4th annual translational medicine symposium

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

4th Annual Translational Medicine Symposium

FEBRUARY 11 & 12, 2014

Dan [email protected]



Agenda

• Medical Device Retrospect and Prognosis• The Demise of Traditional Venture Capital• What is An Innovator to Do?

• Medical Device Retrospect and Prognosis• The Demise of Traditional Venture Capital• What is An Innovator to Do?



Executive Summary

• Medical device industry revenue growth will remain tepid• Emerging market focus will siphon R&D spending required

to fund new products• Traditional venture capital market is dead, hurt by

prolonged development and approval cycles• Innovator options:

• Run lean, particularly early-on• Strategics, although fraught with peril• Private company platforms that have scale/cash flow


to fund new products• Traditional venture capital market is dead, hurt by


• Run lean, particularly early-on• Strategics, although fraught with peril• Private company platforms that have scale/cash flow



A Brief History of, and the Outlook for,the Medical Device Industry



“Cost Plus” Reimbursement Prior to 1983

Industry revenuegrowth ~20%



Diagnostic Related Group slows industry

growth to ~10%

Diagnostic Related Group slows industry

growth to ~10%

Prospective Payment System Launched in 1983



“Failed” Clinton Reform Led to “Managed Care”

Industry growth slowed to ~3% in part because….



…David Kessler effectively “shutdown” the FDA by demanding randomized prospective clinical trials for PMA devices

FDA Raised the Regulatory Hurdle Bar



Cardiac Resynchronization Therapy (CRT) and Drug Eluting Stents (DES) lift industry growth to ~15%

Industry Growth Peaked in 2003-2005



Industry growth now in the 2-4% vicinity

Recalls, Safety Concerns Stymie Growth



Traditional source of medical device innovation is Bedside to Bench which is now being disrupted by hefty scrutiny i.e. The Sunshine Act

Disintermediation of Physicians & Vendors



Accountable Care Organizations will likely result in more “conservative” care under the guise of “patient safety”

Evidence Based (i.e. Cookbook Medicine)…



Surgeons, historically incentived to do more, will be motivated to do “better” with less

…Where Less is More



Physicians Staff Models Further Align Interests



Companies Shifting Focus to Emerging Markets



Which Is Apt to Be Profitless Prosperity



Medical Device Industry Summary

• Industry growth will continue to be lethargic due to:• More conservative, evidence-based care• Alignment of physician and payers interests• Disintermediation of physician/vendor relationships

• Emerging market focus will syphon R&D spending• Developed markets will further atrophy given lack of new

products, pricing will worsen• Industry will eventually need to return to “new product

roots” • Hence, a superb time to be developing new products

• Industry growth will continue to be lethargic due to:• More conservative, evidence-based care• Alignment of physician and payers interests• Disintermediation of physician/vendor relationships

• Emerging market focus will syphon R&D spending• Developed markets will further atrophy given lack of new

products, pricing will worsen• Industry will eventually need to return to “new product

roots” • Hence, a superb time to be developing new products



Developing Products in a Brave New World



Traditional Venture Model is Broken

• Historically, highest returns went to Series A investors:• Logical given higher risk profile of early stage• Series B investors provided “tasteful” step-up• Exit in 3-5 years with ~$50MM in total invested

• Regulatory cycles lengthening, requiring higher levels of funding and multiple rounds

• Inability to capture higher investment in pricing, hence returns have dwindled

• Historically, highest returns went to Series A investors:• Logical given higher risk profile of early stage• Series B investors provided “tasteful” step-up• Exit in 3-5 years with ~$50MM in total invested

• Regulatory cycles lengthening, requiring higher levels of funding and multiple rounds

• Inability to capture higher investment in pricing, hence returns have dwindled



Requisite FDA Bashing Slide



PMA Development Times > Than VC Fund Cycle



Returns Improving Mostly Due to Technology



Now in a “Vulture Capital” Climate Where…



…Liquidity Preferences Dictate Returns

Last money in typically get a 2x

return before earlier investors participate

in an exit

Last money in typically get a 2x

return before earlier investors participate

in an exit



As Such, Even the “Angels” are Late Stage



So What Is An Innovator To Do?

It’s not enough to know which way the wind is blowing, you need to know what difference it makes

It’s not enough to know which way the wind is blowing, you need to know what difference it makes



Option 1: Run Lean By Outsourcing



Option 2: Partner With Strategics



Strategics Not The Best “Early” Investors

• Strategics don’t have ability to call “audibles”

• Often don’t participate in follow-on rounds

• Orphan deals created by senior executive turnover

• Exit complicated if rights have been granted



Option 3: Private Company with Scale/Cash Flow



In sum…


to fund new products• Traditional Venture Capital market is dead, hurt by


• Run lean, particularly early-on• Strategics, although fraught with peril• Private Company platforms that have scale/cash flow


to fund new products• Traditional Venture Capital market is dead, hurt by


• Run lean, particularly early-on• Strategics, although fraught with peril• Private Company platforms that have scale/cash flow



Thank You

[email protected]@whitepinemedical.com



Appendix



Medical Device Revenue Growth

Source: JP Morgan


White Pine Medical, Inc. Confidential36

Revenue Growth Drives Valuations

4th annual translational medicine symposium

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