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UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs
- 1. UCSF Lean Launchpad For Life Science
and Healthcare Startups
Medical Device Track
Class 7
Resources, Activities and Costs
November 12, 2013
Allan May
Chairman, Life Science Angels
amay@lifescienceangels.com
UCSF Lean Launchpad - Allan May ©
- 3. PHYSICAL/TANGIBLE RESOURCES
Research labs and manufacturing facilities
Federal and international laws strictly control and regulate medical
device research and manufacturing
A number of submissions, approvals, and inspections are required
Virtual medical device companies can sometimes
skirt the need for investment in physical
infrastructure
Management in separate locations
Outsourced R&D
Outsourced low volume manufacturing
Outsourced clinical trial run by a CRO
Works best for “pure product” plays where
company is “built to flip”
Limits exit possibilities since essentially no Plan B
UCSF Lean Launchpad - Allan May ©
- 4. HUMAN RESOURCES
Some resources focus on Personal Success
Mentors
Teachers
Coaches
Some resources focus on Business Success
Clinical, Scientific and Business advisors
Executive Chairpersons
Difference between investors and advisors
The critical importance of an A Team
Includes Consultants and FTEs
The critical importance of Company Culture
UCSF Lean Launchpad - Allan May ©
- 5. FINANCIAL RESOURCES
Self funding
Non-dilutive financing
SBIR; STTR; SBA, etc
Friends and Family
Crowdfunding
Angels and High Net Worth individuals
Angel Groups
Venture Capital Funds
Corporate Venture Capital Groups
Venture Debt
Bank Financing
Vendor Financing
UCSF Lean Launchpad - Allan May ©
- 6. MEDICAL DEVICES:
THE CRITICAL THREE ELEMENTS
Compelling
Clinical Need
Technological
Intellectual
Solution
Property
UCSF Lean Launchpad - Allan May ©
- 7. INTELLECTUAL PROPERTY STRENGTH IS
DIRECTLY CORRELATED TO EXIT VALUES
Blocking
Freedom
IP
To
Patentability
Operate
Strategics want patent coverage,
not just saleable products
UCSF Lean Launchpad - Allan May ©
- 8. CLINICAL NEEDS ARE USUALLY ADDRESSABLE
BY MULTIPLE TECHNOLOGIES
Don’t chase clinical needs with technology
Be technology agnostic
Find the technology that best addresses the
clinical need and has the best patent coverage
A better clinical solution with weaker patent coverage will have
a harder time being commercialized than a less good clinical
solution with stronger patent protection
Core patents can often be augmented with
strong follow-on patents that enable the
technology to better conform to the clinical need
UCSF Lean Launchpad - Allan May ©
- 9. TYPES OF INTELLECTUAL PROPERTY
Trademark
Protect branding and marks
Stronger if registered
Copyright
Prevents duplication but not much else
Trade Secrets
No registration; dependent on non disclosure
Contract - NDA
Patent
Government monopoly
UCSF Lean Launchpad - Allan May ©
- 10. THE ROLE OF THE NDA
Non-Disclosure Agreements or Confidential Disclosure
Agreements are critical for early stage companies
Use them in hiring employees, consultants
Raising capital (where possible)
These are contract rights, not intellectual property
rights
Your only recourse is damages for breach of contract
Never let an NDA take the place of a Provisional Patent
filing
Do not talk about the core of your IP unless and until your
patent(s) have been filed
Talk about What you are doing; not How you are doing it
UCSF Lean Launchpad - Allan May ©
- 11. INTELLECTUAL PROPERTY CONTROLS
RELATIONS WITH STRATEGICS
The intellectual property landscape in medical
devices tends to be heavily patented
Major medical device companies have vast patent
portfolios
They tend to play hardball on IP
Their basic approach will be to go around your IP if
reasonably possible
Your IP needs to be thoroughly locked down before
you engage in any discussions with strategics
Not just filed, but optimized to include all other alternative ways to
accomplish a similar result, and/or to block other appoaches
UCSF Lean Launchpad - Allan May ©
- 12. HOW TO PREPARE YOUR
INTELLECTUAL PROPERTY
You can/should do much of the background work
yourself
You know your science or engineering better than any lawyer will
Research all of the key words in your core technology concept
Research papers and journals to find relevant articles and
publications
Keep detailed records of everything you looked at and your
comments and share these with your IP attorney
Patents of concern need to be thoroughly investigated
Pull the file wrapper and investigate the prosecution history in the
patent office to understand how the claims were narrowed in order
to obtain that patent
Drafting around existing patent claims is an art unto
itself
UCSF Lean Launchpad - Allan May ©
- 13. CRITICAL ACTIVITIES FOR MEDICAL
DEVICE COMPANIES
Generate Data
Bench, Pre-Clinical and Clinical
Conduct a Clinical Trial
Obtain Regulatory Approval
Obtain Reimbursement
[Conduct a Cost Outcomes Study]
UCSF Lean Launchpad - Allan May ©
- 14. MEDICAL DEVICE STARTUPS ARE DATA
GENERATING MACHINES
The practice of medicine is “Evidence-based”
Demonstrating Safety and Efficacy of medical devices
requires hard data with clear endpoints
The highest level of evidence (and most expensive) is a
prospective, randomized, placebo-controlled, double blind
study
Lesser levels of evidence can be acceptable depending on the type of
device
But the data generated in such trials will not be usable for regulatory
clearance
The value of your company and technology will be bracketed
by the strength and clarity of your data
Major risk to startups: Equivocal Data
UCSF Lean Launchpad - Allan May ©
- 15. MEDICAL DEVICE COMPANIES MUST
DESIGN AND EXECUTE A CONVINCING
CLINICAL TRIAL
Safety can be demonstrated with a pilot study
Efficacy must be demonstrated via a pivotal study
It is possible to generate evidence of efficacy in humans in smaller, less
rigorous studies, but such data will not count towards regulatory approval
FDA approval is required TO COMMENCE a human study on
Significant Risk Devices in the US
IDE = Investigational Device Exemption allows the collection of safety and
efficacy data under agreed study design protocols
The clinical study must meet agreed primary endpoints with
statistical certainty
0.05%
Most clinical trials are inadequately designed and/or fail to
meet their primary endpoints
UCSF Lean Launchpad - Allan May ©
- 16. CLINICAL TRIAL RESULTS CONTROL THE
LABELING UNDER WHICH THE DEVICE
CAN BE SOLD
The scope and specificity of the clinical
trial endpoints control the marketing and
sale of the medical device
Only what has been proven in the clinical trial
can be claimed
The medical device will be labeled for use only
as supported by the proven claims
Marketing and selling “off-label” is a
criminal offense
UCSF Lean Launchpad - Allan May ©
- 17. FDA REGULATION OF MEDICAL DEVICES
FDA's Center for Devices and Radiological Health (CDRH) is
responsible for regulating firms who manufacture, repackage,
relabel, and/or import medical devices sold in the United States
Medical devices are classified into Class I, II, and III
The basic regulatory requirements that manufacturers of medical
devices distributed in the U.S. must comply with are:
Establishment registration,
Medical Device Listing,
Premarket Notification 510(k), unless exempt, or Premarket Approval (PMA),
Investigational Device Exemption (IDE) for clinical studies
Quality System (QS) regulation,
Labeling requirements, and
Medical Device Reporting (MDR)
UCSF Lean Launchpad - Allan May ©
- 18. FDA REGULATION OF MEDICAL DEVICES (2)
The 3 categories of devices are
NSE devices – Non-significant risk, which do not
require clinical trials and can be marketed with
out approval
510k devices – Devices for which there is an
existing predicate and so can be approved with
no, or lesser clinical trials
Recently, due to highly publicized failures of some
devices, the FDA has begun to require more and more
extensive clinical trials even of 510k devices
PMA devices – Novel devices for which no predicate exists
and which require clinical trials
UCSF Lean Launchpad - Allan May ©
- 19. REIMBURSEMENT IS REQUIRED TO
EFFECTIVELY SELL MEDICAL DEVICES
Reimbursement is the Number One concern of
venture capital financiers
Both public payors (Medicare and Medicaid)
and commercial payors (Blue Cross et al) have
rules to control what is reimbursed at what rate
Coding, Coverage, Payment
Reimbursement is also based on evidence and
data generated by clinical trials
CPT = How the physician gets paid
DRG = How the hospital gets paid
UCSF Lean Launchpad - Allan May ©
- 20. PCORI (Under Development)
Patient Centered Outcomes Research Institute
Known otherwise as Cost Effectiveness Studies, or
Comparative Effectiveness Studies, or Health
Economics Studies, or “Death Panels”
Cost Outcomes studies are already required in many
countries and so a fact of life
They will become increasingly required in the US in
order to obtain reimbursement, and perhaps
regulatory approval itself
Many medical device companies are already
expanding clinical trial design endpoints to
encompass cost outcomes data in order to avoid
conducting a separate study
UCSF Lean Launchpad - Allan May ©
- 21. COSTS
• Phases: Development, Product intro, Revenue ramp
• Fixed Costs – capital, project expense, overhead
o Virtual model highly desirable
• Variable Costs – mostly applies to Revenue phase
• Unit Economics – may be the simplest way to
evaluate the business (for you, investors and
acquirers)
• Bottom-up analysis, not top-down
• Specific to your proposal, not industry averages
UCSF Lean Launchpad - Allan May
©
- 22. COSTS
Metrics that matter
Cash to each major milestone – needs thorough
justification
Cash to cash flow breakeven
Cash to exit
Monthly or quarterly burn rate
UCSF Lean Launchpad - Allan May
©
- 23. UCSF Lean Launchpad For Life Science
and Healthcare Startups
Medical Device Track
Class 7
Resources, Activities and Costs
November 12, 2013
Allan May
Chairman, Life Science Angels
amay@lifescienceangels.com
UCSF Lean Launchpad - Allan May ©