4th annual translational medicine symposium

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

4th Annual Translational Medicine Symposium

FEBRUARY 11 & 12, 2014

Dan LemaitreDan@whitepinemedical.com

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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?

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

• 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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

“Cost Plus” Reimbursement Prior to 1983

Industry revenuegrowth ~20%

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Diagnostic Related Group slows industry

growth to ~10%

Diagnostic Related Group slows industry

growth to ~10%

Prospective Payment System Launched in 1983

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

“Failed” Clinton Reform Led to “Managed Care”

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

FDA Raised the Regulatory Hurdle Bar

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

Industry Growth Peaked in 2003-2005

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Industry growth now in the 2-4% vicinity

Recalls, Safety Concerns Stymie Growth

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

Evidence Based (i.e. Cookbook Medicine)…

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

…Where Less is More

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Physicians Staff Models Further Align Interests

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Companies Shifting Focus to Emerging Markets

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Which Is Apt to Be Profitless Prosperity

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Developing Products in a Brave New World

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Requisite FDA Bashing Slide

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

PMA Development Times > Than VC Fund Cycle

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Returns Improving Mostly Due to Technology

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Now in a “Vulture Capital” Climate Where…

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

…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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

As Such, Even the “Angels” are Late Stage

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Option 1: Run Lean By Outsourcing

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Option 2: Partner With Strategics

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Option 3: Private Company with Scale/Cash Flow

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

In sum…

• 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

• 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

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Thank You

Dan@whitepinemedical.comDan@whitepinemedical.com

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Appendix

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential

Medical Device Revenue Growth

Source: JP Morgan

White Pine Medical, Inc.

White Pine Medical, Inc. Confidential36

Revenue Growth Drives Valuations