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UCSF Life Science Week 3 Devices: Channels
 

UCSF Life Science Week 3 Devices: Channels

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    UCSF Life Science Week 3 Devices: Channels UCSF Life Science Week 3 Devices: Channels Presentation Transcript

    • UCSF Lean Launchpad For Life Science and Healthcare Startups Medical Device Track Class 3 Channels October 15, 2013 Allan May Chairman, Life Science Angels amay@lifescienceangels.com UCSF Lean Launchpad - Allan May ©
    • MEDICAL DEVICE MARKETS ARE PHYSICAL MARKETS  Medical devices encompass a large range of tangible and intangible items with a wide variety of business models and issues          Imaging equipment, such as MRI, CT and ultrasound Therapeutic capital equipment, such as Stereotactic radiosurgery, lasers, and surgical robots Implants, such as total joints, pacemakers, stents, and artificial corneas Instruments and tools, such as scalpels, syringes, and electrocautery Devices, such as catheters, introducers, and sheaths Monitoring equipment, such as glucometers, pulse oximetry, and vital signs monitors Durable medical equipment, such as crutches, wheelchairs, and home oxygen Disposables, such as syringes, wound dressings, and casts Medical devices generally require physical delivery  Exceptions:  Software based products  Morpheus: Enhanced imaging data via post processing  Physician office management software  Big Data based products UCSF Lean Launchpad - Allan May ©
    • MEDICAL DEVICE CHANNELS TEND TO BE DIRECT   Most devices are sold to hospitals, physicians or patients directly Most medical devices require direct sales    There is often an educational/training component to the sales known as the “learning curve” Sales and clinical applications personnel often guide physicians through the learning curve In some products, sales and clinical applications specialists attend each procedure at which the device is used   Commonly a sales rep and tech rep send an entire day to assist a single product usage Some Medical device products/sectors use distributors    Distribution channels vary by clinical area: Eg, spine devices and surgical instruments tend to use distributors Commodity type items, such as hospital supplies, tend to use distributors Distribution channels also vary by geography  OUS markets tend to be much more distributor dominated UCSF Lean Launchpad - Allan May ©
    • MEDICAL DEVICE CHANNELS TEND TO BE DIRECT (2)  OEMing components to larger manufactures is generally low margin, hard to exit businesses  The negotiating power lies mainly with the manufacturer  VARs are virtually non-existent since any alterations of approved devices require separate clinical trials and regulatory approvals  EG, adding a steroid to the tip of a pacemaker to prevent fibrosis  Retail channels exist but solely in consumer products  Hearing aids, eye glasses, wound dressings UCSF Lean Launchpad - Allan May ©
    • MARKETING AND SELLING MEDICAL DEVICES CAN BE A RISKY STRATEGY   Getting and keeping medical device customers often results in wasteful duplication of resources GMP manufacturing, quality systems, QA/QC, and sales and marketing infrastructure are required in order to Market and Sell  These systems and processes are very expensive to finance   Sales people tend to cost >$350-400k/year fully loaded   It normally takes one or more dilutive equity rounds Clinical applications or technical support specialists are required to assist sales and marketing Most acquirers have extensive manufacturing infrastructure and dedicated sales and marketing forces   So they don’t pay extra value in exits for duplicative resources They DO pay for proof of penetration and uptake, but that tends to take >1-2 years and be very expensive in terms of cash burn  Requires substantial funding capital usually from venture capitalists or corporate venture capital groups UCSF Lean Launchpad - Allan May ©
    • ALTERNATIVE STRATEGIES FOR SELLING MEDICAL DEVICES  What is it you are trying to prove?    Revenue, or revenue ramp to get a multiple of sales on exit? KOL uptake? Clinical viability?  Building a sales and marketing force and ramping sales is expensive, risky and time consuming  A targeted, focused rollout can be equally effective  Converting key customers of strategics is a very effective way to get the attention of acquirers     Target hospitals where their KOLs practice Target major hospitals/customers in their sales channel Demonstrate physician/patient satisfaction and build clinical experience Price/Dreams beats Price/Earnings in most cases! UCSF Lean Launchpad - Allan May ©
    • CHANNEL PROFIT FIT IN MEDICAL DEVICES  Gross margin impacts distribution method and exit  First Gen medical devices often have 40-50% margins  Medical device distributors tend to require >25% margins, which is a major reason distribution is often not a viable channel  Normally, all available cash in medical device startups is spent proving safety and efficacy  Cost engineering or cost reduction usually comes in the Series C round or later  It commonly takes 6-12 months (or longer) to reduce costs and maintain safety and efficacy  Medical device acquirers will require products with >65% margins   Sometimes a clear engineering pathway to COGs reductions is sufficient without actually spending the cash to prove it Sometimes larger volumes driven by the large sales and marketing forces of major device companies can achieve COGS and economies of scale unobtainable by startups UCSF Lean Launchpad - Allan May ©
    • UCSF Lean Launchpad For Life Science and Healthcare Startups Medical Device Track Class 3 Channels October 15, 2013 Allan May Chairman, Life Science Angels amay@lifescienceangels.com UCSF Lean Launchpad - Allan May ©