Building a Successful Medical Device Company: Key Strategies for Growth

1. Critical Success Factors For A Medical Device Company Dickson Consulting

2. Critical Success Factors • Product idea • Business plan • Funding • Personal factors • People • Product development • FDA approval • Reimbursement • Product champions • Financial performance • Free “stuff” • Business protection • Stark law Dickson Consulting

3. Business Plan • Explains business vision. How you envision the company in 3-5 years. • Need to understand market. Product need, market size, competition, technology application and differentiation. • Business plan should address all functional areas and fit them all together. Include financial plan-P/L, cash flow, balance sheet. • Understand the risks and how to manage them. • Enables review and evaluation of concept. • Update strategy to reflect changing conditions. Adapt and be creative. . Dickson Consulting

4. Funding • The best source of funding is $ not spent unnecessarily. Manage the cash. • Idea –sweat equity/angel funding • Product development and marketing-venture capital/government grants • Company growth-venture capital and foreign market IPO • Investor exit strategy-IPO or sale of company • Mature product-R&D and acquisitions Dickson Consulting

5. Personal Factors • Emotional intelligence • Family support • Leadership skills/make tough decisions • Functional, few negative distractions • Value relationships/ maintain network • Determination • Personal ethics • Ability to communicate • Ability to execute/project management Dickson Consulting

6. People • Need for domain experience • Product champion/scientist • Medical advisory board • Board of directors • Advisors • Corporate governance • Product development/ engineering • Process development/FDA approval/quality • Sales and marketing • Clinical • Funding/financial • Legal-patent, regulatory, corporate Dickson Consulting

7. Product Development • Engineering • Clinical trials/PMA • Subsequent changes • 510k process • Letters to file Dickson Consulting

8. FDA Approval • Europe vs. USA • Product approval-510k process • Manufacturing process approval • June 15, 2006 update by FDA • Quality control process approval • Marketing restrictions--off-label use Dickson Consulting

9. Product Champions • Doctors, doctors, doctors • Hospital • Other medical professionals • Nurses • Professional papers • Speeches • Conferences • News releases Dickson Consulting

10. Need for Reimbursement • Hospitals need to be paid • Doctors need to be paid • Medical device company needs to be paid • Increasingly tight reimbursement policies • Best options from an investors perspective: • Product category is already approved for reimbursement • Breakthrough must offer such compelling clinical benefits and cost reduction that the reimbursement process will be as smooth as possible. Dickson Consulting

11. Reimbursement in Business Plan • Begin planning for reimbursement strategy at the earliest stages of the company formation; it should be a fundamental part of the business plan. • Consider the data requirements for supporting a reimbursement submission when formulating clinical trials. The data to support reimbursement may be significantly different than the clinical data. • Work with an expert on reimbursement strategy: • Regulations are extremely complex • Rules and winning strategies change frequently • Must stay abreast of best practices • Focus is on economics of a procedure, not just clinical outcome. Dickson Consulting

12. Reimbursement Cycle • Detailed understanding of process is needed. • DRG’s/CPT’s established to provide for reimbursement • Can device company provide guidance on DRG and CPT to be used? Dickson Consulting

13. What Are DRG’s/CPT’s? • DRG • Diagnosis Related Group • Developed by CMS • CMS=Centers for Medicare & Medicaid Services • Reevaluation/new rules currently underway-October 2006 • CPT Code • Current Procedural Terminology • Developed by American Medical Association • Requests for changes presented to committee • Payments based on what is “normal, customary and reasonable” as determined by CMS or insurance provider. • Frequently also used by private insurers for reimbursement. Dickson Consulting

14. Financial Performance • Cash flow. Cash is king!! • Market penetration = revenue growth • Salespersons – feet on the street to grow revenue • Revenue growth vs. income-sometime contradictory!! • R&D expense-how much is being invested and in what? Dickson Consulting

15. “Free” Stuff • Web sites and news releases of competitors • Analyst reports on industry and competitors • Web sites of regulatory agencies and trade associations • FDA=www.fda.gov • CMS=www.cms.hhs.gov • AMA=www.ama-assn.org • AdvaMed=www.advamed.com Dickson Consulting

16. Business Protection • Patents • Trade secrets • Trademarks • Noncompete agreements • Nondisclosure agreements • Code of ethics Dickson Consulting

17. Sales, Marketing and Clinical • Sales vs. clinical • Is marketing necessary? • Who does a doctor want to talk to? • Relationship building Dickson Consulting

18. Doctor Hospital Device Company Stark Laws • Address consulting and professional relationships between doctors and companies. • Example of risk-U.S. Department of Justice subpoenas issued to orthopedic companies. Dickson Consulting

19. Stark Law’s Basic Prohibitions A physician cannot: • Make a referral • To an entity • For the furnishing of “designated health services” • The may be payable by Medicare or Medicaid (or insurance companies in some states) • If the physician (or the immediate family member of the physician) • Has a direct or indirect financial relationship with the entity • Unless an exception to the Stark laws applies Dickson Consulting

20. Ten Perceptions That Can Kill A Company • You have a great idea and raising money will not be a problem. • You can get it done quickly and at a low cost. • Dilution is a bad thing. • You have the best talent on the street. • You do not need patent protection, the trade secrets are significant. • “Build it and they will come.” Success in the market is totally based upon technology superiority. • It is a low risk and expedited regulatory pathway. • Scientific founders should continue as CEO forever. • Management and boards are strategically aligned. • Venture capitalists like risk and have unlimited funding. Dickson Consulting

21. Success Dickson Consulting