FINAL PRESENTATION

Vision: A new way to create a magnetic compression anastomosis with improved outcomes.

Interviews completed: 90

DEV. 2:

Michael Harrison

Michael Danty

Dillon Kwiat

Elisabeth Leeflang

Matt Clark

December 10, 2013

MAGNAMOSIS, Inc.

• Michael Harrison, MD

– Pediatric Surgeon

• Michael Danty, MS

– Business Development

• Dillon Kwiat, BS

– Medical Device Engineer

• Elisabeth Leeflang, MD

– General Surgery Resident

• Matt Clark, BS

– Business Development

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THE TEAM

MAGNAMOSIS, Inc.

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INITIAL IDEA

We could make a device that is:

– Better, Faster, Cheaper

Hand Sewn Anastomosis:

• Variable Strength

• Time Consuming

Stapled Anastomosis:

• Expensive

• Limited Indications

Anastomosis: A surgical connection between two tubular structures (like bowel).

MAGNAMOSIS, Inc.

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PROJECT PROGRESS

Magnamosis: A device to create a magnetic compression anastomosis.

Milestones Achieved:

• >60 Pigs implanted with 0 complications

• FDA class 2 device (with human data)

• FDA approved Investigational Device Exemption

• UCSF CHR application for human trial pending (Mt. Zion)

MAGNAMOSIS, Inc.

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WEEK 1

MAGNAMOSIS, Inc.

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WHO WE TALKED TO

Surgeons

Lee Swanstom, MD Minimally Invasive Surgery, Oregon Clinic

John Cello, MD Gastroenterology, UCSF

Stanley Rogers, MD GI Surgery, UCSF

Madhulika Varma, MD Colorectal Surgery, UCSF

John Stamos, MD Colorectal Surgery, UC Irvine

Sonia Ramamoorthy, MD Colorectal Surgery, UC San Diego

Laurence Yee, MD Colorectal Surgery, Sutter Health

Jenny Yu, MD Colorectal Surgery, Private Practice

Robert Khoo, MD Colorectal Surgery, Private Practice

Hospital Administrators

Svend Ryge, VP, Sutter Health

Greg Eveland, Buyer, Sutter Health

Alice Beltran, RN, Implant Coordinator, UCSF

William Finley, MD, OR Director, St. Josephs

Business

Thomas Fogarty, MD, Fogarty Institute for Innovation

Bob Brownell, Emergent Medical Partners

MAGNAMOSIS, Inc.

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Initial Conception:

Making an anastomosis that’s better, faster and cheaper will have

surgeons fighting to the death to get ahold of our device

Customers: Surgeons

Value Proposition: Better, faster and cheaper than sutures and staplers

MAGNAMOSIS, Inc.

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CUSTOMERS

Surgeons PatientsHospital Buyers

Use the device

Have the device

implanted

Pay for the device

MAGNAMOSIS, Inc.

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VALUE PROPOSITIONS

Surgeons

Patients

Hospital Buyers

• Leak means

another operation

• Increased

morbidity

• Dementia

• Leak means

increased cost

• Longer

hospitalization

• Leak means poorer outcomes

REDUCE LEAK

MAGNAMOSIS, Inc.

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VALUE PROPOSITIONS

$93,110

$51,413

$0

$20,000

$40,000

$60,000

$80,000

$100,000

Cost

Leak

No Leak

1.78

0.74

0

0.5

1

1.5

2

Mortality

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VALUE PROPOSITIONS

Value Proposition:

Reduce leak rate by 50% compared to sutures and staples

Procedure Leak Rate

Acute sigmoid volvulus 16%

Low Anterior Resection 12-14%

Inflammatory Bowel Disease 7-9%

Tumor Based Luminal Obstruction 7.5-8.1%

Emergency Procedures50% sutures

27% staples

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Where that got us…

MAGNAMOSIS, Inc.

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CHANNELS

Initial Conception:

If the device is FDA approved and the surgeon wants to use it, they use it.

Channel: Sales directly to the surgeon

MAGNAMOSIS, Inc.

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Magnamosis, Inc.

Insurance

Provider

Hospital

Purchasing/Billing Surgeon

Patient

ProductMoneyPatient

CHANNELS

MAGNAMOSIS, Inc.

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CHANNELS

Two different systems:

1. Academic Hospital (i.e. UCSF)

2. Large Hospital System (i.e. Kaiser or Sutter Health)

• Adoption of new devices can be driven by a single surgeon

• New devices must have support from multiple hospital groups

• Must have large sales/support force

MAGNAMOSIS, Inc.

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CHANNELS

Early stage roll out:

Focus on surgeons at academic institutions

MAGNAMOSIS, Inc.

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REVENUE MODEL

Initial Conception:

Better, faster, cheaper

• Cost based pricing – $250 for one size

• Low cost for hospital and patient

• Distribute to KOL’s for free

MAGNAMOSIS, Inc.

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Revenue Experiments – cost vs. value

REVENUE MODEL

1. Thomas Fogarty, MD – Fogarty Institute for Innovation

• Look for value based price of device in all markets (CE mark), collect supporting data

2. Douglas Crawford – Mission Bay Capitol

• $250 too low, need to start much higher and base sales on new market dynamic

3. Bob Brownell – Emergent Medical Partners

• Cost based on success

4. Jay Watkins – LLP

• Start price high, will only decrease with time

• Other compression devices may not have failed due to price alone

MAGNAMOSIS, Inc.

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PAYMENT FLOWS

MAGNAMOSIS, Inc.

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REVENUE MODEL

What We Learned:

• Separate pricing for sizes

• Value pricing – $1,200 for 23 mm size

– Takes complications into account

• Leaks, procedures, readmissions, morbidity / mortality

– Specific to patient set & procedure

Value based, variable pricing for different sizes

MAGNAMOSIS, Inc.

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FINAL CANVAS

MAGNAMOSIS, Inc.

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WHAT’S NEXT?

This is more than just a research project, there’s a potential business here!

MAGNAMOSIS, Inc.

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INVESTMENT READINESS LEVEL

Reimbursement / other revenue

Effective team?

Attractive solution & ID of MVP

Unit economics validated

Cash to 1st inflection point

Plausible exit

Compelling clinical need + large market

IP freedom to operate & ability to block

Regulatory path certainty & difficulty

IRL 6

MAGNAMOSIS, Inc.

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Thank You!

Special thanks to:

Jay Watkins

Allan May

George Taylor

MAGNAMOSIS, Inc.

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Year 2014 2015 2016 2017 2018 2019

REVENUE ($k) Number of Magnamosis devices sold

(/1000) 0 0 0.20 0.72 3.26 8.28

Number of delivery devices sold

(/1000) 0 0 0.02 0.02 0.08 0.12

Gross Sales for Delivery Device 0 0 26 26 104 156

Gross Sales for Magnaosis 0 0 240 864 3,917 9,938

Total Gross Sales 0 0 266 890 4,021 10,094

Less: Sales Returns/Allowance (5%) 0 0 13 45 201 505

NET SALES ($k) 0 0 253 846 3,820 9,589

COST OF GOODS

SOLD ($k)

Parts 0 0 8 29 131 331

Manufacturing 0 0 5 18 82 207

Delivery Device Costs 0 0 15 52 117 193

Testing 0 75 50 50 50 50

Delivery Charges 0.00 0.60 2.08 4.66 7.73

Total COGS 20 75 79 151 383 789

GROSS SALES PROFIT (LOSS) (20) (150) 96 544 3,053 8,011

GENERAL AND

ADMINISTRATIVE ($k) Costs of procedures (trials) 200 600 0 0 0 0

Project Managers 80 504 70 140 180 250

Marketing 30 30 80 120 150 240

Liability Insurance 26 40 26 40 80 100

Professional Education 0 0 20 20 80 120

Quality System 13 45 30 200 400 600

VPs 0 0 60 120 240 620

Executive Team (CEO, COO, CFO) 0 0 120 240 700 1,200

IP 7 7 7 14 30 45

Sales Costs 0 0 145 325 622 1,199

CE Mark costs 93 0 0 0 0 0

Total Expenses 449 1,226 558 1,219 2,482 4,374

-- Net Operating Income (469) (1,376) (463) (675) 571 3,637

Taxes 0 0 (62) (90) 77 487

NET ANNUAL

INCOME (LOSS) ($k) (489) (1,376) (401) (584) 494 3,149

INCOME STATEMENT

MAGNAMOSIS, Inc.

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APPENDIX

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WEEK 1

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WEEK 2

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WEEK 3

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WEEK 4

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WEEK 5

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WEEK 6

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WEEK 7

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WEEK 8

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FINAL