Successful Exits: It's not just about the technology Angel Capital Association Summit March 26-28, Washington DC James F. Jordan

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. 2

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. 3

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 4

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. 5

Factors that increase market value 6 Disease PrevalencePortion 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 RecurringPercentage of population with a recurring event in a given year. Prevalence Population[Disease prevalence less incidence] x percentage recurring Number DiagnosedNumber 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/ServicesNumber of diagnosed x procedure/service approach % Type of products/Sub-servicesList the individual products or services performed Units per Procedure/ServiceExample: 2 stents per procedure, 30 pills per cycle, 30 days in long-term care Market Units/ServicesNumber 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 CostMarket Units x Average Price

4% change in diagnosis rate can increase the market by 11% 7

4% increase in diagnosis rate 9

1.2% procedural shift can change the market dollars by 10% 9

Increasing units per procedure by.2 units shift market dollars by 9% 10

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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 12

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 13

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Medical Device Industry Macro Map 15 HOSPITALS Operating RoomMulti specialty ICU/ CCU Laboratory basedSpecialty 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 InterventionalcardiologyInterventional radiology Electrophysiolog y Interventional neurology CRM Radiology(imagi ng) Renal Neurology Infusion systems wound care and management Abbott 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/Co nvotech Zimmer

16 Interventional Cardiology Micro Map angiographyangioplastyIVUS vascular closure atherectomythrombectomy cardiac catheter angioplasty balloon catheters stents coronary stents periheral stents bare metal drug eluting peripheral stents peripheral stent grafts Abbott 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 17

Author Mr. James Jordan Center for Healthcare Innovation Chairman of the Strategy Group 18