5 Ways of Creating High Valuations for Your Life Science Company

5 Ways of Creating High Valuations for Your Life Science Company

1. Clinic Impact

Clinical impact is a fundamental characteristic and the most important benchmark for success of a medical device company. Almost all firms that generate premium M&A exits have products that fundamentally alter the pre-existing practice  of therapy or diagnosis. Take Perclose whose sutere catheter provides a novel method for closing a femoral access wound. Perclose fundamentally changed the clinical thinking and challenged the standard of care in the cardiac cath lab (pressure with sandbags). The improvement in patient care, comfort and clath lab efficiency were immediate. A new way of thinking emerged , creating an entirely new market.

Another recent example is Irvine, Ca based Spinofix, Inc is working on next generation posterior fixation spine technology. Spine surgeons in spine decompression surgery remove the spinous process, by doing that a segment of spinal cord is exposed. Spinofix technology replaces the spinous process and provides room for bone grafting and supposedly superior stabilization with its fixation technology. Bigger companies are looking at this technology as option to conventional parallel rod system.

2. Franchise Value, Strategic Need & Clinical Need

Franchise value implies that a company’s technology and the resulting clinical application are infact novel and clearly the best of breed. In almost all cases, companies with high franchise value are the first to market in an entirely new category. They establish dominant presence and create a new clinical franchise.

Eg; Lapband from Allergan is meeting a great unmet need in the obesity space.

Obesity is one of the biggest unmet clinical need, and there is opportunity for 20 more companies to meet the need, because they can target various methods to treat obesity.

3. The Effect of Focusing on Milestones/ Value of Execution

The company’s performance during the early stages of its development is critical to maximizing value. This explains why VCs place so much emphasis on the management team. Not only is execution important, it is controllable; an experienced team knows how to organize itself around key issues, thereby preventing situations such as program misdirection and lack of appropriate development focus from taking hold, while at the same time preserving the ability to change direction based on new information. Good start ups have good strategy.

4. Sustainability

When buying a company, models are built to justify acquisition or an IPO, placing extensive weigh on sustainable (if IPO) or predicatable sales (start up) of the acquired technology. Buyers want to know whether acquiring a company or its technology (product acquisition) is going to generate long –lasting profits.

A large market, significant clinical impact and the ability to bolster a franchise for the acquirer is critical to profit sustainability. It signifies successful management of capital and time.

5. Timing of Exit

A company with a ground breaking technology may exit too early.  It is important to monitor progress against milestones and the impact. Exiting before hitting the infliction point will result in less money and less ROI for investors. Conversely,  if the infliction point is not noticed and value is not cashed, then a opportunity to exit may be lost. Therefore timing is very important, monitoring the infliction point may bring very high return on investment or a good exit.

In the past four years the inflow of money from VCs into early start ups has affected the way exits will occur. Milestones are slower, but the key is “who stays in the game” companies who run out of money or spend it too fast to reach milestone can lose because they are not in the game.  Startups need to manage regulatory and clinical strategy to manage more complex FDA interaction.

The good news is the M&A market is very strong, large cap companies still depend on small medical device companies as a source to expand their offerings without earning dilutions, and funding will therefore continue to be available for novel, clinically relevant products that serve large and growing markets, one example is obesity market. Obesity was a condition and recently categorized as a disease, there are very few players and will continue to be the biggest market in the world as US, UK, AUSTRALIA, EU, LATIN AMERICA all reel under epidemic of obesity and its problems. This is a $200B market and growing.

The above benchmark characteristics define a successful value creation and exit.

By: Raj Nihalani, M.D., RAC(US)

Burrill makes the following predictions for life science sector for 2012

Burrill makes the following predictions for life science sector for 2012:
2011 has been a year of investments as most public and private life science companies raised a fund which was up to $76.2 billion. The ongoing volatility in the market is not very promising for the companies which want to raise their fund through public markets but the market will slowly gain stability and will be favorable for investments in 2012. In 2012, many biotech companies are said to go public through initial public offering (IPO) to raise expansion funds. More IPO activity is expected the coming year. Consumer based technology companies will be the ones topping the list of the IPOs. About 25 life sciences companies are expected to hit the listings in 2012.
Private investments in life sciences will exceed around 10 percent in 2012. Traditional funding by venture capitals, angel capitals, and other private sources of funding will continue to be the major sources of investments. Traditional venture investors will be funding more for exploration of areas in medical science ranging from therapeutics to other areas of healthcare.  More funds will be allotted for medical device sector to benefit particularly the aging population for more wireless devices.
2012 will witness a major lift in M&A (mergers and acquisitions) as several small-medium bio tech companies are gearing up activity for combined research and products which will pose as a competition for the big players in the industry. They will have to continue to distinguish sectors under them based on pharmaceutical, biotech, generic, biosimilars, and diagnostics. And one of the ways to achieve this is through aggressive buying of innovative companies.

Maryland VCs are moving their cash into medical devices- Medical Tech Boom

In Maryland, venture capitalists are moving their cash into medical devices, despite a blip in investing & global market retrenching.

VC firms have invested a record $47 million in Maryland’s makers of medical devices and equipment, according to the latest venture capital report published by PricewaterhouseCoopers  

That figure towers over the mere $4.6 million invested in the industry in all of 2010, and it’s second-most among all industries in Maryland so far this year. More than $52 million has been invested in biotechnology through 2011.

What’s going on in Maryland appears to be taking place across the country, too. Venture firms invested $728 million in 74 deals with the medical device industry. That’s a 17 percent increase in the amount of money invested in devices

This is an indication of a medical device boom all over the country and in emerging countries.

Medical Technology’s biggest wheeling-and-dealing session, the 30th annual J.P. Morgan Healthcare Conference in San Francisco.

Over 9,000 people attended the meeting, Wall Street folks, VCs, Entrepreneurs, CEOs, innovators, physicians. Folks attending the meeting had to show their invitation confirmations, those staying at the hotel had to show their room keys, so the security crush significantly cut down “clock tower” meetings in the hotel’s lobby. Coupled with the unusually good January weather, Union Square became the preferred chat-up locale, to the point that the park was overrun by posses of (mostly) men in black suits. This is where attendees (investors) figure out where they’re going to put their money in the year.

In side the St Francis Hotel. The Investment community was bullish on the prospects of the med tech sector in 2012 despite the fact that the medtech industry concerns have not permeated the FDA.

One of the positive notes struck in this week’s 30th Annual J.P. Morgan Healthcare Conference (held in San Francisco) was the announcement by Kevin Willsey, J.P. Morgan’s co-head of investment banking for North America, that the U.S. economy would grow 2.5 percent in 2012

In the opening remarks of Jamie Dimon, J.P.Morgan’s Chairman and CEO. In a Q&A with Maria Bartiromo, Anchor of CNBC’s “Closing Bell,” Dimon mentioned that he saw hope despite the sobering challenges faced by the industry and the country.

Dimon on Economy:

PEOPLE WANT TO GROW, THEY WANT TO EXPAND. THE INNOVATION AND TALENT OF THESE COMPANIES IS EXTRAORDINARY. AND YEAH, I THINK WE'RE STARTING TO SEE THE WORLD RETURN TO A GOOD, NORMAL, LET'S INVEST, LET'S TAKE RISKS, LET'S GROW AND FIND NEW PRODUCTS AND SERVICES. I THINK THAT'S A GREAT THING

 

The sentiment of the CEOs and executives from EU and Asia showed promise and growing demand in health care across EU and Asia. China added over 10,000 hospitals last year, and continues to build. This has created demand and respect for new technologies and innovations. China and the emerging markets are encouraging innovators to seek funding in their countries if the regulatory environment is not apt for innovation in the US.

Other news:

• Bristol-Myers Squibb’s $2.5 billion purchase of Inhibitex.
• Increase in the awareness for treatments of Obesity and Diabetes using drugs and medical devices. Investors showed renewed interest in the Diabetes and Obesity treatments
• Abbott CFO Thomas Freyman provided lots of details, which he dutifully read, about the planned split of the company into two — pharmaceutical and medical products companies. Medical devices will contribute about 27% of Abbott's (NYSE:ABT) sales after it spins out its research pharmaceuticals unit later this year, CFO Thomas Freyman said
• AstraZeneca’s CFO Simon Lowth provided a change of themes as he placed the importance of partnering as a primary plank of his pitch. He portrayed AZ as a “focused, innovation-driven, integrated global biopharmaceutical company.”
• Former FDA Commissioner Mark McClelland, in a luncheon presentation on Wednesday, also gave hope for some good coming from the Affordable Health Act. He stated strongly that “the law was very unlikely to go away.” He foresaw 2012 as a very important year for financial discussions focused much more on the “value” of health care, regulatory reforms and more effective health care.
• The lack of sufficient funding for new start-ups, perhaps the largest “elephant in the room” and a major cause of feelings of uncertainty among entrepreneurs, also went unaddressed. Yet it was the focus of many quiet conversations in the hallways. Start-up company founders and supporters shared experiences of finding the “VC wells dry,” greater difficulty in winning NIH grants and scrambling to line up alternative funding sources. Some looked to other conferences in town for answers to these important questions.

The buzz here this year is all about: (1) innovation: a year jam-packed with new milestones (2) collaboration: academia, pharma, biotechs, medical device makers, VCs, non-profits (3) deal-making: pace of deals is likely to pick up as big pharma looks to replenish pipelines.

Top Five Indicators That Will Transform Medicine

1.      Identifying the unmet clinical need.

Today the #1 preventive causes of death is Obesity. US spends over $150 Billion in direct and indirect cost to treat obesity and obesity related problems. There are no therapies to provide durable weight loss. Diet and exercise alone cannot help the patients. Many patients who have comorbidities and need to lose more than 50lbs are looking at bariatric surgery. Today, there are surgical procedures that are effective than drugs. US gov needs to support companies that are focused on providing treatment for obesity. 90 Mil people are obese in US, of which 50% need some kind of medical intervention, 14 Mil people are medicare approved to get a surgical intervention and assume a medical device cost $8000 to $10,000  it is a $140 Billion market in US alone. At the recent JP Morgan Health Care Conference 2012, there was a renewed interest in Obesity interventions. VCs and companies are looking at new technologies to fund. It is predicted that Obesity will be the biggest medical device market in this decade. There is opportunity for 50 more companies in this space.

2.      The US FDA and the industry need to work together.

The US medical device, drug and biologics innovation is in danger because the regulations are too strict, stringent and one sided. The industry has recommended the FDA to create methods where the companies can provide ample data to show safety of the product and get provisional approval, to enable the innovation to reach the needy patients in the US. The industry has also suggested that post marketing studies can define effectiveness. This way the industry can bring innovations to the health care providers and patients. This is a simple and reasonable solution for both the FDA and the industry, and someone in the US FDA and the White House must pay attention to the above suggestions.
FDA has taken the role of playing “Dr” was the sentiment at the recent JP Morgan health care conference in Jan 2012. “FDA needs to soften its approach and industry will stop complaining” said a young medical device manufacturer.

The above suggestions were brought to the notice of the speakers representing the FDA at the Jan 2012 JP Morgan Health Care Conference. The response was “FDA is not going to imitate EU regulations”

Today, there is a real threat of innovation moving outside US soil, if that happens, US will no longer be using cutting edge medical technology to treat patients. Emerging countries will dominate in medicine and technology.

2012 is an election year. Medical, investment and pharma community is huge and is waiting to see actions before the elections so they can decide who to vote for.

3.      Practicing Social & Preventative Health.

Public needs to pay more attention to their social and personal health practices. Have a small budget for buying vitamins and healthy foods. Make sure that the immunization shots are taken regularly, diet and exercise is part of the daily conversation. Kids are exposed to vegetables and good nutrition, exposed to sunlight, good personal hygiene, just washing hands can prevent infections.

4.      Opportunity to open patient portals:

Consumers should be able to connect with health care providers and check appointments, see lab results, renew prescriptions, and communicate with doctors and nurses. The HIPAA regulation needs to be reviewed to make sure it does not cost us more because the health information was not available on time to treat the patient.

Privacy of health care info is a good thing, but if people are openly discussing everything on facebook, what is the point of HIPAA? Is this not making health care expensive?

5.      Reform HIPAA: Health Insurance Portability & Accountability Act

If everyone, is chatting about everything on Facebook and twitter and other social media. Why are we worried about privacy of health records? The access to these records is so difficult that, in a medical emergency the patients have to go through a whole battery of test, because his or her recent records were not available in time. The cost burden is on the subscribers.

Is this not adding to the health care cost America? This is more expensive and think about it, very risky! If important history is not available, it can result in sad or unnecessary outcomes. Reach out to the White House or your local representative.

Or one day affording health care will be a dream. Privacy is needed but within reason.

 

Resources for Med Tech Innovators

MEDICAL TECHNOLOGY INNOVATION & INVESTMENT JOURNAL  Is working on identifying and bringing as many resources to med tech professionals to make their start ups successful. The following list of companies have some history of bringing investments in to  startups in the med tech sector. York Medtech Partners Inc., based in Toronto, Canada, is an advisory and investment firm serving companies in the medical technology sector. They work with high potential technology companies in the following areas: Medical devices Medical Imaging Medical diagnostics Health science instrumentation E-health technologies Healthcare services York  partners with management, entrepreneurs, researchers, and investors to create and build medical technology businesses with global reach. Their team contributes management expertise, industry knowledge and access to capital to transform great ideas into successful commercial ventures. York Medtech Partners has established York Medtech Commercialization Fund (YMCF) to make seed stage investments in medical technology companies arising from Ontario research institutions. Eligible investments by YMCF qualify for a 30% grant from the Ontario Government. YMCF is sponsored by several of Canada’s premier research institutions including the University of Toronto, York University, University of Waterloo, University of Western Ontario, University of Ottawa and Sunnybrook Health Sciences Centre. Contact:  Office Location595 Bay St., Suite 1204 P.O. 75 Toronto, Ontario, CANADA M5G 2C2 Phone: (416) 482-6568 Fax: (416) 640-5153 John Connolly - Managing Director Direct: (416) 985-4361 Email: jconnolly@yorkmp.com Ken Pritzker - Managing Director Direct: (647) 221-6909 Email: kpritzker@yorkmp.com John Jordan - Director Direct: (416) 729-7502 Email: jjordan@yorkmp.com ENDEAVOUR VISION are a venture and growth capital firm providing expertise and funding to entrepreneurs and companies with global ambitions in life sciences and information technologies. The company is based in Switzerland. They have funded the technologies that can be disruptive. Endeavour Vision SA 6 rue de la Croix d’Or 1204 Geneva, Switzerland Tel +41 22 544 6000 info@endeavourvision.com www.endeavourvision.com TrialMed Life Sciences, LLC The group is connected to distributors in India and have a team to do a clinical trial on medical devices in INDIA. contact: sonali@trialmed.com The Mercury Medical Investments (MMI)  This group provides early stage funding for promising healthcare and healthcare related technology.  They identify investments aligned with their mission to improve healthcare and patient outcomes through innovation and technology, while striving to achieve excellent returns for their investors. Once identified and screened, we seed the early stage companies and provide financing, guidance, and networking to help the venture achieve benchmarks to success.  Submit your business plan and supporting materials to:  getstarted@mercmed.com AIB Venture Capital Fund As part of our comprehensive range of financing options, AIB also provides Venture Capital funding to Irish businesses in the early stages of their development.  The AIB Seed Capital Fund which is co-owned by both AIB Bank and Enterprise Ireland is the largest Seed Capital fund in the country.  Established in 2007 a total of almost EUR7 million has been invested in 18 projects (to June 2009) and the fund is expected to substantially increase the level of investments over the next three years. The average initial investment made by the Fund is in the order of EUR250,000 but smaller investments of EUR100,000 will also be evaluated. Enquiries from all sectors are welcome and to date enquiries have predominantly come from Entrepreneurs in the internet, software and services sectors along with enquiries from the marine, media, healthcare and food sectors from all across Ireland. If your business or business idea is in need of a cash injection, then the AIB Seed Capital Fund may be the solution. How the Venture Capital Funds work: The Venture Capital Fund provides money for investment in innovative enterprises in exchange for a stake in the enterprise. Venture Capital investments are usually for a period of 3-5 years at which stage there is normally an IPO, a merger, an acquisition or a buy-out. Benefits of Venture Capital Funds: An excellent source of finance Venture Capital finance gives your business a cash injection to fund expansion, product development or acquisition. Unlike more traditional forms of finance periodic interest payments are not expected of a company invested in by the Venture Capital Fund. Additionally, this form of financing may be available to your business when other forms of finance are not. Expertise and advice The expertise and advice of the venture capitalists is at your disposal. This could range from offering you commercial and strategic advice, a network of business contacts, assistance with staff and management development, fundraising or marketing. How to apply: Details of the AIB Seed Capital Fund and the application process can be found on www.aibseedcapitalfund.ie and on the websites of the Investment Managers; www.enterpriseequity.ie and www.dbic.ie.

Medical Technology Outlook for 2012

 

So here’s a look at America’s prospects for 2012. The economy might be headed for a stronger growth track, but there are least three potential obstacles to watch for: Europe, China and political gridlock.

US seems to have de-coupled with Europe and its troubles.

First the positive signs, of which there are plenty: the jobs market is looking up, housing sales and construction have been showing recent signs of improvement, business sales and profits are rising.

It appears that the Life Science and the IT industry will be the leading sectors in 2012.

US Pharma and the med tech companies are cash rich. All life science M&A activity has been strong.

Now, as the FDA starts showing the improvements in their processes. The Med tech industry is showing signs of a boom. See the trend in the early stage investments in the med tech sector from 1994 to 2011. The amount of investments is going up since its peak in 2008.

The JP Morgan Health Care Conference meeting in San Francisco will be attended by entrepreneurs and investors from the US and abroad.The health care need in the treatments of Obesity, Diabetes, Orthopedic and Spine Implants, Cardio-Vascular products, Personalized e-health, Diagnostics

What is holding back the surge in life Science Industry is: US FDA

Industry experts suggest that:  FDA needs to "not play physician" and let physicians plan the patient treatments and decide what is best for their patients. The European MDD (Medical Device Directive) is the fair example. If the FDA regulators understand that health care is subjective and many patients are being deprived of new technology because of the red tape at the FDA. Bottom line, if companies have a ISO 13585 certification, FDA should approve the product in the US market. This will enable the patients have access to a wide variety of treatment options and it will be great for the life science industry.