Engineering 245 The Lean Launch Pad Professors Steve Blank, Ann Miura-Ko, Jon Feiber

CHANNELS how does each customer segment want to be reached? through which interaction points?

Test Hypotheses: Channel 2

Two Critical Channel Questions 3 How do you want to sell your product? 1 is subtle, but more important than the first: How does your customer want to buy your product? 2

How Do You Want Your Product to Get to Your Customer? 4 Yourself Through someone else Retail Wholesale Bundled with other goods or services

How Does Your Customer Want to Buy Your Product from your Channel? 5 Same day Delivered and installed Downloaded Bundled with other products As a service …

Types of Channels 6 –OEM –VAR –Reseller –Distributor DirectIndirectLicensing

Web Channels 7

Physical Channels 8

The Channel as a Customer 9 –Some products are embedded in others (OEM) –Some products are resold by others (VARs) –Some products are distributed by others –Who’s the customer?

Distribution Complexity 10 Evangelists Service Technicians Higher Value Added Higher Volume Direct Sales VARs Retail Web, Telesales Systems Integrators Mainframes Minis LANs PC Servers Desktop PCs Printers Keyboards Toner WANs Global Systems Solution Complexity Marketing Complexity

How Are Channels Compensated? 11 –Commission –Percentage of sales price –Discounted pre-purchase

How Are Channels Motivated or Incented? 12 –Money! – what makes them the most? –Training –Marketing to the channel –SPIF

Channel Economics: “Direct” Sales 13 Profit + SG&A + R&D End Consumer EU Discounts Revenue List Price Source:Mark Leslie, Stanford GSB ) Cost of Goods (Supply Chain)

Channel Economics: Resellers 14 ) Cost of Goods (Supply Chain) Profit + SG&A + R&D End Consumer EU Discounts Reseller Revenue List Price Source:Mark Leslie, Stanford GSB

Profit + SG&A + R&D Channel Economics: Distributors/Resellers 15 End Consumer EU Discounts Reseller Distributor Revenue List Price Source:Mark Leslie, Stanford GSB ) Cost of Goods (Supply Chain)

Channel Economics: OEM or IP Licensing 16 Your Product Becomes Your Customer’s Cost of Goods Source: Mark Leslie, Stanford GSB End Consumer Reseller Profit + SG&A + R&D Cost of Goods ( Supply Chain) EU Discounts ResellerDistributor Master Distributor Profit + SG&A + R&D Cost of Goods (Supply Chain) Your Revenue List Price

Example: Book Publishing 17 Publisher National Distributor PrinterWholesalerRetailerCustomer

Book Publishing 18 Percent of Retail You get - 35% of retail - the distributor gets 10% - the wholesaler gets 15% - the retailer gets 40% - less any discount they offer the customer Publisher National Wholesaler DistributorRetailerCustomer 35%15%10%40% $7.00$3.00$2.00$8.00$20.00

Book Publishing Economics 19 Publisher National Distributor WholesalerRetailerCustomer Wholesale costs Markup Allowances Payment guarantees Payments Bills Credit guarantees Payment guarantees Return rights Credits

Book Publishing Delivery 20 Publisher National Distributor PrinterWholesalerRetailer Merchandise titles Sell magazines Acknowledge returns Determine allocations Dispose of returns Prepare film (content)  Establish identity  Create demand Prepare galleys Receive  Schedules  Print orders  Bundle counts  Film Print and ship magazines Deliver orders

Nature of Product Impacts Channel: Physical or Virtual ? 21 –Access to customers changes dramatically –Logistics related to product complexity –People as products

Bits vs. Atoms 22 Bits Physical Product WebPhysical Channel

Product and Channel Are Bits 23 Bits Physical Product WebPhysical Channel  Rapid Agile and Customer development  Fastest to acquire early customers and scale

Web Product/Channel Are Bits 24 Bits Physical Product WebPhysical Channel  Google  Twitter  Facebook  Zynga  Cloud Services

Product Is Bits, but Channel Is People 25 Bits Physical Product WebPhysical Channel  Rapid Agile and Customer development  Fastest to acquire early customers and scale  Rapid Agile and Customer development  Traditional sales channel  May require installation

Traditional Enterprise Software 26 Bits Physical Product WebPhysical Channel  Google  Twitter  Facebook  Zynga  Cloud Services  Microsoft  SAP  Oracle

Physical Products Sold Over the Web 27 Bits Physical Product WebPhysical Channel  Rapid Customer development  Logistics, shipping and manufacturing critical  Customer service  Rapid Agile and Customer development  Fastest to acquire early customers and scale  Rapid Agile and Customer development  Traditional sales channel  May require installation

Killing Traditional Storefronts 28 Bits Physical Product WebPhysical Channel  Google  Twitter  Facebook  Zynga  Cloud Services  Microsoft  SAP  Oracle  Zappos  Amazon  Cafepress  Netflix  Consumer electronics

The Factories May Be in China 29 Bits Physical Product WebPhysical Channel  Rapid Customer development  Logistics, shipping and manufacturing critical  Customer service  Rapid Agile and Customer development  Fastest to acquire early customers and scale  Longer customer feedback cycle  May require large capital requirements for scale  Rapid Agile and Customer development  Traditional sales channel  May require installation

We Still Make Things that Need Salespeople 30 Bits Physical Product WebPhysical Channel  Google  Twitter  Facebook  Zynga  Cloud Services  Cars  Solar panels  Wind turbines  Bookstores  Consumer electronics  Microsoft  SAP  Oracle  Zappos  Amazon  Cafepress  Netflix  Consumer electronics

Team Deliverable by Next Week Talk to potential channel partners (Salesmen, OEM’s distributors, etc.) What were your hypotheses about who/what your channel would be? Did you learn anything different? Did anything change about Value Proposition? Update your Lean LaunchLab & Canvas Draw your channel diagram Summarized in a 5 Minute PowerPoint Presentation

Examples

implantable drug infusion pumps with remote physician control for chronic pain patients at home “the right dose at the right time and place” Christian Gutierrez (EL), Ellis Meng (PI), Carol Christopher (IM), Tuan Hoang (FE)

Patients Training Hospitals Unit sales Trade shows Clinicians Institutions Support Services Pain clinics Clinical data KOLs Formulary Acceptance FDA IP Advocacy Groups Foundations OEMs Wireless Developers Manufacturing Costs Product Dev Costs FDA/Clinical Trials Chronic Pain v3FS Team Payors Marketing Costs Faster relief Efficient patient management and Dosing flexibility Access to high-value therapies and pharmacoeconomics Reduce length of hospital stays and pharmacoeconomics Support Proprietary knowledge Human Resources

Patients Training Hospitals Unit sales Trade shows Clinicians Institutions Support Services Pain clinics Clinical data KOLs Formulary Acceptance FDA IP Advocacy Groups Foundations OEMs Wireless Developers Manufacturing Costs Product Dev Costs FDA/Clinical Trials Chronic Pain v4FS Team Payors/ICA Marketing Costs Faster relief Efficient patient management and Dosing flexibility Access to high-value therapies and pharmacoeconomics pharmacoeconomics Support Proprietary knowledge Human Resources Electronic records Electronic health record providers Bundled kits CMS (Medicare)

Getting out Dr. Stan Louie, Drug Formulation Expert (USC Pharmacy) Dr. Giovanni Cucchiaro, Anesthesiologist (CHLA) Dr. Diana Hull, Physician (Group Health in Washington state, formerly at Kaiser California) Thomas Hsu, Insurance Specialist (Network Medical Management; a California ICA) Two chronic pain patients – Pump user and creator of support forum – User of oral narcotics and patches Dr. Frances Richmond (Director Regulatory Science Program, USC) Richard Hull (formerly at company selling Lapband) Clinicians Institutions/patients Regulatory Entrepreneurs/ Industry

Patients Product flow/Channel Fluid Synchrony Electronic Health Records Partners/ OEMS Partners/ OEMS Hospitals (Anesthesiologists Neurosurgeons) Pain Clinic (Anesthesiologists Neurosurgeons) Pump + Controller Support Services Bundled Kits Electronic Records

Channels (Direct) Direct to institutions Some formularies involved in purchase decisions Some doctors make purchase decision directly Device company/Doctor relationship is key Heavily influenced by : Clinical study results Regulatory approval Reimbursement Hospitals Pain Clinics

Patient Care Flow (Now) Fluid Synchrony Hospitals (Anesthesiologists Neurosurgeons) Pain Clinic (Anesthesiologists Neurosurgeons) Scheduled follow-up Patient Discharged Surgery/Rx/ reprogramming Trial period/ Home setting Weeks/months Key factors: Reimbursement, state regulations Pump + Controller Support Services Bundled Kits Partners/ OEMS Partners/ OEMS

Patient Care Flow (Proposed) Fluid Synchrony Electronic Health Records Hospitals (Anesthesiologists Neurosurgeons) Pain Clinic (Anesthesiologists Neurosurgeons) Pump + Controller Support Services Bundled Kits Electronic Records Scheduled follow-up Patient Discharged Surgery/Rx/ reprogramming Trial period/ Home setting Partners/ OEMS Partners/ OEMS Weeks/months Actionable feedback to doctors/institutions E-prescription / closing loop Key factors: Reimbursement, state regulations Days

Regulatory considerations PMA510K Trial size100’s of patients CostsUp to $100,000 per patient $10-50 MM$1-10 MM Time ~ 3-4 yrs + post approval follow-on ~ 2-3 yrs PMA approval with grouping of FDA approved drugs. Clinical trials results used to obtain CMS (Medicare) approval 510K restricts technology to predicate devices Can be more difficult to market against incumbents European CE mark is easier to attain (safety and performance only)

Take-aways Channel is direct in this existing market Channel for e-health is more complex and evolving State-to-state regulations can impact incentives Can pose problems as electronic records systems vary across the country Next Steps Understand costs associated with reaching doctors/institutions directly Understand structure of e-health channel Develop regulatory pathway (timelines and cost profile)

Advanced Chemistry for Pharmaceutical Progress Team: Kiel Neumann (EL) Stephen DiMagno (PI) Allan Green (Mentor)

44  PET is a non-invasive medical diagnostic technique for cardiac, brain, and tumor imaging  GFP technology makes new (unknown) and known (but clinically inaccessible) [ 18 F]-labeled radiotracers readily available  Fast, multiplatform, high efficiency synthesis of these fleeting, precious agents.  Initial target indications: pediatric neuroblastoma, Parkinson’s disease.

General methodology for adding fluorine to lead compounds of interest The Business Model Canvas Accessibility (RCY) Purity Speed PET/SPECT Multiplatform Sensitivity (nca) Specific compounds IP PoP data Regulatory plan Understanding of the regulatory process Contract cGMP precursor manufacture Salary, Rents Clinical trials SOPs for precursors and drugs Recruit clinical sites In vivo animal studies Develop regulatory plan for pre IND meeting ID cGMP CRO Fund-raising cGMP manufacturer Radiopharmacies Nuclear Medicine and Radiology departments Technical Assistance (Image Atlas) FDA regulatory support Radiopharmacies Equipment producers Prescribing physicians Radiologist who perform studies Sales of intermediates Technology license Product license (royalty) Drug developers Pharmaceutical development companies IP PoP data Radiologists Technical assistance Direct sales of precursor R&D and clinical studies presented in journals and meetings Sales of precursor through global finished pharmaceutical distributor

I-Corps 10/11/ )Radiologists and Nuclear Medicine Physicians 2)Radiopharmacy companies (Cardinal Health, Siemens, GE Healthcare, IBA, AAA) 3)Equipment manufacturers (GE, Philips, IBA, Advion) 4)cGMP manufacturers 1)Pharmaceutical companies 2)Radiologists and Nuclear Medicine Physicians

- Face to face with attending Radiologist at Stanford University - Face to face with radiopharmacist at UCSF - Conference call with Nuclear Radiologist at Memorial Sloan Kettering - Conference call with president of medium size drug company with PET product at the FDA - Telephone conference with cGMP facility I-Corps 10/12/11 47

I-Corps 10/12/ Immediate need for our product - Currently used SPECT product for neuroblastoma is limited by absence of correlative CT data - Our lead PET agent would provide more information on existing imaging equipment base - Two customers offered to participate in clinical trials - Potential for further development of other tracers identified in interviews - Actual need for the general procedure - Allow access to previously unknown tracers

 Face to Face meeting with president of small radiopharmaceutical company  Face to face with a clinician at Memorial Sloan-Kettering  Face to face with Global Production Manager of Molecular imaging for one of world’s largest radiopharmaceutical companies  OncoKinib collaboration between Geurbet, OncoDesign, and Ariana pharmaceuticals  Face to face meeting with head of R & D and International Production Manager from Linz, Austria  Eckert and Zeigler – German PET modular synthesis provider  Face to face meeting with Executive Director and CEO of Scott Tech Center in Omaha, NE  Introductory teleconference to CEO of Innovation Accelerator 49

 Significant Interest in our technology  Radiopharmacies want GMP product  No interest in GMP reagent preparation  Third-party manufacturers would use our developed synthetic pathways  Internal competition with one world radiopharmaceutical leader  Best to approach one of other two world leaders  Scott Tech Center  Willing to offer free advice on startup strategy  Provided introduction to Innovation Accelerator  Offered introduction to Director of Venture Technology of one of world’s leading radiopharmaceutical companies 50

General methodology for adding fluorine to lead compounds of interest The Business Model Canvas Accessibility (RCY) Purity Speed PET/SPECT Multiplatform Sensitivity (nca) Specific compounds IP PoP data Regulatory plan Understanding of the regulatory process Contract cGMP precursor manufacture Salary, Rents Clinical trials SOPs for precursors and drugs Recruit clinical sites In vivo animal studies Develop regulatory plan for pre IND meeting ID cGMP CRO Fund-raising cGMP manufacturer Radiopharmacies Nuclear Medicine and Radiology departments Technical Assistance (Image Atlas) FDA regulatory support Radiopharmacies Equipment producers Prescribing physicians Radiologist who perform studies Sales of intermediates Technology license Product license (royalty) Drug developers Pharmaceutical development companies IP PoP data Radiologists Technical assistance Direct sales of precursor R&D and clinical studies presented in journals and meetings Sales of precursor through global finished pharmaceutical distributor

52 Reagents F-dopa iodonium intermediate F-dopamine iodonium intermediate GMP Cassette or Components ABX Eckert & Ziegler GE MX module for TracerLab Siemens Explora GMP Compliant Synthesizer TracerLab/ GE Eckert & Ziegler Siemens Explora Neoprobe Synthra PET Radiopharmacy distributor Siemens PETNet GE Amersham Cardinal Health AAA Iason We provide accessibility Only want GMP precursor in modules without development Could license precursor synthesis for incorporation in modules Require GMP precursor (or cassette) to develop our product with their synthesizer

 Conference call with top 40 Fortune 500 chemical distribution company  Open to cGMP production of our potentially proprietary precursors  Interested in developing a general “plug-and-play” cassette  Would allow implementation of our methodology and precursors for any radiochemistry module  Important for FDA compliant production of any drug used in patient diagnostics  Face to face meeting with Director of Business Development of a leading drug discovery outsourcing company  Discussed preclinical studies and contract manufacturing of proprietary intermediates - Face to face with former Director of Chemistry of major pharmaceutical company - Significant interest in general methodology application to proprietary compound syntheses I-Corps 10/18/11 53

-Initially seeking to market method technology -too diffuse, but many opportunities (i.e. product-driven opportunities more than general technology-driven) -Need to identify specific imaging product opportunities -Validated hypothesis for immediate need of tracers - Raised question on identity of lead compound pipeline for Parkinson’s disease - Recruited two potential partners for clinical trials 54

I-Corps 10/11/11 55 Approximately 2.2 million procedures in the US. Drug costs range from $700 (on-patent) to ~$150 (generic FDG) US sales of radiopharmaceuticals for PET and SPECT $1.2 billion US sales expected to grow to $6 billion by 2018 Global numbers approximately 2x Source: Bio-Tech Systems Report #330; data for 2010.

I-Corps 10/11/ installed PET scanners PET radiopharmacies cover the entire US market Radiopharmacies have an interest in proprietary agents as a basis of competition in their market.

I-Corps 10/11/11 57 Neuroblastoma Prevalence: about 6000 US cases about 1000 new cases per year Subjects receive 3-6 images/year to follow response to therapeutic protocols World market at U.S. x 2 gives potential of 40,000-70,000 scans/year Drug costs $500/per gives ~$20 - $35 M Parkinson’s Disease DatSCAN sales in Europe ~$100 M The world's highest recorded prevalence of Parkinson's Disease of any region is in Nebraska, with people per 100,000 population US – 600,000 patients 1 scan per $500 = $300 M