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
amay@lifescienceangels.com
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
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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
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5. Medical Device Partnerships
 Key R&D Shops
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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
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Most medical devices have outsourced components
Supply chain management is a major Activity (more later)
Federal and State Quality Control requirements govern the relationship
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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
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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

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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
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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
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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
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 You are true Partners
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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”
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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
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10. Potential Partnership Disadvantages
 Impedance mismatch in decision making
 Who’s the keeper of the vision?
 Is there a powerful underlying rationale?
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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
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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
amay@lifescienceangels.com
UCSF Lean Launchpad - Allan May ©