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UCSF Life Sciences: Week 6 Devices Partnerships


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  • 1. UCSF Lean Launchpad For Life Science and Healthcare Startups Medical Device Track Class 6 Partnerships November 5, 2013 Allan May Chairman, Life Science Angels UCSF Lean Launchpad - Allan May ©
  • 2. Why Do Companies Form Partnerships?  Mutual success  To gain an unfair advantage  Co-development of a valuable product  Caution: a startup partnering with a larger company is more fraught with peril than a partnership between established companies UCSF Lean Launchpad - Allan May ©
  • 3. Potential Advantages     Faster time to market Broader product offering More efficient use of capital The partner’s unique customer knowledge or expertise  Access to new markets / new channels UCSF Lean Launchpad - Allan May ©
  • 4. Types of Conventional Partnerships  Key Suppliers – the type most likely to matter  Key Clinicians – Relationships with PIs and KOLs control how well a clinical study will be conducted  Strategic Alliances - (although this may be less crucial for early adopter customers)  Can complement your core product  Training, installation, service Strategic investment – big advantages / disadvantages  Joint Promotion of complementary products – sometimes  Coopetition – sometimes important to define an emerging industry standard specification; controlled by large(r) companies  ADVAMED; MDMA  Joint Venture, Traffic Partners - Least likely in medtech UCSF Lean Launchpad - Allan May ©
  • 5. Medical Device Partnerships  Key R&D Shops    Many specialty engineering shops have been created to service the medical device industry They generally have fast turnaround times and reasonable pricing It is essential though that startups retain and develop core competencies in-house  Key Suppliers    Most medical devices have outsourced components Supply chain management is a major Activity (more later) Federal and State Quality Control requirements govern the relationship  Relationships with PIs and KOLs control how well a clinical study will be conducted  Key Clinicians  Key Consultants  Most startups use consultants for strategic advice in Regulatory and Reimbursement UCSF Lean Launchpad - Allan May ©
  • 6. Medical Device Partnerships (2)  Distribution and Co-selling    Direct sales dominate the Go To Market Strategy because of the need to educate and train early customers But, distribution and co-selling arrangements are common in some sectors of medical devices; e.g., Spine Large medical device companies prefer to distribute new products rather than acquire the company if they can  Teleflex; Boston Scientific  Strategic investment   Many large medical device companies make strategic investments The vast majority are strategic, not financial, meaning there are substantial strings attached  Joint Venture  Mostly used by startups to access markets in less critical countries, e.g., China UCSF Lean Launchpad - Allan May ©
  • 7. Relations With Key Suppliers  Medical Device manufacturing is governed by Good Manufacturing Practices requirements  GMP requires a documented, extensive Quality System  The owner and seller of the product is responsible for Quality Control throughout the entire supply chain    Vendor qualification, vendor audits, various inspections, documentation, and quality system requirements are substantial Every aspect of the manufacturing process needs to be specified and documented, and changes or deviations can only occur through a defined process Even the most minor change of ingredients, process, or personnel can wreak havoc in the startups product and quality system  Biomimedica  Novare  Simplified supply chains are the obvious strategic choice where possible UCSF Lean Launchpad - Allan May ©
  • 8. Relations With CRO and Key PIs  Almost all clinical trials are run by Contract Research Organizations  This is a high maintenance, critical relationship  They will in essence “chair” and help manage all of the other investigators in the trial Their willingness to put their names and their institutions’ name on your trial is a BIG DEAL Their personal reputation and credibility underwrites the veracity of the data the trial generates  Usually 1 or 2 KOLs will act as Principal Investigator for your clinical trial    You are true Partners   Their reputation is on the line also, as their clinical conduct and conclusions will be under a microscope They will present the analysis and conclusions from your data, usually at important clinical conventions or meetings  Being PI of an innovative new medical device technology can help make a young physician’s reputation UCSF Lean Launchpad - Allan May ©
  • 9. Relations With Strategic Investors  Historically, medical device startups commonly sought strategic investment in the C or D round, usually at the time of initial commercialization  Nowadays, strategic investments can occur at the seed or A round stage  Positives: Potentially higher valuation, low or nondilutive development funding, can tee up a buyout  Negatives: can interfere with the ability to sell the company to the highest bidder at the right time  Much depends on whether the investment is “with rights” or “without rights”   Normally strategics seek rights, and so the valuation obtained is not a reflection of pure financial worth  A common right is Right of First Offer or First Refusal A strategic investor without rights is just an investor, but the relationship is more complex and difficult than with other investors UCSF Lean Launchpad - Allan May ©
  • 10. Potential Partnership Disadvantages  Impedance mismatch in decision making  Who’s the keeper of the vision?  Is there a powerful underlying rationale?        Partner’s ability to deliver Partner’s schedule and timeline Clear ownership of development and the customer Different strategic objectives? Personnel change at the partner IP issues – OK in U.S. & Europe, ?? elsewhere How to end or unwind  Bottom line: is there a powerful underlying rationale? UCSF Lean Launchpad - Allan May ©
  • 11. Need To Diagram Partnerships And Money Flows Between Partners Partner Relationships and Dollar Flows We Need, They Need, The Cost... We Need They Need Partners’ Pros & Cons (from their POV) The Cost Partner A Partner B …. Courtesy Abhas Gupta UCSF Lean Launchpad - Allan May ©
  • 12. Startup Partnership Strategies     Find partners who give you an unfair advantage Figure out what’s in it for both parties Remember – you are not a peer Timing plays an important role  Partnerships aimed at mainstream customers may be more important than partnerships aimed at early adopters UCSF Lean Launchpad - Allan May ©
  • 13. UCSF Lean Launchpad For Life Science and Healthcare Startups Medical Device Track Class 6 Partnerships November 5, 2013 Allan May Chairman, Life Science Angels UCSF Lean Launchpad - Allan May ©