1. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick How to Prepare Your Medical Device Company for Acquisition Students to Start-ups The Les Kilpatrick Entrepreneurial Skills Workshop Series February 17, 2009 Process Overview

2. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Chance, Choice, Change and Challenge* 5 “at-bats” Combination of base hits, strike-outs and homeruns – Change = demographics – Chance = personalities, priorities and interests – Choice = personal goals and ambition – Challenge = how to bring it all together How best to maximize your opportunity? What Animates Your Career? *Jonas Salk, Man Unfolding, 1972

3. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Why this Series? Entrepreneurship is about making an impact An acquisition might be your career highlight Leveraging Orange County’s natural strengths – Total estimated employment: 29,000 – Total estimated wages and salaries paid: $2.2 billion – Average wage: Nearly $76,800 – Percentage of total California – biomedical workforce: 11% – Statewide ranking: Third

4. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick

5. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Medical Devices M&A 2006150 Deals$53.3B 2007191 Deals (+27%)$57.9B (+8.6%) Aggregate 2007 M&A = 90x Aggregate 2007 IPOs Source: Levin Associates Healthcare M&A Information Service, January 2008

6. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick

7. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Your Game Plan for Success February 17, 2009 How to Prepare Your Medical Device Company for Acquisition: an Overview February 24, 2009 Envisioning Milestones and Achieving Them March 3, 2009 The Art of Valuation March 10, 2009 What Makes a Great Investor Pitch April 8, 2009* Secrets to Presenting a Winning Investment Pitch May 5, 2009 Midcourse Corrections May 12, 2009 Executing the Exit

8. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Our Speakers Tonight Ray Cohen, CEO, Symphony Medical & Fjord Ventures Greg Ruehle, CEO of Orange Coast Medical Ventures

9. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Ray Cohen Slideshow

10. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick

11. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Flaming enthusiasm, backed up by horse sense and persistence, is the quality that most frequently makes for success. – Dale Carnegie Reasonable men adapt to the world around them; unreasonable men make the world adapt to them. The world is changed by unreasonable men. – Edwin Louis Cole

12. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick How to Prepare Your Medical Device Company for Acquisition Is it really a well understood business methodology? The secret is………positioning for sale requires the same basic effort and elements Financial Buyers vs Strategic Buyers Strategic buyers acquire either (i) fully baked businesses that are accretive or (ii) technology that fits with their product portfolio What is most important to strategic buyers? – “proof” Revenue is not a necessary element You and your people are probably redundant

13. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Elements of a Successful Medtech Start-Up Company A highly motivated, effective and dynamic leader(s) that understands the concept of “enrollment” Novel concept or technology Experienced advisors from specific field of endeavor – Physicians, Researchers, Executives with start up experience, Regulatory expertise Large under-served market and detailed market research & analysis – How big is the market? what is indication for use? competition? Incremental product improvements create products not companies - there is a distinction btwn a “technology platform” and a “Product” Intellectual property protection – Initial landscape analysis, filing provisional patents, enablement of invention A well conceived FDA regulatory strategy - 510(k)?, PMA?, Clinical Studies? Pre-clinical safety & efficacy data (bench data if device) A concise and easy to understand PowerPoint presentation – No one reads business plans!, 5 yr projections are useless

14. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Investment Capital Yes, you need it. Capital is the life blood of early stage and growth companies Rule – Things always take longer and cost more than you think Sources of Investment Capital – Friends & Family, high net worth individuals – Incubators - The new concept for start ups – Professional “Angel” investors – Venture Capital Not all VCs are created equal How do you get an introduction? The dilution dilemma – They don’t teach you in B-School is how 100% can turn into 1% Preferred Shares, Common Shares, Stock Options

15. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Growth Phase - Positioning the Company Enroll the right people Be lean, fast and capital efficient Good science is critical – don’t take shortcuts Focus on establishing proof that the product works Focus on filing patents Understand how and by whom similar products are sold to end users Most early stage companies only prove that adoption is hard and devalue opportunity. Hence, what are you alternatives? Consider an early sale of the Company!!!! Consider a strategic partner to take product to market Consider distributors (US vs Intl) Consider direct sales to a limited market or geography If you plan on taking product to market, Revenue is the key value creator. Profit is not

16. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Critical Exit Elements Size of market must be clear Marketing survey of likely end users Proof of safety and efficacy Third party validation by key opinion leaders Intellectual property is protected issued patents are much more valuable than pending patents. If you have to buy someone’s issued patent that’s better than dancing around it Bill of materials must be well understood Gross margin of product will drive the exit price

17. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Greg Ruehle Slideshow

18. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures

19. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Overview Orange Coast Medical Ventures

20. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Orange Coast Medical Ventures Overview – OCMV was the first incubator to be facilitated by OCBIN*, a public benefit initiative of the University of California at Irvine. – OCMV was established to commercialize the inventions of the faculty and researchers of UCI's Medical School and the Southern California Medical Community. * Orange County Business Incubation Network www.ocbin.orgwww.ocbin.org

21. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Board of Advisors – Greg Ruehle CEO – Orange Coast Medical Ventures – Paul DeRidder, M.D.Tech Coast Angels – Shiv Grewal Partner - Stradling, Yocca, Carlson & Rauth – Jim Armstrong Managing Director, Clearstone Venture Partners – Steve Wilson Finance – James Hill, M.D. J.D.Partner – McDermott Will & Emery LLP – Doug BennettOversight Committee Chair

22. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Media Coverage Getting Ready to Launch The Orange County Register May 10, 2007 The New Device Incubators Start-Up Magazine June, 2007 Incubator Innovators The Frank Peters Show Oct. 1, 2007

23. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures About UC Irvine and UCI Medical Center

24. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures UC Irvine Facts & Figures U.S. News and World Report: 13 th Best Public University in U.S. 4 Nobel Laureates $3.6 Billion Annual Economic Impact on OC 27,000 Students 1,900 Faculty 8,800 Staff Founded in 1965

25. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures UCI Invention Productivity

26. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures The OCMV Ecosystem

27. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures The OCMV Ecosystem Service Providers Corporate Partners Mentors Investors Economic Development U.C. Irvine OCMV Portfolio Company

28. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Corporate Partner Program Participate in OCMV ecosystem – Benefits from relationships with all constituencies – Interact with UCI faculty & researchers

29. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Preferred Provider Program Preferred provider to portfolio companies Limited # of preferred providers per category Participate in OCMV ecosystem – Gain leads from other OCMV participants

30. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Mentor Program Consists of Experienced Executives – Investors – Service Providers – Corporate Partners – Individuals Pro Bono Guidance During Incubation Potential for Employment or Contracts

31. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Paths to Commercialization Independent Entrepreneur Other OCMV Incubation Management Entrepreneur Entrepreneur with Mentoring Recruited/ Entrepreneur Funding Entrepreneur Introductions Provided Provided by Incubator Providers Entrepreneur Introductions Provided Preferred Providers Business Plan EntrepreneurPlan Review Process Co-developed with Incubator Dilution NoYes

32. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Investing In OCMV

33. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Investment Overview OCMV is a Limited Partnership – Invests in UCI and community inventions Investors Own shares in OCMV’s LP – Fund life: 3 years Share price: $125K – Variable discount for founding partners Participation in OCMV ecosystem

34. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Investors Investment Allocation and Return OCMV L.P. Portfolio Companies Investment Returns Seed Capital Returns Inventors Share of License Fees Salary Government Agencies Corporate Partners U.C. IrvineInventors Salary Grants License and Contract Fees Normal Flow Optional Flow Returns Series A, B… Inventors Share of License Fees Grants Inventors Share of License Fees Grants Inventors Share of License Fees Grants Inventors Share of License Fees Grants Inventors Share of License Fees Grants Inventors Share of License Fees License and Contract Fees Grants Inventors Share of License Fees

35. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Two Portfolio Models Virtual Company  No payroll  Possible equity for contractors  No office/lab needs  IT equipment & hosting  Primary expense is T&E  Transactional legal expenses  Marketing expenses  Budget up to $10K/quarter Traditional Company  2-3 paid staff  May be directed research grant  May need offices/lab space  IT equipment and hosting  T&E  Transactional legal expenses  Marketing expenses  Budget up to $75K/quarter

36. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Vetting Process Admission Criteria – Intellectual property – Market size and growth rate – Scalability of company and technology – Sustainability – Key individuals - experience and skills Evaluation Process – Committee member becomes sponsor – Sponsor works with company to create pitch – Pitch delivered to full committee – Committee accepts, rejects or defers

37. Students to Start-ups Entrepreneurial Skills Workshop Series The Les Kilpatrick Orange Coast Medical Ventures Greg Ruehle, CEO c/o Office of Technology Alliances 380 University Tower University of California, Irvine Irvine, CA. 92697-7700 Office: 949-824-7295 Cell: 949-212-1983 Fax: 949-824-2899 E-mail: G355@aol.com