Critical Success Factors

For A Medical Device Company

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Critical Success Factors

• Product idea • Business plan • Funding • Personal factors • People • Product development • FDA approval • Reimbursement • Product champions • Financial performance • Free “stuff” • Business protection • Stark law 4/26/2020 Dickson Consulting 2

Business Plan

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• Explains business vision. How you envision the company in 3-5 years.

• Need to understand market. Product need, market size, competition, technology application and differentiation. • Business plan should address all functional areas and fit them all together. Include financial plan-P/L, cash flow, balance sheet.

• Understand the risks and how to manage them.

• Enables review and evaluation of concept.

• Update strategy to reflect changing conditions. Adapt and be creative.

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Funding

• The best source of funding is $ not spent unnecessarily. Manage the cash. • Idea –sweat equity/angel funding • Product development and marketing-venture capital/government grants • Company growth-venture capital and foreign market IPO • Investor exit strategy-IPO or sale of company • Mature product-R&D and acquisitions 4/26/2020 Dickson Consulting 4

Personal Factors

• Emotional intelligence • Family support • Leadership skills/make tough decisions • Functional, few negative distractions • Value relationships/ maintain network • Determination • Personal ethics • Ability to communicate • Ability to execute/project management 4/26/2020 Dickson Consulting 5

People

• Need for domain experience • Product champion/scientist • Medical advisory board • Board of directors – Advisors – Corporate governance • Product development/ engineering • Process development/FDA approval/quality • Sales and marketing • Clinical • Funding/financial • Legal-patent, regulatory, corporate 4/26/2020 Dickson Consulting 6

Product Development

• Engineering • Clinical trials/PMA • Subsequent changes – 510k process – Letters to file 4/26/2020 Dickson Consulting 7

FDA Approval

• Europe vs. USA • Product approval-510k process • Manufacturing process approval – June 15, 2006 update by FDA • Quality control process approval • Marketing restrictions--off-label use 4/26/2020 Dickson Consulting 8

Product Champions

• Doctors, doctors, doctors • Hospital • Other medical professionals • Nurses • Professional papers • Speeches • Conferences • News releases 9 4/26/2020 Dickson Consulting

Need for Reimbursement

• Hospitals need to be paid • Doctors need to be paid • Medical device company needs to be paid • Increasingly tight reimbursement policies • Best options from an investors perspective:  Product category is already approved for reimbursement  Breakthrough must offer such compelling clinical benefits and cost reduction that the reimbursement process will be as smooth as possible. 4/26/2020 Dickson Consulting 10

Reimbursement in Business Plan

• Begin planning for reimbursement strategy at the earliest stages of the company formation; it should be a fundamental part of the business plan.

• Consider the data requirements for supporting a reimbursement submission when formulating clinical trials. The data to support reimbursement may be significantly different than the clinical data. • Work with an expert on reimbursement strategy:  Regulations are extremely complex  Rules and winning strategies change frequently  Must stay abreast of best practices  Focus is on economics of a procedure, not just clinical outcome. 4/26/2020 Dickson Consulting 11

Reimbursement Cycle

• Detailed understanding of process is needed.

• DRG’s/CPT’s established to

DRG For Hospital

provide for reimbursement

Payment For Medical Device

• Can device company provide guidance on DRG and CPT to be used?

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CPT for Doctor’s Services

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What Are DRG’s/CPT’s?

• DRG – Diagnosis Related Group – Developed by CMS – CMS=Centers for Medicare & Medicaid Services – Reevaluation/new rules currently underway-October 2006 • CPT Code – Current Procedural Terminology – Developed by American Medical Association – Requests for changes presented to committee • Payments based on what is “normal, customary and reasonable” as determined by CMS or insurance provider.

• Frequently also used by private insurers for reimbursement.

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Financial Performance

• Cash flow. Cash is king!!

• Market penetration = revenue growth • Salespersons – feet on the street to grow revenue • Revenue growth vs. income sometime contradictory!!

• R&D expense-how much is being invested and in what?

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“Free” Stuff

• Web sites and news releases of competitors • Analyst reports on industry and competitors • Web sites of regulatory agencies and trade associations – FDA=www.fda.gov

– CMS=www.cms.hhs.gov

– AMA=www.ama-assn.org

– AdvaMed=www.advamed.com

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Business Protection

• Patents • Trade secrets • Trademarks • Noncompete agreements • Nondisclosure agreements • Code of ethics 4/26/2020 Dickson Consulting 16

Sales, Marketing and Clinical

• Sales vs. clinical • Is marketing necessary?

• Who does a doctor want to talk to?

• Relationship building 4/26/2020 Dickson Consulting 17

Hospital 4/26/2020 Doctor

Stark Laws

• Address consulting and professional relationships between doctors and companies. • Example of risk-U.S. Department of Justice subpoenas issued to orthopedic companies.

Device Company Dickson Consulting 18

Stark Law’s Basic Prohibitions

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A physician cannot:

Make a referral To an entity For the furnishing of “designated health services” The may be payable by Medicare or Medicaid (or insurance companies in some states) If the physician (or the immediate family member of the physician) Has a direct or indirect financial relationship with the entity Unless an exception to the Stark laws applies 4/26/2020 Dickson Consulting 19

Ten Perceptions That Can Kill A Company

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You have a great idea and raising money will not be a problem.

You can get it done quickly and at a low cost.

Dilution is a bad thing.

You have the best talent on the street.

You do not need patent protection, the trade secrets are significant.

“Build it and they will come.” Success in the market is totally based upon technology superiority. It is a low risk and expedited regulatory pathway.

Scientific founders should continue as CEO forever.

Management and boards are strategically aligned.

Venture capitalists like risk and have unlimited funding. 4/26/2020 Dickson Consulting 20

Success

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