What Are Medtech's Corporate Development & Venture Leaders Pursuing in Today's Climate? | LSI Europe '23

Transcription

Lisa Carmel  0:06  
I just wanted to thank Henry, Scott Pantel and LSI. It's a fantastic event, fantastic summit this here in Barcelona. And thank you for everyone for making time during your lunch to come join us. I just want to say very quickly for those of you that are not familiar with Veranex, that we are a PE backed medtech only full service end to end innovation solutions firm with pretty much everything you would need to bring an innovation to market all under one roof. And we're very excited, very excited to moderate this panel today. We've got some amazing panelists here. And I thought maybe if each of you want to introduce yourselves, and maybe talk about how you're structured your venture versus your corporate corporate development structure. Does that sound good? Louise do you want to kick it off? 

Louise Warme  1:09  
Yeah, well, thank you for that introduction, and lovely to have you all here. My name is Louise Warme. I'm Swedish originally, but I relocated to Barcelona a year ago with the assignment to support Werfen in setting up a corporate venture capital, which I'm now heading and we're also very proud to say that little bit over a week we officially launched so great to be here. We are the corporate venture arm of werfen, which is one of the largest specialized IVD companies globally, operates in acute care hemostasis, autoimmunity. And in q1 This year, we acquired Immucor, which meant for us that we also moved into a new business segment, which is transfusion and transplant, which is to set up our CVC on their corporate business development of strategic corporate business development. And that has much to do with how we operate strategically with the fund with very close correlation with the m&a the BD but also the separate business units.

Michael Ryan  2:19  
Okay. Great. Afternoon, everybody. I'm Michael Ryan, Boston Scientific, I've been with BSC for about 17 years, most of that time leading m&a for different parts of the company. My current role, I spent about half my time leading the m&a groups for our med surg side of the business. So that's our endoscopy, urology and neuromodulation divisions, and then the other half of my time I spend leading the corporate venture capital for the company. So those two teams are very closely connected, as evidenced by the fact that I work on both of them. So we have generally a couple of people in each of our divisions who are business development experts for that division sort of coverage area experts. And then we have a small team of venture capital folks at the corporate center who work closely with those folks to to get the VC deals done.

Eric Schantz  3:11  
Good afternoon, everyone. I'm Eric Schantz, Vice President of Corporate Development at Medtronic, we have a pretty extensive business development function. We start off with a centralized corporate function where I am I spend my time on cardiovascular, I have a couple of colleagues that cover our other portfolios as well. But underneath that umbrella, we also have a group of about five venture capital specific specialists that specialize in any of the 20 business units we have, as well as we'll look at some tangential markets as well opportunistically for financial investment. So that's the corporate side. And then within, like I said, within the 20 operating units, we have expertise in those specific operating units that will look both from a m&a perspective as well as the investment perspective, they'll partner with our venture group to make those types of investments obviously, in the in the cardiovascular space, I'll help as well, but I'm primarily focused on the m&a side. And then within each of those, each of those operating units also have some portfolio responsibilities. We have colleagues that kind of manage the strategy, the direction of those bigger groups, cardiovascular being an example of that, and the other businesses are neuroscience, medical, surgical, and then diabetes as well.

Julian Nikolchev  4:34  
And good afternoon, everybody. My name is Julian Nikolchev. I am with Intuitive Surgical. And I've been an Intuitive for about five years and I lead a group that was started around that time that is focused on identifying new technology, new clinical indications and new areas of interest for intuitive. So we have three pillars in this group one is an internal advance research effort as a small group that's focused on new technologies, we have a business development group that is organized similarly to what Michael said, we have that group is led by a person that is in my group that also has individuals, which worked with the individual business units of Intuitive. And then we have the venture capital arm, which was part of this. And we actually structured the business development and the venture arm very separately, we keep a significant separation between the two groups. And the idea is that if we have a relationship of interest, if we have a partnership or area of interest that we want to engage with a company with, whether it's a startup or a larger company, then the Business Development Group will take on that relationship and would lead that effort. On the venture side, actually, our Venture Capital Group is focused on identifying new technologies, engaging us with intrapreneurial ecosystem, and structuring deals that are financially motivated, but have a strategic bent to them, that could potentially inform Intuitive of new technologies, new areas of interests in the future. And as a result, we keep these two activities pretty separate. If there is an interest later on with one of our investments on the venture side to engage with Intuitive, we would stimulate that engagement, and then the BD group will take on the relationship.

Louise Warme  6:34  
Great. I thought maybe a question that everybody here might have on their minds is better understanding your investment thesis, especially right now? What companies? How are you making those decisions that companies that may fit as potential investments and in and also, you know, around the framework of your strategic purpose for your Venture Program. Louise, I'm gonna pick on you.

So first of all, started with our investments thesis, we have decided to make it a lot broader than where we operate for a number of reasons. And we're obviously specialized IVD, but the Fund invests in diagnostics as a whole, we invest a lot in digital, which we believe is a very big impact that will happen in our field over time. And we find that the intersection between them two is a very rapid changing area, where we do a lot of investments and look at a lot of companies. So anything from from assays from new technology platforms, but also pure, fully software, digital place, ML AI. So that's where we're investing. And your second question are just

maybe like your, do you have a strategic purpose or focus? 

Yeah. thank you, yes. So there is a number of reasons for us. So we're newly set up the corporate venture capital, right. And it's definitely a strategic move and board friends part. We come with a very strong history of m&a activity, and decided that this would be another way for us to work with innovation, but also with inorganic growth, and also spreading risk. We also take on a couple of different strategic angles, like identifying and investing on big trends that may impact us over time. potential new markets, of course, potential new technology, but also a little bit on threats, that may not be a threat at this point. But we're seeing big shifts in the industry moving where we want to see and keep a close eye on is this something that we need to move into, this is something that we can manage and leverage that into our different strategic areas of Werfen, and to ensure that we're on top of not only the market and the first horizon, but also leveraging the second horizon where we have a big assignment.

Michael Ryan  9:19  
So at Boston Scientific, we definitely consider ourselves and describe ourselves as a strategic investor. What that means for us is that for us to invest in a company, more or less three things need to be true. It's got to be an investment, great assets with a great team and technology that would attract any institutional medtech investor, it's got to be available at terms that we think provide a great potential for financial return. But then third, it also needs to be operating in a space. That is a strategic fit for one of our six operating units. So one of our existing businesses needs to be able to look at it and say, yeah, all those great things are true about it being a nice venture deal but also, if this thing works. And if certain operating losses or risks are retired, we'd actually like to own it. So on the way in, we do not invest in anything unless there is that kind of thesis that at the end of the day, we might consider ourselves the natural acquirer and owner along the way, interests may diverge, we might change, they might change. And at that point, we continue to manage our investments for financial return. So success for us looks like a strong pipeline of m&a targets coming out of our venture portfolio, and also a strong IRR. In terms of financial performance in the portfolio.

Eric Schantz  10:35  
Yeah, for Medtronic, we do a lot of what Michael just said, in addition to that, so yes, there's clearly a strategic angle to all our investments, we love to work with our operating units to partner with them, the venture group in our in our operating units, to find strategic, to find strategic assets, we also take a financial angle as well, our venture group, which has a bit more freedom to kind of go earlier, they're willing to take more risks, they don't have to fit that criteria, where it's a clear target, you know, maybe a near term acquisition candidate, they've got a little bit more freedom and take some risks. So we will make financial and strategic type of investments through the ventures arm, and then later stage. And we I'd say we are definitely trending more this way. We like the strategic fit. We like the partnership between the venture, the rigor of the ventures, the operating units coming with a with a very strategic angle, when it passed through an acquisition, we do both. But we we do both, we're definitely leaning more towards those strategic investments where we see an acquisition down the road.

Julian Nikolchev  11:47  
And Intuitive, where we kind of combine some of the both benefits that Michael and Eric was just describing, we have definitely a strategic focus for our business development activities. Partially because our company is growing still quite a bit, we tend to make m&a decisions based on how it can improve our current technology or the next generation of technologists in the current pipeline. So we do a lot of investments, and both acquisitions that are connected strategically, obviously, to our current generation of technologies of the next generation technologies there. And then on the venture side, we have a much broader lens, we can, the venture group role, as I mentioned, is really to provide a sort of visibility into some of the new technologies, new clinical indications that are in the in the pipeline that the entrapreneurs are exploring. So we have kind of a horizon for both activities about five to 10 years ahead. So we try to keep ahead of the curve in the sense of what's coming down to the pipeline. And that informs a lot of our venture activities, and and the breadth that we can invest in that area.

Michael Ryan  13:01  
Can I throw out a follow on question for you? Yes. So we just laid out our sort of strategic lenses, which are, which vary. But I think each of us is relatively fixed in our strategic lens and somewhat inflexible on it when presented with a new opportunity. I'm curious about the level of flexibility on the other sort of traditional financial elements or venture elements, when you're talking to an institutional investor, they may be open minded about the therapeutic area in a way that I am not. But they may be less open minded about the point of entry, or the size of the check. So at Boston Scientific, we'll do very small investments, we'll do a million dollars, and we'll do a very large 50 million plus, all in one check. We'll go very early in company formation, or we're very late. So in those ways, we're flexible, perhaps more flexible than an institutional investor. Even though we were we have our in flexibility, our strategic lens, and I'm curious how, how you guys manage those degrees of freedom?

Eric Schantz  14:07  
Yeah, I'll start. We have, I liked what you laid that out, we've determined tremendous amount of breadth, we will will form startups as well. A lot of times, that's our IP will spin out, give it a home, find new investors give an opportunity to kind of wear it. It's not a strategic priority, but we know it's important, and it's the right thing for the customer. So we'll do the spin out route, either through investment or through IP. So that's kind of a really early stage, we'll make investments between a million $50 million as well. I'd say your sweet spots, probably five to $15 million. The more we put in the more kind of we expect out of the deal. We you know our our opera units no lie are looking for something that's more de risked something that's a clear fit in their portfolio, they get better visibility into it. Our venture group is very willing to take the risk on early stage technologies. So we, we've got the ability to probably do most everything. I mean, we also get creative where my side of the house where we do more, ultimately m&a, we, you know, we, we look at creative ways to find either our own technology, or partner with, you know, later stage companies that are just looking to run that clinical trial will participate heavily in that, as well. So I think we've got quite a few options on the table to hopefully be an interested party in all types of transactions. Louise, do you want to? Yeah,

Louise Warme  15:38  
Thank you. Um, and that is a very good question from, from a strategic point of view, we have a bit of a more narrow scope, especially now that we're starting out. And we always say that we prefer to start series A, we think there's a couple of reasons for that. A, because we can support and going to market we can support and preparing for that. So the knowledge we have in house that we leveraged to the companies fits very well with that stage. It also works well with the portfolio thesis we have. If something is very interesting to us, we can invest seed, we can do an early seed, we can have a series B too. So we don't have your absolute flexibility, we definitely have some but in order for us to be interested in that stage and manage the risk, it has to be a very good fit. And we've done a few of those already, actually were closed one, just a couple of months ago where we went seed investment because the fit with us was amazing.

Julian Nikolchev  16:45  
From our side, on the venture side, we tend to lean early. First of all, our venture fund is 100 million. So it's a smaller fund, we have, we make investments, the team is financially motivated. So we wanted the investments to be financially solid, and really, but at the same time we bring a strategic line sign on the investment. But we tend to start early we can form a company, we can put seed investments lead a deal, typical checks that we write would be 500,000 to 5 million. And they're typically there from the seed stage to series A and B. On the BD side, it's very broad. Their intuitive is not a an acquisitive company. So we haven't done very many acquisitions historically. But we have a lot of freedom in terms of how to consider a relationship with a company from equity investment, with some additional strategic terms since associated with it, to acquisitions to partnerships. So we have a range of options there. As long as it has a strategic relationship on the BD side.

Louise Warme  18:00  
You know, Louise, you had mentioned when we were talking earlier about you had a perspective on on preferred rights. How do you you want to touch on that? 

Absolutely. And that's a question I'd love to share on with you guys. As you know, we're a new fund. So we spent a fair bit of time trying to figure out like, how do we want to do this, what's important to us. And one of the things that is close to our heart is to actually not put preferred rights in parts of our investment team come from private face. So you from public private. And we don't want to put the hindrances on the companies that sometimes came with co-investing with corporate. So we said what's important for us is to not put any preferred rights and put ourselves in a position where we have too much of double allegiances both towards Werfen, in this case as the mothership and the allegiance in the board, which is primarily to the company that we work in. So to be able to work what we believe is the best way for the companies, we don't have any preferred rights in our agreements. We hope and believe that we can support the companies in a way that we will organically become a preferred partner for bringing the right knowledge and support to them. That collaborations with the business units can happen, but for us, it's important, they always happen on commercial terms. So similar to what you mentioned, Julian, the venture team never drives deals within the company. We support in the average building of the company and anything that's to be expected from an investor. But we introduced two business units, and then we'll leave it to the business units to do deals with the companies in the portfolio on market terms.

Michael Ryan  19:57  
Yeah, I'd say our perspective on strategic rights has evolved over time the the current Venture Program at BSC stems from 2012 timeframe. So over that timeline, we've invested a little over a little over a billion dollars. And when we started off, we did a lot of strategic rights deals, we, we veered in that direction. And I would say more recently, we have focused more on maximizing ownership. So we still do strategic rights deals, but our perspective is that they make the most sense, when it's a last money in financing situation. So it starts to look a little bit like a little bit like a deal that Eric's going to do, or it's a bit of a structured buyout situation, what doesn't make so much sense is in series A Series B, to try to get an option to acquire or other strategic rights that to your point, limit the company's options, because it also puts us in a potentially difficult place, yes, there's going to be another financing coming. And when that financing comes, we're going to get asked, Oh, okay, so are you going to give us all of the money now? Or are you going to waive those rights so that we can go get other people to give us money. So we don't want to purchase rights that are ultimately not going to be useful, and they tend to only be useful toward the end of the company's lifetime. I will say even at the early stages, we will tend to ask for things that we think are relatively innocuous, we will often ask for strategic exclusivity. And there are certainly times where we and Medtronic are together in a deal that that happens. We are generally playing for developing our m&a pipeline. So it's not ideal from our perspective. But we think it's also not ideal from the company's perspective. Because when there are multiple strategics in the boardroom, it can tend to chill the level of support that and guidance and sort of consulting that the strategic investors might otherwise provide. So we generally seek to be exclude the exclusive strategic investment.

Eric Schantz  21:58  
The interesting comments, I generally believe or agree with everything you said there on the strategic side, but maybe I'll take a step back from Medtronic just to be a little bit more helpful. Because we have a couple different buckets. Right now, we have about a billion dollars actively managed in minority investments of various store strategic investments, about half of that are transactions that we are kind of anticipating so there are definitely some rates there strategic rates, as much as hey, we've got a call option on this, or something less than that we've got follow on rates or whatnot. But that's about $500 million actively out there right now. The other 500 million I should say, between all this, there's about 70 investments. So we've it's pretty broad. The other half a billion dollars is more traditional, strategic and financially driven, minority investments, Series A, all through Series E-D, whatnot, and agree with a lot of what Michael said, then, you know, there's a balance between what we kind of demand is to strategic, obviously, we'd love to be the only strategic in there, there's instances where that probably isn't gonna happen. We are very cognizant of asking for too many rights early on, because the next round either those go away, where you're putting a lot of money into it. So we balanced that, but I will say, No, once we're in the cap table, we clearly have our, you know, our shareholder hats on, when we have a strategic board seats on one of our operating units. For example, if they're on the board, usually it's an observer role. Because we're really there just to help guide we understand the company is gonna make the decisions they need to make, they're there to ideally bring that big company perspective what to do what we're going to be looking for, when the company gets brought up to us. So it's all there to help the company along. And then again, where minority investment portfolio when they're on the board. They're just like everybody else in the room here they're looking for financial return. It's great if it's strategic, when the strategic when the strategics involved, again, we could try to get some REITs, it's great to have that we'd love to be the only one but we recognize sometimes for the right asset, you've got to just be a participant and help the company along.

Julian Nikolchev  24:18  
And from our side, we're very similar in that way. When we make a venture investment, we typically do not require or request any kind of strategic rights. We want to be aligned with the company. And especially since we're doing invested on the early side of the venture, we really want to kind of think about the whole roadmap that this venture is going to take and be aligned with them to support the company to be successful. Our team, as I mentioned, is also financially motivated and the returns are important for any of the investments that we make. So we typically do not have strategic rights. On the BD side. We've done quite a few we've done pretty much any kind of structured, structured deals that one can think of funding the business side, both from licensing technology, exclusive rights, manufacturing rights, or equity investments for particular technology components, if you will, in the company. So those are usually structured very clearly upfront that we participate with a particular interest in mind that we would want the company to align with us if if they want to work with us. And a lot of times because of the fact that these deals are also early, we try to continue to structure something that works for the company and works for us. We have we have a tendency to, to let the to take kind of narrow interest in technologies rather than broad interest that can be helpful to us.

Louise Warme  25:49  
See, so we have about 10 more minutes, I thought maybe we could delve into some corp dev topics sound. Okay. So everyone's favorite topic, the regulatory environment for getting deals approved us internationally. So how are you managing the timing and engaging targets differently in the light of this changing regulatory environment? And I know, maybe I'll start with Eric and Michael.

Eric Schantz  26:20  
Sure. Yeah, start off. Yeah, the world's changed over the last several years. Let's see, primarily for our function, it started much earlier in the process, to the point where we're looking at strategic plans, you know, presentations to XCOM about where the company wants to go a lot more rigor about how we're defining things, just cognizant that we want, you know, if we're going to approach a company and do a deal, we want to be in the best position to kind of define the deal. So we're, we're more cognizant early on of how we're describing markets and segments. So that starts early, early in the process, when we engage with targets, oftentimes, it's it's a bit of an education on what we expect, what we've seen, you know, I've been through it a couple of times, I'd say, you know, usually, maybe it's a month or two to close, if you announce a deal. Now it's six 8 10 12 months, depending on where we think it's gonna go. And it's not just the US, I mean, us clearly, very vocal about it. But we're hearing, you know, questions that would never come from countries here in Europe as well. So it that dynamics change, I think everybody needs to be a little bit more cognizant of what your pitch looks like. Obviously, if you're talking to one of us, we have a lot of different businesses. Let's make sure that as we're engaging that we're, you know, framing these opportunities the right way. So it's a smooth discussion, when we start talking about approvals.

Michael Ryan  27:57  
I remember distinctly your press release around the Intersect ENT acquisition, because it gave some guidance about when the transaction was expected to close and it was several quarters out. And I think that was, I think that was a new, a new thing to put in a press release for either your company or mine. And that has become more normal. So we're seeing in contracts, the outside dates to get the deal done or longer and in press releases the public comments about when the deal is expected to close or longer, because even if the fact pattern seems positive, there are going to be a lot of conversations to have with a lot of regulators and those take time. And so I don't think it has impacted the way that we engage with potential partners or targets up front. But it's a whole set of considerations that do take up a lot of time and take a lot of oxygen out of the room during during negotiation of the actual transaction. People need to get comfortable with the risk that something might not get done. But more importantly, they need to get comfortable with the timeline that the deal is going to going to be ending. And it can be tough to run your business when for several quarters, you've announced that you're selling the company, but you haven't really sold it yet. And so there are definitely some conversations that need to happen to get companies comfortable with the timeline and the uncertainty.

Julian Nikolchev  29:25  
And I would definitely agree with both what you guys said. For us also, it takes a lot more discussions, a lot more planning, of how we engage with companies how we think about it. And in our situation were relatively narrow focused on soft tissue robotic so it takes a little longer now to think about what what it means when we engage with a company.

Louise Warme  29:51  
And I'm obviously not representing our m&a but I do work very closely with with my colleagues there and for us, I would agree with you it's much about Planning during the planning a little bit differently. For Werfen, and specifically, we did our biggest deal and biggest acquisition in our history, which was announced in q1 of a new course. So, with that in mind, I think we're in a position where we will probably still get a lot of companies that are relevant to us. But we're chewing a lot at this point, you know, going from 5000 to 7000 people globally. With that, but in general, we're a very stable company. So it doesn't affect us in the way that we do deals differently. But it does affect the planning of it. Yeah.

Lisa Carmel  30:43  
Yeah. Well, there are some deals that recently get announced. Michael, do you want to share a little bit

Michael Ryan  30:54  
Sure, we announced an acquisition since I got here. Yeah. So we're excited about that? 

Eric Schantz  31:01  
Did you know about it?

Michael Ryan  31:05  
I did. So we announced an acquisition of a company called Relievance in the interventional pain space earlier this week that we're really excited about, it's going to provide a great additional growth platform for our neuromodulation business. It is an adjacent space, not a space that we're in today. So to the last question, should be relatively straightforward to get that deal done. But nevertheless, the press release says, we expect it to close in the first half of next year, because we don't know how long those conversations are going to go. But that is I think, just in terms of general deal activity our company does. If you're thinking about sort of 100 million plus acquisitions, we generally do three to five of those a year. 2020 was quiet, for certain reasons. But I think we're we're back to, to form now. We had a busy year last year. And this is our third of those third of that size, announced year to date.

Louise Warme  32:04  
And actually one of the congratulations. And one of the biggest diagnostic deals, Louise you want to share about Immunicor?

Yes. So we're very proud to do that acquisition, it's definitely a big strategic new step for us. First, its new business unit working in transfusion and transplant and also, first with coming from very specialized IV D. It affects the corporate venture in the sense that we're now looking much more at genomics and omics, which fit very well with this new business unit that we have.

Lisa Carmel  32:49  
Great. Let's see, we have a couple more minutes left, maybe? How about if we run down? And and I'm warning you this wasn't our discussion guide. But is there a hot button area or a current obsession, you may have something that's top of mind that you're excited, particularly excited about that you want to share? As it relates? And to remind you some of the things you mentioned, incubators, digital?

Louise Warme  33:29  
Sure. I mean, we're obviously very interested in the intersection between diagnostics and digital. And they absolutely super fast development of digital is finally starting to soak into diagnostics, which we find incredible. So development of semiconductors, the intersection between new biological plays, like active marries, and also the nanotechnology that we're seeing impacting platforms and philosophies are things that we find very interesting. And of course, ML AI, moving into the field. 

Michael Ryan  34:05  
We love all of our businesses equally. So we're excited. And I do sometimes get the question about which spaces we're looking to invest in or acquire in this year. And that is, there's not the way that we think each of our operating divisions is pitching investments and acquisitions, every month. And we're always looking across those and trying to figure out what's the best use of our capital right now. So in terms of spaces, we're excited about all of them this week. We're particularly excited about interventional pain, but structural heart electrophysiology, these these are all dear near and dear to us. One other topic that has been popular of late sort of from a structural standpoint, and Eric mentioned it is the the sort of spin out build the buy. Question that's certainly been something that has gained more attention and we've been doing a number of those deals of experimenting with different structures. I wouldn't say we've necessarily decided we found the structure that works. So we're still in a, in a multi arm clinical trial to try and figure out which approach works best to take technologies outside our walls and propel them forward. But that's an interest area.

Eric Schantz  35:13  
Yeah, coming on two things. Agree. So creative financing. I think one of our biggest challenges are we got to manage expectations for the Wall Street. But we've got more opportunities that we can fund. So how do we continue to innovate, fund our pipeline, but, you know, stay within the bounds. And, you know, we have a lot of people thinking about ways to find our internal pipeline can be spinning stuff out, to your point. So that's one area that, you know, I'm excited about, because there's, there's plenty of ways we can add value to our company doing that. And the other separate topic is just, you know, digital AI? What? How are we going to monetize that business model? How are you going to stay, you know, aboveboard, with all the different geographies and the requirements on that, I think it's fascinating to see how that's gonna pan out. And from my perspective, there's a lot of technologies out there, how do I pick the right one for our businesses, that's going to, you know, pay it out and become a, you know, a profit center for us.

Julian Nikolchev  36:20  
I definitely agree with the digital side, it's, it's an area of great interest to us. The other area that it's kind of fascinating to think about and see where it will evolve is the really the digital or not the digital necessarily, but the ecosystem around patient care, and how that will evolve over time. If you just an analogy that you guys probably would relate to, if you buy an airplane ticket and you'd fly somewhere, you're contacted somehow, about 70 people that are involved in that transaction. And probably the same number of people involved in a transaction of a patient coming into the hospital getting treated and exiting. And most of those groups don't communicate in any way. So there's a lot of and I can give you example, I'm sure everybody has example of mistakes that are made errors that are made during these procedures, sometimes critical. So that's the area that's really fascinating if we can bring technology both as well as changes in maybe the business models, that we can impact that so that the patients know that they will come in into a process and exit and get the best possible treatment.

Lisa Carmel  37:36  
Well, that concludes our panel. I just want to thank our amazing panelists. Let's give him a round of applause. And thank you