Medical Device VC Funding: Slide Deck – Part 2 – Platforms

VisiCalc, the earliest generally agreed exampl...
Image via Wikipedia

Platform technologies have a certain allure. Look at MicroCHIPS, poised to revolutionize glucose monitoring and drug delivery (starting with osteoporosis, diabetes and cardiology drugs). Look at Seventh Sense Biosystems, hard at work developing rapid, simple-to-use diagnostics that measure “several classes of analytes including small molecules, peptides, proteins, and nucleic acids.” Medical device geeks like me can’t help being impressed.

Broadly defined, platform technologies are families of IP that enable multiple distinct clinical applications for distinct patient populations. MicroCHIPS and Seventh Sense are great examples.

Because platforms address multiple market opportunities, the revenue potential of a company with a platform technology can be several times that of a single application company. Does that mean platform technologies are easier to fund?

Pitching platform technologies to VC’s can be challenging. First, cool new technologies need lots of explanation. Second, presenting multiple market opportunities takes lots of time. One of my most popular posts has been “Medical Device VC Funding: Slide Deck – Part 1,” which covers a company developing a single medical device product to address a single unmet need. How should companies with platform technologies present to VC’s?

Having looked through many medical device VC portfolios, I don’t see much evidence that platform technologies are easier to fund. While a few medical device VC’s do seem to favor platform investments, most VC portfolios are filled with single-medical-application companies. Novel medical device platform technologies are simply not common. If your company doesn’t have a platform technology, don’t worry – just make sure your addressable market justifies the required investment.

If you do have a platform technology, congratulations. Your invention is a rare and marvelous achievement. Presenting your platform to VC’s can be a little more challenging than presenting a single need company. There’s just too much to present – an interesting and novel technology, and many market opportunities. The solution is to identify your killer app. Your killer app is the single medical application for your technology that by itself justifies the development of the platform. For Given Imaging‘s capsule endoscopy, as an example, the killer app is the identification of occult GI bleeding. Ultimately there may be many indications for capsule endoscopy, but occult GI bleeding is the one that made the company successful.

Why is it so important to identify a single killer app? Multiple clinical applications require multiple product configurations, multiple regulatory submissions, multiple reimbursement decisions, multiple sets of clinical evidence to support adoption, and multiple marketing efforts. Each clinical application also has its own set of risks. While technology development costs and risks may be leveraged across multiple applications, the application-specific costs and risks are significant. In a recent PEHub interview, VC Mike Carusi of ATV said “There are two ways to get a great multiple. One is to get a great number (from an acquirer) and the other is to not require a lot of capital.” Investing in multiple applications requires a lot of capital. Focusing on a single killer app is a smaller investment that enables a great return.

You’re probably asking “What’s the advantage of a platform if your are going to narrow your business plan to focus on a single application?” Unlike single application companies, platforms offer additional upside opportunity and downside protection for investors. Upside opportunity means that an acquirer might ultimately pay more for the company, because they are getting your killer app plus additional de-risked opportunities. Downside protection means that platform companies can pivot from plan A to plan B if the first application hits a roadblock. Investors like to have credible backup plans.

In reality, successful platform companies rarely have the resources to truly pursue multiple apps in parallel. Laparoscopic surgery began with the killer app of laparoscopic cholecystectomy. I already mentioned capsule endoscopy’s killer app – identification of occult GI bleeding. Biomaterial platform company Serica Technologies was sold to Allergan in 2010 on the strength of its breast reconstruction application. PixelOptics has chosen presbyopia correction as the killer app for its active-lens technology platform. NOTES companies are currently looking for their killer apps.

Selecting your killer app requires a thorough business evaluation of all potential markets, looking for the best market opportunity that requires the least capital. Select your killer app and focus your business plan around it. Your VC slide deck then starts to look like a single application company, with the following changes. First, after your title slide, insert a slide on the platform technology. Explain the technology and its advantages over technologies available today. Call the subsequent slide (“unmet medical need”) your “first” unmet medical need. Second, after your “Technical / Pre-clinical / Clinical / Regulatory / Launch Plan” slide, add an additional slide on subsequent applications of your technology. Be prepared to talk about the second most important application in some detail, including capital requirements, if the VC is interested. But leave them out of the financial plan.

That’s it – you’ve conveyed your platform technology, but you’ve focused the presentation on the killer app that will earn the best return for the investor.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s