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MEDICAL DEVICE DEVELOPMENT_0327
This document discusses challenges for inventors and investors in raising capital for medical device development. It outlines four levels of innovation risk from lowest to highest - marginal, technological, therapeutic, and radical. Radical innovation involving new technology and new clinical uses poses the highest uncertainty. The document also compares perspectives of inventors, who focus on developing products, and investors, who seek returns. Their differing goals can cause challenges in collaborating on ventures. Additional hurdles include regulatory requirements and changing markets and technologies.
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MEDICAL DEVICE DEVELOPMENT_0327
- 1. 1 Raising Capital for MedicalDevice Development Challenges for Inventors and Investors Presented by ! Robert Stathopulos! ! President, Product Development Technology, Inc.! Sponsor & Advisor, Entrepreneurs University! ! 02 April 2013!
- 2. Raising Capital forMedical Device Development 2© 2013 Product Development Technology, Inc. • Established companies develop existing device iterations • Start-up companies develop most new devices categories • Innovation has outstripped ability to assess performance • Dissemination of innovation delayed by outcomes validation Product Innovation
- 3. Raising Capital forMedical Device Development 3 MEDICAL DEVICE DEVELOPMENT Low Impact on Clinical Utility High Impact on Clinical Utility MARGINAL INNOVATION 'Existing' Technology applied to 'Existing' Medical Use LOWEST UNCERTAINTY THERAPEUTIC INNOVATION 'Existing' Technology applied to 'New' Medical Use MEDIUM to HIGH UNCERTAINTY High Impact on Technology-in-Use Low Impact on Technology-in-Use TECHNOLOGICAL INNOVATION 'New' Technology applied to 'Existing' Medical Use LOW to MEDIUM UNCERTAINTY RADICAL INNOVATION 'New' Technology applied to 'New' Medical Use HIGHEST UNCERTAINTY © 2013 Product Development Technology, Inc. MODEL OF PRODUCT INNOVATION
- 4. Raising Capital forMedical Device Development 4 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. "New" Medical Technology "Existing" Clinical Use "Existing" Medical Technology "Existing" Clinical Use "Existing" Medical Technology "New" Clinical Use "New" Medical Technology "New" Clinical Use HIGH LOW UNCERTAINTY SCALE "EXISTING" CLINICAL USE Domain "NEW" CLINICAL USE Domain LEVELS OF DEVELOPMENT RISK
- 5. Raising Capital forMedical Device Development 5 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. LEVELS OF DEVELOPMENT RISK HIGH LOW UNCERTAINTY SCALE Plateau of Status Quo (We do not wish to change anything) Plateau of Utility Promotion (We find new means for old ways) Plateau of Everything Changes (We find new means with new ways) "EXISTING" CLINICAL USE Domain "NEW" CLINICAL USE Domain Plateau of Technology Promotion (We do it Smaller-Better- Faster-Cheaper)
- 6. Raising Capital forMedical Device Development 6 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. LEVELS OF TECHNOLOGY READINESS Basic Principles Observed Speculative Application Formulated Critical Function Proof-of-Concept Breadboard Verification in Laboratory Breadboard Verification in Simulated Use System Prototype Verification in Simulated Use System Prototype Verification in Actual Use Final Product Validation in Actual Use Final Product Validation in Marketplace STEP #9 STEP #8 STEP #7 STEP #6 STEP #5 STEP #4 STEP #3 STEP #2 STEP #1 VERIFICATION PHASE FEASIBILITY PHASE
- 7. Raising Capital forMedical Device Development 7 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. Inventor Venture Team Seed Investors Compliance Officers Device Users Patent Attorneys Key Suppliers Family Members Angel Investors WHAT KEEPS THE INVENTOR UP AT NIGHT?
- 8. Raising Capital forMedical Device Development 8 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. WHAT KEEPS THE INVESTOR UP AT NIGHT? Inventor Angel Investors
- 9. Raising Capital forMedical Device Development 9 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. INVENTOR PERSPECTIVE Compelling Product Concept Imperative: “Do It Right” Goal: “Get Product to Market” Supplies Vision and Perspiration
- 10. Raising Capital forMedical Device Development 10 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. INVESTOR PERSPECTIVE Compelling Investment Opportunity! ! Imperative: “Get It Done”! " Goal: “Move Venture to Exit”" " Supplies Cash and Credibility"
- 11. Raising Capital forMedical Device Development 11 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. INVENTOR + INVESTOR as THE ODD COUPLE
- 12. Raising Capital forMedical Device Development 12 MEDICAL DEVICE DEVELOPMENT • Evidence – Product Functions as Intended • Evidence – Product has Clinical Utility • Evidence – Product can be Profitable • Evidence – Business Model is Scalable • Evidence – Product has Proprietary Barrier • Evidence – Development Path is Viable • Evidence – Regulatory Path is Viable • Evidence – Reimbursement Path is Viable • Evidence – Venture Team is Competent • Evidence – Venture Team has Skin-in-the-Game • Evidence – Use of Proceeds will be Effective • Evidence – Investor Exit is Plausible • Evidence – Seed Stage Funding is Clean • Evidence – Product Design is Documented © 2013 Product Development Technology, Inc. INVENTOR CHALLENGES
- 13. Raising Capital forMedical Device Development 13 MEDICAL DEVICE DEVELOPMENT • Will this Venture FIT into my PORTFOLIO? • Are the Product and its Market REAL? • Is the Technology behind the Product READY? • Will the Product have the Cache to WIN? • Is the Expected Return WORTH the Investment? • Will the Venture Team meet its COMMITMENTS? • Is there a viable path to US Market CLEARANCE? • Is there a viable path to US REIMBURSEMENT? • Will Due Diligence confirm the Inventor CLAIMS? © 2013 Product Development Technology, Inc. INVESTOR CHALLENGES
- 14. Raising Capital forMedical Device Development 14 MEDICAL DEVICE DEVELOPMENT INVESTOR MINEFIELD • Return on Investment based on liquidity event • Novel Products tied to emerging or untried markets • Venture is pre-revenue with no customer history • Products in Development susceptible to market changes • Product Knowledge held by very few • Further Funding limited if key milestones missed • Development Cycle has high cash-burn rate • Venture Valuations are speculative or intuitive • Minority Shareholders have little control • Entrepreneurs poor at anticipating future problems © 2013 Product Development Technology, Inc.
- 15. Raising Capital forMedical Device Development 15 MEDICAL DEVICE DEVELOPMENT INVENTOR MINEFIELD • PATENT CLAIMS disallowance • MARKET LANDSCAPE change • REGULATORY LANDSCAPE change • REIMBURSEMENT LANDSCAPE change • PRODUCT COST escalation • CLINICAL CLAIMS disallowance • KEY SUPPLIER bankruptcy • VENTURE FUNDING difficulties © 2013 Product Development Technology, Inc.
- 16. Raising Capital forMedical Device Development 16 MEDICAL DEVICE DEVELOPMENT TYPES OF MEDICAL DEVICES © 2013 Product Development Technology, Inc. In-Vitro Diagnostic Device Medical Capital Equipment Medical Device Software Active Medical Device Disposable Medical Device Device Electronics Software Software Disposable Hardware SoftwareElectronics Disposable DisposableAssay SoftwareInstrument
- 17. Raising Capital forMedical Device Development 17 MEDICAL DEVICE DEVELOPMENT DEVICE DEVELOPMENT PROCESS © 2013 Product Development Technology, Inc. CONCEPT DEVELOPMENT INVESTMENT GATE #2 INVESTMENT GATE #1 SEED ROUND FOUNDERS ROUND CONCEPT DEVELOPMENT PROTOTYPE DEVELOPMENT INVESTMENT GATE #2 INVESTMENT GATE #3 INVESTMENT GATE #1 SEED ROUND ANGEL ROUND 1 ANGEL ROUND 2 FOUNDERS ROUND CLASS II MEDICAL DEVICE CLASS III MEDICAL DEVICE 12 to 24 Months 12 to 24 Months 12 to 24 Months $250,000 $250,000 PRE-CLINICAL DEVELOPMENT ANGEL ROUND 2 ANGEL EXIT ANGEL ROUND 3 CORPORATE ACQUISITION 12 to 24 Months 24 to 48 Months PROTOTYPE DEVELOPMENT TECHNOLOGY DEVELOPMENT INVESTMENT GATE #3 12 to 24 Months12 to 24 Months GOVERNMENT GRANTS ANGEL ROUND 1 12 to 24 Months ANGEL EXIT CORPORATE ACQUISITION 36 to 72 Months (3 to 6 Years) 72 to 144 Months (6 to 12 Years) $2,000,000 to $3,000,000 $2,000,000 to $3,000,000 $250,000$250,000 INVESTMENT GATE #4 INVESTMENT GATE #5 $3,000,000 to $4,000,000 $3,500,000 to $5,000,000 CLINICAL DEVELOPMENT CLINICAL DEVELOPMENT $7,000,000 to $10,500,000 $1,000,000 to $2,000,000 $500,000 to $1,000,000 $1,000,000 to $1,500,000
- 18. Raising Capital forMedical Device Development 18 MEDICAL DEVICE DEVELOPMENT DEVICE DEVELOPMENT PROCESS © 2013 Product Development Technology, Inc. CLINICAL DEVELOPMENT MANUFACTURING DEVELOPMENT MARKET DEVELOPMENT CORPORATE ACQUISITION PRODUCT INTRODUCTION INVESTOR EXITVC ROUND 1 VC ROUND 2 VC ROUND 3 12 to 24 Months 12 to 24 Months 12 to 24 Months External vs. Internal Manufacturing $2,000,000 to $5,000,000 $1,000,000 to $3,000,000 $1,000,000 to $3,000,000 External vs. Internal Sales Team Not Reimbursed to Reimbursed Funding Source Switch VENTURE CAPITALIST FUNDING > Later Stage Venture > Lower Risk Investment > Larger Investments ANGEL INVESTOR FUNDING > Early Stage Venture > Higher Risk Investment > Smaller Investments
- 19. Raising Capital forMedical Device Development 19 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. PRE-MONEY VALUATION for EARLY STAGE VENTURE EXECUTION STRATEGY= = PRODUCT IDEA PRE-MONEY VALUATION $750,000 to $1,500,000 (Typically) Weak Idea 1 Fair Idea 5 Good Idea 10 Great Idea 15 Brillant Idea 20 Weak Execution $1,000 Fair Execution $10,000 Good Execution $100,000 Great Execution $1,000,000 Brillant Execution $10,000,000
- 20. Raising Capital forMedical Device Development 20 MEDICAL DEVICE DEVELOPMENT CORPORATE ATTRACTION to EARLY STAGE VENTURE • Exposure to emerging technology • Access to specialized knowledge • Understanding of emerging market • Access to entrepreneurial talent • Investment in potential acquisition • Blocking competitor acquisition • Access to new customer or distributor • Access to complementary technology © 2013 Product Development Technology, Inc.
- 21. Raising Capital forMedical Device Development 21 MEDICAL DEVICE DEVELOPMENT FINANCIAL VENTURE • Exit Value based on ‘future profit generation’ • Use Proceeds to drive growth • Venture has revenue, profit, growth • Profitability-Driven Acquisition • Sale limited by profit- generating capability STRATEGIC VENTURE • Exit Value based on ‘asset or capability’ • Use Proceeds to build asset or capability • Venture leverages acquirer’s operation; too costly or time- consuming to copy • Synergy-Driven Acquisition • Sale limited by business synergy effect CORPORATE VALUATION of EARLY STAGE VENTURE © 2013 Product Development Technology, Inc.
- 22. Raising Capital forMedical Device Development 22© 2013 Product Development Technology, Inc. The Drama of ! REGULATORY APPROVAL ! & INSURANCE REIMBURSEMENT!
- 23. Raising Capital forMedical Device Development 23 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. US REGULATORY PATHWAY PROTOTYPE DEVELOPMENT BENCH TESTING ANIMAL TESTING PRE-SUBMISSION MEETING PILOT CLINICAL US MARKET CLEARANCE IDE SUBMISSION IDE SUBMISSION PIVOTAL CLINICAL APPLICATION REVIEW US MARKET CLEARANCE APPLICATION REVIEW US MARKET APPROVAL > Traditional 510(k) > Special 510(k) > Abbreviated 510(k) > Traditional PMA > Modular PMA > Streamlined PMA > Product Development Protocol > Humanitarian Device Exemption > De Novo 510(k) CLASS I DEVICE CLASS II DEVICE (Not Significant Risk) CLASS II DEVICE (Significant Risk) CLASS III DEVICE 510(K) APPLICATION PMA APPLICATION
- 24. Raising Capital forMedical Device Development 24 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. EU REGULATORY PATHWAY Select EC Directive Classify Medical Device Select ISO Certified Manufacturer Prepare Technical File or Design Dossier Select Notified Body Audit Technical File or Design Dossier Prepare Declaration of Conformity Affix CE Mark
- 25. Raising Capital forMedical Device Development 25 MEDICAL DEVICE DEVELOPMENT CMS Scrutiny CLINICAL OUTCOME MEDICAL SAFETY ECONOMIC OUTCOME FDA Scrutiny MEDICAL SAFETY CLINICAL EFFICACY • FDA validates safety and efficacy of new device • CMS considers patient need and medical necessity • CMS will not approve new costly procedure or device if current treatment gives similar outcome • CMS will approve new device with demonstrably superior results • CMS will approve new procedure if greatly needed and no current alternatives • Health economics must justify more costly device with better patient outcome © 2013 Product Development Technology, Inc. INSURANCE REIMBURSEMENT
- 26. Raising Capital forMedical Device Development 26 MEDICAL DEVICE DEVELOPMENT • FDA Clearance insufficient for Reimbursement • Reimbursement is success driver for new technology • Medicine-Based Evidence ranks Quality of Evidence • Clinical effectiveness of device for Patients • Cost effectiveness of device for Stakeholders • No guarantee for Coverage or sufficient Payment © 2013 Product Development Technology, Inc. INSURANCE REIMBURSEMENT BENEFITCOST TECHNOLOGY ASSESSMENT • PATIENT • PROVIDER • PURCHASER • PAYER • REGULATOR • SOCIETY • PATIENT • PROVIDER • PURCHASER • PAYER • REGULATOR • SOCIETY
- 27. Raising Capital forMedical Device Development 27 MEDICAL DEVICE DEVELOPMENT • Device receiving 510(k) Clearance is substantially equivalent to currently marketed product • Device would fall under current reimbursement coverage, code and payment constraints • Argument for higher payment for Device is illogical © 2013 Product Development Technology, Inc. INSURANCE REIMBURSEMENT REGULATORY PATHWAY REIMBURSEMENT PATHWAY Pathway Synchronization
- 28. Raising Capital forMedical Device Development 28 MEDICAL DEVICE DEVELOPMENT © 2013 Product Development Technology, Inc. “If everything seems under control, you’re just not going fast enough.” --Mario Andretti