Successful Exits: It's not just about the technology Professor James F. Jordan, Chairman, Strategy Group, Center for Healthcare Innovation; Senior Director, Healthcare & Biotechnology Programs, Distinguished Service Professor in Healthcare and Biotechnology Management, Carnegie Mellon University

Technology de-risks failure, not an exit Great technology is a frequent initiator of a life sciences startup company yet it is often not enough to ensure a successful exit. Startups must follow the norms of their startup vertical and align customer, investor and acquirer purchase triggers.

Investment must be connected to exit Disease State Fact Book: The participant will be given a model to assist them in distinguishing the difference between an incremental market improvement and a monumental innovation. Health Care Flow Chart: The participant will be given an overview of the U.S. Healthcare System. The intention of the overview is to assist the investor in understanding where the product fits within the system. Macro/Micro Maps: The participant will be given models to determine their ability to access the market.

Innovation introduces something new to affect change From a business perspective, a marketing specialist would state the desire effect of innovation is either: create a new, differentiated and protectable market category, or collapse the value steps in an existing category, resulting in decreased cost or increased benefit

Determine if a technology is an innovation or a modification Disease State Fact Book: distinguishing the difference between an incremental market improvement and a monumental innovation.

Factors that increase market value Disease Prevalence Portion of the population found to have the condition (1 in 1000) Incidence % Percentage of new cases (generally a year) Incidence Occurrence of new cases since last time period — later year or in a period of time (generally a year) Percentage Recurring Percentage of population with a recurring event in a given year. Prevalence Population [Disease prevalence less incidence] x percentage recurring Number Diagnosed Number diagnosed patients (the act of identifying treatable disease) Diagnosis Rate % Number diagnosed/disease prevalence (includes incident patients) Procedural Approaches Diagnostic, Medical Devices, Pharmaceutical, Long-Term Care, Rehabilitation, etc. Procedure/Service Approach % The percentage of diagnosed cases that would use this product/service Number of Procedures/Services Number of diagnosed x procedure/service approach % Type of products/Sub-services List the individual products or services performed Units per Procedure/Service Example: 2 stents per procedure, 30 pills per cycle, 30 days in long-term care Market Units/Services Number of Procedures x Units per Procedure/Service Average Revenue per Event Revenue value per event or service – note revenue by manufacturer would be different than at the hospital level Market Dollars or Cost Market Units x Average Price

4% change in diagnosis rate can increase the market by 11%

4% increase in diagnosis rate 9

1.2% procedural shift can change the market dollars by 10%

Increasing units per procedure by .2 units shift market dollars by 9%

Market factors that attract acquirers Factors that increase market value: (A rising tide lifts all boats) Diagnosis rate Procedure rate Units p/ procedure Factors that require taking share: (fighting incumbents) Type of products Category transitions Market units Average selling price Market dollars

Innovation introduces something new to affect change From a business perspective, a marketing specialist would state the desire effect of innovation is either: create a new, differentiated and protectable market category, or collapse the value steps in an existing category, resulting in decreased cost or increased benefit

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Medical Device Industry Macro Map HOSPITALS   Operating Room Multi specialty ICU/CCU Laboratory based Specialty cardiothoracic general colon rectal otolaryngology orthopedic plastic surgery ophthalmology ob-gyn general laparoscopy general-other Vascular urology endoscopy neurology Robot assisted / image guided anesthetics respiratory devices hemostats tissue sealants adhesion prevention monitoring systems Interventional cardiology Interventional radiology Electrophysiology Interventional neurology CRM Radiology(imaging) Renal Neurology Infusion systems wound care and management Abbott ü Atrium B Braun Baxter Boston Scientific CR Bard Cook Covidien Drager Gambro GE Health care Gore Medical J&J Kinetic Concepts Inc. Medtronic Philips Health Care Siemens Health care Smith and Nephew Stryker St. Jude Synergetics Synovis Unomedical/Convotech Zimmer

angioplasty balloon catheters peripheral stent grafts Interventional Cardiology Micro Map   angiography angioplasty IVUS vascular closure atherectomy thrombectomy cardiac catheter angioplasty balloon catheters stents coronary stents periheral stents bare metal drug eluting peripheral stents peripheral stent grafts Abbott ü Abiomed Arrow Medical Arterial Remodeling Technologies Ashahi Intecc Co. Atrium B Braun Biosensors International Biotronik Boston Scientific CR Bard Cardiovascular Systems Inc. Cardiac output technologies Cardima Clear stream technologies Cook Concentric Medical Covidien Edwards Life Sciences Gore Medical

Conclusion Technology de-risks failure, not an exit Innovation introduces something new to: create a category collapse the value steps for cost/benefit The DSFB identifies market value triggers The HCFC identifies the industries value steps Market maps determine sales channel access

Center for Healthcare Innovation Author Mr. James Jordan Center for Healthcare Innovation Chairman of the Strategy Group