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 – 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 – 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 2007 150 Deals 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

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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 • • • • • • • 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 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

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

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

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

• • • • • • • • • 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

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

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

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

Orange Coast Medical Ventures

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Students to Start-ups

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 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

Greg Ruehle

CEO – Orange Coast Medical Ventures –

Paul DeRidder, M.D.

Tech Coast Angels –

Shiv Grewal

–

Jim Armstrong

–

Steve Wilson

–

James Hill, M.D. J.D.

–

Doug Bennett

Partner - Stradling, Yocca, Carlson & Rauth Managing Director, Clearstone Venture Partners Finance Partner – McDermott Will & Emery LLP Oversight Committee Chair Orange Coast Medical Ventures

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

•

Media Coverage

Getting Ready to Launch

The Orange County Register May 10, 2007 •

The New Device Incubators

Start-Up Magazine June, 2007 •

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

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Students to Start-ups

Entrepreneurial Skills Workshop Series

• • • • • • •

UC Irvine Facts & Figures

U.S. News and World Report: 13 th 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

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Students to Start-ups

Entrepreneurial Skills Workshop Series

UCI Invention Productivity

$12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 Income Invention Disclosures Orange Coast Medical Ventures 200 180 160 140 120 100 80 60 40 20 0

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 U.C.

Irvine Corporate Partners OCMV Portfolio Company

Orange Coast Medical Ventures

Economic Development Service Providers Mentors

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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 – 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 Providers Entrepreneur Entrepreneur Introductions Provided Introductions Provided Provided by Incubator Preferred Providers Business Plan Entrepreneur Plan Review Process Co-developed with Incubator Dilution No Yes Yes Orange Coast Medical Ventures

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

Investing In OCMV

Orange Coast Medical Ventures

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Students to Start-ups

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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 Orange Coast Medical Ventures

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

Investment Allocation and Return

Series A, B… Investors Investment Returns OCMV L.P

.

Seed Capital Returns Portfolio Companies Salary Returns Government Agencies Corporate Partners Orange Coast Medical Ventures U.C. Irvine Salary Inventors Normal Flow Optional Flow

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

Two Portfolio Models

Virtual Company Traditional Company

 No payroll  Possible equity for contractors  No office/lab needs  2-3 paid staff  May be directed research grant  May need offices/lab space  IT equipment & hosting  Primary expense is T&E  Transactional legal expenses  Marketing expenses  Budget up to $10K/quarter  IT equipment and hosting  T&E  Transactional legal expenses  Marketing expenses  Budget up to $75K/quarter Orange Coast Medical Ventures

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

• •

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 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