Business Plan Class Presentation

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					      Business Plans
          The Backbone of . . .
Medical Device Development Companies !
                    Presented To The . . .
         Senior Biomedical Design Engineering Class
        University of Minnesota, BMEN 4002W, 2012



                  By William J. Rissmann
       Medical Innovations Product Development, LLC
                   www.Medicalipd.com
                                Outline

Agenda
•   Why Write A Business Plan
•   Funding Sources & Fund Raising
•   Detailed Business Plan
•   Summary




       Business Plans . . . .The Backbone of Medical Device Development Companies !
      Why Write A Business Plan ?

A Business Plan . . .
• Forces A Disciplined Analysis
• Staggeringly Comprehensive
• Forms The Backbone of Any Business
    − Used To Assess The Business Viability
    − Forms The Basis For Fund Raising

The Business Plan Should Be . . .
An Honest & Complete Story of The Business !



     Business Plans . . . .The Backbone of Medical Device Development Companies !
            Funding Sources

 Funding Comes From A Variety of Sources . . .
• Within Existing Companies . . .
   − Department Budgets
   − New Venture Funding
• Startups . . . .
   − Friends & Family
   − High Net Worth Individuals (Angels)
   − Venture Capitalists (VC’s)




      Business Plans . . . .The Backbone of Medical Device Development Companies !
       Fund Raising Simplified

Investors Want To Know Two Things . . .
• Who Is The Management Team?
   − What Are Their Backgrounds ?
   − Have They Been Successful Before ?
• What’s The Clinical Issue & What Does Your Product Do ?
   − They Need To “Get It” In 10-15 Minutes

These Are Weighed Almost Equally !




     Business Plans . . . .The Backbone of Medical Device Development Companies !
               Funding Sources – VC’s

• Several Different Types . . .
     − Early Stage – Round A
     − Mid Stage – Round B
     − Late Stage – Round C
•   VC’s Raise Funds For Specific Strategic Purposes
•   Each Fund Can Be $500M - $1,000M
•   Usually Have 2-3 Funds In Process
•   Will Hold Some Back For Later Rounds
•   Want 100 % Investment Return (On Paper)
     −   9 Out of 10 Will Fail
     −   Investors Will Get 10 % Return On The Overall Portfolio
     −   Will Get The Majority of Stock
     −   Usually Have A Board Seat
         Business Plans . . . .The Backbone of Medical Device Development Companies !
                  Business Plan Structure

        There Are Four Parts To Business Plan
        •   Detailed Business Plan
        •   Executive Summary
        •   Presentation
        •   Elevator Pitch

Development                                                                     Presentation
     The Detailed Business Plan Is The Repository . . .
     For All Your Research & Financial Analysis
     Remainder of This Presentation Will Focus On . . .
     The Detailed Business Plan
            Business Plans . . . .The Backbone of Medical Device Development Companies !
         Business Plans Tell A Story

•   Who Are The People Behind it ?
•   What Are The Clinical Issues ?
•   How Does Your Product Address These Issues ?
•   How Will You Sell & Distribute It ?
•   How Will You Get Paid – How Is It Reimbursed ?
•   How Long Will It Take ?
     − What Is The Clinical Trial Path ?
     − What Is The Regulatory Path ?
• How Much Will Be Needed To Bring It To Market ?
• How Much Money Can I Make ?
In A Funding Pitch . . .This Should Be Reduced To . . .
A Simple One Minute Statement !
       Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

Executive Summary
1 - Introduction
2 - The Company
    − Current Status
    − Objectives
    − Board of Directors
    − Management Team
    − Scientific Advisory Board

Continued . . .


     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

3 - Clinical Background
    − Clinical Issue Defined
    − Clinically Relevant Physiology
    − Causes of the Clinical Issue
    − Current Clinical Treatments
        ◦ Benefits
        ◦ Drawbacks, Complications, Etc.

Continued . . .



     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

4 - NewCo’s Product
    • What Is It ?
    • How Is It Used By . . . ?
        − Medical Personnel
        − Non-Medical Personnel
        − The Patient
5 - What Are Its Benefits Over Current Treatments ?
    • Patients
    • Medical Personnel
    • Third Party Payers

Continued . . .
     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

6 - NewCo’s Market Analysis
    • What Is The Market ?
    • Who Is The Customer ?
       − Decision Maker
       − Payer
       − End User
   • What Is The Size Of The Market ? (Sales At Maturity)
   • Competitive Analysis
      − Who Are NewCo’s Current Competitors ?
       −   Their Strengths & Weaknesses ?
       −   How Will The Respond To NewCo’s Entry ?
       −   Any Future Competitors Anticipated ?
       −   Any Disruptive Technology On The Horizon ?
     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

6 - NewCo’s Market Analysis, Continued
    • What Are The Barriers To Entering This Market ?
    • What Is The Price ? (With Unit Sales, Forms Revenue)
    • How Will It Be Marketed ?
    • How Will It be Promoted ?

7 - NewCo’s Sales & Distribution Analysis
    • Where Will The Product Be Sold ?
    • How Will It Be Sold ?
       − Direct Sales Force ?
       − Distributors ?

     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

8 - Will The Product Need To Be Serviced ?
    • If So, How Will This Be Done ?
        − In The Field
        − Return For Service
        − If Returned, Any Special Handling Required ?




     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

9 - What Are The Projected Sales ?
   • How Can You Estimate Since This Is A New Product ?
   • Fortunately, A Mathematical Model Exists
   • The Gompertz Equation . . . A Sigmoid Shaped Model

                (-Offset*e
                             -(Growth *t)
                                         )
 St = SM* e
 Where:           St = Annual Sales for Year t
                  SM = Maximum Sales at Maturity
                  e = Euler’s Number
                  Offset = Axis Shift
                  Growth = Annual Growth in Sales
                  t = Sales Year
 The Model Provides A Rationale For Sales Projections !
     Business Plans . . . .The Backbone of Medical Device Development Companies !
               Sales Projections Example

    What Does This Equation Look Like ?
                                         US Sales Forecast
                                    Theoretical Compertz Projections
             50,000

             45,000                                                                         • SM = 40,000 Units in the US
             40,000                                                                         • Offset = 5.0
                                                                                            • Growth = 13 %
             35,000
Unit Sales




             30,000

             25,000

             20,000

             15,000

             10,000

              5,000

                 0
                  2000       2005         2010         2015            2020   2025   2030
                                                       Year


                      Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

10 - Product Development
   • Concept Status – What Has Been Shown To Work ?
   • What Are The Major Unknowns ?
   • What Are The Plans To Address These ?
   • Follow On Next Generation Future Products ?

11 – Manufacturing Development
   • What Are The Key Processes ?
   • Who Are The Key Suppliers ?
   • What Is The COGS Projected To Be ?
      − Address Volume Based Cost Discounts
      − I Use Exponential Based Reductions
    Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

12 – Regulatory Analysis
   • US – 510K vs PMA ?
   • EU – CE Mark Approval ? ISO 13485 Status ?
   • ROW – Plans ?
13 – Clinical Studies Analysis
   • US Clinical Study Plans ?
   • EU Clinical Study Plans ?
   • ROW Clinical Study Plans ?
   • Post Market Clinical Study Plans ?
14 – Reimbursement Analysis
   • Reimbursement Codes Needed ? Plans To Obtain ?
     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

15 – Patent & Trademark Analysis
   • Current Status of NewCo IP ?
   • Licensed IP ?
   • Competitors IP Status ?
   • “Right To Practice” ?
   • Future IP Strategy ?

16 – Legal Analysis
   • Any Existing Contracts With Anyone ?
   • Any Issues With These ?


     Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

17 – Commercialization Phase Analysis
   • Proof of Concept
   • Product Development Completion
   • IDE Approval & Pilot Study
   • Pivotal Study
   • PMA Approval

18 – Overall Schedule
   • High Level – Provides A Roadmap
   • Show Only Relevant Major Activities


     Business Plans . . . .The Backbone of Medical Device Development Companies !
                Product Roadmap Example
   2011        2012          2013         2014       2015                 2016 2017               2018                 2019               2020            2021




                                                                                                                                                          US Reimbursed
                 Reimbursement Strategy                                                           Idle             Reimbursement         Reimbursement
                                                                                                                   Code Pre-Work          Code Approval


                  New Electro-Mesh Lead                                                        Peer Reviewed
                                                                                          Journal Publications (3-5)


Form Company     Multi-Electrode, ASIC     IDE    30 Patient Study With    FDA      180 Patient Study With            US PMA                  US Market
                 EMG, Smaller Device       Appr    6 Month Follow Up       Appr   12 Month F/U & Final Report    Approval With Panel           Release


                  New Programmer                                                    EU Center Start & Implants      CE                 OUS Market
                                                                                   For 180 Patient Study Above    Approval               Release


                  Handheld Patient
                     Controller




                   Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

19 – Personnel Requirements
   • Listed By Phase
   • Use Organizational Charts
   • Provide A Rationale For Each Headcount

20 – Resource Expense Analysis
   • Personnel
   • Non-Personnel
   • Capital



     Business Plans . . . .The Backbone of Medical Device Development Companies !
   Business Plan – Table Of Contents

21 - Financial Analysis Consists Of . . .
   • Unit Sales
   • Price
   • Cost of Goods Sold
   • Marketing & Selling Costs
   • General & Administrative (G & A)
   • Resource Expenses
       − Personnel
       − Non-Personnel
       − Capital
   • Taxes

      Business Plans . . . .The Backbone of Medical Device Development Companies !
    Income Statement – An Example

Medtronic 2011 Income Statement ( $ M)

•   Sales                                              $   15,933              100 %
•   Less COGS                                          $    3,912             - 25 %
•   Gross Margin                                       $   12,021               75 %
•   Sales & Marketing                                  $    5,533             - 35 %
•   R&D                                                $    1,508             - 9%
•   G&A                                                $    1,257             - 8%
•   Net Income Before Taxes                            $    3,723               23 %
•   Less Taxes                                         $      627             - 4%
•   Net Income                                         $    3,096                19 %
        Business Plans . . . .The Backbone of Medical Device Development Companies !
  Business Plan – Table Of Contents

21 - Financial Analysis – Financial Return
   • Times Series of Cash Flows (Prior Income Statement)
   • Net Present Value
       − After Tax Cash Flows Discounted
       − Time Frame – 10 Years Post Market Release
   • Internal Rate Of Return - IRR




      Business Plans . . . .The Backbone of Medical Device Development Companies !
  Financial Analysis – NPV Example

Year      Net Profit Constant $             Net Profit Discounted @ 12.5 %
 1               $ 1,000,000                              $ 1,000,000
 2               $ 1,000,000                               $ 875,000
 3               $ 1,000,000                               $ 765,625
 4               $ 1,000,000                               $ 669,922
 5               $ 1,000,000                               $ 586,182
 6               $ 1,000,000                               $ 512,909
 7               $ 1,000,000                               $ 448,795
 8               $ 1,000,000                               $ 392,696
 9               $ 1,000,000                               $ 343,609
 10              $ 1,000,000                               $ 300,658
Total           $10,000,000                               $ 5,895,396
        Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

22 – Risk Analysis
   • A Variety Of Risks Exist
       − Market Launch Dates May Slip
       − Market Share May Be Less Than Anticipated
       − Price May Be Less Than Anticipated
       − Other Competitors May Enter The Market
   • Every Effort Used To Mitigate These Risks

How Are These Quantified ?



    Business Plans . . . .The Backbone of Medical Device Development Companies !
 Business Plan – Table Of Contents

23 – Monte Carlo Analysis
   • Uses Simulation To Predict A Financial Outcome
      − Handles Many Variables Of Uncertainty
      − Values Are Statistically Modeled
      − Methods Introduced in 1964
      − Depends On Multiple Simulations
      − Lends Itself To Modern Computer Use

How Is This Applied In A Business Analysis ?

Here Is An Example . . .
     Business Plans . . . .The Backbone of Medical Device Development Companies !
 NewCo Monte Carlo Risk Analysis

• 56 Variables Were Used As Input
    − Market Launch Dates
    − Procedure Growth
    − Procedure Market Share Changes
    − Market Penetration
    − Price
    − Other
• Nominal, Min & Max Values Were Chosen For Each
• Statistical Model Were Chosen For Each
• NPV @ 12.5 % Discount & IRR Were Used As Outputs
• 5,000 Iterations Were Run
What Were The Results ?
    Business Plans . . . .The Backbone of Medical Device Development Companies !
Monte Carlo Simulation Results - NPV

 Frequency
                                          NPV Histogram                    Expected NPV: $ 47 M
20%                                                                        Minimum NPV: $ 16 M
18%
                                                                           Maximum NPV: $ 96 M
                                                                                   > 95%: $ 31 M
16%


14%


12%


10%


8%


6%


4%


2%


0%




             Business Plans . . . .The Backbone of Medical Device Development Companies !
Monte Carlo Simulation Results - IRR

                                                                IRR Histogram                                     Expected IRR: 92 %
 Frequency
25%
                                                                                                                  Minimum IRR: 49 %
                                                                                                                  Maximum IRR: 154 %
                                                                                                                        > 95 %: 70 %
20%




15%




10%




5%




0%
      <=49%   49% to   55% to   62% to   69% to   75% to   82% to   88% to   95% to 101% to 108% to 115% to 121% to 128% to 134% to 141% to 148% to >154%
               55%      62%      69%      75%      82%      88%      95%     101%    108%    115%    121%    128%    134%    141%    148%    154%


              Business Plans . . . .The Backbone of Medical Device Development Companies !
  Business Plan – Table Of Contents

24 – Capitalization Requirements & Exit Strategies
   • Funding Requirements By Phase
       − Proof of Concept
       − Product Development
       − IDE Approval & Pilot Study
       − Pivotal Study
       − PMA Approval
   • Funds Raised To Date – Use of Proceeds
   • Exit Strategies & Shareholder Value



      Business Plans . . . .The Backbone of Medical Device Development Companies !
Capitalization Requirements Example

   Milestone        2012     2013       2014      2015             2016   2017   2018      2019
Proof of Concept   $ 3.0
                   $ 3.0


Complete Product                    $ 11.9
  Development                       $ 14.9


      Pilot                                               $ 18.2
 Clinical Study                                           $ 33.1


     Pivotal                                                                      $ 22.2
 Clinical Study                                                                   $ 55.3

                                                                                            $ 5.9
PMA Approval
                                                                                            $ 61.2


                                      Incremental $ (M)

                                      Cumulative $ (M)

         Business Plans . . . .The Backbone of Medical Device Development Companies !
Cummulative Cash Flow Example

                                                        Cummulative After Tax Cash Flow


                           $700,000


                           $600,000


                           $500,000
 Cummulative Cash ($000)




                           $400,000


                           $300,000


                           $200,000


                           $100,000


                                  $-
                                       2012   2014   2016     2018      2020          2022   2024   2026   2028   2030

                           $(100,000)
                                                                               Year



                           Business Plans . . . .The Backbone of Medical Device Development Companies !
      Investment & Milestones

Cumulative            Milestone              Cumulative               Exit Options
Investment                                     Time
$ 3 Million      Proof of Concept               1 Year                Joint Venture


$ 15 Million    Complete Product              2.5 Years               Joint Venture
                  Development
$ 33 Million        Pilot Clinical            4.5 Years               Joint Venture
                        Study                                          Acquisition
$ 55 Million       Pivotal Clinical             7 Years               Joint Venture
                       Study                                           Acquisition
$ 62 Million     US PMA Approval                8 Years             Joint Venture
                                                                   Acquisition - IPO


      Business Plans . . . .The Backbone of Medical Device Development Companies !
                               Cap Table Example or . . .
                                How Do I Make Money ?
                              Pre-   Pre-    Pre-                        #               Post
Funding    Business Plan     Money Money    Money    Invest   Cumul    Shares   Total   Money    Orig    Comp       Initial    Com     Com
                                    Share
Round          Phase         Shares Price    Value            Invest    Sold    Shares Valuation Share Exit Value   Prefer    Value    Share

                             (000)          ($000)   ($000)   ($000)   (000)    (000)   ($000)    %     ($000)      ($000)    Remain   Value


 Seed
Round    Proof of Concept 5,000 $1.00       $5,000   $5,000   $5,000   5,000    5,450   $5,450 100%
         Complete Product
A Round    Development    5,450 $2.00       $10,900 $15,000 $20,000 7,500 12,950 $25,900 42% $30,000 $20,000 $10,000                   $0.77
        IDE Approval & US
B Round     Pilot Study   12,950 $4.00      $51,800 $20,000 $40,000 5,000 18,150 $72,600 30% $100,000 $40,000 $60,000                  $3.31

C Round   US Pivotal Study   18,150 $8.00 $145,200 $25,000 $65,000 3,125 21,275 $170,200 26% $250,000 $65,000 $185,000 $8.70

D Round FDA PMA Approval 21,275 $10.00 $212,750 $10,000 $75,000 1,000 22,275 $222,750 24% $400,000 $75,000 $325,000 $14.59




                             Business Plans . . . .The Backbone of Medical Device Development Companies !
              Business Plan Summary

•   Incredibly Comprehensive
•   Demands Honest Rigor In All Aspects
•   Combines Both Qualitative & Quantitative Aspects
•   Engineering Math Helps A Lot !

After All, If You Were Putting Your Millions In . . .
Wouldn’t You Want A Thorough Analysis ?




       Business Plans . . . .The Backbone of Medical Device Development Companies !
                  Business Plans



      Questions & Answers




Business Plans . . . .The Backbone of Medical Device Development Companies !

				
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