Option 3: Private Company with Scale/Cash Flow
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In sum…
• Medical device industry revenue growth will remain tepid
• Emerging market focus will siphon R&D spending required
to fund new products
• Traditional Venture Capital market is dead, hurt by
prolonged development and approval cycles
• Innovator options:
• Run lean, particularly early-on
• Strategics, although fraught with peril
• Private Company platforms that have scale/cash flow
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Thank You
Dan@whitepinemedical.com
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Appendix
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Medical Device Revenue Growth
Average Large-Cap MedTech Organic
Revenue Growth
9.0%
Organic Revenue Growth
8.0%
8.3%
7.9%
7.7%
7.0%
6.0%
5.0%
4.4%
4.0%
4.0%
3.5%
3.3%
2011
2012
3.6%
3.0%
2.0%
1.0%
0.0%
2006
2007
2008
2009
2010
2013E
Year
Source: JP Morgan
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Revenue Growth Drives Valuations
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