Corporate Investment in Start-Ups Rachael Scherer Vice President, Marketing Medtronic, Inc.
Jan 23, 2016
Corporate Investment in Start-Ups Rachael Scherer
Vice President, MarketingMedtronic, Inc.
“To contribute to human welfare
by application of biomedical
engineering in the research,
design, manufacture and sale
of instruments or appliances
that alleviate pain, restore health
and extend life.”
Medtronic Mission
Medtronic: the Company
Founded in 1949 as a medical equipment
service company
Medtronic History
Heart Valve DiseaseHeart Valve Disease
Heart FailureHeart Failure
Enlarged ProstateEnlarged Prostate
SpasticitySpasticity
DiabetesDiabetes
HydrocephalusHydrocephalus
Atrial ArrhythmiasAtrial Arrhythmias
ScoliosisScoliosis
TachyarrhythmiaTachyarrhythmia
IncontinenceIncontinence
Acid RefluxAcid Reflux
Chronic PainChronic Pain
SinusitisSinusitis
BradyarrhythmiaBradyarrhythmia
Unexplained Syncope (Fainting)Unexplained Syncope (Fainting)
Peripheral Vascular DiseasePeripheral Vascular Disease
Degenerative Disc DiseaseDegenerative Disc Disease
Parkinson’s DiseaseParkinson’s DiseaseCoronary Vascular DiseaseCoronary Vascular Disease
DystoniaDystonia
Essential TremorEssential Tremor
Medtronic Solutions Restore Health
Balanced GrowthUS$12.3 Billion Net Sales (Fiscal Year 2007)
We Diversified Into Attractive Markets
Neurological9%
Vascular8%
Diabetes6%
ENT4%
Cardiac Surgery6%
CRDM47%
Spine/Navigation20%
Medtronic Global Reach
• Salesin 120 Countries
• Offices in 44 Countries
• 36,000 employees world wide
USA
CanadaEurope
LatinAmerica
Middle East/ Africa/India
Eastern EuropeCentral Asia
Asia Pacific
International Western Europe Canada Emerging Markets Latin America Eastern Europe Middle East/Africa/India
Asia-Pacific Japan Australia China ASEAN Korea
$4
$8
$12
$16
$20
$24
$28
FY07 Revenue MarketDevelopment
IndicationExpansion
New Markets Market Share ASP FY12 Revenue
Ingredients to Drive Growth are in Place
In billions
US INT’L
$12B +
$22B - $24B
R&D Spending Continues To Increase
FY95 FY07
$1Billion +
$191 Million
Productive R&D = New Products
2/3 of revenues are from products introduced within the past 2 years
“To contribute to human welfare
by application of biomedical
engineering in the research,
design, manufacture and sale
of instruments or appliances
that alleviate pain, restore health
and extend life.”
Medtronic Mission
Medtronic: the Investor
FY '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
($ in Billions)
$1.3
$2.7$3.1
$3.5
$4.1
$4.7
$2.0$2.3
$1.5$1.8
What is Required to Sustain Growth?
Annual Incremental Revenue Required to Sustain 15% Growth
Where Does This Growth Come From?Where Does This Growth Come From?
We Have Ample Financial Flexibility
Free Cash Flow (Operating Cash Flow less Cap Ex)
Cumulative Cash Balance
Cash
Availab
le for In
vestmen
t (B
illion
s)F
ree
Cas
h F
low
(B
illio
ns)
Free Cash Flow and Cash Available for Investment
-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12
-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
Balanced GrowthUS$12.3 Billion Net Sales (Fiscal Year 2007)
We Diversified Into Attractive Markets
Neurological9%
Vascular8%
Diabetes6%
ENT4%
Cardiac Surgery6%
CRDM47%
Spine/Navigation20%
• “White Space” will augment top growth, diversify business, geographic and payor mix
• Aggressive global scouting efforts continue to identify new technologies
• Minority investment portfolio provides early access to new technology
• We will identify new business platforms where we add value and leverage Medtronic strengths
Evaluating New Growth Platforms, Strengthening Existing Growth Platforms
Market DevelopmentMarket Development Indication ExpansionIndication Expansion Market ShareMarket Share Geographic ExpansionGeographic Expansion New MarketsNew Markets
Business Development Strategy
• Disruptive technologies in therapeutic areas of interest• Extension of existing technologies into new
therapeutic areas• Drug partnering• Procedure solutions (how do we make therapies more
efficacious, safer, less invasive and more convenient)• Sensors and closed loop systems• Miniaturization
• Extend eyes and ears for key emerging technologies
– Board seat or board observer seat
– Membership on scientific advisory board
• Create bonds to enhance ability to negotiate future investments
– Development agreements
– Distribution rights
• Gain certain option rights
– Right of first offer
– Right of first refusal
Medtronic currently has ~$200M in active
investments in over 70 companies
Minority Investment Strategy
Minority Investment ExamplesPast & Present
Equity Investments:
• Volcano / IVUSFirst investment in 2002, Licensing agreement in 2003Equity financing used to develop IVUS productsUp-front payment for technologies used in Medtronic productsVolcano completed successful IPO in mid-2006; Medtronic still a shareholder.
• CardioMEMS / Wireless Sensing & CommunicationsIn 2005, Medtronic made entered into a license and joint product development program.Equity investment and series of milestone paymentsMedtronic has overall responsibility & bears cost for clinical and regulatoryCardioMEMS began IPO process, but has opted to remain private, for now
• Spinal Dynamics / Artificial DiskInitial investment in 2001, Medtronic became exclusive OUS distributor of Bryant discIn 2003, Medtronic acquired Spinal Dynamics for $270MBryant disc expected to go to FDA Panel this Fall
Case study: Neurologix Collaboration
Neurologix, Inc. And Medtronic, Inc. Agree To Develop Gene Therapy Infusion Catheters; Medtronic Makes A
Further $2 Million Equity Investment In Neurologix
– Medtronic will manufacture, delivery devices for Neurologix's Parkinson's disease and temporal lobe epilepsy clinical programs
– Two companies will have a revenue-sharing arrangement
– Medtronic increased its equity investment in Neurologix by $2.0
Case study: Alnylam Collaboration
•Scope– Collaboration to develop novel siRNA-device treatments for
neurodegenerative diseases• Begin with exploration of one target/disease: huntington in
Huntington’s Disease (HD)•Roles
• Discovery and early development of siRNA component – To “Clinical Proof of Concept” ≈ completion of Phase IIa
• Late-stage development of siRNA component• All development of Device component• Commercialization of siRNA-Device combination
Alnylam
Medtronic
Minority Investment ExamplesPast & Present
Equity Investments:• Volcano• CardioMEMS• Spinal Dynamics• Neurologix Collaboration (case study)• Alnylam Collaboration (case study)
“Larger than Life” deals:• Minimed• Vidamed
Investment Committee
Medtronic Business Units
Corporate Development
Ideas
Opportunitie
s
Ideas
Opportunitie
s
Investment Committee
Several Sources
Strategy Committee
Ideas
Opportunitie
s
Ideas
Opportunitie
s
Clear fit with MDT business White Space Opportunities
Process
Acquire new strategic platforms focused on treatment of chronic disease
and
Acquire businesses or product lines complimenting or supplementing existing businesses
Enhance Revenues!
Acquisition Goals
• BioMedicus 1990
• DLP 1994
• Avalon 1994
• Electromedics 1994
• Carbon Implants 1994
• Avecor 1999
• Coalescent 2004
• Instent 1996
• AVE 1999
• PercuSurge 2001
• TVI2003
• Radius2004
• AngioLink2004
• Vitatron
1986
Cardiac Surgery Vascular CRDM
• Midas Rex 1998
• Intelex 2000
• Odin 2005
• PaceArt
2001
Neuro Surgery
Patient Mgmt
Surgical Navigation
Acquisitions Strengthen/Broaden Existing Business
Heart Valves – J&J’s Tissue Valve Business (1988)
Cardiopulmonary – J&J’s Oxygenator Business (1988)
Coronary Vascular – Versaflex (1989) / IMI (1989)
Neuro/Gastro/Uro Diagnostics – Synectics/Dantec (1994)
Peripheral Vascular/AAA – MIS (1995); AneuRx (1997)
External Defibrillators – Physio Control (1998)
Spinal – Sofamor Danek (1999)
Neurosurgery – PS Medical (1995), SNT (1999)
ENT – Xomed (1999)
Diabetes – MiniMed/MRG (2002)
BPH – VidaMed (2002)
GERD – Endonetics (2002)
Artificial Discs – Spinal Dynamics (2003)
Prior Acquisitions Current Interests
Biotechnology
Cancer
Dental
Hearing
Hypertension
Obesity
Ophthalmology
Orthopedics
Urology/Gynecology
Stroke
Acquisitions Expand into New Strategic Platforms
Why Would You Want Medtronic as an Investor?
• Expertise of entire Medtronic science organization available to our partners (with/without CDAs)
• Medtronic will keep ownership below control position (unless investment moves to acquisition)
• Medtronic invests for strategic reasons. We don’t like to lose $$, but generally run our portfolio to learn about technology and markets
• Medtronic won’t tell you how to run your business; generally looks to be Board observer, not Board member