UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

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 ©

CRITICAL RESOURCES
 Physical/Tangible
 Intangible
 Human
 Financial


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

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

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


MEDICAL DEVICES:
THE CRITICAL THREE ELEMENTS
Compelling

Clinical Need

Technological

Intellectual

Solution

Property


INTELLECTUAL PROPERTY STRENGTH IS
DIRECTLY CORRELATED TO EXIT VALUES

Blocking
Freedom

IP

To
Patentability

Operate

Strategics want patent coverage,
not just saleable products

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

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


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


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


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


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]

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


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

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

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)


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


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

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

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
©

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
©

UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs

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UCSF Life Sciences: Week 7 Devices Resources, Activities and Costs