Inventing & Funding High-Impact Medical Innovations Zen Chu CIMIT Forum Harvard Medical School April, 2008 © zen@acmedx.com

Discipline of Clinical Innovation Physician/inventor & role on the team Innovation landscape High-impact innovation Matching opportunity to funding and teams Disciplined development process Techniques for clinical innovation Venture capital panel discussion & examples © zen@acmedx.com

Physician/inventor & role on the team

Innovation landscape

High-impact innovation

Matching opportunity to funding and teams

Disciplined development process

Techniques for clinical innovation

Venture capital panel discussion & examples

Innovation without Impact is Worthless “ Unmet Clinical Needs” Cliché, not useful metric “ Translational Medicine” must strive to become Standard of Care © zen@acmedx.com

“ Unmet Clinical Needs”

Cliché, not useful metric

“ Translational Medicine” must

strive to become Standard of Care

High Impact Innovation Starts & ends with clinical efficacy High enough value to overcome: Development through clinical trials & FDA Cost, learning curves, doctor/patient behaviors Economic justification critical Forward-compatible with entire value chain “ Don’t fight forces, use them” - R. Buckminster Fuller © zen@acmedx.com

Starts & ends with clinical efficacy

High enough value to overcome:

Development through clinical trials & FDA

Cost, learning curves, doctor/patient behaviors

Economic justification critical

Forward-compatible with entire value chain

“ Don’t fight forces, use them” - R. Buckminster Fuller

Pattern of Successful Medical Products [email_address] Prove Effective Therapies for Right Patient Unmet Medical Need Remove treatment ambiguity Improve Standard of Care Comparative Effectiveness Prove it quickly & efficiently Productivity = Save Physician Time Reduce Patient Pain Enable New (Cheaper) Provider & Venue Intellectual Property (Patents, trademarks, brand) Lower Cost Necessary But Insufficient

Prove Effective Therapies for Right Patient

Unmet Medical Need

Remove treatment ambiguity

Improve Standard of Care

Comparative Effectiveness

Prove it quickly & efficiently

Productivity = Save Physician Time

Reduce Patient Pain

Enable New (Cheaper) Provider & Venue

Intellectual Property (Patents, trademarks, brand)

Lower Cost

Clinician Innovators Critical to Medical Technology 22% of surgeons innovate - von Hippel, 2003 Physician-invented = higher impact - Chatterji, 2008 99/100 top Medtronic products originated by MDs © zen@acmedx.com Anticipate Path Standard of Care

22% of surgeons innovate - von Hippel, 2003

Physician-invented = higher impact - Chatterji, 2008

99/100 top Medtronic products originated by MDs

Physician’s View of Value © zen@acmedx.com Time Market Introduction FDA Approval Patent grant First in Man Animal testing Patent disclosure Prototype/Reduction to Practice Idea Milestones Value Conflicts of Interest perceived & real Hand off to Licensing office

Investor’s View of Value © zen@acmedx.com Value Time Milestones Acquisition/IPO Exit Reimbursement Published clinical results Market Introduction Salesforce hired Europe & Japan distribution FDA Approval Manufacturing ramp Human pivotal study Corporate partnership First human data First Hiccup & Danger of Momentum Loss Management team hired Pilot manufacturing Patent grant First FDA meeting Regulatory opinions CEO hired Animal testing Clinician feedback Patent disclosure Prototype/Reduction to Practice Market Analysis Idea Anticipate Potential Exits

Investor’s View of Risk © zen@acmedx.com Value Time Milestones Technology Risk Management Risk Regulatory Risk Market Risk Reimbursement Risk Address These First

Typical Early-Stage Medical Failure Non-optimal Design Process, Clinical Focus Technology-focused origin => Solution looking for a clinical problem Wedded to technology, scientific & engineering bias among founders Initial patents filed prematurely Tech focused rather than clinical approach Prior art poorly mapped & early IP overvalued Funding raised, paths & milestones committed, expectations set Regulatory path not mapped Consultant opinion, but little FDA feedback Clinical endpoints and patient recruitment either too slow or not clear Lack of predictive & robust animal models Clinical feedback not complete Clinical need, economics, practice implications, design prototypes Solution not matched to expedited proof and approval paths Clinical Advisors not matched with staged milestones Too late to give meaningful feedback on chosen roadmap Feedback doesn’t impact design modifications Respected names promoted, but feedback mismatched to stage Advisors used in early development dropped later for clinical phases © zen@acmedx.com

Technology-focused origin => Solution looking for a clinical problem

Wedded to technology, scientific & engineering bias among founders

Initial patents filed prematurely

Tech focused rather than clinical approach

Prior art poorly mapped & early IP overvalued

Funding raised, paths & milestones committed, expectations set

Regulatory path not mapped

Consultant opinion, but little FDA feedback

Clinical endpoints and patient recruitment either too slow or not clear

Lack of predictive & robust animal models

Clinical feedback not complete

Clinical need, economics, practice implications, design prototypes

Solution not matched to expedited proof and approval paths

Clinical Advisors not matched with staged milestones

Too late to give meaningful feedback on chosen roadmap

Feedback doesn’t impact design modifications

Respected names promoted, but feedback mismatched to stage

Advisors used in early development dropped later for clinical phases

Myth of the Lone Inventor Initial invention & patent is only 1 st step Value created far beyond lab or operating room Success takes Team, Experience, Focus Partnership toward common goals 10,000 ways to fail if mismatched “ I have not failed. I've just found 10,000 ways that won't work.” - Thomas Edison © zen@acmedx.com

Initial invention & patent is only 1 st step

Value created far beyond lab or operating room

Success takes Team, Experience, Focus

Partnership toward common goals

10,000 ways to fail if mismatched

“ I have not failed. I've just found 10,000 ways that won't work.” - Thomas Edison

“ Physicians and engineers often have no sense of the requirements to create a company…In a start up environment, more is not always better. Hiring the appropriate people at the right time can determine success or failure.” - Thomas Fogarty, MD – Founder & investor in over 30 medical companies Professor of Surgery, Stanford University [email_address]

Building Teams What’s your desired role? Understand own strengths & weaknesses Match milestones to right people & skills Choose & pay for the best people Analytical, revisit assumptions Honesty amid new information Agile of mind & adaptable View Board & Investors as Partners Maintain focus [email_address]

What’s your desired role?

Understand own strengths & weaknesses

Match milestones to right people & skills

Choose & pay for the best people

Analytical, revisit assumptions

Honesty amid new information

Agile of mind & adaptable

View Board & Investors as Partners

Maintain focus

Cultural Barriers to Med Innovation Interdisciplinary collaboration takes extra effort Culture of Academic & Clinical Research Grant and publishing mentality Leads to secrecy, slow progress Defining Conflicts of Interest too broadly (Stossel, NEJM 2005) Fear of Failure Better to fail quickly and learn faster Experimental Model Bias Human data of efficacy paramount Only use predictive animal models that FDA accepts Physician’s acceptance of current Standards of Care Overvaluing initial Intellectual Property & Patents [email_address]

Interdisciplinary collaboration takes extra effort

Culture of Academic & Clinical Research

Grant and publishing mentality

Leads to secrecy, slow progress

Defining Conflicts of Interest too broadly (Stossel, NEJM 2005)

Fear of Failure

Better to fail quickly and learn faster

Experimental Model Bias

Human data of efficacy paramount

Only use predictive animal models that FDA accepts

Physician’s acceptance of current Standards of Care

Overvaluing initial Intellectual Property & Patents

Development Best Practice © zen@acmedx.com Value Time Milestones Acquisition/IPO Exit Published clinical results Market Introduction Salesforce hired Europe & Japan distribution FDA Approval Manufacturing ramp Human pivotal study Corporate partnership First Hiccup & Momentum Loss Management team hired Pilot manufacturing Patent grant First FDA meeting Regulatory opinions CEO hired Animal testing Clinician feedback Patent disclosure Prototype/Reduction to Practice Market Analysis Idea 2) Hire team & Execute 1) Plan in Reverse

Traction for New Technology Best to start with clinical need, but… Many start with new technology and look for applications Beware of inventor bias and blinders Map tech advantages to clinical apps Key sustainable advantages Clinical trends that will drive adoption Beware learning curves, adoption barriers [email_address]

Best to start with clinical need, but…

Many start with new technology and look for applications

Beware of inventor bias and blinders

Map tech advantages to clinical apps

Key sustainable advantages

Clinical trends that will drive adoption

Beware learning curves, adoption barriers

Innovation Landscape “ If you don’t know where you are going, you might end up someplace else.” - Yogi Berra - [email_address]

“ If you don’t know where you are going, you might end up someplace else.” - Yogi Berra -

Innovation Landscape Match Resources to Opportunity Size Market Size of Opportunity Low Capital Required High Big Opportunities Complex Solutions, Fragmented Services Philanthropy/NIH Basic Research Unknown Mechanisms $100MM $500MM © zen@acmedx.com Large Established Companies May Discover New Applications & Technologies Venture-Backed Companies Focused Teams to Prioritize, Execute Equity Discrete Product Product-Line Extensions License or Product Acq Royalties May Discover New Larger Opportunities

Market Size of Opportunity

Innovation Landscape Match Resources to Opportunity Size Philanthropy/NIH Basic Research Unknown Mechanisms Gates Foundation Off-Label Uses Ortho Lumbar Disc Market Size of Opportunity Low Capital Required High Big Opportunities Complex Solutions, Fragmented Services $100MM $500MM © zen@acmedx.com Stem Cells RNAi for AMD Cystic Fibrosis Ischemic Stroke Gastric Bypass Unfocused & Requires Segmentation Aortic Abdominal Aneurysm

Market Size of Opportunity

Incremental vs Breakthrough © zen@acmedx.com METRIC INCREMENTAL BREAKTHROUGH Funding $$ $$$$$$ Market Size Varies depending on funding needed >$500MM No current therapies Time Needed Adoption & Exit Shorter Match opportunity to strategy Longer Regulatory path dependent Value @ Exit Less More Major Risks Window of opportunity Execution quality & critical path Competition Technical/Clinical unknowns Market adoption hurdles Reimbursement Success Factors Focused execution Management experience Manufacturing economics Patents, Franchise Value Market adoption, Std of Care Investor expectations Patent Protection Less More Competition More Less

Valuable Incremental Products Huge companies built on incremental innovations Fast followers can succeed Fill existing company’s product line in hot strategic areas Match best mode, milestones & resources Creating a company may doom product © zen@acmedx.com

Huge companies built on incremental innovations

Fast followers can succeed

Fill existing company’s product line in

hot strategic areas

Match best mode, milestones & resources

Creating a company may doom product

Time is Life © zen@acmedx.com ACCELERANT DECCELERANT REGULATORY Device 510(k) Predictive animal models New materials & claims Unclear endpoints CLINICAL Existing human data Reproducible published studies Non-superiority Entrenched behavior No practice benefit REIMBURSEMENT Existing Codes DRGs Private-pay, consumer Cost-Benefit Studies MARKET Reduce skills needed Physician buying power Unambiguous diagnostic Capital equipment purchase SALES Focused physician popul. Existing distribution Learning curves Entrenched behavior

Getting Paid Reimbursement & Payments Map at earliest stages of business planning How will physician & hospitals be paid? Analyze economics of overall procedure costs, venue & productivity Basis of Value Proposition to Payers, Providers, Partners Ideal Payment Situations To Reduce Risk Existing DRG (Diagnosis Related Group) for hospital fees Existing CPT codes (Current Procedural Terminology) for physician fees Generating new codes can form competitive barrier, but at increased cost and time to market [email_address]

Reimbursement & Payments

Map at earliest stages of business planning

How will physician & hospitals be paid?

Analyze economics of overall procedure costs, venue & productivity

Basis of Value Proposition to Payers, Providers, Partners

Ideal Payment Situations To Reduce Risk

Existing DRG (Diagnosis Related Group) for hospital fees

Existing CPT codes (Current Procedural Terminology) for physician fees

Generating new codes can form competitive barrier, but at increased cost and time to market

Accelerants Amplify Clinical Impact & Return on Investment © zen@acmedx.com Value Cashflow Time Milestones $0 COMPRESS TIME TO MARKET FASTER CURES

Techniques to Identify New Opportunities & Invent New Cures “To have a great idea, have a lot of them.” Thomas Edison © zen@acmedx.com

“To have a great idea, have a lot of them.”

Thomas Edison

Simply put “Interventional” in the name Apply interventional techniques to a sleepy discipline Empower an aggressive specialty to disrupt another specialty Interventional pulmonology Interventional podiatry? © zen@acmedx.com

Apply interventional techniques to a sleepy discipline

Empower an aggressive specialty to disrupt another specialty

Interventional pulmonology

Interventional podiatry?

© zen@acmedx.com Michael Porter, tiesberg Economics drive innovation to interventions

Opportunities from Wider View Surgical Procedure Example Narrow View Implant choice Surgical prep Access Fixation Closure Broader Analysis Diagnostic Procedure venue Surgical tool or implant Easier customization Intraoperative feedback Confirmation of efficacy Easier revision, tuning Re-use service © zen@acmedx.com

Narrow View

Implant choice

Surgical prep

Access

Fixation

Closure

Broader Analysis

Diagnostic

Procedure venue

Surgical tool or implant

Easier customization

Intraoperative feedback

Confirmation of efficacy

Easier revision, tuning

Re-use service

Productize the Procedure Turn medical service/procedure into a repeatable product Efficacious, simpler, quicker, less skill Stomach stapling to Lap-Band © zen@acmedx.com

Turn medical service/procedure

into a repeatable product

Efficacious, simpler, quicker, less skill

Stomach stapling to Lap-Band

Remove Treatment Ambiguity Anticipate or create the Standard of Care Definitive diagnostics Procedure choice Implant & tool choice Quicker learning curves Effectiveness of intervention Recovery and maintenance Surgical revision rates © zen@acmedx.com

Anticipate or create the Standard of Care

Definitive diagnostics

Procedure choice

Implant & tool choice

Quicker learning curves

Effectiveness of intervention

Recovery and maintenance

Surgical revision rates

Driving Solutions & Costs Down Healthcare Value Chains Point of Care General Hospitals Out-Patient Facilities In-Office Care In-Home Care Provider Specialists General Physician Nurse Practitioners Self-Care © zen@acmedx.com Improves reimbursement economics Convenience, simpler use Complexity of diagnosis & Treatment Christensen Seeing What’s Next, 2004

Point of Care

General Hospitals

Out-Patient Facilities

In-Office Care

In-Home Care

Provider

Specialists

General Physician

Nurse Practitioners

Self-Care

Eliminate A Provider or Facility Heresy! Reduces procedure costs Accelerate payor approvals Creates economic headroom Examples Office procedure no anesthesiologist no operating room, quicker Posterior lumbar no vascular access surgeon © zen@acmedx.com Facility Fee Device Cost

Reduces procedure costs

Accelerate payor approvals

Creates economic headroom

Examples

Office procedure no anesthesiologist

no operating room, quicker

Posterior lumbar no vascular access surgeon

Compete at the Consumption Void Unique venue Different Unique provider Design Requirements Cleveland Clinic satellite cardio centers Spa/Cosmetic centers Condom catheter for home/self care Diagnostic nutritionists as referral channel © zen@acmedx.com

Unique venue Different

Unique provider Design

Requirements

Cleveland Clinic satellite cardio centers

Spa/Cosmetic centers

Condom catheter for home/self care

Diagnostic nutritionists as referral channel

Reframe the Need © zen@acmedx.com A better method to revascularize the heart - Thomas Krummel, MD Chief of Surgery, Stanford Medical Center

A better method to

revascularize the heart

- Thomas Krummel, MD

Chief of Surgery, Stanford Medical Center

Import Solutions Find publications & therapies outside USA with rigorous human efficacy data Ortho implants from Eastern Europe Embolic protection studies in EU © zen@acmedx.com

Find publications & therapies

outside USA with rigorous human efficacy data

Ortho implants from Eastern Europe

Embolic protection studies in EU

Value = Efficacy Invasiveness^2 Win with same efficacy, less invasive Natural orifice tranluminal endoscopic surgery (NOTES) Intuitive Surgical, robotic surgical tools Lithotripsy obviate kidney stone surgery © zen@acmedx.com

Win with same efficacy, less invasive

Natural orifice tranluminal endoscopic surgery (NOTES)

Intuitive Surgical, robotic surgical tools

Lithotripsy obviate kidney stone surgery

Identify Opportunity from Off-Label Usage © zen@acmedx.com

Disease has Process & Timeline Different Interventions in Lifecycle Match the clinician intervention to disease state at that particular stage Prevention Early Presentation & definitive diagnosis Full-blown disease & active intervention [email_address]

Match the clinician intervention to disease state at that particular stage

Prevention

Early Presentation & definitive diagnosis

Full-blown disease & active intervention

Feedback Loop Shortcuts Shorten the time between diagnosis and therapy Intraoperative imaging Rapid diagnostics Customizable implants © zen@acmedx.com

Shorten the time between

diagnosis and therapy

Intraoperative imaging

Rapid diagnostics

Customizable implants

Ride Down the Cost Curve Cheaper, Faster, Single-Use Minimum efficient manufacturing scale Modify outside technologies to jump onto another cost curve Leverage Moore’s Law for software/hardware performance © zen@acmedx.com

Cheaper, Faster, Single-Use

Minimum efficient manufacturing scale

Modify outside technologies to jump onto another cost curve

Leverage Moore’s Law for software/hardware performance

Simplify Unknowns & Process Cell therapies & tissue engineering Autologous vs allograft economics Complex & unknown mechanisms Host tissue integration Genzyme Carticel economic failure Reframe: View cells as biologic depots JNJ Growth factor concentrator Bedside autologous therapy via Device Model © zen@acmedx.com

Cell therapies & tissue engineering

Autologous vs allograft economics

Complex & unknown mechanisms

Host tissue integration

Genzyme Carticel economic failure

Reframe: View cells as biologic depots

JNJ Growth factor concentrator

Bedside autologous therapy via Device Model

Conclusion It’s not brain surgery… Success requires both MDs & MBAs working in concert to maximize clinical impact © zen@acmedx.com

Innovation is Spark… but Development drives Value Approach clinical innovation empirically Prioritize efforts in the landscape Map entire value chain & risks Align opportunity to funding and teams Analyze the economics to optimize impact & value © zen@acmedx.com

Approach clinical innovation empirically

Prioritize efforts in the landscape

Map entire value chain & risks

Align opportunity to funding and teams

Analyze the economics to

optimize impact & value

See One, Do One, Teach One Entrepreneurship can be learned Physician & biomedical inventors maximize their clinical impact by addressing business models along with clinical outcomes Zen @ acmedx.com

Entrepreneurship can be learned

Physician & biomedical inventors maximize their clinical impact by addressing business models along with clinical outcomes

Helpful Reading & Resources MEDICAL INNOVATION: Ferrari, Richard. Keys to Creating Value for Early-Stage Medical Device Companies . In Vivo: The Business & Medicine Report, 2005. 20 (10) Pisano, Gary. Science Business: The Promise, The Reality, and The Future of Biotech. 2006, Harvard Business Review Press. Stossel, Thomas. Regulating Academic–Industrial Research Relationships — Solving Problems or Stifling Progress? New England Journal of Medicine, 2005. 353: 1060-65. Center for Accelerating Medical Solutions. Investing in Innovation: Accelerating Disease Research Through Philanthropy and Business. www.fastercures.org , 2005. Community Wealth Partners. Venture Philanthropy 2002: Advancing Nonprofit Performance Through High-Engagement Grantmaking. www.vppartners.org , 2002. GENERAL HIGH TECH STRATEGY: Chesbrough, Henry. Open Business Models . 2006, Harvard Business School Press. Christensen, Clayton. The Innovator’s Dilemma . 1997, Harvard Business School Press. Christensen, Clayton, et al . Seeing What’s Next . 2004, Harvard Business School Press. Megantz, Robert. How to License Technology . 1996, John Wiley & Sons. Moore, Geoffrey. Crossing the Chasm . 1991, HarperCollins. Porter, M. and Teisberg, E. Redefining Healthcare: Creating Value-Based Competition on Results . 2006, Harvard Business School Press. © zen@acmedx.com

MEDICAL INNOVATION:

Ferrari, Richard. Keys to Creating Value for Early-Stage Medical Device Companies . In Vivo: The Business & Medicine Report, 2005. 20 (10)

Pisano, Gary. Science Business: The Promise, The Reality, and The Future of Biotech. 2006, Harvard Business Review Press.

Stossel, Thomas. Regulating Academic–Industrial Research Relationships — Solving Problems or Stifling Progress? New England Journal of Medicine, 2005. 353: 1060-65.

Center for Accelerating Medical Solutions. Investing in Innovation: Accelerating Disease Research Through Philanthropy and Business. www.fastercures.org , 2005.

Community Wealth Partners. Venture Philanthropy 2002: Advancing Nonprofit Performance Through High-Engagement Grantmaking. www.vppartners.org , 2002.

GENERAL HIGH TECH STRATEGY:

Chesbrough, Henry. Open Business Models . 2006, Harvard Business School Press.

Christensen, Clayton. The Innovator’s Dilemma . 1997, Harvard Business School Press.

Christensen, Clayton, et al . Seeing What’s Next . 2004, Harvard Business School Press.

Megantz, Robert. How to License Technology . 1996, John Wiley & Sons.

Moore, Geoffrey. Crossing the Chasm . 1991, HarperCollins.

Porter, M. and Teisberg, E. Redefining Healthcare: Creating Value-Based Competition on Results . 2006, Harvard Business School Press.

Sources of Critical Feedback BOSTON INSTITUTIONS Center for the Integration of Medicine & Innovative Technology (CIMIT) Robert Langer Chiefs of Hospital Departments Harvard Medical School Harvard-MIT Health Science & Technology Faculty & Advisors Harvard Business School Faculty Partners Healthcare Ventures Tech Licensing Offices MIT$100K leadership MIT Deshpande Center VCs & CORP DEVELOPMENT Leading East & West coast med tech VCs Med Tech Incubators/Acclerators Corporate Venturing groups Entrepreneurs on both coasts Windhover Publications Editor MA Governor’s Life Science Initiative OTHER INSTITUTIONS Gates Foundation Milken Foundation & FasterCures Stanford Biodesign Stanford Medical School Biomedical IDEA Competitions Yale University Medical School Faculty © zen@acmedx.com

BOSTON INSTITUTIONS

Center for the Integration of Medicine & Innovative Technology (CIMIT)

Robert Langer

Chiefs of Hospital Departments

Harvard Medical School

Harvard-MIT Health Science & Technology Faculty & Advisors

Harvard Business School Faculty

Partners Healthcare Ventures

Tech Licensing Offices

MIT$100K leadership

MIT Deshpande Center

VCs & CORP DEVELOPMENT

Leading East & West coast med tech VCs

Med Tech Incubators/Acclerators

Corporate Venturing groups

Entrepreneurs on both coasts

Windhover Publications Editor

MA Governor’s Life Science Initiative

OTHER INSTITUTIONS

Gates Foundation

Milken Foundation & FasterCures

Stanford Biodesign

Stanford Medical School

Biomedical IDEA Competitions

Yale University Medical School Faculty