How to Prepare Your Medical Device Company for Acquisition

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The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
How to Prepare Your Medical
Device Company for Acquisition
Process Overview
February 17, 2009
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
What Animates Your Career?
• Chance, Choice, Change and Challenge*
• 5 “at-bats”
• Combination of base hits, strike-outs and
homeruns
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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?
*Jonas Salk, Man Unfolding, 1972
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Why this Series?
• Entrepreneurship is about making an impact
• An acquisition might be your career highlight
• Leveraging Orange County’s natural strengths
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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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Medical Devices M&A
2006
150 Deals
2007
191 Deals (+27%) $57.9B
$53.3B
(+8.6%)
Aggregate 2007 M&A = 90x Aggregate 2007 IPOs
Source: Levin Associates Healthcare M&A Information Service, January 2008
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Your Game Plan for Success
February 17, 2009
How to Prepare Your Medical Device Company for Acquisition: an Overview
February 24, 2009
Envisioning Milestones and Achieving Them
March 3, 2009
The Art of Valuation
March 10, 2009
What Makes a Great Investor Pitch
April 8, 2009*
Secrets to Presenting a Winning Investment Pitch
May 5, 2009
Midcourse Corrections
May 12, 2009
Executing the Exit
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Our Speakers Tonight
• Ray Cohen, CEO, Symphony Medical & Fjord
Ventures
• Greg Ruehle, CEO of Orange Coast Medical
Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Ray Cohen Slideshow
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
How to Prepare Your
Medical Device Company for Acquisition
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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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Elements of a Successful Medtech Start-Up Company
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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
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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”
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Intellectual property protection
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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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Investment Capital
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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
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Friends & Family, high net worth individuals
Incubators - The new concept for start ups
Professional “Angel” investors
Venture Capital
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The dilution dilemma
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Not all VCs are created equal
How do you get an introduction?
They don’t teach you in B-School is how 100% can turn into 1%
Preferred Shares, Common Shares, Stock Options
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Growth Phase - Positioning the Company
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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?
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Consider an early sale of the Company!!!!
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Consider a strategic partner to take product to market
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Consider distributors (US vs Intl)
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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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Critical Exit Elements
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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
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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
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Greg Ruehle Slideshow
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Orange Coast Medical Ventures
Overview
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Orange Coast Medical Ventures
Overview
Entrepreneurial Skills Workshop Series
– 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 Coast Medical Ventures
* Orange County Business Incubation Network www.ocbin.org
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Board of Advisors
CEO – Orange Coast Medical Ventures
– Greg Ruehle
– 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
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Media Coverage
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Getting Ready to Launch
The Orange County Register
May 10, 2007
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The New Device Incubators
Start-Up Magazine
June, 2007
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Incubator Innovators
The Frank Peters Show
Oct. 1, 2007
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
About UC Irvine and UCI
Medical Center
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
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
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
UCI Invention Productivity
$12,000,000
200
180
$10,000,000
160
140
$8,000,000
120
100
$6,000,000
80
$4,000,000
60
40
$2,000,000
20
0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
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20
07
19
95
$0
Income
Orange Coast Medical Ventures
Invention Disclosures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The OCMV Ecosystem
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The OCMV Ecosystem
Investors
Corporate
Partners
Economic
Development
Orange Coast Medical Ventures
U.C.
Irvine
OCMV
Mentors
Portfolio
Company
Service
Providers
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Corporate Partner Program
• Participate in OCMV ecosystem
– Benefits from relationships with all
constituencies
– Interact with UCI faculty & researchers
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Preferred Provider Program
• Preferred provider to portfolio companies
• Limited # of preferred providers per category
• Participate in OCMV ecosystem
– Gain leads from other OCMV participants
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Mentor Program
• Consists of Experienced Executives
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Investors
Service Providers
Corporate Partners
Individuals
• Pro Bono Guidance During Incubation
• Potential for Employment or Contracts
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Paths to Commercialization
Independent
Entrepreneur
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
No
Yes
Yes
Dilution
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Investing In OCMV
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
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
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Investment Allocation and Return
Series A, B…
Investment
Investors
Seed Capital
OCMV L.P.
Returns
Returns
License and
Contract
Fees
Government
Agencies
Salary
Returns
Salary
Grants
U.C. Irvine
Inventors
Inventors Share
of License Fees
Corporate
Partners
Orange Coast Medical Ventures
Portfolio
Companies
Normal Flow
Optional Flow
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Two Portfolio Models
Virtual Company
No payroll
 Possible equity for contractors
Traditional Company
2-3 paid staff
 May be directed research grant
No office/lab needs
May need offices/lab space
IT equipment & hosting
IT equipment and hosting
Primary expense is T&E
T&E
Transactional legal expenses
Transactional legal expenses
Marketing expenses
Marketing expenses
Budget up to $10K/quarter
Budget up to $75K/quarter
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Vetting Process
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Admission Criteria
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Intellectual property
Market size and growth rate
Scalability of company and technology
Sustainability
Key individuals - experience and skills
Evaluation Process
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Committee member becomes sponsor
Sponsor works with company to create pitch
Pitch delivered to full committee
Committee accepts, rejects or defers
Orange Coast Medical Ventures
The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
Greg Ruehle, CEO
c/o Office of Technology Alliances
380 University Tower
University of California, Irvine
Irvine, CA. 92697-7700
Office: 949-824-7295
Cell: 949-212-1983
Fax: 949-824-2899
E-mail: [email protected]
Orange Coast Medical Ventures
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